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Item 7. Management’s Discussion and Analysis

2025-03-07 compared with 2024-03-28 · 388 added, 129 removed, 227 unchanged (69% of the section changed)

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The information in this section has been derived from the consolidated financial statements that appear beginning on page 79 of this Annual Report on Form 10-K.

You should read the information in this section in conjunction with the business and financial information regarding NB Bancorp and Needham Bank and the consolidated financial statements provided in this Annual Report on Form 10-K for NB Bancorp and, with respect to the year ended December 31 2022, NB Financial, MHC, Needham Bank’s mutual holding company parent prior to the mutual-to-stock conversion on December 27, 2023.

NB Bancorp had not engaged in any material activities prior to December 28, 2023, the date of the consummation of the mutual to stock conversion of NB Financial, MHC.

You should read the information in this section in conjunction with the business and financial information regarding the Company and the Bank and the consolidated financial statements provided in this Annual Report on Form 10-K for the Company and, with respect to the years ended December 31, 2023 and 2022, the Company had not engaged in any material activities prior to December 28, 2023, the date of the consummation of the mutual to stock conversion.

Our results of operations depend primarily on our net interest income.

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Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense.

Noninterest income currently consists primarily of customer service fees, swap contract income, and income on bank-owned life insurance.

Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, marketing and charitable contribution expense, professional fees, federal deposit insurance assessments and other general and administrative expenses.

Noninterest income currently consists primarily of customer service fees, swap contract income, and income on BOLI.

Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, marketing and charitable contribution expense, professional fees, FDIC assessments and other general and administrative expenses.

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

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Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies.

The Jumpstart Our Business Startups Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies.

As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies.

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The following represent our significant accounting policies:

Loans Held for Investment and Allowance for Credit Losses.

Loans Held for Investment and 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.

Loan origination fees and certain direct origination costs are deferred and amortized as an adjustment of 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.

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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 allowance for credit losses (the “ACL”) for loans held for investment, and will instead reverse accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status.

In accordance with FASB Accounting Standards Codification (“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.

Subsequent recoveries of previously charged-off amounts 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.

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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.

We use a third-party CECL model as part of our estimation of the ACL on a quarterly basis.

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.

We have 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 us to utilize and assess publicly available external information when developing our estimate of the ACL.

average life (“WAL”) method is the primary credit loss estimation methodology we use and involves estimating future cash flows for pools of loans using their weighted average life.

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 remaining maturity

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

The Company considers economic forecasts of inflation, Federal Open Market Committee interest rates, national gross domestic product, and unemployment rates sourced from the Federal Reserve System’s “Beige Book,” Wells Fargo’s “U.S.

Economic Outlook,” and the “Economic Forecast” publications from FHN Financial 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 and in similar markets (i.e.

$10.00 billion or less of total assets and headquartered in Massachusetts).

The Company considers economic forecasts of inflation, national gross domestic product, and unemployment rates sourced from the Federal Open Market Committee’s “Summary of Economic Projections” to inform the model for future loss estimation.

Additionally, interest rate forecasts sourced from CME Group’s “FedWatch”, Wells Fargo’s “U.S.

Economic Outlook,” and FHN Financial’s “Economic Forecast” publications are used for consideration of rate sensitivity in the model’s loan prepayment speed estimation.

Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data and 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 and in similar markets (i.e., $10 billion or less of total assets and headquartered in Massachusetts).

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, we evaluate 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 our 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 generally excluded from individually evaluated loans.

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 or loan terms differing significantly from other pooled loans.

In accordance with the Company’s policy, non-accrual residential real estate loans that are below $500,000 and well secured (loan-to-value <60%) are 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 Troubled Asset Resolution Committee approves the key methodologies and assumptions, as well as the final ACL on at least 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.

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 and multifamily 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.

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, 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 and Credit Losses .

We classify our investments in debt securities as either held-to-maturity or available-for-sale.

Securities classified as held-to maturity are recorded at cost or amortized cost.

Available-for-sale securities are carried at fair value.

We obtain our fair values from one or more third-party services.

This service’s 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.

We 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, we did not have any other than-temporarily impaired investment securities.

Therefore, upon adoption of ASC 326, we determined that an allowance for credit losses on available for sale securities was not deemed material.

For available for sale 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 we have the intent to sell the security or it is more likely than not that we 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 losses.

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

In making the assessment, we 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.

The Company and its subsidiaries file a consolidated federal income tax return.

The Company recognizes certain revenue and expense items in periods which are different for financial accounting purposes than for federal income tax purposes.

Deferred income tax assets and liabilities are computed under the liability method based on differences between the consolidated financial statement carrying amounts and the tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income.

Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

In accordance with U.S.

GAAP, management assesses the likelihood that tax positions taken will be sustained upon examination based on their technical merit, considering the facts, circumstances and information available at the end of each period.

The Company recognizes the effects of significant income tax positions taken on tax returns only if the positions are “more likely than not” to be sustained upon examination by the taxing authorities.

Positions taken on tax returns that do not meet that threshold are not recognized in the Company’s provisions for income taxes.

The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change.

The Company’s policy is to analyze its tax positions for all open tax years.

Interest and penalties, if any, associated with uncertain tax positions, are classified as additional income tax expense in the consolidated statements of income.

AFS Securities Valuation and Credit Losses.

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.

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.

For AFS 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.

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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 December 31, 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 $1.2 million at December 31, 2023 and was excluded from the estimate of credit losses.

Comparison of Financial Condition at December 31, 2023 and December 31, 2022

Purchase premiums and discounts are recognized in interest income, using the interest method, to arrive at periodic interest income at a constant effective yield, thereby reflecting the securities' market yield.

Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.

Such gains and losses are recognized within non-interest income in the consolidated statements of income.

Non-GAAP Financial Measures.

In addition to results presented in accordance with U.S.

GAAP, this annual report on Form 10-K 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 presents certain non-GAAP financial measures, which management uses to evaluate the Company’s performance, and which exclude the effects of certain transactions, non-cash items and U.S.

GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of the Company’s current performance or financial position.

Management believes excluding these items facilitates greater visibility for investors into our core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding U.S.

GAAP financial measures.

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.

NB BANCORP, INC.

NON-GAAP RECONCILIATION

(Dollars in thousands)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Net income (U.S.

Add (Subtract):

Adjustments to net income:

Losses on sales of securities available for sale, net

BOLI surrender tax and managed endowment contract penalty (1)

Needham Bank Charitable Foundation contribution resulting from IPO

One-time conversion and IPO-related compensation expense

Defined benefit pension termination expense

Permanent tax differences resulting from public company tax laws (1)

Total adjustments to net income

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

Non-GAAP adjustments, net of tax

Operating net income (non-GAAP)

(1) These amounts are reflected in income tax expense and reflect amounts related to 2024 BOLI surrender taxes and

penalties and 2023 compensation and writedown for future LTIP vesting amounts that are not expected to be deductible

on a tax return, respectively.

These amounts are not included in the calculation of the tax impact on the non-GAAP adjustments.

At and For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Net income (U.S.

Weighted average common shares outstanding, basic

Earnings per share, basic

Weighted average common shares outstanding, diluted

Earnings per share, diluted

Operating net income (non-GAAP)

Operating earnings per share, basic (non-GAAP)

Operating earnings per share, diluted (non-GAAP)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Noninterest expense (U.S.

Subtract (Add):

Noninterest expense components:

Needham Bank Charitable Foundation contribution resulting from IPO

One-time conversion and IPO-related compensation expense

Defined benefit pension termination expense

Total impact of non-GAAP noninterest expense adjustments

Noninterest expense on an operating basis (non-GAAP)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Noninterest income (U.S.

Subtract (Add):

Noninterest income components:

Losses on sales of securities available for sale, net

Total impact of non-GAAP noninterest income adjustments

Noninterest income on an operating basis (non-GAAP)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Operating net income (non-GAAP)

Average assets

Operating return on average assets (non-GAAP)

Average shareholders’ equity

Operating return on average shareholders' equity (non-GAAP)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Total shareholders’ equity (U.S.

Intangible assets (core deposit intangible)

Total tangible shareholders’ equity (non-GAAP)

Total assets (U.S.

Intangible assets (core deposit intangible)

Total tangible assets (non-GAAP)

Tangible shareholders' equity / tangible assets (non-GAAP)

Total common shares outstanding

Tangible book value per share (non-GAAP)

For the Year Ended

December 31, 2024

December 31, 2023

December 31, 2022

Noninterest expense on an operating basis (non-GAAP)

Total revenue (net interest income plus total noninterest income) (non-GAAP)

Operating efficiency ratio (non-GAAP)

Comparison of Financial Condition at December 31, 2024 and 2023

Total Assets.

Total assets increased $624.3 million, or 13.8%, to $5.16 billion as of December 31, 2024 from $4.53 billion at December 31, 2023.

The increase was primarily the result of increases in net loans and federal funds sold.

The increase was primarily the result of increases in net loans, cash and cash equivalents, BOLI and AFS securities.

Cash and Cash Equivalents.

Cash and cash equivalents increased $116.0 million, or 31.0%, to $272.6 million as of December 31, 2023 from $156.5 million at December 31, 2022.

The increase in cash and cash equivalents was due to the proceeds from the Company’s mutual-to-stock conversion and related IPO, which closed on December 27, 2023.

Securities Available-for-Sale.

Securities available-for-sale decreased $56.0 million, or 22.8%, to $189.5 million as of December 31, 2023 from $245.5 million at December 31, 2022.

During the year ended December 31, 2023, purchases of securities were more than offset by the fair value decline in the portfolio, as well as amortization and calls.

No securities were sold during the year ended December 31, 2023.

Cash and cash equivalents increased $91.3 million, or 33.5%, to $363.9 million at December 31, 2024 from $272.6 million at December 31, 2023.

The increase in cash and cash equivalents was primarily due to the increase in deposits outpacing the increase in net loans.

AFS Securities.

AFS securities increased $38.7 million, or 20.4%, to $228.2 million at December 31, 2024 from $189.5 million at December 31, 2023.

The increase in AFS securities during 2024 was a result of additional purchases of securities due to excess cash and unrealized gains due to interest rate changes.

Additionally, a portfolio of $29.3 million of AFS securities was sold at a $1.9 million net loss during the year ended December 31, 2024, with the proceeds reinvested into higher-yielding securities, which were restructured to mitigate portfolio risk and increase yield.

The securities sold had an average yield of 0.97% with a remaining duration of 2.4 years and were reinvested into securities with an average yield of 4.27% and an average duration of 4.1 years.

The earn-back period on the loss from the sale of the securities is expected to be approximately 2.5 years.

The newly purchased securities carry a lower risk weight than the securities sold, mitigating risk in the Company’s securities portfolio.

Loans, net increased $437.4 million, or 11.3%, to $4.29 billion at December 31, 2024 from $3.86 billion at December 31, 2023.

We experienced increases in each of our loan portfolios.

