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Table of Contents

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

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FORM 10-K

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☒

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the year ended December 31, 2023.

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OR

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☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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For the transition period from _______________ to _______________.

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Commission file number: 001-41899

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NB BANCORP, INC.

(Exact name of registrant as specified in its charter)

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Maryland

    

93-2560883

(State or other jurisdiction of
incorporation or organization)

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(I.R.S. Employer
Identification Number)

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​

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1063 Great Plain Avenue, Needham, Massachusetts

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02492

(Address of principal executive offices)

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(Zip Code)

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Registrant’s telephone number, including area code: (781) 444-2100

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Securities registered pursuant to Section 12(b) of the Act:

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Common stock, par value $0.01 per share

    

The NASDAQ Stock Market, LLC

(Title of each class to be registered)

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(Name of each exchange on which

each class is to be registered)

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Securities registered pursuant to Section 12(g) of the Act: None

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Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒     NO ☐

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Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). YES ☒     NO ☐

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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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Large accelerated filer  ☐

Accelerated filer  ☐

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Non-accelerated filer  ☒

Smaller reporting company  ☐

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Emerging growth company  ☒

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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐

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If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

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Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to § 240.10D-1(b). ☐

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Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). YES ☐   NO ☒

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There was no outstanding voting common equity of the Registrant as of June 30, 2023. The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the last sale price on December 28, 2023, the first date of trading in the common stock, was approximately $541.0 million.

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As of March 26, 2024, there were 42,705,729 issued and outstanding shares of the Registrant’s Common Stock.

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DOCUMENTS INCORPORATED BY REFERENCE:

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1.Proxy Statement for the Annual Meeting of Stockholders to be held on May 22, 2024 (Part III)

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Table of Contents

TABLE OF CONTENTS

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PART I

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ITEM 1.

BUSINESS

3

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ITEM 1A.

RISK FACTORS

36

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ITEM 1B.

UNRESOLVED STAFF COMMENTS

54

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ITEM 1C

CYBERSECURITY

54

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​

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ITEM 2.

PROPERTIES

57

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ITEM 3.

LEGAL PROCEEDINGS

57

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ITEM 4.

MINE SAFETY DISCLOSURES

57

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PART II

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​

​

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ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

57

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​

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ITEM 6.

[RESERVED]

58

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​

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ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

58

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​

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ITEM 7A.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

69

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​

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ITEM 8.

FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

71

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​

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ITEM 9.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

119

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ITEM 9A.

CONTROLS AND PROCEDURES

119

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ITEM 9B.

OTHER INFORMATION

120

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​

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ITEM 9C

DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS

120

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PART III

​

​

​

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ITEM 10.

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

120

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​

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ITEM 11.

EXECUTIVE COMPENSATION

120

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ITEM 12.

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

120

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1

Table of Contents

ITEM 13.

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

120

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ITEM 14.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

120

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PART IV

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ITEM 15.

EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

120

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ITEM 16.

FORM 10-K SUMMARY

122

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SIGNATURES

123

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2

Table of Contents

PART I

ITEM 1.      Business

FORWARD-LOOKING STATEMENTS

This Annual Report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

●statements of our goals, intentions and expectations;
●statements regarding our business plans, prospects, growth and operating strategies;
●statements regarding the asset quality of our loan and investment portfolios; and
●estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this Annual Report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;
●inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
●changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
●the effect of any change in federal government enforcement of federal laws affecting the cannabis industry;
●changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;
●our ability to access cost-effective funding;
●fluctuations in real estate values and both residential and commercial real estate market conditions;
●demand for loans and deposits in our market area;
●our ability to implement and change our business strategies;

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●competition among depository and other financial institutions;
●adverse changes in the securities or secondary mortgage markets;
●changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;
●changes in the quality or composition of our loan or investment portfolios;
●technological changes that may be more difficult or expensive than expected;
●the inability of third-party providers to perform as expected;
●a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
●our ability to manage market risk, credit risk and operational risk;
●our ability to enter new markets successfully and capitalize on growth opportunities;
●changes in consumer spending, borrowing and savings habits;
●changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
●our ability to attract and retain key employees; and
●changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Please see “Risk Factors” beginning on page 36.

In this Annual Report the terms “we,” “our,” and “us” refer to NB Bancorp, Inc. and Needham Bank, unless the context indicates another meaning. In addition, we sometimes refer to NB Bancorp, Inc. as “NB Bancorp” or the “Company” and to Needham Bank as the “Bank.”

​

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BUSINESS OF NB BANCORP, INC.

NB Bancorp, Inc. (the “Company”) is a Maryland corporation that was incorporated in June 2023 for the purpose of becoming the registered bank holding company for Needham Bank (the “Bank”) upon the consummation of the mutual to stock conversion of NB Financial, MHC, the Bank’s former mutual holding company. The Company’s initial stock offering was completed on December 27, 2023. In connection with the conversion, the Company sold 40,997,500 shares of common stock, par value $0.01 per share, for gross offering proceeds (before deducting offering expenses) of approximately $410.0 million based on the offering price of $10.00 per share. The Company also contributed 1,708,229 shares of common stock and $2.0 million in cash to the Needham Bank Charitable Foundation. The shares of the Company’s common stock sold in the offering began trading on The Nasdaq Capital Market on December 28, 2023 under the symbol “NBBK.”

Since being incorporated, other than holding the common stock of Needham Bank, retaining approximately 50% of the net cash proceeds of the stock conversion offering and making a loan to the Bank’s employee stock ownership plan, we have not engaged in any material business activities to date.

Our cash flow depends on earnings from the investment of the net proceeds we retained from our initial public stock offering that was consummated on December 27, 2023, and any dividends we receive from Needham Bank. We neither own nor lease any property, but pay a fee to Needham Bank for the use of its premises, equipment and furniture. At the present time, we employ only persons who are officers of Needham Bank who also serve as officers of NB Bancorp. We use the support staff of Needham Bank from time to time and pay a fee to Needham Bank for the time devoted to NB Bancorp by employees of Needham Bank. However, these persons are not separately compensated by NB Bancorp. NB Bancorp may hire additional employees, as appropriate, to the extent it expands its business in the future.

Our executive offices are located at 1063 Great Plain Avenue, Needham, Massachusetts 02492. Our telephone number at this address is (781) 444-2100.

BUSINESS OF NEEDHAM BANK

General

Needham Bank is a Massachusetts-chartered cooperative bank headquartered in Needham, Massachusetts. Needham Bank was organized in 1892 and has operated continuously in Needham, Massachusetts, which is approximately 17 miles southwest of Boston’s financial district, since this time. Our headquarters are still located in Needham, and we have branch locations in Wellesley, Westwood, Dedham, Medfield, Medford, Dover, Ashland, Millis, Natick and Boston (Mission Hill). Our branch network covers the metro-west area of Boston and surrounding communities, which is our primary deposit market area. We consider our primary lending market area to be the Greater Boston metropolitan area and surrounding communities in Massachusetts, eastern Connecticut, southern New Hampshire and Rhode Island. As one of the largest community banks in the Greater Boston metropolitan area, and throughout New England, we believe that our reputation for providing personalized customer service is our strongest asset and our most effective business strategy to continue to grow and be a profitable bank.

Our business consists primarily of taking deposits from the general public and investing those deposits, together with funds generated from operations, in commercial real estate and multifamily loans, one- to four-family residential real estate loans, construction and land development loans, commercial and industrial loans and consumer loans. To a lesser extent, we originate home equity loans and lines of credit. At December 31, 2023, our total loan portfolio was comprised of $1.38 billion, or 35.5%, of commercial real estate and multifamily loans, $1.10 billion, or 28.2%, of one- to four-family residential real estate loans, $622.7 million, or 16.0%, of construction and land development loans, and $487.9 million, or 12.5%, of commercial and industrial loans. We also invest in securities, consisting primarily of U.S. Treasury and federal agency securities, municipal bonds and corporate bonds. We offer a variety of deposit accounts, including certificate of deposit accounts, IRAs, money market accounts, savings accounts, demand deposit accounts and interest-bearing and noninterest-bearing checking accounts. We historically have utilized advances from the Federal Home Loan Bank of Boston (“FHLB”) to fund our operations and we had $283.3 million of FHLB advances at

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December 31, 2023. Additionally, in recent years, we have also utilized brokered deposits as a non-retail funding source to fund our operations and at December 31, 2023, we had $183.6 million of brokered deposits.

Needham Bank is subject to regulation, supervision and examination by the Massachusetts Commissioner of Banks (the “Commissioner”) under Massachusetts law, and the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) as its primary federal regulator. It is also regulated by Federal Deposit Insurance Corporation (the “FDIC”) as its primary insurer of its deposits.

Our executive offices are located at 1063 Great Plain Avenue, Needham, Massachusetts 02492. Our telephone number at this address is (781) 444-2100. Our website address is www.needhambank.com. Information on our website is not incorporated into this Annual Report on Form 10-K and should not be considered part of this Annual Report on Form 10-K.

Business Strategy

In recent years and consistent with our growth strategy to increase our commercial relationships along all business lines, we have enhanced our online and mobile banking offerings, including fraud prevention and detection systems, and additionally, we have invested heavily in our cash management suite of products. Additional investments have been made to continually strengthen cybersecurity controls, such as with expanded vulnerability detection and patch management protocols. The acquisition of our cannabis-related and money service banking businesses resulted in the addition of $297.7 million of core deposits in April 2022 and we believe our significant investment in these cash management products has allowed us to capture and service the full banking relationships for these and our other Structured Finance customer relationships. We have invested in systems to automate compliance with cannabis-related regulatory requirements and guidance. Investments in tools have been completed to further automate compliance with state-specific and federal regulatory requirements for cannabis banking and consumer lending activities. We are also implementing a Marketing Customer Information File and Customer Relationship Management system to improve communication, collaboration and the customer experience.

In recent years, we have focused on building an experienced management team and diversifying and enhancing our operating and business strategy. In January 2017, we hired Joseph Campanelli as our Chief Executive Officer, and in April 2017, we hired Salvatore Rinaldi, our Chief Operating Officer. Messrs. Campanelli and Rinaldi each have more than 40 years of banking experience at larger, more complex financial institutions. They have worked together for over 40 years at other financial institutions prior to joining Needham Bank successfully executing similar strategies. Under their leadership, the Bank has implemented an intentional and structured growth plan to enable the Bank to grow its balance sheet and diversify its operations and offer a personalized banking experience to individuals and businesses while seeking to address the risks inherent with such growth.

Since 2020, the Bank added approximately 102 full time employees, including approximately 23 employees in connection with the April 2022 acquisition of a cannabis banking business from another financial institution. Consistent with our strategy to continue to service individuals and small businesses in our market area, while also competing for larger business customers, the Bank has made significant investments in infrastructure, upgraded technology solutions and offerings, and compliance and risk management.

Following a comprehensive strategic review of the Company’s governance structure, in May 2023, we added four new board members, and in July 2023 added a fifth new director, each of whom individually, and together as a group, we believe bring a level of business acumen and sophistication that matches our growth strategy.

