Orange County Bancorp Inc DE

Previous wording

The following discussion and analysis of our financial condition and results of operations at June 30, 2024 and December 31, 2023 and for the three months and six months ended June 30, 2024 and 2023 should be read in conjunction with our audited consolidated financial statements and the accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Current wording

The following discussion and analysis of our financial condition and results of operations at September 30, 2024 and December 31, 2023 and for the three months and nine months ended September 30, 2024 and 2023 should be read in conjunction with our audited consolidated financial statements and the accompanying notes in our Annual Report on Form 10-K for the year ended December 31, 2023. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Previous wording

We are a bank holding company headquartered in Middletown, New York and registered under the Bank Holding Company Act. Through our wholly owned subsidiaries, Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc., we offer full-service commercial and consumer banking products and services and trust and wealth management services to small businesses, middle-market enterprises, local municipal governments and affluent individuals in the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey. By combining the high-touch service and relationship-based focus of a community bank with the extensive suite of financial products and services offered by our larger competitors, we believe we can capitalize on the substantial growth opportunities available in our market areas. We also offer a variety of deposit accounts to businesses and consumers, including checking accounts and a full line of municipal banking accounts through our business banking platform. These activities, together with our 16 offices and one loan production office, generate a stable source of low- cost core deposits and a diverse loan portfolio with attractive risk-adjusted yields. We also offer private banking services through Orange Bank & Trust Private Banking, a division of Orange Bank & Trust Company, and provide trust and wealth management services through Orange Bank & Trust Company’s trust services department and HVIA, which combined had $1.7 billion in assets under management at June 30, 2024. As of June 30, 2024, our assets, loans, deposits and stockholders’ equity totaled $2.5 billion, $1.7 billion, $2.2 billion and $177.5 million, respectively.

Current wording

** **We are a bank holding company headquartered in Middletown, New York and registered under the Bank Holding Company Act. Through our wholly owned subsidiaries, Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc., we offer full-service commercial and consumer banking products and services and trust and wealth management services to small businesses, middle-market enterprises, local municipal governments and affluent individuals in the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey. By combining the high-touch service and relationship-based focus of a community bank with the extensive suite of financial products and services offered by our larger competitors, we believe we can capitalize on the substantial growth opportunities available in our market areas. We also offer a variety of deposit accounts to businesses and consumers, including checking accounts and a full line of municipal banking accounts through our business banking platform. These activities, together with our 16 offices and one loan production office, continue to produce a stable source of low- cost core deposits and a diverse loan portfolio with attractive risk-adjusted yields. We also offer private banking services through Orange Bank & Trust Private Banking, a division of Orange Bank & Trust Company, and provide trust and wealth management services through Orange Bank & Trust Company’s trust services department and HVIA, which combined had $1.8 billion in assets under management at September 30, 2024. As of September 30, 2024, our assets, loans, deposits and stockholders’ equity totaled $2.5

Previous wording

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

Current wording

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

Previous wording

Allowance for Credit Losses. Management believes that the determination of the allowance for credit losses involves a high degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact the results of operations for Orange County Bancorp. A summary of our accounting policies, included the Allowance for Credit Losses, is included in the Company’s Annual Report on Form 10-K. There were no significant changes to the critical accounting estimates during the three months and six months ended June 30, 2024 as disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2024.

Current wording

Allowance for Credit Losses. Management believes that the determination of the allowance for credit losses involves a high degree of complexity and requires management to make difficult and subjective judgments, which often require assumptions or estimates about highly uncertain matters. Changes in these judgments, assumptions or estimates could materially impact the results of operations for Orange County Bancorp. A summary of our accounting policies, included the Allowance for Credit Losses, is included in the Company’s Annual Report on Form 10-K. There were no significant changes to the critical accounting estimates during the three months and nine months ended September 30, 2024 as disclosed in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 29, 2024.

Previous wording

Assets. Our total assets were $2.5 billion at June 30, 2024, a decrease of $4.3 million, or 0.2%, from December 31, 2023. The decrease was primarily driven by decreases of $26.9 million in investment securities, available for sale, and $15.9 million in net loans offset by the increase of $42.3 million in cash and due from banks.

Current wording

Assets. Our total assets were $2.5 billion at September 30, 2024, an increase of $33.6 million, or 1.4%, from December 31, 2023. The increase was primarily driven by increases of $43.2 million in loans, net and $13.5 million in cash and due from banks, partially offset by a decrease of $20.4 million in investment securities, available for sale.

Previous wording

Cash and due from banks. Cash and due from banks increased $42.3 million, or 28.7%, to $189.7 million at June 30, 2024, from $147.4 million at December 31, 2023. The increase was mainly the result of management’s focus on using deposit growth during the period to build a strong liquidity position.

Current wording

Cash and due from banks. Cash and due from banks increased $13.5 million, or 9.2%, to $160.9 million at September 30, 2024, from $147.4 million at December 31, 2023. The increase was mainly the result of management’s focus on using deposit growth during the period to maintain a strong liquidity position while paying down borrowings.

