Item 2. Management’s Discussion and Analysis
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s discussion and analysis of the financial condition and results of operations at and for the three and nine months ended September 30, 2024 and 2023 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
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● statements regarding the quality of our loan portfolio; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● weakening in the United States economy in general and the regional and local economies within the Company’s market area;
● the effects of inflationary pressures, labor market shortages and/or supply chain issues;
● the instability or volatility in financial markets and unfavorable general business conditions, globally, nationally or regionally, whether caused by geopolitical concerns, recent disruptions in the banking industry, or other factors;
● unanticipated loan delinquencies, loss of collateral, decreased service revenues, and other potential negative effects on our business caused by severe weather, pandemics or other external events;
● changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses on loans;
● the effect of any change in federal government enforcement of federal laws affecting the cannabis industry;
● changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
● our ability to access cost-effective funding;
● fluctuations in real estate values and both residential and commercial real estate market conditions;
● demand for loans and deposits in our market area;
● our ability to implement and change our business strategies;
● competition among depository and other financial institutions;
● adverse changes in the securities or secondary mortgage markets;
● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
● changes in the quality or composition of our loan or investment portfolios;
● technological changes that may be more difficult or expensive than expected;
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● the inability of third-party providers to perform as expected;
● a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
● our ability to manage market risk, interest rate risk, credit risk, compliance risk, and operational risk;
● our ability to enter new markets successfully and capitalize on growth opportunities;
● changes in consumer spending, borrowing and savings habits;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
● our ability to attract and retain key employees; and
● changes in the financial condition, results of operations or future prospects of issuers of securities that we own.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.
Critical Accounting Policies
There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 28, 2024.
Allowance for Credit Losses
The Company estimates the allowance for credit losses in accordance with the CECL methodology for loans measured at amortized cost. The allowance for credit losses is established based upon the Company's current estimate of expected lifetime credit losses. Arriving at an appropriate amount of allowance for credit losses involves a high degree of judgment.
The Company estimates credit losses on a collective basis for loans sharing similar risk characteristics using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast risk and model risk inherent in the quantitative model output. Management's judgement is required for the selection and application of these factors which are derived from historical loss experience as well as assumptions surrounding expected future losses and economic forecasts.
Loans that no longer share similar risk characteristics with any pools of assets are subject to individual assessment and are removed from the collectively assessed pools to avoid double counting.
For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach or a fair value of collateral approach. The latter approach is used for loans deemed to be collateral dependent or when foreclosure is probable. Changes in these judgements and assumptions could be due to a number of circumstances which may have a direct impact on the provision for credit losses and may result in changes to the amount of allowance. The allowance for credit losses is increased by the provision for credit losses and by recoveries of loans previously charged off. Credit losses are charged against the allowance when management's assessments confirm that the Company will not collect the full amortized cost basis of a loan.
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Income Taxes
We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets and liabilities, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.
Securities Valuation
We classify our debt securities as available-for-sale, which are carried at fair value. We obtain our fair values from one or more third-party services. These services’ fair value calculations are based on quoted market prices when such prices are available.
If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows.
For any available-for-sale debt security with a fair value less than its amortized cost basis, we will determine whether we have the intent to sell the available-for-sale debt security or whether it is more likely than not we will be required to sell the available-for-sale debt security before the recovery of its amortized cost basis. If either condition is met, the Company will recognize a full impairment charge to earnings. For all other available-for-sale debt securities that don't meet either condition and that have expected credit losses, the credit loss will be recognized in earnings. Any non-credit related loss impairment related to all other factors will be recorded in other comprehensive income (loss). Management also assesses the nature of the unrealized losses taking into consideration factors such as changes in risk-free interest rates, general credit spread changes, market supply and demand, creditworthiness of the issuer, and quality of the underlying collateral.
Non-GAAP Financial Measures
In addition to results presented in accordance with U.S. GAAP, this quarterly report on Form 10-Q contains certain non-GAAP financial measures, including operating net income, operating noninterest expense, operating noninterest income, operating earnings per share, basic, operating earnings per share, diluted, operating return on average assets, operating return on average shareholders’ equity, operating efficiency ratio, tangible shareholders’ equity, tangible assets, tangible book value per share, and efficiency ratio. The Company’s management believes that the supplemental non-GAAP information is utilized by regulators and market analysts to evaluate a Company’s financial condition and therefore, such information is useful to investors. These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.
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NB BANCORP, INC.
