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 months ended March 31, 2025 and 2024 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.
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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;
● 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;
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● 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;
● 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 7, 2025.
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.
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For the loans that are individually assessed, the Company uses either a discounted cash flow (“DCF”) approach, a fair value of collateral approach or an enterprise value method. The latter approaches are 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.
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 and tangible book value per share. 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.
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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
(Unaudited)
(Dollars in thousands)
For the Three Months Ended
March 31, 2025
March 31, 2024
Net income (GAAP)
$
12,655
$
8,701
Add (Subtract):
Adjustments to net income:
BOLI surrender tax and managed endowment contract penalty
154
-
Defined benefit pension termination expense
1,217
390
Total adjustments to net income
$
1,371
$
390
Less net tax benefit associated with defined benefit pension termination expense
333
111
Non-GAAP adjustments, net of tax
1,038
279
Operating net income (non-GAAP)
$
13,693
$
8,980
Weighted average common shares outstanding, basic
38,755,746
39,689,644
Weighted average common shares outstanding, diluted
38,755,746
39,689,644
Operating earnings per share, basic (non-GAAP)
0.35
0.23
Operating earnings per share, diluted (non-GAAP)
0.35
0.23
Noninterest expense (GAAP)
$
28,660
$
25,565
Subtract (Add):
Noninterest expense components:
Defined benefit pension termination expense
1,217
390
Total impact of non-GAAP noninterest expense adjustments
$
1,217
$
390
Noninterest expense on an operating basis (non-GAAP)
$
27,443
$
25,175
Operating net income (non-GAAP)
$
13,693
$
8,980
Average assets
5,146,520
4,495,666
Operating return on average assets (non-GAAP)
1.08%
0.80%
Average shareholders’ equity
757,333
733,695
Operating return on average shareholders' equity (non-GAAP)
7.33%
4.92%
Noninterest expense on an operating basis (non-GAAP)
$
27,443
$
25,175
Total revenue (net interest income plus total noninterest income) (non-GAAP)
47,387
42,134
Operating efficiency ratio (non-GAAP)
57.91%
59.75%
As of
March 31, 2025
December 31, 2024
Total shareholders’ equity (GAAP)
$
739,611
$
765,167
Subtract:
Intangible assets (core deposit intangible)
1,042
1,079
Total tangible shareholders’ equity (non-GAAP)
738,569
764,088
Total assets (GAAP)
5,242,157
5,157,737
Subtract:
Intangible assets (core deposit intangible)
1,042
1,079
Total tangible assets (non-GAAP)
$
5,241,115
$
5,156,658
Tangible shareholders' equity / tangible assets (non-GAAP)
14.09%
14.82%
Total common shares outstanding
40,570,443
42,705,729
Tangible book value per share (non-GAAP)
$
18.20
$
17.89
Comparison of Financial Condition as of March 31, 2025 and December 31, 2024
Total Assets. Total assets increased $84.4 million, or 1.6%, to $5.24 billion as of March 31, 2025 from $5.16 billion as of December 31, 2024. The increase was primarily driven by increases in net loans, partially offset by decreases in cash and cash equivalents.
Cash and Cash Equivalents. Cash and cash equivalents decreased $50.4 million, or 13.9%, to $313.4 million as of March 31, 2025 from $363.9 million as of December 31, 2024. The decrease in cash and cash equivalents was primarily due to loan originations and paydowns of FHLB borrowings.
Available-for-Sale Securities. Available-for-sale securities increased $6.5 million, or 2.8%, to $234.7 million as of March 31, 2025 from $228.2 million as of December 31, 2024 primarily due to purchases of U.S. treasuries and mortgage backed-securities. No securities were sold during the three months ended March 31, 2025.