Previous wording

Net loans decreased $15.9 million, or 0.9%, to $1.7 billion at June 30, 2024 from December 31, 2023 primarily due to repayments of commercial and industrial loans during the first six months of 2024. Commercial and industrial loans experienced a decrease of $12.5 million, or 4.6%, to $260.9 million at June 30, 2024 from $273.3 million at December 31, 2023. Commercial real estate loans decreased slightly by $1.2 million, or 0.1%, to $1.3 billion at June 30, 2024. Residential real estate loans grew $3.2 million, or 4.1%, to $81.6 million at June 30, 2024 from $78.3 million at December 31, 2023. Consumer loans decreased $3.5 million, or 9.5%, to $33.1 million at June 30, 2024 from $36.6 million at December 31, 2023. The overall diversification within the commercial real estate portfolio provides stability while we remain focused on loan originations to new and existing customers during the six months ended June 30, 2024 as well as our continued commitment to geographic expansion in our market area.

Current wording

Net loans increased $43.2 million, or 2.5%, to $1.8 billion at September 30, 2024 from December 31, 2023 primarily due to growth of $75.2 million related to commercial real estate loans as well as $4.7 million increase in consumer loans offset by decreases in all other loan categories. Commercial real estate loans increased by $75.2 million, or 6.0%, to $1.3 billion at September 30, 2024. Consumer loans increased $4.7 million, or 12.9%, to $41.3 million at September 30, 2024 from $36.6 million at December 31, 2023. Commercial and industrial loans experienced a decrease of $22.0 million, or 8.1%, to $251.3 million at September 30, 2024 from $273.3 million at December 31, 2023. Residential real estate loans decreased $3.9 million, or 4.9%, to $74.5 million at September 30, 2024 from $78.3 million at December 31, 2023. The overall diversification within the commercial real estate portfolio continues to provide stability while we remained focused on loan originations to new and existing customers during the nine months ended September 30, 2024 as well as our continued commitment to geographic expansion in our market area.

Previous wording

The following table sets forth information regarding our non-performing assets. Non-performing loans aggregated approximately $16.0 million at June 30, 2024 as compared to $4.4 million at December 31, 2023.

Current wording

The following table sets forth information regarding our non-performing assets. Non-performing loans aggregated approximately $11.2 million at September 30, 2024 as compared to $4.4 million at December 31, 2023.

Previous wording

Non-performing loans at June 30, 2024 totaled $16.0 million and consisted of $15.0 million of commercial real estate loans, $445 thousand of commercial and industrial loans, and $588 thousand of residential real estate loans. The increase in non-performing loans was primarily the result of the addition of one non-accrual commercial real estate loan participation totaling $14.7 million which is expected to become greater than 90 days delinquent. We had no other real estate owned at June 30, 2024 and December 31, 2023, respectively.

Current wording

Non-performing loans at September 30, 2024 totaled $11.2 million and consisted of $10.7 million of commercial real estate loans, $436 thousand of commercial and industrial loans (accruing and non-accruing), and $8 thousand of residential real estate loans. The increase in non-performing loans was primarily the result of the addition of one non-accrual commercial real estate office space loan participation which was classified as non-accrual during second quarter 2024 as it was expected to become greater than 90 days delinquent. During the third quarter of 2024, this loan was written down by approximately $4.0 million from its principal balance of $14.7 million and is approximately $10.7 million as of September 30, 2024. We had no other real estate owned at September 30, 2024 and December 31, 2023.

Previous wording

Non-performing assets increased $11.6 million, or 261.2%, to $16.0 million, or 0.64% of total assets, at June 30, 2024 from $4.4 million, or 0.18% of total assets, at December 31, 2023. The increase in non-performing assets at June 30, 2024, compared to December 31, 2023 was primarily driven by an increase of $12.3 million in non-accrual commercial real estate loans offset by reductions in the level of non-performing loans in the residential real estate category.

Current wording

Non-performing assets increased $6.7 million, or 152.3%, to $11.2 million, or 0.44% of total assets, at September 30, 2024 from $4.4 million, or 0.18% of total assets, at December 31, 2023. The increase in non-performing assets at September 30, 2024, compared to December 31, 2023 was primarily driven by an increase of $8.0 million in non-accrual commercial real estate loans described above offset by net-reductions in the level of non-performing loans in the residential real estate loan category and the commercial and industrial loan segment.

Previous wording

From time to time, as part of our loss mitigation strategy, we may renegotiate loan terms based on the economic and legal reasons related to the borrower’s financial difficulties. There were no loans modified due to financial difficulties during the three months and six months ended June 30, 2024.

Current wording

From time to time, as part of our loss mitigation strategy, we may renegotiate loan terms based on the economic and legal reasons related to the borrower’s financial difficulties. There were no loans modified due to financial difficulties during the three months and nine months ended September 30, 2024.

Previous wording

Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. We designate an asset as “special mention” if the asset has a potential weakness that warrants management’s close attention.

Current wording

Classified Assets. Federal regulations provide that loans and other assets of lesser quality should be classified as “substandard”, “doubtful” or “loss” assets. An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that we will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets

Previous wording

On the basis of management’s review of our assets, we have classified $24.6 million of our assets at June 30, 2024 as substandard compared to $19.6 million at December 31, 2023, due to certain trends and increased delinquencies within those loans. There were no doubtful assets as of June 30, 2024 and December 31, 2023. We designated $35.2 million of our assets at June 30, 2024 as special mention compared to $32.8 million designated as special mention at December 31, 2023.

Current wording

On the basis of management’s review of our assets, we have classified $42.6 million of our assets at September 30, 2024 as substandard compared to $19.6 million at December 31, 2023, due to a combination of certain trends and delinquencies within those loans. There were no doubtful assets as of September 30, 2024 and December 31, 2023. We designated $26.3 million of our assets at September 30, 2024 as special mention compared to $32.8 million designated as special mention at December 31, 2023.