The proceeds from our initial stock offering which we consummated in December 2023 will enable us to continue to implement our prudent and disciplined growth strategy. We plan to employ the following strategies to maximize sustainable profitability:

●Continue to moderately grow our commercial real estate and multifamily loan portfolio. In recent years, we have increased our commercial real estate and multifamily loan portfolio consistent with safe and sound underwriting practices. This has had the benefit of increasing the yield on our loan portfolio

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while reducing the average term to repricing of our loans. At December 31, 2023, our commercial real estate and multifamily loan portfolio totaled $1.38 billion, or 35.5% of our total loan portfolio, compared with $1.01 billion, or 33.6% of total loans, at December 31, 2022. We intend to continue to compete for more relationships, primarily to experienced seasoned builders, developers and investors in our market area.
●Continue to diversify our commercial and industrial loan portfolio. We have diversified our commercial and industrial loan portfolio into three divisions, which we refer to as Small Business, Middle Market and Structured Finance. The Small Business Lending division generally focuses on loans under the Small Business Administration (the “SBA”) programs of up to $5 million and traditional non-small SBA commercial business relationships with businesses who generate up to $10 million in revenue, and our Middle Market division generally focuses on relationships with businesses who have annual revenues from $10 million to $50 million, nearly all of which are to borrowers in our primary market area. Our Structured Finance division seeks to service the banking needs of larger business customers, typically with greater than $50 million in annual revenues, throughout a variety of industries, including manufacturers, service companies, renewable energy providers, commercial finance companies, and cannabis-related entities. We believe that our industry-specific knowledge about the banking needs of these industries gives us a competitive advantage to service these customers. We intend to continue to emphasize growth in each of these divisions of our commercial and industrial lending.
●Continue our historical emphasis on residential mortgage lending, including construction of single-family homes. Historically, we have emphasized residential mortgage lending, including for the construction of single-family homes, and at December 31, 2023, one- to four-family residential real estate loans totaled $1.10 billion, or 28.2% of our total loan portfolio. We intend to continue measured, efficient growth of these types of residential lending.
●Grow our consumer loan operations. We seek to continue our growth in consumer loan operations, and in 2022, we purchased a variety of consumer loans from a third-party originator. Largely as a result of these purchases, at December 31, 2023, consumer loans totaled $204.9 million, or 5.3% of our total loan portfolio, compared to $196.5 million, or 6.5% of our total loan portfolio, at December 31, 2022. Going forward, we intend to continue to emphasize the modest growth in our consumer loan portfolio through ongoing originations and purchases from two limited-flow arrangements. We believe that this loan diversification will allow us to continue to execute our business strategy of growing the Bank while addressing the inherent risks of community banking, including the risk of geographic concentrations in our loan portfolios. The diversification of our loan products allows us to address risk across a wider variety of borrowers and industries as well as the ongoing management of these portfolios to minimize our exposure to interest rate risk.
●Diversify our deposit gathering. Consistent with our strategy to grow core deposits, which we consider to be all deposits including certificates of deposits, other than brokered deposits, we have invested in a cash management suite of products and enhanced our online and mobile banking offerings, as well as fraud prevention and detection systems. We intend to continue to implement new technology as it is developed or improved. We view the growth of commercial and industrial lending, in each of our market segments, as an opportunity to increase our core deposits through our effort to capture the full banking relationship of these commercial customers.

Reflecting our focus on our community, in connection with our mutual to stock conversion and initial public offering which closed in December 2023, we established a charitable foundation called Needham Bank Charitable Foundation and funded it with $2.0 million in cash and 1,708,229 shares of our common stock, for a total contribution of $19.1 million based on the $10.00 per share offering price. The purpose of this foundation is to make contributions to support various charitable organizations operating in our community now and in the future.

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Market Area

We consider our primary market area to be any counties, towns or municipalities within a 100-mile radius of Needham, which generally covers the Greater Boston metropolitan area as well as surrounding communities in Massachusetts, eastern Connecticut, southern New Hampshire and Rhode Island. We will consider commercial and residential real estate opportunities outside of this market area, but these are generally to customers with whom we have an existing relationship and who have a presence within our primary market area. We also have industry-specific and structured commercial and industrial relationships to cannabis, wind and solar companies based on our underlying diligence and understanding of the specific operations outside of our primary market area.

The Greater Boston metropolitan area benefits from the presence of numerous institutions of higher learning, medical care and research centers and the corporate headquarters of several significant multinational corporations. Eastern Massachusetts also has many high technology companies employing personnel with specialized skills. These factors affect the demand for residential homes, multifamily apartments, office buildings, shopping centers, industrial warehouses and other commercial properties.

According to the United States Census Bureau (the “Census”), at July 2022, the Greater Boston metropolitan area is the eleventh largest metropolitan area in the United States. Located adjacent to major transportation corridors, the Greater Boston metropolitan area provides a highly diversified economic base, with major employment sectors ranging from services, manufacturing and wholesale/retail trade, to finance, technology and medical care. According to the United States Department of Labor, in March 2023, the Boston-Cambridge-Newton, Massachusetts area had an estimated unemployment rate of 3.2%, compared to a Massachusetts state unemployment rate of 3.5% and the national unemployment rate of 3.5%.

Based on the Census’ estimates, from 2020 to 2022, the populations of Boston–Cambridge–Newton, MA–NH Metropolitan Statistical Area (“MSA”) decreased 0.83%, compared to a 0.6% increase for the Commonwealth of Massachusetts. At July 2022, the Census estimates that the Boston–Cambridge–Newton, MA–NH MSA’s median household incomes was $104,372, compared to median household income of $81,744 for the city of Boston, $89,026 for the Commonwealth of Massachusetts, and $69,021 for the United States.

Competition

We face significant competition within our market both in making loans and attracting deposits. Our market area has a high concentration of financial institutions, including large money center and regional banks, community banks, credit unions and other non-bank financial service providers. Some of our competitors offer products and services that we currently do not offer, such as trust services or wealth management services.

Our competition for loans comes primarily from the competitors referenced above and from other financial service providers, such as mortgage companies and mortgage brokers. Competition for loans also comes from the increasing number of non-depository financial service companies participating in the mortgage market, such as insurance companies, securities firms, financial technology companies, and specialty finance firms.

We expect competition to increase in the future as a result of legislative, regulatory and technological changes and the continuing trend toward consolidation of the financial services industry. Technological advances, for example, have lowered barriers to entry, which have allowed banks to expand their geographic reach by providing services over the internet and made it possible for non-depository institutions, including financial technology companies, to offer products and services that traditionally have been provided by banks. Competition for deposits and the origination of loans could limit our growth in the future.

We expect to continue to emphasize originations of larger structured finance credit facilities. In recent years, most of our larger, structured commercial and industrial loans have been to customers in the cannabis, wind or solar industries. Our competition in this business sector is broad-based and not dominated by any specific larger or more well-established competitors. Changing legislation and government policy with respect to these industries could increase competition even further on a jurisdictional or industry-specific basis. We do not believe that our ability to compete is dependent on our existing relationships in these areas but we believe our experience could provide a competitive

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advantage versus lenders who enter these business lines in the future. We intend to continue to compete effectively in these areas by utilizing our knowledge of the operating and cash flow structures of these industries, as well as the applicable regulatory considerations.

Lending Activities

Our principal lending activity is originating commercial real estate and multifamily loans, one- to four-family residential real estate loans, construction and land development loans, commercial and industrial loans and consumer loans. To a lesser extent, we also originate home equity loans and lines of credit. Subject to market conditions and our asset-liability analysis, we expect to continue to grow each of our loan portfolios with the most significant emphasis of growth in commercial real estate and multifamily loans, commercial and industrial loans and consumer loans. From time to time and subject to market conditions, we have also originated for sale and sold a portion of our long-term, fixed-rate one- to four-family residential real estate loans, on a servicing-retained, limited or no recourse basis, while retaining shorter-term fixed-rate and adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio.

Historically, we have also engaged in loan participation sales, with Needham Bank as the lead, for certain larger commercial real estate and commercial and industrial loans and have limited purchased participations from well-established financial institutions in our market area. Participations and counterparty exposure is periodically reported to the board of directors. At December 31, 2023, our highest combined participations sold with one bank was approximately 9.3% of our total capital and was comprised of three commercial real estate loans.

Loan Portfolio Composition. The following table sets forth the composition of our loan portfolio by type of loan at the dates indicated.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

As of December 31, 

​

Change

(Dollars in thousands)

​

2023

​

2022

​

Amount

​

Percent

One-to four-family residential

​

$

1,097,475

​

$

932,436

​

$

165,039

​

17.70%

Home equity

​

​

97,270

​

​

75,226

​

​

22,044

​

29.30%

Commercial real estate

​

​

1,174,020

​

​

822,744

​

​

351,276

​

42.70%

Multi-family residential

​

​

209,982

​

​

189,279

​

​

20,703

​

10.94%

Construction and land development

​

​

622,713

​

​

552,375

​

​

70,338

​

12.73%

Commercial and industrial

​

​

487,878

​

​

247,361

​

​

240,517

​

97.23%

Consumer, net of premium/discount

​

​

204,871

​

​

196,535

​

​

8,336

​

4.24%

Total loans

​

​

3,894,209

​

​

3,015,956

​

​

878,253

​

29.12%

Less:

​

​

​

​

​

​

​

​

​

​

​

Deferred fees, net

​

​

(4,930)

​

​

(511)

​

​

(4,419)

​

864.77%

Allowance for credit losses

​

​

(32,222)

​

​

(25,028)

​

​

(7,194)

​

28.74%

Net loans

​

$

3,857,057

​

$

2,990,417

​

$

866,640

​

28.98%

​

Contractual Maturities. The following tables set forth the contractual maturities of our total loan portfolio at December 31, 2023. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Residential real estate includes one-to four-family residential and home equity loans and commercial real estate includes commercial real estate and multi-family residential loans in the table below. The tables present contractual maturities and do not reflect repricing or the effect of prepayments. Actual maturities may differ.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Residential

​

Commercial

​

Construction and

​

Commercial and

​

​

​

(Dollars in thousands)

​

Real Estate

    

Real Estate

    

Land Development

    

Industrial

    

Consumer

Amounts due in:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

One year or less

​

$

6

​

$

36,223

​

$

227,638

​

$

73,412

​

$

14,542

After one through five years

​

​

619

​

​

370,167

​

​

348,310

​

​

268,060

​

​

18,909

After five through 15 years

​

 

14,733

​

​

602,428

​

​

20,839

​

​

120,643

​

​

67,418

More than 15 years

​

 

1,179,387

​

 

375,184

​

 

25,926

​

 

25,763

​

 

104,002

Total

​

$

1,194,745

​

$

1,384,002

​

$

622,713

​

$

487,878

​

$

204,871

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The following table sets forth our fixed- and adjustable-rate loans at December 31, 2023 that are contractually due after December 31, 2024.

​

​

​

​

​

​

​

​

​

​

(Dollars in thousands)

​

Fixed

​

Adjustable

​

Total

One-to four-family residential

​

$

537,930

​

$

559,545

​

$

1,097,475

Home equity

​

​

-

​

​

97,270

​

​

97,270

Commercial real estate

​

​

259,956

​

​

914,064

​

​

1,174,020

Multi-family residential

​

​

9,500

​

​

200,482

​

​

209,982

Construction and land development

​

​

81,672

​

​

541,041

​

​

622,713

Commercial and industrial

​

​

49,580

​

​

438,298

​

​

487,878

Consumer, net of premium/discount

​

​

203,555

​

​

1,316

​

​

204,871

Total loans

​

$

1,142,193

​

$

2,752,016

​

$

3,894,209

​

One- to Four-Family Residential Real Estate Lending. One of the primary focuses of our lending has long been the origination of long-term loans secured by mortgages on primarily owner-occupied, one- to four-family residences. At December 31, 2023, $1.10 billion, or 28.2%, of our total loan portfolio, consisted of one- to four-family residential real estate loans. The vast majority of the one- to four-family residential real estate loans that we originate are secured by properties located in our primary market area. See “Originations, Sales and Purchases of Loans.”