From December 31, 2022 to December 31, 2023, one- to four-family residential real estate loans, including home equity loans, increased $187.1 million, or 18.6%;

our commercial real estate portfolio, including multi-family real estate loans, increased $372.0 million, or 36.8%;

construction and land development increased $70.3 million, or 12.7%;

We experienced increases in each of our loan portfolio segments except for construction and land development loans, which decreased $39.0 million, or 6.3%, to $583.8 million at December 31, 2024 from $622.8 million at December 31, 2023.

During the year ended December 31, 2024, commercial real estate loans, including multi-family real estate loans, increased $316.6 million, or 22.9%;

commercial and industrial loans increased $67.9 million, or 13.8%;

one-to-four-family residential real estate loans, including home equity loans, increased $60.1 million, or 5.0%;

and consumer loans increased $39.7 million, or 19.4%.

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

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

In addition, to help manage interest rate risk and generate non-interest income, occasionally we sell one-to-four-family residential mortgage loans into the secondary market on a servicing-retained basis.

During the year ended December 31, 2023, we sold $2.1 million in loans and recognized gains of $29,000.

Federal Home Loan Bank Stock.

During the year ended December 31, 2024, $23.6 million of loans were sold with gains recognized of $293,000.

Non-public Investments.

Non-public investments primarily consist of equity investments in tax credit entities, FHLB stock and FRB stock.

● Equity investments in tax credit partnerships decreased $8.4 million during the year ended December 31, 2024, as a result of the adoption of PAM under ASU 2023-02, which reduced our solar tax credit investments through amortization included in income tax expense in the consolidated statement of income.

● The FHLB is a cooperative bank that provides services to its member financial institutions.

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The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets.

Accordingly, the increase in the FHLB stock is due to increased borrowings.

Bank-owned Life Insurance.

We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations.

Bank-owned life insurance also generally provides noninterest income that is nontaxable.

Bank-owned life insurance increased $1.5 million, or 3.1%, to $50.5 million as of December 31, 2023 from $49.0 million at December 31, 2022.

The increase during 2023 was from increases in the cash surrender value of the policies.

Accordingly, the decrease in the FHLB stock is due to decreased FHLB borrowings.

● The Company is required to maintain shares in the FRB in order to meet criteria for membership in the Federal Reserve System.

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 FRB Stock holdings requirement by 15 percent or 100 shares, whichever is lower.

At December 31, 2024, the Company held FRB stock of $12.1 million compared to $10.3 million at December 31, 2023.

The increase in FRB stock is a result of the increase in total deposit liabilities as noted above.

We invest in BOLI to help offset the costs of our employee benefit plan obligations.

BOLI also generally provides noninterest income that is nontaxable.

During the year ended December 31, 2024, the Bank 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 Bank purchased an additional $50.0 million of BOLI policies, which are currently yielding 4.80%.

As a result of the surrender of the BOLI policies, the Bank incurred $1.4 million of income tax and penalty, which the Bank 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 Bank 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.

As a result of the surrender and purchase, BOLI increased $52.3 million, or 103.5%, to $102.8 million at December 31, 2024 from $50.5 million at December 31, 2023.

Deferred Income Tax Asset, Net.

Deferred tax asset, net increased $11.2 million, or 58.4%, to $30.3 million at December 31, 2024 from $19.1 million at December 31, 2023.

The increase resulted primarily from $8.9 million in tax credits earned during the year ended December 31, 2024 and a $2.3 million reduction in the deferred tax liability related to solar income tax credit investment carryforwards from December 31, 2023.

Prepaid Expenses and Other Assets.

Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases and derivatives with a positive fair value and other investments and decreased $4.1 million, or 7.1%, to $53.1 million as of December 31, 2023 from $57.2 million as of December 31, 2021.

The decrease resulted primarily from increases in the value of our right of use assets and derivatives from hedging strategies and other investments.

Deposits increased $500.6 million, or 17.3%, to $3.39 billion as of December 31, 2023 from $2.89 billion as of December 31, 2022.

Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $567.0 million, or 21.5%, to $3.2 billion at December 31, 2023 from $2.6 billion at December 31, 2022.

The increase resulted from increases in customer deposits, primarily certificates of deposit, which increased $353.8 million, or 36.9% from the prior year, along with money market and checking accounts, which increased $229.1 million and $82.9 million, respectively, from December 31, 2022.

As of December 31, 2023 and 2022, we had approximately $183.6 million and $250.0 million of brokered deposits, respectively.

The decrease in brokered deposits during 2023 resulted from the growth in the core deposit portfolio.

We had $283.3 million of borrowings at December 31, 2023 as compared to $293.1 million at December 31, 2022.

The decrease is due to funding needs and our ability to repay some advances.

Our borrowings consisted solely of FHLB advances.

Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases, derivatives with a positive fair value, prepaid expenses and income tax receivables.

Prepaid expenses and other assets increased $6.4 million, or 12.0%, to $59.5 million at December 31, 2024 from $53.1 million at December 31, 2023.

The increase resulted primarily from a $4.0 million increase in income tax receivables as a result of solar income tax credits earned and a $2.4 million increase in right of use assets resulting from the execution of the Wellesley administrative office lease.

Deposits increased $790.3 million, or 23.3%, to $4.18 billion at December 31, 2024 from $3.39 billion at December 31, 2023.

Core deposits (which we define as all deposits other than brokered deposits) increased $664.1 million, or 20.7%, to $3.9 billion at December 31, 2024 from $3.2 billion at December 31, 2023.

The increase in core deposits resulted from increases in customer deposits, primarily certificates of deposit, which increased $340.0 million, or 25.9% from December 31, 2023, along with money market and checking accounts, which increased $163.3 million and $95.0 million, respectively, from December 31, 2023.