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Loans. Net loans increased $131.8 million, or 3.1%, to $4.43 billion as of March 31, 2025 from $4.29 billion as of December 31, 2024. The increase resulted primarily from increases in: construction and development loans, which increased $62.5 million, or 10.7%; commercial and industrial loans, which increased $49.6 million, or 8.9%; commercial real estate loans, which increased $12.6 million, or 0.9%; and consumer loans, which increased $7.8 million, or 3.2%. 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 $454.3 million and $459.6 million in loans to borrowers in the cannabis industry at March 31, 2025 and December 31, 2024, respectively. Of that total, $320.3 million and $321.9 million were direct loans to cannabis companies and were collateralized by real estate at March 31, 2025 and December 31, 2024, respectively.
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 decreased $3.3 million, or 5.6%, to $56.2 million as of March 31, 2025 from $59.5 million as of December 31, 2024. The decrease resulted primarily from a $3.1 million decrease in the value of interest rate swaps due to interest rate changes and a $1.5 million decrease in income tax receivables, offset partially by a $1.1 million increase in prepaid expenses due to new and renewed contracts.
Deposits. Deposits increased $149.0 million, or 3.6%, to $4.33 billion as of March 31, 2025 from $4.18 billion as of December 31, 2024. Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $149.5 million, or 3.9%, to $4.02 billion as of March 31, 2025 from $3.87 billion as of December 31, 2024. The increase in deposits was the result of growth in customer deposits, primarily money market accounts, which increased $127.1 million, or 12.7%, and certificates of deposit, which increased $19.5 million, or 1.2%, from December 31, 2024.
The Company had $413.8 million and $395.2 million in deposits from the cannabis industry as of March 31, 2025 and December 31, 2024, respectively.
FHLB Borrowings. FHLB borrowings decreased $30.0 million, or 24.8%, to $90.8 million as of March 31, 2025 from $120.8 million as of December 31, 2024. The decrease in FHLB borrowings was the result of overall deposit growth.
Accrued expenses and other liabilities. Accrued expenses and other liabilities decreased $5.4 million, or 8.2%, to $60.3 million as of March 31, 2025 from $65.7 million as of December 31, 2024. The decrease resulted primarily from $4.9 million in lower accrued bonuses due to payout of 2024 bonuses, $3.1 million in lower value of interest rate swaps due to changes in interest rates and a $1.9 million decline in accrued interest of brokered deposits due to maturities during the three months ended March 31, 2025; offset partially by a $1.5 milion increase in accrued taxes, a $2.4 million increase in miscellaneous liabilities and accrued expenses.
Shareholders’ Equity. Total shareholders’ equity decreased $25.6 million, or 3.3%, to $739.6 million as of March 31, 2025 from $765.2 million as of December 31, 2024, due to the $40.7 million decrease in additional paid-in capital resulting from the completion of the share repurchase program , partially offset by net income of $12.7 million and other comprehensive income of $1.7 million during the three months ended March 31, 2025.
Comparison of Operating Results for the Three Months Ended March 31, 2025 and March 31, 2024
Net Income. Net income was $12.7 million for the quarter ended March 31, 2025, compared to net income of $8.7 million for the quarter ended March 31, 2024, an increase of approximately $4.0 million, or 45.4%. An increase of $4.9 million, or 12.7%, in net interest income and a $3.3 million, or 73.9%, decrease in the provision for credit losses was partially offset by a $3.1 million, or 12.1%, increase in noninterest expense and a $1.5 million, or 42.9% increase in income tax expense.
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Operating net income, excluding one-time charges, amounted to $13.7 million, or $0.35 per diluted share, for the quarter ended March 31, 2025 compared to net income of $9.0 million, or $0.23 per diluted share, for the quarter ended March 31, 2024, an increase of $4.7 million, or 52.5%. The material one-time charges for the quarter ended March 31, 2025 were:
● Pension expense related to the final liquidation of the employee pension plan totaling $884,000 (net of tax) and;
● Tax expense and a modified endowment contract penalty related to the surrender of bank-owned life insurance (“BOLI”) policies of $154,000.
