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

Our results of operations depend primarily on our net interest income. 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 BOLI. Noninterest expense currently consists primarily of expenses related to salary and employee benefits and director fees, occupancy and equipment, data processing, marketing and charitable contribution expense, professional fees, FDIC assessments and other general and administrative expenses.

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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.

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 Jumpstart Our Business Startups Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we have elected to use the extended transition period to delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. 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 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 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 FASB Accounting Standards Codification (“ASC”) 326, the Company elected to exclude accrued interest from the amortized cost basis in its determination of the ACL for loans receivable, and will instead reverse accrued but unpaid interest through interest income in the period in which the loan is placed on nonaccrual status.

The ACL represents management’s best estimate of credit losses over the remaining life of the loan portfolio. Loans are charged-off against the ACL when management believes the loan balance is no longer collectible. Subsequent recoveries of previously charged-off amounts 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).

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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 remaining maturity

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

Additionally, interest rate forecasts sourced from CME Group’s “FedWatch”, Wells Fargo’s “U.S. Economic Outlook,” and FHN Financial’s “Economic Forecast” publications are used for consideration of rate sensitivity in the model’s loan prepayment speed estimation. Historical loss rates used in the quantitative model are primarily derived using both the Bank’s data and peer bank data obtained from publicly available sources (i.e., federal call reports). The Bank’s peer group is comprised of financial institutions of relatively similar size and in similar markets (i.e., $10 billion or less of total assets and headquartered in Massachusetts). Management also considers qualitative adjustments when estimating credit losses to take into account the model’s quantitative limitations. Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of economic conditions, volume and severity of past due loans, value of underlying collateral, experience, depth, and ability of management, and concentrations of credit.

For those loans that do not share similar risk characteristics, the Company evaluates the ACL needs on an individual (or loan by loan) basis. This population of individually evaluated loans (or loan relationships with the same primary source of repayment) is determined on a quarterly basis and consists of: loans with a risk rating of substandard or worse or loan terms differing significantly from other pooled loans. In accordance with the Company’s policy, non-accrual residential real estate loans that are below $500,000 and well secured (loan-to-value <60%) are excluded from individually evaluated loans. Measurement of credit loss is based on the expected future cash flows of an individually evaluated loan, discounted at the loan’s effective interest rate, or measured on an observable market value, if one exists, or the estimated market value of the collateral underlying the loan, discounted to consider estimated costs to sell the collateral for collateral-dependent loans. If the net value is less than the loan’s amortized cost, a specific reserve in the ACL is recorded, which is charged-off in the period when management believes the loan balance is no longer collectible.

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

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

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

Income Taxes. The Company and its subsidiaries file a consolidated federal income tax return. The Company recognizes certain revenue and expense items in periods which are different for financial accounting purposes than for federal income tax purposes. Deferred income tax assets and liabilities are computed under the liability method based on differences between the consolidated financial statement carrying amounts and the tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

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

AFS Securities Valuation and Credit Losses.The Company evaluates the fair value and credit quality of its AFS securities portfolio on a quarterly basis. In the event the fair value of a security falls below its amortized cost basis, the security is evaluated to determine whether the decline in value was caused by changes in market interest rates or security credit quality. The primary indicators of credit quality for the Company’s AFS securities portfolio are security type and credit rating, which is influenced by a number of security-specific factors that may include obligor cash flow, geography, seniority, and others. If unrealized losses are related to credit quality, the Company estimates the credit-related loss by evaluating the present value of cash flows expected to be collected from the security with the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis of the security and a credit loss exists, then an ACL is recorded for the credit loss, limited by the amount that the fair value is less than amortized cost basis.

For AFS securities, management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is recorded in earnings through an allowance for credit loss.

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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.

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

Non-GAAP Financial Measures.In addition to results presented in accordance with U.S. GAAP, this annual report on Form 10-K contains certain non-GAAP financial measures, including operating net income, operating noninterest expense, operating noninterest income, operating earnings per share, basic, operating earnings per share, diluted, operating return on average assets, operating return on average shareholders’ equity, operating efficiency ratio, tangible shareholders’ equity, tangible assets, tangible book value per share, and efficiency ratio. The Company presents certain non-GAAP financial measures, which management uses to evaluate the Company’s performance, and which exclude the effects of certain transactions, non-cash items and U.S. GAAP adjustments that we believe are unrelated to our core business and are therefore not necessarily indicative of the Company’s current performance or financial position. Management believes excluding these items facilitates greater visibility for investors into our core businesses as well as underlying trends that may, to some extent, be obscured by inclusion of such items in the corresponding U.S. GAAP financial measures. These disclosures should not be viewed as a substitute for financial results determined in accordance with U.S. GAAP, nor are they necessarily comparable to non-GAAP performance measures that may be presented by other companies. Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

NB BANCORP, INC.

