# Orange County Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2024

- Company: [Orange County Bancorp, Inc.](/companies/obt.md) (CIK 1754226)
- Form: 10-Q
- Filed: 2024-05-15
- Accepted by EDGAR: May 15, 2024, 14:52 ET
- Period: 2024-03-31
- Accession: 0001558370-24-008264
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1754226/000155837024008264/tmb-20240331x10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1754226/000155837024008264/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $9.5m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $2.3m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $9.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.65 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.65 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 5,634,937 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $2.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $252.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $1.3m | us-gaap:PaymentsOfDividends |
| Total assets | at 2024-03-31 | $2.45bn | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $2.28bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $168.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 66,031 characters.

The following discussion and analysis of our financial condition and results of operations at March 31, 2024 and December 31, 2023 and for the three months ended March 31, 2024 and 2023 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, 2023. 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 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;
- recent 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;
- our ability to implement and change our business strategies;
- competition among depository and other financial institutions;
- the rate of delinquencies and amounts of loans 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 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; 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 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 capitalize on the substantial 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, generate 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 HVIA, which combined had $1.7 billion in assets under management at March 31, 2024. As of March 31, 2024, our assets, loans, deposits and stockholders’ equity totaled $2.5 billion, $1.7 billion, $2.2 billion and $168.7 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.

We anticipate that interest rates will continue to remain elevated over the next several quarters. Based on our asset sensitivity, a steepened yield curve and higher interest rates generally could have a beneficial impact on our net interest income. Conversely, a flat yield curve at lower rates would be expected to have an adverse 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 HVIA 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 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. A summary of our accounting policies, included the Allowance for Credit Losses, is included in the Company’s Annual Report on Form 10-K. There were no significant changes to the critical accounting estimates during the three months ended March 31, 2024 as disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2024.

### 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)*

| ​ ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ ​ As of March 31, 2024 | ​ ​ ​ ​ ​ | ​ ​ ​ ​ As of December 31, 2023 | ​ ​ ​ ​ ​ | ​ Change March 31, 2024 vs. December 31, 2023 Amount ($) | ​ | ​ ​ Percentage (%) |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Assets |  | 2,452,513 |  | 2,485,468 |  | (32,955) |  | (1.3)% |
| Cash and due from banks |  | 144,726 |  | 147,383 |  | (2,657) |  | (1.8)% |
| Loans, net |  | 1,707,077 |  | 1,721,880 |  | (14,803) |  | (0.9)% |
| Investment securities, available for sale |  | 476,077 |  | 489,948 |  | (13,871) |  | (2.8)% |
| Deposits |  | 2,149,431 |  | 2,038,749 |  | 110,682 |  | 5.4% |
| FHLB advances, short term | ​ | 28,000 | ​ | 224,500 | ​ | (196,500) | ​ | (87.5)% |
| BTFP borrowings, short term | ​ | 50,000 | ​ | — | ​ | 50,000 | ​ | 100.0% |
| FHLB advances, long term |  | 10,000 |  | 10,000 |  | — |  | —% |
| Subordinated notes, net of issuance costs | ​ | 19,538 | ​ | 19,520 | ​ | 18 | ​ | 0.1% |
| Stockholders’ Equity |  | 168,668 |  | 165,376 |  | 3,292 |  | 2.0% |

***Assets.*** Our total assets were $2.5 billion at March 31, 2024, a decrease of $33.0 million, or 1.3%, from December 31, 2023. The decrease was primarily driven by decreases of $14.8 million in net loans, $13.9 million in investment securities, available for sale and $2.7 million in cash and due from banks.

***Cash and due from banks.*** Cash and due from banks decreased $2.7 million, or 1.8%, to $144.7 million at March 31, 2024, from $147.4 million at December 31, 2023. The slight decrease was mainly the result of management’s focus on using deposit growth to reduce the level of borrowings while still maintaining a strong liquidity position.

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

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ At March 31, 2024 Amount | ​ ​ ​ ​ ​ Percent | ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ At December 31, 2023 Amount | ​ | ​ ​ ​ ​ Percent |
| --- | --- | ---: | ---: | --- | --- | ---: | --- | ---: |
| Commercial and industrial | ​ | $259,817 | 15.00% | ​ | ​ | $273,347 |  | 15.65% |
| Commercial real estate | ​ | 1,261,860 | 72.83% | ​ | ​ | 1,259,356 |  | 72.08% |
| Commercial real estate construction | ​ | 84,005 | 4.85% | ​ | ​ | 85,725 |  | 4.91% |
| Residential real estate | ​ | 78,923 | 4.56% | ​ | ​ | 78,321 |  | 4.48% |
| Home equity | ​ | 13,322 | 0.77% | ​ | ​ | 13,546 |  | 0.78% |
| Consumer | ​ | 34,419 | 1.99% | ​ | ​ | 36,552 |  | 2.09% |
| PPP loans | ​ | 204 | 0.01% | ​ | ​ | 215 |  | 0.01% |
| Total loans | ​ | 1,732,550 | 100.00% | ​ | ​ | 1,747,062 |  | 100.00% |
| Allowance for credit losses | ​ | 25,473 | ​ | ​ | ​ | 25,182 |  | ​ ​ |
| Total loans, net | ​ | $1,707,077 | ​ ​ | ​ | ​ | $1,721,880 | ​ | ​ ​ |

