NB Bancorp, Inc. (NBBK)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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General

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Management’s discussion and analysis of the financial condition and results of operations at and for the three months ended March 31, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of the Company. The information contained in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing on Part I, Item 1 of this quarterly report on Form 10-Q.

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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This Quarterly Report on Form 10-Q contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “could,” “might,” “indicate,” “would,” “contemplate,” “continue,” “target,” “forecast,” “outlook,” “guidance,” “objective,” “goal,” “strategy,” “potential,” “predict,” “projection,” “trend,” “designed to,” “opportunity,” “positioned to,” and other similar expressions or the negative of these terms. These forward-looking statements include, but are not limited to:

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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.

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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:

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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.

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Critical Accounting Policies and Estimates

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There are no material changes to the critical accounting policies disclosed in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 3, 2026.

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Non-GAAP Financial Measures

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

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

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the consolidated financial statements that appear beginning on page 98 of this Annual Report on Form 10-K. You should read the information in this section in conjunction with the business and financial information regarding the Company and the Bank and the consolidated financial statements provided in this Annual Report on Form 10-K for the Company and, with respect to the years ended December 31, 2025, 2024 and 2023, the Company had not engaged in any material activities prior to December 28, 2023, the date of the consummation of the mutual to stock conversion.

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Our results of operations depend primarily on our net interest income.

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

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

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On November 15, 2025 we completed our previously announced Provident Acquisition, which resulted in the addition of approximately $1.40 billion in total assets, $1.18 billion of total net loans and $1.14 billion in total deposits, all at fair value. Provident, a Massachusetts corporation, was a federally registered bank holding company headquartered in Amesbury, Massachusetts. BankProv, a Massachusetts-chartered bank, founded in 1828, was a wholly-owned subsidiary of Provident that operated through a network of 7 full-service banking offices in northeastern Massachusetts and southern New Hampshire, as well as a mortgage warehouse lending center in Ponte Vedra Beach, Florida.

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In accordance with the terms of the definitive merger agreement, through which we agreed to acquire Provident through a merger with the Company as the surviving entity, each share of Provident common stock was exchanged for 0.691 shares of the Company’s common stock or $13.00 in cash, subject to allocation procedures to ensure that the total number of shares of Provident common stock that receive the stock consideration represents 50% of the total number of shares of Provident common stock outstanding immediately prior to the completion of the acquisition.

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The transaction qualified as a tax-free reorganization for Federal income tax purposes and provided Provident shareholders with a tax-free exchange of their shares of Provident common stock in exchange for the Company’s common stock as the consideration they received in the merger. We issued 5.9 million shares of our common stock in the exchange and paid $111.8 million in cash, which resulted in a transaction value of approximately $226.5 million based upon the closing price of our common stock on November 14, 2025 of $19.29 per share.

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Critical Accounting Policies and Estimates

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The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared in conformity with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policies discussed below to be critical accounting policies.

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The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

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

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The following represent our critical accounting policies:

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ACL – The ACL represents management’s best estimate of credit losses over the remaining life of loans measured at amortized cost and unfunded lending commitments at the consolidated balance sheet date and is established through a provision for credit losses charged to net income. The allocation methodology applied by the Company includes allocations for individually evaluated loans and loss factor allocations for all remaining loans through a quantitative model with an assessment of certain qualitative factors.

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Management uses a methodology to systematically estimate the amount of expected lifetime losses in the loan portfolio. Expected lifetime losses are estimated on a collective basis for loans sharing similar risk characteristics and are

determined using a quantitative model combined with an assessment of certain qualitative factors designed to address forecast and model risk inherent in the quantitative model output. Loss estimates within the collectively assessed population are based on a combination of pooled assumptions and loan-level characteristics. The weighted average remaining maturity (“WARM”) method is the primary credit loss estimation methodology used by the Company and involves estimating future cash flows and expected credit losses for pools of loans using their expected remaining WARM.

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The quantitative model estimates expected credit losses using loan level data over the estimated life of the exposure, considering the effect of prepayments. Economic forecasts, one of the most significant judgments influencing the ACL, are incorporated into the estimate over a reasonable and supportable forecast period of two years, beyond which is a reversion to our historical loss average which occurs over a period of four quarters.

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Qualitative adjustments to quantitative loss factors, either negative or positive, may include considerations of economic conditions including economic forecasts as detailed above, volume and severity of past due loans, value of underlying collateral, experience, depth, and ability of management, and concentrations of credit.

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The methodology includes evaluation and consideration of several factors which could affect potential credit losses.