NON-GAAP RECONCILIATION

(Dollars in thousands)

For the Year Ended

Add (Subtract):

Adjustments to net income:

Losses on sales of securities available for sale, net 1,868 - -

One-time conversion and IPO-related compensation expense - 7,931 -

Defined benefit pension termination expense 390 1,900 -

Total adjustments to net income $ 3,963 $ 32,593 $ -

amortization of solar tax credit investments 634 8,096 -

Non-GAAP adjustments, net of tax 3,329 24,497 -

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At and For the Year Ended

Net income (U.S. GAAP) $ 42,149 $ 9,825 $ N/A

Earnings per share, basic $ 1.07 $ 0.23 $ N/A

Earnings per share, diluted $ 1.07 $ 0.23 $ N/A

Operating net income (non-GAAP) $ 45,478 $ 34,322 $ N/A

Operating earnings per share, basic (non-GAAP) $ 1.15 $ 0.82 $ N/A

Operating earnings per share, diluted (non-GAAP) $ 1.15 $ 0.82 $ N/A

For the Year Ended

Subtract (Add):

Noninterest expense components:

One-time conversion and IPO-related compensation expense - 7,931 -

Defined benefit pension termination expense 390 1,900 -

Total impact of non-GAAP noninterest expense adjustments $ 390 $ 28,913 $ -

For the Year Ended

Subtract (Add):

Noninterest income components:

Losses on sales of securities available for sale, net (1,868) - -

Total impact of non-GAAP noninterest income adjustments $ (1,868) $ - $ -

For the Year Ended

Operating return on average assets (non-GAAP) 0.95% 0.86% 0.96%

For the Year Ended

Subtract:

Intangible assets (core deposit intangible) 1,079 1,227 1,377

Subtract:

Intangible assets (core deposit intangible) 1,079 1,227 1,377

Tangible book value per share (non-GAAP) $ 17.89 $ 17.72 $ N/A

For the Year Ended

Operating efficiency ratio (non-GAAP) 58.19% 62.85% 62.34%

Comparison of Financial Condition at December 31, 2024 and 2023

Total Assets. Total assets increased $624.3 million, or 13.8%, to $5.16 billion as of December 31, 2024 from $4.53 billion at December 31, 2023. The increase was primarily the result of increases in net loans, cash and cash equivalents, BOLI and AFS securities.

Cash and Cash Equivalents. Cash and cash equivalents increased $91.3 million, or 33.5%, to $363.9 million at December 31, 2024 from $272.6 million at December 31, 2023. The increase in cash and cash equivalents was primarily due to the increase in deposits outpacing the increase in net loans.

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

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The increase in AFS securities during 2024 was a result of additional purchases of securities due to excess cash and unrealized gains due to interest rate changes. Additionally, a portfolio of $29.3 million of AFS securities was sold at a $1.9 million net loss during the year ended December 31, 2024, with the proceeds reinvested into higher-yielding securities, which were restructured to mitigate portfolio risk and increase yield. The securities sold had an average yield of 0.97% with a remaining duration of 2.4 years and were reinvested into securities with an average yield of 4.27% and an average duration of 4.1 years. The earn-back period on the loss from the sale of the securities is expected to be approximately 2.5 years. The newly purchased securities carry a lower risk weight than the securities sold, mitigating risk in the Company’s securities portfolio.

Loans, net. Loans, net increased $437.4 million, or 11.3%, to $4.29 billion at December 31, 2024 from $3.86 billion at December 31, 2023. We experienced increases in each of our loan portfolio segments except for construction and land development loans, which decreased $39.0 million, or 6.3%, to $583.8 million at December 31, 2024 from $622.8 million at December 31, 2023. During the year ended December 31, 2024, commercial real estate loans, including multi-family real estate loans, increased $316.6 million, or 22.9%; commercial and industrial loans increased $67.9 million, or 13.8%; one-to-four-family residential real estate loans, including home equity loans, increased $60.1 million, or 5.0%; and consumer loans increased $39.7 million, or 19.4%.

The increase in these loan portfolio segments reflects our strategy to grow the balance sheet by continuing to diversify into higher-yielding loans to improve net margins and manage interest rate risk. In addition, to help manage interest rate risk and generate non-interest income, occasionally we sell one-to-four-family residential mortgage loans into the secondary market on a servicing-retained basis. During the year ended December 31, 2024, $23.6 million of loans were sold with gains recognized of $293,000.