NON-GAAP RECONCILIATION
(Unaudited)
(Dollars in thousands)
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Net income (GAAP)
$
8,383
$
8,467
$
26,537
$
23,444
Add (Subtract):
Adjustments to net income:
Losses on sales of securities available for sale, net
1,868
-
1,868
-
Income tax expense on solar tax credit investment basis reduction
2,503
-
2,503
-
BOLI surrender tax and managed endowment contract penalty
1,552
-
1,552
-
Adjustment for adoption of ASU 2023-02
(913)
-
(913)
-
Total adjustments to net income
$
5,010
$
-
$
5,010
$
-
Less net tax benefit associated with losses on sales of securities available for sale, net and reversal of previously taken
amortization of solar tax credit investments
277
-
277
-
Non-GAAP adjustments, net of tax
4,733
-
4,733
-
Operating net income (non-GAAP)
$
13,116
$
8,467
$
31,270
$
23,444
Weighted average common shares outstanding, basic
39,289,271
N/A
39,423,214
N/A
Weighted average common shares outstanding, diluted
39,289,271
N/A
39,423,214
N/A
Operating earnings per share, basic (non-GAAP)
0.33
N/A
0.79
N/A
Operating earnings per share, diluted (non-GAAP)
0.33
N/A
0.79
N/A
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Noninterest expense (GAAP)
$
24,586
$
23,088
$
76,367
$
68,459
Subtract (Add):
Noninterest expense components:
Adjustment for adoption of ASU 2023-02
(913)
-
(913)
-
Total impact of non-GAAP noninterest expense adjustments
$
(913)
$
-
$
(913)
$
-
Noninterest expense on an operating basis (non-GAAP)
$
25,499
$
23,088
$
77,280
$
68,459
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Noninterest income (GAAP)
$
1,265
$
3,138
$
7,750
$
12,101
Subtract (Add):
Noninterest income components:
Losses on sales of securities available for sale, net
(1,868)
-
(1,868)
-
Total impact of non-GAAP noninterest income adjustments
$
(1,868)
$
-
$
(1,868)
$
-
Noninterest income on an operating basis (non-GAAP)
$
3,133
$
3,138
$
9,618
$
12,101
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Operating net income (non-GAAP)
$
13,116
$
8,467
$
31,270
$
23,444
Average assets
4,890,204
4,133,146
4,697,200
3,854,877
Operating return on average assets (non-GAAP)
1.07%
0.81%
0.89%
0.81%
Average shareholders’ equity
754,609
363,469
743,251
355,751
Operating return on average shareholders' equity (non-GAAP)
6.91%
9.24%
5.62%
8.81%
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For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Total shareholders’ equity (GAAP)
$
747,449
$
365,701
$
747,449
$
365,701
Subtract:
Intangible assets (core deposit intangible)
1,116
1,265
1,116
1,265
Total tangible shareholders’ equity (non-GAAP)
746,333
364,436
746,333
364,436
Total assets (GAAP)
5,002,557
4,231,792
5,002,557
4,231,792
Subtract:
Intangible assets (core deposit intangible)
1,116
1,265
1,116
1,265
Total tangible assets (non-GAAP)
$
5,001,441
$
4,230,527
$
5,001,441
$
4,230,527
Tangible shareholders' equity / tangible assets (non-GAAP)
14.92%
8.61%
14.92%
8.61%
Total common shares outstanding
42,705,729
N/A
42,705,729
N/A
Tangible book value per share (non-GAAP)
$
17.48
$
N/A
$
17.48
$
N/A
For the Three Months Ended
For the Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Noninterest expense on an operating basis (non-GAAP)
$
25,499
$
23,088
$
77,280
$
68,459
Total revenue (net interest income plus total noninterest income) (non-GAAP)
44,457
36,622
128,296
108,544
Operating efficiency ratio (non-GAAP)
57.36%
63.04%
60.24%
63.07%
Comparison of Financial Condition as of September 30, 2024 and December 31, 2023
Total Assets. Total assets increased $469.1 million, or 10.3%, to $5.00 billion as of September 30, 2024 from $4.53 billion as of December 31, 2023. The increase was primarily driven by increases in net loans, BOLI, cash and cash equivalents and available-for-sale securities.
Cash and Cash Equivalents. Cash and cash equivalents increased $44.5 million, or 16.3%, to $317.0 million as of September 30, 2024 from $272.6 million as of December 31, 2023. The increase in cash and cash equivalents was due to deposit growth outpacing loan and investment growth, offset partially by paydowns of FHLB borrowings, purchases of BOLI policies and increases in prepaid and other assets.
Securities Available for Sale. Securities available for sale increased $13.1 million, or 6.9%, to $202.5 million as of September 30, 2024 from $189.5 million as of December 31, 2023 due to purchases of U.S. treasuries, government agency and corporate bond debt securities. The Company sold $29.3 million in available-for-sale debt securities during the three and nine months ended September 30, 2024 with the proceeds reinvested into higher-yielding available-for-sale debt securities, which were restructured to mitigate portfolio risk and increase yield.
Loans. Net loans increased $354.4 million, or 9.2%, to $4.21 billion as of September 30, 2024 from $3.86 billion as of December 31, 2023. The increase resulted primarily from increases in: commercial real estate loans, which increased $110.1 million, or 9.4%; commercial and industrial loans, which increased $75.0 million, or 15.3%; multi-family residential loans, which increased $62.6 million, or 29.8%; construction and development loans which increased $44.1 million, or 7.1%; consumer loans, which increased $29.6 million, or 14.4%; and one-to-four family residential loans, which increased $26.5 million, or 2.4%. The increase in our loan portfolio reflects our strategy to prudently grow the balance sheet by continuing to diversify into these higher-yielding loans to improve net margins and manage interest rate risk.
The Company had approximately $458.0 million and $365.9 million in loans to borrowers in the cannabis industry at September 30, 2024 and December 31, 2023, respectively. Of that total, $301.9 million and $207.7 million were direct loans to cannabis companies and were collateralized by real estate at September 30, 2024 and December 31, 2023, respectively.