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While management uses the best information available to make its evaluation, future adjustments to the ACL may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the ACL is made for analytical purposes and is not necessarily indicative of the trend of future credit losses in any particular loan category. The total ACL is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for ACL was adequate at December 31, 2025. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.

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For additional information on our ACL, refer to Note 4, “Loans Receivable and ACL” within the Notes to the Consolidated Financial Statements included in Part II, Item 8 in this Annual Report on Form 10-K.

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Goodwill and Other Intangible Assets – Acquisitions of businesses are accounted for using the acquisition method of accounting. Accordingly, the net assets of the companies acquired are recorded at their fair values at the date of acquisition. Goodwill represents the excess of purchase price over the fair value of net assets acquired. Other intangible assets represent acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights, or because the asset is capable of being sold or exchanged either on its own, or in combination with a related contract, asset, or liability.

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The Company evaluates goodwill for impairment at least annually, or more often if warranted, using a qualitative assessment. If the qualitative assessment indicates potential impairment, management will perform a quantitative impairment test. The quantitative impairment test compares the book value to the fair value of each reporting segment. If the book value exceeds the fair value, an impairment is charged to net income. Management has identified one reporting segment for purposes of testing goodwill for impairment: the banking business.

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Other intangible assets, all of which are definite-lived, are stated at cost, less accumulated amortization. The Company evaluates other intangible assets for impairment at least annually, or more frequently based on specific events or changes in circumstances. The Company considers factors including, but not limited to, changes in legal factors and business climate that could affect the value of the intangible asset. Any impairment losses are charged to net income. The Company amortizes other intangible assets over their respective estimated useful lives. The estimated useful lives of core deposit intangible assets are ten years. The Company reassesses the useful lives of other intangible assets at least annually, or more frequently based on specific events or changes in circumstances.

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Our discount rate was based upon the estimated cost of equity under the Capital Asset Pricing Model, which considers the risk-free interest rate, market risk premium, size premium, company specific premium and beta specific to a particular reporting unit.

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For additional information on our goodwill and other intangibles, refer to Note 7, “Goodwill and Other Intangible Assets” within the Notes to the Consolidated Financial Statements included in Item 8 in this Annual Report on Form 10-K.

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Business Combinations – Acquisitions of businesses are accounted for using the acquisition method of accounting. In accordance with applicable accounting guidance, we recognize assets acquired and liabilities assumed at their respective fair values as of the date of acquisition, with the related transaction costs expensed in the period incurred.

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We use third party valuation specialists to assist in the determination of fair value of certain assets and liabilities at the merger date, including loans and core deposit intangibles.

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While we use our best estimates and assumptions to accurately value assets acquired and liabilities assumed on the acquisition date, the estimates are inherently uncertain.

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For further discussion of our methodology for estimating the fair value of acquired assets and assumed liabilities in connection with our Provident Acquisition, see Note 2, “Acquisition” within the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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The ACL on PCD loans and PSLs is recognized within business combination accounting.

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For further discussion of our accounting policies for estimating credit losses on acquired loans, see Note 1, “Summary of Significant Accounting Policies” within the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K.

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

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In accordance with U.S. GAAP, management assesses the likelihood that tax positions taken will be sustained upon examination based on their technical merit, considering the facts, circumstances and information available at the end of each period. The Company recognizes the effects of significant income tax positions taken on tax returns only if the positions are “more likely than not” to be sustained upon examination by the taxing authorities.

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Positions taken on tax returns that do not meet that threshold are not recognized in the Company’s provisions for income taxes. The measurement of uncertain tax positions is adjusted when new information is available, or when an event occurs that requires a change. The Company’s policy is to analyze its tax positions for all open tax years. Interest and penalties, if any, associated with uncertain tax positions, are classified as additional income tax expense in the consolidated statements of income (see Note 11).

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

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Because non-GAAP financial measures are not standardized, it may not be possible to compare these financial measures with other companies’ non-GAAP financial measures having the same or similar names.

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(1) These amounts are included in income tax expense and reflect amounts related to 2025 and 2024 BOLI surrender taxes and penalties and 2023 compensation and writedown for future LTIP vesting amounts that are not expected to be deductible on a tax return, respectively. These amounts are not included in the calculation of the tax impact on the non-GAAP adjustments.

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Comparison of Financial Condition at December 31, 2025 and 2024

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Total Assets. Total assets increased $1.85 billion, or 35.8%, to $7.01 billion as of December 31, 2025 from $5.16 billion at December 31, 2024. The increase was primarily the result of increases in net loans, cash and cash equivalents, AFS securities, banking premises and equipment, goodwill and other intangibles and deferred tax assets from the Provident Acquisition.

