UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2022~~March 31, 2023

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-40711

Orange County Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Delaware	26-1135778
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

212 Dolson Avenue

Middletown, New York 10940

(Address of Principal Executive Offices)

(845) 341-5000

(Registrant’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading symbol	Name of Exchange on which registered
Common Stock, par value $0.50 per share	OBT	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐

Non-accelerated filer	☒	Smaller reporting company	☒	Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 31, 2022,~~May 8, 2023, there were ~~5,642,621~~5,642,789 shares of the registrant’s common stock outstanding.

Table of Contents

TABLE OF CONTENTS


		Page

Part I	Financial Information

Item 1.	Financial Statements	3

	Condensed Consolidated Statements of Condition as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 (Unaudited)	3

	Condensed Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	4

	Condensed Consolidated Statements of Comprehensive Income/(Loss) for the three ended March 31, 2023 and ~~nine months ended September 30,~~ 2022 ~~and 2021~~ (Unaudited)	5

	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the three ended March 31, 2023 and ~~nine months ended September 30,~~ 2022 ~~and 2021~~ (Unaudited)	6

	Condensed Consolidated Statements of Cash Flows for the ~~nine~~threee months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)	7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2931

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	4947

Item 4.	Controls and Procedures	4947

Part II	Other Information

Item 1.	Legal Proceedings	5047

Item 1A.	Risk Factors	5047

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5048

Item 3.	Defaults Upon Senior Securities	5048

Item 4.	Mine Safety Disclosures	5048

Item 5.	Other Information	5048

Item 6.	Exhibits	5048

Exhibit Index		5049

Signatures		5149

Table of Contents

PART I —FINANCIAL INFORMATION

Item 1. Financial Statements

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONDITION

(UNAUDITED)

(Dollar amounts in thousands except per share data)

September 30, 2022

December 31, 2021

ASSETS

Cash and due from banks

$
180,249

$
306,179

Investment securities – available-for-sale

547,272

464,797

Restricted investment in bank stocks

3,382

2,217

Loans

1,547,704

1,291,428

Allowance for loan losses

(22,888)

(17,661)

Loans, net

1,524,816

1,273,767

Premises and equipment, net

14,596

14,601

Accrued interest receivable

5,554

6,643

Bank owned life insurance

40,222

39,513

Goodwill

5,359

5,359

Intangible assets

1,464

1,678

Other assets

45,456

27,829

TOTAL ASSETS

$
2,368,370

$
2,142,583

LIABILITIES AND STOCKHOLDERS’ EQUITY

Deposits:

Noninterest bearing

$
788,106

$
701,645

Interest bearing

1,399,447

1,212,739

Total deposits

2,187,553

1,914,384

Note payable

3,000

3,000

Subordinated notes, net of issuance costs

19,431

19,376

Accrued expenses and other liabilities

22,196

22,987

TOTAL LIABILITIES

2,232,180

1,959,747

STOCKHOLDERS’ EQUITY

Common stock, $0.50 par value; 15,000,000 shares authorized; 5,683,304 issued; 5,642,121 and 5,637,376 outstanding, at September 30, 2022 and December 31, 2021, respectively

2,842

2,842

Surplus

120,068

119,825

Retained Earnings

76,860

64,941

Accumulated other comprehensive income (loss), net of taxes

(62,315)

(3,443)

Treasury stock, at cost; 41,183 and 45,928 shares at September 30, 2022 and December 31, 2021, respectively

(1,265)

(1,329)

TOTAL STOCKHOLDERS’ EQUITY

136,190

182,836

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY

$
2,368,370

$
2,142,583


	March 31, 2023		December 31, 2022
ASSETS
Cash and due from banks	$	165,297	$	86,081
Investment securities – available-for-sale (amortized cost $595,628, net of allowance for credit losses of $5,000 at March 31, 2023 and $609,954, net of allowance for credit losses of $0 at December 31, 2022)		526,325		533,461
Restricted investment in bank stocks		14,401		9,562
Loans		1,663,368		1,569,430
Allowance for credit losses ⁽¹⁾		(24,726)		(21,832)
Loans, net		1,638,642		1,547,598
Premises and equipment, net		16,579		14,739
Accrued interest receivable		5,961		6,320
Bank owned life insurance		40,701		40,463
Goodwill		5,359		5,359
Intangible assets		1,321		1,392
Other assets		40,412		42,359
TOTAL ASSETS	$	2,454,998	$	2,287,334
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits:
Noninterest bearing	$	694,283	$	723,228
Interest bearing		1,331,559		1,251,159
Total deposits		2,025,842		1,974,387
FHLB advances, short term		229,000		131,500
FHLB advances, long term		10,000		—
Subordinated notes, net of issuance costs		19,466		19,447
Accrued expenses and other liabilities		22,110		23,862
TOTAL LIABILITIES		2,306,418		2,149,196
STOCKHOLDERS’ EQUITY
Common stock, $0.50 par value; 15,000,000 shares authorized; 5,683,304 issued; 5,642,789 and 5,642,621 outstanding, at March 31, 2023 and December 31, 2022, respectively		2,842		2,842
Surplus		120,268		120,107
Retained Earnings		85,007		84,635
Accumulated other comprehensive income (loss), net of taxes		(58,174)		(68,196)
Treasury stock, at cost; 40,515 and 40,683 shares at March 31, 2023 and December 31, 2022, respectively		(1,363)		(1,250)
TOTAL STOCKHOLDERS’ EQUITY		148,580		138,138
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY	$	2,454,998	$	2,287,334

See accompanying notes to unaudited condensed consolidated financial statements.

(1)

Commencing on January 1, 2023 the allowance calculation is based on the current expected credit loss methodology. Prior to January 1, 2023 the calculation was based on the incurred loss methodology.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2022		2021		2022		2021		2023		2022
INTEREST INCOME
Interest and fees on loans	$	18,113	$	15,104	$	48,319	$	42,364	$	21,836	$	15,005
Interest on investment securities:
Taxable		2,848		1,213		6,735		3,497		3,073		1,638
Tax exempt		621		417		1,655		1,189		597		482
Interest on Federal funds sold and other		1,259		126		1,886		230		858		145
TOTAL INTEREST INCOME		22,841		16,860		58,595		47,280		26,364		17,270
INTEREST EXPENSE
Savings and NOW accounts		1,099		591		2,320		1,801		2,430		570
Time deposits		55		117		194		412		459		88
FHLB advances										2,105		—
Note payable		42		42		126		126		—		42
Subordinated notes		230		230		692		689		231		231
TOTAL INTEREST EXPENSE		1,426		980		3,332		3,028		5,225		931
NET INTEREST INCOME		21,415		15,880		55,263		44,252		21,139		16,339
Provision for loan losses		2,084		1,008		8,517		1,883

NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES		19,331		14,872		46,746		42,369
Provision for credit losses- investments										5,000		—
Provision for credit losses ⁽¹⁾										1,355		923
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES										14,784		15,416
NONINTEREST INCOME
Service charges on deposit accounts		182		166		511		499		174		168
Trust income		1,176		1,230		3,569		3,537		1,176		1,170
Investment advisory income		1,085		1,176		3,385		3,588		1,198		1,201
Investment securities gains										107		—
Earnings on bank owned life insurance		240		209		709		554		238		233
Other		250		247		741		770		277		233
TOTAL NONINTEREST INCOME		2,933		3,028		8,915		8,948		3,170		3,005
NONINTEREST EXPENSE
Salaries		5,863		4,970		16,631		14,243		6,254		5,269
Employee benefits		1,483		958		4,258		2,960		1,867		1,401
Occupancy expense		1,063		1,024		3,391		2,956		1,254		1,223
Professional fees		766		880		2,885		2,810		1,048		879
Directors’ fees and expenses		249		251		754		745		230		345
Computer software expense		1,276		1,120		3,629		3,209		1,223		1,116
FDIC assessment		384		333		1,006		889		330		309
Advertising expenses		372		297		1,127		865		276		190
Advisor expenses related to trust income		28		134		186		395		29		138
Telephone expenses		192		150		505		420		169		175
Intangible amortization		71		71		214		214		71		71
Other		808		785		2,322		2,050		1,277		705
TOTAL NONINTEREST EXPENSE		12,555		10,973		36,908		31,756		14,028		11,821
Income before income taxes		9,709		6,927		18,753		19,561		3,926		6,600
Provision for income taxes		1,856		1,351		3,460		3,767		696		1,270
NET INCOME	$	7,853	$	5,576	$	15,293	$	15,794	$	3,230	$	5,330

Basic and diluted earnings per share	$	1.40	$	1.06	$	2.72	$	3.33	$	0.57	$	0.95
Weighted average shares outstanding		5,623,172		5,249,876		5,619,897		4,743,348		5,625,660		5,634,667

See accompanying notes to unaudited condensed consolidated financial statements.

(1)

Commencing on January 1, 2023 the allowance calculation is based on the current expected credit loss methodology. Prior to January 1, 2023 the calculation was based on the incurred loss methodology.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS)

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Three Months Ended				Nine Months Ended				Three Months Ended
	September 30,				September 30,				March 31,
	2022		2021		2022		2021		2023		2022
Net Income	$	7,853	$	5,576	$	15,293	$	15,794	$	3,230	$	5,330
Other comprehensive income/(loss):
Unrealized gains/losses on securities:
Unrealized gains/(losses) on securities:
Unrealized holding gains/(losses) arising during the period		(21,201)		(134)		(75,262)		(3,856)		7,190		(28,600)
Credit loss expense										5,000		—
Reclassification adjustment for (gains) included in net income										(107)		—
Tax effect		(4,452)		(28)		(15,805)		(810)		2,453		(6,006)
Net of tax		(16,749)		(106)		(59,457)		(3,046)		9,630		(22,594)
Defined benefit pension plans:
Net gain arising during the period		240		6		720		20
Net gain/(loss) arising during the period										500		240
Reclassification adjustment for amortization of prior service cost and net gains included in net periodic pension cost		(7)		—		(21)		—		—		(7)
Tax effect		49		1		147		4		105		49
Net of tax		198		5		594		16		395		198
Deferred compensation liability:
Unrealized loss		(4)		(4)		(11)		(12)		(4)		(4)
Tax effect		(1)		(1)		(2)		(3)		(1)		(1)
Net of tax		(3)		(3)		(9)		(9)		(3)		(3)
Total other comprehensive income/(loss)		(16,554)		(104)		(58,872)		(3,039)
Total other comprehensive loss										10,022		(22,399)
Total comprehensive income/(loss)	$	(8,701)	$	5,472	$	(43,579)	$	12,755	$	13,252	$	(17,069)

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

(UNAUDITED)

(Dollar amounts in thousands except per share data)

Accumulated Other


Common

Retained

Comprehensive

Treasury

Stock

Surplus

Earnings

Income (Loss)

Stock

Total
Balance, July 1, 2022

$
2,842

$
119,946

$
70,131

$
(45,761)

$
(1,435)

$
145,723
Net income

—

—

7,853

—

—

7,853
Other comprehensive loss, net of taxes

—

—

—

(16,554)

—

(16,554)
Cash dividends declared ($0.20 per share)

—

—

(1,124)

—

—

(1,124)
Treasury stock purchased (3,035 shares)

—

—

—

—

(119)

(119)
Restricted stock expense

—

33

—

—

—

33
Stock-based compensation (9,637 shares)

—

89

—

—

289

378
Balance, September 30, 2022

$
2,842

$
120,068

$
76,860

$
(62,315)

$
(1,265)

$
136,190

Balance, January 1, 2022

$
2,842

$
119,825

$
64,941

$
(3,443)

$
(1,329)

$
182,836
Net income

—

—

15,293

—

—

15,293
Other comprehensive loss, net of taxes

—

—

—

(58,872)

—

(58,872)
Cash dividends declared ($0.60 per share)

—

—

(3,374)

—

—

(3,374)
Treasury stock purchased (7,652 shares)

—

—

—

—

(308)

(308)
Restricted stock expense

—

133

—

—

—

133
Stock-based compensation (12,397 shares)

—

110

—

—

372

482
Balance, September 30, 2022

$
2,842

$
120,068

$
76,860

$
(62,315)

$
(1,265)

$
136,190


							Accumulated Other												Accumulated Other
	Common				Retained		Comprehensive		Treasury				Common				Retained		Comprehensive		Treasury
	Stock		Surplus		Earnings		Income (Loss)		Stock		Total		Stock		Surplus		Earnings		Income (Loss)		Stock		Total
Balance, July 1, 2021	$	2,266	$	84,936	$	56,118	$	(1,116)	$	(1,293)	$	140,911
Balance, January 1, 2022													$	2,842	$	119,825	$	64,941	$	(3,443)	$	(1,329)	$	182,836
Net income		—		—		5,576		—		—		5,576		—		—		5,330		—		—		5,330
Other comprehensive loss, net of taxes		—		—		—		(104)		—		(104)		—		—		—		(22,399)		—		(22,399)
Cash dividends declared ($0.20 per share)		—		—		(1,124)		—		—		(1,124)		—		—		(1,125)		—		—		(1,125)
Treasury stock purchased (1,061 shares)		—		—		—		—		(36)		(36)
Treasury stock purchased (4,617 shares)														—		—		—		—		(189)		(189)
Restricted stock expense		—		128		—		—		—		128		—		67		—		—		—		67
Issuance of stock offering, net of costs (1,150,000 shares)		576		34,676		—		—		—		35,252
Balance, September 30, 2021	$	2,842	$	119,740	$	60,570	$	(1,220)	$	(1,329)	$	180,603
Stock-based compensation (700 shares)														—		8		—		—		21		29
Balance, March 31, 2022													$	2,842	$	119,900	$	69,146	$	(25,842)	$	(1,497)	$	164,549

Balance, January 1, 2021	$	2,266	$	85,111	$	47,683	$	1,819	$	(1,456)	$	135,423
Balance, January 1, 2023													$	2,842	$	120,107	$	84,635	$	(68,196)	$	(1,250)	$	138,138
Cumulative effect adjustment for adoption of ASU 2016-13																		(1,561)						(1,561)
Balance, January 1, 2023 (as adjusted for change in accounting principle)													$	2,842	$	120,107	$	83,074	$	(68,196)	$	(1,250)	$	136,577
Net income		—		—		15,794		—		—		15,794		—		—		3,230		—		—		3,230
Other comprehensive loss, net of taxes		—		—		—		(3,039)		—		(3,039)
Cash dividends declared ($0.60 per share)		—		—		(2,907)		—		—		(2,907)
Issue of restricted stock (15,162 shares)		—		(436)		—		—		436		—
Treasury stock purchased (13,292 shares)		—		—		—		—		(379)		(379)
Other comprehensive income, net of taxes														—		—		—		10,022		—		10,022
Cash dividends declared ($0.23 per share)														—		—		(1,297)		—		—		(1,297)
Treasury stock purchased (5,685 shares)														—		—		—		—		(293)		(293)
Restricted stock expense		—		390		—		—		—		390		—		28		—		—		—		28
Stock-based compensation (2,404 shares)		—		(1)		—		—		70		69
Issuance of stock offering, net of costs (1,150,000 shares)		576		34,676								35,252
Balance, September 30, 2021	$	2,842	$	119,740	$	60,570	$	(1,220)	$	(1,329)	$	180,603
Stock-based compensation (5,853 shares)														—		133		—		—		180		313
Balance, March 31, 2023													$	2,842	$	120,268	$	85,007	$	(58,174)	$	(1,363)	$	148,580

See accompanying notes to unaudited condensed consolidated financial statements.

Table of Contents

ORANGE COUNTY BANCORP, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(Dollar amounts in thousands except per share data)


	Nine Months Ended				Three Months Ended
	September 30,				March 31,
	2022		2021		2023		2022
Cash flows from operating activities
Net income	$	15,293	$	15,794	$	3,230	$	5,330
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		8,517		1,883
Provision for credit losses (1)						6,355		923
Depreciation		1,150		1,002		498		376
Accretion on loans		(2,298)		(4,321)		(748)		(1,232)
Amortization of intangibles		214		214		71		71
Amortization of subordinated notes issuance costs		55		52		19		18
Investment securities (gains) losses						(107)		—
Restricted stock expense		133		390		28		67
Stock-based compensation		482		69		313		29
Net amortization of investment premiums		1,339		1,583		321		447
Earnings on bank owned life insurance		(709)		(554)		(238)		(233)
Net change in:
Accrued interest receivable		1,089		(618)		359		(69)
Other assets		(1,230)		(3,379)		145		(50)
Other liabilities		(799)		2,438		(2,074)		(2,557)
Net cash from operating activities		23,236		14,553		8,172		3,120
Cash flows from investing activities
Purchases of investment securities available-for-sale		(210,589)		(193,490)		(3,112)		(85,270)
Proceeds from sales and paydowns of investment securities available-for-sale		46,360		68,051
Proceeds from sales of investment securities available-for-sale						7,296
Proceeds from paydowns of investment securities available-for-sale						11,587		16,461
Proceeds from maturities and calls of investment securities available-for-sale		5,154		28,013		1,416		418
(Purchase) proceeds of restricted investment in bank stocks		(1,189)		(783)
Purchase of restricted investment in bank stocks						(18,326)		—
Proceeds from redemptions of restricted investment in bank stocks		24		15		13,487		(558)
Loans purchased		—		(8,232)
Net increase in loans		(257,268)		(122,301)		(96,331)		(41,932)
Additions to premises and equipment		(1,145)		(1,367)
Purchase of bank owned life insurance		—		(10,200)
Purchase of premises and equipment						(2,338)		(81)
Net cash used by investing activities		(418,653)		(240,294)		(86,321)		(110,962)
Cash flows from financing activities
Net increase in deposits		273,169		462,614		51,455		159,303
Repayments of note payable		—		—
Issuance of subordinated notes, net of issuance costs		—		—
Proceeds of issuance of stock offering , net of costs		—		35,252
Net change in FHLB advances, short term						97,500		—
Proceeds from FHLB advances, long term						10,000		—
Cash dividends paid		(3,374)		(2,907)		(1,297)		(1,125)
Purchases of treasury stock		(308)		(379)		(293)		(189)
Net cash from financing activities		269,487		494,580		157,365		157,989
Net change in cash and cash equivalents		(125,930)		268,839		79,216		50,147
Beginning cash and cash equivalents		306,179		121,232		86,081		306,179
Ending cash and cash equivalents	$	180,249	$	390,071	$	165,297	$	356,326
Supplemental cash flow information:
Interest paid		3,550		3,289		5,442		1,132
Income taxes paid		4,596		2,763		102		9
Supplemental noncash disclosures:
Lease liabilities arising from obtaining right-of-use assets		2,537		3,198		858		—

See accompanying notes to unaudited condensed consolidated financial statements.

(1)

Commencing on January 1, 2023 the allowance calculation is based on the current expected credit loss methodology. Prior to January 1, 2023 the calculation was based on the incurred loss methodology.

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 1 — Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations and Principles of Consolidation: The unaudited consolidated financial statements include Orange County Bancorp, Inc., a Delaware bank holding company (“Orange County Bancorp”) and its wholly owned subsidiaries: Orange Bank & Trust Company, a New York trust company (the “Bank”) and Hudson Valley Investment Advisors (“HVIA”), a Registered Investment Advisor, together referred to as the “Company.” Intercompany transactions and balances are eliminated in consolidation.

The Company provides commercial and consumer banking services to individuals, small businesses and local municipal governments as well as trust and investment services through the Bank and HVIA. The Company is headquartered in Middletown, New York, with eight locations in Orange County, New York, seven in Westchester County, New York, two in Rockland County, New York, and one in Bronx County, New York. Its primary deposit products are checking, savings, and term certificate accounts, and its primary lending products are commercial real estate, commercial and residential mortgage loans. Substantially all loans are secured by specific items of collateral including business assets, consumer assets, and commercial and residential real estate. Commercial loans are expected to be repaid from cash flow from operations of businesses. There are no significant concentrations of loans to any one industry or customer. However, the customers’ ability to repay their loans is dependent on the real estate and general economic conditions in the areas in which they operate.

Assets held by the Company in an agency or fiduciary capacity for its customers are excluded from the consolidated financial statements since they do not constitute assets of the Company. Assets held by the Company in an agency or fiduciary capacity for its customers amounted to ~~$1,157,837~~$1.4 million and ~~$1,325,894~~$1.3 million at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Certain information and footnote disclosures normally included in the audited consolidated financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, ~~2021~~2022 for Orange County Bancorp, Inc. contained in the Company’s Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March ~~30, 2022.~~24, 2023. In the opinion of the management of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting solely of normal and recurring accruals) necessary to present fairly the financial position as of ~~September 30, 2022,~~March 31, 2023, the results of operations, comprehensive income/(loss), changes in stockholders’ equity for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ and cash flow statements for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. The results of operations for any interim period are not necessarily indicative of the results that may be expected for the full year or for any future period. Certain reclassifications have been made to the financial statements to conform with prior period presentations.

Use of Estimates: To prepare financial statements in conformity with U.S. generally accepted accounting principles, management makes estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and the disclosures provided, and actual results could differ.

Recent Accounting Pronouncements: In ~~March~~December 2022, the ~~FASB~~financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848. The amendments in this ASU ~~2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU made certain targeted amendments specific~~defer the sunset date of Topic 848 from December 31, 2022, to ~~troubled debt restructurings (TDRs) by creditors and vintage disclosure related to gross write-offs. Upon adoption, the Corporation~~December 31, 2024, after which entities will no longer be ~~required~~permitted to apply the ~~loan and refinancing and restructuring guidance to determine whether a modification results~~relief in ~~a new loan or a continuation of an existing loan, rather than applying the recognition and measurement guidance for TDRs.~~Topic 848. The ASU ~~also requires companies to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within scope of Subtopic 326-20. ASU 2022-02~~ is effective upon issuance. The FASB had previously issued 2020-04 - Facilitation of the Effects of Reference Rate Reform on Financial Reporting and related amendments in 2020 to ease the potential burden in accounting for ~~fiscal years beginning after December 15, 2022 for~~reference rate reform. The amendments in ASU 2020-04 were elective and applied to all entities that have ~~adopted~~contracts, hedging relationships, and other transactions that reference the London Inter-bank Offer Rate (“LIBOR”) or another reference rate expected to be discontinued due to reference rate reform. The Company does not expect such adoption of the new ASU ~~2016-13, otherwise effective date is~~to have an impact on the ~~same as ASU 2016-13. The Corporation will adopt ASU 2016-13 effective January 1, 2023 and will simultaneously implement ASU 2022-02.~~Company’s consolidated financial instruments.

