Table of Contents
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒
Quarterly Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2025
OR
☐
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the transition period from _______________ to _______________
Commission File No. 001-41899
NB Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Maryland
93-2560883
(State or other jurisdiction ofincorporation or organization)
(I.R.S. EmployerIdentification Number)
1063 Great Plain AvenueNeedham, Massachusetts
02492
(Address of Principal Executive Offices)
(Zip Code)
(781) 444-2100
(Registrant’s telephone number)
N/A
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Common stock, par value $0.01 per share
NBBK
The NASDAQ Stock Market, LLC
(Title of each class to be registered)
(Ticker Symbol)
(Name of each exchange on which
each class is to be registered)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such requirements for the past 90 days.
YES ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐
Accelerated filer ☒
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐ NO ☒
As of May 9, 2025, 40,570,443 shares of the Registrant’s common stock, par value $0.01 per share, were issued and outstanding.
Form 10-Q
Index
Page
Part I. Financial Information
Item 1.
Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024
1
Consolidated Statements of Income for the Three Months Ended March 31, 2025 and 2024 (unaudited)
2
Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2025 and 2024 (unaudited)
3
Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2025 and 2024 (unaudited)
4
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2025 and 2024 (unaudited)
5
Notes to Consolidated Financial Statements (unaudited)
6
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
28
Item 3.
Quantitative and Qualitative Disclosures about Market Risk
38
Item 4.
Controls and Procedures
39
Part II. Other Information
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
40
Item 6.
Exhibits
Signature Page
41
Part I. – Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 2025 (Unaudited) and December 31, 2024
(in thousands except share and per share data)
March 31, 2025
December 31, 2024
Assets
Cash and due from banks
$
201,140
211,166
Federal funds sold
112,306
152,689
Total cash and cash equivalents
313,446
363,855
Available-for-sale securities, at fair value
234,680
228,205
Loans receivable, net of deferred fees
4,464,500
4,333,152
Allowance for credit losses
(38,338)
(38,744)
Net loans
4,426,162
4,294,408
Accrued interest receivable
19,533
19,685
Banking premises and equipment, net
34,069
34,654
Non-public investments
24,710
24,364
Bank-owned life insurance ("BOLI")
103,688
102,785
Prepaid expenses and other assets
56,150
59,482
Deferred income tax asset, net
29,719
30,299
Total assets
5,242,157
5,157,737
Liabilities and shareholders' equity
Deposits
Core deposits
4,017,378
3,867,846
Brokered deposits
309,239
309,806
Total deposits
4,326,617
4,177,652
Mortgagors' escrow accounts
4,464
4,549
FHLB borrowings
90,835
120,835
Accrued expenses and other liabilities
60,344
65,708
Accrued retirement liabilities
20,286
23,826
Total liabilities
4,502,546
4,392,570
Shareholders' equity:
Preferred stock, $0.01 par value, 5,000,000 shares authorized; no shares issued and outstanding
—
Common stock, $0.01 par value, 120,000,000 shares authorized; 40,570,443 and 42,705,729
shares issued and outstanding at March 31, 2025 and December 31, 2024 respectively
406
427
Additional paid-in capital
376,773
417,247
Unallocated common shares held by the Employee Stock Ownership Plan ("ESOP")
(44,231)
(44,813)
Retained earnings
413,128
400,473
Accumulated other comprehensive loss
(6,465)
(8,167)
Total shareholders' equity
739,611
765,167
Total liabilities and shareholders' equity
The accompanying notes are an integral part of these unaudited consolidated financial statements.
Consolidated Statements of Income
(Unaudited - Dollars in thousands, except per share data)
For the Three Months Ended
March 31,
2025
2024
INTEREST AND DIVIDEND INCOME
Interest and fees on loans
71,440
64,000
Interest on securities
2,290
1,279
Interest and dividends on cash equivalents and other
3,121
2,914
Total interest and dividend income
76,851
68,193
INTEREST EXPENSE
Interest on deposits
32,239
28,217
Interest on borrowings
1,086
1,343
Total interest expense
33,325
29,560
NET INTEREST INCOME
43,526
38,633
PROVISION FOR CREDIT LOSSES
Provision for credit losses - loans
947
3,890
Provision for credit losses - unfunded commitments
211
539
Total provision for credit losses
1,158
4,429
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES
42,368
34,204
NONINTEREST INCOME
Customer service fees
2,558
1,880
Increase in cash surrender value of BOLI
1,031
401
Mortgage banking income
176
110
Swap contract income
88
487
Other income
8
623
Total noninterest income
3,861
3,501
NONINTEREST EXPENSE
Salaries and employee benefits
19,149
17,560
Director and professional service fees
2,148
1,908
Occupancy and equipment expenses
1,580
1,336
Data processing expenses
2,765
1,995
Marketing and charitable contribution expenses
846
742
FDIC and state insurance assessments
813
361
General and administrative expenses
1,359
1,663
Total noninterest expense
28,660
25,565
INCOME BEFORE TAXES
17,569
12,140
INCOME TAX EXPENSE
4,914
3,439
NET INCOME
12,655
8,701
Weighted average common shares outstanding, basic
38,755,746
39,689,644
Weighted average common shares outstanding, diluted
Earnings per share, basic
0.33
0.22
Earnings per share, diluted
Consolidated Statements of Comprehensive Income
(Unaudited - Dollars in thousands)
OTHER COMPREHENSIVE INCOME, NET OF TAX:
Net change in fair value of available-for-sale securities
1,702
212
TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX:
TOTAL COMPREHENSIVE INCOME, NET OF TAX
14,357
8,913
Consolidated Statements of Changes in Shareholders' Equity
Shares of
Unallocated
Accumulated
Common
Additional
Other
Stock
Paid-In
Stock Held by
Retained
Comprehensive
Outstanding
Common Stock
Capital
ESOP
Earnings
Income (Loss)
Total
Balance, December 31, 2023
42,705,729
417,030
(13,774)
366,173
(11,897)
757,959
Net income
Other comprehensive income, net of tax
Costs from stock offering and issuance of common shares
(225)
Purchase of common shares held by ESOP (2,416,458 shares)
(33,397)
ESOP shares committed to be released (42,121 shares)
7
581
588
Balance, March 31, 2024
416,812
(46,590)
374,874
(11,685)
733,838
Balance, December 31, 2024
Repurchase of common shares under share repurchase plan (2,135,286 shares)
(2,135,286)
(21)
(40,675)
(40,696)
201
582
783
Balance, March 31, 2025
40,570,443
Consolidated Statements of Cash Flows
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash from operating activities:
Net amortization (accretion) of available-for-sale securities
(45)
Amortization of core deposit intangible
37
Provision for credit losses
Loan hedge fair value adjustments, net
27
Change in net deferred loan origination fees
233
261
Mortgage loans originated for sale
(340)
Proceeds from sale of mortgage loans held for sale
1,384
Gain on sale of mortgage loans
(27)
Depreciation and amortization expense
693
695
Gain from BOLI death benefit
(25)
Increase in cash surrender values of BOLI
(1,006)
(401)
Deferred income tax benefit
(9)
ESOP expense
Changes in operating assets and liabilities:
152
(559)
3,295
(3,045)
(5,575)
(22,040)
(3,540)
(46)
NET CASH (PROVIDED BY) USED IN OPERATING ACTIVITIES
9,948
(11,407)
CASH FLOWS FROM INVESTING ACTIVITIES
Loan originations and purchases, net of repayments
(134,195)
(67,574)
Purchases of available-for-sale securities
(12,808)
(23,860)
Proceeds from maturities, calls and paydowns of available-for-sale securities
8,583
6,496
Recoveries of loans previously charged off
205
136
Net change in non-public investments
(346)
10,438
Proceeds from BOLI death benefit
128
Purchases of banking premises and equipment
