UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2024
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _______________
Commission File Number: 001-41597
First Seacoast Bancorp, Inc.
(Exact Name of Registrant as Specified in its Charter)
Maryland
92-0334805
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification Number)
633 Central Avenue, Dover, New Hampshire
03820
(Address of principal executive offices)
(Zip code)
(603) 742-4680
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $0.01 per share
FSEA
The Nasdaq Stock Market LLC
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☒
Emerging growth company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under
Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
□
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an
error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s
executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
As of June 30, 2024, the aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant was $41.0 million.
As of March 17, 2025, there were 4,730,753 outstanding shares of the Registrant's common stock.
DOCUMENTS INCORPORATED BY REFERENCE
1.
Portions of the Registrant’s Definitive Proxy Statement relating to the Annual Meeting of Stockholders, scheduled to be held on May 29, 2025, are incorporated by reference into
Part II and Part III of this report.
TABLE OF CONTENTS
PAGE
PART I
1
ITEM 1.
Business
2
ITEM 1A.
Risk Factors
27
ITEM 1B.
Unresolved Staff Comments
27
ITEM 1C.
Cybersecurity
27
ITEM 2.
Properties
29
ITEM 3.
Legal Proceedings
29
ITEM 4.
Mine Safety Disclosures
29
PART II
30
ITEM 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
30
ITEM 6.
[Reserved]
30
ITEM 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
30
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
43
ITEM 8.
Financial Statements and Supplementary Data
44
ITEM 9.
Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
94
ITEM 9A.
Controls and Procedures
94
ITEM 9B.
Other Information
94
ITEM 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
94
PART III
95
ITEM 10.
Directors, Executive Officers and Corporate Governance
95
ITEM 11.
Executive Compensation
95
ITEM 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
95
ITEM 13.
Certain Relationships and Related Transactions, and Director Independence
96
ITEM 14.
Principal Accountant Fees and Services (PCAOB ID: 231)
96
PART IV
97
ITEM 15.
Exhibits and Financial Statement Schedules
97
ITEM 16.
Form 10-K Summary
99
SIGNATURES
100
1
PART I
Unless the context requires otherwise, all references to the “Company,” “we,” “us” and “our” refer to First Seacoast Bancorp, Inc. together with its
bank subsidiary, First Seacoast Bank.
Forward-Looking Statements
This report contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements
about the Company and its industry involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including
statements regarding the Company’s future financial condition, results of operations, business plans, liquidity, cash flows, projected costs and the impact of any
laws or regulations applicable to the Company, are forward-looking statements. Words such as “estimate,” “project,” “believe,” “intend,” “anticipate,”
“assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “potential,” “target” and other similar
expressions are intended to identify these forward-looking statements. Such statements are subject to factors that could cause actual results to differ materially
from anticipated results. Such factors include, but are not limited to, the following:
•
statements of our goals, intentions and expectations;
•
statements regarding our business plans, prospects, growth and operating strategies;
•
statements regarding the quality of our loan and investment portfolios; and
•
estimates of our risks and future costs and benefits.
These forward-looking statements are based on current beliefs and expectations of our management and are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to
assumptions with respect to future business strategies and decisions that are subject to change. Accordingly, you should not place undue reliance on such
statements. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this annual report.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the
forward-looking statements:
•
general economic conditions, either nationally or in our market areas, that are worse than expected;
•
changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit
losses;
•
our ability to access cost-effective funding;
•
fluctuations in real estate values and both residential and commercial real estate market conditions;
•
demand for loans and deposits in our market area;
•
our ability to implement and change our business strategies;
•
competition among depository and other financial institutions;
•
inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of
financial instruments or our level of loan originations or prepayments on loans we have made and make;
•
adverse changes in the securities or secondary mortgage markets;
•
changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital
requirements and insurance premiums;
•
changes in the quality or composition of our loan or investment portfolios;
•
technological changes that may be more difficult or expensive than expected;
•
the inability of third-party providers to perform as expected;
•
our ability to manage market risk, credit risk, and operational risk, including cybersecurity risks;
2
•
our ability to enter new markets successfully and capitalize on growth opportunities;
•
our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire, and
our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill charges related thereto;
•
changes in consumer spending, borrowing and savings habits;
•
changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the
Securities and Exchange Commission or the Public Company Accounting Oversight Board;
•
our ability to retain key employees;
•
our compensation expense associated with equity allocated or awarded to our employees; and
•
changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Because of these and a wide variety of 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.
ITEM 1. Business
First Seacoast Bancorp, Inc.
First Seacoast Bancorp, Inc. (together with its bank subsidiary, unless the context otherwise requires, the “Company”) is the savings and loan holding
company for First Seacoast Bank (the “Bank”). The Company conducts its operations primarily through its wholly-owned subsidiary, First Seacoast Bank.
The Company is the successor to First Seacoast Bancorp (a federal corporation). Effective January 19, 2023, the Company succeeded First Seacoast
Bancorp (a federal corporation) as the holding company for First Seacoast Bank in connection with the conversion of First Seacoast Bancorp, MHC, the former
federal mutual holding company for First Seacoast Bank, from mutual to stock form. At December 31, 2024, the Company had total consolidated assets of
$580.8 million, loans of $439.0 million, deposits of $454.2 million and stockholders’ equity of $62.1 million.
The Company’s executive offices are located at 633 Central Avenue, Dover, New Hampshire 03820, and the telephone number is (603) 742-4680. Our
website address is www.firstseacoastbank.com. Information on our website is not and should not be considered a part of this annual report. The Company is
subject to comprehensive regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”).
First Seacoast Bank
First Seacoast Bank, a federally-chartered savings bank headquartered in Dover, New Hampshire, has served residents of the Seacoast area of New
Hampshire since 1890. Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated
from operations and borrowings from the Federal Home Loan Bank, in one- to four-family residential real estate loans, commercial real estate and multi-family
real estate loans, acquisition, development and land loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. In recent
years, we have increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real
estate and commercial and industrial loans.
3
Our results of operations are largely dependent on net interest income, which is the difference between the interest earned on loans and securities and
interest paid on deposits and borrowings, and non-interest income largely from customer service fees. The results of operations are also affected by the level of
operating expenses, the provision for credit losses, the impact of federal and state income taxes, the relative levels of interest rates and local and national
economic activity.
Investment management services are offered through FSB Wealth Management. FSB Wealth Management is a division of First Seacoast Bank. The
division currently consists of two financial advisors who are located at 629 Central Avenue, Dover, New Hampshire, adjacent to our main office. FSB Wealth
Management provides access to non-FDIC insured products that include retirement planning, portfolio management, investment and insurance strategies,
business retirement plans and college planning to individuals throughout our primary market area. These investments and services are offered through a third-
party registered broker-dealer and investment advisor. FSB Wealth Management receives fees from advisory services and commissions on individual
investment and insurance products purchased by clients.
The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the Company’s consolidated
balance sheets. Assets under management totaled approximately $141.5 million and $123.5 million at December 31, 2024 and 2023, respectively. On August
17, 2021, the Bank entered into a definitive agreement with an investment advisory and wealth management firm (the “seller”) to purchase certain of its client
accounts and client relationships for a final adjusted purchase price of $324,000 (included in other assets at December 31, 2024 and 2023, net of amortization),
of which $172,000 was paid at closing. Each client account was assigned a value, and as each client transferred to the Bank, 85% of this value was paid to the
seller. During June 2023, the transition of client accounts was completed and the balance of the purchase price was paid to the seller. As of December 31, 2024
and 2023, approximately $28.7 million and $25.7 million of purchased client accounts are included in total assets under management, respectively. The client
accounts purchased are recorded as a customer list intangible asset. Identifiable intangible assets that are subject to amortization will be reviewed for
impairment, at least annually, based on their fair value. Any impairment will be recognized as a charge to earnings and the adjusted carrying amount of the
intangible asset will become its new accounting basis. The remaining useful life of the intangible asset will also be evaluated each reporting period to determine
whether events and circumstances warrant a revision to the remaining period of amortization. The Company is amortizing the customer list intangible on a
straight-line basis over a ten-year period. During the years ended December 31, 2024 and 2023, $32,000 and $30,000 of amortization expense was recorded,
respectively.
First Seacoast Bank is active in the communities we serve. The Bank makes investments in community development lending and investments in low-
income housing, all of which strive to improve the communities we serve. In 2019, First Seacoast Bancorp (a federal corporation) established First Seacoast
Community Foundation, Inc., a charitable foundation dedicated to supporting charitable organizations operating in the Bank’s local community.
First Seacoast Bank is subject to comprehensive regulation and examination by its primary federal regulator, the Office of the Comptroller of the
Currency.
Available Information
The U.S. Securities and Exchange Commission (“SEC”) maintains an Internet website at www.sec.gov that contains reports, proxy and information
statements and other information regarding issuers that file electronically with the SEC.
Our Internet website is www.firstseacoastbank.com. You can obtain on our website, free of charge, copies of our annual reports on Form 10-K, our
quarterly reports on Form 10-Q, our current reports on Form 8-K and any amendments to those reports, as soon as reasonably practicable after we electronically
file such reports or amendments with, or furnish them to, the SEC. Our Internet website and the information contained therein or connected thereto are not
intended to be incorporated into this Annual Report on Form 10-K.
Market Area
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, located in the southeastern part of the state along the New Hampshire Seacoast. We consider our primary lending market
area to be Strafford and Rockingham Counties in New Hampshire and York County in southern Maine.
The New Hampshire and southern Maine Seacoast region’s economy is fairly diversified, with employment in education, healthcare, government,
services, retail and manufacturing sectors. Our Strafford County branches are located in the cities of Dover, Durham, Barrington and Rochester, New
Hampshire. Top employment sectors in Strafford County include healthcare, government, education, insurance, retail and textile manufacturing. Our
Rockingham County branch is located in the city of Portsmouth, New Hampshire. Top employment sectors in Rockingham County include healthcare,
government, insurance, pharmaceuticals and biotech. Additionally, although we do not have a branch office in York County, Maine, many of our customers
work and reside in York County, which is contiguous to Strafford County. Our Dover headquarters is conveniently located approximately 65 miles from Boston
and less than 50 miles from each of Manchester, New Hampshire and Portland, Maine.
We view the greater Seacoast region as a primary area for growth, in light of its favorable demographic characteristics, such as a growing population in
some relatively affluent markets. At the same time, the attractive features of the region have fostered a highly competitive environment for financial service
providers.
4
Competition
The financial services industry is highly competitive. The Company experiences substantial competition with other commercial banks, savings and loan
associations, securities and brokerage companies, mortgage companies, insurance companies, finance companies, money market funds, credit unions and other
non-bank financial service providers in attracting deposits, making loans and attracting wealth management customers. The competing major commercial banks
have greater resources that may provide them a competitive advantage by enabling them to maintain numerous branch offices and mount extensive advertising
campaigns. The increasingly competitive environment is the result of changes in regulation, changes in technology and product delivery systems, additional
financial service providers and the accelerating pace of consolidation among financial services providers.
The financial services industry has become even more competitive as a result of legislative, regulatory and technological changes and continued
consolidation. Banks, securities firms and insurance companies can merge under the umbrella of a financial holding company, which can offer virtually any
type of financial service, including banking, securities underwriting, insurance (both agency and underwriting) and merchant banking. Also, technology has
lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and
automatic payment systems.
Some of the Company’s non-banking competitors have fewer regulatory constraints and may have lower cost structures. In addition, some of the
Company’s competitors have assets, capital and lending limits greater than that of the Company, greater access to capital markets and offer a broader range of
products and services than the Company. These institutions may have the ability to finance wide-ranging advertising campaigns and may also be able to offer
lower rates on loans and higher rates on deposits than the Company can offer.
Various in-state market competitors and out-of-state banks continue to enter or have announced plans to enter or expand their presence in the market
areas in which the Company currently operates. With the addition of new banking presences within our market, the Company expects increased competition for
loans, deposits and other financial products and services. Our competition for loans comes primarily from financial institutions in our market area. Our
experience in recent years is that many financial institutions in our market area, especially community banks that are seeking to significantly expand their
commercial loan portfolios and banks located in lower growth regions in New Hampshire and Maine, have been willing to price commercial loans aggressively
in order to gain market share.
The Company will continue to rely upon local promotional activities, personal relationships established by officers, directors and employees with their
customers and specialized services tailored to meet the needs of the communities served. Management believes that it can compete effectively as a result of
local market knowledge, local decision making and awareness of customer needs.
Lending Activities
Historically, our lending activities have emphasized one- to four-family residential real estate loans, and such loans continue to comprise the largest
portion of our loan portfolio. Other areas of lending include commercial real estate loans and multi-family real estate loans, acquisition, development and land
loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. Subject to market conditions and our asset-liability analysis,
we expect to continue to increase our focus on commercial real estate and commercial and industrial loans, in an effort to diversify our overall loan portfolio
and increase the overall yield earned on our loans. We compete for loans by offering high quality personalized service, providing convenience and flexibility,
providing timely responses on loan applications and by offering competitive pricing of loan products.
As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend
credit and unused lines of credit. While these contractual obligations represent our potential future cash requirements, a significant portion of commitments to
extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make.
For additional information, see Note 15 of the notes to our consolidated financial statements of this annual report.
5
Loan Portfolio Composition. The following table sets forth the composition of the loan portfolio at the dates indicated.
At December 31,
2024
2023
Amount
Percent
Amount
Percent
(Dollars in thousands)
One- to four-family residential real
estate
$
275,235
62.7 %
$
268,943
62.5 %
Commercial real estate
86,020
19.6 %
86,566
20.1 %
Acquisition, development and land
14,946
3.4 %
17,520
4.1 %
Commercial and industrial
23,711
5.4 %
25,511
5.9 %
Home equity loans and lines of credit
20,908
4.8 %
14,093
3.3 %
Multi-family
5,752
1.3 %
7,582
1.8 %
Consumer
12,395
2.8 %
9,816
2.3 %
Total loans
$
438,967
100.0 %
$
430,031
100.0 %
Allowance for credit losses on loans
(3,486 )
(3,390 )
Net loans
$
435,481
$
426,641
Loan Portfolio Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2024. Demand loans,
loans having no stated repayment schedule or maturity and overdraft loans are reported as being due in one year or less. The table presents contractual
maturities and does not reflect repricing or the effect of prepayments. Actual maturities may differ.
December 31, 2024
One- to Four-
Family Residential
Real Estate
Commercial
Real Estate
Acquisition,
Development
and Land
Commercial and
Industrial
(In thousands)
Amounts due in:
One year or less
$
82 $
2,959 $
5,808 $
3,287
More than one to five years
254
17,965
1,655
13,638
More than five years to fifteen years
38,281
36,969
2,204
5,756
More than fifteen years
236,618
28,127
5,279
1,030
Total
$
275,235 $
86,020 $
14,946 $
23,711
December 31, 2024
HELOC
Multi-family
Consumer
Total
(In thousands)
Amounts due in:
One year or less
$
8 $
1,142 $
219 $
13,505
More than one to five years
4
—
1,383
34,899
More than five years to fifteen years
1,139
2,685
1,077
88,111
More than fifteen years
19,757
1,925
9,716
302,452
Total
$
20,908 $
5,752 $
12,395 $
438,967
Fixed vs. Adjustable Rate Loans. The following table sets forth our fixed- and adjustable-rate loans at December 31, 2024 that are contractually due
after December 31, 2025.
December 31, 2024
Fixed
Adjustable
Total
(In thousands)
One- to four-family residential real estate
$
254,487 $
20,666 $
275,153
Commercial real estate
29,376
53,685
83,061
Acquisition, development and land
3,316
5,822
9,138
Commercial and industrial
17,753
2,671
20,424
Home equity loans and lines of credit
18
20,882
20,900
Multi-family
190
4,420
4,610
Consumer
12,176
—
12,176
Total
$
317,316 $
108,146 $
425,462
6
One- to Four-Family Residential Real Estate Loans. Our one- to four-family residential loan portfolio consists of mortgage loans that enable borrowers
to purchase or refinance existing homes, substantially all of which are collateralized by the primary residence of the borrower. At December 31, 2024, we had
$275.2 million of loans secured by one- to four-family residential real estate, representing 62.7% of our total loan portfolio. Generally, all of our one- to four-
family residential real estate loans are secured by properties located in the New Hampshire and southern Maine Seacoast region. Purchased loans are secured by
properties located in the greater Boston market in a contiguous state.
Our one- to four-family residential real estate loans have terms of up to 30 years and are generally underwritten according to Federal Home Loan
Mortgage Corporation (“FHLMC” or “Freddie Mac”) guidelines in amounts up to the maximum conforming loan limits as established by Freddie Mac. We
refer to loans that conform to such guidelines as “conforming loans.” We also originate loans above the conforming limits, which are referred to as “jumbo
loans.” We generally underwrite jumbo loans in a manner similar to conforming loans.
At December 31, 2024, 92.5% of our one- to four-family residential real estate loans were fixed-rate loans. We sell a portion of fixed-rate conforming
loans that we originate on a servicing-retained basis. Secondary market investors that purchase our loans may include Freddie Mac, the New Hampshire
Housing Finance Authority and other investors.
At December 31, 2024, 7.5% of our one- to four-family residential real estate loans were adjustable-rate loans. The majority of our adjustable-rate
mortgage loans have initial repricing terms of one, three, five or seven years. Following the initial repricing term, such loans adjust annually for the balance of
the loan term. Adjustable-rate mortgage loans are indexed to the One-Year U.S. Treasury Constant Maturity rate, plus a margin. The majority of such loans
have an annual interest rate adjustment cap of 2.0% and a lifetime adjustment cap ranging from 4.0% to 6.0%. We typically hold our adjustable-rate one- to
four-family residential real estate loans in our portfolio.
Loan-to-value ratios are determined by collateral type and occupancy level. We generally limit the loan-to-value ratios of our mortgage loans without
private mortgage insurance to 80%. Loans where the borrower obtains private mortgage insurance may be made in excess of this limit, pursuant to requirements
set by the insurance provider.
We do not offer “interest only” mortgage loans on permanent one- to four-family residential real estate loans (where the borrower pays interest for an
initial period, after which the loan converts to a fully amortizing loan). We also do not offer loans that provide for negative amortization of principal, such as
“Option ARM” loans, where the borrower can pay less than the interest owed on the loan, resulting in an increased principal balance during the life of the loan.
We do not have a “subprime lending” program for one- to four-family residential real estate loans (i.e., loans that generally target borrowers with weakened
credit histories).
Generally, residential mortgage loans that we originate include “due-on-sale” clauses, which give us the right to declare a loan immediately due and
payable if, among other things, the borrower sells or otherwise disposes of the real property subject to the mortgage and the loan is not repaid. All borrowers are
required to obtain title insurance for the benefit of First Seacoast Bank. We also require appropriate insurance coverage on properties securing real estate loans.
Commercial Real Estate and Multi-Family Real Estate Loans. Consistent with our strategy to diversify our loan portfolio and increase our yield, we
have focused on the origination of commercial real estate and multi-family real estate loans. At December 31, 2024, we had $91.8 million in commercial real
estate and multi-family real estate loans, representing 20.9% of our total loan portfolio. Of this aggregate amount, we had $57.0 million in owner-occupied
commercial real estate loans, $29.0 million in non-owner-occupied commercial real estate loans and $5.8 million in multi-family real estate loans.
Our commercial real estate loans are secured by a variety of properties in our primary market area, including retail spaces, distribution centers, office
buildings, manufacturing and warehouse properties, convenience stores and other local businesses, without any material concentrations in property type. Our
multi-family real estate loans are secured by properties consisting of five or more rental units in our market area, including apartment buildings and student
housing.
Commercial and multi-family real estate loans generally have higher balances and entail greater credit risks compared to one- to four-family residential
real estate loans. The repayment of loans secured by income-producing properties typically depends on the successful operation of the property, as repayment of
the loan generally is dependent, in large part, on sufficient income from the property to cover operating expenses and debt service. Changes in economic
conditions that are not in the control of the borrower or lender could affect the value of the collateral for the loan or the future cash flow of the property.
Additionally, any decline in real estate values may be more pronounced for commercial and multi-family real estate than residential properties. If we foreclose
on a commercial or multi-family real estate loan, the marketing and liquidation period to convert the real estate asset to cash can be a lengthy process with
substantial holding costs. In addition, vacancies, deferred maintenance, repairs and market stigma can result in prospective buyers expecting sale price
concessions to offset their real or perceived economic losses for the time it takes them to return the property to profitability. Depending on the individual
circumstances, initial charge-offs and subsequent losses on commercial and multi-family real estate loans can be unpredictable and substantial.
7
Our commercial and multi-family real estate loans are generally originated as 10-year balloon loans, which reprice after five years and are amortized
over 20 years. Interest rates on such loans are generally indexed to the Federal Home Loan Bank Five-Year Regular Classic Rate, plus a margin. The maximum
loan-to-value ratio of our commercial and multi-family real estate loans is generally 80% of the lower of purchase price or appraised value of the properties
securing the loan and generally requires a minimum debt-service coverage ratio of 1.2x.
We consider a number of factors in originating commercial and multi-family real estate loans. In addition to the debt-service coverage ratio, we evaluate
the loan purpose, the quality of collateral and the borrower’s qualifications, experience, credit history, cash flows and financial statements and sources of
repayment. Personal guarantees are generally obtained from the principals of closely-held companies. We gather information on environmental risks associated
with commercial properties and also require appropriate insurance coverage on properties securing real estate loans. In addition, the borrower’s and guarantor’s
financial information is monitored on an ongoing basis by requiring periodic financial statement updates. We also purchase and participate in commercial and
multi-family real estate loans from other financial institutions. Such loans are subject to the same underwriting criteria and loan approval requirements applied
to loans originated by First Seacoast Bank.
At December 31, 2024, the average loan balance outstanding in the commercial real estate loans portfolio was $461,000, and the largest individual
commercial real estate loan outstanding was a $4.6 million loan secured by two commercial properties. This loan was performing in accordance with its original
repayment terms at December 31, 2024. At December 31, 2024, the average loan balance outstanding in the multi-family real estate loans portfolio was
$523,000, and the largest individual multi-family real estate loan outstanding was a $1.9 million participation loan secured by a multi-unit property. This loan
was performing in accordance with its original repayment terms at December 31, 2024.
Acquisition, Development and Land Loans. At December 31, 2024, acquisition, development and land loans were $14.9 million, or 3.4%, of our total
loan portfolio. These loans consist of residential construction loans, commercial and multi-family real estate construction loans and land loans. At December
31, 2024, the average loan balance outstanding in the acquisition, development and land loan portfolio was $482,000.
We originate loans to finance the construction or rehabilitation of owner-occupied one- to four-family residential properties to the prospective
homeowners primarily located in our market area. Upon completion of construction, such loans convert to permanent mortgage loans. At December 31, 2024,
residential construction loan balances were $2.3 million, or 0.5% of our total loan portfolio, with an additional $2.1 million available for advance to borrowers.
Residential construction loans are generally structured as interest-only for nine months, with a loan-to-value ratio generally not exceeding 80% of the appraised
value on a completed basis or the loan-to-cost of completion, whichever is less. However, if private mortgage insurance is obtained, we will consider a loan-to-
value ratio up to 97%. We work with a third-party construction management firm that reviews each project before we approve the loan and continues to monitor
and inspect the project during the construction phase, as disbursements are made. Once the construction project is satisfactorily completed, generally within
nine months, the loan will convert to a permanent, amortizing mortgage loan for the remaining term of the loan, generally up to a maximum of 30 years total or
15 years for manufactured homes. The interest rate may be fixed or adjustable. At December 31, 2024, our largest individual residential construction loan
outstanding was $651,000 and it was performing in accordance with its original repayment terms.
We also originate loans to finance the construction of commercial properties, primarily owner-occupied properties located in our market area. Upon
completion of construction, such loans generally convert to permanent commercial mortgage loans. At December 31, 2024, fully advanced commercial
construction loan balances totaled $11.2 million, or 2.5% of our total loan portfolio. Commercial real estate construction loans are generally structured as
interest-only for up to 18 months, with a loan-to-value of 80% of the appraised value on a completed basis or a loan-to-cost of completion ratio of up to 85%.
We may also originate commercial constructions loans with an initial loan-to-value ratio of 90% when coupled with the U.S. Small Business Administration
504 Loan program. We work with a third-party construction management firm that reviews each project before we approve the loan and continues to monitor
and inspect the project during the construction phase, as disbursements are made. Once the construction project is satisfactorily completed, generally within 18
months, the loan will convert to a permanent, amortizing mortgage loan for the remaining term of the loan, generally up to a maximum of 20 years total
(including the construction phase). The interest rate may be fixed or adjustable. At December 31, 2024, our largest commercial real estate construction loan had
an outstanding balance of $5.7 million, and it was performing in accordance with its original repayment terms.
Construction loans generally involve greater credit risk than financing improved real estate, because funds are advanced upon the security of the project,
which is of uncertain value before its completion. Risk of loss on a construction loan also depends upon the accuracy of the initial estimate of the value of the
property at completion of construction compared to the estimated cost (including interest) of construction and other assumptions. Because of the uncertainties
inherent in estimating construction costs, as well as the market value of the completed project and the effects of governmental regulation of real property, it is
relatively difficult to accurately evaluate the total funds required to complete a project and the
8
related loan-to-value ratio. If the estimate of construction cost is inaccurate, we may be required to advance additional funds beyond the amount originally
committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower may hold a
property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Construction loans also carry the risk
that construction will not be completed on time in accordance with specifications and projected costs.
We also originate loans to finance the acquisition and development of land. Land development loans are generally secured by vacant land located in our
primary market and in process of improvement. At December 31, 2024, land development loan balances were $1.5 million, or 0.3%, of our total loan portfolio.
We generally originate commercial land development loans with loan-to-value ratios of up to 70% where all approvals and permits for improvements are
already in place and up to 50% where approvals and permits are not yet in place. The maximum construction term is generally 9 months for residential
development properties and 18 months for commercial development properties. At December 31, 2024, our largest land loan had an outstanding balance of
$538,000, and it was performing in accordance with its original repayment terms.
Land development loans generally involve greater credit risk than long-term financing on developed real estate. If a loan is made on property that is not
yet approved for the planned development, there is a risk that necessary approvals will not be granted or will be delayed. Risk of loss on a land development
loan also depends upon the accuracy of the initial estimate of the value of the property at completion of construction compared to the estimated cost (including
interest) of construction and other assumptions. If the estimate of development costs is inaccurate, we may be required to advance additional funds beyond the
amount originally committed in order to protect the value of the property. Moreover, if the estimated value of the completed project is inaccurate, the borrower
may hold a property with a value that is insufficient to assure full repayment of the construction loan upon the sale of the property. Land development loans also
carry the risk that improvements will not be completed on time in accordance with specifications and projected costs. In addition, repayment of these loans can
be dependent on the sale of the property to third parties, and the ultimate sale or rental of the property may not occur as anticipated.
Commercial and Industrial Loans. At December 31, 2024, we had $23.7 million of commercial and industrial loans representing 5.4% of our total loan
portfolio. At December 31, 2024, the average loan balance outstanding in the commercial and industrial loans portfolio was $232,000, and the largest individual
commercial and industrial loan outstanding was $2.2 million secured by marketable securities. This loan was performing in accordance with its original
repayment terms at December 31, 2024.
We originate commercial and industrial loans, including equipment loans and business acquisition loans, and lines of credit to businesses operating in
our local market area. Our commercial and industrial loans are generally used by the borrowers for working capital purposes or for acquiring equipment,
inventory or furniture. Borrowers include professional organizations, family-owned businesses and not-for-profit businesses. These loans are generally secured
by non-real estate business and personal assets, including equipment, inventory, accounts receivable and marketable securities, although we may support this
collateral with liens on real property such as buildings and equipment. We generally require our commercial business borrowers to maintain their primary
deposit accounts with us, which improves our overall interest rate spread and profitability.
Our commercial and industrial loans include term loans and revolving lines of credit and are made with either variable or fixed rates of interest. Variable
interest rates are indexed to the Prime Rate as published in the Wall Street Journal, plus a margin. Commercial and industrial loans typically have shorter terms
to maturity and higher interest rates than commercial real estate loans.
When originating commercial and industrial loans, we consider the financial history of the borrower, the debt service capabilities and cash flows of the
borrower and other guarantors and the value of the underlying collateral. We generally require personal guarantees by the principals, as well as other
appropriate guarantors, when personal assets are in joint names or a principal’s net worth is not sufficient to support the loan. Commercial and industrial loans
can have a loan-to-value ratio of up to 80% of the value of the collateral securing the loan.
To assist small businesses with their credit needs for working capital, equipment and new real estate construction or acquisition, we originate
commercial and industrial loans under the Small Business Administration 7(a) and Express Guarantee programs. Typically, a 7(a) loan includes a 75%
guarantee and an Express loan includes a 50% guarantee from the U.S. Government. At December 31, 2024, we had six loans outstanding with an aggregate
principal balance of $2.8 million with Small Business Administration 7(a) guarantees totaling $2.1 million and three Small Business Administration Express
loans with an aggregate principal balance of $69,000 with guarantees totaling $34,000.
During 2024 and 2023, we purchased $2.7 million and $2.0 million, respectively, of participation interests in three and two commercial and industrial
loans, respectively, through our membership in a national community bank loan program. Loans are typically provided to middle market businesses with
approximately $10-$75 million in EBITDA. Senior credit
9
facilities typically range in size from $25-$250 million, primarily secured by substantially all of the assets of the business. These loans generally have five to
seven-year terms and variable interest rates. At December 31, 2024 and 2023, we had outstanding participation interests in these commercial and industrial
loans totaling $4.0 million and $2.0 million, respectively. At December 31, 2024 and 2023, we had $472,000 and $-0- of unfunded commitments related to
these participation interests, respectively.
We continue to expand our commercial and industrial lending activities in order to diversify our loan portfolio, increase our yield and offer a full range
of products to our commercial customers. However, these loans have greater credit risk than one- to four-family residential real estate loans. Our commercial
and industrial loans are made based primarily on historical and projected cash flows of the borrower, the borrower’s experience and stability and the value and
marketability of the underlying collateral provided by the borrower. The cash flows of borrowers, however, may not materialize as forecasted, and collateral
securing loans may fluctuate in value because of economic or individual performance factors. As a result, the availability of funds for the repayment of
commercial and industrial loans may depend substantially on the success of the business itself and the general economic environment in our market area. In
addition, commercial and industrial loans often result in larger outstanding balances to single borrowers, or related groups of borrowers, and also generally
require substantially greater evaluation and oversight efforts. Accordingly, financial information is obtained from the borrowers to evaluate cash flow
sufficiency and is periodically updated during the life of the loan.
Home Equity Loans and Lines of Credit. We offer home equity loans and lines of credit, which are multi-purpose loans used to finance various home or
personal needs, where a one- to four-family primary or secondary residence serves as collateral, generally within our primary market area. At December 31,
2024, outstanding balances on home equity loans and lines of credit totaled $20.9 million, or 4.8% of our total loan portfolio, and the lines of credit had an
additional $28.3 million available to draw.
Home equity loans are originated as fixed-rate term loans. Home equity lines of credit are tied to the Prime Rate as published in the Wall Street Journal
and are offered for terms of up to 25 years, with a 10-year draw period and 15-year repayment period. Generally, our home equity loans and lines of credit are
originated with loan-to-value ratios of up to 80%, inclusive of existing liens on the property.
Consumer Loans. We offer consumer loans to individuals who reside or work in our market area. Consumer lending has historically been a minor area
of lending diversification for us. Consumer loans, other than consumer loans secured by manufactured housing properties, generally consist of installment loans
extended directly to the borrower. These loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition,
management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of
customer relationships and providing cross-marketing opportunities. It is expected that growth for this segment of our consumer loan portfolio will be limited,
with such loans extended primarily to pre-existing First Seacoast Bank customers.
Additionally, we purchase consumer loans secured by manufactured housing properties to supplement our consumer loan origination efforts. We
purchased $1.8 million and $1.5 million of these loans during 2024 and 2023, respectively. These loans are secured by properties located in the greater Seacoast
region. As of December 31, 2024, the portfolio of these loans had aggregate outstanding principal balances of $7.5 million and were performing in accordance
with their original repayment terms. We expect that growth in this segment of our consumer loan portfolio will continue to increase in the future. At December
31, 2024, consumer loans totaled $12.4 million, or 2.8% of our total loan portfolio, of which $656,000 was unsecured.
Originations, Sales and Purchases of Loans
Our loan originations are generated by our loan personnel operating at our banking office locations. Residential real estate loans are generated by our
mortgage loan officers through referrals from real estate brokers, builders, walk-in customers, online applications, participation in local home shows, events
with local realtors, contacts in the local community and referrals. Commercial real estate and commercial and industrial loans are originated through our
commercial lenders, through previous lending relationships, referrals, direct solicitation and participation in industry-specific associations. Additionally, small
business lending relationships are generated through our business development officers. Consumer loans are generated largely to existing customers and walk-
ins. Loan generation is supported by our advertising campaigns.
While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the
pricing levels as set in the local marketplace by competing banks, thrifts, credit unions and mortgage banking companies. Our volume of real estate loan
originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period.
We consider our balance sheet, as well as market conditions, on an ongoing basis in making decisions as to whether to hold one- to four-family
residential real estate loans we originate in our portfolio for investment or to sell such loans to
10
investors, based on profitability and risk management considerations. We sell selected conforming, 15-year and 30-year fixed-rate one- to four-family
residential real estate loans that we originate, on a servicing-retained basis, when we are able to, and strategically retain non-eligible fixed-rate and adjustable-
rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our one- to four-family residential loan portfolio.
For the years ended December 31, 2024 and 2023, we sold $893,000 and $417,000, respectively, of our one- to four-family residential real estate loans.
In addition to purchasing consumer loans secured by manufactured housing properties, as discussed above under “Consumer Loans,” we purchase one-
to four-family jumbo residential real estate loans to supplement our own origination efforts. During 2024 and 2023, we purchased $-0- and $780,000,
respectively, of one- to four-family jumbo residential real estate loans secured by properties located in the greater Boston market. As of December 31, 2024, the
portfolio of purchased residential real estate loans had outstanding principal balances of $22.8 million and were performing in accordance with their original
repayment terms. We also purchase participation interests in commercial and multi-family real estate loans in which we are not the lead originating lender. At
December 31, 2024 and 2023, we had outstanding participation interests totaling $17.4 million and $15.3 million, respectively. All loan purchases and
participations interests are subject to the same underwriting criteria and loan approvals that apply to loans that we originate for our portfolio. The properties are
independently appraised and subject to field inspections by our loan officers. As noted above, during 2024 and 2023, we also purchased $2.7 million and $2.0
million, respectively, of participation interests in commercial and industrial loans through our membership in a national community bank loan program. Loans
are typically provided to middle market businesses with approximately $10-$75 million in EBITDA. Senior credit facilities typically range in size from
$25-$250 million, primarily secured by substantially all of the assets of the business. These loans generally have five to seven-year terms and variable interest
rates.
Loan Approval Procedures and Authority
Our lending activities follow written, non-discriminatory, underwriting standards and loan origination procedures established by our board of directors
and management. Decisions on loan applications are made on the basis of detailed information submitted by the prospective borrower, credit histories that we
obtain and property valuations. Our board of directors has established a Loan Officers Review Committee to oversee loan approvals. The voting members of the
Loan Officers Review Committee consist of our President and Chief Executive Officer, Executive Vice President – Chief Financial Officer, Senior Vice
President – Senior Commercial Loan Officer, Senior Vice President – Senior Retail Loan Officer, Senior Vice President – Chief Operating Officer and Vice
President – Retail Loan Production Officer.
The board of directors has granted loan approval authority to certain officers up to prescribed limits, depending on the seniority of the officer, the type of
loan and underlying security. Our President and Chief Executive Officer has aggregate approval authority of up to $800,000 per relationship. Individual loan
officers generally can approve secured commercial loans of up to $100,000 and residential real estate loans of up to $650,000. Loans in excess of individual
officers’ lending limits generally can be approved by a second loan officer who is a voting member of our Loan Officers Review Committee, up to additional
prescribed limits of $500,000 for secured commercial loans and $1.0 million for residential real estate loans. Loans in excess of such additional limits require
approval of the full Loan Officers Review Committee. The Loan Officers Review Committee generally may approve secured commercial loans of up to $1.5
million regardless of existing non-commercial loan exposure. Any relationships in excess of $1.5 million must be approved by the board of directors.
From time to time, a loan applicant may not meet one or more of the loan policy or loan program requirements, which would ordinarily result in a denial
of the loan application. A loan officer may seek an exception on behalf of the applicant. Any loan made with an exception to policy requires one additional
level of approval, except that loans requiring the approval of the Loan Officers Review Committee or the board of directors are exempt from the requirement of
additional approval.
Loans-to-One Borrower
Pursuant to federal law, the aggregate amount of loans that we are permitted to make to any one borrower or a group of related borrowers is generally
limited to 15% of our unimpaired capital and surplus (25% if the amount in excess of 15% is secured by “readily marketable collateral” or 30% for certain
residential development loans). At December 31, 2024, based on the 15% limitation, our loans-to-one-borrower limit was approximately $8.3 million. At
December 31, 2024, our largest loan relationship with one borrower was for $7.6 million. These loans are secured primarily by commercial real estate which
were performing in accordance with their original repayment terms.
Delinquent Loans and Non-Performing Assets
Our collection procedures for residential mortgage loans typically follow Freddie Mac collection guidelines, particularly the guidelines for residential
mortgage loans serviced for others. When a residential real estate or consumer loan payment becomes more than 15 days past due, a notice is automatically sent
to the customer. Once the letter is sent, we begin contacting the customer either by telephone or additional letters as appropriate. Alternating telephone attempts
and additional
11
letters continue until a loan becomes 90 days past due, at which point we would place the loan on non-accrual status and generally refer the loan for foreclosure
proceedings, unless management determines that it is in the best interest of First Seacoast Bank to work further with the borrower to arrange a workout plan.
The foreclosure process generally would begin when a loan becomes 120 days delinquent. We do not pursue multiple collections processes, such as considering
modifications or workouts, while proceeding with foreclosure.
