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Item 7. Management’s Discussion and Analysis

2026-03-13 compared with 2025-03-14 · 142 added, 169 removed, 376 unchanged (45% of the section changed)

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

In October 2023, the Company’s Board of Directors approved a change in the Company’s fiscal year end from September 30 to December 31.

As a result of the change in year end, the Company filed a Transition Report on Form 10-Q with the SEC on February 13, 2024, which included unaudited financial statements as of December 31, 2023 and for the three months then ended and for comparative purposes we presented financial statements for the three months ended December 31, 2022.

In this report, our discussion and analysis will present the more significant factors affecting our financial condition at December 31, 2024 and December 31, 2023.

For the results of operations, our discussion and analysis will present the more significant factors affecting the periods presented as follows:

● the calendar year ended December 31, 2024 (“calendar 2024”) compared to the fiscal year ended September 30, 2023 (“fiscal 2023”);

● the transition period from October 1, 2023 through December 31, 2023 (“transition period”) compared to the year earlier period October 1, 2022 through December 31, 2022.

The following is a discussion of our financial condition and results or our operations for the years ended December 31, 2025 and 2024, respectively.

The purpose of this discussion is to focus on information about our financial condition and results of operations which is not otherwise apparent from our consolidated financial statements.

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Business Overview

We are currently a New York corporation which became the holding company for the Bank in 2016.

The Bank, a community commercial bank focusing on highly personalized and efficient services and products responsive to local needs, commenced operations in 2009 and was incorporated under the laws of the State of New York.

The Company is a Maryland corporation and is the holding company for the Bank.

The Bank, a community commercial bank focusing on highly personalized and efficient services and products responsive to local needs, commenced operations in 2009 and is incorporated under the laws of the State of New York.

As a New York State chartered bank, the Bank is subject to regulation by the DFS and the FDIC.

As a bank holding company, we are subject to regulation and examination by the FRB.

The Bank offers a full range of financial services including a complete suite of consumer and commercial banking products and services, including multi-family and commercial mortgages, government guaranteed loans, residential loans, business loans and lines of credit.

As a bank holding company, the Company is subject to regulation and examination by the FRB.

The Company completed its core processing system conversion to FIS Horizon in February 2025.

This conversion, coupled with our recently refreshed corporate logo, exemplifies our momentum towards a more technologically advanced, modern and digitally forward-thinking bank.

The Company was added to the Russell 2000 Index in June 2025.

The Russell 2000 Index encompasses the 2,000 largest U.S.-traded stocks by objective, market-capitalization rankings, and style attributes.

The Russell Indexes are widely used by investment managers and institutional investors for index funds and as benchmarks for active investment strategies.

The Bank offers a full range of financial services including a complete suite of consumer, commercial, and municipal banking products and services, including multifamily and commercial mortgages, government guaranteed loans, residential loans, business loans and lines of credit.

The Bank also offers its customers, among other things, access to 24-hour ATM service with no fees, free checking with interest, telephone banking, advanced technologies in mobile and internet banking for its consumer and business customers and safe deposit boxes.

Our corporate administrative office is located in Mineola, New York where the Bank also operates a full-service branch office.

Additional branches are located in Garden City Park, Hauppauge, Forest Hills, Flushing, Sunset Park, Manhattan and Chinatown, New York and Freehold, New Jersey.

The Bank has received regulatory approval to open a full-service branch in Port Jefferson, New York.

Business development staff have already joined the Bank in anticipation of the opening of this location.

The Bank expects this site to be fully operational in the first half of 2025.

Additional branches are located in Garden City Park, Hauppauge, Port Jefferson, Forest Hills, Flushing, Sunset Park, Rockefeller Center and Bowery, New York and Freehold, New Jersey.

It is expected that the Company will once again expand its geographic footprint with the opening of a full-service branch in a state-of-the-art facility in downtown Riverhead, New York.

Business development staff have already joined the Company in anticipation of the opening of this location.

Subject to regulatory approvals, the Bank expects to open the branch in late 2026.

The Company expects that a temporary office location in Riverhead will be operational by the end of the first quarter of 2026.

At December 31, 2025, on a consolidated basis we had $2.38 billion in total assets, $200.3 million in total stockholders’ equity, $2.00 billion in total loans, $2.03 billion in total deposits and 194 full-time equivalent employees.

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Allowance for Credit Losses

On October 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 allowance for credit losses is a valuation allowance for management’s estimate of expected credit losses in the loan portfolio.

The allowance for credit losses (“ACL”) is a valuation allowance for management’s estimate of expected credit losses in the loan portfolio.