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Cash and Cash Equivalents. Cash and cash equivalents increased $43.7 million, or 12.0%, to $407.6 million at December 31, 2025 from $363.9 million at December 31, 2024. The increase in cash and cash equivalents was primarily a result of an increase in FHLB borrowing and deposits, along with cash as part of the Provident Acquisition, partially offset by growth in loans during the year.

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AFS Securities. AFS securities increased $40.8 million, or 17.9%, to $269.0 million at December 31, 2025 from $228.2 million at December 31, 2024 from purchases of U.S. treasury and mortgage-backed securities and the $24.5 million in securities acquired from the Provident acquisition, which were sold upon closing and redeployed into U.S. treasury and mortgage-backed securities.

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Loans, net. Loans, net increased $1.60 billion, or 37.4%, to $5.90 billion at December 31, 2025 from $4.29 billion at December 31, 2024. We experienced increases in each of our loan portfolio segments except for consumer loans, which decreased $41.1 million, or 16.8%, to $203.5 million at December 31, 2025 from $244.6 million at December 31, 2024. The primary driver of the decline in consumer loans was the $67.0 million transfer of consumer loans to held for sale, partially offset by purchases made. During the year ended December 31, 2025, commercial real estate loans, including multi-family real estate loans, increased $745.1 million, or 43.9%; commercial and industrial loans increased $447.8 million, or 80.0%; construction and land development loans increased $146.8 million, or 25.1%; and one-to-four-family residential real estate loans, including home equity loans, increased $74.9 million, or 6.0%. As part of the Provident acquisition, the Company acquired a warehouse loan portfolio of $280.9 million.

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The following tables contains information regarding the loan portfolio segments acquired from Provident and our organic loan portfolio growth during the year ended December 31, 2025:

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(1) Loans acquired at fair value

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The increase in these loan portfolio segments reflects the Provident Acquisition, coupled with our strategy to grow the balance sheet by continuing to diversify into higher-yielding loans to improve net margins and manage interest rate risk. In addition, to help manage interest rate risk and generate non-interest income, occasionally we sell one-to-four-family residential mortgage loans into the secondary market on a servicing-retained basis. During the year ended December 31, 2025, $9.0 million of loans were sold with gains recognized of $165,000. Additionally, at December 31, 2025, we transferred a portfolio of consumer loans to held for sale in an amount of $67.0 million, with a net loss to reflect the fair value of $517,000.

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Non-public Investments. Non-public investments primarily consist of equity investments and FHLB stock and FRB stock holdings. These assets increased $9.4 million, or 38.5%, to $33.7 million as of December 31, 2025 from $24.4 million as of December 31, 2024. The increase resulted primarily from an low-income housing tax credit (“LIHTC”) equity investment of $6.7 million acquired from Provident, as well as increased FHLB stock holdings of $3.6 million correlated to the increase in outstanding FHLB borrowings at December 31, 2025.

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BOLI. During the year ended December 31, 2025, the Company received proceeds on surrendered BOLI policies of $48.8 million and acquired $47.1 million in BOLI policies from Provident, resulting in an increase of $1.6 million, or 1.5%, in BOLI to $104.3 million at December 31, 2025 from $102.8 million at December 31, 2024. The Company surrendered BOLI policies in September 2024 and the proceeds were received during the year ended December 31, 2025. The Company also surrendered $28.4 million of BOLI policies from the Provident Acquisition, the proceeds from which have not been received. The Company recorded an increase in the cash surrender value of the BOLI policies of $3.3 million during the year ended December 31, 2025, compared to an increase in the cash surrender value of the BOLI policies of $2.3 million during the year ended December 31, 2024, primarily the result of the surrender and redeployment of BOLI policies at a higher yield during the year ended December 31, 2025, along with a higher average balance during 2025.

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Deferred Income Tax Asset, Net. Deferred income tax asset, net increased $18.5 million, or 61.2%, to $48.8 million at December 31, 2025 from $30.3 million at December 31, 2024. The increase resulted primarily from the $23.5 million in deferred income tax assets acquired with the Provident Acquisition, offset by deferred tax liabilities from Goodwill and the Core Deposit Intangible resulting from the Provident Acquisition.

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Prepaid Expenses and Other Assets. Prepaid expenses and other assets consist primarily of right of use assets related to our long-term leases, derivative assets, prepaid expenses and income tax receivables.