Net loans decreased $14.8 million, or 0.86%, to $1.7 billion at March 31, 2024 from December 31, 2023 primarily due to repayments of commercial and industrial loans during the first three months of 2024. Commercial and industrial loans experienced a decrease of $13.5 million, or 4.9%, to $259.8 million at March 31, 2024 from $273.3 million at December 31, 2023. Commercial real estate loans increased $2.5 million, or 0.2%, to $1.3 billion at March 31, 2024. Residential real estate loans grew $602 thousand, or 0.77%, to $78.9 million at March 31, 2024 from $78.3 million at December 31, 2023. Consumer loans decreased $2.1 million, or 5.8%, to $34.4 million at March 31, 2024 from $36.6 million at December 31, 2023. The overall diversification within the commercial real estate portfolio provides stability while remaining focused on loan originations to new and existing customers during the first three months of 2024 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 $5.8 million at March 31, 2024 as compared to $4.4 million at December 31, 2023.

*(Dollars in thousands)*

| ​ ​ ​ ​ Non-accrual loans: | ​ ​ ​ ​ | ​ ​ ​ At March 31, ​ 2024 ​ ​ ​ | ​ ​ ​ At December 31, ​ 2023 ​ ​ ​ |
| --- | --- | ---: | ---: |
| Commercial and industrial | ​ | $2,515 ​ | $556 ​ |
| Commercial real estate | ​ | 2,655 ​ | 2,692 ​ |
| Commercial real estate construction | ​ | — ​ | — ​ |
| Residential real estate | ​ | 589 ​ | 1,179 ​ |
| Home equity | ​ | — ​ | — ​ |
| Consumer | ​ | — ​ | — ​ |
| Total non-accrual loans | ​ | 5,759 ​ | 4,427 ​ |
| Accruing loans 90 days or more past due: | ​ | ​ | ​ |
| Commercial and industrial | ​ | — ​ | — ​ |
| Commercial real estate | ​ | 19 ​ | — ​ |
| Commercial real estate construction | ​ | — ​ | — ​ |
| Residential real estate | ​ | — ​ | — ​ |
| Home equity | ​ | — ​ | — ​ |
| Consumer | ​ | — ​ | — ​ |
| Total accruing loans 90 days or more past due | ​ | 19 ​ | — ​ |
| Total non-performing loans | ​ | 5,778 ​ | 4,427 ​ |
| Other real estate owned | ​ | — ​ | — ​ |
| Other non-performing assets | ​ | — ​ | — ​ |
| Total non-performing assets | ​ | $5,778 ​ | $4,427 ​ |
| Ratios: | ​ | ​ | ​ |
| Total non-performing loans to total loans | ​ | 0.33% | 0.25% |
| Total non-performing loans to total assets | ​ | 0.24% | 0.18% |
| Total non-performing assets to total assets | ​ | 0.24% | 0.18% |

Non-performing loans at March 31, 2024 totaled $5.8 million and consisted primarily of $2.7 million of commercial real estate loans, $2.5 million of commercial and industrial loans, and $589 thousand of residential real estate loans. The increase in non-performing loans was primarily the result of a $2.0 million increase related to non-accrual commercial and industrial loans which experienced payment delays exceeding 90 days during the period. We had no other real estate owned at March 31, 2024 and December 31, 2023, respectively.

Non-performing assets increased $1.4 million, or 30.5%, to $5.8 million, or 0.24% of total assets, at March 31, 2024 from $4.4 million, or 0.18% of total assets, at December 31, 2023. The increase in non-performing assets at March 31, 2024, compared to December 31, 2023 was primarily driven by an increase of $2.0 million related to non-accrual commercial and industrial loans offset by reductions in the level of non-performing loans related to the commercial real estate and residential real estate categories.

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 ended March 31, 2024.

***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)*

| ​ ​ ​ ​ Classification of Assets: | ​ ​ ​ ​ | ​ ​ At March 31, 2024 ​ ​ | ​ ​ ​ ​ | ​ ​ At December 31, 2023 ​ ​ |
| --- | --- | ---: | --- | ---: |
| Substandard | ​ | $12,121 | ​ | $19,615 |
| Doubtful | ​ | — | ​ | — |
| Loss | ​ | — | ​ | — |
| Total Classified Assets | ​ | $12,121 | ​ | $19,615 |
| Special Mention | ​ | $33,306 | ​ | $32,804 |

On the basis of management’s review of our assets, we have classified $12.1 million of our assets at March 31, 2024 as substandard compared to $19.6 million at December 31, 2023, due to certain loan payoffs recorded during the current three month period. There were no doubtful assets as of March 31, 2024 and December 31, 2023. We designated $33.3 million of our assets at March 31, 2024 as special mention compared to $32.8 million designated as special mention at December 31, 2023.

