What changed in this filing

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Item 1. Financial Statements

2024-05-10 compared with 2023-11-22 · 503 added, 799 removed, 311 unchanged (81% of the section changed)

Financial Statements

NB Financial, MHC and Subsidiary

NB Bancorp, Inc.

Consolidated Balance Sheets

September 30, 2023 (Unaudited) and December 31, 2022

(in thousands)

September 30, 2023

March 31, 2024 (Unaudited) and December 31, 2023

(in thousands except share and per share data)

March 31, 2024

December 31, 2023

2 unchanged sentences

Total cash and cash equivalents

Investment securities:

Available for sale, at fair value

Loans receivable, net of allowance for credit losses of $ 31,889 and $ 25,028 as of September 30, 2023 and December 31, 2022, respectively

Available-for-sale securities, at fair value

Loans receivable

Allowance for credit losses

Accrued interest receivable

Banking premises and equipment, net

Depositors Insurance Fund

Federal Home Loan Bank stock

Federal Reserve Bank stock

Federal Home Loan Bank stock, at cost

Federal Reserve Bank stock, at cost

Non-public investments

Bank owned life insurance "BOLI"

Bank-owned life insurance ("BOLI")

Prepaid expenses and other assets

Income tax refunds receivable

Deferred income tax asset

Liabilities and equity

Deferred income tax asset, net

Liabilities and shareholders' equity

Mortgagors' escrow accounts

3 unchanged sentences

Total liabilities

Commitments and contingencies (Notes 9, 11 & 13)

Shareholders' equity:

Preferred stock, $ 0.01 par value, 5,000,000 shares authorized;

no shares issued and outstanding

Common stock, $ 0.01 par value, 120,000,000 shares authorized;

42,705,729 shares issued and outstanding

Additional paid-in capital

Unallocated common shares held by the Employee Stock Ownership Plan

Retained earnings

Accumulated other comprehensive loss

The accompanying notes are an integral part of these financial statements.

NB Financial, MHC and Subsidiary

Total shareholders' equity

Total liabilities and shareholders' equity

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NB Bancorp, Inc.

Consolidated Statements of Income

Three and Nine Months Ended September 30, 2023 and 2022

(in thousands)

(Unaudited - Dollars in thousands, except per share data)

For the Three Months Ended

For the Nine Months Ended

INTEREST AND DIVIDEND INCOME

2 unchanged sentences

Interest on cash equivalents and other

Total interest and dividend income

INTEREST EXPENSE

1 unchanged sentence

Interest on borrowings

Total interest expense

NET INTEREST INCOME

PROVISION FOR CREDIT LOSSES

NET INTEREST INCOME AFTER CREDIT LOSS PROVISION

Provision for credit losses - loans

Provision for credit losses - unfunded commitments

Total provision for credit losses

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES

NON INTEREST INCOME

Gain from bargain purchase and assumption agreement

Customer service fees

3 unchanged sentences

Employee retention credit income

OPERATING EXPENSES

NON INTEREST EXPENSES

Salaries and employee benefits

6 unchanged sentences

INCOME BEFORE TAXES

The accompanying notes are an integral part of these financial statements.

NB Financial, MHC and Subsidiary

Consolidated Statement of Comprehensive Income

For the Three and Nine Months Ended September 30, 2023 and 2022

(in thousands)

Weighted average common shares outstanding, basic

Weighted average common shares outstanding, diluted

Earnings per share, basic

Earnings per share, diluted

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NB Bancorp, Inc.

Consolidated Statements of Comprehensive Income

(Unaudited - Dollars in thousands)

For the Three Months Ended

For the Nine Months Ended

OTHER COMPREHENSIVE INCOME (LOSSES):

Unrealized Holding Gains (Losses) on AFS Securities

Unrealized Holding (Losses) Gains on Cash Flow Hedge

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX PROVISIONS

INCOME TAX PROVISIONS

OTHER COMPREHENSIVE INCOME (LOSS), AFTER TAX PROVISIONS

COMPREHENSIVE INCOME

The accompanying notes are an integral part of these financial statements.

NB Financial, MHC and Subsidiary

Consolidated Statement of Changes in Equity

For the Three and Nine Months Ended September 30, 2023 and 2022

(in thousands)

OTHER COMPREHENSIVE INCOME, NET OF TAX:

Net change in fair value of available-for-sale securities

Net change in fair value of cash flow hedge

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX:

TOTAL COMPREHENSIVE INCOME, NET OF TAX

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NB Bancorp, Inc.

Consolidated Statements of Changes in Shareholders' Equity

(Unaudited - Dollars in thousands)

Stock Held by

Comprehensive

Shareholders'

Income (Loss)

Balance, December 31, 2022

Other comprehensive loss, net of tax

Balance, March 31, 2022

Other comprehensive loss, net of tax

Balance, June 30, 2022

Other comprehensive loss, net of tax

Balance, September 30, 2022

Balance, December 31, 2022

Adoption of ASU 2016-13

1 unchanged sentence

Balance, March 31, 2023

Other comprehensive loss, net of tax

Balance, June 30, 2023

Balance, December 31, 2023

Other comprehensive income, net of tax

Balance, September 30, 2023

The accompanying notes are an integral part of these financial statements.

NB Financial, MHC and Subsidiary

Costs from stock offering and issuance of common shares

Purchase of common shares held by ESOP ( 2,416,458 shares)

ESOP shares committed to be released ( 42,121 shares)

Balance, March 31, 2024

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NB Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Nine Months Ended September 30, 2023 and 2022

(in thousands)

September 30, 2023

September 30, 2022

(Unaudited - Dollars in thousands)

For the Three Months Ended

March 31, 2024

March 31, 2023

CASH FLOWS FROM OPERATING ACTIVITIES

Adjustments to reconcile net income to net cash from operating activities:

Net (accretion) amortization of investment securities

Gain from bargain purchase and assumption agreement

Net accretion of available-for-sale securities

Amortization of core deposit intangible

2 unchanged sentences

Change in net deferred loan origination fees

Mortgage loans originated for sale

Proceeds from sale of mortgage loans held for sale

Gain on sale of mortgage loans

Depreciation and amortization expense

Increase in cash surrender values of bank owned life insurance

Deferred income taxes (credits)

Increase in cash surrender values of BOLI

Deferred income tax benefit

Changes in operating assets and liabilities:

1 unchanged sentence

Prepaid expenses and other assets

Income tax refunds receivable

Accrued expenses and other liabilities

Accrued retirement liabilities

NET CASH PROVIDED FROM OPERATING ACTIVITIES

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

CASH FLOWS FROM INVESTING ACTIVITIES

Loan originations and pools purchased, net of repayments

Loan originations and purchases, net of repayments

Purchases of available-for-sale securities

Maturities, calls and principal repayments of available-for-sale securities

Purchases of Federal Home Loan Bank stock, net

Purchases of Federal Reserve stock, net

Proceeds from maturities, calls and paydowns of available-for-sale securities

Redemptions of Federal Home Loan Bank stock, net

Redemptions (purchases) of Federal Reserve stock, net

Recoveries of loans previously charged off

Net change in non-public investments

Cash acquired under purchase and assumption agreement

Premiums paid on bank-owned life insurance

Purchases of banking premises and equipment

2 unchanged sentences

Net change in deposits

Net costs from stock offering and issuance of common shares

Purchase of common shares held by ESOP

Net change in mortgagors' escrow accounts

Increase in FHLB borrowings, net

NET CASH PROVIDED FROM FINANCING ACTIVITIES

RESULTING IN A NET DECREASE IN CASH AND CASH EQUIVALENTS

Decrease in FHLB borrowings, net

NET CASH PROVIDED BY FINANCING ACTIVITIES

NET CHANGE IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD

2 unchanged sentences

Supplemental disclosure of non-cash transactions:

Cumulative effect adjustment due to adoption of CECL accounting standard under ASC 326, net of income taxes

Initial recognition of right of use assets under ASC 842

Initial recognition of operating lease liabilities under ASC 842

Unrealized gains (losses) on securities available for sale

Unrealized holding (losses) gains on cash flow hedge

The accompanying notes are an integral part of these financial statements.

NB Financial, MHC and Subsidiary

Notes to Condensed Consolidated Financial Statements

Note 1 – Organization, Activities and Significant Accounting Policies

The Company has adopted various accounting policies, which govern the application of accounting principles generally accepted in the United States in the preparation of our financial statements.

Our significant accounting policies are described in the footnotes to the audited consolidated financial statements at December 31, 2022.

Certain accounting policies involve significant judgments and assumptions by management, which have a material impact on the carrying value of certain assets and liabilities, and, as such, have a greater possibility of producing results that could be materially different than originally reported.

We consider these accounting policies to be critical accounting policies.

The judgments and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances.

Because of the nature of the judgments and assumptions we make, actual results could differ from these judgments and estimates which could have a material impact on our carrying values of assets and liabilities and our results of operations.

There have been no significant changes to the application of significant accounting policies since December 31, 2022, except for the following:

Adoption of New Accounting Standard – On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) No.

2016-13 - Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) along with amendments ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments – Credit Losses, and ASU 2022-02 - Financial Instruments – Credit Losses (Topic 326):

Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”).

Together, these ASUs, referred to herein as Accounting Standards Codification (“ASC”) “ASC 326”, replace the incurred loss impairment methodology with the current expected credit loss methodology (“CECL”) and require consideration of a broader range of information to determine credit loss estimates at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts.

ASC 326 applies to financial assets subject to credit losses that are measured at amortized cost and certain off-balance sheet credit exposures, which include, but are not limited to, loans receivable, leases, held to maturity (“HTM”) securities, loan commitments, and financial guarantees.

In addition, ASC 326 made changes to the accounting for available for sale (“AFS”) debt securities.

One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023.

As of December 31, 2022, the Company did not have any other than-temporarily impaired investment securities.

Upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not deemed material.

For AFS debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.

If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings through an allowance for credit loss.

If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors.

In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security.

If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis.

Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income.

Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense.

Losses are charged against the

allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met.

At September 30, 2023, there was no allowance for credit loss related to the available for sale portfolio.

Accrued interest receivable on available for sale debt securities totaled $ 1.5 million at September 30, 2023 and was excluded from the estimate of credit losses.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures, which included loans receivable and commitments to extend credit (loan commitments and stand-by letters of credit), respectively.

The Company does not have any securities classified as HTM.

Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts are reported in accordance with previously applicable GAAP.

The following table presents the impact to the consolidated balance sheet as the result of adopting ASC 326 effective January 1, 2023.

January 1, 2023

December 31, 2022

(Dollars in thousands)

Loans receivable, net of deferred fees and costs

Allowance for credit losses

Deferred income tax asset

Reserve for unfunded commitments

Retained earnings

Loans Receivable and Allowance for Credit Losses (“ACL”) – Loans that management has the intent and ability to hold for the foreseeable future or until loan maturity or pay-off are reported held for investment at their outstanding principal balance adjusted for any charge-offs and net of any deferred fees (including purchase accounting adjustments) and origination costs (collectively referred to as “amortized cost”).

Loan origination fees and certain direct origination costs are deferred and amortized as an adjustment of the yield using the payment terms required by the loan contract.

Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt.

A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current.

When cash payments are received, they are applied to principal first, then to accrued interest.

It is the Company’s policy not to record interest income on nonaccrual loans until principal has become current.

In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not go on nonaccrual status if the Company determines that the loans are well-secured and are in the process of collection.