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FHLB Stock. The FHLB is a cooperative bank that provides services to its member financial institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. We held an investment in FHLB stock of $6.8 million and $14.6 million as of September 30, 2024 and December 31, 2023, respectively.
The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. Accordingly, the decrease in the FHLB stock from December 31, 2023 to September 30, 2024 is due to the decrease in FHLB borrowings.
BOLI. During the three and nine months ended September 30, 2024, the Company surrendered $46.7 million of existing BOLI policies that were earning an annualized yield of 3.08%. Prior to the surrender of the policies, the Company purchased an additional $50.0 million of BOLI policies, which are currently yielding 4.81%. As a result of the surrender of the BOLI policies, the Company incurred $1.6 million of income tax and penalty, which the Company expects to earn back in less than two years. The insurance carriers have six months to pay out the proceeds from the surrendered policies, and as a result, the Company expects BOLI to be at higher balances and to continue earning income related to the increase in cash surrender value until the proceeds are received, which will further shorten the earn-back period on the income tax and penalty amount.
Prepaid Expenses and Other Assets. Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases, income taxes receivables and derivatives with a positive fair value. These assets increased $21.4 million, or 40.4%, to $74.6 million as of September 30, 2024 from $53.1 million as of December 31, 2023. The increase resulted primarily from an $18.9 million increase in income taxes receivables as a result of earned solar income tax credits and a $2.4 million increase in right of use assets resulting from a lease extension.
Deposits. Deposits increased $655.5 million, or 19.4%, to $4.04 billion as of September 30, 2024 from $3.39 billion as of December 31, 2023. Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $509.1 million, or 15.9%, to $3.71 billion as of September 30, 2024 from $3.20 billion as of December 31, 2023. The increase in deposits was the result of growth in customer deposits, primarily certificates of deposit, which increased $360.1 million, or 27.4%, from December 31, 2023, along with money market accounts and noninterest-bearing demand deposit accounts, which increased $147.4 million, or 16.6%, and $32.4 million, or 6.1%, respectively, from December 31, 2023. Additionally, brokered deposits increased $146.3 million, or 79.7%, from December 31, 2023, as a result of lower rates versus alternative funding sources and to support overall liquidity.
The Company had $302.3 million and $277.5 million in deposits from the cannabis industry as of September 30, 2024 and December 31, 2023, respectively.
FHLB Borrowings. FHLB borrowings decreased $167.0 million, or 58.9%, to $116.3 million as of September 30, 2024 from $283.3 million as of December 31, 2023. The decrease in FHLB borrowings was the result of overall deposit growth and growth in brokered deposits due to lower rates.
Accrued expenses and other liabilities. Accrued expenses and other liabilities decreased $11.8 million, or 14.5%, to $69.5 million as of September 30, 2024 from $81.3 million as of December 31, 2023. The decrease resulted from $15.8 million in IPO-related and other accrued expenses, $5.6 million reduction in accrued incentive bonuses resulting from bonuses being paid partially offset by current period accruals, and a $2.6 million reduction in allowance for credit losses on unfunded commitments; offset partially by a $5.6 million increase in deferred solar tax credit investments resulting from a future expected capital call, a $2.6 million increase in deferred tax liabilities related to a basis reduction on solar tax credits, a $2.5 million increase in lease liabilities resulting from a lease extension and a $1.7 million increase in accrued interest on brokered deposits resulting from increased utilization of brokered deposits.
Shareholders’ Equity. Total shareholders’ equity decreased $10.5 million, or 1.4%, to $747.4 million as of September 30, 2024 from $758.0 million as of December 31, 2023, due to the $31.6 million increase in the unallocated common shares held by the ESOP resulting from the purchase of shares on the open market to fund the ESOP as a result of the conversion , along with the impact of the adoption of ASU 2023-02 of $10.2 million , offset partially by $26.5 million in net income during the nine months ended September 30, 2024.
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Comparison of Operating Results for the Three Months Ended September 30, 2024 and September 30, 2023
Net Income. Net income was $8.4 million for the quarter ended September 30, 2024, compared to net income of $8.5 million for the quarter ended September 30, 2023, a decrease of approximately $84,000, or 1.0%.
An increase of $7.8 million, or 23.4%, in net interest income was offset by a $3.9 million, or 125.6% increase in income tax expense, a $1.9 million, or 59.7% decrease in noninterest income and a $1.5 million, or 6.5%, increase in noninterest expense.
Operating net income, excluding one-time charges, amounted to $13.1 million, or $0.33 per diluted share for the quarter ended September 30, 2024 compared to net income of $8.5 million for the quarter ended September 30, 2023, an increase of $4.6 million, or 54.9%. The material one-time charges were:
● Loss on the sale of available-for sale securities amounting to $1.9 million;
● Tax expense and a managed endowment contract penalty related to the surrender of BOLI policies of $1.6 million, and;
● Tax expense related to a basis write-down of solar income tax credits of $2.5 million, partially offset by;
● Reversal of previously recognized amortization related to solar income tax credit investments during the first six months of the year, amounting to $913 thousand.
Interest and Dividend Income. Interest and dividend income increased $16.4 million, or 27.5%, to $76.0 million for the quarter ended September 30, 2024 from $59.6 million for the quarter ended September 30, 2023, primarily due to a $13.8 million, or 24.4%, increase in interest and fees on loans and a $2.5 million, or 245.6%, increase in interest on short-term investments. The increase in interest and fees on loans was primarily due to an increase of $564.7 million, or 15.6%, in the average balance of the loan portfolio to $4.19 billion for the quarter ended September 30, 2024 from $3.62 billion for the quarter ended September 30, 2023 and an increase of 49 basis points in the weighted average yield for the loan portfolio to 6.70% for the quarter ended September 30, 2024 from 6.21% for the quarter ended September 30, 2023, reflecting the growth of our commercial and consumer loan portfolios. The increase in interest income on short-term investments was primarily due to an increase of $183.0 million, or 224.9%, in the average balance of short-term investments to $264.4 million for the quarter ended September 30, 2024 from $81.4 million for the quarter ended September 30, 2023.
Average interest-earning assets increased $738.9 million, to $4.69 billion for the quarter ended September 30, 2024 from $3.95 billion for the quarter ended September 30, 2023. The yield on interest-earning assets increased 46 basis points to 6.45% for the quarter ended September 30, 2024 from 5.99% for the quarter ended September 30, 2023.
Interest Expense. Total interest expense increased $8.6 million, or 32.8%, to $34.7 million for the quarter ended September 30, 2024 from $26.1 million for the quarter ended September 30, 2023. Interest expense on deposit accounts increased $12.8 million, or 61.7%, to $33.6 million for the quarter ended September 30, 2024 from $20.8 million for the quarter ended September 30, 2023. The increase was due to an increase in the average balance of certificates of deposit of $495.3 million to $1.94 billion for the quarter ended September 30, 2024 from $1.45 billion for the quarter ended September 30, 2023, an increase in the weighted average rate on certificates of deposit of 91 basis points to 5.02% for the quarter ended September 30, 2024 from 4.11% for the quarter ended September 30, 2023, and an increase in the weighted average rate on money market accounts of 129 basis points to 4.06% for the quarter ended September 30, 2024 from 2.77% for the quarter ended September 30, 2023.
Interest expense on FHLB borrowings decreased $4.3 million, or 80.0%, to $1.1 million for the quarter ended September 30, 2024 from $5.3 million for the quarter ended September 30, 2023. The average balance of FHLB borrowings decreased $298.4 million, or 77.8%, to $85.2 million for the quarter ended September 30, 2024 from $383.5 million for the quarter ended September 30, 2023. The decrease in the average balance of FHLB borrowings was the result of growth in brokered deposits due to lower rates, as well as, overall deposit growth.
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Net Interest Income. Net interest income increased $7.8 million, or 23.4%, to $41.3 million for the quarter ended September 30, 2024 from $33.5 million for the quarter ended September 30, 2023, primarily due to an $738.9 million, or 18.7%, increase in the average balance of interest-earning assets to $4.69 billion for the quarter ended September 30, 2024 from $3.95 billion for the quarter ended September 30, 2023 and an increase in the weighted average yield on interest-earning assets of 46 basis points to 6.45% September 30, 2024 from 5.99% September 30, 2023.
These increases were offset partially by an increase in the weighted average rate on interest-bearing liabilities of 80 basis points to 4.13% for the quarter ended September 30, 2024 from 3.33% September 30, 2023 and an increase in the average balance of interest-bearing liabilities of $233.1 million, or 7.5%, to $3.34 billion September 30, 2024 from $3.11 billion September 30, 2023.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision of $2.6 million was recorded for the quarter ended September 30, 2024, of which $5.0 million related to the provision for credit losses on loans, compared to a provision of $2.0 million for the quarter ended September 30, 2023. The provision for credit losses on unfunded commitments decreased $2.4 million during the three months ended September 30, 2024 as a result of a reduction in qualitative factors on construction commitments, as well as, the reduction in the balance of unfunded commitments. The increase of $3.0 million, or 154.3%, in the total provision for credit losses was primarily due to the overall increase in the size of the loan portfolio and increases in the qualitative factors on loans collateralized by purchased consumer loans.