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

BOLI. We invest in BOLI to help offset the costs of our employee benefit plan obligations. BOLI also generally provides noninterest income that is nontaxable. During the year ended December 31, 2024, the Bank surrendered $46.7 million of existing BOLI policies that were earning an annualized yield of 3.08%. Prior to the surrender of the policies, the Bank purchased an additional $50.0 million of BOLI policies, which are currently yielding 4.80%. As a result of the surrender of the BOLI policies, the Bank incurred $1.4 million of income tax and penalty, which the Bank expects to earn back in less than two years.

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The insurance carriers have six months to pay out the proceeds from the surrendered policies, and as a result, the Bank expects BOLI to be at higher balances and to continue earning income related to the increase in cash surrender value until the proceeds are received. As a result of the surrender and purchase, BOLI increased $52.3 million, or 103.5%, to $102.8 million at December 31, 2024 from $50.5 million at December 31, 2023.

Deferred Income Tax Asset, Net. Deferred tax asset, net increased $11.2 million, or 58.4%, to $30.3 million at December 31, 2024 from $19.1 million at December 31, 2023. The increase resulted primarily from $8.9 million in tax credits earned during the year ended December 31, 2024 and a $2.3 million reduction in the deferred tax liability related to solar income tax credit investment carryforwards from December 31, 2023.

Prepaid Expenses and Other Assets. Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases, derivatives with a positive fair value, prepaid expenses and income tax receivables. Prepaid expenses and other assets increased $6.4 million, or 12.0%, to $59.5 million at December 31, 2024 from $53.1 million at December 31, 2023. The increase resulted primarily from a $4.0 million increase in income tax receivables as a result of solar income tax credits earned and a $2.4 million increase in right of use assets resulting from the execution of the Wellesley administrative office lease.

Deposits. Deposits increased $790.3 million, or 23.3%, to $4.18 billion at December 31, 2024 from $3.39 billion at December 31, 2023. Core deposits (which we define as all deposits other than brokered deposits) increased $664.1 million, or 20.7%, to $3.9 billion at December 31, 2024 from $3.2 billion at December 31, 2023. The increase in core deposits resulted from increases in customer deposits, primarily certificates of deposit, which increased $340.0 million, or 25.9% from December 31, 2023, along with money market and checking accounts, which increased $163.3 million and $95.0 million, respectively, from December 31, 2023.

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

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

Borrowings. FHLB borrowings decreased $162.5 million, or 57.4%, to $120.8 million at December 31, 2024, compared to $283.3 million at December 31, 2023. Our borrowings consisted solely of FHLB advances, and the decrease in FHLB borrowings was the result of overall deposit growth and growth in brokered deposits due to lower rates.

Accrued expenses and other liabilities. Accrued expenses and other liabilities decreased $15.3 million, or 18.9%, to $65.7 million at December 31, 2024 from $81.0 million at December 31, 2023. The decrease primarily resulted from a $15.8 million reduction in IPO transaction suspense related to the Company’s mutual-to-stock conversion completed on December 27, 2023, as the amounts were paid during 2024.

Shareholders’ Equity. Shareholders’ equity increased $7.2 million, or 1.0%, to $765.2 million at December 31, 2024 from $758.0 million at December 31, 2023. The increase in shareholder’s equity was primarily due to $42.1 million in net income and an increase of $3.7 million in accumulated other comprehensive income due to the change in market interest rates during the year ended December 31, 2024, offset partially by a $31.0 million increase in the unallocated common shares held by the ESOP resulting from the purchase of shares on the open market to fund the ESOP as a result of the conversion, along with the reduction in retained earnings from the adoption of ASU 2023-02 of $7.9 million.

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

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

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The increase was primarily due to an increase in interest and fees on loans of $58.6 million, or 27.6%, a decrease in marketing and charitable contributions expense of $19.6 million, or 85.0%, an increase in interest and dividends on cash equivalents and other of $9.7 million, or 186.9%, and a decrease in interest expense on borrowings of $9.7 million, or 68.7%; primarily offset by an increase in interest expense on deposits of $50.5 million, or 66.1%, and an increase in income tax expense of $14.5 million, or 715.7%.