In accordance with ASC 326, the Company elected to exclude accrued interest from the amortized cost basis in its determination of the ACL for loans receivable, and will instead reverse accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status.

The ACL represents management’s best estimate of credit losses over the remaining life of the loan portfolio.

Loans are charged-off against the ACL when management believes the loan balance is no longer collectible.

Subsequent recoveries of previously charged-off amounts (recoveries) are recorded as increases to the ACL.

The provision for credit losses is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held for investment loan portfolio.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Management’s determination of the adequacy of the ACL under ASC 326 is based on an evaluation of the composition of the loan portfolio current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors.

The Company uses a third-party CECL model as part of its estimation of the ACL on a quarterly basis.

Loans with similar risk characteristics are collectively assessed within pools (or segments).

Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics.

The Company has determined that using federal call codes is an appropriate loan segmentation methodology, as it is generally based on risk characteristics of a loan’s underlying collateral.

Using federal call codes also allows the Company to utilize and assess publicly available external information when developing its estimate of the ACL.

The weighted average remaining maturity method (“WARM”) is the primary credit loss estimation methodology used by the Company and involves estimating future cash flows and expected credit losses for pools of loans using their expected remaining weighted average life.

In applying future economic forecasts, the Company utilizes a forecast period of one year.

The Company considers economic forecasts of national gross domestic product and unemployment rates from the Federal Open Market Committee to inform the model for loss estimation.

Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data, supplemented with peer bank data obtained from publicly available sources (i.e., federal call reports).

The Bank’s peer group is comprised of financial institutions of relatively similar size (i.e.

$ 1.50 - $ 5.00 billion of total assets) and in similar markets.

Management also considers qualitative adjustments when estimating loan losses to take into account the model’s quantitative limitations.

Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of trends in delinquencies, nonaccrual loans, charged-off loans, changes in volume and terms of loans, effects of changes in lending policy, experience and depth of management, regional and local economic trends and conditions, and concentrations of credit, competition, and loan review results.

For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan by loan) basis.

This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and is based on whether the risk grade of the loan is substandard or worse and the balance exceeds $ 500,000 , and the loan’s terms differ significantly from other pooled loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are well secured (LTV < 75 %) are not considered to warrant a downgrade to substandard risk rating and are therefore excluded from individually evaluated loans.

Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans.

If the net value is less than the loan’s amortized cost, a specific reserve in the ACL is recorded, which is charged-off in the period when management believes the loan balance is no longer collectible.

The Company’s Allowance Committee approves the key methodologies and assumptions, as well as the final ACL on a quarterly basis.

While management uses available information at the time of estimation to determine expected credit losses on loans, future changes in the ACL may be necessary based on changes in portfolio composition, portfolio credit quality, and/or economic conditions.

In addition, bank regulatory agencies periodically review its ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

Upon the adoption of ASC 326, the Company recognized an adjustment to retained earnings in the amount of $ 2.1 million, and recorded an adjustment to the allowance for credit losses in loans of approximately of $ 1.2 million and unfunded commitments on loans in the amount of approximately $ 1.8 million, net of deferred taxes of approximately $ 827,000 .

Collateral-dependent Loans

The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty.

The underlying collateral can vary based upon the type of loan.

The following provides more detail about the types of collateral that secure collateral-dependent loans:

● Commercial real estate loans may be secured by either owner occupied commercial real estate or non-owner-occupied investment commercial real estate.

Typically, owner occupied commercial real estate loans are secured by office buildings, warehouses, manufacturing facilities, and other commercial and industrial properties occupied by operating companies.

Repayment is generally from the cash flows of the business occupying the property.

Non-owner occupied commercial real estate loans are generally secured by office buildings and complexes, retail facilities, multifamily complexes, land under development, industrial properties, as well as other commercial or industrial real estate.

● Commercial and industrial loans may be secured by non-real estate collateral such as accounts receivable, inventory, equipment, or other similar assets.

● Residential real estate loans are typically secured by first mortgages, and in some cases could be secured by a second mortgage.

● Home equity lines of credit are generally secured by second mortgages on residential real estate property.

● Consumer loans are generally secured by boat and recreational vehicles, automobiles, solar panels and other personal property.

Some consumer loans are unsecured, have no underlying collateral, and would not be considered collateral-dependent.

Modified Loans

ASU 2022-22 eliminated the concept of troubled debt restructurings (“TDRs”) from the accounting standards for companies that have adopted ASC 326.

ASU 2022-02 also requires additional disclosures for certain loan modifications and disclosures of gross charge-offs by year of origination.

Specifically, loan modification disclosures in periods subsequent to the adoption of ASC 326 must be made for modifications of existing loans to borrowers who were experiencing financial difficulties at the time of the modification.

The modification type must include a direct change in the timing or amount of a loan’s contractual cash flows.

The additional disclosures are applicable to situations where there is:

principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or any combination thereof.

Available for Sale Securities – The Company evaluates the fair value and credit quality of its AFS securities portfolio on a quarterly basis.

In the event the fair value of a security falls below its amortized cost basis, the security is evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality.

The primary indicators of credit quality for the Company’s AFS securities portfolio are security type and credit rating, which is influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, and others.

If unrealized losses are related to credit quality, the Company estimates the credit-related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security.

Subsequent to the adoption of ASC 326, if the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, then an ACL is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis.

As of December 31, 2022, the Company did not have any other-than-temporarily impaired AFS securities.

Upon adoption of ASC 326, the Company determined that an ACL on AFS securities was not warranted.

At September 30, 2023 there was no allowance for credit losses related to the available for sale portfolio.

Reserve for Unfunded Commitments – The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company.

The reserve for unfunded commitments is adjusted as a provision for

credit loss expense.

The estimate includes consideration of the likelihood that funding will occur, the existence of any third-party guarantees, and an estimate of credit losses on commitments expected to be funded using the same loss rates of similar financial instruments derived in the estimation of ACL for loans receivable.

Upon the adoption of ASC 326, the Company recorded an increase in its reserve for unfunded commitments of $ 1.8 million (included in accrued expenses and other liabilities), along with an after-tax cumulative effect adjustment, which reduced equity by $ 1.3 million.

Subsequent events – During November 2023, the Company decided to freeze the pension plan on December 31, 2023 and gave notice to CBERA.

The Company estimates it will incur a termination fee in the amount of $ 2.2 million.

Additionally, on November 21, 2023, the Federal Reserve Board announced its approval of the application by NB Bancorp, Inc., to become a bank holding company by merging with NB Financial, Inc., and thereby acquiring Needham Bank.

Management has reviewed all events through the date the unaudited consolidated financial statements were filed with the SEC and concluded that no other events required any adjustment to the balances presented or disclosure.

Reclassifications – Certain prior period balances in the unaudited consolidated financial statements may have been reclassified to conform to the current year presentation.

These reclassifications had no effect on prior year net income or shareholders’ equity.

Cumulative effect adjustment of adoption of ASC 326, net of income taxes

Unrealized gains on available-for-sale securities

Unrealized holding losses on cash flow hedge

The accompanying notes are an integral part of these unaudited consolidated financial statements.

NB Bancorp, Inc.

Notes to Unaudited Consolidated Financial Statements

Note 1 – Conversion

Effective December 27, 2023, NB Financial, MHC (the “MHC”), the former mutual holding company of Needham Bank (the “Bank”) and the predecessor to, NB Bancorp, Inc.

(the “Company”) consummated its mutual to stock conversion and the Company consummated its related stock offering.

In the offering, the Company sold 40,997,500 shares of common stock, par value $ 0.01 per share, at a per share price of $ 10.00 for gross offering proceeds of $ 410.0 million.

Additionally, the Company contributed 1,708,229 shares and $ 2.0 million in cash to the Needham Bank Charitable Foundation (the “Foundation”) .

The shares of the Company’s common stock sold in the offering began trading on The Nasdaq Capital Market on December 28, 2023 under the symbol “NBBK.”

In connection with the conversion, liquidation accounts were established by the Company and the Bank in an aggregate amount equal to (i) the MHC’s ownership interest in the shareholders’ equity of NB Financial, Inc.

as of the date of the latest statement of financial condition included in the Company’s definitive prospectus dated October 12, 2023, plus (ii) the value of the net assets of the MHC as of the date of the MHC’s latest statement of financial condition before the consummation of the Conversion (excluding the MHC’s ownership interest in NB Financial, Inc.).

Each eligible account holder and supplemental eligible account holder is entitled to a proportionate share of the liquidation accounts in the unlikely event of a liquidation of (i) the Company and the Bank or (ii) the Bank, and only in such events.

This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record and will cease to exist if the account is closed.

The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

Note 2 – Basis of Presentation

The Company’s accompanying unaudited consolidated financial statements have been prepared in accordance with U.S.

generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.

Accordingly, certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations.

The consolidated financial statements of NB Bancorp, Inc.

(referred to herein as the “Company," “we,” “us,” or “our”) include the balances and results of operations of the Company and the Bank, its wholly-owned subsidiary, as well as the Bank’s wholly-owned subsidiaries, Needco-op Investment Corporation, Inc., 1892 Investments LLC and Eaton Square Realty LLC.

Intercompany transactions and balances are eliminated in consolidation.

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the Company's financial position as of March 31, 2024 and the results of operations and cash flows for the interim periods ended March 31, 2024 and 2023.

All interim amounts have not been audited, and the results of operations for the interim periods herein are not necessarily indicative of the results of operations to be expected for the fiscal year.

The accompanying unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended December 31, 2023 and accompanying notes thereto included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission.

The Company qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 and has elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates.

As such, the Company will adopt standards on the nonpublic company effective dates until such time that we no longer qualify as an EGC.

Certain previously reported amounts have been reclassified to conform to the current period’s presentation.

Note 3 – Investment Securities

Available for Sale – The amortized cost and estimated fair values of securities classified as available for sale (AFS) are as follows:

The Company's available-for-sale securities are carried at fair value.

For available-for-sale securities in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis.

If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income.

For those available-for-sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors.

In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S.

Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors.

If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis.

To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.

Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.

Investments in securities have been classified on the consolidated balance sheets according to management’s intent.

The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses at the dates indicated:

Allowance for

Credit Losses

March 31, 2024

(in thousands)

September 30, 2023

Debt Securities:

Available-for-Sale Debt Securities:

Treasury securities

Government agencies

Agency mortgage-backed securities

2 unchanged sentences

Municipal obligations

(In thousands)

Allowance for

Credit Losses

December 31, 2023

Debt Securities:

(in thousands)

Available-for-Sale Debt Securities:

Treasury securities

3 unchanged sentences

Municipal obligations

Investment securities with carrying values of $ 48.7 million as of September 30, 2023 were pledged to secure borrowings with the Federal Reserve Bank (see Note 6).

There were no investment securities pledged to secure borrowings with the Federal Reserve Bank as of December 31, 2022.

The Company did no t sell any AFS securities during the first nine months of 2023 and 2022.

The net unrealized gain (loss) on AFS securities is reported, net of deferred income tax effects, as a separate component of the Company’s equity, “Accumulated Other Comprehensive Income (Loss)”, and approximates the following as of the dates stated:

(In thousands)

September 30, 2023

December 31, 2022

Unrealized losses, net

Deferred income tax asset

Maturities of Debt Securities – The following is a summary of maturities of securities available for sale as of September 30, 2023.

The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three months ended March 31, 2024.