At December 31, 2024 and 2023, we had $309.8 million and $183.6 million of brokered deposits, respectively, as a result of funding needs and to support overall liquidity.

The Company had $395.2 million and $317.4 million in deposits from the cannabis industry as of December 31, 2024 and December 31, 2023, respectively.

FHLB borrowings decreased $162.5 million, or 57.4%, to $120.8 million at December 31, 2024, compared to $283.3 million at December 31, 2023.

Our borrowings consisted solely of FHLB advances, and 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 increased $28.9 million, or 55.20%, to $81.3 million as of December 31, 2023 from $52.4 million at December 31, 2022.

The increase resulted from an IPO-related payable, an increase in the allowance for unfunded commitments, and an increase in derivatives with a negative fair value.

Shareholders’ equity was $758.0 million, representing an increase of $413.9 million, or 120.3%, from the prior year.

The increase resulted primarily from the capital raised during the Company’s public offering, which was consummated on December 27, 2023, and net income of $9.8 million during the year ended December 31, 2023.

Comparison of Operating Results for the Years Ended December 31, 2023 and December 31, 2022

Accrued expenses and other liabilities decreased $15.3 million, or 18.9%, to $65.7 million at December 31, 2024 from $81.0 million at December 31, 2023.

The decrease primarily resulted from a $15.8 million reduction in IPO transaction suspense related to the Company’s mutual-to-stock conversion completed on December 27, 2023, as the amounts were paid during 2024.

Shareholders’ Equity.

Shareholders’ equity increased $7.2 million, or 1.0%, to $765.2 million at December 31, 2024 from $758.0 million at December 31, 2023.

The increase in shareholder’s equity was primarily due to $42.1 million in net income and an increase of $3.7 million in accumulated other comprehensive income due to the change in market interest rates during the year ended December 31, 2024, offset partially by a $31.0 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 reduction in retained earnings from the adoption of ASU 2023-02 of $7.9 million.

Comparison of Operating Results for the Years Ended December 31, 2024 and 2023

Net income was $42.1 million for the year ended December 31, 2024, compared to net income of $9.8 million for the year ended December 31, 2023, an increase of $32.3 million, or 329.0%.

The increase was primarily due to an increase in interest and fees on loans of $58.6 million, or 27.6%, a decrease in marketing and charitable contributions expense of $19.6 million, or 85.0%, an increase in interest and dividends on cash equivalents and other of $9.7 million, or 186.9%, and a decrease in interest expense on borrowings of $9.7 million, or 68.7%;

primarily offset by an increase in interest expense on deposits of $50.5 million, or 66.1%, and an increase in income tax expense of $14.5 million, or 715.7%.

Operating net income, excluding one-time charges, amounted to $45.5 million, or $1.15 per diluted share for the year ended December 31, 2024 compared to operating net income of $34.3 million, or $0.82 per diluted share for the year ended December 31, 2023, an increase of $11.2 million, or 32.5%.

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 $1.7 million, and;

◾ Defined benefit pension termination expense, amounting to $390,000

Interest and Dividend Income.

Interest and dividend income increased $70.4 million, or 31.7%, to $292.5 million for the year ended December 31, 2024 from $222.2 million for the year ended December 31, 2023, primarily due to a $58.6 million, or 27.6%, increase in interest and fees on loans and a $9.7 million, or 186.9%, increase in interest and dividends cash equivalents and other.

The increase in interest and fees on loans was primarily due to an increase of $625.6 million, or 18.1%, in the average balance of the loan portfolio to $4.09 billion for the year ended December 31, 2024 from $3.46 billion for the year ended December 31, 2023 and an increase of 50 basis points in the weighted average yield for the loan portfolio to 6.62% for the year ended December 31, 2024 from 6.12% for the year ended December 31, 2023, reflecting the growth of our commercial and consumer loan portfolios.

The increase in interest and dividends cash equivalents and other was primarily due to an increase of $179.5 million, or 251.2%, in the average balance of short-term investments to $250.9 million for the year ended December 31, 2024 from $71.4 million for the year ended December 31, 2023, along with a 105 basis point increase in the average yield on short-term investments.

Average interest-earning assets increased $787.0 million, or 20.8% to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023.

The yield on interest-earning assets increased 53 basis points to 6.40% for the year ended December 31, 2024 from 5.87% for the year ended December 31, 2023.

Interest Expense.

Total interest expense increased $40.9 million, or 45.2%, to $131.3 million for the year ended December 31, 2024 from $90.4 million for the year ended December 31, 2023.

Interest expense on deposits increased $50.5 million, or 66.1%, to $126.9 million for the year ended December 31, 2024 from $76.4 million for the year ended December 31, 2023, due to an increase in the average balance of interest-bearing deposits of $493.9 million, or 18.4%, to $3.18 billion for the year ended December 31, 2024 from $2.69 billion for the year ended December 31, 2023 and an increase in the weighted average rate on interest-bearing deposits of 115 basis points to 3.99% for the year ended December 31, 2024 from 2.84% for the year ended December 31, 2023.

Interest expense on FHLB advances decreased $9.7 million, or 68.7%, to $4.4 million for the year ended December 31, 2024 from $14.1 million for the year ended December 31, 2023.

The average balance of FHLB advances decreased $174.0 million, or 67.1%, to $85.5 million for the year ended December 31, 2024 from $259.5 million for the year ended December 31, 2023 and the weighted average cost of these advances decreased 27 basis points to 5.14% for the year ended December 31, 2024 from 5.41% for the year ended December 31, 2023.

