NB Bancorp, Inc. — Q1 2024 Form 10-Q
Business context and reporting period. The filing covers the three months ended March 31, 2024, with balance-sheet comparisons to December 31, 2023. NB Bancorp was formed as the holding company for Needham Bank in connection with the bank’s mutual-to-stock conversion, completed December 27, 2023. Accordingly, pre-conversion comparative information is for the Bank, and 2023 EPS is not presented. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Key financial metrics
| Metric | Q1 2024 | Comparable period / prior date |
|---|---|---|
| Interest and dividend income | $68.2 | $46.0 in Q1 2023 |
| Net interest income | $38.6 | $31.2 in Q1 2023 |
| Provision for credit losses | $4.4 | $2.1 in Q1 2023 |
| Noninterest income | $3.5 | $5.9 in Q1 2023 |
| Noninterest expense | $25.6 | $23.0 in Q1 2023 |
| Income before taxes / net income | $12.1 / $8.7 | $12.0 / $8.8 in Q1 2023 |
| Basic and diluted EPS | $0.22 | Not presented for Q1 2023 |
| Net interest margin / spread | 3.60% / 2.48% | 3.70% / 3.23% in Q1 2023 |
| Cash and cash equivalents | $315.0 | $272.6 at Dec. 31, 2023 |
| Total assets | $4,650.0 | $4,533.4 at Dec. 31, 2023 |
| Net loans / allowance for credit losses | $3,920.3 / $34.3 | $3,857.1 / $32.2 at Dec. 31, 2023 |
| Deposits / FHLB borrowings | $3,772.1 / $60.8 | $3,387.3 / $283.3 at Dec. 31, 2023 |
| Shareholders’ equity | $733.8 | $758.0 at Dec. 31, 2023 |
Net cash used in operating activities was $11.6 million, versus $8.3 million provided in Q1 2023. Investing activities used $74.6 million, while financing activities provided $128.7 million. Cash and cash equivalents increased $42.4 million during the quarter.
At March 31, 2024, the Bank’s total capital ratio was 14.5%, Tier 1 risk-based ratio 13.6%, common equity Tier 1 ratio 13.6%, and Tier 1 leverage ratio 13.5%. The Bank was categorized as well-capitalized.
Material changes versus comparable periods
- Net interest income rose 23.8% year over year, primarily from growth in average interest-earning assets and higher asset yields. Interest and fees on loans increased 46.3%.
- Funding costs rose substantially: total interest expense increased 99.7%, with deposit interest expense up 129.5%. The weighted average rate on interest-bearing liabilities increased to 3.88% from 2.22%.
- Net interest margin declined 10 basis points to 3.60%; the spread narrowed to 2.48% from 3.23%.
- Net income was approximately $8.7 million, down about $51,000 from Q1 2023. Higher net interest income was largely offset by increased credit provision and noninterest expense, and lower noninterest income.
- Noninterest income fell 40.3%, mainly because Q1 2023 included $3.45 million of employee retention credit income. Q1 2024 included a one-time $610,000 card-branding signing bonus.
- Net loans grew 1.6% from year-end. Multifamily loans increased $111.1 million, including $111.0 million of construction and development loans converted to multifamily; construction and development balances declined $87.4 million.
- Deposits increased $384.7 million, while FHLB borrowings declined $222.5 million. Brokered deposits increased $116.4 million to $300.0 million.
Outlook, management commentary, risks and unusual items
- Management described a strategy of prudent balance-sheet growth, including diversification into higher-yielding commercial and consumer lending, and expects to retain a significant portion of maturing time deposits. The filing provides no numeric earnings or margin guidance.
- Liquidity sources included $315.0 million of cash and cash equivalents, $762.6 million of unused FHLB borrowing capacity, and $45.0 million available at the Federal Reserve discount window. Internal policy permitted brokered deposits up to 10% of total assets; management reported approximately $165 million of additional capacity.
- Non-brokered certificates of deposit totaling $1.25 billion, or 33.1% of deposits, were due within one year. Management noted that replacement funding could cost more if these deposits do not remain. The company also had $472.0 million in unused lines, $594.4 million in unadvanced construction loans, and $73.6 million in loan-origination commitments.
- Credit exposures warrant monitoring: loans to cannabis-industry borrowers totaled $334.3 million, and cannabis-industry deposits totaled $315.5 million. Management cited increased qualitative credit factors for loans collateralized by offices and for purchased consumer loans. Nonaccrual loans were $10.8 million; past-due loans below 90 days totaled about $18.0 million.
- Available-for-sale securities had $14.5 million of gross unrealized losses at quarter-end, which management attributed to market interest rates; no securities credit-loss provision was recorded. Management stated it intended and was able to hold the securities until maturity or cost recovery.
- The company no longer qualified for the Community Bank Leverage Ratio framework at March 31 because unfunded loan commitments exceeded 25% of capital for more than two consecutive quarters; it operated under the risk-based framework and reported that it remained well-capitalized.
- Other notable items included $390,000 of pension withdrawal-related expense, $588,000 of ESOP compensation expense, and the ESOP’s purchase of 2.4 million shares for $33.4 million during the quarter. Management reported effective disclosure controls, no material change in internal controls, and no material change in previously disclosed risk factors. Pending legal actions were not expected to have a material adverse effect.
- Forward-looking risks include interest-rate and funding changes, deposit retention and competition, economic and real-estate conditions, loan quality and collateral values, cannabis-related regulatory changes, cybersecurity and third-party risks, and the company’s ability to execute its growth strategy.
Important facts for investors to verify
- Whether deposit growth and retention—especially time deposits and brokered deposits—can continue without further increases in funding costs, and how that affects net interest margin.
- Credit performance in commercial real estate, office-collateralized loans, construction lending, purchased consumer portfolios, and cannabis-related lending; also track allowance levels and charge-offs.
- Whether the rapid shift from FHLB funding to deposits is sustainable and whether available contingent liquidity remains adequate against deposit maturities and unfunded commitments.
- How the change from the CBLR to the risk-based capital framework affects capital requirements and reported ratios in subsequent periods.
- The quality and recurrence of noninterest income, including the absence of the prior-year employee retention credit and the one-time 2024 branding bonus.