Our one- to four-family residential real estate loans are generally underwritten according to Fannie Mae guidelines, and we refer to loans that conform to such guidelines as “conforming loans.” We generally originate both fixed- and adjustable-rate one- to four-family residential real estate loans in amounts up to the maximum conforming loan limits as established by the Federal Housing Finance Agency (“FHFA”). We also originate loans above the FHFA limit, which are referred to as “jumbo loans.” We generally underwrite jumbo loans in a manner similar to conforming loans and at December 31, 2023, approximately $355.1 million, or 32.4% of our one- to four-family residential real estate loans were jumbo loans with an average balance of $1.4 million.

Our fixed-rate one- to four-family residential real estate loans are originated with terms of up to 30 years and our and adjustable-rate one- to four-family residential real estate loans are originated with terms of up to 40 years. At December 31, 2023, $537.9 million, or 49.0%, of our one- to four-family residential real estate loans were fixed-rate loans.

We originate our adjustable-rate one- to four-family residential real estate loans with initial interest rate adjustment periods of three, five and seven years, based on changes in a designated market index. Generally, these loans are limited to a 200-basis point initial increase in their interest rate and a 200-basis point increase annually after the initial adjustment and a maximum upward adjustment of 600 basis points over the life of the loan. We determine whether a borrower qualifies for an adjustable-rate mortgage loan based on our lending policy.

We originate conventional one- to four-family residential mortgage loans with loan-to-value ratios of up to 95% without private mortgage insurance. We also originate loans with loan-to-value ratios of up to 97% for loans that are sold and serviced by MassHousing, an independent, quasi-public Massachusetts agency charged with providing financing for affordable housing in Massachusetts or under our First-Time Homebuyer Program.

From time to time and subject to market conditions, we sell a portion of the fixed-rate one- to four-family residential real estate loans that we originate with terms of greater than 20 years. We base the amount of fixed-rate loans that we sell on our liquidity needs, asset/liability mix, loan volume, portfolio size and other factors. In recent years, most of the loans that we originated and sold to the secondary market were sold with servicing retained.

We generally do not offer “interest-only” mortgage loans on one- to four-family residential real estate loans nor do we offer loans that provide for negative amortization of principal, such as “Option ARM” loans, where the borrower can pay less than the interest owed on their loan, resulting in an increased principal balance during the life of the loan. Additionally, we do not offer “subprime loans” (loans that are made with low down-payments to borrowers with weakened credit histories typically characterized by payment delinquencies, previous charge-offs, judgments, bankruptcies, or borrowers with questionable repayment capacity as evidenced by low credit scores or high debt-burden ratios).

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We evaluate both the borrower’s ability to make principal, interest and escrow payments and the value of the property that will secure the loan. Our one- to four-family residential real estate loans do not currently include prepayment penalties, are non-assumable and do not produce negative amortization. Our one- to four-family residential mortgage loans customarily include “due-on-sale” clauses giving us the right to declare the loan immediately due and payable in the event that, among other things, the borrower sells the property subject to the mortgage. All borrowers are required to obtain title insurance. We also require homeowner’s insurance and fire and casualty insurance and, where circumstances warrant, flood insurance on properties securing real estate loans.

We offer one- to four-family residential real estate loans secured by non-owner-occupied properties. Generally, we will not make loans in excess of 80.0% loan to value on non-owner-occupied one- to four-family residential real estate properties or in excess of 80.0% on single family non-owner occupied residential real estate properties.

Home Equity Loans and Lines of Credit. In addition to one- to four-family residential real estate loans, we offer home equity loans and lines of credit that are secured by the borrower’s primary or secondary residence. At December 31, 2023, we had $97.3 million, or 2.5%, of our total loan portfolio in home equity loans and lines of credit.

Home equity loans and lines of credit are generally underwritten using the same criteria that we use to underwrite one- to four-family residential real estate loans. Home equity loans and lines of credit may be underwritten with a loan-to-value ratio of up to 80% when combined with the principal balance of the existing first mortgage loan.

Home equity loans and lines of credit are generally secured by junior mortgages and have greater risk than one- to four-family residential real estate loans secured by first mortgages. We face the risk that the collateral will be insufficient to compensate us for loan losses and costs of foreclosure, after repayment of the senior mortgages, if applicable. When customers default on their loans, we attempt to foreclose on the property and resell the property as soon as possible to minimize foreclosure and carrying costs. However, the value of the collateral may not be sufficient to compensate us for the amount of the unpaid loan and we may be unsuccessful in recovering the remaining balance from those customers. Particularly with respect to our home equity loans and lines of credit, decreases in real estate values could adversely affect our ability to fully recover the loan balance in the event of a default.

Commercial Real Estate and Multifamily Lending. Our commercial real estate and multifamily loans are secured primarily by multifamily apartment buildings, retail and mixed-use properties, light industrial properties, manufacturing facilities and office buildings, almost all of which are located in our primary lending market area. We will also make these loans out of our primary lending market area to customers of Needham Bank with whom we have an existing lending relationship. Our multifamily loans are secured primarily by five or more-unit residential buildings. At December 31, 2023, we had $1.38 billion in commercial real estate and multifamily loans, representing 35.5% of our total loan portfolio.

We generally originate adjustable-rate commercial real estate and multifamily loans with maximum terms of up to 30 years. From time to time we will also originate fixed rate loans in these portfolios. We generally limit loan-to-value ratios to 80% of the appraised value or purchase price, whichever is lower. All of our commercial real estate and multifamily real estate loans are subject to our underwriting procedures and guidelines.

At December 31, 2023, our 25 largest commercial real estate lending relationships had an average balance of approximately $24.9 million, or approximately $623.2 million in the aggregate, representing 45.0% of our total commercial real estate loans at such date. Consistent with our internal policies, any borrowing relationship with aggregate exposure of greater than $55.0 million requires approval by the board of directors and at such date we had nine such relationships in excess of $55.0 million, which were comprised of commercial real estate and multifamily, and construction and land development loans. At December 31, 2023, each of the commercial real estate loans underlying our 25 largest commercial real estate relationships was performing in accordance with its repayment terms.

We consider a number of factors in originating commercial real estate and multifamily loans. We evaluate the qualifications and financial condition of the borrower (including credit history), profitability and expertise, as well as the value and condition of the mortgaged property securing the loan. When evaluating the qualifications of the borrower, we consider the financial resources of the borrower, the borrower’s experience in owning or managing similar property and

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the borrower’s payment history with us and other financial institutions. In evaluating the property securing the loan, among other factors we consider the net operating income of the mortgaged property before debt service and depreciation, the debt service coverage ratio (the ratio of net operating income to debt service) to ensure that, subject to certain exceptions, it is at least 1.20x for multifamily loans and 1.25x for commercial real estate loans, and the ratio of the loan amount to the appraised value of the mortgaged property. Our commercial real estate and multifamily loans are appraised by outside independent and qualified appraisers that are duly approved in accordance with Needham Bank policy. Personal guarantees are often obtained from commercial real estate borrowers. Each borrower’s financial information on such loans is monitored on an ongoing basis by requiring periodic financial statement updates.

Our loans-to-one borrower limit is 20% of our capital, which limit was $125.8 million at December 31, 2023.

We believe that our commercial real estate loan portfolio composition is relatively diversified in terms of industry sectors, property types and various lending specialties. As of December 31, 2023, the amortized cost balances of concentrations in our commercial real estate loan portfolio, including multi-family loans, were as follows:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Commercial Real Estate

​

​

Owner-

​

Non-Owner-

​

Total

​

​

Occupied

    

Occupied

    

Balance $

    

Percentage %

​

​

(Dollars in thousands)

Industrial

​

$

212,246

​

$

72,288

​

$

284,534

​

​

20.6

%

Office

​

​

39,330

​

​

184,246

​

​

223,576

​

​

16.2

​

Multi-family

​

​

-

​

​

209,982

​

​

209,982

​

​

15.2

​

Retail

​

​

84,269

​

​

104,596

​

​

188,865

​

​

13.6

​

Special purpose

​

​

119,073

​

​

59,876

​

​

178,949

​

​

12.9

​

Hospitality

​

​

1,217

​

​

148,278

​

​

149,495

​

​

10.8

​

Other

​

​

58,548

​

​

23,741

​

​

82,289

​

​

5.9

​

Mixed-use

​

​

8,974

​

​

57,338

​

​

66,312

​

​

4.8

​

Total commercial real estate

​

$

523,657

​

$

860,345

​

$

1,384,002

​

​

100.0

%

​

Construction and Land Development Loans. At December 31, 2023, we had $622.7 million in construction and land development loans, or 16.0% of total loans. We make construction loans on raw land, land which has received permits for construction and commercial and residential properties which are being re-constructed, primarily to developers, contractors and builders of apartment buildings, single-family homes and condominiums and individuals for the construction of their primary residences. We also make a limited amount of land loans that will be used for residential or commercial development. Land loans also include loans secured by land purchased for investment purposes.

While we may originate loans to builders whether or not the collateral property underlying the loan is under contract for sale, we consider each project carefully in light of current residential real estate market conditions. Historically, most of our construction loans for residential properties are to well-known builders in our market area for which there is no contract for sale for the underlying completed home at the time of origination. We refer to these loans as speculative construction loans, and we expect this concentration of speculative residential construction lending to continue to be an important component of our construction and land development loans in the future. We actively monitor the number of unsold homes in our construction loan portfolio and local housing markets to attempt to maintain an appropriate balance between home sales and new loan originations. We generally will limit the maximum number of speculative units (units that are not pre-sold) approved for each builder, typically starting with five speculative loans per builder until we develop a relationship and track record with the builder.

Our construction loans are fixed- and adjustable-rate, interest-only loans that provide for the payment of interest during the construction phase, which is usually up to 24 months. At the end of the construction phase, the loan may convert to a permanent mortgage loan or may be paid in full. Given supply chain issues resulting in delays and longer permitting and approval times, in part due to the COVID-19 pandemic, in recent years, depending on the complexity of the construction project, the term of an “interest-only” construction loan may be extended if circumstances warrant.

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Construction loans are generally limited to 80% (75% for investment properties) loan-to-completed-appraised-value ratio upon completion of the project. Land development loans which are approved for development are limited to 75%, and not yet approved for development land loans, are limited to 65% loan to completed appraised value. Before making a commitment to fund a construction loan, we require an appraisal of the property by an independent licensed appraiser. We also generally require inspections of the property before disbursements of funds during the term of the construction loan.

At December 31, 2023, our 25 largest construction and land development loan relationships had an average balance of approximately $17.0 million, or approximately $425.8 million in the aggregate, representing 68.4% of our total construction and land development loans at such date. Consistent with our internal policies, any borrowing relationship with aggregate exposure of greater than $55.0 million requires approval by the board of directors and at such date we had nine such relationships in excess of $55.0 million, which were comprised of commercial real estate and multifamily loans and construction and land development loans. At December 31, 2023, each of the construction and land development loans underlying our 25 largest construction and land development loan relationships was performing in accordance with its repayment terms.

Commercial and Industrial Loans. We offer a broad range of commercial and industrial loans, including lines of credit and terms loans, to a variety of commercial businesses and industrial borrowers. The loans are used to support working capital and general corporate needs.