Prepaid expenses and other assets increased $9.5 million, or 16.1%, to $68.1 million at December 31, 2025 from $58.6 million at December 31, 2024. The increase resulted primarily from an $8.8 million increase in right of use assets, driven by the execution of two new leases during the year ended December 31, 2025 in Salem, New Hampshire and Allston, Massachusetts, totaling $2.7 million, expansion of the Wellesley lease of $2.7 million and the Provident Acquisition of four leases totaling $3.8 million at fair value.

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Goodwill. Goodwill increased to $18.5 million at December 31, 2025 from $0 at December 31, 2024 as a result of the Provident Acquisition, reflecting the net balance of assets acquired and liabilities assumed at fair value compared to the consideration paid.

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Core deposit intangible. Core deposit intangible increased $18.2 million, or 1,689.0%, to $19.3 million at December 31, 2025 from $1.1 million at December 31, 2024. The Provident Acquisition drove this increase with an $18.8 million core deposit intangible recorded as part of the acquisition less amortization recognized since the acquisition. The fair value of the core deposit intangible was determined as of the acquisition date, based on a discounted cash flow analysis using a discount rate commensurate with market participants. To calculate cash flows, deposit account servicing costs (net of deposit fee income) and interest expense on deposits were compared to the cost of alternative funding sources available through wholesale borrowing rates and national brokered certificate of deposit offering rates. The projected cash flows were developed using projected deposit attrition rates.

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Deposits. Total deposits increased $1.68 billion, or 40.1%, to $5.85 billion at December 31, 2025 from $4.18 billion at December 31, 2024, primarily driven by the $1.14 billion assumption of Provident’s deposit portfolio at fair value. Core deposits (which we define as all deposits other than brokered deposits) increased $1.45 billion, or 37.5%, to $5.32 billion at December 31, 2025 from $3.87 billion at December 31, 2024. The increase in core deposits was the result of increases in money market accounts of $650.1 million, or 65.0%, certificates of deposits of $315.7 million, or 19.1%, noninterest bearing demand deposits of $201.0 million, or 32.2%, NOW accounts of $183.2 million, or 38.0% and savings accounts of $100.0 million, or 92.0%.

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The following tables contain information regarding deposits assumed from the Provident Acquisition and our organic deposit growth during the year ended December 31, 2025:

(1) Deposits acquired at fair value

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At December 31, 2025 and 2024, we had $535.7 million and $309.8 million of brokered deposits, respectively. The increase in brokered deposits was driven by the $120.0 million in brokered deposits assumed from the Provident Acquisition and additional usage of brokered deposits for liquidity and funding needs.

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The Company had $453.0 million and $395.2 million in deposits from the cannabis industry as of December 31, 2025 and 2024, respectively.

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Borrowings. FHLB borrowings increased $75.4 million, or 62.4%, to $196.2 million at December 31, 2025, compared to $120.8 million at December 31, 2024.

Our borrowings consisted solely of FHLB advances, and the increase in FHLB borrowings was the result of overall liquidity needs and the assumption of $30.8 million in FHLB advances from the Provident Acquisition.

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Accrued expenses and other liabilities. Accrued expenses and other liabilities increased $5.0 million, or 7.6%, to $70.7 million at December 31, 2025 from $65.7 million at December 31, 2024. The increase primarily resulted from the assumption of lease liabilities from the Provident Acquisition of $3.8 million at fair value, the execution of two new leases in Salem, New Hampshire and Allston, Massachusetts totaling $2.7 million and the expansion of the Wellesley lease of $2.7 million, partially offset by a $4.9 million decrease in accrued interest on brokered deposits driven by rate reductions during the year ended December 31, 2025.

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Shareholders’ Equity. Shareholders’ equity increased $93.8 million, or 12.3%, to $858.9 million at December 31, 2025 from $765.2 million at December 31, 2024. The increase in shareholders’ equity was primarily due to the issuance of 5.9 million shares of common stock issued for the Provident Acquisition resulting in an increase of $114.6 million, $50.3 million in net income, $5.0 million in other comprehensive income driven by decreases in interest rate, partially offset by $77.1 million in share repurchases and $5.6 million in dividends paid.

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Comparison of Operating Results for the Years Ended December 31, 2025 and 2024

Net Income. Net income was $50.3 million for the year ended December 31, 2025, compared to net income of $42.1 million for the year ended December 31, 2024, an increase of $8.2 million, or 19.3%.