### 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.

The allowance for credit losses increased by $747 thousand, or 3.0%, to $25.5 million, or 1.47% of total loans at March 31, 2024, from $24.7 million, or 1.49% of total loans at March 31, 2023. The increase in the allowance was primarily due to increased provision during 2023 resulting from the increase in non-accrual loans and reserves applied against a portion of those loans during a period where the overall loan portfolio decreased.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ ​ | ​ ​ ​ At or for the Three Months Ended March 31, 2024 | ​ ​ ​ ​ ​ 2023 |
| --- | --- | --- | --- |
| Balance at beginning of year | ​ | $25,182 ​ | $21,832 ​ |
| Adoption of ASC 326 | ​ | ​ — ​ | ​ 1,606 ​ |
| Charge-offs: | ​ | ​ ​ ​ | ​ ​ ​ |
| Commercial and industrial |  | ​ 3 | ​ 142 |
| Commercial real estate |  | ​ — | ​ — |
| Commercial real estate construction |  | ​ — | ​ — |
| Residential real estate |  | ​ 94 | ​ — |
| Home equity |  | ​ — | ​ — |
| Consumer |  | ​ — | ​ 36 |
| PPP loans |  | ​ — | ​ — |
| Total charge-offs |  | ​ 97 | ​ 178 |
| Recoveries: | ​ | ​ ​ ​ | ​ ​ ​ |
| Commercial and industrial |  | ​ 7 | ​ 39 |
| Commercial real estate |  | ​ — | ​ 12 |
| Commercial real estate construction |  | ​ — | ​ — |
| Residential real estate |  | ​ — | ​ — |
| Home equity |  | ​ — | ​ — |
| Consumer |  | ​ 19 | ​ 60 |
| Total recoveries |  | ​ 26 | ​ 111 |
| Net charge-offs (recoveries) |  | ​ 71 | ​ 67 |
| Provision for credit losses |  | ​ 362 | ​ 1,355 |
| Balance at end of period | ​ | $25,473 ​ | $24,726 ​ |
| Ratios: | ​ | ​ ​ ​ | ​ ​ ​ |
| Net charge-offs to average loans outstanding | ​ | —% | —% |
| Allowance for credit losses to non-performing loans at end of period | ​ | 440.86% | 311.00% |
| Allowance for credit losses to total loans at end of period | ​ | 1.47% | 1.49% |
| ​ | ​ | ​ ​ ​ | ​ ​ ​ |

### 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: | ​ ​ ​ ​ | ​ ​ ​ ​ At March 31, 2024 Amortized Cost ​ | ​ ​ ​ | ​ ​ ​ ​ Estimated Fair Value ​ | ​ ​ ​ ​ ​ ​ | ​ ​ ​ At December 31, 2023 Amortized Cost ​ | ​ ​ | ​ ​ Estimated Fair Value ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| U.S. government agencies and treasuries | ​ | $95,665 | ​ | $85,191 | ​ | $96,736 | ​ | $87,067 |
| Mortgage-backed securities | ​ | 330,841 | ​ | 279,201 | ​ | 337,393 | ​ | 290,221 |
| Corporate securities | ​ | 23,524 | ​ | 19,175 | ​ | 23,529 | ​ | 19,276 |
| Obligations of states and political subdivisions | ​ | 103,697 | ​ | 92,510 | ​ | 103,336 | ​ | 93,384 |
| Total | ​ | $553,727 | ​ | $476,077 | ​ | $560,994 | ​ | $489,948 |

Available for sale securities decreased $13.9 million, or 2.8%, to $476.1 million at March 31, 2024 from $489.9 million at December 31, 2023, due primarily to limited purchases as well as continued declines for all investment categories due to normal amortization and cash flow during the current three month period. During the first quarter of 2024, the Company sold and recorded a recovery of $1.9 million related to Signature Bank subordinated debt which was written-off during 2023. As part of the treatment, the Company evaluated the securities portfolio for an allowance and determined it was not necessary. Accordingly, the recovery resulted in a net credit to the ACL.

We did not have held-to-maturity securities at March 31, 2024 and December 31, 2023.

### Deposits

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

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ At March 31, 2024 ​ ​ Amount | ​ ​ ​ ​ ​ Percent ​ | ​ ​ ​ Average Rate ​ | ​ ​ ​ ​ | ​ ​ At December 31, 2023 ​ Amount | ​ ​ ​ ​ Percent ​ | ​ ​ ​ Average Rate ​ |
| --- | --- | ---: | ---: | ---: | --- | ---: | ---: | ---: |
| Noninterest-bearing demand deposits | ​ | $635,952 | 29.59% | — ​ | ​ | $699,203 | 34.30% | — ​ |
| Interest bearing demand deposits | ​ | 372,757 | 17.34% | 0.47% | ​ | 304,892 | 14.95% | 0.49% |
| Money market deposits | ​ | 653,115 | 30.39% | 2.23% | ​ | 584,976 | 28.69% | 2.04% |
| Savings deposits | ​ | 243,976 | 11.35% | 1.30% | ​ | 228,161 | 11.19% | 1.19% |
| Certificates of deposit | ​ | 243,631 | 11.33% | 4.62% | ​ | 221,517 | 10.87% | 4.57% |
| Total | ​ | $2,149,431 | 100.00% | 1.43% | ​ | $2,038,749 | 100.00% | 1.29% |