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

~~In June 2016,~~The Company adopted ASU 2016-13 on January 1, 2023 for all financial assets measured at amortized cost and off-balance sheet credit exposures using the ~~Financial~~modified retrospective method. Results for the three months ended March 31, 2023 are presented under Accounting Standards ~~Board~~Codification 326, Financial Instruments – Credit Losses, while prior period amounts continue to be reported with previously applicable GAAP and have not been restated. Effective January 1,2023, the Company recorded a $1.9 million increase in allowance for credit losses on loans that is referred to as the current expected credit loss (“~~FASB”~~CECL”) ~~issued~~methodology (previously allowance for loan losses), an adjustment of $1.4 million recording reserves related to acquired loans, and a $520 thousand increase related to allowance for off balance sheet credit exposures included in other liabilities section of the consolidated statements of financial condition, which resulted in a total cumulative effect adjustment of $1.5 million, net of tax, and a decrease to retained earnings a component of the stockholders’ equity. Further information regarding the impact of CECL can be found in Note 3 – Loans and Allowance for Credit Losses.

The Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”) prospectively effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of troubled debt restructurings and enhanced disclosures for loan modifications to borrowers experiencing financial difficulty. The Company did not have any loans that were both experiencing financial difficulties and modified during the three months ended March 31, 2023.

Allowance for Credit Losses

On January 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments —– Credit Losses ~~Topic 326: Measurement~~(Topic 326) (“ASU 2016-13”), which replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. The measurement of expected credit losses under the CECL methodology is applicable to financial assets measured at amortized cost, including loan and lease receivables and held-to-maturity securities. It also applies to off-balance sheet credit exposures (loan commitments, standby letters of credit, financial guarantees, and other similar instruments). In addition, Accounting Standards Codification (“ASC”) 326 made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities which management does not intend to sell or believes that it is more likely than not they will be required to sell.

The allowance for credit losses represents the estimated amount considered necessary to cover lifetime expected credit losses inherent in financial assets at the balance sheet date. The measurement of expected credit losses is applicable to loans receivable and securities measured at amortized cost. It also applies to off-balance sheet credit exposures such as loan commitments and unused lines of credit. The allowance is established through a provision for credit losses that is charged against income. The methodology for determining the allowance for credit losses is considered a critical accounting policy by management because of the high degree of judgment involved, the subjectivity of the assumptions used, and the potential for changes in the forecasted economic environment that could result in changes to the amount of the recorded allowance for credit losses. The allowance for credit losses is reported separately as a contra-asset on the consolidated statement of financial condition. The expected credit loss for unfunded lending commitments and unfunded loan commitments is reported on the Consolidated Statement of Financial Condition in other liabilities and is recorded within the provision for credit losses.

Allowance for Credit Losses on ~~Financial Instruments.~~ Loans Receivable

The ~~objective of the ASU is to provide financial statement users with more decision-useful information about the expected~~allowance for credit losses on ~~financial instruments~~loans is deducted from the amortized cost basis of the loan to present the net amount expected to be collected. Expected losses are evaluated and calculated on a collective, or pooled, basis for those loans which share similar risk characteristics. If the loan does not share risk characteristics with other ~~commitments~~loans, the Company will evaluate the loan on an individual basis. Individually evaluated loans are primarily non-accrual and collateral dependent loans. Furthermore, the Company evaluates the pooling methodology at least annually to ~~extend credit held by a reporting entity at each reporting date by replacing~~ensure that loans with similar risk characteristics are pooled appropriately. Loans are charged off against the ~~incurred loss impairment methodology in current GAAP with a methodology that reflects expected~~allowance for credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a result,when the Company believes the balances to be uncollectible. Expected recoveries do not

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

exceed the aggregate of amounts previously charged off or expected to be charged off. The Company does not estimate expected losses on accrued interest receivable on loans, as accrued interest receivable is ~~eligible for~~reversed or written off when the ~~delay and will adopt~~full collection of the ~~ASU effective January~~ ~~1, 2023.~~ accrued interest receivable related to a loan becomes doubtful.

The Company has ~~been working~~chosen to segment its portfolio consistent with the manner in which it manages credit risk. The Company calculates estimated credit losses for these loan segments using quantitative models and qualitative factors. Further information on loan segmentation and the credit loss estimation is included in Note 3 – Loans and Allowance for Credit Losses.

Individually Evaluated Loans

On a ~~third-party vendor~~case-by-case basis, the Company may conclude that a loan should be evaluated on an individual basis based on its disparate risk characteristics. When the Company determines that a loan no longer shares similar risk characteristics with other loans in the ~~development of certain methodologies and modeling techniques that~~portfolio, the allowance will be ~~implemented to accommodate this adoption. The modeling contemplates projected loss drivers derived from a cross-section~~determined on an individual basis using the present value of ~~as many~~ 30 ~~peer institutions with similar geographic, loan concentration, and charge-off history to that~~expected cash flows or, for collateral-dependent loans, the fair value of the ~~Company. Correlation studies were conducted to determine~~collateral as of the ~~predictive strength~~reporting date, less estimated selling costs, as applicable. If the fair value of certain macroeconomic factors with those observed loss histories. The Company will be using a discounted cash flow analysis, in conjunction with macroeconomic forecasts to establish probability of default and loss given default parameters; which will ultimately support the ~~derivation of projected losses based on~~collateral is less than the amortized cost basis of the ~~segmented~~ loan, ~~portfolio. At this time,~~ the Company will charge off the difference between the fair value of the collateral, less costs to sell at the reporting date and the amortized cost basis of the loan.

Allowance for Credit Losses on Off-Balance Sheet Commitments

The Company is ~~modeling projected~~required to include unfunded commitments that are expected to be funded in the future within the allowance calculation, other than those that are unconditionally cancelable. To arrive at that reserve, the reserve percentage for each applicable segment is applied to the unused portion of the expected commitment balance and is multiplied by the expected funding rate. As noted above, the allowance for credit losses on unfunded loan commitments is included in other liabilities on the consolidated statement of financial condition and the related credit expense is recorded as provisions for credit losses in ~~parallel with~~ the ~~current incurred~~consolidated statements of income.

Allowance for Credit Losses on Available for Sale Securities

For available for sale securities in an unrealized loss ~~methodology. Further,~~position, the Company first assesses whether it intends to sell, or it is ~~currently working with~~more than likely than not that it 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 securities available for sale that do not meet the above criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Company considers the extent to which fair value is less than amortized cost and adverse conditions related to the security, among other factors. If this assessment indicates that a ~~third-party analytics consulting firm~~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 the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the ~~purposes~~credit loss, limited by the amount that the fair value is less than the amortized cost. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income, net of ~~validating~~tax.

Changes in the ~~underlying modeling assumptions,~~allowance for credit losses are recorded as provision for, or reversal of, credit loss ~~drivers, data mapping, and governance documentation.~~expense. Losses are charged against the allowance when management believes the uncollectibility of an available for sale security is confirmed or when either of the criteria regarding intent or requirement to sell is met. The Company does not estimate expected losses on accrued interest receivable on investments, as accrued interest receivable is reversed or written off when the full collection of the accrued interest receivable related to an investment becomes doubtful.

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 2 — Investment Securities

The amortized cost and fair value of investment securities at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		ACL		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Adjustment		Value
Available-for-sale September 30, 2022
U.S. government agencies	$	107,694	$	34	$	(10,467)	$	97,261
Available-for-sale March 31, 2023
U.S. government agencies and treasuries									$	102,194	$	27	$	(8,538)	$	—	$	93,683
Mortgage-backed securities		374,372		—		(46,047)		328,325		360,748		89		(40,293)		—		320,544
Corporate Securities		28,565		—		(1,998)		26,567		28,553		—		(2,765)		(5,000)		20,788
Obligations of states and political subdivisions		113,258		41		(18,180)		95,119		104,133		65		(12,888)		—		91,310
Total debt securities	$	623,889	$	75	$	(76,692)	$	547,272	$	595,628	$	181	$	(64,484)	$	(5,000)	$	526,325


			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized		Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses		Value
Available-for-sale December 31, 2021
U.S. government agencies	$	80,596	$	440	$	(1,330)	$	79,706
Available-for-sale December 31, 2022
U.S. government agencies and treasuries									$	104,734	$	25	$	(11,009)	$	93,750
Mortgage-backed securities		272,931		1,285		(3,784)		270,432		364,690		17		(47,792)		316,915
Corporate Securities		20,081		278		(148)		20,211		28,559		—		(2,901)		25,658
Obligations of states and political subdivisions		92,545		2,149		(246)		94,448		111,971		48		(14,881)		97,138
Total debt securities	$	466,153	$	4,152	$	(5,508)	$	464,797	$	609,954	$	90	$	(76,583)	$	533,461

~~There were no proceeds~~

Proceeds from sales of securities and associated gains and losses for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.


	Three Months Ended March 31,
	2023		2022
Proceeds	$	7,296	$	—

Gross realized gains	$	130	$	—
Gross realized losses		23		—
Net gain on sales of securities		107		—
Tax provision on realized net gains and loss		22		—
Net gain on sales of securities, after tax	$	85	$	—

911

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

The amortized cost and fair value of debt securities as of March 31, 2023 are shown below by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.


	Available-for-sale
	Amortized		Fair
	Cost		Value
Due in one year or less	$	2,744	$	2,759
Due after one through five years		27,703		26,590
Due after five through ten years		66,060		54,448
Due after ten years		138,373		121,984
		234,880		205,781
Mortgage-backed securities		360,748		320,544
Total debt securities	$	595,628	$	526,325

Securities pledged at March 31, 2023 and December 31, 2022 had a carrying amount of $353,659 and $323,674 and were pledged to secure public deposits.

At March 31, 2023 and December 31, 2022, there were no holdings of securities of any one issuer, other than the US Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following tables summarize securities with unrealized losses for which an allowance for credit losses has not been recorded at March 31, 2023 and December 31, 2022, aggregated by major security types and length of time in a continuous unrealized loss position:


	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available-for-sale March 31, 2023
U.S. government agencies and treasuries	$	32,615	$	(448)	$	56,508	$	(8,090)	$	89,123	$	(8,538)
Mortgage-backed securities		58,650		(1,597)		253,124		(38,696)		311,774		(40,293)
Corporate Securities		7,679		(821)		8,347		(1,944)		16,026		(2,765)
Obligations of states and political subdivisions		11,291		(460)		73,455		(12,428)		84,746		(12,888)
Total debt securities	$	110,235	$	(3,326)	$	391,434	$	(61,158)	$	501,669	$	(64,484)


	Less than 12 Months				12 Months or More				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	Value		Losses		Value		Losses		Value		Losses
Available-for-sale December 31, 2022
U.S. government agencies	$	47,064	$	(2,414)	$	41,718	$	(8,595)	$	88,782	$	(11,009)
Mortgage-backed securities		150,542		(12,139)		165,336		(35,653)		315,878		(47,792)
Corporate Securities		12,503		(1,007)		13,155		(1,894)		25,658		(2,901)
Obligations of states and political subdivisions		57,287		(6,763)		32,479		(8,118)		89,766		(14,881)
Total debt securities	$	267,396	$	(22,323)	$	252,688	$	(54,260)	$	520,084	$	(76,583)

As of March 31, 2023, the Company’s securities portfolio consisted of 292 securities, 252 of which were in an unrealized loss position. As of December 31, 2022, the Company’s securities portfolio consisted of 296 securities, 264 of which were in an unrealized loss position. Unrealized losses are primarily related to the Company’s mortgage backed securities, U.S. government agency securities, and investments in obligations of states and political subdivisions as discussed below.

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Available for sale securities are evaluated to determine if a decline in fair value below the amortized cost basis has resulted from a credit loss or other factors. An impairment related to credit factors would be recorded through an allowance for credit losses. The allowance is limited to the amount by which the security’s amortized cost basis exceeds the fair value. An impairment that has not been recorded through an allowance for credit losses shall be recorded through other comprehensive income, net of applicable taxes. Investment securities will be written down to fair value through the Consolidated Statements of Income when management intends to sell, or may be required to sell, the securities before they recover in value. Primarily all of the investment securities are backed by loans guaranteed by either U.S. government agencies or U.S government-sponsored entities, and management believes that default is highly unlikely given the lack of historical credit losses and governmental backing. Management believes that the unrealized losses on these securities are a function of changes in market interest rates and credit spreads, not changes in credit quality.

The Company’s available for sale debt securities portfolio includes corporate bonds and revenue bonds, among other securities. These types of securities may pose a higher risk of future impairment charges as a result of the changes in market interest rates, unpredictable nature of the U.S. economy and their potential negative effect on the future performance of the security issuers. Available for sale debt securities in unrealized loss positions are evaluated for impairment related to credit losses on a quarterly basis. Based on a comparison of the present value of expected cash flows to the amortized cost, the Company recognized a credit related charge of a corporate bond issued by Signature Bank due to its failure during the three months ended March 31, 2023 resulting in a provision for credit losses totaling $5.0 million during the three months ended March 31, 2023. The Company also evaluated available for sale debt securities that are in an unrealized loss position as of March 31, 2023 included in the table above and has determined that the declines in fair value are mainly attributable to interest rates, credit spreads, market volatility and liquidity conditions, not credit quality or other factors. There was no impairment recognized during the three months ended March 31, 2022. Accrued interest on investments, which is excluded from the amortized cost of available for sale debt securities, totaled $202 and $931 at March 31, 2023 and December 31, 2022, respectively, and is presented within total accrued interest receivable on the consolidated statements of financial condition.

The Company does not intend to sell any of its available for sale debt securities in an unrealized loss position prior to recovery of their amortized cost basis, and it is more likely than not that the Company will not be required to sell any of its securities prior to recovery of their amortized cost basis.

The following table presents the activity in the allowance for credit losses associated with investment securities for the three months ended March 31, 2023:


Allowance for credit losses -investments:
Beginning balance	$	—
Provision for loan losses		5,000
Charge-offs		—
Recoveries		—
Ending balance	$	5,000

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Note 3 — Loans

Loans at March 31, 2023 and December 31, 2022 were as follows:


		March 31, 2023		December 31, 2022
Commercial and industrial	$	254,592	$	258,901
Commercial real estate		1,192,501		1,098,054
Commercial real estate construction		116,077		109,570
Residential real estate		73,156		74,277
Home equity		12,067		12,329
Consumer		14,975		16,299
Total Loans	$	1,663,368	$	1,569,430
Allowance for credit losses		(24,726)		(21,832)
Net Loans	$	1,638,642	$	1,547,598

Included in commercial and industrial loans as of March 31, 2023 and December 31, 2022 were loans issued under the SBA’s Paycheck Protection Program (“PPP”) of $1,710 and $1,717, respectively.

Allowance for Credit Losses

The Company engaged a third-party vendor to assist in the CECL calculation and internal governance framework to oversee the quarterly estimation process for the allowance for credit losses (“ACL”). The ACL calculation methodology relies on regression-based discounted cash flow (“DCF”) models that correlate relationships between certain financial metrics and external market and macroeconomic variables. The Company uses Proability of Default (“PD”) and Loss Given Default (“LGD”) with quantitative factors and qualitative considerations in the calculation of the allowance for credit losses for collectively evaluated loans. The Company uses a reasonable and supportable period of one year, at which point loss assumptions revert back to historical loss information by means of a one-year reversion period. Following are some of the key factors and assumptions that are used in the Company’s CECL calculations:

• methods based on probability of default and loss given default which are modeled based on macroeconomic scenarios;

• a reasonable and supportable forecast period determined based on management’s current review of macroeconomic environment;

• a reversion period after the reasonable and supportable forecast period;

• estimated prepayment rates based on the Company’s historical experience and future macroeconomic environment;

• estimated credit utilization rates based on the Company’s historical experience and future macroeconomic environment; and

• incorporation of qualitative factors not captured within the modeled results. The qualitative factors include but are not limited to

changes in lending policies, business conditions, changes in the nature and size of the portfolio, portfolio concentrations, and

external factors such as competition.

Allowance for Credit Losses are aggregated for the major loan segments, with similar risk characteristics, summarized below. However, for the purposes of calculating the reserves, these segments may be further broken down into loan classes by risk characteristics that include but are not limited to regulatory call codes, industry type, geographic location, and collateral type.

Residential real estate loans involve certain risks such as interest rate risk and risk of non-repayment. Adjustable-rate residential real estate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default. At the same time, the marketability of the underlying properties may be adversely affected by

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ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

higher interest rates. Repayment risk may be affected by a number of factors including, but not necessarily limited to, job loss, divorce, illness and personal bankruptcy of the borrower.

Commercial and multi-family real estate lending entails additional risks as compared with residential family property lending. Such loans typically involve large loan balances to single borrowers or groups of related borrowers. The payment experience on such loans is typically dependent on the successful operation of the real estate project. The success of such projects is sensitive to changes in supply and demand conditions in the market for commercial real estate as well as general economic conditions.

Construction lending is generally considered to involve a high risk due to the concentration of principal in a limited number of loans and borrowers and the effects of the general economic conditions on developers and builders. Moreover, a construction loan can involve additional risks because of the inherent difficulty in estimating both a property’s value at completion of the project and the estimated cost (including interest) of the project. The nature of these loans is such that they are generally difficult to evaluate and monitor. In addition, speculative construction loans to a builder are not necessarily pre-sold and thus pose a greater potential risk to the Bank than construction loans to individuals on their personal residence.

Commercial and industrial lending, including lines of credit, is generally considered higher risk due to the concentration of principal in a limited number of loans and borrowers and the effects of general economic conditions on the business. Commercial business loans are primarily secured by inventories and other business assets. In many cases, any repossessed collateral for a defaulted commercial business loans will not provide an adequate source of repayment of the outstanding loan balance.

Home equity lending entails certain risks such as interest rate risk and risk of non-repayment. The marketability of the underlying property may be adversely affected by higher interest rates, decreasing the collateral value securing the loan. Repayment risk can be affected by job loss, divorce, illness and personal bankruptcy of the borrower. Home equity line of credit lending entails securing an equity interest in the borrower’s home. In many cases, the Bank’s position in these loans is as a junior lien holder to another institution’s superior lien. This type of lending is often priced on an adjustable rate basis with the rate set at or above a predefined index. Adjustable-rate loans decrease the interest rate risk to the Bank that is associated with changes in interest rates but involve other risks, primarily because as interest rates rise, the payment by the borrower rises to the extent permitted by the terms of the loan, thereby increasing the potential for default.

Consumer loans generally have more credit risk because of the type and nature of the collateral and, in certain cases, the absence of collateral. Consumer loans generally have shorter terms and higher interest rates than other lending. In addition, consumer lending collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be adversely affected by job loss, divorce, illness and personal bankruptcy. In many cases, any repossessed collateral for a defaulted consumer loan will not provide an adequate source of repayment of the outstanding loan.

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

The amortized cost and fair value of debt securities as of September 30, 2022 are shown below by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Available-for-sale

Amortized

Fair

Cost

Value
Due in one year or less

$
4,067

$
4,083
Due after one through five years

26,077

25,102
Due after five through ten years

73,571

65,873
Due after ten years

145,802

123,889

249,517

218,947
Mortgage-backed securities

374,372

328,325
Total debt securities

$
623,889

$
547,272

~~Securities pledged at September 30, 2022 and December 31, 2021 had a carrying amount of $424,196 and $233,907 and were pledged to secure public deposits.~~

At September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer, other than the US Government and its agencies, in an amount greater than 10% of stockholders’ equity.

The following tables ~~summarize securities with unrealized losses at September 30, 2022~~present the activity in the allowance by portfolio segment for each of the three months ended March 31, 2023 and ~~December 31, 2021, aggregated by major security types and length of time in continuous loss position:~~2022:


	Three Months Ended March 31, 2023
	Commercial				Commercial
	And		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for credit losses:
Beginning balance, prior to adoption of ASC 326	$	5,510	$	14,364	$	1,252	$	345	$	63	$	298	$	21,832
Impact of adopting ASC 326		72		1,737		(8)		(227)		(17)		(129)		1,428
Provision for credit losses⁽¹⁾		(338)		585		381		930		26		(51)		1,533
Charge-offs		(142)		—		—		—		—		(36)		(178)
Recoveries		39		12		—		—		—		60		111
Ending balance	$	5,141	$	16,698	$	1,625	$	1,048	$	72	$	142	$	24,726

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses
Available-for-sale September 30, 2022

U.S. government agencies

$
58,924

$
(4,207)

$
32,962

$
(6,260)

$
91,886

$
(10,467)
Mortgage-backed securities

196,565

(20,462)

121,896

(25,585)

318,461

(46,047)
Corporate Securities

14,203

(859)

8,363

(1,139)

22,566

(1,998)
Obligations of states and political subdivisions

78,099

(14,952)

10,985

(3,228)

89,084

(18,180)
Total debt securities

$
347,791

$
(40,480)

$
174,206

$
(36,212)

$
521,997

$
(76,692)

Less than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

Value

Losses

Value

Losses

Value

Losses
Available-for-sale December 31, 2021

U.S. government agencies

$
10,337

$
(121)

$
32,210

$
(1,209)

$
42,547

$
(1,330)
Mortgage-backed securities

177,506

(3,273)

14,134

(511)

191,640

(3,784)
Corporate Securities

9,354

(148)

—

—

9,354

(148)
Obligations of states and political subdivisions

13,349

(138)

3,298

(108)

16,647

(246)
Total debt securities

$
210,546

$
(3,680)

$
49,642

$
(1,828)

$
260,188

$
(5,508)

~~There was no other than temporary impairment loss recognized on any securities at September 30, 2022 or December 31, 2021.~~

(1)

The provision for credit losses on the income statement also includes approximately ($178) associated with off balance sheet ACL.


	Three Months Ended March 31, 2022
	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for loan losses:
Beginning balance	$	4,901	$	11,183	$	964	$	272	$	80	$	261	$	17,661
Provision for loan losses		549		(110)		332		22		(11)		141		923
Charge-offs		(48)		—		—		—		—		(119)		(167)
Recoveries		6		—		—		—		—		4		10
Ending balance	$	5,408	$	11,073	$	1,296	$	294	$	69	$	287	$	18,427

1016

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

As of September 30, 2022, the Company’s securities portfolio consisted of 293 securities, 260 of which were in an unrealized loss position. As of December 31, 2021, the Company’s securities portfolio consisted of 252 securities, 78 of which were in an unrealized loss position. Unrealized losses are primarily related to the Company’s mortgage backed securities, U.S. government agency securities, and investments in obligations of states and political subdivisions as discussed below.