Previous wording

The allowance for credit losses increased by $3.0 million, or 11.9%, to $27.8 million, or 1.60% of total loans at June 30, 2024, from $24.8 million, or 1.45% of total loans at June 30, 2023. The increase in the allowance was primarily due to increased provision

Current wording

As presented below, the allowance for credit losses increased by $5.3 million, or 20.4%, to $31.0 million, or 1.73% of total loans at September 30, 2024, from $25.8 million, or 1.51% of total loans at September 30, 2023. The increase in the allowance was primarily due to an increased reserve of $9.9 million, which included approximately $9.6 million associated with a commercial office

Previous wording

Available for sale securities decreased $26.9 million, or 5.5%, to $463.1 million at June 30, 2024 from $489.9 million at December 31, 2023, due primarily to limited purchases as well as continued declines for all investment categories due to normal amortization and cash flow during the six month period ended June 30, 2024. During the first quarter of 2024, the Company sold and recorded a recovery of $1.9 million related to Signature Bank subordinated debt which was written-off during 2023. As part of the treatment, the Company evaluated the securities portfolio for an allowance and determined it was not necessary. Accordingly, the recovery resulted in a net credit to the ACL.

Current wording

amortization and cash flow during the nine month period ended September 30, 2024. During the first quarter of 2024, the Company sold and recorded a recovery of $1.9 million related to Signature Bank subordinated debt which was written-off during 2023. As part of the treatment, the Company evaluated the securities portfolio for an allowance and determined it was not necessary. Accordingly, the recovery resulted in a net credit to the ACL.

Previous wording

Total deposits increased $160.5 million, or 7.9%, to $2.2 billion at June 30, 2024 from December 31, 2023 which was driven by organic deposit growth which represented a continued focus on maintaining strong liquidity during the first six months of 2024. Interest bearing demand deposits experienced a $113.2 million, or 37.1%, increase and money market deposits increased $99.2 million, while savings deposits increased by $29.9 million during the first six months of 2024 primarily related to our continued strategic focus on business account activity. Non-interest-bearing demand deposits decreased $18.0 million primarily due to a shift of certain deposits into interest bearing accounts combined with normal business activity during the first half of 2024. At June 30, 2024, our core deposits (which includes all deposits except for certificates of deposit) totaled $2.0 billion, or 92.8% of our total deposits. Certificates of deposit decreased by $63.8 million, or 28.8%, mainly from reductions in brokered deposits during the six month period ended June 30, 2024. We held approximately $115.0 million of brokered deposits (excluding reciprocal deposits obtained through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) networks) at June 30, 2024 as compared to $172.4 million at December 31, 2023. This decrease was the result of increased organic deposit activity during the period which allowed for maturity of the brokered deposits without replacement and reduced interest expense. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $7.5 million and $97.5 million, respectively, at June 30, 2024 and the CDARS and ICS networks totaled $11.1 million and $99.5 million, respectively, at December 31, 2023. Uninsured deposits, net of fully collateralized municipal relationships, remained stable and represent approximately 40% of total deposits as of June 30, 2024 as compared to 37% of total deposits at December 31, 2023.

Current wording

Total deposits increased $101.3 million, or 5.0%, to $2.1 billion at September 30, 2024 from $2.0 billion at December 31, 2023 driven by organic deposit growth which represented a continued focus on maintaining strong liquidity and commercial transaction accounts during the first nine months of 2024. Interest bearing demand deposits experienced a $37.4 million, or 12.3%, increase and money market deposits increased $122.1 million, while savings deposits increased by $30.1 million during the first nine months of 2024 primarily related to our continued strategic focus on business account activity. Non-interest-bearing demand deposits decreased $8.8 million primarily due to a shift of certain deposits into interest bearing accounts combined with normal business activity during the first nine months of 2024. At September 30, 2024, our core deposits (which includes all deposits except for certificates of deposit) totaled $2.0 billion, or 93.4% of our total deposits. Certificates of deposit decreased by $79.6 million, or 35.9%, mainly from reductions in brokered deposits during the nine month period ended September 30, 2024. We held approximately $100.0 million of brokered deposits (excluding reciprocal deposits obtained through the Certificate Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) networks) at September 30, 2024 as compared to $172.4 million at December 31, 2023. This decrease was the result of increased organic deposit activity during the period which allowed for maturity of the brokered deposits without replacement and reduced interest expense. Our reciprocal deposits obtained through the CDARS and ICS networks totaled $7.3 million and $95.2 million, respectively, at September 30, 2024 and the CDARS and ICS networks totaled $11.1 million and $99.5 million, respectively, at December 31, 2023. Uninsured deposits, net of fully collateralized municipal relationships, remained stable and represent approximately 39% of total deposits as of September 30, 2024 as compared to 37% of total deposits at December 31, 2023.

Previous wording

Total borrowings from the Federal Home Loan Bank of New York were $10.0 million at June 30, 2024 and $234.5 million at December 31, 2023. This decrease represents a continued focus by management to reduce borrowings by using lower-cost deposits, which experienced growth during the six months ended June 30, 2024. We have the capacity to borrow an additional $511.0 million from the Federal Home Loan Bank of New York as of June 30, 2024.

