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Item 2. Management’s Discussion and Analysis

2026-08-07 compared with 2026-05-08 · 246 added, 109 removed, 265 unchanged (57% of the section changed)

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

Management’s discussion and analysis of the financial condition and results of operations at and for the three months ended March 31, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of the Company.

Management’s discussion and analysis of the financial condition and results of operations at and 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.

5 unchanged sentences

● statements regarding the quality of our loan portfolio;

● statements of our future exposure to the interest rate risk inherent in our assets and liabilities;

● estimates of our risks and future costs and benefits.

6 unchanged sentences

● unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;

● changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

● changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights assets, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;

● 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 on loans;

19 unchanged sentences

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

Critical Accounting Policies and Estimates

Critical Accounting Policies

There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 3, 2026.

10 unchanged sentences

For the Three Months Ended

March 31, 2026

March 31, 2025

For the Six Months Ended

June 30, 2026

June 30, 2025

June 30, 2026

June 30, 2025

Net income (GAAP)

16 unchanged sentences

Adjustments to pre-tax income:

Defined benefit pension termination refund

Defined benefit pension termination expense

Non-recurring fees for business line expansion

26 unchanged sentences

Operating effective tax rate (non-GAAP)

March 31, 2026

June 30, 2026

December 31, 2025

8 unchanged sentences

Tangible book value per share (non-GAAP)

Comparison of Financial Condition as of March 31, 2026 and December 31, 2025

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

Total Assets.

Total assets increased $220.3 million, or 3.1%, to $7.23 billion as of March 31, 2026 from $7.01 billion as of December 31, 2025.

The increase was primarily driven by increases in net loans, partially offset by decreases in cash and cash equivalents.

Total assets increased $440.5 million, or 6.3%, to $7.45 billion as of June 30, 2026 from $7.01 billion as of December 31, 2025.

The increase was primarily driven by increases in net loans and non-public investments, offset partially by decreases in cash and cash equivalents and BOLI.

Cash and Cash Equivalents.

Cash and cash equivalents decreased $32.2 million, or 7.9%, to $375.4 million as of March 31, 2026 from $407.6 million as of December 31, 2025.

The decrease in cash and cash equivalents was primarily due to loan originations and the repurchase of 1,288,509 shares totaling $27.8 million, partially offset by the increase in deposits of $243.5 million during the current quarter.

Cash and cash equivalents decreased $7.7 million, or 1.9%, to $400.2 million as of June 30, 2026 from $407.9 million as of December 31, 2025.

The decrease in cash and cash equivalents was primarily a result of the repurchase of 2,207,236 shares during the six months ended June 30, 2026.

Available-for-Sale Securities.

Available-for-sale securities increased $8.3 million, or 3.1%, to $277.2 million as of March 31, 2026 from $269.0 million as of December 31, 2025 primarily due to purchases of U.S.

treasuries, mortgage backed-securities and corporate bonds.

Net loans increased $231.0 million, or 3.9%, to $6.13 billion as of March 31, 2026 from $5.90 billion as of December 31, 2025.

Available-for-sale securities increased $3.7 million, or 1.4%, to $272.6 million as of June 30, 2026 from $269.0 million as of December 31, 2025, primarily as a result of purchases of U.S.

Treasuries, Government Agency debt securities and mortgage-backed securities.

Net loans increased $442.1 million, or 7.5%, to $6.34 billion as of June 30, 2026 from $5.90 billion as of December 31, 2025.

The increase resulted primarily from increases in:

commercial and industrial loans, which increased $135.4 million, or 13.4%, construction and development loans, which increased $52.1 million, or 7.1% and multi-family residential loans, which increased $20.6 million, or 4.0%.

The increase in our loan portfolio reflects our strategy to prudently grow the balance sheet by continuing to diversify into these higher-yielding loans to improve net margins and manage interest rate risk.

The Company had approximately $466.8 million and $404.8 million in loans to borrowers in the cannabis industry at March 31, 2026 and December 31, 2025, respectively.

Of that total, $321.0 million and $228.8 million were direct loans to cannabis companies and were primarily collateralized by real estate at March 31, 2026 and December 31, 2025, respectively.

Deposits increased $243.5 million, or 4.2%, to $6.10 billion as of March 31, 2026 from $5.85 billion as of December 31, 2025.

Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $209.1 million, or 3.9%, to $5.53 billion as of March 31, 2026 from $5.32 billion as of December 31, 2025.

The increase in deposits was the result of growth in customer deposits, primarily money market accounts, which increased $92.3 million, or 5.6%, noninterest bearings demand deposits of $44.6 million, or 5.4%, certificates of deposit of $39.1 million, or 2.0%, brokered deposits of $34.4 million, or 6.4% and NOW accounts of $30.4 million, or 4.6%.

The Company had $455.6 million and $453.0 million in deposits from the cannabis industry, representing 7.5% and 7.7% of total deposits, as of March 31, 2026 and December 31, 2025, respectively.

commercial real estate loans, which increased $197.5 million, or 10.3%;

commercial and industrial loans, which increased $140.1 million, or 13.9%;

residential real estate loans, including home equity loans, of $56.5 million, or 4.3%;

multi-family loans of $50.2 million, or 9.7%;

construction and land development loans of $35.1 million, or 4.8%;

and consumer loans of $23.3 million, or 11.4%, partially offset by a decrease in mortgage warehouse loans of $63.3 million, or 22.5%.

