Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

General

Management's discussion and analysis is intended to enhance your understanding of our financial condition and results of operations. The financial information in this section is derived from the accompanying consolidated financial statements and related notes. You should read the financial information in this section in conjunction with the business and financial information contained in this report and in the Company's annual report on Form 10-K for the fiscal year 2025, as filed with the Securities and Exchange Commission on March 27, 2026.

Cautionary Note Regarding Forward-Looking Statements

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

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

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:

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

Critical Accounting Policies and Use of Critical Accounting Estimates

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

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

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

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

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

Management may also adjust its assumptions to account for differences between expected and actual losses from period-to-period. The variability of management's assumptions could alter the ACL on loans materially and impact future results of

operations and financial condition. The loss estimation models and methods used to determine the ACL are continually refined and enhanced.

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

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

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

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

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

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

as regulatory and business factors change. Any reduction in estimated future taxable income may require us to record a valuation allowance against our deferred tax assets.

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

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

SELECTED FINANCIAL DATA

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

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

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

Summary. Total assets were $2.78 billion at September 30, 2026, decreasing $62 million, or 2%, since year-end 2025.

Excess cash from the 2025 initial public stock offering and deposit growth was invested into securities and used to reduce borrowings. In 2026, the Company initiated quarterly stockholder cash dividends, as well as stock repurchases. The improvements in the balance sheet structure supported an increase in the net interest margin and have contributed to the improved performance ratios.

Short-term Investments. Short-term investments, primarily in the form of cash at the Federal Reserve, decreased $87 million year-to-date to $42 million at period-end, continuing the reinvestment of proceeds from the July 2025 initial public stock offering.

Total Securities. Total securities increased $44 million to $326 million due to continued purchases of mortgage-backed securities from the deployment of available cash.

Total Loans. Total loans decreased $38 million, or 2%, to $2.26 billion since year-end 2025 due primarily to a $68 million decrease in commercial loans. The decrease in commercial loans included a $15 million decrease in condominium association loans in addition to the prepayment of a $23 million commercial solar loan. The decrease in commercial loans was partially offset by a $30 million increase in residential mortgages, which included the purchase of a $21 million portfolio of in-market, adjustable-rate mortgage loans from a local correspondent bank in the third quarter. Loans categorized as commercial real estate totaled $536 million at period-end and measured 24% of total loans, compared to 23% at year-end 2025.

Asset Quality. Nonaccrual loans decreased by $2.5 million to $17.8 million during the first nine months of 2026 due primarily to the successful workout of $6.5 million in nonaccrual construction loans, partially offset by a $5.2 million increase in nonaccrual commercial & industrial loans.

Nonaccrual loans measured 0.79% of total loans at period-end, compared to 0.88% at year-end 2025. Net loan charge-offs were $451 thousand for the first nine months of the year as the Company realized $1.1 million in recoveries. The allowance for credit losses increased $1.2 million to $23.2 million, increasing to 1.03% of total loans at September 30, 2026 from 0.96% at year-end 2025. The ratio of the allowance to nonaccrual loans measured 131% and 109% at these dates, respectively. Total criticized loans (rated special mention or lower) decreased to $74 million, or 4.6% of commercial related loans at the end of the third quarter, compared to $104 million, or 6.1%, at the start of the year.

On October 30, 2026, a borrower associated with a $10.6 million commercial lending relationship filed for protection under Chapter 11 of the U.S. Bankruptcy Code, and the related loans became delinquent. These loans were not delinquent as of September 30, 2026.

Total Deposits. Deposits increased by $78 million for the year, or 4%, to $2.21 billion at September 30, 2026, primarily due to a $49 million increase in money market deposits and the purchase of $23 million in brokered deposits in September. A $27 million decrease in NOW accounts was more than offset by increases in demand, savings, and regular certificate of deposit balances. Deposit growth was primarily related to increases in commercial related balances. Lower cost transaction accounts (demand and NOW) were 50% of total deposits at September 30, 2026.

Borrowings. Federal Home Loan Bank advances decreased by $150 million to $110 million year-to-date due primarily to the use of cash on hand and deposit growth to reduce higher cost borrowings.

Total Stockholders' Equity. Stockholders' equity decreased by $12 million, or 3%, to $367 million in the first nine months of the year. Year to date, the Company recorded $24 million of stock repurchases, which was mostly offset by $22 million of net income. Equity was further reduced as the Company paid $3 million in common stock dividends and recorded an $8 million increase in accumulated other comprehensive loss as higher market rates reduced the value of the available for sale portfolio.

The Company announced its board-approved $30 million stock repurchase program on August 4, 2026. During the third quarter, the Company repurchased 1,079,051 shares (5.4% of outstanding shares). Subsequent to quarter-end, the Company completed the repurchase program, purchasing an additional $6 million of stock, totaling 276,514 shares, and bringing total repurchases to 6.75% of year-end 2025 outstanding shares.