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

◾ Loss on the sale of available-for sale securities amounting to $1.9 million;

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

Interest and Dividend Income. Interest and dividend income increased $70.4 million, or 31.7%, to $292.5 million for the year ended December 31, 2024 from $222.2 million for the year ended December 31, 2023, primarily due to a $58.6 million, or 27.6%, increase in interest and fees on loans and a $9.7 million, or 186.9%, increase in interest and dividends cash equivalents and other. The increase in interest and fees on loans was primarily due to an increase of $625.6 million, or 18.1%, in the average balance of the loan portfolio to $4.09 billion for the year ended December 31, 2024 from $3.46 billion for the year ended December 31, 2023 and an increase of 50 basis points in the weighted average yield for the loan portfolio to 6.62% for the year ended December 31, 2024 from 6.12% for the year ended December 31, 2023, reflecting the growth of our commercial and consumer loan portfolios. The increase in interest and dividends cash equivalents and other was primarily due to an increase of $179.5 million, or 251.2%, in the average balance of short-term investments to $250.9 million for the year ended December 31, 2024 from $71.4 million for the year ended December 31, 2023, along with a 105 basis point increase in the average yield on short-term investments.

Average interest-earning assets increased $787.0 million, or 20.8% to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023. The yield on interest-earning assets increased 53 basis points to 6.40% for the year ended December 31, 2024 from 5.87% for the year ended December 31, 2023.

Interest Expense.Total interest expense increased $40.9 million, or 45.2%, to $131.3 million for the year ended December 31, 2024 from $90.4 million for the year ended December 31, 2023. Interest expense on deposits increased $50.5 million, or 66.1%, to $126.9 million for the year ended December 31, 2024 from $76.4 million for the year ended December 31, 2023, due to an increase in the average balance of interest-bearing deposits of $493.9 million, or 18.4%, to $3.18 billion for the year ended December 31, 2024 from $2.69 billion for the year ended December 31, 2023 and an increase in the weighted average rate on interest-bearing deposits of 115 basis points to 3.99% for the year ended December 31, 2024 from 2.84% for the year ended December 31, 2023.

Interest expense on FHLB advances decreased $9.7 million, or 68.7%, to $4.4 million for the year ended December 31, 2024 from $14.1 million for the year ended December 31, 2023. The average balance of FHLB advances decreased $174.0 million, or 67.1%, to $85.5 million for the year ended December 31, 2024 from $259.5 million for the year ended December 31, 2023 and the weighted average cost of these advances decreased 27 basis points to 5.14% for the year ended December 31, 2024 from 5.41% for the year ended December 31, 2023. The decrease in the average balance was due to our strategy to utilize brokered deposits to support loan growth and for liquidity management.

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Net Interest Income. Net interest income was $161.2 million for the year ended December 31, 2024, compared to $131.7 million for the year ended December 31, 2023, representing an increase of $29.5 million, or 22.4%, primarily due to a $787.0 million, or 20.8%, increase in the average balance of interest-earning assets to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023 and an increase in the weighted average yield on interest-earning assets of 53 basis points to 6.40% at December 31, 2024 from 5.87% at December 31, 2023. These increases were offset partially by an increase in the weighted average rate on interest-bearing liabilities of 95 basis points to 4.02% for the year ended December 31, 2024 from 3.07% for the year ended December 31, 2023 and an increase in the average balance of interest-bearing liabilities of $319.9 million, or 10.8%, to $3.27 billion for the year ended December 31, 2024 from $2.95 billion for the year ended December 31, 2023.

Provision for Credit Losses. Based on management’s analysis of the adequacy of allowance for credit losses, a provision of $12.1 million was recorded for the year ended December 31, 2024, compared to a provision of $13.9 million for the year ended December 31, 2023. The $1.8 million, or 12.7%, decrease in the provision was primarily due to the decrease of the provision for credit losses on unfunded commitments, which decreased $7.0 million, or 166.5%, due to a reduction in unfunded commitments from December 31, 2024 to December 31, 2023. The decrease in the provision for credit losses on unfunded commitments was partially offset by an increase in the provision for credit losses on loans of $5.3 million, or 54.6%, due to the growth in the Company’s loan portfolio and an increase in net charge-offs for the year ended December 31, 2024.

Noninterest Income. Noninterest income decreased $3.8 million, or 24.9%, to $11.5 million for the year ended December 31, 2024 from $15.4 million for the year ended December 31, 2023. The decrease resulted primarily from a $3.5 million employee retention credit earned during the year ended December 31, 2023 resulting from COVID-19 impacts not recognized during the year ended December 31, 2024, an increase in losses on the sale of AFS securities of $1.9 million during the year ended December 31, 2024 compared to no losses on the sale of AFS securities during the year ended December 31, 2023, partially offset by an increase in the change in the cash surrender value of BOLI of $759,000 and an increase in other income of $600,000 during the year ended December 31, 2024.