At September 30, 2022, mortgage-backed securities held by the Company were issued by U.S. government sponsored entities and agencies. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other than temporarily impaired at September 30, 2022.

The Company’s unrealized losses on U.S. government agency securities relate primarily to its investment in Small Business Administration (“SBA”) issued securities. Because the decline in fair value is attributable to changes in interest rates and illiquidity, and not credit quality, and because the Company does not have the intent to sell these securities, and it is likely that it will not be required to sell the securities before their anticipated recovery, the Company does not consider these securities to be other than temporarily impaired at September 30, 2022.

At September 30, 2022, the Company’s unrealized loss on obligations of state and political subdivisions was related to the decline in fair value. The fair value decline is driven by interest rate impact and not credit quality. The Company does not have the intent to sell these securities and it is likely that the Company will not be required to sell the securities before their anticipated recovery. Accordingly, the Company does not consider these securities to be other than temporarily impaired at September 30, 2022.

~~Note 3 — Loans~~

~~Loans at September 30, 2022~~The following tables present the balance in the allowance and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2023 and December 31, ~~2021 were as follows:~~2022:


	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
March 31, 2023
Allowance for credit losses:
Ending balance:
individually evaluated for impairment	$	597	$	369	$	—	$	—	$	—	$	—	$	966
collectively evaluated for impairment		4,544		16,329		1,625		1,048		72		142		23,760
Total ending allowance balance	$	5,141	$	16,698	$	1,625	$	1,048	$	72	$	142	$	24,726
Loans:
Ending balance:
individually evaluated for impairment	$	816	$	22,486	$	—	$	1,250	$	49	$	102	$	24,703
collectively evaluated for impairment		253,776		1,170,015		116,077		71,906		12,018		14,873		1,638,665
Total ending loans balance	$	254,592	$	1,192,501	$	116,077	$	73,156	$	12,067	$	14,975	$	1,663,368

September 30, 2022

December 31, 2021

Commercial and industrial

$
251,293

$
268,508

Commercial real estate

1,059,821

852,707

Commercial real estate construction

132,945

72,250

Residential real estate

73,552

65,248

Home equity

12,750

13,638

Consumer

17,343

19,077

Total

$
1,547,704

$
1,291,428


	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
December 31, 2022
Allowance for loan losses:
Ending balance:
individually evaluated for impairment	$	653	$	380	$	—	$	—	$	—	$	—	$	1,033
collectively evaluated for impairment		4,857		13,984		1,252		345		63		298		20,799
Total ending allowance balance	$	5,510	$	14,364	$	1,252	$	345	$	63	$	298	$	21,832
Loans:
Ending balance:
individually evaluated for impairment	$	1,003	$	22,956	$	—	$	1,254	$	51	$	104	$	25,368
collectively evaluated for impairment		257,898		1,075,098		109,570		73,023		12,278		16,195		1,544,062
Total ending loans balance	$	258,901	$	1,098,054	$	109,570	$	74,277	$	12,329	$	16,299	$	1,569,430

Included in the commercial and industrial loans collectively evaluated for impairment are PPP loans of $1,710 and $1,717 as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021 were~~2022, respectively. PPP loans ~~issued under~~receivable are guaranteed by the ~~SBA’s Paycheck Protection Program (“PPP”) of $1,897~~SBA and ~~$38,114, respectively.~~

~~The following tables present the activity~~have no allocation in the ~~allowance for loan losses by portfolio segment for each of the three and nine months ended September 30, 2022 and 2021:~~allowance.

1117

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Three Months Ended September 30, 2022

Commercial



Commercial








and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
Allowance for loan losses:















Beginning balance

$
9,332

$
12,303

$
1,318

$
299

$
68

$
322

$
23,642
Provision for loan losses

573

1,110

279

60

1

61

2,084
Charge-offs

(2,817)

—

—

—

—

(70)

(2,887)
Recoveries

22

26

—

—

—

1

49
Ending balance

$
7,110

$
13,439

$
1,597

$
359

$
69

$
314

$
22,888

The following tables present loans individually evaluated for impairment recognized by class of loans as of March 31, 2023 and December 31, 2022:


	Unpaid				Allowance for
	Principal		Recorded		Credit Losses
	Balance		Investment		Allocated
March 31, 2023
With no related allowance recorded
Commercial and industrial ⁽¹⁾	$	—	$	—	$	—
Commercial real estate ⁽²⁾		17,516		16,910		—
Commercial real estate construction		—		—		—
Residential real estate ⁽³⁾		1,263		1,250		—
Home equity ⁽⁴⁾		53		49		—
Consumer		—		—		—
Total	$	18,832	$	18,209	$	—
With an allowance recorded:
Commercial and industrial ⁽¹⁾	$	931	$	816	$	597
Commercial real estate ⁽²⁾		5,608		5,576		369
Commercial real estate construction		—		—		—
Residential real estate		—		—		—
Home equity		—		—		—
Consumer ⁽⁵⁾		102		102		—
Total	$	6,641	$	6,494	$	966

(1)

Commercial and industrial loans – secured by business assets and UCC filings

(2)

Commercial real estate – secured by various types of commercial real estate

(3)

Residential real estate – secured by residential real estate

(4)

Home equity – secured by residential real estate

(5)

Consumer – represents one personal loan

Nine Months Ended September 30, 2022

Commercial



Commercial








and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
Allowance for loan losses:















Beginning balance

$
4,901

$
11,183

$
964

$
272

$
80

$
261

$
17,661
Provision for loan losses

5,066

2,230

633

138

(11)

461

8,517
Charge-offs

(2,894)

—

—

(51)

—

(449)

(3,394)
Recoveries

37

26

—

—

—

41

104
Ending balance

$
7,110

$
13,439

$
1,597

$
359

$
69

$
314

$
22,888

Three Months Ended September 30, 2021

Commercial

Commercial

and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
Allowance for loan losses:














Beginning balance

$
4,946

10,536

948

301

60

258

$
17,049
Provision for loan losses

819

428

(149)

(70)

20

(40)

1,008
Charge-offs

(71)

(7)

—

—

—

(1)

(79)
Recoveries

3

59

—

—

—

62
Ending balance

$
5,697

$
11,017

$
799

$
231

$
80

$
217

$
18,041

Nine Months Ended September 30, 2021

Commercial

Commercial

and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
Allowance for loan losses:

Beginning balance

$
4,795

$
9,782

$
801

$
381

$
77

$
336

$
16,172
Provision for loan losses

896

1,272

(2)

(150)

3

(136)

1,883
Charge-offs

(176)

(110)

—

—

—

(8)

(294)
Recoveries

182

73

—

—

—

25

280
Ending balance

$
5,697

$
11,017

$
799

$
231

$
80

$
217

$
18,041


		Unpaid				Allowance for
		Principal		Recorded		Loan Losses
		Balance		Investment		Allocated
December 31, 2022
With no related allowance recorded
Commercial and industrial	$		—	$	—	$	—
Commercial real estate			17,884		17,316		—
Commercial real estate construction			—		—		—
Residential real estate			1,266		1,254		—
Home equity			55		51		—
Consumer			—		—		—
Total	$		19,205	$	18,621	$	—
With an allowance recorded:
Commercial and industrial	$		1,011	$	1,003	$	653
Commercial real estate			5,665		5,640		380
Commercial real estate construction			—		—		—
Residential real estate			—		—		—
Home equity			—		—		—
Consumer			104		104		—
Total	$		6,780	$	6,747	$	1,033

1218

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

The following tables present the ~~balance in~~average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the ~~allowance for loan losses~~three months ended March 31, 2023 and 2022:


	Three Months Ended				Three Months Ended
	March 31, 2023				March 31, 2022
	Average		Interest		Average		Interest
	Recorded		Income		Recorded		Income
	Investment		Recognized⁽¹⁾		Investment		Recognized⁽¹⁾
With no related allowance recorded
Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate		17,113		156		14,740		160
Commercial real estate construction		578		—		578		—
Residential real estate		724		1		704		8
Home equity		—		—		—		—
Consumer		—		—		—		—
Total	$	18,415	$	157	$	16,022	$	168
With an allowance recorded:
Commercial and industrial	$	4,329	$	52	$	888	$	13
Commercial real estate		2,188		29		8,708		83
Commercial real estate construction		—		—		—		—
Residential real estate		—		—		—		—
Home equity		—		—		—		—
Consumer		103		1		113		1
Total	$	6,620	$	82	$	9,709	$	97

(1) Cash basis interest income approximates interest income recognized.

The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by ~~portfolio segment and based on impairment method~~class of loans as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Commercial



Commercial








and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
September 30, 2022

Allowance for loan losses:














Ending balance:














individually evaluated for impairment

$
2,721

$
390

$
—

$
—

$
—

$
—

$
3,111
collectively evaluated for impairment

4,389

13,049

1,597

359

69

314

19,777
Total ending allowance balance

$
7,110

$
13,439

$
1,597

$
359

$
69

$
314

$
22,888
Loans:














Ending balance:














individually evaluated for impairment

$
4,170

$
23,165

$
—

$
1,804

$
53

$
107

$
29,299
collectively evaluated for impairment

247,123

1,036,656

132,945

71,748

12,697

17,236

1,518,405
Total ending loans balance

$
251,293

$
1,059,821

$
132,945

$
73,552

$
12,750

$
17,343

$
1,547,704

Commercial



Commercial








and

Commercial

Real Estate

Residential

Home

Industrial

Real Estate

Construction

Real Estate

Equity

Consumer

Total
December 31, 2021

Allowance for loan losses:














Ending balance:














individually evaluated for impairment

$
137

$
1,272

$
—

$
—

$
—

$
24

$
1,433
collectively evaluated for impairment

4,764

9,911

964

272

80

237

16,228
Total ending allowance balance

$
4,901

$
11,183

$
964

$
272

$
80

$
261

$
17,661
Loans:





Ending balance:





individually evaluated for impairment

$
952

$
23,523

$
—

$
1,227

$
50

$
114

$
25,866
collectively evaluated for impairment

267,556

829,184

72,250

64,021

13,588

18,963

1,265,562
Total ending loans balance

$
268,508

$
852,707

$
72,250

$
65,248

$
13,638

$
19,077

$
1,291,428


					Loans Past Due Over 90 Days
	Non-accrual				Still Accruing
	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Commercial and industrial	$	817	$	1,003	$	652	$	1,850
Commercial real estate		3,549		3,882		535		—
Commercial real estate construction		—		—		725		—
Residential real estate		1,185		1,188		—		—
Home equity		49		51		—		—
Consumer		—		—		439		477
Total	$	5,600	$	6,124	$	2,351	$	2,327

~~Included~~As of March 31, 2023, the Company held $5.6 million in non-accrual balances and a related ACL for approximately $701. Within the ~~commercial~~non-accrual balances, $4.5 million of these loans had no ACL associated to them.

The Company adopted ASU 2022-02, Financial Instruments – Credit Losses (Topic 326) Troubled Debt Restructurings and ~~industrial loans collectively evaluated for impairment are PPP loans~~Vintage Disclosures (“ASU 2022-02”) effective January 1, 2023. The amendments in ASU 2022-02 eliminated the recognition and measurement of ~~$1,897~~troubled debt restructurings and ~~$38,114 as of September 30, 2022 and December 31, 2021, respectively. PPP loans receivable are guaranteed by the SBA and have no allocation in the allowance~~enhanced disclosures for loan ~~losses.~~modifications to borrowers experiencing financial difficulty. The Company did not have any loans that were both experiencing financial difficulties and modified during the three months ended March 31, 2023.

1319

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

~~The following tables present loans individually evaluated for impairment recognized by class of loans as of September 30, 2022 and December 31, 2021:~~

Unpaid



Allowance for

Principal

Recorded

Loan Losses

Balance

Investment

Allocated
September 30, 2022






With no related allowance recorded






Commercial and industrial

$
—

$
—

$
—
Commercial real estate

17,991

17,464

—
Commercial real estate construction

—

—

—
Residential real estate

1,816

1,804

—
Home equity

56

53

—
Consumer

—

—

—
Total

$
19,863

$
19,321

$
—
With an allowance recorded:






Commercial and industrial

$
4,172

$
4,170

$
2,721
Commercial real estate

5,721

5,701

390
Commercial real estate construction

—

—

—
Residential real estate

—

—

—
Home equity

—

—

—
Consumer

107

107

—
Total

$
10,000

$
9,978

$
3,111

Unpaid



Allowance for

Principal

Recorded

Loan Losses

Balance

Investment

Allocated
December 31, 2021

With no related allowance recorded






Commercial and industrial

$
1

$
1

$
—
Commercial real estate

14,291

13,953

—
Commercial real estate construction

—

—

—
Residential real estate

1,155

1,155

—
Home equity

50

50

—
Consumer

—

—

—
Total

$
15,497

$
15,159

$
—
With an allowance recorded:






Commercial and industrial

$
951

$
951

$
137
Commercial real estate

9,593

9,570

1,272
Commercial real estate construction

—

—

—
Residential real estate

84

72

—
Home equity

—

—

—
Consumer

114

114

24
Total

$
10,742

$
10,707

$
1,433

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

The following tables present the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

Three Months Ended

September 30, 2022

September 30, 2021

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized⁽¹⁾

Investment

Recognized⁽¹⁾
With no related allowance recorded








Commercial and industrial

$
—

$
—

$
15

$
—
Commercial real estate

17,553

158

13,614

147
Commercial real estate construction

578

—

578

—
Residential real estate

1,283

6

588

8
Home equity

—

—

25

—
Consumer

—

—

—

—
Total

$
19,414

$
164

$
14,820

$
155
With an allowance recorded:








Commercial and industrial

$
18,599

$
52

$
2,363

$
33
Commercial real estate

2,259

30

10,335

134
Commercial real estate construction

—

—

—

—
Residential real estate

—

—

74

1
Home equity

—

—

—

—
Consumer

108

1

118

1
Total

$
20,966

$
83

$
12,890

$
169

~~(1) Cash basis interest income approximates interest income recognized.~~

Nine Months Ended

Nine Months Ended

September 30, 2022

September 30, 2021

Average

Interest

Average

Interest

Recorded

Income

Recorded

Income

Investment

Recognized⁽¹⁾

Investment

Recognized⁽¹⁾
With no related allowance recorded








Commercial and industrial

$
—

$
—

$
32

$
1
Commercial real estate

17,549

476

13,620

442
Commercial real estate construction

578

—

578

—
Residential real estate

983

18

593

23
Home equity

—

—

25

1
Consumer

—

—

—

—
Total

$
19,110

$
494

$
14,848

$
467
With an allowance recorded:








Commercial and industrial

$
9,264

$
157

$
2,892

$
118
Commercial real estate

2,292

90

10,390

405
Commercial real estate construction

—

—

—

—
Residential real estate

—

—

77

2
Home equity

—

—

—

—
Consumer

110

4

120

5
Total

$
11,666

$
251

$
13,479

$
530

~~(1)~~

~~Cash basis interest income approximates interest income recognized.~~

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

~~The following table presents the recorded investment in non-accrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2022 and December 31, 2021:~~

Loans Past Due Over 90 Days

Non-accrual

Still Accruing


September 30, 2022

December 31, 2021

September 30, 2022

December 31, 2021

Commercial and industrial

$
4,170

$
—

$
409

$
720

Commercial real estate

3,958

3,928

—

465

Commercial real estate construction

—

—

—

—

Residential real estate

1,146

578

—

—

Home equity

53

50

—

—

Consumer

—

4

456

208

Total

$
9,327

$
4,560

$
865

$
1,393

~~The following tables present the aging of the recorded investment in past-due loans as of September 30, 2022 and December 31, 2021 by class of loans:~~

30-59 Days

60-89 Days

Greater Than

Total

Loans

Past Due

Past Due

90 Days

Past Due

Not Past Due
September 30, 2022










Commercial and industrial

$
461

$
492

$
1,500

$
2,453

$
248,840
Commercial real estate

281

—

684

965

1,058,856
Commercial real estate construction

—

—

—

—

132,945
Residential real estate

—

591

1,146

1,737

71,815
Home equity

—

—

—

—

12,750
Consumer

92

28

456

576

16,767
Total

$
834

$
1,111

$
3,786

$
5,731

$
1,541,973

30-59 Days

60-89 Days

Greater Than

Total

Loans

Past Due

Past Due

90 Days

Past Due

Not Past Due
December 31, 2021

Commercial and industrial

$
541

$
1,519

$
720

$
2,780

$
265,728
Commercial real estate

—

2,873

1,161

4,034

848,673
Commercial real estate construction

—

—

—

—

72,250
Residential real estate

26

—

578

604

64,644
Home equity

—

58

50

108

13,530
Consumer

1,134

292

212

1,638

17,439
Total

$
1,701

$
4,742

$
2,721

$
9,164

$
1,282,264

~~As of September 30, 2022 and December 31, 2021, loans in the process of foreclosure were $2,064 and $2,024 respectively, of which $1,125 and $578 were secured by residential real estate.~~

As of September 30, 2022 and December 31, 2021, the Company has a recorded investment in troubled debt restructurings (“TDRs”) of $14,168 and $14,500 respectively. The Company has allocated $173 and $687 of specific allowance for these loans at September 30, 2022 and December 31, 2021, respectively, and there were no commitments to lend additional funds to borrowers whose loans were classified as TDRs. There were no restructured loans that defaulted within the three or nine months ended September 30, 2022 and September 30, 2021.

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the Company’s internal underwriting policy.

~~There~~The following tables present the aging of the recorded investment in past-due loans as of March 31, 2023 and December 31, 2022 by class of loans:


	30-59 Days		60-89 Days		Greater Than		Total		Loans
	Past Due		Past Due		90 Days		Past Due		Not Past Due
March 31, 2023
Commercial and industrial	$	784	$	62	$	1,468	$	2,314	$	252,278
Commercial real estate		440		—		1,219		1,659		1,190,842
Commercial real estate construction		—		—		725		725		115,352
Residential real estate		18		—		1,167		1,185		71,971
Home equity		371		—		—		371		11,696
Consumer		38		26		439		503		14,472
Total	$	1,651	$	88	$	5,018	$	6,757	$	1,656,611


	30-59 Days		60-89 Days		Greater Than		Total		Loans
	Past Due		Past Due		90 Days		Past Due		Not Past Due
December 31, 2022
Commercial and industrial	$	1,497	$	1,583	$	2,854	$	5,934	$	252,967
Commercial real estate		563		—		952		1,515		1,096,539
Commercial real estate construction		—		—		—		—		109,570
Residential real estate		2		—		1,188		1,190		73,087
Home equity		—		—		—		—		12,329
Consumer		584		634		476		1,694		14,605
Total	$	2,646	$	2,217	$	5,470	$	10,333	$	1,559,097

As of March 31, 2023 and December 31, 2022, loans in the process of foreclosure were ~~no loans whose terms~~$2,624 and $2,016 respectively, of which $1,167 and $578 were ~~modified resulting in TDRs during the three and nine months ended September 30, 2022 and September 30, 2021.~~secured by residential real estate.

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information and current economic trends, among other factors. The Company analyzes loans individually by classifying the loans as to credit risk. This analysis includes loans with an outstanding balance greater than $350 thousand and non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed on an annual basis. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well- defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

~~Based on~~The following table summarizes the ~~analysis performed as of September 30, 2022 and December 31, 2021, the risk category of~~Company’s loans by ~~class~~year of ~~loans is as follows:~~origination and internally assigned credit risk at March 31, 2023 and gross charge-offs for the three months ended March 31, 2023:

Special








Pass

Mention

Substandard

Doubtful

Loss

Total
September 30, 2022












Commercial and industrial

$
246,129

$
609

$
1,716

$
2,839

$
—

$
251,293
Commercial real estate

1,038,272

5,641

15,908

—

—

1,059,821
Commercial real estate construction

132,945

—

—

—

—

132,945
Residential real estate

71,815

—

1,737

—

—

73,552
Home equity

12,697

—

53

—

—

12,750
Consumer

17,236

—

107

—

—

17,343
Total

$
1,519,094

$
6,250

$
19,521

$
2,839

$
—

$
1,547,704


									Revolving
								Revolving	Loans to
	2023		2022	2021	2020	2019	Prior	Loans	Term Loans	Total
Commercial and industrial											—
Pass	$	3,964	63,616	61,800	54,315	30,982	38,289	—	—	$	252,966
Special Mention		—	—	—	—	—	425	—	—		425
Substandard		—	385	—	400	—	416	—	—		1,201
Total Commercial and industrial	$	3,964	64,001	61,800	54,715	30,982	39,130	—	—	$	254,592
Current period gross charge-offs		6	—	—	110	—	26	—	—		142

Commercial real estate
Pass	$	103,290	332,751	243,845	168,195	97,813	221,786	2,578	—	$	1,170,258
Special Mention		—	—	—	—	—	7,001	—	—		7,001
Substandard		—	—	—	2,553	6,349	6,340	—	—		15,242
Total Commercial real estate	$	103,290	332,751	243,845	170,748	104,162	235,127	2,578	—	$	1,192,501
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Commercial real estate construction
Pass	$	210	32,811	59,231	23,825	—	—	—	—	$	116,077
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	—	—		—
Total Commercial real estate construction	$	210	32,811	59,231	23,825	—	—	—	—	$	116,077
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Residential real estate
Pass	$	3,704	20,808	12,793	10,079	4,756	19,831	—	—	$	71,971
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	589	596	—	—		1,185
Total Residential real estate	$	3,704	20,808	12,793	10,079	5,345	20,427	—	—	$	73,156
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Home equity
Pass	$	57	119	18	—	93	—	11,731	—	$	12,018
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	49	—		49
Total Home Equity	$	57	119	18	—	93	—	11,780	—	$	12,067
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Consumer
Pass	$	28	699	3,011	5,966	43	60	5,066	—	$	14,873
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	102	—	—		102
Total Consumer	$	28	699	3,011	5,966	43	162	5,066	—	$	14,975
Current period gross charge-offs		—	—	11	—	25	—	—	—		36

Total Loans	$	111,253	451,189	380,698	265,333	140,625	294,846	19,424	—	$	1,663,368

Gross charge-offs	$	6	—	11	110	25	26	—	—	$	178

1721

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Based on the analysis performed as of December 31, 2022, the risk category of loans by class of loans is as follows:


			Special												Special
	Pass		Mention		Substandard		Doubtful		Loss		Total		Pass		Mention		Substandard		Doubtful		Loss		Total
December 31, 2021
December 31, 2022
Commercial and industrial	$	252,268	$	4,156	$	12,084	$	—	$	—	$	268,508	$	256,939	$	575	$	1,387	$	—	$	—	$	258,901
Commercial real estate		835,787		679		16,241		—		—		852,707		1,074,952		7,399		15,703		—		—		1,098,054
Commercial real estate construction		72,250		—		—		—		—		72,250		109,570		—		—		—		—		109,570
Residential real estate		64,094		—		1,154		—		—		65,248		73,089		—		1,188		—		—		74,277
Home equity		13,588		50		—		—		—		13,638		12,278		—		51		—		—		12,329
Consumer		18,963		—		114		—		—		19,077		16,195		—		104		—		—		16,299
Total	$	1,256,950	$	4,885	$	29,593	$	—	$	—	$	1,291,428	$	1,543,023	$	7,974	$	18,433	$	—	$	—	$	1,569,430

Loans to certain directors and principal officers of the Company, including their immediate families and companies in which they are affiliated, amounted to ~~$11,922~~$16,861 and ~~$5,076~~$16,891 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Note 4 — Fair Value

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a company’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Company used the following methods and significant assumptions to estimate fair value:

Investment Securities: The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2), using matrix pricing. Matrix pricing is a mathematical technique commonly used to price debt securities that are not actively traded, values debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

~~Impaired~~Individually Evaluated, or Collateral Dependent Loans and Other Real Estate Owned: The fair value of collateral dependent loans that are individually evaluated for impairment is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach and resulted in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. ~~Impaired~~Collateral dependent loans are evaluated on a quarterly basis for additional impairment and adjusted in accordance with the allowance policy.