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The increase in net income was primarily driven by an increase of $36.3 million, or 22.5%, in net interest income, a $3.6 million, or 29.0% increase in noninterest income and a $7.5 million, or 61.6%, decrease in the provision for credit losses was partially offset by a $34.9 million, or 33.8%, increase in noninterest expense and a $4.4 million, or 26.5%, increase in income tax expense.

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Operating net income (non-GAAP), excluding one-time charges, amounted to $66.2 million, or $1.76 per diluted share for the year ended December 31, 2025 compared to operating net income of $45.5 million, or $1.15 per diluted share for the year ended December 31, 2024, an increase of $20.7 million, or 45.5%.

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The material one-time pre-tax amounts recognized during the year ended December 31, 2025 included:

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The material one-time pre-tax amounts for the year ended December 31, 2024 included:

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Interest and Dividend Income. Interest and dividend income increased $43.2 million, or 14.8%, to $335.7 million for the year ended December 31, 2025 from $292.5 million for the year ended December 31, 2024, primarily due to a $44.2 million, or 16.3%, increase in interest and fees on loans and a $2.7 million, or 38.7%, increase in interest on investment securities, offset by a $3.7 million, or 24.8%, decrease in interest and dividends on cash equivalents and other. Income from the Provident Acquisition is only included in the results of 2025 since November 15, 2025.

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The increase in interest and fees on loans was primarily due to an increase of $629.5 million, or 15.4%, in the average balance of the loan portfolio to $4.72 billion for the year ended December 31, 2025 from $4.09 billion for the year ended December 31, 2024 and an increase of 5 basis points in the weighted average yield for the loan portfolio to 6.67% for the year ended December 31, 2025 from 6.62% for the year ended December 31, 2024, reflecting the growth of our commercial loan portfolios. The increase in interest on securities was primarily due to an increase of 65 basis points in the weighted average yield for the securities portfolio to 4.00% for the year ended December 31, 2025 from 3.35% for the year ended December 31, 2024 and an increase of $33.2 million, or 16.2%, in the average balance of the securities portfolio to $237.5 million for the year ended December 31, 2025 from $204.3 million for the year ended December 31, 2024, reflecting redeployment of maturities, paydowns and excess cash into higher yielding securities. The decrease in interest and dividends on cash equivalents and other was primarily due to decrease of 111 basis points in the weighted average yield for short-term investments to 4.22% for the year ended December 31, 2025 from 5.33% for the year ended December 31, 2024 and a decrease of $24.6 million, or 9.8%, in the average balance of short-term investments to $226.3 million for the year ended December 31, 2025 from $250.9 million for the year ended December 31, 2024, reflecting the declining rate environment and the deployment of cash during the year ended December 31, 2025.

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Average interest-earning assets increased $640.8 million, or 14.0% to $5.21 billion for the year ended December 31, 2025 from $4.57 billion for the year ended December 31, 2024. The yield on interest-earning assets increased 4 basis points to 6.44% for the year ended December 31, 2025 from 6.40% for the year ended December 31, 2024.

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Interest Expense. Total interest expense increased $7.0 million, or 5.3%, to $138.3 million for the year ended December 31, 2025 from $131.3 million for the year ended December 31, 2024.

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Interest expense on deposits increased $6.0 million, or 4.7%, to $132.9 million for the year ended December 31, 2025 from $126.9 million for the year ended December 31, 2024, due to an increase in the average balance of certificates of deposit and individual retirement accounts of $198.5 million, or 10.7%, to $2.06 billion for the year ended December 31, 2025 from $1.86 billion for the year ended December 31, 2024 and an increase in the average balance of money market accounts of $297.3 million, or 33.7%, to $1.18 billion for the year ended December 31, 2025 from $883.2 million for the year ended December 31, 2024. These increases were partially offset by declines in the weighted average cost of certificates of deposit and individual retirement accounts of 62 basis points to 4.31% for the year ended December 31, 2025 from 4.93% for the year ended December 31, 2024 and a decrease in the weighted average cost of money market accounts of 33 basis points to 3.55% for the year ended December 31, 2025 from 3.88% for the year ended December 31, 2024.

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Interest expense on borrowings increased $1.0 million, or 23.1%, to $5.4 million for the year ended December 31, 2025 from $4.4 million for the year ended December 31, 2024. The average balance of FHLB advances increased $36.6 million, or 42.8%, to $122.1 million for the year ended December 31, 2025 from $85.5 million for the year ended December 31, 2024, offset partially by a decrease in the weighted average cost of these advances of 71 basis points to 4.43% for the year ended December 31, 2025 from 5.14% for the year ended December 31, 2024. The increase in the average balance was due to liquidity needs.