When a commercial loan or commercial real estate loan becomes 10 days past due, we contact the customer by mailing a late notice. The loan officer
assigned to the account may also contact the borrower. If the loan continues to be past due, the loan officer will continue to contact the borrower to determine
the cause of the past due payment(s) and arrange for payments. If a loan payment becomes 30 days past due, it will be reviewed by the Loan Officers Review
Committee to develop a plan to bring the past due payment(s) current and determine if the likelihood of repayment is in question. The loan will also be
evaluated for a change to the risk rating. If necessary, we will engage an attorney to pursue further collection efforts.
Delinquent Loans. The following table sets forth our loan delinquencies at the dates indicated.
At December 31,
2024
2023
30-59
Days Past
Due
60-89
Days Past
Due
90 Days
or More
Past Due
30-59
Days Past
Due
60-89
Days Past
Due
90 Days
or More
Past Due
(In thousands)
One- to four-family residential real estate
$
— $
— $
— $
— $
131
$
—
Commercial real estate
—
—
—
—
—
—
Acquisition, development and land
—
—
—
—
—
—
Commercial and industrial
—
—
—
—
—
—
Home equity loans and lines of credit
—
—
—
—
—
14
Multi-family
—
—
—
—
—
—
Consumer
—
—
—
—
—
—
Total
$
— $
— $
— $
— $
131 $
14
12
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.
The following table sets forth information regarding our non-performing assets at the dates indicated.
At December 31,
2024
2023
(Dollars in thousands)
Non-accrual loans:
One- to four-family residential real estate
$
— $
127
Commercial real estate
—
—
Acquisition, development and land
—
—
Commercial and industrial
—
—
Home equity loans and lines of credit
—
14
Multi-family
—
—
Consumer
—
—
Total non-accrual loans
$
— $
141
Accruing loans past due 90 days or more
—
—
Total non-performing loans
$
— $
141
Total real estate owned
—
—
Total non-performing assets
$
— $
141
Total non-performing loans as a percent of total loans
0.00%
0.03%
Total non-performing assets as a percent of total assets
0.00%
0.02%
Non-performing Loans. Loans are reviewed on a regular basis. Management determines that a loan is non-performing when it is probable that 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 allowance for
credit losses ("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 a reasonable period of time and the ultimate collectability of the total contractual principal and interest is
no longer in doubt.
Non-performing loans were $-0- at December 31, 2024, compared to $141,000, or 0.03% of total loans, at December 31, 2023. At December 31, 2023,
non-performing loans consisted of a residential mortgage loan and an associated home equity loan with outstanding balances totaling $141,000 and an estimated
market value of $216,000. The property was sold in July 2024 and all outstanding balances were repaid.
13
Modifications Made to Borrowers Experiencing Financial Difficulty. In March 2022, the FASB issued ASU 2022-2,“Financial Instruments-Credit
Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures,”(“ASU 2022-2” or "Topic 326") which eliminated the troubled debt restructuring
(“TDR”) accounting model for creditors that have adopted Topic 326. Due to the removal of the TDR accounting model, all loan modifications are accounted
for under the general loan modification guidance in Accounting Standards Codification Subtopic 310-20. In addition, on a prospective basis, entities are subject
to new disclosure requirements covering modifications of receivables to borrowers experiencing financial difficulty. Public business entities within the scope of
the Topic 326 vintage disclosure requirements also are required to prospectively disclose current-period gross write-off information by vintage (that is, year of
origination). ASU 2022-2 became effective on January 1, 2023. There were no loans modified for borrowers experiencing financial difficulty during the years
ended December 31, 2024 and 2023.
Foreclosed Assets. Foreclosed assets consist of property acquired through formal foreclosure, in-substance foreclosure or by deed in lieu of foreclosure,
and are recorded at the lower of recorded investment or fair value, less estimated costs to sell. Write-downs from recorded investment to fair value, which are
required at the time of foreclosure, are charged to the allowance for loan losses. We order a new appraisal before commencing foreclosure to determine the
current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the
allowance for loan losses, or, if the existing allowance is inadequate, charged to expense, in either case during the applicable period of such determination.
After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are
capitalized to the extent of estimated fair value, less estimated costs to sell. At December 31, 2024 and 2023, we had no foreclosed assets.
Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the Office
of the Comptroller of the Currency to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the
“distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the
weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the
basis of currently existing facts, conditions and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible”
and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently
expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as
“special mention” by our management.
When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed
prudent by management to cover probable accrued losses in the loan portfolio. General allowances represent loss allowances, which have been established to
cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets.
When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of
the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation
allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific loss allowances.
In accordance with our loan policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in
accordance with applicable regulations. Loans are listed on the “watch list” initially because of emerging financial weaknesses even though the loan is currently
performing as agreed or if the loan possesses weaknesses although currently performing. If a loan deteriorates in asset quality, the classification is changed to
“special mention,” “substandard,” “doubtful” or “loss” depending on the circumstances and the evaluation. Generally, loans 90 days or more past due are placed
on non-accrual status and classified “substandard.” Management reviews the status of each individually evaluated loan on our watch list on a quarterly basis.
On the basis of this review of our assets, our classified assets (including commercial, residential and consumer loans) at the dates indicated were as
follows:
At December 31,
2024
2023
(In thousands)
Substandard assets
$
— $
141
Doubtful assets
—
—
Loss assets
—
—
Total classified assets
$
— $
141
Special mention assets
$
174 $
241
14
Allowance for Credit Losses ("ACL")
The Company estimates its allowance for credit losses as outlined in ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments, as amended ("ASU 2016-13" or “ASC 326”). This accounting standard, commonly referred to as "CECL,"
significantly changed the methodology for accounting for reserves on loans and unfunded off-balance sheet credit exposures, including certain unfunded loan
commitments and standby guarantees. Under CECL, the ACL at each reporting period serves as a best estimate of projected credit losses over the contractual
life of certain assets and off balance sheet exposures, adjusted for expected prepayments, given an expectation of economic conditions and forecasts as of the
valuation date. Upon adoption of ASC 326, the Company made the following elections regarding accrued interest receivable: (i) present accrued interest
receivable balances separately on the balance sheet on the consolidated statements of condition; (ii) exclude accrued interest from the measurement of the ACL,
including investments and loans; and (iii) continue to write-off accrued interest receivable by reversing interest income. The Company has a policy in place to
write-off accrued interest when a loan is placed on non-accrual. Accrued interest is written-off by reversing previously recorded interest income. For loans,
write-off typically occurs when a loan has been in default for 90 days or more. An immaterial amount of accrued interest on non-accrual loans was written off
during the years ended December 31, 2024 and 2023, by reversing interest income. Historically, the Company has not experienced uncollectible accrued
interest receivable on its securities available-for-sale.
The ACL is the sum of various components including the following: (a) historical loss experience, (b) a reasonable and supportable forecast, (c)
loans evaluated individually, and (d) changes in relevant environmental factors. The historical loss component is segmented by loan type and serves as the core
of the ACL adequacy methodology. The Company has selected the Weighted Average Remaining Maturity Model (“WARM”), for the loss calculation of each
of the Bank’s loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate
an ACL. A loss rate is applied to pool balances over time.
ASC 326 may create more volatility in the ACL, specifically the ACL on loans and ACL on off-balance sheet credit exposures. Under ASC 326, the
ACL may increase or decrease period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast
period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative
factors outlined in ASU 2016-13.
The significant key assumptions used with the ACL calculation at December 31, 2024 and 2023 using the ASC 326 methodology, included:
•Macroeconomic factors (loss drivers): Monitoring and assessing local and national unemployment, changes in national GDP and other
macroeconomic factors which may be the most predictive indicator of losses within the loan portfolio. The macroeconomic factors considered in determining
the ACL may change from time to time.
•Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the
ACL, which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period
management believes to be reasonable and supportable will be set annually and validated through an assessment of economic leading indicators. In periods of
greater volatility and uncertainty, such as the current interest rate environment, management will likely use a shorter forecast period, whereas when markets,
economies, interest rate environment, political matters, and other factors are considered to be more stable and certain, a longer forecast period may be used.
Also, in times of greater uncertainty, management may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, the
forecasted period is expected to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a
company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In
determining the length of time over which the reversion will take place (i.e., "reversion speed"), factors such as, historical credit loss experience over previous
economic cycles, as well as where the Company believes it is within the current economic cycle, will be considered. The Company has chosen a forecast period
of one year with a loss history similar to historical losses occurring during January 2014 and December 2016 and then reverting to the long-term average over
the following two quarters using the straight-line reversion method. The Company believes this historical forecast period to be representative of potential
economic conditions over the next eighteen months.
•Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing the Company's historical loan data, as well as consideration
of current environmental factors. The prepayment speed assumption is utilized with the WARM method to forecast expected cash flows over the contractual life
of the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.
•Qualitative factors: As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider
various qualitative factors that may impact expected credit losses. The Company continues to consider qualitative factors in determining and arriving at an ACL
at each reporting period such as: (i) actual or expected
15
changes in economic trends and conditions, (ii) changes in the value of underlying collateral for loans, (iii) changes to lending policies, underwriting standards
and/or management personnel performing such functions, (iv) delinquency and other credit quality trends, (v) credit risk concentrations, if any, (vi) changes to
the nature of the Company's business impacting the loan portfolio, (vii) and other external factors, that may include, but are not limited to, results of internal
loan reviews and examinations by bank regulatory agencies.
Certain loans which may not share similar risk characteristics with other loans in the portfolio may be tested individually for estimated credit losses,
including (i) loans classified as special mention, substandard or doubtful and are on non-accrual, (ii) a loan modified for a borrower experiencing financial
difficulty or (iii) loans that have other unique characteristics. Factors considered in measuring the extent of the expected credit loss for these loans may include
payment status, collateral value, borrower's financial condition, guarantor support and the probability of collecting scheduled principal and interest payments
when due.
As an integral part of their examination process, the Office of the Comptroller of the Currency will periodically review our ACL, and as a result of
such reviews, we may have to adjust our ACL. However, regulatory agencies are not directly involved in the process of establishing the ACL as the process is
our responsibility and any increase or decrease in the ACL is the responsibility of management.
16
Allowance for Credit Losses on Loans. The following table sets forth activity in our ACL for the years 2024 and 2023, respectively.
At or for the Years Ended December 31,
2024
2023
(Dollars in thousands)
Allowance at beginning of year
$
3,390 $
3,581
Provision for credit losses on loans
120
105
Impact of ASC 326 Adoption
—
(295)
Charge-offs:
One- to four-family residential real estate
—
—
Commercial real estate
—
—
Acquisition, development and land
—
—
Commercial and industrial
—
—
Home equity loans and lines of credit
—
—
Multi-family
—
—
Consumer
(27)
(4)
Total charge-offs
$
(27) $
(4)
Recoveries:
One- to four-family residential real estate
$
— $
—
Commercial real estate
—
—
Acquisition, development and land
—
—
Commercial and industrial
—
—
Home equity loans and lines of credit
—
—
Multi-family
—
—
Consumer
3
3
Total recoveries
$
3 $
3
Net charge-offs
$
(24) $
(1)
Allowance at end of year
$
3,486 $
3,390
Allowance as a percent of total loans outstanding at year end
0.79%
0.79%
Total non-accrual loans as a percent of total loans at year end
—
0.03%
Allowance as a percent of total non-accrual loans at year end
—
2,404.26%
Net charge-offs as a percent of average consumer loans outstanding during the year
-0.09%
—
Allocation of Allowance for Credit Losses on Loans. The following table sets forth the ACL allocated by loan category, the total loan balances by
category and the percent of loans in each category to total loans at the dates indicated. The ACL allocated to each category is not necessarily indicative of future
losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.
17
At December 31,
2024
2023
Allowance
for Credit
Losses on
Loans
Percent of
Allowance
in Category to
Total Allocated
Allowance
Percent
of Loans
in Each
Category to
Total Loans
Allowance
for Loan
Losses
Percent of
Allowance
in Category to
Total Allocated
Allowance
Percent
of Loans
in Each
Category to
Total Loans
(Dollars in thousands)
One- to four-family residential
real estate
$
1,612
48.06 %
62.71 % $
1,601
47.64 %
62.55 %
Commercial real estate
710
21.17 %
19.60 %
830
24.70 %
20.13 %
Acquisition, development and land
87
2.59 %
3.40 %
105
3.12 %
4.07 %
Commercial and industrial
233
6.95 %
5.40 %
236
7.02 %
5.93 %
Home equity loans and lines
of credit
214
6.38 %
4.76 %
156
4.64 %
3.28 %
Multi-family
59
1.76 %
1.31 %
76
2.26 %
1.76 %
Consumer
439
13.09 %
2.82 %
357
10.62 %
2.28 %
Total allocated allowance
$
3,354
100.00 %
100.00 % $
3,361
100.00 %
100.00 %
Unallocated
132
29
Total
$
3,486
$
3,390
The Company measures and records its ACL based upon an expected loss model. Under this approach, the ACL at each reporting period serves as a best
estimate of projected credit losses over the contractual life of certain assets, adjusted for expected prepayments, given an expectation of economic conditions
and forecasts as of the valuation date. As noted above and within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires
companies to consider various qualitative factors that may impact expected credit losses. The Company made relevant adjustments to its qualitative factors in
the measurement of its ACL at December 31, 2024 and 2023. Although we believe that we use the best information available to establish the ACL, future
adjustments to the ACL may be necessary and results of operations could be adversely affected if circumstances differ substantially from the assumptions used
in making the determinations. Because future events affecting borrowers and collateral cannot be predicted with certainty, the existing ACL may not be
adequate and management may determine that increases in the allowance are necessary if the quality of any portion of our loan portfolio deteriorates as a result.
Furthermore, our regulators, in reviewing our loan portfolio, may require us to increase our ACL. Any material increase in the ACL may adversely affect our
financial condition and results of operations. See Note 5 to the notes to our consolidated financial statements included in this annual report for a complete
discussion of our ACL.
Investment Activities
The goals of our investment policy are to provide and maintain liquidity to meet deposit withdrawal and loan funding needs, to help mitigate interest rate
and market risk, to diversify our assets and to generate a reasonable rate of return on funds within the context of our interest rate and credit risk objectives. Our
board of directors is responsible for adopting and reviewing annually our investment policy. Our Asset/Liability Management Committee (“ALCO”) is
responsible for implementing our investment policy. Authority to make investments under the approved investment policy guidelines is delegated to our
President and Chief Executive Officer and Chief Financial Officer. All investment transactions are reviewed at the next regularly scheduled meeting of the
board of directors. All of our investment securities are classified as available-for-sale.
We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored
enterprises and municipal governments, deposits at the Federal Home Loan Bank, time deposits of federally insured institutions, investment grade corporate
bonds, corporate subordinated debt and investment grade marketable equity securities. We are also required to maintain an investment in Federal Home Loan
Bank stock. While we have the authority under applicable law to invest in derivative securities, we have no investments in derivative securities.
Accumulated Other Comprehensive Loss and Available-for-Sale Securities. Generally accepted accounting principles in the United States require that
unrealized gains and losses on available-for-sale securities be reported as a separate component of stockholders’ equity as a component of accumulated other
comprehensive loss. Our available-for-sale securities consist of debt securities that we intend to hold for an indefinite period of time, but not necessarily to
maturity, and are carried at fair value. Generally, when market interest rates rise, the fair value of available-for-sale securities decreases, resulting in unrealized
losses, net of tax, and when market interest rates decrease, the fair value of those securities increases, resulting in unrealized gains, net of tax.
On December 11, 2024, we executed a balance sheet repositioning strategy related to our available-for-sale investment securities portfolio. We sold
$23.5 million in book value of lower-yielding investment securities for an after-tax realized gain of $5,000 and purchased $16.6 million of higher-yielding
investment securities which were classified as available-for-sale upon purchase. On November 28, 2023, we executed a balance sheet repositioning strategy
related to our available-for-sale
18
investment securities portfolio. We sold $40.6 million in book value of lower-yielding investment securities for an after-tax realized loss of $3.1 million and
purchased $40.6 million of higher-yielding investment securities which were classified as available-for-sale upon purchase. Since 2022, market interest rates
have increased significantly, resulting in unrealized losses, net of tax, from the decrease in the fair value of our available-for-sale securities. Future increases in
market interest rates are likely to result in additional unrealized losses on available-for-sale securities, which would reduce our stockholders’ equity. However,
because the Bank made a permitted election to opt-out from the inclusion of accumulated other comprehensive loss in the calculation of its regulatory capital,
accumulated other comprehensive loss does not affect our regulatory capital levels.
Each quarter, or more often if a potential loss triggering event occurs, we assess our available-for-sale securities. We consider the extent of any
unrealized losses and the financial condition and near-term prospects of the issuers. At December 31, 2024, we do not intend to sell our available-for-sale
securities and it was unlikely that we would have had to sell them before recovery of their amortized cost, which may be at maturity, and we believed that the
unrealized losses were primarily due to market interest rate fluctuations and not changes in credit quality.
U.S. Government-Sponsored Enterprises Obligations. At December 31, 2024, we had government-sponsored enterprise obligations issued by various
U.S. Government agencies totaling $1.4 million, which constituted 1.2% of our securities portfolio. The Company invests primarily in Federal Farm Credit
Bank and Federal National Mortgage Association ("FNMA" or "Fannie Mae").
U.S. Government Agency Small Business Administration Pools. At December 31, 2024, we had government-sponsored small business investment
company (“SBIC”) pools issued and guaranteed by the SBA totaling $13.1 million, which constituted 10.9% of our securities portfolio. An SBIC is a privately
owned and managed investment fund licensed and regulated by the SBA. An SBIC uses its own capital, plus funds borrowed with an SBA guarantee, to make
equity and debt investments in qualifying small businesses.
Municipal Bonds. At December 31, 2024, we had municipal bonds totaling $29.5 million, which constituted 24.6% of our securities portfolio, with an
average maturity of 20 years. These securities often provide slightly higher after-tax yields than U.S. Government and agency securities and residential
mortgage-backed securities, but are not as liquid as other investments, so we typically maintain investments in municipal securities, to the extent appropriate,
for generating returns in our investment portfolio. We invest primarily in bank- and nonbank-qualified tax-advantaged municipal securities of a satisfactory
investment quality rating.
U.S. Government-Sponsored Mortgage-Backed Securities. At December 31, 2024, we had government-sponsored mortgage-backed securities and
collateralized mortgage obligations issued by the FHLMC, FNMA and Government National Mortgage Association (“GNMA”) totaling $67.8 million, which
constituted 56.4% of our securities portfolio. Mortgage-backed securities are securities issued in the secondary market that are collateralized by pools of
mortgages. Certain types of mortgage-backed securities are commonly referred to as “pass-through” certificates because the principal and interest of the
underlying loans is “passed through” to investors, net of certain costs, including servicing and guarantee fees. We invest primarily in mortgage-backed
securities backed by one- to four-family residential mortgages.
Corporate Debt. At December 31, 2024, we had corporate debt totaling $0.5 million, which constituted 0.4% of our securities portfolio. This fixed-to-
floating corporate note was issued by a minority-led Community Development Financial Institution.
Corporate Subordinated Debt. At December 31, 2024, we had corporate subordinated debt totaling $7.9 million, which constituted 6.5% of our
securities portfolio. These fixed-to-floating subordinated notes were issued by banks located in our market area.
Sources of Funds
General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings, primarily
Federal Home Loan Bank and repurchase agreements, to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to
manage the cost of funds. In addition, we receive funds from scheduled loan payments, loan and mortgage-backed securities prepayments, maturities and calls
of available-for-sale securities, retained earnings and income on earning assets. While scheduled loan payments and income on earning assets are relatively
stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of
competition.
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.
At December 31, 2024, our core deposits, which are deposits other than time deposits, were $318.5 million, representing 70.1% of total deposits. As part
of our business strategy, we intend to continue efforts to increase our core deposits while allowing higher-cost customer time deposits to run off upon maturity.
We generally require commercial business borrowers to maintain their primary deposit accounts with us. At December 31, 2024 and 2023, there were $63.1
19
million and $23.6 million of brokered deposits included in time deposits, respectively. The purchase of brokered deposits offered a lower cost alternative to
advances from the Federal Home Loan Bank of a similar duration. Additionally, there were $22.1 million and $20.9 of brokered deposits included in savings
deposits at December 31, 2024 and 2023, respectively. At December 31, 2024 and 2023, our deposits totaled $454.2 million and $404.8 million, respectively.
For customers requiring full FDIC insurance on certificates of deposit in excess of $250,000, we offer the CDARS® program, which allows the Bank to
place the certificates of deposit with other participating banks to maximize the customers’ FDIC insurance. We receive a like amount of deposits from other
participating financial institutions. In addition, we offer the ICS™ program, an insured deposit “sweep” program for demand deposits which is a product
offered by IntraFi Network, LLC, which is also the provider of the CDARS® program. Similarly to the certificates of deposit’s discussed above, the Bank
receives a like amount of deposits from other financial institutions and all customer deposits are insured by the FDIC. These “reciprocal” CDARS® and ICS
deposits are classified as “brokered” deposits in regulatory reports. The Bank considers these deposits to be “core” in nature. At December 31, 2024, our
“reciprocal” CDARS® and ICS deposits were $-0- and $6.0 million, respectively.
Deposit account terms vary according to the minimum balance required, the time period that funds must remain on deposit and the interest rate, among
other factors. In determining the terms of our deposit accounts, we consider the rates offered by our competition, our liquidity needs, profitability and customer
preferences and concerns. We generally review our deposit pricing on a monthly basis and continually review our deposit mix. Our deposit pricing strategy has
generally been to offer competitive rates, while generally not providing the highest rates in the market. We find it more profitable to concentrate on specific
special rate and term accounts, which allows us to add accounts without impacting our overall liability costs for existing accounts.
We also rely on customer service, convenience of our branch office locations, advertising and pre-existing relationships to gather and develop deposit
relationships. Developing comprehensive banking relationships is a top priority for us and is a focus of our commercial lending team and business development
officers. In recent years, we have introduced new business deposit products to appeal to our commercial borrowers. At December 31, 2024, our ratio of
commercial deposits to commercial loans (including commercial real estate loans, acquisition, development and land loans and commercial and industrial
loans) was 94.35%.
The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. Our liquidity position is
monitored daily and we believe we have a strong contingency liquidity plan should deposit balances fluctuate. The variety of deposit accounts that we offer
allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is
impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We
believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions,
including competition and prevailing interest rates.
The following tables set forth the distribution of total average deposit accounts, by account type, at the dates indicated.
At December 31,
2024
2023
Amount
Percent
Average
Rate
Amount
Percent
Average
Rate
(Dollars in thousands)
Non-interest bearing
accounts
$
65,200
15.28%
—
$
76,533
19.34%
—
NOW and demand deposits
95,786
22.44%
0.75%
101,947
25.76%
1.58%
Money market deposits
78,147
18.31%
1.51%
74,045
18.71%
1.57%
Savings deposits
73,411
17.20%
0.03%
65,802
16.63%
0.05%
Time deposits
114,277
26.77%
3.15%
77,406
19.56%
2.97%
Total
$
426,821
100.00%
0.94%
$
395,733
100.00%
1.20%
20
As of December 31, 2024 and 2023, the aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC
insurance limit, had an estimated value not exceeding $112.2 million, or 24.7% of total deposits, and $102.5 million, or 25.3% of total deposits, respectively. At
December 31, 2024 and 2023, uninsured time deposits totaled $7.6 million and $7.4 million, respectively. The following table sets forth the maturity of
uninsured time deposits as of December 31, 2024 and 2023.
(In thousands)
2024
2023
Maturity Period:
Three months or less
$
5,913 $
374
Over three through six months
1,019
1,449
Over six through twelve months
424
4,329
Over twelve months
216
1,205
Total
$
7,572 $
7,357
Borrowed Funds. We may obtain advances from the Federal Home Loan Bank (“FHLB”) upon the security of our capital stock in the FHLB and certain
of our mortgage loans. Such advances may be made pursuant to several different credit programs, each of which has its own interest rate and range of
maturities. We use such advances to provide short-term funding as a supplement to our deposits. At December 31, 2024, we had $52.3 million in advances from
the FHLB and $94.0 million of additional borrowing capacity. At December 31, 2024, the Bank had an overnight line of credit with the FHLB that may be
drawn up to $3.0 million. Additionally, at December 31, 2024, the Bank had $2.0 million of an unsecured Fed Funds borrowing line of credit with a
correspondent bank. The entire balance of these credit facilities was available at December 31, 2024.
We may obtain advances from a secured credit facility with the Federal Reserve Bank of Boston (“FRB”) – Borrower-In-Custody of Collateral Program
(“BIC”). Advances under the BIC would be collateralized by eligible collateral. During December 2024, the Bank unpledged the collateral previously pledged
to the BIC - principally general obligation municipal bonds – with the intention of pledging commercial real estate loans. On January 7, 2025, the Bank
completed the eligibility process whereby the FHLB subordinated their interest in commercial real estate loans up to a maximum of $65 million allowing these
loans to be pledged to the BIC. The Bank pledged $65.0 million of commercial real estate loans to the BIC resulting in $38.5 million of borrowing capacity
under this credit facility as of January 16, 2025.
Personnel and Human Capital
We believe that the success of a business is largely due to the quality of its employees, the development of each employee's full potential, and the
Company's ability to provide the appropriate recognition and fulfilling rewards. We encourage and support the development of our employees and, whenever
possible, strive to fill vacancies from within. As of December 31, 2024, we had 75 total/full-time equivalent employees. Our employees are not represented by
any collective bargaining group. Management believes that we have a good working relationship with our employees.
Employee retention helps us operate efficiently and achieve our business objectives. We believe our commitment to prioritizing concern for our
employees’ well-being, supporting their career goals, offering competitive wages and providing valuable fringe benefits contributes to the retention of our top-
performing employees. In addition, all eligible employees are stockholders of the Company through participation in our Employee Stock Ownership Plan,
which aligns employee and stockholder interests by providing stock ownership on a tax-deferred basis at no investment cost to our employees.
Subsidiaries
First Seacoast Bank is the sole and wholly-owned subsidiary of First Seacoast Bancorp, Inc. FSB Service Corporation, Inc., which is inactive, is the sole
and wholly-owned subsidiary of First Seacoast Bank.
Regulation and Supervision
General
As a federal savings bank, First Seacoast Bank is subject to examination, supervision and regulation, primarily by the Office of the Comptroller of the
Currency, and, secondarily, by the FDIC as deposits insurer. The federal system of regulation and supervision establishes a comprehensive framework of
activities in which First Seacoast Bank may engage and is intended primarily for the protection of depositors and the FDIC’s Deposit Insurance Fund. The
regulatory structure also gives the regulatory authorities extensive discretion in connection with their supervisory and enforcement activities and examination
policies, including the classification of assets and the establishment of loan loss reserves for regulatory purposes.
First Seacoast Bank is also regulated to a lesser extent by the Board of Governors of the Federal Reserve System, or the “Federal Reserve Board,” which
governs the reserves to be maintained against deposits and other matters. In addition, First Seacoast Bank is a member of and owns stock in the Federal Home
Loan Bank, which is one of the 11 regional banks in the Federal Home Loan Bank System. First Seacoast Bank’s relationship with its depositors and borrowers
is also regulated to a
21
great extent by federal law and, to a lesser extent, state law, including in matters concerning the ownership of deposit accounts and the form and content of First
Seacoast Bank’s loan documents.
As a savings and loan holding company, First Seacoast Bancorp, Inc. is subject to examination and supervision by, and is required to file certain reports
with, the Federal Reserve Board. First Seacoast Bancorp, Inc. is also subject to the rules and regulations of the SEC under the federal securities laws.
Set forth below are certain material regulatory requirements that are applicable to First Seacoast Bank and First Seacoast Bancorp, Inc. This description
of statutes and regulations is not intended to be a complete description of such statutes and regulations and their effects on First Seacoast Bank and First
Seacoast Bancorp, Inc. Any change in these laws or regulations, whether by Congress or the applicable regulatory agencies, could have a material adverse
impact on First Seacoast Bancorp, Inc., First Seacoast Bank and their operations.
Federal Banking Regulation
Business Activities. A federal savings association derives its lending and investment powers from the Home Owners’ Loan Act, as amended, and
applicable federal regulations. Under these laws and regulations, First Seacoast Bank may invest in mortgage loans secured by residential and commercial real
estate, commercial and industrial and consumer loans, certain types of debt securities and certain other assets, subject to applicable limits. The Dodd-Frank Act
authorized, for the first time, the payment of interest on commercial checking accounts. First Seacoast Bank may also establish, subject to specified investment
limits, service corporation subsidiaries that may engage in certain activities not otherwise permissible for First Seacoast Bank, including real estate investment
and securities and insurance brokerage.
Examinations and Assessments. First Seacoast Bank is primarily supervised by the Office of the Comptroller of the Currency. First Seacoast Bank is
required to file reports with and is subject to periodic examination by the Office of the Comptroller of the Currency. First Seacoast Bank is required to pay
assessments to the Office of the Comptroller of the Currency to fund the agency’s operations.
Capital Requirements. Federal regulations require FDIC-insured depository institutions, including federal savings associations, to meet several
minimum regulatory capital standards: a common equity Tier 1 capital to risk-based assets ratio; a Tier 1 capital to risk-based assets ratio; a total capital to risk-
based assets and a Tier 1 capital to total assets leverage ratio. In addition to establishing the minimum regulatory capital requirements, the regulations limit
capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5%
of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.
The capital standards require the maintenance of common equity Tier 1 capital, Tier 1 capital and Total capital to risk-weighted assets of at least 4.5%,
6% and 8%, respectively. The regulations also establish a minimum required leverage ratio of at least 4% of Tier 1 capital. Common equity Tier 1 capital is
generally defined as common stockholders’ equity and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and Additional Tier 1
capital. Additional Tier 1 capital generally includes certain noncumulative perpetual preferred stock and related surplus and minority interests in equity
accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus Additional Tier 1 capital) and Tier 2 capital. Tier
2 capital is comprised of capital instruments and related surplus meeting specified requirements and may include cumulative preferred stock and long-term
perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance
for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions that have exercised a one-time opt-out election regarding the
treatment of Accumulated Other Comprehensive Income (“AOCI”). Institutions that have not exercised the AOCI opt-out have AOCI incorporated into
common equity Tier 1 capital (including unrealized gains and losses on available-for-sale-securities). First Seacoast Bank did exercise the opt-out election.
Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations.
In determining the amount of risk-weighted assets for purposes of calculating risk-based capital ratios, an institution’s assets, including certain off-
balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests), are multiplied by a risk weight factor assigned by the regulations
based on the risk deemed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. For example, a
risk weight of 0% is assigned to cash and U.S. government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one- to
four-family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due
loans and a risk weight of between 0% to 600% is assigned to permissible equity interests, depending on certain specified factors.
Federal legislation required federal banking agencies, including the Office of the Comptroller of the Currency, to establish for institutions with
consolidated total assets of less than $10 billion a "community bank leverage ratio" (“CBLR”). The CBLR is an alternative framework that can be used to
calculate a bank’s capital ratio. Qualifying banking organizations may opt in or opt out quarterly of using the community bank leverage framework which
significantly simplifies the calculation of the capital ratio by relying on total average assets and therefore eliminating the need to calculate risk-based assets.
Institutions with consolidated total assets of less than $10 billion and total off-balance sheet exposures of 25% or less of consolidated total assets may opt into
the CBLR. The agencies finalized a rule, effective January 1, 2020, that set the CBLR at 9% tier 1 capital to average total consolidated assets. Pursuant to 2020
federal legislation, the CBLR was temporarily lowered to 8%, transitioning back to 9% by year-ended 2021. Throughout 2024, the Bank did not make an
22
election to use the CBLR. At December 31, 2024, First Seacoast Bank’s capital exceeded all applicable requirements including the applicable capital
conservation buffer.
Loans-to-One Borrower. Generally, a federal savings bank may not make a loan or extend credit to a single or related group of borrowers in excess of
15% of unimpaired capital and surplus. An additional amount may be lent, equal to 10% of unimpaired capital and surplus, if secured by “readily marketable
collateral,” which generally includes certain financial instruments (but not real estate). As of December 31, 2024, First Seacoast Bank complied with the loans-
to-one borrower limitations.
Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for all insured depository
institutions. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, compensation and other operational and managerial standards as the agency deems appropriate. Interagency guidelines
set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before
capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the
agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. Failure to implement such a plan can
result in further enforcement action, including the issuance of a cease and desist order or the imposition of civil money penalties.
Prompt Corrective Action. Under the federal Prompt Corrective Action statute, the Office of the Comptroller of the Currency is required to take
supervisory actions against undercapitalized institutions under its jurisdiction, the severity of which depends upon the institution’s level of capital. An
institution that has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a common equity Tier 1 ratio of less than
4.5% or a leverage ratio of less than 4% is considered to be “undercapitalized.” A savings institution that has total risk-based capital of less than 6.0%, a Tier 1
risk-based capital ratio of less than 4.0%, a common equity Tier 1 ratio of less than 3.0% or a leverage ratio that is less than 3.0% is considered to be
“significantly undercapitalized.” A savings institution that has a tangible capital to assets ratio equal to or less than 2.0% is deemed to be “critically
undercapitalized.”
In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus
payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted
assets above the amount necessary to meet its minimum risk-based capital requirements. As fully implemented on January 1, 2019, the capital conservation
buffer requirement is 2.5% of risk-weighted assets.
Generally, the Office of the Comptroller of the Currency is required to appoint a receiver or conservator for a federal savings association that becomes
“critically undercapitalized” within specific time frames. The regulations also provide that a capital restoration plan must be filed with the Office of the
Comptroller of the Currency within 45 days of the date that a federal savings association is deemed to have received notice that it is “undercapitalized,”
“significantly undercapitalized” or “critically undercapitalized.” Any holding company of a federal savings association that is required to submit a capital
restoration plan must guarantee performance under the plan in an amount of up to the lesser of 5.0% of the savings association’s assets at the time it was
deemed to be undercapitalized by the Office of the Comptroller of the Currency or the amount necessary to restore the savings association to adequately
capitalized status. This guarantee remains in place until the Office of the Comptroller of the Currency notifies the savings association that it has maintained
adequately capitalized status for each of four consecutive calendar quarters. Institutions that are undercapitalized become subject to certain mandatory measures
such as restrictions on capital distributions and asset growth. The Office of the Comptroller of the Currency may also take any one of a number of discretionary
supervisory actions against undercapitalized federal savings associations, including the issuance of a capital directive and the replacement of senior executive
officers and directors.
At December 31, 2024, First Seacoast Bank met the criteria for being considered “well capitalized,” which means that its total risk-based capital ratio
exceeded 10%, its Tier 1 risk-based ratio exceeded 8.0%, its common equity Tier 1 ratio exceeded 6.5%, its leverage ratio exceeded 5.0% and its capital
conservation buffer exceeded 2.5%.
Qualified Thrift Lender Test. As a federal savings association, First Seacoast Bank must satisfy the qualified thrift lender, or “QTL,” test. Under the
QTL test, First Seacoast Bank must maintain at least 65% of its “portfolio assets” in “qualified thrift investments” (primarily residential mortgages and related
investments, including mortgage-backed securities) in at least nine months of every 12-month period. “Portfolio assets” generally means total assets of a
savings association, less the sum of specified liquid assets up to 20% of total assets, goodwill and other intangible assets and the value of property used in the
conduct of the savings association’s business. Alternatively, First Seacoast Bank may satisfy the QTL test by qualifying as a “domestic building and loan
association” as defined in the Internal Revenue Code.
A savings association that fails the QTL test must operate under specified restrictions set forth in the Home Owners’ Loan Act. The Dodd-Frank Act
made noncompliance with the QTL test subject to agency enforcement action for a violation of law. At December 31, 2024, First Seacoast Bank satisfied the
QTL test.
23
Capital Distributions. Federal regulations govern capital distributions by a federal savings association, which include cash dividends, stock repurchases
and other transactions charged to the savings association’s capital account. A federal savings association must file an application with the Office of the
Comptroller of the Currency for approval of a capital distribution if:
•
the total capital distributions for the applicable calendar year exceed the sum of the savings association’s net income for that year to date plus the
savings association’s retained net income for the preceding two years;
•
the savings association would not be at least adequately capitalized following the distribution;
•
the distribution would violate any applicable statute, regulation, agreement or regulatory condition; or
•
the savings association is not eligible for expedited treatment of its filings.
Even if an application is not otherwise required, every savings association that is a subsidiary of a savings and loan holding company, such as First
Seacoast Bank, must file a notice with the Federal Reserve Board at least 30 days before the board of directors declares a dividend.
An application or notice related to a capital distribution may be disapproved if:
•
the federal savings association would be undercapitalized following the distribution;
•
the proposed capital distribution raises safety and soundness concerns; or
•
the capital distribution would violate a prohibition contained in any statute, regulation or agreement.
In addition, the Federal Deposit Insurance Act provides that an insured depository institution shall not make any capital distribution if, after making such
distribution, the institution would fail to meet any applicable regulatory capital requirement.
Community Reinvestment Act and Fair Lending Laws. All federal savings associations have a responsibility under the Community Reinvestment Act
and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers. In connection with its examination
of a federal savings association, the Office of the Comptroller of the Currency is required to assess the federal savings association’s record of compliance with
the Community Reinvestment Act. A savings association’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum,
result in denial of certain corporate applications, such as branches or mergers or in restrictions on its activities. In addition, the Equal Credit Opportunity Act
and the Fair Housing Act prohibit lenders from discriminating in their lending practices on the basis of characteristics specified in those statutes. The failure to
comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Office of the Comptroller of the Currency,
as well as other federal regulatory agencies and the Department of Justice.
The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. First Seacoast Bank received an
“Outstanding” rating in its most recent Community Reinvestment Act federal evaluation.
Transactions with Related Parties. A federal savings association’s authority to engage in transactions with its affiliates is limited by Sections 23A and
23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls or is under common control with an insured depository
institution such as First Seacoast Bank. First Seacoast Bancorp, Inc. is an affiliate of First Seacoast Bank because of its control of First Seacoast Bank. In
general, certain transactions between an insured depository institution and its affiliates are subject to quantitative limits and collateral requirements. In addition,
federal regulations prohibit a savings association from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding
companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and
sound banking practices, not involve the purchase of low-quality assets from an affiliate and be on terms that are as favorable to the institution as comparable
transactions with non-affiliates.
First Seacoast Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such
persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board.
Among other things, these provisions generally require that extensions of credit to insiders:
•
be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing
for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other
unfavorable features; and
•
not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part,
on the amount of First Seacoast Bank’s capital.