(108)
(270)
NET CASH USED IN INVESTING ACTIVITIES
(138,541)
(74,634)
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits
148,965
384,533
Net costs from stock offering and issuance of common shares
Purchase of common shares held by ESOP
Repurchase of common shares under share repurchase plan
Net change in mortgagors' escrow accounts
(85)
71
Decrease in FHLB borrowings, net
(30,000)
(222,501)
NET CASH PROVIDED BY FINANCING ACTIVITIES
78,184
128,481
NET CHANGE IN CASH AND CASH EQUIVALENTS
(50,409)
42,440
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
272,591
CASH AND CASH EQUIVALENTS AT END OF PERIOD
315,031
Supplemental disclosure of cash paid during the period for:
Interest
36,621
30,334
Income taxes
2,150
2,020
Supplemental disclosure of non-cash transactions:
Unrealized gains on available-for-sale securities
2,291
295
Mortgage loans transferred to loans held for sale
1,017
Notes to Unaudited Consolidated Financial Statements
Note 1 – Corporate Structure and Nature of Operations; Basis of Presentation
Corporate Structure and Nature of Operations
NB Bancorp, Inc., a Maryland corporation (the “Company”) (referred to herein as the “Company," “we,” “us,” or “our”), is a bank holding company. Through its wholly-owned subsidiary, Needham Bank (the “Bank”), the Company provides a variety of banking services, through its full-service bank branches, located primarily in eastern Massachusetts.
The activities of the Company are subject to the regulatory supervision of the Board of Governors of the Federal Reserve System. The activities of the Bank are subject to the regulatory supervision of the Massachusetts Commissioner of Banks and the Federal Deposit Insurance Corporation (“FDIC”). The Company and the activities of the Bank and its subsidiaries are also subject to various Massachusetts business and banking-related regulations.
Basis of Presentation
The Company’s Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States (“U.S. GAAP”) as set forth by the Financial Accounting Standards Board (“FASB”) and its Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) as well as the rules and interpretive releases of the U.S. Securities and Exchange Commission (“SEC”) under the authority of federal securities laws.
The Consolidated Financial Statements of the Company include the balances and results of operations of the Company and the Bank, its wholly-owned subsidiary, as well as the Bank’s wholly-owned subsidiaries, Needco-op Investment Corporation, Inc., 1892 Investments LLC and Eaton Square Realty LLC. All intercompany accounts and transactions have been eliminated in consolidation.
Certain amounts, previously reported, have been reclassified to state all periods on a comparable basis and had no effect on shareholders’ equity or net income.
The accompanying Consolidated Balance Sheet as of March 31, 2025, the Consolidated Statements of Income, of Comprehensive Income, of Changes in Shareholders’ Equity and of Cash Flows for the three months ended March 31, 2025 and 2024 are unaudited. The Consolidated Balance Sheet as of December 31, 2024 was derived from the Audited Consolidated Financial Statements as of that date. The interim Consolidated Financial Statements and the accompanying notes should be read in conjunction with the annual Consolidated Financial Statements and the accompanying notes contained within the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024, as filed with the SEC. In the opinion of management, the Company’s Consolidated Financial Statements reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The results for the three months ended March 31, 2025 are not necessarily indicative of results to be expected for the year ending December 31, 2025, any other interim period, or any future year or period.
The Company qualifies as an emerging growth company (“EGC”) under the Jumpstart Our Business Startups Act of 2012 and has elected to defer the adoption of new or revised accounting standards until the nonpublic company effective dates. As such, the Company will adopt standards on the nonpublic company effective dates until such time that we no longer qualify as an EGC.
Subsequent events are events or transactions that occur after the balance sheet date but before consolidated financial statements are issued.
Recognized subsequent events are events or transactions that provide additional evidence about conditions that existed at the date of the consolidated balance sheet, including the estimates inherent in the process of preparing consolidated financial statements. Non-recognized subsequent events are events that provide evidence about conditions that did not exist at the date of the consolidated balance sheet but arose after that date.
Note 2 – Summary of Significant Accounting Policies
Use of Estimates
In preparing the Consolidated Financial Statements in conformity with U.S. GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheets and income and expenses for the periods reported. Actual results could differ from those estimates based on changing conditions, including economic conditions and future events. Material estimates that are particularly susceptible to change relate to the determination of the allowance for credit losses, valuation and fair value measurements, the liabilities for benefit obligations (particularly pensions) and the provision for income taxes.
Recent Accounting Pronouncements
Relevant standards that were recently issued but not yet adopted as of March 31, 2025:
In November 2024, the FASB issued ASU 2024-03, “Income Statement – Reporting Comprehensive Income – Expense Disaggregation Disclosures (Sub Topic 220-40): Disaggregation of Income Statement Expenses”. ASU 2024-03 improves disclosures about a public business entity’s expenses and addresses requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). ASU 20240-03 is effective for annual reporting periods beginning after December 15, 2026 and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The adoption of ASU 2024-03 is not expected to have a material impact on the Company’s consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” to improve the transparency of income tax disclosures. The amendments are effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. The Company does not expect the adoption of ASU 2023-09 to have a material effect on its consolidated financial statements.
Other accounting standards that have been issued or proposed by the FASB or other standards-setting bodies are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
Note 3 – Securities
The Company's available-for-sale securities are carried at fair value. For available-for-sale securities in an unrealized loss position, management will first evaluate whether there is intent to sell, or if it is more likely than not that the Company will be required to sell a security prior to anticipated recovery of its amortized cost basis. If either of these criteria are met, the Company will record a write-down of the security's amortized cost basis to fair value through income. For those available-for-sale securities which do not meet the intent or requirement to sell criteria, management will evaluate whether the decline in fair value is a result of credit related matters or other factors. In performing this assessment, management considers the creditworthiness of the issuer including whether the security is guaranteed by the U.S. Federal Government or other government agency, the extent to which fair value is less than amortized cost, and changes in credit rating during the period, among other factors. If this assessment indicates the existence of credit losses, the security will be written down to fair value, as determined by a discounted cash flow analysis. To the extent the estimated cash flows do not support the amortized cost, the deficiency is considered to be due to credit loss and is recognized in earnings.
Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss expense. Losses are charged against the allowance when the uncollectibility of a security is confirmed, or when either of the aforementioned criteria surrounding intent or requirement to sell have been met.
Securities have been classified on the consolidated balance sheets according to management’s intent. The following tables summarize the amortized cost, allowance for credit losses, and fair value of securities and their corresponding amounts of unrealized gains and losses at the dates indicated:
Amortized
Unrealized
Allowance for
Cost
Gain
Loss
Credit Losses
Fair Value
(in thousands)
Available-for-Sale Debt Securities:
U.S. Treasury securities
72,396
214
(279)
72,331
U.S. Government agencies
9,003
9,010
Agency mortgage-backed securities
44,973
31
(2,216)
42,788
Agency collateralized mortgage obligations
10,463
133
(177)
10,419
Corporate bonds
91,711
(5,269)
86,618
Municipal obligations
7,592
(219)
7,373
SBA securities
6,205
(64)
6,141
242,343
561
(8,224)
69,469
104
(489)
69,084
9,005
9
(7)
9,007
42,083
(2,899)
39,184
10,993
147
(307)
10,833
90,219
163
(6,337)
84,045
10,092
(286)
9,806
6,298
(54)
6,246
238,159
425
(10,379)
The Company did not record a provision for estimated credit losses on any available-for-sale securities for the three months ended March 31, 2025 and 2024. Excluded from the table above is accrued interest on available-for-sale securities of $1.8 million and $1.6 million at March 31, 2025 and December 31, 2024, respectively, which is included within accrued interest receivable on the consolidated balance sheets. Additionally, the Company did not record any write-offs of accrued interest income on available-for-sale securities for the three months ended March 31, 2025 and 2024. No securities held by the Company were delinquent on contractual payments at March 31, 2025 or December 31, 2024, nor were any securities placed on non-accrual status for the three months ended March 31, 2025 and 2024.
The following is a summary of actual maturities of certain available-for-sale securities as of March 31, 2025. The amortized cost and fair values are based on the contractual maturity dates. Actual maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty. Agency mortgage-backed securities and collateralized mortgage obligations are presented as separate lines as paydowns are expected to occur before contractual maturity dates.
Available-for-Sale
Amortized Cost
Within one year
45,589
45,386
Over one year to five years
92,124
90,652
Over five years to ten years
49,194
45,435
186,907
181,473
When securities are sold, the adjusted cost of the specific security sold is used to compute the gain or loss on the sale. There were no sales of available-for-sale securities during the three months ended March 31, 2025 and 2024.
There were no available-for-sale securities pledged to secure borrowings as of March 31, 2025 and December 31, 2024.
The following tables present fair value and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, as of the dates stated.
Less than 12 Months
12 Months or More
(Dollars in thousands)
Gross
Fair
Number of Securities
Losses
Value
U. S. Treasuries
(15)
11,027
(264)
6,724
17,751
18
(724)
30,347
(1,492)
8,998
39,345
(175)
8,184
(2)
90
8,274
(1,257)
9,243
(4,012)
70,699
79,942
70
(2,235)
64,942
(5,989)
93,884
158,826
(152)
35,388
(337)
6,646
42,034
U.S. Government Agencies
4,999
17
(1,196)
30,229
(1,703)
8,955
(304)
8,265
(3)
113
8,378
29
(1,250)
8,748
(5,087)
69,134
77,882
7,306
4,722
78
(2,963)
92,351
(7,416)
92,154
184,505
Management evaluates securities for expected credit losses at least on a quarterly basis, and more frequently when economic or market concerns warrant such evaluation.
Included in corporate bonds are investments in senior and subordinated debt of banks and bank holding companies, some of which do not have investment ratings.
At March 31, 2025, available-for-sale debt securities had unrealized losses with aggregate depreciation of 4.9% from the Company’s amortized cost basis. These unrealized losses relate to changes in market interest rates since acquiring the securities. As management has the intent and ability to hold available-for-sale debt securities until maturity or cost recovery, no allowance for credit losses on securities is deemed necessary as of March 31, 2025 and December 31, 2024.
Note 4 – Loans Receivable, Allowance for Credit Losses and Credit Quality
Loans Receivable
Loans that management has the intent and ability to hold for the foreseeable future or until loan maturity or pay-off are reported as held-for-investment at their outstanding principal balance adjusted for any charge-offs and net of any deferred fees (including purchase accounting adjustments) and origination costs (collectively referred to as “amortized cost”). For originated loans, loan fees and certain direct origination costs are deferred and amortized into interest income over the contractual life of the loan using the level-yield method. When a loan is paid off, the unamortized portion is recognized in interest income.
Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company’s policy not to record interest income on nonaccrual loans until principal has become current. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not go on nonaccrual status if the Company determines that the loans are well-secured and are in the process of collection.
Allowance for Credit Losses
The Allowance for Credit Losses (“ACL”) represents management’s best estimate of credit losses over the remaining life of the loan portfolio. Loans are charged-off against the ACL when management believes the loan balance is no longer collectible. This determination is made based on management's review of specific facts and circumstances of the individual loan, including the expected cash flows to repay the loan, the value of the collateral and the ability and willingness of any guarantors to perform. Subsequent recoveries of previously charged-off amounts are recorded as increases to the ACL. The provision for credit losses on loans is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held-for-investment loan portfolio. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.
Management’s determination of the adequacy of the ACL under Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 326 – Financial Instruments – Credit Losses is based on an evaluation of the composition of the loan portfolio, current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors.
The Company uses a third-party Current Expected Credit Loss (“CECL”) model as part of its estimation of the ACL on a quarterly basis. Loans with similar risk characteristics are collectively assessed within pools (or segments). Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics. The Company has determined that using federal call codes is an appropriate loan segmentation methodology, as it is generally based on risk characteristics of a loan’s underlying collateral. Using federal call codes also allows the Company to utilize and assess publicly available external information when developing its estimate of the ACL.
The weighted average remaining maturity (“WARM”) method is the primary credit loss estimation methodology used by the Company and involves estimating future cash flows and expected credit losses for pools of loans using their expected remaining weighted average life.
In applying future economic forecasts, the Company utilizes a forecast period of up to two years. Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data, supplemented with peer bank data obtained from publicly available sources. Management also considers qualitative adjustments when estimating credit losses to take into account the model’s quantitative limitations.
10
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. The Company made no significant changes to loss factors, assumptions nor qualitative factors within the CECL model during the three months ended March 31, 2025.
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 and a balance exceeding $500,000, 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.
In the ordinary course of business, the Company enters into commitments to extend credit. Such financial instruments are recorded in the consolidated financial statements when they are funded. The credit risk associated with these commitments is evaluated in a manner similar to the ACL on loans. The reserve for unfunded commitments is included in other liabilities on the consolidated balance sheets.