The process to determine expected credit losses utilizes analytic tools and judgment and is reviewed on a quarterly basis.

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See Note 1, “Summary of Significant Accounting Policies” and Note 10, “Goodwill and Other Intangible Assets” to the accompanying Consolidated Financial Statements contained in Item 8 for further details.

Results of Operations for the year ended December 31, 2024 (“calendar 2024”) compared to fiscal year ended September 30, 2023 (“fiscal 2023”)

For calendar 2024, we recognized net income of $12.3 million, or $1.66 per diluted share (including Series A preferred shares), compared to net income of $15.2 million, or $2.05 per diluted share (including Series A preferred shares) for fiscal 2023.

The decrease in net income recorded for calendar 2024 from fiscal 2023 resulted from a decrease in net interest income, an increase in the provision for credit losses and an increase in non-interest expense, which were partially offset by an increase in non-interest income.

The increase in the provision for credit losses was primarily related to the recording of a $4.0 million provision for credit losses in June 2024 that was mainly attributable to an ACL on an individually evaluated loan of $2.5 million and $1.1 million related to ongoing enhancements to the CECL model.

The increase in non-interest income is primarily related to the increases in the gain on sale of loans held-for-sale and loan servicing and fee income which were partially offset by a decrease in other operating income.

In September 2023, the Company settled ongoing litigation and received a settlement payment of $975 thousand which was recorded in other income.

The increase in non-interest expense was primarily attributed to additional staff for the SBA, C&I Banking and Operations teams.

Results of Operations for the year ended December 31, 2025 compared to the year ended December 31, 2024

For the year ended December 31, 2025, we recognized net income of $7.5 million, or $1.00 per diluted share (including Series A preferred shares), compared to net income of $12.3 million, or $1.66 per diluted share (including Series A preferred shares) for the year ended December 31, 2024.

The decrease in net income recorded for the year ended December 31, 2025 from the year ended December 31, 2024 resulted from an increase in the provision for credit losses, a decrease in non-interest income, and an increase in non-interest expense.

These were partially offset by an increase in net interest income.

The increase in the provision for credit losses was largely impacted by $14.2 million in net charge-offs in 2025.

The decrease in non-interest income is primarily related to the decrease in the gain on sale of loans held-for-sale which was partially offset by the increases in loan servicing and fee income and service charges on deposit accounts.

The increase in non-interest expense was primarily related to the increase in salaries and employees benefits and the one-time core system conversion expenses.

Set forth below are our selected consolidated financial and other data.

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This financial data is derived in part from, and should be read in conjunction with, our consolidated financial statements.

September 30,

(in thousands)

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Total stockholders' equity

Three Months Ended

(transition period)

September 30,

Year Ended December 31,

(dollars in thousands)

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Net interest rate spread

Net interest rate margin

Net interest margin

Average equity to average assets

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Net interest income is affected by changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, repricing frequencies, and loan prepayment behavior.

Net interest income for calendar 2024 was $53.1 million, a decrease of 2.6% from $54.5 million for fiscal 2023.

Net interest margin was 2.44% for calendar 2024, a decrease of 41 basis points from 2.85% for fiscal 2023.

The Company’s total interest income increased by $28.0 million, or 26.6%, as the average yield on interest-earning assets for calendar 2024 was 6.12%, an increase of 63 basis points from 5.49% for fiscal 2023.

However, total interest expense increased by $29.4 million, or 58.1%, as the average cost interest-bearing liabilities for calendar 2024 was 4.40%, an increase of 122 basis points, from 3.18% for fiscal 2023 due to the rapid and significant rise in market interest rates and the competitive deposit environment and, to a lesser extent, the Company’s decision to increase liquidity as a result of the industry events over the last two years.

Together, this resulted in the higher cost of funds.

Net interest income for the year ended December 31, 2025 was $60.5 million, an increase of 13.9% from $53.1 million for the year ended December 31, 2024.

Net interest margin was 2.75% for the year ended December 31, 2025, an increase of 31 basis points from 2.44% for the year ended December 31, 2024.

The Company’s total interest expense decreased by $9.9 million, or 12.4%, as the average cost of interest-bearing liabilities for the year ended December 31, 2025 was 3.88%, a decrease of 52 basis points, from 4.40% for the year ended December 31, 2024.

However, total interest income decreased by $2.5 million, or 1.9%, as the average yield on interest-earning assets for the year ended December 31, 2025 was 5.94%, a decrease of 18 basis points from 6.12% for the year ended December 31, 2024.

