Orange County Bancorp, Inc.: Form 10-Q for the period ended Sep 30, 2025

The following discussion and analysis of our financial condition and results of operations at September 30, 2025 and December 31, 2024 and for the three and nine months ended September 30, 2025 and 2024 should be read in conjunction with our audited consolidated financial statements and the accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2024. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. 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 quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.

These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

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:

• inflation, tariffs and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;
• general economic conditions, either nationally or in our market areas, that are worse than expected;
• 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;
• our ability to access cost-effective funding;
• events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock;
• fluctuations in real estate values and both residential and commercial real estate market conditions;
• demand for loans and deposits in our market area;
• risks associated with loan participations;
• our ability to implement and change our business strategies;
• competition among depository and other financial institutions;
• the amounts of non-performing loans and loans that are charged-off;
• adverse changes in the securities markets;
• fluctuations in the stock market may have a significant adverse effect on transaction fees, client activity and client investment portfolio gains and losses related to our trust and wealth management business;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
• our ability to enter new markets successfully and capitalize on growth opportunities;
• our ability to capitalize on strategic opportunities;
• our ability to successfully introduce new products and services;
• our ability to prevent or mitigate fraudulent activity;
• our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
• our ability to retain our existing customers;
• 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;
• changes in our organization, compensation and benefit plans;
• changes in the quality or composition of our loan or investment portfolios;
• a breach in security of our information systems, including the occurrence of a cyber incident or a deficiency in cyber security;
• political instability or civil unrest;
• acts of war or terrorism;
• competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers, including retail businesses and technology companies;
• the failure to attract and retain skilled people;
• any future FDIC insurance premium increases, or special assessment may adversely affect our earnings;
• the fiscal and monetary policies of the federal government and its agencies, including the effect of the recent federal government shutdown; and
• other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Quarterly Report on Form 10-Q.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this Quarterly Report on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview

We are a bank holding company headquartered in Middletown, New York and registered under the Bank Holding Company Act. Through our wholly owned subsidiaries, Orange Bank & Trust Company and Orange Investment Advisors, formally known as Hudson Valley Investment Advisors, Inc., we offer full-service commercial and consumer banking products and services and trust and wealth management services to small businesses, middle-market enterprises, local municipal governments and affluent individuals in the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey. By combining the high-touch service and relationship-based focus of a community bank with the extensive suite of financial products and services offered by our larger competitors, we believe we can continue to capitalize on the growth opportunities available in our market areas. We also offer a variety of deposit accounts to businesses and consumers, including checking accounts and a full line of municipal banking accounts through our business banking platform. These activities, together with our 16 offices and one loan production office, continue to produce a stable source of low- cost core deposits and a diverse loan portfolio with attractive risk-adjusted yields. We also offer private banking services through Orange Bank & Trust Private Banking, a division of Orange Bank & Trust Company, and provide trust and wealth management services through Orange Bank & Trust Company’s trust services department and OIA, which combined had $1.9 billion in assets under management at September 30, 2025. As of September 30, 2025, our assets, loans, deposits and stockholders’ equity totaled $2.6 billion, $1.9 billion, $2.3 billion and $270.1 million, respectively.

At September 30, 2025, we operate from our main office and 15 branch offices. We own our main office in Middletown, New York, and three branch offices which are located in Chester, Newburgh and in Montgomery, New York. We lease twelve branch offices located in Middletown, Goshen, Cortlandt Manor, White Plains, Mamaroneck, New City, Mt. Pleasant, Mount Vernon, Nanuet, Yonkers, and two Bronx locations, all in New York. The branches are leased under agreements that may be renewed for various periods. In addition, OIA operates from leased offices located in Goshen, New York. At September 30, 2025 and December 31, 2024, the total net book value of our leasehold improvements, furniture, fixtures and equipment was approximately $15.2 million and $15.8 million, respectively.

Key Factors Affecting Our Business

Net Interest Income. Net interest income is the most significant contributor to our net income and is the difference between the interest and fees earned on interest-earning assets and the interest expense incurred in connection with interest-bearing liabilities. Net interest income is primarily a function of the average balances and yields/rates of these interest-earning assets and interest-bearing liabilities. These factors are influenced by internal considerations such as product mix and risk appetite as well as external influences such as economic conditions, competition for loans and deposits and market interest rates.

The cost of our deposits and short-term borrowings is primarily based on short-term interest rates, which are largely driven by the Board of Governors of the Federal Reserve System’s (the “FRB”) actions and market competition. The yields generated by our loans and securities are typically affected by short-term and long-term interest rates, which are driven by market competition and market rates often impacted by the FRB’s actions. The level of net interest income is influenced by movements in such interest rates and the pace at which such movements occur.

Considering the impact of the FRB’s rate reduction during the second half of 2025 and 2025 economic conditions, it is possible that interest rates may be reduced further this year and during 2026. Although our asset sensitivity remains relatively neutral, this movement could have a beneficial impact on our net interest income.

Noninterest Income. Noninterest income is also a contributor to our net income. Noninterest income consists primarily of our investment advisory income, trust income generated by OIA and our trust department, as well as income generated by our BOLI investment earnings. In addition, noninterest income is also impacted by net gains (losses) on the sale of investment securities, service charges on deposit accounts, and other fee income consisting primarily of debit card fee income, checkbook fees and rebates and safe deposit box rental income.

Noninterest Expense. Noninterest expense includes salaries, employee benefits, occupancy, professional fees, directors’ fees and expenses, computer software expense, federal deposit insurance assessment, advertising expenses, advisor expenses related to trust income and other expenses. In evaluating our level of noninterest expense, we closely monitor our efficiency ratio. The efficiency ratio is calculated by dividing noninterest expense to net interest income plus noninterest income. We continue to seek to identify ways to streamline our business and operate more efficiently.