24
In addition, extensions of credit in excess of certain limits must be approved by First Seacoast Bank’s board of directors. Extensions of credit to
executive officers are subject to additional limits based on the type of extension involved.
Enforcement. The Office of the Comptroller of the Currency has primary enforcement responsibility over federal savings associations and has authority
to bring enforcement action against all “institution-affiliated parties,” including directors, officers, stockholders, attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse effect on a federal savings association. Formal enforcement action by the Office
of the Comptroller of the Currency may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors of the
institution to the appointment of a receiver or conservator. Civil penalties cover a wide range of violations and actions and range up to $25,000 per day, unless a
finding of reckless disregard is made, in which case penalties may be as high as $1.0 million per day. The FDIC also has the authority to terminate deposit
insurance or recommend to the Office of the Comptroller of the Currency that enforcement action be taken with respect to a particular savings association. If
such action is not taken, the FDIC has authority to take the action under specified circumstances.
Insurance of Deposit Accounts. The Deposit Insurance Fund of the FDIC insures deposits at FDIC-insured financial institutions such as First Seacoast
Bank. Deposit accounts in First Seacoast Bank are insured by the FDIC generally up to a maximum of $250,000 per separately insured depositor and up to a
maximum of $250,000 for self-directed retirement accounts. For customers requiring full FDIC insurance on certificates of deposit in excess of $250,000, we
began offering in late 2023 the CDARS® program, which allows the Bank to place the certificates of deposit with other participating banks to maximize the
customers’ FDIC insurance. We receive a like amount of deposits from other participating financial institutions. In addition, we offer the ICS™ program, an
insured deposit “sweep” program for demand deposits which is a product offered by IntraFi Network, LLC, which is also the provider of the CDARS®
program. Similarly to the certificates of deposit’s discussed above, the Bank receives a like amount of deposits from other financial institutions and all customer
deposits are insured by the FDIC. These “reciprocal” CDARS® and ICS deposits are classified as “brokered” deposits in regulatory reports. The Bank
considers these deposits to be “core” in nature. At December 31, 2024, our “reciprocal” CDARS® and ICS deposits were $-0- and $6.0 million, respectively.
The FDIC charges insured depository institutions premiums to maintain the Deposit Insurance Fund. Assessments for most institutions are based on
financial measures and supervisory ratings derived from statistical modeling estimating the probability of failure within three years. The FDIC has authority to
increase insurance assessments. Any significant increases would have an adverse effect on the operating expenses and results of operations of First Seacoast
Bank. First Seacoast Bank cannot predict what assessment rates will be in the future.
Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC. We do not currently
know of any practice, condition or violation that may lead to termination of our deposit insurance.
Federal Home Loan Bank System. First Seacoast Bank is a member of the Federal Home Loan Bank System, which consists of 11 regional Federal
Home Loan Banks. The Federal Home Loan Bank System provides a central credit facility primarily for member institutions as well as other entities involved
in home mortgage lending. As a member of the Federal Home Loan Bank, First Seacoast Bank is required to acquire and hold shares of capital stock in the
Federal Home Loan Bank. As of December 31, 2024, First Seacoast Bank complied with this requirement.
Dodd-Frank Act
The Dodd-Frank Act created the Consumer Financial Protection Bureau, which has broad powers to supervise and enforce consumer protection laws.
The Consumer Financial Protection Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings
institutions such as First Seacoast Bank, including the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Consumer Financial Protection
Bureau has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Banks and savings institutions
with $10 billion or less in assets continue to be examined for compliance by their applicable bank regulators. The new legislation also weakened the federal
preemption available for national banks and federal savings associations and gave state attorneys general the ability to enforce applicable federal consumer
protection laws.
In addition to creating the Consumer Financial Protection Bureau, the Dodd-Frank Act, among other things, directed changes in the way that institutions
are assessed for deposit insurance, mandated the imposition of tougher consolidated capital requirements on holding companies, required the issuance of
regulations requiring originators of securitized loans to retain a percentage of the risk for the transferred loans, imposed regulatory rate-setting for certain debit
card interchange fees, repealed restrictions on the payment of interest on commercial demand deposits and contained a number of reforms related to mortgage
originations.
Many provisions of the Dodd-Frank Act involve delayed effective dates and/or require implementation of regulations. The implementation of the
legislation is an ongoing process. The Dodd-Frank Act has resulted in, and may continue to result in, an increased regulatory burden and increased compliance,
operating and interest expense for First Seacoast Bank.
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Other Regulations
Interest and other charges collected or contracted for by First Seacoast Bank are subject to state usury laws and federal laws concerning interest rates.
First Seacoast Bank’s operations are also subject to federal laws applicable to credit transactions, such as the:
•
Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;
•
Home Mortgage Disclosure Act, requiring financial institutions to provide information to enable the public and public officials to determine
whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;
•
Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, color, religion, national origin and other prohibited factors in
extending credit;
•
Fair Credit Reporting Act, governing the use and provision of information to credit reporting agencies;
•
Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;
•
Truth in Savings Act, governing disclosures with respect to deposit accounts; and
•
rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws.
The operations of First Seacoast Bank also are subject to the:
•
Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for
complying with administrative subpoenas of financial records;
•
Electronic Funds Transfer Act and Regulation E promulgated thereunder, which govern automatic deposits to and withdrawals from deposit
accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services;
•
Check Clearing for the 21st Century Act (also known as “Check 21”), which gives “substitute checks,” such as digital check images and copies
made from that image, the same legal standing as the original paper check;
•
The USA PATRIOT Act, which requires savings associations to, among other things, establish broadened anti-money laundering compliance
programs and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs
are intended to supplement existing compliance requirements that also apply to financial institutions under the Bank Secrecy Act and the Office
of Foreign Assets Control regulations; and
•
The Gramm-Leach-Bliley Act, which places limitations on the sharing of consumer financial information by financial institutions with
unaffiliated third parties. Specifically, the Gramm-Leach-Bliley Act requires all financial institutions offering financial products or services to
retail customers to provide such customers with the financial institution’s privacy policy and provide such customers the opportunity to “opt out”
of the sharing of certain personal financial information with unaffiliated third parties.
Holding Company Regulation
General. The Company is a savings and loan holding company within the meaning of the Home Owners’ Loan Act. As such, it is registered with the
Federal Reserve Board and subject to the regulation, examination, supervision and reporting requirements applicable to savings and loan holding companies. In
addition, the Federal Reserve Board has enforcement authority over the Company and its non-savings institution subsidiaries. Among other things, this
authority permits the Federal Reserve Board to restrict or prohibit activities that are determined to be a serious risk to the subsidiary savings institution.
Permissible Activities. Under present law, the business activities of the Company are generally limited to those activities permissible for financial
holding companies under Section 4(k) of the Bank Holding Company Act of 1956, as amended, provided certain conditions are met and financial holding
company status is elected, and for multiple savings and loan holding companies. A financial holding company may engage in activities that are financial in
nature, including underwriting equity securities and insurance as well as activities that are incidental to financial activities or complementary to a financial
activity. A multiple savings and loan holding company is generally limited to activities permissible for bank holding companies under Section 4(c)(8) of the
Bank Holding Company Act, subject to regulatory approval, and certain
26
additional activities authorized by federal regulations. First Seacoast Bancorp, Inc. has not elected financial holding company status.
Federal law prohibits a savings and loan holding company, including the Company, directly or indirectly, or through one or more subsidiaries, from
acquiring more than 5% of another savings association or savings and loan holding company, without prior Federal Reserve Board approval. In evaluating
applications by holding companies to acquire savings institutions, the Federal Reserve Board considers factors such as the financial and managerial resources,
future prospects of the company and institution involved, the effect of the acquisition on the risk to the federal deposit insurance fund, the convenience and
needs of the community and competitive factors.
The Federal Reserve Board is prohibited from approving any acquisition that would result in a savings and loan holding company controlling savings
institutions in more than one state, subject to two exceptions:
•
the approval of interstate supervisory acquisitions by savings and loan holding companies; and
•
the acquisition of a savings institution in another state if the laws of the state of the target savings institution specifically permit such acquisition.
Capital. Savings and loan holding companies have historically not been subjected to consolidated regulatory capital requirements. The Dodd-Frank Act
required the Federal Reserve Board to establish for all bank and savings and loan holding companies minimum consolidated capital requirements that are as
stringent as those required for the insured depository subsidiaries. Savings and loan holding companies with less than $3.0 billion in consolidated assets, like the
Company, are generally not subject to the minimum consolidated capital requirements unless otherwise advised by the Federal Reserve Board.
Source of Strength. The Dodd-Frank Act extended the “source of strength” doctrine to savings and loan holding companies. By law, all savings and
loan holding companies must serve as a source of financial and managerial strength to their subsidiary depository institutions.
Dividends and Stock Repurchases. The Federal Reserve Board has issued a policy statement regarding the payment of dividends and other capital
distributions by holding companies. In general, the policy provides that dividends should be paid only out of current earnings and only if the prospective rate of
earnings retention by the holding company appears consistent with the organization’s capital needs, asset quality and overall supervisory financial condition.
Separate regulatory guidance provides for prior consultation with Federal Reserve Bank staff concerning dividends in certain circumstances such as where the
company’s net income for the past four quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the company’s
overall rate or earnings retention is inconsistent with the company’s capital needs and overall financial condition. The ability of a savings and loan holding
company to pay dividends may be restricted if a subsidiary savings association becomes undercapitalized. The regulatory guidance also states that a savings and
loan holding company should inform Federal Reserve Bank supervisory staff before redeeming or repurchasing common stock or perpetual preferred stock if
the savings and loan holding company is experiencing financial weaknesses or the repurchase or redemption would result in a net reduction, at the end of a
quarter, in the amount of such equity instruments outstanding compared with the beginning of the quarter in which the redemption or repurchase occurred.
These regulatory policies may affect the ability of the Company to pay dividends, repurchase shares of common stock or otherwise engage in capital
distributions. For the stock repurchase program authorized by the board of directors on April 11, 2024 and the authorization of additional stock repurchases by
the board of directors on December 12, 2024, as described in Item 5 below, notices were filed with the Federal Reserve Bank of Boston. The Federal Reserve
Bank of Boston did not object to our stock repurchase plans.
Acquisition. Under the Federal Change in Bank Control Act, a notice must be submitted to the Federal Reserve Board if any person (including a
company), or group acting in concert, seeks to acquire direct or indirect “control” of a savings and loan holding company. Under certain circumstances, a
change of control may occur, and prior notice is required, upon the acquisition of 10% or more of the company’s outstanding voting stock, unless the Federal
Reserve Board has found that the acquisition will not result in control of the company. A change in control definitively occurs upon the acquisition of 25% or
more of the company’s outstanding voting stock. Under the Change in Bank Control Act, the Federal Reserve Board generally has 60 days from the filing of a
complete notice to act, taking into consideration certain factors, including the financial and managerial resources of the acquirer and the competitive effects of
the acquisition.
Federal Securities Laws
The Company's class of common stock is registered with the SEC under the Securities Exchange Act of 1934. Accordingly, the Company is subject to
the information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange Act of 1934.
27
Taxation
The Company and First Seacoast Bank are subject to federal and state income taxation in the same general manner as other corporations, with some
exceptions discussed below. The following discussion of federal and state taxation is intended only to summarize material income tax matters and is not a
comprehensive description of the tax rules applicable to the Company and First Seacoast Bank. Our federal and state tax returns have not been audited for the
past five years.
Federal Taxation
General. The Company and First Seacoast Bank are subject to federal income taxation in the same general manner as other corporations, with some
exceptions discussed below. The following discussion of federal taxation is intended only to summarize material federal income tax matters and is not a
comprehensive description of the tax rules applicable to the Company and First Seacoast Bank.
Method of Accounting. For federal income tax purposes, First Seacoast Bank currently reports its income and expenses on the accrual method of
accounting and uses a tax year ending December 31 for filing its federal income tax returns. The Company and First Seacoast Bank file a consolidated federal
income tax return.
Net Operating Loss Carryovers. A financial institution may carry net operating losses forward indefinitely but is limited to 80% of each subsequent
year's taxable income. At December 31, 2024, the Company had $8.8 million of net operating loss carryovers.
Charitable Contribution Carryovers. A financial institution’s deduction for charitable contributions is limited to 10% of its federal taxable income with
the excess carried forward to the succeeding five taxable years. Any contributions remaining after the five-year carryover period that has not been deducted is
no longer deductible. At December 31, 2024, the Company had $208,000 of charitable contribution carryovers.
Capital Loss Carryovers. Generally, a financial institution may carry back capital losses to the preceding three taxable years and forward to the
succeeding five taxable years. Any capital loss carryback or carryover is treated as a short-term capital loss for the year to which it is carried. As such, it is
grouped with any other capital losses for the year to which it is carried and is used to offset any capital gains. Any loss remaining after the five-year carryover
period that has not been deducted is no longer deductible. At December 31, 2024, the Company had no capital loss carryovers.
Corporate Dividends. The Company may generally exclude from its income 100% of dividends received from First Seacoast Bank as a member of the
same affiliated group of corporations.
State Taxation
General. First Seacoast Bank is subject to New Hampshire income tax at the rate of 7.5% on its taxable income, before net operating loss deductions and
special deductions for federal income tax purposes. For this purpose, “taxable income” generally means federal taxable income, subject to certain adjustments.
Net Operating Loss Carryovers. A financial institution may carry New Hampshire net operating losses forward for ten years but is limited to 80% of
each subsequent year's taxable income. At December 31, 2024, the Bank had $9.4 million of New Hampshire net operating loss carryovers.
ITEM 1A. Risk Factors
Not applicable, as the Company is a “smaller reporting company.”
ITEM 1B. Unresolved Staff Comments
None.
ITEM 1C. Cybersecurity
Risk Management and Strategy
Our risk management program is designed to identify, assess, and mitigate risk across various aspects of our company, including financial, operational,
regulatory, reputational, and legal. Cybersecurity is a critical component of this program, given the increasing reliance on technology and potential of cyber
threats. Our Senior Technology/Cybersecurity Officer is primarily responsible for this cybersecurity component and is a key member of the Company's
Information Technology Governance, along with our Chief Finance/Information Security Officer, including the Enterprise Risk Management Committee
("ERM"), the Information Technology Steering Committee ("ITSC") and the Information Technology Advisory Committee ("ITAC"), reporting directly to the
Chief Information Officer. Our Senior Technology/Cybersecurity Officer has substantial relevant expertise and formal training in the areas of information
security and cybersecurity risk management,
28
including 31 years of cybersecurity experience, 6 of which was spent at the Company. The ITAC and ERM are board level committees with the ITSC
consisting of members of management.
Our objective for managing cybersecurity risk is to avoid or minimize the impacts of external threat events or other efforts to penetrate, disrupt or misuse
our systems or information. The structure of our information security program is designed around the National Institute of Standards and Technology (“NIST”)
Cybersecurity Framework, regulatory guidance, and other industry standards. In addition, we leverage certain industry and government associations, third-party
benchmarking, audits, and threat intelligence feeds to facilitate and promote program effectiveness. Our Chief Finance/Information Security Officer and our
Chief Information Officer, report directly to our Chief Executive Officer, and along with key members of their teams, regularly collaborate with peer banks,
industry groups, and policymakers to discuss
cybersecurity trends and issues and identify best practices. The information security program is periodically reviewed by such personnel with the goal of
addressing changing threats and conditions.
The Company employs an in-depth, layered, defensive strategy that embraces a “secure by design” philosophy when designing new products, services,
and technology. We leverage people, processes, and technology as part of our efforts to manage and maintain cybersecurity controls. We also employ a variety
of preventative and detective tools designed to monitor, block, and provide alerts regarding suspicious activity, as well as to report on suspected advanced
persistent threats. We have established processes and systems designed to mitigate cyber risk, including regular and on-going education and training for
employees, preparedness simulations and tabletop exercises, and recovery and resilience tests. We engage in regular assessments of our infrastructure, software
systems, and network architecture, using internal cybersecurity experts and third-party specialists. We also maintain a third-party risk management program
designed to identify, assess, and manage risks, including cybersecurity risks, associated with external service providers and our supply chain. We also actively
monitor our email gateways for malicious phishing email campaigns and monitor remote connections as a portion of our workforce has the option to work
remotely. We leverage internal auditors to periodically review our processes, systems, and controls, including with respect to our information security program,
to assess their design and operating effectiveness and make recommendations to strengthen our risk management program.
We maintain an Incident Response Plan ("IRP") that provides a documented framework for responding to actual or potential cybersecurity incidents,
including timely notification of and escalation to the appropriate Board-approved management committees, as discussed further below. The IRP is coordinated
through the Chief Finance/Information Security Officer, Senior Technology/Cybersecurity Officer and key members of management are embedded into the IRP
by its design. The IRP facilitates coordination across multiple parts of our organization and is evaluated at least annually.
Notwithstanding our defensive measures and processes, the threat posed by cyber-attacks is severe. Our internal systems, processes, and controls are
designed to mitigate loss from cyber-attacks and, while we have experienced cybersecurity incidents in the past, to date, risks from cybersecurity threats have
not materially affected our company.
Governance
Our Chief Finance/Information Security Officer has oversight of information security across the organization, with the Senior Technology/Cybersecurity
Officer independently accountable for managing our enterprise information security department and delivering our information security program. The
responsibility of this role includes cybersecurity risk assessment, defense operations, incident response, vulnerability assessment, threat intelligence, identity
access governance, third-party risk management, and business resilience. The foregoing responsibilities are covered on a day-to-day basis by a first and second
line of defense functions. The second line of defense function is separated from the first line of defense function through organizational structure and ultimately
reports directly to the Chief Information Officer. The department consists of information security professionals with varying degrees of education and
experience. Individuals within the department are generally subject to professional education and certification requirements. Our Senior
Technology/Cybersecurity Officer has substantial relevant expertise and formal training in the areas of information security and cybersecurity risk management.
Our board of directors has approved management committees including the ITAC, which focuses on technology impact, and ERM, which focuses on
business impact while the ITSC is an internal management committee providing direction and priorities to information technology strategies. These committees
provide oversight and governance of the technology program and the information security program. The ITAC and ERM are chaired by certain members of the
board of directors with senior management participation including the Chief Finance/Information Security Officer, Chief Information Officer, Senior
Technology/Cybersecurity Officer as well as other key departmental managers from throughout the organization. These committees meet periodically to
provide oversight of the risk management strategy, standards, policies, practices, controls, and mitigation and prevention efforts employed to manage security
risks. More frequent meetings occur from time to time in accordance with the IRP in order to facilitate timely informing and monitoring efforts. The Senior
Technology/Cybersecurity Officer reports summaries of key issues, including significant cybersecurity and/or
29
privacy incidents, discussed at committee meetings and the actions taken to the ITAC on a quarterly basis (or more frequently as may be required by the IRP).
The ITAC is responsible for overseeing our information security and technology programs, including management’s actions to identify, assess, mitigate,
and remediate or prevent material cybersecurity issues and risks. Our Chief Finance/Information Security Officer, Senior Technology/Cybersecurity Officer and
our Chief Information Officer provide quarterly reports to the ITAC and ERM regarding the information security program and the technology program, key
enterprise cybersecurity initiatives, and other matters relating to cybersecurity processes. The ITAC reviews and approves our information security and
technology budgets and strategies annually. Additionally, the ERM reviews our cyber security risk profile on a quarterly basis. The ITAC and ERM provide a
report of their activities to the board of directors regularly.
ITEM 2. Properties
As of December 31, 2024, the net book value of our land, building and equipment was $754,000. On June 11, 2024, the Bank entered into and closed on
an agreement with a single purchaser for the purchase and sale of four properties formerly owned and operated by the Bank, which included four branches (with
an adjacent drive thru) and a parking lot, each adjacent to a sold branch, for an aggregate cash purchase price of $7.5 million. Concurrently with the sale-
leaseback transaction, the Bank entered into an absolute net lease agreement with the purchaser under which the Bank will lease the properties for an initial
term of 15 years with one renewal option of 15 years.
The following table sets forth information regarding our offices as of December 31, 2024:
Location
Leased or Owned
Year Acquired or
Leased
Net Book Value of
Real Property
(In thousands)
Main Office:
Leased
2024
$
402
633 Central Avenue
Dover, NH 03820
Annex:
Owned
1890
$
185
629 Central Avenue
Dover, NH 03820
Branch Offices:
6 Eastern Avenue
Leased
2024
$
48
Barrington, NH 03825
7A Mill Road
Leased
2024
$
40
Durham, NH 03824
1650 Woodbury Avenue
Leased
2024
$
31
Portsmouth, NH 03801
17 Wakefield Street
Leased
2024
$
48
Rochester, NH 03867
We believe that current facilities are adequate to meet our present and foreseeable needs, subject to possible future expansion.
ITEM 3. Legal Proceedings
Periodically, we are involved in claims and lawsuits, such as claims to enforce liens, condemnation proceedings on properties in which we hold security
interests, claims involving the making and servicing of real property loans and other issues incident to our business. At December 31, 2024, we were not a party
to any pending legal proceedings that we believe would have a material adverse effect on our consolidated financial condition, results of operations or cash
flows.
ITEM 4. Mine Safety Disclosures
Not applicable.
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PART II
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The Company's common stock has been listed on The Nasdaq Capital Market under the symbol “FSEA” since January 20, 2023. As of March 17, 2025,
we had 307 stockholders of record (excluding the number of persons or entities holding stock in street name through various brokerage firms), and 4,730,753
shares of common stock outstanding.
The payment of dividends by the Company and amount of any dividend payments is subject to statutory and regulatory limitations, and depends upon a
number of factors, including the following: regulatory capital requirements; our financial condition and results of operations; our other uses of funds for the
long-term value of stockholders; tax considerations; and general economic conditions.
The Federal Reserve Board has issued a policy statement providing that dividends should be paid only out of current earnings and only if our
prospective rate of earnings retention is consistent with our capital needs, asset quality and overall financial condition. Regulatory guidance also provides for
prior regulatory consultation with respect to capital distributions in certain circumstances such as where the holding company’s net income for the past four
quarters, net of dividends previously paid over that period, is insufficient to fully fund the dividend or the holding company’s overall rate or earnings retention
is inconsistent with its capital needs and overall financial condition. In addition, First Seacoast Bank's ability to pay dividends will be limited if it does not have
the capital conservation buffer required by the new capital rules, which may limit our ability to pay dividends to stockholders. No assurances can be given that
any dividends will be paid or that, if paid, will not be reduced or eliminated in the future. Special cash dividends, stock dividends or returns of capital, to the
extent permitted by regulations and policies of the Federal Reserve Board and the Federal Deposit Insurance Corporation, may be paid in addition to, or in lieu
of, regular cash dividends.
On April 11, 2024, the board of directors of the Company authorized a stock repurchase program for the repurchase of up to 507,707 shares of common
stock, representing approximately 10% of shares then outstanding, which became effective on May 14, 2024. On December 12, 2024, the board of directors of
the Company authorized additional stock repurchases, up to 228,858 shares of common stock, under this stock repurchase program. The additional repurchase
authorization represents approximately 5% of pro forma outstanding shares assuming the repurchase of the remaining shares subject to the original
authorization. The Company conducts repurchases through open market purchases, including by means of a trading plan adopted under SEC Rule 10b5-1, or in
privately negotiated transactions, subject to market conditions and other factors. There is no guarantee as to the number of shares that the Company may
ultimately repurchase. The program will expire 12 months after the effective date, regardless of whether all shares will have been repurchased. On February 7,
2025, the expiration date of the program was extended to December 3, 2025. The Company may suspend or discontinue the program at any time. The Company
holds repurchased shares in its treasury. As of December 31, 2024, the Company has repurchased 403,211 shares under this stock repurchase program.
The following table summarizes the Company’s repurchases of its outstanding shares of common stock during the quarter ended December 31, 2024:
Period
Total Number of
Shares Purchased
Average
Price Paid
per Share
Total Number of Shares
Purchased as Part of Publicly
Announced Plans or Programs
Maximum Number of Shares
That May Yet Be Purchased
Under the Plans or Programs
October 1, 2024 - October 31, 2024
23,383 $
9.05
23,383
125,622
November 1, 2024 - November 30, 2024
11,006
9.15
11,006
114,616
December 1, 2024 - December 31, 2024
10,120
9.77
10,120
333,354
Total
44,509
44,509
There were no sales of unregistered securities during the year ended December 31, 2024.
ITEM 6. [Reserved]
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your
understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements
which appear elsewhere in this annual report. Certain prior year amounts have been reclassified to conform to the current year presentation. You should read the
information in this section in conjunction with the other business and financial information provided in this annual report.
31
Overview
Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations
and borrowings from the Federal Home Loan Bank, in one- to four-family residential real estate loans, commercial real estate and multi-family real estate loans,
acquisition, development and land loans, commercial and industrial loans, home equity loans and lines of credit and consumer loans. In recent years, we have
increased our focus, consistent with what we believe to be conservative underwriting standards, on originating higher yielding commercial real estate and
commercial and industrial loans.
We conduct our operations from four full-service banking offices in Strafford County, New Hampshire and one full-service banking office in
Rockingham County, New Hampshire. We consider our primary lending market area to be Strafford and Rockingham Counties in New Hampshire and York
County in southern Maine.
Selected Financial Data
The following tables set forth selected historical financial and other data for the Company at the dates and for the periods indicated. The following
information is only a summary and should be read in conjunction with our consolidated financial statements and the notes thereto of this annual report. The
information at and for the years ended December 31, 2024 and 2023 is derived in part from the audited consolidated financial statements included in this annual
report. The information at and for the year ended December 31, 2022 is derived in part from audited consolidated financial statements that are not included in
this annual report.
At or For the Year Ended December 31,
2024
2023
2022
(In thousands, except per share data)
Selected Financial Condition Data:
Total assets
$
580,780 $
571,035 $
537,424
Total loans
438,967
430,031
402,505
Total deposits
454,208
404,798
382,363
Total borrowings
52,268
93,007
99,397
Total stockholders' equity
62,050
66,618
49,337
Book value per share
$
12.97 $
13.12 $
9.73
Selected Operating Data:
Interest and dividend income
$
25,431 $
20,590 $
16,610
Interest expense
13,533
9,080
1,747
Net interest and dividend income
11,898
11,510
14,863
(Release) provision for credit losses
(72 )
188
—
Net interest and dividend income after provision for credit losses
11,970
11,322
14,863
Non-interest income (loss)
3,904
(2,007 )
888
Non-interest expense
15,860
16,027
16,767
Income (loss) before income tax expense (benefit)
14
(6,712 )
(1,016 )
Income tax expense (benefit)
527
3,944
(451 )
Net loss
$
(513 ) $
(10,656 ) $
(565 )
Share Data :
Average shares outstanding, basic
4,335,154
4,650,916
4,820,330
Average shares outstanding, diluted
4,335,154
4,650,916
4,820,330
Total shares outstanding
4,785,569
5,077,164
5,068,637
Basic loss per share
$
(0.12 ) $
(2.29 ) $
(0.12 )
Diluted loss per share
$
(0.12 ) $
(2.29 ) $
(0.12 )
Adjusted for conversion of the former First Seacoast Bancorp, MHC.
(1)
(1)
(1)
32
At or For the Year Ended December 31,
2024
2023
2022
Performance Ratios:
Return on average assets
(0.09)%
(1.93)%
(0.11)%
Return on average equity
(0.79)%
(15.10)%
(1.05)%
Interest rate spread
1.42%
1.59%
2.86%
Net interest margin
2.09%
2.16%
2.99%
Non-interest expenses as a percent of average assets
2.72%
2.91%
3.27%
Efficiency ratio
100.37%
168.65%
106.45%
Average interest-earning assets as a percent of average
interest-bearing liabilities
127.98%
133.23%
136.99%
Average equity as a percent of average assets
11.12%
12.81%
10.47%
Capital Ratios (First Seacoast Bank Only):
Total Capital (to risk-weighted assets)
15.55%
15.32%
15.53%
Tier 1 Capital (to risk-weighted assets)
14.52%
14.27%
14.45%
Common Equity Tier 1 (to risk-weighted assets)
14.52%
14.27%
14.45%
Tier 1 Capital (to average assets)
8.69%
9.19%
9.20%
Asset Quality Ratios:
Allowance for credit losses on loans as a percent of total loans
0.79%
0.79%
0.89%
Allowance for credit losses on loans as a percent of
non-performing loans
—
2,404.26%
4,023.60%
Net charge-offs as a percent of average
outstanding loans during the year
0.01%
—
—
Non-performing loans as a percent of total loans
—
0.03%
0.02%
Non-performing loans as a percent of total assets
—
0.02%
0.02%
Non-performing assets as a percent of total assets
—
0.02%
0.02%
Other Data:
Number of offices
5
5
5
Number of full-time equivalent employees
75
76
80
(1)
Represents net loss divided by average total assets.
(2)
Represents net loss divided by average equity.
(3)
Represents the difference between the weighted average yield on average interest-earning assets and the weighted average cost of average interest-bearing liabilities.
(4)
Represents net interest income divided by average interest-earning assets.
(5)
Represents non-interest expense divided by the sum of net interest and dividend income and non-interest income.
(6)
Represents average equity divided by average total assets.
Business Strategy
We believe we enjoy a strong, positive reputation among our customers and in our market area. We believe our name change to “First Seacoast Bank” in
2019 enhanced our brand and market visibility and associates us by name with the market area and communities we serve. As a community-oriented financial
institution, we focus on serving the financial needs of local individuals and businesses by executing a safe and sound, service-oriented business strategy that
seeks to produce earnings that increase over time and can be reinvested in our business and communities.
Our current business strategy consists of the following:
•
Grow our balance sheet, leverage existing infrastructure and improve profitability and operating efficiency. Given our existing infrastructure
and capabilities, we believe we are well-positioned to grow without a proportional increase in overhead expense or operating risk. In recent years,
we have assembled an experienced management team and selectively hired lending, business development and support staff. Our operations
benefit from established marketing, information technology and audit and compliance departments. Additionally, we have invested in Internet
banking capabilities and a mobile banking application.
•
Grow our loan portfolio and increase commercial real estate and commercial and industrial lending. Historically, our principal business
activity has been the origination of one- to four-family residential mortgage
(1)
(2)
(3)
(4)
(5)
(6)
33
loans. In recent years, we have sought to supplement these originations by focusing on originating higher yielding commercial real estate loans
(including owner-occupied and non-owner-occupied commercial real estate and multi-family real estate loans), construction loans, commercial
and industrial loans and home equity loans and lines of credit. We intend to remain as a residential mortgage lender in our market area while
continuing to increase our focus on originating commercial real estate and commercial and industrial loans. Our increased legal lending limit has
enabled us to originate larger loans for our portfolio to new and existing customers and reduced our need to participate with other lenders to
originate larger loans.
•
Maintain strong asset quality and manage credit risk. Strong asset quality is key to the long-term financial success of any financial institution.
We have been successful in maintaining strong asset quality in recent years. Our ratio of non-performing assets as a percent of total assets was
0.00%, 0.02% and 0.02%, at December 31, 2024, 2023 and 2022, respectively. We attribute this historical credit quality to a conservative credit
culture and an effective credit risk management environment. We have an experienced team of credit professionals, well-defined and
implemented credit policies and procedures, what we believe to be conservative loan underwriting criteria and active credit monitoring policies
and procedures.
•
Increase core deposits and reduce reliance on higher cost borrowings. Deposits are our primary source of funds for lending and investment.
Core deposits (which we define as all deposits except for time deposits), particularly non-interest-bearing demand deposits, represent a low-cost,
stable source of funds. Core deposits were 70.1% of our total deposits at December 31, 2024. We also rely on higher cost Federal Home Loan
Bank and Federal Reserve Bank borrowings as supplemental funding sources. At December 31, 2024, our ratio of net loans to deposits was
95.9% and our borrowings from these supplemental funding sources totaled $52.3 million. We continue to focus on expanding core deposits by
leveraging our business development officers and commercial lending and retail relationships.
•
Grow organically and through opportunistic acquisitions or de novo branching. Our primary intention is to grow our balance sheet organically
and use our capital to increase our lending and investment capacity. As a local independent bank, we believe we will have opportunities to gain
market share from customer fallout resulting from the consolidation of competing financial institutions in our market area into larger, out-of-
market acquirers. In addition to organic growth, we may also consider expansion opportunities in our market area or in contiguous markets that
we believe would enhance both our franchise value and stockholder returns. These opportunities include establishing loan production offices,
establishing new, or de novo, branch offices and/or acquiring branch offices. We have no current plans or intentions regarding any such
expansion plans.
These strategies are unchanged from disclosed business strategies in previous annual reports. We intend to continue to pursue these business strategies,
subject to changes necessitated by future market conditions, regulatory restrictions and other factors. While we are committed to the business strategies noted
above, we recognize the challenges and uncertainties of the current environment and plan to execute these strategies as market conditions allow.
Critical Accounting Policies and Critical Accounting Estimates
The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in
conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires
management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the
reported amounts of income and expenses. We believe the calculation of the ACL and the measurement of the fair value of financial instruments are both
important to the presentation of our consolidated financial condition and results of operations and require subjective or complex judgments and, therefore, we
consider the accounting policies and estimates discussed below to be critical. The estimates and assumptions that we use are based on historical experience and
various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or
conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.
The estimation of the ACL is in accordance with the ASC 326 methodology utilizing the WARM modeling approach as performed in a third-party
software application. The adequacy of the ACL is evaluated on a quarterly basis by management. This assessment includes procedures to estimate the ACL and
test the adequacy and appropriateness of the resulting balance. The level of the ACL is based upon management's evaluation of historical default and loss
experience, current and projected economic conditions, asset quality trends, known and inherent risks in the portfolio, adverse situations that may affect the
borrowers' ability to repay a loan (including the timing of future payments), the estimated value of any underlying collateral, composition of the loan portfolio,
industry and peer bank loan quality indications and other pertinent factors, including regulatory recommendations. The level of the ACL maintained by
management is believed adequate to absorb all expected future losses inherent in the loan portfolio at the balance sheet date. The ACL is increased through
provision for credit losses on loans and decreased by charge-offs, net of recoveries of amounts previously charged-off.
34
The ACL is measured on a collective basis for pools of loans with similar risk characteristics. Management has identified the following pools of
financial assets with similar risk characteristics for measuring expected credit losses:
•Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office
buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely
dependent upon the operation of the borrower's business.
•Non-owner occupied commercial real estate and multi-family real estate loans - These loans represent investment real estate loans secured by office
buildings, industrial buildings, warehouses, retail buildings, and multi-family residential housing. Repayment is primarily dependent on lease income generated
from the underlying collateral.
•Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by one- to four-family residential properties,
including home equity loans and lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
•Acquisition, Development and land loans – Acquisition, development and land loans include loans where the repayment is dependent on the successful
completion and eventual sale, refinance or operation of the related real estate project. Acquisition, development and land loans include one- to four-family
construction projects and commercial construction or rehabilitation endeavors such as warehouses, apartments, office and retail space and land acquisition and
development.
•Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or other
professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily
dependent on business cash flows.
•Consumer and other loans - Consumer and other loans include all loans issued to individuals, primarily pre-existing First Seacoast Bank customers, not
included in the consumer real estate mortgage classification and purchased loans secured by manufactured housing properties. Examples of consumer and other
loans are automobile loans and other installment loans extended directly to the borrower. Consumer loans may be unsecured. Repayment is primarily dependent
on the personal cash flow of the borrower.
The WARM method uses an approach that begins with a quarterly loss rate and applies that rate to the loan pools of financial assets with similar risk
characteristics noted above on a periodic basis over time for the remaining life expectation of each loan pool. Due to the Company’s limited loss experience,
management has chosen to use peer group loss data in the calculation of the quarterly loss rate. A peer group was selected within the third-party software
application which includes all banks between $300 million and $1 billion in asset size located in the northeastern United States. The historical loss component
segmented by loan pool serves as the core of the ACL adequacy methodology. The remaining life calculation for each pool is calculated by the third-party
software application using an attrition calculator that performs quarterly cohort-based attrition measurements using the actual historical experience of each loan
pool.
The estimated credit losses for all loan pools are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The
qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by management but measured by
objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period
measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative
adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in portfolio
concentrations, policy exceptions, associate retention, independent loan review results, competition and peer group credit quality trends. The qualitative
allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various
qualitative factors. Additional qualitative considerations are made for any identified risk which did not exist within our portfolio historically and therefore may
not be adequately addressed through evaluation of such risk factor based on historical portfolio trends as previously discussed.
Our ACL as a percent of total loans was 0.79% at December 31, 2024 and 2023, which primarily reflects the impact of calculated loss rates based upon
remaining life measurements and our consideration of the current economic conditions that affect the qualitative adjustments used in the determination of the
ACL as they have evolved over the year from the impact of inflationary pressures and geopolitical concerns, among other considerations. While we consider a
number of variables in our evaluation of the adequacy of the ACL, one of the more significant variables is the use of a reasonable and supportable forecast
period in the calculation of a historical loss rate. As noted above, the Company has chosen a forecast period of one year which will be similar to the historical
loss period between January 2014 and December 2016 and then reverting to the long-term average over the following two quarters using the straight-line
reversion method. This time period was one of relatively stagnant expansion in the U.S. with GDP growth rates in the 1.6% - 2.6% range. Economic indicators
during this period were mixed and appear similar to the current economy. Additionally, because historical loss experience may not fully
35
reflect our expectations about the future, management has adjusted the historical loss rate through a qualitative adjustment to reflect current economic
conditions not already reflected in the historical loss information. If a pre-recessionary period such as the period between March 2007 and September 2009 was
chosen as the reasonable and supportable forecast period with a similar qualitative adjustment consideration, the ACL would increase by $99,000 to $3.6
million. Alternatively, if the qualitative adjustment to reflect current economic conditions not already reflected in the historical loss information were removed
from the chosen forecast period used in the calculation of the ACL, the ACL would decrease by $1.1 million to $2.4 million.
While policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to (loss) income, are considered
adequate by management and are reviewed periodically by regulators, model validators and internal auditors, they are necessarily approximate and imprecise.
There are factors beyond our control, such as changes in projected economic conditions, real estate markets or particular industry conditions which may
materially impact asset quality and the adequacy of the ACL and thus the resulting provision for credit losses. Therefore, management considers the calculation
of the ACL a critical accounting estimate.
