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ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements that appear beginning on page 72 of this Annual Report on Form 10-K. You should read the information in this section in conjunction with the business and financial information regarding NB Bancorp and Needham Bank and the consolidated financial statements provided in this Annual Report on Form 10-K for NB Bancorp and, with respect to the year ended December 31 2022, NB Financial, MHC, Needham Bank’s mutual holding company parent prior to the mutual-to-stock conversion on December 27, 2023. NB Bancorp had not engaged in any material activities prior to December 28, 2023, the date of the consummation of the mutual to stock conversion of NB Financial, MHC.

Our results of operations depend primarily on our net interest income. Net interest income is the difference between the interest income we earn on our interest-earning assets and the interest we pay on our interest-bearing liabilities. Our results of operations also are affected by our provision for credit losses, noninterest income and noninterest expense. Noninterest income currently consists primarily of customer service fees, swap contract income, and income on bank-owned life insurance. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, marketing and charitable contribution expense, professional fees, federal deposit insurance assessments and other general and administrative expenses.

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

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Summary of Significant Accounting Policies

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be significant accounting policies. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. Accordingly, our consolidated financial statements may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards.

The following represent our significant accounting policies:

Loans Held for Investment and Allowance for Credit Losses. Loans that management has the intent and ability to hold for the foreseeable future or until loan maturity or pay-off are reported held for investment at their outstanding principal balance adjusted for any charge-offs and net of any deferred fees (including purchase accounting adjustments) and origination costs (collectively referred to as “amortized cost”). Loan origination fees and certain direct origination costs are deferred and amortized as an adjustment of the yield using the payment terms required by the loan contract.

Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company’s policy not to record interest income on nonaccrual loans until principal has become current. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not go on nonaccrual status if the Company determines that the loans are well-secured and are in the process of collection. In accordance with ASC 326, the Company elected to exclude accrued interest from the amortized cost basis in its determination of the allowance for credit losses (the “ACL”) for loans held for investment, and will instead reverse accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status.

The ACL represents management’s best estimate of credit losses over the remaining life of the loan portfolio. Loans are charged-off against the ACL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged-off amounts (recoveries) are recorded as increases to the ACL. The provision for credit losses is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held for investment loan portfolio. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Management’s determination of the adequacy of the ACL under ASC 326 is based on an evaluation of the composition of the loan portfolio current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors. We use a third-party CECL model as part of our estimation of the ACL on a quarterly basis. Loans with similar risk characteristics are collectively assessed within pools (or segments). Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics. We have determined that using federal call codes is an appropriate loan segmentation methodology, as it is generally based on risk characteristics of a loan’s underlying collateral. Using federal call codes also allows us to utilize and assess publicly available external information when developing our estimate of the ACL. The weighted

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

In applying future economic forecasts, the Company utilizes a forecast period of up to two years. The Company considers economic forecasts of inflation, Federal Open Market Committee interest rates, national gross domestic product, and unemployment rates sourced from the Federal Reserve System’s “Beige Book,” Wells Fargo’s “U.S. Economic Outlook,” and the “Economic Forecast” publications from FHN Financial to inform the model for loss estimation. Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data, supplemented with peer bank data obtained from publicly available sources (i.e., federal call reports). The Bank’s peer group is comprised of financial institutions of relatively similar size and in similar markets (i.e. $10.00 billion or less of total assets and headquartered in Massachusetts). Management also considers qualitative adjustments when estimating credit losses to take into account the model’s quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of economic conditions, volume and severity of past due loans, value of underlying collateral, experience, depth, and ability of management, and concentrations of credit.

For those loans that do not share similar risk characteristics, we evaluate the ACL needs on an individual (or loan by loan) basis. This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and is based on whether the risk grade of the loan is substandard or worse and the balance exceeds $500,000 and the loan’s terms differ significantly from other pooled loans. In accordance with our policy, non-accrual residential real estate loans that are well secured (LTV <75%) are not considered to warrant a downgrade to substandard risk rating and are therefore generally excluded from individually evaluated loans. 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.

Income Taxes. We use the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Securities Valuation and Credit Losses. We classify our investments in debt securities as either held-to-maturity or available-for-sale. Securities classified as held-to maturity are recorded at cost or amortized cost. Available-for-sale securities are carried at fair value. We obtain our fair values from one or more third-party services. This service’s fair value calculations are based on quoted market prices when such prices are available. If quoted market prices are not available, estimates of fair value are computed using a variety of techniques, including extrapolation from the quoted prices of similar instruments or recent trades for thinly traded securities, fundamental analysis, or through obtaining purchase quotes. Due to the subjective nature of the valuation process, it is possible that the actual fair values of these investments could differ from the estimated amounts, thereby affecting our financial position, results of operations and cash flows.

We adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, we did not have any other than-temporarily impaired investment securities. Therefore, upon adoption of ASC 326, we determined that an allowance for credit losses on available for sale securities was not deemed material. For available for sale securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when

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economic or market conditions warrant such evaluation. If we have the intent to sell the security or it is more likely than not that we will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings through an allowance for credit losses. If either of the above criteria is not met, we evaluate whether the decline in fair value is the result of credit losses or other factors. In making the assessment, we may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. At December 31, 2023, there was no allowance for credit loss related to the available for sale portfolio. Accrued interest receivable on available for sale debt securities totaled $1.2 million at December 31, 2023 and was excluded from the estimate of credit losses.

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

Total Assets. Total assets increased $941.1 million, or 26.2%, to $4.53 billion as of December 31, 2023 from $3.59 billion at December 31, 2022. The increase was primarily the result of increases in net loans and federal funds sold.

Cash and Cash Equivalents. Cash and cash equivalents increased $116.0 million, or 31.0%, to $272.6 million as of December 31, 2023 from $156.5 million at December 31, 2022. The increase in cash and cash equivalents was due to the proceeds from the Company’s mutual-to-stock conversion and related IPO, which closed on December 27, 2023.

Securities Available-for-Sale. Securities available-for-sale decreased $56.0 million, or 22.8%, to $189.5 million as of December 31, 2023 from $245.5 million at December 31, 2022. During the year ended December 31, 2023, purchases of securities were more than offset by the fair value decline in the portfolio, as well as amortization and calls. No securities were sold during the year ended December 31, 2023.

Loans, net. Loans, net increased $866.6 million, or 29.0%, to $3.86 billion at December 31, 2023 from $2.99 billion at December 31, 2022. We experienced increases in each of our loan portfolios. From December 31, 2022 to December 31, 2023, one- to four-family residential real estate loans, including home equity loans, increased $187.1 million, or 18.6%; our commercial real estate portfolio, including multi-family real estate loans, increased $372.0 million, or 36.8%; construction and land development increased $70.3 million, or 12.7%; commercial and industrial loans increased $240.5 million, or 97.2%; and consumer loans increased $8.3 million, or 5.3%. The increase in these loan portfolios reflects our strategy to grow the balance sheet by continuing to diversify into these higher-yielding loans to improve net margins and manage interest rate risk. In addition, to help manage interest rate risk and generate non-interest income, occasionally we sell one- to four-family residential mortgage loans into the secondary market on a servicing-retained basis. During the year ended December 31, 2023, we sold $2.1 million in loans and recognized gains of $29,000.

Federal Home Loan Bank Stock. The FHLB is a cooperative bank that provides services to its member financial institutions. The primary reason for our membership in the FHLB is to gain access to a reliable source of wholesale funding and as a tool to manage interest rate risk. The purchase of stock in the FHLB is a requirement for a member to gain access to funding. We purchase and/or are subject to redemption of FHLB stock proportional to the volume of funding received and view the holdings as a necessary long-term investment for the purpose of balance sheet liquidity and not for investment return. We held an investment in FHLB stock of $14.6 million and $13.2 million at December 31, 2023 and 2022, respectively. The amount of stock we are required to purchase is in proportion to our FHLB borrowings and level of total assets. Accordingly, the increase in the FHLB stock is due to increased borrowings.

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Bank-owned Life Insurance. We invest in bank-owned life insurance to help offset the costs of our employee benefit plan obligations. Bank-owned life insurance also generally provides noninterest income that is nontaxable. Bank-owned life insurance increased $1.5 million, or 3.1%, to $50.5 million as of December 31, 2023 from $49.0 million at December 31, 2022. The increase during 2023 was from increases in the cash surrender value of the policies.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases and derivatives with a positive fair value and other investments and decreased $4.1 million, or 7.1%, to $53.1 million as of December 31, 2023 from $57.2 million as of December 31, 2021. The decrease resulted primarily from increases in the value of our right of use assets and derivatives from hedging strategies and other investments.

Deposits. Deposits increased $500.6 million, or 17.3%, to $3.39 billion as of December 31, 2023 from $2.89 billion as of December 31, 2022. Core deposits (which we define as all deposits including certificates of deposit, other than brokered deposits) increased $567.0 million, or 21.5%, to $3.2 billion at December 31, 2023 from $2.6 billion at December 31, 2022. The increase resulted from increases in customer deposits, primarily certificates of deposit, which increased $353.8 million, or 36.9% from the prior year, along with money market and checking accounts, which increased $229.1 million and $82.9 million, respectively, from December 31, 2022.