Current wording

Total borrowings from the Federal Home Loan Bank of New York were $92.0 million at September 30, 2024 and $234.5 million at December 31, 2023 as we made the strategic decision to pay down Federal Home Loan Bank advances, short term, by approximately $142.5 million. This decrease represents a continued focus by management to reduce borrowings and the related interest expense by using lower-cost deposits for funding, which experienced growth during the nine months ended September 30, 2024. We have the capacity to borrow an additional $491.6 million from the Federal Home Loan Bank of New York as of September 30, 2024.

Previous wording

During the first quarter of 2024, we also utilized $50 million of funding through the Bank Term Funding Program from the Federal Reserve under a one-year facility expiring in March 2025.

Current wording

During the first quarter of 2024, we also utilized $50 million of funding through the Bank Term Funding Program from the Federal Reserve under a one-year facility expiring in March 2025. That amount remains outstanding as of September 30, 2024.

Previous wording

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

Current wording

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

Previous wording

Stockholders’ equity increased $12.2 million, to $177.5 million, at June 30, 2024 from $165.4 million at December 31, 2023. The increase was due mainly to an increase of $14.9 million in retained earnings, partially offset by a $3.3 million increase in unrealized losses on the market value of investment securities recognized within the Company’s equity as accumulated other comprehensive income(loss) (“AOCI”), net of taxes as a direct result of higher market interest rates.

Current wording

Stockholders’ equity increased $27.7 million, to $193.1 million, at September 30, 2024 from $165.4 million at December 31, 2023. The increase was due mainly to an increase of $20.7 million in retained earnings, partially reduced by dividends and favorably impacted by a reduction of unrealized losses of approximately $9.7 million, net of taxes on the market value of investment securities recognized within the Company’s equity as accumulated other comprehensive income(loss) (“AOCI”), net of taxes as a direct result of lower market rates.

Previous wording

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three month and six month periods ended June 30, 2024 and 2023. No tax equivalent yield adjustments have been made, as the effects would be immaterial. The average balances are daily averages for loans, as presented. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. Average deferred loan fees totaled $4.6 million and $5.2 million for the three months ended June 30, 2024 and 2023, respectively. Average deferred loan fees totaled $4.7 million and $5.2 million for the six months ended June 30, 2024 and 2023, respectively.

Current wording

The following tables present average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three month and nine month periods ended September 30, 2024 and 2023. No tax equivalent yield adjustments have been made, as the effects would be immaterial. The average balances are daily averages for loans, as presented. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. Average deferred loan fees totaled $4.5 million and $5.0 million for the three months ended September 30, 2024 and 2023, respectively. Average deferred loan fees totaled $4.7 million and $5.2 million for the nine months ended September 30, 2024 and 2023, respectively.

Previous wording

Results of Operations for the Three and Six Months Ended June 30, 2024 and 2023

Current wording

Results of Operations for the Three and Nine Months Ended September 30, 2024 and 2023

Previous wording

General. Net income decreased $873 thousand, or 9.6%, to $8.2 million for the three months ended June 30, 2024 from $9.1 million for the three months ended June 30, 2023. The decrease was driven primarily by an increase of $2.0 million related to the provision for credit losses and an increase of $1.0 million in noninterest expense, partially offset by an increase in net interest income of $1.5 million during the second quarter of 2024 as compared to the same quarter in 2023. Net income for the six months ended June 30, 2024 was $17.5 million, as compared to $12.3 million for the same period in 2023. The overall increase was driven primarily by increased net interest income of $2.0 million and a reduction in the provision for credit losses of $6.9 million associated with the recovery of Signature Bank subordinated debt which was written off during 2023 and recovered during the six month period ended June 30, 2024 as compared to the same prior year period.

Current wording

General. Net income decreased $5.8 million, or 64.4%, to $3.2 million for the three months ended September 30, 2024 from $9.0 million for the three months ended September 30, 2023. The decrease was driven primarily by an increase of $6.4 million related to the provision for credit losses and an increase of $2.4 million in noninterest expense, partially offset by increases in net interest income of $467 thousand and noninterest income of $954 thousand during the third quarter of 2024 as compared to the same quarter in 2023. Net income for the nine months ended September 30, 2024 was $20.7 million, as compared to $21.4 million for the same period in 2023. The overall decrease was driven primarily by increased noninterest expense of $4.7 million coupled with an increase in the overall provision for credit losses of approximately $355 thousand offset by increased net interest income of $2.4 million and an increase in noninterest income of $1.9 million. The overall fluctuation of the provision for credit losses for the current nine month

Previous wording

Interest Income. Interest income increased $2.7 million, or 9.3%, to $32.5 million for the three months ended June 30, 2024 from $29.7 million for the three months ended June 30, 2023. This increase was primarily driven by a 51 basis points increase in the average yield of interest-earning assets which grew from 5.01% during the three months ended June 30, 2023 to 5.52% for the three months ended June 30, 2024 as a result of the higher interest rate environment. During the same comparative period, the average balance of interest-earning assets decreased by $18.5 million, or 0.8%, to $2.4 billion for the three months ended June 30, 2024 as compared to the three months ended June 30, 2023.

Current wording

Interest Income. Interest income increased $1.3 million, or 4.4%, to $31.4 million for the three months ended September 30, 2024 from $30.1 million for the three months ended September 30, 2023. This increase was primarily driven by a 15 basis points increase in the average yield of interest-earning assets which grew from 5.06% during the three months ended September 30, 2023 to 5.21% for the three months ended September 30, 2024 as a result of the higher interest rate environment during most of 2024. Over the same comparative period, the average balance of interest-earning assets increased by $32.4 million, or 1.4%, to $2.4 billion for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

Interest income increased $7.5 million, or 13.3%, for the six months ended June 30, 2024 reaching $63.6 million from $56.1 million for the six months ended June 30, 2023. This increase was driven by a $47.9 million increase in the balance of average interest-earning assets between the two periods. Within the average balance of interest-earning assets, the average balance of loans receivable (net of PPP loans) grew $78.9 million, or 4.8%, between the six months ended June 30, 2024 and June 30, 2023. In addition, the average yield of interest-earning assets increased by 51 basis points from 4.87% for the six months ended June 30, 2023 to 5.38% for the six months ended June 30, 2024 as a result of the higher interest rate environment.

Current wording

Interest income increased $8.8 million, or 10.2%, for the nine months ended September 30, 2024 reaching $95.0 million from $86.2 million for the nine months ended September 30, 2023. This increase was driven by a $42.7 million increase in the balance of average interest-earning assets between the two periods. Within the average balance of interest-earning assets, the average balance of loans receivable (net of PPP loans) grew $73.2 million, or 4.4%, between the nine months ended September 30, 2024 and September 30, 2023. In addition, the average yield of interest-earning assets increased by 38 basis points from 4.94% for the nine months ended September 30, 2023 to 5.32% for the nine months ended September 30, 2024 as a result of the higher interest rate environment through most of 2024.

Previous wording

Interest income on loans increased by $2.9 million, or 12.2%, to $26.8 million during the three months ended June 30, 2024 from $23.9 million during the three months ended June 30, 2023. The increase in interest income on loans was primarily due to the increase in the average balance of loans (net of PPP loans) and an increase in the average yield on loans. The average balance of these loans increased by $39.1 million, or 2.3%, to $1.7 billion for the three months ended June 30, 2024 compared to the three months ended June 30, 2023. The increase in the average balance of loans was due to stability in commercial real estate loan balances, including commercial real estate construction, as well as growth in our commercial and industrial loan portfolio. The average yield on loans, excluding PPP loans, increased by 54 basis points to 6.21% for the three months ended June 30, 2024 from 5.67% for the three months ended June 30, 2023 as a result of the extended higher interest rate environment and management’s continued focus on disciplined loan pricing.

Current wording

Interest income on loans, net of PPP loans, increased by $1.7 million, or 6.9%, to $26.4 million during the three months ended September 30, 2024 from $24.7 million during the three months ended September 30, 2023. The increase in interest income on loans was primarily due to the increase in the average balance of loans (net of PPP loans) and an increase in the average yield on loans. The average balance of loans increased by $62.2 million, or 3.7%, to $1.8 billion for the three months ended September 30, 2024 compared to the three months ended September 30, 2023. The increase in the average balance of loans was due to $62.2 million of net average loan growth during the third quarter coupled with stability in commercial real estate loan balances as well as growth in our consumer loan portfolio. The average yield on loans, excluding PPP loans, increased by 17 basis points to 5.94% for the three months ended September 30, 2024 from 5.77% for the three months ended September 30, 2023 as a result of the higher interest rate environment and management’s continued focus on disciplined loan pricing.

Previous wording

For the six months ended June 30, 2024, interest income on loans increased by $6.7 million, or 14.6%, reaching $52.4 million as compared to $45.7 million for the six months ended June 30, 2023. The increase in interest income on loans represents the impact of growth in average loan balances (net of PPP loans) of $78.9 million between the six months ended June 30, 2023 and June 30, 2024. The increase in average loans outstanding was due to an increase in the commercial and industrial segment of the loan portfolio as well as stability in commercial real estate loan balances, including commercial real estate construction. This increase in production was also coupled with an increase in average yield on loans, excluding PPP loans, for the six month periods from 5.57% in 2023 to 6.06% in 2024. The increase in the average yield on loans was driven by the effect of the higher interest rate environment during 2023 and the first half of 2024 and management’s continued focus on disciplined loan pricing.

Current wording

For the nine months ended September 30, 2024, interest income on loans increased by $8.4 million, or 11.9%, reaching $78.8 million as compared to $70.4 million for the nine months ended September 30, 2023. The increase in interest income on loans represents the impact of growth in average loan balances (net of PPP loans) of $73.2 million between the nine months ended September 30, 2023 and September 30, 2024. The increase in average loans outstanding was due mainly to the third quarter increase in the commercial real estate and consumer segments of the loan portfolio. This increase in production was also coupled with an increase in average yield on loans, excluding PPP loans, for the nine month periods from 5.64% in 2023 to 6.02% in 2024. The increase in the average yield on loans was driven by the effect of the higher interest rate environment during 2023 and the majority of the first nine months of 2024 as well as management’s continued focus on disciplined loan pricing.

Previous wording

Interest income on securities decreased by $178 thousand to $3.4 million during the three months ended June 30, 2024 from $3.5 million during the three months ended June 30, 2023. The decrease in interest income on securities was driven primarily by a decrease in the average balance of securities outstanding during the current period due to certain maturities as well as a result of the Signature Bank subordinated debt writeoff during 2023. The average balance of securities decreased by $48.5 million, or 9.4%, to $467.3 million for the three months ended June 30, 2024 compared to $515.9 million for the three months ended June 30, 2023. The average yield on investment securities increased by 14 basis points overall from 2.75% for the three months ended June 30, 2023 to 2.89% for the three months ended June 30, 2024. The increase in the average yield reflected the continued maturity of lower yielding investments during the current period.

Current wording

Interest income on securities decreased by $214 thousand to $3.3 million during the three months ended September 30, 2024 from $3.5 million during the three months ended September 30, 2023. The decrease in interest income on securities was driven primarily by a decrease in the average balance of securities outstanding during the current period due to continued maturities as well as a result of the Signature Bank subordinated debt writeoff during 2023. The average balance of securities decreased by $32.5 million, or 6.6%, to $463.3 million for the three months ended September 30, 2024 compared to $495.8 million for the three months ended September 30, 2023. The average yield on investment securities was relatively flat with a one basis point increase overall from 2.77% for the three months ended September 30, 2023 to 2.78% for the three months ended September 30, 2024. The stability and slight increase in the average yield on securities reflected the continued maturity of lower yielding investments during the current period.

Previous wording

For the six months ended June 30, 2024, interest income on securities decreased by $313 thousand, or 4.4%, to $6.8 million during the period from $7.1 million during the six months ended June 30, 2023. The decrease in interest income on securities was due to a decrease in the average balance of securities during the current period. The average balance of securities decreased by $48.8 million, or 9.3%, to $474.4 million for the six months ended June 30, 2024 compared to $523.3 million for the six months ended June 30, 2023 due to certain maturities as well as a result of the Signature Bank subordinated debt writeoff during 2023. The average yield on investment securities increased by 13 basis points overall from 2.74% for the six months ended June 30, 2023 to 2.87% for the six months ended June 30, 2024. The increase in the average yield on securities was primarily related to the maturity of lower yielding securities during 2023 and the first half of 2024.

Current wording

For the nine months ended September 30, 2024, interest income on securities decreased by $527 thousand, or 5.0%, to $10.0 million during the period from $10.6 million during the nine months ended September 30, 2023. The decrease in interest income on securities was due to a decrease in the average balance of securities during the current period. The average balance of securities decreased by $43.3 million, or 8.4%, to $470.7 million for the nine months ended September 30, 2024 compared to $514.0 million for the nine months ended September 30, 2023 due to continued maturities as well as the impact of the Signature Bank subordinated debt writeoff during 2023. The average yield on investment securities increased by nine basis points overall from 2.75% for the nine

Previous wording

Interest Expense. Interest expense increased $1.3 million, or 17.6%, to $8.4 million for the three months ended June 30, 2024 from $7.1 million for the three months ended June 30, 2023. The increased interest expense continues to be driven primarily by the higher interest rate environment and the impact on deposit costs as well as funding costs during the quarter. The average rate paid on interest-bearing liablities increased 33 basis points to 2.11% during the three months ended June 30, 2024 as compared to 1.78% for the three month period ended June 30, 2023. The average balance of interest-bearing liabilities decreased by $8.2 million, or 0.5%, and remained level at approximately $1.6 billion for the three months ended June 30, 2024 and for the three months ended June 30, 2023.

Current wording

Interest Expense. Interest expense increased $870 thousand, or 11.5%, to $8.5 million for the three months ended September 30, 2024 from $7.6 million for the three months ended September 30, 2023. The increased interest expense continues to be driven primarily by the continued effect of the higher interest rate environment and the impact on deposit costs as well as funding costs during the quarter. The average rate paid on interest-bearing liablities increased 17 basis points to 2.12% during the three months ended September 30, 2024 as compared to 1.95% for the three month period ended September 30, 2023. The average balance of interest-bearing liabilities increased by $40.5 million, or 2.6%, and was approximately $1.6 billion for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023.

Previous wording

Interest expense increased $5.5 million, or 44.5%, to $17.9 million for the six months ended June 30, 2024 from $12.4 million for the six months ended June 30, 2023. The increase in interest expense reflects the higher interest rate environment and the continuing effect on deposit and funding costs during the period. The average rate paid on interest-bearing liabilities increased 61 basis points to 2.23% during the six months ended June 30, 2024 as compared to 1.62% for the six month period ended June 30, 2023. The average balance of interest-bearing liabilities increased by $62.9 million, or 4.1%, to $1.6 billion for the six months ended June 30, 2024 as compared to $1.5 billion for the six months ended June 30, 2023.

Current wording

Interest expense increased $6.4million, or 31.9%, to $26.3 million for the nine months ended September 30, 2024 from $20.0 million for the nine months ended September 30, 2023. The increase in interest expense reflects the higher interest rate environment and the continuing effect on deposit and funding costs during the first nine months of 2024. The average rate paid on interest-bearing liabilities increased 46 basis points to 2.19% during the nine months ended September 30, 2024 as compared to 1.73% for the nine month period ended September 30, 2023. The average balance of interest-bearing liabilities increased by $55.4 million, or 3.6%, to $1.6 billion for the nine months ended September 30, 2024 as compared to $1.5 billion for the nine months ended September 30, 2023.

Previous wording

Interest expense on interest-bearing deposits increased by $2.7 million to $7.3 million for the three months ended June 30, 2024 from $4.6 million for the three months ended June 30, 2023. The increase in interest expense on interest-bearing deposits was due mainly to the continued increase in the average cost of deposits. The average cost of interest-bearing deposits increased 62 basis points to 1.94% during the three months ended June 30, 2024 as compared to 1.32% for the three months ended June 30, 2023. The average cost of interest-bearing deposits increased due to the continued impact of the higher interest rate environment on deposit accounts. The average balance of interest-bearing deposits increased by $90.0 million, or 6.4%, to $1.5 billion for the three months ended June 30, 2024 as compared to $1.4 billion for the three months ended June 30, 2023 primarily as a result of the increases in the average balances of interest-bearing demand deposits and money market accounts.

Current wording

Interest expense on interest-bearing deposits increased by $1.2 million to $6.6 million for the three months ended September 30, 2024 from $5.5 million for the three months ended September 30, 2023. The increase in interest expense on interest-bearing deposits was due mainly to the continued increase in the average cost of deposits. The average cost of interest-bearing deposits increased 27 basis points to 1.83% during the three months ended September 30, 2024 as compared to 1.56% for the three months ended September 30, 2023. The average cost of interest-bearing deposits increased due to the continued impact of the higher interest rate environment on deposit accounts. The average balance of interest-bearing deposits increased by $53.8 million, or 3.9%, to $1.4 billion for the three months ended September 30, 2024 as compared to the three months ended September 30, 2023 primarily as a result of the increases in the average balances of interest-bearing demand deposits, money market accounts, and savings accounts.

Previous wording

During the six months ended June 30, 2024, interest expense on interest-bearing deposits increased by $6.7 million, or 89.8%, to $14.3 million during the six months ended June 30, 2024 from $7.5 million during the six months ended June 30, 2023. The increase in interest expense on interest-bearing deposits for the six month period ended June 30, 2024 as compared to the same prior year period represents the effect of the higher interest rate environment on the average cost of deposits coupled with higher average balances of interest bearing deposits. The average cost of interest-bearing deposits increased 83 basis points to 1.96% for the six months ended June 30, 2024 as compared to 1.13% for the six months ended June 30, 2023. The average balance of interest-bearing deposits increased by $117.2 million, or 8.7%, to $1.5 billion for the six months ended June 30, 2024 as compared to $1.4 billion for the six months ended June 30, 2023 primarily as a result of the increases in the average balances of certificates of deposit, interest-bearing demand deposits and money market accounts.

Current wording

During the nine months ended September 30, 2024, interest expense on interest-bearing deposits increased by $7.9 million, or 61.2%, to $20.9 million during the nine months ended September 30, 2024 from $13.0 million during the nine months ended September 30, 2023. The increase in interest expense on interest-bearing deposits for the nine month period ended September 30, 2024 as compared to the same prior year period represents the effect of the higher interest rate environment on the average cost of deposits coupled with higher average balances of interest bearing deposits. The average cost of interest-bearing deposits increased 63 basis points to 1.91% for the nine months ended September 30, 2024 as compared to 1.28% for the nine months ended September 30, 2023. The average balance of interest-bearing deposits increased by $95.8 million, or 7.1%, to $1.5 billion for the nine months ended September 30, 2024 as compared to $1.4 billion for the nine months ended September 30, 2023 primarily as a result of the increases in the average balances of certificates of deposit, interest-bearing demand deposits and money market accounts.

Previous wording

We also expensed a relatively level amount of approximately $231 thousand in interest expense for both the three months ended June 30, 2024 and 2023 related to the issuance in September 2020 of $20.0 million in outstanding subordinated notes, which carries an interest rate of 4.25%. In addition, we expensed $461 thousand in interest expense for both the six months ended June 30, 2024 and June 30, 2023. These flat interest costs represent the debt service required as part of the 2020 subordinated notes.

Current wording

We also expensed a relatively level amount of approximately $230 thousand in interest expense for both the three months ended September 30, 2024 and 2023 related to the issuance in September 2020 of $20.0 million in outstanding subordinated notes, which carries an interest rate of 4.25%. In addition, we expensed approximately $691 thousand in interest expense for both the nine months ended September 30, 2024 and September 30, 2023. These flat interest costs represent the debt service required as part of the 2020 subordinated notes.

Previous wording

The interest expense related to borrowings in the second quarter of 2024 decreased to $890 thousand at an average cost of 4.64% as compared to interest expense of $2.3 million at an average cost of 5.23% for the same period in 2023. The second quarter 2024 average FHLB and other borrowings decreased to $76.9 million compared to $175.2 million of average FHLB and other borrowing in the same quarter of 2023. The decrease in average borrowings was the direct result of paydowns driven by increased deposits and less use of cash during the current period. Management was able to replace higher cost FHLB borrowings with lower cost borrowings though the Bank Term Funding Program and reduce interest expense during the current period. Although borrowings remain a potential source of strategic funding for the Company, the reduction in borrowings during the quarter reflects the ability of the Company to increase deposits and strategically reduce associated costs.

Current wording

The interest expense related to borrowings in the third quarter of 2024 decreased to $1.6 million at an average cost of 4.97% as compared to interest expense of $1.9 million at an average cost of 5.38% for the same period in 2023. The third quarter 2024 average FHLB and other borrowings decreased to $127.2 million compared to $140.6 million of average FHLB and other borrowing in the same quarter of 2023. The decrease in average borrowings was the direct result of paydowns driven by increased deposits and less use of cash during the current period. Management was able to replace higher cost FHLB borrowings with lower cost borrowings as rates were adjusted lower and reduce interest expense during the current period. Although borrowings remain a potential source of strategic funding for the Company, the reduction in borrowings during the quarter reflects the ability of the Company to increase deposits and strategically reduce associated interest costs.

Previous wording

The interest expense related to FHLB and other borrowing for the first six months of 2024 decreased to $3.1 million as compared to $4.4 million for the first six months of 2023. For the six months ended June 30, 2024, average FHLB and other borrowings decreased to $122.2 million with an average cost of 5.15% compared to $176.6 million of average FHLB and other borrowings with an average cost of 5.01% for the same period in 2023. The decrease in average borrowings was the direct result of paydowns driven by increased deposits and less use of cash during the current period.

Current wording

borrowings decreased to $123.9 million with an average cost of 5.09% compared to $164.4 million of average FHLB and other borrowings with an average cost of 5.12% for the same period in 2023. The decrease in average borrowings was the direct result of paydowns driven by increased deposits and less use of cash during the current period.

Previous wording

Net Interest Income. Net interest income increased $1.5 million, or 6.7%, to $24.1 million for the three months ended June 30, 2024 from $22.6 million for the three months ended June 30, 2023 due to the increase in income from interest earning assets outpacing the growth of interest costs associated with interest bearing liabilities. Net interest rate spread increased by 18 basis points to 3.41% for the three months ended June 30, 2024 from 3.23% for the three months ended June 30, 2023, reflecting a 51 basis points increase in the average yield on interest-earning assets offset by a 33 basis points increase in the average rate paid on interest-bearing liabilities. The net interest margin increased 29 basis points to 4.10% for the three months ended June 30, 2024 from 3.81% for the three months ended June 30, 2023 due to the higher interest rate environment as well as the impact of managed funding and deposit costs during the period.

Current wording

Net Interest Income. Net interest income increased $467 thousand, or 2.1%, to $23.0 million for the three months ended September 30, 2024 from $22.5 million for the three months ended September 30, 2023 due to the increase in income from interest earning assets outpacing the growth of interest costs associated with interest bearing liabilities. Net interest rate spread decreased slightly by one basis point to 3.10% for the three months ended September 30, 2024 from 3.11% for the three months ended September 30, 2023, reflecting a 15 basis points increase in the average yield on interest-earning assets offset by a 17 basis points increase in the average rate paid on interest-bearing liabilities. The net interest margin increased three basis points to 3.81% for the three months ended September 30, 2024 from 3.78% for the three months ended September 30, 2023 due to the tightening interest rate environment as well as the impact of managed funding and deposit costs during the period.

Previous wording

For the six months ended June 30, 2024, net interest income increased $2.0 million, or 4.5%, to $45.7 million from $43.7 million for the six months ended June 30, 2023 due primarily to an increase in net interest margin for the current period. The net interest margin increased seven basis points to 3.87% for the six months ended June 30, 2024 from 3.80% for the six months ended June 30, 2023. Net interest rate spread decreased by 10 basis points to 3.15% for the six months ended June 30, 2024 from 3.25% for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, net interest income increased $2.5 million, or 3.7%, to $68.7 million from $66.2 million for the nine months ended September 30, 2023 due primarily to an increase in net interest margin for the current period. The net interest margin increased six basis points to 3.85% for the nine months ended September 30, 2024 from 3.79% for the nine months ended September 30, 2023. Net interest rate spread decreased by eight basis points to 3.13% for the nine months ended September 30, 2024 from 3.21% for the nine months ended September 30, 2023.

Previous wording

Provision for Credit Losses. The Company recognized a provision for credit losses of $2.2 million for the three months ended June 30, 2024, compared to $214 thousand for the three months ended June 30, 2023. The increased provision for the three months ended June 30, 2024 as compared to the same period in 2023 reflected mainly a specific reserve associated with a nonaccrual commercial real estate loan participation identified during the second quarter of 2024. The allowance for credit losses to total loans was 1.60% as of June 30, 2024, an increase of 13 basis points, or 8.8%, versus 1.47% as of December 31, 2023.

Current wording

Provision for Credit Losses. The Company recognized a provision for credit losses of $7.2 million for the three months ended September 30, 2024, compared to $837 thousand for the three months ended September 30, 2023. The increased provision was primarily driven by a $5.6 million reserve associated with a specific nonaccrual commercial real estate loan participation identified during the second quarter of 2024. Additionally, the provision for the quarter included the impact of the methodology associated with estimated lifetime losses and the increase in loans closed. The allowance for credit losses to total loans was 1.73% as of September 30, 2024, an increase of 29 basis points, or 20.1%, versus 1.44% as of December 31, 2023.

Previous wording

For the six months ended June 30, 2024, the provision for credit losses totaled $570 thousand as compared to $6.6 million for the six months ended June 30, 2023. The provision for the six months ended June 30, 2024 reflected the recognition of a $1.9 million recovery associated with the 2023 write off of the Signature Bank corporate security in the amount of $5.0 million made during the six months ended June 30, 2023 as well as the additional provision related to a nonaccrual commercial real estate loan participation identified during the second quarter of 2024. Total participation and syndicated loans represent approximately 10.7% of total loans at June 30, 2024.

Current wording

For the nine months ended September 30, 2024, the provision for credit losses totaled $7.8 million as compared to $7.4 million for the nine months ended September 30, 2023. The provision for the nine months ended September 30, 2024 reflected the recognition of a $1.9 million recovery associated with the 2023 write off of the Signature Bank subordinated debt in the amount of $5.0 million made during the nine months ended September 30, 2023 as well as the additional provision related to a nonaccrual commercial real estate loan participation identified during the second quarter of 2024. Total participation and syndicated loans represent approximately 7.3% of total loans at September 30, 2024.