Total deposits increased $110.7 million, or 5.4%, to $2.1 billion at March 31, 2024 from December 31, 2023. Certificates of deposit increased by $22.1 million, or 10.0%, mainly from increased brokered deposits during the three month period ended March 31, 2024 which represented a continued strategic focus on maintaining increased liquidity during the first three months of 2024. Interest bearing demand deposits experienced a $67.9 million, or 22.3%, increase and money market deposits increased $68.1 million, while savings deposits increased by $15.8 million during the first three months of 2024 primarily related to our continued strategic focus on business account activity. Non-interest-bearing demand deposits decreased $63.3 million primarily due to a shift of certain deposits into interest bearing accounts combined with normal business activity during the quarter. At March 31, 2024, our core deposits (which includes all deposits except for certificates of deposit) totaled $1.9 billion, or 88.7% of our total deposits. We held approximately $198.4 million of brokered deposits (excluding reciprocal deposits obtained through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) networks) at March 31, 2024 as compared to $172.4 million at December 31, 2023. This increase was driven by a continued strategic focus to maintain strong liquidity positions and availability during the current period. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $8.7 million and $103.0 million, respectively, at March 31, 2024 and the CDARS and ICS networks totaled $11.1 million and $99.5 million, respectively, at December 31, 2023. Uninsured deposits, net of fully collateralized municipal relationships, remain stable and represent approximately 37% of total deposits at March 31, 2024 and December 31, 2023.

### 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 $38.0 million at March 31, 2024 and $234.5 million at December 31, 2023. This decrease represents a focus by management to reduce borrowings by using lower-cost deposits, which experienced growth during the quarter. We have the capacity to borrow an additional $476.4 million from the Federal Home Loan Bank of New York as of March 31, 2024.

During the quarter, we also utilized $50 million of funding through the Bank Term Funding Program from the Federal Reserve under a one-year facility expiring in March 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.

### Stockholders’ Equity

Stockholders’ equity experienced an increase of approximately $3.3 million, to $168.7 million, at March 31, 2024 from $165.4 million at December 31, 2023. The increase was due mainly to an increase of $8.0 million in retained earnings, partially offset by a $5.0 million increase in unrealized losses on the market value of investment securities recognized within the Company’s equity as accumulated other comprehensive income(loss) (“AOCI”), net of taxes as a direct result of higher market interest rates.

### Average Balance Sheets and Related Yields and Rates

The following table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three month periods ended March 31, 2024 and 2023. 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. Net deferred loan fees totaled $4.8 million and $5.2 million for the three months ended March 31, 2024 and 2023, respectively.

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 Average Outstanding Balance ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ | ​ ​ ​ ​ ​ ​ ​ ​ Average ​ Yield/Rate(1) | ​ ​ 2023 Average Outstanding Balance ​ | ​ ​ ​ | ​ ​ ​ ​ ​ ​ Interest ​ | ​ ​ ​ ​ ​ ​ Average Yield/Rate(1) ​ ​ ​ |
| --- | --- | ---: | --- | ---: | ---: | ---: | --- | ---: | ---: |
| Loans (excluding PPP loans) | ​ | $1,738,199 | ​ | $25,611 | 5.91% | $1,619,240 | ​ | $21,824 | 5.47% |
| PPP loans | ​ | 209 | ​ | 3 | 5.76% | 1,713 | ​ | 12 | 2.84% |
| Investment securities available for sale | ​ | 481,530 | ​ | 3,432 | 2.86% | 530,762 | ​ | 3,568 | 2.73% |
| Cash and due from banks and other | ​ | 149,596 | ​ | 1,665 | 4.46% | 102,097 | ​ | 858 | 3.41% |
| Restricted stock | ​ | 10,894 | ​ | 362 | 13.33% | 11,652 | ​ | 102 | 3.55% |
| Total interest-earning assets | ​ | 2,380,428 | ​ | 31,073 | 5.24% | 2,265,464 | ​ | 26,364 | 4.72% |
| Noninterest-earning assets | ​ | 94,647 | ​ | ​ ​ | ​ | 95,583 | ​ |  | ​ |
| Total assets | ​ | $2,475,075 | ​ | ​ ​ | ​ | $2,361,047 | ​ |  | ​ |
| **Interest-bearing liabilities:** | ​ |  | ​ |  | ​ |  | ​ |  | ​ |
| Interest-bearing demand deposits | ​ | $360,287 | ​ | $437 | 0.49% | $321,224 | ​ | $242 | 0.31% |
| Money market deposits | ​ | 620,028 | ​ | 3,355 | 2.17% | 605,968 | ​ | 1,673 | 1.12% |
| Savings deposits | ​ | 235,829 | ​ | 785 | 1.34% | 257,971 | ​ | 515 | 0.81% |
| Certificates of deposit | ​ | 209,642 | ​ | 2,414 | 4.62% | 95,550 | ​ | 459 | 1.95% |
| Total interest-bearing deposits | ​ | 1,425,786 | ​ | 6,991 | 1.97% | 1,280,713 | ​ | 2,889 | 0.91% |
| FHLB Advances and other borrowings | ​ | 167,484 | ​ | 2,251 | 5.39% | 177,933 | ​ | 2,105 | 4.80% |
| Subordinated notes | ​ | 19,526 | ​ | 230 | 4.72% | 19,454 | ​ | 231 | 4.82% |
| Total interest-bearing liabilities | ​ | 1,612,796 | ​ | 9,472 | 2.36% | 1,478,100 | ​ | 5,225 | 1.43% |
| Noninterest-bearing demand deposits | ​ | 668,439 | ​ | ​ ​ | ​ | 713,717 | ​ |  | ​ |
| Other noninterest-bearing liabilities | ​ | 28,446 | ​ | ​ ​ | ​ | 25,115 | ​ |  | ​ |
| Total liabilities | ​ | 2,309,681 | ​ | ​ ​ | ​ | 2,216,932 | ​ |  | ​ |
| Total stockholders’ equity | ​ | 165,394 | ​ | ​ ​ | ​ | 144,115 | ​ |  | ​ |
| Total liabilities and stockholders’ equity | ​ | $2,475,075 | ​ | ​ ​ | ​ | $2,361,047 | ​ |  | ​ |
| Net interest income | ​ | ​ ​ | ​ | $21,601 | ​ |  | ​ | $21,139 | ​ |
| Net interest rate spread(2) | ​ | ​ ​ | ​ | ​ ​ | 2.88% |  | ​ |  | 3.29% |
| Net interest-earning assets(3) | ​ | $767,632 | ​ |  | ​ ​ | $787,364 | ​ |  | ​ |
| Net interest margin(4) | ​ | ​ ​ | ​ | ​ ​ | 3.64% |  | ​ |  | 3.78% |
| Average interest-earning assets to interest-bearing liabilities | ​ |  | ​ |  | 147.6% | ​ ​ | ​ | ​ ​ | 153.3% |