The increase in our loan portfolio reflects our strategy to prudently grow the balance sheet by continuing to diversify into higher-yielding loans to improve net margins and manage interest rate risk.

Loans to borrowers in the cannabis loan industry increased $137.6 million, or 34.0%, to $542.4 million as of June 30, 2026 from $404.8 million as of December 31, 2025.

Of those totals, $374.2 million and $228.8 million at June 30, 2026 and December 31, 2025, respectively, were direct loans to cannabis companies and were collateralized by real estate

Collateral dependent loans increased $42.0 million, or 99.9%, to $84.1 million as of June 30, 2026, from $42.0 million as of December 31, 2025, primarily driven by one CRE relationship that is well collateralized, paying as expected and with no required specific reserve.

Deposits increased $466.3 million, or 8.0%, to $6.32 billion as of June 30, 2026 from $5.85 billion as of December 31, 2025.

Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $282.1 million, or 5.3%, to $5.60 billion as of June 30, 2026 from $5.32 billion as of December 31, 2025.

The increase in deposits was the result of growth in customer deposits, which primarily included the following:

noninterest-bearing demand deposits, which increased $125.4 million, or 15.2%;

NOW accounts, which increased $92.1 million, or 13.9%;

and customer certificates of deposit, which increased $59.0 million, or 4.9%.

Brokered deposits increased $184.2 million, or 34.4%, to $719.9 million as of June 30, 2026 from $535.7 million as of December 31, 2025.

Deposits from customers in the cannabis industry increased $69.1 million, or 15.2%, to $522.1 million as of June 30, 2026 from $453.0 million as of December 31, 2025.

FHLB Borrowings.

FHLB borrowings decreased $15.0 million, or 7.6%, to $181.2 million as of June 30, 2026 from $196.2 million as of December 31, 2025, primarily driven by deposit growth outpacing loan growth.

Shareholders’ Equity.

Total shareholders’ equity decreased $16.2 million, or 1.9%, to $842.8 million as of March 31, 2026 from $858.9 million as of December 31, 2025, primarily as a result of the repurchase of 1,288,509 shares of common stock at an all-in weighted average cost of $21.55 per share totaling $27.8 million and $3.2 million in dividends paid during the quarter, partially offset by net income of $15.0 million during the three months ended March 31, 2026.

Comparison of Operating Results for the Three Months Ended March 31, 2026 and March 31, 2025

Net income was $15.0 million for the quarter ended March 31, 2026, compared to net income of $12.7 million for the quarter ended March 31, 2025, an increase of approximately $2.3 million, or 18.4%.

An increase of $21.3 million, or 49.0%, in net interest income was partially offset by a $14.0 million, or 48.9%, increase in noninterest expense and a $5.2 million, or 446.5%, increase in the provision for credit losses.

Operating net income, excluding one-time charges, amounted to $15.8 million, or $0.38 per diluted share, for the quarter ended March 31, 2026, compared to operating net income of $13.7 million, or $0.35 per diluted share, for the quarter ended March 31, 2025, representing an increase of $2.1 million, or 15.3%.

The material one-time charges for the quarter ended March 31, 2026 include:

● Pre-tax trailing merger and acquisition costs of $534 thousand ($390 thousand net of tax) related to the Company’s completed acquisition of Provident Bancorp, Inc.

and its wholly owned subsidiary BankProv (collectively, “Provident”);

● Non-recurring fees for business line expansion of $500 thousand ($367 thousand net of tax);

● Tax expense and a modified endowment contract penalty of $50 thousand related to the surrender of BOLI policies from policies acquired from Provident.

The material one-time charges for the quarter ended March 31, 2025 include:

● Pension expense related to the final liquidation of the employee pension plan totaling $1.2 million ($884 thousand net of tax);

● Tax expense and a modified endowment contract penalty related to the surrender of BOLI policies of $154 thousand.

Total shareholders’ equity decreased $16.9 million, or 2.0%, to $842.0 million as of June 30, 2026 from $858.9 million as of December 31, 2025, due to the $43.0 million decrease in additional paid-in capital resulting from the completion of our share repurchase program in which we repurchased a total of 2,207,236 shares during the six months ended June 30, 2026 at an all-in weighted average cost of $20.96 per share totaling $46.3 million, together with a $4.8 million, or 153.9%, increase in other comprehensive loss as a result of the interest rate environment negatively impacting the value of our AFS securities portfolio and our balance sheet hedges, partially offset by net income of $36.1 million during the six months ended June 30, 2026.

Comparison of Operating Results for the Three Months Ended June 30, 2026 and 2025

Net income increased $6.5 million, or 44.9%, to $21.1 million, or $0.53 per diluted common share, for the quarter ended June 30, 2026, compared to net income of $14.6 million, or $0.39 per diluted common share, for the quarter ended June 30, 2025.

Net interest income increased $22.1 million, or 47.1%, and noninterest income increased $1.3 million, or 29.9%, partially offset by increased noninterest expense of $14.6 million, or 49.7%, and increased income tax expense of $2.2 million, or 53.9%.

