Western New England Bancorp, Inc.: Form 10-Q for the period ended Jun 30, 2025

Overview.

We strive to remain a leader in meeting the financial service needs of the local community and to provide quality service to the individuals and businesses in the market areas that we have served since 1853. Historically, we have been a community-oriented provider of traditional banking products and services to business organizations and individuals, including products such as residential and commercial real estate loans, commercial and industrial loans, consumer loans and a variety of deposit products. We meet the needs of our local community through a community-based and service-oriented approach to banking.

We have adopted a growth-oriented strategy that continues to focus on increasing commercial lending and residential lending. Our strategy also calls for increasing deposit relationships, specifically core deposits (defined below), and broadening our product lines and services. We believe that this business strategy is best for our long-term success and viability, and complements our existing commitment to high-quality customer service.

In connection with our overall growth strategy, we seek to:

• Increase market share and achieve scale to improve the Company’s profitability and efficiency and return value to shareholders;
• Grow the Company’s commercial loan portfolio and related commercial deposits by targeting businesses in our primary market area of Hampden and Hampshire Counties in western Massachusetts and Hartford and Tolland Counties in northern Connecticut to increase the net interest margin and loan income;
• Supplement the Company’s commercial portfolio by growing the Company’s residential real estate portfolio to diversify the Company’s loan portfolio and deepen customer relationships;
• Focus on expanding our retail banking deposit franchise and increase the number of households served within our designated market area;
• Invest in people, systems and technology to grow revenue, improve efficiency and enhance the overall customer experience;
• Grow revenues, increase book value per share and tangible book value per share (a non-GAAP financial measure), pay competitive dividends to shareholders and utilize the Company’s stock repurchase plan to leverage our capital and enhance franchise value; and
• Consider growth through acquisitions. We may pursue expansion opportunities in existing or adjacent strategic locations with companies that add complementary products to our existing business and at terms that add value to our existing shareholders.

You should read the following financial results for the three months and six months ended June 30, 2025 in the context of this strategy.

• Net income was $4.6 million, or $0.23 per diluted share, for the three months ended June 30, 2025, compared to net income of $3.5 million, or $0.17 per diluted share, for the three months ended June 30, 2024. For the six months ended June 30, 2025, net income was $6.9 million, or $0.34 per diluted share, compared to $6.5 million, or $0.31 per diluted share, for the six months ended June 30, 2024.
• Net interest income increased $3.2 million, or 21.9%, to $17.6 million, for the three months ended June 30, 2025, from $14.5 million for the three months ended June 30, 2024. The increase in net interest income was due to an increase in interest and dividend income of $2.8 million, or 10.5%, and a decrease in interest expense of $362,000, or 2.9%. During the three months ended June 30, 2025, the Company recorded $425,000 in prepayment penalties related to payoffs in the commercial portfolio. The increase in interest income was primarily due to a $129.4 million, or 5.4%, increase in average interest-earning assets and a 20 basis point increase in the average yield on interest-earning assets, from the three months ended June 30, 2024 to the three months ended June 30, 2025. During the six months ended June 30, 2025, net interest income increased $3.4 million, or 11.3%, to $33.2 million, compared to $29.8 million for the six months ended June 30, 2024. The increase in net interest income was due to an increase in interest income of $4.6 million, or 8.7%, partially offset by an increase in interest expense of $1.3 million, or 5.4%.
• During the three months ended June, 30, 2025, the Company recorded a reversal of credit losses of $615,000, compared to a reversal of credit losses of $294,000 during the three months ended June 30, 2024. The reversal of credit losses recorded during the three months ended June 30, 2025 was a result of a recovery in the amount of $624,000 on a previously charged-off commercial relationship acquired on October 21, 2016 from Chicopee Bancorp, Inc. As of June 30, 2025, the relationship has been paid in full and the Company does not expect to charge-off or recover any additional funds from the borrower. During the six months ended June 30, 2025, the Company recorded a reversal of credit losses of $473,000, compared to a reversal of credit losses of $844,000 during the six months ended June 30, 2024. The decrease was primarily due to changes in the loan mix as well as economic environment and related adjustments to the quantitative components of the CECL methodology.

CRITICAL ACCOUNTING POLICIES.

Our consolidated financial statements are prepared in accordance with GAAP and practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, the financial statements could reflect different estimates, assumptions, and judgments. Actual results could differ from those 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 that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions.

There have been no material changes to our critical accounting policies during the six months ended June 30, 2025. For additional information on our critical accounting policies, please refer to the information contained in Note 1 of the accompanying unaudited consolidated financial statements and Note 1 of the consolidated financial statements included in our 2024 Annual Report.

COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 2025 AND DECEMBER 31, 2024

At June 30, 2025, total assets were $2.7 billion, an increase of $58.1 million, or 2.2%, from December 31, 2024. The increase in total assets was primarily due to an increase in total gross loans of $22.1 million, or 1.1%, an increase in cash and cash equivalents of $26.9 million, or 40.4%, and an increase in investment securities of $10.8 million, or 2.9%.

Investment Securities.

At June 30, 2025, the investment securities portfolio totaled $376.9 million, or 13.9% of total assets, compared to $366.1 million, or 13.8% of total assets, at December 31, 2024. At June 30, 2025, the Company’s available-for-sale securities portfolio, recorded at fair market value, increased $18.1 million, or 11.3%, from $160.7 million at December 31, 2024 to $178.8 million. The held-to-maturity securities portfolio, recorded at amortized cost, decreased $7.4 million, or 3.6%, from $205.0 million at December 31, 2024 to $197.7 million at June 30, 2025.