(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)*

| ​ ​ ​ ​ ​ ​ ​ Interest-earning assets: | ​ ​ ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 vs. 2023 ​ Increase (Decrease) Due to Volume ​ | ​ | ​ ​ Rate ​ | ​ ​ ​ | ​ ​ Total Increase (Decrease) ​ |
| --- | --- | ---: | --- | ---: | --- | ---: |
| Loans (excluding PPP loans) | ​ | $1,995 | ​ | $1,792 | ​ | $3,787 |
| PPP loans | ​ | (20) | ​ | 11 | ​ | (9) |
| Investment securities available for sale | ​ | (312) | ​ | 176 | ​ | (136) |
| Cash and due from banks | ​ | 538 | ​ | 269 | ​ | 807 |
| Other | ​ | (24) | ​ | 284 | ​ | 260 |
| Total interest-earning assets | ​ | 2,177 | ​ | 2,532 | ​ | 4,709 |
| **Interest-bearing liabilities:** | ​ |  | ​ |  | ​ |  |
| Interest-bearing demand deposits | ​ | 50 | ​ | 145 | ​ | 195 |
| Money market deposits | ​ | 94 | ​ | 1,588 | ​ | 1,682 |
| Savings deposits | ​ | (68) | ​ | 338 | ​ | 270 |
| Certificates of deposit | ​ | 1,318 | ​ | 637 | ​ | 1,955 |
| Total interest-bearing deposits | ​ | 1,394 | ​ | 2,708 | ​ | 4,102 |
| ​ | ​ |  | ​ |  | ​ |  |
| Federal Home Loan Bank advances | ​ | (116) | ​ | 262 | ​ | 146 |
| Subordinated notes | ​ | — | ​ | (1) | ​ | (1) |
| Total interest-bearing liabilities | ​ | 1,278 | ​ | 2,969 | ​ | 4,247 |
| Change in net interest income | ​ | $899 | ​ | $(437) | ​ | $462 |

### Results of Operations for the Three Months Ended March 31, 2024 and 2023

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

| ​ ​ ​ ​ ​ | ​ ​ Three Months Ended March 31, ​ ​ 2024 ​ ​ | ​ ​ ​ | ​ ​ ​ ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ Change Amount ($) ​ ​ | ​ ​ | ​ ​ ​ Percentage % ​ ​ ​ | ​ ​ ​ ​ |
| --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- |
| Interest income | $31,073 | ​ | $26,364 | ​ | $4,709 |  | 17.9% | ​ |
| Interest expense | 9,472 | ​ | 5,225 | ​ | 4,247 |  | 81.3% | ​ |
| Net interest income | 21,601 | ​ | 21,139 | ​ | 462 |  | 2.2% | ​ |
| Provision for credit losses - investments | ​ (1,900) | ​ | ​ 5,000 | ​ | ​ (6,900) | ​ | (138.0)% | ​ |
| Provision for credit losses | 260 | ​ | 1,355 | ​ | (1,095) |  | (80.8)% | ​ |
| Noninterest income | 3,686 | ​ | 3,170 | ​ | 516 |  | 16.3% | ​ |
| Noninterest expense | 15,310 | ​ | 14,028 | ​ | 1,282 |  | 9.1% | ​ |
| Provision for income taxes | 2,327 | ​ | 696 | ​ | 1,631 |  | 234.3% | ​ |
| Net income | 9,290 | ​ | 3,230 | ​ | 6,060 |  | 187.6% | ​ |

***General.*** Net income increased $6.1 million, or 187.6%, to $9.3 million for the three months ended March 31, 2024 from $3.2 million for the three months ended March 31, 2023. The increase was primarily driven by a net credit tothe provision for credit losses associated with the investment portfolio as a result of the recovery of $1.9 million related to previously written-off Signature Bank subordinated debt during the current quarter as compared to the same quarter in 2023.