Operating net income, excluding one-time charges, amounted to $21.9 million, or $0.55 per basic and diluted share for the quarter ended June 30, 2026 compared to operating net income, excluding one-time charges, of $15.0 million, or $0.40 per basic and diluted share, for the quarter ended June 30, 2025, which represents an increase of $6.8 million, or 45.4%.

The material one-time charges for the quarter ended June 30, 2026 were:

● Non-recurring fees for business line expansion of $649,000 ($499,000 net of tax);

● Final merger and acquisition costs of $296,000 ($227,000 net of tax) related to the Company’s acquisition of Provident;

● Tax expense and a modified endowment contract penalty of $27,000 related to the surrender of BOLI policies acquired from BankProv.

The material one-time charges for the quarter ended June 30, 2025 were:

● Merger and acquisition costs of $530,000 ($400,000 net of tax) related to the Company’s acquisition of Provident;

● Income tax expense and a modified endowment contract penalty of $64,000 related to the surrender of BOLI policies.

Interest and Dividend Income.

Interest and dividend income increased $28.8 million, or 37.5%, to $105.7 million for the quarter ended March 31, 2026, from $76.9 million for the quarter ended March 31, 2025, primarily due to a $28.6 million, or 40.0% increase in interest and fees on loans.

The increase in interest and fees on loans was primarily due to an increase of $1.72 billion, or 39.5%, in the average balance of the loan portfolio to $6.09 billion for the quarter ended March 31, 2026, from $4.37 billion for the quarter ended March 31, 2025, reflecting the growth of our commercial loan portfolio.

Average interest-earning assets increased $1.79 billion, or 36.7% to $6.68 billion for the quarter ended March 31, 2026, from $4.89 billion for the quarter ended March 31, 2025.

The significant increase in the average balance of loans was a result of the Provident acquisition which closed during the quarter ending December 31, 2025.

The yield on interest-earning assets was 6.41% for the quarter ended March 31, 2026, compared to 6.38% for the quarter ended March 31, 2025, representing a 3 basis point expansion.

The ending balance of gross loans of $6.21 billion, is $119.7 million or 2.0%, higher than the average balance of gross loans at the end of the quarter, primarily the result of one large cannabis loan of $115.0 million closing near the end of the quarter, which includes a credit enhancement on a first out basis, and did not have a significant impact on loan yields during the quarter.

Interest and dividend income increased $31.9 million, or 40.0%, to $111.8 million for the quarter ended June 30, 2026 from $79.8 million for the quarter ended June 30, 2025, primarily due to increased interest and fees on loans of $31.9 million, or 42.6%.

The increase in interest and fees on loans was primarily due to an increase of $1.90 billion, or 42.4%, in the average balance of the loan portfolio to $6.38 billion for the quarter ended June 30, 2026 from $4.48 billion for the quarter ended June 30, 2025, reflecting the Provident acquisition, which was completed on November 14, 2025 and the growth of our commercial and construction loan portfolios.

Average interest-earning assets increased $1.99 billion, or 40.2%, to $6.93 billion for the quarter ended June 30, 2026 from $4.94 billion for the quarter ended June 30, 2025.

The yield on interest-earning assets decreased 1 basis point to 6.47% for the quarter ended June 30, 2026 from 6.48% for the quarter ended June 30, 2025.

Interest and dividend income included $2.0 million of fair value mark accretion related to the acquisition of Provident, representing 1.8% or 5 basis points of net interest margin, during the three months ended June 30, 2026.

The Company recorded no fair value mark accretion during the three months ended June 30, 2025.

Interest Expense.

Total interest expense increased $7.5 million, or 22.5%, to $40.8 million for the quarter ended March 31, 2026, from $33.3 million for the quarter ended March 31, 2025.

Interest expense on deposit accounts increased $7.3 million, or 22.8%, to $39.6 million for the quarter ended March 31, 2026, from $32.2 million for the quarter ended March 31, 2025.

The increase was due to the Provident acquisition and organic growth which resulted in increases in the average balance of money market accounts of $638.6 million, 59.5%, to $1.71 billion for the quarter ended March 31, 2026, from $1.07 billion for the quarter ended March 31, 2025 and certificates of deposit and individual retirement accounts of $518.0 million, or 26.2%, to $2.50 billion for the quarter ended March 31, 2026, from $1.98 billion for the quarter ended March 31, 2025;

offset partially by decreases in the weighted average rate on certificates of deposit and individual retirement accounts of 60 basis points to 3.99% for the quarter ended March 31, 2026, from 4.59% for the quarter ended March 31, 2025 and money market accounts of 28 basis points to 3.02% for the quarter ended March 31, 2026, from 3.29% for the quarter ended March 31, 2025.

Total interest expense increased $9.8 million, or 29.9%, to $42.6 million for the quarter ended June 30, 2026 from $32.8 million for the quarter ended June 30, 2025.

Interest expense on deposits increased $9.0 million, or 28.4%, to $40.7 million for the quarter ended June 30, 2026 from $31.7 million for the quarter ended June 30, 2025.

The increase in interest expense on deposits was primarily driven by an increase in the average balance of certificates of deposit and individual retirement accounts of $629.6 million, or 32.0%, to $2.59 billion for the quarter ended June 30, 2026 from $1.96 billion for the quarter ended June 30, 2025 and an increase in the average balance of money market accounts of $610.2 million, or 56.0%, to $1.70 billion for the quarter ended June 30, 2026 from $1.09 billion for the quarter ended June 30, 2025, partially offset by a decrease in the weighted average rate on certificates of deposit and individual retirement accounts of 42 basis points to 3.91% for the quarter ended June 30, 2026 from 4.34% for the quarter ended June 30, 2025.