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

Year ended December 31, Change

(Dollars in thousands)

Increase in cash surrender value of BOLI 2,269 1,510 759 50.26%

Employee retention credit income — 3,452 (3,452) (100.00%)

Noninterest Expense. Noninterest expense for the year ended December 31, 2024 was $102.0 million, representing a decrease of $19.4 million, or 16.0%, from $121.3 million for the year ended December 31, 2023. Marketing and charitable contributions expense decreased $19.6 million, or 85.0%, as a result of the $19.1 million contribution to the Needham Bank Charitable Foundation during the year ended December 31, 2023; FDIC and state insurance assessments decreased $1.9 million, or 39.5%, as a result of high capital ratios during the year ended December 31, 2024 compared to the year ended December 31, 2023; salaries and employee benefit expenses decreased $1.1 million, or 1.6%, resulting primarily from a decrease in employee bonus expense of $5.0 million, a decrease in pension expense of $3.0 million as a result of the freezing of the pension plan and a $2.0 million decrease in LTIP expenses during the year ended December 31, 2024; partially offset by an increase in employee compensation of $4.7 million due to increased headcount, a $2.8 million increase in ESOP compensation expense as the ESOP was put into place upon the mutual-to-stock conversion on December 27, 2023, a $832,000 increase in medical and dental benefits and a $549,000 increase in 401(k) match expenses, both primarily a result of increased headcount; general and administrative expenses increased $1.1 million or, 17.0%, primarily a result of the $1.8 million decrease in the loss on solar tax partnerships during the year ended December 31, 2024 from the adoption of ASU 2023-02.

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These decreases were offset partially by an increase in director and professional service fees of $2.4 million, or 38.0%, primarily a result of increased use of audit, legal and human resources services of $2.2 million during the year ended December 31, 2024 and data processing expenses of $1.5 million, or 20.3%, primarily a result of increased IT infrastructure, debit card servicing, management information systems, deposit servicing systems and electronic banking expenses of $550,000, $341,000, $234,000, $183,000 and $152,000 during the year ended December 31, 2024, respectively. The table below sets forth our noninterest expense for the years ended December 31, 2024 and 2023:

Year ended December 31, Change

(Dollars in thousands)

Income Tax Expense. Income tax expense increased $14.5 million, or 715.7%, to $16.5 million for the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023. The effective tax rate was 28.1% and 17.0% for the years ended December 31, 2024 and 2023, respectively. The effective tax rate increased during 2024 primarily as a result of income tax expense of $18.5 million related to the adoption of ASU 2023-02, a smaller impact from tax credits and the $1.7 million income tax and penalty on the surrender of BOLI policies during the year ended December 31, 2024, offset partially by a reduction in 162(m) compensation during the year ended December 31, 2024.

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Average Balances and Yields. The following tables set forth average consolidated balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects would be immaterial. Non-accrual loans were included in the computation of average balances. All average balances are daily average balances. The yields set forth below include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense; such fees, discounts and premiums were not material for the periods presented.

For the Year Ended

Average Average

Outstanding Average Outstanding Average

Balance Interest Yield/Rate Balance Interest Yield/Rate

(Dollars in thousands)

Interest-earning assets:

Non-interest-earning assets 251,181 218,769

Allowance for credit losses (36,064) (30,041)

Interest-bearing liabilities:

Other non-interest-bearing liabilities 83,863 77,037

Total liabilities and shareholders' equity $ 4,786,379 $ 3,973,029

Net interest rate spread (1) 2.38 % 2.80 %

Net interest-earning assets (2) $ 1,301,489 $ 834,446

Net interest margin (3) 3.53 % 3.48 %

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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.

Year Ended

Increase (Decrease) Due to Total

Increase

Volume Rate (Decrease)

(In thousands)

Interest-earning assets:

Interest-bearing liabilities:

Savings accounts (12) — (12)

Comparison of Operating Results for the Years Ended December 31, 2023 and 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, an increase of $20.9 million in salaries and benefits primarily from the hiring of additional employees consistent with our business strategy to grow the Company, as well as discretionary bonuses awarded by the Compensation Committee and a $1.9 million pension expense. In addition to the mutual-to-stock conversion expense, the Company also recognized $7.2 million in additional provision for credit losses, as a result of the implementation of ASC 326. Partially offsetting these increases in expenses was a $26.2 million, or 24.9%, increase in net interest income due to net loan growth and an increase in the weighted average yield on our interest-earning assets, a $6.4 million, or 71.8%, increase in noninterest income due to increases from employee retention credit income and increases in cash management fees from customers and a $4.3 million reduction in income tax expense primarily due to lower income before taxes as a result of the mutual-to-stock conversion.