As of December 31, 2023 and 2022, we had approximately $183.6 million and $250.0 million of brokered deposits, respectively. The decrease in brokered deposits during 2023 resulted from the growth in the core deposit portfolio.

Borrowings. We had $283.3 million of borrowings at December 31, 2023 as compared to $293.1 million at December 31, 2022. The decrease is due to funding needs and our ability to repay some advances. Our borrowings consisted solely of FHLB advances.

Accrued expenses and other liabilities. Accrued expenses and other liabilities increased $28.9 million, or 55.20%, to $81.3 million as of December 31, 2023 from $52.4 million at December 31, 2022. The increase resulted from an IPO-related payable, an increase in the allowance for unfunded commitments, and an increase in derivatives with a negative fair value.

Equity. Shareholders’ equity was $758.0 million, representing an increase of $413.9 million, or 120.3%, from the prior year. The increase resulted primarily from the capital raised during the Company’s public offering, which was consummated on December 27, 2023, and net income of $9.8 million during the year ended December 31, 2023.

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

Net Income. Net income was $9.8 million for the year ended December 31, 2023, compared to net income of $30.1 million for the year ended December 31, 2022, a decrease of $20.2 million, or 67.3%. The decrease was primarily due to a one-time donation of $2.0 million in cash and 1.7 million shares of common stock to the Needham Bank Charitable Foundation at a total market value of $19.1 million, in addition to a $7.9 million discretionary bonus awarded by the Compensation Committee, a $1.9 million pension expense and $3.7 million of additional income tax expense related to the impact of public company tax laws. In addition to the mutual-to-stock conversion expense, the Company also recognized $7.2 million in additional provision for credit losses, due to the growth of the loan portfolio and unfunded commitments. Partially offsetting these increases in expenses was a $25.1 million, or 23.9%, increase in net interest income due to net loan growth and an increase in the weighted average yield on our interest-earning assets and a $6.3 million, or 67.9%, increase in noninterest income due to increases from employee retention credit income and increases in cash management fees from customers.

Interest and Dividend Income. Interest and dividend income increased $100.0 million, or 83.0%, to $220.5 million for the year ended December 31, 2023 from $120.5 million for the year ended December 31, 2022, primarily due to a $98.2 million increase in interest and fees on loans. The increase in interest and fees on loans was primarily due to an increase of $979.5 million in the average balance of the loan portfolio to $3.46 billion for the year ended December 31, 2023 from $2.49 billion for the year ended December 31, 2022 and an increase of 154 basis points in the weighted

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

Average interest-earning assets increased $807.2 million, to $3.81 billion for the year ended December 31, 2023 from $3.01 billion for the year ended December 31, 2022. The yield on interest-earning assets increased 177 basis points to 5.78% for the year ended December 31, 2023 from 4.01% for the year ended December 31, 2022.

Interest Expense.Total interest expense increased $74.9 million, or 481.7%, to $90.4 million for the year ended December 31, 2023 from $15.5 million for the year ended December 31, 2022. Interest expense on deposit accounts increased $63.7 million, or 502.0%, to $76.4 million for the year ended December 31, 2023 from $12.7 million for the year ended December 31, 2022, due to an increase in the average balance of interest-bearing deposits of $516.6 million, or 23.6%, to $2.70 billion for the year ended December 31, 2023 from $2.19 billion for the year ended December 31, 2022 and an increase in the weighted average rate on interest-bearing deposits to 3.05% for the year ended December 31, 2023 from 0.68% for the year ended December 31, 2022.

Interest expense on FHLB advances increased $11.2 million, or 391.4%, to $14.1 million for the year ended December 31, 2023 from $2.9 million for the year ended December 31, 2022. The average balance of FHLB advances increased $171.1 million, or 193.7%, to $259.5 million for the year ended December 31, 2023 from $88.3 million for the year ended December 31, 2022 and the weighted average cost of these advances increased to 5.41% for 2023 from 3.24% for 2022. The increase in the average balance was due to our strategy to utilize additional borrowings to support loan growth and for liquidity management.

Net Interest Income. Net interest income was $130.1 million for the year ended December 31, 2023, compared to $105.0 million in the prior year, representing an increase of $25.1 million, or 23.9%. The net interest margin was 3.41% for 2023, representing a decrease of eight basis points from 2022, primarily due to an increase in the cost of liabilities used to fund the Company’s loan growth. The increase in net interest income was primarily due to a $807.2 million increase in the average balance of interest-earning assets during the year ended December 31, 2023, which outpaced growth in average interest-bearing liabilities, which grew by $689.7 million during the year ended December 31, 2023. The net interest margin decreased slightly to 3.41% for the year ended December 31, 2023 from 3.49% for the year ended December 31, 2022. The decrease in the net interest margin was primarily due to the increase in the average rates paid on interest-bearing liabilities increasing by 237 basis points during the year ended December 31, 2023, while the yield on interest-earning assets grew by 177 basis points.

Provision for Credit Losses. Based on management’s analysis of the adequacy of allowance for credit losses, a provision of $13.9 million was recorded for the year ended December 31, 2023 in accordance with the CECL standard, compared to a provision of $6.7 million for the year ended December 31, 2022 in accordance with the incurred loss methodology standard. The $7.2 million, or 107.2%, increase in the provision was primarily due to the material growth in total loans which increased $878.3 million, or 29.1%, to $3.89 billion at December 31, 2023 from $3.02 billion at December 31, 2022. The provision for credit losses for the year ended December 31, 2023 consisted of a provision for credit losses of $9.7 million and a provision for unfunded commitments of $4.2 million.

Noninterest Income. Noninterest income increased $6.3 million, or 68.0%, to $15.6 million for the year ended December 31, 2023 from $9.3 million for the year ended December 31, 2022. The increase resulted primarily from a $3.5 million employee retention credit received in 2023 resulting from COVID-19 impacts, and a $2.7 million increase in customer service fees, primarily from increased money service fees related to the cannabis banking services. The table below sets forth our noninterest income for the years ended December 31, 2023 and 2022:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​ ​ ​

​ ​ December 31, ​ Change

(Dollars in thousands) ​ 2023 ​ 2022 ​ Amount ​ Percent

Increase in cash surrender value of BOLI ​ ​ 1,510 ​ ​ 1,157 ​ ​ 353 ​ 30.51%

Mortgage banking income ​ ​ 581 ​ ​ 595 ​ ​ (14) ​ (2.35%)

Employee retention credit income ​ ​ 3,452 ​ ​ — ​ ​ 3,452 ​ 100.00%

​

Noninterest Expense. Noninterest expense for 2023 was $119.9 million, representing an increase of $48.8 million, or 68.5%, from the prior year, and included certain one-time costs associated with the Company’s mutual-to-stock conversion during the year ended December 31, 2023. Excluding expenses related to the mutual-to-stock conversion and certain other non-operating items, noninterest expense on an operating basis for 2023 was $91.0 million, which represents a $19.8 million, or 27.9%, increase from 2022 as the Company continued to invest in infrastructure to support growth. Noninterest expense increased $48.8 million, or 68.5%, to $119.9 million for the year ended December 31, 2023 from $71.2 million for the year ended December 31, 2022. Salary and employee benefit expenses increased $20.9 million, or 44.0%. The increase in salary and employee benefits resulted primarily from the hiring of additional employees consistent with our business strategy to grow the Company, as well as discretionary bonuses awarded by the Compensation Committee. Charitable contribution expense increased $19.3 million resulting from a $19.1 million charitable contribution as part of the Company’s mutual-to-stock conversion and related IPO. Additionally, director and professional fees increased $1.5 million, or 31.0%, resulting primarily from increased professional services in connection with our loan operations, and FDIC insurance expense increased $2.9 million, or 157.4%, resulting from an increase in asset growth and a reduction in capital ratios. The table below sets forth our noninterest expense for the years ended December 31, 2023 and 2022:

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended ​ ​ ​ ​ ​

​ ​ December 31, ​ Change

(Dollars in thousands) ​ 2023 ​ 2022 ​ Amount ​ Percent

​

Income Tax Expense. Income tax expense decreased $4.3 million, or 68.1%, to $2.0 million for the year ended December 31, 2023 from $6.3 million for the year ended December 31, 2022. The effective tax rate was 17.1% and 17.4% for the years ended December 31, 2023 and 2022, respectively. The effective tax rate decreased during 2023 primarily as a result of a decrease in income before taxes of $24.5 million, or 67.45% in comparison to 2022.

Average Balances and Yields. The following tables set 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.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ For the Year Ended December 31,

​ Average ​ ​ ​ Average ​ ​ ​

​ ​ Outstanding ​ ​ ​ ​ Average ​ Outstanding ​ ​ ​ ​ Average

Interest-earning assets: ​ ​ ​ ​ ​

Allowance for credit losses ​ (30,041) ​ ​ ​ ​ (20,422) ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest-bearing liabilities: ​ ​ ​ ​ ​

Other non-interest-bearing liabilities ​ 78,149 ​ ​ ​ ​ 48,210 ​ ​

Total liabilities and shareholders' equity ​ $ 3,974,214 ​ ​ ​ ​ $ 3,118,889 ​ ​

Net interest rate spread (1) ​ ​ ​ ​ ​ ​ 2.73 % ​ 3.33 %

Net interest-earning assets (2) ​ $ 850,615 ​ ​ ​ ​ $ 731,115 ​ ​ ​ ​

Net interest margin (3) ​ ​ ​ ​ ​ ​ 3.41 % ​ 3.49 %

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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.

