Avidia Bancorp, Inc.

This report contains forward-looking statements, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

•

statements of our goals, intentions and expectations;

•

statements regarding our business plans, prospects, growth and operating strategies;

•

statements regarding the quality of our loan portfolio; and

•

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.

•

general economic conditions, either nationally or in our market areas, that are worse than expected including as a result of employment levels and labor shortages, and the effects of inflation, a potential recession or slowed economic growth caused by supply chain disruptions or otherwise;

•

inflation and changes in the interest rate environment that reduce our margins and yields, our mortgage banking revenues, the fair value of financial instruments, including our mortgage servicing rights asset, or our level of loan originations, or increases in the level of defaults, losses and prepayments on loans we have made and make;

•

changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;

•

changes in liquidity, including the size and composition of our deposit portfolio, including the percentage of uninsured deposits in the portfolio;

•

our ability to access cost-effective funding;

•

fluctuations in real estate values and both residential and commercial real estate market conditions;

•

demand for loans and deposits in our market area;

•

our ability to implement and change our business strategies;

•

competition among depository and other financial institutions;

•

adverse changes in the securities or secondary mortgage markets;

•

changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums;

•

changes in the quality or composition of our loan or investment portfolios;

•

technological changes that may be more difficult or expensive than expected;

•

the inability of third-party providers to perform as expected;

•

losses suffered by merchants or Independent Sales Organizations (ISOs) with whom we do business in connection with our payments processing activities;

•

our ability to effectively manage risks related to our payments processing activities;

•

a failure or breach of our operational or security systems or infrastructure, including cyberattacks;

•

our ability to manage market risk, credit risk and operational risk;

•

•

•

changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the SEC or the Public Company Accounting Oversight Board;

•

our ability to attract and retain key employees; and

•

changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, the Company assumes no obligation and disclaims any obligation to update any forward-looking statements.

Critical Accounting Policies and Use of Critical Accounting Estimates

The discussion and analysis of the financial condition and results of operations are based on our consolidated financial statements, which are prepared to conform with U.S. GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions affecting the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities, and the reported amounts of income and expenses. We consider the accounting policy discussed below to be our critical accounting policy. The estimates and assumptions that we use are based on historical experience and various other factors and are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions, resulting in a change that could have a material impact on the carrying value of our assets and liabilities and our results of operations.

The Jumpstart Our Business Startups Act of 2012 contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We have elected to take advantage of the benefits of this extended transition period. Accordingly, our consolidated financial statements may not be comparable to companies that comply with such new or revised accounting standards.

We consider the following accounting policies to be our critical accounting policies:

Allowance for Credit Losses. The allowance for credit losses (“ACL”) is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management confirms that the balance is unlikely to be collected. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off. Management evaluates the appropriateness of the ACL on loans quarterly. This evaluation is inherently subjective as it requires material estimates that may be susceptible to significant change from period to period.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. A reversion methodology is applied beyond the reasonable and supportable forecasts. Qualitative adjustments are then considered for differences in current loan-specific risk characteristics, such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as changes in unemployment rates, property values, or other relevant factors, that may include, but are not limited to, results of internal loan reviews, examinations by bank regulatory agencies, or other such events such as a natural disaster. The ACL on loans represents our estimated risk of loss within its loan portfolio as of the reporting date. To appropriately measure expected credit losses, management disaggregates the loan portfolio into pools of similar risk characteristics.

Management may also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management’s assumptions could alter the ACL on loans materially and impact future results of operations and financial condition. The loss estimation models and methods used to determine the ACL are continually refined and enhanced.

Off-Balance Sheet Credit Exposures. In the ordinary course of business, we enter into commitments to extend credit, including commercial letters of credit and standby letters of credit. Such financial instruments are recorded as loans when they are funded. We estimate expected credit losses over the contractual period in which we are exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by us. The ACL on off-balance sheet credit exposures is adjusted through credit loss expense. To appropriately measure expected credit losses, management disaggregates the off-balance sheet credit exposures into similar risk characteristics, identical to those determined for the loan portfolio. An estimated funding rate is then applied to the qualifying unfunded loan commitments and letters of credit using historical information or industry benchmarks provided by a reputable and independent source, to estimate the expected funded amount for each loan segment as of the reporting date. Once the expected funded amount for each loan segment is determined, the loss rate, which is the calculated expected loan loss as a percent of the amortized cost basis for each loan segment, is applied to calculate the ACL on off-balance sheet credit exposures as of the reporting date.

