ECB Bancorp, Inc. /MD/ (ECBK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

General

Management’s discussion and analysis of the financial condition at June 30, 2026 compared to December 31, 2025 and results of operations for the three and six months ended June 30, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

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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.

Significant Accounting Policies

There are no material changes to the significant accounting policies disclosed in ECB Bancorp, Inc.’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 26, 2026.

Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with generally accepted accounting principles used in the United States of America. The preparation of these financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting estimates. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

Allowance for Credit Losses

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

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

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

Comparison of Financial Condition at June 30, 2026 and December 31, 2025

Total Assets. Total assets were $1.67 billion at June 30, 2026, as compared to $1.61 billion at December 31, 2025, or an increase of $65.9 million, or 4.1%.

Cash and Cash Equivalents. Cash and cash equivalents were $124.0 million at June 30, 2026, as compared to $86.9 million at December 31, 2025, or an increase of $37.0 million, or 42.6%. The increase in cash and cash equivalents was driven by strong deposit growth that outpaced our loan growth.

Interest-Earning Time Deposits. Interest-earning time deposits were $14.2 million at June 30, 2026, as compared to $8.0 million at December 31, 2025, or an increase of $6.2 million, or 78.1%. This increase was due to purchases of new short-term interest-earning time deposits.

Investment Securities Available for Sale. Investments in securities available for sale were $40.1 million at June 30, 2026, as compared to $34.3 million at December 31, 2025, or an increase of $5.7 million, or 16.7%. This increase was due to purchases of new securities.

Investment Securities Held to Maturity. Investments in securities held to maturity were $50.5 million at June 30, 2026, as compared to $55.8 million at December 31, 2025, or a decrease of $5.3 million, or 9.5%. This decrease was due to maturities and principal paydowns of securities.

Loans. Total gross loans were $1.40 billion at June 30, 2026, as compared to $1.38 billion at December 31, 2025, or an increase of $21.3 million, or 1.5%.

Federal Home Loan Bank stock. The Federal Home Loan Bank (FHLB) is a cooperative bank that provides services to its member banking institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose o

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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects our 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 audited financial statements, which appear beginning on page 55 of this Annual Report on Form 10-K.

Overview

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in one-to-four family residential real estate loans, commercial real estate loans, multifamily real estate loans, construction loans, home equity lines of credit and loans and commercial loans. At December 31, 2025, $473.4 million, or 34.2%, of our total loan portfolio was comprised of one-to-four family residential real estate loans, $425.4 million, or 30.8%, of our total loan portfolio was comprised of multifamily real estate loans, $336.4 million, or 24.3%, of our total loan portfolio was comprised of commercial real estate loans, $89.0 million, or 6.4%, of our total loan portfolio was comprised of construction loans, $49.9 million, or 3.6%, of our total loan portfolio was comprised of home equity lines of credit and loans and $7.9 million, or 0.6% of our total loan portfolio was comprised of commercial loans. We also invest in securities, consisting primarily of U.S. government and federal agency obligations, collateralized mortgage obligations, mortgage-backed securities and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, individual retirement accounts, money market accounts, savings accounts and interest-bearing and noninterest-bearing checking accounts. At December 31, 2025, $728.3 million, or 64.3%, of our total deposit accounts was comprised of certificate of deposit accounts, $211.8 million, or 18.7%, of our total deposit accounts was comprised of money market accounts, $91.4 million, or 8.1%, of our total deposit accounts was comprised of savings accounts, $81.5 million, or 7.2% of our total deposit accounts was comprised of noninterest bearing demand deposit accounts and $19.4 million, or 1.7%, of our total deposit accounts was comprised of interest-bearing demand deposit accounts. In addition to customer deposits, in recent years, we have also accepted brokered deposits as a non-retail funding source to supplement our customer deposits and fund our operations. At December 31, 2025, we had $134.0 million of brokered deposits. We also have utilized advances from the Federal Home Loan Bank of Boston (the “FHLB”) as an additional funding source to fund our operations and we had $284.8 million of FHLB advances outstanding at December 31, 2025.

For the years ended December 31, 2025 and 2024, we had net income of $7.8 million and $4.0 million, respectively. Our current business strategy includes continuing to focus on originating and growing our commercial real estate, multifamily real estate and construction loan portfolios as well as the origination of one-to-four family residential real estate loans and home equity lines of credit and loans. To a lesser extent, we also originate other commercial loans and consumer loans.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of fees and service charges, gains on sales of loans and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, computer software and licensing fees, advertising, professional fees, FDIC deposit insurance and other general and administrative expenses.

Our results of operations also may be affected significantly by general and local economic and competitive conditions, changes in market interest rates, governmental policies and actions of regulatory authorities.

Business Strategy

Our principal objective is to build long-term value for our shareholders by operating a profitable community-oriented financial institution dedicated to meeting the banking needs of our customers. Highlights of our current business strategy include:

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Summary of Significant Accounting Policies

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 U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances.

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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 JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies:

Allowance for Credit Losses. On January 1, 2023, the Company adopted a Current Expected Credit Loss (CECL) methodology for estimating the credit losses for loans.

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