Loans consist of the following as of the dates stated:
Amount
Percent
One-to-four-family residential
1,118,611
25.02
%
1,130,791
26.06
Home equity
126,718
2.83
124,041
2.86
Total residential real estate
1,245,329
27.85
1,254,832
28.92
Commercial real estate
1,375,980
30.78
1,363,394
31.42
Multi-family residential
341,619
7.64
333,047
7.67
Total commercial real estate
1,717,599
38.42
1,696,441
39.09
Construction and land development
646,343
14.46
583,809
13.45
Commercial and industrial
609,458
13.63
559,828
12.90
Total commercial
2,973,400
66.51
2,840,078
65.44
Consumer, net of premium/discount
252,320
5.64
244,558
Total loans
4,471,049
100.00
4,339,468
Deferred fees, net
(6,549)
(6,316)
Included in the above are 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.
During the three months ended March 31, 2025 and 2024, the Company purchased approximately $14.4 million and $5.5 million of consumer loan pools, respectively. The loans purchased during the three months ended March 31, 2025 included loan pools collateralized by automobiles. The loans purchased during the three months ended March 31, 2024 included loan pools collateralized by boats, recreational vehicles and automobiles.
11
The outstanding balances of these consumer purchased loan pools, shown net of premium (discount) are as follows as of the dates stated:
Gross Loan
Premium (Discount)
Net Loan
Student loans
6,433
6,471
Boat and RV loans
46,134
1,064
47,198
Automobile loans
61,796
Solar panel loans
53,467
(4,974)
48,493
Home improvement loans
42,486
(14)
42,472
210,316
(3,886)
206,430
6,954
42
6,996
48,147
1,136
49,283
52,092
55,400
(5,073)
50,327
44,458
44,443
207,051
(3,910)
203,141
The carrying value of loans pledged to secure advances from the FHLB were $1.25 billion and $1.24 billion as of March 31, 2025 and December 31, 2024, respectively.
The following table presents the aging of the amortized cost of loans receivable by loan category as of the date stated:
30-59
60-89
90 Days or
Current
Days
More Past Due
Loans
Past Due
Still Accruing
Nonaccrual
Real estate loans:
1,111,164
4,404
3,043
125,266
1,157
1,369,023
3,802
2,314
841
646,333
599,960
4,738
200
4,560
Consumer
246,048
3,247
1,264
1,761
4,439,413
16,486
3,778
11,372
12
1,124,762
2,363
736
2,930
122,812
100
171
958
1,355,064
5,325
3,005
332,740
307
583,435
364
550,353
4,907
4,558
236,801
3,725
1,637
2,395
4,305,967
17,091
2,554
13,856
The following table presents the amortized cost of nonaccrual loans receivable by loan category as of the dates stated:
Loans with
No ACL
an ACL
(In thousands)
456
4,104
454
2,394
7,268
9,751
4,105
During the three months ended March 31, 2025 and 2024, the Company reversed $378,000 and $159,000 of interest income for loans that were placed on non-accrual respectively.
Credit Quality Information
The Company utilizes a nine-grade internal rating system for all loans, except consumer loans, which are not risk rated, as follows:
Loans rated 1-5: Loans in these categories are considered “pass” rated loans with low to average risk.
Loans rated 6: Loans in this category are considered “special mention”. These loans are starting to show signs of potential weakness and are being closely monitored by management.
Loans rated 7: Loans in this category are considered “substandard”. Generally, a loan is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligors and/or the collateral pledged. There is a distinct possibility that the Company will sustain some loss if the weakness is not corrected. Non-accrual residential real estate and commercial loans are downgraded to a substandard risk rating.
Loans rated 8: Loans in this category are considered “doubtful”. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, highly questionable and improbable.
Loans rated 9: Loans in this category are considered uncollectible (“loss”) and of such little value that their continuance as loans is not warranted.
13
On an annual basis, or more often if needed, the Company reviews the accuracy of risk ratings for all commercial real estate, construction and land development loans, and commercial and industrial loans based on various ongoing performance characteristics and supporting information that is provided from time to time by commercial borrowers. Annually, the Company engages an independent third-party to review a significant portion of loans within these segments. Management uses the results of these reviews as part of its annual review process.
The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of March 31, 2025. Also presented are current period gross charge-offs by loan type and vintage year for the three months ended March 31, 2025:
Term Loans Amortized Cost Basis by Origination Year (in thousands)
Risk Rating
2023
2022
2021
Prior
Revolving Loans
One-to-Four-Family Residential
Grade:
Pass
1-5
19,760
94,956
142,524
261,580
241,329
327,577
27,466
1,115,192
Special Mention
Substandard
244
2,935
240
3,419
Doubtful
Loans not formally risk rated (1)
241,573
330,512
27,706
Current period gross charge-offs
Home Equity
245
125,316
125,561
126,473
Commercial Real Estate
10,364
116,260
398,181
363,575
68,159
335,272
66,245
1,358,056
1,391
2,646
13,046
17,083
467
374
365,433
70,805
348,692
Multi-Family
5,500
6,090
5,668
212,361
21,651
84,742
5,607
14
Construction and Land Development
1,472
174,697
309,905
95,361
15,361
4,546
44,991
4,556
Commercial and Industrial
2,524
37,326
68,295
62,274
38,439
20,328
366,529
595,715
502
2,790
981
4,698
4,550
4,495
9,045
62,776
41,229
25,859
371,449
9,316
66,157
18,959
56,308
61,176
37,519
2,885
180
491
689
198
1,558
Total Loans
39,620
429,329
924,818
995,151
384,939
772,465
636,154
4,182,476
1,893
5,436
14,027
21,781
7,859
5,892
14,462
48,936
495,486
943,777
1,053,819
451,795
831,880
645,356
(1) Consumer loans are not formally risk rated and included $1.8 million of loans on non-accrual as of March 31, 2025.
The following table presents the amortized cost of loans receivable by internal risk grade by year of origination as of December 31, 2024. Also presented are current period gross charge-offs by loan type and vintage year for the three months ended December 31, 2024:
2020
97,895
145,711
266,364
247,799
115,133
224,354
30,227
1,127,483
246
2,990
72
3,308
248,045
227,344
123,083
15
118,115
409,048
364,384
69,349
97,500
248,749
45,088
1,352,233
1,399
2,664
873
3,220
8,156
469
2,536
366,252
72,013
98,373
254,505
5,138
7,563
212,492
21,791
36,016
50,047
161,997
284,102
90,512
13,255
9,232
24,337
583,799
42,154
64,943
54,435
38,759
6,594
14,468
324,481
545,834
531
2,884
1,002
4,842
343
4,214
4,595
9,152
54,966
41,643
7,939
18,682
329,501
67,429
32,233
67,018
49,262
9,047
17,145
2,424
388
165
45
844
425,299
911,367
988,187
390,953
264,475
537,982
547,216
4,065,479
1,930
5,548
1,875
12,998
9,740
5,625
16,423
492,728
943,600
1,057,604
446,009
275,740
568,097
555,690
(1) Consumer loans are not formally risk rated and included $2.4 million of loans on non-accrual as of December 31, 2024.