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Year Ended

​ ​ Increase (Decrease) Due to ​ Total

​ ​ ​ ​ ​ ​ ​ ​ Increase

(Dollars in thousands) Volume Rate (Decrease)

Interest-earning assets: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Interest-bearing liabilities: ​ ​ ​ ​

Savings accounts ​ (12) ​ — ​ (12)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Management of Market Risk

General. Our most significant form of market risk is interest rate risk because, as a financial institution, the majority of our assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of our operations is to manage interest rate risk and limit the exposure of our financial condition and results of operations to changes in market interest rates. Our ERM Committee is responsible for evaluating the interest rate risk inherent in our assets and liabilities, for determining the level of risk that is appropriate, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by our board of directors. The ERM Committee meets at least quarterly, is comprised of directors, executive officers and certain senior management, and reports to the full board of directors on at least a quarterly basis. We currently utilize a third-party modeling program, prepared on a quarterly basis, to evaluate our sensitivity to changing interest rates, given our business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

We have sought to manage our interest rate risk in order to minimize the exposure of our earnings and capital to changes in interest rates. We have implemented the following strategies to manage our interest rate risk:

● maintaining a prudent level of liquidity;

● maintaining a prudent level of off-balance sheet funding capacity

● growing our volume of core deposit accounts;

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Shortening the average term of our interest-earning assets by increasing our investments in shorter-term assets, as well as originating loans with variable interest rates, helps to match the maturities and interest rates of our assets and liabilities better, thereby reducing the exposure of our net interest income to changes in market interest rates.

On occasion we have employed various financial risk methodologies that limit, or “hedge,” the adverse effects of rising or decreasing interest rates on our loan portfolios and short-term liabilities. We also engage in hedging strategies with respect to arrangements where our customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions.

Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings. We estimate what our net interest income would be for a 12-month period. We then calculate what the net interest income would be for the same period under the assumptions that the United States Treasury yield curve increases or decreases instantaneously by various basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve. A basis point equals one-hundredth of one percent, and 100 basis points equals one percent. An increase in interest rates from 3% to 4% would mean, for example, a 100-basis point increase in the “Change in Interest Rates” column below.

The following table sets forth, as of December 31, 2023, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

​ ​ ​ ​ ​ ​ ​

Change in Interest Rates Net Interest Income Year Year 1 Change from

(basis points) (1) ​ 1 Forecast ​ Level

(Dollars in thousands) ​

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

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

Economic Value of Equity. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, and 300 basis point increments or decreases instantaneously by 100 or 200 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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The following table sets forth, as of December 31, 2023, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Estimated Increase

At December 31, 2023 ​ Estimated ​ (Decrease) in EVE

Change in Interest Rates (basis points) (1) EVE (2) Amount Percent

(Dollars in thousands)

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

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

Certain shortcomings are inherent in the methodologies used in the above interest rate risk measurements. Modeling changes require making certain assumptions that may or may not reflect the manner in which actual yields and costs respond to changes in market interest rates. The net interest income and net economic value tables presented assume that the composition of our interest-sensitive assets and liabilities existing at the beginning of a period remains constant over the period being measured and assumes that a particular change in interest rates is reflected uniformly across the yield curve regardless of the duration or repricing of specific assets and liabilities. Accordingly, although the tables provide an indication of our interest rate risk exposure at a particular point in time, such measurements are not intended to and do not provide a precise forecast of the effect of changes in market interest rates, and actual results may differ.

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, mortgage servicing rights, deposits and borrowings.

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. At December 31, 2023, we had outstanding advances of $283.3 million from the FHLB. At December 31, 2023, we had unused borrowing capacity of $608.6 million with the FHLB. At December 31, 2023 we also had a $46.2 million available line of credit with the Discount Window at the Federal Reserve Bank of Boston. Additionally, at December 31, 2023, we had $183.6 million of brokered deposits and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 10.0% of our total assets, we had an additional capacity of up to approximately $269.7 million of brokered deposits.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets are dependent on our operating, financing, lending, and investing activities during any given period.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flows for the years

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

We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience and current pricing strategy, we anticipate that a significant portion of maturing time deposits will be retained.

At December 31, 2023, Needham Bank exceeded all of its regulatory capital requirements, and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 11 of the notes to consolidated financial statements on page 105.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process accorded to loans we make. At December 31, 2023, the unfunded portion of construction loans, home equity lines of credit, commercial lines of credit and other lines of credit, along with letters of credit, totaled $1.1 billion. Our allowance for credit losses on these unfunded commitments amounted to $6.0 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2023 totaled $340.8 million. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the FHLB, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. In the ordinary course of our operations, we enter into certain contractual obligations. Such obligations include data processing services, operating leases for premises and equipment, agreements with respect to borrowed funds and deposit liabilities.

Recent Accounting Pronouncements

See Note 23 to the notes to the consolidated financial statements for a description of recent accounting pronouncements that may affect our financial condition and results of operations.

Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Annual Report on Form 10-K 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 7A. Quantitative and Qualitative Disclosures about Market Risk

The information called for by this Item is incorporated by reference to the discussion of market risk in Item 7 - “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Management of Interest Rate Risk.”

​

​

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ITEM 8. Financial Statements and Supplementary Data

​

(a)(1) Financial Statements

​

The documents files as a part of this 10-K are:

​

(A) Report of Independence Registered Public Accounting Firm [PCAOB ID 149]

(B) Consolidated Balance Sheets as of December 31, 2023 and 2022

(G) Notes to Consolidated Financial Statements

​

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Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of NB Bancorp, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NB Bancorp, Inc. (the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for the years then ended, and the related notes to the consolidated financial statements (collectively, the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has elected to change its method of accounting for credit losses effective January 1, 2023 due to the adoption of Financial Accounting Standards Board Accounting Standards Codification No. 326, Financial Instruments – Credit Losses (ASC 326). The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

​

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ Elliott Davis, LLC

We have served as the Company's auditor since 2023.

Columbia, South Carolina

March 28, 2024

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NB Bancorp, Inc.

Consolidated Balance Sheets

December 31, 2023 and 2022

(Dollars in thousands)

​ ​ ​ ​ ​ ​ ​

Assets ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Available-for-sale securities, at fair value ​ ​ 189,465 ​ ​ 245,480

​ ​ ​ ​ ​ ​ ​

Allowance for credit losses ​ ​ (32,222) ​ ​ (25,028)

​ ​ ​ ​ ​ ​ ​

Banking premises and equipment, net ​ ​ 35,531 ​ ​ 35,344

Depositors Insurance Fund stock ​ ​ 139 ​ ​ 139

Federal Reserve Bank stock ​ ​ 10,323 ​ ​ 8,104

Bank owned life insurance ("BOLI") ​ ​ 50,516 ​ ​ 49,006

Prepaid expenses and other assets ​ ​ 53,109 ​ ​ 57,167

Income tax refunds receivable ​ ​ — ​ ​ 4,134

​ ​ ​ ​ ​ ​ ​

Liabilities and shareholders' equity ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Mortgagors' escrow accounts ​ ​ 4,229 ​ ​ 4,064

Accrued expenses and other liabilities ​ ​ 81,325 ​ ​ 52,399

Accrued retirement liabilities ​ ​ 19,213 ​ ​ 11,982

​ ​ ​ ​ ​ ​ ​

Commitments and contingencies (Notes 2, 6, 8 & 12) ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Shareholders' equity ​ ​ ​ ​ ​ ​

Additional paid in capital ​ ​ 417,030 ​ ​ —

Accumulated other comprehensive loss ​ ​ (11,897) ​ ​ (14,401)

​ ​ ​ ​ ​ ​ ​

​

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

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NB Bancorp, Inc.