Interest expense on borrowings increased $810,000, or 70.4%, to $2.0 million for the quarter ended June 30, 2026 from $1.2 million for the quarter ended June 30, 2025, primarily from the increase in the average balance of FHLB borrowings of $105.6 million, or 102.1%, to $209.0 million during the quarter ended June 30, 2026 from $103.4 million for the quarter ended June 30, 2025.

Net Interest Income.

Net interest income increased $21.3 million, or 49.0%, to $64.9 million for the quarter ended March 31, 2026, from $43.5 million for the quarter ended March 31, 2025, primarily due to a $1.79 billion, or 36.7%, increase in the average balance of interest-earning assets to $6.68 billion for the quarter ended March 31, 2026, from $4.89 billion for the quarter ended March 31, 2025 and a decrease in the weighted average rate on interest-bearing liabilities of 44 basis points from 3.63% for the quarter ended March 31, 2025 to 3.19% for the quarter ended March 31, 2026.

These increases were offset partially by a $1.46 billion increase in the average balance of interest-bearing liabilities to $5.19 billion for the quarter ended March 31, 2026, from $3.73 billion for the quarter ended March 31, 2025.

Net interest income increased $22.1 million, or 47.1%, to $69.1 million for the quarter ended June 30, 2026 from $47.0 million for the quarter ended June 30, 2025, primarily due to a $1.99 billion, or 40.2%, increase in the average balance of interest-earning assets to $6.93 billion for the quarter ended June 30, 2026 from $4.94 billion for the quarter ended June 30, 2025 and a decrease in the weighted average rate on interest-bearing liabilities of 36 basis points to 3.16% for the quarter ended June 30, 2026 from 3.52% for the quarter ended June 30, 2025.

These increases were partially offset by an increase in the average balance of interest-bearing liabilities of $1.67 billion, or 44.5%, to $5.42 billion at June 30, 2026 from $3.75 billion at June 30, 2025.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the ACL, a total provision for credit losses of $6.3 million was recorded for the quarter ended March 31, 2026, of which $6.4 million related to the provision for credit losses on loans, compared to a total provision for credit losses of $1.2 million for the quarter ended March 31, 2025, which included a $947 thousand provision for credit losses on loans.

The provision for credit losses on unfunded commitments decreased $265,000, or 125.6%, during the three months ended March 31, 2026, as a result of an increase in net unfunded commitments of $58 million in the prior quarter, compared to a $14.5 million increase in the current quarter.

The increase of $5.2 million, or 446.5%, in the total provision for credit losses was primarily due to growth in the balance of commercial and industrial loans, larger peer commercial real estate credit losses realized in the prior quarter impacting quantitative reserves, and an elevated qualitative factor risk grade for the commercial and industrial loan portfolio.

The Company recorded charge-offs of $13.9 million during the quarter ended March 31, 2026, compared to $1.6 million during the quarter ended March 31, 2025.

The increase in charge-offs was primarily driven by two large charge-offs of PCD commercial and industrial loans, in amounts of $10.6 million and $1.8 million.

These loans were previously reserved for through purchase accounting adjustments as of the acquisition date and resulted in no additional loss to the Company.

Based on management’s analysis of the adequacy of the ACL, a provision of $3.2 million was recorded for the quarter ended June 30, 2026, of which $3.0 million related to the provision for credit losses on loans, compared to a provision of $3.2 million for the quarter ended June 30, 2025, which included a $4.2 million provision for credit losses on loans.

The decrease in the provision for credit losses on loans was primarily driven by prior quarter reserve increases from updated peer proxies to better reflect geographic composition and construction to permanent amortization adjustments, partially offset by current quarter other consumer charge-off replenishment and higher C&I impaired reserves.

The provision for credit losses on unfunded commitments increased $1.2 million during the three months ended June 30, 2026 as a result of an increase in unfunded commitments during the quarter ended June 30, 2026.

Noninterest Income.

Noninterest income increased $631 thousand, or 16.3%, to $4.5 million for the quarter ended March 31, 2026, from $3.9 million for the quarter ended March 31, 2025.

The increase resulted primarily from increases in customer service fees of $573 thousand, or 22.4%, due to higher loan and cash management fees.

The table below sets forth our noninterest income for the quarters ended March 31, 2026 and 2025:

Noninterest income increased $1.3 million, or 29.9%, to $5.6 million for the quarter ended June 30, 2026 from $4.3 million for the quarter ended June 30, 2025.

The increase resulted primarily from increased customer service fees of $1.1 million, or 44.1%, due to higher cash management, loan and debit card fees.

The table below sets forth our noninterest income for the quarters ended June 30, 2026 and 2025:

Three Months Ended

March 31, 2026

March 31, 2025

June 30, 2026

June 30, 2025

(Dollars in thousands)

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Swap contract income

(Loss) gain on sale of loans, net

Gain on sale of loans, net

Total noninterest income

Noninterest Expense.