16
The following table presents an analysis of the change in the ACL by major loan segment for the periods stated:
For the Three Months Ended March 31, 2025
One-to-Four
Construction
Family
Commercial
and Land
Commercial and
Residential
Real Estate
Development
Industrial
Balance at December 31, 2024
1,195
74
9,481
599
4,137
11,174
12,084
38,744
Provision for (release of) credit losses
98
(723)
703
901
(62)
Charge-offs
(1,558)
Recoveries of loans previously charged-off
193
Balance at March 31, 2025
1,293
8,758
615
4,840
12,087
10,657
38,338
For the Three Months Ended March 31, 2024
Construction and
Land Development
Balance at December 31, 2023
1,835
117
5,698
378
7,630
10,878
5,686
32,222
102
347
(1,896)
434
4,691
Charge offs
(369)
(1,573)
(1,942)
36
Balance at March 31, 2024
1,937
129
6,045
578
5,734
10,979
8,904
34,306
The following table presents the amortized cost of collateral-dependent loans as of March 31, 2025 and December 31, 2024:
As of
3,223
3,112
908
9,046
14,276
16,187
The Company closely monitors the performance of borrowers experiencing financial difficulty to understand the effectiveness of its loan modification efforts. During the three months ended March 31, 2025 and 2024, the Company did not modify any loans to borrowers experiencing financial difficulty.
Note 5 – Employee Benefits
401(k) Plan – The Company has an employee tax deferred incentive plan (the “401(k) plan”) under which the Company makes voluntary contributions within certain limitations. All employees who meet specified age and length of service requirements are eligible to participate in the 401(k) plan.
The amount contributed by the Company to the 401(k) Plan is included in salaries and employee benefits in the consolidated statements of income. The amounts contributed to the 401(k) plan for the three months ended March 31, 2025 and 2024 were $688,000 and $619,000, respectively.
Employee Pension Plan – The Company provided pension benefits through a defined benefit plan maintained with the Co-operative Banks Employees Retirement Association (“CBERA”) (the “Plan”). The Plan was a multi-employer plan whereby the contributions by each bank are not restricted to provide benefits to the employees of the contributing bank; therefore, the Company is not required to recognize the funded status of the plan on its consolidated balance sheet and need only accrue for any quarterly contributions due and payable on demand, or any withdrawal liabilities assessed by CBERA if the Company intended to withdraw from the Plan.
The Company determined to freeze benefit accruals and withdraw from the CBERA Plan as of December 31, 2023. The Company withdrew from the Plan in the second quarter of 2024.
During the three months ended March 31, 2025, as part of the final CBERA Plan liquidation, the Company contributed an additional $1.1 million to the CBERA Plan.
During the three months ended March 31, 2024, an expense of $390,000 was recorded to reflect an increase in the liability related to the withdrawal from the CBERA Plan. The increase was primarily driven by final computations for estimated payouts to participants.
Officers’ Deferred Compensation Plan – During 2014, the Company put into place an unfunded, defined contribution, Non-qualified Deferred Compensation Plan (“Officers’ Deferred Comp Plan”) for select employees of the Company. The Officers’ Deferred Comp Plan was provided to key management of the Company and results in 5% - 20% of the employee’s then current base salary being credited to the participant’s account annually, subject to increases based upon increases in annual base compensation and the possibility of additional discretionary contributions. The employees vest at varying dates in accordance with each individual’s deferred compensation participation agreement; however, all key officers will be fully vested upon the attainment of age 65. The obligations under these plans are included in accrued retirement liabilities in the Company’s consolidated balance sheets and approximated $2.7 million and $2.6 million at March 31, 2025 and December 31, 2024, respectively. The expense under the Officers’ Deferred Comp Plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $89,000 and $100,000 for the the three months ended March 31, 2025 and 2024, respectively.
Deferred Compensation Plans – In January 2022, the Company put into place an unfunded Non-qualified Deferred Compensation Plan (“Deferred Comp Plan”) for select employees of the Company. The Deferred Comp Plan was provided to key management of the Company and allows for the employees to defer amounts from their salary, bonus, or Long-Term Incentive Plan (“LTIP”) into the Deferred Comp Plan to be paid out at a future date. Amounts deferred under the Deferred Comp Plan increase in value based upon the growth of the Bank’s tangible capital, with the Compensation Committee holding discretionary authority. The obligations under the Deferred Comp Plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $5.8 million and $878,000 at March 31, 2025 and December 31, 2024, respectively.
LTIP – In January 2020, the Company put into place a long-term incentive plan for certain members of its management team where benefits are awarded annually on a discretionary basis and cliff vest after three years. Under this plan, individuals are granted “phantom shares” and benefits are accrued based upon the projected growth of the Bank’s capital. The obligations under this plan are included in accrued retirement liabilities on the Company’s consolidated balance sheets and approximated $5.9 million and $14.6 million as of March 31, 2025 and December 31, 2024, respectively. The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $832,000 and $1.4 million for the three months ended March 31, 2025 and 2024, respectively.
Director Pension Plan – The Company has a director defined benefit pension plan (“Director Pension Plan”), covering directors who were in service prior to 2023 and have met the plan’s vesting requirements. The Company’s liabilities for the Director Pension Plan are calculated by an independent actuary who uses the “projected unit credit” actuarial method to determine the normal cost and actuarial liability. The liability for the Director Pension Plan amounted to $5.9 million and $5.7 million as of March 31, 2025 and December 31, 2024, respectively, and is recorded on the consolidated balance sheets. The expense under this plan (recorded in salaries and employee benefits in the consolidated statements of income) approximated $162,000 and $181,000 for the three months ended March 31, 2025 and 2024, respectively.
The Company records an estimate of net periodic pension cost for the director pension plan to accrued retirement liabilities on the consolidated balance sheet on a quarterly basis. Equity adjustments, to accumulated other comprehensive loss, in conjunction with the pension plan are recorded by the Company annually upon receipt of the independent actuarial report.
Employment and Change in Control Agreements – The Company entered into an employment agreement with the Chief Executive Officer that renew for one additional year each January 1st. During 2025, the Company entered into Change in Control agreements with certain executive officers, which provide severance payments in the event of the executive’s involuntary or constructive termination of employment, including upon a termination following a change in control as defined in the agreements.
Employee Stock Ownership Plan – As part of the Initial Public Offering ("IPO") completed on December 27, 2023, the Bank established a tax-qualified Employee Stock Ownership Plan ("ESOP") to provide eligible employees the opportunity to own Company shares. The ESOP borrowed $47.2 million from the Company to purchase 3,416,458 common shares on the open market. The loan is payable in annual installments over 20 years at an interest rate of 8.50%. As the loan is repaid to the Company, shares are released and allocated proportionally to eligible participants on the basis of each participant’s proportional share of compensation relative to the compensation of all participants. The unallocated ESOP shares are pledged as collateral on the loan.
The Company accounts for its ESOP in accordance with FASB ASC 718-40, Compensation – Stock Compensation. Under this guidance, unreleased shares are deducted from shareholders’ equity as unearned ESOP shares on the accompanying consolidated balance sheets.