***Interest Income***. Interest income increased $4.7 million, or 17.9%, to $31.1 million for the three months ended March 31, 2024 from $26.4 million for the three months ended March 31, 2023. This increase was primarily the result of an increase in the average balance of interest-earning assets, which increased by $115.0 million, or 5.1%, to $2.4 billion for the three months ended March 31, 2024 from $2.3 billion for the three months ended March 31, 2023. Additionally, the average yield of interest-earning assets increased by 52 basis points from 4.72% for the three months ended March 31, 2023 to 5.24% for the three months ended March 31, 2024 as a result of the higher interest rate environment and management’s focus on disciplined pricing on loans.

Interest income on loans increased by $3.8 million, or 17.4%, to $25.6 million during the three months ended March 31, 2024 from $21.8 million during the three months ended March 31, 2023. The increase in interest income on loans was primarily due to the increase in the average balance of loans (net of PPP loans). The average balance of these loans increased by $119.0 million, or 7.3%, to $1.7 billion for the three months ended March 31, 2024 compared to $1.6 billion for the three months ended March 31, 2023. The average yield on loans, excluding PPP loans, increased by 44 basis points to 5.91% for the three months ended March 31, 2024 from 5.47% for the three months ended March 31, 2023 as a result of the higher interest rate environment and management’s focus on disciplined pricing on loans. The increase in the average balance of loans was due to our continued success in growing our commercial real estate portfolio, including commercial real estate construction.

Interest income on securities decreased by $136 thousand to $3.4 million during the three months ended March 31, 2024 from $3.6 million during the three months ended March 31, 2023. The decrease in interest income on securities was driven primarily by a decrease in the average balance of securities outstanding during the period due to certain maturities as well as a result of the Signature Bank subordinated debt writeoff during 2023. The average balance of securities decreased by $49.2 million, or 9.3%, to $481.5 million for the three months ended March 31, 2024 compared to $530.8 million for the three months ended March 31, 2023. The average yield on investment securities increased by 13 basis points overall from 2.73% for the three months ended March 31, 2023 to 2.86% for the three months ended March 31, 2024. The increase in the average yield reflected the maturity of lower yielding investments during the current period.

***Interest Expense.*** Interest expense increased $4.3 million, or 81.3%, to $9.5 million for the three months ended March 31, 2024 from $5.2 million for the three months ended March 31, 2023. The increased interest expense was primarily the result of the increased interest rate environment environment during the period and the impact on deposit costs during the quarter. The average rate paid on interest-bearing liablities increased 93 basis points to 2.36% during the three months ended March 31, 2024 as compared to 1.43% for the three month period ended March 31, 2023. The average balance of interest-bearing liabilities increased by $134.7 million, or 9.1%, to $1.6 billion for the three months ended March 31, 2024 as compared to $1.5 billion for the three months ended March 31, 2023.

Interest expense on interest-bearing deposits increased by $4.1 million to $7.0 million for the three months ended March 31, 2024 from $2.9 million for the three months ended March 31, 2023. The increase in interest expense on interest-bearing deposits was due mainly to the continued increase in the average cost of deposits. The average cost of interest-bearing deposits increased 106 basis points to 1.97% during the three months ended March 31, 2024 as compared to 0.91% for the three months ended March 31, 2023. The average cost of interest-bearing deposits increased due to the impact of the rising interest rate environment on deposit accounts. The average balance of interest-bearing deposits increased by $145.1 million, or 11.3%, to $1.4 billion for the three months ended March 31, 2024 as compared to $1.3 billion for the three months ended March 31, 2023 primarily as a result of the increase in the average balance of certificates of deposit.

We also experienced a relatively level amount of interest expense of $230 thousand and $231 thousand for the three months ended March 31, 2024 and 2023, respectively, related to the issuance in September 2020 of $20.0 million in outstanding subordinated notes, which carries an interest rate of 4.25%. These flat interest costs represent the debt service required as part of the 2020 subordinated notes.

The interest expense related to borrowings in the first quarter of 2024 reached approximately $2.3 million in cost and reflected an average rate of 5.39% as compared to $2.1 million in cost and an average rate of 4.80% for the same period in 2023. Additionally, the first quarter 2024 included average FHLB and other borrowings of $167.5 million compared to $177.9 million in the same quarter of 2023. Although the level of borrowings represents the continued strategic focus to maintain higher cash balances in response to the liquidity pressures within the industry beginning in 2023, the decrease during the quarter reflects the ability of the Company to increase deposits and strategically reduce borrowings.