Consolidated Statements of Income

For the Years Ended December 31, 2023 and 2022

(Dollars in thousands, except per share amounts)

​ ​ ​ ​ ​ ​ ​

​ ​ For the Year Ended

​ ​ December 31

INTEREST AND DIVIDEND INCOME ​ ​ ​ ​ ​ ​

Interest on investments securities ​ ​ 4,773 ​ ​ 4,954

Interest on cash equivalents and other ​ ​ 3,755 ​ ​ 1,798

​ ​ ​ ​ ​ ​ ​

INTEREST EXPENSE ​ ​ ​ ​ ​ ​

Interest on FHLB borrowings ​ ​ 14,050 ​ ​ 2,859

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

PROVISION FOR CREDIT LOSSES ​ ​ ​ ​ ​ ​

Provision for credit losses - allowance for credit losses ​ ​ 9,657 ​ ​ 6,700

Provision for credit losses - allowance for unfunded commitments ​ ​ 4,228 ​ ​ —

Total provision for credit losses ​ ​ 13,885 ​ ​ 6,700

​ ​ ​ ​ ​ ​ ​

NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES ​ ​ 116,172 ​ ​ 98,264

​ ​ ​ ​ ​ ​ ​

NONINTEREST INCOME ​ ​ ​ ​ ​ ​

Gain from bargain purchase and assumption agreement ​ ​ — ​ ​ 1,070

Customer service fees ​ ​ 7,817 ​ ​ 5,138

Increase in cash surrender value of BOLI ​ ​ 1,510 ​ ​ 1,157

Mortgage banking income ​ ​ 581 ​ ​ 595

Employee retention credit income ​ ​ 3,452 ​ ​ —

Other income ​ ​ 64 ​ ​ 53

​ ​ ​ ​ ​ ​ ​

NONINTEREST EXPENSE ​ ​ ​ ​ ​ ​

Salaries and employee benefits ​ ​ 68,344 ​ ​ 47,466

Director and professional service fees ​ ​ 6,232 ​ ​ 4,758

Occupancy and equipment expenses ​ ​ 5,192 ​ ​ 4,354

Data processing expenses ​ ​ 7,500 ​ ​ 5,657

Charitable contribution expense ​ ​ 20,335 ​ ​ 1,066

FDIC and state insurance assessments ​ ​ 4,707 ​ ​ 1,829

General and administrative expenses ​ ​ 4,848 ​ ​ 3,683

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Weighted average common shares outstanding ​ ​ 42,018,229 ​ ​ N/A

Earnings per share (basic) ​ $ 0.23 ​ ​ N/A

Earnings per share (diluted) ​ $ 0.23 ​ ​ N/A

​

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

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​

NB Bancorp, Inc.

Consolidated Statement of Comprehensive Income

For the Years Ended December 31, 2023 and 2022

(In thousands)

​

​ ​ ​ ​ ​ ​ ​

​ ​ For the Year Ended

​ ​ December 31

​ ​ ​ ​ ​ ​ ​

OTHER COMPREHENSIVE INCOME (LOSSES): ​ ​ ​ ​ ​ ​

Unrealized Holding Gains (Losses) on AFS Securities ​ ​ 3,740 ​ ​ (17,657)

Unrecognized Pension Losses on Director Pension Plan ​ ​ (106) ​ ​ (200)

Unrealized Holding (Losses) Gains on Cash Flow Hedge ​ ​ (321) ​ ​ 1,548

OTHER COMPREHENSIVE INCOME (LOSS), BEFORE TAX PROVISIONS ​ ​ 3,313 ​ ​ (16,309)

INCOME TAX (BENEFIT) PROVISIONS ​ ​ (809) ​ ​ 4,180

OTHER COMPREHENSIVE INCOME (LOSS), AFTER TAX PROVISIONS ​ ​ 2,504 ​ ​ (12,129)

​

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

​

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NB Bancorp, Inc.

Consolidated Statement of Changes in Shareholders’ Equity

For the Years Ended December 31, 2023 and 2022

(Dollars in thousands)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Shares of ​ ​ ​ ​ ​ ​ Accumulated Unallocated ​ ​

​ ​ Common ​ Additional ​ Other ​ Common Total

​ ​ Stock Common Paid Retained Comprehensive ​ Stock Held Shareholders'

​ ​ Outstanding Stock in Capital Earnings Income (Loss) ​ by ESOP Equity

Other comprehensive loss, net of tax ​ — ​ — ​ — ​ — ​ (12,129) ​ — ​ (12,129)

Net income ​ — ​ — ​ — ​ 9,825 ​ — ​ — ​ 9,825

Other comprehensive income, net of tax ​ — ​ — ​ — ​ — ​ 2,504 ​ — ​ 2,504

​

​

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

​

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NB Bancorp, Inc.

Consolidated Statements of Cash Flows

For the Years Ended December 31, 2023 and 2022

(Dollars in thousands)

​

​ ​ ​ ​ ​ ​ ​

​ ​ Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES ​ ​ ​ ​ ​ ​

Net (accretion) amortization of investment securities ​ ​ (240) ​ ​ 71

Gain from bargain purchase and assumption agreement ​ ​ — ​ ​ (1,070)

Amortization of core deposit intangible ​ ​ 149 ​ ​ 111

Provision for credit losses ​ ​ 13,885 ​ ​ 6,700

Loan hedge fair value adjustments, including amortization ​ ​ 161 ​ ​ 502

Change in net deferred loan origination fees ​ ​ 4,419 ​ ​ 2,522

Mortgage loans originated for sale ​ ​ (2,400) ​ ​ (1,840)

Proceeds from sale of mortgage loans held for sale ​ ​ 2,405 ​ ​ 1,887

Gain on sale of mortgage loans ​ ​ (5) ​ ​ (47)

Depreciation and amortization expense ​ ​ 2,678 ​ ​ 2,363

Deferred income taxes (credits) ​ ​ (7,720) ​ ​ (1,253)

Changes in operating assets and liabilities: ​ ​ ​ ​ ​ ​

Accrued interest receivable ​ ​ (6,447) ​ ​ (3,299)

Prepaid expenses and other assets ​ ​ 3,909 ​ ​ (22,800)

Income tax refunds receivable ​ ​ 4,134 ​ ​ (4,149)

Accrued expenses and other liabilities ​ ​ 22,591 ​ ​ 27,221

Accrued retirement liabilities ​ ​ 7,125 ​ ​ 3,887

NET CASH PROVIDED FROM OPERATING ACTIVITIES ​ ​ 52,959 ​ ​ 39,714

​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM INVESTING ACTIVITIES ​ ​ ​ ​ ​ ​

Purchases of available-for-sale securities ​ ​ (43,590) ​ ​ (174,053)

Purchases of Federal Home Loan Bank stock, net ​ ​ (1,376) ​ ​ (10,896)

Purchases of Federal Reserve Bank stock, net ​ ​ (2,219) ​ ​ (508)

Net change in non-public investments ​ ​ (3,121) ​ ​ (6,306)

Cash acquired under purchase and assumption agreement ​ ​ — ​ ​ 297,671

Premiums paid on bank-owned life insurance ​ ​ — ​ ​ (22,198)

Purchases of banking premises and equipment ​ ​ (2,865) ​ ​ (8,498)

NET CASH USED IN INVESTING ACTIVITIES ​ ​ (831,622) ​ ​ (667,993)

​ ​ ​ ​ ​ ​ ​

CASH FLOWS FROM FINANCING ACTIVITIES ​ ​ ​ ​ ​ ​

Net change in mortgagors' escrow accounts ​ ​ 165 ​ ​ 414

Net proceeds from stock offering and issuance of common shares ​ ​ 417,457 ​ ​ —

Purchase of common shares by the ESOP ​ ​ (13,774) ​ ​ —

Increase (decrease) in FHLB borrowings, net ​ ​ (9,744) ​ ​ 292,826

NET CASH PROVIDED FROM FINANCING ACTIVITIES ​ ​ 894,709 ​ ​ 317,774

​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ​ ​ 156,545 ​ ​ 467,050

​ ​ ​ ​ ​ ​ ​

CASH AND CASH EQUIVALENTS AT END OF PERIOD ​ $ 272,591 ​ $ 156,545

​ ​ ​ ​ ​ ​ ​

Supplemental disclosure of cash paid during the period for: ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​

Supplemental disclosure of non-cash transactions: ​ ​ ​ ​ ​ ​

Initial recognition of right of use assets under ASC 842 ​ ​ — ​ ​ (1,505)

Initial recognition of operating lease liabilities under ASC 842 ​ ​ — ​ ​ 1,505

Unrealized gains (losses) on securities available for sale ​ ​ 731 ​ ​ (19,006)

Unrecognized Pension Losses on Director Pension Plan ​ ​ 106 ​ ​ —

Unrealized holding (losses) gains on cash flow hedge ​ ​ (321) ​ ​ 1,814

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

​

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NB Bancorp, Inc.

Notes to Consolidated Financial Statements

Note 1 – Organization, Activities and Significant Accounting Policies

Corporate Structure and Nature of Operations

NB Bancorp, Inc. (the “Company”), a Maryland corporation, 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 in Massachusetts.

The Bank’s deposits are insured by the Deposit Insurance Fund of the Federal Deposit Insurance Corporation (FDIC) up to federal limits. All deposits above the FDIC insurance amount are insured by the Depositors Insurance Fund (DIF). The DIF is a private, industry-sponsored insurance fund that insures all deposits above FDIC limits at our member banks. The Bank provides numerous services to customers, including the maintenance of checking, savings, money market and certificate of deposit accounts, and the granting of several types of residential, construction, commercial, and consumer loans. The primary market area of the Company is the metro-west area of Boston and surrounding communities, with headquarters in Needham and branch locations in Wellesley, Westwood, Dedham, Medfield, Medford, Dover, Ashland, Millis, Natick and Mission Hill. The Bank is subject to competition from other financial institutions, including commercial banks, other savings and co-operative banks, credit unions, mortgage banking companies, and other financial service providers. The primary regulators of the Company are the Massachusetts Commissioner of Banks and the Federal Reserve System (see Note 11, Regulatory Capital Requirements). As part of the criteria for membership in the Federal Reserve System, the Company is required to maintain stock in the Federal Reserve Bank (see Note 2, Investment Securities).

