TRUSTCO BANK CORP N Y

Previous wording

The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month and nine month periods ended September 30, 2024, with comparisons to the corresponding period in 2023, as applicable. Unless otherwise indicated, net interest income and interest margin are presented in this discussion on a non-GAAP taxable equivalent basis. For the periods presented, there is no difference between these measures and GAAP net interest income and GAAP net interest margin. The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2023, which was filed with the SEC on March 11, 2024 (the “2023 Form 10-K”), should also be read in conjunction with this review. Amounts in prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period’s presentation.

Current wording

The review that follows focuses on the factors affecting the financial condition and results of operations of TrustCo during the three month period ended March 31, 2025, with comparisons to the corresponding period in 2024, as applicable. The consolidated interim financial statements and related notes, as well as the Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on March 14, 2025 (the “2024 Form 10-K”), should also be read in conjunction with this review. Amounts in the prior period consolidated interim financial statements are reclassified whenever necessary to conform to the current period’s presentation.

Previous wording

Following this Management’s Discussion and Analysis are the “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential” tables, which give a detailed breakdown of TrustCo’s average interest earning assets and interest bearing liabilities for the three and nine month periods ended September 30, 2024 and 2023.

Current wording

Following this Management’s Discussion and Analysis is the table “Distribution of Assets, Liabilities and Shareholders’ Equity: Interest Rates and Interest Differential” which gives a detailed breakdown of TrustCo’s average interest earning assets and interest bearing liabilities for the three month periods ended March 31, 2025 and 2024.

Previous wording

During the third quarter of 2024, financial markets got off to a good start as investors were gauging whether the Federal Reserve might lower interest rates, which it did by 50 basis points in September 2024. For the third quarter of 2024, the S&P 500 Index was up 5.5%, Nasdaq was up 2.6%, and the Dow Jones Industrial Average was up 8.2% compared to the second quarter of 2024. The 10‑year Treasury bond averaged 3.95% during Q3 2024 compared to 4.45% in Q2 2024, a decrease of 50 basis points. The 2‑year Treasury bond average rate decreased 79 basis points to 4.04%, which eased the inverted yield curve over the prior quarter. The spread between the 10‑year and the 2-year Treasury bonds decreased from a -0.38% on average in Q2 2024 to -0.09% in Q3 2024. Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer-term rates. The Federal Open Market Committee (“FOMC”) increased the target range for the Federal Funds rate eleven times in 2022 and 2023, by a total of 525 basis points, to a range of 5.25% to 5.50%, then lowered it in September 2024 by 50 basis points to a range of 4.75% to 5.00%. All of the increases prior to 2024 were expressly made in response to inflationary pressures. Spreads of most asset classes to the comparative treasury yield, including agency securities, corporates, municipals and mortgage-backed securities, continue to be down as compared to the levels seen before the pandemic. Additionally, changes in rates and spreads continue to be affected by global economic concerns.

Current wording

During the first quarter of 2025, financial markets got off to a good start and continued to rally for a time before market volatility began in February and continued through the rest of the quarter, resulting in declines in most of the financial indices. For the first quarter of 2025, the S&P 500 Index was down 4.59%, Nasdaq was down 10.42%, and the Dow Jones Industrial Average was down 1.28% compared to the fourth quarter of 2024. The 10‑year Treasury bond averaged 4.45% during Q1 2025 compared to 4.28% in Q4 2024, an increase of 17 basis points. The 2‑year Treasury bond average remained flat at 4.15%, and the spread between the 10‑year and the 2-year Treasury bonds increased from 0.13% on average in Q4 2024 to 0.30% in Q1 2025. Generally, steeper yield curves are favorable for portfolio mortgage lenders like TrustCo, and the table below illustrates the range of rate movements for both short term and longer term rates. During the first quarter of 2025 Federal Funds rate remained flat at a range of 5.25% to 5.50% as of March 31, 2025.

Previous wording

TrustCo recorded net income of $12.9 million, or $0.68 of diluted earnings per share, for the three months ended September 30, 2024, compared to net income of $14.7 million, or $0.77 of diluted earnings per share, in the same period in 2023. Return on average assets was 0.84% and 0.96%, respectively, for the three months ended September 30, 2024 and 2023. Return on average equity was 7.74% and 9.32%, respectively, for the three months ended September 30, 2024 and 2023.