Noninterest expense increased $14.0 million, or 48.9%, to $42.7 million for the quarter ended March 31, 2026, from $28.7 million for the quarter ended March 31, 2025.

Salaries and employee benefit expenses increased $6.3 million, or 33.0%, resulting primarily from a $4.5 million increase in employee compensation, an $819 thousand increase in medical and dental benefits and $803 thousand increase in employee bonus expense due to a full quarter of increased headcount from the Provident acquisition and continued growth, along with a $495 thousand increase in stock compensation expense as result from grants made subsequent to March 31, 2025;

partially offset by a $1.2 million decrease in pension expense due to completion of the plan liquidation during 2025.

General and administrative expenses increased $2.2 million, or 156.2%, primarily due to a full quarter’s worth of core deposit intangible amortization resulting in an $854 thousand increase, a $353 thousand increase in tax credit amortization expenses resulting from additional investments and a $124 thousand increase in loan workout expenses related to the acquired Provident enterprise value loan portfolio.

Director and professional service fees increased $1.9 million, or 88.5%, resulting from director stock compensation from grants made subsequent to March 31, 2025 of $948 thousand and the non-recurring $500 thousand business line expansion fee.

Data processing expenses increased $1.7 million, or 60.5%, primarily the result of our significant investment in technology and systems, as well as a full quarter of increased transactional volume from the Provident acquisition.

The table below sets forth our noninterest expense for the quarters ended March 31, 2026 and 2025:

Noninterest expense increased $14.6 million, or 49.7%, to $44.0 million for the quarter ended June 30, 2026 from $29.4 million for the quarter ended June 30, 2025.

Salaries and employee benefit expenses increased $7.0 million, or 37.6%, resulting primarily from a $4.1 million increase in employee compensation, a $1.1 million increase in medical and dental benefits and a $541,000 increase in employee bonus expense, all due to headcount increases related to the Provident acquisition and the Company’s continued organic growth, and a $525,000 increase in stock-based compensation as a result of the grants made during the current year.

Data processing expenses increased $2.4 million, or 96.5% primarily driven by our continued investment in technology and systems in support of upcoming revenue initiatives, requiring the operation of systems in parallel for a period of time while new systems are implemented.

General and administrative expenses increased $2.1 million, or 98.6%, primarily driven by our acquisition of Provident resulting in $855,000 in additional core deposit intangible amortization expense, in addition to $319,000 in increased tax credit amortization expense, $169,000 in increased education and training expenses, $144,000 in increased utilities expenses and $124,000 in increased bank supplies expense all driven by our acquisition of Provident.

Occupancy and equipment expenses increased $1.0 million, or 68.5%, primarily driven by our acquisition of Provident, as well as the opening of two new branches.

The table below sets forth our noninterest expense for the quarters ended June 30, 2026 and 2025:

Three Months Ended

March 31, 2026

March 31, 2025

June 30, 2026

June 30, 2025

(Dollars in thousands)

5 unchanged sentences

Marketing and charitable contribution expenses

Merger and acquisition expenses

General and administrative expenses

1 unchanged sentence

Income Tax Expense.

Income tax expense increased $454 thousand, or 9.2%, to $5.4 million for the quarter ended March 31, 2026, from $4.9 million for the quarter ended March 31, 2025.

The increase was due to the increase in pretax income of $2.8 million, or 15.8%.

The effective tax rate was 26.4% and 28.0% for the quarter ended March 31, 2026 and 2025, respectively, with the decline attributable to increased investments in tax credits.

Income tax expense increased $2.2 million, or 53.9%, to $6.4 million for the quarter ended June 30, 2026 from $4.1 million for the quarter ended June 30, 2025.

The effective tax rate was 23.2% and 22.1% for the quarters ended June 30, 2026 and 2025, respectively.

The increase in tax expense was from higher pre-tax income during the quarter ended June 30, 2026 compared to June 30, 2025.

Average Balances and Yields.

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Three Months Ended

March 31, 2026

March 31, 2025

June 30, 2026

June 30, 2025

Yield/Rate (4)

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(5) Annualized.

(6) Other investments are comprised of Federal Reserve Bank (“FRB”) stock, FHLB stock and swap collateral accounts.

Short-term investments are comprised of cash and cash equivalents

Rate/Volume Analysis.

The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated.

The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate).

The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume).

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 volume and the changes due to rate.

There were no out-of-period items or adjustments required to be excluded from the table below.

Three Months Ended

June 30, 2026 vs.

Increase (Decrease) Due to

(In thousands)

Interest-earning assets:

Other investments

Short-term investments

Total interest-earning assets

Interest-bearing liabilities:

Savings accounts

Money market accounts

Certificates of deposit and individual retirement accounts

Total interest-bearing deposits

Federal Home Loan Bank advances

Total interest-bearing liabilities

Change in net interest income

Comparison of Operating Results for the Six Months Ended June 30, 2026 and 2025

Net income increased approximately $8.9 million, or 32.6%, to $36.1 million, or $0.90 per diluted common share, for the six months ended June 30, 2026, compared to net income of $27.2 million, or $0.72 per diluted common share, for the six months ended June 30, 2025.

The increase was primarily due to increased net interest income of $43.5 million, or 48.0%, partially offset by increased noninterest expense of $28.6 million, or 49.3%, and increased provision for credit losses of $5.2 million, or 120.4%.