Credit Quality. We have well established loan policies and underwriting practices that have resulted in relatively low levels of loan charge-offs and nonperforming assets in recent periods. We strive to originate quality loans that will maintain the credit quality of our loan portfolio. However, credit trends in the markets in which we operate are largely impacted by economic conditions beyond our control and can adversely impact our financial condition.

Competition. The industry and businesses in which we operate are highly competitive. We may see increased competition in different areas including interest rates, underwriting standards and product offerings and structure. While we seek to maintain an appropriate return on our investments, we anticipate that we will experience continued pressure on our net interest margins as we operate in this competitive environment.

Economic Conditions. Our business and financial performance are affected by economic conditions generally in the United States and more directly in the market of the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey where we primarily operate. The significant economic factors that are most relevant to our business and our financial performance include, but are not limited to, real estate values, interest rates and unemployment rates.

Regulatory Trends. We operate in a highly regulated environment and nearly all of our operations are subject to extensive regulation and supervision. Bank or securities regulators, Congress, the State of New York, the FRB and the New York State Department of Financial Services (the “NYSDFS”) may revise the laws and regulations applicable to us, may impose new laws and regulations, increase the level of scrutiny of our business in the supervisory process, and pursue additional enforcement actions against financial institutions. Future legislative and regulatory changes such as these may increase our costs and have an adverse effect on our business, financial condition and results of operations. The legislative and regulatory trends that will affect us in the future are impossible to predict with any certainty.

Critical Accounting Estimates

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. These critical estimates, policies and their application are periodically reviewed with the Audit Committee and the board of directors. Management believes that the most critical accounting estimates, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for Credit Losses. Management believes that the determination of the allowance for credit losses involves a high degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact the results of operations for Orange County Bancorp. The methodology, assumptions, and governance of this CECL model have been codified in a policy document that was most recently reviewed and approved by the Company’s Audit & Risk Committee during the fourth quarter of 2024. While there were no fundamental changes to the CECL model during the quarter, management evaluated certain probability of default assumptions as well as the loss driver analysis. This evaluation resulted in adjustment of certain assumptions but were not considered significant changes to the model. Accordingly, management believes there were no significant changes to the critical accounting estimates during the three and nine months ended September 30, 2025, and as disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2025 A summary of our accounting policies, including the Allowance for Credit Losses, is included in the Company’s Annual Report on Form 10-K.

Discussion and Analysis of Financial Condition

Summary Financial Condition. The following table sets forth a summary of the material categories of our balance sheet at the dates indicated:

(Dollars in thousands)

Assets. Our total assets were $2.6 billion at September 30, 2025, an increase of $126.5 million, or 5.0%, from December 31, 2024. The increase was primarily driven by increases of $116.7 million in loans, net and $39.6 million in cash and due from banks, while investment securities, available for sale, decreased by $17.1 million during the nine months ended September 30, 2025.

Cash and due from banks. Cash and due from banks increased $39.6 million, or 26.3%, to $189.9 million at September 30, 2025, from $150.3 million at December 31, 2024. The increase was mainly the result of the completion of a $46.0 million common stock follow-on offering during the second quarter combined with management’s focus on using deposit growth during the nine months ended September 30, 2025 to maintain a strong liquidity position while paying down borrowings.

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

(Dollars in thousands)

Net loans increased $116.7 million, or 6.5%, and reached $1.9 billion at September 30, 2025 as compared to $1.8 billion at December 31, 2024. The growth was primarily due to an increase of $90.5 million related to commercial real estate loans as well as a $34.1 million increase in commercial real estate construction loans and an increase of $2.2 million in commercial and industrial loans as well as an increase of $2.7 million in home equity loans offset by decreases in the residential real estate and consumer loan categories. Commercial real estate loans increased by $90.5 million, or 6.6%, to $1.5 billion at September 30, 2025. Construction loans increased $34.1 million, or 42.0%, to $115.0 million at September 30, 2025 from $81.0 million at December 31, 2024. Commercial and industrial loans experienced an increase of $2.2 million, or 0.9%, to $244.5 million at September 30, 2025 from $242.2 million at December 31, 2024. Consumer loans decreased $2.9 million, or 7.7%, to $35.1 million at September 30, 2025 from $38.0 million at December 31, 2024. Residential real estate loans decreased $6.6 million, or 8.8%, to $68.4 million at September 30, 2025 from $75.0 million at December 31, 2024. The overall diversification within the commercial real estate portfolio continues to provide stability while we remained focused on loan originations to new and existing customers during the nine months ended September 30, 2025 as well as our continued commitment to geographic expansion in our market area.

Non-performing Assets

Management reviews a loan for individual evaluation when it is non-performing or when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be non-performing, the measurement of the loan in the allowance for credit losses is based on the fair value of the collateral for all collateral-dependent loans. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for credit losses, or, if the existing allowance is inadequate, charged to expense of the current period. 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. Management will consider a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount due, when it is deemed appropriate based on individual borrower conditions. Interest income on restructured loans 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.

The following table sets forth information regarding our non-performing assets. Non-performing loans aggregated approximately $12.2 million at September 30, 2025 as compared to $6.3 million at December 31, 2024.