Current wording

TrustCo recorded net income of $14.3 million, or $0.75 of diluted earnings per share, for the three months ended March 31, 2025, compared to net income of $12.1 million, or $0.64 of diluted earnings per share, in the same period in 2024. Return on average assets was 0.93% and 0.80%, respectively, for the three months ended March 31, 2025 and 2024. Return on average equity was 8.49% and 7.54%, respectively, for the three months ended March 31, 2025 and 2024.

Previous wording

TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial markets and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the 2023 Form 10-K is a description of the effect interest rates had on the results for the year 2023 compared to 2022. Many of the same market factors discussed in the 2023 Annual Report, including instability in the financial services sector and heightened global economic concerns, continued to have a significant impact on results through the third quarter of 2024. In addition, as the fourth quarter of 2024 progresses, the potential changes in regulatory and economic policy following the U.S. presidential election could give rise to interest rate volatility.

Current wording

TrustCo’s results are affected by a variety of factors including competitive and economic conditions in the specific markets in which the Company operates and, more generally, in the national economy, financial market conditions and the regulatory environment. Each of these factors is dynamic, and changes in any area can have an impact on TrustCo’s results. Included in the 2024 Form 10-K is a description of the effect that continued elevated interest rates had on the results for the year 2024 compared to 2023. Many of the same market factors discussed in the 2024 Form 10-K continued to have an impact on results through the first quarter of 2025.

Previous wording

Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to control national economic policy is the “Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. As discussed above, the FOMC increased the target range for the federal funds rate eleven times in 2022 and 2023 by a total of 525 basis points, to a range of 5.25% to 5.50% by the end of 2023. In September 2024 the FOMC met and lowered the federal funds rate by 50 basis points, to a range of 4.75% to 5.00% where it remains as of September 30, 2024.

Current wording

Interest rates have a significant impact on the operations and financial results of all financial services companies. One of the most important interest rates used to control national economic policy is the “Federal Funds” rate. This is the interest rate utilized within the banking system for overnight borrowings for institutions with the highest credit rating. During the first quarter of 2025 Federal Funds rate remained flat at a range of 5.25% to 5.50% as of March 31, 2025.

Previous wording

The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans and longer term investments. These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term instruments as well as the interest expense on deposits and borrowings. The Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which are recorded at fair value. Generally, as market interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable. Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae. The Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive. Higher market interest rates also generally increase the value of retail deposits.

Current wording

The interest rate on the 10-year Treasury bond and other long-term interest rates have significant influence on the rates for new residential real estate loans and longer term investments. These changes in interest rates have an effect on the Company relative to the interest income on loans, securities, and Federal Funds sold and other short-term instruments as well as the interest expense on deposits and borrowings. Residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10‑year Treasury. The Federal Funds sold portfolio and other short‑term investments are affected primarily by changes in the Federal Funds target rate. Deposit interest rates are most affected by short term market interest rates. Also, changes in interest rates have an effect on the recorded balance of the securities available for sale portfolio, which is recorded at fair value. Generally, as market interest rates increase, the fair value of the securities will decrease and the reverse is also generally applicable. Interest rates on new residential real estate loan originations are also influenced by the rates established by secondary market participants such as Freddie Mac and Fannie Mae. The Company establishes rates that management determines are appropriate in light of the long-term nature of residential real estate loans while remaining competitive. Higher market interest rates also generally increase the value of retail deposits.

Previous wording

TrustCo’s principal loan products are residential real estate loans. As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10‑year Treasury yield decreased 50 basis points, on average, during the third quarter of 2024 compared to the second quarter of 2024 and decreased 20 basis points as compared to the third quarter of 2023.

Current wording

TrustCo’s principal loan products are residential real estate loans. Most of TrustCo’s residential real estate loans carry a fixed rate of interest. As noted above, residential real estate loans and longer‑term investments are most affected by the changes in longer term market interest rates such as the 10-year Treasury. The 10‑year Treasury yield was up 17 basis points, on average, during the first quarter of 2025 compared to the fourth quarter of 2024, and it was up 29 basis points as compared to the first quarter of 2024.