In September, stockholders approved the 2026 Equity Incentive Plan, which reserves a total pool of 2,810,675 shares for equity compensation awards. In September, the Company made Director grants for 843,192 shares with five year vesting consisting of 240,912 restricted stock awards and 602,280 options. Subsequent to quarter-end, the Company made management grants for 1,676,500 shares with five or six year vesting consisting of 489,500 restricted stock awards and 1,187,000 options.

Total shares outstanding at September 30, 2026 were 19.2 million, a decrease of 838 thousand, or 4%, from 20.1 million at year-end 2025. The decrease from stock buybacks was partially offset by the impact of restricted stock awards. Book value per share was $19.05 at period-end, compared to $18.88 at year-end 2025. The non-GAAP measure of tangible book value per share was $18.43 and $18.28 at these respective dates.

Stockholders' equity to total assets was 13.2% at period-end and the non-GAAP measure of tangible common equity to tangible assets was 12.8%. At that date, the regulatory ratio of common equity tier 1 capital as a percentage of risk-weighted assets was 17.3%.

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

Comparison of Operating Results for the Three Months and Nine Months Ended September 30, 2026 and 2025

Net Income/Loss. Third quarter net income was $8.6 million in 2026, compared to a $0.9 million net loss in the third quarter of 2025. The 2025 loss was due to a $10 million contribution to the Avidia Bank Charitable Foundation in connection with the Company's initial public stock offering in that period.

Earnings per share measured $0.47 in the third quarter of 2026. During the quarter, the efficiency ratio measured 62.2%, return on assets was 1.24%, return on equity was 8.79%, and the non-GAAP financial measure of return on tangible common equity was 9.06%.

Net income for the first nine months of the year was $21.8 million in 2026 compared to a net loss of $8.6 million in 2025. The net loss in 2025 was due to the previously mentioned contribution in the third quarter of 2025, as well as an $18.8 million credit loss expense related primarily to one commercial loan in the first quarter of 2025. Earnings per share for the first nine months of 2026 measured $1.18. For this period, return on assets measured 1.05%, return on equity was 7.54%, and the non-GAAP measure of return on tangible common equity was 7.78%.

Net Interest Income. Third quarter net interest income increased year-over-year by $2.1 million, or 9%. Loan interest income increased $1.9 million due to a 34 basis point increase in the loan yield, including a $692 thousand penalty on the prepayment of a large commercial loan. Interest income on investment securities increased $449 thousand, reflecting $41 million in average balance growth. The third quarter net interest margin improved to 3.86% from 3.43% and included the benefit of an 18 basis point reduction in the cost of funds due to a reduction in higher cost borrowings.

Year to date net interest income increased year-over-year by $10.2 million, due to the use of cash and deposit growth to reduce higher cost borrowings and increase earning assets. The nine month net interest margin increased year-over-year to 3.70% from 3.23%. Average earning assets increased $34 million, or 1% and the yield on earning assets increased to 5.12% from 4.94%.

Credit Loss Expense. Based on management's analysis of the adequacy of the allowance for credit losses, third quarter credit loss expense was $211 thousand in 2026 and $1.5 million in 2025. For the first nine months of the year, the expense was $2.2 million and $20.2 million, respectively. The $18 million decrease year-to-year was primarily due to the impact in 2025 of a $16.7 million land loan charge-off recorded in the first quarter of that year. Year-to-date credit loss expense decreased by $1.3 million excluding this 2025 charge-off, reflecting changes in the loan portfolio mix.

Non-Interest Income. Third quarter non-interest income increased year-over-year by $1.1 million, or 25%, to $5.7 million. There were increases of 15% or more in all major income categories, reflecting business growth as well as pricing adjustments to existing products and services. The three largest increases were customer service fees, payments processing income, and mortgage banking income.

Year to date non-interest income similarly increased year-over-year by $2.3 million, or 17%, to $15.8 million, due primarily to growth in the same three categories as above. Customer service fees increased $1.0 million, or 37%, to $3.7 million, primarily resulting from the introduction of maintenance fees on health savings accounts. Payments processing income increased $524 thousand, or 9%, to $6.7 million, and included $230 thousand in one-time fees from a payments processing contract termination as well as general increases in payments processing activity. Mortgage banking income increased $688 thousand, or 230%, to $987 thousand. An $831 thousand decrease in the category of other non-interest income was partially due to the $250 thousand gain on the sale of the direct merchant portfolio in 2025, as well as decreases in debit card income, commercial loan fees, and swap fees. These decreases were partially offset by $619 thousand in securities losses recorded in 2025, which did not repeat in 2026.

Non-Interest Expense. Third quarter non-interest expense decreased year-over-year by $9.0 million due to the $10.0 million charge in 2025 for funding the charitable foundation. Excluding this charge, third quarter non-interest expense increased $1.0 million, or 6%, due primarily to growth in expenses related to salaries and benefits, data processing, and professional fees offset by a decrease in occupancy and equipment expense.