Noninterest Income. Noninterest income decreased $1.9 million, or 59.7%, to $1.3 million for the quarter ended September 30, 2024 from $3.1 million for the quarter ended September 30, 2023. The decrease resulted primarily from losses of sale on available-for-sale debt securities of $1.9 million during the three months ended September 30, 2024. The table below sets forth our noninterest income for the quarters ended September 30, 2024 and 2023:
Three Months Ended
September 30,
Change
2024
2023
Amount
Percent
(Dollars in thousands)
Customer service fees
$
1,963
$
1,689
$
274
16.22%
Loss on sale of available-for-sale securities, net
(1,868)
—
(1,868)
(100.00)%
Increase in cash surrender value of BOLI
414
374
40
10.70%
Mortgage banking income
367
101
266
263.37%
Swap contract income
375
950
(575)
(60.53)%
Other income
14
24
(10)
(41.67)%
Total noninterest income
$
1,265
$
3,138
$
(1,873)
(59.69)%
Noninterest Expense. Noninterest expense increased $1.5 million, or 6.5%, to $24.6 million for the quarter ended September 30, 2024 from $23.1 million for the quarter ended September 30, 2023. Salaries and employee benefit expenses increased $2.5 million, or 17.3%, resulting primarily from the hiring of additional employees consistent with our business strategy to grow the Bank, annual salary raises, $762,000 in ESOP compensation expenses and a $667,000 increase in long-term incentive plan expenses during the quarter ended September 30, 2024. The increases in salaries and employee benefit expenses were offset partially by general and administrative expenses decreasing $1.3 million, or 91.7%, as a result of the adoption of ASU 2023-02, resulting in a $1.4 million decrease in solar income tax credit amortization during the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The table below sets forth our noninterest expense for the quarters ended September 30, 2024 and 2023:
Three Months Ended
September 30,
Change
2024
2023
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
17,202
$
14,659
$
2,543
17.35%
Director and professional service fees
1,995
1,609
386
23.99%
Occupancy and equipment expenses
1,394
1,279
115
8.99%
Data processing expenses
2,226
2,017
209
10.36%
Marketing and charitable contribution expenses
842
918
(76)
(8.28)%
FDIC and state insurance assessments
812
1,215
(403)
(33.17)%
General and administrative expenses
115
1,391
(1,276)
(91.73)%
Total noninterest expense
$
24,586
$
23,088
$
1,498
6.49%
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Income Tax Expense. Income tax expense increased $3.9, or 125.6%, to $7.0 million for the quarter ended September 30, 2024 from $3.1 million for the quarter ended September 30, 2023. The effective tax rate was 45.5% and 26.8% for the quarter ended September 30, 2024 and 2023, respectively. The increase in the effective tax rate was a result of the $2.5 million tax effect of the basis reduction on solar income tax credits earned and the $1.6 million income tax and penalty on the surrender of BOLI policies during the three months ended September 30, 2024. Excluding these one-time income tax expenses, the effective tax rate for the three months ended September 30, 2024 would have been 19.1%.
Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Non-accrual loans were included in the computation of average balances. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense; such fees, discounts and premiums were not material for the periods presented.
Three Months Ended
September 30, 2024
September 30, 2023
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate (4)
Balance
Interest
Yield/Rate (4)
Interest-earning assets:
Loans
$
4,188,504
$
70,518
6.70
%
$
3,623,804
$
56,702
6.21
%
Securities
204,273
1,768
3.44
%
204,074
1,105
2.15
%
Other investments (5)
30,707
223
2.89
%
39,696
780
7.80
%
Short-term investments (5)
264,394
3,494
5.26
%
81,380
1,011
4.93
%
Total interest-earning assets
4,687,878
76,003
6.45
%
3,948,954
59,598
5.99
%
Non-interest-earning assets
240,821
216,254
Allowance for credit losses
(38,495)
(32,062)
Total assets
$
4,890,204
$
4,133,146
Interest-bearing liabilities:
Savings accounts
$
112,632
15
0.05
%
$
136,241
17
0.05
%
NOW accounts
327,484
180
0.22
%
337,799
158
0.19
%
Money market accounts
876,933
8,943
4.06
%
806,815
5,623
2.77
%
Certificates of deposit and individual retirement accounts
1,941,143
24,474
5.02
%
1,445,885
14,991
4.11
%
Total interest-bearing deposits
3,258,192
33,612
4.10
%
2,726,740
20,789
3.02
%
FHLB advances
85,156
1,067
4.98
%
383,549
5,325
5.51
%
Total interest-bearing liabilities
3,343,348
34,679
4.13
%
3,110,289
26,114
3.33
%
Non-interest-bearing deposits
713,566
582,507
Other non-interest-bearing liabilities
78,681
76,881
Total liabilities
4,135,595
3,769,677
Shareholders' equity
754,609
363,469
Total liabilities and shareholders' equity
$
4,890,204
$
4,133,146
Net interest income
$
41,324
$
33,484
Net interest rate spread (1)
2.32
%
2.66
%
Net interest-earning assets (2)
$
1,344,530
$
838,665
Net interest margin (3)
3.51
%
3.36
%
Average interest-earning assets to interest-bearing liabilities
140.22
%
126.96
%
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
(4) Annualized.
(5) Other investments are comprised of FRB stock, FHLB stock and swap collateral accounts. Short-term investments are comprised of cash and cash equivalents
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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Three Months Ended
September 30, 2024 vs. 2023
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
9,287
$
4,529
$
13,816
Securities
1
662
663
Other
(147)
(410)
(557)
Short-term investments
2,415
68
2,483
Total interest-earning assets
11,556
4,849
16,405
Interest-bearing liabilities:
Savings accounts
(3)
1
(2)
NOW accounts
(5)
27
22
Money market accounts
524
2,796
3,320
Certificates of deposit and individual retirement accounts
5,815
3,668
9,483
Total interest-bearing deposits
6,332
6,491
12,823
Federal Home Loan Bank advances
(3,784)
(474)
(4,258)
Total interest-bearing liabilities
2,548
6,017
8,565
Change in net interest income
$
9,008
$
(1,168)
$
7,840
Comparison of Operating Results for the Nine Months Ended September 30, 2024 and September 30, 2023
Net Income. Net income was $26.5 million for the nine months ended September 30, 2024, compared to net income of $23.4 million the nine months ended September 30, 2023, an increase of approximately $3.1 million, or 13.2%. The increase was primarily due to a $22.2 million, or 23.1%, increase in net interest income, partially offset by a $7.9 million, or 11.6%, increase in noninterest expense, a $4.4 million, or 36.0%, decrease in non-interest income, a $4.2 million, or 49.6%, increase in income tax expense and a $2.6 million, or 32.7%, increase in the provision for credit losses.