(Dollars in thousands)

Non-performing loans at September 30, 2025 totaled $12.2 million and consisted of $8.4 million related to commercial real estate loans, $2.9 million associated with commercial and industrial loans, $2 thousand of residential real estate loans, and $828 thousand of home equity loans. Although there were increases in other loan segments, the level of non-performing loans was still mainly related to one non-accrual commercial real estate office space loan participation which was classified as non-accrual during the second quarter of 2024. During 2024, this loan was written down by approximately $8.7 million from its principal balance of $14.7 million and remains at $6.0 million as of September 30, 2025. The other loans designated as non-accrual were based upon individual analysis and payment performance. We had no other real estate owned at September 30, 2025 and December 31, 2024.

Non-performing assets increased $5.9 million, or 93.1%, to $12.2 million, or 0.46% of total assets, at September 30, 2025 from $6.3 million, or 0.25% of total assets, at December 31, 2024 due to the increase in non-performing loans. Although reflecting an increase, the overall level of non-performing assets remains relatively stable at September 30, 2025. Management continues to focus on credit quality and attention to assets with potential concerns.

From time to time, as part of our loss mitigation strategy, we may renegotiate loan terms based on the economic and legal reasons related to the borrower’s financial difficulties. There were no loans modified due to financial difficulties during the three months or nine months ended September 30, 2025.

Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. 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 we 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. We designate an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

The following table summarizes classified assets of all portfolio types at the dates indicated:

(Dollars in thousands)

On the basis of management’s review of our assets, we have classified $69.8 million of our assets at September 30, 2025 as substandard compared to $44.0 million at December 31, 2024, with the increase due to a combination of risk ratings resulting from certain trends, including delinquencies within the loan portfolio, and the sale or chargeoff of certain loans. There were no doubtful assets as of September 30, 2025 and December 31, 2024. We designated $36.0 million of our assets at September 30, 2025 as special mention compared to $20.9 million designated as special mention at December 31, 2024.

Allowance for Credit Losses

On January 1, 2023, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The allowance for credit losses is a valuation allowance for management’s estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and judgement and is reviewed on a quarterly basis. When management is reasonably certain that a loan balance is not fully collectable, an analysis is completed and a specific reserve may be established or a full or partial charge off could be recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the loans, adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan that, in management’s judgment, should be charged off. Although management uses the best information available, the level of the allowance for credit losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for credit losses. Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Bank’s loans are secured by real estate in the State of New York. Accordingly, the collectability of a substantial portion of the carrying value of the Bank’s loan portfolio is susceptible to changes in local market conditions and any adverse economic conditions. Future adjustments to the provision for credit losses and allowance for credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.

As presented below, the allowance for credit losses decreased by $1.7 million, or 5.6%, to $29.3 million, or 1.51% of total loans at September 30, 2025, from $31.0 million, or 1.73% of total loans at September 30, 2024. The decrease in the allowance was primarily due to charge-offs during 2025. The nine months ended September 30, 2025 also included net charge-offs of approximately $3.0 million.

(Dollars in thousands)

For the nine months ended September 30, 2025, the commercial and industrial segment of the loan portfolio had a net charge-off amount of $3.1 million, or a net charge-off ratio of 1.28% due mainly to a $2.1 million charge-off recognized during third quarter 2025 related to a participation loan. For the nine months ended September 30, 2025 and 2024, respectively, no other category of loans had a net charge-off ratio which exceeded 0.01% either individually, or in the aggregate.

Investment Securities

The following table sets forth the estimated fair value of our available-for-sale securities portfolio at the dates indicated.

(Dollars in thousands)

Available for sale securities decreased $17.1 million, or 3.9%, to $426.6 million at September 30, 2025, due primarily to the sale of approximately $15 million of investment securities combined with limited purchases as well as continued declines for all investment categories due to normal amortization and cash flow during the nine month period ended September 30, 2025.

We did not have held-to-maturity securities at September 30, 2025 and December 31, 2024.

Deposits

The following table sets forth our total deposit account balances, by account type, at the dates indicated:

(Dollars in thousands)

Total deposits increased $125.5 million, or 5.8%, to $2.3 billion at September 30, 2025 from $2.2 billion at December 31, 2024 driven by continued deposit growth focused on maintaining strong liquidity and commercial transaction accounts during the first nine months of 2025. Non-interest-bearing demand deposits increased $60.8 million due to normal business activity and continued focus on transactional accounts during the first nine months of 2025. Interest bearing demand deposits experienced a $112.1 million, or 33.9%, increase while money market deposits decreased $2.5 million, and savings deposits increased by $61.8 million during the first nine months of 2025 primarily related to our continued strategic focus on business account activity. At September 30, 2025, our core deposits (which includes all deposits except for certificates of deposit) totaled $2.2 billion, or 95.0% of our total deposits. Certificates of deposit decreased by $106.7 million, or 48.3%, mainly from non-renewals of brokered deposits during the nine months ended September 30, 2025. We held approximately $80.0 million of brokered deposits (excluding reciprocal deposits obtained through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) networks) at September 30, 2025 as compared to $180.0 million at December 31, 2024. This decrease represents a strategic initiative to reduce short term brokered deposits during the period as a result of increased core deposits and allow for replacement of maturing brokered deposits with transactional customer deposits and lower interest expense. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $5.2 million and $87.4 million, respectively, at September 30, 2025 and the CDARS and ICS networks totaled $6.9 million and $92.5 million, respectively, at December 31, 2024. Uninsured deposits, net of fully collateralized municipal relationships, remained stable and represent approximately 45% of total deposits as of September 30, 2025 and 39% of total deposits as of December 31, 2024.

Borrowings

Our borrowings consist of both short-term and long-term borrowings and provide us with one of our sources of funding. Maintaining available borrowing capacity provides us with a contingent source of liquidity.