Operating net income, excluding one-time charges, amounted to $37.7 million, or $0.94 per diluted share, for the six months ended June 30, 2026 compared to operating net income, excluding one-time charges, of $28.7 million, or $0.76 per diluted share, for the six months ended June 30, 2025, an increase of $8.9 million, or 31.1%.

The material one-time charges for the six months ended June 30, 2026 were:

● Non-recurring fees for business line expansion of $1.2 million ($867,000 net of tax);

● Final merger and acquisition costs of $830,000 ($626,000 net of tax) related to the Company’s completed acquisition of Provident;

● Tax expense and a modified endowment contract penalty of $77,000 related to the surrender of BOLI policies acquired from Provident.

The material one-time charges for the six months ended June 30, 2025 were:

● Defined benefit pension termination expenses of $1.2 million ($917,000 net of tax);

● Merger and acquisition costs of $530,000 ($400,000 net of tax) related to the Company’s acquisition of Provident and;

● Tax expense and a modified endowment contract penalty of $218,000 related to the surrender of BOLI policies.

Interest and Dividend Income.

Interest and dividend income increased $60.8 million, or 38.8%, to $217.5 million for the six months ended June 30, 2026 from $156.7 million for the six months ended June 30, 2025, primarily due to a $60.5 million, or 41.4%, increase in interest and fees on loans, reflecting the Provident acquisition and the growth of our commercial and construction loan portfolios.

The increase in interest and fees on loans was primarily due to an increase of $1.81 billion, or 40.9%, in the average balance of the loan portfolio to $6.23 billion for the six months ended June 30, 2026 from $4.42 billion for the six months ended June 30, 2025 reflecting the Provident acquisition, which was completed on November 14, 2025, and the growth of our commercial and construction loan portfolios.

Average interest-earning assets increased $1.89 billion, or 38.5%, to $6.81 billion for the six months ended June 30, 2026 from $4.92 billion for the six months ended June 30, 2025.

The yield on interest-earning assets increased 1 basis point to 6.44% for the six months ended June 30, 2026 from 6.43% for the six months ended June 30, 2025.

Interest Expense.

Total interest expense increased $17.3 million, or 26.1%, to $83.5 million for the six months ended June 30, 2026 from $66.2 million for the six months ended June 30, 2025.

Interest expense on deposit accounts increased $16.3 million, or 25.6%, to $80.3 million for the six months ended June 30, 2026 from $63.9 million for the six months ended June 30, 2025.

The increase was primarily due to an increase in the average balance of certificate of deposit and individual retirement accounts of $574.1 million, or 29.1%, to $2.55 billion for the six months ended June 30, 2026 from $1.97 billion for the six months ended June 30, 2025, an increase in the average balance of money market accounts of $624.3 million, or 57.7% to $1.71 billion for the six months ended June 30, 2026 from $1.08 billion for the six months ended June 30, 2025 and an increase in the average balance of FHLB borrowings of $75.1 million, or 77.2%, to $172.4 million for the six months ended June 30, 2026 from $97.3 million for the six months ended June 30, 2025, partially offset by a decrease in the weighted average rate on certificate of deposit and individual retirement accounts of 51 basis points to 3.95% for the six months ended June 30, 2026 from 4.46% for the six months ended June 30, 2025.

Net Interest Income.

Net interest income increased $43.5 million, or 48.0%, to $134.0 million for the six months ended June 30, 2026 from $90.5 million for the six months ended June 30, 2025, primarily due to a $1.89 billion, or 38.5%, increase in the average balance of interest-earning assets to $6.81 billion for the six months ended June 30, 2026 from $4.92 billion for the six months ended June 30, 2025 and a decrease in the weighted average rate on interest-bearing liabilities of 40 basis points to 3.17% for the six months ended June 30, 2026 from 3.57% for the six months ended June 30, 2025.

These increases were offset partially by an increase in the average balance of interest-bearing liabilities of $1.57 billion, or 41.9%, to $5.30 billion for the six months ended June 30, 2026 from $3.74 billion for the six months ended June 30, 2025.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of the ACL, a provision of $9.5 million was recorded for the six months ended June 30, 2026, of which $9.4 million related to the provision for credit losses on loans, compared to a provision of $4.3 million for the six months ended June 30, 2025, which included a $5.2 million provision for credit losses on loans.

The increase of $4.2 million, or 80.6%, in the provision for credit losses on loans was primarily driven by loan growth, additional specific reserves on PCD loans from our acquisition of Provident, larger peer commercial real estate credit losses impacting quantitative reserves, and an elevated qualitative factor risk grade for the commercial and industrial loan portfolio.

The provision for credit losses on unfunded commitments increased $1.0 million, or 116.6%, during the six months ended June 30, 2026 as a result of increased unfunded commitments.

Noninterest Income.

Noninterest income increased $1.9 million, or 23.4%, to $10.1 million for the six months ended June 30, 2026 from $8.2 million for the six months ended June 30, 2025.

The increase resulted primarily from increased customer service fees of $1.7 million, or 33.3%, due to higher cash management, debit card and interchange fees.

The table below sets forth our noninterest income for the six months ended June 30, 2026 and 2025:

Six Months Ended

(Dollars in thousands)

Customer service fees

Increase in cash surrender value of BOLI

Mortgage banking income

Swap contract income

Gain on sale of loans, net

Total noninterest income

Noninterest Expense.