Excluded from the table above is accrued interest on available-for-sale securities of $ 1.5 million and $ 1.2 million at March 31, 2024 and December 31, 2023, respectively, which is included within accrued interest receivable on the consolidated balance sheets.

Additionally, the Company did no t record any write-offs of accrued interest income on available-for-sale securities for the three months ended March 31, 2024.

No securities held by the Company were delinquent on contractual payments at March 31, 2024, no r were any securities placed on non-accrual status for the three months then ended.

The following is a summary of actual maturities of certain available-for-sale securities as of March 31, 2024.

The amortized cost and fair values are based on the contractual maturity dates.

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Agency collateralized mortgage obligations

Credit Loss Evaluation – The following tables present fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.

When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale.

There were no sales of securities during the three months ended March 31, 2024 and 2023.

The carrying value of securities pledged to secure borrowings from the Federal Reserve Bank was $ 50.9 million and $ 49.6 million as of March 31, 2024 and December 31, 2023, respectively.

The following tables present fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.

Less than 12 Months

12 Months or More

(In thousands)

September 30, 2023

(Dollars in thousands)

March 31, 2024

Number of Securities

Government Agencies

Taxable municipals

Agency mortgage-backed securities

Agency collateralized mortgage obligations

Corporate bonds

Mortgage backed securities

Municipal obligations

Less than 12 Months

12 Months or More

(In thousands)

(Dollars in thousands)

December 31, 2023

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Municipal obligations

Municipal, Agency Debt, and U.S.

Treasury Securities – The contractual cash flows of these securities are direct obligations of municipalities or the U.S.

Treasury, or they consist of agency obligations, mortgage-backed securities or collateralized mortgage obligations which are guaranteed by Fannie Mae, Ginnie Mae, Freddie Mac, the Federal Home Loan Bank or other quasi-government agencies.

It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

Corporate Bonds – The Company invests in a substantial amount of corporate bonds and subordinated debentures, which are scheduled to mature between the calendar years 2024 through 2032.

These corporate bonds vary in commercial industries, including automotive, energy, consumer products, and media companies.

The Company has also invested in domestic and foreign banking institutions.

The subordinated debentures are mostly debt issuances from bank holding companies.

As of September 30, 2023 and December 31, 2022, the majority of securities in an unrealized loss position were of investment grade;

however, a few did not have a third-party investment grade available.

These ungraded securities were primarily subordinated debt instruments issued by bank holding companies and are classified as corporate bonds in the tables above.

As of September 30, 2023 and December 31, 2022, 14 securities with a market value of $ 36.4 million and $ 37.9 million, respectively, did not have a third-party investment grade available.

Investment securities with unrealized losses are generally a result of pricing changes due to changes in the interest rate environment since purchase and not as a result of permanent credit loss.

The Company does not intend to sell, nor does it believe it will be required to sell, any of its securities prior to the recovery of the amortized cost.

Because the declines in fair value are attributable to market changes in interest rates and not due to credit quality, management did not recognize an allowance for credit loss against the Company’s investment portfolio at September 30, 2023.

Depositors Insurance Fund – The Company was previously required by Massachusetts banking statutes to maintain stock in the Co-operative Central Bank (“Coop Central”).

In a previous year, in conjunction with the merger of the state depository insurance funds, Coop Central bought back 95 % of the Company’s stock.

The cost of the remaining shares, $ 139,000 , represents the Company’s interest in the Depositors Insurance Fund, which is not redeemable.

Federal Home Loan Bank Stock – The Company holds stock in the Federal Home Loan Bank of Boston, a regional member of the Federal Home Loan Bank (FHLB), as part of the Company’s membership requirements.

Based upon the redemption provisions of the FHLB, the stock is restricted, has no quoted market value, and is carried at original cost.

The balance in the investment account at September 30, 2023 and December 31, 2022 was $ 17.6 million and $ 13.2 million, respectively.

The stock serves as additional collateral on FHLB borrowings, which determines the amount of stock the Company is required to hold.

Federal Reserve Bank Stock – The Company is required to maintain shares in the Federal Reserve Bank for 50 % of the total par value in order to meet criteria for membership in the Federal Reserve System.

Although the full par value of the stock is $ 100 per share, the Company is required to pay only $ 50 per share at the time of purchase with the understanding that the other half of the subscription amount is subject to call at any time.

Dividends are paid semi-annually at the statutory rate of 6 percent per annum, or $ 1.50 per share semi-annually.

In addition, Federal Reserve regulations require that the Company purchase additional stock, or that the Federal Reserve System redeem stock, if a change in total deposit liabilities (as reported in the quarterly report of condition) results in a change in the Company’s Federal Reserve Stock holdings requirement by 15 percent or 100 shares, whichever is lower.

As of September 30, 2023, the Company holds 195,936 shares of stock in the approximate amount of $ 9.8 million compared to 162,072 shares of stock in the approximate amount of $ 8.1 million as of December 31, 2022.

Non-Public Investments – Non-public investments consists of the following:

Connecticut On-Line Computer Center, Inc.

(“COCC”) – Common and preferred shares of COCC stock are recorded at cost.

As of September 30, 2023 and December 31, 2022, the Company holds 47 shares of common stock in the amount of $ 195,000 and 43 shares of common stock in the amount of $ 175,000 , respectively.

The Company also holds 5 shares of Series A preferred stock in the amount of $ 75,000 at September 30, 2023 and December 31, 2022.

– Jassby Inc.

is a convenient and easy to use app for families with the vision to bring banking and financial services to families and provide App-based banking for generations Z and Alpha.

In October 2019, the Company lent Jassby, Inc.

$ 1,000,000 at 5 % in the form of a convertible promissory note, which had an original maturity date of December 31, 2021.

Due to the occurrence of a private qualifying financing event in February 2020, the promissory note converted to approximately 320,000 shares of Series Seed-1 Preferred Stock in Jassby Inc.

The carrying value of this preferred stock as of September 30, 2023 and December 31, 2022 was $ 1,000,000 .

Reinventure Capital Fund I LP – During 2022, the Company invested $ 2,000,000 as a limited partner in the Reinventure Capital Fund to generate alternative investment earnings.

In July of 2022, there was a capital distribution of $ 1,000,000 leaving the Company with a remaining investment (carrying value) of $ 1,000,000 as of December 31, 2022.

During 2023, there was an additional capital call of $ 500,000 that increased the Company’s investment (carrying value) to $ 1,500,000 as of September 30, 2023.

Massachusetts Housing Investment Corporation ("MHIC") – The MHIC is a program where the IRS allocates federal tax credits to state housing credit agencies based on each state’s population.

The state agencies award Low Income Housing Tax Credits for Qualified Affordable Housing Projects (“QAHP”).

Project sponsors use tax credits to raise equity from investors.

The equity investment reduces the debt burden on the tax credit property, making it financially feasible to offer lower, more affordable rental rates to eligible individuals.

The participating banks are entitled to certain federal tax credits.

At September 30, 2023 and December 31, 2022, the Company is carrying approximately $ 1,000,000 in the Massachusetts Housing Equity Fund XXII LLC, a QAHP sponsored by the MHIC.

The Company holds a 1.15 % interest in this partnership as of September 30, 2023.

The Company’s accumulated share of losses and tax credits as of September 30, 2023 and December 31, 2022 was $ 557,000 .

Sunwealth Project Pool 20 LLC (“Sunwealth”) – Sunwealth is a solar energy program formed on April 21, 2021 by the Company as a 99 % non-controlling LLC investor member and Sunwealth Holdco 8 LLC (Holdco) as the sole managing LLC member.

Sunwealth is in the business of developing, designing, installing, owning and maintaining solar photovoltaic energy generation facilities on the rooftops or properties of municipal and commercial customers in the United States.

Sunwealth has or intends to purchase solar photovoltaic energy generation facilities from the developers prior to any PV System that is part of any such facilities being placed in service and sell electricity or lease such facilities to off-takers in a manner that will qualify the Company, through its ownership in Sunwealth, to receive income tax credits.

Energy produced by the facilities will be sold to the applicable off-taker or the facilities will be leased to the applicable off-taker, in each case pursuant to the offtake agreements with the purchaser.

The offtake agreements include leasehold or other rights of access to all areas of the facilities on which the facilities and their parts are located so that agents of the Sunwealth are able to inspect, access, maintain and improve facility equipment and all other rights and assets necessary for the ownership and operation thereof and the sale of power from the facilities.

During 2021, through its subsidiary, 1892 Investments, the Company invested $ 2.5 million in Sunwealth for Project Pool 20.

The carrying value of the investment is approximately $ 1.9 million as of September 30, 2023 compared to $ 2.3 million as of December 31, 2022.

In addition, the Company has made a $ 2.5 million loan to Holdco to fund the project, which is included in the Company’s construction and industrial loan portfolio as of September 30, 2023 and December 31, 2022.

Sunwealth Project Pool 26 LLC – Through its subsidiary, 1892 Investments, in 2022 the Company committed $ 5 million to Sunwealth for Project Pool 26, of which invested $ 4.2 million (tax basis) was funded towards solar projects during 2022.

The carrying value of the investment is approximately $ 3.4 million as of September 30, 2023 compared to $ 5 million as of December 31, 2022, which includes a refundable advance of $ 800,000 .

Patriot Renewable Energy Capital, LLC (“Patriot Renewables”) – Patriot Renewables is a developer, owner, and operator of commercial-scale wind and solar energy projects.

The Company has invested in the below projects through its subsidiary, 1892 Investments.

Bertoline Project – The Company invested $ 623,000 in the Bertoline Project in 2022 with a total commitment of $ 656,000 .

During 2023, the Company invested an additional $ 26,000 .

The carrying value of the investment approximates $ 535,000 and $ 623,000 as of September 30, 2023 and December 31, 2022, respectively.

Maple Crest Project – During 2023, the Company invested $ 1.0 million towards the Maple Crest Project.

The total commitment to this solar project is $ 4,970,000 , with $ 1.0 million contributed as of September 30, 2023.

LearnLaunch Fund III L.P.

– During 2023, the Company invested $ 260,000 as a limited partner in the LearnLaunch Fund to generate alternative investment earnings.

The total commitment to the fund is $ 650,000 , with $ 260,000 contributed as of September 30, 2023.

Note 3 – Loans Receivable and ACL

All loan and ACL information presented as of and for the three and nine months ended September 30, 2023 is in accordance with ASC 326.

All loan information presented prior to this period is presented in accordance with previous GAAP.

As a result, the presentation of information pre-ASC 326 and post-ASC 326 adoption will not be comparable for most disclosures.

Loans consist of the following as of the dates stated (in thousands):

September 30, 2023

Management evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.

Included in corporate bonds are investments in senior and subordinated debt of banks and bank holding companies, some of which do not have investment ratings.

At March 31, 2024, available-for-sale debt securities had unrealized losses with aggregate depreciation of 8.5 %, from the Company’s amortized cost basis.

These unrealized losses relate to changes in market interest rates since acquiring the securities.

As management has the intent and ability to hold debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of March 31, 2024.

Note 4 – Loans Receivable, Allowance for Credit Losses and Credit Quality

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until loan maturity or pay-off are reported as held-for-investment at their outstanding principal balance adjusted for any charge-offs and net of any deferred fees (including purchase accounting adjustments) and origination costs (collectively referred to as “amortized cost”).

For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method.

When a loan is paid off, the unamortized portion is recognized in interest income.