The Company recognizes compensation expense equal to the fair value of the ESOP shares during the periods in which they are committed to be released. To the extent that the fair value of the Company’s ESOP shares differs from the cost of such shares, the difference will be credited or debited to shareholders' equity.
As the loan is internally leveraged, the loan receivable from the ESOP to the Company is not reported as an asset nor is the debt of the ESOP shown as a liability on the Company’s consolidated balance sheets. Total compensation expense recognized in connection with the ESOP was $783,000 and $588,000 for the three months ended March 31, 2025 and 2024, respectively.
The following table presents share information held by the ESOP:
Allocated shares
170,823
Shares committed to be released
42,121
Unallocated shares
3,203,514
3,245,635
Total shares
3,416,458
Fair value of unallocated shares
57,888
58,616
Stock-Based Compensation – On April 23, 2025, the shareholders of the Company approved the NB Bancorp, Inc. 2025 Equity Incentive Plan (“2025 Plan”). The 2025 Plan provides for the issuance of up to 5,987,802 shares of common stock pursuant to grants of restricted stock awards (“RSAs”), restricted stock units (“RSUs”), non-qualified stock options and incentive stock options, any or all of which can be granted with performance-based vesting conditions. Under the 2025 Plan, 1,708,229 shares may be issued as RSAs or RSUs, including those issued as performance shares and PSUs, and 4,270,573 shares may be issued upon the exercise of stock options. These shares may be awarded from the Company’s authorized but unissued shares. However, the 2025 Plan permits the grant of additional awards of restricted stock or RSUs above the aforementioned limit, provided that, for each additional share of RSA or RSU awarded in excess of such limit, the pool of shares available to be issued upon the exercise of stock options will be reduced by three shares. Pursuant to the terms of the 2025 Plan, each of the Company’s non-employee directors were automatically granted awards of restricted stock on April 23, 2025. Such RSAs vest pro-rata on an annual basis over a five-year period.
During the three months ended March 31, 2025, the Company did not grant any RSAs, RSUs, non-qualified stock options or incentive stock options.
Note 6 – Fair Value Measurements
ASC 820-10, Fair Value Measurement – Overall (“ASC 820-10”), provides a framework for measuring fair value under U.S. GAAP. This guidance also allows the Company the irrevocable option to elect fair value for the initial and subsequent measurement for certain financial assets and liabilities on a contract-by-contract basis.
19
In accordance with ASC 820-10, the Company groups its financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value.
Level 1 – Valuations for assets and liabilities traded in active exchange markets, such as the New York Stock Exchange. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2 – Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities.
Level 3 – Valuations for assets and liabilities that are derived from other methodologies, including option pricing models, discounted cash flow models and similar techniques, and are not based on market exchange, dealer, or broker traded transactions. Level 3 valuations incorporate certain assumptions and projections in determining the fair value assigned to such assets and liabilities.
A financial instrument’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
A description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below. These valuation methodologies were applied to all of the Company’s financial assets and financial liabilities carried at fair value for March 31, 2025 and December 31, 2024.
Available-for-sale securities – Where quoted prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid government bonds (such as U.S. Treasuries), mortgage products and exchange traded equities. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. Level 2 securities would include U.S. agency securities, mortgage-backed agency securities, obligations of states and political subdivisions, and certain corporate, asset-backed and other securities. In certain cases where there is limited activity or less transparency around inputs to the valuation, securities are classified within Level 3 of the valuation hierarchy.
Derivative arrangements – The fair values of derivative arrangements are estimated by the Company using a third-party derivative valuation expert who relies on Level 2 inputs, namely discounted cash flow models to determine fair value by calculating a settlement termination value with the counterparty.
20
Assets measured and reported at estimated fair value on a recurring basis are summarized below:
Level 1
Level 2
Level 3
Assets:
Available-for-sale debt securities:
77,787
8,831
Total available-for-sale debt securities
153,518
Derivative assets
24,060
Liabilities:
Derivative liabilities
24,064
75,147
8,898
150,223
27,174
27,177
The Company had no purchases, sales or transfers of level 3 assets during the three months ended March 31, 2025 and 2024.
The Company may also be required from time to time to measure certain other assets on a non-recurring basis in accordance with U.S. GAAP. Any adjustments to fair value usually result in write-downs of individual assets.
Collateral-Dependent Loans – Collateral-dependent loans with specific reserves are carried at fair value, which equals the estimated market value of the collateral less estimated costs to sell. Collateral may be in the form of real estate or business assets including equipment, inventory, and accounts receivable. A loan may have multiple types of collateral; however, the majority of the Company’s loan collateral is real estate. The value of real estate collateral is generally determined utilizing a market valuation approach based on an appraisal conducted by an independent, licensed appraiser outside of the Company using observable market data (Level 2). However, if the collateral value is significantly adjusted due to differences in the comparable properties or is discounted by the Company because of lack of marketability, then the fair value is considered Level 3. The value of business equipment is based upon an outside appraisal if deemed significant or the net book value on the applicable borrower’s financial statements if not considered significant. Likewise, values for inventory and accounts receivables collateral are based on financial statement balances or aging reports (Level 3). In limited circumstances, the collateral value for a collater-dependent loan may be based on the enterprise value of a company.
21
The enterprise value method involves assessing the borrower’s ability to repay the loan by estimating the total value of its business, including both debt and equity. This approach is typically used where the recoverable value is based on the fair value of the company as a going concern, adjusted for the prioriry of the Company’s claim. Fair value adjustments are recorded in the period incurred as provision for credit losses in the consolidated statements of income.
The Company had no liabilities measured at fair value on a non-recurring basis.
The following table summarizes assets measured at fair value on a non-recurring basis:
Collateral-dependent loans, net of reserve
9,053
10,951
For Level 3 assets and liabilities measured at fair value on a nonrecurring basis as of March 31, 2025 and December 31, 2024, the significant unobservable inputs used in the fair value measurements were as follows:
Significant
Valuation
Observable
Unobservable
Technique
Inputs
Collateral-dependent loans
Appraisal Value / Comparison Sales / Enterprise Value
Appraisals and/or sales of comparable properties or financial statements of the business
Appraisals discounted 5 to 20% for sales commission and other holding costs; Enterprise value discounts of assets, liabilities and equity
ASC Topic 825, Financial Instruments (ASC 825), requires disclosure of the fair value of financial assets and financial liabilities, including those financial assets and financial liabilities that are not measured and reported at fair value on a recurring or non-recurring basis. The methodologies for estimating the fair value of financial assets and financial liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above.
ASC 825 requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes. The exit price notion is a market-based measurement of fair value that is represented by the price to sell an asset or transfer a liability in the principal market (or most advantageous market in the absence of a principal market) on the measurement date. As of March 31, 2025 and December 31, 2024, fair values of loans are estimated on an exit price basis incorporating discounts for credit, liquidity and marketability factors.