1822

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Appraisals are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by a third-party appraisal management company that the Company has engaged in accordance with internal vendor management policies and approval of the Company’s Board of Directors. Once received, the appraisal review function is conducted by the appraisal management company and consists of a review of the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Through this review, the appraisal management company evaluates the validity of the appraised value and the strength of the conclusions; which are subsequently confirmed by a member of the Credit Department. Discounts to the appraised value are then applied to recognize the carrying costs incurred until disposition, realtor fees, deterioration in the quality of the asset, and the age of the appraisal. The net effect of these adjustments were included in the charge-off to the allowance upon acquisition of the foreclosed property and/or upon partial charge-off of the ~~impaired~~collateral dependent loan. The most recent analysis of property appraisals including the appropriate discount rates are incorporated into the allowance methodology for the respective loan portfolio segments.

Assets and liabilities measured at fair value on a recurring basis are summarized below:


			Fair Value Measurements Using:								Fair Value Measurements Using:
			Quoted Prices in								Quoted Prices in
			Active Markets		Significant Other		Significant				Active Markets		Significant Other		Significant
	Total at		for Identical		Observable		Unobservable		Total at		for Identical		Observable		Unobservable
	September 30,		Assets		Inputs		Inputs		March 31,		Assets		Inputs		Inputs
	2022		(Level 1)		(Level 2)		(Level 3)		2023		(Level 1)		(Level 2)		(Level 3)
U.S. government agencies	$	97,261	$	—	$	97,261	$	—
U.S. government agencies and treasuries									$	93,683	$	—	$	93,683	$	—
Mortgage-backed securities		328,325		—		328,325		—		320,544		—		320,544		—
Corporate securities		26,567		—		26,567		—		20,788		—		20,788		—
Obligations of states and political subdivisions		95,119		—		95,119		—		91,310		—		91,310		—
Total securities available-for-sale	$	547,272	$	—	$	547,272	$	—	$	526,325	$	—	$	526,325	$	—

There were no transfers between Level 1 and Level 2 during the ~~nine~~three months ended ~~September 30, 2022.~~March 31, 2023.


			Fair Value Measurements Using:								Fair Value Measurements Using:
			Quoted Prices in								Quoted Prices in
			Active Markets		Significant Other		Significant				Active Markets		Significant Other		Significant
	Total at		for Identical		Observable		Unobservable		Total at		for Identical		Observable		Unobservable
	December 31,		Assets		Inputs		Inputs		December 31,		Assets		Inputs		Inputs
	2021		(Level 1)		(Level 2)		(Level 3)		2022		(Level 1)		(Level 2)		(Level 3)
U.S. government agencies		79,706	$	—	$	79,706	$	—
U.S. government agencies and treasuries										93,750	$	—	$	93,750	$	—
Mortgage-backed securities		270,432		—		270,432		—		316,915		—		316,915		—
Corporate securities		20,211		—		20,211		—		25,658		—		25,658		—
Obligations of states and political subdivisions		94,448		—		94,448		—		97,138		—		97,138		—
Total securities available-for-sale	$	464,797	$	—	$	464,797	$	—	$	533,461	$	—	$	533,461	$	—

There were no transfers between Level 1 and Level 2 during ~~2021.~~2022.

1923

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Assets measured at fair value on a non-recurring basis as of ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 are summarized below:

Fair Value Measurements Using:

Quoted Prices

Significant

Quoted Prices

Significant

in Active

Other

Significant

in Active

Other

Significant

Total at

Markets for

Observable

Unobservable

Total at

Markets for

Observable

Unobservable

September 30, 2022

Identical Assets

Inputs

March 31, 2023

Identical Assets

Inputs

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Impaired loans

1,174

—

1,174

Individually Evaluated Loans - Commercial Real Estate

204

—

204

Fair Value Measurements Using:

Quoted Prices

Significant

Quoted Prices

Significant

in Active

Other

Significant

in Active

Other

Significant

Total at

Markets for

Observable

Unobservable

Total at

Markets for

Observable

Unobservable

December 31, 2021

Identical Assets

Inputs

December 31, 2022

Identical Assets

Inputs

(Level 1)

(Level 2)

(Level 3)

(Level 1)

(Level 2)

(Level 3)

Impaired loans

6,689

—

6,689

204

—

204

The fair value amounts shown in the above table are ~~impaired~~individually evaluated loans net of reserves allocated to said loans. The total reserves allocated to these ~~impaired~~ loans were ~~$1,988~~$104 and ~~$409~~$112 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

The following table presents additional quantitative information about level 3 fair value measured at fair value on a non-recurring basis at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:

Fair Value





Range

September 30, 2022

Value

Valuation Technique

Unobservable Input

(Weighted Average)

Impaired loans

$
1,174

Appraisal of collateral (1)

Appraisal and liquidation

20%-66%

adjustments (2)

(62%)


	Fair Value				Range
March 31, 2023	Value		Valuation Technique	Unobservable Input	(Weighted Average)
Individually Evaluated Loans - Commercial Real Estate	$	204	Appraisal of collateral (1)	Appraisal and liquidation	20%
				adjustments (2)	(20%)

~~(1) Fair value is generally determined through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.~~

(2) Appraisals may be adjusted downward by management for qualitative factors such as economic conditions and estimated liquidation expenses. The range of liquidation expenses and other appraisal adjustments are presented as a percent of the appraisal.

Fair Value

Range

Fair Value

Range

December 31, 2021

Value

Valuation Technique

Unobservable Input

(Weighted Average)

Impaired loans - Primarily Commercial Real Estate

6,689

Appraisal of collateral (1)

Appraisal and liquidation

20%-56%

December 31, 2022

Value

Valuation Technique

Unobservable Input

(Weighted Average)

Impaired loans - Commercial Real Estate

204

Appraisal of collateral (1)

Appraisal and liquidation

20%

adjustments (2)

(39%)

adjustments (2)

(20%)

(1) Fair value is generally determined through independent appraisals of the underlying collateral that generally include various level 3 inputs which are not identifiable.

2024

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

~~There were no material collateral dependent, non-TDR impaired loans with a specific reserve as of December 31, 2021.~~

The carrying amounts and estimated fair values of the Company’s financial instruments not carried at fair value are as follows at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


	September 30, 2022										March 31, 2023
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	180,249	$	180,249	$	180,249	$	—	$	—	$	165,297	$	165,297	$	165,297	$	—	$	—
Loans, net		1,524,816		1,504,301		—		—		1,504,301		1,638,642		1,585,448		—		—		1,585,448
Accrued interest receivable		5,554		5,554		—		2,766		2,788		5,961		5,961		—		2,573		3,388
Restricted investment in bank stocks		3,382		NA		—		—		—		14,401		NA		—		—		—
Financial liabilities:
Deposits		2,187,553		2,187,553		2,119,769		67,784		—		2,025,842		2,023,969		1,890,610		133,359		—
Note payable		3,000		2,994		—		2,994		—
FHLB advances, short term												229,000		228,523				228,523
FHLB advances, long term												10,000		9,931		—		9,931		—
Subordinated notes, net of issuance costs		19,431		17,906		—		17,906		—		19,466		23,936		—		23,936		—
Accrued interest payable		32		32		—		32		—		50		50		—		50		—


	December 31, 2021										December 31, 2022
	Carrying		Fair								Carrying		Fair
	Amount		Value		Level 1		Level 2		Level 3		Amount		Value		Level 1		Level 2		Level 3
Financial assets:
Cash and due from banks	$	306,179	$	306,179	$	306,179	$	—	$	—	$	86,081	$	86,081	$	86,081	$	—	$	—
Loans, net		1,273,767		1,260,146		—		—		1,260,146		1,547,598		1,503,543		—		—		1,503,543
Accrued interest receivable		6,643		6,643		—		1,603		5,040		6,320		6,320		—		2,448		3,872
Restricted investment in bank stocks		2,217		NA		—		—		—		9,562		NA		—		—		—
Financial liabilities:
Deposits		1,914,384		1,914,271		1,831,944		82,327		—		1,974,387		1,972,387		1,881,354		91,033		—
Note payable		3,000		3,030		—		3,030		—
FHLB advances, short term												131,500		131,255		—		131,255		—
Subordinated notes, net of issuance costs		19,376		18,867		—		18,867		—		19,447		19,682		—		19,682		—
Accrued interest payable		250		250		—		250		—		267		267		—		267		—

Note 5 — Deposits

A summarized analysis of the Bank’s deposits at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021:~~2022:


	September 30, 2022		December 31, 2021		March 31, 2023		December 31, 2022
Non-interest bearing demand accounts	$	788,106	$	701,645	$	694,283	$	723,228
Interest-bearing demand accounts		349,755		301,596		331,566		284,747
Money market accounts		743,581		615,111		606,368		615,149
Savings accounts		236,061		213,592		258,392		258,230
Certificates of Deposit		70,050		82,440		135,233		93,033
Total deposits	$	2,187,553	$	1,914,384	$	2,025,842	$	1,974,387

Time deposits that meet or exceed the FDIC insurance limit of $250 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 were ~~$18,948~~$15,864 and ~~$23,859,~~$17,015, respectively.

Uninsured deposits, net of fully collateralized municipal relationships, as of March 31, 2023 and December 31, 2022 totaled $862 thousand and $871 thousand, respectively.

2125

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Scheduled maturities of time deposits for the next five years as of ~~September 30,~~March 31, 2023, are as follows:


2022	$	16,683
2023		41,691	$	117,115
2024		6,835		8,673
2025		4,841		7,964
2026				1,481
	$	70,050	$	135,233

Deposits of executive officers, directors and principal officers of the Company, including their immediate families and companies in which they are affiliated, amounted to ~~$11,230~~$7,201 and ~~$6,109~~$15,648 at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Note 6 — Pension Plan and Stock Compensation

The Bank has a funded noncontributory defined benefit pension plan that covers substantially all employees meeting certain eligibility requirements. The pension plan was closed to new participants and benefit accruals were frozen as of December 31, 2015. The plan provides defined benefits based on years of service and final average salary.

The components of net periodic benefit cost for the Company’s noncontributory defined benefit pension plan for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ are as follows:


	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended March 31,
	2022		2021		2022		2021		2023		2022
Service cost	$	—	$	47	$	—	$	142	$	—	$	—
Interest cost		202		190		606		570		279		202
Expected return on plan assets		(496)		(514)		(1,489)		(1,544)		(411)		(496)
Amortization of transition cost		(7)		(12)		(21)		(36)		—		(7)
Amortization of net loss		—		5		—		16		70		—
Net periodic benefit cost/(income)	$	(301)	$	(284)	$	(904)	$	(852)	$	(62)	$	(301)

The Company has a time based restricted stock plan. For the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ the Company’s recognized stock-based compensation costs were ~~$33~~$28 and ~~$128, respectively. For the nine months ended September 30, 2022 and 2021 the Company’s recognized stock-based compensation costs were $133 and $390~~$67, respectively. The Company uses the fair value of the common stock on the date of award to measure compensation cost for restricted stock awards. Compensation cost is recognized over the vesting period of the award using the straight line method. There were no restricted stock grants made during the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 and ~~15,162 restricted stock awards granted for the nine months ended September 30, 2021.~~2022. The grants generally vest at the rate of 33% per year with full vesting on the third anniversary date of the grant. Unamortized expense at ~~September 30, 2022~~March 31, 2023 was ~~$90.~~$29.

A summary of the Company’s restricted stock awards activity for the three months ended March 31, 2023 is presented below:


		Weighted
		Average Fair
	Shares	Value
Non-vested at beginning of period	11,677	$	29.24
Granted	—	$
Vested	(7,569)	$	29.50
Forfeited	(414)	$	28.75
Non-vested at end of period	3,694	$	28.75

2226

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

~~A summary of the Company’s restricted stock awards activity for the nine months ended September 30, 2022 is presented below:~~

Weighted

Average Fair

Shares

Value
Non-vested at beginning of period

22,922

$
28.92
Granted

—

$

Vested

(11,245)

$
28.59
Forfeited

—

$

Non-vested at end of period

11,677

$
29.24

On September 22, 2021 restricted stock units (RSUs) were granted in the amount of 48,004 from the Company’s 2019 Equity Incentive Plan to officers of the Bank and HVIA and directors of the Company in connection with the successful completion of the Company’s initial public stock offering, listing on the NASDAQ Capital Market and the recent past years’ success experienced by the Bank. Non-employee directors received 16,500 restricted stock units while officers received 31,504 restricted stock units. The restricted stock units granted to officers will vest over three years in approximately 33% increments on the first, second and third anniversary of the date of grant. The restricted stock units granted to nonemployee directors are 100% vested as of the date of grant and are settled in shares of Company common stock upon separation from service. In addition, the Company made a discretionary contribution of $200,000 to the Company’s KSOP Trust and purchased shares of the Company’s common stock in the open market for the benefit of all eligible non-highly compensated employees who remain employed by the Company, Bank or HVIA as of December 31, 2021.

The following table summarizes the activity of RSUs during the ~~nine~~three months ended ~~September 30, 2022:~~March 31, 2023:


		Restricted Stock Units
Non-vested RSUs at beginning of period		~~48,004~~59,747
Granted		~~18,555~~22,650
Vested		~~(9,637)~~
~~Issued~~		~~(2,000)~~(5,853)
Forfeited		~~(2,733)~~(3,341)
Non-vested RSUs at end of period		~~52,189~~73,203

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

Note 7 — Accumulated Other Comprehensive Income (Loss)

The following is a summary of changes in accumulated other comprehensive income (loss) by component, net of tax, for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021:~~2022:


	Three Months Ended September 30, 2022								Three Months Ended March 31, 2023
	Unrealized								Unrealized
	Gains and								Gains and
	Losses on				Deferred				Losses on				Deferred
	Available-for-		Defined Benefit		Compensation				Available-for-		Defined Benefit		Compensation
	Sale Securities		Pension Items		Liability		Total		Sale Securities		Pension Items		Liability		Total
Beginning balance	$	(43,780)	$	(2,110)	$	129	$	(45,761)	$	(60,430)	$	(7,889)	$	123	$	(68,196)
Other comprehensive income/(loss) before reclassification		(16,749)		206		(3)		(16,546)
Other comprehensive income/(loss) before reclassification, net										4,717		395		(3)		5,109
Credit loss expense										5,000						5,000
Less amounts reclassified from accumulated other comprehensive income		—		8		—		8		(87)		—		—		(87)
Net current period other comprehensive income/(loss)		(16,749)		198		(3)		(16,554)		9,630		395		(3)		10,022
Ending balance	$	(60,529)	$	(1,912)	$	126	$	(62,315)	$	(50,800)	$	(7,494)	$	120	$	(58,174)


	Three Months Ended March 31, 2022
	Unrealized
	Gains and
	Losses on				Deferred
	Available-for-		Defined Benefit		Compensation
	Sale Securities		Pension Items		Liability		Total
Beginning balance	$	(1,072)	$	(2,506)	$	135	$	(3,443)
Other comprehensive income/(loss) before reclassification		(22,594)		206		(3)		(22,391)
Less amounts reclassified from accumulated other comprehensive income		—		8		—		8
Net current period other comprehensive income/(loss)		(22,594)		198		(3)		(22,399)
Ending balance	$	(23,666)	$	(2,308)	$	132	$	(25,842)

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

The following reflects significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three months ended March 31, 2023 and 2022:


	Amount Reclassified from Accumulated Other Comprehensive Income				Affected Line Item in the Statement where
					Net Income is Presented
	Three Months Ended March 31,
Details about Accumulated Other Comprehensive Income Components	2023		2022
Unrealized gains and losses on available-for-sale securities
Realized gains on securities available-for-sale	$	107	$	—	Investment security gains (losses)
Total before tax		107		—
Tax effect		20		—	Provision for income taxes
Net of tax	$	87	$	—

Amortization of defined benefit pension items
Transition asset	$	-	$	(7)	Other expense
Actuarial gains (losses)		-		—	Other expense
Total before tax		-		(7)
Tax effect		-		(1)	Provision for income taxes
Net of tax	$	-	$	(8)
		-
Total reclassifications for the period, net of tax	$	87	$	(8)

Nine Months Ended September 30, 2022

Unrealized

Gains and

Losses on

Deferred

Available-for-

Defined Benefit

Compensation

Sale Securities

Pension Items

Liability

Total
Beginning balance

$
(1,072)

$
(2,506)

$
135

$
(3,443)
Other comprehensive income/(loss) before reclassification

(59,457)

618

(9)

(58,848)
Less amounts reclassified from accumulated other comprehensive income

—

24

—

24
Net current period other comprehensive income/(loss)

(59,457)

594

(9)

(58,872)
Ending balance

$
(60,529)

$
(1,912)

$
126

$
(62,315)

Also included in accumulated other comprehensive income (loss) as of March 31, 2023, is a credit loss expense which was recorded as provision for credit loss investments during the period.

Three Months Ended September 30, 2021

Unrealized

Gains and

Losses on

Deferred

Available-for-

Defined Benefit

Compensation

Sale Securities

Pension Items

Liability

Total
Beginning balance

$
2,009

$
(3,266)

$
141

$
(1,116)
Other comprehensive income/(loss) before reclassification

(106)

—

(3)

(109)
Less amounts reclassified from accumulated other comprehensive income

—

5

—

5
Net current period other comprehensive income/(loss)

(106)

5

(3)

(104)
Ending balance

$
1,903

$
(3,261)

$
138

$
(1,220)

Note 8 — Revenue from Contracts with Customers

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest income. The following table presents the Company’s gross sources of noninterest income for the three months ended March 31, 2023 and 2022.


	Three Months Ended March 31,
	2023		2022
Noninterest Income
Service charges on deposit accounts
Overdraft fees	$	81	$	73
Other		93		95
Trust income		1,176		1,170
Investment advisory income		1,198		1,201
Investment securities gains (losses)^(a)		107		—
Earnings on bank owned life insurance^(a)		238		233
Other^(b)		277		233
Total Noninterest Income	$	3,170	$	3,005

(a)	Not within the scope of ASC 606.

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

(b)

The Other category includes safe deposit income, checkbook fees, and debit card fee income, totaling $231 and $191 for the three months ended March 31, 2023 and 2022, respectively, that are within the scope of ASC 606 and loan related fee income and miscellaneous income, totaling $46 and $42 for the three months ended March 31, 2023 and 2022, respectively, which are outside the scope of ASC 606.

The Company earns wealth management fees, which includes trust income and investment advisory income, from its contracts with trust and brokerage customers to manage assets for investment, and/or to transact on their accounts. These fees are primarily earned over time as the Company provides the contracted services and are generally assessed based on a tiered scale of the market value of the assets under management at month-end or quarter-end.

Note 9 — Segment Information

The reportable segments are determined by the products and services offered by the Company, primarily distinguished between banking and wealth management. Loans, investments, and deposits provide the revenues in the banking operation, and trust fees and investment management fees provide the revenues in wealth management. All operations are domestic.

Significant segment totals are reconciled to the financial statements as follows:


	For the three months ended March 31, 2023
	Banking		Wealth Management		Total Segments
Net interest income	$	21,139	$	—	$	21,139
Noninterest income		796		2,374		3,170
Provision for credit loss - investments		(5,000)		—		(5,000)
Provision for credit loss		(1,355)		—		(1,355)
Noninterest expenses		(12,214)		(1,814)		(14,028)
Income tax expense		(584)		(112)		(696)
Net income	$	2,782	$	448	$	3,230
Total assets	$	2,446,684	$	8,314	$	2,454,998


	For the three months ended March 31, 2022
	Banking		Wealth Management		Total Segments
Net interest income	$	16,339	$	—	$	16,339
Noninterest income		634		2,371		3,005
Provision for loan loss		(923)		—		(923)
Noninterest expenses		(9,931)		(1,890)		(11,821)
Income tax expense		(1,169)		(101)		(1,270)
Net income	$	4,950	$	380	$	5,330
Total assets	$	2,272,061	$	9,002	$	2,281,063

2429

Table of Contents

ORANGE COUNTY BANCORP, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollar amounts in thousands except per share data)

Nine Months Ended September 30, 2021

Unrealized

Gains and

Losses on

Deferred

Available-for-

Defined Benefit

Compensation

Sale Securities

Pension Items

Liability

Total
Beginning balance

$
4,949

$
(3,277)

$
147

$
1,819
Other comprehensive income/(loss) before reclassification

(3,046)

—

(9)

(3,055)
Less amounts reclassified from accumulated other comprehensive income

—

16

—

16
Net current period other comprehensive income/(loss)

(3,046)

16

(9)

(3,039)
Ending balance

$
1,903

$
(3,261)

$
138

$
(1,220)

~~The following reflects significant amounts reclassified out of each component of accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2022 and 2021:~~

Amount Reclassified from Accumulated Other Comprehensive Income

Affected Line Item in the Statement where




Net Income is Presented

Three Months Ended September 30,

Nine Months Ended September 30,


Details about Accumulated Other Comprehensive Income Components

2022

2021

2022

2021

Unrealized gains and losses on available-for-sale securities

Realized (losses) gains on securities available-for-sale

$
—

$
—

$
—

$
—

Investment security gains (losses)
Total before tax

—

—

—

—

Tax effect

—

—

—

—

Provision for income taxes
Net of tax

$
—

$
—

$
—

$
—

Amortization of defined benefit pension items

Transition asset

$
(7)

$
(11)

$
(21)

$
(36)

Other expense
Actuarial gains (losses)

-

5

—

16

Other expense
Total before tax

(7)

(6)

(21)

(20)

Tax effect

(1)

(1)

(3)

(4)

Provision for income taxes
Net of tax

$
(8)

$
(5)

$
(24)

$
(16)

Total reclassifications for the period, net of tax

$
(8)

$
(5)

$
(24)

$
(16)

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

~~Note 8 — Revenue from Contracts with Customers~~

Three Months Ended September 30,

Nine Months Ended September 30,

2022

2021

2022

2021

Noninterest Income

Service charges on deposit accounts

$
182

$
166

$
511

$
499

Trust income

1,176

1,230

3,569

3,537

Investment advisory income

1,085

1,176

3,385

3,588

Earnings on bank owned life insurance^(a)

240

209

709

554

Other^(b)

250

247

741

770

Total Noninterest Income

$
2,933

$
3,028

$
8,915

$
8,948

~~(a)~~

~~Not within the scope of ASC 606.~~

~~(b)~~

~~The Other category includes safe deposit income, checkbook fees, and debit card fee income, totaling~~ $231 and $195 for the three months ended September 30, 2022 and 2021, respectively, and $644 and $588 for the nine months ended September 30, 2022 and 2021, that are within the scope of ASC 606 and loan related fee income and miscellaneous income, totaling $19 and $52 for the three months ended September 30, 2022 and 2021, respectively, and $97 and $182 for the nine months ended September 30, 2022 and 2021 which are outside the scope of ASC 606.

~~Note 9 — Segment Information~~

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

~~Significant segment totals are reconciled to the financial statements as follows:~~

For the three months ended September 30, 2022

For the nine months ended September 30, 2022


Banking

Wealth Management

Total Segments

Banking

Wealth Management

Total Segments
Net interest income

$
21,415

$
—

$
21,415

$
55,263

$
—

$
55,263
Noninterest income

672

2,261

2,933

1,961

6,954

8,915
Provision for loan loss

(2,084)

—

(2,084)

(8,517)

—

(8,517)
Noninterest expenses

(10,893)

(1,662)

(12,555)

(31,532)

(5,376)

(36,908)
Income tax expense

(1,730)

(126)

(1,856)

(3,129)

(331)

(3,460)
Net income

$
7,380

$
473

$
7,853

$
14,046

$
1,247

$
15,293
Total assets

$
2,360,897

$
7,473

$
2,368,370

$
2,360,897

$
7,473

$
2,368,370

For the three months ended September 30, 2021

For the nine months ended September 30, 2021


Banking

Wealth Management

Total Segments

Banking

Wealth Management

Total Segments
Net interest income

$
15,880

$
—

$
15,880

$
44,252

$
—

$
44,252
Noninterest income

622

2,406

3,028

1,823

7,125

8,948
Provision for loan loss

(1,008)

—

(1,008)

(1,883)

—

(1,883)
Noninterest expenses

(9,279)

(1,694)

(10,973)

(26,741)

(5,015)

(31,756)
Income tax expense

(1,201)

(150)

(1,351)

(3,324)

(443)

(3,767)
Net income

$
5,014

$
562

$
5,576

$
14,127

$
1,667

$
15,794
Total assets

$
2,166,521

$
8,708

$
2,175,229

$
2,166,521

8,708

$
2,175,229

Note 10 — Regulatory Capital Matters

The Bank is subject to regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and prompt corrective regulations involve quantitative measures of assets, liabilities and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgements by regulators. Failure to meet the minimum capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks, (Basel III rules), became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The regulations limit capital distributions and certain discretionary bonus payments to management if the institution does not hold a “capital conservation buffer.” The capital conservation buffer is 2.5%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion and capital restoration plans are required. Capital levels at ~~September 30, 2022~~March 31, 2023 and at December 31, ~~2021~~2022 exceeded the regulatory minimum levels to be considered well capitalized under the prompt corrective action regulations.

~~Table of Contents~~

~~ORANGE COUNTY BANCORP, INC.~~

~~NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Dollar amounts in thousands except per share data)~~

Actual and required capital amounts and ratios are presented below at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 for the Bank.


													To be Well Capitalized																To be Well Capitalized
					For Capital Adequacy				For Capital Adequacy				under Prompt								For Capital Adequacy				For Capital Adequacy				under Prompt
	Actual				Purposes				Purposes with Capital Buffer				Corrective Action Provisions				Actual				Purposes				Purposes with Capital Buffer				Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2022
March 31, 2023
Total capital to risk weighted assets	$	226,991	13.60	%	$	133,517	8.00	%	$	164,810	9.875	%	$	166,896	10.00	%	$	240,409	13.60	%	$	141,371	8.00	%	$	174,504	9.875	%	$	176,713	10.00	%
Tier 1 (Core) capital to risk weighted assets		206,102	12.35	%		100,138	6.00	%		131,431	7.875	%		133,517	8.00	%		218,281	12.35	%		106,028	6.00	%		139,162	7.875	%		141,371	8.00	%
Common Tier 1 (CET1) to risk weighted assets		206,102	12.35	%		75,103	4.50	%		106,396	6.375	%		108,482	6.50	%		218,281	12.35	%		79,521	4.50	%		112,655	6.375	%		114,864	6.50	%
Tier 1 (Core) Capital to average assets		206,102	8.48	%		97,267	4.00	%		N/A	N/A			121,584	5.00	%		218,281	9.07	%		96,292	4.00	%		N/A	N/A			120,365	5.00	%
December 31, 2021
December 31, 2022
Total capital to risk weighted assets	$	192,359	14.12	%	$	109,000	8.00	%	$	134,546	9.875	%	$	136,250	10.00	%	$	235,346	13.95	%	$	134,986	8.00	%	$	166,624	9.875	%	$	168,733	10.00	%
Tier 1 (Core) capital to risk weighted assets		175,318	12.87	%		81,750	6.00	%		107,296	7.875	%		109,000	8.00	%		214,243	12.70	%		101,240	6.00	%		132,877	7.875	%		134,986	8.00	%
Common Tier 1 (CET1) to risk weighted assets		175,318	12.87	%		61,312	4.50	%		86,859	6.375	%		88,562	6.50	%		214,243	12.70	%		75,930	4.50	%		107,567	6.375	%		109,677	6.50	%
Tier 1 (Core) Capital to average assets		175,318	8.15	%		86,093	4.00	%		N/A	N/A			107,616	5.00	%		214,243	9.09	%		94,250	4.00	%		N/A	N/A			117,813	5.00	%

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021~~2022 and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ should be read in conjunction with our audited consolidated financial statements and the accompanying notes in our Annual Report on Form 10-K. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements” and elsewhere in this Quarterly Report on Form 10-Q, may cause actual results to differ materially from those projected results discussed in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking statements.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934. These forward-looking statements reflect our current views with respect to, among other things, future events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as “may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “attribute,” “continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,” “plan,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative version of those words or other comparable words or phrases of a future or forward-looking nature. These forward-looking statements include, but are not limited to:

●

statements of our goals, intentions and expectations;

●

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

●

statements regarding the quality of our loan and investment portfolios; and

●

estimates of our risks and future costs and benefits.

These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

●

inflation and changes in the interest rate environment that reduce our margins or reduce the fair value of financial instruments;

●

conditions relating to the COVID-19 pandemic, including the severity and duration of any associated economic slowdown either nationally or in our market areas and the effectiveness of vaccination programs, that are worse than expected;

●

general economic conditions, either nationally or in our market areas, that are worse than expected;

●

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

●

our ability to access cost-effective funding;

●

recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock;

●

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

●

demand for loans and deposits in our market area;

●

our ability to implement and change our business strategies;

●

competition among depository and other financial institutions;

●

the rate of delinquencies and amounts of loans charged-off;

●

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

●

adverse changes in the securities markets;

●

fluctuations in the stock market may have a significant adverse effect on transaction fees, client activity and client investment portfolio gains and losses related to our trust and wealth management business;

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●

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

●

our ability to enter new markets successfully and capitalize on growth opportunities;

●

our ability to capitalize on strategic opportunities;

●

our ability to successfully introduce new products and services;

●

our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;

●

our ability to retain our existing customers;

●

changes in consumer spending, borrowing and savings habits;

●

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

●

changes in our organization, compensation and benefit plans;

●

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

●

a breach in security of our information systems, including the occurrence of a cyber incident or a deficiency in cyber security;

●

political instability or civil unrest;

●

acts of war or terrorism;

●

competition and innovation with respect to financial products and services by banks, financial institutions and non-traditional providers, including retail businesses and technology companies;

●

the failure to attract and retain skilled people;

●

any future FDIC insurance premium increases, or special assessment may adversely affect our earnings;

●

the fiscal and monetary policies of the federal government and its agencies; and

●

other economic, competitive, governmental, regulatory and operational factors affecting our operations, pricing, products and services described elsewhere in this Quarterly Report on Form 10-Q.

The foregoing factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included in this Quarterly Report on Form 10-Q. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise. New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

Overview

We are a bank holding company headquartered in Middletown, New York and registered under the Bank Holding Company Act. Through our wholly owned subsidiaries, Orange Bank & Trust Company and Hudson Valley Investment Advisors, Inc., we offer full-service commercial and consumer banking products and services and trust and wealth management services to small businesses, middle-market enterprises, local municipal governments and affluent individuals in the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey. By combining the high-touch service and relationship-based focus of a community bank with the extensive suite of financial products and services offered by our larger competitors, we believe we can capitalize on the substantial growth opportunities available in our market areas. We also offer a variety of deposit accounts to businesses and consumers, including checking accounts and a full line of municipal banking accounts through our business banking platform. These activities, together with our 15 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 ~~$1.1~~$1.3 billion in assets under management at ~~September 30, 2022.~~March 31, 2023. As of ~~September 30, 2022,~~March 31, 2023, our assets, loans, deposits and stockholders’ equity totaled ~~$2.4~~$2.5 billion, ~~$1.6~~$1.7 billion, ~~$2.2~~$2.0 billion and ~~$136.2~~$148.6 million, respectively.

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Key Factors Affecting Our Business

Net Interest Income. Net interest income is the most significant contributor to our net income and is the difference between the interest and fees earned on interest-earning assets and the interest expense incurred in connection with interest-bearing liabilities. Net interest income is primarily a function of the average balances and ~~yields~~yields/rates of these interest-earning assets and interest-bearing liabilities. These factors are influenced by internal considerations such as product mix and risk appetite as well as external influences such as economic conditions, competition for loans and deposits and market interest rates.

The cost of our deposits and short-term borrowings is primarily based on short-term interest rates, which are largely driven by the Board of Governors of the Federal Reserve System’s (the “FRB”) actions and market competition. The yields generated by our loans and securities are typically affected by short-term and long-term interest rates, which are driven by market competition and market rates often impacted by the FRB’s actions. The level of net interest income is influenced by movements in such interest rates and the pace at which such movements occur.

We anticipate that interest rates will continue to increase over the next several quarters. Based on our asset sensitivity, a steepened yield curve and higher interest rates generally could have a beneficial impact on our net interest income. Conversely, a flat yield curve at lower rates would be expected to have an adverse impact on our net interest income.

Noninterest Income. Noninterest income is also a contributor to our net income. Noninterest income consists primarily of our investment advisory income, trust income generated by HVIA and our trust department, as well as income generated by our BOLI investment earnings. In addition, noninterest income is also impacted by net gains (losses) on the sale of investment securities, service charges on deposit accounts, and other fee income consisting primarily of debit card fee income, checkbook fees and rebates and safe deposit box rental income.

Noninterest Expense. Noninterest expense includes salaries, employee benefits, occupancy, furniture and equipment expense, professional fees, directors’ fees and expenses, computer software expense, Federal deposit insurance assessment, advertising expenses, advisor expenses related to trust income and other expenses. In evaluating our level of noninterest expense, we closely monitor our efficiency ratio. The efficiency ratio is calculated by dividing noninterest expense to net interest income plus noninterest income. We continue to seek to identify ways to streamline our business and operate more efficiently.

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

Competition. The industry and businesses in which we operate are highly competitive. We may see increased competition in different areas including interest rates, underwriting standards and product offerings and structure. While we seek to maintain an appropriate return on our investments, we anticipate that we will experience continued pressure on our net interest margins as we operate in this competitive environment.

Economic Conditions. Our business and financial performance are affected by economic conditions generally in the United States and more directly in the market of the Lower Hudson Valley region, the New York metropolitan area and nearby markets in Connecticut and New Jersey where we primarily operate. The significant economic factors that are most relevant to our business and our financial performance include, but are not limited to, real estate values, interest rates and unemployment rates.

Regulatory Trends. We operate in a highly regulated environment and nearly all of our operations are subject to extensive regulation and supervision. Bank or securities regulators, Congress, the State of New York, FRB and the New York State Department of Financial Services (the “NYSDFS”) may revise the laws and regulations applicable to us, may impose new laws and regulations, increase the level of scrutiny of our business in the supervisory process, and pursue additional enforcement actions against financial institutions. Future legislative and regulatory changes such as these may increase our costs and have an adverse effect on our business, financial condition and results of operations. The legislative and regulatory trends that will affect us in the future are impossible to predict with any certainty.

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Critical Accounting Estimates

Critical accounting estimates are necessary in the application of certain accounting policies and procedures and are particularly susceptible to significant change. Critical accounting policies are defined as those involving significant judgments and assumptions by management that could have a material impact on the carrying value of certain assets or on income under different assumptions or conditions. These critical estimates, policies and their application are periodically reviewed with the Audit Committee and the board of directors. Management believes that the most critical accounting estimates, which involve the most complex or subjective decisions or assessments, are as follows:

Allowance for ~~Loan~~Credit Losses. Management believes that the determination of the allowance for ~~loan~~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’s results of operations.~~Bancorp.

On January 1, 2023, the Company adopted ASU 2016-13 (Topic 326), which replaced the incurred loss methodology with CECL for financial instruments measured at amortized cost and other commitments to extend credit. The ~~provision~~allowance for ~~loan~~credit losses is ~~based upon~~a valuation allowance for management’s ~~evaluation~~estimate of expected credit losses in the loan portfolio. The process to determine expected credit losses utilizes analytic tools and judgement and is reviewed on a quarterly basis. When management is reasonably certain that a loan balance is not fully collectable, an analysis is completed and a specific reserve may be established or a full or partial charge off could be recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the ~~adequacy of~~loans, adjusted for expected prepayments when appropriate. Also included in the allowance ~~including an~~for credit losses are qualitative reserves that are expected, but, in management’s assessment, ~~of known and inherent risks~~may not be adequately represented in the ~~portfolio, giving consideration to~~quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan ~~portfolio, actual loan loss experience, level of delinquencies, detailed analysis of individual loans for which full collectability may not~~that, in management’s judgment, should be ~~assured, the existence and estimated fair value of any underlying collateral and guarantees securing the loans, and current economic and market conditions.~~charged off. Although management uses the best information available, the level of the allowance for ~~loan~~credit losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for ~~loan~~credit losses. Such agencies may require the ~~Bank~~Company to ~~record~~make additional provisions for ~~loan~~credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Bank’s loans are secured by real estate in the State of New York. Accordingly, the collectability of a substantial portion of the carrying value of the Bank’s loan portfolio is susceptible to changes in local market conditions and ~~may experience~~any adverse economic conditions. Future adjustments to the provision for ~~loan~~credit losses and allowance for ~~loan~~credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the ~~Bank’s~~Company’s control.

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Discussion and Analysis of Financial Condition

Summary Financial Condition. The following table sets forth a summary of the material categories of our balance sheet at the dates indicated:


			Change					Change
			September 30, 2022					March 31, 2023
			vs.					vs.
	As of September 30,	As of December 31,	December 31, 2021			As of March 31,	As of December 31,	December 31, 2022
	2022	2021	Amount ($)	Percentage (%)		2023	2022	Amount ($)	Percentage (%)

	(Dollars in thousands)					(Dollars in thousands)
Assets	2,368,370	2,142,583	225,787	10.5	%	2,454,998	2,287,334	167,664	7.3	%
Cash and due from banks	180,249	306,179	(125,930)	(41.1)	%	165,297	86,081	79,216	92.0	%
Loans, net	1,524,816	1,273,767	251,049	19.7	%	1,638,642	1,547,598	91,044	5.9	%
Investment securities, available for sale	547,272	464,797	82,475	17.7	%	526,325	533,461	(7,136)	(1.3)	%
Deposits	2,187,553	1,914,384	273,169	14.3	%	2,025,842	1,974,387	51,455	2.6	%
Note payable	3,000	3,000	—	—	%
FHLB advances, short term						229,000	131,500	97,500	74.1	%
FHLB advances, long term						10,000	—	10,000	100.0	%
Subordinated notes, net of issuance costs	19,431	19,376	55	0.3	%	19,466	19,447	19	0.1	%
Stockholders’ Equity	136,190	182,836	(46,646)	(25.5)	%	148,580	138,138	10,442	7.6	%

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Assets. Our total assets were ~~$2.4~~$2.5 billion at ~~September 30, 2022,~~March 31, 2023, an increase of ~~$225.8~~$166.9 million, or ~~10.5%~~7.3%, from ~~$2.1~~$2.3 billion at December 31, ~~2021.~~2022. The increase was primarily driven by an increase in net loans of ~~$251.0~~$90.7 million, or ~~19.7%~~5.9%. The increase in assets also included an increase in ~~investment securities available-for-sale~~cash and due from banks of ~~$82.5~~$79.2 million, or ~~17.7%~~92.0%.

Cash and due from banks. Cash and due from banks ~~decreased $125.9~~increased $79.2 million, or ~~41.1%~~92.0%, to ~~$180.2~~$165.3 million at ~~September 30, 2022,~~March 31, 2023, from ~~$306.2~~$86.1 million at December 31, ~~2021.~~2022. The ~~decrease~~increase was ~~due~~driven mainly by a strategic focus on increasing cash balances through borrowings in order to ~~the deployment~~raise on-hand cash levels during a period of ~~cash into loans during the nine months ended September 30, 2022.~~industry liquidity concerns.

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


	At September 30,				At December 31,				At March 31,				At December 31,
	2022				2021				2023				2022
	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent

	(Dollars in thousands)								(Dollars in thousands)
Commercial and industrial	$	249,396	16.11	%	$	230,394	17.84	%	$	252,882	15.20	%	$	257,184	16.39	%
Commercial real estate		1,059,821	68.48	%		852,707	66.03	%		1,192,501	71.69	%		1,098,054	69.97	%
Commercial real estate construction		132,945	8.59	%		72,250	5.59	%		116,077	6.98	%		109,570	6.98	%
Residential real estate		73,552	4.75	%		65,248	5.05	%		73,156	4.40	%		74,277	4.73	%
Home equity		12,750	0.82	%		13,638	1.06	%		12,067	0.73	%		12,329	0.79	%
Consumer		17,343	1.12	%		19,077	1.48	%		14,975	0.90	%		16,299	1.04	%
PPP loans		1,897	0.12	%		38,114	2.95	%		1,710	0.10	%		1,717	0.11	%
Total loans		1,547,704	100.00	%		1,291,428	100.00	%		1,663,368	100.00	%		1,569,430	100.00	%
Allowance for loan losses		22,888				17,661
Allowance for credit losses										24,726				21,832
Total loans, net	$	1,524,816			$	1,273,767			$	1,638,642			$	1,547,598

Net loans increased ~~$251.0~~$91.0 million, or ~~19.7%~~5.9%, to ~~$1.5~~$1.6 billion at ~~September 30, 2022~~March 31, 2023 from ~~$1.3~~$1.5 billion at December 31, ~~2021~~2022 primarily due to increases in commercial real estate and commercial real estate construction loan categories ~~as well as commercial and industrial loans~~ during the first ~~nine~~three months of ~~2022.~~2023. Commercial real estate loans increased ~~$207.1~~$94.4 million, or ~~24.3%~~8.6%, to $1.2 billion at March 31, 2023 from $1.1 billion at ~~September 30, 2022 from $852.7 million at~~ December 31, ~~2021.~~2022. Commercial real estate construction loans experienced an increase of ~~$60.7~~$6.5 million, or ~~84.0%~~5.9%, to ~~$132.9~~$116.1 million at ~~September 30, 2022~~March 31, 2023 from ~~$72.3~~$109.6 million at December 31, ~~2021.~~2022. The commercial real estate related growth was primarily the result of increased loan originations to new and existing customers during the first ~~nine~~three months of ~~2022~~2023 as well as our continued strategic focus on geographic expansion in our market area. Commercial and industrial loans grew $19.0 million, or 8.3%, reaching $249.4 million at September 30, 2022 from $230.4 million at December 31, 2021. We anticipate that loan growth is expected to continue as a result

Table of ~~strategic execution and customer acquisition stemming from industry consolidation.~~Contents

Non-performing Assets

Management determines that a loan is ~~impaired~~individually evaluated or non-performing when it is probable at least a portion of the loan will not be collected in accordance with the original terms due to a deterioration in the financial condition of the borrower or the value of the underlying collateral if the loan is collateral dependent. When a loan is determined to be ~~impaired,~~non-performing, the measurement of the loan in the allowance for ~~loan~~credit losses is ~~based on present value of expected future cash flows, except that all collateral-dependent loans are measured for impairment~~ based on the fair value of the ~~collateral.~~collateral for all collateral-dependant loans. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.

When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Soon after acquisition, we order a new appraisal to determine the current market value of the property. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for ~~loan~~credit losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell. ~~A loan is classified as a troubled debt restructuring if, for economic or legal reasons related to the borrower’s financial difficulties, we grant a~~

~~Table of Contents~~

~~concession to the borrower that we would not otherwise consider. This usually includes~~Management will consider a modification of loan terms, such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date and possibly a partial forgiveness of the principal amount ~~due.~~due, when it is deemed appropriate based on individual borrower conditions. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months.

The CARES Act, in addition to providing financial assistance to both businesses and consumers, created a forbearance program for federally-backed mortgage loans, protected borrowers from negative credit reporting due to loan accommodations related to the national emergency, and provided financial institutions the option to temporarily suspend certain requirements under U.S. GAAP related to troubled debt restructurings for a limited period of time to account for the effects of COVID-19. The Federal banking regulatory agencies have likewise issued guidance encouraging financial institutions to work prudently with borrowers who are, or may be, unable to meet their contractual payment obligations because of the effects of COVID-19. That guidance, with concurrence of the Financial Accounting Standards Board, and provisions of the CARES Act allowed modifications made on a good faith basis in response to COVID-19 to borrowers who were generally current with their payments prior to any relief, to not be treated as troubled debt restructurings. Modifications may include payment deferrals, fee waivers, extensions of repayment term, or other delays in payment. We have worked with our customers affected by COVID-19 and accommodated a significant amount of loan modifications across the Bank’s loan portfolios. The CARES Act expired on January 1, 2022. At September 30, 2022, the Bank had no outstanding loan modifications for customers affected by COVID-19.

The following table sets forth information regarding our non-performing assets. Non-performing loans aggregated approximately ~~$10.2~~$8.0 million at ~~September 30, 2022~~March 31, 2023 as compared to ~~$6.0~~$8.5 million at December 31, ~~2021.~~2022. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, there were no PPP loans considered as non-performing.


	At September 30,			At December 31,			At March 31,			At December 31,
	2022			2021			2023			2022

	(Dollars in thousands)						(Dollars in thousands)
Non-accrual loans:
Commercial and industrial	$	4,170		$	—		$	817		$	1,003
Commercial real estate		3,958			3,928			3,549			3,882
Commercial real estate construction		—			—			—			—
Residential real estate		1,146			578			1,185			1,188
Home equity		53			50			49			51
Consumer		—			4			—			—
Total non-accrual loans		9,327			4,560			5,600			6,124
Accruing loans 90 days or more past due:
Commercial and industrial		409			720			652			1,850
Commercial real estate		—			465			535			—
Commercial real estate construction		—			—			725			—
Residential real estate		—			—			—			—
Home equity		—			—			—			—
Consumer		456			208			439			477
Total accruing loans 90 days or more past due		865			1,393			2,351			2,327
Total non-performing loans		10,192			5,953			7,951			8,451
Other real estate owned		—			—			—			—
Other non-performing assets		—			—			—			—
Total non-performing assets	$	10,192		$	5,953		$	7,951		$	8,451
Ratios:
Total non-performing loans to total loans		0.66	%		0.46	%		0.48	%		0.54	%
Total non-performing loans to total assets		0.43	%		0.28	%		0.32	%		0.37	%
Total non-performing assets to total assets		0.43	%		0.28	%		0.32	%		0.37	%

Non-performing loans at September 30, 2022 totaled $10.2 million and consisted primarily of $4.2 million of commercial and industrial loans, $4.0 million of commercial real estate loans, approximately $1.2 million of residential real estate loans and approximately $53 thousand of home equity loans. The increase in non-performing loans at September 30, 2022 as compared to at December 31, 2021 represents the remaining effect of one impaired nationally syndicated commercial and industrial loan relationship

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Table of Contents

~~totaling $2.8~~Non-performing loans at March 31, 2023 totaled $8.0 million ~~which was identified~~ and ~~specifically reserved~~consisted primarily of $3.5 million of commercial real estate loans, $1.2 million of residential real estate loans, approximately $817 thousand of commercial and industrial loans, and $49 thousand of home equity loans. The decrease in non-performing loans represents the effect of continued collection efforts and the resolution of certain syndicated loans during ~~second quarter 2022.~~the period. We had no other real estate owned at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, respectively.

Non-performing assets ~~increased $4.2~~decreased $500 thousand, or 5.9%, to $8.0 million, or ~~71.2%, to $10.2 million, or 0.43%~~0.32% of total assets, at ~~September 30, 2022~~March 31, 2023 from ~~$6.0~~$8.5 million, or ~~0.28%~~0.37% of total assets, at December 31, ~~2021.~~2022. The ~~increase~~decrease in non-performing assets at ~~September 30, 2022~~March 31, 2023, compared to December 31, ~~2021~~2022 was primarily due to ~~an increase~~a decrease of ~~$4.2 million~~$333 thousand in non-performing commercial ~~and industrial~~real estate loans, driven mainly by ~~one remaining nationally syndicated~~workout of a specific loan relationship.

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 ~~new troubled debt restructurings~~loans modified due to financial difficulties during the three ~~or nine~~ months ended September 30, 2022. Troubled debt restructurings may be considered to be non-performing and if so are placed on non-accrual, except for those that have established a sufficient performance history under the terms of the restructured loan.

At September 30, 2022, the Bank had $3.4 million of non-accruing troubled debt restructured loans which are included in non-performing loans. This represented 0.22% of total loans at September 30, 2022 and represents a slight decrease when compared with $3.6 million at DecemberMarch 31, ~~2021.~~2023.

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

The following table summarizes classified assets of all portfolio types at the dates indicated:


	At September 30,		At December 31,		At March 31,		At December 31,
	2022		2021		2023		2022

	(Dollars in thousands)				(Dollars in thousands)
Classification of Assets:
Substandard	$	19,521	$	29,593	$	17,778	$	18,433
Doubtful		2,839		—		—		—
Loss		—		—		—		—
Total Classified Assets	$	22,360	$	29,593	$	17,778	$	18,433
Special Mention	$	6,250	$	4,885	$	7,426	$	7,974

On the basis of management’s review of our assets, we have classified ~~$19.5~~$17.8 million of our assets at ~~September 30, 2022~~March 31, 2023 as substandard compared to ~~$29.6~~$18.4 million at December 31, ~~2021,~~2022, due to certain charge-offs recorded during the period. ~~At September 30, 2022 we had $2.8 million of assets as doubtful due to recent conditions for one nationally syndicated loan relationship classified during the second quarter 2022.~~ There were no doubtful accounts atas of March 31, 2023 and December 31, ~~2021.~~2022, respectively. We designated ~~$6.3~~$7.4 million of our assets at ~~September 30, 2022~~March 31, 2023 as special mention compared to ~~$4.9~~$8.0 million designated as special mention at December 31, ~~2021,~~2022, as a result of migration ~~into this~~out of the category.

Allowance for ~~Loan~~Credit Losses

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Table of Contents

~~relates to~~credit losses are estimated over the contractual term of the loans, ~~individually evaluated~~adjusted for ~~impairment. Allowances~~expected prepayments when appropriate. Also included in the allowance for ~~impaired loans~~credit losses are ~~generally determined based on collateral values~~qualitative reserves that are expected, but, in management’s assessment, may not be adequately represented in the quantitative analysis or the ~~present value~~forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the ~~estimated cash flows.~~

~~Loans which are determined to be uncollectible are charged-off against~~portfolio, experience and depth of management and the ~~allowance.~~effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is ~~increased through provisions~~available for any loan that, in management’s judgment, should be charged ~~against current earnings and by recoveries of previously charged-off loans. Management~~off. Although management uses the best information available, ~~information to recognize probable and reasonably estimable loan losses, but future loss provisions may be necessary based on changing economic conditions. As a result~~the level of the COVID-19 pandemic, during the year ended December 30, 2020, we increased certain of our qualitative loan portfolio risk factors relating to local and national economic conditions as well as industry conditions and concentrations as a result of the effects of the COVID-19 pandemic. Recent improvement in economic conditions, as well as the strong underlying performance of the loan portfolio, have prompted a reversion to normalized, pre-COVID levels for these qualitative risk factors, partially offset by continued increases in the allowance attributable to concentrated growth in commercial real estate loans. The allowance for ~~loan~~credit losses remains an estimate, which is ~~maintained at a level that represents management’s best estimate of losses inherent in the loan portfolio. In addition, the FRB~~subject to significant judgment and ~~the NYSDFS,~~short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review ~~our~~the Bank’s allowance for credit losses. Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. Furthermore, the majority of the Bank’s loans are secured by real estate in the State of New York. Accordingly, the collectability of a substantial portion of the carrying value of the Bank’s loan portfolio is susceptible to changes in local market conditions and any adverse economic conditions. Future adjustments to the provision for credit losses and ~~could require us to increase our~~ allowance for ~~loan losses.~~

This analysis process is inherently subjective, as it requires us to make estimates that are susceptible to revisions as more information becomes available. Although we believe that we have established the allowance at a level to absorb probable and estimablecredit losses ~~additions~~ may be necessary ifdue to economic, oroperating, regulatory and other conditions inbeyond the ~~future differ from the current environment.~~Company’s control.

The allowance for ~~loan~~credit losses increased by ~~$5.2~~$2.9 million, or ~~29.6%~~13.3%, to ~~$22.9~~$24.7 million, or ~~1.48%~~1.49% of total loans ~~(also 1.48%~~at March 31, 2023, from $21.8 million, or 1.39% of total loans ~~excluding PPP loans), at September 30, 2022 from $17.7 million, or 1.37% of total loans (or 1.41% of total loans, excluding PPP loans),~~ at December 31, ~~2021.~~2022. The increase in the allowance ~~for loan losses~~ was primarily due to increased provision resulting from the growth in our commercial real estate loan portfolio ~~our commercial real estate construction loan segment, and our commercial and industrial loans~~ as well as the ~~specific reserve associated with one syndicated loan relationship specifically reserved earlier in 2022.~~cumulative effect of the CECL adjustment recorded during the quarter.


	At or for the Three Months Ended
	March 31,
	2023			2022

	(Dollars in thousands)
Balance at beginning of year	$	21,832		$	17,661
Adoption of ASC 326		1,606			—
Charge-offs:
Commercial and industrial		142			48
Commercial real estate		—			—
Commercial real estate construction		—			—
Residential real estate		—			—
Home equity		—			—
Consumer		36			119
PPP loans		—			—
Total charge-offs		178			167
Recoveries:
Commercial and industrial		39			6
Commercial real estate		12			—
Commercial real estate construction		—			—
Residential real estate		—			—
Home equity		—			—
Consumer		60			4
Total recoveries		111			10
Net charge-offs (recoveries)		67			157
Provision for credit losses		1,355			923
Balance at end of period	$	24,726		$	18,427
Ratios:
Net charge-offs to average loans outstanding		0.00	%		0.37	%
Allowance for credit losses to non-performing loans at end of year		311.00	%		258.34	%
Allowance for credit losses to total loans at end of year		1.49	%		1.39	%
Allowance for credit losses to total loans (excluding PPP Loans) at end of year		1.49	%		1.39	%

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Table of Contents

~~The following table sets forth activity in our allowance for loan losses for the periods indicated:~~

At or for the Nine Months Ended

September 30,


2022

2021


(Dollars in thousands)
Balance at beginning of year

$
17,661

$
16,172

Charge-offs:

Commercial and industrial

2,894

176

Commercial real estate

—

110

Commercial real estate construction

—

—

Residential real estate

51

—

Home equity

—

—

Consumer

449

8

PPP loans

—

—

Total charge-offs

3,394

294

Recoveries:

Commercial and industrial

37

182

Commercial real estate

26

73

Commercial real estate construction

—

—

Residential real estate

—

—

Home equity

—

—

Consumer

41

25

Total recoveries

104

280

Net charge-offs (recoveries)

3,290

14

Provision for loan losses

8,517

1,883

Balance at end of period

$
22,888

$
18,041

Ratios:

Net charge-offs to average loans outstanding

0.02
%

—
%
Allowance for loan losses to non-performing loans at end of period

224.57
%

582.37
%
Allowance for loan losses to total loans at end of period

1.48
%

1.40
%
Allowance for loan losses to total loans (excluding PPP Loans) at end of period

1.48
%

1.48
%

Investment Securities

The following table sets forth the estimated fair value of our available-for-sale securities portfolio at the dates indicated.



��	At September 30, 2022				At December 31, 2021
									At March 31, 2023				At December 31, 2022
	Amortized		Estimated		Amortized		Estimated		Amortized		Estimated		Amortized		Estimated
	Cost		Fair Value		Cost		Fair Value		Cost		Fair Value		Cost		Fair Value

	(Dollars in thousands)								(Dollars in thousands)
Available for sale securities:
U.S. Government agencies	$	107,694	$	97,261	$	80,596	$	79,706
U.S. government agencies and treasuries									$	102,194	$	93,683	$	104,734	$	93,750
Mortgage-backed securities		374,372		328,325		272,931		270,432		360,748		320,544		364,690		316,915
Corporate securities		28,565		26,567		20,081		20,211		28,553		20,788		28,559		25,658
Municipal securities		113,258		95,119		92,545		94,448
Obligations of states and political subdivisions										104,133		91,310		111,971		97,138
Total	$	623,889	$	547,272	$	466,153	$	464,797	$	595,628	$	526,325	$	609,954	$	533,461

Available for sale securities ~~increased $82.5~~decreased $7.1 million, or ~~17.7%~~1.3%, to ~~$547.3~~$526.3 million at ~~September 30, 2022~~March 31, 2023 from ~~$464.8~~$533.4 million at December 31, ~~2021,~~2022, due primarily to the sale of certain investments during a period of limited purchases as ~~mortgage-backed securities, issued by U.S. agencies, increased $57.9 million, municipal securities increased $671 thousand~~all investment categories experienced declines due to normal amortization and U.S. Government agency securities increased $17.6 million. Corporate securities also experienced a $6.4 million increase. These increases remain the result of using excess funds from our deposit growthcash flow during the ~~nine~~period. These decreases represent management’s intention to maintain the portfolio during the three months ended ~~September 30, 2022 to increase our purchases of investment securities as described.~~March 31, 2023.

~~Table of Contents~~

We did not have held-to-maturity securities at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~2022.

~~We review~~During the ~~investment portfolio on~~first quarter of 2023, the Company recorded a ~~quarterly basis to determine~~credit loss associated with a corporate bond issued by Signature Bank resulting in a provision for credit losses totaling $5.0 million during the ~~cause, magnitude and duration of declines in~~three months ended March 31, 2023. This loss represents the fair value of each security. In estimating other-than-temporary impairment (OTTI), we consider many factors including: (1) the length of time and extent that fair value has been less than cost, (2) the financial condition and near term prospectsdirect result of the ~~issuer, (3) whether~~failure of that bank during the market decline was affected by macroeconomic conditions, and (4) whether we have the intent to sell the security or more likely than not will be required to sell the security before its anticipated recovery. If eitherfirst quarter of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: (1) OTTI related to credit loss, which must be recognized in the income statement and (2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. The assessment of whether any other than temporary decline exists may involve a high degree of subjectivity and judgment and is based on the information available to management at a point in time. We evaluate securities for OTTI at least on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

~~No impairment charges were recorded for the three or nine months ended September 30, 2022 or 2021.~~2023.

Deposits

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


	At September 30, 2022						At December 31, 2021						At March 31, 2023						At December 31, 2022
					Average						Average						Average						Average
	Amount		Percent		Rate		Amount		Percent		Rate		Amount		Percent		Rate		Amount		Percent		Rate

	(Dollars in thousands)												(Dollars in thousands)
Noninterest-bearing demand deposits	$	788,106	36.03	%	—		$	701,645	36.65	%	—		$	694,283	34.27	%	—		$	723,228	36.63	%	—
Interest bearing demand deposits		349,755	15.99	%	0.15	%		301,596	15.75	%	0.11	%		331,566	16.37	%	0.33	%		284,747	14.42	%	0.31	%
Money market deposits		743,581	33.99	%	0.52	%		615,111	32.14	%	0.26	%		606,368	29.93	%	1.32	%		615,149	31.16	%	0.97	%
Savings deposits		236,061	10.79	%	0.33	%		213,592	11.16	%	0.14	%		258,392	12.75	%	0.93	%		258,230	13.08	%	0.72	%
Certificates of deposit		70,050	3.20	%	0.35	%		82,440	4.31	%	0.46	%		135,233	6.68	%	3.13	%		93,033	4.71	%	1.74	%
Total	$	2,187,553	100.00	%	0.25	%	$	1,914,384	100.00	%	0.14	%	$	2,025,842	100.00	%	0.78	%	$	1,974,387	100.00	%	0.52	%

Total deposits increased ~~$273.2~~$51.5 million, or ~~14.3%~~2.6%, to ~~$2.2~~$2.0 billion at ~~September 30, 2022~~March 31, 2023 from ~~$1.9 billion at~~ December 31, ~~2021. We continue to experience increases in all~~2022. Certificates of deposit ~~categories except certificates~~increased by $42.0 million, or 45.4%, mainly from increased brokered deposits during the quarter which represented a strategic focus on increasing liquidity during the quarter as a result of ~~deposit.~~the volatility within the industry. Interest bearing demand deposits experienced a $46.8 million, or 16.4%, increase. Non-interest-bearing demand deposits ~~increased $86.5~~decreased $28.9 million, money market deposits ~~increased $128.5 million, interest-bearing demand deposits increased $48.2~~decreased $8.8 million, and savings deposits ~~increased $22.5 million~~remained relatively level during the first ~~nine~~three months of ~~2022~~2023 primarily related to our strategic focus on business account activity ~~coupled with increased municipal deposit growth~~ as well as ~~increases in our attorney trust account relationships. Our strategy remains focused on increasing business demand deposit accounts by offering our suite~~the impact of ~~cash management products. Certificates of deposit decreased $12.4 million, or 15.0%, to $70.0 million at September 30, 2022 from $82.4 million at December~~liquidity pressure within the banking industry. At March 31, ~~2021, largely due to our continued strategy to reduce higher cost certificates of deposit. At September 30, 2022,~~2023, our core deposits (which includes all deposits except for certificates of deposit) totaled ~~$2.1~~$1.9 billion, or ~~96.8%~~93.3% of our total deposits. We ~~did not have any~~held approximately $93.0 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, 2022.~~March 31, 2023. This increase was driven by a strategic focus to increase liquidity during the period. Our reciprocal deposits obtained through the CDARS and ICS networks totaled ~~$13.9~~$10.5 million and ~~$56.3~~$78.4 million, respectively, at ~~September 30, 2022~~March 31, 2023 and the CDARS and ICS networks totaled ~~$14.5~~$12.5 million and ~~$56.6~~$40.9 million, respectively, at December 31, ~~2021.~~2022.

Table of Contents

Borrowings

Our borrowings consist of both short-term and long-term borrowings and provide us with one of our sources of funding. Maintaining available borrowing capacity provides us with a contingent source of liquidity.

Total borrowings from the Federal Home Loan Bank of New York were ~~zero~~$239.0 million at ~~September 30, 2022~~March 31, 2023 and $131.5 million at December 31, ~~2021.~~2022. We have the capacity to borrow ~~up to~~ an additional ~~$508.0~~$218.0 million from the Federal Home Loan Bank of New York as of ~~September 30, 2022.~~March 31, 2023.

~~Table of Contents~~

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.

In November 2012, we issued an unsecured note payable to a selling shareholder of HVIA in connection with our acquisition of HVIA. In November 2019, we refinanced the note payable with a remaining balance of $3.0 million into an interest-only term loan. The interest is payable monthly in arrears at a fixed rate of 5.6% per year and matures with a scheduled balloon payment in November 2022.

Stockholders’ Equity

Stockholders’ equity experienced ~~a decrease~~an increase of approximately ~~$46.6~~$10.0 million, to ~~$136.2~~$148.6 million, at ~~September 30, 2022~~March 31, 2023 from ~~$182.8~~$138.2 million at December 31, ~~2021.~~2022. The ~~decrease~~increase was due mainly to a ~~$58.9~~$7.0 million ~~increase~~decrease 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 ~~the increase in~~ market interest rates. ~~Offsetting~~In addition to the AOCI fluctuation, the Bank recognized an increase in retained earnings of approximately ~~$11.9~~$3.2 million associated with earnings during the first ~~nine~~three months of ~~2022,~~2023, net of dividends paid. The Company’s stockholders’ equity also included the effect of a cumulative adjustment of approximately $1.6 million, net of taxes, associated with the initial adjustment related to CECL implementation during the quarter.

3940

Table of Contents

Average Balance Sheets and Related Yields and Rates

The following ~~tables present~~table presents average balance sheet information, interest income, interest expense and the corresponding average yields earned and rates paid for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022. No tax equivalent yield adjustments have been made, as the effects would be immaterial. The average balances are daily averages ~~and,~~ for loans, ~~include both performing and nonperforming balances.~~as presented. Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments. Net deferred loan fees totaled ~~$1.6~~$4.2 million and ~~$1.3~~$3.5 million for the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, respectively. For the nine months ended September 30, 2022 and 2021, net deferred loan fees totaled $2.9 million and $2.5 million,~~ respectively.

For the Three Months Ended September 30,

2022

2021

Average

Average

Outstanding

Average

Outstanding

Average


Balance

Interest

Yield/Rate⁽¹⁾

Balance

Interest

Yield/Rate⁽¹⁾

(Dollars in thousands)

Interest-earning assets:













Loans (excluding PPP loans)

$
1,498,425

$
18,041

4.78
%
$
1,186,181

$
13,306

4.45
%
PPP loans

2,578

72

11.08
%

88,030

1,798

8.10
%
Investment securities available for sale

562,655

3,418

2.41
%

393,848

1,607

1.62
%
Cash and due from banks and other

230,077

1,259

2.17
%

320,692

126

0.16
%
Restricted stock

3,252

51

6.22
%

2,128

23

4.29
%
Total interest-earning assets

2,296,987

22,841

3.95
%

1,990,879

16,860

3.36
%
Noninterest-earning assets

90,084



88,228





Total assets

$
2,387,071



$
2,079,107





Interest-bearing liabilities:













Interest-bearing demand deposits

$
352,950

126

0.14
%
$
296,464

82

0.11
%
Money market deposits

738,502

811

0.44
%

646,263

450

0.28
%
Savings deposits

234,273

162

0.27
%

181,477

59

0.13
%
Certificates of deposit

71,859

55

0.30
%

84,580

117

0.55
%
Total interest-bearing deposits

1,397,584

1,154

0.33
%

1,208,784

708

0.23
%
FHLB Advances and other borrowings

—

—

—
%

—

—

—
%
Note payable

3,000

42

5.55
%

3,000

42

5.55
%
Subordinated notes

19,420

230

4.70
%

19,364

230

4.71
%
Total interest-bearing liabilities

1,420,004

1,426

0.40
%

1,231,148

980

0.32
%
Noninterest-bearing demand deposits

795,797



663,799





Other noninterest-bearing liabilities

19,570



18,273





Total liabilities

2,235,371



1,913,220





Total stockholders’ equity

151,700



165,887





Total liabilities and stockholders’ equity

$
2,387,071



$
2,079,107





Net interest income

$
21,415





$
15,880



Net interest rate spread⁽²⁾

3.55
%





3.04
%
Net interest-earning assets⁽³⁾

$
876,983



$
759,731





Net interest margin⁽⁴⁾

3.70
%





3.16
%
Average interest-earning assets to interest-bearing liabilities





161.8
%

161.7
%


	For the Three Months Ended March 31,
	2023						2022
	Average						Average
	Outstanding				Average		Outstanding				Average
	Balance		Interest		Yield/Rate(1)		Balance		Interest		Yield/Rate(1)

	(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	1,619,240	$	21,824	5.47	%	$	1,265,828	$	14,400	4.61	%
PPP loans		1,713		12	2.84	%		23,268		606	10.56	%
Investment securities available for sale		530,762		3,568	2.73	%		475,018		2,087	1.78	%
Cash and due from banks and other		102,097		858	3.41	%		382,830		145	0.15	%
Restricted stock		11,652		102	3.55	%		2,421		32	5.36	%
Total interest-earning assets		2,265,464		26,364	4.72	%		2,149,365		17,270	3.26	%
Noninterest-earning assets		95,583						85,661
Total assets	$	2,361,047					$	2,235,026
Interest-bearing liabilities:
Interest-bearing demand deposits	$	321,224		$ 242	0.31	%	$	357,100		$ 87	0.10	%
Money market deposits		605,968		1,673	1.12	%		649,419		410	0.26	%
Savings deposits		257,971		515	0.81	%		210,887		73	0.14	%
Certificates of deposit		95,550		459	1.95	%		80,049		88	0.45	%
Total interest-bearing deposits		1,280,713		2,889	0.91	%		1,297,455		658	0.21	%
FHLB Advances and other borrowings		177,933		2,105	4.80	%		—		—	—	%
Note payable		-		-	—	%		3,000		42	5.68	%
Subordinated notes		19,454		231	4.82	%		19,383		231	4.83	%
Total interest-bearing liabilities		1,478,100		5,225	1.43	%		1,319,838		931	0.29	%
Noninterest-bearing demand deposits		713,717						713,509
Other noninterest-bearing liabilities		25,115						22,077
Total liabilities		2,216,932						2,055,424
Total stockholders’ equity		144,115						179,602
Total liabilities and stockholders’ equity	$	2,361,047					$	2,235,026
Net interest income			$	21,139					$	16,339
Net interest rate spread⁽²⁾					3.29	%					2.97	%
Net interest-earning assets⁽³⁾	$	787,364					$	829,527
Net interest margin⁽⁴⁾					3.78	%					3.08	%
Average interest-earning assets to interest-bearing liabilities					153.3	%					162.9	%

(1)	Annualized.

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

(3)	Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

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

~~Table of Contents~~

For the Nine Months Ended September 30,

2022

2021


Average





Average




Outstanding

Average

Outstanding

Average

Balance

Interest

Yield/Rate⁽¹⁾

Balance

Interest

Yield/Rate⁽¹⁾

(Dollars in thousands)

Interest-earning assets:













Loans (excluding PPP loans)

$
1,383,180

$
47,405

4.58
%
$
1,140,118

$
38,192

4.49
%
PPP loans

11,822

914

10.34
%

100,634

4,172

5.54
%
Investment securities available for sale

518,943

8,263

2.13
%

365,552

4,621

1.69
%
Cash and due from banks and other

310,511

1,886

0.81
%

256,640

230

0.12
%
Restricted stock

2,912

127

5.83
%

1,897

65

4.59
%
Total interest-earning assets

2,227,368

58,595

3.52
%

1,864,841

47,280

3.40
%
Noninterest-earning assets

89,377



83,741





Total assets

$
2,316,745



$
1,948,582





Interest-bearing liabilities:













Interest-bearing demand deposits

$
358,820

309

0.12
%
$
278,670

247

0.12
%
Money market deposits

698,128

1,691

0.32
%

604,674

1,389

0.31
%
Savings deposits

225,111

320

0.19
%

174,828

164

0.13
%
Certificates of deposit

75,396

194

0.34
%

87,948

412

0.63
%
Total interest-bearing deposits

1,357,455

2,514

0.25
%

1,146,120

2,212

0.26
%
FHLB Advances and other borrowings

1

—

0.27
%

1

—

0.40
%
Note payable

3,000

126

5.62
%

3,000

126

5.63
%
Subordinated notes

19,401

692

4.77
%

19,566

690

4.73
%
Total interest-bearing liabilities

1,379,857

3,332

0.32
%

1,168,687

3,028

0.35
%
Noninterest-bearing demand deposits

753,907



615,090





Other noninterest-bearing liabilities

20,317



18,295





Total liabilities

2,154,081



1,802,072





Total stockholders’ equity

162,664



146,510





Total liabilities and stockholders’ equity

$
2,316,745



$
1,948,582





Net interest income

$
55,263





$
44,252



Net interest rate spread⁽²⁾





3.19
%





3.05
%
Net interest-earning assets⁽³⁾

$
847,511





$
696,154





Net interest margin⁽⁴⁾





3.32
%





3.17
%
Average interest-earning assets to interest-bearing liabilities

161.4
%

159.6
%

~~(1)~~

~~Annualized.~~

~~(2)~~

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

~~(3)~~

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

~~(4)~~

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

Table of Contents

Rate/Volume Analysis

The following table presents the dollar amount of changes in interest income and interest expense for major components of interest earning assets and interest-bearing liabilities for the periods indicated. The table distinguishes between: (1) changes attributable to volume (changes in volume multiplied by the prior period’s rate); (2) changes attributable to rate (change in rate multiplied by the prior year’s volume) and (3) total increase (decrease) (the sum of the previous columns). Changes attributable to both volume and rate are allocated ratably between the volume and rate categories.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022 vs. 2021						2022 vs. 2021						2023 vs. 2022
					Total						Total						Total
	Increase (Decrease) Due to				Increase		Increase (Decrease) Due to				Increase		Increase (Decrease) Due to				Increase
	Volume		Rate		(Decrease)		Volume		Rate		(Decrease)		Volume		Rate		(Decrease)

		(Dollars in thousands)											(Dollars in thousands)
Interest-earning assets:
Loans (excluding PPP loans)	$	3,759	$	975	$	4,734	$	8,415	$	798	$	9,213	$	4,763	$	2,661	$	7,424
PPP loans		(2,385)		660		(1,725)		(6,871)		3,612		(3,259)		(148)		(446)		(594)
Investment securities available for sale		1,026		785		1,811		2,443		1,200		3,643		374		1,106		1,480
Cash and due from banks		(496)		1,629		1,133		327		1,329		1,656		(2,358)		3,071		713
Other		18		10		28		44		18		62		82		(11)		71
Total interest-earning assets		1,922		4,059		5,981		4,358		6,957		11,315		2,713		6,381		9,094
Interest-bearing liabilities:
Interest-bearing demand deposits		20		24		44		69		(7)		62		(27)		182		155
Money market deposits		101		260		361		272		30		302		(120)		1,383		1,263
Savings deposits		37		66		103		72		84		156		94		348		442
Certificates of deposit		(10)		(52)		(62)		(26)		(192)		(218)		75		296		371
Total interest-bearing deposits		148		298		446		387		(85)		302		22		2,209		2,231
Federal Home Loan Bank
advances		—		—		—		—		—		—
Federal Home Loan Bank advances														2,106		—		2,106
Note payable		—		—		—		—		—		—		—		(42)		(42)
Subordinated notes		—		—		—		(4)		6		2		—		—		—
Total interest-bearing liabilities		148		298		446		383		(79)		304		2,128		2,167		4,295
Change in net interest income	$	1,774	$	3,761	$	5,535	$	3,975	$	7,036	$	11,011	$	585	$	4,214	$	4,799

~~Table of Contents~~

Results of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~

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


	Three Months Ended September 30,								Nine Months Ended September 30,									Three Months Ended March 31,
					Change								Change									Change
	2022		2021		Amount ($)		Percentage %		2022		2021		Amount ($)		Percentage %			2023		2022		Amount ($)		Percentage %

	(Dollars in thousands)																(Dollars in thousands)
Interest income	$	22,841	$	16,860	$	5,981	35.5	%	$	58,595	$	47,280	$	11,315	23.9	%		$	26,364	$	17,270	$	9,094	52.7	%
Interest expense		1,426		980		446	45.5	%		3,332		3,028		304	10.0	%			5,225		931		4,294	461.2	%
Net interest income		21,415		15,880		5,535	34.9	%		55,263		44,252		11,011	24.9	%			21,139		16,339		4,800	29.4	%
Provision for loan losses		2,084		1,008		1,076	106.7	%		8,517		1,883		6,634	352.3	%
Provision for credit losses - investments																			5,000		—		5,000	100.0	%
Provision for credit losses																			1,355		923		432	46.8	%
Noninterest income		2,933		3,028		(95)	(3.1)	%		8,915		8,948		(33)	(0.4)	%			3,170		3,005		165	5.5	%
Noninterest expense		12,555		10,973		1,582	14.4	%		36,908		31,756		5,152	16.2	%			14,028		11,821		2,207	18.7	%
Provision for income taxes		1,856		1,351		505	37.4	%		3,460		3,767		(307)	(8.1)	%			696		1,270		(574)	(45.2)	%
Net income		7,853		5,576		2,277	40.8	%		15,293		15,794		(501)	(3.2)	%			3,230		5,330		(2,100)	(39.4)	%

General.Net income ~~increased $2.3~~decreased $2.1 million, or ~~40.8%~~39.4%, to ~~$7.9~~$3.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$5.6~~$5.3 million for the three months ended ~~September 30, 2021.~~March 31, 2022. The ~~increase~~decrease was driven by an increase of $5.4 million in the provision for credit losses and an increase of $2.2 million in noninterest expense , offset by a ~~$5.5~~$4.8 million increase in net interest income ~~partially offset by an increase of $1.6 million in noninterest expense and an increase of $1.1 million in the provision for loan losses~~ during the current quarter as compared to the same quarter in ~~2021. Net income for~~2022. The increase in the ~~nine months ended September 30, 2022 was $15.3 million, as compared to $15.8 million for the same period in 2021. The overall slight decrease was mainly resulting from the increased~~ provision for ~~loan~~credit losses ~~of $6.6 million~~ during the ~~nine~~three months ended ~~September 30, 2022~~

Table of Contents

March 31, 2023 as compared to the same period in ~~2021~~2022 was mainly associated with ~~certain specific reserves for two impaired syndicated loans within~~ the ~~commercial and industrial portfolio segment and an increase~~recognition of ~~$5.2~~a $5.0 million loss with the investment in ~~noninterest expense~~subordinated debt of Signature Bank, which was closed during the ~~nine months~~quarter ended September 30, 2022 as compared to the same period in 2021. These increases were mostly offset by an increase of $11.0 million in net interest income during the nine months ended September 30, 2022 as compared to the same period in 2021.March 31, 2023.

Interest ~~Income.~~ Income. Interest income increased ~~$6.0~~$9.1 million, or ~~35.5%~~52.7%, to ~~$22.8~~$26.4 million for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$16.9~~$17.3 million for the three months ended ~~September 30, 2021.~~March 31, 2022. This increase was primarily the result of an increase in the average balance of interest-earning assets, which increased by ~~$306.1~~$116.1 million, or ~~15.4%~~5.4%, to $2.3 billion for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$2.0~~$2.1 billion for the three months ended September 30, 2021. In addition, the average yield of interest-earning assets increased by 59 basis points from 3.36% for the three months ended September 30, 2021 to 3.95% for the three months ended September 30, 2022 as a result of the rising interest rate environment.

Interest income increased $11.3 million, or 23.9%, for the nine months ended September 30, 2022 reaching $58.6 million from $47.3 million for the nine months ended September 30, 2021. This increase was driven by a $362.5 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 $243.1 million, or 21.3%, between the nine months ended September 30, 2021 and September 30,March 31, 2022. In addition, the average yield of interest-earning assets increased by 12146 basis points from ~~3.40%~~3.26% for the ~~nine~~three months ended ~~September 30, 2021~~March 31, 2022 to ~~3.52%~~4.72% for the ~~nine~~three months ended ~~September 30, 2022~~March 31, 2023 as a result of the continued rising interest rate environment.

Interest income on loans increased by ~~$3.0~~$6.8 million, or ~~19.9%~~45.5%, to ~~$18.1~~$21.8 million during the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$15.1~~$15.0 million during the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in interest income on loans was primarily due to the increase in the average balance of loans (net of PPP loans). The average balance of these loans increased by ~~$312.2~~$353.4 million, or ~~26.3%~~27.9%, to ~~$1.5~~$1.6 billion for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$1.2~~$1.3 billion for the three months ended ~~September 30, 2021.~~March 31, 2022. The average yield on loans, excluding PPP loans, increased by 3386 basis points to ~~4.78%~~5.47% for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~4.45%~~4.61% for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in the average balance of loans was due to our continued success in growing our commercial real estate, commercial real estate construction, and commercial and industrial loans. The increase in the average yield on loans was the direct result of loans that closed during the ~~third~~fourth quarter of 2022 that included the impact of the FRB's increase to its benchmark rate ~~over the first three quarters of~~during 2022.

For the nine months ended September 30, 2022, interest income on loans increased by almost $6.0 million, or 14.1%, reaching $48.3 million as compared to $42.4 million for the nine months ended September 30, 2021. The increase in interest income on loans

~~Table of Contents~~

represents the impact of growth in average loan balances (net of PPP loans) from $1.1 billion for the nine months ended September 30, 2021 to almost $1.4 billion for the nine months ended September 30, 2022. The increase in average loans outstanding was due to continued growth of commercial real estate, commercial real estate construction, and commercial and industrial loans. This increase in production coupled with the increase in average yield on loans, excluding PPP loans, for the nine month periods from 4.49% in 2021 to 4.58% in 2022 created additional interest income during the 2022 period. The increase in the average yield on loans represents the impact of the FRB's increase to its benchmark rate by 300 basis points during the first nine months of 2022 .

Interest income on securities increased by ~~$1.8~~$1.5 million, or ~~112.7%~~71.0%, to ~~$3.4~~$3.6 million during the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$1.6~~$2.1 million during the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in interest income on securities was due to an increase in the average balance of securities as well as an increase in the average yield on securities during the current period. The average balance of securities increased by ~~$168.8~~$55.7 million, or ~~42.9%~~11.7%, to ~~$562.7~~$530.8 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$393.8~~$475.0 million for the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in the average balance of securities was primarily due to purchases of mortgage-backed securities, government agencies, and municipal securities with our excess liquidity. The average yield on investment securities increased by 7995 basis points overall from ~~1.62%~~1.78% for the three months ended ~~September 30, 2021~~March 31, 2022 to ~~2.41%~~2.73% for the three months ended ~~September 30, 2022.~~March 31, 2023. The increase in the average yield on securities resulted primarily from the deployment of excess cash into higher-yielding securities as a result of increasing market rates during ~~2022.~~2022 and the first quarter of 2023.

For the nine months ended September 30, 2022, interest income on securities increased by $3.6 million, or 78.8%, to $8.3 million during the period from $4.6 million during the nine months ended September 30, 2021. The increase in interest income on securities was due to an increase in the average balance of securities as well as an increase in the average yield on securities during the current period. The average balance of securities increased by $153.4 million, or 41.9%, to $518.9 million for the nine months ended September 30, 2022 compared to $365.6 million for the nine months ended September 30, 2021. The increase in the average balance of securities was primarily due to purchases of mortgage-backed securities, government agencies, and municipal securities with our excess liquidity. The average yield on investment securities increased by 44 basis points overall from 1.69% for the nine months ended September 30, 2021 to 2.13% for the nine months ended September 30, 2022. The increase in the average yield on securities continues to be primarily driven by the deployment of excess cash into higher-yielding securities as a result of increasing market rates during 2022.

Interest ~~Expense~~Expense. .Interest expense increased ~~$446 thousand,~~$4.3 million, or ~~45.5%~~461.2%, to ~~$1.4~~$5.2 million for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$980~~$931 thousand for the three months ended ~~September 30, 2021.~~March 31, 2022. The increased interest expense was primarily the result of the increasing interest rate environment and the impact on deposit costs during the quarter. The average rate paid on interest-bearing deposits increased 1070 basis points to ~~0.33%~~0.91% during the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~0.23%~~0.21% for the three month period ended ~~September 30, 2021.~~March 31, 2022. The average balance of interest-bearing deposits ~~increased~~decreased by ~~$188.8~~$16.7 million, or ~~15.6%~~1.3%, to ~~$1.4~~$1.3 billion for the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~$1.2 billion for~~ the three months ended ~~September 30, 2021.~~March 31, 2022.

Interest expense increased $304 thousand, or 10.0%, to $3.3 million for the nine months ended September 30, 2022 from $3.0 million for the nine months ended September 30, 2021. The increased cost of interest expense was due to growing deposit balances during the nine months ended September 30, 2022 as compared to the same period in 2021. The average balance of interest-bearing deposits increased by $211.3 million, or 18.4%, to $1.4 billion for the nine months ended September 30, 2022 as compared to $1.2 billion for the nine months ended September 30, 2021. The average rate paid on interest-bearing deposits decreased one basis points to 0.25% during the nine months ended September 30, 2022 as compared to 0.26% for the nine month period ended September 30, 2021.

Interest expense on interest-bearing deposits increased by ~~$446 thousand, or 63.0%,~~$2.2 million to ~~$1.2~~$2.9 million during the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$708~~$658 thousand during the three months ended ~~September 30, 2021.~~March 31, 2022. The increase in interest expense on interest-bearing deposits was due mainly to an increase in the average cost of ~~deposits coupled with an increase in the average balance of interest-bearing~~ deposits. The average cost of interest-bearing deposits increased ~~ten~~70 basis points to ~~0.33%~~0.91% during the three months ended ~~September 30, 2022~~March 31, 2023 as compared to ~~0.23%~~0.21% for the three months ended ~~September 30, 2021.~~March 31, 2022. The average cost of interest-bearing deposits increased due to the impact of the rising interest rate environment on deposit accounts. The average balance of interest-bearing deposits increased by $188.8 million, or 15.6%, to $1.4 billion for the three months ended September 30, 2022 as compared to $1.2 billion for the three months ended September 30, 2021 as a result of the increase in the average balance of our non-time interest-bearing deposits and reflective of our strategy to increase commercial deposit accounts of our customers.

~~Table of Contents~~

During the nine months ended September 30, 2022, interest expense on interest-bearing deposits increased by $302 thousand, or 13.7%, to $2.5 million during the nine months ended September 30, 2022 from $2.2 million during the nine months ended September 30, 2021. The increase in interest expense on interest-bearing deposits between the nine month periods was due primarily to an increase in the average balance of interest-bearing deposits. The average balance of interest-bearing deposits increased by $211.3 million, or 18.4%, to $1.4 billion for the nine months ended September 30, 2022 as compared to $1.2 billion for the nine months ended September 30, 2021 primarily due to the increase in our average balance of our non-time interest-bearing deposits and reflective of our strategy to increase commercial deposit accounts of our customers. The average cost of interest-bearing deposits decreased slightly by one basis point to 0.25% during the nine months ended September 30, 2022 as compared to 0.26% for the nine months ended September 30, 2021.

We also expensed a relatively level amount of approximately ~~$230~~$231 thousand in interest expense for the three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ related to the issuance in September 2020 of $20.0 million in outstanding subordinated notes, which carries an interest rate of 4.25%. ~~For the nine months ended September 30, 2022, we expensed $692 thousand in interest expense as compared to $690 thousand recorded for the nine months ended September 30, 2021.~~ These ~~relatively~~ flat interest costs represent the debt service required as part of the 2020 subordinated notes.

Additionally, the first quarter 2023 included FHLB average borrowings of $178 million compared to no borrowings in the same quarter of 2022. The interest expense related to the 2023 borrowings reached approximately $2.1 million in cost and reflected an average rate of 4.80%. These increased borrowings represent the strategic focus to increase cash balances in response to the liquidity pressure experienced by the banking industry during the quarter.

Net Interest ~~Income~~Income. Net interest income increased ~~$5.5~~$4.8 million, or ~~34.9%~~29.4%, to ~~$21.4~~$21.1 million for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~$15.9~~$16.3 million for the three months ended ~~September 30, 2021~~March 31, 2022 due to an increase in net interest-earning assets as well as an

Table of Contents

increase in net interest margin for the current period. Average total interest-earning assets increased by ~~$306.1~~$116.1 million to $2.3 billion for the three months ended ~~September 30, 2022~~March 31, 2023 from approximately ~~$2.0~~$2.1 billion for the three months ended ~~September 30, 2021.~~March 31, 2022. Net interest rate spread increased by 5132 basis points to ~~3.55%~~3.29% for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~3.04%~~2.97% for the three months ended ~~September 30, 2021,~~March 31, 2022, reflecting ~~an eight~~a 114 basis points increase in the average rate paid on interest-bearing liabilities and a 59146 basis points increase in the average yield on interest-earnings assets. The net interest margin increased 5470 basis points to ~~3.70%~~3.78% for the three months ended ~~September 30, 2022~~March 31, 2023 from ~~3.16%~~3.08% for the three months ended ~~September 30, 2021~~March 31, 2022 due mainly to the increases in overall interest rates as well as deployment of funds into higher yielding loans and investments.

For the nine months ended September 30, 2022, net interest income increased $11.1 million, or 24.9%, to $55.3 million from $44.3 million for the nine months ended September 30, 2021 due primarily to an increase in net interest-earning assets. Average total interest-earning assets increased by $362.5 million to $2.2 billion for the nine months ended September 30, 2022 from $1.9 billion for the nine months ended September 30, 2021. Net interest rate spread increased by 14 basis points to 3.19% for the nine months ended September 30, 2022 from 3.05% for the nine months ended September 30, 2021. The net interest margin increased 15 basis points to 3.32% for the nine months ended September 30, 2022 from 3.17% for the nine months ended September 30, 2021. This increase in net interest income for the nine months ended September 30, 2022 was mainly created by an increase in average loans and securities during the period at higher yields when compared to the same period in 2021.

Provision for ~~Loan~~Credit Losses. The Company recognized a provision for ~~loan~~credit losses of ~~$2.1~~$6.4 million for the three months ended ~~September 30, 2022,~~March 31, 2023, compared to ~~$1.0 million~~$923 thousand for the three months ended ~~September 30, 2021. For the nine months ended September 30, 2022, the provision for loan losses totaled $8.5 million as compared to $1.9 million for the nine months ended September 30, 2021.~~March 31, 2022. The increased provision for ~~both~~ the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 as compared to the same ~~periods~~period in ~~2021~~2022 reflected the recognition of ~~impairments~~credit losses associated with a corporate security in the amount of ~~two relationships totaling $14.2~~$5.0 million ~~within the syndicated loan portfolio~~ as well as ~~continued~~additional provision related to the growth of the Company’s loan ~~portfolio.~~portfolio during the period. Syndicated loans represent less than 4.5% of total loans at ~~September 30, 2022.~~March 31, 2023. The allowance for ~~loan~~credit losses to total loans was ~~1.48%~~1.49% as of ~~September 30, 2022,~~March 31, 2023, an increase of 1110 basis points, or ~~8.0%~~7.2%, versus ~~1.37%~~1.39% as of December 31, ~~2021.~~2022.

~~Table of Contents~~

Noninterest Income. Noninterest income information is as follows:

Three Months Ended September 30,

Change

Nine Months Ended September 30,

Change


2022

2021

Amount

Percent

2022

2021

Amount

Percent


(Dollars in thousands)
Service charges on deposit accounts

$
182

$
166

$
16

9.6
%
$
511

$
499

$
12

2.4
%
Trust income

1,176

1,230

(54)

(4.4)
%

3,569

3,537

32

0.9
%
Investment advisory income

1,085

1,176

(91)

(7.7)
%

3,385

3,588

(203)

(5.7)
%
Earnings on bank owned life insurance

240

209

31

14.8
%

709

554

155

28.0
%
Other

250

247

3

1.2
%

741

770

(29)

(3.8)
%
Total noninterest income

$
2,933

$
3,028

$
(95)

(3.1)
%
$
8,915

$
8,948

$
(33)

(0.4)
%


	Three Months Ended March 31,				Change
	2023		2022		Amount		Percent

	(Dollars in thousands)
Service charges on deposit accounts	$	174	$	168	$	6	3.6	%
Trust income		1,176		1,170		6	0.5	%
Investment advisory income		1,198		1,201		(3)	(0.2)	%
Investment securities gains		107		—		107	—	%
Earnings on bank owned life insurance		238		233		5	2.1	%
Other		277		233		44	18.9	%
Total noninterest income	$	3,170	$	3,005	$	165	5.5	%

Noninterest income ~~decreased slightly~~increased by ~~$95~~$165 thousand, or ~~3.1%~~5.5%, and ~~remained relatively level at $2.9~~reached $3.2 million ~~and $3.0 million, respectively,~~ for the three months ended ~~September 30,~~March 31, 2023 as compared to $3.0 million for the three months ended March 31, 2022 ~~and 2021.~~primarily as a result of gains on the sale of investment securities. Our Wealth Management division revenues, which include our Trust and Asset Management businesses were ~~also slightly lower~~relatively level and represented a ~~6.0% decrease~~0.3% increase quarter-over-quarter, ~~to $2.3 million for the third quarter of 2022 as compared to~~remaining at approximately $2.4 million for the ~~third~~first quarter of ~~2021~~2023 and 2022, respectively primarily as a result of ~~declines~~increases in asset values. During the same period, assets-under-management for the Trust and Asset Management group experienced a slight decrease totaling approximately ~~$1.1~~$1.3 billion at ~~September 30, 2022.~~

For the nine months ended September 30, 2022, noninterest income decreased by $33 thousand, or 0.4%, remaining level at $8.9 million for the nine months ended September 30, 2022 and 2021. Our Wealth Management division revenues dipped slightly and represented a 2.4% decrease but were relatively level at approximately $7.0 million and $7.1 million for the nine month periods ended September 30, 2022 and 2021, respectively, primarily as a result of declines in asset values.

March 31, 2023.

Noninterest Expense. Noninterest expense information is as follows:


	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change				Three Months Ended March 31,				Change
	2022		2021		Amount		Percent		2022		2021		Amount		Percent		2023		2022		Amount		Percent

	(Dollars in thousands)																(Dollars in thousands)
Salaries	$	5,863	$	4,970	$	893	18.0	%	$	16,631	$	14,243	$	2,388	16.8	%	$	6,254	$	5,269	$	985	18.7	%
Employee benefits		1,483		958		525	54.8	%		4,258		2,960		1,298	43.9	%		1,867		1,401		466	33.3	%
Occupancy expense		1,063		1,024		39	3.8	%		3,391		2,956		435	14.7	%		1,254		1,223		31	2.5	%
Professional fees		766		880		(114)	(13.0)	%		2,885		2,810		75	2.7	%		1,048		879		169	19.2	%
Directors’ fees and expenses		249		251		(2)	(0.8)	%		754		745		9	1.2	%		230		345		(115)	(33.3)	%
Computer software expense		1,276		1,120		156	13.9	%		3,629		3,209		420	13.1	%		1,223		1,116		107	9.6	%
FDIC assessment		384		333		51	15.3	%		1,006		889		117	13.2	%		330		309		21	6.8	%
Advertising expenses		372		297		75	25.3	%		1,127		865		262	30.3	%		276		190		86	45.3	%
Advisor expenses related to trust income		28		134		(106)	(79.1)	%		186		395		(209)	(52.9)	%		29		138		(109)	(79.0)	%
Telephone expenses		192		150		42	28.0	%		505		420		85	20.2	%		169		175		(6)	(3.4)	%
Intangible amortization		71		71		—	—			214		214		—	—			71		71		—	—
Other		808		785		23	2.9	%		2,322		2,050		272	13.3	%		1,277		705		572	81.1	%
Total noninterest expense	$	12,555	$	10,973	$	1,582	14.4	%	$	36,908	$	31,756	$	5,152	16.2	%	$	14,028	$	11,821	$	2,207	18.7	%

Table of Contents

Non-interest expense was ~~$12.6~~$14.0 million for the ~~third~~first quarter of ~~2022,~~2023, reflecting an increase of approximately ~~$1.6~~$2.2 million, or ~~14.4%~~18.7%, as compared to ~~approximately $11.0~~$11.8 million for the same period in ~~2021.~~2022. The increase in non-interest expense for the current three-month period was due to continued investment in overall ~~company~~Company growth, including increases in salaries and benefit costs, occupancy costs, information technology, and deposit insurance. ~~The 2022 third quarter also included the continued impact of costs associated with our two newest locations, Bronx and Nanuet, NY.~~ Our efficiency ratio was ~~51.6%~~57.7% for the three months ended ~~September 30, 2022,~~March 31, 2023, from ~~58.0%~~61.1% for the same period in ~~2021.~~

~~Table of Contents~~

Non-interest expense was $36.9 million for the first nine months of 2022, reflecting an increase of approximately $5.2 million, or 16.2%, as compared to $31.8 million for the same period in 2021. The increase in non-interest expense for the current nine month period was also due to continued investment in overall company growth, including increases in salaries and benefit costs, occupancy costs, information technology, and deposit insurance. The current period also included the continued impact of costs associated with our two newest locations, Bronx and Nanuet, NY. For the nine months ended September 30, 2022, our efficiency ratio was 57.5% as compared to 59.7% for the same period in 2021.2022.

Provision for Income ~~Tax.~~Tax. Our provision for income taxes for the three months ended ~~September 30, 2022~~March 31, 2023 was approximately ~~$1.9 million,~~$696 thousand, compared to approximately ~~$1.4~~$1.3 million for the same period in ~~2021.~~2022. The ~~increase~~decrease for the current period was due mainly to ~~an increase~~a decrease in income before income taxes during the quarter. Our effective tax rate for the three-month period ended ~~September 30, 2022~~March 31, 2023, was ~~19.1%~~17.7%, as compared to ~~19.5%~~19.2% for the same period in 2021. For the nine months ended September 30, 2022, our provision for income taxes was $3.5 million, as compared to $3.8 million for the nine months ended September 30, 2021. Our effective tax rate for the nine-month period ended September 30, 2022 was 18.5%, as compared to 19.3% for the same period in 2021.2022. The reduction in effective tax rates on the ~~2022 third~~2023 first quarter ~~and nine-month period~~ was due to the increase in proportion of non-taxable revenue (tax-exempt interest income and earnings on bank owned life insurance) compared with total pre-tax income.

Financial Position and Results of Operations of our Wealth Management Business Segment

We conduct our business through two business segments: (1) our banking business segment, which involves the delivery of loan and deposit products to our customers through Orange Bank & Trust Company; and (2) our wealth management business segment, which includes asset management and trust services to individuals and institutions through HVIA and Orange Bank & Trust Company that provides trust and investment management fee income.

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


	For the Three Months Ended September 30,												At or for the Three Months Ended March 31,
	2022						2021						2023						2022
			Wealth		Total				Wealth		Total				Wealth		Total				Wealth		Total
	Banking		Management		Segments		Banking		Management		Segments		Banking		Management		Segments		Banking		Management		Segments

	(Dollars in thousands)												(Dollars in thousands)
Net Interest Income	$	21,415	$	—	$	21,415	$	15,880	$	—	$	15,880	$	21,139	$	—	$	21,139	$	16,339	$	—	$	16,339
Noninterest income		672		2,261		2,933		622		2,406		3,028		796		2,374		3,170		634		2,371		3,005
Provision for loans loss		(2,084)		—		(2,084)		(1,008)		—		(1,008)
Provision for credit loss - investments														(5,000)		—		(5,000)		—		—		—
Provision for credit loss														(1,355)		—		(1,355)		(923)		—		(923)
Noninterest expenses		(10,893)		(1,662)		(12,555)		(9,279)		(1,694)		(10,973)		(12,214)		(1,814)		(14,028)		(9,931)		(1,890)		(11,821)
Income tax expense		(1,730)		(126)		(1,856)		(1,201)		(150)		(1,351)		(584)		(112)		(696)		(1,169)		(101)		(1,270)
Net income	$	7,380	$	473	$	7,853	$	5,014	$	562	$	5,576	$	2,782	$	448	$	3,230	$	4,950	$	380	$	5,330

Assets under management and/or administration (AUM) (market value)													$	—	$	1,345,377	$	1,345,377	$	—	$	1,257,877	$	1,257,877
Total assets													$	2,446,684	$	8,314	$	2,454,998	$	2,272,061	$	9,002	$	2,281,063

At or for the Nine Months Ended September 30,

2022

2021

Wealth

Total

Wealth

Total


Banking

Management

Segments

Banking

Management

Segments

(Dollars in thousands)
Net Interest Income

$
55,263

$
—

$
55,263

$
44,252

$
—

$
44,252
Noninterest income

1,961

6,954

8,915

1,823

7,125

8,948
Provision for loans loss

(8,517)

—

(8,517)

(1,883)

—

(1,883)
Noninterest expenses

(31,532)

(5,376)

(36,908)

(26,741)

(5,015)

(31,756)
Income tax expense

(3,129)

(331)

(3,460)

(3,324)

(443)

(3,767)
Net income

$
14,046

$
1,247

$
15,293

$
14,127

$
1,667

$
15,794
Assets under management and/or administration (AUM) (market value)

$
—

$
1,157,837

$
1,157,837

$
—

$
1,256,899

$
1,256,899
Total assets

$
2,360,897

$
7,473

$
2,368,370

$
2,166,521

$
8,708

$
2,175,229

~~Table of Contents~~

The market value of assets under management and/or administration at ~~September 30,~~March 31, 2023 and 2022 was ~~$1.2 billion as compared to~~ $1.3 ~~billion at September 30, 2021.~~billion. This includes assets held at both Orange Bank & Trust Company and HVIA at ~~September 30, 2022~~March 31, 2023 and ~~September 30, 2021.~~March 31, 2022.

Our expenses related to our wealth management business segment, which we record as noninterest expense, decreased ~~$32~~$76 thousand or ~~1.89%~~4.02%, to ~~$1.7~~$1.8 million for the three months ended ~~September 30, 2022~~March 31, 2023 compared to ~~$1.7~~$1.9 million for the three months ended September 30, 2021. Our expenses related to our wealth management business segment, which we record as noninterest expense, increased $361 thousand or 7.20%, to $5.4 million for the nine months ended September 30, 2022 compared to $5.0 million for the nine months ended September 30, 2021.March 31, 2022. The ~~increase~~decrease in expenses was primarily due to expense control during the ~~continued growth of the business unit and its related operations.~~period.

Liquidity and Capital Resources

Liquidity. Liquidity is the ability to meet current and future financial obligations of a short-term nature. Our primary sources of funds consist of deposit inflows, loan repayments and maturities and sales of securities. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition.

Table of Contents

Our most liquid assets are cash and due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, cash and due from banks totaled ~~$180.3~~$165.3 million and ~~$390.0~~$86.1 million, respectively. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled ~~$547.3~~$526.3 million at ~~September 30, 2022~~March 31, 2023 and ~~$464.8~~$533.5 million at December 31, ~~2021.~~2022.

Certificates of deposit due within one year of ~~September 30, 2022~~March 31, 2023 totaled ~~$43.8~~$117.1 million, or ~~62.6%~~86.6% of total certificates of deposit. At ~~September 30, 2022,~~March 31, 2023, total certificates of deposit were ~~$70.1~~$135.2 million, or ~~3.2%~~6.7% of total deposits. The largest concentration of deposits represented brokered deposits in the amount of approximately $99.0 million and were increased strategically due to the liquidity pressures within the banking industry during the first quarter of 2023. Certificates of deposit due within one year of December 31, ~~2021~~2022 totaled ~~$59.3~~$80.7 million, or ~~71.9%~~86.8% of total certificates of deposit. At December 31, ~~2021,~~2022, total certificates of deposit were ~~$82.4~~$93.0 million, or ~~4.3%~~4.7% of total deposits.

We participate in IntraFi Network, allowing us to provide access to multi-million-dollar FDIC deposit insurance protection on deposits for customers, businesses and public entities. We can elect to sell or repurchase this funding as reciprocal deposits from other IntraFi Network banks depending on our funding needs. At ~~September 30, 2022,~~March 31, 2023, we had a total of ~~$13.9~~$88.9 million of IntraFi Network deposits, all of which were repurchased as reciprocal deposits from the IntraFi Network.

Although customer deposits remain our preferred source of funds, maintaining back up sources of liquidity is part of our prudent liquidity risk management practices. We have the ability to borrow from the Federal Home Loan Bank of New York. At ~~September 30, 2022,~~March 31, 2023, we had ~~no outstanding advances~~a total capacity of $613.2 million, of which $154.0 million was used to collateralize municipal deposits, and ~~the ability to borrow up to $508.0 million.~~$239.0 million was utilized for overnight advances. At ~~September 30, 2022,~~March 31, 2023, we also had a $3.2 million collateralized line of credit from the Federal Reserve Bank of New York with no outstanding balance. Additionally, we had a total of $25.0 million of discretionary lines of credit at ~~September 30, 2022.~~March 31, 2023. We also have a borrowing agreement with Atlantic Community Bankers Bank (“ACBB”) to provide short-term borrowings of $5.0 million at ~~September 30, 2022.~~March 31, 2023. There were no outstanding borrowings with ACBB at ~~September 30, 2022.~~March 31, 2023. Additional funding was available to the Bank through the Bank Term Funding Program (“BTFP”). The Bank did not utilize the BTFP funding source during the first quarter of 2023.

Our cash flows are comprised of three primary classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating activities was ~~$23.2~~$8.2 million and ~~$14.6~~$3.1 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Net cash used in investing activities, which consists primarily of disbursements for loan originations and the purchase of securities, offset by principal collections on loans, proceeds from the sale of securities and proceeds from maturing securities and pay downs on securities, was ~~$418.7~~$86.3 million and ~~$240.3~~$111.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively. Net cash provided by financing activities, consisting of activity in deposit accounts and borrowings, was ~~$269.5~~$157.4 million and ~~$494.6~~$158.0 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

We are committed to maintaining a strong liquidity position. We monitor our liquidity position daily. We anticipate that we will have sufficient funds to meet our current funding commitments. Based on our deposit retention experience, current pricing strategy and regulatory restrictions, we ~~anticipate that~~have the ability to retain and increase a substantial portion of maturing time deposits, ~~will be retained,~~ and ~~that~~ we can supplement our funding with borrowings in the event that we allow these deposits to run off at maturity.

~~Table of Contents~~

Capital Resources. We are subject to various regulatory capital requirements administered by the FRB and the NYSDFS. At ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we exceeded all applicable regulatory capital requirements, and were considered “well capitalized” under regulatory guidelines. See Note 10 to the Notes to the Unaudited Consolidated Financial Statements appearing elsewhere in this Quarterly Report on Form 10-Q for actual and required capital amounts and ratios at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021.~~

2022.

Off-Balance Sheet Arrangements

Off-Balance Sheet Arrangements. We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, which involve elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. Our exposure to credit loss is represented by the contractual amount of the instruments. We use the same credit policies in making commitments as we do for on-balance sheet instruments.

Table of Contents

At ~~September 30, 2022,~~March 31, 2023, we had ~~$397.7~~$449.3 million in loan commitments outstanding. We also had ~~$13.0~~$13.9 million in standby letters of credit at ~~September 30, 2022.~~March 31, 2023.

Effect of Inflation and Changing Prices

The consolidated financial statements and related financial data included in this Quarterly Report on Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates generally have a more significant impact on a financial institution’s performance than do general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

A smaller reporting company is not required to provide the information related to this item.

Item 4. Controls and Procedures

An Evaluation of disclosure controls and procedures. As of the end of the period covered by this Form 10-Q, the Company carried out an evaluation, under the supervision and with the participation of its management, including its Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management was required to apply judgment in evaluating its controls and procedures. Based on their evaluation of the Company’s disclosure controls and procedures as of ~~September 30, 2022,~~March 31, 2023 the Company’s Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (“Exchange Act”)) are designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and regulations are operating in an effective manner.

Internal control over financial reporting. ~~There~~Effective January 1, 2023, the Company adopted the CECL accounting guidance under ASU 2016-13 and ASC 326. The Company designed new controls and modified existing controls as part of this adoption to ensure compliance with the revised accounting and disclosure requirements. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. Other than as described above, there were no changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the three months ended ~~September 30, 2022~~March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

~~Table of Contents~~

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

As of ~~September 30, 2022,~~March 31, 2023, the Company is not currently a named party in a legal proceeding, the outcome of which would have a material effect on the financial condition or results of operations of the Company.

Item 1A. Risk Factors

~~There has been no~~In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factors represent a material ~~change~~update and addition to ~~Risk Factors as~~the risk factors previously disclosed in ~~the Company’s~~our Annual Report on Form 10-K for the year ended December 31, 2022. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factors set forth below also are a cautionary statement identifying

Table of Contents

important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock.

Recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions have resulted in decreased confidence in banks among depositors, other counterparties and investors, as ~~filed with~~well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the ~~Securities~~capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and ~~Exchange Commission~~loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact our business or financial condition, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of our common stock. These recent events may also result in changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on ~~March 30, 2022.~~our businesses. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

Failure to address the federal debt ceiling in a timely manner, downgrade of the U.S. credit rating, and uncertain credit and financial market conditions may affect the stability of securities issued or guaranteed by the federal government, which may adversely affect the valuation or liquidity of our investment securities portfolio and increase future borrowing costs.

As a result of uncertain political, credit and financial market conditions, including the potential consequences of the federal government defaulting on its obligations for a period of time due to federal debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose credit default and liquidity risks. Downgrades to the U.S. credit rating could affect the stability of securities issued or guaranteed by the federal government and the valuation or liquidity of our portfolio of such investment securities, and could result in our counterparties requiring additional collateral for our borrowings. Further, unless and until U.S. political, credit and financial market conditions have been sufficiently resolved or stabilized, it may increase our future funding costs.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

See Exhibit Index.

Table of Contents

EXHIBIT INDEX


Exhibit No.		Description
31.1†		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2†		Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1†		Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2†		Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS†		XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH†		XBRL Taxonomy Extension Schema Document
101.CAL†		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF†		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB†		XBRL Taxonomy Extension Label Linkbase Document
101.PRE†		XBRL Taxonomy Extension Presentation Linkbase Document
104†		Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101)

† Filed herewith.

~~Table of Contents~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, duly authorized.

Date: ~~November 10, 2022~~May 15, 2023


	ORANGE COUNTY BANCORP, INC.

	By:	/s/ Michael J. Gilfeather
	Name:	Michael J. Gilfeather
	Title:	President and Chief Executive Officer
		(Principal Executive Officer)

	By:	/s/ ~~Robert L. Peacock~~Michael Lesler
	Name:	~~Robert L. Peacock~~Michael Lesler
	Title:	Senior ~~Executive~~ Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

5149


	At or for the Nine Months Ended
	September 30,
	2022			2021

	(Dollars in thousands)
Balance at beginning of year	$	17,661		$	16,172
Charge-offs:
Commercial and industrial		2,894			176
Commercial real estate		—			110
Commercial real estate construction		—			—
Residential real estate		51			—
Home equity		—			—
Consumer		449			8
PPP loans		—			—
Total charge-offs		3,394			294
Recoveries:
Commercial and industrial		37			182
Commercial real estate		26			73
Commercial real estate construction		—			—
Residential real estate		—			—
Home equity		—			—
Consumer		41			25
Total recoveries		104			280
Net charge-offs (recoveries)		3,290			14
Provision for loan losses		8,517			1,883
Balance at end of period	$	22,888		$	18,041
Ratios:
Net charge-offs to average loans outstanding		0.02	%		—	%
Allowance for loan losses to non-performing loans at end of period		224.57	%		582.37	%
Allowance for loan losses to total loans at end of period		1.48	%		1.40	%
Allowance for loan losses to total loans (excluding PPP Loans) at end of period		1.48	%		1.48	%