Total borrowings from the Federal Home Loan Bank of New York were $32.5 million at September 30, 2025 and $123.5 million at December 31, 2024 as we made the strategic decision to pay down Federal Home Loan Bank advances, short term, by approximately $91.0 million. This decrease represents the continued focus by management to reduce borrowings and the related interest expense by using lower-cost deposits for funding. We have the unused capacity to borrow an additional $557.0 million from the Federal Home Loan Bank of New York as of September 30, 2025.

In September 2020, we issued $20.0 million in aggregate principal amount of fixed to floating subordinated notes (the “2020 Notes”) to certain institutional investors. The 2020 Notes are non-callable for five years, have a stated maturity of September 30, 2030, and bear interest at a fixed rate of 4.25% per year until September 30, 2025. From September 30, 2025 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month SOFR plus 413 basis points, payable quarterly in arrears. These notes were redeemed during September 2025 with a portion of the proceeds from the 2025 Notes as described below.

In September 2025, we issued $25.0 million in aggregate principal amount of fixed to floating subordinated notes (the “2025 Notes”) to certain institutional investors. The 2025 Notes are non-callable for five years, have a stated maturity of September 30, 2035, and bear interest at a fixed rate of 6.50% per year until September 30, 2030. From September 30, 2030 to the maturity date or early redemption date, the interest rate will reset quarterly to a level equal to the then current three-month SOFR plus 320.5 basis points, payable quarterly in arrears.

Stockholders’ Equity

Stockholders’ equity increased $84.6 million, or 45.6%, to $270.1 million at September 30, 2025 from $185.5 million at December 31, 2024. The increase was due to the combination of the completion of a follow-on common stock offering during the second quarter of 2025 with net proceeds of $43.6 million coupled with $29.2 million in net income and a decrease in unrealized losses of approximately $15.6 million on the market value of investment securities within the Company’s equity as accumulated other comprehensive income (loss) (“AOCI”), net of taxes during the first nine months of 2025 offset by dividends of $4.7 million during the period.

Average Balance Sheets and Related Yields and Rates

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three and nine month periods ended September 30, 2025 and 2024. No tax equivalent yield adjustments have been made, as the effects would be immaterial. The average balances are daily averages for loans, as presented. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. Average deferred loan fees totaled $4.9 million and $4.5 million for the three months ended September 30, 2025 and 2024, respectively. Average deferred loan fees totaled $4.9 million and $4.7 million for the nine months ended September 30, 2025 and 2024, respectively.

(Dollars in thousands)

42

(1) Annualized.

(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

(Dollars in thousands)

(1) Annualized.

(2) Net interest rate spread represents the difference between the weighted average yield on interest-earning assets and the weighted average rate of interest-bearing liabilities.

(3) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(4) Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.

(Dollars in thousands)

(Dollars in thousands)

Results of Operations for the Three and Nine Months Ended September 30, 2025 and 2024

Summary Income Statements. The following table sets forth the income summary for the periods indicated:

(Dollars in thousands)

(Dollars in thousands)

General. Net income increased $6.8 million, or 211.5%, to $10.0 million for the three months ended September 30, 2025 from $3.2 million for the three months ended September 30, 2024. The increase was driven primarily by an increase of $4.0 million related to net interest income growth, an increase of $2.6 million in noninterest income, and a reduction in provision for credit losses of $3.3 million, partially offset by an increase in noninterest expense of $893 thousand during the third quarter of 2025 as compared to the same quarter in 2024. Net income for the nine months ended September 30, 2025 was $29.2 million, as compared to $20.7 million for the same period in 2024. The overall increase was driven by $7.0 million of net interest income growth combined with increased noninterest income of $6.8 million and a reduction in provision for net credit losses of $1.6 million partially offset by an increase in noninterest expense of $3.3 million during the first nine months of 2025 as compared to the same prior year period. The increase in non-interest income includes the recognition of gain associated with the sale of a branch location coupled with a Bank Owned Life Insurance gain related to policy proceeds from a death benefit.

Interest Income. Interest income increased $3.1 million, or 9.8%, to $34.5 million for the three months ended September 30, 2025 from $31.4 million for the three months ended September 30, 2024. This increase was driven by a $116.1 million increase in the balance of average interest-earning assets between the two periods. Within the average balance of interest-earning assets, the average balance of loans receivable (excluding PPP loans) grew $170.9 million, or 9.7%, between the three months ended September 30, 2025 and September 30, 2024. During the current period, the average yield of interest-earning assets increased by 25 basis points from 5.21% for the three months ended September 30, 2024 to 5.46% for the three months ended September 30, 2025 as a result of increased yields and fees associated with loans originated in 2025.

Interest income increased $4.6 million, or 4.9%, for the nine months ended September 30, 2025 reaching $99.7 million from $95.0 million for the nine months ended September 30, 2024. This increase was driven by a $95.9 million increase in the balance of average interest-earning assets between the two periods. Within the average balance of interest-earning assets, the average balance of loans receivable (excluding PPP loans) grew $138.3 million, or 7.9%, between the nine months ended September 30, 2025 and September 30, 2024. During the current period, the average yield of interest-earning assets increased by seven basis points from 5.32% for the nine months ended September 30, 2024 to 5.39% for the nine months ended September 30, 2025 as a result of increased yields and fees associated with loans originated in 2025.