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Net Interest Income. Net interest income was $197.5 million for the year ended December 31, 2025, compared to $161.2 million for the year ended December 31, 2024, representing an increase of $36.3 million, or 22.5%, primarily due to a $640.8 million, or 14.0%, increase in the average balance of interest-earning assets to $5.21 billion for the year ended December 31, 2025 from $4.57 billion for the year ended December 31, 2024 and a decrease in the weighted average cost of interest-bearing liabilities of 41 basis points to 3.47% at December 31, 2025 from 3.88% at December 31, 2024. These increases were partially offset by an increase in the average balance of interest-bearing liabilities of $593.8 million, or 17.5%, to $3.98 billion for the year ended December 31, 2025 from $3.39 billion for the year ended December 31, 2024.

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Provision for Credit Losses. Based on management’s analysis of the adequacy of ACL, a provision of $4.7 million was recorded for the year ended December 31, 2025, of which $4.7 million related to the provision for credit losses on loans, compared to a provision of $12.1 million for the year ended December 31, 2024, which included a $14.9 million provision for credit losses on loans. The $7.5 million, or 61.6%, decrease in the provision was primarily due to the decrease of the provision for credit losses on loans, which decreased $10.3 million, or 68.7%, primarily driven by a $67.0 million portfolio of consumer loans transferred to loans held for sale and a $2.1 million reduction in net charge offs, partially offset by a decrease in the release of credit losses on unfunded commitments of $2.8 million, or 99.1%, resulting from an increase in the balance of unfunded commitments.

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Noninterest Income. Noninterest income increased $3.6 million, or 29.0%, to $16.2 million for the year ended December 31, 2025 from $12.6 million for the year ended December 31, 2024. The increase resulted primarily from a $2.7 million, or 35.0% increase in customer service fees as a result of higher cash management fees, a decrease in loss on sale of AFS securities, net resulting from a $1.9 million loss earn-back trade executed during the year ended December 31, 2024 and a $1.0 million, or 45.1% increase, in the increase in the cash surrender value of BOLI due to higher rates earned from new policies purchased in late 2024, partially offset by a $719,000, or 245.4%, decrease in the gain on sale of loans, net due to the transfer of consumer loans to held for sale resulting in a loss during the year ended December 31, 2025 and a decrease in other income of $839,000, or 49.6%, due to a one time card branding sign on bonus of $610,000 earned during the year ended December 31, 2025.

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The table below sets forth our noninterest income for the years ended December 31, 2025 and 2024:

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Noninterest Expense. Noninterest expense for the year ended December 31, 2025 was $137.9 million, representing an increase of $34.9 million, or 33.8%, from $103.0 million for the year ended December 31, 2024. Merger and acquisition expenses were $17.3 million for the year ended December 31, 2025, a 100.0% increase from the year ended December 31, 2024 related to the Provident Acquisition. Salaries and employee benefit expenses increased $10.2 million, or 15.2%, resulting primarily from an increase in employee compensation of $6.1 million, an increase in employee bonus expense of $2.3 million and an increase in medical and dental benefit expense of $1.5 million as a result of increased headcount and related incentives during the year ended December 31, 2025. Data processing expenses increased $2.5 million, or 27.6%, resulting primarily from a $1.2 million increase in IT equipment/hardware as a result of continued technological enhancements, system upgrades and related needs. Director and professional service fees increased $1.9 million, or 22.2%, primarily a result of $1.9 million in stock compensation expense related to the issuance of restricted stock awards under the 2025 Equity Plan. General and administrative expenses increased $1.1 million, or 17.3%, due to a $428,000 increase in core deposit intangible amortization from the Provident Acquisition, a $301,000 increase in credit card rewards expenses as a result of increased customer transactional volume and a $262,000 increase in shareholder relation expenses.

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The table below sets forth our noninterest expense for the years ended December 31, 2025 and 2024:

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The Company recorded merger and acquisition expenses of $17.3 million during the year ended December 31, 2025 related to the Provident Acquisition. These merger and acquisition expenses were included in merger and acquisition expenses on the consolidated statements of income and correspond to the line items that follow:

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Income Tax Expense. Income tax expense increased $4.4 million, or 26.5%, to $20.8 million for the year ended December 31, 2025 from $16.5 million for the year ended December 31, 2024. The effective tax rate and the operating effective tax rate were 29.3% and 25.5%, respectively, for the year ended December 31, 2025, compared to 28.1% and 25.3%, respectively, for the year ended December 31, 2024. The effective tax rate increased during the year ended December 31, 2025 primarily as a result of the BOLI surrender tax and modified endowment contract penalty of $2.3 million and non-deductible acquisition expenses and related compensation of $1.9 million.

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

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

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

Net Income. Net income was $42.1 million for the year ended December 31, 2024, compared to net income of $9.8 million for the year ended December 31, 2023, an increase of $32.3 million, or 329.0%. The increase was primarily due to an increase in interest and fees on loans of $58.6 million, or 27.6%, a decrease in marketing and charitable contributions expense of $19.6 million, or 85.0%, an increase in interest and dividends on cash equivalents and other of $9.7 million, or 186.9%, and a decrease in interest expense on borrowings of $9.7 million, or 68.7%; primarily offset by an increase in interest expense on deposits of $50.5 million, or 66.1%, and an increase in income tax expense of $14.5 million, or 715.7%.

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

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The material one-time pre-tax amounts during the year ended December 31, 2024 were:

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The material one-time pre-tax amounts for the year ended December 31, 2023 included:

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Interest and Dividend Income. Interest and dividend income increased $70.4 million, or 31.7%, to $292.5 million for the year ended December 31, 2024 from $222.2 million for the year ended December 31, 2023, primarily due to a $58.6 million, or 27.6%, increase in interest and fees on loans and a $9.7 million, or 186.9%, increase in interest and dividends cash equivalents and other. The increase in interest and fees on loans was primarily due to an increase of $625.7 million, or 18.1%, in the average balance of the loan portfolio to $4.09 billion for the year ended December 31, 2024 from $3.46 billion for the year ended December 31, 2023 and an increase of 49 basis points in the weighted average yield for the loan portfolio to 6.62% for the year ended December 31, 2024 from 6.13% for the year ended December 31, 2023, reflecting the growth of our commercial and consumer loan portfolios. The increase in interest and dividends cash equivalents and other was primarily due to an increase of $179.5 million, or 251.6%, in the average balance of short-term investments to $250.9 million for the year ended December 31, 2024 from $71.4 million for the year ended December 31, 2023, along with a 104 basis point increase in the average yield on short-term investments.

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Average interest-earning assets increased $787.1 million, or 20.8% to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023. The yield on interest-earning assets increased 53 basis points to 6.40% for the year ended December 31, 2024 from 5.87% for the year ended December 31, 2023.

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Interest Expense. Total interest expense increased $40.9 million, or 45.2%, to $131.3 million for the year ended December 31, 2024 from $90.4 million for the year ended December 31, 2023. Interest expense on deposits increased $50.5 million, or 66.1%, to $126.9 million for the year ended December 31, 2024 from $76.4 million for the year ended December 31, 2023, due to an increase in the average balance of interest-bearing deposits of $600.2 million, or 22.2%, to $3.30 billion for the year ended December 31, 2024 from $2.70 billion for the year ended December 31, 2023 and an increase in the weighted average rate on interest-bearing deposits of 102 basis points to 3.84% for the year ended December 31, 2024 from 2.83% for the year ended December 31, 2023.

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

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Net Interest Income. Net interest income was $161.2 million for the year ended December 31, 2024, compared to $131.7 million for the year ended December 31, 2023, representing an increase of $29.5 million, or 22.4%, primarily due to a $787.1 million, or 20.8%, increase in the average balance of interest-earning assets to $4.57 billion for the year ended December 31, 2024 from $3.78 billion for the year ended December 31, 2023 and an increase in the weighted average yield on interest-earning assets of 53 basis points to 6.40% at December 31, 2024 from 5.87% at December 31, 2023. These increases were offset partially by an increase in the weighted average rate on interest-bearing liabilities of 83 basis points to 3.88% for the year ended December 31, 2024 from 3.05% for the year ended December 31, 2023 and an increase in the average balance of interest-bearing liabilities of $426.2 million, or 14.4%, to $3.39 billion for the year ended December 31, 2024 from $2.96 billion for the year ended December 31, 2023.

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

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Noninterest Income. Noninterest income decreased $3.8 million, or 24.9%, to $11.5 million for the year ended December 31, 2024 from $15.4 million for the year ended December 31, 2023.