The following table presents daily average balances, interest, yield/cost, and net interest margin on a fully tax-equivalent basis for the periods presented:

Year Ended December 31,

Fiscal Year Ended September 30,

(dollars in thousands)

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

Three Months Ended December 31,

(dollars in thousands)

Interest-earning assets

Investment securities (1)

Interest-earning balances and other

Total interest-earning assets

Non interest-earning assets:

Liabilities and stockholders' equity:

Interest-bearing liabilities:

Savings, NOW and money market deposits

Time deposits

Total interest-bearing deposits

Subordinated debentures

Total interest-bearing liabilities

Non-interest bearing deposits

Other liabilities

Total liabilities

Stockholders' equity

Total liabilities and stockholders' equity

Net interest rate spread (3)

Net interest income/margin (4)

(1) There is no income tax exempt interest recorded for loans or investment securities for the periods presented.

(2) Includes non-accrual loans.

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

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

The following table details the variances in net interest income caused by changes in interest rates and volume for the periods presented:

Year Ended December 31, 2024 vs.

Fiscal Year Ended September 30, 2023

Increase (decrease) due to change in:

(in thousands)

Interest income

Investment securities

Interest-earning balances and other

Total interest income

Interest expense

Savings, NOW and money market deposits

Time deposits

Subordinated debentures

Total interest expense

Net increase (decrease) in net interest income

Three Months Ended December 31,

Year Ended December 31,

Increase (decrease) due to change in:

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Total interest expense

Net increase (decrease) in net interest income

Net increase in net interest income

Provision for Credit Losses

The provision for credit losses was $4.9 million (including a $0.2 million provision for unfunded comments) for calendar 2024 compared to $3.4 million (including no provision for unfunded comments) for fiscal 2023.

Total net charge-offs were $1.6 million for both calendar 2024 and fiscal 2023.

See additional discussion under " Asset Quality - Allowance for Credit Losses ” section.

The provision for credit losses was $10.4 million (including a $0.3 million provision for unfunded commitments) for the year ended December 31, 2025 compared to $4.9 million (including a $0.2 million provision for unfunded commitments) for the year ended December 31, 2024.

Total net charge-offs were $14.2 million and $1.6 million for the years ended December 31, 2025 and 2024, respectively.

For more information, see " Asset Quality - Allowance for Credit Losses.

Non-Interest Income

Three Months Ended

(transition period)

September 30,

Year Ended December 31,

(in thousands)

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Net gain on sale of loans held for sale

Net gain on sale of investments available-for-sale

Net gain on sale of securities available-for-sale

Total non-interest income

Non-interest income was $15.3 million for calendar 2024, an increase of $6.5 million from $8.8 million for fiscal 2023.

The increase in non-interest income is primarily related to the increases in the net gain on sale of loans held for sale and loan servicing and fee income which were partially offset by a decrease in other income.

In September 2023, the Company settled ongoing litigation and received a settlement payment of $975 thousand which was recorded in other income.

Non-interest income was $12.8 million for the year ended December 31, 2025, a decrease of $2.5 million from $15.3 million for the year ended December 31, 2024.

The decrease in non-interest income is primarily related to a $3.6 million decrease in the net gain on sale of loans held for sale which was partially offset by a $0.6 million increase in loan servicing and fee income, a $0.3 million increase in service charges on deposit accounts and a $0.2 million increase in net gain on sale on securities available-for-sale.

Non-Interest Expense

Three Months Ended

(transition period)

September 30,

Year Ended December 31,

(in thousands)

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Federal deposit insurance premiums

Conversion expenses

Other expenses

Total non-interest expense

Non-interest expense was $47.1 million for calendar 2024, an increase of $7.4 million from $39.7 million for fiscal 2023.

The increase in non-interest expense was primarily attributed to additional staff for the SBA, C&I Banking and Operations teams.

Income tax expense was $4.0 million for calendar 2024, a decrease from $5.0 million for fiscal 2023.

The decline in income tax expense reflects lower net income in calendar 2024.

The effective income tax rate for calendar 2024 was 24.6% compared to 24.9% for fiscal 2023.

Results of Operations for three months ended December 31, 2023 (transition period) compared to three months ended December 31, 2022

The comparison of the results for the three months ended December 31, 2023 with the results for the three months ended December 31, 2022 can be found in the “Management’s Discussion and Analysis” section in the Company’s Transition Report on Form 10-Q for the transition period from October 1, 2023 to December 31, 2023, filed with the SEC on February 13, 2024.

Non-interest expense was $53.0 million for the year ended December 31, 2025, an increase of $5.9 million from $47.1 million for the year ended December 31, 2024.