Conversion and Reorganization

Pursuant to a Plan of Conversion (the “Plan”), NB Financial, MHC (the “MHC”), the Bank’s former mutual holding company parent and the predecessor of the Company, converted from a mutual holding company into a publicly traded stock form of organization on December 27, 2023. In connection with the conversion, the MHC transferred to the Company 100% of MHC’s common stock, and immediately thereafter merged into the Company.

Pursuant to the Plan, the Company sold 40,997,500 shares of common stock in a public offering at $10.00 per share for net offering proceeds of approximately $400.4 million. The Company completed the offering on December 27, 2023. Effective as of December 27, 2023, the Company donated $2.0 million of cash and 1,708,229 shares of common stock to Needham Bank Charitable Foundation (the “Foundation”). A total of 42,705,729 shares of common stock of the Company were issued and outstanding immediately after the donation to the Foundation. After the completion of the conversion, the Bank’s employee stock ownership plan (the “ESOP”) purchased 1,000,000 shares of the Company’s common stock.

The cost of conversion and issuing the capital stock was deferred and deducted from the proceeds of the offering. As of December 31, 2023, the Company incurred approximately $9.6 million in conversion costs, which are included in shareholders’ equity on the consolidated balance sheet as of December 31, 2023.

In connection with the conversion, liquidation accounts are established by the Company and the Bank in an aggregate amount equal to (i) the MHC’s ownership interest in the shareholders’ equity of NB Financial, Inc. as of the date of the latest statement of financial condition included in the Company’s definitive prospectus dated October 12, 2023, plus (ii) the value of the net assets of the MHC as of the date of the MHC’s latest statement of financial condition before the consummation of the Conversion (excluding the MHC’s ownership interest in NB Financial, Inc.). Each eligible account holder and supplemental eligible account holder is entitled to a proportionate share of the liquidation accounts in the event of a liquidation of (i) the Company and the Bank or (ii) the Bank, and only in such events. This share will be reduced if the eligible account holder’s or supplemental account holder’s deposit balance falls below the amounts on the date of record and will cease to exist if the account is closed. The liquidation account will never be increased despite any increase after conversion in the related deposit balance. The Bank may not pay a dividend on its capital stock if the effect thereof would cause retained earnings to be reduced below the liquidation account amount or regulatory capital requirements.

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Basis of Presentation

The Company’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States (“GAAP”) as set forth by the Financial Accounting Standards Board (“FASB”) and its Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) as well as the rules and interpretive releases of the Securities and Exchange Commission (the “SEC”) under the authority of federal securities laws.

The consolidated financial statements include the accounts of the Company, its wholly-owned subsidiaries, and entities in which it holds a controlling financial interest through being the primary beneficiary or through holding a majority of the voting interest. All intercompany accounts and transactions have been eliminated in consolidation.

Certain previously reported amounts have been reclassified to conform to the current year's presentation.

Operating Segments

Accounting standards require that information be reported about a company’s operating segments using a “management approach.” Reportable segments are identified in these standards as those revenue producing components for which separate financial information is produced internally and which are subject to evaluation by the chief operating decision maker. While the chief operating decision maker monitors the revenue streams of the various products and services, operations are managed, and financial performance is evaluated on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable segment.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Actual results could differ from those estimates.

Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for credit losses, the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans, the valuation of deferred tax assets, actuarial estimates related to the Company’s various retirement programs, and the valuation of financial instruments. In connection with the determination of the allowances for credit losses on loans and foreclosed real estate, management obtains independent appraisals for significant properties.

A majority of the Company's loan portfolio consists of one to four-family residential, commercial real estate, construction and land development loans in the metro-west area of Boston and its surrounding communities. Accordingly, the ultimate collectability of a substantial portion of the Company's loan portfolio and the recovery of the carrying amount of foreclosed real estate are susceptible to changes in local market conditions.

While management uses currently available information to recognize losses on loans and foreclosed real estate, future additions to the allowances for credit losses on loans and foreclosed real estate may be necessary based on changes in local economic conditions. In addition, regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowances for credit losses on loans and foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances based on their judgments about information available to them at the time of their examination. Because of these factors, it is reasonably possible that the allowance for losses on loans and foreclosed real estate may change in the near future.

Summary of Significant Accounting Policies

Adoption of New Accounting Standards – On January 1, 2023, the Company adopted FASB ASU No. 2016-13 –Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”) along with amendments ASU 2019-11 - Codification Improvements to Topic 326, Financial Instruments – Credit Losses, and ASU 2022-02 - Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and

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Vintage Disclosures (“ASU 2022-02”). Together, these ASUs, referred to herein as ASC 326, replace the incurred loss impairment methodology with the current expected credit loss methodology (“CECL”) and require consideration of a broader range of information to determine credit loss estimates at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. ASC 326 applies to financial assets subject to credit losses that are measured at amortized cost and certain off-balance sheet credit exposures, which include, but are not limited to, loans receivable, leases, held-to-maturity (“HTM”) securities, loan commitments, and financial guarantees.

In addition, ASC 326 made changes to the accounting for available for sale (“AFS”) debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available for sale debt securities if management does not intend to sell and does not believe that it is more likely than not, they will be required to sell.

The Company adopted ASC 326 using the prospective transition approach for debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As of December 31, 2022, the Company did not have any other than-temporarily impaired investment securities. Upon adoption of ASC 326, the Company determined that an allowance for credit losses on available for sale securities was not required.

The Company adopted ASC 326 using the modified retrospective method for all financial assets measured at amortized cost and off-balance sheet credit exposures, which included loans receivable and commitments to extend credit (loan commitments and stand-by letters of credit), respectively. The Company does not have any securities classified as HTM. Results for reporting periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts are reported in accordance with previously applicable GAAP.

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

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

(In thousands) Adoption Adoption Adoption

Assets: ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Liabilities: ​ ​ ​ ​ ​ ​ ​ ​ ​

Reserve for unfunded commitments ​ ​ (1,786) ​ ​ — ​ ​ (1,786)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Equity: ​ ​ ​ ​ ​ ​ ​ ​ ​

​

On January 1, 2023, the Company on a modified retrospective basis early adopted ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Investments in Tax Credit Structures. This ASU allows reporting entities to elect to account for qualifying tax equity investments using the proportional amortization method ("PAM"), regardless of the program giving rise to the related income tax credits. Previously, reporting entities were permitted to apply PAM only to qualifying tax equity investments in low-income housing tax credit structures ("LIHTCs"). The new guidance was effective for public business entities for fiscal years, including interim periods within, beginning after December 15, 2023. Early adoption is permitted, and the amendments are applied either on a modified retrospective or retrospective basis. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements.

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

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Loans are generally placed into nonaccrual status when they are past due 90 days or more as to either principal or interest or when, in the opinion of management, the collection of principal and/or interest is in doubt. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest or past due less than 90 days and the borrower demonstrates the ability to pay and remain current. When cash payments are received, they are applied to principal first, then to accrued interest. It is the Company’s policy not to record interest income on nonaccrual loans until principal has become current. In certain instances, accruing loans that are past due 90 days or more as to principal or interest may not go on nonaccrual status if the Company determines that the loans are well-secured and are in the process of collection. In accordance with ASC 326, the Company elected to exclude accrued interest from the amortized cost basis in its determination of the ACL for loans receivable, and will instead reverse accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status. Accrued interest receivable on loans amounted to approximately $16.1 million and $9.7 million as of December 31, 2023 and 2022, respectively.

The ACL represents management’s best estimate of credit losses over the remaining life of the loan portfolio. Loans are charged-off against the ACL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged-off amounts are recorded as increases to the ACL. The provision for credit losses is an amount sufficient to bring the ACL to an estimated balance that management considers adequate to absorb lifetime expected losses in the Company’s held for investment loan portfolio. The ACL is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans.

Management’s determination of the adequacy of the ACL under ASC 326 is based on an evaluation of the composition of the loan portfolio current economic conditions, historical loan loss experience, reasonable and supportable forecasts, and other risk factors. The Company uses a third-party CECL model as part of its estimation of the ACL on a quarterly basis. Loans with similar risk characteristics are collectively assessed within pools (or segments). Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics. The Company has determined that using federal call codes is an appropriate loan segmentation methodology, as it is generally based on risk characteristics of a loan’s underlying collateral. Using federal call codes also allows the Company to utilize and assess publicly available external information when developing its estimate of the ACL. The weighted average remaining maturity (“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. The Company considers economic forecasts of inflation, Federal Open Market Committee interest rates, national gross domestic product, and unemployment rates sourced from the Federal Reserve System’s “Beige Book,” Wells Fargo’s “U.S. Economic Outlook,” and the “Economic Forecast” publications from FHN Financial to inform the model for loss estimation. Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data, supplemented with peer bank data obtained from publicly available sources (i.e., federal call reports). The Bank’s peer group is comprised of financial institutions of relatively similar size and in similar markets (i.e., $10.00 billion or less of total assets and headquartered in Massachusetts). Management also considers qualitative adjustments when estimating credit losses to take into account the model’s quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of economic conditions, volume and severity of past due loans, value of underlying collateral, experience, depth, and ability of management, and concentrations of credit.

For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan by loan) basis. This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and is based on whether the risk grade of the loan is substandard or worse and the balance exceeds $500,000, and the loan’s terms differ significantly from other pooled loans. In accordance with the Company’s policy, non-accrual residential real estate loans that are well secured (LTV <75%) are not considered to warrant a downgrade to substandard risk rating and are therefore excluded from individually evaluated loans. Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net value is less than the loan’s amortized cost, a specific reserve in the ACL is recorded, which is charged-off in the period when management believes the loan balance is no longer collectible.

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The Company’s Allowance Committee approves the key methodologies and assumptions, as well as the final ACL on a quarterly basis. While management uses available information at the time of estimation to determine expected credit losses on loans, future changes in the ACL may be necessary based on changes in portfolio composition, portfolio credit quality, and/or economic conditions. In addition, bank regulatory agencies periodically review its ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.

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

Subsequent to the CECL adoption, management refined the modeling assuming and enhanced the CECL calculation, including the reserve for unfunded commitments, specifically regarding the probability of funding assumptions related to unfunded commitments and enhanced the qualitative analysis used in the determination of expected credit losses. The impact of these changes, in addition to growth in the unfunded commitment balances resulted in provisions for credit losses of $4.2 million.

Collateral-dependent Loans – The Company has certain loans for which repayment is dependent upon the operation or sale of collateral, as the borrower is experiencing financial difficulty. The underlying collateral can vary based upon the type of loan. The following provides more detail about the types of collateral that secure collateral-dependent loans:

Modified Loans – ASU 2022-22 eliminated the concept of troubled debt restructurings (“TDRs”) from the accounting standards for companies that have adopted ASC 326. ASU 2022-02 also requires additional disclosures for certain loan modifications and disclosures of gross charge-offs by year of origination. Specifically, loan modification disclosures in periods subsequent to the adoption of ASC 326 must be made for modifications of existing loans to borrowers who were experiencing financial difficulties at the time of the modification. The modification type must include a direct change in the timing or amount of a loan’s contractual cash flows. The additional disclosures are applicable to situations where there is: principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or any combination thereof.

Available for Sale Securities – The Company evaluates the fair value and credit quality of its AFS securities portfolio on a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security is evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company’s AFS securities portfolio are security type and credit rating, which

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is influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, and others. If unrealized losses are related to credit quality, the Company estimates the credit-related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. Subsequent to the adoption of ASC 326, if the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, then an ACL is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis. As of December 31, 2022, the Company did not have any other-than-temporarily impaired AFS securities. Upon adoption of ASC 326, the Company determined that an ACL on AFS securities was not warranted. As of December 31, 2023, there was no allowance for credit losses related to the available for sale portfolio.

For AFS debt securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings through an allowance for credit loss. If either of the above criteria is not met, the Company evaluates whether the decline in fair value is the result of credit losses or other factors. In making the assessment, the Company may consider various factors including the extent to which fair value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any amount of unrealized loss that has not been recorded through an allowance for credit loss is recognized in other comprehensive income. Changes in the allowance for credit loss are recorded as provision for (or reversal of) credit loss expense. Losses are charged against the allowance for credit loss when management believes an available for sale security is confirmed to be uncollectible or when either of the criteria regarding intent or requirement to sell is met. As of December 31, 2023, there was no allowance for credit loss related to the available- for-sale portfolio. Accrued interest receivable on available for sale debt securities totaled $1.2 million at December 31, 2023 and was excluded from the estimate of credit losses.

Purchase premiums and discounts are recognized in interest income, using the interest method, to arrive at periodic interest income at a constant effective yield, thereby reflecting the securities' market yield. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method. Such gains and losses are recognized within non-interest income in the consolidated statements of income.

Reserve for Unfunded Commitments – The Company estimates expected credit losses over the contractual period in which the Company is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The reserve for unfunded commitments is adjusted as a provision for credit loss expense. The estimate includes consideration of the likelihood that funding will occur, the existence of any third-party guarantees, and an estimate of credit losses on commitments expected to be funded using the same loss rates of similar financial instruments derived in the estimation of ACL for loans receivable. Upon the adoption of ASC 326, the Company recorded an increase in its reserve for unfunded commitments of $1.8 million (included in accrued expenses and other liabilities), which after related income tax effects, reduced equity by $1.3 million.

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Comprehensive Income – Under generally accepted accounting principles, "comprehensive income" is defined as the change in equity during a period due to transactions, events and circumstances arising from non-owner sources. Comprehensive income includes net income under generally accepted accounting principles as well as "other comprehensive income” (“OCI”), which consists of items that are excluded from net income and reported as changes in separate components of equity as required by other accounting standards. The Company's OCI consists of unrealized gains and losses on investment securities available for sale (see Note 2), unrealized gains and losses on interest rate swap agreements (see Note 14) and unrecognized pension costs (see Note 9).

The Company presents the components of OCI in a separate consolidated statement of comprehensive income (see Note 15).

Fair Value Measurements – The Company follows the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, for assets and liabilities that are measured and recorded at fair value, and to determine fair value disclosures.

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This standard defines fair value and establishes a framework for measuring fair value. This standard applies to certain other existing accounting pronouncements that require or permit fair value measurements (see Note 13).

Cash and Cash Equivalents – For purposes of the consolidated balance sheet and statement of cash flows, cash and cash equivalents include cash and due from banks, short-term investments, and federal funds sold deposited in other financial institutions that mature within ninety days.

Other Investments – Investments in mutually-owned banking organizations (Depositors Insurance Fund, Federal Home Loan Bank and Federal Reserve Bank), cooperative organizations (Connecticut On-Line Computer Center “COCC”), and non-controlling interests in privately-held companies (Jassby, Reinventure Capital, and LearnLaunch Fund), have no quoted market values and are carried at original cost, less any estimated impairment. Interest and dividends on these investments are recognized as earned or when dividends are declared. The Company reviews the above-mentioned stock for impairment based on the ultimate recoverability of their cost. As of December 31, 2023 and 2022, there was no allowance for credit losses related to other investments.

A non-controlling partnership interest in the Massachusetts Housing Equity Fund XXII LLC (a Qualified Affordable Housing Project “QAHP” of the Massachusetts Housing Investment Corporation), is accounted for using the proportional amortization method, whereby the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance as a component of income tax expense. The Company’s interest in the Massachusetts Housing Equity Fund XXII LLC constitutes a variable interest entity, which is not consolidated into the Company as there is a separate managing member who controls and operates the entity.

Investments in solar energy programs are accounted for under the proportional amortization method of accounting, rather than consolidation, due to the nature of the investee’s business (solar project where control remains with the managing LLC member) and the relative insignificance to the Company’s consolidated financial statements and constitute unconsolidated variable interest entities.

Derivative Instruments and Hedging Activities – The Company follows ASC Topic 815, Derivatives and Hedging, with regard to disclosure requirements for derivatives and hedging activities, with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Qualitative disclosures explain the Company’s objectives and strategies for using derivatives, and quantitative disclosures are made regarding the fair value of, and gains and losses on, derivative instruments, and about credit-risk-related contingent features in derivative instruments.

As required by ASC 815, the Company reports all derivatives on its balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting, and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with 1) the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge, or 2) the earnings effect of the hedged forecasted transactions in a cash flow hedge.

Other Real Estate Owned – Properties acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure are classified as other real estate owned (“OREO”). Real estate formally acquired in settlement of loans are recorded at the lower of the carrying value of the loan or the fair value of the property actually received. Losses arising from the acquisition of such properties are charged against the allowance for credit losses. Operating expenses and any subsequent provisions to reduce the carrying value to fair value less costs to sell are charged to current period earnings. In periods of declining real estate values, this accounting treatment would result in additional charges to OREO expense. Gains and losses upon disposal are reflected in earnings as realized.

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Transfers of Financial Assets – Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Revenue Recognition – The Company recognizes certain revenues in accordance with ASC Topic 606, “Revenue from Contracts with Customers”. The standard is based on the principles that revenues are recognized when control of a good or service transfers to a customer, and that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Under Topic 606, depending on the terms of a contract with a customer, revenues are either recognized at a point in time when a performance obligation is satisfied, or over time, as satisfaction of a performance obligation progresses. The standard does not apply to customer contracts that are within the scope of other accounting standards such as financial instruments and their transfer and servicing. As such, the standard does not apply to the Company’s interest income on loans, investment income, sale of financial assets and related mortgage banking and servicing income.

Revenues from contracts with customers that are subject to the principles of ASC Topic 606 are included in “non-interest income” under the customer service fees category in the Company’s consolidated statements of income. The following is a summary of such revenues from contracts with customers for the years ended December 31:

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​ ​ ​ ​ ​ ​ ​

ATM and interchange income, net of related expenses ​ $ 1,224 ​ $ 1,071

Non-sufficient funds ("NSF") and overdraft fees ​ ​ 527 ​ ​ 438

Other customer service fees ​ ​ 6,066 ​ ​ 3,629

​

ATM and interchange income are reported net of directly related expenses and are recognized by the Company when customers use their ATM/debit cards issued by the Company through a third-party payment network. NSF and overdraft protection fees represent fees charged to customers to cover or protect customer transactions in case of insufficient customer funds. Other customer service fees are primarily comprised of fees on cash management services, deposit account maintenance fees, wire transfer fees, certain loan prepayment fees and investment advisory fees. All of these fees are recognized at a point in time. Transaction based fees are recognized at the time of the transaction while account maintenance and protection fees are both charged and recognized on a monthly basis.

In each of the revenue streams identified above, there were no significant judgments made in determining or allocating the transaction price, as the consideration and service requirements are generally explicitly identified in the associated contracts and consist of a single performance obligation.

Loan Servicing – The Company records a servicing asset at estimated fair value, if practical, each time it undertakes an obligation to service a financial asset, principally when it sells financial assets and retains servicing rights. For sales of one to four-family residential real estate loans, a portion of the cost of originating the loan is allocated to the mortgage servicing rights based on estimated relative fair value. Fair value is based on market prices for comparable mortgage servicing contracts, when available, or alternatively based on a valuation model that calculates the present value of estimated future net servicing income. For subsequently measuring and reporting servicing assets, the Company has chosen to use the amortization method, rather than the fair value measurement method. Under this method, the Company amortizes the servicing asset in proportion to, and over the period of, estimated net servicing income, and it assesses the asset for estimated impairment based on fair value at each reporting date. Mortgage servicing rights are included in “prepaid expenses and other assets” on the Company’s consolidated balance sheets. Loan servicing income received and the related amortization of the mortgage servicing rights are included in “mortgage banking income” in the Company’s consolidated statement of income (see Note 4).

Banking Premises and Equipment – Land is carried at cost. Other premises and equipment are carried at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the

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assets (see Note 5). Maintenance and repairs are expensed as incurred while major improvements are capitalized. Gains and losses on dispositions are included in current operations.

Impairment of Long-Lived Assets – The Company tests long-lived assets, including the core deposit intangible asset, for impairment whenever circumstances indicate the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of carrying amount or fair value less estimated costs to sell.

Defined Benefit Plans:

Director Pension Plan – The Company maintains a director defined benefit pension plan which covers members of the board of directors who were in service prior to 2023, upon meeting specific qualifications. Pension expense under this plan is charged to current operations and consists of several components of net periodic pension cost based on various actuarial assumptions regarding future experience under the plans.

The Company recognizes the over-funded or under-funded status of a defined benefit plan as an asset or liability in its balance sheet and it recognizes changes in the funded status of the plan in the year in which the changes occur. The funded status of a plan is measured as the difference between the fair value of plan assets and the “projected benefit obligation” (PBO) at the financial statement date. The unrecognized prior service costs, net actuarial gains and accounting transition obligation are reflected as “accumulated other comprehensive income” (OCI). The changes in the plan’s funded status are recognized as charges or credits to “OCI” to the extent that they are not required to be recognized as components of “net periodic pension cost” in net income (see Notes 9 and 15).

Employee Pension Plans – The Company provides pension benefits for substantially all employees through membership in the Co-operative Banks Employees Retirement Association (CBERA). The Plan is accounted for as a multi-employer, noncontributory, defined benefit pension plan. Company employees become eligible after attaining age 21 and completing one year of service, and benefits become fully vested after six years of eligible service. Effective April 1, 2018, future eligibility for new Company employees to participate in the plan was frozen. Effective December 31, 2023, the Plan was frozen and participants no longer accrue additional retirement benefits (see Note 9).

Employee Stock Ownership Plan ("ESOP") – ESOP shares are shown as a reduction of equity and are presented in the consolidated statements of changes in shareholders’ equity as unallocated common stock held by ESOP. Compensation expense for the Company’s ESOP is recorded at an amount equal to the shares committed to be allocated by the ESOP multiplied by the average fair market value of the shares during the period. The Company recognizes compensation expense ratably over the period based upon the Company’s estimate of the number of shares committed to be allocated by the ESOP. When the shares are released, unallocated common stock held by ESOP is reduced by the cost of the ESOP shares released and the difference between the average fair market value and the cost of the shares committed to be allocated by the ESOP is recorded as an adjustment to additional paid-in capital. The loan receivable from the ESOP is not reported as an asset nor is the Company’s guarantee to fund the ESOP reported as a liability on the Company’s consolidated balance sheet. The employees of the Bank are the participants in the ESOP. Dividends paid on unallocated shares are used to repay the loan to the Company.

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Advertising Costs – The Company participates in certain advertising activities to attract more customers. The advertising costs of the Company are considered to benefit the period in which they are incurred. It is the Company’s policy to expense all advertising costs in the period incurred and to include them in the operating expense section of the consolidated income statement under the category marketing and charitable contribution expenses. The Company’s advertising expenses were approximately $2.7 million and $2.3 million for the years ended December 31, 2023 and 2022, respectively.

Income Taxes – The Company and its subsidiaries file a consolidated federal income tax return. The Company recognizes certain revenue and expense items in periods which are different for financial accounting purposes than for federal income tax purposes. Deferred income tax assets and liabilities are computed under the liability method based on differences between the financial statement carrying amounts and the tax bases of assets and liabilities that will result in taxable or

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deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

In accordance with generally accepted accounting principles, management assesses the likelihood that tax positions taken will be sustained upon examination based on their technical merit, considering the facts, circumstances and information available at the end of each period. The Company recognizes the effects of significant income tax positions taken on tax returns only if the positions are “more likely than not” to be sustained upon examination by the taxing authorities. Positions taken on tax returns that do not meet that threshold are not recognized in the Company’s provisions for income taxes. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change. The Company’s policy is to analyze its tax positions for all open tax years. Interest and penalties, if any, associated with uncertain tax positions, are classified as additional income tax expense in the consolidated statements of income (see Note 10).

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

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Reclassifications – Certain prior period balances in the audited consolidated financial statements may have been reclassified to conform to the current year presentation. These reclassifications had no effect on prior year net income or shareholders’ equity.

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Note 2 – Investment Securities

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Amortized ​ Unrealized ​ Unrealized ​ ​

(In thousands) Cost Gain Loss Fair Value

December 31, 2023 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Debt Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Agency collateralized mortgage obligations ​ ​ 2,987 ​ ​ — ​ ​ (569) ​ ​ 2,418

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Amortized ​ Unrealized ​ Unrealized ​ ​

(In thousands) Cost Gain Loss Fair Value

December 31, 2022 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Debt Securities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Agency collateralized mortgage obligations ​ ​ 3,749 ​ ​ — ​ ​ (676) ​ ​ 3,073

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Investment securities with carrying values of $49.6 million as of December 31, 2023 were pledged to secure borrowings with the Federal Reserve Bank (see Note 8). There were no investment securities pledged to secure borrowings with the Federal Reserve Bank as of December 31, 2022.

The Company did not sell any AFS securities during the years ended December 31, 2023 and 2022.

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

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​ ​ ​ ​ ​ ​ ​

Deferred income tax asset ​ ​ 3,876 ​ ​ 4,805

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Maturities of Debt Securities – The following is a summary of maturities of securities available for sale as of December 31, 2023. 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.

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​ ​ ​ ​ ​ ​ ​

​ ​ Available for Sale

​ ​ Amortized Cost ​ Fair Value

(In thousands) ​

Agency mortgage-backed securities ​ 13,154 ​ 11,430

Agency collateralized mortgage obligations ​ 2,987 ​ 2,418

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

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Less than 12 Months ​ 12 Months or More ​ Total

​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​

(In thousands) ​ ​ ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair

December 31, 2023 Number of Securities Losses Value Losses Value Losses Value

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ Less than 12 Months ​ 12 Months or More ​ Total

​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​ ​ Gross ​ ​ ​

(In thousands) ​ ​ ​ Unrealized ​ Fair ​ Unrealized ​ Fair ​ Unrealized ​ Fair

December 31, 2022 Number of Securities Losses Value Losses Value Losses Value

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Municipal, Agency Debt, and U.S. Treasury Securities – The contractual cash flows of these securities are direct obligations of municipalities or the U.S. Treasury, or they consist of agency obligations, mortgage-backed securities or collateralized mortgage obligations which are guaranteed by Fannie Mae, Ginnie Mae, Freddie Mac, the Federal Home Loan Bank or other quasi-government agencies. It is expected that the securities would not be settled at a price less than the amortized cost of the investment.

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Corporate Bonds – The Company invests in a substantial amount of corporate bonds and subordinated debentures, which are scheduled to mature between the calendar years 2024 through 2032. These corporate bonds vary in commercial industries, including automotive, energy, consumer products, and media companies. The Company has also invested in domestic and foreign banking institutions. The subordinated debentures are mostly debt issuances from bank holding companies.