Previous wording

While TrustCo has been affected by changes in financial markets over time, management believes that the impacts have been mitigated by the Company’s generally conservative approach to banking. The Company utilizes a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions. For additional information concerning TrustCo’s loan portfolio and nonperforming loans, please refer to the discussions under “Loans” and “Nonperforming Assets,” respectively. Further, the Company does not rely on borrowed funds to support its assets and maintains a significant level of liquidity on the asset side of the balance sheet. Management believes that these characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.

Current wording

While TrustCo has been affected by changes in financial markets over time, management believes that the impacts have been mitigated by the Company’s generally conservative approach to banking. The Company utilizes a traditional underwriting process in evaluating loan applications, and since originated loans are retained in the portfolio, there is a strong incentive to be conservative in making credit decisions. For additional information concerning TrustCo’s loan portfolio and nonperforming loans, please refer to the discussions under “Loans” and “Nonperforming Assets,” respectively. Further, the Company does not rely on borrowed funds to support its assets and maintains a significant level of liquidity on the asset side of the Statement of Financial Condition. Management believes that these characteristics provide the Company with increased flexibility and stability during periods of market disruption and interest rate volatility.

Previous wording

A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships. Management believes that the Company has significant capacity to grow its balance sheet given its extensive branch network and it expects that growth to be profitable. The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion. While the Company has not changed its fundamental long-term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial.

Current wording

A fundamental component of TrustCo’s strategy has been to grow customer relationships and the deposits and loans that are part of those relationships. Management believes that the Company has significant capacity to grow its balance sheet given its extensive branch network. The Company expects that growth to be profitable. The current interest rate environment, however, has narrowed the margin on incremental balance sheet expansion. While the Company has not changed its fundamental long term strategy in regard to utilizing its excess capacity, management continually evaluates changing conditions and may seek to limit growth or reduce the size of the balance sheet if its analysis indicates that doing so would be beneficial.

Previous wording

For the third quarter of 2024, the net interest margin was 2.61%, down 24 basis points versus the prior year’s quarter. The quarterly results reflect the following significant factors:

Current wording

For the first quarter of 2025, the net interest margin was 2.64%, up 20 basis points versus the prior year’s first quarter. The quarterly results reflect the following significant factors:

Previous wording

During the third quarter of 2024, the Company continued to focus on its strategy to expand the loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.

Current wording

During the first quarter of 2025, the Company continued to focus on its strategy to expand its loan portfolio by offering competitive interest rates. Management believes the TrustCo residential real estate loan product is very competitive compared to local and national competitors. Competition remains strong in the Company’s market areas.

Previous wording

The strategy on the funding side of the balance sheet was to offer competitive core deposit products coupled with short term time accounts. This strategy has sustained TrustCo’s strong liquidity position and continues to allow us to cross sell products to new and existing relationships and take advantage of opportunities as they arise.

Current wording

The strategy on the funding side of the balance sheet was to offer competitive core deposit products coupled with short term time accounts. We believe that this strategy has sustained TrustCo’s strong liquidity position and continues to allow us to cross sell products to new and existing relationships and take advantage of opportunities as they arise.

Previous wording

Total average interest earning assets increased from $5.92 billion in the third quarter of 2023 to $5.94 billion in the same period of 2024 with an average yield of 4.11% in the third quarter of 2024 and 3.88% in the third quarter of 2023. The mix of assets invested in Federal Funds sold and other short-term investments and securities available for sale decreased while loans increased over the prior year period. Interest income on average earning assets increased from $57.6 million in the third quarter of 2023 to $61.1 million in the third quarter of 2024, on a tax equivalent basis. This increase was primarily driven by an increase in interest income on loans due to higher interest rates on loan originations over the last year and variable rate loans repricing upwards, which resulted from the continued increases in the Federal Funds target rate throughout 2023 before it was reduced in September 2024.

Current wording

Total average interest earning assets increased from $5.99 billion in the first quarter of 2024 to $6.11 billion in the same period of 2025 with an average yield of 4.13% in the first quarter of 2025 and 3.99% in the first quarter of 2024. The mix of assets invested in securities available for sale decreased while Federal Funds sold and other short-term investments and loans increased over the prior year period. Interest income on average earning assets increased $3.1 million in the first quarter of 2025 from the prior year period. This increase was primarily driven by an increase in interest income on loans due to higher interest rates on loan originations over the last year.

Previous wording

Compared to the third quarter of 2023, the average balance of residential mortgage loans, home equity lines of credit, and commercial loans all increased. The average balance of residential mortgage loans was $4.38 billion in the third quarter of 2024 compared to $4.33 billion in 2023, an increase of 1.2%. The average yield on residential mortgage loans increased by 18 basis points to 3.82% in the third quarter of 2024 compared to 2023.

Current wording

Compared to the first quarter of 2024, the average balance of residential mortgage loans, commercial loans, and home equity loans all increased, while installment loans decreased. The average balance of residential mortgage loans was $4.39 billion in 2025 compared to $4.36 billion in 2024, an increase of 0.6%. The average yield on residential mortgage loans increased by 18 basis points to 3.89% in the first quarter of 2025 compared to 2024, primarily as a result of the higher interest rates on new originations compared to the existing portfolio yield.

Previous wording

TrustCo actively markets the residential loan products within its market territories. The prolonged elevated level of higher interest rates has slowed lending across all markets we serve. As long term interest rates decrease we would expect the volume of lending to increase as rates become more attractive for existing mortgage customers. Mortgage loan rates are affected by a number of factors including rates on Treasury securities, the Federal Funds target rate and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create a differentiation from other lenders. These unique aspects include low closing costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers. Assuming a change in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.

Current wording

TrustCo actively markets the residential loan products within its market territories. Mortgage loan rates are affected by a number of factors, including rates on Treasury securities, the Federal Funds target rate and rates set by competitors and secondary market participants. TrustCo aggressively markets the unique aspects of its loan products thereby attempting to create differentiation from other lenders. These unique aspects include low closing costs, fast turn-around time on loan approvals, and no escrow or mortgage insurance requirements for qualified borrowers. Assuming a continued decline in long-term interest rates, the Company would anticipate that the unique features of its loan products will continue to attract customers in the residential mortgage loan area.

Previous wording

Commercial loans, which consist primarily of loans secured by commercial real estate, increased $18.1 million to an average balance of $279.2 million in the third quarter of 2024 compared to the same period in the prior year. The average yield on this portfolio was up 24 basis points to 5.45% compared to the prior year period, primarily as a result of the continued elevated interest rates on new originations and variable rate loans repricing. The Company has sought to remain selective in underwriting commercial loans in pursuit of a favorable risk/reward balance.

Current wording

Commercial loans, which consist primarily of loans secured by commercial real estate, increased $20.7 million to an average balance of $297.9 million in the first quarter of 2025 compared to the same period in the prior year. The average yield on this portfolio was up 31 basis points to 5.59% compared to the prior year period, primarily as a result of the higher interest rates on new originations compared to the existing portfolio yield and variable rate loans repricing. The Company has sought to remain selective in underwriting commercial loans in recent periods as the apparent risk/reward balance has been less favorable in some cases compared to that of prior periods.

Previous wording

The average yield on home equity credit lines increased 41 basis points to 6.53% during the third quarter of 2024 compared to the year earlier period. The average balances of home equity credit lines increased 18.7% to $380.4 million in the third quarter of 2024 as compared to the prior year.

Current wording

The average yield on home equity credit lines increased 8 basis points to 6.30% during the first quarter of 2025 compared to the prior year period. The average balances of home equity lines increased 17.3% to $414.0 million in the first quarter of 2025 as compared to the prior year.

Previous wording

The average balance of the securities available for sale portfolio for the third quarter of 2024 was $409.3 million compared to $489.8 million for the comparable period in 2023. The decreasing balance reflects routine paydowns, calls and maturities, partially offset by new investment purchases. The average yield was 2.51% for the third quarter of 2024 compared to 2.24% for the third quarter of 2023. The increase in average yield is a result of higher yields on bonds purchased as well as lower yielding bonds maturing since the prior year quarter. This portfolio is primarily comprised of agency issued residential mortgage backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value included in other comprehensive loss, net of tax.

Current wording

The average balance of the securities available for sale portfolio for the first quarter of 2025 was $369.9 million compared to $477.4 million for the comparable period in 2024. The decrease in the balance reflects routine paydowns, calls and maturities, partially offset by new investment purchases. The average yield was 2.62% for the first quarter of 2025 compared to 2.50% for the first quarter of 2024. The increase in average yield is a result of higher yields on bonds purchased as well as lower rate bonds maturing since the prior year quarter. This portfolio is primarily comprised of agency issued residential mortgage-backed securities, bonds issued by government sponsored enterprises (such as Fannie Mae, the Federal Home Loan Bank, and Freddie Mac), Small Business Administration participation certificates, corporate bonds and municipal bonds. These securities are recorded at fair value with any adjustment in fair value included in other comprehensive income (loss), net of tax.

Previous wording

The net unrealized loss in the available for sale securities portfolio was $22.7 million as of September 30, 2024 compared to a net unrealized loss of $32.2 million as of December 31, 2023. The net unrealized losses in the portfolio is the result of changes in market interest rate levels.

Current wording

The net unrealized loss in the available for sale securities portfolio was $24.0 million as of March 31, 2025 compared to a net unrealized loss of $29.3 million as of December 31, 2024. The decrease in the net unrealized losses in the portfolio is the result of the current interest rate environment.

Previous wording

The average balance of held to maturity securities was $5.8 million for the third quarter of 2024 compared to $6.9 million in the third quarter of 2023. The decrease in balances reflects routine paydowns. No new securities were added to this portfolio during the period. The average yield was 4.29% for the third quarter of 2024 up from 4.22% for the year earlier period. TrustCo expects to hold the securities in this portfolio until they mature or are called.

Current wording

The average balance of held to maturity securities was $5.2 million for the first quarter of 2025 compared to $6.3 million in the first quarter of 2024. The decrease in balances reflects routine paydowns. No new securities were added to this portfolio during the period. The average yield was 4.34% for the first quarter of 2025 compared to 4.30% for the year earlier period. TrustCo expects to hold the securities in this portfolio until they mature or are called.

Previous wording

The net unrecognized gain in the held to maturity securities portfolio was $9 thousand as of September 30, 2024 compared to a net unrecognized loss of $62 thousand as of December 31, 2023. The increase in the net unrecognized gain in the portfolio is the result of changes in market interest rate levels.

Current wording

The net unrecognized loss in the held to maturity securities portfolio was $9 thousand as of March 31, 2025 compared to a net unrecognized loss of $59 thousand as of December 31, 2024. The decrease in the net unrecognized losses in the portfolio is the result of changes in market interest rate levels.

Previous wording

As of September 30, 2024, this portfolio consisted solely of agency issued residential mortgage-backed securities and collateralized mortgage obligations. The balances for these securities are recorded at amortized cost.

Current wording

As of March 31, 2025, this portfolio consisted solely of residential mortgage-backed securities. The balances for these securities are recorded at amortized cost.

Previous wording

TrustCo utilizes various funding sources to support its earning asset portfolio. The vast majority of the Company’s funding comes from traditional deposit vehicles such as savings, demand deposits, interest-bearing checking, money market and time deposit accounts.

Current wording

TrustCo utilizes various funding sources to support its earning asset portfolio. The vast majority of the Company’s funding comes from traditional deposit vehicles such as savings, demand deposit, interest-bearing checking, money market and time deposit accounts.

Previous wording

Total average interest bearing deposit accounts (which includes interest bearing checking, money market accounts, savings and time deposits) increased $50.0 million to $4.50 billion for the third quarter of 2024 versus the third quarter in the prior year, and the average rate paid increased from 1.34% for 2023 to 1.96% for 2024. Total interest expense on these deposits increased from $15.1 million to $22.2 million in the third quarter of 2024 compared to the year earlier period. From the third quarter of 2023 to the third quarter of 2024, interest bearing checking account average balances were down 4.8%, certificates of deposit average balances were up 25.8%, non-interest demand average balances were down 4.5%, average savings balances decreased 12.5% and money market balances were down 20.1%. Overall, average balances are up from a year ago as we continue to encourage customers to retain their funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.

