FSEA

Business Context and Reporting Period

Company: First Seacoast Bancorp, Inc. (FSEA)
Filing Type: Form 10-Q (Quarterly Report)
Period Ended: June 30, 2026
Business Overview: A smaller reporting company operating as a community bank in New Hampshire and Southern Maine. The Company focuses on residential lending, commercial banking, personal banking, and wealth management through five full-service branches.
Material Event: On May 4, 2026, the Company entered into a Merger Agreement with Cambridge Financial Group, Inc. The merger is expected to close in the third quarter of 2026, with shareholders receiving $17.25 per share in cash.

Key Financial Metrics

Material Changes vs. Prior Period

• Profitability: The Company returned to profitability in Q2 2026 with net income of $249,000, compared to a net loss of $545,000 in Q2 2025. However, the Company reported a net loss of $259,000 for the six months ended June 30, 2026, an improvement from the $1.1 million loss in the same period in 2025.
• Net Interest Income: Increased $256,000 (7.5%) in Q2 2026 and $591,000 (8.9%) for the six-month period compared to 2025. This was driven by a decrease in interest-bearing liabilities and improved net interest margins (2.62% in Q2 vs. 2.35% in Q2 2025).
• Expense Management: Non-interest expense decreased $242,000 (5.6%) in Q2 2026 and $235,000 (2.8%) for the six months ended June 30, 2026, primarily due to reductions in professional fees, data processing, and equity compensation.
• Balance Sheet: Total assets decreased $23.2 million (3.9%) from December 31, 2025, driven by an $18.6 million decrease in available-for-sale securities and a $7.9 million decrease in cash. Total deposits decreased $16.6 million, while net loans increased slightly by $2.4 million.
• Credit Quality: Non-performing loans decreased significantly to $128,000 from $478,000 at year-end 2025. The Company recorded a release of credit losses of $6,000 in Q2 and $14,000 for the six months, compared to provisions in the prior year.

Guidance, Outlook, and Risks

• Merger Outlook: The Company is focused on closing the merger with Cambridge Financial Group, expected in Q3 2026. The transaction is subject to regulatory and shareholder approval.
• Interest Rate Risk: The Company remains sensitive to interest rate changes. Net Portfolio Value (NPV) modeling indicates that a 200 basis point increase in rates would result in a 21.7% decrease in economic value of equity, exceeding the Company's policy limit of 20%.
• Liquidity: The Company maintains strong liquidity with $98.2 million in unused FHLB borrowing capacity and $36.7 million in unused FRB borrowing capacity. Cash and cash equivalents decreased to $5.5 million.
• Deferred Tax Assets: The Company maintains a 100% valuation allowance on net deferred tax assets of $6.9 million, as management believes it is more likely than not that these benefits will not be realized without future taxable income.
• Capital: The Bank is categorized as "well-capitalized" under regulatory frameworks, exceeding all minimum capital requirements.

Investor Verification Checklist

• Merger Completion: Verify the status of regulatory approvals and shareholder votes for the Cambridge Financial merger, as this is a definitive change of control event.
• Interest Rate Sensitivity: Review the Asset/Liability Committee (ALCO) minutes or subsequent reports to understand how the Company plans to mitigate the NPV exposure exceeding policy limits in a rising rate environment.
• Deposit Migration: Monitor the trend of deposits migrating from non-interest-bearing accounts to higher-cost time and money market deposits, which is compressing margins and increasing rate sensitivity.
• Deferred Tax Valuation: Assess the likelihood of the Company generating sufficient taxable income to reverse the 100% valuation allowance on deferred tax assets, which would impact future earnings.
• Loan Growth Strategy: Confirm the execution of the strategy to grow commercial real estate and commercial/industrial loans to offset the decline in residential loan balances.