22
The following tables present the estimated fair values, related carrying amounts, and valuation level of the financial instruments as of the dates stated:
Carrying
Financial Assets:
Cash and cash equivalents
Loans receivable, net
4,359,296
FHLB stock
6,003
FRB stock
12,547
6,160
BOLI
Financial Liabilities:
Deposits, other than time deposits
2,344,289
Time deposits
1,982,328
1,981,857
FHLB Borrowings
90,775
4,196,079
6,728
12,142
5,494
2,214,372
1,963,280
1,964,801
120,778
Note 7 – Commitments and Contingencies
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, to disburse funds to borrowers on unused construction and land development loans, and to disburse funds on committed but unused lines of credit.
These financial agreements involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments.
Commitments to originate loans and disburse additional funds to borrowers on lines of credit are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. The Company evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.
23
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments, is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. The commitments to originate loans and lines of credit may expire without being funded or drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance by a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of March 31, 2025 and December 31, 2024, the maximum potential amount of the Company’s obligation was $6.3 million and $6.0 million, respectively, for standby letters of credit. The Company’s outstanding letters of credit generally have a term of less than one year. If a letter of credit is drawn upon, the Company may seek recourse through the customer’s underlying line of credit. If the customer’s line of credit is also in default, the Company may take possession of the collateral, if any, securing the line of credit.
Financial instruments whose contract amounts represents off-balance sheet credit risk and are not reflected on the Company’s consolidated balance sheets consist of the following at the dates stated:
Commitments to originate loans
49,070
34,050
Unadvanced funds on lines of credit
556,591
495,796
Unadvanced funds on construction loans
488,275
416,450
Letters of credit
6,317
6,043
1,100,253
952,339
The Bank accrues for credit losses related to off-balance sheet financial instruments. Potential losses on off-balance sheet loan commitments are estimated using the same risk factors used to determine the allowance for credit losses on loans, adjusted for the likelihood that funding will occur. The allowance for off-balance sheet commitments is recorded within other liabilities on the consolidated balance sheets and amounted to $3.4 million and $3.2 million as of March 31, 2025 and December 31, 2024, respectively. For the three months ended March 31, 2025 and 2024, the Company recorded a provision for unfunded commitments of $211,000 and $539,000 respectively.
Note 8 – Derivatives and Hedging Activities
Risk Management Objective of Using Derivatives – The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of its assets and liabilities and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates.
The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s assets and liabilities.
Fair Value Hedges of Interest Rate Risk – The Company is exposed to changes in the fair value of certain pools of its pre-payable fixed-rate assets due to changes in benchmark interest rates. The Company uses interest rate swap agreements to manage its exposure to changes in the fair value of these instruments attributable to changes in the designated benchmark interest rate.
24
Interest rate swap agreements designated as fair value hedges involve the payment of fixed-rate amounts to a counterparty in exchange for the Company receiving variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.
For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in interest income.
Non-designated Hedges – Derivatives not designated as hedges are not speculative and are used to manage the Company’s exposure to interest rate movements and other identified risks but do not meet the strict hedge accounting requirements and/or the Company has not elected to apply hedge accounting. Changes in the fair value of derivatives not designated in hedging relationships, exclusive of credit valuation adjustments, are recorded directly in earnings.
The Company executes interest rate swaps and cap agreements with commercial banking customers to facilitate their respective risk management strategies. Those interest rate swap and cap agreements are simultaneously hedged by offsetting interest rate swaps and caps that are executed with a third party, such that the Company minimizes its net risk exposure resulting from such transactions.
As of March 31, 2025, the Company had 69 interest rate swap agreements with an aggregate notional amount of $415.5 million compared to 67 interest rate swap agreements with an aggregate notional amount of $429.9 million related to this program as of December 31, 2024.
Risk Participation Agreements (“RPAs”) – RPAs are guarantees issued by the Company to other parties for a fee, whereby the Company agrees to participate in the credit risk of a derivative customer of the other party. Under the terms of these agreements, the “participating bank” receives a fee from the “lead bank” in exchange for the guarantee of reimbursement if the customer defaults on an interest rate swap. The interest rate swap is transacted such that any and all exchanges of interest payments (favorable and unfavorable) are made between the lead bank and the customer. In the event that an early termination of the swap occurs, and the customer is unable to make a required close out payment, the participating bank assumes that obligation and is required to make this payment. RPAs where the Company acts as the lead bank are referred to as “participations-out,” in reference to the credit risk associated with the customer derivatives being transferred out of the Company. Participations-out generally occur concurrently with the sale of new customer derivatives. RPAs where the Company acts as the participating bank are referred to as “participations-in,” in reference to the credit risk associated with the counterparty’s derivatives being assumed by the Company. The Company’s maximum credit exposure is based on its proportionate share of the settlement amount of the referenced interest rate swap. Settlement amounts are generally calculated based on the fair value of the swap plus outstanding accrued interest receivable from the customer. As of March 31, 2025, the Company had 17 RPAs with an aggregate notional amount of $44.8 million related to this program compared to 17 RPAs with an aggregate notional amount of $44.9 million as of December 31, 2024. These RPAs all represent “participations-in” and generally have terms ranging from five to ten years.
The table below presents the fair value of the Company’s derivative financial instruments not designated as hedging instruments, as well as their classification on the consolidated balance sheets as of the dates stated:
Derivative
Assets (1)
Liabilities (2)
Derivatives not designated as hedging instruments:
Interest rate products
RPA credit contracts
Total derivatives not designated as hedging instruments
25
Swap contract fees, net of brokerage costs, recognized in earnings on the above noted interest rate products and RPA contracts approximated $88,000 and $487,000 for the three months ended March 31, 2025 and 2024, respectively.
The Company has agreements with each of its derivative counterparties that contain a provision where if the Company defaults (or is capable of being declared in default) on any of its indebtedness, then the Company could also be declared in default on its derivative obligations, and it could be required to terminate its derivative positions with the counterparty. The Company also has agreements with certain of its derivative counterparties that contain a provision whereby if the counterparty fails to maintain its status as a well-capitalized institution, then the Company could be required to terminate its derivative positions with the counterparty. In order to mitigate counterparty default risk in conjunction with these interest rate products and RPA credit contracts, the Company was required to maintain $9.1 million of collateral deposit accounts with the counterparties to these agreements as of March 31, 2025 and December 31, 2024.
Note 9 – Other Comprehensive Income
U.S. GAAP generally requires that recognized revenue, expenses, gains and losses be included in net income. Although certain changes in assets and liabilities are reported as a separate component of the shareholders' equity section of the consolidated balance sheets, such items, along with net income, are components of comprehensive income (loss).