The increase in non-interest expense was primarily related to increases of $2.3 million in salaries and employees benefits and one-time core system conversion expenses of $3.2 million.

The increase in salaries and employee benefits was primarily related to additional headcount to staff the new Port Jefferson branch and expansion of the C&I lending vertical and lower deferred loan origination costs partially offset by lower incentive compensation expense resulting from reduced lending activity.

Income tax expense was $2.5 million for the year ended December 31, 2025, a decrease from $4.0 million for the year ended December 31, 2024.

The decline in income tax expense reflects lower net income in the year ended December 31, 2025.

The effective income tax rate for the year ended December 31, 2025 was 24.8% compared to 24.6% for the year ended December 31, 2024.

Analysis of Financial Condition

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Balance at December 31,

Balance at September 30,

(in thousands)

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Amortized Cost

Investment securities available-for-sale:

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GSE residential mortgage-backed securities

GSE residential collateralized mortgage obligations

GSE commercial mortgage-backed securities

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Our investment securities available-for-sale portfolio included gross unrealized gains of $0.6 million and gross unrealized losses of $0.9 million at December 31, 2025, compared to gross unrealized gains of $0.3 million and gross unrealized losses of $1.6 million at December 31, 2024.

Management believes that all of its unrealized losses on individual investment securities at December 31, 2024 and 2023 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of these investments.

Management believes that all of the unrealized losses on individual investment securities at December 31, 2025 and 2024 are the result of fluctuations in interest rates and do not reflect deterioration in the credit quality of these investments.

Accordingly, management considers these unrealized losses to be temporary in nature.

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Due after ten years

GSE residential collateralized mortgage obligations

Due after ten years

GSE commercial mortgage-backed securities

Due after one year through five years

Due after five years through ten years

Due after ten years

Treasury securities

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Due after five years through ten years

Due after ten years

Total investment securities

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Due after one year through five years

Due after five years through ten years

Treasury securities

Due in one year or less

Collateralized loan obligations

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Corporate bonds

Due after one year through five years

Due after five years through ten years

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At December 31, 2025, our loan portfolio totaled $2.00 billion, an increase of $15.2 million from $1.99 billion at December 31, 2024.

Growth was concentrated primarily in residential, SBA and C&I loans.

The following table provides the composition of the Company’s loan portfolio by type at the dates indicated:

At December 31,

At September 30,

(Dollars in thousands)

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Total loans, net

At December 31, 2025, the Company’s residential loan portfolio (including home equity loans) amounted to $777.0 million, with an average loan balance of $491 thousand and a weighted average loan-to-value ratio of 56%.

Commercial real estate, multifamily and construction loans totaled $1.08 billion at December 31, 2025, with an average loan balance of $1.5 million and a weighted average loan-to-value ratio of 59%.

As discussed below, approximately 36% of the multifamily portfolio is subject to rent regulation.

The Company’s commercial real estate concentration ratio continues to improve, decreasing to 360% of capital at December 31, 2025 from 385% at December 31, 2024, with loans secured by office space accounting for 2.48% of the total loan portfolio and totaling $49.6 million at December 31, 2025.

The Bank originates loans for its portfolio and for sale in the secondary market under a residential flow origination program.

During the years ended December 31, 2025 and 2024, the Company sold $92.3 million and $38.5 million, respectively, of residential loans under its flow origination program and recorded gains on sale of loans held-for-sale of $2.1 million and $0.9 million, respectively.

Residential loan originations were $246 million for the year ended December 31, 2025, representing the highest origination levels since 2019.

During the years ended December 31, 2025 and 2024, the Company sold approximately $63.0 million and $112.7 million, respectively, in government guaranteed SBA loans and recorded gains on sale of loans held-for-sale of $5.2 million and $10.0 million, respectively.

SBA loan originations and gains on sale continue to be lower due to a multitude of factors.

High interest rates, changes to SBA standard operating procedures, a less favorable economic outlook for many business owners, the Bank’s prudent decision to tighten credit in 2025 and the government shutdown in the fourth quarter all adversely impacted the volume and approval of SBA loans and, therefore, gain on sale income.

The Bank concluded 2025 with C&I loan originations of approximately $95.3 million for the year ended December 31, 2025.

Based on its existing pipeline, the Bank expects C&I lending and deposit activity to grow in 2026.

The following table provides information of our total loan portfolio at December 31, 2025 by the earlier of the maturity or next repricing date.

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Commercial and industrial

At December 31, 2024, the Company’s residential loan portfolio (including home equity) amounted to $729.3 million, with an average loan balance of $483 thousand and a weighted average loan-to-value ratio of 57%.