Securities Valuation and Allowance for Credit Loss. Debt securities that management has the positive intent and ability to hold to maturity are classified as “held to maturity” and recorded at amortized cost. Debt securities not classified as held to maturity are classified as “available for sale” and recorded at fair value, with unrealized gains and losses excluded from earnings and reported in other comprehensive income (loss), net of tax. For available for sale debt securities in an unrealized loss position, we first assess whether we intend to sell, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is written down to fair value through income. For available for sale debt securities that do not meet the aforementioned criteria, we evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an ACL is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an ACL is recognized in other comprehensive income.

Changes in the ACL are recorded as credit loss expense (or reversal). Losses are charged against the allowance when management confirms that an available for sale debt security is uncollectible or when either criterion related to intent or requirement to sell is met.

Management measures expected credit losses on held to maturity debt securities on an individual basis by major security types that share similar risk characteristics, which may include, but is not limited to, credit ratings, financial asset type, collateral type, size, effective interest rate, term, geographical location, industry, and vintage. Management classifies the held to maturity portfolio into the following major security types: subordinated debt and corporate bonds. We invest in subordinated debt issued only by financial institutions.

The estimate of expected credit losses considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts. Given the rarity of subordinated debt and corporate bond defaults and losses, we utilize external third-party financial analysis models as the sole source of default and loss rates. Management may exercise discretion to make adjustments based on various qualitative factors. Changes in the ACL are recorded as credit loss expense (or reversal). A held to maturity debt security is written-off in the period in which a determination is made that all or a portion of the financial asset is uncollectible. Any previously recorded allowance, if any, is reversed and then the amortized cost basis is written down to the amount deemed to be collectible, if any.

Income Taxes. We use the asset and liability (or balance sheet) method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when it is more likely than not that some portion of the deferred tax asset will not be realized. We exercise significant judgment in evaluating the amount and timing of recognition of the resulting tax liabilities and assets. These judgments may require us to make projections of future taxable income and/or to carryback to taxable income in prior years. The judgments and estimates we make in determining our deferred tax assets, which are inherently subjective, are reviewed on a continual basis as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

Goodwill. Goodwill is recognized when the fair value of consideration transferred in an acquisition is greater than the fair value of assets acquired and liabilities assumed. Goodwill has an indefinite useful life and is evaluated on at least an annual basis for potential impairment, and more often if circumstances warrant more frequent evaluations. An impairment loss is recognized to the extent that the carrying value exceeds fair value. Significant judgment and assumptions are utilized by management in the impairment analysis. Avidia Bank was created by a merger between Hudson Savings Bank and The Westborough Savings Bank in 2007. Goodwill of $11.9 million resulting from the merger is not amortized but is evaluated for impairment on an annual basis. Impairment of goodwill is recognized in earnings. As of June 30, 2026, no impairment has been recognized.

Mortgage Servicing Rights. Servicing rights are recognized as separate assets when rights are acquired through sale of financial assets and recorded at fair value. Fair value is determined using prices for similar assets with similar characteristics, when available, or based upon discounted cash flows using market-based assumptions. Changes in fair value are reported in mortgage banking income.

SELECTED FINANCIAL DATA

The following summary data is based in part on the Consolidated Financial Statements and accompanying notes, and other schedules appearing elsewhere in this Form 10-Q. Historical data is also based in part on, and should be read in conjunction with, prior filings with the SEC.

Non-GAAP Financial Measures. This document contains certain non-GAAP financial measures in addition to results presented in accordance with U.S. GAAP. These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company’s GAAP financial information. Each non-GAAP measure used by the Company in this document as supplemental financial data should be considered in conjunction with the Company’s GAAP financial information. The Company adjusts certain equity related measures to exclude intangible assets due to the importance of these measures to the investment community. A reconciliation of non-GAAP financial measures to GAAP measures is provided below.

Comparison of Financial Condition at June 30, 2026 and December 31, 2025

Summary. Total assets were $2.78 billion at June 30, 2026, decreasing $57 million since year-end 2025 due primarily to the use of lower yielding short-term investments to reduce higher cost borrowings. Additionally, funds from deposit growth and loan run-off also contributed to increases in investment securities and bank-owned life insurance.

Short-term Investments. Short-term investments decreased $78 million year-to-date to $51 million at period-end, continuing the reinvestment of proceeds from the July 2025 initial public stock offering.

Total Securities. Total securities increased $45 million to $328 million due to continued purchases of mortgage-backed securities from the deployment of available cash.

Total Loans. Total loans decreased $38 million, or 2%, to $2.26 billion since year end 2025 due primarily to a $35 million decrease in commercial loans and an $11 million decrease in construction & land loans. These decreases were partially offset by an increase of $5 million in home equity loans and another $5 million increase in commercial real estate loans.. Loans categorized as commercial real estate totaled $540 million at period-end and measured 24% of total loans, compared to 23% at year-end 2025.

Asset Quality. Nonaccruing loans decreased by $3.3 million to $16.9 million during the first half of 2026 due primarily to the successful workout of $6.5 million in nonaccruing construction loans, partially offset by a $3.8 million increase in nonaccruing commercial & industrial loans. Nonaccruing loans measured 0.75% of total loans at period-end, compared to 0.88% at year-end 2025. The workouts resulted in the Company recording net recoveries of loan losses totaling $304 thousand during the first half of the year. The allowance for credit losses increased $1.9 million to $23.9 million, increasing to 1.06% of total loans at period-end from 0.96% at year-end 2025. The ratio of the allowance to nonaccruing loans measured 141% and 109% at these dates, respectively. Total criticized loans (rated special mention or lower) decreased to $79 million at midyear 2026 from $104 million at the start of the year.

Total Deposits. Deposits increased in the first half of 2026 by $25 million, or 1%, to $2.15 billion at period-end primarily due to a $29 million increase in money market accounts. Balances of lower cost transaction accounts (demand and NOW) decreased by $7 million, or 1%, from December 31, 2025 to June 30, 2026. Lower cost transaction accounts (demand and NOW) were 52% of total deposits at June 30, 2026.

Borrowings. Federal Home Loan Bank advances decreased by $100 million to $160 million year-to-date due primarily to the use of cash on hand to reduce higher cost borrowings.

Total Stockholders’ Equity. Stockholders’ equity increased by $11 million, or 3%, to $390 million in the first half of 2026 primarily due to net income of $13 million offset by the $2 million dividends that were paid. Stockholders' equity to total assets was 14.0% as of midyear 2026 and the non-GAAP measure of tangible equity to tangible assets was 13.6%. At that date, the regulatory ratio of common equity tier 1 capital as a percentage of risk-weighted assets measured 17.8%. As discussed in the subsequent event disclosure in Note 2: Basis of Presentation, the Company increased its quarterly dividend to $0.06 from $0.05 and also authorized a stock buyback plan in the third quarter.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. Yields on tax-exempt securities have not been computed on a tax-equivalent basis, as the effects are immaterial. Average balances are calculated using daily average balances. Nonaccrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial. Loan balances include loans held for sale.

(1)

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

(2)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)

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

(1)

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

(2)

Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3)

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

Comparison of Operating Results for the Three Months and Six Months Ended June 30, 2026 and 2025

Net Income/Loss. Second quarter net income was $7.2 million in 2026, an increase of $3.3 million, or 85%, compared to

$3.9 million in the second quarter of 2025. Earnings growth was primarily due to a $3.3 million increase in net interest income. As the benefit of the $186 million net cash proceeds from the Company’s initial public offering of stock were infused into the balance sheet on July 31, 2025, these proceeds were primarily used to reduce higher cost borrowings.

The Company’s earnings per share improved to $0.39 in the most recent quarter as the second quarter efficiency ratio also improved year-over-year to 65.3% from 76.4%. In the most recent quarter, return on assets measured 1.04%, return on equity was 7.4%, and the non-GAAP measure of return on tangible common equity was 7.8%.

Net income for the first half of the year was $13.2 million in 2026 compared to a net loss of $7.7 million in 2025. The net loss in 2025 was due to an $18.8 million credit loss expense resulting from a charge-off related primarily to one commercial loan in the first quarter of 2025. Earnings per share for the first half of 2026 measured $0.71. For this period, return on assets measured 0.95%, return on equity was 6.90%, and the non-GAAP measure of return on tangible common equity was 7.12%.

Net Interest Income. Second quarter net interest income increased year-over-year by $3.3 million, or 16%, to $24.0 million. The $198 million increase in average equity, primarily from the stock offering proceeds, were used to reduce higher cost average Federal Home Loan Bank advances by $157 million and fund a $45 million increase in average earning assets. As a result, borrowings expense decreased by $1.7 million. Income also benefited from a 2% increase in average earning assets, higher loan yields, and a decrease in the cost of deposits. The yield on loans increased 12 basis points for the second quarter to 5.32% from the second quarter of 2025. The cost of deposits decreased 4 basis points to 1.32%, including the benefit of a $600 thousand reduction in time deposit interest costs and the benefit of growth in lower cost average NOW and savings accounts.

Year to date net interest income increased year-over-year by $8.1 million, or 20%, to $47.9 million. Average earning assets increased by 4%. The net interest margin increased to 3.62% from 3.12%.

Credit Loss Expense. Based on management’s analysis of the adequacy of the allowance for credit losses, a second quarter credit loss expense of $900 thousand was recorded in 2026 and $1.1 million was recorded in 2025. For the first six months of the year, the expense was $2.0 million and $18.7 million for these respective periods. The expense in 2025 was due to a land loan charge-off, as previously disclosed.

Non-Interest Income. Second quarter non-interest income increased year-over-year by $656 thousand, or 13%, to $5.9 million in 2026 due to increases in all named categories. Growth was concentrated in a $454 thousand increase in customer service fees and a $513 thousand increase in payments processing income. Income has benefited from both volume growth and from price adjustments and included $230 thousand in one-time fees from a payments processing contract termination. The category of other non-interest income decreased $651 thousand. This decrease was primarily due to the $250 thousand gain on the sale of the Direct Merchant Processing Book in 2025, as well as decreases in debit card income, commercial loan fees, and swap fees.

Year to date non-interest income increased year-over-year by $1.2 million, or 14%, to $10.2 million. Customer service fees increased $471 thousand, or 26%, to $2.3 million. Payments processing income increased $230 thousand, or 5%, to $4.5 million. Mortgage banking income increased $372 thousand, or 209%, to $550 thousand. A $611 thousand decrease in the category of other non-interest income was offset by an improvement of $619 thousand in securities losses recorded in 2025, which did not repeat in 2026.

Non-Interest Expense. Second quarter non-interest expense decreased year-over-year by $262 thousand, or 1%, to $19.5 million. Increases in salaries and employee benefits and professional fees expense were offset by decreases in occupancy and equipment, payments processing, and deposit insurance expense. Compensation costs increased based on the Company’s growth strategy and professional fees reflected the engagement of a third-party in 2026 for a process improvement initiative.

For the first half of the year, non-interest expense decreased year-over-year by $3.1 million, or 8%, to $38.5 million. Salaries and employee benefits expense decreased $312 thousand, or 1.5%. Compensation costs in 2025 included costs recorded in conjunction with the conversion and IPO, including costs of $756 thousand for the termination of the long-term incentive plan and a $1.3 million increase in short-term incentives and retirement expenses.

Six month occupancy and equipment and data processing expense together decreased in total by $1.2 million. These costs in 2025 included a new on-line banking platform and licensing costs, and $379 thousand in contract termination expenses. Payments processing expense decreased by $1.2 million, primarily due to the impact of the sale of the direct merchant portfolio. Professional fees increased $875 thousand primarily due to the engagement in 2026 of a third-party to help implement a process improvement program. Deposit insurance expense decreased $767 thousand due to lower assessment rates.

Income Tax Expense. The Company recorded 2026 income tax expense of $2.3 million in the second quarter and $4.5 million in the first half of the year. The effective tax rate was 25% for the first half of 2026. Income taxes were a benefit in 2025 due to the loss recorded in the first quarter of that year.

Liquidity and Capital Resources

Liquidity. Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, and proceeds from maturities of securities. The Company also actively utilizes borrowings in managing its liquidity and may access sources of liquidity, including brokered deposits and capital in the financial markets, depending on the Company’s financial condition and market conditions.

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

The Company prioritizes deposits as a primary funding source and maintains a variety of available liquidity sources, including FHLB advances and Federal Reserve borrowing capacity. When profitable lending and investment opportunities exist, the Company may access its liquidity sources to grow the balance sheet. The amount and type of assets the Company has available to pledge affects the Company’s FHLB and Federal Reserve borrowing capacity. For example, a prime one-to-four family residential loan may provide 75 cents of borrowing capacity for every $1.00 pledged, whereas a commercial loan may increase borrowing capacity in a lower amount. The Company’s lending decisions, therefore, can also affect its liquidity position.

The table below shows current and unused liquidity capacity from various sources at the dates indicated:

Avidia Bancorp, Inc. is a separate legal entity from Avidia Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Avidia Bank. The amount of dividends that Avidia Bank may declare and pay to the Company is subject to regulation. At June 30, 2026, Avidia Bancorp, Inc. had liquid assets of $69.8 million on a stand-alone, unconsolidated basis.

Capital Resources. At June 30, 2026, Avidia Bank exceeded all of its regulatory capital requirements and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change this categorization. For additional information, including tabular financial information regarding Avidia Bank’s capital levels relative to the requirements for well-capitalized status, see Note 11 of the notes to consolidated financial statements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

Commitments. As a financial services provider, we routinely are a party to various financial instruments with off-balance-sheet risks, such as commitments to extend credit and unused lines of credit. While these contractual obligations represent our future cash requirements, a significant portion of commitments to extend credit may expire without being drawn upon. We anticipate that we will have sufficient funds available to meet our current lending commitments. For additional information, see Note 10 to notes to consolidated financial statements.

Contractual Obligations. In the ordinary course of business, we enter into certain contractual obligations, including operating leases for premises and equipment, among others.

Management of Market Risk

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

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

•

maintaining capital levels that exceed the thresholds for well-capitalized status under applicable regulations;

•

maintaining a prudent level of liquidity;

•

growing our volume of low-cost core deposit accounts;

•

using our investment securities portfolio and interest rate derivatives as part of our balance sheet asset and liability and interest rate risk management strategy to reduce the impact of market interest rate movements on net interest income and economic value of equity;

•

using wholesale funding, in the form of Federal Home Loan Bank advances and brokered deposits in a prudent manner;

•

continuing to diversify our loan portfolio by seeking to grow commercial-related loans, which typically have shorter maturities; and

•

continuing to sell long term, fixed-rate one-to-four family residential mortgage loans in the secondary market while retaining adjustable-rate one-to-four family residential mortgage loans in our loan portfolio.

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

Interest Rate Derivatives. We employ various financial risk methodologies that limit, or “hedge,” the adverse effects of increasing or decreasing market interest rates on our investment or loan portfolio and short-term liabilities, such as Federal Home Loan Bank advances. At June 30, 2026, we had interest rate swaps related to Federal Home Loan Bank advances and investments with a notional amount of $60 million. At June 30, 2026, we had an interest rate cap related to Federal Home Loan Bank advances with a notional amount of $25 million. We also engage in hedging strategies with respect to arrangements where our commercial banking customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. At June 30, 2026, we had interest rate swaps related to customer loans of a notional amount of $104 million. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions. For additional information regarding these activities, see Note 6 in notes to consolidated financial statements.

Change in Net Interest Income. We analyze our sensitivity to changes in interest rates through a net interest income model. Net interest income is the difference between the interest income we earn on our interest-earning assets, such as loans and securities, and the interest we pay on our interest-bearing liabilities, such as deposits and borrowings.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.

(1) Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.

The table above indicates that at June 30, 2026, we would have experienced a 6.0% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.8% increase in net interest income in the event of an instantaneous parallel 200 basis point decrease in market interest rates.

The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors

(1) Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.

The table above indicates that at December 31, 2025, we would have experienced a 5.4 % decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.6% increase in net interest income in the event of an instantaneous parallel 200 basis point decrease in market interest rates.

Economic Value of Equity. We also compute amounts by which the net present value of our assets and liabilities (economic value of equity or “EVE”) would change in the event of a range of assumed changes in market interest rates. This model uses a discounted cash flow analysis and an option-based pricing approach to measure the interest rate sensitivity of net portfolio value. The model estimates the economic value of each type of asset, liability and off-balance sheet contract under the assumptions that the United States Treasury yield curve increases instantaneously by 100, 200, 300 and 400 basis point increments or decreases instantaneously by 100, 200, or 300 basis point increments, with changes in interest rates representing immediate and permanent, parallel shifts in the yield curve.

The following table sets forth, as of June 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.

(1)

Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.

(2)

EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at June 30, 2026, we would have experienced a 5.0% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 2.1% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. The changes indicated in the following table are within policy guidelines adopted by Avidia Bank’s board of directors.

(1)

Assumes an immediate uniform change in interest rates at all maturities. One hundred basis points equals 1.00%.

(2)

EVE is the discounted present value of expected cash flows from assets, liabilities and off-balance sheet contracts.

(3)

Present value of assets represents the discounted present value of incoming cash flows on interest-earning assets.

(4)

EVE Ratio represents EVE divided by the present value of assets.

The table above indicates that at December 31, 2025, we would have experienced a 7.4% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.1% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates.

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

Interest rate risk calculations also may not reflect the fair values of financial instruments. For example, decreases in market interest rates can increase the fair values of our loans, mortgage servicing rights, deposits and borrowings.