Our commercial and industrial banking division is segmented into three core units: Small Business, Middle Market and Structured Finance. The Small Business division generally focuses on loans under SBA programs of up to $5 million and non-SBA commercial business relationships with businesses who have annual revenues up to $10 million. SBA product offerings include SBA 7(a) Loans, SBA Express Lines of Credit, 504 Loans, and Massachusetts Capital Access Program.

Our Middle Market division generally focuses on relationships with businesses with revenues from $10 million to $50 million for a variety of operating businesses. We serve operating companies such as manufacturers, distributors, importers, exporters, medical practices, CPA firms, and law firms. The Middle Market division offers loans and lines of credit to fund general operations, expansion, sales growth, new product development, and working capital. Nearly all of these loans are to borrowers in our primary market area.

Our Structured Finance division generally focuses on relationships with businesses with greater than $50 million in annual revenues and which may contain unique attributes to certain industries. In recent years, most of these larger, structured commercial and industrial loans have been to customers in the cannabis, wind or solar industries. These industries may be subject to heightened regulatory or business risks, and we believe our knowledge of the operating and cash flow structures of these industries, as well as the applicable regulatory considerations, enable us to offer competitive credit facility solutions to these customers while maintaining our prudent underwriting standards consistent with our small business and middle market lending divisions. Generally, our Structured Finance loans are collateralized by the borrower’s real estate and not by operating equipment which is harder to value due to these industries’ unique operations. We seek to partner with company owners, management teams, and private equity sponsors to provide customized debt facility and cash management solutions for business owners. The Structured Finance division’s practices include sponsored and direct-to-company transactions, family-owned and privately held businesses, and, to a limited extent, publicly traded companies. We believe our Structured Finance division’s portfolio is well diversified with over 50 commercial relationships at December 31, 2023.

Our small business and middle market commercial and industrial loans are generally secured by all business assets of the borrower, including but not limited to equipment, accounts receivable, inventory, specific project assets and contracts, and real estate. Across all three segments, loans are priced either by floating rate benchmarks plus applicable spreads, fixed-interest rates or floating rate fixed synthetically through interest rate swap derivative products. Terms generally range from three to 10 years. The average tenor of our commercial and industrial portfolio varies and at December 31, 2023 was less than 7 years for Structured Finance loans. At December 31, 2023, the average loan to value of the Structured Finance loan portfolio was less than 75%.

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We also offer lines of credit in amounts of up to 80% of the value of the eligible collateral securing the loan.

When making commercial and industrial loans, we consider the financial statements of the borrower, lending history with the borrower, the debt service capabilities and global cash flows of the borrower and other guarantors, the historical and projected cash flows of the business and the value of the business assets. Where applicable we engage third-party specialists to assist in conducting diligence on any prospective borrower, and they may include, as warranted, industry-specific consultants, engineers, appraisers, and accountants.

The primary risk associated with commercial and industrial loans is the ability of borrowers to achieve business results consistent with those projected at origination. The vast majority of the loans are extended on a secured basis, with a limited number of unsecured lines of credit with additional covenants. At December 31, 2023, we had commitments to fund $22.0 million of unsecured lines of credit with no balances outstanding at this date. The security of any underlying loan is determined according to the credit profile of the customer on a case-by-case basis.

In managing our commercial and industrial loan portfolio, we focus on the size of the customer’s lending relationship, which we view as the aggregate amount of all loans and loan commitments outstanding to a commercial borrower and any related borrowers or guarantors.

At December 31, 2023, approximately 94% of our small business and 98% of our middle market commercial and industrial loan exposure was to customers headquartered within our primary market area, which is the Greater Boston metropolitan area and surrounding communities, including eastern Connecticut, southern New Hampshire and Rhode Island. On occasion, we will make these types of loans outside of the primary market but generally only to customers with whom we have a pre-existing relationship.

Because of the unique business characteristics of the cannabis, wind and solar industries, which comprise most of our Structured Finance loans, many of these loans are to customers which have operations both within and outside of our primary market area.

The vast majority of the relationships in the commercial and industrial segment also have cash management and treasury service product offerings tied to the relationships. These products include specific online banking tools, ACH products, wire capabilities, fraud prevention tools and other customized set-up that help the underlying business securely manage the business’ cash. Generally, these products provide for additional fee income, along with enhanced risk management, to the Bank and are managed within the commercial and industrial business unit of the Bank.

Consumer Lending. We offer a variety of consumer loans to individuals who reside or work in our primary lending area, including loans that are secured by mobile homes, new and used automobiles, new and used boats and recreational vehicles, solar panels, deposit accounts, as well as a limited number of unsecured loans, including student loans, home improvement loans and credit cards loans. In recent years we have purchased a variety of consumer loan portfolios from a third-party originator subject to our underwriting procedures. Largely as a result of these purchases, higher yielding consumer loans increased $8.3 million, or 4.2% to $204.9 million at December 31, 2023 from $196.5 million at December 31, 2022 and from $39.4 million at December 31, 2021. Subject to market conditions, we intend to continue to modestly grow our consumer loan portfolio and we would expect this growth to come through partnerships with established third-party originators.

Consumer loans generally have shorter terms to maturity, which reduces our exposure to changes in interest rates. In addition, management believes that offering consumer loan products helps to expand and create stronger ties to our existing customer base by increasing the number of customer relationships and providing cross-marketing opportunities.

Originations, Sales and Purchases of Loans

Our loan originations are generated by our banking personnel operating at our banking office and mortgage brokers. Additionally, in recent years, we have purchased a variety of consumer loans. We also obtain referrals from existing and former customers and from accountants, real estate brokers, builders and attorneys. All loans we originate

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are underwritten pursuant to our policies and procedures which incorporate Fannie Mae underwriting guidelines to the extent applicable for residential loans.

While we originate both fixed-rate and adjustable-rate loans, our ability to generate each type of loan depends upon relative borrower demand and the pricing levels as set in the local marketplace by competing banks, thrifts, credit unions, and mortgage banking companies. Our volume of real estate loan originations is influenced significantly by market interest rates, and, accordingly, the volume of our real estate loan originations can vary from period to period.

Consistent with our interest rate risk strategy, we originate for sale and sell a portion of the long-term, fixed-rate, one- to four-family residential real estate loans that we originate on a servicing-retained, limited or no recourse basis, while generally retaining shorter-term fixed-rate and all adjustable-rate one- to four-family residential real estate loans in order to manage the duration and time to repricing of our loan portfolio. We consider our balance sheet as well as market conditions on an ongoing basis in making decisions as to whether to hold loans we originate for investment or to sell such loans to investors, choosing the strategy that is most advantageous to us from a profitability and risk management standpoint.

Historically, we have also engaged in loan participations sales, with Needham Bank as the lead, for certain larger commercial real estate and commercial and industrial loans and have, on a limited basis, purchased participations from well-established financial institutions in our market area. Participations are periodically reported to the board of directors. In recent years we have also purchased a variety of consumer loan portfolios and would expect to continue to purchase consumer loans from several established third-party originators. At December 31, 2023, our highest combined participations with one bank was approximately 9.3% of total capital and was comprised of commercial real estate and multifamily, commercial and industrial, and construction and land development loans.

Loan Approval Procedures, Loans to One Borrower Limit and Lending Authority

The maximum amount that we may lend to one borrower and the borrower’s related entities is generally limited, by statute, to 20% of our capital, which is defined under Massachusetts law as the sum of our surplus account, undivided profits and, after the completion of the conversion, capital stock. Loans secured by a first mortgage on residential property occupied by the borrower are excluded from this limit. At December 31, 2023, our regulatory limit on loans-to-one borrower was $125.8 million.

At December 31, 2023, our general internal limit on an aggregate loan relationship-to-one borrower (and related entities) was $55.0 million. Most of our largest loan relationships are to borrowers which have multiple loans with Needham Bank and are collateralized by commercial real estate, commercial and industrial and construction and land development loans. Aggregate exposure limits can be increased above our internal limit up to the legal lending limit on an exception basis with the approval of the Credit Committee and the board of directors, and at December 31, 2023, we had nine relationships in excess of $55.0 million which were secured by commercial and industrial and commercial real estate loans, including construction and land development loans. Each of these relationships was approved by the board of directors and at December 31, 2023 each of the loans underlying these relationships was performing in accordance with their prepayment terms.

Our lending is subject to written underwriting standards and origination procedures. Decisions on loans are made consistent with our loan policies and procedures, and the underwriting and review of a loan decision is designed primarily to determine the borrower’s ability to repay the requested loan.

The board of directors has overall responsibility for our lending policy, and the board reviews this policy at least annually.

The board of directors has delegated loan approval authority to certain officers up to prescribed limits, depending on the officer’s experience, the type of loan and whether the loan is secured or unsecured. Loans for residential real estate of greater than $2.5 million require approval by management’s Credit Committee, which consists of the Chief Executive Officer (“CEO”), Chief Operating Officer (“COO”), Chief Credit Officer (“CCO”), SVP – Managed Assets Group Leader and managers of the Bank’s lending departments. Commercial loan relationships with

15

Table of Contents

total loan exposure of greater than $3.0 million up to our internal loans-to-one relationship limitation require approval by the Credit Committee. All commercial and industrial loans under $3.0 million are approved by the CCO (or designated signer), and all commercial loan relationships with total loan exposure of greater than $3.0 million are approved by the Credit Committee. Loan policy exceptions are fully disclosed to the approving authority, either an individual officer or the appropriate management or credit committee prior to approval. Reporting on Policy exceptions are included within the Board package.

Generally, we require title insurance on our mortgage loans as well as fire and extended coverage casualty insurance in amounts at least equal to the principal amount of the loan or the value of improvements on the property, depending on the type of loan. We also require flood insurance if the improved property is determined to be in a flood zone area.

Delinquencies and Non-Performing Assets

Delinquency Procedures. When a borrower fails to make required payments on a loan, we take a number of steps to induce the borrower to cure the delinquency and restore the loan to current status. We generally send a written notice of non-payment to the borrower 15, 30, 60 and 90 days after a loan is first past due. We will additionally try to contact the borrower by telephone after the 15th day after the due date.

All loans past due 90 days are put on non-accrual and reported to the board of directors monthly. Generally, when a loan becomes 90 days past due, the loan is transferred to our Managed Asset division, which attempts to determine underlying issues and develop a repayment plan with the borrower. If workout efforts are unsuccessful, the loan may be turned over to our attorneys to ensure that further collection activities are conducted in accordance with applicable laws and regulations. If our attorneys do not receive a response from the borrower, or if the terms of any payment plan established are not followed, then foreclosure proceedings may be initiated on loans secured by real estate. Management submits a delinquent loan report detailing loans 30 days or more past due to the board of directors on a monthly basis.

When we acquire real estate as a result of foreclosure or by deed in lieu of foreclosure, the real estate is classified as foreclosed real estate until it is sold. The real estate is recorded at estimated fair value at the date of acquisition less estimated costs to sell, and any write-down resulting from the acquisition is charged to the allowance for credit losses. Estimated fair value is based on an appraisal typically obtained before the foreclosure process is completed. Subsequent decreases in the value of the property are charged to operations. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.

In the course of resolving delinquent loans, we may choose to restructure the contractual terms of certain loans. We attempt to work-out alternative payment schedules with the borrowers in order to avoid foreclosure actions. As noted in Note 2, “Summary of Significant Accounting Policies” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K, we adopted ASU 2022-02 on January 1, 2023, which eliminated troubled-debt restructuring (“TDR”) accounting. Prior to the adoption of this standard, we reviewed each loan that was modified to identify whether a TDR had occurred. TDRs involved situations in which, for economic or legal reasons related to the borrower’s financial difficulties, we granted a concession to the borrower that we would not otherwise have considered. Subsequent to our adoption of this standard, we apply the loan refinancing and restructuring guidance codified in paragraphs 310-20-35-9 through 35-11 of the Accounting Standards Codification to determine whether a modification results in a new loan or a continuation of an existing loan.

​

ASU 2022-02 requires disclosure of loan modifications to borrowers experiencing financial difficulty. The Company did not modify any loans to borrowers experiencing financial difficulty during the year ended December 31, 2023.

​

If a loan is on non-accrual at the time of restructuring, interest income is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

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Table of Contents

Delinquent Loans. The following table sets forth our loan delinquencies by type and amount at the dates indicated.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

December 31, 2023

December 31, 2022

​

​

​

30-59

​

60-89

​

90 Days or

​

30-59

​

60-89

​

90 Days or

​

​

​

Days

​

Days

​

More and Still

​

Days

​

Days

​

More and Still

(Dollars in thousands)

​

​

Past Due

​

Past Due

​

Accruing

​

Past Due

​

Past Due

​

Accruing

Real estate loans:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

One to four-family residential

​

$

1,903

​

$

—

​

$

—

​

$

1,449

​

$

—

​

$

—

Home equity

​

​

288

​

​

65

​

​

—

​

​

728

​

​

490

​

​

—

Commercial real estate

​

​

2,735

​

​

—

​

​

—

​

​

4,243

​

​

—

​

​

—

Construction and land development

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

​

​

—

Commercial and industrial

​

​

2

​

​

1

​

​

—

​

​

38

​

​

—

​

​

—

Consumer

​

 

4,009

​

 

1,008

​

 

—

​

 

1,499

​

 

436

​

 

—

Total

​

$

8,937

​

$

1,074

​

$

—

​

$

7,957

​

$

926

​

$

—

​

Non-Performing Assets. The following table sets forth information regarding our non-performing assets as of December 31, 2023 and 2022. As a result of the adoption of CECL beginning January 1, 2023, troubled debt restructuring recognition and measurement has been eliminated. We had no loans 90 days or more delinquent and still accruing interest as of the dates presented.

​

​

​

​

​

​

​

(Dollars in thousands)

​

2023

​

2022

Real estate loans:

​

​

​

​

​

​

One-to four-family residential

​

$

4,100

​

$

5,579

Home equity

​

​

590

​

​

818

Commercial real estate

​

​

422

​

​

670

Construction and land development

​

​

10

​

​

10

Commercial and industrial

​

​

4,138

​

​

5,086

Consumer

​

​

1,538

​

​

859

Total

​

$

10,798

​

$

13,022

​

​

​

​

​

​

​

Total non-accrual loans to total loans (1)

​

​

0.28%

​

​

0.43%

Total non-performing loans to total loans

​

​

0.28%

​

​

0.43%

Total non-performing assets to total assets

​

​

0.24%

​

​

0.36%

(1)Includes both non-accrual loans and non-accruing troubled debt restructured loans for 2022.

Classified Assets. Federal regulations provide that each insured savings institution classify its assets on a regular basis. In addition, in connection with examination of insured depository institutions, federal and Massachusetts banking regulators have authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.

When an insured depository institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with

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Table of Contents

lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory agencies, which may require the establishment of additional general or specific loss allowances.

In connection with the filing of our quarterly reports with the Federal Reserve Board and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.

On the basis of this review of our assets, our classified and special mention assets at December 31 were as follows:

​

​

​

​

​

​

​

(Dollars in thousands)

​

2023

​

2022

Substandard loans

​

$

9,444

​

$

10,532

Doubtful loans

​

​

10

​

​

10

Loss loans

​

​

—

​

​

—

Total classified loans

​

$

9,454

​

$

10,542

Special mention loans

​

$

12,622

​

$

18,709

​

Other Loans of Concern. There were no other loans at December 31, 2023 that are not already disclosed where there is information about possible credit problems of borrowers that caused management to have serious doubts about the ability of the borrowers to comply with present loan repayment terms and that may result in disclosure of such loans in the future.

Provision for Credit Losses. On January 1, 2023, we adopted Accounting Standards Update (ASU) 2016-13 Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which replaces the incurred loss methodology with an expected loss methodology that is referred to as the CECL methodology. Under this new current expected loss model, provisions for credit losses are charged to operations to establish an allowance for credit losses at a level to cover expected losses over the expected life of a loan or securities portfolio. Under the previous “incurred loss” model, provisions for loan losses were charged to operations to establish an allowance for loan losses at a level necessary to absorb known and inherent losses in our loan portfolio that are both probable and reasonably estimable at the date of the consolidated financial statements. In evaluating the level of the allowance for credit losses, management analyzes reasonable and supportable forecasts and several qualitative loan portfolio risk factors including, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and non-accrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses.

As part of the initial adoption of the CECL standard on January 1, 2023, we recorded $1.1 million to the allowance for credit losses and $1.8 million for off-balance sheet commitments. The total of $2.9 million was tax effected and resulted in a decrease of $2.1 million to retained earnings.

Additionally, as part of the adoption of the CECL standard, for the year ended December 31, 2023, we recorded a provision for credit losses of $9.7 million and a provision of $4.2 million as a reserve for off-balance sheet commitments, both of which are included in the provision for credit losses in the consolidated statements of income. 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.

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Table of Contents

Our allowance for credit losses was $32.2 million as of December 31, 2023 compared to $25.0 million at December 31, 2022. The ratio of our allowance for credit losses to total loans was 0.83% at both December 31, 2023 and 2022, while the allowance for credit losses to non-performing loans was 298% at December 31, 2023 compared to 192% at December 31, 2022. We had net charge offs of $3.6 million and $87,000 during the years ended December 31, 2023 and 2022, respectively. The increase in net charge-offs was caused by charge-offs in the higher yielding purchased consumer loan portfolio.

Additions to the allowance for credit losses are provided by charges against income based on various factors, which, in our judgment, deserve current recognition in estimating probable losses. Credit losses are charged-off in the period the loans, or portion thereof, are deemed uncollectible. Generally, the Company will record a loan charge-off (including a partial charge-off) to reduce a loan to the estimated fair value of the underlying collateral, less cost to sell, for collateral dependent loans. We regularly review the loan portfolio in order to maintain the allowance for credit losses in accordance with U.S. GAAP.

As an integral part of their examination process, the Commissioner and the Federal Reserve Board will periodically review our allowance for credit losses, and as a result of such reviews, we may determine to adjust our allowance for credit losses. However, regulatory agencies are not directly involved in the process for establishing the allowance for credit losses as the process is our responsibility and any increase or decrease in the allowance is the responsibility of management. The Audit Committee reviews and approves the CECL calculation quarterly, including management’s support for qualitative factors used in developing its allowance for credit losses.

The following table sets forth activity in our allowance for credit losses for the periods indicated.

​

​

​

​

​

​

​

​

​

For the years ended December 31,

(Dollars in thousands)

​

2023

    

2022

Allowance for credit losses at beginning of the period

​

$

25,028

​

$

18,415

Adjustment to allowance for adoption of ASU 2016-13

​

​

1,159

​

​

—

Provision for credit losses - allowance for credit losses

​

 

9,657

​

​

6,700

Charge offs

​

 

​

​

 

​

One-to Four-Family Residential

​

​

(379)

​

​

(35)

Commercial and Industrial

​

​

(679)

​

​

—

Consumer

​

​

(3,487)

​

​

(287)

Total charge-offs

​

​

(4,545)

​

​

(322)

​

​

​

​

​

​

​

Recoveries of loans previously charged off

​

​

​

​

​

​

One-to Four-Family Residential

​

​

—

​

​

33

Commercial Real Estate

​

​

48

​

​

48

Consumer

​

​

875

​

​

154

Total recoveries

​

​

923

​

​

235

​

​

​

​

​

​

​

Net (charge-offs) recoveries

​

​

(3,622)

​

​

(87)

​

​

​

​

​

​

​

Allowance for credit losses at end of the period

​

$

32,222

​

$

25,028

​

​

​

​

​

​

​

Allowance to non-performing loans

​

​

298%

​

​

192%

Allowance to total loans outstanding at the end of the period

​

​

0.83%

​

​

0.83%

Net (charge-offs) recoveries to average loans outstanding during the period

​

​

(0.10%)

​

​

0.00%

​

​

​

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Table of Contents

The following table sets forth additional information with respect to charge-offs by category for the periods indicated.

​

​

​

​

​

​

​

​

​

For the year ended December 31,

​

​

2023

    

2022

Net (charge-offs) recoveries to average loans outstanding during the period:

​

​

​

​

​

​

One-to Four-Family Residential

​

​

(0.04%)

​

​

0.00%

Commercial and Industrial

​

​

(0.15%)

​

​

0.00%

Consumer

​

​

(1.29%)

​

​

(0.11%)

​

Allocation of Allowance for Credit Losses. The following table sets forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

At December 31, 

 

​

​

2023

​

​

2022

 

​

    

​

    

Percent of

    

    

Percent of

    

    

​

    

Percent of

    

    

Percent of

 

​

​

​

​

ACL in

​

​

Loans in Each

​

​

​

​

ACL in

​

​

Loans in Each

 

​

​

Allowance for

​

Each Category

​

​

Category

​

​

Allowance for

​

Each Category

​

​

Category

​

(Dollars in thousands)

​

Credit Losses

​

to Total ACL

​

​

to Total Loans

​

​

Credit Losses

​

to Total ACL

​

​

to Total Loans

 

One-to Four-Family Residential

 

$

1,835

 

5.69

%  

 

28.18

%  

 

$

3,485

 

14.65

%  

 

30.92

%

Home Equity

​

​

117

​

0.36

%  

 

2.50

%  

 

​

258

​

1.08

%  

 

2.49

%

Commercial Real Estate

​

 

6,076

​

18.86

%  

 

35.54

%  

 

 

6,538

​

27.49

%  

 

33.56

%

Construction and Land Development

​

 

7,630

​

23.68

%  

 

15.99

%  

 

 

3,846

​

16.17

%  

 

18.32

%

Commercial and Industrial

​

​

10,878

​

33.76

%  

​

12.53

%  

​

​

8,255

​

34.71

%  

​

8.20

%

Consumer

​

 

5,686

​

17.65

%  

 

5.26

%  

 

 

1,403

​

5.90

%  

 

6.52

%

Total allocated allowance for credit losses

​

 

32,222

​

100.00

%  

 

100.00

%  

 

​

23,785

​

100.00

%  

 

100.00

%

Unallocated allowance for credit losses

​

 

—

​

​

​

 

​

​

 

 

1,243

​

​

​

​

​

​

Total allowance for credit losses

​

$

32,222

​

​

​

​

​

​

​

$

25,028

​

​

​

​

​

​

​

Investment Activities

General. Our investment policy is established by the board of directors. The objectives of the policy are to: (i) provide and maintain liquidity within the guidelines of the Massachusetts banking laws and regulations for loan demand and deposit fluctuations, and to allow us to alter our liquidity position to meet both day-to-day and long-term changes in assets and liabilities; (ii) manage interest rate risk in accordance with our interest rate risk policy; (iii) provide collateral for pledging requirements; (iv) maximize return on our investments; and (v) maintain a balance of high quality diversified investments to minimize risk. All purchase and sale transactions are reviewed by the Audit Committee, which consists of the CEO, COO, Chief Financial Officer and certain board members, at least quarterly.