At June 30, 2025, the Company reported unrealized losses on the available-for-sale securities portfolio of $26.6 million, or 12.9% of the amortized cost basis of the available-for-sale securities portfolio, compared to unrealized losses of $31.2 million, or 16.2% of the amortized cost basis of the available-for-sale securities at December 31, 2024. At June 30, 2025, the Company reported unrealized losses on the held-to-maturity securities portfolio of $35.4 million, or 17.8% of the amortized cost basis of the held-to-maturity securities portfolio, compared to $39.4 million, or 19.2% of the amortized cost basis of the held-to-maturity securities portfolio at December 31, 2024.

The securities in which the Company may invest are limited by regulation. Federally chartered savings banks have authority to invest in various types of assets, including U.S. Treasury obligations, securities of various government-sponsored enterprises, mortgage-backed securities, certain certificates of deposit of insured financial institutions, repurchase agreements, overnight and short-term loans to other banks, corporate debt instruments and marketable equity securities. The securities, with the exception of $8.7 million in corporate bonds, are issued by the United States government or government-sponsored enterprises and are therefore either explicitly or implicitly guaranteed as to the timely payment of contractual principal and interest. These positions are deemed to have no credit impairment, therefore, the disclosed unrealized losses with the securities portfolio relate primarily to changes in prevailing interest rates. In all cases, price improvement in future periods will be realized as the issuances approach maturity.

Management regularly reviews the portfolio for securities in an unrealized loss position. At June 30, 2025 and December 31, 2024, the Company did not record any credit impairment charges on its securities portfolio and attributed the unrealized losses primarily due to fluctuations in general interest rates or changes in expected prepayments and not due to credit quality. The primary objective of the Company’s investment portfolio is to provide liquidity and to secure municipal deposit accounts while preserving the safety of principal. The available-for-sale and held-to-maturity portfolios are both eligible for pledging to the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) as collateral for borrowings. The portfolios are comprised of high-credit quality investments and both portfolios generated cash flows monthly from interest, principal amortization and payoffs, which support’s the Bank's objective to provide liquidity.

Loans.

Total gross loans increased $22.1 million, or 1.1%, from $2.1 billion, or 77.9% of total assets, at December 31, 2024 to $2.1 billion, or 77.1% of total assets, at June 30, 2025. The increase in total gross loans was primarily driven by an increase in residential real estate loans, including home equity loans, of $29.7 million, or 3.8%, and an increase in commercial and industrial loans of $22.8 million, or 10.8%. The increase in commercial and industrial loans was partially due to an increase in line of credit utilization, from 21.9% at December 31, 2024 to 26.1% at June 30, 2025. These increases were partially offset by a decrease in commercial real estate loans of $29.5 million, or 2.7%, and a decrease in consumer loans of $879,000, or 20.0%.

Total delinquency was $3.9 million, or 0.18% of total loans, at June 30, 2025, compared to $5.0 million, or 0.24% of total loans at December 31, 2024. At June 30, 2025, nonaccrual loans totaled $5.8 million, or 0.27% of total loans, compared to $5.4 million, or 0.26% of total loans, at December 31, 2024. At June 30, 2025 and December 31, 2024, there were no loans 90 or more days past due and still accruing interest. Total nonaccrual assets totaled $5.8 million, or 0.21% of total assets, at June 30, 2025, compared to $5.4 million, or 0.20% of total assets, at December 31, 2024. At June 30, 2025 and December 31, 2024, the Company did not have any other real estate owned.

At June 30, 2025, the allowance for credit losses was $19.7 million, or 0.94% of total loans and 343.1% of nonaccrual loans, compared to $19.5 million, or 0.94% of total loans and 362.9% of nonaccrual loans, at December 31, 2024. Total criticized loans, defined as special mention and substandard loans, decreased $12.3 million, or 32.0%, from $38.4 million, or 1.9% of total loans, at December 31, 2024 to $26.1 million, or 1.2% of total gross loans, at June 30, 2025. During the six months ended June 30, 2025, the decrease in criticized loans was primarily due to payoffs totaling $9.2 million from four substandard commercial loan relationships.

Our commercial real estate portfolio is comprised of diversified property types and primarily within our geographic footprint. At June 30, 2025, the commercial real estate portfolio totaled $1.0 billion, and represented 50.1% of total gross loans. Of the $1.0 billion, $859.2 million, or 82.1%, was categorized as non-owner occupied commercial real estate and represented 316.9% of the Bank’s total risk-based capital.

Management is closely monitoring the loan portfolio for any signs of deterioration in borrowers’ financial condition and also in light of speculation that commercial real estate values may deteriorate as the market continues to adjust to higher vacancies and interest rates. We are taking steps to mitigate risk in our loan portfolio. A summary of our past due and nonaccrual loans by class is listed in Note 5 of the accompanying unaudited consolidated financial statements.

The Company’s commercial real estate loans are considered to be relatively diversified by borrower, industry and concentrated in the New England geographical area. A significant portion of the loan portfolio consists of commercial real estate loans, primarily made in Massachusetts, and to a lesser degree, Connecticut, and secured by real estate or other collateral in the market. Although these loans are made to a diversified pool of unrelated borrowers across numerous businesses, adverse developments in the local real estate market could have an adverse impact on this portfolio of loans and the Company’s income and financial position. While our basic market area is in Massachusetts, the Company has made loans outside that market area where the applicant is an existing customer, and the nature and quality of such loans was consistent with the Company's lending policies.

We continuously monitor the asset quality of our loan portfolio. For the commercial portfolio, we monitor credit quality using a risk rating scale, which assigns a risk-grade to each borrower based on a number of quantitative and qualitative factors associated with a commercial loan transaction. Management utilizes a loan risk rating methodology based on an 8-point scale. Pass grades are 0-4 and non-pass categories, which align with regulatory guidelines, include: special mention (5), substandard (6), doubtful (7) and loss (8). Risk rating assignment is determined by analyzing key factors, which may include: industry and market conditions, position within the industry, earnings trends, operating cash flow, debt capacity, guarantor strength, management, financial reporting, collateral and other considerations.

CRE Concentrations.