***Net Interest Income.*** Net interest income increased $462 thousand, or 2.2%, to $21.6 million for the three months ended March 31, 2024 from $21.1 million for the three months ended March 31, 2023 due to the increase in income from interest earning assets outpacing the growth of interest costs associated with interest bearing liabilities. Average total interest-earning assets increased by $115.0 million to $2.4 billion for the three months ended March 31, 2024 from $2.3 billion for the three months ended March 31, 2023. Net interest rate spread decreased by 41 basis points to 2.88% for the three months ended March 31, 2024 from 3.29% for the three months ended March 31, 2023, reflecting a 52 basis points increase in the average yield on interest-earning assets and a 93 basis points increase in the average rate paid on interest-bearing liabilities. The net interest margin decreased 14 basis points to 3.64% for the three months ended March 31, 2024 from 3.78% for the three months ended March 31, 2023 due to the increases in the interest rate environment as well as the impact on funding and deposit costs during the period.

***Provision for Credit Losses.*** The Company recognized a recovery within the provision for credit losses of $1.6 million for the three months ended March 31, 2024, compared to $6.4 million for the three months ended March 31, 2023. The decreased provision for the three months ended March 31, 2024 as compared to the same period in 2023 reflected mainly the reversal of a credit associated with the recovery in connection with the sale of Signature Bank subordinated debt which was written off in 2023. The provision for credit losses-loans decreased to $260 thousand for the three months ended March 31, 2024 as compared to $1.4 million for the three months ended March 31, 2023 as a result of decreased loans outstanding offset by specific reserves associated with non-performing loans. The allowance for credit losses to total loans was 1.47% as of March 31, 2024, an increase of three basis points, or 2.1%, versus 1.44% as of December 31, 2023.

***Noninterest Income.*** Noninterest income information is as follows:

| ​ ​ ​ ​ | ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ Change Amount ​ ​ | ​ ​ ​ Percent ​ ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Service charges on deposit accounts | ​ | $235 | ​ | $174 | ​ | $61 | 35.1% |
| Trust income | ​ | 1,312 | ​ | 1,176 | ​ | 136 | 11.6% |
| Investment advisory income | ​ | 1,575 | ​ | 1,198 | ​ | 377 | 31.5% |
| Investment securities gains | ​ | — | ​ | 107 | ​ | (107) | (100.0)% |
| Earnings on bank owned life insurance | ​ | 242 | ​ | 238 | ​ | 4 | 1.7% |
| Other | ​ | 322 | ​ | 277 | ​ | 45 | 16.2% |
| Total noninterest income | ​ | $3,686 | ​ | $3,170 | ​ | $516 | 16.3% |

Noninterest income increased by $516 thousand, or 16.3%, reaching $3.7 million for the three months ended March 31, 2024 as compared to $3.2 million for the three months ended March 31, 2023. Our Wealth Management division revenues, which include our Trust and Asset Management businesses also experienced growth and represented a 21.6% increase quarter-over-quarter, to $2.9 million for the first quarter of 2024 as compared to $2.4 million for the first quarter of 2023 as a result of growth in asset values during the current period. During the same period, assets-under-management for the Trust and Asset Management group increased to $1.7 billion at March 31, 2024 from $1.3 billion at March 31, 2023.

***Noninterest Expense.*** Noninterest expense information is as follows:

| ​ ​ ​ ​ | ​ ​ ​ | ​ ​ Three Months Ended March 31, 2024 ​ ​ | ​ ​ | ​ ​ 2023 ​ ​ | ​ ​ ​ | ​ ​ Change Amount ​ ​ | ​ ​ ​ Percent ​ ​ ​ |
| --- | --- | ---: | --- | ---: | --- | ---: | ---: |
| Salaries | ​ | $6,738 | ​ | $6,254 | ​ | $484 | 7.7% |
| Employee benefits | ​ | 2,122 | ​ | 1,867 | ​ | 255 | 13.7% |
| Occupancy expense | ​ | 1,161 | ​ | 1,254 | ​ | (93) | (7.4)% |
| Professional fees | ​ | 1,436 | ​ | 1,048 | ​ | 388 | 37.0% |
| Directors’ fees and expenses | ​ | 322 | ​ | 230 | ​ | 92 | 40.0% |
| Computer software expense | ​ | 1,235 | ​ | 1,223 | ​ | 12 | 1.0% |
| FDIC assessment | ​ | 418 | ​ | 330 | ​ | 88 | 26.7% |
| Advertising expenses | ​ | 364 | ​ | 276 | ​ | 88 | 31.9% |
| Advisor expenses related to trust income | ​ | 33 | ​ | 29 | ​ | 4 | 13.8% |
| Telephone expenses | ​ | 187 | ​ | 169 | ​ | 18 | 10.7% |
| Intangible amortization | ​ | 72 | ​ | 71 | ​ | 1 | 1.4% |
| Other | ​ | 1,222 | ​ | 1,277 | ​ | (55) | (4.3)% |
| Total noninterest expense | ​ | $15,310 | ​ | $14,028 | ​ | $1,282 | 9.1% |

Non-interest expense was $15.3 million for the first quarter of 2024, reflecting an increase of approximately $1.3 million, or 9.1%, as compared to $14.0 million for the same period in 2023. The increase in non-interest expense for the current three-month period was due primarily to continued investment in overall Company growth, including increases in salaries and benefit costs, professional fees, information technology, and deposit insurance. Our efficiency ratio was 60.5% for the three months ended March 31, 2024, from 57.7% for the same period in 2023.