Commercial real estate, multi-family and construction loans totaled $1.09 billion at December 31, 2024, with an average loan balance of $1.5 million and a weighted average loan-to-value ratio of 59%.

As will be discussed below, approximately 37% of the multifamily portfolio is subject to rent regulation.

The Company’s commercial real estate concentration ratio continued to improve, decreasing to 385% of capital at December 31, 2024 from 432% of capital at December 31, 2023, with loans secured by office space accounting for 2.45% of the total loan portfolio and totaling $48.7 million.

The Bank’s investments in diversification continue to deliver results, with the volume of SBA & USDA loans originated for sale and the volume of residential loans originated for sale sustaining momentum.

We expect the volume of activity to increase in 2025.

We originated $161.0 million and sold $111.7 million of SBA loans for the year ended December 31, 2024.

We originated $131.0 million and sold $38.0 million of residential loans for the year ended December 31, 2024.

Because we continue to prioritize the management of liquidity and capital, new business development with respect to residential and SBA & USDA lending is largely focused on originations for sale over portfolio growth.

Conversely, portfolio growth is the primary focus of our C&I Banking initiative, which continues to drive deposit and loan growth at our Hauppauge Business Banking Center and will expand with the pending launch of our Port Jefferson branch.

Commercial Real Estate Statistics

A significant portion of the Bank’s commercial real estate portfolio consists of loans secured by Multi-Family and CRE-Investor owned real estate that are predominantly subject to fixed interest rates for an initial period of 5 years.

The Bank’s exposure to Land/Construction loans is minor at $13.5 million, all at floating interest rates, and CRE-owner occupied loans have a mix of floating rates.

As shown below, 23% of the loan balances in these combined portfolios will mature in 2025 and 2026, with another 55% maturing in 2027.

Multi-Family Market Rent Portfolio Fixed Rate Reset/Maturity Schedule

Multi-Family Stabilized Rent Portfolio Fixed Rate Reset/Maturity Schedule

Calendar Period

The Company continues to actively manage its Multifamily and Commercial Real Estate portfolios which resulted in a reduction in the commercial real estate concentration ratio to 360% of capital at December 31, 2025 from 385% at December 31, 2024.

The Company will selectively explore Commercial Real Estate opportunities with an emphasis on relationship based Commercial Real Estate lending.

A significant portion of the Bank’s commercial real estate portfolio consists of loans secured by Multifamily and CRE-Investor owned real estate that are predominantly subject to fixed interest rates for an initial period of 5 years.

The Bank’s exposure to Land/Construction loans as of December 31, 2025 is not significant at $11.1 million, all at floating interest rates.

As shown below, as of December 31, 2025, 25% of the loan balances in these combined portfolios will either have a rate reset or mature in 2026, with another 56% with rate resets or maturing in 2027.

Multifamily Market Rent Portfolio Fixed Rate Reset/Maturity Schedule

Multifamily Stabilized Rent Portfolio Fixed Rate Reset/Maturity Schedule

Calendar Period (Loan Data as of 12/31/2025)

Total O/S ($000's omitted)

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Avg Interest Rate

Calendar Period

Calendar Period (Loan Data as of 12/31/2025)

Total O/S ($000's omitted)

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CRE Investor Portfolio Fixed Rate Reset/Maturity Schedule

Calendar Period

Calendar Period (Loan Data as of 12/31/2025)

Total O/S ($000's omitted)

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Total CRE-Inv.

Rental breakdown of Multi-Family portfolio

The table below segments our portfolio of loans secured by Multi-Family properties based on rental terms and location.

As shown below, 63% of the combined portfolio is secured by properties subject to free market rental terms, which is the dominant tenant type.

Stabilized Multifamily Pro Forma Stress Results

The table below reflects a proforma stressed evaluation of the Bank’s Multifamily stabilized loan portfolio as of December 31, 2025, using the primary assumption for a revised Debt Service Coverage Ratio (“DSCR”) calculation, for all loans where the current interest rate is below 6%.

The current balance for these loans is recast at 5.75% (despite lower current market rates) with a 30-year amortization.

The chart below reflects the impact of these adjustments on the portfolio.

The projected loan to value (“LTV”) assumption resets all loans using a 6% cap rate (despite lower current cap rates) and the last reported property net operating income (“NOI”) to determine an implied property valuation and based on the current loan balance the resultant LTV.

Multifamily Stabilized Rent Portfolio (Loan Data as of 12/31/2025)

Total O/S ($000's omitted)

% of Total MF Portfolio

Current Weighted Average LTV

Projected Weighted Average LTV

As reflected above, the results show approximately 3%, or 9 loans totaling $14 million of the total multifamily portfolio would have proforma DSCR’s less than 1x while maintaining projected weighted average LTV’s under 100%.