Interest and Dividend Income. Interest and dividend income increased $101.1 million, or 83.6%, to $222.2 million for the year ended December 31, 2023 from $121.0 million for the year ended December 31, 2022, primarily due to a $98.1 million, or 86.0%, increase in interest and fees on loans. The increase in interest and fees on loans was primarily due to the increase of $984.4 million in the average balance of the loan portfolio to $3.46 billion for the year ended December 31, 2023 from $2.48 billion for the year ended December 31, 2022 and an increase of 152 basis points in the weighted average yield for the loan portfolio to 6.12% for the year ended December 31, 2023 from 4.60% for the year ended December 31, 2022, reflecting the increasing rate environment year to year.

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Average interest-earning assets increased $800.7 million, or 26.8%, to $3.78 billion for the year ended December 31, 2023 from $2.98 billion for the year ended December 31, 2022. The yield on interest-earning assets increased 181 basis points to 5.87% for the year ended December 31, 2023 from 4.06% for the year ended December 31, 2022.

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 weighted average rate on interest-bearing deposits to 2.84% for the year ended December 31, 2023 from 0.60% for the year ended December 31, 2022 and an increase in the average balance of interest-bearing deposits of $576.2 million, or 27.3%, to $2.70 billion for the year ended December 31, 2023 from $2.11 billion for the year ended December 31, 2022.

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

Net Interest Income. Net interest income was $131.7 million for the year ended December 31, 2023, compared to $105.5 million in the prior year, representing an increase of $26.2 million, or 24.9%. The net interest margin was 3.48% for the year ended December 31, 2023, representing a decrease of 6 basis points from the year ended December 31, 2022, primarily due to an increase in the cost of liabilities used to fund the Company’s loan growth. The increase in net interest income was primarily due to a $800.7 million increase in the average balance of interest-earning assets during the year ended December 31, 2023, which outpaced growth in average interest-bearing liabilities, which grew by $747.3 million during the year ended December 31, 2023. The decrease in the net interest margin was primarily due to the increase in the average rates paid on interest-bearing liabilities of 236 basis points compared to the increase in the yield on interest-earning assets of 181 basis points during the year ended December 31, 2023.

Provision for Credit Losses. Based on management’s analysis of the adequacy of allowance for credit losses, a provision of $13.9 million was recorded for the year ended December 31, 2023 in accordance with the CECL standard, compared to a provision of $6.7 million for the year ended December 31, 2022 in accordance with the incurred loss standard. The $7.2 million, or 107.2%, increase in the provision was primarily due to the adoption of the CECL standard and the material growth in total loans which increased $873.8 million, or 29.0%, to $3.89 billion at December 31, 2023 from $3.02 billion at December 31, 2022. The provision for credit losses for the year ended December 31, 2023 consisted of a provision for credit losses of $9.7 million and a provision for unfunded commitments of $4.2 million.

Noninterest Income. Noninterest income increased $6.4 million, or 71.8%, to $15.4 million for the year ended December 31, 2023 from $8.9 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 $2.8 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:

Year ended December 31, Change

(Dollars in thousands)

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%

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Noninterest Expense. Noninterest expense increased $50.0 million, or 70.1%, to $121.3 million for the year ended December 31, 2023 from $71.3 million for the year ended December 31, 2022, and included certain one-time costs associated with the Company’s mutual-to-stock conversion during the year ended December 31, 2023. Excluding expenses related to the mutual-to-stock conversion and certain other non-operating items, noninterest expense on an operating basis for the year ended December 31, 2023 was $92.4 million, which represents a $21.1 million, or 26.9%, increase from the year ended December 31, 2022 as the Company continued to invest in infrastructure to support growth. Salary and employee benefit expenses increased $20.9 million, or 44.0%. The increase in salary and employee benefits resulted primarily from the hiring of additional employees consistent with our business strategy to grow the Company, as well as discretionary bonuses awarded by the Compensation Committee. Marketing and charitable contribution expense increased $19.7 million resulting from a $19.1 million charitable contribution as part of the Company’s mutual-to-stock conversion. Additionally, general and administrative expenses increased $2.5 million, or 66.1%, primarily a result of amortization of solar income tax credit investments, data processing expenses increased $1.8 million, or 31.05%, as the Company continued to invest in technology infrastructure to support growth, director and professional fees increased $1.5 million, or 31.0%, resulting primarily from increased professional services in connection with our loan operations, and FDIC insurance expense increased $2.9 million, or 157.4%, resulting from an increase in asset growth and a reduction in capital ratios.

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

Year ended December 31, Change

(Dollars in thousands)

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 17.0% and 17.4% for the years ended December 31, 2023 and 2022, respectively. The effective tax rate decreased during the year ended December 31, 2023 primarily as a result of a decrease in income before taxes of $24.5 million, or 67.5%, primarily as a result of the mutual-to-stock conversion.