As of December 31, 2023 and 2022, the majority of securities in an unrealized loss position were of investment grade; however, a few did not have a third-party investment grade available. These ungraded securities were primarily subordinated debt instruments issued by bank holding companies and are classified as corporate bonds in the tables above. As of December 31, 2023, 14 securities with a market value of $37.9 million, respectively, did not have a third-party investment grade available. Investment securities with unrealized losses are generally a result of pricing changes due to changes in the interest rate environment since purchase and not as a result of permanent credit loss. The Company does not intend to sell, nor does it believe it will be required to sell, any of its securities prior to the recovery of the amortized cost. Because the declines in fair value are attributable to market changes in interest rates and not due to credit quality, management did not recognize an allowance for credit loss against the Company’s investment portfolio as of December 31, 2023.

Depositors Insurance Fund Stock – The Company holds stock in the Depositors Insurance Fund, as a requirement of membership. The cost of the shares is $139,000, which represents the Company’s interest in the Depositors Insurance Fund, and is not redeemable.

Federal Home Loan Bank Stock – The Company holds stock in the Federal Home Loan Bank of Boston, a regional member of the Federal Home Loan Bank (“FHLB”), as part of the Company’s membership requirements. Based upon the redemption provisions of the FHLB, the stock is restricted, has no quoted market value, and is carried at original cost. The balance in the investment account as of December 31, 2023 and 2022 was $14.6 million and $13.2 million, respectively. The stock serves as additional collateral on FHLB borrowings, which determines the amount of stock the Company is required to hold.

Federal Reserve Bank Stock – The Company is required to maintain shares in the Federal Reserve Bank for 50% of the total par value in order to meet criteria for membership in the Federal Reserve System. Although the full par value of the stock is $100 per share, the Company is required to pay only $50 per share at the time of purchase with the understanding that the other half of the subscription amount is subject to call at any time. Dividends are paid semi-annually at the statutory rate of 6 percent per annum, or $1.50 per share semi-annually. In addition, Federal Reserve regulations require that the Company purchase additional stock, or that the Federal Reserve System redeem stock, if a change in total deposit liabilities (as reported in the quarterly report of condition) results in a change in the Company’s Federal Reserve Stock holdings requirement by 15 percent or 100 shares, whichever is lower. As of December 31, 2023, the Company held 195,936 shares of stock in the approximate amount of $10.3 million compared to 162,072 shares of stock in the approximate amount of $8.1 million as of December 31, 2022.

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

Connecticut On-Line Computer Center, Inc. (“COCC”) – Common and preferred shares of COCC stock are recorded at cost. As of December 31, 2023 and 2022, the Company holds 47 shares of common stock in the amount of $195,000 and 43 shares of common stock in the amount of $175,000, respectively. The Company also holds 5 shares of Series A preferred stock in the amount of $75,000 as of December 31, 2023 and 2022.

Jassby Inc. – Jassby Inc. is a convenient and easy to use app for families with the vision to bring banking and financial services to families and provide App-based banking for generations Z and Alpha. In October 2019, the Company lent Jassby, Inc. $1,000,000 at 5% in the form of a convertible promissory note, which had an original maturity date of December 31, 2021. Due to the occurrence of a private qualifying financing event in February 2020, the promissory note converted to approximately 320,000 shares of Series Seed-1 Preferred Stock in Jassby Inc. The carrying value of this preferred stock as of December 31, 2023 and 2022 was $1,000,000.

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

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distribution of $1,000,000 leaving the Company with a remaining investment (carrying value) of $1,000,000 as of December 31, 2022. During 2023, there was an additional capital call of $500,000 that increased the Company’s investment (carrying value) to $1,500,000 as of December 31, 2023.

LearnLaunch Fund III L.P. – During 2023, the Company invested $455,000 as a limited partner in the LearnLaunch Fund to generate alternative investment earnings. The total commitment to the fund is $650,000, with $455,000 contributed as of December 31, 2023.

Unconsolidated variable interest entities included in non-public investments consist of the following (See Note 22):

Massachusetts Housing Investment Corporation ("MHIC") – The MHIC is a program where the Internal Revenue Service (“IRS”) allocates federal tax credits to state housing credit agencies based on each state’s population. The state agencies award Low Income Housing Tax Credits for Qualified Affordable Housing Projects (“QAHP”). Project sponsors use tax credits to raise equity from investors. The equity investment reduces the debt burden on the tax credit property, making it financially feasible to offer lower, more affordable rental rates to eligible individuals. The participating banks are entitled to certain federal tax credits. As of December 31, 2023 and 2022, the Company is carrying approximately $1,000,000 in the Massachusetts Housing Equity Fund XXII LLC, a QAHP sponsored by the MHIC. The Company holds a 1.15% interest in this partnership as of December 31, 2023. The Company’s accumulated share of losses and tax credits as of December 31, 2023 and 2022 was $662,000.

Sunwealth Project Pool 20 LLC (“Sunwealth”) – Sunwealth is a solar energy program formed on April 21, 2021 by the Company as a 99% non-controlling LLC investor member and Sunwealth Holdco 8 LLC (Holdco) as the sole managing LLC member. Sunwealth is in the business of developing, designing, installing, owning and maintaining solar photovoltaic energy generation facilities on the rooftops or properties of municipal and commercial customers in the United States. Sunwealth has or intends to purchase solar photovoltaic energy generation facilities from the developers prior to any PV System that is part of any such facilities being placed in service and sell electricity or lease such facilities to off-takers in a manner that will qualify the Company, through its ownership in Sunwealth, to receive income tax credits. Energy produced by the facilities will be sold to the applicable off-taker or the facilities will be leased to the applicable off-taker, in each case pursuant to the offtake agreements with the purchaser. The offtake agreements include leasehold or other rights of access to all areas of the facilities on which the facilities and their parts are located so that agents of the Sunwealth are able to inspect, access, maintain and improve facility equipment and all other rights and assets necessary for the ownership and operation thereof and the sale of power from the facilities.

During 2021, through its subsidiary, 1892 Investments, the Company invested $2.5 million in Sunwealth for Project Pool 20. The carrying value of the investment is approximately $1.9 million as of December 31, 2023 compared to $2.3 million as of December 31, 2022. In addition, the Company has made a $2.5 million loan to Holdco to fund the project, which is included in the Company’s construction and industrial loan portfolio as of December 31, 2023 and 2022.

Sunwealth Project Pool 26 LLC – Through its subsidiary, 1892 Investments, in 2022 the Company committed $5.0 million to Sunwealth for Project Pool 26, of which invested $4.2 million (tax basis) was funded towards solar projects during 2022. The carrying value of the investment is approximately $3.4 million as of December 31, 2023 compared to $5.0 million as of December 31, 2022, which includes a refundable advance of $800,000.

Patriot Renewable Energy Capital, LLC (“Patriot Renewables”) – Patriot Renewables is a developer, owner, and operator of commercial-scale wind and solar energy projects. The Company has invested in the below projects through its subsidiary, 1892 Investments.

Bertoline Project – The Company invested $623,000 in the Bertoline Project in 2022 with a total commitment of $656,000. During 2023, the Company invested an additional $26,000. The carrying

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

Maple Crest Project – During 2023, the Company invested $1.0 million towards the Maple Crest Project. The total commitment to this solar project is $5.0 million, with $1.0 million contributed as of December 31, 2023.

Note 3 – Loans Receivable and ACL

All loan and ACL information presented as of and for the year ended December 31, 2023 is in accordance with ASC 326. All loan information presented prior to this period is presented in accordance with previous GAAP. As a result, the presentation of information pre-ASC 326 and post-ASC 326 adoption will not be comparable for most disclosures.

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

​

​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​

Deferred fees, net ​ (4,930) ​ ​ (511)

Allowance for credit losses ​ (32,222) ​ ​ (25,028)

​

Included in the above as of December 31, 2023 is approximately $320.5 million in loans to borrowers in the cannabis industry, of which 80% is collateralized by real estate compared to $58.3 million of cannabis industry loans, of which 91% is collateralized by real estate at December 31, 2022. None of the loans to borrowers in the cannabis industry are collateralized by cannabis.

During the years ended December 31, 2023 and 2022, the Company purchased approximately $34.2 million and $187.3 million, respectively, of consumer loan pools. These purchases included loan pools collateralized by boat and recreational vehicles, automobiles, and solar panels, as well as unsecured home improvement loans. The outstanding balances of these consumer loan pools, shown net of premium (discount) are as follows as of the dates stated (in thousands):

​

​ ​ ​ ​ ​ ​ ​ ​ ​

December 31, 2023 Gross Loan Premium (Discount) Net Loan

​

​ ​ ​ ​ ​ ​ ​ ​ ​

December 31, 2022 Gross Loan Premium (Discount) Net Loan

​

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

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

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Current ​ Days ​ Days ​ More Past Due ​ ​ ​ ​ Total

December 31, 2023 Loans Past Due Past Due Still Accruing Nonaccrual Loans

Real estate loans: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ Past Due 90 ​ ​ ​

​ ​ ​ ​ ​ 30-59 ​ 60-89 ​ ​ ​ ​ ​ ​ ​ Days or ​ ​ ​

​ ​ Current ​ Days ​ Days ​ 90 Days or ​ Total ​ More & Still ​ Loans on

Real estate loans: ​ ​ ​ ​ ​ ​ ​

Construction & land development ​ 552,375 ​ — ​ — ​ — ​ 552,375 ​ — ​ 10

​

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