When cash payments are received, they are applied to principal first, then to accrued interest.

It is the Company’s policy not to record interest income on nonaccrual loans until principal has become current.

Allowance For Credit Losses

The Allowance for Credit Losses (“ACL”) represents management’s best estimate of credit losses over the remaining life of the loan portfolio.

Loans are charged-off against the ACL when management believes the loan balance is no longer collectible.

This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform.

Subsequent recoveries of previously charged-off amounts are recorded as increases to the ACL.

The provision for credit losses on loans is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held-for-investment loan portfolio.

The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Management’s determination of the adequacy of the ACL under FASB ASC 326 – Financial Instruments – Credit Losses is based on an evaluation of the composition of the loan portfolio, current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors.

The Company uses a third-party Current Expected Credit Loss (“CECL”) model as part of its estimation of the ACL on a quarterly basis.

Loans with similar risk characteristics are collectively assessed within pools (or segments).

Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics.

The Company has determined that using federal call codes is an appropriate loan segmentation methodology, as it is generally based on risk characteristics of a loan’s underlying collateral.

Using federal call codes also allows the Company to utilize and assess publicly available external information when developing its estimate of the ACL.

The weighted average remaining maturity (“WARM”) method is the primary credit loss estimation methodology used by the Company and involves estimating future cash flows and expected credit losses for pools of loans using their expected remaining weighted average life.

In applying future economic forecasts, the Company utilizes a forecast period of up to two years.

Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data, supplemented with peer bank data obtained from publicly available sources.

Management also considers qualitative adjustments when estimating credit losses to take into account the model’s quantitative limitations.

Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of economic conditions, volume and severity of past due loans, value of underlying collateral, experience, depth, and ability of management, and concentrations of credit.

For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan by loan) basis.

This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and consists of loans with a risk rating of substandard or worse, a balance exceeding $ 500,000 , and loan terms differing significantly from other pooled loans.

In the ordinary course of business, the Company enters into commitments to extend credit.

Such financial instruments are recorded in the consolidated financial statements when they are funded.

The credit risk associated with these commitments is evaluated in a manner similar to the allowance for credit losses on loans.

The reserve for unfunded commitments is included in other liabilities on the consolidated balance sheets.

Loans consist of the following as of the dates stated:

March 31, 2024

December 31, 2023

(Dollars in thousands)

One-to-four-family residential

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Allowance for credit losses

Included in commercial and industrial loans in the schedule above for September 30, 2023 and December 31, 2022 are SBA Payroll Protection Program (“PPP”) loans in the amount of $ 425,000 and $ 645,000 , respectively.

Interest income recognized on these PPP loans, including amortization of deferred loan origination fees, approximately $ 4,000 and $ 266,000 for the first nine months of 2023 and 2022.

The Company recognized interest income on these PPP loans, including amortization of deferred loan origination fees, of approximately $ 1,000 and $ 7,000 during the three months ended September 30, 2023 and 2022, respectively.

The Company has reported this with interest and fees on loans on the consolidated statements of income.

Included in the above at September 30, 2023 is approximately $ 158.5 million in loans to borrowers in the cannabis industry, of which 98 % is collateralized by real estate compared to $ 58.3 million of cannabis industry loans, of which 91 % is collateralized by real estate at December 31, 2022.

During the nine months ended September 30, 2023, the Company purchased approximately $ 34.5 million compared to $ 187.3 million during the year ended December 31, 2022 of consumer loan pools.

These purchases included loan pools collateralized by boat and recreational vehicles, automobiles, and solar panels, as well as unsecured home improvement loans.

The outstanding balances of these consumer loan pools, shown net of premium (discount) are as follows as of the dates stated (in thousands):

September 30, 2023

Included in the above are approximately $ 334.3 million and $ 320.5 million in loans to borrowers in the cannabis industry at March 31, 2024 and December 31, 2023, respectively.

Of that total, $ 81.6 million and $ 102.1 million were direct loans to cannabis companies and were collateralized by real estate at March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company purchased approximately $ 5.5 million and $ 4.9 million of consumer loan pools, respectively.

The loans purchased during the three months ended March 31, 2024 included loan pools collateralized by boats, recreational vehicles, and automobiles.

The loans purchased during the three months ended March 31, 2023 included loan pools collateralized by boats, recreational vehicles, automobiles and solar panels, as well as unsecured home improvement loans.

The outstanding balances of these consumer purchased loan pools, shown net of premium (discount) are as follows as of the dates stated:

March 31, 2024

Premium (Discount)

(in thousands)

Student loans

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Premium (Discount)

(in thousands)

Student loans

3 unchanged sentences

Home improvement loans

For purposes of the schedules included in this note, the Company classifies multi-family residential loans as commercial real estate.

The following table presents the aging of the amortized cost of loans receivable by loan category as of the date stated (in thousands):

September 30, 2023

The carrying value of loans pledged to secure advances from the FHLB were $ 1.24 billion and $ 1.33 billion as of March 31, 2024 and December 31, 2023, respectively.

The following table presents the aging of the amortized cost of loans receivable by loan category as of the date stated:

March 31, 2024

More Past Due

Still Accruing

(in thousands)

Real estate loans:

1 unchanged sentence

Commercial real estate

Multi-family residential

Construction and land development

1 unchanged sentence

December 31, 2023

More Past Due

Still Accruing

(in thousands)

Real estate loans:

One-to-four-family residential

Construction & land development

Commercial & industrial loans

Consumer loans

The following table presents the amortized cost of nonaccrual loans receivable by loan category as of the date stated (in thousands):

September 30, 2023

Commercial real estate

Multi-family residential

Construction and land development

Commercial and industrial

The following table presents the amortized cost of nonaccrual loans receivable by loan category as of the dates stated:

March 31, 2024

December 31, 2023

(In thousands)

Real estate loans:

1 unchanged sentence

Commercial real estate

Multi-family residential

Construction and land development

Commercial and industrial

The following table represents the accrued interest receivables written off by reversing interest income during the three and nine months ended September 30, 2023 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2023

Real estate loans:

One to four-family residential

Home equity loans and lines of credit

Construction & land development

Commercial loans

Consumer loans

During the three months ended March 31, 2024, the Company reversed $ 159 thousand of interest income for loans that were placed on non-accrual.

During the three months ended March 31, 2023, the Company did no t reverse any interest income for loans that were placed on non-accrual.

Credit Quality Information

The Company utilizes a nine-grade internal rating system for commercial real estate, which includes multi-family residential loans, construction and land development loans, and commercial and industrial loans as follows:

The Company utilizes a nine-grade internal rating system for all loans, except consumer loans, which are not risk rated, as follows:

Loans rated 1-5:

16 unchanged sentences

Management uses the results of these reviews as part of its annual review process.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of September 30, 2023.

Also presented are current period gross charge-offs by loan type and vintage year for the nine months ended September 30, 2023.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of March 31, 2024.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended March 31, 2024:

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

Residential Real Estate

One-to-Four-Family Residential

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Commercial Real Estate

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

Construction and Land Development

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

1 unchanged sentence

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

The following tables present an analysis of the change in the ACL by major loan segment for the period stated (in thousands):

For the Three Months ended September 30, 2023

Construction and

Commercial and

Land Development

Balance, June 30, 2023

Provision for credit losses

Recoveries of loans previously charged off

Balance, September 30, 2023

For the Nine Months ended September 30, 2023

Construction and

Commercial and

Land Development

Balance, December 31, 2022

Adjustment to allowance for adoption of ASU 2016-13

Provision for credit losses

Recoveries of loans previously charged off

Balance, September 30, 2023

There were no material changes to the assumptions, loss factors (both quantitative and qualitative), or reasonable and supportable forecasts used in the estimation of the ACL and the provision for credit losses for loans receivable as of and for the nine months ended September 30, 2023.

The following table presents the amortized cost of collateral-dependent loans of September 30, 2023 (in thousands):

Real estate loans:

One to four-family residential

Construction and land development

Commercial and industrial loans

Consumer loans

The Company closely monitors the performance of borrowers experiencing financial difficulty to understand the effectiveness of its loan modification efforts.

The Company did not modify any loans to borrowers experiencing financial difficulty during the nine months ended September 30, 2023.

Allowance for Credit Losses - Unfunded Commitments

The Company maintains an allowance for off-balance sheet credit exposures such as unfunded balances for existing lines of credit, commitments to extend future credit, as well as both standby and commercial letters of credit when there is a contractual obligation to extend credit and when this extension of credit is not unconditionally cancellable (i.e., commitment cannot be canceled at any time).

The allowance for off-balance sheet credit exposures is adjusted as a provision for (reversal of) credit loss expense.

The estimate includes consideration of the likelihood that funding will occur, which is based on a historical funding study derived from internal information, and an estimate of expected credit losses on commitments expected to be funded over its estimated life, which are the same loss rates that are used in computing the allowance for credit losses on loans.

The allowance for credit losses for unfunded loan commitments of $ 1.8 million as of September 30, 2023 is classified separately on the consolidated balance sheet with accrued expenses and other liabilities.

There was no allowance for credit losses for unfunded commitments as of December 31, 2022.

The following table presents the balance and activity in the allowance for credit losses for unfunded loan commitments for the three and nine months ended September 30, 2023 (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2023

Beginning balance

Adjustment to allowance for unfunded commitments for adoption of ASC 326

(Reversal of) provision for unfunded commitments

Balance, September 30, 2023

Pre-ASC 326 Adoption Disclosures

Prior to the adoption of ASC 326 on January 1, 2023, the Company calculated the allowance for loan losses under the incurred loss methodology.

The following disclosures are presented under this previously applicable GAAP for the applicable prior periods.

Due to the adoption of CECL under ASC 326, two significant concepts under the incurred loss methodology disclosed below, impaired loans and troubled debt restructurings (TDRs) have been eliminated and replaced by collateral-dependent loans and modifications made to borrowers experiencing financial difficulties which were discussed in Note 1 and disclosed previously.

A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement.

Under the incurred loss methodology, when a loan is modified

and a concession is made to a borrower experiencing financial difficulty, the modification was considered a TDR.

All TDRs were initially classified by the Company as impaired.

The following table presents a summary of the loan portfolio individually and collectively evaluated for impairment as of the date stated (in thousands):

Construction &

Land Development

December 31, 2022

Allowance for loans individually evaluated for impairment

Allowance for loans collectively evaluated for impairment

Total Allowance for Loan Loss

Loans individually evaluated for impairment

Loans collectively evaluated for impairment

The following tables presents a summary of impaired loans as of the date stated (in thousands):

Investment in

Allowance for

Impaired Loans

(In thousands)

December 31, 2022

Impaired loans with no related allowance recorded:

One to four-family residential

Commercial real estate

Construction & land development

Commercial & industrial

Impaired loans with an allowance recorded:

One to four-family residential

Commercial real estate

Construction & land development

Commercial & industrial

Total impaired loans:

(1) Consumer loans are not formally risk rated and included $ 1.4 million of loans on non-accrual as of March 31, 2024.

The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of December 31, 2023.

Also presented are current period gross charge-offs by loan type and vintage year for the three months ended December 31, 2023:

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

One-to-Four-Family Residential

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Commercial Real Estate

Construction & land development

Commercial & industrial

Total impaired loans

Additional information about impaired loans is as follows for the period stated (in thousands):

Three Months Ended

Nine Months Ended

September 30, 2022

Average recorded investment in impaired loans during the period

Related amount of interest income recognized during the period that the loans were impaired:

Total recognized

Amount recognized using a cash-basis method of accounting

The following table summarizes the carrying balance of troubled debt restructurings (TDRs) as of December 31, 2022 (in thousands):

Performing TDRs

Nonperforming TDRs

There were no loans modified as TDRs and no TDRs that defaulted in the first twelve months after restructuring during the nine months ended September 30, 2022.

The following tables present an analysis of the change in the allowance for loan losses by loan type for the period stated (in thousands):

For the Three Months ended September 30, 2022

Construction and

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Construction and Land Development

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Commercial and Industrial

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Term Loans Amortized Cost Basis by Origination Year (in thousands)

Revolving Loans

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

Special Mention

Loans not formally risk rated (1)

Current period gross charge-offs

(1) Consumer loans are not formally risk rated and included $ 1.5 million of loans on non-accrual as of December 31, 2023.

The following table presents an analysis of the change in the ACL by major loan segment for the periods stated:

For the Three Months Ended March 31, 2024

Commercial and

Land Development

Balance, June 30, 2022

Provision for loan losses

(in thousands)

Balance at December 31, 2023

Provision (benefit) for credit losses

Recoveries of loans previously charged-off

Balance, September 30, 2022

For the Nine Months ended September 30, 2022

Balance at March 31, 2024

For the Three Months Ended March 31, 2023

Construction and

1 unchanged sentence

Land Development

Balance, December 31, 2021

Provision for loan losses

Recoveries of loans previously charged off

Balance, September 30, 2022

The following table summarizes the Company’s loans by risk rating category as of the date stated (in thousands):

Residential and

Construction &

Land Development

December 31, 2022

Special Mention

Note 4 – Lease Commitments

The Company is the lessee under seven building and land lease agreements for branch locations in Dedham, Dover, Ashland, Millis, Medford, Natick and Mission Hill.

The Company’s operating leases have remaining lease terms of 12 to 25 years, some of which include options to extend the leases for up to 10 years.

In addition to the rental amounts, the Company is responsible for its share of utilities.

The Company follows ASC 842, “Leases”, whereby all of its existing branch lease agreements have been recognized in the consolidated balance sheet in prepaid expenses and other assets as “right of use assets”, with offsetting “operating lease liabilities” in accrued expenses and other liabilities.

The following is a summary of the recorded lease right-of-use assets for all of the above-mentioned lease agreements as of the dates stated (in thousands):

September 30, 2023

December 31, 2022

Operating lease right-of-use assets

Less accumulated amortization

Operating lease right-of-use assets, net

Operating lease liabilities

Weighted average remaining term (years)

Weighted average discount rate

The future minimum lease payments under the terms of the above leases at September 30, 2023, along with the recorded present value of the lease obligations, are as follows:

(in thousands)

Three months ending December 31, 2023

Year ending December 31, 2024

Year ending December 31, 2025

Year ending December 31, 2026

Year ending December 31, 2027

Less unamortized discount

Recorded present value of lease obligations

The Company has included in its recorded lease obligations and right-of-use assets any of the available lease extension options permitted under the agreements for branch locations as management can be reasonably certain under lease accounting criteria that the options will be exercised.

Required payments for real estate taxes, insurance, utilities and management fees are not included in the recorded lease obligations and assets since they are variable payments that do not depend on a specified index or rate and they are recorded to expense as they are incurred.

Any increases in lease payments as a result of changes in the CPI are charged to lease expense.

Common area maintenance charges under the agreements are not considered in the lease payments since they represent a service provided to the Company and, as such, they are recorded to expense as incurred.

The discount rates imputed on the lease obligations range from 3.01 % to 5.29 %, which represented the Company’s incremental borrowing rates for similar length terms as the applicable leases.

Total lease expense for the nine months ended September 30, 2023 and 2022 approximated $ 704,000 and $ 460,000 , respectively.

Note 5 – Deposits

A comparative summary of deposits is as follows as of the dates stated (in thousands):

September 30, 2023

December 31, 2022

Transactional accounts:

Noninterest-bearing demand deposits

Savings accounts

Money market accounts

Total transactional accounts

Time deposits

Greater than $250,000

Less than or equal to $250,000

Total time deposits

Total deposits

Contractual maturities of time deposits are as follows (in thousands):

September 30, 2023

December 31, 2022

Within 1 year

Over 1 year to 2 years

Over 2 years to 3 years

Over 3 years to 4 years

Over 4 years to 5 years

Included in time deposits are brokered certificates of deposit of approximately $ 323.6 million and $ 250.0 million as of September 30, 2023 and December 31, 2022, respectively.

As of September 30, 2023, total deposits related to the cannabis industry are $ 263.9 million, or 7.68 %, of total deposits.

There are no customers that exceed 5% of total deposits at September 30, 2023 and December 31, 2022.

Note 6 – Borrowings

Federal Home Loan Bank – Borrowings from the FHLB are secured by a blanket lien on qualified collateral, defined principally by pledging a specified percentage of the carrying value of owner and non-owner occupied first mortgage loans secured by one to four-family properties and commercial real estate loans, including multifamily loans.

The amount of loans pledged was $ 1.20 billion as of September 30, 2023.

Total additional borrowing capacity with the FHLB based upon collateral pledged, approximates $ 465.8 million at September 30, 2023.

Additionally, in order to further secure these borrowings with the FHLB, the Company is also required to invest in the stock of the FHLB.

Maturities on outstanding borrowings from the FHLB are summarized as follows:

September 30, 2023

Balance at December 31, 2022

Adjustment to allowance for adoption of ASU 2016-13

Provision (benefit) for credit losses

Recoveries of loans previously charged off

Balance at March 31, 2023

The following table presents the amortized cost of collateral-dependent loans of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

(in thousands)

Advances maturing within:

One to two years

Four to five years

The Company also has a line of credit from the FHLB Ideal Way in the amount of $ 6,058,000 at September 30, 2023 and December 31, 2022.

The Company has no borrowings outstanding under this line of credit at September 30, 2023 or December 31, 2022.

Interest expense on the above FHLB borrowings approximated $ 10.9 million and $ 712,000 for the nine months ended September 30, 2023 and 2022, respectively.

The Federal Reserve Bank – The Company has a line of credit agreement with the Federal Reserve Bank of Boston for usage of the discount window.

The terms of the agreement call for the pledging of certain assets for any and all obligations of the Company under the agreement (see Note 2).

As of September 30, 2023 and December 31, 2022 there were no borrowings outstanding under this agreement.

Interest Rate Swap Contracts – The Company was party to an International Swap and Derivative Association (ISDA) interest rate swap contract of $ 50.0 million with a financial institution (“counterparty”) to manage its exposure to interest rate changes previously associated with $ 50.0 million of FHLB borrowings.

The swap was modified during 2021 to manage its exposure to interest rates by replacing the FHLB borrowings with $ 50.0 million of brokered certificates of deposit (representing the notional amount of the swap contract).

The swap contract qualified as a cash flow hedge and, accordingly, the Company recorded the fair value of the contract on its consolidated balance sheet as an asset or liability, with an offset to accumulated other comprehensive income (AOCI), net of income tax impacts, and with changes reflected in other comprehensive income.

The swap contract matured during April of 2023.

The effect of the swap contract was to limit the interest rate exposure on the brokered certificates of deposits to a fixed rate ( 2.53 %) versus the three-month LIBOR.

In accordance with the swap agreement, the interest charge was calculated based upon the LIBOR and the fixed rate.

If interest as calculated was greater based on the LIBOR, the counterparty paid the difference to the Company.

However, if interest as calculated was greater based on the fixed rates, the Company paid the difference to the counterparty.

Depending on the fluctuations in the LIBOR, the Company’s interest rate exposure and its related impact on interest expense and net cash flow could increase or decrease.

The fair value of the interest rate swap agreement was the estimated amount the Company would receive or pay to terminate the agreement at a particular point in time, considering current interest rates and the creditworthiness of the counterparty.

The estimated fair value of the interest rate swap contract was provided by a third-party valuation expert.

As of December 31, 2022, the fair value of the swap contract was estimated to be an asset of approximately $ 321,000 , which was reflected as prepaid expenses and other assets, in the Company’s accompanying consolidated balance sheet.

An unrealized gain on the swap contract of approximately $ 231,000 at December 31, 2022, net of income tax effects, was recorded in AOCI in the consolidated balance sheets at December 31, 2022.

This financial instrument involved counterparty credit exposure.

The counterparty for the interest rate exchange was a major financial institution that met the Company’s criteria for financial stability and creditworthiness.

In order to mitigate counterparty default risk, should there be a significant difference in the market value of the swap components and/or the projected net interest payments, the Company or the counterparty could demand that collateral be pledged to cover the difference on each swap contract.

The Company was required to maintain $ 500,000 of collateral deposits with the counterparty at December 31, 2022.

The swap agreement resulted in a credit to the Company’s interest expense of approximately $ 321,000 for the nine months ended September 30, 2023 (this swap contract matured during April of 2023) and a charge to the Company’s interest expense of approximately $ 496,000 for the nine months ended September 30, 2022 (included with interest expense on deposits).

One-to-four-family residential

Construction and land development

Commercial and industrial

The Company closely monitors the performance of borrowers experiencing financial difficulty to understand the effectiveness of its loan modification efforts.

The Company did no t modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2024 and 2023.

Note 5 – Employee Benefits

Employee Pension Plan – The Company provides pension benefits through a defined benefit plan maintained with CBERA.

The Company’s Plan assets and liabilities are pooled together with those of other financial institutions;

therefore, the Company is not required to recognize the funded status of the plan in its balance sheet and need only accrue for any quarterly contributions due and payable on demand, or any withdrawal liabilities assessed by CBERA if the Company intended to withdraw from the Plan, which is not the Company’s intention at the present time.

The Company’s participation in the CBERA Plan C defined benefit plan for nine months ended September 30 is summarized below:

Bank’s Contributions for

Pension Protect Act Zone

the Nine Months

Ended September 30

September 30,

EIN/Plan Number

The Defined Benefit Plan (Plan C) of the CBERA Retirement Program

The Company’s contributions to the Plan in each of the two periods disclosed above exceeded 5 % of the total plan contributions.

Director Pension Plan – The Company has a director defined benefit pension plan, covering substantially all directors who have met the plan’s vesting requirements.

Employee Pension Plan – The Company provided pension benefits through a defined benefit plan maintained with the Co-operative Banks Employees Retirement Association (“CBERA”) (the “Plan”).

The Plan was a multi-employer plan whereby the contributions by each bank are not restricted to provide benefits to the employees of the contributing bank;

therefore, the Company is not required to recognize the funded status of the plan on its consolidated balance sheet and need only accrue for any quarterly contributions due and payable on demand, or any withdrawal liabilities assessed by CBERA if the Company intended to withdraw from the Plan.

The Company determined to freeze benefit accruals and withdraw from the CBERA Plan as of December 31, 2023.

For the three months ended March 31, 2024, an expense of $ 390,000 was recorded to reflect an increase in the liability related to the withdrawal from the Plan.

The increase was primarily driven by final computations for estimated payouts to participants.

In March 2024, the final increase to reflect the withdrawal liability was determined to be $ 390,000 .

The Company accrued for this amount at March 31, 2024 and withdrew from the Plan in the second quarter of 2024.

Director Pension Plan – The Company has a director defined benefit pension plan (“Director Pension Plan”), c overing directors who were in service prior to 2023 and have met the plan’s vesting requirements .