The Company's measurement of the fair value of its financial instruments is subject to uncertainty primarily due to the lack of quoted market prices for a
portion of its various assets and liabilities. Fair values, where quoted market prices are not available, are based on estimates using the present value of cash
flows or other valuation techniques. These techniques are significantly affected by the assumptions used, including the discount rate and estimates of future
cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Certain of the Company's financial assets are measured at fair value on a recurring or non-recurring basis. The Company's primary financial asset
measured at fair value on a recurring basis is its securities available-for-sale. For these securities, we obtain fair value measurements from independent pricing
services which consider observable data that may include reported trades, dealer quotes, the instrument’s terms and conditions, as well as other market data.
These fair value measurements are significantly impacted by changes in market interest rates and current economic conditions as compared to the coupon rates
for the financial assets. We obtain a monthly market rate volatility report to confirm that the overall price volatility of the portfolio is within prescribed policy
limits.
Fair value of the Company’s mortgage servicing rights is also measured on a recurring basis based upon a valuation model that calculates the present
value of estimated future net servicing income. We rely on an independent valuation from a third party which uses a discounted cash flow model to estimate the
fair value of our mortgage servicing rights. The valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants
would use in estimating future income and that can be validated against available market data. These assumptions are inherently sensitive to change as these
unobservable inputs are not based upon quoted prices in active markets or otherwise observable. We periodically review the assumptions underlying the
valuation of our mortgage servicing rights. While we believe the values produced by the discounted cash flow model are indicative of the fair value of our
mortgage servicing rights portfolio, these values can change significantly depending upon factors such as the then current interest rate environment, estimated
prepayments speeds of the underlying mortgage loans being serviced, and other economic conditions.
Fair value of the Company’s derivatives is measured on a recurring basis using the discounted cash flow method on the expected cash flows of each
derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including
interest rate curves and implied volatilities. These fair value measurements are significantly impacted by changes in market interest rates and current economic
conditions as compared to the coupon rates for the derivatives. We obtain a monthly interest rate volatility report to monitor the volatility of our derivatives
portfolio.
At December 31, 2024 and 2023, there were no financial assets or liabilities measured at fair value on a non-recurring basis; that is, the instruments are
not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. This may include certain individually
evaluated loans reported at the fair value of the underlying collateral. The Company has no non-financial assets or non-financial liabilities measured at fair
value on a recurring or non-recurring basis.
ASC 820 - "Fair Value Measurement (Topic 820)" also requires disclosure of the fair value of financial assets and financial liabilities that are not
measured and reported at fair value on a recurring or non-recurring basis. ASC 820 requires public business entities to use the exit price notion when measuring
the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price
to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. At
December 31, 2024 and 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors. At
December 31, 2024 and 2023, these factors have not materially impacted the estimated fair values of loans as compared to their carrying amounts.
36
Comparison of Financial Condition at December 31, 2024 and December 31, 2023
Total Assets. Total assets were $580.8 million as of December 31, 2024, an increase of $9.7 million, or 1.7%, when compared to total assets of $571.0
million at December 31, 2023. The increase was due primarily to increases in net loans and other assets offset by decreases in securities available-for-sale and
in land, building and equipment, net. The increase in other assets and decrease in land, building and equipment, net, was due primarily to accounting for the
sale-leaseback transaction involving the Bank's main office and branches which was completed on June 11, 2024.
Cash and Due From Banks. Cash and due from banks increased $1.0 million, or 17.0%, to $7.1 million at December 31, 2024 from $6.1 million at
December 31, 2023. The increase was due primarily to a $49.4 million increase in total deposits and $7.4 million of proceeds from the sale of land, building and
equipment, offset by an $8.8 million increase in net loans, a $40.7 million decrease in borrowings and $3.7 million of common stock repurchases during the
year ended December 31, 2024.
Available-for-Sale Securities. Available-for-sale securities decreased by $1.6 million, or 1.3%, to $120.2 million at December 31, 2024 from $121.9
million at December 31, 2023. This decrease was due to $36.2 million of proceeds from sales, maturities and principal payments received on securities
available-for-sale and $547,000 of net amortization of bond premiums, offset by investment purchases totaling $36.7 million and a $1.5 million increase in net
unrealized losses within the portfolio. On December 11, 2024, we executed a balance sheet repositioning strategy related to our available-for-sale investment
securities portfolio. We sold $23.5 million in book value of lower-yielding investment securities for an after-tax realized gain of $5,000 and purchased $16.6
million of higher-yielding investment securities which were classified as available-for-sale upon purchase.
The following table sets forth the amortized cost and average yield of our debt securities, by type and contractual maturity:
Maturity as of December 31, 2024
One Year or Less
After One Year but
within Five Years
After Five Years but
within Ten Years
After Ten Years
Total
Amortized
Cost
Average
Yield
Amortize
d Cost
Average
Yield
Amortized
Cost
Average
Yield
Amortized
Cost
Average
Yield
Amortize
d Cost
Average
Yield
(Dollars in thousands)
U.S. Government sponsored
enterprises obligations
$
—
—
—
— $
1,642
1.21 % $
—
— $
1,642
1.21 %
U.S. Government agency
small
business administration
pools
guaranteed by SBA
—
—
—
—
5,055
5.39 %
8,956
4.65 %
14,011
4.96 %
Collateralized mortgage
obligations issued by
the FHLMC, FNMA
and GNMA
—
—
—
—
1,750
3.35 %
18,174
5.57 %
19,924
5.32 %
Residential mortgage-backed
securities
—
—
738
3.47 %
—
—
51,714
4.26 %
52,452
4.00 %
Municipal bonds
—
—
—
—
951
2.86 %
32,009
0.08 %
32,960
3.18 %
Corporate debt
—
—
500
7.00 %
—
—
—
—
500
7.00 %
Corporate subordinated debt
—
—
1,913
—
6,412
4.83 %
—
—
8,325
6.03 %
—
— $
3,151
8.04 % $
15,810
4.35 % $ 110,853
3.30 % $
129,81
4
4.20 %
Net Loans. Net loans increased $8.8 million, or 2.1%, to $435.5 million at December 31, 2024 from $426.6 million at December 31, 2023. During the
year ended December 31, 2024, we originated $58.2 million of loans and purchased $2.7 million of participation interests in commercial and industrial loans
and $1.8 million of consumer loans secured by manufactured housing properties. As of December 31, 2024 and 2023, the portfolios of purchased loans had
outstanding principal balances of $34.3 million and $33.3 million, respectively, and were performing in accordance with their original repayment terms. Net
deferred loan costs increased $136,000, or 5.2%, to $2.8 million at December 31, 2024 from $2.6 million at December 31, 2023 due primarily to the increase in
deferred costs on consumer loans offset by a decrease in deferred costs on one- to four-family residential mortgage loans. Our ACL on loans increased $96,000
to $3.5 million at December 31, 2024 from $3.4 million at December 31, 2023, and consisted of a $120,000 provision for loan losses offset by $24,000 of net
loan charge-offs.
37
One- to four-family residential mortgage loans increased $6.3 million, or 2.3%, to $275.2 million at December 31, 2024 from $268.9 million at
December 31, 2023. Commercial real estate mortgage loans decreased $546,000, or 0.6%, to $86.0 million at December 31, 2024 from $86.6 million at
December 31, 2023. Acquisition, development and land loans decreased $2.6 million, or 14.7%, to $14.9 million at December 31, 2024 from $17.5 million at
December 31, 2023. Commercial and industrial loans decreased $1.8 million, or 7.1%, to $23.7 million at December 31, 2024 from $25.5 million at December
31, 2023. Home equity loans and lines of credit increased $6.8 million, or 48.4%, to $20.9 million at December 31, 2024 from $14.1 million at December 31,
2023. Multi-family real estate loans decreased $1.8 million, or 24.1%, to $5.8 million at December 31, 2024 from $7.6 million at December 31, 2023.
Consumer loans increased by $2.6 million, or 26.3%, to $12.4 million at December 31, 2024 from $9.8 million at December 31, 2023.
Our strategy to grow the balance sheet continues to be through originations of one- to four-family residential mortgage loans, while also diversifying
into higher yielding commercial and multi-family real estate loans and commercial and industrial loans to improve net margins and manage interest rate risk.
We also continue to consider selling selected, conforming 15-year and 30-year fixed rate mortgage loans to the secondary market on a servicing retained basis
as market conditions allow, providing us a recurring source of revenue from loan servicing income and gains on the sale of such loans.
Deposits. Our deposits are generated primarily from residents within our primary market area. We offer a selection of deposit accounts, including non-
interest-bearing and interest-bearing checking accounts, savings accounts, money market accounts and time deposits, for both individuals and businesses.
Deposits increased $49.4 million, or 12.2%, to $454.2 million at December 31, 2024 from $404.8 million at December 31, 2023 due to an increase in
both time and core deposits. Core deposits (defined as all deposits other than time deposits) increased $5.0 million, or 1.6%, to $318.5 million at December 31,
2024 from $313.5 million at December 31, 2023. The increase in core deposits was due to a $20.7 million, or 31.9%, increase in savings deposits, offset by a
decrease in NOW and demand deposits of $1.5 million, or 0.9%, and a decrease in money market deposits of $14.3 million, or 16.7%. Time deposits increased
$44.4 million, or 48.7%, to $135.7 million at December 31, 2024 from $91.3 million at December 31, 2023. At December 31, 2024 and 2023, there were $63.1
million and $23.6 million of brokered deposits included in time deposits, respectively, and $22.1 million and $20.9 million of brokered deposits included in
savings deposits, respectively. The purchase of brokered deposits offered a lower cost alternative to advances of similar duration from the Federal Home Loan
Bank.
Borrowings. Total borrowings decreased $40.7 million, or 43.8%, to $52.3 million at December 31, 2024 from $93.0 million at December 31, 2023 due
to a decrease in FHLB and FRB advances. Advances from FHLB decreased $20.7 million, or 28.4%, to $52.3 million at December 31, 2024 from $73.0 million
at December 31, 2023. Advances from FRB decreased to $-0- at December 31, 2024 from $20.0 million at December 31, 2023 due to the repayment of
advances from the Bank Term Funding Program.
Total Stockholders’ Equity. Total stockholders’ equity decreased $4.6 million, or 6.9%, to $62.1 million at December 31, 2024 from $66.6 million at
December 31, 2023. This decrease was due primarily to $3.7 million of common stock repurchases, an other comprehensive loss of $1.1 million related
primarily to net changes in unrealized holding losses in the available-for-sale securities portfolio as a result of increases in market interest rates during the year
ended December 31, 2024 and a net loss of $513,000 for the year ended December 31, 2024, offset by the recognition of $786,000 of stock-based
compensation.
Non-performing Assets. Non-performing assets include loans that are 90 or more days past due or on non-accrual status and real estate and other loan
collateral acquired through foreclosure and repossession. Management determines that a loan is non-performing when it is probable that at least a portion of the
loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying
collateral if the loan is collateral dependent. When a loan is determined to be non-performing, the measurement of the loan in the ACL on loans is based on
present value of expected future cash flows, except that all collateral-dependent loans are measured for non-performance based on the fair value of the
collateral. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual
basis.
We generally cease accruing interest on our loans when contractual payments of principal or interest have become 90 days past due or when
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 $-0- at December 31, 2024, compared to $141,000, or 0.03% of total loans, at December 31, 2023. At December 31, 2023,
non-performing loans consisted of a residential mortgage loan and an associated home equity loan which had outstanding balances totaling $141,000 and an
estimated collateral market value of $216,000.
38
The property was sold on July 19, 2024 and all outstanding balances were repaid. At December 31, 2024 and 2023, we had no foreclosed assets.
Comparison of Operating Results for the Years Ended December 31, 2024 and 2023
Net Loss. Net loss was $513,000 for the year ended December 31, 2024, compared to a net loss of $10.7 million for the year ended December 31, 2023,
a decrease of $10.1 million. The decrease was due primarily to an increase in non-interest income of $5.9 million, a decrease in income tax expense of $3.4
million, a $388,000 increase in net interest and dividend income, a $260,000 decrease in (release) provision for credit losses and a decrease in non-interest
expenses of $167,000 during the year ended December 31, 2024 compared to the year ended December 31, 2023.
Interest and Dividend Income. Interest and dividend income increased $4.8 million, or 23.5%, to $25.4 million for the year ended December 31, 2024
from $20.6 million for the year ended December 31, 2023. This increase was due to a $2.7 million, or 16.2%, increase in interest and fees on loans and a $2.1
million, or 57.0%, increase in interest and dividend income on investments.
Average interest-earning assets increased $36.9 million, or 6.9%, to $569.8 million for the year ended December 31, 2024 from $532.8 million for the
year ended December 31, 2023. The weighted average yield on interest-earning assets increased 60 basis points to 4.46% for the year ended December 31, 2024
from 3.86% for the year ended December 31, 2023. The weighted average yield for the loan portfolio increased 45 basis points to 4.53% for the year ended
December 31, 2024 from 4.08% for the year ended December 31, 2023 due primarily to an increase in market interest rates. The weighted average yield for all
other interest-earning assets increased to 4.25% for the year ended December 31, 2024 from 3.12% for the year ended December 31, 2023 due primarily to an
increase in market interest rates.
Interest Expense. Total interest expense increased $4.5 million, or 49.0%, to $13.5 million for the year ended December 31, 2024 from $9.1 million for
the year ended December 31, 2023. Interest expense on deposits increased $4.3 million, or 79.9%, for the year ended December 31, 2024 compared to the year
ended December 31, 2023. The average balance of interest-bearing deposits increased $42.4 million, or 13.3%, to $361.6 million for the year ended December
31, 2024 from $319.2 million for the year ended December 31, 2023 primarily as a result of an increase in the average balance of time, savings and money
market deposits offset by a decrease in the average balances of NOW and demand deposits. The weighted average rate of interest-bearing deposits increased to
2.67% for the year ended December 31, 2024 from 1.67% for the year ended December 31, 2023 due primarily to an increase in market interest rates and to
respond to deposit pricing by competitors.
Interest expense on borrowings consists of interest on advances from the Federal Home Loan Bank and the Federal Reserve Bank. Interest expense on
borrowings increased $164,000, or 4.4%, to $3.9 million for the year ended December 31, 2024 from $3.7 million for the year ended December 31, 2023
primarily due to an increase in the average balance of borrowings. The average balance of borrowings increased $3.0 million, or 3.9%, to $81.9 million for the
year ended December 31, 2024 from $78.8 million for the year ended December 31, 2023. The weighted average rate of borrowings increased to 4.73% for the
year ended December 31, 2024 from 4.70% for the year ended December 31, 2023.
Net Interest and Dividend Income. Net interest and dividend income increased $388,000, or 3.4%, to $11.9 million for the year ended December 31,
2024 from $11.5 million for the year ended December 31, 2023. This increase was due to a $36.9 million, or 6.9%, increase in the average balance of interest-
earning assets, consisting primarily of increases in the average balances of loans and taxable debt securities during the year ended December 31, 2024 offset by
an increase of $45.3 million, or 11.3%, in the average balance of interest-bearing liabilities, consisting primarily of an increase in the average balance of time
and savings deposits. Net interest rate spread decreased to 1.42% for the year ended December 31, 2024 from 1.59% for the year ended December 31, 2023 due
primarily to an increase in the average rate of interest-bearing deposits offset by an increase in the average yield on interest-earning assets.
(Release) Provision for Credit Losses. Based upon management’s analysis of the ACL, a $(72,000) release of credit losses was recorded for the year
ended December 31, 2024 compared to a $188,000 provision for credit losses for the year ended December 31, 2023. The release of credit losses for the year
ended December 31, 2024 consisted of a $120,000 provision for credit losses on loans and a $(192,000) release of credit losses on off-balance sheet credit
exposures.
Non-Interest Income (Loss). Non-interest income increased $5.9 million, or 294.5%, to $3.9 million for the year ended December 31, 2024 compared to
$(2.0) million for the year ended December 31, 2023. The increase in non-interest income during the year ended December 31, 2024 was due primarily to a
one-time $2.5 million gain on the sale of land and buildings and a $4.2 million, or 100.2%, decrease in losses realized on the sale of securities, as compared to
an $849,000 gain on termination of interest rate swaps recognized during the year ended December 31, 2023.
Non-Interest Expense. Non-interest expense decreased $167,000, or 1.0%, to $15.9 million for the year ended December 31, 2024 from $16.0 million
for the year ended December 31, 2023. The decrease in non-interest expense was due primarily to a $427,000, or 4.4%, decrease in salaries and employee
benefits, a $111,000, or 20.9%, decrease in marketing, a
39
$104,000, or 22.8%, decrease in equipment expense and a $94,000, or 5.9%, decrease in data processing offset by a $214,000, or 28.2%, increase in occupancy
expense, a $160,000, or 15.8%, increase in professional fees and assessments and a $142,000, or 55.3%, increase in deposit insurance fees during the year
ended December 31, 2024. The decrease in salaries and benefits during the year ended December 31, 2024 was due to the adjustment of staffing levels in late
2023 reflecting the expected reduction in 2024 residential mortgage and commercial lending activity offset by normal salary increases. 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 expense decreased $3.4 million to $527,000 for the year ended December 31, 2024 compared to $3.9 million for the year
ended December 31, 2023. The effective tax rate was 3,764.3% and 58.8% for the years ended December 31, 2024 and 2023, respectively. Income (loss) before
income tax expense was $14,000 for the year ended December 31, 2024 as compared to $(6.7) million for the year ended December 31, 2023. The increase in
the effective tax rate for 2024 as compared to 2023 was due primarily to the increase in the valuation allowance for all deferred tax assets during the year ended
December 31, 2024.
Average Balance Sheets
The following tables set forth average balance sheets, average yields and costs and certain other information at the date and for the years indicated. No
tax-equivalent yield adjustments have been made, as the effects would be immaterial. All average balances are daily average balances. Non-accrual loans are
included in the computation of average balances only. The yields set forth below include the effect of net deferred fee expense, discounts and premiums that
are amortized or accreted to interest income or interest expense. Average loan balances exclude loans held for sale, if applicable. The following tables include
no out-of-period items or adjustments.
For the Year Ended December 31,
2024
2023
Average
Outstanding
Balance
Interest
Average
Yield/Rate
Average
Outstanding
Balance
Interest
Average
Yield/Rate
(Dollars in thousands)
Interest-earning assets:
Loans
$
433,244 $
19,631
4.53 % $
414,601 $
16,896
4.08 %
Taxable debt securities
74,944
3,398
4.53 %
52,622
1,521
2.89 %
Non-taxable debt securities
49,920
1,712
3.43 %
56,928
1,735
3.05 %
Interest-bearing deposits with other banks
8,872
459
5.17 %
5,872
201
3.42 %
Federal Home Loan Bank stock
2,794
231
8.26 %
2,820
237
8.40 %
Total interest-earning assets
569,774
25,431
4.46 %
532,843
20,590
3.86 %
Non-interest-earning assets
12,384
18,485
Total assets
$
582,158
$
551,328
Interest-bearing liabilities:
NOW and demand deposits
$
95,786 $
529
0.55 % $
101,947 $
402
0.39 %
Money market deposits
78,147
2,557
3.27 %
74,045
1,830
2.47 %
Savings deposits
73,411
1,867
2.54 %
65,802
1,004
1.53 %
Time deposits
114,277
4,696
4.11 %
77,406
2,095
2.71 %
Total interest-bearing deposits
361,621
9,649
2.67 %
319,200
5,331
1.67 %
Borrowings
81,880
3,873
4.73 %
78,839
3,709
4.70 %
Other
1,691
11
0.66 %
1,894
40
2.13 %
Total interest-bearing liabilities
445,192
13,533
3.04 %
399,933
9,080
2.27 %
Non-interest-bearing deposits
65,200
76,533
Other noninterest-bearing liabilities
7,042
4,299
Total liabilities
517,434
480,765
Total equity
64,724
70,563
Total liabilities and equity
$
582,158
$
551,328
Net interest income
$
11,898
$
11,510
Net interest rate spread
1.42 %
1.59 %
Net interest-earning assets
$
124,582
$
132,910
Net interest margin
2.09 %
2.16 %
Average interest-earning assets
as a percent of interest-bearing
liabilities
127.98 %
133.23 %
(1)
Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2)
Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by average total interest-earning assets.
(4)
Net deferred fee expense included in loan interest totaled $475,000 and $374,000 for the years ended December 31, 2024 and 2023, respectively.
(4)
(1)
(2)
(3)
40
Rate/Volume Analysis
The following table presents the effects of changing rates and volumes on our net interest income for the years indicated. The rate column shows the
effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume
(changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both
rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume.
Year Ended December 31, 2024 vs. 2023
Increase (Decrease) Due to
Total Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
784
$
1,951
$
2,735
Taxable debt securities
802
1,075
1,877
Non-taxable debt securities
(227)
204
(23)
Interest-bearing deposits with other banks
129
129
258
Federal Home Loan Bank stock
(2)
(4)
(6)
Total interest-earning assets
1,486
3,355
4,841
Interest-bearing liabilities:
NOW and demand deposits
(26)
153
127
Money market deposits
106
621
727
Savings deposits
128
735
863
Time deposits
1,246
1,355
2,601
Total interest-bearing deposits
1,454
2,864
4,318
Borrowings
144
20
164
Other
(4)
(25)
(29)
Total interest-bearing liabilities
1,594
2,859
4,453
Change in net interest income
$
(108)
$
496
$
388
Management of Market Risk
General. Most of our assets and liabilities are monetary in nature. Consequently, our most significant form of market risk is interest rate risk. Our assets,
consisting primarily of loans, have longer maturities than our liabilities, consisting primarily of deposits. As a result, a principal part of our business strategy is
to manage our exposure to changes in market interest rates. Accordingly, the board of directors established a management-level Asset/Liability Management
Committee (the “ALCO”), which takes responsibility for overseeing the asset/liability management process and related procedures. The ALCO meets on at
least a quarterly basis and reviews asset/liability strategies, liquidity positions, alternative funding sources, interest rate risk measurement reports, capital levels
and economic trends at both national and local levels. Our interest rate risk position is also monitored quarterly by the board of directors.
We manage our interest rate risk in an effort to minimize the exposure of our earnings and capital to changes in market interest rates. We have
implemented the following strategies to manage our interest rate risk: originating loans with adjustable interest rates; promoting core deposit products; selling a
portion of fixed-rate one- to four-family residential real estate loans; maintaining investments as available-for-sale; diversifying our loan portfolio; and
strengthening our capital position. By following these strategies, we believe that we are better positioned to react to changes in market interest rates.
Net Portfolio Value Simulation. We analyze our sensitivity to changes in interest rates through a net portfolio value of equity (“NPV”) model. NPV
represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for
the value of off-balance sheet contracts. The NPV ratio represents the dollar amount of our NPV divided by the present value of our total assets for a given
interest rate scenario. NPV attempts to quantify our economic value using a discounted cash flow methodology while the NPV ratio reflects that value as a form
of capital ratio. We estimate what our NPV would be at a specific date. We then calculate what the NPV would be at the same date throughout a series of
interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate NPV under the assumptions that interest
rates increase 100, 200, 300 and 400 basis points from current market rates and that interest rates decrease 100, 200, 300 and 400 basis points from current
market rates.
41
The following table presents the estimated changes in our net portfolio value that would result from changes in market interest rates as of December 31,
2024 and 2023.
As of December 31, 2024:
Net Portfolio Value ("NPV")
NPV as Percent of
Portfolio Value of
Assets
Basis Point ("bp") Change in Interest Rates
Dollar
Amount
Dollar
Change
Percent
Change
NPV
Ratio
Change
(Dollars in thousands)
400 bp
$
41,552 $
(32,138 )
(43.6 )%
8.9 % $
(477 )
300 bp
50,126
(23,564 )
(32.0 )
10.3
(332 )
200 bp
58,086
(15,604 )
(21.2 )
11.6
(210 )
100 bp
66,471
(7,219 )
(9.8 )
12.7
(90 )
0
73,690
—
—
13.6
—
(100) bp
79,465
5,775
7.8
14.2
59
(200) bp
82,581
8,891
12.1
14.4
72
(300) bp
83,028
9,338
12.7
14.1
41
(400) bp
79,737
6,047
8.2
13.2
(45 )
As of December 31, 2023:
Net Portfolio Value ("NPV")
NPV as Percent of
Portfolio Value of
Assets
Basis Point ("bp") Change in Interest Rates
Dollar
Amount
Dollar
Change
Percent
Change
NPV
Ratio
Change
(Dollars in thousands)
400 bp
$
38,063 $
(29,082)
(43.3)%
8.4% $
(434)
300 bp
45,307
(21,838)
(32.5)
9.6
(310)
200 bp
52,710
(14,435)
(21.5)
10.8
(194)
100 bp
60,749
(6,396)
(9.5)
11.9
(78)
0
67,145
—
—
12.7
—
(100) bp
72,043
4,898
7.3
13.2
45
(200) bp
74,730
7,585
11.3
13.2
49
(300) bp
74,371
7,226
10.8
12.7
4
(400) bp
67,366
221
0.3
11.3
(141)
Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain
assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The above table assumes that
the composition of our interest-sensitive assets and liabilities existing at the date indicated remains constant uniformly across the yield curve regardless of the
duration or repricing of specific assets and liabilities. Accordingly, although the table provides an indication of our interest rate risk exposure at a particular
point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates on our NPV and will
differ from actual results.
The percent changes to NPV in the +200, +300 and +400 bp changes in interest rates was -21.2%, -32.0% and -43.6%, respectively, at December 31,
2024 versus policy limits of -20.0%, -30.0% and -40.0%, respectively. The percent changes to NPV in the +200, +300 and +400 bp changes in interest rates was
-21.5%, -32.5% and -43.3%, respectively, at December 31, 2023 versus policy limits of -20.0%, -30.0% and -40.0%, respectively. These percent changes were
due primarily to the migration of deposits during 2024 and 2023 from less interest-sensitive products such as NOW and demand deposits to products with
greater interest rate sensitivity, i.e., money market and time deposits. We monitor our exposure to movements in interest rates regularly and discuss the
implementation of strategies we believe will mitigate the negative impact of such movements.
Economic Value of Equity. Like most financial institutions, our profitability depends to a large extent upon our net interest income, which is the
difference between our interest income on interest-earning assets, such as loans and securities, and our interest expense on interest-bearing liabilities, such as
deposits and borrowed funds, adjusted for the value of off-balance sheet contracts. Accordingly, our results of operations depend largely on movements in
market interest rates and our ability to manage our interest-rate sensitive assets and liabilities in response to these movements. Factors such as inflation,
recession, and instability in financial markets, among other factors beyond our control, may affect interest rates.
42
In a rising interest rate environment, we would expect that the rates on our deposits and borrowings would reprice upwards faster than the rates on our
long-term loans and investments, which would be expected to compress our interest rate spread and have a negative effect on our profitability. Furthermore,
increases in interest rates may adversely affect the ability of our borrowers to make loan repayments on adjustable-rate loans, as the interest owed on such loans
would increase as interest rates increase. Conversely, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as
borrowers refinance to reduce their borrowing costs. Under these circumstances, we are subject to reinvestment risk as we may have to redeploy such loan or
securities proceeds into lower-yielding assets, which might also negatively impact our income. If interest rates rise, we expect that our economic value of equity
will decrease. Economic value of equity represents the present value of the expected cash flows from our assets less the present value of the expected cash
flows arising from our liabilities. The Bank’s economic value of equity analysis as of December 31, 2024 estimated that, in the event of an instantaneous 200
basis point increase in interest rates, the Bank would experience a 21.2% decrease in economic value of equity which was above the policy limit of 20%. At the
same date, our analysis estimated that, in the event of an instantaneous 200 basis point decrease in interest rates, the Bank would experience a 12.1% increase in
the economic value of equity.
Any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition, liquidity and
results of operations. Changes in the level of interest rates may also negatively affect our ability to originate real estate loans, the value of our assets and our
ability to realize gains from the sale of our assets, all of which ultimately affect our earnings. Also, our interest rate risk modeling techniques and assumptions
likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet or projected operating results.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the
borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. As of December 31, 2024 and 2023, the
aggregate amount of uninsured total deposit balances, which is the portion exceeding the $250,000 FDIC insurance limit, had an estimated value not exceeding
$112.2 million, or 24.7% of total deposits, and $102.5 million, or 25.3% of total deposits, respectively. For customers requiring full FDIC insurance on
certificates of deposit in excess of $250,000, we began offering in late 2023 the CDARS® program, which allows the Bank to place the certificates of deposit
with other participating banks to maximize the customers’ FDIC insurance. We receive a like amount of deposits from other participating financial institutions.
In addition, we offer the ICS™ program, an insured deposit “sweep” program for demand deposits which is a product offered by IntraFi Network, LLC, which
is also the provider of the CDARS® program. Similarly to the certificates of deposit’s discussed above, the Bank receives a like amount of deposits from other
financial institutions and all customer deposits are insured by the FDIC. These “reciprocal” CDARS® and ICS deposits are classified as “brokered” deposits in
regulatory reports. The Bank considers these deposits to be “core” in nature. At December 31, 2024, our “reciprocal” CDARS® and ICS deposits were $-0- and
$6.0 million, respectively. At December 31, 2023, our “reciprocal” CDARS® and ICS deposits were $-0- and $1.1 million, respectively.
Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans and proceeds from
sales and maturities of securities. We also rely on borrowings from the FHLB as supplemental sources of funds. At December 31, 2024 and 2023, we had $52.3
million and $73.0 million outstanding in advances from the FHLB, respectively, and the ability to borrow an additional $94.0 million and $71.8 million,
respectively. At December 31, 2024 and 2023, we had an overnight line of credit with the FHLB for up to $3.0 million. Additionally, at December 31, 2024 and
2023, the Bank had a total of $2.0 million and $5.0 million, respectively, of unsecured Fed Funds borrowing lines of credit with correspondent banks. At
December 31, 2024 and 2023, there were no outstanding balances under any of these additional credit facilities.
The Bank established two secured credit facilities with the FRB – Bank Term Funding Program (“BTFP”) and Borrower-In-Custody of Collateral
Program (“BIC”). As of December 31, 2024 and 2023, $-0- and $20.0 million of BTFP advances were outstanding, respectively, and were collateralized by
eligible collateral consisting primarily of government-sponsored enterprise obligations, mortgage-backed securities and collateralized mortgage obligations
issued by various U.S. Government agencies, owned as of March 12, 2023, December 31, 2023, and December 13, 2024. No further advances could be
requested under the BTFP after March 11, 2024. The advance matured on December 13, 2024 at a fixed annual rate of 4.89%. The interest rate for term
advances under the BTFP was based upon the one-year overnight index swap rate plus 10 basis points and fixed for the term of the advance – up to one year -
on the day the advance was made.
Advances under the BIC, if any, are collateralized by eligible collateral. During December 2024, the Bank unpledged the collateral previously pledged to
the BIC - principally general obligation municipal bonds – with the intention of pledging commercial real estate loans. On January 7, 2025, the Bank completed
the collateral eligibility process with the FRB whereby the FHLB agreed to subordinate their interest in our commercial real estate loans up to a maximum of
$65 million allowing these loans to be pledged to the BIC. The Bank subsequently pledged $65.0 million of its commercial real estate loans to the BIC resulting
in $38.5 million of borrowing capacity under this credit facility as of January 16, 2025. At December 31, 2023,
43
the Bank’s borrowing capacity was $50.6 million under the BIC and was based upon eligible collateral -principally general obligation municipal bonds. The
entire balance of this credit facility was available at December 31, 2023.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly
influenced by general interest rates, economic conditions and competition. Our most liquid assets are cash and cash equivalents and available-for-sale
investment securities. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities; investing activities and financing activities. Net cash
used by operating activities was $2.9 million and $1.9 million for the years ended December 31, 2024 and 2023, respectively. Net cash used by investing
activities, which consists primarily of disbursements for loan originations and loan purchases and the purchase of securities available-for-sale, offset by
principal collections on loans, proceeds from sales, maturities and principal payments received on securities available-for-sale, was $2.5 million and $39.5
million for the years ended December 31, 2024 and 2023, respectively. Net cash provided by financing activities, consisting primarily of proceeds from the sale
of common stock, activity in deposit accounts, FHLB and FRB advances, was $6.5 million and $39.2 million for the years ended December 31, 2024 and 2023,
respectively.
We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to
meet our current funding commitments. We have no material commitments for capital expenditures as of December 31, 2024. Our current strategy is to increase
core deposits and utilize FHLB advances, as well as brokered deposits, to fund loan growth.
First Seacoast Bancorp, Inc. is a separate legal entity from First Seacoast Bank and must provide for its own liquidity to pay its operating expenses and
other financial obligations and to fund repurchases of shares of common stock. The Company’s primary source of income is dividends received from the Bank.
The amount of dividends that the Bank may declare and pay to the Company is governed by applicable bank regulations. At December 31, 2024 the Company
(on an unconsolidated basis) had liquid assets of $17.1 million.
At December 31, 2024, First Seacoast Bank exceeded all of its regulatory capital requirements. See Note 16 of the notes to our consolidated financial
statements of this annual report. Management is not aware of any conditions or events that would change First Seacoast Bank’s categorization as well-
capitalized.
Recent Accounting Developments
For a discussion of the impact of recent accounting pronouncements, see Note 3 of the notes to our consolidated financial statements of this annual
report.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles
in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering
changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased
operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest
rates generally have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same
direction or to the same extent as the prices of goods and services.
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
The information regarding this Item is contained in Item 7 under the heading “Management of Market Risk.”
44
ITEM 8. Financial Statements and Supplementary Data
FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
December 31,
2024
2023
ASSETS
Cash and due from banks
$
7,100 $
6,069
Securities available-for-sale, at fair value
120,217
121,854
Federal Home Loan Bank stock
2,498
2,986
Total loans
438,967
430,031
Less allowance for credit losses on loans
(3,486)
(3,390)
Net loans
435,481
426,641
Land, building and equipment, net
754
4,072
Bank-owned life insurance
4,768
4,663
Accrued interest receivable
2,103
2,294
Other assets
7,859
2,456
Total assets
$
580,780 $
571,035
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Non-interest bearing deposits
$
62,168 $
65,845
Interest bearing deposits
392,040
338,953
Total deposits
454,208
404,798
Advances from Federal Home Loan Bank
52,268
73,007
Advances from Federal Reserve Bank
—
20,000
Mortgagors’ tax escrow
654
640
Deferred compensation liability
2,392
2,071
Other liabilities
9,208
3,901
Total liabilities
518,730
504,417
Stockholders' Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized, none issued
—
—
Common Stock, $.01 par value, 90,000,000 shares authorized; 5,304,812 issued and 4,785,569 outstanding at
December 31, 2024; and 5,192,612 issued and 5,077,164 outstanding at December 31, 2023
53
52
Additional paid-in capital
53,900
52,642
Retained earnings
25,084
25,597
Accumulated other comprehensive loss
(7,044)
(5,944)
Treasury stock, at cost: 519,243 and 115,448 shares outstanding as of December 31, 2024 and 2023, respectively
(5,085)
(1,381)
Unearned stock compensation
(4,858)
(4,348)
Total stockholders' equity
62,050
66,618
Total liabilities and stockholders' equity
$
580,780 $
571,035
The accompanying notes are an integral part of these consolidated financial statements.
45
FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
Year Ended December 31,
(Dollars in thousands, except per share data)
2024
2023
Interest and dividend income:
Interest and fees on loans
$
19,631
$
16,896
Interest on debt securities:
Taxable
3,857
1,722
Non-taxable
1,712
1,735
Total interest on debt securities
5,569
3,457
Dividends
231
237
Total interest and dividend income
25,431
20,590
Interest expense:
Interest on deposits
9,660
5,371
Interest on borrowings
3,873
3,709
Total interest expense
13,533
9,080
Net interest and dividend income
11,898
11,510
(Release) provision for credit losses
(72 )
188
Net interest and dividend income after (release) provision for credit losses
11,970
11,322
Non-interest income:
Customer service fees
722
759
Gain on sale of loans
25
2
Securities gains (losses), net
7
(4,173 )
Gain (loss) on sale of land, building and equipment
2,522
(2 )
Gain on termination of interest rate swaps
—
849
Income from bank-owned life insurance
105
102
Loan servicing fee income
48
77
Investment services fees
431
332
Other income
44
47
Total non-interest income (loss)
3,904
(2,007 )
Non-interest expense:
Salaries and employee benefits
9,232
9,659
Director compensation
345
343
Occupancy expense
972
758
Equipment expense
352
456
Marketing
419
530
Data processing
1,502
1,596
Deposit insurance fees
399
257
Professional fees and assessments
1,174
1,014
Debit card fees
128
191
Employee travel and education expenses
177
208
Other expense
1,160
1,015
Total non-interest expense
15,860
16,027
Income (loss) before income tax expense
14
(6,712 )
Income tax expense
527
3,944
Net loss
$
(513 )
$
(10,656 )
Loss per share:
Basic
$
(0.12 )
$
(2.29 )
Diluted
$
(0.12 )
$
(2.29 )
Weighted Average Shares:
Basic
4,335,154
4,650,916
Diluted
4,335,154
4,650,916
(1) Not adjusted for potentially dilutive shares for years where a net loss is recognized. The years ended December 31, 2024 and 2023 exclude 99,656 and 64,786, respectively, of stock-based awards
that could potentially dilute basic earnings per share in the future that were not included in the computation of diluted earnings per share because to do so would have been antidilutive for the years
presented.
The accompanying notes are an integral part of these consolidated financial statements.
(1)
46
FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
Year Ended December 31,
(Dollars in thousands)
2024
2023
Net loss
$
(513 ) $
(10,656 )
Other comprehensive (loss) income, net of income taxes :
Securities available-for-sale:
Unrealized holding (losses) gains on securities available-for-sale
arising during the year, net of income taxes of $(540) and $315
in 2024 and 2023, respectively
(1,463 )
773
Reclassification adjustment for securities (gains) losses, net and net amortization
of bond premiums included in net loss, net of income taxes of
$146 and $1,367 in 2024 and 2023, respectively
394
3,711
Total unrealized (loss) gain on securities available-for-sale
(1,069 )
4,484
Derivatives:
Change in interest rate swaps, net of income taxes of $(3) and
$(30) in 2024 and 2023, respectively
(9 )
(82 )
Reclassification adjustment for gains and net interest income on swaps included in
net loss, net of income taxes of $(8) and $(230) in 2024 and 2023,
respectively
(22 )
(619 )
Total change in interest rate swaps
(31 )
(701 )
Other comprehensive (loss) income
(1,100 )
3,783
Comprehensive loss
$
(1,613 ) $
(6,873 )
(1)Includes a deferred tax valuation allowance equal to the net tax benefit.
The accompanying notes are an integral part of these consolidated financial statements.
(1)
47
FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(Dollars in thousands)
Shares of
Common
Stock
Common
Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Loss
Treasury
Stock
Unearned
Stock
Compensation
Total
Stockholders'
Equity
Balance December 31, 2022
5,068,637 $
62 $
26,768 $
36,248 $
(9,727 ) $
(1,377 ) $
(2,637 ) $
49,337
Net loss
—
—
—
(10,656 )
—
—
—
(10,656 )
Other comprehensive income
—
—
—
—
3,783
—
—
3,783
Treasury stock activity
(549 )
—
—
—
—
(4 )
—
(4 )
Cumulative adjustment for change in accounting
principle
(ASU 2016-13)
—
—
—
5
—
—
—
5
Reorganization: Conversion of First Seacoast
Bancorp, Inc.
(net of costs of $2.4 million)
6,598
(10 )
25,732
—
—
—
—
25,722
Purchase of 224,400 shares of common stock by the
ESOP
—
—
—
—
—
—
(2,244 )
(2,244 )
Issuance of stock compensation
2,478
—
20
—
—
—
(20 )
—
Amortization of unearned stock compensation
—
—
—
—
—
—
399
399
Stock-based compensation expense
—
—
150
—
—
—
—
150
ESOP shares earned - 15,354 shares
—
—
(28 )
—
—
—
154
126
Balance December 31, 2023
5,077,164 $
52 $
52,642 $
25,597 $
(5,944 ) $
(1,381 ) $
(4,348 ) $
66,618
Balance December 31, 2023
5,077,164 $
52 $
52,642 $
25,597 $
(5,944 ) $
(1,381 ) $
(4,348 ) $
66,618
Net loss
—
—
—
(513 )
—
—
—
(513 )
Other comprehensive loss
—
—
—
—
(1,100 )
—
—
(1,100 )
Treasury stock activity
(403,795 )
—
—
—
—
(3,704 )
—
(3,704 )
Excise tax on stock repurchases
—
—
(37 )
—
—
—
—
(37 )
Issuance of stock compensation
112,200
1
1,041
—
—
—
(1,042 )
—
Amortization of unearned stock compensation
—
—
—
—
—
—
378
378
Stock-based compensation expense
—
—
270
—
—
—
—
270
ESOP shares earned - 15,354 shares
—
—
(16 )
—
—
—
154
138
Balance December 31, 2024
4,785,569 $
53 $
53,900 $
25,084 $
(7,044 ) $
(5,085 ) $
(4,858 ) $
62,050
(1) Shares adjusted for conversion of the former First Seacoast Bancorp, MHC.
The accompanying notes are an integral part of these consolidated financial statements.
(1)
48
FIRST SEACOAST BANCORP INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
(Dollars in thousands)
2024
2023
Cash flows from operating activities:
Net loss
$
(513 )
$
(10,656 )
Adjustments to reconcile net loss to net cash used by operating activities:
Cumulative change in accounting principle (ASU 2016-13)
—
5
ESOP expense
138
126
Stock based compensation
648
549
Depreciation and amortization
384
486
Net amortization of bond premium
549
904
Securities (gains) losses, net
(7 )
4,173
(Release) provision for credit losses
(72 )
188
Gain on sale of loans
(25 )
(2 )
(Gain) loss on sale of land, building and equipment
(2,522 )
2
Gain on termination of interest rate swaps
—
(849 )
Proceeds from loans sold
411
419
Origination of loans sold
(386 )
(417 )
Increase in bank-owned life insurance
(105 )
(102 )
Increase in deferred costs on loans
(136 )
(183 )
Deferred tax expense
403
3,861
Decrease (increase) in accrued interest receivable
191
(306 )
(Increase) decrease in other assets
(6,901 )
440
Increase in deferred compensation liability
321
241
Increase in lease liabilities
5,061
—
Decrease in other liabilities
(387 )
(794 )
Net cash used by operating activities
(2,948 )
(1,915 )
Cash flows from investing activities:
Proceeds from sales, maturities and principal payments received on securities available-for-sale
36,223
40,863
Purchase of securities available-for-sale
(36,685 )
(55,401 )
Purchase of property and equipment
(368 )
(349 )
Loan purchases
(4,486 )
(4,327 )
Loan originations and principal collections, net
(4,648 )
(22,385 )
Net redemption of Federal Home Loan Bank stock
488
516
Proceeds from sales of interest bearing time deposits with other banks
—
747
Proceeds from sale of land, building and equipment
7,395
—
Termination of fair value hedges
(430 )
—
Proceeds from termination of interest rate swaps
—
849
Net cash used by investing activities
(2,511 )
(39,487 )
Cash flows from financing activities:
Net increase (decrease) in NOW, demand deposits, money market and savings accounts
4,974
(7,121 )
Net increase in time deposits
44,436
29,556
Increase (decrease) in mortgagors’ escrow accounts
14
(298 )
Proceeds of finance lease
1,539
—
Principal payments on finance lease
(30 )
—
Proceeds from sale of common stock, net
—
25,622
Common stock purchased by ESOP
—
(2,244 )
Return of capital from conversion of First Seacoast Bancorp, Inc.
—
100
Treasury stock purchases
(3,704 )
(4 )
Proceeds from advances from Federal Reserve Bank
—
45,000
Proceeds from long-term FHLB advances
25,401
50,000
Net payments on short-term FHLB advances
(20,340 )
(61,390 )
Payments on long-term FHLB advances
(25,800 )
(15,000 )
Payments on advances from Federal Reserve Bank
(20,000 )
(25,000 )
Net cash provided by financing activities
6,490
39,221
Net change in cash and cash equivalents
1,031
(2,181 )
Cash and cash equivalents at beginning of year
6,069
8,250
Cash and cash equivalents at end of year
$
7,100
$
6,069
49
Supplemental disclosure of cash flow information:
Cash activities:
Cash paid for interest
$
13,439
$
8,794
Cash paid for income taxes
49
56
Noncash activities:
Effect of change in fair value of securities available-for-sale:
Securities available-for-sale
(1,463 )
6,167
Deferred taxes
394
(1,683 )
Other comprehensive (loss) income
(1,069 )
4,484
Effect of change in fair value of interest rate swaps:
Interest rate swaps
(42 )
(961 )
Deferred taxes
11
260
Other comprehensive loss
(31 )
(701 )
Cumulative fair value hedging adjustment - loans
675
(632 )
Cumulative fair value hedging adjustment - securities available-for-sale
126
(126 )
Effect of the adoption of ASU 2016-13:
Allowance for credit losses on loans
—
(295 )
Other liabilities
—
290
The accompanying notes are an integral part of these consolidated financial statements.
50
FIRST SEACOAST BANCORP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
The Company
The accompanying consolidated financial statements include the accounts of First Seacoast Bancorp, Inc. (the “Company”), its wholly-owned
subsidiary, First Seacoast Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, FSB Service Corporation, Inc. All significant intercompany balances
and transactions have been eliminated in consolidation.
Corporate Structure
On January 19, 2023, the conversion of First Seacoast Bancorp, MHC from mutual to stock form and the related stock offering by First Seacoast
Bancorp, Inc., the new holding company for First Seacoast Bank, was completed. As a result, both First Seacoast Bancorp, MHC and First Seacoast Bancorp (a
federal corporation) ceased to exist. First Seacoast Bancorp, Inc.’s common stock began trading on the Nasdaq Capital Market under the trading symbol
“FSEA” on January 20, 2023. As a result of the subscription offering, the community offering and the syndicated community offering, First Seacoast Bancorp,
Inc. sold a total of 2,805,000 shares of its common stock at a price of $10.00 per share, which includes 224,400 shares sold to First Seacoast Bank’s Employee
Stock Ownership Plan. As part of the conversion transaction, each outstanding share of First
Seacoast Bancorp (a federal corporation) common stock owned by the public stockholders of First Seacoast Bancorp (a federal corporation) (stockholders other
than First Seacoast Bancorp, MHC) as of the closing date was converted into shares of First Seacoast Bancorp, Inc. common stock based on an exchange ratio
of 0.8358 shares of First Seacoast Bancorp, Inc. common stock for each share of First Seacoast Bancorp (a federal corporation) common stock.
The Bank offers a full range of banking and wealth management services to its customers. The Bank focuses on four core services that center around
customer needs. The core services include residential lending, commercial banking, personal banking and wealth management. The Bank offers a full range of
commercial and consumer banking services through its network of five full-service branch locations.
Investment management services are offered through FSB Wealth Management. FSB Wealth Management is a division of First Seacoast Bank. The
division currently consists of two financial advisors who are located in Dover, New Hampshire. FSB Wealth Management provides access to non-FDIC insured
products that include retirement planning, portfolio management, investment and insurance strategies, business retirement plans and college planning to
individuals throughout our primary market area. These investments and services are offered through a third-party registered broker-dealer and investment
advisor. FSB Wealth Management receives fees from advisory services and commissions on individual investment and insurance products purchased by clients.
The assets held for wealth management customers are not assets of the Company and, accordingly, are not reflected in the Company’s consolidated balance
sheets.
The Bank is engaged principally in the business of attracting deposits from the public and investing those funds in various types of loans, including
residential and commercial real estate loans, and a variety of commercial and consumer loans. The Bank also invests its deposits and borrowed funds in
investment securities. Deposits at the Bank are insured by the Federal Deposit and Insurance Corporation (“FDIC”) for the maximum amount permitted by law.
2.
Summary of Significant Accounting Policies
Basis of Presentation
The financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”).
Use of Estimates
In preparing consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities as of the date of the consolidated balance sheet and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Significant estimates that are particularly susceptible to change relate to the determination of the allowance for credit losses and the valuation of deferred
tax assets.
Consolidated Statements of Cash Flows
For the purpose of reporting cash flows, cash includes cash and due from banks with original maturities of 90 days or less.
51
Reclassifications
Certain amounts in the prior year’s financial statements may have been reclassified to conform with the current year’s presentation.
Securities Available-for-Sale
The Company classifies the available-for-sale securities portfolio into the following major security types: U.S. Government-sponsored enterprise
obligations, U.S. Government agency small business administration pools guaranteed by SBA, collateralized mortgage obligations issued by the FHLMC,
FNMA and GNMA, residential mortgage-backed securities, municipal bonds, corporate debt and corporate subordinated debt. Nearly all of the mortgage-
backed securities held by the Company are issued by the U.S. government and its entities and agencies. These securities are either explicitly or implicitly
guaranteed by the U.S. government, are highly rated by major rating agencies and have a history of no credit losses. The remainder of the residential mortgage-
backed securities are non-agency collateralized mortgage obligations which currently carry investment-grade bond ratings. At December 31, 2024, municipal
bonds are highly-rated and are issued by state and local governments with minimal credit risk. Available-for-sale securities consist of debt securities that the
Company intends to hold for an indefinite period of time, but not necessarily to maturity. These assets are carried at fair value. Unrealized holding gains and
losses for these assets, net of related deferred income taxes adjusted for valuation allowances, are recorded in and reported as accumulated other comprehensive
loss within stockholders’ equity. For debt securities in an unrealized loss position, the Company considers the extent of the unrealized loss and the financial
condition and near-term prospects of the issuer. The Company also determines whether it has the intent to sell the debt security or whether it is more likely than
not it will be required to sell the debt security before the recovery of its amortized cost basis. If either condition is met, the Company will write-down to fair
value through a charge to earnings. For all other debt securities, the Company evaluates whether the decline in fair value has resulted from credit losses or other
factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by
a rating agency, and adverse conditions specifically related to this security, among other factors. If this assessment indicates that a credit loss exists, the present
value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security. If the present value of cash flows
expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the
amount the fair value is less than the amortized cost basis. Losses related to non-credit- related factors will be recorded in other comprehensive (loss) income.
Changes in the allowance for credit losses are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance
when management believes the uncollectibility of an available-for-sale security is confirmed or when either of the criteria regarding intent or requirement to sell
is met.
Debt securities are placed on non-accrual status at the time any principal or interest payments become 90 days delinquent. Interest accrued but not
received for a security placed on non-accrual is reversed against interest income.
Gains and losses on the sale of available-for-sale securities are determined using the specific identification method. Premiums and discounts are
recognized in interest income using the interest method. Discounts are recognized over the period to maturity. Premiums are recognized over the period to call,
if applicable. Otherwise, premiums are recognized over the period to maturity.
Federal Home Loan Bank Stock
Federal Home Loan Bank (“FHLB”) stock is carried at cost and can only be sold to the FHLB based on its current redemption policies. The Company
reviews its investment in capital stock of the FHLB for impairment based on the ultimate recoverability of the cost basis in the FHLB stock. Based on the most
recent analysis of the FHLB, as of December 31, 2024, management deems its investment in FHLB stock to not be impaired.
Loans
Loans that management has the intent and ability to hold for the foreseeable future or until maturity or pay-off generally are reported at their outstanding
unpaid principal balances adjusted for charge-offs, the allowance for credit losses, net deferred loan origination fees/costs on originated loans or unamortized
premiums or discounts on purchased loans. Interest income is accrued on the unpaid principal balance on a simple interest basis.
52
The accrual of interest on loans is discontinued at the time the loan is 90 days past due or determined to be non-performing, if earlier. Past due status is
based on contractual terms of the loan. In all cases, loans are placed on non-accrual if collection of principal or interest is considered doubtful. All interest
accrued but not collected for such loans is reversed against interest income. For payments received on such loans, the interest is accounted for on the cash-basis
or recorded as a reduction to loan principal if recovery is not assured, until qualifying for return to accrual. Loans are returned to accrual status when all the
principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Cash receipts of interest income on non-performing loans are credited to principal to the extent necessary to eliminate doubt as to the collectability of the
net carrying amount of the loan. Some or all of the cash receipts of interest income on non-performing loans is recognized as interest income if the remaining
net carrying amount of the loan is deemed to be fully collectible. When recognition of interest income on a non-performing loan on a cash basis is appropriate,
the amount of income that is recognized is limited to that which would have been accrued on the net carrying amount of the loan at the contractual interest rate.
Any cash interest payments received in excess of the limit and not applied to reduce the net carrying amount of the loan are recorded as recoveries of charge-
offs until the charge-offs are fully recovered.
Loan Origination Fees and Costs
Loan origination fees and certain direct loan origination costs are deferred and recognized in interest income as an adjustment to the loan yield over the
life of the related loans. The unamortized net deferred fees and costs are included on the consolidated balance sheets with the related loan balances. The amount
charged or credited to income is included with the related interest income.
Allowance for Credit Losses ("ACL")
The Company estimates its allowance for credit losses ("ACL") as outlined in Accounting Standards Update ("ASU") 2016-13, "Financial Instruments -
Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended ("ASU 2016-13" or “ASC 326”)." Under ASC 326, the ACL
at each reporting period serves as a best estimate of projected credit losses over the contractual life of certain assets and off-balance sheet exposures, adjusted
for expected prepayments, given an expectation of economic conditions and forecasts as of the valuation date. Upon adoption of ASC 326, the Company made
the following elections regarding accrued interest receivable: (i) present accrued interest receivable balances separately on the balance sheet on the consolidated
statements of condition; (ii) exclude accrued interest from the measurement of the ACL, including investments and loans; and (iii) continue to write-off accrued
interest receivable by reversing interest income. The Company has a policy in place to write-off accrued interest when a loan is placed on non-accrual. Accrued
interest is written-off by reversing previously recorded interest income. For loans, write-off typically occurs when a loan has been in default for 90 days or
more. Immaterial amounts of accrued interest on non-accrual loans were written off during the years ended December 31, 2024 and 2023, by reversing interest
income. Historically, the Company has not experienced uncollectible accrued interest receivable on its securities available-for-sale.
The ACL is the sum of various components including the following: (a) historical loss experience, (b) a reasonable and supportable forecast, (c) loans
evaluated individually, and (d) changes in relevant environmental factors. The historical loss component is segmented by loan type and serves as the core of the
ACL adequacy methodology. The Company has selected the Weighted Average Remaining Maturity Model (“WARM”), for the loss calculation of each of the
Bank’s loan pools utilizing a third-party software application. The WARM uses a quarterly loss rate and future expectations of loan balances to calculate an
ACL. A loss rate is applied to pool balances over time.
ASC 326 may create more volatility in the ACL, specifically the ACL on loans and ACL on off-balance sheet credit exposures. Under ASC 326, the
ACL may increase or decrease period to period based on many factors, including, but not limited to: (i) macroeconomic forecasts and conditions; (ii) forecast
period and reversion speed; (iii) prepayment speed assumption; (iv) loan portfolio volumes and changes in mix; (v) credit quality; and (vi) various qualitative
factors outlined in ASU 2016-13.
The significant key assumptions used with the ACL calculation at December 31, 2024 and 2023 using the ASC 326 methodology, included:
•Macroeconomic factors (loss drivers): Monitoring and assessing local and national unemployment, changes in national GDP and other macroeconomic
factors which may be the most predictive indicator of losses within the loan portfolio. The macroeconomic factors considered in determining the ACL may
change from time to time.
•Forecast Period and Reversion speed: ASU 2016-13 requires a company to use a reasonable and supportable forecast period in developing the ACL,
which represents the time period that management believes it can reasonably forecast the identified loss drivers. Generally, the forecast period the Company
believes to be reasonable and supportable will be set annually and validated through an assessment of economic leading indicators. In periods of greater
volatility and uncertainty, such as the current interest rate environment, the Company will likely use a shorter forecast period, whereas when markets,
53
economies, interest rate environment, political matters, and other factors are considered to be more stable and certain, a longer forecast period may be used.
Also, in times of greater uncertainty, the Company may consider a range of possible forecasts and evaluate the probability of each scenario. Generally, the
forecasted period is expected to range from one to three years. Once the reasonable and supportable forecast period is determined, ASU 2016-13 requires a
company to revert its loss expectations to the long-run historical mean for the remainder of the contract life of the asset, adjusted for prepayments. In
determining the length of time over which the reversion will take place (i.e., "reversion speed"), factors such as, historical credit loss experience over previous
economic cycles, as well as where the Company believes it is within the current economic cycle, will be considered. At December 31, 2024 and 2023, the
Company has chosen a forecast period of four quarters which will be similar to the historical loss period between January 2014 and December 2016 and then
reverting to the long-term average over the following two quarters using the straight-line reversion method. The Company believes this historical forecast
period to be representative of potential economic conditions over the next eighteen months.
•Prepayment speeds: Prepayment speeds are determined for each loan segment utilizing the Company's historical loan data, as well as consideration of
current environmental factors. The prepayment speed assumption is utilized with the WARM method to forecast expected cash flows over the contractual life of
the loan, adjusted for expected prepayments. A higher prepayment speed assumption will drive a lower ACL, and vice versa.
•Qualitative factors: As within previous accounting guidance used for the "incurred loss" model, ASU 2016-13 requires companies to consider various
qualitative factors that may impact expected credit losses. The Company continues to consider qualitative factors in determining and arriving at an ACL at each
reporting period such as: (i) actual or expected changes in economic trends and conditions, (ii) changes in the value of underlying collateral for loans, (iii)
changes to lending policies, underwriting standards and/or management personnel performing such functions, (iv) delinquency and other credit quality trends,
(v) credit risk concentrations, if any, (vi) changes to the nature of the Company's business impacting the loan portfolio, (vii) and other external factors, that may
include, but are not limited to, results of internal loan reviews and examinations by bank regulatory agencies.
Certain loans which may not share similar risk characteristics with other loans in the portfolio may be tested individually for estimated credit losses,
including (i) loans classified as special mention, substandard or doubtful and are on non-accrual, (ii) a loan modified for a borrower experiencing financial
difficulty or (iii) loans that have other unique characteristics. Factors considered in measuring the extent of the expected credit loss for these loans may include
payment status, collateral value, borrower's financial condition, guarantor support and the probability of collecting scheduled principal and interest payments
when due.
The ACL is measured on a collective basis for pools of loans with similar risk characteristics. The Company has identified the following pools of
financial assets with similar risk characteristics for measuring expected credit losses:
•Owner occupied commercial real estate mortgage loans - Owner occupied commercial real estate mortgage loans are secured by commercial office
buildings, industrial buildings, warehouses or retail buildings where the owner of the building occupies the property. For such loans, repayment is largely
dependent upon the operation of the borrower's business.
•Non-owner occupied commercial real estate and multi-family real estate loans - These loans represent investment real estate loans secured by office
buildings, industrial buildings, warehouses, retail buildings, and multi-family residential housing. Repayment is primarily dependent on lease income generated
from the underlying collateral.
•Consumer real estate mortgage loans - Consumer real estate mortgage consists primarily of loans secured by one- to four-family residential
properties, including home equity loans and lines of credit. Repayment is primarily dependent on the personal cash flow of the borrower.
•Acquisition, development and land loans - Acquisition, development and land loans include loans where the repayment is dependent on the
successful completion and eventual sale, refinance or operation of the related real estate project. Acquisition, development and land loans include one- to four-
family construction projects and commercial construction or rehabilitation endeavors such as warehouses, apartments, office and retail space and land
acquisition and development.
•Commercial and industrial loans - Commercial and industrial loans include loans to business enterprises issued for commercial, industrial and/or
other professional purposes. These loans are generally secured by equipment, inventory, and accounts receivable of the borrower and repayment is primarily
dependent on business cash flows.
•Consumer and other loans - Consumer and other loans include all loans issued to individuals, primarily pre-existing Bank customers, not included
in the consumer real estate mortgage classification and purchased loans secured by manufactured housing properties. Examples of consumer and other loans are
automobile loans and other installment loans extended directly to the borrower. Consumer loans may be unsecured. Repayment is primarily dependent on the
personal cash flow of the borrower.
54
The WARM method uses an approach that begins with a quarterly loss rate and applies that rate to the loan pools of financial assets with similar risk
characteristics noted above on a periodic basis over time for the remaining life expectation of each loan pool. Due to the Company’s limited loss experience, the
Company has chosen to use peer group loss data in the calculation of the quarterly loss rate. A peer group was selected within the third-party software
application which includes all banks between $300 million and $1 billion in asset size located in the northeastern United States. The historical loss component
segmented by loan pool serves as the core of the ACL adequacy methodology. The remaining life calculation for each pool is calculated by the third-party
software application using an attrition calculator that performs quarterly cohort-based attrition measurements using the actual historical experience of each loan
pool.
The estimated credit losses for all loan pools are adjusted for changes in qualitative factors not inherently considered in the quantitative analyses. The
qualitative categories and the measurements used to quantify the risks within each of these categories are subjectively selected by the Company but measured
by objective measurements period over period. The data for each measurement may be obtained from internal or external sources. The current period
measurements are evaluated and assigned a factor commensurate with the current level of risk relative to past measurements over time. The resulting qualitative
adjustments are applied to the relevant collectively evaluated loan portfolios. These adjustments are based upon quarterly trend assessments in portfolio
concentrations, policy exceptions, associate retention, independent loan review results, competition and peer group credit quality trends. The qualitative
allowance allocation, as determined by the processes noted above, is increased or decreased for each loan segment based on the assessment of these various
qualitative factors. Additional qualitative considerations are made for any identified risk which did not exist within the portfolio historically and therefore may
not be adequately addressed through evaluation of such risk factor based on historical portfolio trends as previously discussed.
Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. The contractual
term excludes expected extensions, renewals, and modifications unless either of the following applies: the Company has a reasonable expectation at the
reporting date that a modification will be executed with an individual borrower, or the extension or renewal options are included in the original or modified
contract at the reporting date and are not unconditionally cancellable by the Company. Modifications to borrowers experiencing financial difficulty may include
interest rate reductions, principal or interest forgiveness, forbearances, term extensions, and other actions intended to minimize economic loss and to avoid
foreclosure or repossession of collateral.
The allowance for credit losses on off-balance sheet credit exposures represents the expected credit losses on off-balance sheet commitments such as
unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the
Company. The allowance for credit losses on off-balance sheet credit exposures is recognized as a liability (other liabilities in the consolidated balance sheet),
with adjustments to the allowance recognized in the provision for credit losses in the consolidated statements of loss. The allowance for credit losses on off-
balance sheet credit exposures is determined by estimating future draws and applying the expected loss rates on those draws. Future draws are based on
historical averages of utilization rates (i.e., the likelihood of draws taken). To estimate future draws on unfunded balances, current utilization rates are compared
to historical utilization rates. If current utilization rates are below historical utilization rates, the rate difference is applied to the committed balance to estimate
the future draw. Loss rates are estimated by utilizing the same loss rates calculated for the allowance for credit losses general reserves.
While policies and procedures used to estimate the ACL, as well as the resultant provision for credit losses charged to loss, are considered adequate
by the Company, they are necessarily approximate and imprecise. There are factors beyond the Company's control, such as changes in projected economic
conditions, real estate markets or particular industry conditions which may materially impact asset quality and the adequacy of the ACL and thus the resulting
provision for credit losses.
Land, Building and Equipment
Land is stated at cost. Building and equipment are stated at cost, less accumulated depreciation. Depreciation is computed on the straight-line method
over the estimated useful lives of the assets or the lease term for leasehold improvements unless renewal is reasonably assured. Maintenance and repair costs are
included in operating expenses while major expenditures for improvements are capitalized and depreciated. The cost and related accumulated depreciation of
assets sold, or otherwise disposed of, are removed from the related accounts and any gain or loss is included in earnings.
Bank-owned Life Insurance
Bank-owned life insurance policies are reflected on the consolidated balance sheets at cash surrender value. Changes in the net cash surrender value of
the policies, as well as insurance proceeds received, are reflected in non-interest income on the consolidated statements of loss and are generally not subject to
income taxes. The Company reviews the financial strength of the insurance carriers prior to the purchase of life insurance policies and no less than annually
thereafter. A life
55
insurance policy with any individual carrier is limited to 15% of Tier one capital, and the total cash surrender value of life insurance policies is limited to 25%
of Tier one capital at the time of purchase.
Treasury Stock
The Company records common stock purchased for treasury at cost. At the date of subsequent reissue, the treasury stock account is reduced by the cost
of such stock on the first-in, first-out basis.
Transfers and Servicing of Financial Assets
Transfers of an entire financial asset, a group of entire financial assets or a participating interest in an entire financial asset are accounted for as sales
when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the
Company, (2) the transferee obtains the right to pledge or exchange the transferred assets and (3) the Company does not maintain effective control over the
transferred assets.
During the normal course of business, the Company may transfer whole loans or a portion of a financial asset, such as a participation loan or the
government guaranteed portion of a loan. In order to be eligible for sales treatment, the transfer of the portion of the loan must meet the criteria of a
participating interest. If it does not meet the criteria of a participating interest, the transfer will be accounted for as a secured borrowing. In order to meet the
criteria for a participating interest, all cash flows from the loan must be divided proportionately, the rights of each loan holder must have the same priority, the
loan holders must have no recourse to the transferor other than standard representations and warranties and no loan holder has the right to pledge or exchange
the entire loan.
The Company services mortgage loans for others. Loan servicing fee income is reported in the consolidated statements of loss as loan servicing fee
income. The fees are based on a contractual percentage of the outstanding principal and are recorded as income when earned. Late fees and ancillary fees
related to loan servicing are not material.
Mortgage servicing rights (“MSR”) are initially recorded as an asset and measured at fair value when loans are sold to third parties with servicing rights
retained. MSR are initially recorded at fair value by using a discounted cash flow model to calculate the present value of estimated future net servicing income.
The Company’s MSR accounted for under the fair value method are carried on the balance sheet at fair value with changes in fair value recorded in loan
servicing fee income in the period in which the change occurs. Changes in the fair value of MSR are primarily due to changes in valuation inputs, assumptions
and the collection and realization of expected cash flows.
Customer List Intangible
On August 17, 2021, the Bank entered into a definitive agreement with an investment advisory and wealth management firm (the “seller”) to purchase
certain of its client accounts and client relationships for a final adjusted purchase price of $324,000 (included in other assets at December 31, 2024 and 2023),
of which $172,000 was paid at closing. Each client account was assigned a value, and as each client transferred to the Bank, 85% of this value was paid to the
seller. Once it was determined that the transition of client accounts was completed, the final purchase price was adjusted and a final payment made to the seller.
As of December 31, 2024 and 2023, approximately $28.7 million and $25.7 million of purchased client accounts are included in total assets under management,
respectively. The client accounts purchased are recorded as a customer list intangible asset. Identifiable intangible assets that are subject to amortization will be
reviewed for impairment, at least annually, based on their fair value. Any impairment will be recognized as a charge to earnings and the adjusted carrying
amount of the intangible asset will become its new accounting basis. The remaining useful life of the intangible asset will also be evaluated each reporting
period to determine whether events and circumstances warrant a revision to the remaining period of amortization. The Company is amortizing the customer list
intangible on a straight-line basis over a ten-year period. During the years ended December 31, 2024 and 2023, $32,000 and $30,000 of amortization expense
was recorded in other expense, respectively.
Revenue Recognition
Accounting Standards Codification (“ASC”) section 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting
information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to
customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the
consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans,
letters of credit and investments securities, as well as revenue related to our mortgage servicing activities and bank owned life insurance, as these activities are
subject to other GAAP discussed
56
elsewhere within our disclosures. Descriptions of our revenue-generating activities that are within the scope of ASC 606 and which are presented in our income
statements as components of non-interest income are as follows:
•
Customer service fees—these represent general service fees for monthly account maintenance and activity- or transaction- based fees and consist
of transaction-based revenue, time-based revenue (service period), item-based revenue or some other individual attribute-based revenue. Revenue
is recognized when our performance obligation is completed, which is generally monthly for account maintenance services or when a transaction
has been completed (such as a wire transfer, debit card transaction or ATM withdrawal). Payment for such performance obligations are generally
received at the time the performance obligations are satisfied.
•
Investment service fees—these represent fees for investment advisory services, which are generally based on the market values of assets under
management, and commissions earned on individual investment and insurance products purchased by clients of FSB Wealth Management.
Revenue is recognized when a performance obligation is completed, which is generally monthly for investment advisory services or when an
investment product is purchased. Payment for such performance obligations is generally received in the month following the time the
performance obligations are satisfied.
Advertising Expense
Advertising costs are expensed as incurred and recorded within marketing expense.
Employee Stock Ownership Plan
The Company maintains the First Seacoast Bank Employee Stock Ownership Plan (“ESOP”) to provide eligible employees of the company the
opportunity to own company common stock. The ESOP is a tax-qualified retirement plan for the benefit of company employees. The cost of shares issued to the
ESOP, but not yet allocated to participants, is shown as a reduction of stockholders' equity. Compensation expense is based on the market price of shares as
they are committed to be released to participant accounts.
Defined Contribution Plan
During the years ended December 31, 2024 and 2023, the Company sponsored a 401(k) defined contribution plan for substantially all employees
pursuant to which employees of the Company could elect to make contributions to the plan subject to Internal Revenue Service limits. The Company also made
and expensed matching and profit-sharing contributions to eligible participants in accordance with plan provisions.
Stock Based Compensation
Effective May 30, 2024, the Company adopted the First Seacoast Bancorp 2024 Equity Incentive Plan (the “2024 Plan”). The 2024 Plan provides for the
granting of incentive and non-statutory stock options to purchase shares of common stock or the granting of shares of restricted stock awards and restricted
stock units. The 2024 Plan authorizes the issuance or delivery to participants of up to 392,700 converted shares of common stock. Of this number, the
maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 280,500 shares, and the maximum number of
shares of common stock that may be issued as restricted stock awards or restricted stock units is 112,200 shares.
Effective May 27, 2021, the Company adopted the First Seacoast Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the
granting of incentive and non-statutory stock options to purchase shares of common stock or the granting of shares of restricted stock awards and restricted
stock units. The 2021 Plan authorizes the issuance or delivery to participants of up to 348,800 converted shares of common stock (adjusted for the second step
conversion transaction). Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is
249,144 shares (adjusted for the second step conversion transaction), and the maximum number of shares of common stock that may be issued as restricted
stock awards or restricted stock units is 99,656 shares (adjusted for the second step conversion transaction).
The Company recognizes stock-based compensation based on the grant-date fair value of the award adjusted for actual forfeitures. The Company will
value share-based stock option awards as granted using the Black-Scholes option-pricing model. The Company recognizes compensation expense for its awards
on a straight-line basis over the requisite service period for the entire award (straight-line attribution method), ensuring that the amount of compensation cost
recognized at any date at least equals the portion of the grant-date fair value of the award that is vested at that time.
Supplemental Executive Retirement Plans
The Company maintains nonqualified supplemental executive benefit agreements with certain directors and its current and former Presidents and certain
officers. The agreements provide supplemental retirement benefits payable in installments over a period of years upon retirement or death and for the crediting
to a liability account a fixed amount of compensation, which earns interest at a rate determined in the agreement. The Company recognizes the cost of providing
these benefits over
57
the time period the individuals render service through the retirement date. At each measurement date, the aggregate amount accrued equals the then present
value of the benefits expected to be provided to the individual in exchange for the individual’s service to that date.
Leases
The Company’s lease arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable
operating leases and are primarily for real estate and equipment leases with remaining lease terms of up to 15 years.
The Company accounts for leases under ASC Topic 842 – Leases (Topic 842) – and recognizes its operating leases on its consolidated balance sheet by
recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a Right-Of-Use (“ROU”) asset, representing the
Company’s legal right to use the leased assets. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities
unless they are deemed reasonably certain to exercise. The Company does not have any sub-lease agreements.
The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, conveys the right to control the use of
an identified asset for a period of time in exchange for consideration. The discount rate is either implicit in the lease or, when a rate cannot be readily
determined, the Company’s incremental borrowing rate is used. The incremental borrowing rate is the rate of interest that the Company would have to pay to
borrow on a collateralized basis over a similar term (see Note 13 for more information).
Income Taxes
Provisions for income taxes are based on taxes currently payable or refundable and deferred income taxes on temporary differences between the tax
basis of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Assets and
liabilities are established for uncertain tax positions taken or positions expected to be taken in income tax returns when such positions are judged to not meet the
“more-likely-than-not” threshold, based upon the technical merits of the position. Estimated interest and penalties, if applicable, related to uncertain tax
positions are included as a component of provision for income taxes. The Company has evaluated the positions taken on its tax returns filed and the potential
impact on its tax status as of December 31, 2024. The Company has concluded that no uncertain tax positions exist at December 31, 2024.
Judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any necessary valuation allowance recorded
against net deferred tax assets. The process involves summarizing temporary differences resulting from the different treatment of items for tax and accounting
purposes. These differences result in deferred tax assets and liabilities which are included within the consolidated balance sheets. The Company assesses the
likelihood that deferred tax assets will be recovered from future taxable income and, to the extent the Company believes recovery is not likely, a valuation
allowance is established. To the extent that the Company establishes or adjusts a valuation allowance in a period, an expense or benefit is recorded within the
tax provision in the consolidated statements of loss.
Comprehensive Loss
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net loss. Although certain changes in assets
and liabilities, such as unrealized gains and losses on securities available-for-sale, are reported as a separate component of the stockholders’ equity section of
the consolidated balance sheets, such items, along with net loss, are components of comprehensive loss. The Company also records changes in the fair value of
interest rate derivatives used in its cash flow hedging activities, net of deferred income tax, in comprehensive loss.
Loss Per Share
Basic loss per share represents loss allocable to common stockholders divided by the weighted-average number of common shares outstanding during
the period. Diluted loss per share is computed in a manner similar to that of basic loss per share since the weighted-average number of common shares
outstanding is not adjusted to include the number of incremental common shares (computed using the treasury method) that would have been outstanding if all
potentially dilutive common stock equivalents were issued during the period in periods where a net loss was recognized. Unallocated ESOP shares are not
deemed outstanding for loss per share calculations. Securities that could potentially dilute basic earnings per common share in the future (i.e., unvested
restricted stock) were not included in the computation of diluted earnings per common share because to do so would have been antidilutive for 2024 and 2023.
All unvested stock based compensation awards exclude the right to receive non-forfeitable dividends and are considered nonparticipating securities and exclude
the right to participate with common stock in undistributed earnings for purposes of computing loss per share.
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Derivative Instruments and Hedging Activities
Derivatives are recognized as either assets or liabilities on the balance sheet and are measured at fair value. The accounting for changes in the fair value
of such derivatives depends on the intended use of the derivative and resulting designation. For derivatives designated as cash flow hedges, the gain or loss on
the derivative is reported in other comprehensive (loss) income and is reclassified into earnings in the same periods during which the hedged transaction affects
earnings. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged
item attributable to the hedged risk are recognized in interest income. Changes in the fair value of derivatives that do not qualify for hedge accounting are
reported currently in earnings, as non-interest income.
The Company formally assesses the effectiveness of each hedging transaction at inception, and on an on- going basis. When it is determined that the
contract is no longer highly effective, the Company discontinues hedge accounting prospectively. This documentation includes linking fair value or cash flow
hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions.
When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as non-interest income. When a fair value hedge
is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the
remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur,
gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods in which the hedged transactions will
affect earnings.
The Company is exposed to losses if a counterparty fails to make its payments under a contract in which the Company is in the net receiving position.
The Company anticipates that the counterparties will be able to fully satisfy their obligations under the agreements. All the contracts to which the Company is a
party settle monthly or quarterly.
Risks and Uncertainties
Most of the Company’s business activity is with customers located within the New Hampshire and southern Maine Seacoast region. The Company's
commercial real estate loans are secured by a variety of properties in its primary market area, including retail spaces, distribution centers, office buildings,
manufacturing and warehouse properties, convenience stores and other local businesses, without any material concentrations in property type. The Company
has limited exposure to non-owner occupied office space. Multi-family real estate loans are secured by properties consisting of five or more rental units in the
Company's market area, including apartment buildings and student housing.
Segment Reporting
The Company has one reportable segment, “Banking Services.” All of the Company’s activities are interrelated, and each activity is dependent and
assessed based on how each of the activities of the Company supports the others. For example, lending is dependent upon the ability of the Company to fund
itself with deposits and other borrowings and manage interest rate and credit risk. Accordingly, all significant operating decisions are based upon analysis of the
Company as one segment or unit.
The Company adopted ASU 2023-07, “Segment Reporting (Topic 280) - Improvements to Reportable Segment Disclosures," on January 1, 2024, which
provides updated guidance for segment reporting. The Company has determined that all of its banking services meet the aggregation criteria of ASC 280,
Segment Reporting, as its current operating model is structured whereby the Bank serves a similar base of customers who utilize a company-wide offering of
similar products and services managed through similar processes that are collectively reviewed by the Company’s Chief Executive Officer, who has been
identified as the chief operating decision maker (“CODM”).
The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based upon
net income or loss calculated on the same basis as net income or loss is reported in the Company’s consolidated statements of net loss and other comprehensive
(loss) income. The CODM is also regularly provided with the expense information at a level consistent with that disclosed in the Company’s consolidated
statements of net loss and other comprehensive (loss) income.
3.
Recent Accounting Pronouncements
Recent Accounting Pronouncements Yet To Be Adopted
The Company considers the applicability and impact of all ASUs. ASUs not listed below were assessed and determined to be either not applicable or are
expected to have an immaterial impact on the Company’s consolidated financial statements.
59
In November 2024, the FASB issued ASU 2024-03, “Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures.”
ASU 2024-03 requires disaggregated disclosure of income statement expenses for public business entities. ASU 2024-03 requires new financial statement
disclosures in tabular format, disaggregating information about prescribed categories underlying any relevant income statement expense caption. The prescribed
categories include, among other things, employee compensation, depreciation, and intangible asset amortization. Additionally, entities must disclose the total
amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. ASU 2024-03 is effective for annual reporting periods
beginning after December 15, 2026 on a prospective basis. Retrospective application for all periods presented is permitted. Early adoption is also permitted. We
are currently evaluating the effect this standard will have on our disclosures.
In March 2024, the FASB issued ASU 2024-02, “Codification Improvements,” which amends the Codification to remove references to various concepts
statements and impacts a variety of topics in the Codification. The amendments apply to all reporting entities within the scope of the affected accounting
guidance, but in most instances the references removed are extraneous and not required to understand or apply the guidance. Generally, the amendments in
ASU 2024-02 are not intended to result in significant accounting changes for most entities. ASU 2024-02 is effective January 1, 2025 and is not expected to
have a material impact on the Company's consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes- Improvements to Income Tax Disclosures", which will require enhancements and
further transparency to various income tax disclosures, most notably the tax rate reconciliation and income taxes paid. ASU 2023-09 becomes effective for
annual periods beginning after December 15, 2024 on a prospective basis. Retrospective application for all periods presented is permitted. Early adoption is also
permitted. We are currently evaluating the effect this standard will have on our disclosures.
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4.
Securities Available-for-Sale
The amortized cost and fair value of securities available-for-sale, and the corresponding amounts of gross unrealized gains and losses, are as follows as
of December 31, 2024 and 2023:
December 31, 2024
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
U.S. Government-sponsored enterprises obligations
$
1,642 $
— $
(255 ) $
1,387
U.S. Government agency small business administration
pools guaranteed by SBA
14,011
16
(902 )
13,125
Collateralized mortgage obligations issued by the
FHLMC, FNMA and GNMA
19,924
34
(596 )
19,362
Residential mortgage-backed securities
52,452
392
(4,382 )
48,462
Municipal bonds
32,960
74
(3,502 )
29,532
Corporate debt
500
—
(16 )
484
Corporate subordinated debt
8,325
163
(623 )
7,865
$
129,814 $
679 $
(10,276 ) $
120,217
December 31, 2023
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
(Dollars in thousands)
U.S. Government-sponsored enterprises obligations
$
1,668 $
— $
(270 ) $
1,398
U.S. Government agency small business administration
pools guaranteed by SBA
16,410
36
(863 )
15,583
Collateralized mortgage obligations issued by the
FHLMC, FNMA and GNMA
2,958
—
(484 )
2,474
Residential mortgage-backed securities
41,186
653
(3,618 )
38,221
Municipal bonds
57,192
1,087
(3,587 )
54,692
Corporate debt
500
—
(8 )
492
Corporate subordinated debt
10,074
3
(1,083 )
8,994
$
129,988 $
1,779 $
(9,913 ) $
121,854
61
The amortized cost and fair values of available-for-sale securities at December 31, 2024 by contractual maturity are shown below. Actual maturities may
differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
December 31, 2024
Amortized
Cost
Fair Value
(Dollars in thousands)
Due in one year or less
$
—
$
—
Due after one year through five years
4,314
4,452
Due after five years through ten years
7,104
6,160
Due after ten years
32,009
28,656
Total U.S. Government-sponsored enterprises obligations,
municipal bonds, corporate debt and corporate subordinated debt
43,427
39,268
U.S. Government agency small business pools guaranteed
by SBA
14,011
13,125
Collateralized mortgage obligations issued by the FHLMC,
FNMA, and GNMA
19,924
19,362
Residential mortgage-backed securities
52,452
48,462
Total
$
129,814
$
120,217
(1) Actual maturities for these debt securities are dependent upon the interest rate environment and prepayments on the underlying loans.
Proceeds from sales, maturities, principal payments received and gross realized gains and losses on available-for-sale securities were as follows for the
years ended December 31:
December 31,
2024
2023
(Dollars in thousands)
Proceeds from sales, maturities and principal payments
received on securities available-for-sale
$
36,223 $
40,863
Gross realized gains
550
—
Gross realized losses
(543)
(4,173)
Net realized gains (losses)
$
7 $
(4,173)
(1)
(1)
(1)
62
The following is a summary of gross unrealized losses and fair value for those investments with unrealized losses, aggregated by investment category
and length of time the individual securities have been in a continuous unrealized loss position, at December 31, 2024 and 2023.
Less than 12 Months
More than 12 Months
Total
Number of
Securities
Fair
Value
Unrealized
Losses
Number of
Securities
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
(Dollars in thousands)
December 31, 2024
U.S. Government sponsored
enterprises obligations
— $
— $
—
3 $
1,387 $
(255 ) $
1,387 $
(255 )
U.S. Government agency
small
business administration
pools
guaranteed by SBA
5
4,245
(28 )
8
6,224
(874 )
10,469
(902 )
Collateralized mortgage
obligations issued by
the FHLMC, FNMA
and GNMA
7
11,913
(126 )
4
2,256
(470 )
14,169
(596 )
Residential mortgage
backed securities
20
22,395
(422 )
24
14,485
(3,960 )
36,880
(4,382 )
Municipal bonds
3
825
(12 )
36
27,369
(3,490 )
28,194
(3,502 )
Corporate debt
—
—
—
1
484
(16 )
484
(16 )
Corporate subordinated debt
—
—
—
5
4,887
(623 )
4,887
(623 )
35 $
39,378 $
(588 )
81 $
57,092 $
(9,688 ) $
96,470 $
(10,276 )
December 31, 2023
U.S. Government sponsored
enterprises obligations
— $
— $
—
3 $
1,398 $
(270 ) $
1,398 $
(270 )
U.S. Government agency
small
business administration
pools
guaranteed by SBA
8
8,432
(75 )
5
3,899
(788 )
12,331
(863 )
Collateralized mortgage
obligations issued by
the FHLMC, FNMA
and GNMA
—
—
—
4
2,474
(484 )
2,474
(484 )
Residential mortgage
backed securities
5
4,806
(53 )
23
15,347
(3,565 )
20,153
(3,618 )
Municipal bonds
1
1,941
(10 )
49
30,729
(3,577 )
32,670
(3,587 )
Corporate debt
—
—
—
1
492
(8 )
492
(8 )
Corporate subordinated debt
4
4,080
(82 )
4
4,029
(1,001 )
8,109
(1,083 )
18 $
19,259 $
(220 )
89 $
58,368 $
(9,693 ) $
77,627 $
(9,913 )
Management evaluates securities available-for-sale in unrealized loss positions to determine whether the impairment is due to credit-related factors or
noncredit-related factors. Consideration is given to (1) the extent to which the fair value is less than cost, (2) the financial condition and near-term prospects of
the issuer, and (3) the intent and ability of the Company to retain its investment in the security for a period of time sufficient to allow for any anticipated
recovery in fair value. At December 31, 2024 and 2023, the Company had 116 and 107 securities available-for-sale in an unrealized loss position without an
allowance for credit losses, respectively. Management does not have the intent to sell any of these securities and believes that it is more likely than not that the
Company will not have to sell any such securities before a recovery of cost. The fair value is expected to recover as the securities approach their maturity date
or repricing date or if market yields for such investments decline. Accordingly, as of December 31, 2024, management believes that the unrealized losses
detailed in the previous tables are due to noncredit-related factors, including changes in market interest rates and other market conditions, and therefore the
Company carried no allowance for credit losses on securities available-for-sale as of December 31, 2024 and 2023. There was no accrued interest reversed
against interest income for the years ended December 31, 2024
63
and 2023. Accrued interest receivable on available-for-sale securities totaled $800,000 and $1.1 million at December 31, 2024 and 2023, respectively, and is
excluded from the estimate of credit losses.
At December 31, 2024 and 2023, $-0- and $74.1 million of securities available-for-sale were pledged as collateral for the Company's Bank Term
Funding Program ("BTFP") and Borrower-In-Custody ("BIC") secured credit facilities, respectively. During December 2024, the Company repaid its BTFP
loan and unpledged all the collateral previously pledged to the BTFP and BIC - principally U.S. Government-sponsored obligations and general obligation
municipal bonds – with the intention of pledging commercial real estate loans to the BIC (see Note 9 for more information). As of December 31, 2024 and
2023, there were no holdings of securities of any issuer, other than the SBA, FHLMC, GNMA and FNMA, whose aggregate carrying value exceeded 10% of
stockholders’ equity.
5.
Loans and Allowance for Credit Losses on Loans
The Company’s lending activities are primarily conducted in and around Dover, New Hampshire and in the areas surrounding its branches. The
Company originates commercial real estate loans, multifamily 5+ dwelling unit loans, commercial and industrial loans, acquisition, development and land
loans, one- to four-family residential loans, home equity loans and lines of credit and consumer loans. Most loans originated by the Company are collateralized
by real estate. The ability and willingness of real estate, commercial and construction loan borrowers to honor their repayment commitments is generally
dependent on the health of the real estate sector in the borrowers’ geographic area and the general economy.
Loans consisted of the following at December 31:
2024
2023
(Dollars in thousands)
Commercial real estate (CRE)
$
86,020 $
86,566
Multifamily (MF)
5,752
7,582
Commercial and industrial (C+I)
23,711
25,511
Acquisition, development, and land (ADL)
14,946
17,520
1-4 family residential (RES)
275,235
268,943
Home equity loans and lines of credit (HELOC)
20,908
14,093
Consumer (CON)
12,395
9,816
Total loans
438,967
430,031
Allowance for credit losses on loans
(3,486)
(3,390)
Total loans, net
$
435,481 $
426,641
The Company elected to include deferred loan originations costs, net and to exclude accrued interest receivable from the amortized cost basis of loans
disclosed throughout this footnote. As of December 31, 2024 and 2023, accrued interest receivable for loans totaled $1.3 million and $1.2 million, respectively,
and is included in the “accrued interest receivable” line item on the Company’s consolidated balance sheets.
64
January 1, 2023 ASC 326 Transition (Day 1) Impact
The ASC 326 methodology reflects the Company's view of the state of the economy and forecasted macroeconomic conditions and their impact on the
Company's loan portfolio as of the adoption date.
The following table illustrates the impact of the adoption of ASU 2016-13:
January 1, 2023
As reported under ASC 326
Pre-ASC 326 Adoption
Impact of ASC 326
Adoption
(Dollars in thousands)
ASSETS
Allowance for credit losses on loans:
Commercial real estate (CRE)
$
788 $
942 $
(154)
Multifamily (MF)
55
54
1
Commercial and industrial (C+I)
273
184
89
Acquisition, development, and land (ADL)
120
138
(18)
1-4 family residential (RES)
1,847
2,048
(201)
Home equity loans and lines of credit (HELOC)
88
81
7
Consumer (CON)
114
100
14
Unallocated
1
34
(33)
Allowance for credit losses on loans
$
3,286 $
3,581
(295)
LIABILITIES
Allowance for credit losses on OBS credit exposures
$
308 $
18 $
290
STOCKHOLDERS' EQUITY
Retained earnings
$
36,253 $
36,248 $
5
Changes in the ACL for the year ended December 31, 2024 and 2023, by portfolio segment, are summarized as follows:
(Dollars in thousands)
CRE
MF
C+I
ADL
RES
HELOC
CON
Unallocated
Total
Balance, December 31, 2023
$
830 $
76
$
236
$
105
$
1,601
$
156
$
357
$
29
$
3,390
(Release) provision for credit losses on loans
(120 )
(17 )
(3 )
(18 )
11
58
106
103
120
Charge-offs
—
—
—
—
—
—
(27 )
—
(27 )
Recoveries
—
—
—
—
—
—
3
—
3
Balance, December 31, 2024
$
710 $
59
$
233
$
87
$
1,612
$
214
$
439
$
132
$
3,486
Balance, December 31, 2022, Prior to Adoption of
ASC 326
$
942 $
54
$
184
$
138
$
2,048
$
81
$
100
$
34
$
3,581
Impact of adopting ASC 326
(154 )
1
89
(18 )
(202 )
7
14
(32 )
(295 )
(Release) provision for credit losses on loans
42
21
(37 )
(15 )
(245 )
68
244
27
105
Charge-offs
—
—
—
—
—
—
(4 )
—
(4 )
Recoveries
—
—
—
—
—
—
3
—
3
Balance, December 31, 2023
$
830 $
76
$
236
$
105
$
1,601
$
156
$
357
$
29
$
3,390
The increase in the allowance for credit losses in 2024 was primarily a result of the increase in loans. The decrease in the allowance for credit losses in
2023 was primarily a result of the impact of adopting ASC 326 offset by the increase in loans.
The following represents the composition of the Company's (release) provision for credit losses for the year ended December 31:
2024
2023
(Dollars in thousands)
Loans
$
120
$
105
Off-balance sheet credit exposures
(192)
83
Total (release) provision for credit losses
$
(72)
$
188
65
The following is an aged analysis of past due loans by portfolio segment as of December 31, 2024:
(Dollars in thousands)
30-59 Days
60-89 Days
90 + Days
Total Past Due
Current
Total Loans
Non-Accrual
Loans
CRE
$
—
$
—
$
—
$
—
$
86,020
$
86,020
$
—
MF
—
—
—
—
5,752
5,752
—
C+I
—
—
—
—
23,711
23,711
—
ADL
—
—
—
—
14,946
14,946
—
RES
—
—
—
—
275,235
275,235
—
HELOC
—
—
—
—
20,908
20,908
—
CON
—
—
—
—
12,395
12,395
—
$
—
$
—
$
—
$
—
$
438,967
$
438,967
$
—
The following is an aged analysis of past due loans by portfolio segment as of December 31, 2023:
(Dollars in thousands)
30-59 Days
60-89 Days
90 + Days
Total Past Due
Current
Total Loans
Non-Accrual
Loans
CRE
$
—
$
—
$
—
$
—
$
86,566
$
86,566
$
—
MF
—
—
—
—
7,582
7,582
—
C+I
—
—
—
—
25,511
25,511
—
ADL
—
—
—
—
17,520
17,520
—
RES
—
131
—
131
268,812
268,943
127
HELOC
—
—
14
14
14,079
14,093
14
CON
—
—
—
—
9,816
9,816
—
$
—
$
131
$
14
$
145
$
429,886
$
430,031
$
141
The Company's collateral-dependent non-accrual RES and HELOC loans with one borrower had an amortized cost basis of $141,000 at December 31,
2023 and was secured by real estate with an appraised value of $216,000. The property was sold on July 19, 2024 and all outstanding balances were repaid.
Interest income recognized on non-accrual loans during the years ended December 31, 2024 and 2023 was $-0-. There were no loans past due over 90 days still
accruing interest at December 31, 2024 and 2023. There were no loans collateralized by residential real estate property in the process of foreclosure at
December 31, 2024 and 2023.
There were no loans modified for borrowers experiencing financial difficulty during the years ended December 31, 2024 and 2023. An assessment of
whether a borrower is experiencing financial difficulty is made on the date of a modification, if applicable. The ACL incorporates an estimate of lifetime
expected credit losses and is recorded on each asset upon origination. Because the effect of most modifications made to borrowers experiencing financial
difficulty would already be included in the ACL as a result of the measurement methodologies used to estimate the allowance, a change in the ACL is generally
not recorded upon modification.
Credit Quality Information
The Company utilizes a ten-grade internal loan rating system for its commercial real estate, multifamily, commercial and industrial and acquisition,
development and land loans. One- to four-family residential real estate, home equity loans and lines of credit and consumer loans are considered “pass” rated
loans until they become delinquent. Once delinquent, loans can be rated an 8, 9 or 10 as applicable.
Loans rated 1 through 6: Loans in these categories are considered “pass” rated loans with low to average risk.
Loans rated 7: Loans in this category are considered “special mention.” These loans are starting to show signs of potential weakness and are being
closely monitored by management.
Loans rated 8: Loans in this category are considered “substandard.” Generally, a loan is considered substandard if it is inadequately protected by the
current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Bank will sustain some loss if the
weakness is not corrected.
Loans rated 9: Loans in this category are considered “doubtful.” Loans classified as doubtful have all the weaknesses inherent in those classified
substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable
and improbable.
Loans rated 10: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted and
should be charged off.
On an annual basis, or more often if needed, the Company formally reviews the ratings on all commercial real estate, multifamily, commercial and
industrial, and acquisition, development and land loans. On a periodic basis, the Company engages an independent third party to review a significant portion of
loans within these segments and to assess the credit risk
66
management practices of its commercial lending department. Management uses the results of these reviews as part of its annual review process and overall
credit risk administration.
On a quarterly basis, the Company formally reviews the ratings on all one- to four-family residential real estate, home equity loans and lines of credit
and consumer loans if they have become delinquent. Criteria used to determine ratings consist of loan-to-value ratios and days delinquent.
Based upon the most recent analysis performed, the risk category of loans by portfolio segment by vintage, reported under the ASC 326 methodology,
was as follows as of December 31, 2024 and 2023 (gross charge-offs by vintage are not material for disclosure for the years presented):
December 31, 2024:
(Dollars in thousands)
2024
2023
2022
2021
2020
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
CRE:
Risk rating:
Pass
$
7,613 $
6,602
$
13,078
$
10,161
$
1,822 $
17,732 $
29,012 $
— $
86,020
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total CRE
7,613
6,602
13,078
10,161
1,822
17,732
29,012
—
86,020
MF:
Risk rating:
Pass
—
1,925
128
623
1,032
1,755
289
—
5,752
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total MF
—
1,925
128
623
1,032
1,755
289
—
5,752
C+I:
Risk rating:
Pass
4,226
5,011
4,736
1,635
2,341
2,471
2,315
802
23,537
Special mention
—
—
—
—
—
174
—
—
174
Substandard
—
—
—
—
—
—
—
—
—
Total C+I
4,226
5,011
4,736
1,635
2,341
2,645
2,315
802
23,711
ADL:
Risk rating:
Pass
5,213
9,202
219
312
—
—
—
—
14,946
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total ADL
5,213
9,202
219
312
—
—
—
—
14,946
RES:
Risk rating:
Pass
15,675
25,144
42,750
64,686
44,838
82,142
—
—
275,235
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total RES
15,675
25,144
42,750
64,686
44,838
82,142
—
—
275,235
HELOC:
Risk rating:
Pass
—
—
—
—
—
—
20,908
—
20,908
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total HELOC
—
—
—
—
—
—
20,908
—
20,908
CON:
Risk rating:
Pass
4,385
2,363
2,557
1,565
1,334
191
—
—
12,395
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total CON
4,385
2,363
2,557
1,565
1,334
191
—
—
12,395
Total
$
37,112 $
50,247
$
63,468
$
78,982
$
51,367 $
104,465 $
52,524 $
802 $
438,967
67
December 31, 2023:
(Dollars in thousands)
2023
2022
2021
2020
2019
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
CRE:
Risk rating:
Pass
$
7,552 $
10,849
$
11,977
$
2,268
$
2,724 $
18,713 $
32,244 $
— $
86,327
Special mention
—
—
—
—
—
239
—
—
239
Substandard
—
—
—
—
—
—
—
—
—
Total CRE
7,552
10,849
11,977
2,268
2,724
18,952
32,244
—
86,566
MF:
Risk rating:
Pass
—
145
5,157
1,081
—
852
347
—
7,582
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total MF
—
145
5,157
1,081
—
852
347
—
7,582
C+I:
Risk rating:
Pass
5,745
6,580
4,151
2,875
1,537
1,917
2,704
—
25,509
Special mention
—
—
2
—
—
—
—
—
2
Substandard
—
—
—
—
—
—
—
—
—
Total C+I
5,745
6,580
4,153
2,875
1,537
1,917
2,704
—
25,511
ADL:
Risk rating:
Pass
10,511
4,048
1,507
—
1,454
—
—
—
17,520
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total ADL
10,511
4,048
1,507
—
1,454
—
—
—
17,520
RES:
Risk rating:
Pass
19,533
43,517
64,226
50,675
20,021
70,844
—
—
268,816
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
127
—
—
127
Total RES
19,533
43,517
64,226
50,675
20,021
70,971
—
—
268,943
HELOC:
Risk rating:
Pass
—
—
—
—
—
—
14,079
—
14,079
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
14
—
14
Total HELOC
—
—
—
—
—
—
14,093
—
14,093
CON:
Risk rating:
Pass
2,902
3,145
1,966
1,512
215
76
—
—
9,816
Special mention
—
—
—
—
—
—
—
—
—
Substandard
—
—
—
—
—
—
—
—
—
Total CON
2,902
3,145
1,966
1,512
215
76
—
—
9,816
Total
$
46,243 $
68,284
$
88,986
$
58,411
$
25,951 $
92,768 $
49,388 $
— $
430,031
Certain directors and executive officers of the Company and entities in which they have significant ownership interests were customers of the Bank
during 2024 and 2023. For the years ended December 31, 2024 and 2023, activity in these loans was as follows:
December 31,
(Dollars in thousands)
2024
2023
Loans outstanding – beginning of year
$
5,162
$
4,443
Principal payments
(882)
(602)
Advances
—
1,321
Loans outstanding – end of year
$
4,280
$
5,162
6.
Loan Servicing
Loans serviced for others are not included in the accompanying consolidated balance sheets. The unpaid principal balances of such loans were $31.3
million and $33.9 million at December 31, 2024 and 2023, respectively. Substantially all of these loans were originated by the Bank and sold to third parties on
a non-recourse basis with servicing rights retained. These retained servicing rights are recorded as a servicing asset and are initially recorded at fair value (see
Note 19 for more
68
information). Changes to the balance of mortgage servicing rights are recorded in loan servicing fee income in the Company’s consolidated statements of loss.
The Company’s mortgage servicing activities include: collecting principal, interest and escrow payments from borrowers; making tax and insurance
payments on behalf of borrowers; monitoring delinquencies and executing foreclosure proceedings; and accounting for and remitting principal and interest
payments to investors. Loan servicing fee income, including late and ancillary fees, was $48,000 and $77,000 for the years ended December 31, 2024 and 2023,
respectively, is recorded as loan servicing fee income in the Company’s consolidated statements of loss. The Company’s residential mortgage investor loan
servicing portfolio is primarily comprised of fixed rate loans concentrated in the Company’s market areas.
The following summarizes activity in mortgage servicing rights for the years ended December 31, 2024 and 2023.
(Dollars in thousands)
2024
2023
Balance, beginning of year
$
339 $
357
Additions
4
4
Payoffs
(7 )
(7 )
Change in fair value due to change in assumptions
(31 )
(15 )
Balance, end of year
$
305 $
339
7.
Land, Building and Equipment
Land, building and equipment consisted of the following at December 31, 2024 and 2023:
(Dollars in thousands)
2024
2023
Land
$
101 $
995
Buildings
324
3,167
Building & leasehold improvements
273
3,831
Furniture, fixtures and equipment
4,689
4,360
5,387
12,353
Less accumulated depreciation
(4,633 )
(8,281 )
$
754 $
4,072
On June 11, 2024, the Bank entered into and closed on an agreement with a single purchaser for the purchase and sale of four properties formerly owned
and operated by the Bank, which included four branches (with an adjacent drive thru) and a parking lot, each adjacent to a sold branch, for an aggregate cash
purchase price of $7.5 million (see Note 13 for more information).
8.
Deposits
Deposits consisted of the following at December 31, 2024 and 2023:
(Dollars in thousands)
2024
2023
NOW and demand deposits
$
161,859 $
163,316
Money market deposits
71,107
85,364
Savings deposits
85,511
64,823
Time deposits of $250,000 and greater
18,822
17,107
Time deposits less than $250,000
116,909
74,188
$
454,208 $
404,798
There were $63.1 million and $23.6 million of brokered time deposits which were bifurcated into amounts below the FDIC insurance limit at December
31, 2024 and 2023, respectively. Additionally, there were $22.1 million and $20.9 million of brokered deposits included in savings deposits at December 31,
2024 and 2023, respectively. Reciprocal deposits were $6.0 million and $1.1 million at December 31, 2024 and 2023, respectively.
Deposits from related parties totaled approximately $11.6 million and $10.7 million at of December 31, 2024 and 2023, respectively.
69
At December 31, 2024, the scheduled maturities of time deposits were as follows:
(Dollars in thousands)
Total
2025
$
89,786
2026
44,956
2027
665
2028
207
2029
117
$
135,731
9.
Borrowings
Federal Home Loan Bank (“FHLB”)
All borrowings from the FHLB are secured by a blanket security agreement on qualified collateral, principally residential mortgage loans and
commercial real estate loans, discounted by a certain percentage, in an aggregate amount greater than or equal to outstanding advances. The Bank’s unused
remaining available borrowing capacity at the FHLB was $94.0 million and $71.8 million at December 31, 2024 and 2023, respectively. At December 31, 2024
and 2023, the Bank had sufficient collateral at the FHLB to support its obligations and was in compliance with the FHLB’s collateral pledging program.
A summary of borrowings from the FHLB are as follows:
December 31, 2024
Principal Amounts
Maturity Dates
Interest Rates
(Dollars in thousands)
$
520
2025
0.00% – fixed
50,000
2026
4.38% to 4.75% – fixed
718
2028
0.00% – fixed
400
2029
0.00% – fixed
200
2030
0.00% – fixed
430
2031
0.00% – fixed
$
52,268
December 31, 2023
Principal Amounts
Maturity Dates
Interest Rates
(Dollars in thousands)
$
21,139
2024
0.00% to 5.53% – fixed
520
2025
0.00% – fixed
50,000
2026
4.38% to 4.48% – fixed
718
2028
0.00% – fixed
200
2030
0.00% – fixed
430
2031
0.00% – fixed
$
73,007
Included in the above borrowings from the FHLB at December 31, 2024 is a $25.0 million long-term advance, with an interest rate of 4.75%, which is
callable by the FHLB on January 29, 2025 and quarterly thereafter. Also, included in the above borrowings from the FHLB at December 31, 2024 and 2023 is a
$25.0 million long-term advance, with an interest rate of 4.38%, which is callable by the FHLB on December 8, 2025 and quarterly thereafter. As of December
31, 2024 and 2023, borrowings from the FHLB also include $2.3 million and $2.7 million, respectively, of advances through the FHLB’s Jobs for New
England program where certain qualifying small business loans that create or preserve jobs, expand woman-, minority- or veteran-owned businesses, or
otherwise stimulate the economy in New England communities are offered at an interest rate of 0%. At December 31, 2024 and 2023, the Bank had an
overnight line of credit with the FHLB that may be drawn up to $3.0 million.
Federal Reserve Bank of Boston (“FRB”)
The Bank established two secured credit facilities with the FRB – Bank Term Funding Program (“BTFP”) and Borrower-In-Custody of Collateral
Program (“BIC”). As of December 31, 2024 and 2023, $-0- and $20.0 million of BTFP advances were outstanding, respectively, and were collateralized by
eligible collateral consisting primarily of government-sponsored enterprise obligations, mortgage-backed securities and collateralized mortgage obligations
issued by various U.S.
70
Government agencies, owned as of March 12, 2023, December 31, 2023 and December 13, 2024. No further advances could be requested under the BTFP after
March 11, 2024. The advance matured on December 13, 2024 at a fixed annual rate of 4.89%. The interest rate for term advances under the BTFP was based
upon the one-year overnight index swap rate plus 10 basis points and fixed for the term of the advance – up to one year - on the day the advance is made.
Advances under the BIC would be collateralized by eligible collateral. During December 2024, the Bank unpledged the collateral previously pledged to
the BIC - principally general obligation municipal bonds – with the intention of pledging commercial real estate loans. On January 7, 2025, the Bank completed
the eligibility process whereby the FHLB agreed to subordinate their interest in commercial real estate loans up to a maximum of $65.0 million allowing these
loans to be pledged to the BIC. The Bank subsequently pledged $65.0 million of its commercial real estate loans to the BIC resulting in $38.5 million of
borrowing capacity under this credit facility as of January 16, 2025. The entire $50.6 million borrowing capacity of the BIC was available at December 31,
2023.
Correspondent Banks
At December 31, 2024 and 2023, the Bank had a total of $2.0 million and $5.0 million, respectively, of unsecured Fed Funds borrowing lines of credit
with correspondent banks. The entire balance of these credit facilities was available at December 31, 2024 and 2023.
10.
Income Taxes
The current and deferred components of income tax expense consisted of the following for the years ended December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Federal
State
Total
Federal
State
Total
(Dollars in thousands)
Current
$
17
$
107
$
124
$
—
$
83
$
83
Deferred
291
112
403
3,382
479
3,861
$
308
$
219
$
527
$
3,382
$
562
$
3,944
Total income tax expense is different from the amounts computed by applying the U.S. Federal income tax rates in effect to income (loss) before income
taxes. The reasons for these differences are as follows for the years ended December 31, 2024 and 2023:
December 31, 2024
December 31, 2023
Amount
% of
Pretax
Income
Amount
% of
Pretax
Income
(Dollars in thousands)
Computed “expected” tax benefit
$
3
21.0 % $
(1,410 )
(21.0 )%
State tax benefit, net of federal tax benefit
(120 )
(857.1 )
(471 )
(7.0 )
BOLI income
(22 )
(157.1 )
(21 )
(0.3 )
Valuation allowance
736
5,257.1
6,050
90.1
Income on tax exempt securities
(204 )
(1,457.1 )
(242 )
(3.6 )
Other
134
957.5
38
0.6
$
527
3,764.3 % $
3,944
58.8 %
71
Components of deferred tax assets and liabilities at December 31, 2024 and 2023 are as follows:
December 31,
2024
2023
(Dollars in thousands)
Deferred tax assets:
Allowance for credit losses
$
1,009 $
1,021
Deferred compensation liabilities
644
558
Contribution carryforward
56
176
State tax credit carryforward
310
223
Depreciation
23
50
Securities available-for-sale
2,596
2,190
Net operating loss carryforward
2,375
2,566
Accrued rent
406
—
Other
205
112
Subtotal
7,624
6,896
Less: valuation allowance
(6,962)
(6,226)
Total deferred tax assets
662
670
Deferred tax liabilities:
Prepaid expenses
—
(37)
Net deferred loan costs
(745)
(709)
Mortgage servicing rights
(82)
(91)
Total deferred tax liabilities
(827)
(837)
Net deferred tax liabilities, included in other liabilities
$
(165) $
(167)
The calculation of the Company’s charitable contribution carryforward deferred tax asset is based upon a carryforward of approximately $208,000 and
$654,000 of charitable contributions at December 31, 2024 and 2023, respectively. During 2024, $100,000 of the carryforward was utilized and $346,000
expired unused. Of the remaining carryforward, $187,000 expires in 2027 and $21,000 expires in 2028. As of December 31, 2024 and 2023, it has been
determined that it is more likely than not that the benefit from this charitable contribution carryforward will not be realized prior to expiration. As a result, a
valuation allowance of $56,000 and $176,000 has been provided on this deferred tax asset for the years ended December 31, 2024 and 2023, respectively. The
ultimate realization of this deferred tax asset is dependent upon the generation of future taxable income. The Internal Revenue Federal Tax Code (the “Code”)
limits the charitable contribution deduction in any one year to 10% of taxable income, computed without regard to charitable contributions, certain special
deductions, net operating loss carry backs and capital loss carry backs. However, the Code allows a corporation to carry forward the excess charitable
contributions to each of the five immediately succeeding years, subject to a 10% limitation in each of those years. Thus, the Company would have six years in
which to utilize the charitable contribution carryforward. The valuation allowance for this net deferred tax asset may be adjusted in the future if estimates of
taxable income during the carryforward period are increased.
As of December 31, 2024, the Company has a Federal and New Hampshire net operating loss carryforward of $8.8 million and $9.4 million,
respectively. The Federal net operating loss carryforward can be carried forward indefinitely but is limited to 80% of each subsequent year’s taxable income.
The New Hampshire net operating loss carryforward expires in 2032 through 2034 and is also limited to 80% of each subsequent year’s taxable income.
Additionally, as of December 31, 2024, the Company has a New Hampshire Business Enterprise Tax credit carry forward of $310,000 that expires in 2029
through 2034. As of December 31, 2024, it has been determined that it is more likely than not that the benefit from these net operating loss and state tax credit
carryforwards will not be realized. As a result, a valuation allowance of $1.9 million for the Federal net operating loss carryforward, $521,000 for the New
Hampshire net operating loss carryforward and $310,000 for the New Hampshire Business Enterprise Tax credit carry forward has been provided on these
deferred tax assets for the year ended December 31, 2024. All other deferred tax assets as of December 31, 2024 have also been reduced by a valuation
allowance of $4.3 million because management believes that it is more likely than not that the benefit of these deferred tax assets will not be realized. The
ultimate realization of these deferred tax assets is dependent upon the generation of future taxable income. The valuation allowance for these net deferred tax
assets may be adjusted in the future if estimates of taxable income during the carryforward period are increased.
72
The tax reserve for credit losses at the Company’s base year amounted to approximately $2.3 million. If any portion of the reserve is used for purposes
other than to absorb credit losses, approximately 150% of the amount actually used (limited to the amount of the reserve) would be subject to taxation in the
year in which used. As the Company intends to use the reserve to only absorb credit losses, a deferred tax liability of approximately $630,000 has not been
provided.
The Company does not have any uncertain tax positions at December 31, 2024 or 2023 which require accrual or disclosure. The Company records
interest and penalties as part of income tax expense. No interest or penalties were recorded for the years ended December 31, 2024 and 2023.
The Company’s income tax returns are subject to review and examination by federal and state taxing authorities. The Company is currently open to audit
under the applicable statutes of limitations by the Internal Revenue Service for the years ended December 31, 2021 through 2024. The years open to
examination by state taxing authorities vary by jurisdiction; no years prior to 2021 are open.
11.
Employee Benefits
401(k) Plan
During the years ended December 31, 2024 and 2023, the Company sponsored a 401(k) defined contribution plan for substantially all employees
pursuant to which employees of the Company could elect to make contributions to the plan subject to Internal Revenue Service limits. The Company also
makes matching and profit-sharing contributions to eligible participants in accordance with plan provisions. The Company’s contributions for the years ended
December 31, 2024 and 2023 were $232,000 and $209,000, respectively.
Supplemental Executive Retirement Plans
Salary Continuation Plan
The Company maintains a nonqualified supplemental retirement plan for its current President and former President. The plan provides supplemental
retirement benefits payable in installments over a period of years upon retirement or death. The recorded liability at December 31, 2024 and 2023 relating to
this supplemental retirement plan was $827,000 and $735,000, respectively. The discount rate used to determine the Company’s obligation was 5.00% during
the years ended December 31, 2024 and 2023. The projected rate of salary increase for its current President was 3% for the years ended December 31, 2024 and
2023. For the years ended December 31, 2024 and 2023, the expense of this salary retirement plan was $147,000 and $131,000, respectively.
Directors’ Deferred Supplemental Retirement Plan
The Company has a supplemental retirement plan for eligible directors that provides for monthly benefits based upon years of service to the Company,
subject to certain limitations as set forth in the agreements. The present value of these future payments is being accrued over the estimated period of service.
The estimated liability at December 31, 2024 and 2023 relating to this plan was $611,000 and $581,000, respectively. The discount rate used to determine the
Company’s obligation was 6.25% during the years ended December 31, 2024 and 2023. For the years ended December 31, 2024 and 2023 the expense of the
supplemental retirement plan was $59,000 and $75,000, respectively.
The Company enacted a “hard freeze” for this supplemental retirement plan as of January 1, 2022. On February 10, 2022, the Bank and the non-
employee members of the board of directors of the Bank entered into amendments to the Supplemental Director Retirement Agreements (the “Agreements”)
previously entered into by the Bank and the directors. The amendments eliminate the formula for determining the normal annual retirement benefit (previously
“70% of Final Base Fee”) and replaces it with a fixed annual benefit of $20,000. The amendments also eliminate the formula for determining the benefit
payable on a change in control (previously tied to the normal annual retirement formula with certain imputed increases in the Base Fee) and replacing it with a
fixed amount equal to the present value of $200,000. The effect of the amendments is to eliminate the variable and increasing costs associated with the
Agreements. Instead, since the normal annual retirement benefit will be a fixed amount, the future costs associated with the Agreements is now more
predictable. It is the intention of the Company that no new directors of the Company would enter into similar agreements.
Additionally, the Company has a deferred directors’ fee plan which allows members of the board of directors to defer the receipt of fees that otherwise
would be paid to them in cash. At December 31, 2024 and 2023, the total deferred directors’ fees amounted to $917,000 and $718,000, respectively.
73
12.
Stock Based Compensation
Employee Stock Ownership Plan
The Company maintains the First Seacoast Bank Employee Stock Ownership Plan (“ESOP”) to provide eligible employees of the Company the
opportunity to own Company stock. The ESOP is a tax-qualified retirement plan for the benefit of Company employees. Contributions are allocated to eligible
participants on the basis of compensation, subject to federal limits. The Company uses the principal and interest method to determine the release of shares
amount. The number of shares committed to be released per year through 2047 is 15,354.
The ESOP funded its purchase of 423,715 shares through a loan from the Company equal to 100% of the aggregate purchase price of the common stock.
The ESOP trustee is repaying the loan principally through the Bank’s contributions to the ESOP over the remaining loan term that matures on December 31,
2047. At December 31, 2024 and 2023, the remaining principal balance on the ESOP debt was $4.1 million and $4.2 million, respectively.
Under applicable accounting requirements, the Company records compensation expense for the ESOP equal to fair market value of shares when they are
committed to be released from the suspense account to participants’ accounts under the plan. Total compensation expense recognized in connection with the
ESOP for the years ended December 31, 2024 and 2023, was $138,000 and $126,000, respectively. At December 31, 2024 and 2023, total unearned
compensation for the ESOP was $3.9 million and $4.0 million, respectively.
December 31,
2024
2023
Shares held by the ESOP include the following:
Allocated
55,218
39,864
Committed to be allocated
15,354
15,354
Unallocated
353,143
368,497
Total
423,715
423,715
The fair value of unallocated shares was approximately $3.5 million and $2.8 million at December 31, 2024 and 2023, respectively.
Equity Incentive Plan
Effective May 27, 2021, the Company adopted the First Seacoast Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the
granting of incentive and non-statutory stock options to purchase shares of common stock and the granting of shares of restricted stock awards and restricted
stock units. The 2021 Plan authorizes the issuance or delivery to participants of up to 348,801 shares of common stock (adjusted for the second step conversion
transaction). Of this number, the maximum number of shares of common stock that may be issued pursuant to the exercise of stock options is 249,144 shares
(adjusted for the second step conversion transaction), and the maximum number of shares of common stock that may be issued as restricted stock awards or
restricted stock units is 99,657 shares (adjusted for the second step conversion transaction). The exercise price of stock options may not be less than the fair
market value on the date the stock option is granted. Further, stock options may not be granted with a term that is longer than 10 years.
On May 25, 2023, 249,144 incentive and non-statutory stock options to purchase shares of common stock were granted under the 2021 Plan to directors
for their services on the board of directors and certain members of management. The Company estimates the grant date fair value of each option using the
Black-Scholes option pricing model. The use of the Black-Scholes option pricing model requires management to make assumptions with respect to the expected
term of the option, the expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend
yields of the common stock. Since it was determined that the Company lacked sufficient historical closing stock prices, the expected volatility assumption was
based upon a combination of actual historical volatility combined with the historical volatility developed for comparable companies. Also, since the Company
lacked the appropriate historical data, the expected term of the option was calculated using the simplified method. Forfeitures are required to be estimated at the
time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated grant date fair value of each option
is expensed as employee benefits expense ratably over the vesting period. The expense recognized for this grant was $239,000 and $150,000, for the years
ended December 31, 2024 and 2023, respectively, which provided a tax benefit of $64,000 and $40,000, respectively. At December 31, 2024 and 2023, total
unrecognized compensation expense for this equity incentive plan was $335,000 and $598,000 with a 1.4 year and 2.4 year weighted average future recognition
period, respectively.
Effective May 30, 2024, the Company adopted the First Seacoast Bancorp, Inc. 2024 Equity Incentive Plan (the “2024 Plan”). The 2024 Plan provides
for the granting of incentive and non-statutory stock options to purchase shares of common stock or the granting of shares of restricted stock awards and
restricted stock units. The 2024 Plan authorizes the issuance or
74
delivery to participants of up to 392,700 converted shares of common stock. Of this number, the maximum number of shares of common stock that may be
issued pursuant to the exercise of stock options is 280,500 shares, and the maximum number of shares of common stock that may be issued as restricted stock
awards or restricted stock units is 112,200 shares.
On December 2, 2024, 280,500 incentive and non-statutory stock options to purchase shares of common stock were granted under the 2024 Plan to
directors for their services on the board of directors and certain members of management. As noted above, the Company estimates the grant date fair value of
each option using the Black-Scholes option pricing model which requires management to make assumptions with respect to the expected term of the option, the
expected volatility of the common stock consistent with the expected life of the option, risk-free interest rates and expected dividend yields of the common
stock. The expected volatility assumption for this award was based upon the actual historical price volatility of the Company’s common stock. The expected
term of the option was calculated using the simplified method since the Company continues to lack the appropriate historical data. Forfeitures are required to be
estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The estimated grant date fair
value of each option is expensed as employee benefits expense ratably over the vesting period. The expense recognized for this grant was $31,000 for the year
ended December 31, 2024, which provided a tax benefit of $8,000. At December 31, 2024, total unrecognized compensation expense for this equity incentive
plan was $1.0 million, with a 2.9 year weighted average future recognition period.
The Company has a policy of using shares held as treasury stock to satisfy share option exercises. Currently, the Company has a sufficient number of
treasury shares to satisfy expected share option exercises.
75
A summary of stock options outstanding as of December 31, 2024 and 2023, and changes during the years then ended is presented below:
December 31, 2024
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term (in
Years)
Aggregate Intrinsic
Value
Stock options:
(In Thousands)
Outstanding at beginning of year
249,144 $
8.06
9.4 $
—
Granted
280,500
9.29
—
—
Exercised
—
—
—
—
Forfeited
(10,000)
8.06
—
—
Outstanding at end of year
519,644 $
8.72
8.9 $
684
Fully vested and expected to vest
79,715 $
8.06
8.4 $
158
Exercisable at end of year
79,715 $
8.06
8.4 $
158
December 31, 2023
Number of Shares
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term (in
Years)
Aggregate Intrinsic
Value
Stock options:
(In Thousands)
Non-vested at beginning of year
— $
—
— $
—
Granted
249,144
8.06
9.4
—
Vested
—
—
—
—
Forfeited
—
—
—
—
Non-vested at end of year
249,144 $
8.06
9.4 $
—
Date of grant
5/25/2023
12/2/2024
Options granted
249,144
280,500
Exercise price
$
8.06 $
9.29
Vesting period
3 years
3 years
Expiration date
5/25/2033
12/2/2034
Expected volatility
27.8%
31.5%
Expected term
6.5 years
6.5 years
Expected dividend yield
0%
0%
Expected forfeiture rate
0%
0%
Risk free interest rate
3.9%
4.1%
Fair value per option
$
3.00 $
3.78
On December 2, 2024, 112,200 restricted stock awards were granted under the 2024 Plan to directors for their services on the board of directors and
certain members of management at $9.29 per share. The total fair value related to the December 2, 2024 grant was $1.0 million. These restricted stock awards
time-vest over a three year period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of
stock ownership of the Company, including voting rights when granted and dividend rights when vested. For the year ended December 31, 2024, the expense
recognized for this grant was $29,000, which provided a tax benefit of $8,000. At December 31, 2024, total unrecognized compensation expense for this equity
incentive plan was $1.0 million, with a 2.9 year weighted average future recognition period.
(1)
(1) Vesting is ratably and the period begins on the date of the grant.
76
On June 1, 2023, 2,478 restricted stock awards were granted under the 2021 Plan to a certain member of management at $7.99 per share. The total fair
value related to the June 1, 2023 grant was $20,000. These restricted stock awards time-vest 50% as of November 18, 2023 and 50% as of November 18, 2024
and have been fair valued as of the date of grant. On November 18, 2021, 98,850 restricted stock awards (adjusted for the second step conversion transaction)
were granted under the 2021 Plan to directors for their services on the board of directors and certain members of management at $11.95 per share (adjusted for
the second step conversion transaction). The total fair value related to the grant was $1.2 million. These restricted stock awards time-vest over a three year
period and have been fair valued as of the date of grant. The holders of restricted stock awards participate fully in the rewards of stock ownership of the
Company, including voting rights when granted and dividend rights when vested. For the years ended December 31, 2024 and 2023, the expense recognized for
these grants was $350,000 and $399,000, respectively, which provided a tax benefit of $95,000 and $108,000, respectively. At December 31, 2024 and 2023,
total unrecognized compensation expense for this equity incentive plan was $-0- and $350,000, respectively.
A summary of non-vested restricted shares outstanding as of December 31, 2024 and 2023, and changes during the years then ended is presented below:
December 31, 2024
Number of Shares
Weighted Average Grant Value
Restricted stock:
Non-vested at beginning of year
33,629
$
11.80
Granted
112,200
9.29
Vested
(33,629)
11.80
Forfeited
—
—
Non-vested at end of year
112,200
$
9.29
December 31, 2023
Number of Shares
Weighted Average Grant Value
Restricted stock:
Non-vested at beginning of year
64,785
$
11.95
Granted
2,478
7.99
Vested
(33,634)
11.80
Forfeited
—
—
Non-vested at end of year
33,629
$
11.80
13.
Leases
The Company’s lease arrangements consist of operating and finance leases; however, the majority of the leases have been classified as non-cancellable
operating leases and are primarily for real estate and equipment leases with remaining lease terms of up to 15 years.
The Company accounts for leases under ASC Topic 842 –Leases (Topic 842) – and recognizes its operating leases on its consolidated balance sheet by
recording a net lease liability, representing the Company’s legal obligation to make these lease payments, and a ROU asset, representing the Company’s legal
right to use the leased assets. The Company, by policy, does not include renewal options for leases as part of its ROU asset and lease liabilities unless they are
deemed reasonably certain to exercise. The Company does not have any sub-lease agreements.
The Company determines whether a contract contains a lease based on whether a contract, or a part of a contract, conveys the right to control the use of
an identified asset for a period of time in exchange for consideration. The discount rate is either implicit in the lease or, when such a rate cannot be readily
determined, the Company’s incremental borrowing rate is used. The incremental borrowing rate is the rate of interest that the Company would have to pay to
borrow on a collateralized basis over a similar term.
77
On June 11, 2024, the Bank entered into and closed on an agreement with a single purchaser for the purchase and sale of four properties formerly owned
and operated by the Bank, which included four branches (with an adjacent drive thru) and a parking lot, each adjacent to a sold branch, for an aggregate cash
purchase price of $7.5 million. Concurrently with the sale-leaseback transaction, the Bank entered into an absolute net lease agreement with the purchaser under
which the Bank will lease the properties for an initial term of 15 years with one renewal option of 15 years. The lease agreement includes a 2.5% annual rent
escalation during the initial term and during the renewal term, if exercised. The sale-leaseback transaction resulted in a pre-tax gain of $2.5 million which is
included in non-interest income in the accompanying consolidated statements of loss. The Company’s operating lease ROU asset and corresponding operating
lease liability of $5.2 million primarily resulted in an increase in ROU assets and lease liabilities at December 31, 2024 (included in other assets and other
liabilities), compared to December 31, 2023. Additionally, the Company recorded a $1.5 million finance lease liability related to this agreement representing the
portion of the gain not eligible for immediate recognition. The Company's obligation under this operating lease expires in June 2039 and has future lease
payments of $9.1 million as of December 31, 2024. Total lease expense for this operating lease was $292,000 and $-0- for the years ended December 31, 2024
and 2023, respectively.
During 2023, the Company completed a conversion of all of its branch ATMs from owned equipment to leased equipment and recognized a $2,000 loss
on the disposition of all ATM-related equipment. The Company's obligation under the operating lease related to these ATMs expires in August 2030 and has
future lease payments of $432,000 as of December 31, 2024. Total lease expense under the operating lease related to these ATMs was $77,000 and $26,000 for
the years ended December 31, 2024 and 2023, respectively.
The Company's obligation under an operating lease related to a branch not included in the sale-leaseback transaction expires in August 2027 and has
future lease payments of $113,000 as of December 31, 2024. Total lease expense for this obligation was $39,000 and $37,000 for the years ended December 31,
2024 and 2023, respectively. This lease agreement contains clauses calling for escalation of minimum lease payments contingent on increases in LIBOR, or a
similar replacement index, and the consumer price index.
The following tables summarize information related to the Company’s lease portfolio and other supplemental information as of and for the years ended
December 31, 2024 and 2023:
2024
2023
Operating
Finance
Operating
Finance
(Dollars in thousands)
ROU assets
$
5,648
$
—
$
587
$
—
Lease liabilities
5,648
1,509
587
—
Lease Term and Discount Rate:
Weighted-average remaining lease term (years)
13.68
14.42
5.85
—
Weighted-average discount rate
7.82%
8.12%
4.79%
—
A lease implicit rate or incremental borrowing rate is used based on information available
at commencement date of lease.
(Dollars in thousands)
2024
2023
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
$
202 $
63
Operating cash flows from finance lease
30
—
Financing cash flows from finance lease
1,539
—
ROU assets obtained in exchange for lease obligations:
Operating leases
$
5,263 $
—
Net operating lease cost
$
202 $
63
Finance lease cost:
Amortization of right-of-use assets
30
—
Interest on lease liabilities
55
—
Total lease cost
$
287 $
63
(1)
(1)
78
The total minimum lease payments due in future periods for lease agreements in effect at December 31, 2024 were as follows:
As of December 31, 2024
Future Minimum Lease Payments
(Dollars in thousands)
Operating
Finance
2025
654
156
2026
666
160
2027
666
164
2028
651
168
2029
588
172
Thereafter
6,450
1,849
Total minimum lease payments
9,675
2,669
Less: interest
(4,027 )
(1,160 )
Total lease liability
$
5,648
$
1,509
14. Other Comprehensive (Loss) Income
The Company reports certain items as “other comprehensive (loss) income" and reflects total accumulated other comprehensive loss (“AOCI”) in the
consolidated financial statements for all years containing elements of other comprehensive income or loss. The following table presents a reconciliation of the
changes in the components of other comprehensive income or loss for the dates indicated, including the amount of income tax expense or benefit allocated to
each component of other comprehensive income or loss:
Year Ended December 31,
Reclassification Adjustment
2024
2023
Affected Line Item
in Statements of Loss
(Dollars in thousands)
(Gains) losses on sale of securities available-for-sale
$
(7) $
4,173 Securities (gains) losses, net
Tax effect
2
(1,123) Income tax expense
(5)
3,050 Net loss
Net amortization of bond premiums
547
904 Interest on debt securities
Tax effect
(148)
(243) Income tax expense
399
661 Net loss
Gain on termination of interest rate swaps
—
(849) Gain on termination of interest rate swaps
Tax effect
—
230 Income tax expense
—
(619) Net loss
Net interest income on interest rate swaps
(30)
— Interest expense on deposits
Tax effect
8
— Income tax expense
(22)
— Net loss
Total reclassification adjustments
$
372 $
3,092
79
The following tables present the changes in each component of AOCI for the periods indicated:
(Dollars in thousands)
Net Unrealized Losses
on AFS
Securities
Net Unrealized Gains (Losses) on
Cash Flow
Hedges
AOCI
Balance at December 31, 2022
$
(10,428 )
$
701
$
(9,727 )
Other comprehensive income (loss) before
reclassification
773
(82 )
691
Amounts reclassified from AOCI
3,711
(619 )
3,092
Other comprehensive income (loss)
4,484
(701 )
3,783
Balance at December 31, 2023
$
(5,944 )
$
—
$
(5,944 )
Balance at December 31, 2023
$
(5,944 )
$
—
$
(5,944 )
Other comprehensive loss before
reclassification
(1,463 )
(9 )
(1,472 )
Amounts reclassified from AOCI
394
(22 )
372
Other comprehensive loss
(1,069 )
(31 )
(1,100 )
Balance at December 31, 2024
$
(7,013 )
$
(31 )
$
(7,044 )
(1)
All amounts are net of income tax including a deferred tax valuation allowance equal to the net tax benefit.
15.
Financial Instruments with Off-Balance Sheet Credit Exposures
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to originate loans, unadvanced funds on loans and standby letters of credit. The instruments involve, to
varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments
reflect the extent of involvement the Company has in particular classes of financial instruments.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and standby
letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and
conditional obligations as it does for on-balance sheet instruments.
Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each
customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on
management’s credit evaluation of the borrower. Collateral held varies but generally includes secured interests in mortgages.
Standby letters of credit are conditional commitments issued by the Bank to guarantee performance by a customer to a third-party. The credit risk
involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Notional amounts of financial instruments with off-balance sheet credit risk are approximately as follows as of December 31:
2024
2023
Unadvanced portions of loans
$
42,883
$
46,175
Commitments to originate loans
9,333
34,074
Standby letters of credit
125
125
The Company records an ACL for off-balance sheet credit exposures that are not unconditionally cancelable through a charge to the (release) provision
for credit losses on the Company’s consolidated statements of loss. At December 31, 2024 and 2023, the ACL for off-balance sheet credit exposures totaled
$199,000 and $391,000, respectively, and was included in other liabilities on the Company’s consolidated balance sheets. The (release) provision for credit
losses for off-balance sheet credit exposures for the years ended December 31, 2024 and 2023 was $(192,000) and $83,000, respectively.
In the ordinary course of business, the Company may be subject to various legal proceedings. Management, after consultation with legal counsel,
believes that the liabilities, if any, arising from such proceedings will not be material to the consolidated balance sheet or consolidated statements of loss.
(1)
(1)
(1)
80
16.
Regulatory Matters
The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Quantitative measures established by
regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios (set forth in the table below). As of December 31, 2024, the
most recent notification from the Office of the Comptroller of the Currency categorized the Bank, as well capitalized under the regulatory framework, for
prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum capital amounts and ratios as set forth in the following tables.
There are no conditions or events since the notification that management believes have changed the Bank’s category. Management believes that, as of
December 31, 2024 and 2023, the Bank met all capital adequacy requirements to which it was subject, including the capital conservation buffer, at those dates.
The following table presents actual and required capital ratios as of December 31, 2024 and 2023 for the Bank under the Basel Committee on Banking
Supervisions capital guidelines for U.S. banks (“Basel III Capital Rules”) as fully phased-in on January 1, 2019. Capital levels required to be considered well
capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules.
Minimum
Capital
Minimum
Capital Required to be
Well
Minimum Capital
Required For Capital
Adequacy Plus Capital
Conservation Buffer
Actual
Requirement
Capitalized
Fully Phased-In
(Dollars in thousands)
Amount
Ratio
Amount
Ratio
Amount
Ratio
Amount
Ratio
As of December 31, 2024
Total Capital (to risk- weighted assets)
$
55,506
15.55 % $
28,555
8.00 % $
35,694
10.00 % $
37,479
10.50 %
Tier 1 Capital (to risk- weighted assets)
51,820
14.52
21,417
6.00
28,555
8.00
30,340
8.50
Tier 1 Capital (to average assets)
51,820
8.69
23,848
4.00
29,809
5.00
23,848
4.00
Common Equity Tier 1 (to risk-weighted assets)
51,820
14.52
16,062
4.50
23,201
6.50
24,986
7.00
As of December 31, 2023
Total Capital (to risk-weighted assets)
$
55,701
15.32 % $
29,090
8.00 % $
36,363
10.00 % $
38,181
10.50 %
Tier 1 Capital (to risk-weighted assets)
51,878
14.27
21,818
6.00
29,090
8.00
30,908
8.50
Tier 1 Capital (to average assets)
51,878
9.19
22,592
4.00
28,240
5.00
22,592
4.00
Common Equity Tier 1 (to risk-weighted assets)
51,878
14.27
16,363
4.50
23,636
6.50
25,454
7.00
17.
Treasury Stock
As of December 31, 2024 and 2023, the Company held a total of 519,243 and 115,448 shares in its treasury, respectively.
Common Stock Repurchases
On April 11, 2024, the board of directors of the Company authorized a stock repurchase program for the repurchase of up to 507,707 shares of common
stock, representing approximately 10% of shares then outstanding, which became effective on May 14, 2024. On December 12, 2024, the board of directors of
the Company authorized additional stock repurchases, up to 228,858 shares of common stock, under this stock repurchase program. The additional repurchase
authorization represents approximately 5% of pro forma outstanding shares assuming the repurchase of the remaining shares subject to the original
authorization. The Company holds repurchased shares in its treasury. As of December 31, 2024, the Company has repurchased 403,211 shares under this stock
repurchase program.
Equity Incentive Plan
A certain member of management elected to surrender 584 and 549 shares of a vested restricted stock award on November 18, 2024 and 2023,
respectively, in lieu of a cash payment for the tax liabilities associated with the time-vesting of their award. The Company holds these shares in its treasury.
18.
Derivatives and Hedging Activities
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its
exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks,
including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative
financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result
in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. These derivative financial
instruments are reported at fair value in other assets or other liabilities and are not reported on a net basis.
81
Derivatives Designated as Hedging Instruments
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest income and expense and to manage its exposure to interest rate
movements. To accomplish these objectives, the Company primarily uses interest rate swaps as part of its interest rate risk management strategy. Interest rate
swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed rate payments or
the receipt of fixed rate amounts from a counterparty in exchange for the Company making variable rate payments over the life of the agreements without
exchange of the underlying notional amount.
The Company entered into two $5 million notional interest rate swaps that were designated as cash flow hedges on 90-day advances from FHLB. The
purpose of these cash flow hedges was to reduce potential interest rate risk by swapping a variable rate borrowing to a fixed rate. Management deemed it
prudent to limit the variability of these interest payments by entering into these interest rate swap agreements. These agreements provided for the Company to
receive payments at a variable rate determined by a specific index (three-month LIBOR) in exchange for making payments at a fixed rate. Publication of
LIBOR ended in September of 2024. The swap agreements allowed for substitution of an alternative reference rate such as the secured overnight financing rate
(“SOFR”) at that time.
On January 17, 2023, the Company terminated both of its interest rate swap derivative instruments at a gain of $849,000. The Company recognized the
change in fair value of these hedging instruments, previously accumulated in AOCI, as a gain on termination of interest rate swaps in its consolidated statement
of loss for the year ended December 31, 2023 as it was determined that it was probable that the hedged forecasted transaction - the variability in cash flows
related to 90-day advances from the FHLB - would not occur by the end of the original maturity dates of the hedging instruments. The use of derivatives for
debt hedging as part of the Company's overall interest rate risk management strategy has been infrequent as the Company has utilized other interest rate risk
management activities to achieve similar business purposes. Also, $536,000 of cash posted to the counterparty as collateral on these interest rate swaps
contracts was returned to the Company. The changes in the fair value of interest rate swaps were reported in other comprehensive (loss) income and were
subsequently reclassified into interest expense or income in the period that the hedged transactions affected earnings. The change in fair value for these
derivative instruments for the years ended December 31, 2024 and 2023, was $-0- and $(112,000), respectively.
On July 12, 2024, the Company entered into a two-year interest rate contract that was designated as fair value hedge utilizing a pay fixed interest rate
swap to hedge a portion of its index-based brokered deposits included in savings deposits and its change in fair value attributable to the movement in the one-
month SOFR. The carrying amount of the hedged liability located in “savings deposits" includes the savings account balance used to designate hedging
relationships in which the hedged items are the stated amount of liabilities anticipated to be outstanding for the designated hedged period. The carrying amount
of the savings deposit used in the hedged relationship was $22.1 million at December 31, 2024. Under the "portfolio layer" approach, the Company designated a
$10.0 million notional amount of portfolio liabilities that are not expected to be affected by prepayments, defaults and other factors affecting the timing and
amount of cash flows of the designated hedged layer. At inception, this fair value hedge had a pay fixed rate of 4.33% and a received rate of 5.32%. The change
in the fair value of the interest rate swap was reported in other comprehensive (loss) income and was subsequently reclassified into interest expense or income
in the period that the hedged transaction affected earnings. The change in fair value for this derivative instrument for the year ended December 31, 2024 was
$(43,000). For the year ended December 31, 2024, $30,000 of interest income was reclassified from AOCI into expense.
Fair Value Hedges of Interest Rate Risk
The Company is exposed to changes in the fair value of certain pools of fixed-rate assets due to changes in benchmark interest rates. The Company uses
interest rate swaps to manage its exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate. The
Company's interest rate swaps designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company
receiving variable-rate payments over the life of the agreement without the exchange of the underlying notional amount. The hedging strategy effectively
converts these fixed-rate assets to SOFR floating rate assets for the term of the swap starting on the effective date. For derivatives designated and that qualify as
fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in
interest income.
In June 2023, the Company entered into a three-year $25 million notional amount interest rate contract that was designated as a fair value hedge utilizing
a pay fixed interest rate swap to hedge a portion of the residential mortgage loan portfolio's change in fair value attributable to the movement in the one-month
SOFR. In November 2023, the Company entered into a second three-year $25 million notional amount interest rate contract that was also designated as a fair
value hedge utilizing a pay fixed interest rate swap to hedge a portion of the residential mortgage loan portfolio's change in fair value attributable to the
movement in the one-month SOFR. On November 1, 2024, the Company terminated this second pay fixed interest rate swap which resulted in a swap
termination fee of $398,000 due to the counterparty. The $398,000 fee is recorded as a residential mortgage loan basis adjustment and is included in 1-4 family
residential loans as it is amortized over the remaining expected life of the original swap – 24 months. Also, $1.2 million of cash posted to the counterparty as
82
collateral for this interest rate swap contract was returned to the Company. The Company terminated this interest rate swap as it was determined that this
derivative was no longer meeting the aims of the Company’s interest rate risk management strategy as it was probable that the hedged forecasted transaction –
the potential interest rate risk/variability in fair value of the residential loan portfolio attributable to the movement in one-month SOFR – would not occur by the
end of the original maturity date of the hedging instrument.
Additionally, in December 2023, the Company entered into a three-year $10 million notional amount interest rate contract that was designated as fair
value hedge utilizing a pay fixed interest rate swap to hedge a portion of the securities available-for-sale municipal bond portfolio's change in fair value
attributable to the movement in the one-month SOFR. On December 19, 2024 the Company terminated this pay fixed interest rate swap which resulted in a
swap termination fee of $32,000 due to the counterparty. The $32,000 fee is recorded as a municipal bond basis adjustment and is included in securities
available-for-sale as it is amortized over a period consistent with the amortization of the discounts and premiums associated with the formerly hedged items.
Also, $280,000 of cash posted to the counterparty as collateral for this interest rate swap contract was returned to the Company. The Company terminated this
interest rate swap as it was determined that this derivative was no longer meeting the aims of the Company’s interest rate risk management strategy as it was
probable that the hedged forecasted transaction – the potential interest rate risk/variability in fair value of the securities available-for-sale municipal bond
portfolio attributable to the movement in one-month SOFR – would not occur by the end of the original maturity date of the hedging instrument.
As of December 31, 2024 and 2023, the following amounts were recorded on the balance sheet related to cumulative basis adjustment for fair value
hedges:
Location in Consolidated Balance Sheets
Carrying Amount of Hedged Assets/(Liabilities)
Cumulative Amount of Fair Value Hedging
Adjustment Included in the Carrying Amount of the
Hedged Assets/(Liabilities)
(Dollars in thousands)
2024
2023
2024
2023
Securities available-for-sale, at fair value
$
— $
10,126 $
— $
126
Total loans
24,957
50,632
(43 )
632
Total
$
24,957 $
60,758 $
(43 ) $
758
The carrying amount of the hedged asset located in “total loans” includes the amortized cost basis of closed portfolios of fixed-rate residential loans used
to designate hedging relationships in which the hedged items are the stated amount of assets anticipated to be outstanding for the designated hedged period. At
December 31, 2024 and 2023, the amortized cost basis of the closed portfolios of fixed-rate residential loans used in the hedging relationship was in excess of
the carrying amount of the hedged asset. At December 31, 2024 and 2023, the cumulative basis adjustments associated with this hedging relationship was
$(43,000) and $632,000, respectively; and the notional amount of the designated hedged item was $25.0 million and $50.0 million, respectively. Under the
"portfolio layer" approach, the Company designated a notional amount of portfolio assets that are not expected to be affected by prepayments, defaults and
other factors affecting the timing and amount of cash flows of the designated hedged layer.
The carrying amount of the hedged asset located in “securities available-for-sale, at fair value” includes the principal amount of municipal bonds used to
designate hedging relationships in which the hedged items are the stated amount of assets anticipated to be outstanding for the designated hedged period. At
December 31, 2023, the fair value of the principal amount of municipal bonds used in this hedging relationship was approximately $19.3 million; the
cumulative basis adjustments associated with these hedging relationships was $126,000; and the notional amount of the designated hedged items were $10.0
million. Under the "portfolio layer" approach, the Company designated a $10.0 million notional amount of portfolio assets that are not expected to be affected
by prepayments, defaults and other factors affecting the timing and amount of cash flows of the designated hedged layer.
The notional amounts of these agreements do not represent amounts exchanged by the parties and, thus, are not a measure of potential loss exposure. At
December 31, 2024 and 2023, the Company’s fair value hedges had a remaining maturity of 1.42 years and 2.73 years, respectively, an average pay fixed rate
of 3.99% and 4.29%, respectively, and an average received rate of 5.19% and 5.32%, respectively.
Derivatives not Designated as Hedging Instruments
Customer Loan Swaps
Derivatives not designated as hedges are not speculative and result from a service the Company provides to certain commercial banking customers. On
May 19, 2023, the Company entered into an interest rate swap with a commercial loan borrower. The Company executes interest rate swaps with customers to
facilitate their respective risk management strategies. The interest rate swap contract with the commercial loan borrower allows them to convert floating-rate
loan payments based on SOFR to fixed-rate loan payments. This interest rate swap is simultaneously hedged by an offsetting derivative that the Company
executes with a third party, such that the Company minimizes its net risk exposure resulting from such
83
transactions. As the interest rate derivatives associated with this program do not meet hedge accounting requirements, changes in the fair value of both the
customer derivative and the offsetting derivative are recognized directly in earnings.
The following table presents the fair value of the Company’s derivative financial instruments as well as their classification on the consolidated balance
sheet:
Derivative Assets
Derivative Liabilities
Notional
Amount
Location
Fair Value
Notional
Amount
Location
Fair Value
(Dollars in thousands)
December 31, 2024
Derivatives designated as hedging instruments:
Interest rate contracts - fair value hedge
$
25,000
Other assets
$
43 $
—
$
—
Interest rate contracts - cash flow hedge
10,000
—
— Other liabilities
43
Total derivatives designated as hedging instruments $
35,000
$
43 $
—
$
43
Derivatives not designated as hedging instruments:
Customer loan swaps
$
4,630
Other assets
$
71 $
4,630 Other liabilities $
71
December 31, 2023
Derivatives designated as hedging instruments:
Interest rate contracts - fair value hedge
$
60,000
Other assets
$
— $
— Other liabilities $
758
Derivatives not designated as hedging instruments:
Customer loan swaps
$
4,766
Other assets
$
90 $
4,766 Other liabilities $
90
The following table presents the effect of the Company’s derivative financial instruments that are not designated as hedging instruments on the
consolidated statements of loss for years ended December 31, 2024 and 2023:
Amount of Gain Recognized in Income
2024
2023
(Dollars in thousands)
Location of Gain
Customer loan swaps
Interest and fees on loans
$
—
$
83
Credit-risk-related Contingent Features
By entering into derivative transactions, the Company is exposed to credit risk to the extent that counterparties to the derivative contracts do not perform
as required. Should a counterparty fail to perform under the terms of a derivative contract, the Company’s credit exposure on interest rate swaps is limited to the
net positive fair value and accrued interest of all swaps with each counterparty. The Company seeks to minimize counterparty credit risk through credit
approvals, limits, and other monitoring procedures. Institutional counterparties must have an investment grade credit rating and be approved by the Company’s
board of directors. As such, management believes the risk of incurring credit losses on derivative contracts with institutional counterparties is remote. As of
December 31, 2024 and 2023, the Company posted $781,000 and $1.6 million, respectively, of cash to the counterparties as collateral on its interest rate swap
contracts and customer loan swaps, which was presented within cash and due from banks on the consolidated balance sheets.
Balance Sheet Offsetting
Certain financial instruments may be eligible for offset in the consolidated balance sheet and/or subject to master netting arrangements or similar
agreements. The Company’s derivative transactions with institutional counterparties are generally executed under International Swaps and Derivative
Association (“ISDA”) master agreements which include “right of set-off” provisions. In such cases there is generally a legally enforceable right to offset
recognized amounts and there may
84
be an intention to settle such amounts on a net basis. Generally, the Company does not offset such financial instruments for financial reporting purposes.
The following tables present the information about derivative positions that are eligible for offset in the consolidated balance sheets as of December 31,
2024 and 2023:
Gross Amounts Not Offset
(Dollars in thousands)
Gross Amounts
Recognized
Gross Amounts
Offset
Net Amounts
Recognized
Financial
Instruments
Pledged
(Received)
Cash Collateral
Pledged
(Received)(1)
Net Amount
December 31, 2024
Derivative Assets:
Interest rate contracts - fair value hedges(2)
$
43 $
— $
43 $
— $
43 $
—
Interest rate contracts - cash flow hedge (2)
—
—
—
—
—
—
Customer loan swaps - commercial customer
(3)
71
—
71
—
71
—
Total
$
114 $
— $
114 $
— $
114 $
—
Derivative Liabilities:
Interest rate contracts - fair value hedges (2)
$
— $
— $
— $
— $
— $
—
Interest rate contracts - cash flow hedge (2)
43
—
43
—
43
—
Customer loan swaps - dealer bank (3)
71
—
71
—
—
71
Total
$
114 $
— $
114 $
— $
43 $
71
December 31, 2023
Derivative Assets:
Interest rate contracts - fair values hedges (2) $
— $
— $
— $
— $
— $
—
Customer loan swaps - dealer bank (3)
90
—
90
—
—
90
Total
$
90 $
— $
90 $
— $
— $
90
Derivative Liabilities:
Interest rate contracts (2)
$
758 $
— $
758 $
— $
758 $
—
Customer loan swaps - commercial customer
(3)
90
—
90
—
—
90
Total
$
848 $
— $
848 $
— $
758 $
90
(1) The amount presented was the lesser of the amount pledged (received) or the net amount presented in the consolidated balance sheets.
(2) Interest rate swap contracts were completed with the same dealer bank. The Company maintains a master netting arrangement with the counterparty and settles collateral on a net basis for all
contracts.
(3) The Company manages its net exposure on its commercial customer loan swaps by obtaining collateral as part of the normal loan policy and underwriting practices. The Company does not post
collateral to its commercial customers as part of its contract.
19.
Fair Values of Assets and Liabilities
Determination of Fair Value
The fair value of an asset or liability is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. The Company uses prices and inputs that are current as of the measurement date, including during periods of
market dislocation. In periods of market dislocation, the observability of prices and inputs may be reduced for many instruments. This condition could cause an
instrument to be reclassified from one level to another. Fair value is best determined based upon quoted market prices. However, in many instances, there are no
quoted market prices for the Company’s various assets and liabilities. In cases where quoted market prices are not available, fair values are based on estimates
using present value of cash flows or other valuation techniques.
85
Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value
estimates may not be realized in an immediate settlement of the instrument.
The Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded,
and the observability and reliability of the assumptions used to determine fair value.
Level 1 – Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access
at the measurement date.
Level 2 – Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or
indirectly.
Level 3 – Level 3 inputs are unobservable inputs for the asset or liability.
For assets and liabilities, fair value is based upon the lowest level of observable input that is significant to the fair value measurement.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon
models that primarily use, as inputs, observable market-based parameters. The Company’s valuation methodologies may produce a fair value calculation that
may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are
appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial
instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively
revalued since the presentation dates, and, therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented
therein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value is set forth below. A description of the
valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation
hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value at
December 31, 2024 and 2023.
Financial Assets and Financial Liabilities: Financial assets and financial liabilities measured at fair value on a recurring basis include the following:
Securities Available-for-Sale: The Company’s investment in U.S. Government-sponsored entities bonds, U.S Government agency small business
administration pools guaranteed by the SBA, collateralized mortgage obligations issued by the FHLMC, FNMA, and GNMA residential mortgage-backed
securities, other municipal bonds, corporate debt and corporate subordinated debt is generally classified within Level 2 of the fair value hierarchy. For these
securities, the Company obtains fair value measurements from independent pricing services or uses fair value measurements considering observable market
data. The fair value measurements consider observable data that may include reported trades, dealer quotes, market spreads, cash flows, the U.S. treasury yield
curve, trading levels, market consensus prepayment speeds, credit information and the instrument’s terms and conditions.
Mortgage Servicing Rights: Fair value is based on a valuation model that calculates the present value of estimated future net servicing income. The
valuation model utilizes interest rate, prepayment speed and default rate assumptions that market participants would use in estimating future net servicing
income and that can be validated against available market data (see Note 6 for more information). These assumptions are inherently sensitive to change as these
unobservable inputs are not based on quoted prices in active markets or otherwise observable.
Derivative Instruments and Hedges: The valuation of these instruments is determined using the discounted cash flow method on the expected cash flows
of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs,
including interest rate curves and implied volatilities.
86
The following table summarizes financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2024 and 2023, segregated
by the level of the valuation inputs within the fair value hierarchy utilized to measure fair value:
Total
Level 1
Level 2
Level 3
(Dollars in thousands)
December 31, 2024
Securities available-for-sale:
U.S. Government-sponsored enterprises ("GSE") obligations
$
1,387 $
— $
1,387 $
—
U.S Government agency small business administration
pools guaranteed by the SBA
13,125
—
13,125
—
Collateralized mortgage obligations issued by
the FHLMC, FNMA and GNMA
19,362
—
19,362
—
Residential mortgage-backed securities
48,462
—
48,462
—
Municipal bonds
29,532
—
29,532
—
Corporate debt
484
—
484
—
Corporate subordinated debt
7,865
—
7,865
—
Other assets:
Mortgage servicing rights
305
—
—
305
Derivatives
114
—
114
—
Other liabilities:
Derivatives
114
—
114
—
Total
Level 1
Level 2
Level 3
(Dollars in thousands)
December 31, 2023
Securities available-for-sale:
U.S. Government-sponsored enterprises ("GSE") obligations
$
1,398 $
— $
1,398 $
—
U.S Government agency small business administration
pools guaranteed by the SBA
15,583
—
15,583
—
Collateralized mortgage obligations issued by
the FHLMC, FNMA and GNMA
2,474
—
2,474
—
Residential mortgage-backed securities
38,221
—
38,221
—
Municipal bonds
54,692
—
54,692
—
Corporate debt
492
—
492
—
Corporate subordinated debt
8,994
—
8,994
—
Other assets:
Mortgage servicing rights
339
—
—
339
Derivatives
90
—
90
—
Other liabilities:
Derivatives
848
—
848
—
87
For the years ended December 31, 2024 and 2023, the changes in Level 3 assets and liabilities measured at fair value on a recurring basis were as
follows:
(Dollars in thousands)
Mortgage Servicing Rights
Balance as of January 1, 2024
$
339
Included in net loss
(34 )
Balance as of December 31, 2024
$
305
Total unrealized net gains (losses)
included in net loss related to
assets still held as of December 31, 2024
$
—
Balance as of January 1, 2023
$
357
Included in net loss
(18 )
Balance as of December 31, 2023
$
339
Total unrealized net gains (losses)
included in net loss related to
assets still held as of December 31, 2023
$
—
(1) Realized and unrealized gains and losses related to mortgage servicing rights are reported as a component of loan servicing
fee income in the
Company’s consolidated statements of loss.