Operating net income, excluding one-time charges, amounted to $31.3 million, or $0.79 per diluted share for the nine months ended September 30, 2024 compared to net income of $23.4 million for the nine months ended September 30, 2023, an increase of $7.8 million, or 33.4%. The material one-time charges were:
● Loss on the sale of available-for sale securities amounting to $1.9 million;
● Tax expense and a managed endowment contract penalty related to the surrender of bank-owned life insurance BOLI policies of $1.6 million, and;
● Tax expense related to a basis write-down of solar income tax credits of $2.5 million.
Interest and Dividend Income. Interest and dividend income increased $57.5 million, or 36.4%, to $215.3 million for the nine months ended September 30, 2024 from $157.9 million for the nine months ended September 30, 2023, primarily due to a $49.3 million, or 32.7%, increase in interest and fees on loans, and a $7.8 million, or 382.0%, increase in interest on short-term investments.
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The increase in interest and fees on loans was primarily due to an increase of $670.0 million, or 20.0%, in the average balance of the loan portfolio to $4.03 billion for the nine months ended September 30, 2024 from $3.36 billion for the nine months ended September 30, 2023 and an increase of 64 basis points in the weighted average yield for the loan portfolio to 6.63% for the nine months ended September 30, 2024 from 5.99% for the nine months ended September 30, 2023, reflecting the growth of our commercial and consumer loan portfolios. The increase in interest on short-term investments was primarily due to an increase of $181.9 million, or 313.1%, in the average balance of short-term investments to $239.9 million for the nine months ended September 30, 2024 from $58.1 million for the nine months ended September 30, 2023.
Average interest-earning assets increased $822.4 million, or 22.4%, to $4.50 billion for the nine months ended September 30, 2024 from $3.67 billion for the nine months ended September 30, 2023. The yield on interest-earning assets increased 66 basis points to 6.40% for the nine months ended September 30, 2024 from 5.74% for the nine months ended September 30, 2023.
Interest Expense. Total interest expense increased $35.2 million, or 57.3%, to $96.6 million for the nine months ended September 30, 2024 from $61.4 million for the nine months ended September 30, 2023. Interest expense on deposit accounts increased $42.9 million, or 84.8%, to $93.4 million for the nine months ended September 30, 2024 from $50.5 million for the nine months ended September 30, 2023. The increase was due to an increase in the weighted average rate on certificates of deposit of 139 basis points to 4.98% for the nine months ended September 30, 2024 from 3.59% for the nine months ended September 30, 2023, an increase in the average balance of certificates of deposit of $451.5 million, or 33.1%, to $1.82 billion for the nine months ended September 30, 2024 from $1.36 billion for the nine months ended September 30, 2023, an increase in the weighted average rate on money market accounts of 154 basis points to 3.92% for the nine months ended September 30, 2024 from 2.38% for the nine months ended September 30, 2023 and an increase in the average balance of money market accounts of $95.0 million, or 12.5% to $855.0 million for the nine months ended September 30, 2024 from $760.0 million for the nine months ended September 30, 2023.
Interest expense on FHLB borrowings decreased $7.7 million, or 71.2%, to $3.2 million for the nine months ended September 30, 2024 from $10.9 million for the nine months ended September 30, 2023. The average balance of FHLB advances decreased $190.6 million, or 69.9%, to $82.0 million for the nine months ended September 30, 2024 from $272.6 million for the nine months ended September 30, 2023. The decrease in the average balance of FHLB advances was the result of growth in brokered deposits due to lower rates, as well as, overall deposit growth.
Net Interest Income. Net interest income increased $22.2 million, or 23.1%, to $118.7 million for the nine months ended September 30, 2024 from $96.4 million for the nine months ended September 30, 2023, primarily due to a $822.4 million, or 22.4%, increase in the average balance of interest-earning assets to $4.50 billion for the nine months ended September 30, 2024 from $3.67 billion for the nine months ended September 30, 2023 and an increase in the weighted average yield on interest-earning assets of 66 basis points to 6.40% for the nine months ended September 30, 2024 from 5.74% for the nine months ended September 30, 2023.
These increases were offset partially by an increase in the weighted average rate on interest-bearing liabilities of 121 basis points to 4.04% for the nine months ended September 30, 2024 from 2.83% for the nine months ended September 30, 2023 and an increase in the average balance of interest-bearing liabilities of $296.7 million, or 10.2%, to $3.20 billion for the nine months ended September 30, 2024 from $2.90 billion for the nine months ended September 30, 2023.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision of $10.7 million was recorded for the nine months ended September 30, 2024, of which $13.3 million related to the provision for credit losses on loans, compared to a provision of $8.1 million for the nine months ended September 30, 2023. The provision for credit losses on unfunded commitments decreased $2.7 million during the nine months ended September 30, 2024 as a result of a reduction in qualitative factors on construction commitments, as well as, the reduction in the balance of unfunded commitments. The increase of $2.6 million, or 32.7%, in the total provision for credit losses was primarily due to the overall increase in the size of the loan portfolio and increases in the qualitative factors on loans collateralized by purchased consumer loans.