Approximately 97% or 89 loans totaling $179 million would possess DSCR’s greater than 1x while maintaining a projected weighted average LTV well within our policy guidelines.

Additionally, 74% of the stabilized loans and 73% of the entire multifamily portfolio are further secured with personal guarantees from the borrowers.

Based on the maturities and rate resets in the previous 12 months, we believe the overall demand for multifamily housing in our market will allow our borrowers to address any adverse impact proactively.

Of the previous 12 months maturities and rate resets, 22% of the loan pool successfully refinanced with other institutions and the balance remained with the Bank.

Rental breakdown of Multifamily portfolio

The table below segments our portfolio of loans secured by Multifamily properties based on rental terms and location as of December 31 2025.

As shown below, as of December 31, 2025, 64% of the combined portfolio is secured by properties subject to free market rental terms, which is the dominant tenant type.

Both the Market Rent and Stabilized Rent segments of our portfolio present very similar average borrower profiles.

The portfolio is primarily located in the New York City boroughs of Brooklyn, the Bronx and Queens.

Multi-Family Loan Portfolio - Loans by Rent Type

Multifamily Loan Portfolio - Loans by Rent Type (Loan Data as of 12/31/2025)

Outstanding Loan Balance

% of Total Multi-Family

% of Total Multifamily

Avg Loan Size

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Office Property Exposure

The Bank’s exposure to the Office market is minor at $49 million.

This portfolio has a 2.27x weighted average DSCR, a 54% weighted average LTV and less than $400,000 of exposure in Manhattan.

The Bank’s exposure to the Office market is not significant.

Loans secured by office space accounted for 2.48% of the total loan portfolio as of December 31, 2025, with a total balance of $49.6 million, of which less than 1% is located in Manhattan.

At December 31, 2025, this portfolio has a 2.30x weighted average DSCR, a 52% weighted average LTV and less than $350,000 of exposure in Manhattan.

Asset Quality

Nonperforming Assets

In the fourth quarter of 2025, the Company initiated a strategic credit cleanup and removed $9.6 million of non-performing loans (“NPLs”) from the balance sheet.

Through proactive and focused NPL resolution, we have improved our credit risk profile with a combination of charge-offs and loan sales.

The following table presents information regarding nonperforming assets for the periods presented.

The Company did not own any repossessed property for the periods presented.

Balance at December 31,

September 30,

(dollars in thousands)

Nonaccrual loans

Loans greater than 90 days past due

Total nonperforming loans/assets

Nonperforming loans as a percentage of loans held-for- investment

Non-performing assets as a percentage of total assets

Allowance for credit losses as a percentage of nonperforming loans

Other real estate owned

Total nonperforming assets

Total nonaccrual loans as a percentage of loans held-for- investment

Total non-performing loans as a percentage of loans held-for- investment

Total non-performing loans as a percentage of total assets

Total non-performing assets as a percentage of total assets

Allowance for credit losses as a percentage of non-performing loans

Total nonaccrual loans were $21.6 million at December 31, 2025, an increase from total nonaccrual loans of $16.4 million at December 31, 2024.

The Bank had one other real estate owned property at December 31, 2025 with a $650 thousand carrying value.

There were no properties in OREO at December 31, 2024.

Reserve for Unfunded Commitments

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Allowance for Credit Losses

The allowance for credit losses was $22.8 million at December 31, 2024, an increase of $3.1 million from $19.7 million at December 31, 2023.

The ratio of the allowance for credit losses to total portfolio loans was 1.15% at December 31, 2024, inclusive of a $3.2 million allowance on individually analyzed loans, versus 1.00% at December 31, 2023, which does not include the aforementioned allowance for individually analyzed loans.

The Company experienced $1.6 million in net charge-offs both for calendar 2024 and fiscal 2023.

The Company has recorded recoveries of $18 thousand and $103 thousand for calendar 2024 and fiscal 2023, respectively.

The allowance for credit losses was $18.7 million at December 31, 2025, a decrease of $4.1 million from $22.8 million at December 31, 2024.

The ratio of the allowance for credit losses to total loans (excluding loans held for sale) was 0.93% at December 31, 2025, inclusive of a $2.1 million allowance on individually analyzed loans, versus 1.15% at December 31, 2024, inclusive of a $3.2 million allowance on individually analyzed loans.

In the fourth quarter of 2025, the Company initiated a strategic credit cleanup and recorded net charge-offs of $9.6 million.