Interest income on loans, net of PPP loans, increased by $3.5 million, or 13.1%, to $29.8 million during the three months ended September 30, 2025 from $26.4 million during the three months ended September 30, 2024. The increase in interest income on loans was primarily due to the increase in the average balance of loans (net of PPP loans) combined with higher yields during the current period. The average balance of these loans increased by $170.9 million, or 9.7%, to $1.9 billion for the three months ended September 30, 2025 compared to the three months ended September 30, 2024. The increase in the average balance of loans was due to growth in commercial real estate loan balances, including commercial real estate construction, as well as growth in our commercial and industrial loan portfolio. The average yield on loans, excluding PPP loans, increased by 19 basis points to 6.13% for the three months ended September 30, 2025 from 5.94% for the three months ended September 30, 2024 as a result of focused loan pricing during 2025.

For the nine months ended September 30, 2025, interest income on loans, net of PPP loans, increased by $6.5 million, or 8.2%, reaching $85.3 million as compared to $78.8 million for the nine months ended September 30, 2024. The increase in interest income on loans represents the impact of growth in average loan balances (net of PPP loans) of $138.3 million between the nine months ended September 30, 2025 and September 30, 2024. The increase in average loans outstanding was due to increases in commercial real estate balances, commercial real estate construction loans, and in the commercial and industrial segment of the loan portfolio. This increase in production was combined with an increase in average yield on loans, excluding PPP loans, for the nine month periods from 6.02% in 2024 to 6.06% in 2025. The increase in the average yield on loans was the result of focused loan pricing during 2025.

Interest income on securities decreased by $213 thousand to $3.0 million during the three months ended September 30, 2025 from $3.3 million during the three months ended September 30, 2024. The decrease in interest income on securities was driven primarily by a decrease in the average balance of securities outstanding during the current period due to certain maturities and securities sales. The average balance of securities decreased by $47.5 million, or 10.2%, to $415.9 million for the three months ended September 30, 2025 compared to $463.4 million for the three months ended September 30, 2024. The average yield on investment securities increased by twelve basis points overall from 2.78% for the three months ended September 30, 2024 to 2.90% for the three months ended September 30, 2025. The increase in the average yield reflected the continued maturity of lower yielding investments as well as the impact of the sale of $15.0 million of lower yielding securities in an investment portfolio repositioning which was executed at the end of the second quarter in 2025.

For the nine months ended September 30, 2025, interest income on securities decreased by $804 thousand, or 8.0%, to $9.2 million during the current period from $10.0 million during the nine months ended September 30, 2024. The decrease in interest income on securities was due to a decrease in the average balance of securities during the current period. The average balance of securities decreased by $40.7 million, or 8.7%, to $430.0 million for the nine months ended September 30, 2025 compared to $470.7 million for the nine months ended September 30, 2024 due to certain maturities and securities sales. The average yield on investment securities increased by three basis points overall from 2.84% for the nine months ended September 30, 2024 to 2.87% for the nine months ended September 30, 2025. The increase in the average yield on securities was related to the maturity of lower yielding securities during the first nine months of 2025 combined with the impact of the sale of $15.0 million of lower yielding securities in an investment portfolio repositioning which was executed at the end of the second quarter in 2025.

Interest Expense. Interest expense decreased $887 thousand, or 10.5%, to $7.6 million for the three months ended September 30, 2025 from $8.5 million for the three months ended September 30, 2024. The decreased interest expense was primarily the result of the lower interest rate environment and the effect of increased core deposits on overall interest costs. The average rate paid on interest-bearing liablities decreased twenty-six basis points to 1.86% during the three months ended September 30, 2025 as compared to 2.12% for the three month period ended September 30, 2024. The average balance of interest-bearing liabilities increased by $34.5 million, or 2.2%, exceeding $1.6 billion for the three months ended September 30, 2025 as compared to the three months ended September 30, 2024.

Interest expense decreased $2.4 million, or 9.1%, to $23.9 million for the nine months ended September 30, 2025 from $26.3 million for the nine months ended September 30, 2024. The decrease in interest expense reflects the lower interest rate environment combined with the continuing effect of increased core deposits on overall interest costs during the period. The average rate paid on interest-bearing liabilities decreased 24 basis points to 1.95% during the nine months ended September 30, 2025 as compared to 2.19% for the nine month period ended September 30, 2024. The average balance of interest-bearing liabilities increased by $47.3 million, or 3.0%, to $1.7 billion for the nine months ended September 30, 2025 as compared to $1.6 billion for the nine months ended September 30, 2024.

Interest expense on interest-bearing deposits decreased by $297 thousand to $6.4 million for the three months ended September 30, 2025 from $6.7 million for the three months ended September 30, 2024. The decrease in interest expense on interest-bearing deposits was due mainly to the increase in the average balance of interest bearing deposits combined with an average lower rate during the current period. The average balance of interest-bearing deposits increased by $105.6 million, or 7.3%, to $1.6 billion for the three months ended September 30, 2025 as compared to $1.4 billion for the three months ended September 30, 2024 as a result of the increases in the average balances of all deposit categories except certificates of deposit, which included brokered deposits at higher rates. The average cost of interest-bearing deposits decreased twenty basis points to 1.63% during the three months ended September 30, 2025 as compared to 1.83% for the three months ended September 30, 2024 as a result of the lower interest rate environment.

During the nine months ended September 30, 2025, interest expense on interest-bearing deposits increased by $36 thousand, or 0.2%, to just over $20.9 million for the nine months ended September 30, 2025 as compared to the nine months ended September 30, 2024. The slight increase in interest expense on interest-bearing deposits for the nine month period ended September 30, 2025 as compared to the same prior year period represents the effect of higher average balances of interest bearing deposits offset by lower rates paid on those deposits. The average balance of interest-bearing deposits increased by $112.8 million, or 7.8%, to $1.6 billion for the nine months ended September 30, 2025 as compared to $1.5 billion for the nine months ended September 30, 2024 primarily as a result of the increases in the average balances of all deposit categories. The average cost of interest-bearing deposits decreased 12 basis points to 1.79% for the nine months ended September 30, 2025 as compared to 1.91% for the nine months ended September 30, 2024 as a result of the lower interest rate environment.

We also recorded interest expense of $617 thousand during the three months ended September 30, 2025 related to subordinated debt which was redeemed during the period as compared to $230 thousand in interest expense for the three months ended September 30, 2024 related to the issuance in September 2020 of $20.0 million in outstanding subordinated notes, which carries an interest rate of 4.25%. In addition, we expensed $1.1 million of interest expense for the nine months ended September 30, 2025 as compared to $691 thousand for the nine months ended September 30, 2024. The costs recorded during the 2025 period included interest costs associated with the debt service required as part of the 2020 subordinated notes as well as costs recorded as part of the redemption of the notes during third quarter 2025 which were replaced with the newly issued 2025 suborindated notes.

The interest expense related to borrowings in the third quarter of 2025 decreased to $616 thousand at an average cost of 4.44% as compared to interest expense of $1.6 million at an average cost of 4.97% for the same period in 2024. The third quarter 2025 average FHLB and other borrowings decreased to $55.1 million compared to $127.2 million of average FHLB and other borrowings in the same quarter of 2024. The decrease in average borrowings was the direct result of paydowns driven by increased deposits during the current period. Management was able to replace higher cost FHLB borrowings with lower cost deposits and reduce interest expense during the current period. Although borrowings remain a potential source of strategic funding for the Company, the reduction in borrowings during the quarter reflects the ability of the Company to increase deposits and strategically reduce related interest costs.

The interest expense related to the FHLB and other borrowings for the first nine months of 2025 decreased to $1.9 million as compared to $4.7 million for the first nine months of 2024. For the nine months ended September 30, 2025, average FHLB and other borrowings decreased to $58.0 million with an average cost of 4.43% compared to $123.9 million of average FHLB and other borrowings with an average cost of 5.09% for the same period in 2024. The decrease in average borrowings was the direct result of paydowns driven by increased deposits during the current period.

Net Interest Income. Net interest income increased $4.0 million, or 17.3%, to $27.0 million for the three months ended September 30, 2025 from $23.0 million for the three months ended September 30, 2024 due to the increase in income from average interest earning assets and the reduction of interest costs associated with interest bearing liabilities. Net interest rate spread increased by 51 basis points to 3.61% for the three months ended September 30, 2025 from 3.10% for the three months ended September 30, 2024, reflecting a 25 basis points increase in the average yield on interest-earning assets combined with a 26 basis points decrease in the average rate paid on interest-bearing liabilities. The net interest margin rose by forty-five basis points to 4.26% for the three months ended September 30, 2025 from 3.81% for the three months ended September 30, 2024 due to the lower interest rate environment for short term funding, the impact of managed funding and deposit cost, and increased yields on the lending and investment portfolios during the current period.

For the nine months ended September 30, 2025, net interest income increased $7.0 million, or 10.2%, to $75.7 million from $68.7 million for the nine months ended September 30, 2024 due to an increase in net interest margin combined with increased average interest earning assets for the current period. The net interest margin increased 24 basis points to 4.09% for the nine months ended September 30, 2025 from 3.85% for the nine months ended September 30, 2024. Net interest rate spread grew by 31 basis points to 3.44% for the nine months ended September 30, 2025 from 3.13% for the nine months ended September 30, 2024.

Provision for Credit Losses. The Company recognized a provision for credit losses of $3.9 million for the three months ended September 30, 2025, compared to $7.2 million for the three months ended September 30, 2024. The decreased provision for the three months ended September 30, 2025 as compared to the same period in 2024 reflected lower levels of specific reserves associated with certain loans during the third quarter of 2025 as compared to the third quarter of 2024 offset by loan portfolio growth during the current period. The allowance for credit losses to total loans was 1.51% as of September 30, 2025, an increase of seven basis points, or 4.9%, versus 1.44% as of December 31, 2024.

For the nine months ended September 30, 2025, the provision for credit losses totaled $6.2 million as compared to $7.8 million for the nine months ended September 30, 2024. The decreased provision for the nine months ended September 30, 2025 represented the effect of lower levels of specific reserves associated with certain loans during the period as compared to the nine months ended September 30, 2024 partially offset by loan portfolio growth during 2025. Additionally, the provision for the nine months ended September 30, 2024 included the recognition of a $1.9 million recovery associated with the 2023 write off of the Signature Bank subordinated debt in the amount of $5.0 million as well as the additional provision related to a nonaccrual commercial real estate loan participation identified during the second quarter of 2024.

Noninterest Income. Noninterest income information is as follows:

(Dollars in thousands)

Noninterest income increased by $2.6 million, or 62.6%, reaching $6.8 million for the three months ended September 30, 2025 as compared to $4.2 million for the three months ended September 30, 2024. Our Wealth Management division revenues, which include our Trust and Asset Management businesses also experienced growth and represented a 13.3% increase quarter-over-quarter, to $3.5 million for the third quarter of 2025 as compared to $3.1 million for the third quarter of 2024 as a result of continued growth in asset values during the current period. During the same period, assets-under-management increased to $1.9 billion at September 30, 2025 from $1.8 billion at September 30, 2024. Additionally, the third quarter of 2025 included approximately $1.2 million of income associated with BOLI payments related to death benefit proceeds and the recognition of approximately $932 thousand associated with insurance proceeds from a fraud claim filed with the insurance carrier.