The Company’s liabilities for the Director Pension Plan are calculated by an independent actuary who used the “projected unit credit” actuarial method to determine the normal cost and actuarial liability.

The following schedule reflects the net periodic pension cost, contributions received, and benefits paid for the nine months ended September 30:

September 30, 2023

September 30, 2022

(In thousands)

Interest cost

Amortization of net actuarial losses

Amortization of prior service costs

Net periodic pension cost

Employer contribution

Benefits paid

The liability for the Director Pension Plan amounted to $ 5.8 million and $ 5.7 million as of March 31, 2024 and December 31, 2023, respectively, and are recorded on the consolidated balance sheets.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 181,000 and $ 200,000 for the three months ended March 31, 2024 and 2023, respectively.

The Company records an estimate of net periodic pension cost for the director pension plan to accrued retirement liabilities on the consolidated balance sheet on a quarterly basis.

Equity adjustments, to accumulated other comprehensive loss, in conjunction with the pension plan are recorded by the Company annually upon receipt of the independent actuarial report.

Note 8 – Regulatory Capital Requirements

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements.

Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices.

The Company’s capital amounts

and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Effective January 1, 2020, the federal banking agencies published a final rule on a Community Bank Leverage Ratio (“CBLR”) Framework that provides a simplified measure of capital adequacy for qualified community banking organizations.

Management has determined that the Company meets the standards to qualify under the CBLR framework and opted into this framework for FDIC call reporting purposes during 2020.

Under the CBLR framework, a bank that maintains a community bank leverage capital ratio of 9% (defined as Tier 1 capital divided by total average assets) is considered to have satisfied its capital requirements, determined to be well-capitalized, and will no longer be required to calculate risk-based capital ratios.

As of September 30, 2023 the Bank met the minimum requirement with a community bank leverage capital ratio of 9.13 %.

As of December 31, 2022, the Company did not meet the requirement for the CBLR framework due to its unfunded loan commitments being over 25.00% of its capital for more than two consecutive quarters.

As a result, the Company operated under the risk-based framework for the year ended December 31, 2022.

Under this framework, quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier I Capital and Common Equity Tier I Capital to Risk-Weighted Assets, and Tier I Capital to Total Average Assets (as defined in the regulations).

As of December 31, 2022, the Bank was categorized as well capitalized under this regulatory framework for prompt corrective action as presented in the table below.

To be well capitalized

For minimum capital

under prompt corrective

adequacy purposes

action provisions

December 31, 2022

Total Capital

(to Risk-Weighted Assets)

Tier I Capital

(to Risk-Weighted Assets)

Common Equity Tier I Capital

(to Risk-Weighted Assets)

Tier I Capital

(to Total Average Assets)

The Company’s consolidated capital ratios are consistent with the Bank’s regulatory capital ratios as reported above for September 30, 2023 and December 31, 2022.

Note 9 – Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk

Off-Balance Sheet Risk – 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, to disburse funds to borrowers on unused construction and land development loans, and to disburse funds on committed but unused lines of credit.

These financial agreements involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Commitments to originate loans and disburse additional funds to borrowers on lines of credit 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.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, is represented by the contractual amount of those instruments.

The Company uses the same credit policies

in making commitments and conditional obligations as it does for on-balance sheet instruments.

The commitments to originate loans and lines of credit may expire without being funded or drawn upon;

therefore, the total commitment amounts do not necessarily represent future cash requirements.

Financial instruments whose contract amounts represents off-balance sheet credit risk and are not reflected in the Company’s consolidated balance sheets consist of the following at the dates stated:

(In thousands)

September 30, 2023

Deferred Compensation Plans – During 2014, the Company put into place an unfunded, defined contribution, Non-qualified Deferred Compensation Plan (“Deferred Comp Plan”) for select employees of the Company.

The Deferred Comp Plan was provided to key management of the Company and results in 5 % - 20 % of the employee’s then current base salary being credited to the participant’s account annually, subject to increases based upon increases in annual base compensation and the possibility of additional discretionary contributions.

The employees vest at varying dates in accordance with each individual’s deferred compensation participation agreement;

however, all key officers will be fully vested upon the attainment of age 65.

The obligations under these plans are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 2.5 million and $ 2.4 million as of March 31, 2024 and December 31, 2023, respectively.

The expense under these plans (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 100,000 and $ 89,000 for the three months ended March 31, 2024 and March 31, 2023, respectively.

Long-Term Incentive Plan – In January 2020, the Company put into place a long-term incentive plan for certain members of its management team where benefits are awarded annually on a discretionary basis and cliff vest after three years .

Under this plan, individuals are granted “phantom shares” and benefits are accrued based upon the projected growth of the Bank’s capital.

The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $ 9.9 million and $ 11.1 million as of March 31, 2024 and December 31, 2023, respectively.

The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $ 1.4 million and $ 4.4 million for the three months ended March 31, 2024 and 2023, respectively.

401(k) Plan – The Company has an employee tax deferred incentive plan (the “401(k) plan”) under which the Company makes voluntary contributions within certain limitations.

All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan.

The amount contributed by the Company to the 401(k) Plan is included in salaries and employee benefits expense.

The amounts contributed to the 401(k) plan for the three months ended March 31, 2024 and 2023 were $ 619,000 and $ 522,000 , respectively.

Employment and Change in Control Agreements – The Company entered into employment agreements with the Chief Executive Officer and the Chief Operating Officer that renew for one additional year each January 1 st .

During 2024, the Company entered into Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements.

Employee Stock Ownership Plan – As part of the Initial Public Offering ("IPO") completed on December 27, 2023, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares.

The ESOP borrowed $ 47.2 million from the Company to purchase 3,416,458 common shares on the open market.

The loan is payable in annual installments over 20 years at an interest rate of 8.50 %.

As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants.

The unallocated ESOP shares are pledged as collateral on the loan.

The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation .

Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares in the accompanying consolidated balance sheets.

The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released.

To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to shareholders' equity.

As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability on the Company’s consolidated balance sheets.

Total compensation expense recognized in connection with the ESOP was $ 588,000 for the three months ended March 31, 2024.

The Company did not recognize any compensation expense related to the ESOP for the three months ended March 31, 2023.

The following table presents share information held by the ESOP:

March 31, 2024

December 31, 2023

Unused commitments to extend credit

Letters of credit

Concentrations of Credit Risk – The Company’s financial instruments that are exposed to concentrations of credit risk consist primarily of cash and cash equivalents, investment securities, loans receivable, bank owned life insurance, borrowings, deposits and derivative financial instruments.

Cash and Cash Equivalents - The Company’s cash and due from bank accounts are maintained in high credit quality financial institutions.

At times, such amounts on deposit at any one financial institution may be in excess of the FDIC insurance limits.

As of September 30, 2023, based on bank balances, the Company has no deposits in excess of federal-insured limits.

As of September 30, 2023, the Company has approximately $ 31.4 million of uninsured investments in Federal Funds sold, which are obligations of the Federal Reserve.

Investment Securities Available for Sale - The Company’s investment securities as of September 30, 2023 consist entirely of debt securities, primarily U.S.

Treasury Securities, Corporate Bonds, Municipal Obligations and other Agency Mortgage-Backed Obligations.

A full summary of the Company’s investment securities, of approximately $ 196.9 million as of September 30, 2023 and are classified as available for sale, is presented in Note 2.

Loans Receivable – The Company’s most significant group of assets is its loan portfolio of $ 3.68 billion, which represents approximately 87.79 % of total assets.

The majority of the Company’s loans, 64.61 %, are considered commercial loans, with 20 loans comprising 19.34 % of the total loan portfolio, and 30.67 % are considered residential real estate loans granted to customers in the metro-west area of Boston.

Most customers are also depositors of the Bank.

Of the unused commitments to extend credit as of September 30, 2023, 35.95 % is attributable to relationships with 15 borrowers.

The concentrations of credit by type of loan are set forth in Note 3 to these financial statements.

Bank Owned Life Insurance - The cash surrender values of bank owned life insurance policies approximates $ 50.1 million as of September 30, 2023, and relates to policies maintained with four reputable and sound life insurance companies.

Deposits – As of September 30, 2023, $ 263.9 million ( 8 % of total deposits) of the Company’s deposit obligations are with customers in the cannabis industry.

Borrowings – At September 30, 2023, all of the Company’s borrowings approximating $ 345.6 million, which is 8.94 % of total liabilities, are with the FHLB.

Derivative Financial Instruments - The Company’s derivative contracts, including collateral deposits, are held with several financial institution counterparties.

(Dollars in thousands)

Allocated shares

Shares committed to be released

Unallocated shares

Fair value of unallocated shares

Note 6 – Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures.

The Company records fair value adjustments to certain assets and liabilities and determines fair value disclosures utilizing a definition of fair value of assets and liabilities that states that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly

transaction between market participants.

Fair value is best determined using quoted market prices, however additional considerations are involved to determine the fair value of financial assets in markets that are not active.

Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability.

Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability developed based on market data obtained from independent sources, or unobservable, meaning those that reflect the reporting entity’s own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available to management.

Generally accepted accounting principles establish a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, and gives the highest priority to quoted prices in active markets for identical assets and liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

Level 1 – Observable inputs such as quoted prices in active markets.

Level 2 – Observable inputs other than Level 1 inputs such as quoted prices for similar assets or liabilities;

quoted prices in markets that are not active;

or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market data and are significant to the fair value measurement of the assets or liabilities.

Level 3 inputs include fair value measurements that use pricing models, discounted cash flow methodologies, or similar techniques, as well as significant management judgment or estimation.

The following describes the valuation techniques used by the Company to measure certain financial assets and liabilities recorded at fair value on a recurring basis in the financial statements.

Investment securities - Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 1 securities would include highly liquid government bonds (such as US Treasuries), mortgage products and exchange traded equities.

ASC 820-10, Fair Value Measurement – Overall , provides a framework for measuring fair value under U.S.

This guidance also allows the Company the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.

In accordance with ASC 820-10, Fair Value Measurement – Overall , the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.

Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange.

Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.

Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets.

Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.

Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions.

Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.

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 for March 31, 2024 and December 31, 2023.

Available-for-sale investment securities – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy.

Level 1 securities would include highly liquid government bonds (such as U.S.

Treasuries), mortgage products and exchange traded equities.

If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows.

2 unchanged sentences

In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.

The carrying value of restricted FRB and FHLB stock approximates fair value based upon the redemption provisions of each entity and is therefore excluded from the following table.

Derivative arrangements – The fair values of derivative arrangements are estimated by the Company using a third-party derivative valuation expert who relies on Level 2 inputs, namely interest cash flow models to determine a fair value by calculating a settlement termination value with the counterparty.

Assets measured and reported at estimated fair value on a recurring basis are summarized below (in thousands):

September 30, 2023

Assets - Available-for-sale securities

Assets measured and reported at estimated fair value on a recurring basis are summarized below:

March 31, 2024

(in thousands)

Available-for-sale debt securities:

Treasury securities

Government agencies

Agency mortgage-backed securities

2 unchanged sentences

Municipal obligations

Total available-for-sale debt securities

Derivative assets

1 unchanged sentence

December 31, 2023

Assets - Available-for-sale securities

(in thousands)

Available-for-sale debt securities:

Treasury securities

3 unchanged sentences

Municipal obligations

Interest rate swap (cash flow hedge)

Total available-for-sale debt securities

Derivative assets

Derivative liabilities

The Company purchased $ 3.0 million in level 3 subordinated debentures during the nine months ended September 30, 2022.

There were no purchases during the period ended September 30, 2023.

There were no sales, transfers or changes in fair value of level 3 assets during the period ended September 30, 2023 or 2022.

The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with generally accepted accounting principles.

The Company had no purchases, sales, transfers or changes in fair value of level 3 assets during the three months ended March 31, 2024 and 2023.

The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with GAAP.

Any adjustments to fair value usually result in write-downs of individual assets.

7 unchanged sentences

Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3).

Fair value adjustments are recorded in the period incurred as provision for credit losses on the consolidated statements of operations.

Fair value adjustments are recorded in the period incurred as provision for credit losses in the consolidated statements of income.

Mortgage Servicing Rights – Mortgage servicing rights do not trade in an active market with readily observable market data.

5 unchanged sentences

The following table summarizes assets measured at fair value on a non-recurring basis:

September 30, 2023

March 31, 2024

(in thousands)

3 unchanged sentences

(in thousands)

Impaired Loans - Pre-ASC 326

Collateral-dependent loans

Mortgage servicing rights

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2023 and December 31, 2022, the significant unobservable inputs used in the fair value measurements were as follows:

Collateral-dependent (previously known as impaired loans)

For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2024 and December 31, 2023, the significant unobservable inputs used in the fair value measurements were as follows:

Collateral-dependent loans

Appraisal Value/ Comparison Sales

5 unchanged sentences

Weighted average discount rate - 12 % Constant prepayment rate – 6.16 %

Fair Value of Financial Instruments – The following table includes the estimated fair value of the Company’s financial assets and financial liabilities.

The methodologies for estimating the fair value of financial assets and financial liabilities measured on a recurring and nonrecurring basis are discussed above.

The methodologies for estimating the fair value for other financial assets and financial liabilities are discussed below.

The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies.

However, considerable judgment is required to interpret market data in order to develop the estimates of fair value.

Accordingly, the estimates presented below are not necessarily indicative of the amounts the Company could realize in a current market exchange.

The use of different market assumptions and/or estimation techniques may have a material effect on the estimated fair value amounts at September 30, 2023 and December 31, 2022.

ASC Topic 825, Financial Instruments , 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 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 Topic 825, Financial Instruments , 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.

For March 31, 2024 and December 31, 2023, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.

The following tables present the estimated fair values, related carrying amounts, and valuation level of the financial instruments as of the dates stated:

September 30, 2023

Fair Value Measurements

(Dollars in thousands)

March 31, 2024

(In thousands)

Financial Assets:

Cash and cash equivalents

Non-public investments

Loans receivable, net

Accrued interest receivable

Bank owned life insurance "BOLI"

Federal Home Loan Bank stock

Federal Reserve Bank stock

Non-public investments

Bank-owned life insurance ("BOLI")

Financial Liabilities:

Noninterest-bearing demand deposits

Savings, NOW and money markets

Deposits, other than time deposits

Time deposits

1 unchanged sentence

December 31, 2023

Fair Value Measurements

(Dollars in thousands)

(In thousands)

Financial Assets:

Cash and cash equivalents

Non-public investments

Loans receivable, net

Accrued interest receivable

Bank owned life insurance

Federal Home Loan Bank stock

Federal Reserve Bank stock

Non-public investments

Bank-owned life insurance ("BOLI")

Financial Liabilities:

Noninterest-bearing demand deposits

Savings, NOW and money markets

Deposits, other than time deposits

Time deposits

FHLB Borrowings

Cash and cash equivalents – The carrying amount approximates fair value for these instruments.

Non-public investments – Non-public investments are carried at original cost basis, as cost or accounted for using the equity method.

This approximates fair value as there is no ready market for such investments.

Loans receivable, net – Fair values are estimated for portfolios of loans with similar financial characteristics if collateral dependent.

Loans are segregated by type.

The fair value of performing loans is calculated by discounting scheduled cash flows through the estimated maturity using estimated market discount rates that reflect observable market information incorporating the credit, liquidity, yield and other risks inherent in the loan.

The estimate of maturity is based upon the Company’s historical experience with repayments for each loan classification, modified, as required, by an estimate of the effect of the current economic and lending conditions.

Fair value for significant non-performing loans is generally based upon recent external appraisals.

If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows.

Assumptions regarding credit risk, cash flows and discounted rates are judgmentally determined using available market information and specific borrower information.

Accrued interest receivable – The carrying amount approximates fair value for these instruments.

Bank owned life insurance – Bank owned life insurance is carried at net cash surrender value of the polices which approximates fair value since that is the approximate liquidation value of these assets.

Deposits – The fair value of deposits with no stated maturity date, such as noninterest-bearing demand deposits, savings, NOW and money market accounts, is based on the carrying value.

The fair value of time deposits is based upon the discounted value of contractual cash flows.

The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities.

Federal Home Loan Bank borrowings – Fair value is estimated based on discounted cash flows using current market rates for borrowing with similar terms.

Note 7 – Commitments and Contingencies

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 agreements involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheet.

The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.

Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

The Company evaluates each customer’s creditworthiness on a case-by-case basis.

The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.

The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

The commitments to originate loans and lines of credit may expire without being funded or drawn upon;

therefore, the total commitment amounts do not necessarily represent future cash requirements.

Standby letters of credit are conditional commitments issued by the Company to guarantee the 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.

As of March 31, 2024 and December 31, 2023, the maximum potential amount of the Company’s obligation was $ 7.3 million and $ 7.5 million, respectively, for standby letters of credit.

The Company’s outstanding letters of credit generally have a term of less than one year.

If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit.

If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.

Financial instruments whose contract amounts represents off-balance sheet credit risk and are not reflected on the Company’s consolidated balance sheets consist of the following at the dates stated:

March 31, 2024

December 31, 2023

(In thousands)

Commitments to originate loans

Unadvanced funds on lines of credit

Unadvanced funds on construction loans

Letters of credit

The Bank accrues for credit losses related to off-balance sheet financial instruments.

Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur.

The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $ 6.6 million and $ 6.0 million as of March 31, 2024 and December 31, 2023, respectively.

For the three months ended March 31, 2024, a provision for unfunded commitments of $ 539,000 was recorded.

No provision for unfunded commitments was recorded during the three months ended March 31, 2023.

Note 8 – Derivatives and Hedging Activities

4 unchanged sentences

The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s assets and liabilities.

Fair Value Hedges of Interest Rate Risk –The Company is exposed to changes in the fair value of certain of its pools of pre-payable fixed-rate assets due to changes in benchmark interest rates.

Fair Value Hedges of Interest Rate Risk – The Company is exposed to changes in the fair value of certain pools of its pre-payable fixed-rate assets due to changes in benchmark interest rates.

The Company uses interest rate swap agreements to manage its exposure to changes in the fair value of these instruments attributable to changes in the designated benchmark interest rate.

Interest rate swap agreements 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 agreements without the exchange of the underlying notional amount.

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.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in interest income.

The Company had previously entered into two “last of layer hedges” on a significant portion of its fixed rate residential loan pool.

2 unchanged sentences

These fees were capitalized into loans receivable and are being amortized against loan income over the contractual lives of the remaining designated residential loans.

The unamortized amount of this cost basis adjustment is $ 1.1 million and $ 1.2 million at September 30, 2023 and December 31, 2022, respectively.

The unamortized amount of this cost basis adjustment is $ 1.0 million and $ 1.0 million at March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company recognized amortization expense related to this cost basis adjustment of $ 24,000 and $ 31,000 , respectively.

Non-designated Hedges – Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting.

2 unchanged sentences

Those interest rate swap and cap agreements are simultaneously hedged by offsetting interest rate swaps and caps that are executed with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.

As of September 30, 2023, the Company had 48 interest rate swap agreements with an aggregate notional amount of $ 346.3 million related to this program.

As of December 31, 2022, the Company had 36 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 263.9 million related to this program.

As of March 31, 2024, the Company had 54 interest rate swap agreements with an aggregate notional amount of $ 340.9 million compared to 52 interest rate swap agreements and one interest rate cap agreement with an aggregate notional amount of $ 338.6 million related to this program as of December 31, 2023.

Risk Participation Agreements – Risk Participation Agreements (“RPAs”) are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party.

7 unchanged sentences

Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer.

As of September 30, 2023, the Company had 15 RPAs with an aggregate notional amount of $ 44.1 million related to this program compared to 8 RPAs with an aggregate notional amount of $ 31.4 million as of December 31, 2022.

As of March 31, 2024, the Company had 17 RPAs with an aggregate notional amount of $ 45.0 million related to this program compared to 16 RPAs with an aggregate notional amount of $ 44.5 million as of December 31, 2023.

These RPAs all represent “participations-in” and generally have terms ranging from five to ten years .

Tabular Disclosure of Fair Values of Derivative Instruments on the Balance Sheet – The table below presents the fair value of the Company’s derivative financial instruments not designated as hedging instruments, as well as their classification on the consolidated balance sheets as of the dates stated (in thousands):

September 30, 2023

Derivatives (1)

Derivatives (2)

The table below presents the fair value of the Company’s derivative financial instruments not designated as hedging instruments, as well as their classification on the consolidated balance sheets as of the dates stated:

Liabilities (2)

March 31, 2024

(in thousands)

Derivatives not designated as hedging instruments:

7 unchanged sentences

Total derivatives not designated as hedging instruments

(1) Recorded in prepaid expenses and other assets in the consolidated balance sheets

(2) Recorded in accrued expenses and other liabilities in the consolidated balance sheets

The table below presents the financial impact of the Company’s derivative financial instruments not designated as hedges to the consolidated statements of income, caused by changes in fair value and default termination fees paid on the swap arrangements for the nine months ended September 30 (in thousands):

(1) Recorded in prepaid expenses and other assets on the consolidated balance sheets.

(2) Recorded in accrued expenses and other liabilities on the consolidated balance sheets.

The table below presents the financial impact of the Company’s derivative financial instruments not designated as hedges in the consolidated statements of income, caused by changes in fair value for the periods indicated:

Location of Gain or (Loss)

Nine Months ended September 30

Three months ended March 31,

in Income on Derivative

(in thousands)

Derivatives Not Designated as Hedging Instruments:

1 unchanged sentence

Other non-interest income

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 2.1 million and $ 1.3 million for the nine months ended September 30, 2023 and 2022, respectively.

declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty.

Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $ 487,000 and $ 95,000 for the three months ended March 31, 2024 and 2023, respectively.

The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty.

The Company also has agreements with certain of its derivative counterparties that contain a provision whereby if the counterparty fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty.

In order to mitigate counterparty default risk in conjunction with these interest rate products and RPA credit contracts, the Company was required to maintain $ 9.1 million of collateral deposit accounts with the counterparties to these agreements as of September 30, 2023 compared to $ 8.6 million required at December 31, 2022.