The decrease in the average balance was due to our strategy to utilize brokered deposits to support loan growth and for liquidity management.

Net Interest Income.

Net interest income was $161.2 million for the year ended December 31, 2024, compared to $131.7 million for the year ended December 31, 2023, representing an increase of $29.5 million, or 22.4%, primarily due to a $787.0 million, or 20.8%, increase in the average balance of interest-earning assets to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023 and an increase in the weighted average yield on interest-earning assets of 53 basis points to 6.40% at December 31, 2024 from 5.87% at December 31, 2023.

These increases were offset partially by an increase in the weighted average rate on interest-bearing liabilities of 95 basis points to 4.02% for the year ended December 31, 2024 from 3.07% for the year ended December 31, 2023 and an increase in the average balance of interest-bearing liabilities of $319.9 million, or 10.8%, to $3.27 billion for the year ended December 31, 2024 from $2.95 billion for the year ended December 31, 2023.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of allowance for credit losses, a provision of $12.1 million was recorded for the year ended December 31, 2024, compared to a provision of $13.9 million for the year ended December 31, 2023.

The $1.8 million, or 12.7%, decrease in the provision was primarily due to the decrease of the provision for credit losses on unfunded commitments, which decreased $7.0 million, or 166.5%, due to a reduction in unfunded commitments from December 31, 2024 to December 31, 2023.

The decrease in the provision for credit losses on unfunded commitments was partially offset by an increase in the provision for credit losses on loans of $5.3 million, or 54.6%, due to the growth in the Company’s loan portfolio and an increase in net charge-offs for the year ended December 31, 2024.

Noninterest Income.

Noninterest income decreased $3.8 million, or 24.9%, to $11.5 million for the year ended December 31, 2024 from $15.4 million for the year ended December 31, 2023.

The decrease resulted primarily from a $3.5 million employee retention credit earned during the year ended December 31, 2023 resulting from COVID-19 impacts not recognized during the year ended December 31, 2024, an increase in losses on the sale of AFS securities of $1.9 million during the year ended December 31, 2024 compared to no losses on the sale of AFS securities during the year ended December 31, 2023, partially offset by an increase in the change in the cash surrender value of BOLI of $759,000 and an increase in other income of $600,000 during the year ended December 31, 2024.

The table below sets forth our noninterest income for the years ended December 31, 2024 and 2023:

Year ended December 31,

(Dollars in thousands)

Customer service fees

Increase in cash surrender value of BOLI

Mortgage banking income

Swap contract income

Loss on sale of available-for-sale securities, net

Employee retention credit income

Total noninterest income

Noninterest Expense.

Noninterest expense for the year ended December 31, 2024 was $102.0 million, representing a decrease of $19.4 million, or 16.0%, from $121.3 million for the year ended December 31, 2023.

Marketing and charitable contributions expense decreased $19.6 million, or 85.0%, as a result of the $19.1 million contribution to the Needham Bank Charitable Foundation during the year ended December 31, 2023;

FDIC and state insurance assessments decreased $1.9 million, or 39.5%, as a result of high capital ratios during the year ended December 31, 2024 compared to the year ended December 31, 2023;

salaries and employee benefit expenses decreased $1.1 million, or 1.6%, resulting primarily from a decrease in employee bonus expense of $5.0 million, a decrease in pension expense of $3.0 million as a result of the freezing of the pension plan and a $2.0 million decrease in LTIP expenses during the year ended December 31, 2024;

partially offset by an increase in employee compensation of $4.7 million due to increased headcount, a $2.8 million increase in ESOP compensation expense as the ESOP was put into place upon the mutual-to-stock conversion on December 27, 2023, a $832,000 increase in medical and dental benefits and a $549,000 increase in 401(k) match expenses, both primarily a result of increased headcount;

general and administrative expenses increased $1.1 million or, 17.0%, primarily a result of the $1.8 million decrease in the loss on solar tax partnerships during the year ended December 31, 2024 from the adoption of ASU 2023-02.

These decreases were offset partially by an increase in director and professional service fees of $2.4 million, or 38.0%, primarily a result of increased use of audit, legal and human resources services of $2.2 million during the year ended December 31, 2024 and data processing expenses of $1.5 million, or 20.3%, primarily a result of increased IT infrastructure, debit card servicing, management information systems, deposit servicing systems and electronic banking expenses of $550,000, $341,000, $234,000, $183,000 and $152,000 during the year ended December 31, 2024, respectively.

The table below sets forth our noninterest expense for the years ended December 31, 2024 and 2023:

Year ended December 31,

(Dollars in thousands)

Salaries and employee benefits

Director and professional service fees

Occupancy and equipment expenses

Data processing expenses

Marketing and charitable contribution expenses

FDIC and state insurance assessments

General and administrative expenses

Total noninterest expense

Income Tax Expense.

Income tax expense increased $14.5 million, or 715.7%, to $16.5 million for the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023.

The effective tax rate was 28.1% and 17.0% for the years ended December 31, 2024 and 2023, respectively.

The effective tax rate increased during 2024 primarily as a result of income tax expense of $18.5 million related to the adoption of ASU 2023-02, a smaller impact from tax credits and the $1.7 million income tax and penalty on the surrender of BOLI policies during the year ended December 31, 2024, offset partially by a reduction in 162(m) compensation during the year ended December 31, 2024.

Average Balances and Yields.

The following tables set forth average consolidated 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.