The components of other comprehensive income (loss) and related tax effects are as follows for the periods indicated:
March 31, 2024
Pre-Tax
After-Tax
Tax Expense
Change in fair value of available-for-sale securities
(589)
(83)
Total other comprehensive income (loss)
The following table presents the components of accumulated other comprehensive loss as of March 31, 2025 and December 31, 2024:
Net unrealized holding losses on available-for-sale securities, net of tax
(5,685)
(7,387)
Unrecognized director pension plan benefits, net of tax
(780)
Total accumulated other comprehensive loss
Note 10 – Regulatory Capital Requirements
The Company is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under regulatory capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Company’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
26
The Company operated under the risk-based framework as of March 31, 2025 and December 31, 2024. Under this framework, quantitative measures established by regulation to ensure capital adequacy require the Company to maintain minimum amounts and ratios of Total Capital, Tier 1 Capital and Common Equity Tier 1 Capital to Risk-Weighted Assets, and Tier 1 Capital to Total Average Assets (as defined in the regulations). Management believes, as of March 31, 2025 and December 31, 2024, that the Company and the Bank meet all capital adequacy requirements to which each is subject.
As of March 31, 2025 and December 31, 2024, the Company and the Bank were categorized as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There are no conditions or events since that notification that management believes have changed the Bank’s category. The Bank’s actual capital amounts and ratios are presented in the table as of the date indicated:
To be well capitalized
For minimum capital
under prompt corrective
Actual
adequacy purposes
action provisions
Ratio
Total Capital
666,928
13.8%
386,796
8.0%
483,495
10.0%
(to Risk-Weighted Assets)
Tier 1 Capital
625,176
12.9%
290,097
6.0%
Common Equity Tier I Capital
217,573
4.5%
314,271
6.5%
12.5%
200,538
4.0%
250,672
5.0%
(to Total Average Assets)
656,103
14.1%
372,083
465,104
614,156
13.2%
279,063
209,297
302,318
196,435
245,544
The Company’s actual consolidated capital amounts and ratios are presented in the table as of the date indicated:
787,077
16.3%
387,086
483,858
745,325
15.4%
290,315
217,736
314,508
14.5%
205,865
257,331
814,505
17.4%
374,650
468,313
772,558
16.5%
280,988
210,741
304,403
15.3%
202,436
253,045
Note 11 – Earnings Per Share (“EPS”)
Basic EPS represents net income available to common shareholders divided by the weighted-average number of common shares outstanding during the period. Diluted EPS have been calculated in a manner similar to that of basic EPS except that the weighted average number of common shares outstanding is increased to include the number of additional common shares that would have been outstanding if all potentially dilutive common shares (such as those resulting from the exercise of stock options) were issued during the period, computed using the treasury stock method. There were no securities that had a dilutive effect during the three months ended March 31, 2025 and 2024. Unallocated ESOP shares are not deemed outstanding for EPS calculations.
(Dollars in thousands, except per share data)
Net income applicable to common shares
Average number of common shares outstanding
42,001,381
Less: average unallocated ESOP shares
(3,245,635)
(3,016,085)
Average number of common shares outstanding used to calculate basic EPS
Common stock equivalents
Average number of common shares outstanding used to calculate diluted EPS
Earnings per common share:
Basic and diluted
For the three months ended March 31, 2025 and 2024, there were no anti-dilutive shares.
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.
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:
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:
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.
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.
30
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.
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)
Net income (GAAP)
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
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
Operating earnings per share, basic (non-GAAP)
0.35
0.23
Operating earnings per share, diluted (non-GAAP)
Noninterest expense (GAAP)
Subtract (Add):
Noninterest expense components:
Total impact of non-GAAP noninterest expense adjustments
Noninterest expense on an operating basis (non-GAAP)
27,443
25,175
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%
Total revenue (net interest income plus total noninterest income) (non-GAAP)
47,387
42,134
Operating efficiency ratio (non-GAAP)
57.91%
59.75%
Total shareholders’ equity (GAAP)
Subtract:
Intangible assets (core deposit intangible)
1,042
1,079
Total tangible shareholders’ equity (non-GAAP)
738,569
764,088
Total assets (GAAP)
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
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.
32
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.
33
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:
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.
34
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
Change
678
36.06%
630
157.11%
66
60.00%
(399)
(81.93)%
(615)
(98.72)%
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:
1,589
9.05%
12.58%
18.26%
770
38.60%
14.02%
452
125.21%
(18.27)%
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.
35
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.
Average
Balance
Yield/Rate (4)
Interest-earning assets:
4,366,408
6.64
3,903,044
6.60
Securities
230,406
4.03
193,296
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
6.38
4,296,999
Non-interest-earning assets
296,594
231,411
(38,685)
(32,744)
Interest-bearing liabilities:
Savings accounts
113,750
46
0.16
125,806
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
3.60
3,027,011
3.75
FHLB advances
91,168
4.83
98,886
5.46
Total interest-bearing liabilities
3,727,613
3.63
3,125,897
3.80
Non-interest-bearing deposits
571,549
552,586
Other non-interest-bearing liabilities
90,025
83,488
4,389,187
3,761,971
Shareholders' equity
Net interest income
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
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.
March 31, 2025 vs. 2024
Increase (Decrease) Due to
Increase
Volume
Rate
(Decrease)
7,581
(141)
7,440
732
1,011
Other investments
(242)
(197)
Short-term investments
737
(333)
404
8,642
8,658
(1)
190
138
328
1,786
(232)
1,554
3,354
(1,244)
2,110
5,329
(1,307)
4,022
Federal Home Loan Bank advances
(100)
(157)
(257)
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.
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.
Item 4.Controls and Procedures
An evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended) as of March 31, 2025. Based on that evaluation, the Company’s management, including the Chief Executive Officer and the Chief Financial Officer, concluded that the Registrant’s disclosure controls and procedures were effective.
During the quarter ended March 31, 2025, there have been no changes in the Company’s internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
Part II – Other Information
Item 1.Legal Proceedings
The Company is subject to various legal actions arising in the normal course of business. In the opinion of management, the resolution of these legal actions is not expected to have a material adverse effect on the Company’s or the Bank’s financial condition or results of operations.
Item 1A. Risk Factors
There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024.
Item 2.Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities
Total Number of Shares
Maximum Number of Shares
Purchased as Part of the
That May Yet Be
Total Number
Average Price
Publicly Announced
Purchased Under the
of Shares
Paid per Share (1)
Share Repurchase Program
Share Repurchase Program (2)
January 1 - January 31, 2025
246,285
19.33
1,889,001
February 1 - February 28, 2025
656,303
19.34
1,232,698
March 1 - March 31, 2025
18.86
2,135,286
$19.06
(1) Includes commissions paid and excise tax.
(2) On January 22, 2025, the Company announced a stock repurchase program that authorizes the Company to purchase up to 2,135,286 shares, or 5%, of the Company's outstanding shares of common stock. The company completed the stock repurchase program on March 28, 2025.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
During the three months ended March 31, 2025, none of the Company’s directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as that term is used in SEC regulations.
Item 6.Exhibits
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 104
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 9, 2025
/s/ Joseph Campanelli
Joseph Campanelli
Chairman, President and Chief Executive Officer
/s/ Jean-Pierre Lapointe
Jean-Pierre Lapointe
Executive Vice President and Chief Financial Officer