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

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

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Noninterest Expense. Noninterest expense for the year ended December 31, 2024 was $103.0 million, representing a decrease of $18.3 million, or 15.1%, from $121.3 million for the year ended December 31, 2023. Marketing and charitable contributions expense decreased $19.6 million, or 85.0%, as a result of the $19.1 million contribution to the Needham Bank Charitable Foundation during the year ended December 31, 2023; FDIC and state insurance assessments decreased $1.9 million, or 39.5%, as a result of high capital ratios during the year ended December 31, 2024 compared to the year ended December 31, 2023; salaries and employee benefit expenses decreased $1.1 million, or 1.6%, resulting primarily from a decrease in employee bonus expense of $5.0 million, a decrease in pension expense of $3.0 million as a result of the freezing of the pension plan and a $2.0 million decrease in LTIP expenses during the year ended December 31, 2024; partially offset by an increase in employee compensation of $4.7 million due to increased headcount, a $2.8 million increase in ESOP compensation expense as the ESOP was put into place upon the mutual-to-stock conversion on December 27, 2023, an $832,000 increase in medical and dental benefits and a $549,000 increase in 401(k) match expenses, both primarily a result of increased headcount. These decreases were offset partially by an increase in director and professional service fees of $2.4 million, or 38.0%, primarily a result of increased use of audit, legal and human resources services of $2.2 million during the year ended December 31, 2024 and data processing expenses of $1.5 million, or 20.3%, primarily a result of increased IT infrastructure, debit card servicing, management information systems, deposit servicing systems and electronic banking expenses of $550,000, $341,000, $234,000, $183,000 and $152,000 during the year ended December 31, 2024, respectively.

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

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Income Tax Expense. Income tax expense increased $14.5 million, or 715.7%, to $16.5 million for the year ended December 31, 2024 from $2.0 million for the year ended December 31, 2023. The effective tax rate was 28.1% and 17.0% for the years ended December 31, 2024 and 2023, respectively.

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The effective tax rate increased during 2024 primarily as a result of income tax expense of $18.5 million related to the adoption of ASU 2023-02, a smaller impact from tax credits and the $1.7 million income tax and penalty on the surrender of BOLI policies during the year ended December 31, 2024, offset partially by a reduction in 162(m) compensation during the year ended December 31, 2024.

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

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

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Management of Market Risk

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

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

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

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

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

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The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve.

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The table above indicates that at December 31, 2025, we would have experienced a 6.2% increase in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 4.5% decrease in net interest income in the event of an instantaneous 200 basis point decrease in market interest rates.

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Economic Value of Equity (“EVE”). We also compute amounts by which the net present value of our assets and liabilities, or EVE, would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value.

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The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, 300 and 400 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

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The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve.

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The table above indicates that at December 31, 2025, we would have experienced a 3.7% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.5% increase in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

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

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Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. We are also able to borrow from the FHLB and FRB.

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At December 31, 2025, we had outstanding borrowings of $196.2 million from the FHLB. At December 31, 2025, we had unused borrowing capacity of $913.7 million with the FHLB. At December 31, 2025 we also had $939.5 million available from the discount window under the BIC program at the FRB of Boston.

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Additionally, at December 31, 2025, we had $535.7 million of brokered deposits, and pursuant to our internal liquidity policy, which allows us to utilize brokered deposits up to 25.0% of our total assets, we had an additional capacity of up to approximately $1.22 billion of brokered deposits.

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

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Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. For additional information, see the consolidated statements of cash flows for the years ended December 31, 2025 and 2024 included as part of the consolidated financial statements appearing elsewhere in this Annual Report on Form 10-K.

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

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At December 31, 2025, the Company and the Bank exceed all of their regulatory capital requirements, and were categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change our category. See Note 12 of the notes to consolidated financial statements.

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Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. Such commitments are subject to the same credit policies and approval process on loans we originate. At December 31, 2025, the unfunded portion of construction loans, home equity lines of credit, commercial lines of credit and other lines of credit, along with letters of credit, totaled $1.2 million. Our ACL on these unfunded commitments amounted to $3.3 million. We anticipate that we will have sufficient funds available to meet our current lending commitments. Time deposits that are scheduled to mature in less than one year from December 31, 2025 totaled $2.5 billion. Management expects that a substantial portion of these time deposits will be retained. However, if a substantial portion of these time deposits are not retained, we may utilize advances from the FHLB or the FRB, brokered deposits or raise interest rates on deposits to attract new accounts, which may result in higher levels of interest expense.

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

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Recent Accounting Pronouncements

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

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Impact of Inflation and Changing Prices

The consolidated financial statements and related data presented in this Annual Report on Form 10-K have been prepared in accordance with U.S. GAAP, which requires the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

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