For the Year Ended

December 31, 2024

December 31, 2023

(Dollars in thousands)

Interest-earning assets:

Other investments (4)

Short-term investments (4)

Total interest-earning assets

Non-interest-earning assets

Allowance for credit losses

Interest-bearing liabilities:

Savings accounts

Money market accounts

Certificates of deposit and individual retirement accounts

Total interest-bearing deposits

FHLB borrowings

Total interest-bearing liabilities

Non-interest-bearing deposits

Other non-interest-bearing liabilities

Total liabilities

Shareholders' equity

Total liabilities and shareholders' equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to interest-bearing liabilities

(1) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

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

Short-term investments are comprised of cash and cash equivalents.

Rate/Volume Analysis.

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

The 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.

December 31, 2024 vs.

Increase (Decrease) Due to

(In thousands)

Interest-earning assets:

Other investments

Short-term investments

Total interest-earning assets

Interest-bearing liabilities:

Savings accounts

Money market accounts

Certificates of deposit and individual retirement accounts

Total interest-bearing deposits

FHLB borrowings

Total interest-bearing liabilities

Change in net interest income

Comparison of Operating Results for the Years Ended December 31, 2023 and 2022

Net income was $9.8 million for the year ended December 31, 2023, compared to net income of $30.1 million for the year ended December 31, 2022, a decrease of $20.2 million, or 67.3%.

The decrease was primarily due to a one-time donation of $2.0 million in cash and 1.7 million shares of common stock to the Needham Bank Charitable Foundation at a total market value of $19.1 million, in addition to a $7.9 million discretionary bonus awarded by the Compensation Committee, a $1.9 million pension expense and $3.7 million of additional income tax expense related to the impact of public company tax laws.

In addition to the mutual-to-stock conversion expense, the Company also recognized $7.2 million in additional provision for credit losses, due to the growth of the loan portfolio and unfunded commitments.

Partially offsetting these increases in expenses was a $25.1 million, or 23.9%, increase in net interest income due to net loan growth and an increase in the weighted average yield on our interest-earning assets and a $6.3 million, or 67.9%, increase in noninterest income due to increases from employee retention credit income and increases in cash management fees from customers.

The decrease was primarily due to a one-time donation of $2.0 million in cash and 1.7 million shares of common stock to the Needham Bank Charitable Foundation at a total market value of $19.1 million, an increase of $20.9 million in salaries and benefits primarily from the hiring of additional employees consistent with our business strategy to grow the Company, as well as discretionary bonuses awarded by the Compensation Committee and a $1.9 million pension expense.

In addition to the mutual-to-stock conversion expense, the Company also recognized $7.2 million in additional provision for credit losses, as a result of the implementation of ASC 326.

Partially offsetting these increases in expenses was a $26.2 million, or 24.9%, increase in net interest income due to net loan growth and an increase in the weighted average yield on our interest-earning assets, a $6.4 million, or 71.8%, increase in noninterest income due to increases from employee retention credit income and increases in cash management fees from customers and a $4.3 million reduction in income tax expense primarily due to lower income before taxes as a result of the mutual-to-stock conversion.

Interest and Dividend Income.

Interest and dividend income increased $100.0 million, or 83.0%, to $220.5 million for the year ended December 31, 2023 from $120.5 million for the year ended December 31, 2022, primarily due to a $98.2 million increase in interest and fees on loans.

The increase in interest and fees on loans was primarily due to an increase of $979.5 million in the average balance of the loan portfolio to $3.46 billion for the year ended December 31, 2023 from $2.49 billion for the year ended December 31, 2022 and an increase of 154 basis points in the weighted

average yield for the loan portfolio to 6.12% for 2023 from 4.58% for 2022, reflecting the increasing rate environment year to year as well as the growth of our loan portfolio.

Average interest-earning assets increased $807.2 million, to $3.81 billion for the year ended December 31, 2023 from $3.01 billion for the year ended December 31, 2022.

Interest and dividend income increased $101.1 million, or 83.6%, to $222.2 million for the year ended December 31, 2023 from $121.0 million for the year ended December 31, 2022, primarily due to a $98.1 million, or 86.0%, increase in interest and fees on loans.

The increase in interest and fees on loans was primarily due to the increase of $984.4 million in the average balance of the loan portfolio to $3.46 billion for the year ended December 31, 2023 from $2.48 billion for the year ended December 31, 2022 and an increase of 152 basis points in the weighted average yield for the loan portfolio to 6.12% for the year ended December 31, 2023 from 4.60% for the year ended December 31, 2022, reflecting the increasing rate environment year to year.

Average interest-earning assets increased $800.7 million, or 26.8%, to $3.78 billion for the year ended December 31, 2023 from $2.98 billion for the year ended December 31, 2022.

The yield on interest-earning assets increased 181 basis points to 5.87% for the year ended December 31, 2023 from 4.06% for the year ended December 31, 2022.

1 unchanged sentence

Total interest expense increased $74.9 million, or 481.7%, to $90.4 million for the year ended December 31, 2023 from $15.5 million for the year ended December 31, 2022.

Interest expense on deposit accounts increased $63.7 million, or 502.0%, to $76.4 million for the year ended December 31, 2023 from $12.7 million for the year ended December 31, 2022, due to an increase in the average balance of interest-bearing deposits of $516.6 million, or 23.6%, to $2.70 billion for the year ended December 31, 2023 from $2.19 billion for the year ended December 31, 2022 and an increase in the weighted average rate on interest-bearing deposits to 3.05% for the year ended December 31, 2023 from 0.68% for the year ended December 31, 2022.

Interest expense on deposit accounts increased $63.7 million, or 502.0%, to $76.4 million for the year ended December 31, 2023 from $12.7 million for the year ended December 31, 2022, due to an increase in the weighted average rate on interest-bearing deposits to 2.84% for the year ended December 31, 2023 from 0.60% for the year ended December 31, 2022 and an increase in the average balance of interest-bearing deposits of $576.2 million, or 27.3%, to $2.70 billion for the year ended December 31, 2023 from $2.11 billion for the year ended December 31, 2022.

Interest expense on FHLB advances increased $11.2 million, or 391.4%, to $14.1 million for the year ended December 31, 2023 from $2.9 million for the year ended December 31, 2022.

The average balance of FHLB advances increased $171.1 million, or 193.7%, to $259.5 million for the year ended December 31, 2023 from $88.3 million for the year ended December 31, 2022 and the weighted average cost of these advances increased to 5.41% for 2023 from 3.24% for 2022.

The average balance of FHLB advances increased $171.1 million, or 193.7%, to $259.5 million for the year ended December 31, 2023 from $88.3 million for the year ended December 31, 2022 and the weighted average cost of FHLB advances increased to 5.41% for the year ended December 31, 2023 from 3.24% for the year ended December 31, 2022.

The increase in the average balance was due to our strategy to utilize additional borrowings to support loan growth and for liquidity management.

1 unchanged sentence

Net interest income was $131.7 million for the year ended December 31, 2023, compared to $105.5 million in the prior year, representing an increase of $26.2 million, or 24.9%.

The net interest margin was 3.41% for 2023, representing a decrease of eight basis points from 2022, primarily due to an increase in the cost of liabilities used to fund the Company’s loan growth.

The net interest margin was 3.48% for the year ended December 31, 2023, representing a decrease of 6 basis points from the year ended December 31, 2022, primarily due to an increase in the cost of liabilities used to fund the Company’s loan growth.

The increase in net interest income was primarily due to a $800.7 million increase in the average balance of interest-earning assets during the year ended December 31, 2023, which outpaced growth in average interest-bearing liabilities, which grew by $747.3 million during the year ended December 31, 2023.

The net interest margin decreased slightly to 3.41% for the year ended December 31, 2023 from 3.49% for the year ended December 31, 2022.

The decrease in the net interest margin was primarily due to the increase in the average rates paid on interest-bearing liabilities increasing by 237 basis points during the year ended December 31, 2023, while the yield on interest-earning assets grew by 177 basis points.

The decrease in the net interest margin was primarily due to the increase in the average rates paid on interest-bearing liabilities of 236 basis points compared to the increase in the yield on interest-earning assets of 181 basis points during the year ended December 31, 2023.

Provision for Credit Losses.

Based on management’s analysis of the adequacy of allowance for credit losses, a provision of $13.9 million was recorded for the year ended December 31, 2023 in accordance with the CECL standard, compared to a provision of $6.7 million for the year ended December 31, 2022 in accordance with the incurred loss methodology standard.

The $7.2 million, or 107.2%, increase in the provision was primarily due to the material growth in total loans which increased $878.3 million, or 29.1%, to $3.89 billion at December 31, 2023 from $3.02 billion at December 31, 2022.

The $7.2 million, or 107.2%, increase in the provision was primarily due to the adoption of the CECL standard and the material growth in total loans which increased $873.8 million, or 29.0%, to $3.89 billion at December 31, 2023 from $3.02 billion at December 31, 2022.

The provision for credit losses for the year ended December 31, 2023 consisted of a provision for credit losses of $9.7 million and a provision for unfunded commitments of $4.2 million.

3 unchanged sentences

The table below sets forth our noninterest income for the years ended December 31, 2023 and 2022:

Year ended December 31,

(Dollars in thousands)

7 unchanged sentences

Noninterest Expense.

Noninterest expense for 2023 was $119.9 million, representing an increase of $48.8 million, or 68.5%, from the prior year, and included certain one-time costs associated with the Company’s mutual-to-stock conversion during the year ended December 31, 2023.

Excluding expenses related to the mutual-to-stock conversion and certain other non-operating items, noninterest expense on an operating basis for 2023 was $91.0 million, which represents a $19.8 million, or 27.9%, increase from 2022 as the Company continued to invest in infrastructure to support growth.

Noninterest expense increased $48.8 million, or 68.5%, to $119.9 million for the year ended December 31, 2023 from $71.2 million for the year ended December 31, 2022.

Noninterest expense increased $50.0 million, or 70.1%, to $121.3 million for the year ended December 31, 2023 from $71.3 million for the year ended December 31, 2022, and included certain one-time costs associated with the Company’s mutual-to-stock conversion during the year ended December 31, 2023.

Excluding expenses related to the mutual-to-stock conversion and certain other non-operating items, noninterest expense on an operating basis for the year ended December 31, 2023 was $92.4 million, which represents a $21.1 million, or 26.9%, increase from the year ended December 31, 2022 as the Company continued to invest in infrastructure to support growth.

Salary and employee benefit expenses increased $20.9 million, or 44.0%.

The increase in salary and employee benefits resulted primarily from the hiring of additional employees consistent with our business strategy to grow the Company, as well as discretionary bonuses awarded by the Compensation Committee.

Charitable contribution expense increased $19.3 million resulting from a $19.1 million charitable contribution as part of the Company’s mutual-to-stock conversion and related IPO.

Additionally, director and professional fees increased $1.5 million, or 31.0%, resulting primarily from increased professional services in connection with our loan operations, and FDIC insurance expense increased $2.9 million, or 157.4%, resulting from an increase in asset growth and a reduction in capital ratios.

Marketing and charitable contribution expense increased $19.7 million resulting from a $19.1 million charitable contribution as part of the Company’s mutual-to-stock conversion.

Additionally, general and administrative expenses increased $2.5 million, or 66.1%, primarily a result of amortization of solar income tax credit investments, data processing expenses increased $1.8 million, or 31.05%, as the Company continued to invest in technology infrastructure to support growth, director and professional fees increased $1.5 million, or 31.0%, resulting primarily from increased professional services in connection with our loan operations, and FDIC insurance expense increased $2.9 million, or 157.4%, resulting from an increase in asset growth and a reduction in capital ratios.

The table below sets forth our noninterest expense for the years ended December 31, 2023 and 2022:

Year ended December 31,

(Dollars in thousands)

3 unchanged sentences

Data processing expenses

Charitable contribution expense

Marketing expense

Marketing and charitable contribution expenses

FDIC and state insurance assessments

4 unchanged sentences

The effective tax rate was 17.0% and 17.4% for the years ended December 31, 2023 and 2022, respectively.

The effective tax rate decreased during 2023 primarily as a result of a decrease in income before taxes of $24.5 million, or 67.45% in comparison to 2022.

The effective tax rate decreased during the year ended December 31, 2023 primarily as a result of a decrease in income before taxes of $24.5 million, or 67.5%, primarily as a result of the mutual-to-stock conversion.

Average Balances and Yields.

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

The following tables set forth average consolidated 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.

3 unchanged sentences

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

For the Year Ended December 31,

For the Year Ended

December 31, 2023

December 31, 2022

(Dollars in thousands)

10 unchanged sentences

Total interest-bearing deposits

FHLB advances

FHLB borrowings

Total interest-bearing liabilities

12 unchanged sentences

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

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

Short-term investments are comprised of cash and cash equivalents.

Rate/Volume Analysis.

7 unchanged sentences

Increase (Decrease) Due to

(Dollars in thousands)

(In thousands)

Interest-earning assets:

Other investments

Short-term investments

5 unchanged sentences

Total interest-bearing deposits

Federal Home Loan Bank advances

FHLB borrowings

Total interest-bearing liabilities

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Our ERM Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our Board of Directors.

The ERM Committee meets at least quarterly, is comprised of directors, executive officers and certain senior management, and reports to the full board of directors on at least a quarterly basis.

The ERM Committee meets at least quarterly, is comprised of directors, executive officers and certain members of senior management, and reports to the full Board of Directors on at least a quarterly basis.

We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the Board of Directors.

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● growing our volume of core deposit accounts;

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

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

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

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Change in Interest Rates

Net Interest Income Year

Net Interest Income

Year 1 Change from

(basis points) (1)

Year 1 Forecast

(Dollars in thousands)

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

The table above indicates that at December 31, 2023, we would have experienced a 0.3% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 3.1% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

Economic Value of Equity .

We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates.

The table above indicates that at December 31, 2024, we would have experienced a 5.2% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 5.8% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

Economic Value of Equity (“EVE”) .

We also compute amounts by which the net present value of our assets and liabilities, or EVE, would change in the event of a range of assumed changes in market interest rates.

This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value.

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

The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of December 31, 2024, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

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(2) EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

The table above indicates that at December 31, 2023, we would have experienced a 1.5% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.9% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

The table above indicates that at December 31, 2024, we would have experienced a 1.6% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.7% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements.

Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates.

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

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

Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

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

We are also able to borrow from the FHLB.

At December 31, 2023, we had outstanding advances of $283.3 million from the FHLB.

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

At December 31, 2024, we had outstanding borrowings of $120.8 million from the FHLB.

At December 31, 2024, we had unused borrowing capacity of $754.1 million with the FHLB.

At December 31, 2023 we also had a $46.2 million available line of credit with the Discount Window at the Federal Reserve Bank of Boston.

At December 31, 2024 we also had $451.0 million available from a line under the BIC program at the FRB of Boston.

Additionally, at December 31, 2024, we had $309.8 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 $979.6 million of brokered deposits.

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

For additional information, see the consolidated statements of cash flows for the years

ended December 31, 2023 and 2022 included as part of the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

For additional information, see the consolidated statements of cash flows for the years ended December 31, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

We are committed to maintaining a strong liquidity position.

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

At December 31, 2023, Needham Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date.

At December 31, 2024, the Company and the Bank exceed 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 11 of the notes to consolidated financial statements on page 105.

See Note 10 of the notes to consolidated financial statements on pages 120-121.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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Such commitments are subject to the same credit policies and approval process accorded to loans we make.

At December 31, 2023, the unfunded portion of construction loans, home equity lines of credit, commercial lines of credit and other lines of credit, along with letters of credit, totaled $1.1 billion.

At December 31, 2024, the unfunded portion of construction loans, home equity lines of credit, commercial lines of credit and other lines of credit, along with letters of credit, totaled $952.3 million.

Our allowance for credit losses on these unfunded commitments amounted to $3.2 million.

We anticipate that we will have sufficient funds available to meet our current lending commitments.

Time deposits that are scheduled to mature in less than one year from December 31, 2023 totaled $340.8 million.

Time deposits that are scheduled to mature in less than one year from December 31, 2024 totaled $1.9 billion.

Management expects that a substantial portion of these time deposits will be retained.

However, if a substantial portion of these time deposits is not retained, we may utilize advances from the FHLB, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

However, if a substantial portion of these time deposits is not retained, we may utilize advances from the FHLB or the FRB, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations.

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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-K

Item 7. Management’s Discussion and Analysis