***Provision for Income Tax***. Our provision for income taxes for the three months ended March 31, 2024 was approximately $2.3 million, compared to approximately $696 thousand for the same period in 2023. The increase for the current period was due to an increase in income before income taxes during the quarter. Our effective tax rate for the three-month period ended March 31, 2024 was 20.0%, as compared to 17.7% for the same period in 2023. The increase in the effective tax rate in the 2024 first quarter was due to 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 2024 as compared to 2023.

### 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 HVIA and Orange Bank & Trust Company that provides trust and investment management fee income.

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

*(Dollars in thousands)*

| ​ ​ ​ ​ ​ ​ | ​ ​ ​ | ​ ​ For the Three Months Ended March 31, 2024 ​ ​ Banking | ​ ​ | ​ ​ Wealth Management | ​ ​ | ​ ​ Total Segments | ​ ​ ​ | ​ ​ 2023 ​ ​ Banking | ​ ​ | ​ ​ Wealth Management | ​ ​ | ​ ​ Total Segments |
| --- | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: | --- | ---: |
| Net Interest Income | ​ | $21,601 | ​ | $— | ​ | $21,601 | ​ | $21,139 | ​ | $— | ​ | $21,139 |
| Noninterest income | ​ | 799 | ​ | 2,887 | ​ | 3,686 | ​ | 796 | ​ | 2,374 | ​ | 3,170 |
| Provision for credit loss- investments | ​ | 1,900 | ​ | — | ​ | 1,900 | ​ | (5,000) | ​ | — | ​ | (5,000) |
| Provision for credit loss | ​ | ​ (260) | ​ | ​ — | ​ | ​ (260) | ​ | ​ (1,355) | ​ | ​ ​ | ​ | ​ (1,355) |
| Noninterest expenses | ​ | (13,203) | ​ | (2,107) | ​ | (15,310) | ​ | (12,214) | ​ | (1,814) | ​ | (14,028) |
| Income tax expense | ​ | (2,163) | ​ | (164) | ​ | (2,327) | ​ | (584) | ​ | (112) | ​ | (696) |
| Net income | ​ | $8,674 | ​ | $616 | ​ | $9,290 | ​ | $2,782 | ​ | $448 | ​ | $3,230 |
| ​ | ​ | ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ | ​ | ​ ​ |

44

The market value of assets under management and/or administration at March 31, 2024 and 2023 was $1.7 billion and $1.3 billion, respectively. This includes assets held at both Orange Bank & Trust Company and HVIA at March 31, 2024 and March 31, 2023, respectively.

Our expenses related to our wealth management business segment, which we record as noninterest expense, increased $293 thousand, or 16.2%, to $2.1 million for the three months ended March 31, 2024 compared to $1.8 million for the three months ended March 31, 2023. The increase in expenses was primarily due to continued growth of the business unit and investment in technology 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 March 31, 2024 and December 31, 2023, cash and due from banks totaled $144.7 million and $147.4 million, respectively. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $476.1 million at March 31, 2024 and $489.9 million at December 31, 2023.

Certificates of deposit due within one year of March 31, 2024 totaled $238.6 million, or 98.0% of total certificates of deposit. The largest concentration of certificates of deposit represented brokered deposits in the amount of approximately $207.1 million and were increased strategically due to the liquidity pressures experienced by the banking industry during 2023.

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 March 31, 2024, we had a total of $111.7 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 (“FRB”) as well as other correspondent banks. At March 31, 2024, we had a total capacity of $622.4 million at the Federal Home Loan Bank of New York, of which $108.0 million was used to collateralize municipal deposits, and $38.0 million was utilized for advances, overnight and long-term. At March 31, 2024, we also had a $2.5 million collateralized line of credit from the Federal Reserve Bank of New York discount window with no outstanding balance. Additionally, we utilized $50 million of funding through the Bank Term Funding Program from the Federal Reserve under a one-year facility. We also had a total of $25.0 million of discretionary lines of credit at March 31, 2024 with no outstanding balance. We have a borrowing agreement with Atlantic Community Bankers Bank (“ACBB”) to provide short-term borrowings of $5.0 million at March 31, 2024. There were no outstanding borrowings with ACBB at March 31, 2024.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was $2.3 million and $8.2 million for the three months ended March 31, 2024 and 2023, respectively. Net cash provided by (used in) 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 $32.5 million and ($86.3) million for the three months ended March 31, 2024 and 2023, respectively. Net cash (used in) provided by financing activities, consisting of activity in deposit accounts and borrowings, was ($37.4) million and $157.4 million for the three months ended March 31, 2024 and 2023, respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience, 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 March 31, 2024 and December 31, 2023, 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 March 31, 2024 and December 31, 2023.

### 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 March 31, 2024, we had $365.5 million in loan commitments outstanding. We also had $17.0 million in standby letters of credit at March 31, 2024.

### 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.

## Controls and procedures

As filed, 1,798 characters.

***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 March 31, 2024 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 March 31, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 183 characters.

There has been no material change to Risk Factors as disclosed in the Company’s 2023 Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2024.

Filed May 15, 2024.
Source: SEC EDGAR, the filing index for accession 0001558370-24-008264. Last ingested by Listed: Oct 30, 2026, 14:29 ET. No prices; not investment advice.