For the nine months ended September 30, 2025, noninterest income increased by $6.8 million, or 58.2%, to $18.5 million as compared to $11.7 million for the nine months ended September 30, 2024. Our Wealth Management division revenues increased and represented a 15.7% increase reaching $10.4 million for the nine month period ended September 30, 2025 from $9.0 million for the nine month period ended September 30, 2024 as a result of continued growth in asset values and related fees during the current period. The nine months ended September 30, 2025 also included the impact associated with the $1.2 million gain on the branch location sale, the BOLI proceeds, and insurance claim proceeds, offset by a net loss of $568 thousand recorded on the sale of certain securities to reposition a portion of the investment portfolio and replace with higher yielding securities.

Noninterest Expense. Noninterest expense information is as follows:

(Dollars in thousands)

Non-interest expense was $16.8 million for the third quarter of 2025, reflecting an increase of approximately $893 thousand, or 5.6%, as compared to $16.0 million for the same period in 2024. The increase in non-interest expense for the current three-month period was due primarily to continued investment in overall Company growth, including salaries and benefits, computer software expense, FDIC insurance costs, and advertising expense. Our efficiency ratio was 49.9% for the three months ended September 30, 2025, from 58.8% for the same period in 2024.

Non-interest expense was $50.1 million for the first nine months of 2025, reflecting an increase of approximately $3.3 million, or 7.2%, as compared to $46.7 million for the same period in 2024. The increase in non-interest expense for the current nine month period was also due to continued investment in overall Company growth, primarily, increases in salaries and benefits, computer software expense, occupancy expense, and advertising expenses. For the nine months ended September 30, 2025, our efficiency ratio was 53.2% as compared to 58.2% for the same period in 2024.

Provision for Income Tax. Our provision for income taxes for the three months ended September 30, 2025 was $3.0 million, compared to $788 thousand for the same period in 2024. The increase was directly related to provisions associated with higher levels of pre-tax income as well as the effect of certain tax adjustments for the quarter. Our effective tax rate for the three-month period ended September 30, 2025 was 23.0%, as compared to 19.7% for the same period in 2024. For the nine months ended September 30, 2025, our provision for income taxes was $8.7 million, as compared to $5.1 million for the nine months ended September 30, 2024. The increase for the current period was due to the increase in income before income taxes during the current nine month period. Our effective tax rate for the nine-month period ended September 30, 2025 was 23.0%, as compared to 19.9% for the same period in 2024. The growth of the effective tax rates for the 2025 third quarter and nine month periods was due to a reclassification of state tax expense and the increase in proportion of pre-tax income compared with non-taxable revenue (tax-exempt interest income and earnings on bank owned life insurance) during 2025 as compared to 2024.

Financial Position and Results of Operations of our Wealth Management Business Segment

We conduct our business through two business segments: (1) our banking business segment, which involves the delivery of loan and deposit products to our customers through Orange Bank & Trust Company; and (2) our wealth management business segment, which includes asset management and trust services to individuals and institutions through OIA and Orange Bank & Trust Company that provides trust and investment management fee income.

The following table presents the statements of income and total assets for our reportable business segments for the periods indicated:

(Dollars in thousands)

(Dollars in thousands)

The market value of assets under management and/or administration at September 30, 2025 was $1.9 billion as compared to $1.8 billion at September 30, 2024. This includes assets held at both Orange Bank & Trust Company and OIA at September 30, 2025 and 2024.

Our income related to our wealth management business segment, which we record as noninterest income, increased $415 thousand or 13.30%, to $3.5 million for the three months ended September 30, 2025 compared to $3.1 million for the three months ended September 30, 2024. The increase was mainly due to the impact of equity markets and growth of the assets under management. Our income related to our wealth management business segment increased $1.4 million, or 15.7%, to $10.4 million for the nine months ended September 30, 2025 compared to $9.0 million for the nine months ended September 30, 2024. The increase was mainly due to the impact of equity markets.

Our expenses related to our wealth management business segment, which we record as noninterest expense, increased $127 thousand, or 5.8%, to $2.3 million for the three months ended September 30, 2025 compared to $2.2 million for the three months ended September 30, 2024. The increase in expenses was primarily due to continued growth of the business unit and continued investment in technology during the period. For the nine months ended September 30, 2025, our expenses related to our wealth management business segment increased $294 thousand, or 4.5%, to $6.8 million for the nine months ended September 30, 2025 compared to $6.6 million for the nine months ended September 30, 2024. The increase in expenses was primarily due to staffing costs during the period.

Liquidity and Capital Resources

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

Our most liquid assets are cash and due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At September 30, 2025 and December 31, 2024, cash and due from banks totaled $189.9 million and $150.3 million, respectively. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $426.6 million at September 30, 2025 and $443.8 million at December 31, 2024.

Certificates of deposit due within one year of September 30, 2025 totaled $104.1 million, or 91.2% of total certificates of deposit. The largest concentration of certificates of deposit at September 30, 2025 represented brokered deposits in the amount of $80.0 million for diversified funding purposes.

We participate in IntraFi Network, allowing us to provide access to multi-million-dollar FDIC deposit insurance protection on deposits for customers, businesses and public entities. We can elect to sell or repurchase this funding as reciprocal deposits from other IntraFi Network banks depending on our funding needs. At September 30, 2025, we had a total of $92.6 million of IntraFi Network deposits, all of which were repurchased as reciprocal deposits from the IntraFi Network.