Note 12 – Other Comprehensive Income

The components of the Company’s “Accumulated Other Comprehensive Income”, along with the changes during the dates stated (net of deferred income tax effects), are as follows (in thousands):

Unrealized Gain

Total Accumulated

(Loss) on AFS

(Loss) on Cash

Other Comprehensive

Income (Loss)

Balances at December 31, 2021

Other comprehensive (losses) income, net of taxes

Balances at September 30, 2022

Balances at December 31, 2022

Other comprehensive income (losses), net of taxes

Balances at September 30, 2023

The following table presents a reconciliation of the changes in the components of “other comprehensive income” and the reclassifications out of “accumulated other comprehensive income” (in thousands):

Nine Months Ended September 30, 2022

Unrealized Gains (Losses) on AFS Securities:

Unrealized holding losses arising during the year

Unrealized Gains (Losses) on Cash Flow Hedge:

Unrealized holding gains arising during the year

Total other comprehensive loss

Nine Months Ended September 30, 2023

Unrealized Gains (Losses) on AFS Securities:

Unrealized holding gains arising during the year

Unrealized Gains (Losses) on Cash Flow Hedge:

Unrealized holding losses arising during the year

Total other comprehensive income

Note 13 – Litigation Matters

Various legal claims arise from time to time in the normal course of business which, in the opinion of management, will not have a material effect on the Company’s consolidated financial statements.

Note 14 – Purchase and Assumption Agreement

On January 14, 2022, Needham Bank entered into a purchase and assumption agreement with Eastern Bank for the transfer of Eastern Bank’s cannabis and money service banking businesses.

As part of the agreement, customer relationships transitioned to Needham Bank on April 1, 2022.

The Eastern Bank team that served this customer base transitioned to Needham Bank and are now employed at the Company’s new branch location in Medford, therefore the Company treated this as a business combination.

Approximately $ 297.7 million in deposits transitioned from Eastern Bank to Needham Bank.

Also, as a result of this transaction Needham Bank recognized a core deposit intangible of approximately $ 1.5 million as well as a corresponding after-tax bargain purchase gain of approximately $ 1.1 million.

The core deposit intangible is being amortized over a 10 -year period resulting in an annual amortization expense of $ 149,000 .

Note 15 – Employee Retention Tax Credit Claims

During the first quarter of 2023, the Company made a determination that it was eligible to claim Employee Retention Tax Credits (ERTC) in the form of refunds of certain federal employment taxes as authorized and established under the CARES Act.

As a result, in 2023 the Company filed amended employment tax returns for certain periods in 2021 to claim refunds related to the ERTC in the approximate amount of $ 3.5 million.

At September 30, 2023 a receivable was recorded for this amount on the Company’s balance sheet (included in “prepaid expenses and other assets”) via a credit to non-interest income in the 2023 statement of income.

The full amount is outstanding as of September 30, 2023.

The balance of the receivable has been received subsequent to September 30, 2023.

Eligibility and qualification to file a claim for the ERTC is self-determined.

Regardless of whether ERTC claims are pending payment by the IRS or have already been received by the taxpayer, Congress has extended the time by which the IRS could audit ERTC claims from three years to five .

Note 16 – Recently Issued Accounting Pronouncements

The following is a summary of recent authoritative announcements:

In June 2022, the FASB issued ASU 2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions”.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The ASU is effective for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023.

Early adoption is permitted.

The Company does not expect the adoption of ASU 2022-03 to have a material impact on its consolidated financial statements.

In March 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No.

2022-02, “Financial Instruments-Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures.” ASU 2022-02 addresses areas identified by the FASB as part of its post-implementation review of the credit losses standard (ASU 2016-13) that introduced the CECL model.

The amendments eliminate the accounting guidance for troubled debt restructurings by creditors that have adopted the CECL model and enhance the disclosure requirements for loan refinancings and restructurings made with borrowers experiencing financial difficulty.

In addition, the amendments require a public business entity to disclose current-period gross write-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures.

The amendments in this ASU should be applied prospectively, except for the transition method related to the recognition and measurement of TDRs, an entity has the option to apply a modified retrospective transition method, resulting in a cumulative-effect adjustment to retained earnings in the period of adoption.

For entities that have adopted ASU 2016-13, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years.

For entities that have not yet adopted ASU 2016-13, the effective dates for ASU 2022-02 are the same as the effective dates in ASU 2016-13.

Early adoption is permitted if an entity has adopted ASU 2016-13.

An entity may elect to early adopt the amendments about TDRs and related disclosure enhancements separately from the amendments related to vintage disclosures.

The Company adopted this guidance on January 1, 2023 and it did not have a material impact on the consolidated financial statements.

In December 2022, the FASB issued ASU 2022-06, “Reference Rate Reform (Topic 848):

Deferral of the Sunset Date of Topic 848”.

ASU 2022-06 extends the period of time preparers can utilize the reference rate reform relief guidance in Topic 848.

The objective of the guidance in Topic 848 is to provide relief during the temporary transition period, so the FASB included a sunset provision within Topic 848 based on expectations of when the London Interbank Offered Rate (LIBOR) would cease being published.

In 2021, the UK Financial Conduct Authority (FCA) delayed the intended cessation date of certain tenors of USD LIBOR to June 30, 2023.

To ensure the relief in Topic 848 covers the period of time during which a significant number of modifications may take place, the ASU defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

The ASU is effective for all entities upon issuance.

The Company is assessing ASU 2022-06 and its impact on the Company’s transition away from LIBOR for its loan and other financial instruments that have not already been transitioned to an alternative reference rate.

In July 2023, the Financial Accounting Standards Board (FASB) issued ASU 2023-03, “Presentation of Financial Statements (Topic 205), Income Statement—Reporting Comprehensive Income (Topic 220), Distinguishing Liabilities from Equity (Topic 480), Equity (Topic 505), and Compensation—Stock Compensation (Topic 718)”.

This ASU amends the FASB Accounting Standards Codification for SEC paragraphs pursuant to SEC Staff Accounting Bulletin No.

120, SEC Staff Announcement at the March 24, 2022 EITF Meeting, and Staff Accounting Bulletin Topic 6.B, Accounting Series Release 280—General Revision of Regulation S-X:

Income or Loss Applicable to Common Stock.

ASU 2023-03 is effective upon addition to the FASB Codification.

The Company does not expect the adoption of ASU 2023-03 to have a material impact on its consolidated financial statements.

Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

Note 17 - Plan of Conversion

On June 7, 2023, the Boards of Directors of the NB Financial, MHC (the “MHC”), NB Financial, Inc.

and Needham Bank adopted a Plan of Conversion under which the MHC would convert from the mutual holding company to the stock holding company form of organization.

In connection with the conversion, NB Bancorp, Inc.

(the “Company”) was formed and, upon consummation of the conversion will become the bank holding company of Needham Bank and the MHC and NB Financial, Inc.

will cease to exist.

The Plan of Conversion is subject to the approval of various regulatory agencies.

The Plan of Conversion was approved by the required vote of more than two -thirds of the Bank’s depositors present and voting at a special meeting of depositors held on July 26, 2023.

The Plan of Conversion also includes the filing of a registration statement with the U.S.

Securities and Exchange Commission.

If such approvals and non-objections are obtained, the Company will issue and sell shares of its common stock in a subscription offering to eligible depositors of the Bank, tax-qualified employee benefit plans established by the Bank or Company, and other eligible subscribers, and, if necessary, in a community offering to the public.

The cost of conversion and issuing the capital stock will be deferred and deducted from the proceeds of the offering.

In the event the conversion and offering are not completed, any deferred costs will be charged to operations.

As of September 30, 2023, the MHC had incurred approximately $ 1.8 million in conversion costs, which are included in prepaid expenses and other assets on the respective consolidated balance sheets.

There were no expenses incurred as of December 31, 2022.

In connection with the conversion, liquidation accounts will be established by the Company and the Bank in an aggregate amount equal to (i) the MHC’s ownership interest in the shareholders’ equity of NB Financial, Inc.

before the consummation of the Conversion (excluding the MHC’s ownership interest in NB Financial, Inc.).

Each eligible account holder and supplemental eligible account holder is entitled to a proportionate share of the liquidation accounts in the event of a liquidation of (i) the Company and the Bank or (ii) the Bank, and only in such events.

The liquidation account will never be increased despite any increase after conversion in the related deposit balance.

The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

As part of the Plan of Conversion, the Bank intends to establish and fund a charitable foundation (the “Foundation”).

The Foundation will be funded with $ 2,000,000 in cash and a number of shares of Company common stock equal to 4 % of the shares that will be outstanding immediately after the contribution.

Note 9 – Other Comprehensive Income (Loss)

Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income.

Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income (loss).

The components of other comprehensive income (loss) and related tax effects are as follows for the three months ended March 31, 2024 and 2023:

For the Three Months Ended

March 31, 2024

March 31, 2023

(In thousands)

Tax (Expense)

Change in fair value of available-for-sale securities

Reclassification adjustment for realized gains in net income

Net change in fair value of available-for-sale securities

Change in fair value of cash flow hedge

Net cash flow hedge gains (losses) reclassified into interest income or interest expense

Net change in fair value of cash flow hedge, net of tax

Total other comprehensive income (loss)

The following table presents the components of accumulated other comprehensive loss as of March 31, 2024 and December 31, 2023:

March 31, 2024

December 31, 2023

(In thousands)

Net unrealized holding losses on securities available-for-sale, net of tax

Unrecognized director pension plan benefits, net of tax

Total accumulated other comprehensive loss

Note 10 – Regulatory Capital Requirements

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.

The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Management had determined that the Company meets the standards to qualify under the CBLR framework and opted into this framework for FDIC call reporting purposes during 2020.

Under the CBLR framework, a bank that maintains a CBLR of 9% (defined as Tier 1 capital divided by total average assets) is considered to have satisfied its capital requirements, determined to be well-capitalized, and will no longer be required to calculate risk-based capital ratios.

As of December 31, 2023 the Bank met the minimum requirement with a CBLR of 13.6 %.

As of March 31, 2024, the Company did not meet the requirement for the CBLR framework due to its unfunded loan commitments being over 25.00% of its capital for more than two consecutive quarters.

As a result, the Company operated under the risk-based framework for the three months ended March 31, 2024.

Under this framework, quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to Risk-Weighted Assets, and Tier 1 Capital to Total Average Assets (as defined in the regulations).

Management believes, as of March 31, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.

As of March 31, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action.

To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.

There are no conditions or events since that notification that management believes have changed the Bank’s category.

The Bank’s actual capital amounts and ratios are presented in the table as of the dates indicated:

To be well capitalized

For minimum capital

under prompt corrective

adequacy purposes

action provisions

March 31, 2024

(in thousands)

Total Capital

(to Risk-Weighted Assets)

Tier 1 Capital

(to Risk-Weighted Assets)

Common Equity Tier I Capital

(to Risk-Weighted Assets)

Tier 1 Capital

(to Total Average Assets)

The Company’s consolidated capital ratios are consistent with the Bank’s regulatory capital ratios as reported above for March 31, 2024 and December 31, 2023.

Note 11 – Earnings Per Share (“EPS”)

Basic EPS represents net income available to common shareholders divided by the weighted-average number of common shares outstanding during the period.

Diluted earnings per share have been calculated in a manner similar to that of basic earnings per share except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method.

There were no securities that had a dilutive effect during the three months ended March 31, 2024 and 2023.

Unallocated ESOP shares are not deemed outstanding for earnings per share calculations.

For the Three Months Ended

(Dollars in thousands, except per share data)

Net income applicable to common shares

Average number of common shares outstanding

average unallocated ESOP shares

( 3,016,085 )

Average number of common shares outstanding used to calculate basic EPS

Common stock equivalents

Average number of common shares outstanding used to calculate diluted EPS

Earnings per common share:

Basic and diluted

For the three months ended March 31, 2024, there were no anti-dilutive shares.

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 1. Financial Statements