For Level 3 assets measured at fair value on a recurring basis as of December 31, 2024 and 2023, the significant unobservable inputs used in the fair
value measurements were as follows:
December 31, 2024
(Dollars in thousands)
Valuation Technique
Description
Range
Weighted Average
Fair Value
Mortgage Servicing Rights
Discounted Cash Flow
Prepayment Rate
4.54% - 18.71%
6.51%
$
305
Discount Rate
10.00% - 10.00%
10.00%
Delinquency Rate
2.17% - 2.64%
2.25%
Default Rate
0.14% - 0.24%
0.16%
December 31, 2023
(Dollars in thousands)
Valuation Technique
Description
Range
Weighted Average
Fair Value
Mortgage Servicing Rights
Discounted Cash Flow
Prepayment Rate
5.35% - 20.53%
6.85%
$
339
Discount Rate
9.375% - 9.375%
9.38%
Delinquency Rate
2.08% - 2.60%
2.17%
Default Rate
0.12% - 0.14%
0.14%
(1) Unobservable inputs for mortgage servicing rights were weighted by loan amount.
The significant unobservable inputs used in the fair value measurement of the Company’s mortgage servicing rights are the weighted-average
prepayment rate, weighted-average discount rate, weighted average delinquency rate and weighted-average default rate. Significant increases (decreases) in any
of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the prepayment rate and the discount rate are not
directly interrelated, they generally move in opposite directions of each other.
The Company estimates the fair value of mortgage servicing rights by using a discounted cash flow model to calculate the present value of estimated
future net servicing income. Observable and unobservable inputs are entered into this model as prescribed by an independent third party to arrive at an
estimated fair value.
Certain financial assets and financial liabilities are measured at fair value on a non-recurring basis; that is, the instruments are not measured at fair value
on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Financial assets
measured at fair value on a non-recurring basis during the reported periods may include certain individually evaluated loans reported at the fair value of the
underlying collateral. Fair value is measured using appraised values of collateral and adjusted as necessary by management based on unobservable inputs for
specific properties. However, the choice of observable data is subject to significant judgment, and there are often adjustments based on judgment in order to
make observable data comparable and to consider the impact of time, the condition of properties, interest rates and other market factors on current values.
Additionally, commercial real estate appraisals frequently involve discounting of projected cash flows, which relies inherently on unobservable data. Therefore,
real estate collateral related non-recurring fair value measurement adjustments have generally been classified as Level 3.
Estimates of fair value used for other collateral supporting commercial loans generally are based on assumptions not observable in the marketplace, and
therefore, such valuations have been classified as Level 3. Financial assets measured at
(1)
(1)
(1)
88
fair value on a non-recurring basis during the reported periods also include loans held for sale. Residential mortgage loans held for sale are recorded at the
lower of cost or fair value and are therefore measured at fair value on a non-recurring basis. The fair values for loans held for sale are estimated using
discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality and are included in
Level 3. At December 31, 2024 and 2023, there were no assets measured at fair value on a non-recurring basis.
Non-Financial Assets and Non-Financial Liabilities: The Company has no non-financial assets or non-financial liabilities measured at fair value on a
recurring basis. Non-financial assets measured at fair value on a non-recurring basis generally include certain foreclosed assets which, upon initial recognition,
were remeasured and reported at fair value through a charge-off to the allowance for credit losses and certain foreclosed assets which, subsequent to their initial
recognition, are remeasured at fair value through a write-down included in other non-interest expense. There were no foreclosed assets at December 31, 2024 or
2023.
ASC 825 - "Accounting For Financial Instruments (Subtopic 825-10)", requires disclosure of the fair value of financial assets and financial liabilities,
including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring basis or non-recurring basis. The
methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are
discussed above. ASC 825 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure
purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal
market (or most advantageous market in the absence of a principal market) on the measurement date. At December 31, 2024 and 2023, fair values of loans are
estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.
Summary of Fair Values of Financial Instruments not Carried at Fair Value
The estimated fair values, and related carrying or notional amounts, of the Company’s financial instruments not carried at fair value at December 31 are
as follows:
(Dollars in thousands)
Carrying
Amount
Fair
Value
Level 1
Level 2
Level 3
December 31, 2024
Financial Assets:
Cash and due from banks
$
7,100 $
7,100 $
7,100 $
— $
—
Federal Home Loan Bank stock
2,498
2,498
—
2,498
—
Bank-owned life insurance
4,768
4,768
—
4,768
—
Loans, net
435,481
397,154
—
—
397,154
Accrued interest receivable
2,103
2,103
2,103
—
—
Financial Liabilities:
Deposits
$
454,208 $
453,890 $
318,520 $
135,370 $
—
Advances from Federal Home Loan Bank
52,268
52,208
—
52,208
—
Mortgagors’ tax escrow
654
654
—
654
—
Accrued interest payable
475
475
475
—
—
December 31, 2023
Financial Assets:
Cash and due from banks
$
6,069 $
6,069 $
6,069 $
— $
—
Federal Home Loan Bank stock
2,986
2,986
—
2,986
—
Bank-owned life insurance
4,663
4,663
—
4,663
—
Loans, net
426,641
376,772
—
—
376,772
Accrued interest receivable
2,294
2,294
2,294
—
—
Financial Liabilities:
Deposits
$
404,798 $
403,489 $
313,503 $
89,986 $
—
Advances from Federal Home Loan Bank
73,007
73,162
—
73,162
—
Advances from Federal Reserve Bank
20,000
20,020
—
20,020
—
Mortgagors’ tax escrow
640
640
—
640
—
Accrued interest payable
380
380
380
—
—
89
20.
Condensed Financial Statements of Parent Company
Financial information pertaining to First Seacoast Bancorp, Inc. only is as follows:
CONDENSED BALANCE SHEETS
December 31,
2024
2023
(Dollars in thousands)
ASSETS
Cash held at First Seacoast Bank
$
17,055 $
20,396
Investment in First Seacoast Bank
40,862
41,984
Loan to First Seacoast Bank ESOP
4,129
4,197
Other assets
41
41
Total assets
62,087
66,618
LIABILITIES
Other liabilities
37
—
Total liabilities
37
—
STOCKHOLDERS’ EQUITY
Stockholders’ equity
62,050
66,618
Total liabilities and stockholders’ equity
$
62,087 $
66,618
CONDENSED STATEMENTS OF LOSS
For the Year Ended
December 31,
2024
2023
(Dollars in thousands)
Income:
Interest on ESOP loan
$
314 $
309
Expense:
Miscellaneous expense
24
—
Miscellaneous expense
24
—
Income before income tax expense and equity in
undistributed net loss of First Seacoast Bank
290
309
Income tax expense
—
—
Net income before equity in undistributed net
loss of First Seacoast Bank
290
309
Equity in undistributed net loss of First Seacoast Bank
(803)
(10,965)
Net loss
$
(513) $
(10,656)
90
CONDENSED STATEMENTS OF CASH FLOWS
For the Year Ended
December 31,
2024
2023
(Dollars in thousands)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss
$
(513)
$
(10,656)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Undistributed net loss of First Seacoast Bank
803
10,965
Increase in other liabilities
37
—
Net cash provided by operating activities
327
309
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital contribution to First Seacoast Bank
—
(12,811)
ESOP loan
—
(2,244)
Principal payments received on ESOP
68
78
Net cash provided (used) by investing activities
68
(14,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of common stock
—
25,622
Return of capital from conversion of former First Seacoast Bancorp, MHC
—
100
Excise tax on stock repurchases
(37)
—
Treasury stock purchases
(3,699)
(4)
Net cash (used) provided by financing activities
(3,736)
25,718
Net change in cash
(3,341)
11,050
Cash at beginning of year
20,396
9,346
Cash at end of year
$
17,055
$
20,396
91
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of First Seacoast Bancorp, Inc.:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of First Seacoast Bancorp, Inc. and Subsidiaries (the Company) as of December
31, 2024, the related consolidated statements of loss, comprehensive loss, changes in stockholders’ equity, and cash flows for the year then ended
and the related notes (collectively, “the financial statements”). In our opinion, the financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2024, and the results of its operations and its cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to
obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated
or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements
and (2) involved our especially challenging, subjective, or complex judgments.
The communication of a critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not,
by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to
which it relates.
Allowance for Credit Losses – Qualitative Factors
As described in Note 5 to the financial statements, the Company has recorded an allowance for credit
losses in the amount of $3.5 million as of December 31, 2024, representing management’s
estimate of credit losses over the remaining expected life of the Company’s loan portfolio as of that
date pursuant to the application of ASC 326.
The Company’s methodology to determine its allowance for credit losses on loans incorporates qualitative assessments of its historical losses,
current loan portfolio and economic conditions, the application of forecasted economic conditions,
92
and model limitations. We determined that performing procedures relating to these components of the Company’s methodology is a critical audit
matter.
The principal considerations for our determination are (i) the application of significant judgment and estimation on the part of management,
which in turn led to a high degree of auditor judgment and subjectivity in performing procedures and evaluating audit evidence obtained, and (ii)
significant audit effort was necessary in evaluating management’s methodology, significant assumptions and calculations.
How the Critical Audit Matter was addressed in the Audit
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
financial statements. These procedures included, among others, testing management’s process for determining the qualitative reserve component,
evaluating the appropriateness of management’s methodology relating to the qualitative reserve component and testing the completeness and
accuracy of data utilized by management.
We have served as the Company's auditor since 2024.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 21, 2025
93
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
First Seacoast Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of First Seacoast Bancorp, Inc. and Subsidiaries (the Company) as of December
31, 2023, the related consolidated statements of loss, comprehensive loss, changes in stockholders’ equity and cash flows for the year then ended,
and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements
present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its
cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s
financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board
(United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the
applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is
not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are
required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for
our opinion.
/s/ Baker Newman & Noyes LLC
We served as the Company’s auditor from 2011 to 2024.
Portsmouth, New Hampshire
March 29, 2024
94
ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
The information contained under the section "Business Items to be Voted on by Stockholders - Item 3 - Ratification of Appointment of Independent
Registered Public Accounting Firm - Change in Independent Registered Public Accounting Firm; Disagreement with Independent Registered Public
Accounting Firm on Accounting and Financial Disclosure" in the Proxy Statement is incorporated herein by reference.
ITEM 9A. Controls and Procedures
Disclosure Controls and Procedures
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 December 31, 2024. Based on that evaluation, the Company’s management,
including the Chief Executive Officer and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.
Management’s Annual Report on Internal Control Over Financial Reporting
Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in
the Securities Exchange Act of 1934 Rules 13(a) – 15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. The Company’s internal control over financial reporting includes those policies and procedures
that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Company are being made only in accordance
with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis. Also, projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree
of compliance with the policies or procedures may deteriorate.
The Company’s management, including the principal executive officer and principal financial officer, assessed the effectiveness of the Company’s internal
control over financial reporting as of December 31, 2024, based on the criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (“COSO”) in “Internal Control-Integrated Framework (2013).” Based on such assessment, management believes that, as of December 31, 2024,
the Company’s internal control over financial reporting is effective, based on those criteria.
This annual report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to provisions
of the Dodd-Frank Act that permits the Company to provide only management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
During the three months ended December 31, 2024, there have been no changes in the Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. Other Information
During the three months ended December 31, 2024, none of the Company’s directors or executive officers adopted or terminated any contract, instruction
or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of SEC Rule 10b5-1(c) or any
“non-Rule 10b5-1 trading arrangement “ (as such term is defined in Item 408 of SEC Regulation S-K).
ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
Not applicable.
95
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance
First Seacoast Bancorp, Inc. has adopted a Code of Ethics that applies to its principal executive officer, principal financial officer and principal
accounting officer or controller or persons performing similar functions. A copy of the Code of Ethics is available on the investor relations section of First
Seacoast Bancorp, Inc’s website at www.firstseacoastbank.com under “Governance – Governance Documents.”
The information contained under the sections captioned “Business Items to be Voted on by Stockholders – Item 1 Election of Directors,” “Other
Information Relating to Directors and Executive Officers” and “Corporate Governance” in First Seacoast Bancorp, Inc.’s definitive Proxy Statement for the
2025 Annual Meeting of Stockholders (the “Proxy Statement”) is incorporated herein by reference.
The Company has adopted a Policy Regarding Insider Trading governing the purchase, sale and/or other dispositions of the Company’s securities by
its directors, officers and employees and by the Company itself. A copy of the policy is filed as an exhibit to this Annual Report on Form 10-K.
ITEM 11. Executive Compensation
The information contained under the section captioned “Executive Compensation” and “Directors Compensation” in the Proxy Statement is incorporated
herein by reference.
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
(a)
Securities Authorized for issuance under Stock-Based Compensation Plans
The following information is presented for the First Seacoast Bancorp, Inc. 2024 Equity Incentive Plan as of December 31, 2024:
Plan Category
Number of securities to be issued upon
exercise of outstanding options,
warrants and rights (column a)
Weighted-average exercise price of
outstanding options, warrants and
rights (column b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by stockholders
280,500 $
9.29
—
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
280,500 $
9.29
—
The following information is presented for the First Seacoast Bancorp 2021 Equity Incentive Plan as of December 31, 2024:
Plan Category
Number of securities to be issued upon
exercise of outstanding options,
warrants and rights (column a)
Weighted-average exercise price of
outstanding options, warrants and
rights (column b)
Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
Equity compensation plans approved by stockholders
249,144 $
8.06
—
Equity compensation plans not approved by stockholders
N/A
N/A
N/A
Total
249,144 $
8.06
—
(b)
Security Ownership of Certain Beneficial Owners
The information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement.
(c)
Security Ownership of Management
The information required by this item is incorporated herein by reference to the section captioned “Stock Ownership” in the Proxy Statement.
96
(d)
Changes in Control
Management of First Seacoast Bancorp, Inc. knows of no arrangements, including any pledge by any person of securities of First Seacoast Bancorp,
Inc., the operation of which may at a later date result in a change in control of the registrant.
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
The information required by this item is incorporated herein by reference to the sections captioned “Other Information Relating to Directors and
Executive Officers - Transactions with Certain Related Persons” and “Corporate Governance” of the Proxy Statement.
ITEM 14. Principal Accountant Fees and Services
The information required by this item is incorporated herein by reference to the section captioned “Business Items to be Voted on by Stockholders –
Item 2 – Ratification of Appointment of Independent Registered Public Accounting Firm” of the Proxy Statement.
97
PART IV
ITEM 15. Exhibits and Financial Statement Schedules
3.1
Articles of Incorporation of First Seacoast Bancorp, Inc. (incorporated by reference to Exhibit 3.1 of the Registration Statement on Form S-1 of
First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on September 13, 2022)
3.2
Amended and Restated Bylaws of First Seacoast Bancorp, Inc. (incorporated by reference to Exhibit 3.2 of the Current Report on Form 8-K of
First Seacoast Bancorp, Inc., filed with the Securities and Exchange Commission on February 23, 2023)
4.1
Form of Common Stock Certificate of First Seacoast Bancorp, Inc. (incorporated by reference to Exhibit 4 of the Registration Statement on Form
S-1 of First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on September 13, 2022)
4.2
Description of First Seacoast Bancorp, Inc’s Securities Registered Under Section 12 of the Securities Exchange Act of 1934 (incorporated by
reference to Exhibit 4.2 to the Annual Report on Form 10-K for the year ended December 31, 2022, filed with the Securities and Exchange
Commission on March 24, 2023)
10.1
Employment Agreement between Federal Savings Bank and James R. Brannen (incorporated by reference to Exhibit 10.2 to the Registration
Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13, 2019, as amended)
†
10.2
First Amendment to Employment Agreement between Federal Savings Bank and James R. Brannen (incorporated by reference to Exhibit 10.4 of
the Registration Statement on Form S-1 of First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on
September 13, 2022) †
10.3
Employment Agreement between Federal Savings Bank and Richard M. Donovan (incorporated by reference to Exhibit 10.3 to the Registration
Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13, 2019, as
amended)†
10.4
First Amendment to Employment Agreement between Federal Savings Bank and Richard M. Donovan (incorporated by reference to Exhibit 10.5
of the Registration Statement on Form S-1 of First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on
September 13, 2022) †
10.5
Employment Agreement between Federal Savings Bank and Timothy F. Dargan (incorporated by reference to Exhibit 10.3 of the Registration
Statement on Form S-1 of First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on September 13, 2022) †
10.6
First Amendment to Employment Agreement between Federal Savings Bank and Timothy F. Dargan (incorporated by reference to Exhibit 10.6
of the Registration Statement on Form S-1 of First Seacoast Bancorp, Inc., initially filed with the Securities and Exchange Commission on
September 13, 2022) †
10.7
Salary Continuation Agreement between Federal Savings Bank and James R. Brannen (incorporated by reference to Exhibit 10.4 to the
Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13, 2019,
as amended) †
10.8
Directors Deferred Fee Plan (incorporated by reference to Exhibit 10.7 to the Registration Statement on Form S-1 of First Seacoast Bancorp,
initially filed with the Securities and Exchange Commission on March 13, 2019, as amended) †
10.9
Supplemental Director Retirement Agreement between Federal Savings Bank and Mark P. Boulanger (incorporated by reference to Exhibit 10.9
to the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
10.10
Supplemental Director Retirement Agreement between Federal Savings Bank and Michael J. Bolduc (incorporated by reference to Exhibit 10.10
to the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
10.11
Supplemental Director Retirement Agreement between Federal Savings Bank and James Jalbert (incorporated by reference to Exhibit 10.11 to
the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
98
10.12
Supplemental Director Retirement Agreement between Federal Savings Bank and Thomas J. Jean (incorporated by reference to Exhibit 10.12 to
the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
10.13
Supplemental Director Retirement Agreement between Federal Savings Bank and Erica A. Johnson (incorporated by reference to Exhibit 10.13 to
the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
10.14
Supplemental Director Retirement Agreement between Federal Savings Bank and Paula J. Reid (incorporated by reference to Exhibit 10.14 to the
Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13, 2019) †
10.15
Supplemental Director Retirement Agreement between Federal Savings Bank and Janet Sylvester (incorporated by reference to Exhibit 10.15 to
the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission on March 13,
2019) †
10.16
Amended and Restated Director Fee Continuation Agreement between Federal Savings Bank and Dana C. Lynch (incorporated by reference to
Exhibit 10.16 to the Registration Statement on Form S-1 of First Seacoast Bancorp, initially filed with the Securities and Exchange Commission
on March 13, 2019) †
10.17
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Mark P. Boulanger (incorporated by reference to
Exhibit 10.1 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.18
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Michael J. Bolduc (incorporated by reference to
Exhibit 10.2 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.19
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and James Jalbert (incorporated by reference to
Exhibit 10.3 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.20
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Thomas J. Jean (incorporated by reference to
Exhibit 10.4 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.21
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Erica A. Johnson (incorporated by reference to
Exhibit 10.5 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.22
Second Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Dana C. Lynch (incorporated by
reference to Exhibit 10.6 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022)
†
10.23
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Paula J. Reid (incorporated by reference to
Exhibit 10.7 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
10.24
Amendment to Supplemental Director Retirement Agreement between Federal Savings Bank and Janet Sylvester (incorporated by reference to
Exhibit 10.8 to the Form 8-K of First Seacoast Bancorp, as filed with the Securities and Exchange Commission on February 15, 2022) †
19
Insider Trading Policy
21
Subsidiaries of Registrant
23.1
Consent of Wolf & Company, P.C.
23.2
Consent of Baker, Newman & Noyes LLC
31.1
Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Executive Vice President and Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as
amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
99
32.1
Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-
Oxley Act of 2002
32.2
Certification of Executive Vice President and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
97
First Seacoast Bancorp, Inc. Clawback Policy (incorporated by reference to Exhibit 97 to the Form 10-K of First Seacoast Bancorp, Inc., as filed
with the Securities and Exchange Commission on March 29, 2024)
101
The following materials from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, formatted in Inline
XBRL Taxonomy Extension Schema With Embedded Linkbase Documents: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of
Loss, (iii) Consolidated Statements of Comprehensive Loss, (iv) Consolidated Statements of Changes in Stockholders’ Equity, (v) Consolidated
Statements of Cash Flows and (vi) Notes to Consolidated Financial Statements.
104
Cover Page Interactive Data Files (embedded within Inline XBRL document)
† Management contract or compensation plan or arrangement.
ITEM 16. Form 10-K Summary
Not applicable.
100
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST SEACOAST BANCORP, INC.
Date: March 21, 2025
By:
/s/ James R. Brannen
James R. Brannen
President and Chief Executive Officer
(Duly Authorized Representative)
Pursuant to the requirements of the Securities Exchange of 1934, this report has been signed below by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signatures
Title
Date
/s/ James R. Brannen
President, Chief Executive Officer and Director
March 21, 2025
James R. Brannen
(Principal Executive Officer)
/s/ Richard M. Donovan
Executive Vice President and Chief Financial Officer
March 21, 2025
Richard M. Donovan
(Principal Financial Officer)
/s/ James Jalbert
Chair of the Board
March 21, 2025
James Jalbert
/s/ Paula J. Williamson-Reid
Vice Chair of the Board
March 21, 2025
Paula J. Williamson-Reid
/s/ Dana C. Lynch
Director
March 21, 2025
Dana C. Lynch
/s/ Michael J. Bolduc
Director
March 21, 2025
Michael J. Bolduc
/s/ Mark P. Boulanger
Director
March 21, 2025
Mark P. Boulanger
/s/ Thomas J. Jean
Director
March 21, 2025
Thomas J. Jean
/s/ Erica A. Johnson
Director
March 21, 2025
Erica A. Johnson
/s/ Janet Sylvester
Director
March 21, 2025
Janet Sylvester
Exhibit 19
FIRST SEACOAST BANCORP, INC. POLICY REGARDING
INSIDER TRADING
First Seacoast Bancorp, Inc. (the “Company”) is a public company whose common stock trades on the Nasdaq Stock
Market and is registered under the Securities Exchange Act of 1934, as amended. As a public company, the Company files
periodic reports and proxy statements with the Securities and Exchange Commission (the “SEC”). Investment by directors,
officers and employees in the Company stock is generally desirable and encouraged. However, such investments should be
made with caution and with recognition of the legal prohibitions against the use of confidential information by “insiders” for
their own profit.
As a director, officer or employee of a public company, you have the responsibility not to participate in the market for
the Company stock while in possession of material inside information about the Company. There are harsh civil and criminal
penalties if you wrongly obtain or use such material, inside information when you are deciding whether to buy or sell securities,
or if you give that information to another person who uses it in buying or selling securities. If you buy or sell securities while in
possession of material, inside information, you will not only have to pay back any profit you made, but you could be found guilty
of criminal charges, and face substantial fines or even time in prison. Additionally, the Company could be held liable for your
violations of insider trading laws.
To avoid these harsh consequences, the Company has developed the following guidelines to briefly explain the insider
trading laws and set forth procedures and limitations on trading by directors, officers and employees. However, these guidelines
do not address all possible situations that you may face. In addition, you need to review and understand the Company’s Policy on
Fair Disclosure to Investors, which describes your obligations regarding the selective disclosure of confidential information to
ensure compliance with SEC Regulation FD, which requires “fair disclosure” of material, non-public information.
Insider Trading Concepts
What is “Inside” Information?
Inside information includes any non-public information of which you become aware because of your “special
relationship” with the Company as a director, officer or employee and which has not been disclosed to the public (i.e., is non-
public). The information may be about the Company, First Seacoast Bank (the “Bank”) or any other subsidiaries or affiliates. It
may also include information you learn about another company (for example, companies that are current or prospective
customers or suppliers to the Company or those with which the Company may be in negotiations regarding a potential
transaction).
What is Material Information?
Information is material if an investor would think that it is important in deciding whether to buy, sell or hold stock, or
if it could affect the market price of the stock. Either good or bad information may be material. If you are unsure whether the
information is material, assume it is material.
Examples of material information typically include, but are not limited to:
•
Financial or accounting problems;
•
Estimates of future earnings or losses;
•
Significant non-recurring gains or losses;
•
Events that could result in restating financial information;
•
A proposed acquisition, sale or merger;
•
Changes in key management personnel;
•
Beginning or settling a major lawsuit;
•
Changes in dividend policies;
•
Declaring a stock split;
•
A stock repurchase program; or
•
A stock or bond offering.
What is Non-Public Information?
Non-public information is information that has not yet been made public by the Company. Information only becomes
public when the Company makes an official announcement (in a publicly accessible conference call, a press release or in SEC
filings, for example) and the investing public has had an opportunity to assimilate it.
Trading Guidelines
A.
Rules Applicable to All Directors, Officers and Employees.
No director, officer or employee may trade any security, whether issued by the Company or by any other company,
while in possession of “material inside information” about the issuer. Further, no director, officer or employee may disclose
“material inside information” to any other person (including immediate family members, friends or stockbrokers) so that such
other person may trade in the stock. It is usually safe to buy or sell stock after the information is officially announced, as long as
you do not know of other material information that has not yet been announced. Even after the information is announced, you
should generally wait one full trading day before buying or selling securities to allow the market to absorb the information.
1.
This means the following with respect to any Bank or Company employee benefit plans:
•
401(k) Plan. If the Company’s 401(k) plan permits participants to invest in Company common stock, an
officer or employee having material inside
information regarding the Company may not (i) initiate a transfer of funds into or out of the Company stock
held within the 401(k) plan, or (ii) increase an existing election to invest funds in the Company’s stock.
However, ongoing purchases of the Company’s stock through the plan pursuant to a prior election are not
prohibited.
•
Other Company Stock Purchase Plans. A director, officer or employee having material inside information
regarding the Company may not sign up for, or increase participation in, any employee stock purchase plan or
dividend reinvestment plan. However, ongoing purchases through those plans pursuant to a prior election are
not prohibited.
•
Stock Options. A director, officer or employee may exercise a stock option at any time, but any stock
acquired upon such exercise may not be sold (whether by means of a cashless exercise or otherwise) if the
employee has material inside information regarding the Company. At any time, however, an employee may
deliver Company stock already owned to pay the option exercise price and taxes.
2.
This means with respect to hedging and other derivative transactions:
•
Hedging and Other Derivative Transactions. Pursuant to the Company’s Anti- Hedging Policy, no director,
officer or employee of the Company or any of its subsidiaries (including the Bank), or any of his or her
designees or related persons, may at any time purchase financial instruments (including prepaid variable
forward contracts, equity swaps, collars, and exchange funds), or otherwise engage in transactions, that hedge
or offset, or are designed to hedge or offset, any decrease in the market value of the Company’s stock or other
equity securities.
B.
Additional Guidelines Applicable to All Officers with the Title of Senior Vice President or Higher, All
Directors, and All Persons in the Accounting Department (the “Restricted Group”).
1.
Blackout Periods
Quarterly Blackout Periods. No person in the Restricted Group should trade in Company securities during a
blackout period that begins on the 20th calendar day of the last month of each calendar quarter (i.e., on
March 20, June 20, September 20 and December 20) and ends at the end of the first full trading day
after the public release of the Company’s earnings for such quarter. The blackout period applies to (i)
open market purchases or sales, (ii) a sale of securities following exercise of a stock option (including a sale by
way of a cashless exercise), (iii) signing up for, or increasing participation in, any employee stock purchase
plan or dividend reinvestment plan, and (iv) initiating a transfer of funds into or out of any Company stock
fund of a 401(k) plan or increasing an existing election to invest funds in any Company stock fund.
However, ongoing purchases through the 401(k) plan or other Company- sponsored plan pursuant to a prior
election are permitted at any time (i.e., they are not subject to the blackout period).
Temporary Blackout Periods. The Company may also institute temporary blackout periods in the event of a
material corporate development. Notice of temporary blackout periods will be distributed by means of a written
or electronic communication specifying the duration of the blackout period and the persons subject to it.
Written Plan Exception. The limitations of the blackout periods shall not apply to trading in Company
securities pursuant to a “written plan for trading securities” provided that such plan was entered into before the
start of the applicable blackout period, meets the requirements of SEC Rule 10b5-1 and is approved in advance
by the Company’s Board of Directors. See also Section C.4 below.
2.
Selling Short. No person in the Restricted Group may at any time sell short Company stock or otherwise
sell any equity securities of the Company that they do not own. Generally, a short sale means any transaction
whereby one may benefit from a decline in the Company’s stock price.
3.
Options. No person in the Restricted Group may at any time buy or sell options on Company securities (so
called “puts” and “calls”) except in accordance with a program approved by the Company’s Board of
Directors or a trade cleared by the President and Chief Executive Officer. This restriction does not apply to
the exercise of employee or director stock options, which is treated under Section A above.
4.
Margin Accounts and Pledges. Securities held in a margin account may be sold by the broker without the
customer’s consent if the customer fails to meet a margin call. Similarly, securities held in an account which
may be borrowed against or are otherwise pledged (or hypothecated) as collateral for a loan may be sold in
foreclosure if the borrower defaults on the loan. A margin sale or foreclosure sale may occur at a time when
the pledgor is aware of material non- public information or otherwise is not permitted to trade in Company
securities and, as a result, the pledgor may be subject to liability under insider trading laws.
Therefore, you may not purchase Company securities on margin, or borrow against any account in which
Company securities are held, or pledge Company securities as collateral for a loan.
An exception to this prohibition may be granted where a person wishes to pledge Company securities as
collateral for a loan from a third party (not including margin debt from a securities broker) and clearly
demonstrates the financial capacity to repay the loan without resort to the pledged securities. Any person who
wishes to pledge Company securities as collateral for a loan from a third
party must submit a request for approval to the Company’s Board of Directors at least two weeks before the
execution of the documents evidencing the proposed pledge.
C.
Additional Rules
1.
Pre-Clearance and Reporting. Any trade of the Company’s securities by a director or executive officer, or a
family member sharing the same household or a corporation or trust they control, must be pre-cleared with
the Filing Coordinator identified in the Company’s Section 16 Compliance Program and must be reported
promptly to the Filing Coordinator once made. If, upon requesting clearance, you are advised that
Company stock may not be traded, you may not engage in any trade of any type under any
circumstances, nor may you inform anyone of the restriction. You may re-apply for pre-clearance at a later
date when trading restrictions may no longer be applicable. It is critical that you obtain pre-clearance of any
trading to prevent both inadvertent short-swing profit or insider trading violations and to avoid even the
appearance of an improper transaction (which could result, for example, when an officer engages in a trade
while unaware of a pending major corporate development).
2.
Options and Other Stock Plans. The sale of stock acquired upon an exercise of stock options and the
transfer of funds into and out of the Company’s stock plans are subject to special rules. The Filing
Coordinator should be contacted before any such transaction is conducted.
3.
Pension Fund Blackouts. The Sarbanes-Oxley Act of 2002 also requires the Company to prohibit all
purchases, sales or transfers of the Company’s securities by directors and executive officers during a pension
fund blackout period. A pension fund blackout period exists whenever 50% or more of the plan participants
are unable to conduct transactions in their accounts for more than three consecutive days. These blackout
periods typically occur when there is a change in the retirement plan’s trustee, record keeper or investment
manager. Directors and executive officers will be contacted when these or other restricted trading periods are
instituted.
4.
Pre-Clearance for Rule 10b5-1 Plans. Directors and executive officers may not implement a trading plan under
SEC Rule 10b5-1 at any time without prior clearance. Directors and executive officers may only enter into a
trading plan when they are not in possession of material inside information. In addition, directors and executive
officers may not enter into a trading plan during a quarterly blackout period, a temporary blackout period or a
pension fund blackout period. Once a trading plan is pre-cleared, trades made pursuant to the plan will not
require additional pre-clearance, but only if the plan specifies the dates, prices and amounts of the
contemplated trades or establishes a formula for determining dates, prices and amounts. Transactions
made under a trading plan must be promptly reported to the Filing Coordinator who will prepare the necessary
Form 4.
5.
Cooling-Off Period for Rule 10b5-1 Plans. Transactions under a Rule 10b5-1
trading plan may only begin after a “cooling-off” period:
•
For directors and executive officers, the cooling-off period is the later of (i) 90 days after the adoption
of the trading plan or (ii) two business days following the disclosure of the Company’s financial
results for the fiscal quarter in which the trading plan was adopted, whether disclosed in a Form 10-Q
or Form 10-K, as applicable.
•
For persons who are not directors or executive officers, the cooling-off period is 30 days after adoption
of the trading plan.
D.
Additional Rules Applicable to Mergers/Acquisitions.
Whenever the Company is actively considering a particular company for merger, acquisition or for another significant
business relationship (such as a joint venture) or whenever the Company is engaged in active discussion regarding the sale of
control of the Company, all of the Company’s personnel involved in, or aware of, due diligence or other planning for or attention
to the acquisition or business relationship should not trade in any of the Company’s securities and any securities of the other
company without first contacting the Filing Coordinator, who may consult with outside counsel.
Note: This policy applies to personal securities transactions by the directors, officers and employees identified above,
and also applies to:
(a)
Transactions for accounts in which the director, officer or employee has an interest or an ability to
influence transactions; and
(b)
Transactions by the director’s, officer’s or employee’s spouse or any other member of their household unless
(i) the household member’s investment decisions are made independently of the director, officer or employee
and (ii) the household member has not received inside information about the issuer of the security.
E.
Stock Repurchases by the Company.
Although this policy does not restrict the Company from repurchasing its common stock, the Board of Directors has
delegated to the Chief Executive Officer or his or her designee(s) the authority and discretion to authorize the Company to
purchase Company common stock pursuant to a Board-approved and currently effective stock repurchase program, including
during a restricted trading period under this policy, provided that the Chief Executive Officer determines that the Company is not
in possession of non-public material information that prohibits such purchases.
Confidentiality
Serious problems could develop for the Company by unauthorized disclosure of inside information about the
Company, whether or not for the purpose of facilitating improper trading of the Company’s stock.
A.
Confidentiality of Non-Public Information.
Directors, officers and employees should not discuss internal matters or developments with anyone outside of the
Company (including family members, securities analysts, individual investors, members of the investment community and
news media), except as required in the performance of regular corporate duties. In addition, directors, officers and employees
of the Company with knowledge of material, non-public information should only disclose such information to other Company
personnel on a “need-to-know” basis so that the group of individuals with knowledge of material, non-public information is
kept as small as possible.
All inquiries about the Company made by the financial press, investment analysts or others in the financial
community, or by shareholders must be handled in accordance with the Company’s Policy on Fair Disclosure to Investors. If
you have any doubt as to your responsibilities under this policy, you should seek clarification from the Disclosure Policy
Compliance Officer before acting.
B.
Prohibition Against Internet Disclosure
It is inappropriate for any unauthorized person to disclose Company information or to discuss the Company on the
Internet, including in any forum or chat room where companies and their prospects are discussed. The posts in these forums are,
in some cases, made by investors who are poorly informed, who have malicious intent or who intend to benefit their own stock
positions. To avoid the disclosure of material, inside information, no director, officer or employee may discuss the Company or
Company-related information in an Internet forum or chat room, regardless of the situation.
If you have any questions regarding this Policy, contact the Company’s Disclosure Policy Compliance Officer.
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Name
State or Jurisdiction of Incorporation
Ownership Percentage
First Seacoast Bank
United States of America (Federal)
100% (1)
FSB Service Corporation, Inc.
New Hampshire
100% (2)
(1) 100% owned by First Seacoast Bancorp, Inc.
(2) 100% owned by First Seacoast Bank.
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMS
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-269316, 333-269317 and 333-279996)
of First Seacoast Bancorp, Inc. of our report dated March 21, 2025, relating to the consolidated financial statements of First Seacoast Bancorp,
Inc. and Subsidiaries, which appear in this Annual Report on Form 10-K of First Seacoast Bancorp, Inc. for the year ended December 31, 2024.
/s/ Wolf & Company, P.C.
Boston, Massachusetts
March 21, 2025
Exhibit 23.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-269316, 333-269317 and 333-279996)
of First Seacoast Bancorp, Inc. of our report dated March 29, 2024, relating to the consolidated financial statements of First Seacoast Bancorp,
Inc. and Subsidiaries, which appear in this Annual Report on Form 10-K of First Seacoast Bancorp, Inc. for the year ended December 31, 2024.
/s/ Baker Newman & Noyes LLC
Portsmouth, New Hampshire
March 21, 2025
Exhibit 31.1
Certification of Chief Executive Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, James R. Brannen, certify that:
1.
I have reviewed this Annual Report on Form 10-K of First Seacoast Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date:
March 21, 2025
/s/ James R. Brannen
James R. Brannen
President and Chief Executive Officer
Exhibit 31.2
Certification of Chief Financial Officer Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
I, Richard M. Donovan, certify that:
1.
I have reviewed this Annual Report on Form 10-K of First Seacoast Bancorp, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this
report;
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-
15(f)) for the registrant and have:
(a)
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by
others within those entities, particularly during the period in which this report is being prepared;
(b)
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
(c)
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as the end of the period covered by this report based on such evaluation; and
(d)
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely
to materially affect, the registrant's internal control over financial reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
(a)
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal
control over financial reporting.
Date:
March 21, 2025
/s/ Richard M. Donovan
Richard M. Donovan
Executive Vice President and Chief Financial Officer
Exhibit 32.1
Certification of Chief Executive Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, James R. Brannen, President and Chief Executive Officer of First Seacoast Bancorp, Inc. (the “Company”), hereby certify in my capacity as an
executive officer of the Company that I have reviewed the annual report on Form 10-K for the fiscal year ended December 31, 2024 (the “Report”) and that, to
the best of my knowledge:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 21, 2025
/s/ James R. Brannen
James R. Brannen
President and Chief Executive Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
Certification of Chief Financial Officer
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
I, Richard M. Donovan, Senior Vice President and Chief Financial Officer of First Seacoast Bancorp, Inc. (the “Company”), hereby certify in my
capacity as an executive officer of the Company that I have reviewed the annual report on Form 10-K for the fiscal year ended December 31, 2024 (the
“Report”) and that, to the best of my knowledge:
1. The Report fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: March 21, 2025
/s/ Richard M. Donovan
Richard M. Donovan
Executive Vice President and Chief Financial Officer
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.