Our investment policy is reviewed annually by our board of directors and all policy changes recommended by management must be approved by the board. Authority to make investments under the approved guidelines are delegated to appropriate officers. The execution of specific actions with respect to securities held by Needham Bank rests with the Audit Committee within the scope of the established investment policy.

We have legal authority to invest in various types of liquid assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises and municipal governments, deposits at the FHLB, certificates of deposit of federally insured institutions, investment grade corporate bonds and investment grade marketable equity securities. We also are required to maintain an investment in FHLB stock. While we have the authority under applicable law to invest in derivative securities, we have not purchased derivative securities as an investment strategy.

20

Table of Contents

At December 31, 2023 we had $189.5 million of investment securities, representing 4.2% of our total assets, and our investment portfolio consisted primarily of U.S. Treasury and federal agency securities, government-sponsored residential mortgage-backed securities (which includes collateralized mortgage obligations), municipal bonds and corporate bonds.

At the time of purchase, we designate a security as held-to-maturity, available-for-sale, or trading, depending on our ability and intent. Securities available-for-sale or trading are reported at fair value, while securities held-to-maturity are reported at amortized cost. Consistent with our overall business and asset/liability management plan, which focuses on sustaining adequate levels of core earnings, the base premise of our investment portfolio is that all securities purchased will be suitable to be held-to-maturity. However, at December 31, 2023, we had no securities which we designated held to maturity.

Some of our securities are callable by the issuer. Although these securities may have a yield somewhat higher than the yield of similar securities without such features, these securities are subject to the risk that they may be redeemed by the issuer prior to maturing in the event general interest rates decline. At December 31, 2023, we had $66.5 million of securities which were subject to redemption by the issuer prior to their stated maturity, including four subordinated note agreements totaling $37.5 million issued by community bank mutual holding companies.

The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference between the security’s amortized cost basis and its fair value as a write-down of the investment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include 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.

At December 31, 2023, our corporate bond portfolio consisted of investment grade securities with maturities generally shorter than 10 years. Our investment policy provides that we may invest within the three highest investment-grade ratings from Standard & Poor’s or Moody’s. The maturity of these bonds generally may not exceed 10 years unless approved by the board of directors. Bonds that subsequently experience a decline in credit rating below investment grade are monitored at least quarterly.

The following table presents the fair value of our securities as of December 31, 2023 by their stated maturities (this maturity schedule excludes security prepayment and call features), as well as the weighted average yields for each maturity range.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Due in one year or less

​

Due in one year to five years

​

Due in five years to ten years

​

Due after ten years

​

​

Fair

​

Weighted

​

Fair

​

Weighted

​

Fair

​

Weighted

​

Fair

​

Weighted

(In thousands)

    

Value

    

Average Yield

    

Value

    

Average Yield

    

Value

    

Average Yield

    

Value

    

Average Yield

December 31, 2023

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

Debt Securities:

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

U.S. Treasury securities

​

$

41,400

​

2.1

%

​

$

22,952

​

0.9

%

​

$

—

​

-

%

​

$

—

​

—

%

Agency mortgage-backed securities

​

​

2

​

(3.4)

​

​

​

330

​

3.6

​

​

​

2,638

​

0.8

​

​

​

8,460

​

2.2

​

Agency collateralized mortgage obligations

​

​

—

​

-

​

​

​

282

​

1.3

​

​

​

—

​

-

​

​

​

2,136

​

1.2

​

Corporate bonds

​

​

12,894

​

2.7

​

​

​

49,455

​

1.7

​

​

​

29,886

​

3.1

​

​

​

—

​

-

​

Municipal obligations

​

​

2,530

​

1.6

​

​

​

16,500

​

1.9

​

​

​

—

​

-

​

​

​

—

​

-

​

Total

​

$

56,826

​

2.2

%

​

$

89,519

​

1.5

%

​

$

32,524

​

2.9

%

​

$

10,596

​

3.6

%

For additional information regarding our investment securities portfolio, see Note 2 to the notes to our consolidated financial statements.

Bank-Owned Life Insurance. We invest in bank-owned life insurance to provide us with a funding source for our benefit plan obligations. Bank-owned life insurance also generally provides us noninterest income that is non-

21

Table of Contents

taxable. Applicable regulations generally limit our investment in bank-owned life insurance to 25% of our Tier 1 capital plus our allowance for credit losses. At December 31, 2023, we had $50.5 million in bank-owned life insurance, representing 8.1% of Tier 1 capital.

Other Securities. We hold common stock of the FHLB in connection with our borrowing activities. The FHLB common stock is carried at cost and classified as restricted equity securities. It is not practicable to determine the fair value of FHLB common stock due to restrictions placed on its transferability. Under current FHLB rules, we will be required to purchase additional FHLB common stock if we increase borrowings in the future.

We maintain shares in the Federal Reserve Bank of Boston in order to meet criteria for membership in the Federal Reserve System. Dividends are paid semi-annually at the statutory rate of 6.0%. At December 31, 2023, we held 206,450 shares of stock in the approximate amount of $10.3 million.

We also invest in certain equity securities which offer favorable tax treatment. See Note 2 to the notes to our consolidated financial statements.

Sources of Funds

General. Deposits have traditionally been our primary source of funds for use in lending and investment activities. We also use borrowings and brokered deposits to supplement cash flow needs, lengthen the maturities of liabilities for interest rate risk purposes and to manage the cost of funds. In addition, we receive funds from scheduled loan payments, investment maturities, loan prepayments, loan sales, retained earnings and income on earning assets. While scheduled loan payments and income on interest-earning assets are relatively stable sources of funds, deposit inflows and outflows can vary widely and are influenced by prevailing interest rates, market conditions and levels of competition.

Deposits. Our deposits are generated primarily from residents and businesses within our primary deposit market area. We offer a selection of deposit accounts, including noninterest-bearing and interest-bearing demand accounts, money market accounts, savings accounts and certificates of deposit including IRAs. Deposit account terms vary, with the principal differences being the minimum balance required, the amount of time the funds must remain on deposit and the interest rate. In recent years, we have also utilized brokered deposits as non-retail funding source to fund our operations. These non-core funding sources are not relationship-based accounts and are generally more price-sensitive than our core deposits. Therefore, these deposits carry a greater risk of non-renewal than our core deposits. As of December 31, 2023, our core deposits, which are deposits other than brokered deposits, were $3.2 billion, representing 94.6% of total deposits. At December 31, 2023, we had $183.6 million of brokered deposits and we had 26 municipal deposit relationships in the aggregate amount of $83.2 million.

Additionally, At December 31, 2023, we believe that our highest concentration of industry-specific deposits was from cannabis-related relationships. At December 31, 2023, we had 817 cannabis-related deposit relationships totaling $277.2 million, or 8.2% of total deposits, of which $144.0 million were directly related to the cannabis industry (e.g., growing, transporting, packaging, distributing, or selling cannabis) and $133.2 million were indirectly related to the cannabis industry. At December 31, 2023, we do not believe that we have significant concentrations among our larger deposit accounts from venture capital funds, or their portfolio companies, or from out-of-market businesses.

Interest rates, maturity terms, service fees and withdrawal penalties are established on a periodic basis. Deposit rates and terms are based primarily on current operating strategies and market rates, liquidity requirements, rates paid by competitors and growth goals. The flow of deposits is influenced significantly by general economic conditions, changes in interest rates and competition. The variety of deposit accounts that we offer allows us to be competitive in generating deposits and to respond with flexibility to changes in our customers’ demands. Our ability to gather deposits is impacted by the competitive market in which we operate, which includes numerous financial institutions of varying sizes offering a wide range of products. We believe that deposits are a stable source of funds, but our ability to attract and maintain deposits at favorable rates will be affected by market conditions, including competition and prevailing interest rates.

​

22

Table of Contents

The following table sets forth the distribution of total deposits, by account type, at the dates indicated.

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

​

    

At December 31, 

 

​

​

2023

​

2022

​

​

​

​

​

​

​

Average

​

​

​

​

​

​

Average

(Dollars in thousands)

​

Amount

​

Percent

​

​

Rate

​

Amount

​

Percent

​

​

Rate

Noninterest-bearing demand deposits

 

$

528,409

 

15.60

%  

 

—

%  

 

$

445,518

 

15.43

%  

 

—

%

Savings accounts

​

​

127,640

​

3.77

%  

 

0.05

%  

 

​

163,257

​

5.66

%  

 

0.05

%

NOW accounts

​

 

345,753

​

10.21

%  

 

0.30

%  

 

 

408,894

​

14.16

%  

 

0.07

%

Money market accounts

​

 

888,511

​

26.23

%  

 

2.55

%  

 

 

659,455

​

22.84

%  

 

1.12

%

Certificates of deposit and individual retirement accounts

​

​

1,497,035

​

44.19

%  

​

3.90

%  

​

 

1,209,619

​

41.90

%  

​

2.65

%

Total

​

$

3,387,348

​

100.00

%  

 

2.56

%  

 

$

2,886,743

​

100.00

%  

 

1.38

%

​

As of December 31, 2023 and 2022, the aggregate amount of time deposits we had in amounts greater than $250,000, which is the maximum amount for federal deposit insurance, was $544.2 million and $915.0 million, respectively.

The following table sets forth, by time remaining until maturity, the portion of our time deposits that are in excess of the FDIC insurance limit at December 31, 2023.

​

​

​

​

​

    

December 31, 2023

(Dollars in thousands)

​

​

​

Maturity period:

​

​

​

Three months or less

​

$

222,174

Over three months through six months

​

​

292,855

Over six months through 12 months

​

​

21,542

Over 12 months

​

​

7,675

Total

​

$

544,246

All of our deposits are fully insured due to the additional insurance provided to a Massachusetts cooperative bank, such as Needham Bank, under the DIF, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Needham Bank above FDIC limits.

Borrowing Capacity. As a member of the FHLB, Needham Bank is eligible to obtain advances upon the security of the FHLB common stock owned and certain residential mortgage loans, provided certain standards related to credit-worthiness have been met. FHLB advances are available pursuant to several credit programs, each of which has its own interest rate and range of maturities. At December 31, 2023, we had the ability to borrow an additional $508.0 million from the FHLB, subject to certain collateral requirements and had advances of $283.3 million at such date. At December 31, 2023 we also had an additional line of credit from the FHLB in the amount of $6.1 million. We had no borrowings outstanding under this line of credit at December 31, 2023.

Additionally, at December 31, 2023 we had secured Federal Reserve Bank Discount Window borrowing capacity of $49.6 million, and at December 31, 2023, we had no such borrowings.

Under the Bank’s Liquidity Policy, we test access to all off-balance sheet liquidity sources periodically, but no less than annually.

Subsidiary and Other Activities

Needham Bank is the wholly owned subsidiary of NB Bancorp.

Needham Bank has three subsidiaries: Needco-op Investment Corporation, Inc. (“Needco”), a Massachusetts corporation, which is engaged in the buying, selling and holding of investment securities. The income earned on Needco’s securities is subject to a significantly lower rate of state tax than that assessed on income earned on securities maintained at Needham Bank. At December 31, 2023, Needco had total assets of $93.0 million, substantially all of which were in securities, federal funds, and cash to be invested.