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Table of Contents
Noninterest Income. Noninterest income decreased $4.4 million, or 36.0%, to $7.8 million for the nine months ended September 30, 2024 from $12.1 million for the nine months ended September 30, 2023. The decrease resulted primarily from one-time employee retention credit income of $3.5 million during the nine months ended September 30, 2023, losses of sale on available-for-sale debt securities of $1.9 million during the nine months ended September 30, 2024 and a $930,000 decrease in swap contract income resulting from lower swap transaction volume; offset partially by an increase in other income resulting from a one-time debit and credit card branding signing bonus of $610,000 and increased customer service fees of $758,000 during the nine months ended September 30, 2024.
The table below sets forth our noninterest income for the nine months ended September 30, 2024 and 2023:
Nine Months Ended
September 30,
Change
2024
2023
Amount
Percent
(Dollars in thousands)
Customer service fees
$
5,717
$
4,959
$
758
15.29%
Loss on sale of available-for-sale securities, net
(1,868)
—
(1,868)
(100.00)%
Increase in cash surrender value of BOLI
1,219
1,117
102
9.13%
Mortgage banking income
905
469
436
92.96%
Swap contract income
1,128
2,058
(930)
(45.19)%
Employee retention credit income
-
3,452
(3,452)
(100.00)%
Other income
649
46
603
1310.87%
Total noninterest income
$
7,750
$
12,101
$
(4,351)
(35.96)%
Noninterest Expense. Noninterest expense increased $7.9 million, or 11.6%, to $76.4 million for the nine months ended September 30, 2024 from $68.5 million for the nine months ended September 30, 2023. Salaries and employee benefit expenses increased $7.5 million, or 17.0%, primarily from the hiring of additional employees consistent with our business strategy to grow the Bank, annual salary increases, a $2.0 million increase in ESOP compensation expenses, a $1.6 million increase in long term incentive plan expenses, a $627,000 increase in medical and dental benefits, a $477,000 in 401(k) match expenses and a $309,000 increase in federal payroll taxes; offset partially by a $1.2 million decrease in pension expense during the nine months ended September 30, 2024. Director and professional service fees increased $1.2 million, or 23.9%, during the nine months ended September 30, 2024, primarily the result of higher legal fees, lending services, appraisal fee and external audit costs. Data processing expenses increased $1.1 million, or 20.0%, during the nine months ended September 30, 2024, primarily the result of higher electronic banking, information technology and system costs. The above increases were partially offset by decreased FDIC and state insurance assessments of $1.0 million, or 36.5%, and general and administrative expenses of $783,000, or 18.45%, as a result of the adoption of ASU 2023-02, which resulted in a $1.2 million decrease in amortization of solar income tax credits during the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023. The table below sets forth our noninterest expense for the nine months ended September 30, 2024 and 2023:
Nine Months Ended
September 30,
Change
2024
2023
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
51,509
$
44,033
$
7,476
16.98%
Director and professional service fees
6,174
4,985
1,189
23.85%
Occupancy and equipment expenses
4,192
3,926
266
6.78%
Data processing expenses
6,547
5,456
1,091
20.00%
Marketing and charitable contribution expenses
2,680
2,972
(292)
(9.83)%
FDIC and state insurance assessments
1,806
2,844
(1,038)
(36.50)%
General and administrative expenses
3,459
4,243
(784)
(18.48)%
Total noninterest expense
$
76,367
$
68,459
$
7,908
11.55%
Income Tax Expense. Income tax expense increased $4.2 million, or 49.6%, to $12.8 million for the nine months ended September 30, 2024 from $8.6 million for the nine months ended September 30, 2023. The effective tax rate was 32.5% and 26.7% for the nine months ended September 30, 2024 and 2023, respectively. The increase in the effective tax rate was a result of the $2.5 million tax effect of the basis reduction on solar income tax credits earned and the $1.6 million income tax and penalty on the surrender of BOLI policies during the nine months ended September 30, 2024. Excluding these one-time income tax expenses, the effective tax rate for the nine months ended September 30, 2024 would have been 22.2%.
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Table of Contents
Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Non-accrual loans were included in the computation of average balances. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense; such fees, discounts and premiums were not material for the periods presented.