The OCC, the FRB, and the FDIC (“Agencies”) issued guidance in 2006 which addresses institutions with increased concentrations of commercial real estate (“CRE”) loans. The guidance does not establish specific CRE lending limits; rather, it promotes sound risk management practices and appropriate levels of capital that will enable institutions to continue to pursue CRE lending in a safe and sound manner. In developing this guidance, the Agencies recognized that different types of CRE lending present different levels of risk, and that consideration should be given to the lower risk profiles and historically superior performance of certain types of CRE, such as well-structured multifamily housing finance, when compared to others, such as speculative office space construction.

Institutions are encouraged to segment their CRE portfolios to acknowledge these distinctions for risk management purposes. The guidance focuses on those CRE loans for which the cash flow from the real estate is the primary source of repayment rather than loans to a borrower for which real estate collateral is taken as a secondary source of repayment or through an abundance of caution. Thus, for the purposes of the guidance, CRE loans include those loans with risk profiles sensitive to the condition of the general CRE market (for example, market demand, changes in capitalization rates, vacancy rates, or rents). CRE loans are land development and construction loans (including 1- to 4-family residential and commercial construction loans) and other land loans. CRE loans also include loans secured by multifamily property, and nonfarm nonresidential property where the primary source of repayment is derived from rental income associated with the property (that is, loans for which 50 percent or more of the source of repayment comes from third party, nonaffiliated, rental income) or the proceeds of the sale, refinancing, or permanent financing of the property. Excluded from the scope of this guidance are loans secured by nonfarm nonresidential properties where the primary source of repayment is the cashflow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.

As part of their ongoing supervisory monitoring processes, the Agencies use certain criteria to identify institutions that are potentially exposed to significant CRE concentration risk. An institution that has experienced rapid growth in CRE lending, has notable exposure to a specific type of CRE, or is approaching or exceeds the following supervisory criteria may be identified for further supervisory analysis of the level and nature of its CRE concentration risk:

1. Total reported loans for construction, land development, and other land represent 100 percent or more of the institution’s total risk-based capital; or

2. Total commercial real estate loans as defined in this guidance represent 300 percent or more of the institution’s total risk-based capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50 percent or more during the prior 36 months.

The Agencies use the criteria as a preliminary step to identify institutions that may have CRE concentration risk. Because regulatory reports capture a broad range of CRE loans with varying risk characteristics, the supervisory monitoring criteria do not constitute limits on an institution’s lending activity but rather serve as high-level indicators to identify institutions potentially exposed to CRE concentration risk.

The Company holds a concentration in commercial real estate loans. As of June 30, 2025, construction, land development and other land loans represented 30.3% of consolidated bank risk-based capital. During the prior 36 months, the Company has experienced an increase in its commercial real estate portfolio of 0.2%.

The management team has extensive experience in underwriting commercial real estate loans and has implemented and continues to maintain heightened risk management procedures and strong underwriting criteria with respect to its commercial real estate portfolio. The Company’s Board of Directors (the “Board”) has established internal maximum limits on CRE as an asset class overall as well as sub limits within CRE by property class, to better manage and control the exposure to property classes during periods of changing economic conditions. The Board also has minimum targets for regulatory capital ratios that are in excess of well capitalized ratios.

Our risk management process begins with a robust underwriting program. The underwriting and risk rating of all loans is completed by the Company’s Credit Department that is independent of the originating lender(s).

The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of June 30, 2025:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

At June 30, 2025, of the $1.0 billion in commercial real estate loans, $859.2 million, or 82.1% of total commercial real estate loans, were categorized as non-owner occupied and represented 316.9% of total bank risk-based capital.

The table below breaks down the commercial real estate portfolio outstanding balance by non-owner and owner occupied and by concentration as of December 31, 2024:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

At December 31, 2024, of the $1.1 billion in commercial real estate loans, $880.8 million, or 81.9% of total commercial real estate loans, were categorized as non-owner occupied and represented 325.2% of total bank risk-based capital.

The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average loan-to-value (“LTV”) as of June 30, 2025:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

(2) Weighted average LTV is based on the original appraisal and the current loan exposure.

The following table further breaks down the non-owner occupied commercial real estate portfolio balances by concentration, collateral location and weighted average LTV as of December 31, 2024:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

(2) Weighted average LTV is based on the original appraisal and the current loan exposure.

The Company also underwrites and originates owner occupied commercial real estate loans. These loans are typically term loans made to support properties that rely upon the operations of the business occupying the property for repayment. The Agencies specifically excluded owner occupied commercial real estate from their concentration guidance, as the primary source of repayment is the cash flow from the ongoing operations and activities conducted by the party, or affiliate of the party, who owns the property.

The table below depicts a well-diversified portfolio of owner occupied commercial real estate portfolio as of June 30, 2025:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

(2) Weighted average LTV is based on the original appraisal and the current loan exposure.

The table below depicts a well-diversified portfolio of owner occupied commercial real estate portfolio as of December 31, 2024:

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

(2) Weighted average LTV is based on the original appraisal and the current loan exposure.

Commercial Real Estate Office Exposure.

Our total office-related commercial real estate loans (which is comprised of loans within our commercial real estate portfolio that are secured by office space, medical office space, and mixed-use where rental income is primarily from office space) totaled $196.5 million, or 72.5% of total bank risk-based capital and $200.1 million, or 73.9% of total bank risk-based capital, as of June 30, 2025 and December 31, 2024, respectively.

The table below breaks the office-related commercial real estate loans by collateral type for the periods noted:

(Dollars in thousands)

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

Office-related CRE loans are primarily concentrated in Massachusetts, where approximately 41.2% at June 30, 2025 and 41.5%, at December 31, 2024, of the total balance of office-related CRE loans are located. The Company does not have office CRE loans secured by real estate in greater Boston or New York.

(Dollars in thousands)

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

The following table sets forth the office-related CRE loans for non-owner occupied and owner occupied CRE and their credit quality indicators as of the dates indicated:

(Dollars in thousands)

(Dollars in thousands)

(1) Due to loan classifications, the percentage of Total Bank Risk-Based Capital may differ from the call report.

Given prevailing market conditions such as recent sustained increases in interest rates, reduced occupancy as a result of the increase in hybrid work arrangements post-COVID, and lower commercial real estate valuations, we carefully monitor these loans for signs of deterioration in credit quality and other risks. Such heightened monitoring includes incremental risk management strategies undertaken by management, including more frequent portfolio reviews, ongoing monitoring of market conditions, and additional portfolio analysis, which may include monitoring concentration limitations, including concentrations by loan type, property type, geographic area and with participants, where applicable, and risk diversification, tracking aggregated policy and underwriting exceptions and stress testing the loan portfolios.

Deposits.

At June 30, 2025, total deposits were $2.3 billion and increased $67.5 million, or 3.0%, from December 31, 2024. Core deposits, which the Company defines as all deposits except time deposits, increased $81.4 million, or 5.2%, from $1.6 billion, or 68.9% of total deposits, at December 31, 2024, to $1.6 billion, or 70.4% of total deposits, at June 30, 2025. Non-interest-bearing deposits increased $29.6 million, or 5.2%, to $595.3 million, and represent 25.5% of total deposits, money market accounts increased $25.3 million, or 3.8%, to $686.8 million, interest-bearing checking accounts increased $18.3 million, or 12.2%, to $168.7 million, and savings accounts increased $8.1 million, or 4.5%, to $189.7 million.

Time deposits decreased $13.9 million, or 2.0%, from $703.6 million at December 31, 2024 to $689.7 million at June 30, 2025. Brokered time deposits, which are included in time deposits, totaled $1.7 million at December 31, 2024. The Company did not have brokered time deposits at June 30, 2025. We continue our disciplined and focused approach to core relationship management and customer outreach to meet funding requirements and liquidity needs, with an emphasis on retaining a long-term core customer relationship base by competing for and retaining deposits in our local market. At June 30, 2025, the Bank’s uninsured deposits totaled $688.4 million, or 29.5% of total deposits, compared to $643.6 million, or 28.4% of total deposits, at December 31, 2024.

The table below is a summary of our deposit balances for the periods noted:

(Dollars in thousands)

Borrowings.

At June 30, 2025, total borrowings decreased $1.3 million, or 1.1%, from $123.1 million at December 31, 2024 to $121.8 million. At June 30, 2025, short-term borrowings decreased $1.4 million, or 25.1%, to $4.0 million, compared to $5.4 million at December 31, 2024. Long-term borrowings were $98.0 million at June 30, 2025 and December 31, 2024. At June 30, 2025 and December 31, 2024, borrowings also consisted of $19.8 million in fixed-to-floating rate subordinated notes.

As of June 30, 2025, the Company had $452.7 million of additional borrowing capacity at the FHLB, $383.8 million of additional borrowing capacity under the FRB Discount Window and $25.0 million of other unsecured lines of credit with correspondent banks.

Capital.

At June 30, 2025, shareholders’ equity was $239.4 million, or 8.8% of total assets, compared to $235.9 million, or 8.9% of total assets, at December 31, 2024. The change was primarily attributable to a decrease in accumulated other comprehensive loss of $3.5 million, cash dividends paid of $2.9 million, repurchase of shares at a cost of $4.7 million, partially offset by net income of $6.9 million. At June 30, 2025, total shares outstanding were 20,494,501. The Company’s regulatory capital ratios continue to be strong and in excess of regulatory minimum requirements to be considered well-capitalized as defined by regulators and internal Company targets.

COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE 30, 2025 AND JUNE 30, 2024

General.

The Company reported net income of $4.6 million, or $0.23 per diluted share, for the three months ended June 30, 2025, compared to net income of $3.5 million, or $0.17 per diluted share, for the three months ended June 30, 2024. Net interest income increased $3.2 million, or 21.9%, provision for credit losses decreased $321,000, non-interest income decreased $423,000, or 11.0%, and non-interest expense increased $1.3 million, or 9.4%, during the same period. Return on average assets and return on average equity were 0.69% and 7.76%, respectively, for the three months ended June 30, 2025, compared to 0.55% and 6.03%, respectively, for the three months ended June 30, 2024.

Net Interest and Dividend Income.

The following tables set forth the information relating to our average balance and net interest income for the three months ended June 30, 2025 and 2024, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing annualized interest income by the average balance of interest-earning assets and annualized interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.

(Dollars in thousands)

(1) Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.

(2) Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income.

(3) Short-term investments include federal funds sold.

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

(5) Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. See “Explanation of Use of Non-GAAP Financial Measurements.”

(6) Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets.

(7) Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements.”

(8) Annualized.

Rate/Volume Analysis.

The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

(Dollars in thousands)

(1) Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements.”

Net interest income increased $3.2 million, or 21.9%, to $17.6 million, for the three months ended June 30, 2025, from $14.5 million for the three months ended June 30, 2024. The increase in net interest income was due to an increase in interest and dividend income of $2.8 million, or 10.5%, and a decrease in interest expense of $362,000, or 2.9%. During the three months ended June 30, 2025, the Company recorded $425,000 in prepayment penalties related to payoffs in the commercial portfolio. The increase in interest income was primarily due to a $129.4 million, or 5.4%, increase in average interest-earning assets and a 20 basis point increase in the average yield on interest-earning assets, from the three months ended June 30, 2024 to the three months ended June 30, 2025.

The net interest margin increased 38 basis points from 2.42% for the three months ended June 30, 2024 to 2.80% for the three months ended June 30, 2025. The net interest margin, on a tax-equivalent basis, was 2.82% for the three months ended June 30, 2025, compared to 2.44% for the three months ended June 30, 2024. Excluding the prepayment penalties discussed above, the net interest margin increased 31 basis points from 2.42%, for the three months ended June 30, 2024 to 2.73%, for the three months ended June 30, 2025. The increase in the net interest margin was primarily due to an increase in the average yield on interest-earning assets and a decrease in the average cost of interest-bearing liabilities.

The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, increased 20 basis points from 4.49% for the three months ended June 30, 2024 to 4.69%, for the three months ended June 30, 2025. The average loan yield, without the impact of tax-equivalent adjustments, increased 20 basis points from 4.85% for the three months ended June 30, 2024 to 5.05%, for the three months ended June 30, 2025. During the three months ended June 30, 2025, average interest-earning assets increased $129.4 million, or 5.4% to $2.5 billion, primarily due to an increase in average loans of $64.2 million, or 3.2%, an increase in average short-term investments, consisting of cash and cash equivalents, of $44.3 million, or 309.1%, and an increase in average securities of $20.2 million, or 5.7%.

The average cost of total funds, including non-interest bearing accounts and borrowings, decreased 18 basis points from 2.16% for the three months ended June 30, 2024 to 1.98% for the three months ended June 30, 2025. The average cost of core deposits, which the Company defines as all deposits except time deposits, increased 14 basis points from 0.87% for the three months ended June 30, 2024 to 1.01% for the three months ended June 30, 2025. The average cost of time deposits decreased 70 basis points from 4.39% for the three months ended June 30, 2024 to 3.69% for the three months ended June 30, 2025. The average cost of borrowings, including subordinated debt, increased four basis points from 5.00% for the three months ended June 30, 2024 to 5.04%, for the three months ended June 30, 2025. Average demand deposits, an interest-free source of funds, increased $24.1 million, or 4.4%, from $548.8 million, or 25.7% of total average deposits, for the three months ended June 30, 2024, to $572.8 million, or 24.9% of total average deposits, for the three months ended June 30, 2025.

Reversal of Credit Losses.

The provision for credit losses is reviewed by management based upon our evaluation of economic and business conditions affecting our key lending areas and other conditions, such as new loan products, credit quality trends (including trends in nonperforming loans expected to result from existing conditions), collateral values, loan volumes and concentrations, specific industry conditions using reasonable and supportable forecasts and the impact that such conditions were believed to have had on the collectability of the loan portfolio.

During the three months ended June, 30, 2025, the Company recorded a reversal of credit losses of $615,000, compared to a reversal of credit losses of $294,000 during the three months ended June 30, 2024. The reversal of credit losses recorded during the three months ended June 30, 2025 was a result of a recovery in the amount of $624,000 on a previously charged-off commercial relationship acquired on October 21, 2016 from Chicopee Bancorp, Inc. As of June 30, 2025, the relationship has been paid in full and the Company does not expect to charge-off or recover any additional funds from the borrower. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, tariffs, inflation and concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment.

The Company recorded net recoveries of $585,000 for the three months ended June 30, 2025, as compared to net charge-offs of $10,000 for the three months ended June 30, 2024.

Although we believe that we have established and maintained the allowance for credit losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.

Non-interest Income.

Non-interest income decreased $423,000, or 11.0%, to $3.4 million for the three months ended June 30, 2025, from $3.8 million for the three months ended June 30, 2024. During the three months ended June 30, 2025, service charges and fees on deposits increased $187,000, or 8.0%, income from BOLI increased $14,000, or 2.8%, from $502,000 for the three months ended June 30, 2024 to $516,000 for the three months ended June 30, 2025.

During the three months ended June 30, 2025, the Company reported an unrealized gain on marketable equity securities of $25,000, compared to unrealized gain on marketable equity securities of $4,000 during the three months ended June 30, 2024. During the three months ended June 30, 2025, the Company reported a gain of $243,000 on non-marketable equity investments, compared to a gain of $987,000 on non-marketable equity investments during the three months ended June 30, 2024. During the three months ended June 30, 2025, the Company reported $95,000 in other income from loan-level swap fees on commercial loans and did not have comparable income during the three months ended June 30, 2024. During the three months ended June 30, 2025, the Company reported $4,000 in gains from mortgage banking activities and did not have comparable income during the three months ended June 30, 2024.

Non-interest Expense.

For the three months ended June 30, 2025, non-interest expense increased $1.3 million, or 9.4%, to $15.7 million from $14.3 million for the three months ended June 30, 2024. The increase in non-interest expense was due to an increase in salaries and benefits of $930,000, or 11.8%, an increase in advertising and marketing expense of $104,000, or 30.7%, an increase in data processing expense of $87,000, or 10.3%, an increase in software related expense of $79,000, or 14.0%, an increase in FDIC insurance expense of $76,000, or 23.5%, an increase in occupancy expense of $47,000, or 3.9%, an increase in professional fees of $42,000, or 7.2%, an increase in debit card and ATM processing fees of $31,000, or 4.8%, an increase in furniture and equipment expense of $8,000, or 1.7%, and a decrease in other non-interest expense of $62,000, or 4.4%.

For the three months ended June 30, 2025, the efficiency ratio was 74.4%, compared to 78.2% for the three months ended June 30, 2024. For the three months ended June 30, 2025, the adjusted efficiency ratio, a non-GAAP financial measure, was 75.3% compared to 82.7% for the three months ended June 30, 2024. The decreases in the efficiency ratio and the adjusted efficiency ratio were driven by an increase in total revenues, defined as the sum of net interest income and non-interest income, during the three months ended June 30, 2025, compared to the three months ended June 30, 2024. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Taxes.

Income tax expense for the three months ended June 30, 2025 was $1.4 million, or an effective tax rate of 23.7%, compared to $771,000, or an effective tax rate of 18.0%, for the three months ended June 30, 2024. The increase is due to higher projected pre-tax income for the twelve months ended December 31, 2025.

COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30, 2025 AND JUNE 30, 2024

General.

For the six months ended June 30, 2025, the Company reported net income of $6.9 million, or $0.34 per diluted share, compared to $6.5 million, or $0.31 per diluted share, for the six months ended June 30, 2024. Return on average assets and return on average equity were 0.52% and 5.87% for the six months ended June 30, 2025, respectively, compared to 0.51% and 5.53% for the six months ended June 30, 2024, respectively.

Net Interest and Dividend Income.

The following tables set forth the information relating to our average balance and net interest income for the six months ended June 30, 2025 and 2024, and reflect the average yield on interest-earning assets and average cost of interest-bearing liabilities for the periods indicated. Yields and costs are derived by dividing interest income by the average balance of interest-earning assets and interest expense by the average balance of interest-bearing liabilities for the periods shown. The interest rate spread is the difference between the total average yield on interest-earning assets and the cost of interest-bearing liabilities. Net interest margin represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. Average balances are derived from actual daily balances over the periods indicated. Interest income includes fees earned when the real estate loans are prepaid or refinanced. For analytical purposes, the interest earned on tax-exempt assets is adjusted to a tax-equivalent basis to recognize the income tax savings which facilitates comparison between taxable and tax-exempt assets.

(Dollars in thousands)

(1) Loans, including nonaccrual loans, are net of deferred loan origination costs and unadvanced funds.

(2) Loan and securities income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest and dividend income to agree to the amount reported on the consolidated statements of net income.

(3) Short-term investments include federal funds sold.

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

(5) Net interest rate spread, on a tax-equivalent basis, represents the difference between the tax-equivalent weighted average yield on interest-earning assets and the tax-equivalent weighted average cost of interest-bearing liabilities. See “Explanation of Use of Non-GAAP Financial Measurements.”

(6) Net interest margin represents net interest and dividend income as a percentage of average interest-earning assets.

(7) Net interest margin, on a tax-equivalent basis, represents tax-equivalent net interest and dividend income as a percentage of average interest-earning assets. See “Explanation of Use of Non-GAAP Financial Measurements.”

(8) Annualized.

Rate/Volume Analysis.

The following table shows how changes in interest rates and changes in the volume of interest-earning assets and interest-bearing liabilities have affected our interest and dividend income and interest expense during the periods indicated. Information is provided in each category with respect to: (1) interest income changes attributable to changes in volume (changes in volume multiplied by prior rate); (2) interest income changes attributable to changes in rate (changes in rate multiplied by prior volume); and (3) the net change.

The changes attributable to the combined impact of volume and rate have been allocated proportionately to the changes due to volume and the changes due to rate.

(Dollars in thousands)

(1) Securities, loan income and change in net interest and dividend income are presented on a tax-equivalent basis using a tax rate of 21%. The tax-equivalent adjustment is deducted from tax-equivalent net interest income to agree to the amount reported in the consolidated statements of net income. See “Explanation of Use of Non-GAAP Financial Measurements.”

During the six months ended June 30, 2025, net interest income increased $3.4 million, or 11.3%, to $33.2 million, compared to $29.8 million for the six months ended June 30, 2024. The increase in net interest income was due to an increase in interest income of $4.6 million, or 8.7%, partially offset by an increase in interest expense of $1.3 million, or 5.4%.

For the six months ended June 30, 2025, the net interest margin increased 14 basis points from 2.50% for the six months ended June 30, 2024 to 2.64%. The net interest margin, on a tax-equivalent basis, was 2.66% for the six months ended June 30, 2025, compared to 2.52% for the six months ended June 30, 2024. During the six months ended June 30, 2025 and the six months ended June 30, 2024, the Company recorded $425,000 and $8,000, respectively, in prepayment penalties related to payoffs in the commercial portfolio. Excluding the prepayment penalties, the net interest margin increased 11 basis points from 2.50% for the six months ended June 30, 2024 to 2.61% for the six months ended June 30, 2025.

The average yield on interest-earning assets, without the impact of tax-equivalent adjustments, was 4.63% for the six months ended June 30, 2025, compared to 4.47% for the six months ended June 30, 2024. The average loan yield, without the impact of tax-equivalent adjustments, was 4.97% for the six months ended June 30, 2025, compared to 4.84% for the six months ended June 30, 2024. During the six months ended June 30, 2025, average interest-earning assets increased $128.0 million, or 5.3%, to $2.5 billion, from the same period in 2024. The increase was primarily due to an increase in average loans of $58.0 million, or 2.9%, an increase in average short-term investments, consisting of cash and cash equivalents, of $55.4 million, or 467.4%, and an increase in average securities of $13.1 million, or 3.7%.

The average cost of total funds, including non-interest bearing accounts and borrowings, was 2.07% for each of the six months ended June 30, 2025 and June 30, 2024. The average cost of core deposits, which the Company defines as all deposits except time deposits, increased 23 basis points to 1.05% for the six months ended June 30, 2025, from 0.82% for the six months ended June 30, 2024. The average cost of time deposits decreased 36 basis points from 4.26% for the six months ended June 30, 2024 to 3.90% for the six months ended June 30, 2025. The average cost of borrowings, including subordinated debt, increased eight basis points from 4.96% for the six months ended June 30, 2024 to 5.04% for the six months ended June 30, 2025. Average demand deposits, an interest-free source of funds, increased $18.0 million, or 3.3%, from $553.2 million, or 25.9% of total average deposits, for the six months ended June 30, 2024 to $571.2 million, or 24.8% of total average deposits, for the six months ended June 30, 2025.

Reversal of Credit Losses.

During the six months ended June 30, 2025, the Company recorded a reversal of credit losses of $473,000, compared to a reversal of credit losses of $844,000 during the six months ended June 30, 2024. The decrease was primarily due to changes in the loan mix as well as economic environment and related adjustments to the quantitative components of the CECL methodology. The provision for credit losses was determined by a number of factors: the continued strong credit performance of the Company’s loan portfolio, changes in the loan portfolio mix and Management’s consideration of existing economic conditions and the economic outlook from the Federal Reserve’s actions to control inflation. Management continues to monitor macroeconomic variables related to increasing interest rates, tariffs, inflation and concerns of an economic downturn, and believes it is appropriately reserved for the current economic environment.

The Company recorded net recoveries of $556,000 for the six months ended June 30, 2025, as compared to net recoveries of $57,000 for the six months ended June 30, 2024. During the six months ended June 30, 2025, the Company recorded a recovery of $624,000 on a previously charged-off commercial relationship acquired on October 21, 2016 from Chicopee Bancorp, Inc. As of June 30, 2025, the relationship has been paid in full and the Company does not expect to charge-off or recover any additional funds from the borrower.

Although we believe that we have established and maintained the allowance for credit losses at adequate levels, future adjustments may be necessary if economic, real estate and other conditions differ substantially from the current operating environment.

Non-interest Income.

For the six months ended June 30, 2025, non-interest income decreased $338,000, or 5.2%, from $6.5 million during the six months ended June 30, 2024 to $6.2 million. During the same period, service charges and fees on deposits increased $252,000, or 5.5%, and income from BOLI increased $34,000, or 3.6%. During the six months ended June 30, 2025, the Company reported a gain of $243,000 on non-marketable equity investments, compared to a gain of $987,000 during the six months ended June 30, 2024. During the six months ended June 30, 2025, the Company reported $95,000 in other income from loan-level swap fees on commercial loans and did not have comparable income during the six months ended June 30, 2024. During the six months ended June 30, 2025, the Company reported unrealized gains on marketable equity securities of $20,000, compared to unrealized gains on marketable equity securities of $12,000 during the six months ended June 30, 2024. Gains and losses from the investment portfolio vary from quarter to quarter based on market conditions, as well as the related yield curve and valuation changes. During the six months ended June 30, 2025, the Company reported $11,000 in gains from mortgage banking activities and did not have comparable gains or losses during the six months ended June 30, 2024. In addition, during the six months ended June 30, 2024, the Company reported a loss on the disposal of premises and equipment of $6,000 and did not have a comparable gain or loss during the six months ended June 30, 2025.

Non-interest Expense.

For the six months ended June 30, 2025, non-interest expense increased $1.7 million, or 6.0%, to $30.8 million, compared to $29.1 million for the six months ended June 30, 2024. The increase in non-interest expense was primarily due to an increase in salaries and employee benefits of $1.1 million, or 6.8%, due to an increase in deferred compensation expense to reflect updated performance award estimates. Advertising expense increased $184,000, or 26.7%, data processing increased $107,000, or 6.3%, FDIC insurance expense increased $97,000, or 13.2%, occupancy expense increased $96,000, or 3.7%, debit card and ATM processing fees increased $56,000, or 4.7%, software related expenses increased $39,000, or 3.1%, professional fees increased $19,000, or 1.7%, furniture and equipment expense increased $11,000, or 1.1%, and other non-interest expense increased $36,000, or 1.4%.

For the six months ended June 30, 2025, the efficiency ratio was 78.4%, compared to 80.1% for the six months ended June 30, 2024. For the six months ended June 30, 2025, the adjusted efficiency ratio, a non-GAAP financial measure, was 78.9%, compared to 82.4% for the six months ended June 30, 2024. The decreases in the efficiency ratio and the adjusted efficiency ratio were driven by higher revenues, defined as the sum of net interest income and non-interest income, during the six months ended June 30, 2025, compared to the six months ended June 30, 2024. The adjusted efficiency ratio is a non-GAAP measure. See “Explanation of Use of Non-GAAP Financial Measurements” for the related efficiency ratio calculation and a reconciliation of GAAP to non-GAAP financial measures.

Income Taxes.

Income tax expense for the six months ended June 30, 2025 was $2.1 million, representing an effective tax rate of 23.2%, compared to $1.6 million, representing an effective tax rate of 19.8%, for six months ended June 30, 2024. The increase is due to higher projected pre-tax income for the twelve months ended December 31, 2025.

Explanation of Use of Non-GAAP Financial Measurements.

We believe that it is common practice in the banking industry to present interest income and related yield information on tax-exempt loans and securities on a tax-equivalent basis, as well as presenting tangible book value per share and adjusted efficiency ratio, and that such information is useful to investors because it facilitates comparisons among financial institutions. However, the adjustment of interest income and yields on tax-exempt loans and securities to a tax-equivalent amount, as well as the presentation of tangible book value per share and adjusted efficiency ratio, may be considered to include financial information that is not in compliance with GAAP. A reconciliation from GAAP to non-GAAP is provided below.

(Dollars in thousands, except per share data)

(Dollars in thousands)

60

(Dollars in thousands)

(1) The tax equivalent adjustment is based upon a 21% tax rate.

Liquidity and Capital Resources.

The term “liquidity” refers to our ability to generate adequate amounts of cash to fund loan originations, loan purchases, deposit withdrawals and operating expenses. Our primary sources of liquidity are deposits, scheduled amortization and prepayments of loan principal and mortgage-backed securities, maturities and calls of investment securities and funds provided by our operations. We also can borrow funds from the FHLB based on eligible collateral of loans and securities. Our material cash commitments include funding loan originations, fulfilling contractual obligations with third-party service providers, maintaining operating leases for certain of our Bank properties and satisfying repayment of our long-term debt obligations.

Primary Sources of Liquidity

The Company, on an ongoing basis, closely monitors the Company’s liquidity position for compliance with internal policies, and believes that available sources of liquidity are adequate to meet funding needs in the normal course of business. As part of that monitoring process, the Company stresses the potential liabilities calculation to ensure a strong liquidity position. Included in the calculation are assumptions of some significant deposit run-off as well as funds needed for loan closing and investment purchases. The Company does not anticipate engaging in any activities, either currently or over the long-term, for which adequate funding would not be available and which would therefore result in significant pressure on liquidity. However, an economic recession could negatively impact the Company’s liquidity. The Bank relies heavily on FHLB as a source of funds, particularly with its overnight line of credit. In past economic recessions, some FHLB branches have suspended dividends, cut dividend payments, and not bought back excess FHLB stock that members hold in an effort to conserve capital. FHLB has stated that it expects to be able to continue to pay dividends, redeem excess capital stock, and provide competitively priced advances in the future.

At June 30, 2025 and December 31, 2024, outstanding borrowings from the FHLB were $98.0 million. At June 30, 2025, we had $452.7 million in available borrowing capacity with the FHLB. We have the ability to increase our borrowing capacity with the FHLB by pledging investment securities or additional loans.

The Company has an available line of credit of $383.8 million with the FRB Discount Window at an interest rate determined and reset on a daily basis. Borrowings from the FRB Discount Window are secured by certain eligible loan collateral and securities from the Company’s investment portfolio not otherwise pledged. As of June 30, 2025 and December 31, 2024, there were no advances outstanding under the FRB Discount Window.

In addition, we have available lines of credit of $15.0 million and $10.0 million with other correspondent banks. Interest rates on these lines are determined and reset on a daily basis by each respective bank. At June 30, 2025 and December 31, 2024, we did not have an outstanding balance under either of these lines of credit. In addition, we may enter into reverse repurchase agreements with approved broker-dealers. Reverse repurchase agreements are agreements that allow us to borrow money using our securities as collateral.

We also have outstanding at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. We are also obligated under agreements with the FHLB to repay borrowed funds and are obligated under leases for certain of our branches and equipment.

Maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of securities and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

The Company’s primary activities are the origination of commercial real estate loans, commercial and industrial loans and residential real estate loans, as well as and the purchase of mortgage-backed and other investment securities. At June 30, 2025, the Company had approximately $153.9 million in loan commitments and letters of credit to borrowers and approximately $357.8 million in available home equity and other unadvanced lines of credit.

Deposit inflows and outflows are affected by the level of interest rates, the products and interest rates offered by competitors and by other factors. At June 30, 2025, time deposit accounts scheduled to mature within one year totaled $651.5 million. Based on the Company’s deposit retention experience and current pricing strategy, we anticipate that a significant portion of these time deposits will remain on deposit. We monitor our liquidity position frequently and anticipate that it will have sufficient funds to meet our current funding commitments for the next 12 months and beyond.

Material Cash Commitments

The Company entered into a long-term contractual obligation with a vendor for use of its banking software system provider and ancillary services beginning in 2016. Total remaining contractual obligations outstanding with this vendor as of June 30, 2025 were estimated to be $6.1 million, with the total amount of $6.1 million expected to be paid within one year. Further, the Company has operating leases for certain of its banking offices and ATMs. Our leases have remaining lease terms of less than one year to thirteen years, some of which include options to extend the leases for additional five-year terms up to ten years. Undiscounted lease liabilities totaled $8.3 million as of June 30, 2025. Principal payments expected to be made on our lease liabilities during the twelve months ended June 30, 2026 were $1.4 million. The remaining lease liability payments totaled $6.9 million and are expected to be made after June 30, 2026.

In addition, the Company completed an offering of $20 million in aggregate principal amount of its 4.875% Notes to certain qualified institutional buyers in a private placement transaction on April 20, 2021. Unless earlier redeemed, the Notes mature on May 1, 2031. At June 30, 2025, $19.8 million aggregate principal amount of the Notes was outstanding. The Notes will bear interest from the initial issue date to, but excluding, May 1, 2026, or the earlier redemption date, at a fixed rate of 4.875% per annum, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year, beginning August 1, 2021, and from and including May 1, 2026, but excluding the maturity date or earlier redemption date, equal to the benchmark rate, which is the 90-day average secured overnight financing rate, plus 412 basis points, determined on the determination date of the applicable interest period, payable quarterly in arrears on May 1, August 1, November 1 and February 1 of each year. The Company may also redeem the Notes, in whole or in part, on or after May 1, 2026, and at any time upon the occurrence of certain events, subject in each case to the approval of the Board of Governors of the Federal Reserve.

At June 30, 2025, we exceeded each of the applicable regulatory capital requirements. As of June 30, 2025, the most recent notification from the Office of Comptroller of the Currency categorized the Bank as “well-capitalized” under the regulatory framework for prompt corrective action. To be categorized as “well-capitalized,” the Bank must maintain minimum total risk-based, Tier 1 risk-based, Common Equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since that notification that management believes would change our category.

Our actual capital ratios of June 30, 2025 and December 31, 2024 are also presented in the following table.

(Dollars in thousands)

63

(Dollars in thousands)

We also have outstanding, at any time, a significant number of commitments to extend credit and provide financial guarantees to third parties. These arrangements are subject to strict credit control assessments. Guarantees specify limits to our obligations. Because many commitments and almost all guarantees expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows.

OFF-BALANCE SHEET ARRANGEMENTS.

The Company does not have any off-balance sheet arrangements, other than noted above under Material Cash Commitments, that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

There have been no material changes in our assessment of our sensitivity to market risk since our presentation in our 2024 Annual Report. Please refer to Item 7A of the 2024 Annual Report for additional information.

Disclosure Controls and Procedures.

Management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), as of the end of the period covered by this report. Based upon the evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective, to ensure that information required to be disclosed in the reports we file and submit under the Securities Exchange Act of 1934, as amended, is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely discussion regarding required disclosure.

Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation that occurred during our last fiscal quarter that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

For a summary of risk factors relevant to our operations, see Part 1, Item 1A, “Risk Factors” in our 2024 Annual Report. There are no additional material changes in the risk factors relevant to our operations since December 31, 2024.