Interest and Dividend Income. Interest and dividend income increased $8.7 million, or 12.7%, to $76.9 million for the quarter ended March 31, 2025 from $68.2 million for the quarter ended March 31, 2024, primarily due to a $7.4 million, or 11.6%, increase in interest and fees on loans and a $1.0 million, or 79.0%, increase in interest on securities. The increase in interest and fees on loans was primarily due to an increase of $463.4 million, or 11.9%, in the average balance of the loan portfolio to $4.37 billion for the quarter ended March 31, 2025 from $3.90 billion for the quarter ended March 31, 2024, reflecting the growth of our commercial loan portfolio. The increase in interest income on securities was primarily due to an increase of 137 basis points in the weighted average yield on our securities portfolio to 4.03% for the quarter ended March 31, 2025 from 2.66% for the quarter ended March 31, 2024 and the increase in the average balance of the securities portfolio of $37.1 million, or 19.2%, to $230.4 million for the quarter ended March 31, 2025 from $193.3 million for the quarter ended March 31, 2024.
Average interest-earning assets increased $591.6 million, to $4.89 billion for the quarter ended March 31, 2025 from $4.30 billion for the quarter ended March 31, 2024. The yield on interest-earning assets was 6.38% for the quarters ended March 31, 2025 and 2024.
Interest Expense. Total interest expense increased $3.8 million, or 12.7%, to $33.3 million for the quarter ended March 31, 2025 from $29.6 million for the quarter ended March 31, 2024. Interest expense on deposit accounts increased $4.0 million, or 14.3%, to $32.2 million for the quarter ended March 31, 2025 from $28.2 million for the quarter ended March 31, 2024. The increase was due to an increase in the average balance of certificates of deposit and individual retirement accounts of $309.8 million, or 18.6%, to $1.98 billion for the quarter ended March 31, 2025 from $1.67 billion for the quarter ended March 31, 2024 and an increase in the average balance of money market accounts of $220.3 million, 25.8%, to $1.07 billion for the quarter ended March 31, 2025 from $852.8 million for the quarter ended March 31, 2024, offset partially by a decrease in the weighted average rate on certificates of deposit and individual retirement accounts of 30 basis points to 4.59% for the quarter ended March 31, 2025 from 4.89% for the quarter ended March 31, 2024.
Net Interest Income. Net interest income increased $4.9 million, or 12.7%, to $43.5 million for the quarter ended March 31, 2025 from $38.6 million for the quarter ended March 31, 2024, primarily due to a $591.6 million, or 13.8%, increase in the average balance of interest-earning assets to $4.89 billion for the quarter ended March 31, 2025 from $4.30 billion for the quarter ended March 31, 2024 and a decrease in the weighted average rate on interest-bearing liabilities of 17 basis points from 3.80% for the quarter ended March 31, 2024 to 3.63% for the quarter ended March 31, 2025. These increases were offset partially by a $601.7 million increase in the average balance of interest-bearing liabilities to $3.73 billion for the quarter ended March 31, 2025 from $3.13 billion for the quarter ended March 31, 2024.
Provision for Credit Losses. Based on management’s analysis of the adequacy of the allowance for credit losses, a provision of $1.2 million was recorded for the quarter ended March 31, 2025, of which $947,000 related to the provision for credit losses on loans, compared to a provision of $4.4 million for the quarter ended March 31, 2024, which includes a $3.9 million provision for credit losses on loans. The provision for credit losses on unfunded commitments decreased $328,000, or 60.9%, during the three months ended March 31, 2025 as a result of a reduction in qualitative factors on construction commitments. The decrease of $3.3 million, or 73.9%, in the total provision for credit losses was primarily due to the decreases in the qualitative factors on loans collateralized by purchased consumer loans and updated prepayment speeds across all loan segments.