Nine Months Ended
September 30, 2024
September 30, 2023
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate (4)
Balance
Interest
Yield/Rate (4)
Interest-earning assets:
Loans
$
4,026,925
$
199,788
6.63
%
$
3,356,963
$
150,502
5.99
%
Securities
200,648
4,736
3.15
%
225,267
3,612
2.14
%
Other investments (5)
29,321
939
4.28
%
34,099
1,705
6.69
%
Short-term investments (5)
239,946
9,853
5.49
%
58,090
2,044
4.70
%
Total interest-earning assets
4,496,840
215,316
6.40
%
3,674,419
157,863
5.74
%
Non-interest-earning assets
235,696
209,624
Allowance for credit losses
(35,336)
(29,166)
Total assets
$
4,697,200
$
3,854,877
Interest-bearing liabilities:
Savings accounts
$
119,249
46
0.05
%
$
145,464
55
0.05
%
NOW accounts
325,364
521
0.21
%
358,380
334
0.12
%
Money market accounts
855,003
25,100
3.92
%
759,991
13,557
2.38
%
Certificates of deposit and individual retirement accounts
1,815,498
67,741
4.98
%
1,363,955
36,603
3.59
%
Total interest-bearing deposits
3,115,114
93,408
4.01
%
2,627,790
50,549
2.57
%
FHLB advances
82,015
3,230
5.26
%
272,622
10,871
5.33
%
Total interest-bearing liabilities
3,197,129
96,638
4.04
%
2,900,412
61,420
2.83
%
Non-interest-bearing deposits
673,327
530,834
Other non-interest-bearing liabilities
83,493
67,880
Total liabilities
3,953,949
3,499,126
Shareholders' equity
743,251
355,751
Total liabilities and shareholders' equity
$
4,697,200
$
3,854,877
Net interest income
$
118,678
$
96,443
Net interest rate spread (1)
2.36
%
2.91
%
Net interest-earning assets (2)
$
1,299,711
$
774,007
Net interest margin (3)
3.53
%
3.51
%
Average interest-earning assets to interest-bearing liabilities
140.65
%
126.69
%
(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.
(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.
(3) Net interest margin represents net interest income divided by average total interest-earning assets.
(4) Annualized.
(5) Other investments are comprised of FRB stock, FHLB stock and swap collateral accounts. Short-term investments are comprised of cash and cash equivalents
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Table of Contents
Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Nine Months Ended
September 30, 2024 vs. 2023
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
32,124
$
17,162
$
49,286
Securities
(339)
1,463
1,124
Other
(215)
(551)
(766)
Short-term investments
7,414
395
7,809
Total interest-earning assets
38,984
18,469
57,453
Interest-bearing liabilities:
Savings accounts
(10)
1
(9)
NOW accounts
(28)
215
187
Money market accounts
1,872
9,671
11,543
Certificates of deposit and individual retirement accounts
14,288
16,850
31,138
Total interest-bearing deposits
16,122
26,737
42,859
Federal Home Loan Bank advances
(7,508)
(133)
(7,641)
Total interest-bearing liabilities
8,614
26,604
35,218
Change in net interest income
$
30,370
$
(8,135)
$
22,235
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the FHLB and the Discount Window at the Federal Reserve Bank of Boston (“FRB”). As of September 30, 2024, we had outstanding advances of $116.3 million from the FHLB. As of September 30, 2024, we had unused borrowing capacity of $730.7 million with the FHLB and $36.6 million available with the FRB. Subsequent to September 30, 2024, the Bank received approval from the FRB under its Borrower in Custody (“BIC”) program, which allowed us to pledge commercial real estate and multi-family loans to the FRB, which provided the Bank with additional borrowing capacity of $531.6 million. Additionally, as of September 30, 2024, we had $329.9 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $920.7 million of brokered deposits.
While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.
Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities.
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At September 30, 2024, we had $75.8 million in commitments to originate loans outstanding. In addition, we had $477.6 million in unused lines of credit to borrowers, $487.5 million in unadvanced construction loans and $6.5 million in letters of credit outstanding.
Non-brokered certificates of deposit due within one year of September 30, 2024 totaled $1.65 billion, or 40.9%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits, FHLB advances and FRB borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the non-brokered certificates of deposit due on or before September 30, 2025, or on our other interest-bearing deposit accounts. We believe, however, based on historical experience and current market interest rates that we will retain upon maturity a large portion of our certificates of deposit with maturities of one year or less as of September 30, 2024.
Our primary investing activity is originating loans. During the nine months ended September 30, 2024, we originated $345.4 million of loans, net of repayments.
Financing activities consist primarily of activity in deposit accounts and FHLB advances. We experienced net increases in deposits of $655.5 million for the nine months ended September 30, 2024. At September 30, 2024 and December 31, 2023, the level of brokered time deposits was $329.9 million and $183.6 million, respectively. Deposit flows are affected primarily by the overall level of interest rates and the interest rates and products offered by us and our competitors. FHLB advances decreased $167.0 million during the nine months ended September 30, 2024.
For additional information, see the consolidated statements of cash flows for the nine months ended September 30, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this Form 10-Q.
We are committed to maintaining a strong liquidity position. We continuously monitor our liquidity position and adjustments are made to the balance between sources and uses of funds as deemed appropriate by management. Liquidity risk management is an important element in our asset/liability management process. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding planning process, which provides the basis for the identification of our liquidity needs. We anticipate that we will have sufficient funds to meet our current funding commitments. In addition, based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.
As of September 30, 2024, Needham Bank and NB Bancorp, Inc. exceeded all of their regulatory capital requirements, and were categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 10 of the notes to consolidated financial statements.
Impact of Inflation and Changing Prices
The consolidated financial statements and related data presented in this Form 10-Q have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable, as the Registrant is an emerging growth company.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.