23

Table of Contents

The Bank’s other subsidiaries are Eaton Square Realty LLC and 1892 Investments LLC, both of which hold certain real estate investments for Needham Bank, including investor tax credit investments. These entities enable us to segregate certain assets for management purposes, and or borrow against assets or stock of these entities for liquidity purposes.

Expense and Tax Allocation

Needham Bank has entered into an agreement with NB Bancorp to provide it with certain administrative support services for compensation not less than the fair market value of the services provided. In addition, Needham Bank and NB Bancorp will enter into an agreement to establish a method for allocating and for reimbursing the payment of their consolidated tax liability.

Personnel

As of December 31, 2023, we had 342 full-time equivalent employees. Our employees are not represented by any collective bargaining group. Management believes that we have a good working relationship with our employees.

SUPERVISION AND REGULATION

General

Needham Bank is a Massachusetts-chartered cooperative bank and is the wholly owned subsidiary of NB Bancorp, Inc., which is a Maryland corporation, and a registered bank holding company. Needham Bank’s deposits are insured up to applicable limits by the FDIC and by the Massachusetts Depositors Insurance Fund (“DIF”), a private industry-sponsored insurance fund, for amounts in excess of the FDIC insurance limits. Needham Bank is subject to extensive regulation by the Massachusetts Division of Banks, as its chartering agency, and by the Federal Reserve Board, its primary federal regulator. It is also regulated by the FDIC as the insurer of its deposit accounts. Needham Bank must also comply with consumer protection regulations issued by the Consumer Financial Protection Bureau, as enforced by the Federal Reserve Board. Needham Bank is required to file reports with, and is periodically examined by the Federal Reserve Board and the Commissioner concerning its activities and financial condition and must obtain regulatory approvals prior to entering into certain transactions, including, but not limited to, mergers with or acquisitions of other financial institutions. As a registered bank holding company, NB Bancorp is regulated by the Federal Reserve Board. Needham Bank also is a member of and owns stock in the FHLB, which is one of the 11 regional banks in the Federal Home Loan Bank System.

Under this system of regulation, the regulatory authorities have extensive discretion in connection with their supervisory, enforcement, rulemaking and examination activities and policies, including rules or policies that: establish minimum capital levels; restrict the timing and amount of dividend payments; govern the classification of assets; provide oversight for the adequacy of loan loss reserves for regulatory purposes and the adequacy of its risk management framework; and establish the timing and amounts of assessments and fees imposed by the regulatory agencies. Moreover, as part of their examination authority, the banking regulators assign numerical ratings to banks and savings institutions relating to capital, asset quality, management, liquidity, earnings and other factors. These ratings rely on the supervisor’s judgment and the receipt of a less than satisfactory rating in one or more categories may result in enforcement action by the banking regulators against a financial institution. A less than satisfactory rating may also prevent a financial institution, such as Needham Bank or its holding company, from obtaining necessary regulatory approvals to access the capital markets, pay dividends, acquire other financial institutions or establish new branches.

In addition, we must comply with significant anti-money laundering and anti-terrorism laws and regulations, Community Reinvestment Act laws and regulations, and fair lending laws and regulations. Government agencies have the authority to impose monetary penalties and other sanctions on institutions that fail to comply with these laws and regulations, which could significantly affect our business activities, including our ability to acquire other financial institutions or expand our branch network.

24

Table of Contents

NB Bancorp is a bank holding company and is required to comply with the Bank Holding Company Act of 1956, as amended (“BHCA”), and the rules and regulations of the Federal Reserve Board. It is required to file certain reports with the Federal Reserve Board and is subject to examination by and the enforcement authority of the Federal Reserve Board. Additionally, the Federal Reserve Board may directly examine the subsidiaries of a bank holding company, including Needham Bank. NB Bancorp will also be subject to the rules and regulations of the Securities and Exchange Commission under the federal securities laws.

Any change in applicable laws or regulations, whether by the Massachusetts legislature, the Commissioner, the Consumer Financial Protection Bureau, the FDIC, the Federal Reserve Board, the Securities and Exchange Commission or Congress, could have a material adverse impact on the operations and financial performance of NB Bancorp and Needham Bank.

Set forth below is a brief description of material regulatory requirements that are applicable to Needham Bank and NB Bancorp. The description is limited to certain material aspects of the statutes and regulations addressed, and is not intended to be a complete description of such statutes and regulations and their effects on Needham Bank and NB Bancorp.

Massachusetts Banking Laws and Supervision Applicable to the Bank

General. As a Massachusetts-chartered cooperative bank, Needham Bank is subject to supervision, regulation and examination by the Commissioner and to various Massachusetts statutes and regulations which govern, among other things, investment powers, lending and deposit-taking activities, borrowings, maintenance of surplus and reserve accounts, distribution of earnings and payment of dividends. In addition, Needham Bank is subject to Massachusetts consumer protection, Community Reinvestment Act, civil rights laws and regulations. The approval of the Commissioner is required for a Massachusetts-chartered bank to establish or close branches, merge with other financial institutions, issue stock and undertake certain other activities.

Massachusetts regulations generally allow Massachusetts banks, with appropriate regulatory approvals, to engage in activities permissible for federally chartered banks or banks chartered by another state. The Commissioner also has adopted procedures reducing regulatory burdens and expense and expediting branching by well-capitalized and well-managed banks.

Dividends. A Massachusetts stock bank may declare cash dividends from net profits not more frequently than quarterly. Noncash dividends may be declared at any time. No dividends may be declared, credited or paid if a bank’s capital stock is impaired. The approval of the Commissioner is required if the total of all dividends declared in any calendar year exceeds the total of its net profits for that year combined with its retained net profits of the preceding two years. Dividends from NB Bancorp may depend, in part, upon receipt of dividends from Needham Bank. The payment of dividends from Needham Bank would be restricted by federal law if the payment of such dividends resulted in Needham Bank failing to meet regulatory capital requirements.

Loans to One Borrower Limitations. Massachusetts banking law grants broad lending authority. However, with certain limited exceptions, total obligations to one borrower may not exceed 20% of the total of an institution’s capital stock (if any), surplus and undivided profits. The Commissioner applies the Office of the Comptroller of the Currency’s attribution rules to a borrower’s related interests. At December 31, 2023, Needham Bank was in compliance with the loans-to-one borrower limitations.

Loans to a Bank’s Insiders. Under Massachusetts law, a Massachusetts-chartered bank must comply with Regulation O of the Federal Reserve Board and the Commissioner retains examination and enforcement authority to ensure compliance.

Investment Activities. In general, Massachusetts-chartered banks may invest in preferred and common stock of any corporation organized under the laws of the United States or any state provided such investments do not involve control of any corporation and do not, in the aggregate, exceed 4% of a bank’s deposits. Federal law imposes additional restrictions on Needham Bank’s investment activities.

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Regulatory Enforcement Authority. Any Massachusetts bank that does not operate in accordance with the regulations, policies and directives of the Commissioner may be subject to sanctions for noncompliance, including revocation of its charter. The Commissioner may, under certain circumstances, suspend or remove officers or directors who have violated the law, conducted the bank’s business in an unsafe or unsound manner or contrary to the depositors’ interests or been negligent in the performance of their duties. Upon finding that a bank has engaged in an unfair or deceptive act or practice, the Commissioner may issue an order to cease and desist and impose a fine on the bank concerned. The Commissioner also has authority to take possession of a bank and appoint the FDIC as receiver under certain conditions such as an unsafe and unsound condition to transact business, the conduct of business in an unsafe or unauthorized manner or impaired capital. In addition, Massachusetts consumer protection and civil rights statutes applicable to Needham Bank permit private individual and class action law suits and provide for the rescission of consumer transactions, including loans, and the recovery of statutory and punitive damages and attorneys’ fees in the case of certain violations of those statutes.

Excess Deposit Insurance Fund. Massachusetts-chartered cooperative banks are members of the DIF, a private industry-sponsored insurance fund in Massachusetts that insures all deposits at Needham Bank above FDIC limits. In the future, if the aggregate amount of our deposits in excess of the federal deposit insurance limit (which is $250,000 per depositor) exceed the threshold as established by the DIF, which at December 31, 2023 was $1.10 billion, then we may be required to exit from the DIF resulting in these excess deposits no longer being insured above FDIC-limits, beginning one year after such exit.

Protection of Personal Information. Massachusetts banking regulations contain requirements intended to protect personal information and are similar to federal laws such as the Gramm-Leach-Bliley Act, discussed below under “– Federal Regulations Applicable to the Bank” and “– Other Regulations,” that require organizations to establish written information security programs to prevent identity theft. The Massachusetts regulation also contains technology system requirements, especially for the encryption of personal information sent over wireless or public networks or stored on portable devices.

Insurance Sales. Massachusetts banks may engage in insurance sales activities if the Commissioner has approved a plan of operation for insurance activities and the bank obtains a license from the Massachusetts Division of Insurance. A bank may be licensed directly or indirectly through an affiliate or a subsidiary corporation established for this purpose. Needham Bank does not currently sell insurance products, and has not sought approval for direct insurance sales activities. Needham Bank is licensed to solicit and refer potential insurance customers to an unaffiliated, third-party licensed insurance producer.

Parity Regulation. A Massachusetts bank may exercise, with appropriate regulatory approvals, any power and engage in any activity that has been authorized for national banks, federal thrifts or state banks in a state other than Massachusetts, provided that the activity is permissible under applicable federal law and not specifically prohibited by Massachusetts law. Such powers and activities must be subject to the same limitations and restrictions imposed on the national bank, federal thrift or out-of-state bank that exercised the power or activity.

Massachusetts has other statutes or regulations that are similar to certain of the federal provisions discussed below.

Federal Regulations Applicable to the Bank

Capital Requirements. Federal regulations require federally insured depository institutions to meet several minimum capital standards: a common equity Tier 1 capital to risk-based assets ratio of 4.5%, a Tier 1 capital to risk-based assets ratio of 6.0%, a total capital to risk-based assets ratio of 8.0%, and a Tier 1 capital to total assets leverage ratio of 4.0%.

In determining the amount of risk-weighted assets for calculating risk-based capital ratios, all assets, including certain off-balance sheet assets (e.g., recourse obligations, direct credit substitutes, residual interests) are multiplied by a risk-weight factor assigned by the regulations based on the risks believed inherent in the type of asset. Higher levels of capital are required for asset categories believed to present greater risk. Common equity Tier 1 capital is generally

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defined as common stockholders’ equity and related surplus and retained earnings. Tier 1 capital is generally defined as common equity Tier 1 and additional Tier 1 capital. Additional Tier 1 capital includes certain non-cumulative perpetual preferred stock and related surplus and minority interests in equity accounts of consolidated subsidiaries. Total capital includes Tier 1 capital (common equity Tier 1 capital plus additional Tier 1 capital) and Tier 2 capital. Tier 2 capital is comprised of capital instruments and related surplus, meeting specified requirements, and may include cumulative preferred stock and long-term perpetual preferred stock, mandatory convertible securities, intermediate preferred stock and subordinated debt. Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets. Calculation of all types of regulatory capital is subject to deductions and adjustments specified in the regulations. In assessing an institution’s capital adequacy, the FDIC takes into consideration not only these numeric factors, but qualitative factors as well, and has the authority to establish higher capital requirements for individual institutions where deemed necessary.

In addition to establishing the minimum regulatory capital requirements, the regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements.

Federal law required the federal banking agencies, including the Federal Reserve Board, to establish a “community bank leverage ratio” of between 8% and 10% for institutions with total consolidated assets of less than $10 billion. Institutions with capital complying with the ratio and otherwise meeting the specified requirements and electing the alternative framework are considered to comply with the applicable regulatory capital requirements, including the risk-based requirements. The community bank leverage ratio was established at 9% Tier 1 capital to total average assets, effective January 1, 2020. A qualifying institution may opt in and out of the community bank leverage ratio framework on its quarterly call report. An institution that temporarily ceases to meet any qualifying criteria is provided with a two-quarter grace period to regain compliance. Failure to meet the qualifying criteria within the grace period or maintain a leverage ratio of 8% or greater requires the institution to comply with the generally applicable regulatory capital requirements.

At December 31, 2023, Needham Bank had opted into the community bank leverage ratio framework and its leverage capital ratio exceeded the applicable requirement.

Capital Distributions. The Federal Deposit Insurance Act (“FDIA”) generally provides that an insured depository institution may not make any capital distribution if, after making such distribution, the institution would fail to meet any applicable regulatory capital requirement. Unless the approval of the Federal Reserve Board is obtained, Needham Bank may not declare or pay a dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the sum of its net income during the current calendar year and the retained net income of the prior two calendar years. Payments of dividends by Needham Bank are also subject to other banking law restrictions, such as the Federal Reserve Board’s authority to prevent a bank from paying dividends if such payment would constitute an unsafe or unsound banking practice or reduce a bank’s capital below safe and sound levels and Massachusetts banking law restrictions which require dividends to be paid from net profits for the current and two previous years, and which preclude a Massachusetts bank from paying dividends if its capital is, or would become, impaired.

Community Reinvestment Act and Fair Lending Laws. All insured depository institutions have a responsibility under the Community Reinvestment Act and related regulations to help meet the credit needs of their communities, including low- and moderate-income borrowers, consistent with its safe and sound banking operations. The Federal Reserve Board’s Community Reinvestment Act regulations are generally based upon objective criteria of the performance of institutions under three key assessment tests: (i) a lending test, to evaluate the institution’s record of making loans in its service areas; (ii) an investment test, to evaluate the institution’s record of investing in community development projects, affordable housing, and programs benefiting low- or moderate-income individuals and businesses; and (iii) a service test, to evaluate the institution’s delivery of services through its branches, ATMs and other offices. The Federal Reserve Board is required to assess Needham Bank’s record of compliance with the Community Reinvestment Act. An institution’s failure to comply with the provisions of the Community Reinvestment Act could, at a minimum, result in denial of certain corporate applications such as branches or mergers, or in restrictions on its

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activities. In addition, the Equal Credit Opportunity Act and the Fair Housing Act prohibit lenders from discriminating in their lending practices. The failure to comply with the Equal Credit Opportunity Act and the Fair Housing Act could result in enforcement actions by the Federal Reserve Board, as well as other federal regulatory agencies and the Department of Justice.

The Community Reinvestment Act requires all institutions insured by the FDIC to publicly disclose their rating. Needham Bank received a “Satisfactory” Community Reinvestment Act rating in its most recent federal examination.

Massachusetts has its own statutory counterpart to the CRA which is also applicable to Needham Bank. The Massachusetts version is generally similar to the CRA but utilizes a five-tiered descriptive rating system. Massachusetts law requires the Commissioner to consider, but not be limited to, a bank’s record of performance under Massachusetts law in considering any application by the bank to establish a branch or other deposit-taking facility, to relocate an office or to merge or consolidate with or acquire the assets and assume the liabilities of any other banking institution. Needham Bank’s most recent November 2022 CRA performance rating under Massachusetts law was “High Satisfactory.”

Transactions with Related Parties. An insured depository institution’s authority to engage in transactions with its affiliates is generally limited by Sections 23A and 23B of the Federal Reserve Act and federal regulation. An affiliate is generally a company that controls, or is under common control with, an insured depository institution such as Needham Bank. NB Bancorp is an affiliate of Needham Bank because of its control of Needham Bank. In general, transactions between an insured depository institution and its affiliates are subject to certain quantitative limits and collateral requirements. In addition, federal regulations prohibit a state-chartered bank from lending to any of its affiliates that are engaged in activities that are not permissible for bank holding companies and from purchasing the securities of any affiliate, other than a subsidiary. Finally, transactions with affiliates must be consistent with safe and sound banking practices, not involve the purchase of low-quality assets and be on terms that are as favorable to the institution as comparable transactions with non-affiliates.

Needham Bank’s authority to extend credit to its directors, executive officers and 10% stockholders, as well as to entities controlled by such persons, is currently governed by the requirements of Sections 22(g) and 22(h) of the Federal Reserve Act and Regulation O of the Federal Reserve Board. Among other things, these provisions generally require that extensions of credit to insiders:

●be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features; and
●not exceed certain limitations on the amount of credit extended to such persons, individually and in the aggregate, which limits are based, in part, on the amount of Needham Bank’s capital.

In addition, extensions of credit in excess of certain limits must be approved by Needham Bank’s board of directors. Extensions of credit to executive officers are subject to additional limits based on the type of extension involved.

Enforcement. The Federal Reserve Board has extensive enforcement authority over insured state member banks. The enforcement authority includes, among other things, the ability to assess civil money penalties, issue cease and desist orders and remove directors and officers. In general, these enforcement actions may be initiated in response to violations of laws and regulations, breaches of fiduciary duty and unsafe or unsound practices. The Federal Reserve Board is required, with certain exceptions, to appoint a receiver or conservator for an insured state non-member bank if that bank was “critically undercapitalized” on average during the calendar quarter beginning 270 days after the date on which the institution became “critically undercapitalized.” The Federal Reserve Board may also appoint itself as conservator or receiver for an insured state non-member bank under specified circumstances, including: (1) insolvency; (2) substantial dissipation of assets or earnings through violations of law or unsafe or unsound practices; (3) existence of an unsafe or unsound condition to transact business; (4) insufficient capital; or (5) the incurrence of losses that will deplete substantially all of the institution’s capital with no reasonable prospect of replenishment without federal assistance.

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Standards for Safety and Soundness. Federal law requires each federal banking agency to prescribe certain standards for the insured depository institutions they supervise. These standards relate to, among other things, internal controls, information systems and audit systems, loan documentation, credit underwriting, interest rate risk exposure, asset growth, asset quality, earnings, compensation and benefits, and other operational and managerial standards as the agency deems appropriate. Interagency guidelines set forth the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository institutions before capital becomes impaired. If the appropriate federal banking agency determines that an institution fails to meet any standard prescribed by the guidelines, the agency may require the institution to submit to the agency an acceptable plan to achieve compliance with the standard. If an institution fails to meet these standards, the appropriate federal banking agency may require the institution to implement an acceptable compliance plan. Failure to implement such a plan can result in further enforcement action, including the issuance of a cease and desist order and/or the imposition of civil money penalties.

Branching. Federal law permits insured state banks to engage in interstate branching if the laws of the state where the new banking office is to be established would permit the establishment of the banking office if it were chartered by a bank in such state. Under current Massachusetts law, Needham Bank can establish a branch in Massachusetts or in any other state. All branch applications require prior approval of the Commissioner and the FDIC. Finally, Needham Bank may also establish banking offices in other states by merging with banks or by purchasing banking offices of other banks in other states, subject to certain restrictions.

Acquisitions. Prior approval from the Commissioner and Federal Reserve Board is required in order for Needham Bank to acquire another bank. Well capitalized and well managed banks may acquire other banks in any state, subject to certain deposit concentration limits and other conditions, pursuant to the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, as amended by the Dodd-Frank Act.

Activities and Investments of Insured State-Chartered Member Banks. The Federal Reserve Act generally limits the types of equity investments a Federal Reserve member bank, such as Needham Bank, may make, and the Federal Deposit Insurance Act generally limits the kinds of activities in which such an FDIC-insured state-chartered bank may engage, as a principal, to those that are permissible for national banks. Further, the Gramm-Leach-Bliley Act (“GLBA”) permits national banks and state banks, to the extent permitted under state law, to engage via financial subsidiaries in certain activities that are permissible for subsidiaries of a financial holding company. In order to form a financial subsidiary, a state-chartered bank must be “well capitalized,” and such banks must comply with certain capital deduction, risk management and affiliate transaction rules, among other requirements.

Brokered Deposits. The FDIA and FDIC regulations generally limit the ability of an insured depository institution to accept, renew or roll over any brokered deposit unless the institution’s capital category is “well capitalized” or, with the FDIC’s approval, “adequately capitalized.” Depository institutions that have brokered deposits in excess of 10% of total assets may be subject to increased FDIC deposit insurance premium assessments. However, for institutions that are well capitalized and have a CAMELS composite rating of 1 or 2, reciprocal deposits are deducted from brokered deposits. Section 202 of the Economic Growth Act, which was enacted in 2018, amends the FDIA to exempt a capped amount of reciprocal deposits from treatment as brokered deposits for certain insured depository institutions.

Prompt Corrective Action. Federal law requires, among other things, that federal banking agencies take “prompt corrective action” with respect to institutions that do not meet minimum capital requirements. For this purpose, the Federal Reserve Board’s regulations establish five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Under applicable regulations, an institution is deemed to be “well capitalized” if it has a total risk-based capital ratio of 10.0% or greater, a Tier 1 risk-based capital ratio of 8.0% or greater, a leverage ratio of 5.0% or greater and a common equity Tier 1 ratio of 6.5% or greater. An institution is “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or greater, a Tier 1 risk-based capital ratio of 6.0% or greater, a leverage ratio of 4.0% or greater and a common equity Tier 1 ratio of 4.5% or greater. An institution is “undercapitalized” if it has a total risk-based capital ratio of less than 8.0%, a Tier 1 risk-based capital ratio of less than 6.0%, a leverage ratio of less than 4.0% or a common equity Tier 1 ratio of less than 4.5%. An institution is deemed to be “significantly undercapitalized” if it has a total risk-based capital ratio of less than 6.0%, a Tier 1 risk-based capital ratio of less than 4.0%, a leverage ratio of less than 3.0% or a common equity Tier 1 ratio of

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less than 3.0%. An institution is considered to be “critically undercapitalized” if it has a ratio of tangible equity (as defined in the regulations) to total assets that is equal to or less than 2.0%.

At each successive lower capital category, an insured depository institution is subject to more restrictions and prohibitions, including restrictions on growth, restrictions on interest rates paid on deposits, restrictions or prohibitions on the payment of dividends, and restrictions on the acceptance of brokered deposits. Furthermore, if an insured depository institution is classified in one of the undercapitalized categories, it is required to submit a capital restoration plan to the appropriate federal banking agency, and the holding company must guarantee the performance of that plan. Based upon its capital levels, a bank that is classified as well-capitalized, adequately capitalized, or undercapitalized may be treated as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. An undercapitalized bank’s compliance with a capital restoration plan is required to be guaranteed by any company that controls the undercapitalized institution in an amount equal to the lesser of 5.0% of the institution’s total assets when deemed undercapitalized or the amount necessary to achieve the status of adequately capitalized. If an “undercapitalized” bank fails to submit an acceptable plan, it is treated as if it is “significantly undercapitalized.” “Significantly undercapitalized” banks must comply with one or more of a number of additional restrictions, including a regulatory order to sell sufficient voting stock to become adequately capitalized, requirements to reduce total assets, ceasing receipt of deposits from correspondent banks, dismissal of directors or officers, and restrictio