Noninterest expense increased $28.6 million, or 49.3%, to $86.7 million for the six months ended June 30, 2026 from $58.1 million for the six months ended June 30, 2025.

Salaries and employee benefit expenses increased $13.3 million, or 35.3%, primarily from an $8.6 million increase in employee compensation expense, a $1.9 million increase in medical and dental benefits expense, a $1.3 million increase in employee bonus expense, a $539,000 increase in federal payroll taxes and a $577,000 increase in 401(k) match expenses driven by two quarters of increased headcount from the Provident acquisition and the hiring of additional employees consistent with our organic growth and a $1.0 million increase in employee stock compensation expense resulting from the original grants being awarded in April 2025 driving lower expense during the six months ended June 30, 2025, offset partially by a $1.2 million decrease in pension expenses due to completion of the plan liquidation during 2025.

General and administrative expenses increased $4.8 million, or 136.9%, primarily driven by our acquisition of Provident resulting in $1.7 million in additional core deposit intangible amortization expense.

Also contributing to the increase in general and administrative expenses were $672,000 in increased tax credit amortization expense, $299,000 in increased trailing Provident acquisition expenses and $224,000 in increased education and training expenses, $148,000 in increased travel expenses, $165,000 in increased utilities expenses, $124,000 in armored courier expenses, $124,000 in loan workout expenses and $123,000 in increased bank supplies expense, all of which were driven by our acquisition of Provident.

Data processing expenses increased $4.1 million, or 77.6%, during the six months ended June 30, 2026, primarily the result of our significant investment in technology and systems, as well as two full quarters of increased transactional volume from the Provident acquisition.

Occupancy and equipment expenses increased $2.8 million, or 54.5%, primarily driven by our acquisition of Provident, as well as, the opening of two new branches.

Marketing and charitable contribution expenses increased $1.9 million, or 62.8%, primarily driven by our continued community investment, our acquisition of Provident and the opening of two new branches.

FDIC and state assessment expenses increased $1.0 million, or 61.3%, primarily driven by our acquisition of Provident driving up our average balances and related assessments.

The table below sets forth our noninterest expense for the six months ended June 30, 2026 and 2025:

Six Months Ended

(Dollars in thousands)

Salaries and employee benefits

Data processing expenses

Director and professional service fees

Occupancy and equipment expenses

Marketing and charitable contribution expenses

FDIC and state insurance assessments

General and administrative expenses

Total noninterest expense

Income Tax Expense.

Income tax expense increased $2.7 million, or 29.7%, to $11.7 million for the six months ended June 30, 2026 from $9.1 million for the six months ended June 30, 2025, mainly resulting from the increase in net income during the quarter ended June 30, 2026.

The effective tax rate was 24.5% and 25.0% for the six months ended June 30, 2026 and 2025, respectively.

Average Balances and Yields.

The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated.

No tax-equivalent yield adjustments have been made, as the effects would be immaterial.

Non-accrual loans were included in the computation of average balances.

All average balances are daily average balances.

The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense;

such fees, discounts and premiums were not material for the periods presented.

Six Months Ended

June 30, 2026

June 30, 2025

Yield/Rate (4)

Interest-earning assets:

Other investments (5)

Short-term investments (5)

Total interest-earning assets

Non-interest-earning assets

Allowance for credit losses

Interest-bearing liabilities:

Savings accounts

Money market accounts

Certificates of deposit and individual retirement accounts

Total interest-bearing deposits

FHLB borrowings

Total interest-bearing liabilities

Non-interest-bearing deposits

Other non-interest-bearing liabilities

Total liabilities

Shareholders' equity

Total liabilities and shareholders' equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

(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) Annualized.

(5) Other investments are comprised of FRB stock, FHLB stock and swap collateral accounts.

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There were no out-of-period items or adjustments required to be excluded from the table below.

Three Months Ended

March 31, 2026 vs.

Six Months Ended

June 30, 2026 vs.

Increase (Decrease) Due to

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Interest-earning assets:

Other investments

Short-term investments

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● growing our volume of core deposit accounts;

● utilizing our AFS securities portfolio and interest rate swaps as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and the economic value of equity;

● managing our utilization of wholesale funding with borrowings from the FHLB and brokered deposits in a prudent manner;

● utilizing our AFS securities portfolio and interest rate swaps as part of our balance sheet asset and liability and interest rate risk management strategy intended to reduce the impact of movements in interest rates on net interest income and the economic value of equity;

● managing our utilization of wholesale funding with borrowings from the FHLB, FRB and brokered deposits in a prudent manner;

● continuing to diversify our loan portfolio by adding more commercial-related loans and consumer loans, which typically have shorter maturities and/or balloon payments;

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Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.

On occasion, we have employed various financial risk methodologies that limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities.

On occasion, we have employed various financial risk methodologies that are intended to limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities.

We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa.

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Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

We estimate what our net interest income would be for a 12-month period.

We first estimate what our net interest income would be for a 12-month period.

We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

A basis point equals one-hundredth of one percent, and 100 basis points equals one percent.

An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below.