Current wording

Total average interest bearing deposits (which includes interest bearing checking, money market accounts, savings and time deposits) increased $67.8 million to $4.65 billion for the first quarter of 2025 versus the first quarter in the prior year, and the average rate paid decreased from 2.02% for 2024 to 1.94% for 2025. Total interest expense on these deposits decreased $707 thousand to $22.3 million in the first quarter of 2025 compared to the year earlier period. From the first quarter of 2024 to the first quarter of 2025, interest bearing checking account average balances were up 4.9%, certificates of deposit average balances were up 8.7%, non‑interest demand average balances were up 4.9%, average savings balances decreased 6.0% and money market balances were down 13.9%. Overall, average balances are up from a year ago as we continue to encourage customers to retain their funds in the expanded product offerings of the Bank through aggressive marketing and product differentiation.

Previous wording

At September 30, 2024, the maturity of total time deposits is as follows:

Current wording

As of March 31, 2025, the maturity of total time deposits was as follows:

Previous wording

As of September 30, 2024 and December 31, 2023, approximately $1.05 billion and $1.03 billion, respectively, of our deposit portfolio were uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Current wording

As of March 31, 2025 and December 31, 2024, approximately $1.16 billion and $1.11 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts are estimates based on the methodologies and assumptions used for the Bank’s regulatory reporting requirements.

Previous wording

Average short-term borrowings for the third quarter were $87.7 million in 2024 compared to $110.0 million in 2023. The average rate remained the same at 0.88% during this time period. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

Current wording

Average short-term borrowings for the first quarter of 2025 were $83.2 million compared to $93.3 million in the same period in 2024. The decrease in the average balance from the prior year period is primarily a result of a shift of funds into time deposits. The average rate remained flat at 0.88% in each of the first quarters of 2024 and 2025. The short-term borrowings of the Company are cash management accounts, which represent retail accounts with customers for which the Bank has pledged certain assets as collateral.

Previous wording

The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow utilizing securities and/or loans as collateral at either institution. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered deposits may be tested from time to time to ensure operational and market readiness. As of September 30, 2024 the Company also has borrowing capacity of $930.2 million available with the FHLBNY. The borrowings capacity is secured by the loans pledged by the Company. As of September 30, 2024 and December 31, 2023, the Company had no outstanding borrowings with the FHLBNY.

Current wording

The Company has a number of contingent funding alternatives available in addition to the large cash and cash equivalents position and the investment securities positions it maintains on its balance sheet. The Bank is a member of the Federal Home Loan Bank of New York (“FHLBNY”) and is an eligible borrower at the Federal Reserve Bank of New York (“FRBNY”) and has the ability to borrow utilizing securities and/or loans as collateral at either institution. The Bank does not utilize brokered deposits as a part of its funding strategy, but does incorporate them as a potential contingent funding source within its Asset/Liability Management Policy. Like other contingent funding sources, brokered CDs may be tested from time to time to ensure operational and market readiness. As of March 31, 2025 the Company also has borrowing capacity of $928 million available with the FHLBNY. The borrowings capacity is secured by the loans pledged by the Company. As of March 31, 2025 and 2024, the Company had no outstanding borrowings with the FHLBNY.

Previous wording

Taxable equivalent net interest income decreased by $3.6 million to $38.7 million in the third quarter of 2024 compared to the same period in 2023. The net interest spread was down 38 basis points to 2.17% in the third quarter of 2024 compared to the same period in 2023. As previously noted, the net interest margin was also down 24 basis points to 2.61% for the third quarter of 2024 compared to the same period in 2023. The Bank experienced some margin compression as funding shifted from demand deposits and savings to higher rate time deposits during the rising interest rate market. Management notes that margin compression has eased over the last quarter as maturing time deposits have been repriced lower due to the recent rate cut by the FRB. The Company has seen the erosion of margin stop when comparing the increase of net interest income to the prior quarter and management believes that we have reached the bottom of this rate cycle. Taxable equivalent net interest income has increased by $883 thousand as compared to the second quarter of 2024, and net interest margin has also increased 8 basis points compared to the second quarter of 2024. The Federal Reserve’s decision regarding whether to further cut or hold rates in the upcoming meetings will have an effect on the Company’s ability to continue to decrease deposit costs which will continue to help margin in future quarters. During the second and third quarters of 2024, the Company has been able to lower the rates offered on our time deposits while continuing to substantially retain that product. This is expected bring down the cost of time deposits in future periods.

Current wording

Net interest income was up $3.8 million from $36.6 million in the first quarter of 2024 to $40.4 million in the first quarter of 2025, driven by loan growth at higher interest rates and less interest expense on deposit products, partially offset by lower investment interest income and a decrease in interest on federal funds sold and other short-term investments. The net interest spread was up 21 basis points to 2.21% in the first quarter of 2025 compared to the same period in 2024. As previously noted, the net interest margin was up 20 basis points to 2.64% for the first quarter of 2025 compared to the same period in 2024. Yields on earning assets increased in the first quarter of 2025 compared to the first quarter of 2024, and rates on interest-bearing liabilities decreased causing margin expansion. The Federal Reserve’s decision regarding whether to cut or hold rates in upcoming meetings will have an effect on the Company’s ability to decrease deposit costs which should help margin in future quarters. During the first quarter of 2025, the Company has been able to lower the rates offered on our time deposits while continuing to retain and grow that product. This is expected bring down the cost of time deposits over time.

Previous wording

Nonperforming loans and foreclosed real estate: Total NPLs and non-accrual loans were $19.4 million at September 30, 2024 compared to $17.7 million at December 31, 2023. There were no loans at September 30, 2024 and December 31, 2023 that were past due 90 days or more and still accruing interest. The coverage ratio, or allowance for credit losses on loans to NPLs, was 256.9% at September 30, 2024 compared to 275.0% at December 31,2023.

Current wording

Nonperforming loans and foreclosed real estate: Total NPLs were $18.8 million as of both March 31, 2025 and December 31, 2024. There were no loans as of March 31, 2025 and December 31, 2024 that were past due 90 days or more and still accruing interest.

Previous wording

At September 30, 2024, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $19.4 million at September 30, 2024, $18.5 million were residential real estate loans, $780 thousand were commercial loans and mortgages and $168 thousand were installment loans, compared to $16.6 million, $850 thousand and $166 thousand, respectively, at December 31, 2023.

Current wording

As of March 31, 2025, nonperforming loans primarily include a mix of commercial and residential loans. Of total nonperforming loans of $18.8 million as of March 31, 2025, $17.9 million were residential real estate loans, $688 thousand were commercial loans and mortgages and $142 thousand were installment loans, compared to $18.3 million, $343 thousand and $130 thousand, respectively, at December 31, 2024.

Previous wording

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net chargeoffs were $104 thousand on residential real estate loans (including home equity lines of credit) for the third quarter of 2024 compared to net recoveries of $26 thousand for the third quarter of 2023. Management believes that these loans have been appropriately written down where required.

Current wording

A significant percentage of nonperforming loans are residential real estate loans, which are historically lower-risk than most other types of loans. Net charge-offs were $41 thousand on residential real estate loans (including home equity lines of credit) for the first quarter of 2025 as compared to net recoveries of $78 thousand in the first quarter of 2024. Management believes that these loans have been appropriately written down where required.

Previous wording

The Company originates loans throughout its branch franchise area. At September 30, 2024, 64.5% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 35.5% were in Florida. Those figures compare to 65.1% and 34.9%, respectively, at December 31, 2023.

Current wording

The Company originates loans throughout its branch franchise area. As of March 31, 2025, 64.2% of its gross loan portfolio balances were in New York State and the immediately surrounding areas (including New Jersey, Vermont and Massachusetts), and 35.8% were in Florida. Those figures compare to 64.3% and 35.7%, respectively at December 31, 2024.

Previous wording

Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of September 30, 2024, 18.0% were to Florida borrowers, compared to 82.0% to borrowers in New York and surrounding areas. For the three months ended September 30, 2024, New York and surrounding areas experienced net charge-offs of approximately $180 thousand and Florida experienced net chargeoffs of $42 thousand for the third quarter of 2024.

Current wording

Economic conditions vary widely by geographic location. As a percentage of the total nonperforming loans as of March 31, 2025, 16.7% were to Florida borrowers, compared to 83.3% to borrowers in New York and surrounding areas. For the three months ended March 31, 2025, New York and surrounding areas experienced net charge-offs of approximately $41 thousand, and Florida experienced net recoveries of $299 thousand.

Previous wording

Loans individually evaluated for impairment are non-accrual loans delinquent greater than 180 days, non-accrual commercial loans, as well as loans classified as loan modifications. There were $882 thousand of commercial mortgages and commercial loans classified as individually evaluated as of September 30, 2024 compared to $957 thousand classified as individually evaluated at December 31, 2023. There were $24.0 million of individually evaluated residential loans at September 30, 2024 compared to $23.6 million classified as individually evaluated at December 31, 2023.

Current wording

Loans individually evaluated for impairment are non-accrual loans delinquent greater than 180 days, non-accrual commercial loans, as well as loans classified as loan modifications to borrowers experiencing financial difficulty. There were $786 thousand of commercial mortgages and commercial loans classified as individually evaluated as of March 31, 2025 compared to $443 thousand at December 31, 2024. There were $23.2 million of individually evaluated residential loans as of March 31, 2025 compared to $23.8 million at December 31, 2024.

Previous wording

At September 30, 2024 there was $2.5 million of foreclosed real estate compared to $194 thousand at December 31, 2023.

Current wording

As of March 31, 2025 there was $2.1 million of foreclosed real estate compared to $2.2 million at December 31, 2024.

Previous wording

Allowance for credit losses on loans: As of September 30, 2024, the Company utilized the Baseline scenario model of Moody’s economic scenarios and considered the uncertainty associated with the assumptions in the baseline scenario, including continued actions taken by the Federal Reserve with regard to monetary policy and interest rates and the potential impact of those actions, the conflicts in the Middle East and Russia-Ukraine and the magnitude of the resulting market disruptions, and the potential impact of persistent high inflation on the economy. Outcomes in any or all of these factors could differ from the baseline scenario utilized, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk that may not be captured in the quantitative model.

Current wording

Allowance for credit losses on loans: As of March 31, 2025, the Company utilized the Baseline scenario model of Moody’s economic scenarios and considered the uncertainty associated with the assumptions in the baseline scenario, including continued actions taken by the Federal Reserve with regard to monetary policy and interest rates and the potential impact of those actions, and the potential impact of persistent high inflation on the economy. Outcomes in any or all of these factors could differ from the baseline scenario utilized, and the Company incorporated qualitative considerations reflecting the risk of uncertain economic conditions, and for additional dimensions of risk that may not be captured in the quantitative model.

Previous wording

In the third quarter of 2024, the Company recorded a provision for credit losses of $500 thousand, which is the result of a provision for credit losses on loans of $400 thousand, and provision for credit losses on unfunded commitments of $100 thousand. The increase in the ACLL during the third quarter of 2024 was primarily a result of loan growth. The increase in the provision for credit losses on unfunded commitments is a result of a corresponding increase in unfunded loan commitments. In the third quarter of 2023, the Company recorded a provision for credit losses of $100 thousand, which includes a provision for credit losses on loans of $300 thousand as a result of continued growth in the loan portfolio partially offset by a sustained low level of NPLs and charge-offs, and a benefit for credit losses on unfunded commitments of $200 thousand as a result of a corresponding decrease in unfunded loan commitments.

Current wording

In the first quarter of 2025, the Company recorded a provision for credit losses of $300 thousand, which is the result of a provision for credit losses on loans of $100 thousand, and provision for credit losses on unfunded commitments of $200 thousand. The increase in the ACLL during the first quarter of 2025 was primarily a result of loan growth. The increase in the provision for credit losses on unfunded commitments is a result of an increase in unfunded loan commitments.

Previous wording

See Note 5 of the consolidated interim financial statements for additional discussion related the process for determining the provision for credit losses.

Current wording

See Note 5 of the financial statements for additional discussion related to the process for determining the provision for credit losses.