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For the Year Ended

Average Average

Outstanding Average Outstanding Average

Balance Interest Yield/Rate Balance Interest Yield/Rate

(Dollars in thousands)

Interest-earning assets:

Non-interest-earning assets 218,769 153,434

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

Interest-bearing liabilities:

Other non-interest-bearing liabilities 77,037 39,131

Total liabilities and shareholders' equity $ 3,973,029 $ 3,047,057

Net interest rate spread (1) 2.80 % 3.35 %

Net interest-earning assets (2) $ 834,446 $ 781,088

Net interest margin (3) 3.48 % 3.54 %

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Year Ended

Increase (Decrease) Due to Total

Increase

Volume Rate (Decrease)

(In thousands)

Interest-earning assets:

Interest-bearing liabilities:

Savings accounts (12) 0 (12)

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

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, 2024, 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 1 Change from

(basis points) (1) Year 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, 2024, we would have experienced a 5.2% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 5.8% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

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Economic Value of Equity (“EVE”). We also compute amounts by which the net present value of our assets and liabilities, or EVE, would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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

Estimated Increase

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

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

At December 31, 2024, we had outstanding borrowings of $120.8 million from the FHLB. At December 31, 2024, we had unused borrowing capacity of $754.1 million with the FHLB. At December 31, 2024 we also had $451.0 million available from a line under the BIC program at the FRB of Boston.

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Additionally, at December 31, 2024, we had $309.8 million of brokered deposits, and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $979.6 million of brokered deposits.

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 ended December 31, 2024 and 2023 included as part of the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

We are committed to maintaining a strong liquidity position. 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, 2024, the Company and the Bank exceed all of their regulatory capital requirements, and were categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 10 of the notes to consolidated financial statements on pages 120-121.

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, 2024, the unfunded portion of construction loans, home equity lines of credit, commercial lines of credit and other lines of credit, along with letters of credit, totaled $952.3 million. Our allowance for credit losses on these unfunded commitments amounted to $3.2 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2024 totaled $1.9 billion. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits is not retained, we may utilize advances from the FHLB or the FRB, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

Contractual Obligations. 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 21 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.

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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.”

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, 2024 and 2023

(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, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, 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, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.

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 7, 2025

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NB Bancorp, Inc.

Consolidated Balance Sheets

(Dollars in thousands)

Assets

Available-for-sale securities, at fair value 228,205 189,465

Allowance for credit losses (38,744) (32,222)

Banking premises and equipment, net 34,654 35,531

Bank-owned life insurance ("BOLI") 102,785 50,516

Prepaid expenses and other assets 59,482 53,088

Deferred income tax asset, net 30,299 19,126

Liabilities and shareholders' equity

Deposits

Mortgagors' escrow accounts 4,549 4,229

Accrued expenses and other liabilities 65,708 81,046

Accrued retirement liabilities 23,826 19,492

Shareholders' equity:

Accumulated other comprehensive loss (8,167) (11,897)

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

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NB Bancorp, Inc.

Consolidated Statements of Income

(Dollars in thousands, except per share amounts)

For the Year Ended

December 31,

INTEREST AND DIVIDEND INCOME

Interest on investment securities 6,853 4,773 4,984

INTEREST EXPENSE

PROVISION FOR CREDIT LOSSES

Provision for credit losses - loans 14,934 9,657 6,700

NONINTEREST INCOME

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

Increase in cash surrender value of BOLI 2,269 1,510 1,157

Loss on sale of available-for-sale securities, net (1,867) — —

Employee retention credit income — 3,452 —

NONINTEREST EXPENSE

Director and professional service fees 8,601 6,232 4,758

Occupancy and equipment expenses 5,580 5,192 4,354

Marketing and charitable contribution expenses 3,459 23,082 3,404

FDIC and state insurance assessments 2,847 4,707 1,829

General and administrative expenses 5,221 6,287 3,785

Earnings per share, basic $ 1.07 $ 0.23 $ N/A

Earnings per share, diluted $ 1.07 $ 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

(In thousands)

For the Year Ended

December 31,

OTHER COMPREHENSIVE INCOME, NET OF TAX:

Net change in fair value of cash flow hedge — (231) 1,115

TOTAL OTHER COMPREHENSIVE INCOME, NET OF TAX: 3,730 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

(Dollars in thousands)

For the Year Ended

Shares of Unallocated Accumulated

Common Additional Common Other

Stock Paid-In Stock Held by Retained Comprehensive

Outstanding Common Stock Capital ESOP Earnings Income (Loss) Total

Net income — — — — 30,065 — 30,065

Adoption of ASU 2016-13 — — — — (2,118) — (2,118)

Net income — — — — 9,825 — 9,825

Adoption of ASU 2023-02 — — — — (7,849) — (7,849)

Net income — — — — 42,149 — 42,149

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

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NB Bancorp, Inc.