The following table sets forth, as of March 31, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

At March 31, 2026

An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column in the table below.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

At June 30, 2026

Change in Interest Rates

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(1) Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that as of March 31, 2026, we would have experienced a 4.0% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.6% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that as of June 30, 2026, we would have experienced a 4.1% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.6% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

Economic Value of Equity (“EVE”) .

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The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200 and 300 basis point increments or decreases instantaneously by 100, 200 and 300 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of March 31, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

Estimated Increase

At March 31, 2026

At June 30, 2026

(Decrease) in EVE

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(1) Assumes an immediate uniform change in interest rates at all maturities.

The table above indicates that as of March 31, 2026, we would have experienced a 5.5% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.6% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that as of June 30, 2026, we would have experienced a 4.7% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.5% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

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 net interest income and EVE tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.

Accordingly, although the tables provide 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, and actual results may differ.

The net interest income and EVE tables presented above assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities.

Interest rate risk calculations also may not reflect the fair values of financial instruments.

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Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities.

We are also able to borrow from the FHLB and the Discount Window at the Federal Reserve Bank of Boston (“FRB”).

As of March 31, 2026, we had outstanding advances of $189.7 million from the FHLB and an unused borrowing capacity of $892.7 million with the FHLB.

At March 31, 2026, the Bank had $1.01 billion available from a line under the Borrower in Custody (“BIC”) program at the FRB.

Additionally, as of March 31, 2026, we had $570.1 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $1.2 billion of brokered deposits.

We are also able to borrow from the FHLB and the Discount Window at the FRB.

As of June 30, 2026, we had outstanding advances of $181.2 million from the FHLB.

As of June 30, 2026, we had unused borrowing capacity of $762.0 million with the FHLB.

At June 30, 2026, the Bank had $1.12 billion available from the discount window under the Borrower in Custody (“BIC”) program at the FRB.

Additionally, as of June 30, 2026, we had $719.9 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $1.14 billion of brokered deposits.

Uninsured deposits were $1.78 billion and $1.66 billion as of June 30, 2026 and December 31, 2025, respectively.

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.

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cash flows from operating activities, investing activities, and financing activities.

At March 31, 2026, we had $11.3 million in outstanding commitments to originate loans.

In addition, we had $822.8 million in unused lines of credit to borrowers, $386.7 million in unconditionally cancelable unadvanced mortgage warehouse loans, $380.4 million in unadvanced construction loans and $9.0 million in letters of credit outstanding.

Non-brokered certificates of deposit due within one year of March 31, 2026 totaled $1.93 billion, or 31.6%, of total deposits.

At June 30, 2026, we had $16.7 million in outstanding commitments to originate loans.

In addition, we had $816.1 million in unused lines of credit to borrowers, $509.5 million in unused mortgage warehouse lines, $389.6 million in unadvanced construction loans and $7.6 million in letters of credit outstanding.

Non-brokered certificates of deposit due within one year of June 30, 2026 totaled $1.93 billion, or 30.5%, of total deposits.

If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits, FHLB advances and FRB borrowings.

Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the non-brokered certificates of deposit due on or before March 31, 2027, or on our other interest-bearing deposit accounts.

We believe, however, based on historical experience and current market interest rates that we will retain, upon maturity, a large portion of our certificates of deposit with maturities of one year or less as of March 31, 2026.

Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the non-brokered certificates of deposit due on or before June 30, 2026, or on our other interest-bearing deposit accounts.

We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of June 30, 2026.

Our primary investing activity is originating loans.

During the three months ended March 31, 2026, we originated $226.7 million of loans, net of repayments.

During the six months ended June 30, 2026, we originated $428.4 million of loans, net of repayments.

Financing activities consist primarily of activity in deposit accounts and FHLB advances.

We experienced net increases in deposits of $243.5 million for the three months ended March 31, 2026.

At March 31, 2026 and December 31, 2025, the level of brokered deposits was $570.1 million and $535.7 million, respectively.

We experienced net increases in total deposits of $466.3 million for the six months ended June 30, 2026.

At June 30, 2026 and December 31, 2025, the level of brokered time deposits was $719.9 million and $535.7 million, respectively.

Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors.

FHLB advances decreased $6.5 million during the three months ended March 31, 2026.

For additional information, see the consolidated statements of cash flows for the three months ended March 31, 2026 and 2025 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.

FHLB advances decreased $15.0 million during the six months ended June 30, 2026.

For additional information, see the consolidated statements of cash flows for the six months ended June 30, 2026 and 2025 included as part of the consolidated financial statements appearing elsewhere in this quarterly report on Form 10-Q.

We are committed to maintaining a strong liquidity position.

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In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

As of March 31, 2026, Needham Bank and NB Bancorp, Inc.

exceeded all of their regulatory capital requirements, and were categorized as well-capitalized at that date.

As of June 30, 2026, Needham Bank and the Company exceeded all of their regulatory capital requirements, and were categorized as well-capitalized at that date.

Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category.

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Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Form 10-Q have been prepared in accordance with U.S.

The consolidated financial statements and related data presented in this quarterly report on Form 10-Q have been prepared in accordance with U.S.

GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation.

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Quantitative and Qualitative Disclosures About Market Risk

The information called for by this Item is incorporated by reference to the discussion of market risk in Item 2 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management of Market Rate Risk.”

The information called for by this Item is incorporated by reference to the discussion of market risk in Item 2 – “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Management of Market Risk.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis