Loans

9 Months Ended

Sep. 30, 2025

Note 3 — Loans

Loans at September 30, 2025 and December 31, 2024 were as follows:


		September 30, 2025		December 31, 2024
Commercial and industrial	$	244,582	$	242,390
Commercial real estate		1,452,512		1,362,054
Commercial real estate construction		115,040		80,993
Residential real estate		68,409		74,973
Home equity		20,074		17,365
Consumer		35,059		37,976
Total Loans	$	1,935,676	$	1,815,751
Allowance for credit losses		(29,287)		(26,077)
Net Loans	$	1,906,389	$	1,789,674

Included in commercial and industrial loans as of September 30, 2025 and December 31, 2024 were loans issued under the SBA’s Paycheck Protection Program (“PPP”) of $136 and $170, 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 Probability 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

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.

The following tables present the activity in the allowance by portfolio segment for each of the three and nine months ended September 30, 2025 and 2024: (Note: The activity presented does not include provisions recorded to support the reserve associated with off balance sheet commitments.)


	Three Months Ended September 30, 2025
	Commercial				Commercial
	And		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for credit losses:
Beginning balance	$	5,025	$	20,153	$	1,017	$	1,615	$	182	$	416	$	28,408
Provision for credit losses^*		4,275		(600)		12		(27)		(31)		139		3,768
Charge-offs		(2,992)		—		—		(16)		—		(1)		(3,009)
Recoveries		38		—		76		—		—		6		120
Ending balance	$	6,346	$	19,553	$	1,105	$	1,572	$	151	$	560	$	29,287

* The provision for credit losses on the income statement also includes approximately $108 associated with off balance sheet ACL.


	Nine Months Ended September 30, 2025
	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for loan losses:
Beginning balance	$	4,501	$	19,227	$	755	$	962	$	56	$	576	$	26,077
Provision for credit losses^*		4,974		326		274		626		95		(48)		6,247
Charge-offs		(3,189)		—		—		(16)		—		(4)		(3,209)
Recoveries		60		—		76		—		—		36		172
Ending balance	$	6,346	$	19,553	$	1,105	$	1,572	$	151	$	560	$	29,287

* The provision for credit losses on the income statement also includes approximately ($56) associated with off balance sheet ACL.


	Three Months Ended September 30, 2024
	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for credit losses:
Beginning balance	$	4,548	$	20,962	$	652	$	1,088	$	51	$	514	$	27,815
Provision for credit losses^*		(148)		7,323		(22)		(130)		33		134		7,190
Charge-offs		(1)		(3,959)		—		—		(33)		—		(3,993)
Recoveries		3		—		—		—		—		8		11
Ending balance	$	4,402	$	24,326	$	630	$	958	$	51	$	656	$	31,023

* The provision for credit losses on the income statement also includes approximately ($0) associated with off balance sheet ACL.


	Nine Months Ended September 30, 2024
	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
Allowance for credit losses:
Beginning balance	$	4,819	$	17,873	$	772	$	1,081	$	51	$	586	$	25,182
Provision for credit losses^*		(436)		10,412		(142)		(29)		33		23		9,861
Charge-offs		(8)		(3,959)		—		(94)		(33)		—		(4,094)
Recoveries		27		—		—		—		—		47		74
Ending balance	$	4,402	$	24,326	$	630	$	958	$	51	$	656	$	31,023

* The provision for credit losses on the income statement also includes approximately ($200) associated with off balance sheet ACL.

The following tables present the balance in the allowance for credit losses and the amortized cost in loans by portfolio segment and based on impairment method as of September 30, 2025 and December 31, 2024:


	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
September 30, 2025
Allowance for credit losses:
Ending balance:
individually evaluated for impairment	$	3,243	$	850	$	—	$	—	$	—	$	—	$	4,093
collectively evaluated for impairment		3,103		18,703		1,105		1,572		151		560		25,194
Total ending allowance balance	$	6,346	$	19,553	$	1,105	$	1,572	$	151	$	560	$	29,287
Loans:
Ending balance:
individually evaluated for impairment	$	5,157	$	52,403	$	—	$	2	$	828	$	—	$	58,390
collectively evaluated for impairment		239,425		1,400,109		115,040		68,407		19,246		35,059		1,877,286
Total ending loans balance	$	244,582	$	1,452,512	$	115,040	$	68,409	$	20,074	$	35,059	$	1,935,676


	Commercial				Commercial
	and		Commercial		Real Estate		Residential		Home
	Industrial		Real Estate		Construction		Real Estate		Equity		Consumer		Total
December 31, 2024
Allowance for credit losses:
Ending balance:
individually evaluated for impairment	$	388	$	749	$	—	$	—	$	—	$	—	$	1,137
collectively evaluated for impairment		4,113		18,478		755		962		56		576		24,940
Total ending allowance balance	$	4,501	$	19,227	$	755	$	962	$	56	$	576	$	26,077
Loans:
Ending balance:
individually evaluated for impairment	$	2,405	$	35,050	$	—	$	60	$	—	$	83	$	37,598
collectively evaluated for impairment		239,985		1,327,004		80,993		74,913		17,365		37,893		1,778,153
Total ending loans balance	$	242,390	$	1,362,054	$	80,993	$	74,973	$	17,365	$	37,976	$	1,815,751

Included in the commercial and industrial loans collectively evaluated for impairment are PPP loans of $136 and $170 as of September 30, 2025 and December 31, 2024, respectively. PPP loans receivable are guaranteed by the SBA and have no allocation in the allowance.

Individually Analyzed Loans

Effective January 1, 2023, the Company began analyzing loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designated pool of loans, under the Company's CECL methodology. Loans individually analyzed include certain nonaccrual commercial, as well as certain accruing loans previously identified under prior troubled debt restructuring (TDR) guidance.

As of September 30, 2025, the amortized cost basis of individually analyzed loans was $58.4 million, of which $50.1 million were considered collateral dependent. As of December 31, 2024, the amortized cost basis of individually analyzed loans was $37.6 million, of which $29.8 million were considered collateral dependent. For collateral dependent loans where the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is

measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan, at measurement date. Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

The following table presents the amortized cost basis and related allowance for credit loss of individually analyzed loans considered to be collateral dependent as of September 30, 2025 and December 31, 2024:


	At September 30, 2025				At December 31, 2024

	Principal Balance			Related Allowance	Principal Balance			Related Allowance


Commercial and industrial	$	—	$	—	$	—	$	—
Commercial real estate ⁽¹⁾		49,282		740		29,714		563
Commercial real estate construction		—		—		—		—
Residential real estate ⁽²⁾		2		—		60		—
Home equity⁽²⁾		828		—		—		—
Consumer		—		—		—		—
Total	$	50,112	$	740	$	29,774	$	563

⁽¹⁾ Commercial real estate – secured by various types of commercial real estate.

⁽²⁾ Residential real estate – secured by residential real estate.

The following table presents the amortized cost in non-accrual and loans past due over 90 days still on accrual by class of loans as of September 30, 2025 and December 31, 2024.


	Non-Accrual
	with No Allowance								Loans Past Due Over 90 Days
	for Credit Loss				Non-accrual				Still Accruing
	September 30, 2025		December 31, 2024		September 30, 2025		December 31, 2024		September 30, 2025		December 31, 2024
Commercial and industrial	$	—	$	—	$	2,920	$	293	$	—	$	—
Commercial real estate		7,424		6,000		8,414		6,000		—		—
Commercial real estate construction		—		—		—		—		—		—
Residential real estate		2		6		2		6		—		—
Home equity		828		—		828		—		—		—
Consumer		—		—		—		—		—		—
Total	$	8,254		6,006	$	12,164	$	6,299	$	—	$	—

As of September 30, 2025, the Company held $12.2 million in non-accrual balances and a related ACL of approximately $3.1 million. Within the non-accrual balances, $8.3 million of these loans had no ACL associated to them. As of December 31, 2024, the Company had $6.3 million in non-accrual loans and related ACL of approximately $186 thousand. Within the non-accrual balances, $6.0 million of these loans had no ACL associated related to them.

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 within the scope of the Company’s internal underwriting policy.

The following table presents the aging of the amortized cost in past-due loans as of September 30, 2025 and December 31, 2024 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, 2025
Commercial and industrial	$	—	$	26	$	2,804	$	2,830	$	241,752
Commercial real estate		—		—		8,414		8,414		1,444,098
Commercial real estate construction		—		—		—		—		115,040
Residential real estate		—		286		—		286		68,123
Home equity		—		238		590		828		19,246
Consumer		1		—		—		1		35,058
Total	$	1	$	550	$	11,808	$	12,359	$	1,923,317


	30-59 Days		60-89 Days		Greater Than		Total		Loans
	Past Due		Past Due		90 Days		Past Due		Not Past Due
December 31, 2024
Commercial and industrial	$	—	$	128	$	150	$	278	$	242,112
Commercial real estate		141		398		6,000		6,539		1,355,515
Commercial real estate construction		—		—		—		—		80,993
Residential real estate		294		—		—		294		74,679
Home equity		—		—		—		—		17,365
Consumer		—		—		—		—		37,976
Total	$	435	$	526	$	6,150	$	7,111	$	1,808,640

As of September 30, 2025 and December 31, 2024, loans in the process of foreclosure were $12,839 and $6,533 respectively, of which $244 and $0 respectively, were secured by residential real estate.

Credit Quality Indicators: 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.

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

The following tables summarize the Company’s loans by year of origination and internally assigned credit risk at September 30, 2025 and December 31, 2024 and gross charge-offs for the nine months ended September 30, 2025 and the year ended December 31, 2024:


									Revolving
								Revolving	Loans to
	2025		2024	2023	2022	2021	Prior	Loans	Term Loans	Total
Commercial and industrial											—
Pass	$	23,023	29,713	44,418	32,303	31,811	56,330	—	—	$	217,598
Special Mention		589	—	4,074	—	3,426	-	—	—		8,089
Substandard		332	8,695	2,006	7,563	90	209	—	—		18,895
Total Commercial and industrial	$	23,944	38,408	50,498	39,866	35,327	56,539	—	—	$	244,582
Current period gross charge-offs		2,691	349	—	—	149	—	—	—		3,189

Commercial real estate
Pass	$	136,259	154,823	179,138	318,795	218,797	366,256	409	—	$	1,374,477
Special Mention		—	—	4,720	5,258	2,875	15,072	—	—		27,925
Substandard		—	3,763	381	1,640	15,826	28,500	—	—		50,110
Total Commercial real estate	$	136,259	158,586	184,239	325,693	237,498	409,828	409	—	$	1,452,512
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Commercial real estate construction
Pass	$	33,094	32,542	24,327	14,877	10,200	—	—	—	$	115,040
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	—	—		—
Total Commercial real estate construction	$	33,094	32,542	24,327	14,877	10,200	—	—	—	$	115,040
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Residential real estate
Pass	$	2,628	9,163	13,794	10,404	7,849	24,569	—	—	$	68,407
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	2	—	—		2
Total Residential real estate	$	2,628	9,163	13,794	10,404	7,849	24,571	—	—	$	68,409
Current period gross charge-offs		—	—	—	—	—	16	—	—		16

Home equity
Pass	$	—	375	45	—	—	41	17,586	1,199	$	19,246
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	828	—		828
Total Home Equity	$	—	375	45	—	—	41	18,414	1,199	$	20,074
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Consumer
Pass	$	6,518	7,118	15,579	1	—	839	5,004	—	$	35,059
Special Mention		—	—	—	—	—	—	—	—		—
Substandard			—	—	—	—	—	—	—		—
Total Consumer	$	6,518	7,118	15,579	1	—	839	5,004	—	$	35,059
Current period gross charge-offs		—	—	—	—	—	4	—	—		4

Total Loans	$	202,443	246,192	288,482	390,841	290,874	491,818	23,827	1,199	$	1,935,676

Gross charge-offs	$	2,691	349	—	—	149	20	—	—	$	3,209



									Revolving
								Revolving	Loans to
	2024		2023	2022	2021	2020	Prior	Loans	Term Loans	Total
Commercial and industrial											—
Pass	$	38,388	41,353	35,358	30,767	29,871	43,278	—	—	$	219,015
Special Mention		—	4,069	3,333	4,170	—	129	—	—		11,701
Substandard		3,329	395	7,198	143	101	508	—	—		11,674
Total Commercial and industrial	$	41,717	45,817	45,889	35,080	29,972	43,915	—	—	$	242,390
Current period gross charge-offs		10	—	—	—	—	—	—	—		10

Commercial real estate
Pass	$	157,045	188,536	332,246	227,489	146,041	266,873	2,456	—	$	1,320,686
Special Mention		—	784	—	—	—	8,366	—	—		9,150
Substandard		—	—	622	16,192	6,709	8,695	—	—		32,218
Total Commercial real estate	$	157,045	189,320	332,868	243,681	152,750	283,934	2,456	—	$	1,362,054
Current period gross charge-offs		—	—	—	8,657	—	28	—	—		8,685

Commercial real estate construction
Pass	$	21,710	27,672	21,411	10,200	—	—	—	—	$	80,993
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	—	—		—
Total Commercial real estate construction	$	21,710	27,672	21,411	10,200	—	—	—	—	$	80,993
Current period gross charge-offs		—	—	—	—	—	—	—	—		—

Residential real estate
Pass	$	7,574	20,682	11,278	8,296	8,572	18,565	—	—	$	74,967
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	6	—	—		6
Total Residential real estate	$	7,574	20,682	11,278	8,296	8,572	18,571	—	—	$	74,973
Current period gross charge-offs		—	—	—	—	—	94	—	—		94

Home equity
Pass	$	408	46	—	—	—	47	15,674	1,190	$	17,365
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	—	—	—		—
Total Home Equity	$	408	46	—	—	—	47	15,674	1,190	$	17,365
Current period gross charge-offs		—	—	—	—	—	—	—	33		33

Consumer
Pass	$	9,097	21,655	2	—	1,265	64	5,810	—	$	37,893
Special Mention		—	—	—	—	—	—	—	—		—
Substandard		—	—	—	—	—	83	—	—		83
Total Consumer	$	9,097	21,655	2	—	1,265	147	5,810	—	$	37,976
Current period gross charge-offs		—	—	—	—	—	1	—	—		1

Total Loans	$	237,551	305,192	411,448	297,257	192,559	346,614	23,940	1,190	$	1,815,751

Gross charge-offs	$	10	—	—	8,657	—	123	—	33	$	8,823

Loans to certain directors and principal officers of the Company, including their immediate families and companies in which they are affiliated, amounted to $13,502 at September 30, 2025 and December 31, 2024.

Orange County Bancorp, Inc. /DE/ 10-Q