Although customer deposits remain our preferred source of funds, maintaining back up sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the Federal Home Loan Bank of New York and the Federal Reserve Bank of New York as well as other correspondent banks. At September 30, 2025, we had a total capacity of $643.4 million at the Federal Home Loan Bank of New York, of which $76.4 million was used to collateralize municipal deposits, and $10.0 million was utilized for long-term advances. At September 30, 2025, we also held $66.8 million of collateral at the Federal Reserve Bank of New York which could be utilized to provide additional funding through the discount window and an additional $171.1 million was available in borrowings through the Federal Reserve Bank’s Borrower-In-Custody (“BIC”) program. We also maintain additional borrowing capacity of $20.0 million of discretionary lines of credit with correspondent banks at September 30, 2025 with no outstanding balance. We also have a borrowing agreement with Atlantic Community Bankers Bank (“ACBB”) to provide short-term borrowings of $5.0 million at September 30, 2025. There were no outstanding borrowings with ACBB at September 30, 2025.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash used in operating activities was $30.1 million and $21.8 million for the nine months ended September 30, 2025 and 2024, respectively. Net cash used by investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was $68.8 million for the nine months ended September 30, 2025 and net cash used in investing activities was $12.7 million for the nine months ended September 30, 2024. Net cash provided by financing activities, consisting of activity in deposit accounts and borrowings, was $78.2 million for the nine months ended September 30, 2025 and net cash from financing activities was $4.4 million for the nine months ended September 30, 2024.

We remain committed to maintaining a strong liquidity position. We monitor and evaluate our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit growth and retention, current pricing strategy and regulatory restrictions, we have the ability to retain and increase a substantial portion of maturing time deposits, and we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.We remain committed to maintaining a strong liquidity position. We monitor and evaluate our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit growth and retention, current pricing strategy and regulatory restrictions, we have the ability to retain and increase a substantial portion of maturing time deposits, and we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.

Capital Resources. We are subject to various regulatory capital requirements administered by the FRB and the NYSDFS. At September 30, 2025 and December 31, 2024, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines. See Note 10 to the Notes to the Unaudited Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q for actual and required capital amounts and ratios at September 30, 2025 and December 31, 2024.

Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

At September 30, 2025, we had $432.6 million in loan commitments outstanding. We also had $18.6 million in standby letters of credit at September 30, 2025.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change 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 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 do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Management of Market Risk

General. The principal objective of our asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing net income and preserving adequate levels of liquidity and capital. The board of directors of our Bank has oversight of our asset and liability management function, which is managed by our Asset/Liability Management Committee and our Finance Committee. Our Asset/Liability Management Committee meets regularly to review, among other things, the sensitivity of our assets and liabilities to market interest rate changes, local and national market conditions and market interest rates. That group also reviews our liquidity, capital, deposit mix, loan mix and investment positions. As a financial institution, our primary component of market risk is interest rate volatility. Fluctuations in interest rates will ultimately impact both the level of income and expense recorded on most of our assets and liabilities, and the fair value of all interest-earning assets and interest-bearing liabilities, other than those that have a short term to maturity. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income.

We manage our exposure to interest rates primarily by structuring our balance sheet in the ordinary course of business. We do not typically enter into derivative contracts for the purpose of managing interest rate risk, but we may do so in the future. Based upon the nature of our operations, we are not subject to foreign exchange or commodity price risk. We do not own any trading assets.

Net Interest Income Simulation. We use an interest rate risk simulation model to test the interest rate sensitivity of net interest income and the balance sheet. Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and use various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

The following table presents the estimated changes in our net interest income, calculated on a bank-only basis, which would result from changes in market interest rates over a twelve month period as of September 30, 2025.

At September 30, 2025

(Dollars in thousands)

This analysis assumes an instantaneous and parallel rate shock across the entire yield curve for the scenarios indicated.

Economic Value of Equity Simulation. We also analyze our sensitivity to changes in interest rates through an economic value of equity ("EVE") model. EVE represents the present value of the expected cash flows from our assets less the present value of the expected cash flows arising from our liabilities adjusted for the value of off-balance sheet contracts. EVE attempts to quantify our economic value using a discounted cash flow methodology. We estimate what our EVE would be as of a specific date. We then calculate what EVE would be as of the same date throughout a series of interest rate scenarios representing immediate and permanent, parallel shifts in the yield curve. We currently calculate EVE under the assumptions that interest rates increase 100, 200, and 300 basis points from current market rates, and under the assumption that interest rates decrease 100, 200, and 300 basis points from current market rates.

The following table presents the estimated changes in our EVE, calculated on a bank-only basis, that would result from changes in market interest rates as of September 30, 2025.

At September 30, 2025

(Dollars in thousands)

Note: This analysis assumes an instantaneous and parallel rate shock across the entire yield curve for the scenarios indicated.

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that our management may undertake to manage the risks in response to anticipated changes in interest rates, and actual results may also differ due to any actions taken in response to the changing rates.

Credit Risk

The Company manages credit risk consistent with state and federal laws governing the making of loans through written policies and procedures; loan review to identify loan problems at the earliest possible time; collection procedures (including subsequent to a loan being charged off); an adequate allowance for credit losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans.

The Company monitors its loan portfolio prudently. The Director’s Loan Committee of the Company’s Board of Directors is designated to receive required loan reports, oversee loan policy, and approve loans above authorized individual and Management Loan Committee lending limits. The Management Loan Committee, consisting of the President and Chief Executive Officer, Chief Financial Officer, Chief Credit Officer, Chief Risk Officer, Chief Loan Officer, EVP-Strategic Lending, and the SVP-Commercial Lending, implements the Board-approved loan policy.

An Evaluation of disclosure controls and procedures. As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of September 30, 2025 the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

Internal control over financial reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There has been no material change to Risk Factors as disclosed in the Company’s 2024 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 17, 2025.