Consolidated Statements of Cash Flows

(Dollars in thousands)

For the Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES

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

Amortization of core deposit intangible 149 149 111

Loss on sale of available-for-sale securities, net 1,867 — —

Change in net deferred loan origination fees 1,386 4,419 2,522

Mortgage loans originated for sale (14,137) (2,400) (1,840)

Gain on sale of mortgage loans (293) (5) (47)

Depreciation and amortization expense 2,815 2,678 2,363

Increase in cash surrender values of BOLI (2,269) (1,510) (1,157)

ESOP expense 2,800 — —

Changes in operating assets and liabilities:

Accrued interest receivable (2,401) (6,462) (3,299)

Prepaid expenses and other assets (6,543) 8,177 (26,949)

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales of available-for-sale securities 27,444 — —

Recoveries of loans previously charged off 623 924 235

Net change in non-public investments 4,220 (6,716) (17,710)

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

Purchases of BOLI policies (50,000) — (22,198)

Purchases of banking premises and equipment (1,938) (2,865) (8,498)

CASH FLOWS FROM FINANCING ACTIVITIES

Net change in mortgagors' escrow accounts 320 165 414

Purchase of common shares held by ESOP (33,397) (13,774) —

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)

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

Mortgage loans transferred to loans held for sale 9,504 — —

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., a Maryland corporation (the “Company”), is a bank holding company. Through its wholly-owned subsidiary, Needham Bank (the “Bank”), the Company provides a variety of banking services, through its full-service bank branches, located primarily in eastern Massachusetts.

The activities of the Company and the Bank are subject to the regulatory supervision of the Board of Governors of the Federal Reserve System. The activities of the Bank are also subject to the regulatory supervision of the Massachusetts Commissioner of Banks. The Company and the activities of the Bank and its subsidiaries are also subject to various Massachusetts business and banking regulations.

Conversion

Pursuant to a Plan of Conversion (the “Plan”), NB Financial, MHC (the “MHC”), the Bank’s former mutual holding company 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 the 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 2,416,458 and 1,000,000 shares of the Company’s common stock during the years ended December 31, 2024 and 2023, respectively.

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. The Company incurred an additional $225,000 in conversion costs during the year ended December 31, 2024, which are included in shareholders’ equity on the consolidated balance sheet as of December 31, 2024.

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 (“U.S. GAAP”) as set forth by the Financial Accounting Standards Board (“FASB”) and its Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) as well as the rules and interpretive releases of the 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

The Company adopted FASB ASU 2023-07 “Segment Reporting (Topic 280) - Improvement to Reportable Segment Disclosures” on January 1, 2024, which requires 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 (“CODM”). The Company has determined that its CODM is its Chief Executive Officer. The Company has one reportable segment: its banking business, which consists of a full range of banking lending, savings, and small business offerings. The CODM regularly assesses performance of the aggregated single operating and reporting segment and decides how to allocate resources based on net income calculated on the same basis as is net income reported in the Company’s consolidated statements of income and other comprehensive income. The CODM is also regularly provided with expense information at a level consistent with that disclosed in the Company’s consolidated statements of income and other comprehensive income.

Use of Estimates

The preparation of financial statements in conformity with U.S. 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 on loans, 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 and 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 valuation reserves on 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 valuation reserves on foreclosed real estate. Such agencies may require the Company to recognize additions to the allowances for credit losses on loans and valuation reserves on foreclosed real estate 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 credit losses on loans and valuation reserves on foreclosed real estate may change in the near future.

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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 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 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 available-for-sale debt securities.

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.

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

Adoption Adoption Adoption

(in thousands)

Assets:

Liabilities:

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

Equity:

On January 1, 2024, the Company adopted ASU 2023-02, Investments – Equity Method and Joint Ventures (Topic 323): Investments in Tax Credit Structures on a modified retrospective basis. 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 Company does not apply PAM to LIHTCs.

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The following table presents the impact to the consolidated balance sheet as the result of adopting ASU 2023-02 effective January 1, 2024:

Adoption Adoption Adoption

(in thousands)

Assets:

Equity:

NBBK US Equity

NBBK · 10-K · period ended 2024-12-31

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

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

NBBK US Equity☆

NBBK · 10-K · period ended 2024-12-31

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

ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk

ITEM 8. Financial Statements and Supplementary Data

NBBK US Equity