The $9.6 million consisted of a $4.0 million partial charge-off on a C&I loan that had deteriorated to non-performing status during the quarter.

This loan is to a borrower whose business has been negatively impacted by tariffs and other economic challenges.

In conjunction with the charge-off, a $1.0 million specific reserve has been established for this loan.

The remaining $5.6 million was comprised of full and partial charge-offs on non-performing loans which had previously established specific reserves of $3.6 million.

Of the $5.6 million charge-off, $709 thousand related to the sale of $5.0 million of one- to four-family residential non-performing loans.

The Company experienced $14.2 million in net charge-offs during the year ended December 31, 2025, an increase of $12.6 million compared to net charge-offs of $1.6 million during the year ended December 31, 2024.

The Company has recorded recoveries of $34 thousand and $18 thousand during the years ended December 31, 2025 and 2024, respectively.

The following table presents the allocation of the allowance for credit losses by loan category for the periods presented:

At December 31,

At September 30,

(dollars in thousands)

4 unchanged sentences

The following table presents information related activity in the allowance for credit losses for the periods presented:

Three Months Ended

(transition period)

September 30,

Year Ended December 31,

(dollars in thousands)

Beginning balance

Impact of adopting ASC 326

Provision for credit losses

5 unchanged sentences

Total recoveries

Total net (charge-offs) recoveries

Total net charge-offs

Ending balance

Allowance for credit losses to total loans held-for- investment

Net (charge-offs) recoveries to average loans held-for-investment

Net charge-offs to average loans held-for-investment

Sources of Funds and Liquidity

1 unchanged sentence

These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, funding new and existing loan commitments and the ability to take advantage of business opportunities as they arise.

Asset liquidity is provided by short-term investments, such as fed funds sold, the marketability of securities available-for-sale and interest-bearing deposits due from the Federal Reserve Bank of New York, Federal Home Loan Bank (the “FHLB”) and correspondent banks, which totaled $246.6 million and $238.6 million at December 31, 2024 and 2023, respectively.

Asset liquidity is provided by short-term investments, such as fed funds sold, the marketability of securities available-for-sale and interest-bearing deposits due from the Federal Reserve Bank of New York, FHLB and correspondent banks, which totaled $308.5 million and $246.6 million at December 31, 2025 and 2024, respectively.

These liquid assets may include assets that have been pledged primarily against municipal deposits or borrowings.

23 unchanged sentences

Year Ended December 31,

Three Months Ended December 31,

Fiscal Year Ended September 30,

2023 (transition period)

(dollars in thousands)

2 unchanged sentences

Total average deposits

The Company had municipal deposits of $509.3 million at December 31, 2024, which comprised 26.1% of total deposits, a decrease of $18.8 million or 3.6% from $528.1 million at December 31, 2023.

Our sources of wholesale funding included brokered certificates of deposit, listing service certificates of deposit and insured cash sweep (“ICS”) reciprocal deposits in excess of 20% of total liabilities, which balances totaled approximately $85.0 million, $2.7 million and $5.5 million, or 4.4%, 0.1% and 0.3% of total deposits, respectively, at December 31, 2024.

The Company had municipal deposits of $700.7 million at December 31, 2025, which comprised 34.5% of total deposits, an increase of $191.4 million or 37.6% from $509.3 million at December 31, 2024.

Our sources of wholesale funding included brokered certificates of deposit, listing service certificates of deposit and insured cash sweep (“ICS”) reciprocal deposits in excess of 20% of total liabilities, which balances totaled approximately $110.0 million, $1.0 million and $0, or 5.4%, 0.0% and 0.0% of total deposits, respectively, at December 31, 2025.

We utilized brokered certificates of deposit and listing service certificates of deposit as alternatives to other forms of wholesale funding, including borrowings, when interest rates and market conditions favor the use of such deposits.

For a portion of our brokered certificates of deposit, we utilized interest rate swap contracts to effectively extend their duration and to fix their cost.

As of December 31, 2024 and 2023, we held $106.4 million and $107.3 million, respectively, of time deposits that meet or exceed the FDIC insurance limit.

The following table sets forth the maturity of time deposits that meet or exceed the FDIC insurance limit of as of December 31, 2024:

As of December 31, 2025 and 2024, we held $108.2 million and $106.4 million, respectively, of time deposits of more than $250,000.

The following table sets forth the maturity of these time deposits as of December 31, 2025:

(in thousands)

4 unchanged sentences

See Note 6, “Deposits” to the accompanying Consolidated Financial Statements contained in Item 8 for additional details.