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Noninterest Income. Noninterest income increased $360,000, or 10.3%, to $3.9 million for the quarter ended March 31, 2025 from $3.5 million for the quarter ended March 31, 2024. The increase resulted primarily from increases in customer service fees of $678,000 due to higher loan and cash management fees and increases in the change in the cash surrender value of BOLI of $630,000 resulting from carrying a higher balance of BOLI during the three months ended March 31, 2025; offset partially by decreases in other income of $615,000 resulting from the debit card branding signing bonus earned during the quarter ended March 31, 2024 and decreases in swap contract fees of $399,000, resulting from fewer swaps executed during the three months ended March 31, 2025. The table below sets forth our noninterest income for the quarters ended March 31, 2025 and 2024:
Three Months Ended
March 31,
Change
2025
2024
Amount
Percent
(Dollars in thousands)
Customer service fees
$
2,558
$
1,880
$
678
36.06%
Increase in cash surrender value of BOLI
1,031
401
630
157.11%
Mortgage banking income
176
110
66
60.00%
Swap contract income
88
487
(399)
(81.93)%
Other income
8
623
(615)
(98.72)%
Total noninterest income
$
3,861
$
3,501
$
360
10.28%
Noninterest Expense. Noninterest expense increased $3.1 million, or 12.1%, to $28.7 million for the quarter ended March 31, 2025 from $25.6 million for the quarter ended March 31, 2024. Salaries and employee benefit expenses increased $1.6 million, or 9.0%, resulting primarily from a $826,000 increase in pension expenses resulting from a one-time expense for final liquidation of the employee pension plan, a $596,000 and $340,000 increase in salaries expense and benefits expense, respectively, due to headcount increases related to the Company’s growth strategy, a $194,000 increase in ESOP expenses due to stock price appreciation and a $175,000 increase in FICA expenses related to bonus payouts, partially offset by a $592,000 decrease in long term incentive plan expenses during the quarter ended March 31, 2025. Data Processing expenses increased $770,000 related to investments in management information and customer service systems during the quarter ended March 31, 2025. FDIC and state assessment expenses increased $452,000 due to increases in the related assessment calculation resulting from the Bank’s growth.
The table below sets forth our noninterest expense for the quarters ended March 31, 2025 and 2024:
Three Months Ended
March 31,
Change
2025
2024
Amount
Percent
(Dollars in thousands)
Salaries and employee benefits
$
19,149
$
17,560
$
1,589
9.05%
Director and professional service fees
2,148
1,908
240
12.58%
Occupancy and equipment expenses
1,580
1,336
244
18.26%
Data processing expenses
2,765
1,995
770
38.60%
Marketing and charitable contribution expenses
846
742
104
14.02%
FDIC and state insurance assessments
813
361
452
125.21%
General and administrative expenses
1,359
1,663
(304)
(18.27)%
Total noninterest expense
$
28,660
$
25,565
$
3,095
12.11%
Income Tax Expense. Income tax expense increased $1.5 million, or 42.9%, to $4.9 million for the quarter ended March 31, 2025 from $3.4 million for the quarter ended March 31, 2024. The increase was due to the increase in pretax income of $5.4 million, or 44.7%. The effective tax rate was 28.0% and 28.3% for the quarter ended March 31, 2025 and 2024, respectively.
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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
March 31, 2025
March 31, 2024
Average
Average
Outstanding
Average
Outstanding
Average
Balance
Interest
Yield/Rate (4)
Balance
Interest
Yield/Rate (4)
Interest-earning assets:
Loans
$
4,366,408
$
71,440
6.64
%
$
3,903,044
$
64,000
6.60
%
Securities
230,406
2,290
4.03
%
193,296
1,279
2.66
%
Other investments (5)
27,454
219
3.24
%
25,043
416
6.68
%
Short-term investments (5)
264,343
2,902
4.45
%
175,616
2,498
5.72
%
Total interest-earning assets
4,888,611
76,851
6.38
%
4,296,999
68,193
6.38
%
Non-interest-earning assets
296,594
231,411
Allowance for credit losses
(38,685)
(32,744)
Total assets
$
5,146,520
$
4,495,666
Interest-bearing liabilities:
Savings accounts
$
113,750
46
0.16
%
$
125,806
16
0.05
%
NOW accounts
470,470
1,043
0.90
%
379,110
715
0.76
%
Money market accounts
1,073,041
8,747
3.31
%
852,758
7,193
3.39
%
Certificates of deposit and individual retirement accounts
1,979,184
22,403
4.59
%
1,669,337
20,293
4.89
%
Total interest-bearing deposits
3,636,445
32,239
3.60
%
3,027,011
28,217
3.75
%
FHLB advances
91,168
1,086
4.83
%
98,886
1,343
5.46
%
Total interest-bearing liabilities
3,727,613
33,325
3.63
%
3,125,897
29,560
3.80
%
Non-interest-bearing deposits
571,549
552,586
Other non-interest-bearing liabilities
90,025
83,488
Total liabilities
4,389,187
3,761,971
Shareholders' equity
757,333
733,695
Total liabilities and shareholders' equity
$
5,146,520
$
4,495,666
Net interest income
$
43,526
$
38,633
Net interest rate spread (1)
2.75
%
2.58
%
Net interest-earning assets (2)
$
1,160,998
$
1,171,102
Net interest margin (3)
3.61
%
3.62
%
Average interest-earning assets to interest-bearing liabilities
131.15
%
137.46
%
(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
March 31, 2025 vs. 2024
Increase (Decrease) Due to
Total
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
7,581
$
(141)
$
7,440
Securities
279
732
1,011
Other investments
45
(242)
(197)
Short-term investments
737
(333)
404
Total interest-earning assets
8,642
16
8,658
Interest-bearing liabilities:
Savings accounts
(1)
31
30
NOW accounts
190
138
328
Money market accounts
1,786
(232)
1,554
Certificates of deposit and individual retirement accounts
3,354
(1,244)
2,110
Total interest-bearing deposits
5,329
(1,307)
4,022
Federal Home Loan Bank advances
(100)
(157)
(257)
Total interest-bearing liabilities
5,229
(1,464)
3,765
Change in net interest income
$
3,413
$
1,480
$
4,893
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 March 31, 2025, we had outstanding advances of $90.8 million from the FHLB and an unused borrowing capacity of $754.3 million with the FHLB. At March 31, 2025, the Bank had $651.2 million available from a line under the Borrower in Custody (“BIC”) program at the FRB. Additionally, as of March 31, 2025, we had $309.2 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $1.00 billion 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.
At March 31, 2025, we had $49.1 million in commitments to originate loans outstanding. In addition, we had $556.6 million in unused lines of credit to borrowers, $488.3 million in unadvanced construction loans and $6.3 million in letters of credit outstanding.
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Non-brokered certificates of deposit due within one year of March 31, 2025 totaled $1.54 billion, or 35.6%, of total deposits. If these deposits do not remain with us, we may be required to seek other sources of funds, including brokered deposits, FHLB advances and FRB borrowings. Depending on market conditions, we may be required to pay higher rates on such deposits or other borrowings than we currently pay on the non-brokered certificates of deposit due on or before March 31, 2026, or on our other interest-bearing deposit accounts. We believe, however, based on historical experience and current market interest rates that we will retain, upon maturity, a large portion of our certificates of deposit with maturities of one year or less as of March 31, 2025.
Our primary investing activity is originating loans. During the three months ended March 31, 2025, we originated $119.8 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 $149.0 million for the three months ended March 31, 2025. At March 31, 2025 and December 31, 2024, the level of brokered time deposits was $309.2 million and $309.8 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 $30.0 million during the three months ended March 31, 2025.
For additional information, see the consolidated statements of cash flows for the three months ended March 31, 2025 and 2024 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 March 31, 2025, 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.