For the year-to-date, non-interest expense decreased year-over-year by $12.1 million. In addition to the $10.0 million charge related to the foundation, expenses in 2025 included $2.1 million in charges related to the termination of the long-term incentive plan and increased short-term incentives and retirement expenses prior to the stock offering. Excluding the above charges, non-interest expense was essentially unchanged year-over-year, totaling $57.9 million in 2026.

Nine month salaries and employee benefits expense increased $114 thousand to $30.4 million. Excluding the incentive and retirement expenses in 2025 noted above, salaries and employee benefits expense increased $2.2 million, or 8%. Equity compensation awards were made in September and October 2026 following approval of the compensation plan by stockholders in September. Expense recognition for these awards will be recorded over the vesting terms.

Nine month occupancy and equipment and data processing expense together decreased in total by $839 thousand. These costs in 2025 included a new on-line banking platform and licensing costs, and $379 thousand in contract termination expenses. Payments processing expense decreased by $1.1 million, primarily due to the impact of the sale of the direct merchant portfolio. Professional fees increased $1.5 million primarily due to the engagement in 2026 of a third-party to implement a process improvement program. Deposit insurance expense decreased $1.1 million due to lower assessment rates.

Income Tax Expense. The Company recorded 2026 income tax expense of $3.0 million in the third quarter and $7.5 million in the first nine months of the year. The effective tax rate was 26% for the first nine months of 2026. Income taxes were a benefit in 2025 due to the losses recorded in the third quarter and for the first nine months of the year.

Liquidity and Capital Resources

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

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and competition. Our most liquid assets are cash and short-term investments. The levels of these assets depend on our operating, financing, lending, and investing activities during any given period, and are reported in the statements of cash flows in our consolidated financial statements. Total cash and short-term investments decreased from elevated levels following the stock offering, declining to $60 million from $145 million for the year-to-date.

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

The following table shows current borrowings and unused liquidity capacity from various sources at the dates indicated. Borrowing capacity increased $46 million while the level of borrowings outstanding decreased with funds from excess short-term investments and deposit growth.

Avidia Bancorp, Inc. is a separate legal entity from Avidia Bank and must provide for its own liquidity to pay its operating expenses and other financial obligations. Its primary source of income is dividends received from Avidia Bank. The amount of dividends that Avidia Bank may declare and pay to the Company is subject to regulation. At September 30, 2026, Avidia Bancorp, Inc. had liquid assets of $70 million on a stand-alone, unconsolidated basis, compared to $76 million at year-end 2025. In early 2026, the Company initiated quarterly cash dividends totaling approximately $1.2 million per quarter. Additionally, the Company repurchased $24 million in common stock under its $30 million repurchase authorization. For the nine months ended September 30, 2026, Avidia Bank also paid $7 million in dividends to Avidia Bancorp.

Capital Resources. At September 30, 2026, Avidia Bank exceeded all of its regulatory capital requirements and was categorized as well-capitalized at that date. Management is not aware of any conditions or events since the most recent notification of well-capitalized status that would change this categorization. For additional information, including tabular

financial information regarding Avidia Bank's capital levels relative to the requirements for well-capitalized status, see Note 11 of the notes to consolidated financial statements.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

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

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

Management of Market Risk

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

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

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

Interest Rate Derivatives. We employ various financial risk methodologies that limit, or "hedge," the adverse effects of increasing or decreasing market interest rates on our investment or loan portfolio and short-term liabilities, such as Federal Home Loan Bank advances. At September 30, 2026, we had interest rate swaps related to Federal Home Loan Bank advances and investments with a notional amount of $85 million. At September 30, 2026, we had an interest rate cap related to Federal Home Loan Bank advances with a notional amount of $25 million. We also engage in hedging strategies with

respect to arrangements where our commercial banking customers swap floating interest rate obligations for fixed interest rate obligations, or vice versa. At September 30, 2026, we had interest rate swaps related to customer loans of a notional amount of $103 million. Our hedging activity varies based on the level and volatility of interest rates and other changing market conditions. For additional information regarding these activities, see Note 6 of the notes to consolidated financial statements.

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

The following table sets forth, as of September 30, 2026, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the Company's board of directors.

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

The table above indicates that at September 30, 2026, we would have experienced a 5.3% decrease in net interest income in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 1.4% increase in net interest income in the event of an instantaneous parallel 200 basis point decrease in market interest rates.

The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our net interest income that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the Company's board of directors.

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

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

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

The following table sets forth, as of September 30, 2026, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the Company's board of directors.

The table above indicates that at September 30, 2026, we would have experienced a 5.9% decrease in EVE in the event of an instantaneous parallel 200 basis point increase in market interest rates and a 0.5% decrease in EVE in the event of an instantaneous 200 basis point decrease in market interest rates. Similar to net interest income, the Company's main sensitivity of economic value of equity is a negative sensitivity to a rise in interest rates. This sensitivity has diminished over the first nine months of 2026.

The following table sets forth, as of December 31, 2025, the calculation of the estimated changes in our EVE that would result from the designated immediate changes in the United States Treasury yield curve. All estimated changes presented in the table are within the policy limits established by the Company's board of directors.

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

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

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