The total carrying value of our borrowings was $132.5 million at December 31, 2024, a decrease of $21.1 million from $153.6 million at December 31, 2023.

The Company added $100.7 million of extended duration FHLB term advances in March 2023 to provide additional liquidity and enhance the interest rate sensitivity profile.

The total carrying value of our borrowings was $125.5 million at December 31, 2025, a decrease of $7.0 million from $132.5 million at December 31, 2024, due to the payoff of two FHLB advances that matured in 2025.

At December 31, 2025, $40.5 million of these borrowings were classified as short-term, while the remaining was classified as long-term.

Short-term borrowings are comprised of short-term FHLB advances.

Short-term borrowings are comprised of short-term FHLB advances due within 12 months.

Long-term funding is comprised of long-term FHLB advances and subordinated debentures.

1 unchanged sentence

See Note 7, “Borrowings” and Note 8, “Subordinated Debentures” to the accompanying Consolidated Financial Statements contained in Item 8 for additional details.

In October 2020, the Company completed the private placement of $25.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due in 2030.

The Notes bear interest, payable semi-annually, at the rate of 5.00% per annum, until October 15, 2025.

From and including October 15, 2025 through maturity, the interest rate applicable to the outstanding principal amount due will reset quarterly to the then current three-month SOFR plus 487.4 basis points.

The Company may, at its option, beginning with the interest payment date of October 15, 2025, but not generally prior thereto, and on any scheduled interest payment date thereafter, redeem the Notes, in whole or in part, subject to the receipt of any required regulatory approval.

The Notes are not subject to redemption at the option of the holder.

In October 2020, the Company issued $25 million of 10-year fixed-to-floating rate subordinated notes with a coupon rate of 5.00% fixed for the first five years.

The Notes may now be redeemed by the Company and have a stated maturity of October 15, 2030, and bear interest until the maturity date or early redemption date at a variable rate equal to the then benchmark rate, which is a Three-Month Term Secured Overnight Financing Rate (SOFR) plus 487.4 basis points.

As of December 31, 2025, the variable interest rate was 8.76%.

The Company used a portion of the net proceeds to pay off an existing holding company note in October 2020 and used the remainder of the net proceeds for acquisition financing and general corporate purposes, including contributing equity capital to the Bank.

At December 31, 2025, the Bank had a total borrowing capacity of $814.3 million at the FHLB, of which $704.5 million was used to collateralize municipal deposits and $100.7 million was utilized for term advances.

At December 31, 2024, the Bank had a $247.2 million collateralized line of credit from the Federal Reserve Bank of New York’s discount window with no outstanding borrowings.

At December 31, 2025, the Bank had a $97.3 million collateralized line of credit from the Federal Reserve Bank of New York discount window with no outstanding borrowings.

At December 31, 2025, the Bank had access to approximately $92 million in unsecured lines of credit extended by correspondent banks, if needed, for short-term funding purposes.

19 unchanged sentences

Commercial letters of credit are used primarily to facilitate trade or commerce and are also issued to support public and private borrowing arrangements, bond financings and similar transactions.

Collateral may be

required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer.

Collateral may be required to support letters of credit based upon management’s evaluation of the creditworthiness of each customer.

The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

At December 31, 2024 and 2023, letters of credit outstanding were approximately $0.8 million and $3.9 million, respectively.

At December 31, 2025 and 2024, letters of credit outstanding were both approximately $0.8 million.

Capital Resources

11 unchanged sentences

A summary of the Bank’s regulatory capital amounts and ratios are presented below:

September 30,

(dollars in thousands)

7 unchanged sentences

Under a policy of the Federal Reserve applicable to bank holding companies with less than $3.0 billion in consolidated assets, the Company is not subject to consolidated regulatory capital requirements.

On October 5, 2023, the Company announced that the Board of Directors approved a stock repurchase program.

On October 5, 2023, the Company announced that the Board of Directors approved a share repurchase program.

Under the repurchase program, the Company may repurchase up to 366,050 shares of its common stock, or approximately 5% of its then outstanding shares.

The timing and amount of purchases will be dictated by a number of factors.

The repurchase program permits shares to be repurchased in the open market as conditions allow, or in privately negotiated transactions, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission.

The Company has not made any stock repurchases under the program.

The remaining buyback authority under the share repurchase program therefore remained at 366,050 shares as of March 14, 2025, the filing date of this Annual Report on Form 10-K.

During the year ended December 31, 2025, the Company repurchased 81,975 shares of its common stock at an aggregate cost of $1.8 million.

As of December 31, 2025, 284,075 shares remained available for repurchase under the Company’s share repurchase program.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis