Item 7. Management’s Discussion and Analysis
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
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. Unless the context otherwise specifies or requires, references herein to “we” or “us” include Hanover Bancorp, Inc. and Hanover Bank on a consolidated basis.
Business Overview
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, 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, 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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Critical Accounting Policies and Estimates
We prepare our consolidated financial statements in conformity with GAAP. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amount of revenues and expenses during the reporting period. Actual results could differ significantly from those estimates. Our significant accounting policies and effects of new accounting pronouncements are discussed in detail in Note 1, “Summary of Significant Accounting Policies” to the accompanying Consolidated Financial Statements contained in Item 8. Material estimates that are particularly susceptible to significant changes relate to the determination of the allowance for credit losses and goodwill.
Allowance for Credit Losses
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. When management is reasonably certain that a loan balance is not fully collectable, an analysis is completed and an allowance may be established or a full or partial charge-off could be recorded against the allowance. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance via a quantitative analysis which considers available information from internal and external sources related to past loan loss and prepayment experience and current conditions, as well as the incorporation of reasonable and supportable forecasts. Management evaluates a variety of factors including available published economic information in arriving at its forecast. Expected credit losses are estimated over the contractual term of the loans and adjusted for expected prepayments when appropriate. Also included in the allowance for credit losses are qualitative reserves that are expected, but, in management’s assessment, may not be adequately represented in the quantitative analysis or the forecasts described above. Factors may include changes in lending policies and procedures, size and composition of the portfolio, experience and depth of lending management and the effect of external factors such as competition, legal and regulatory requirements, among others. The allowance is available for any loan that, in management’s judgment, should be charged-off. Although management uses the best information available, the level of the allowance for credit losses remains an estimate, which is subject to significant judgment and short-term change. Various regulatory agencies, as an integral part of their examination process, periodically review the Bank’s allowance for credit losses. Such agencies may require the Company to make additional provisions for credit losses based upon information available to them at the time of their examination. The Bank considers its primary lending area to be the New York metro area. A substantial portion of the Bank’s loans are secured by real estate in this area. Accordingly, the ultimate collectability of the loan portfolio is susceptible to changes in market and economic conditions in this region. Future adjustments to the provision for credit losses and allowance for credit losses may be necessary due to economic, operating, regulatory and other conditions beyond the Company’s control.
Goodwill
Goodwill represents the excess of the purchase price over the net fair value of the acquired businesses. Goodwill is not amortized, but is tested for impairment at the reporting unit level, at least annually or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred. In assessing impairment, the Company has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform an impairment test.
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The quantitative impairment analysis requires a comparison of each reporting unit’s fair value to its carrying value to identify potential impairment. Goodwill impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes, but may not be limited to, the selection of appropriate discount rates, the identification of relevant market comparables and the development of cash flow projections. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value. As of November 30, 2025, the Company elected to proceed to a quantitative calculation to compare the reporting unit's fair value with its carrying value. The results of the evaluation indicated that fair value exceeded the carrying value of the reporting unit.
Annual goodwill impairment testing was performed as of November 30 and no impairment charges were incurred. Future unfavorable conditions could result in goodwill impairment. We continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including: (1) general macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets; (2) industry and market conditions such as a deterioration in the environment in which we operate, an increased competitive environment, a decline in market-dependent multiples or metrics (in both absolute terms and relative to peers), a change in the market for our products or services, or a regulatory or political development; (3) changes in cost factors such as increases in labor, or other costs that have a negative effect on earnings and cash flows; (4) overall financial performance for both actual and expected performance; (5) Entity and reporting unit–specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; litigation; or a change in the composition or carrying amount of net assets; and (6) a sustained decrease in share price in both absolute terms and relative to peers, if applicable. 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.
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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. Our business is primarily the business of our Bank. This financial data is derived in part from, and should be read in conjunction with, our consolidated financial statements.
December 31,
(in thousands)
2025
2024
Selected Balance Sheet Data:
Securities available-for-sale, at fair value
$
99,552
$
83,755
Securities held-to-maturity
1,017
3,758
Loans
2,000,749
1,985,524
Total assets
2,383,096
2,312,110
Total deposits
2,028,387
1,954,283
Total stockholders' equity
200,266
196,638
Year Ended December 31,
(dollars in thousands)
2025
2024
Selected Operating Data:
Total interest income
$
130,479
$
133,022
Total interest expense
70,002
79,930
Net interest income
60,477
53,092
Provision for credit losses
10,382
4,940
Total non-interest income
12,843
15,339
Total non-interest expense
52,984
47,112
Income before income taxes
9,954
16,379
Income tax expense
2,466
4,033
Net income
7,488
12,346
Selected Financial Data and Other Data:
Return on average equity
3.73
%
6.45
%
Return on average assets
0.33
%
0.55
%
Yield on average interest earning assets
5.94
%
6.12
%
Cost of average interest bearing liabilities
3.88
%
4.40
%
Net interest rate spread
2.06
%
1.72
%
Net interest margin
2.75
%
2.44
%
Average equity to average assets
8.89
%
8.57
%
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Analysis of Results of Operations
Net Interest Income
Net interest income is the primary source of the Company’s revenue. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and the interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. 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 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,
2025
2024
Average
Average
Average
Average
(dollars in thousands)
Balance
Interest
Yield/Cost
Balance
Interest
Yield/Cost
Assets:
Interest-earning assets
Loans (1)(2)
$
1,987,356
$
119,688
6.02
%
$
2,005,524
$
122,970
6.13
%
Investment securities (1)
97,273
5,690
5.85
%
98,238
5,991
6.10
%
Interest-earning balances and other
111,446
5,101
4.58
%
70,238
4,061
5.78
%
Total interest-earning assets
2,196,075
130,479
5.94
%
2,174,000
133,022
6.12
%
Non interest-earning assets:
Other assets
62,236
59,028
Total assets
$
2,258,311
$
2,233,028
Liabilities and stockholders' equity:
Interest-bearing liabilities:
Savings, NOW and money market deposits
$
1,177,032
$
43,240
3.67
%
$
1,160,115
$
51,457
4.44
%
Time deposits
493,602
20,596
4.17
%
483,668
21,060
4.35
%
Total interest-bearing deposits
1,670,634
63,836
3.82
%
1,643,783
72,517
4.41
%
Borrowings
110,483
4,647
4.21
%
149,667
6,109
4.08
%
Subordinated debentures
24,714
1,519
6.15
%
24,660
1,304
5.29
%
Total interest-bearing liabilities
1,805,831
70,002
3.88
%
1,818,110
79,930
4.40
%
Non-interest bearing deposits
223,564
196,595
Other liabilities
28,240
27,000
Total liabilities
2,057,635
2,041,705
Stockholders' equity
200,676
191,323
Total liabilities and stockholders' equity
$
2,258,311
$
2,233,028
Net interest rate spread (3)
2.06
%
1.72
%
Net interest income/margin (4)
$
60,477
2.75
%
$
53,092
2.44
%
(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.
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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,
2025 vs. 2024
Increase (decrease) due to change in:
(in thousands)
Volume
Rate
Total
Interest income
Loans
$
(1,107)
$
(2,175)
$
(3,282)
Investment securities
(58)
(243)
(301)
Interest-earning balances and other
1,806
(766)
1,040
Total interest income
641
(3,184)
(2,543)
Interest expense
Savings, NOW and money market deposits
740
(8,957)
(8,217)
Time deposits
427
(891)
(464)
Borrowings
(1,643)
181
(1,462)
Subordinated debentures
—
215
215
Total interest expense
(476)
(9,452)
(9,928)
Net increase in net interest income
$
1,117
$
6,268
$
7,385
Provision for Credit Losses
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
Year Ended December 31,
(in thousands)
2025
2024
Loan servicing and fee income
$
4,270
$
3,690
Service charges on deposit accounts
750
469
Net gain on sale of loans held for sale
7,345
10,940
Net gain on sale of securities available-for-sale
215
31
Other income
263
209
Total non-interest income
$
12,843
$
15,339
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.
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Non-Interest Expense
Year Ended December 31,
(in thousands)
2025
2024
Salaries and employee benefits
$
27,886
$
25,600
Occupancy and equipment
7,742
7,222
Data processing
1,753
2,096
Professional fees
3,149
3,079
Federal deposit insurance premiums
1,388
1,418
Conversion expenses
3,180
—
Other expenses
7,886
7,697
Total non-interest expense
$
52,984
$
47,112
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 Taxes
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
Investment Securities
Our investment securities portfolio, which is structured with minimum credit exposure, is intended to provide us with adequate liquidity, flexibility in asset/liability management, and a source of stable income. Investment securities classified as available-for-sale are carried at fair value in the consolidated statements of financial condition, while investment securities classified as held-to-maturity are shown at amortized cost in the consolidated statements of financial condition.
The following table summarizes the amortized cost and fair value of investment securities:
Balance at December 31,
2025
2024
(in thousands)
Amortized Cost
Fair Value
Amortized Cost
Fair Value
Investment securities available-for-sale:
U.S. Treasury securities
$
4,495
$
4,495
$
19,995
$
20,000
U.S. GSE residential mortgage-backed securities
18,055
18,143
11,016
10,645
U.S. GSE residential collateralized mortgage obligations
11,691
11,757
—
—
U.S. GSE commercial mortgage-backed securities
2,583
2,532
1,520
1,503
Collateralized loan obligations
32,758
32,664
32,271
32,477
Corporate bonds
30,250
29,961
20,282
19,130
Total investment securities available-for- sale
99,832
99,552
85,084
83,755
Investment securities held-to-maturity:
U.S. GSE residential mortgage-backed securities
1,017
976
1,259
1,178
U.S. GSE commercial mortgage-backed securities
—
—
2,499
2,431
Total investment securities held-to-maturity
1,017
976
3,758
3,609
Total investment securities
$
100,849
$
100,528
$
88,842
$
87,364
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We continually evaluate our investment securities portfolio in response to established asset/liability management objectives, changing market conditions that could affect profitability, and the level of interest rate risk to which we are exposed. These evaluations may cause us to change the level of funds we deploy into investment securities, change the composition of our investment securities portfolio, and change the proportion of investments made into the available-for-sale and held-to-maturity investment categories.
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 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. We do not have the intent to sell these investment securities with unrealized losses and, more likely than not, will not be required to sell these investment securities before fair value recovers to amortized cost.
The tables below illustrate the maturity distribution and weighted average yield and amortized cost of our investment securities as of December 31, 2025 and 2024, on a contractual maturity basis.
Investment Securities Portfolio by Expected Maturities (1)
Balance at December 31, 2025
Available-for-Sale
Held-to-Maturity
Amortized
Weighted
Amortized
Weighted
(dollars in thousands)
Cost
Average Yield
Cost
Average Yield
U.S. GSE residential mortgage-backed securities
Due after five years through ten years
$
—
—
%
$
1,017
2.45
%
Due after ten years
18,055
4.92
%
—
—
%
18,055
4.92
%
1,017
2.45
%
U.S. GSE residential collateralized mortgage obligations
Due after ten years
11,691
5.33
%
—
—
%
11,691
5.33
%
—
—
%
U.S. GSE commercial mortgage-backed securities
Due after ten years
2,583
4.61
%
—
—
%
2,583
4.61
%
—
—
%
U.S. Treasury securities
Due in one year or less
4,495
3.55
%
—
—
%
4,495
3.55
%
—
—
%
Collateralized loan obligations
Due after five years through ten years
4,993
5.45
%
—
—
%
Due after ten years
27,765
5.52
%
—
—
%
32,758
5.51
%
—
—
%
Corporate bonds
Due after one year through five years
2,000
8.06
%
—
—
%
Due after five years through ten years
26,750
6.43
%
—
—
%
Due after ten years
1,500
7.00
%
—
—
%
30,250
6.57
%
—
—
%
Total investment securities
$
99,832
5.59
%
$
1,017
2.45
%
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Balance at December 31, 2024
Available-for-Sale
Held-to-Maturity
Amortized
Weighted
Amortized
Weighted
(dollars in thousands)
Cost
Average Yield
Cost
Average Yield
U.S. GSE residential mortgage-backed securities
Due after five years through ten years
$
—
—
%
$
885
2.32
%
Due after ten years
11,016
4.51
%
374
2.66
%
11,016
4.51
%
1,259
2.42
%
U.S. GSE commercial mortgage-backed securities
Due after one year through five years
—
—
%
2,499
2.68
%
Due after five years through ten years
1,520
4.62
%
—
—
%
1,520
4.62
%
2,499
2.68
%
U.S. Treasury securities
Due in one year or less
19,995
4.37
%
—
—
%
19,995
4.37
%
—
—
%
Collateralized loan obligations
Due after five years through ten years
27,284
6.12
%
—
—
%
Due after ten years
4,987
6.10
%
—
—
%
32,271
6.12
%
—
—
%
Corporate bonds
Due after one year through five years
1,000
8.75
%
—
—
%
Due after five years through ten years
19,282
5.90
%
—
—
%
20,282
6.04
%
—
—
%
Total investment securities
$
85,084
5.45
%
$
3,758
2.59
%
(1) There is no income tax exempt interest recorded for investment securities for the periods presented.
Loans
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.
The following table provides the composition of the Company’s loan portfolio by type at the dates indicated:
At December 31,
2025
2024
Amount
Percent
Amount
Percent
(Dollars in thousands)
Real estate:
Residential
$
776,995
38.84
%
$
729,254
36.73
%
Multifamily
541,083
27.04
%
550,570
27.73
%
Commercial
525,569
26.27
%
546,257
27.51
%
Total real estate
1,843,647
92.15
%
1,826,081
91.97
%
Commercial and industrial
145,591
7.28
%
145,457
7.33
%
Construction
11,081
0.55
%
13,483
0.68
%
Consumer
430
0.02
%
503
0.02
%
Total loans
2,000,749
100.00
%
1,985,524
100.00
%
Allowance for credit losses
18,694
22,779
Total loans, net
$
1,982,055
$
1,962,745
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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. Demand loans, loans having no stated repayment schedule or maturity, and overdraft loans are reported as being due in one year or less. Adjustable rate loans are included in the period which their interest rates are next scheduled to adjust. The table does not reflect the impact of prepayments and scheduled principal amortization.
Commercial
Commercial
and
Time to Reprice/Mature
Residential
Multifamily
Real Estate
Industrial
Construction
Consumer
Total
(in thousands)
One year or less
$
245,993
$
151,144
$
200,210
$
119,057
$
6,062
$
—
$
722,466
More than one year to five years
416,418
376,539
313,569
20,194
5,019
24
1,131,763
More than five years to fifteen years
41,592
13,400
9,586
5,000
—
406
69,984
After fifteen years
72,992
—
2,204
1,340
—
—
76,536
Total
$
776,995
$
541,083
$
525,569
$
145,591
$
11,081
$
430
$
2,000,749
The following table presents the Company’s loans held for investment as of December 31, 2025 with maturity or next repricing due after December 31, 2026 according to rate type and loan category:
Due After December 31, 2026
(in thousands)
Fixed
Adjustable
Total
Real estate:
Residential
$
119,579
$
411,423
$
531,002
Multifamily
29,676
360,263
389,939
Commercial
45,128
280,231
325,359
Total real estate
194,383
1,051,917
1,246,300
Commercial and industrial
21,446
5,088
26,534
Construction
5,019
—
5,019
Consumer
430
—
430
Total loans
$
221,278
$
1,057,005
$
1,278,283
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Commercial Real Estate Statistics
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)
# Loans
Total O/S ($000's omitted)
Avg O/S ($000's omitted)
Avg Interest Rate
Calendar Period (Loan Data as of 12/31/2025)
# Loans
Total O/S ($000's omitted)
Avg O/S ($000's omitted)
Avg Interest Rate
2026
36
$
107,538
$
2,987
3.73
%
2026
21
$
42,814
$
2,039
3.84
%
2027
69
181,095
2,625
4.42
%
2027
51
121,488
2,382
4.22
%
2028
15
20,711
1,381
6.14
%
2028
12
10,015
835
7.07
%
2029
6
4,849
808
7.70
%
2029
4
4,272
1,068
6.38
%
2030
8
20,268
2,534
6.19
%
2030
7
13,617
1,945
6.32
%
2031+
4
13,173
3,293
4.21
%
2031+
2
226
113
5.50
%
Fixed Rate
138
347,634
2,519
4.45
%
Fixed Rate
97
192,432
1,984
4.48
%
Floating Rate
2
568
284
9.07
%
Floating Rate
1
449
449
9.00
%
Total
140
$
348,202
$
2,487
4.45
%
Total
98
$
192,881
$
1,968
4.49
%
CRE Investor Portfolio Fixed Rate Reset/Maturity Schedule
Calendar Period (Loan Data as of 12/31/2025)
# Loans
Total O/S ($000's omitted)
Avg O/S ($000's omitted)
Avg Interest Rate
2026
40
$
54,861
$
1,372
5.73
%
2027
85
148,887
1,752
4.95
%
2028
28
30,444
1,087
6.65
%
2029
5
5,931
1,186
6.70
%
2030
14
13,511
965
6.98
%
2031+
9
2,910
323
5.50
%
Fixed Rate
181
256,544
1,417
5.47
%
Floating Rate
9
9,575
1,064
8.68
%
Total CRE-Inv.
190
$
266,119
$
1,401
5.59
%
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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)
DSCR Range
# Loans
Total O/S ($000's omitted)
% of Total MF Portfolio
Current Weighted Average LTV
Projected Weighted Average LTV
< 1.0
9
$
13,877
3
%
60
%
97
%
1.0 < x <1.2
13
35,520
7
%
65
%
75
%
1.2 < x <1.3
17
43,107
8
%
63
%
70
%
1.3 < x <1.5
24
57,106
10
%
63
%
61
%
1.5 < x <2.0
21
34,380
6
%
58
%
56
%
x > 2.0
14
8,891
2
%
44
%
36
%
Total
98
$
192,881
36
%
61
%
66
%
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.
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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.
Multifamily Loan Portfolio - Loans by Rent Type (Loan Data as of 12/31/2025)
Rent Type
# Notes
Outstanding Loan Balance
% of Total Multifamily
Avg Loan Size
LTV
Current DSCR
Avg # of Units
($000's omitted)
($000's omitted)
Market
140
$
348,202
64
%
$
2,487
61.4
%
1.45
11
Location
Manhattan
6
$
9,792
2
%
$
1,632
50.6
%
2.13
15
Other NYC
94
$
261,184
48
%
$
2,779
61.2
%
1.42
9
Outside NYC
40
$
77,226
14
%
$
1,931
63.2
%
1.48
14
Stabilized
98
$
192,881
36
%
$
1,968
61.4
%
1.46
12
Location
Manhattan
7
$
10,329
2
%
$
1,476
47.7
%
1.71
19
Other NYC
80
$
165,540
31
%
$
2,069
62.2
%
1.43
11
Outside NYC
11
$
17,012
3
%
$
1,547
62.6
%
1.59
14
Office Property Exposure
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.
Balance at December 31,
(dollars in thousands)
2025
2024
Nonaccrual loans
$
21,604
$
16,368
Other real estate owned
650
—
Total nonperforming assets
$
22,254
$
16,368
Total nonaccrual loans as a percentage of loans held-for- investment
1.08
%
0.82
%
Total non-performing loans as a percentage of loans held-for- investment
1.08
%
0.82
%
Total non-performing loans as a percentage of total assets
0.91
%
0.71
%
Total non-performing assets as a percentage of total assets
0.93
%
0.71
%
Allowance for credit losses as a percentage of non-performing loans
86.53
%
139.17
%
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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
The Company maintains a reserve, recorded in other liabilities, associated with unfunded loan commitments accepted by borrowers. The amount of the reserve was $0.6 million at December 31, 2025 and $0.3 million at December 31, 2024. This reserve is determined based upon the outstanding volume of loan commitments at the end of each period. Any increases or reductions in this reserve are recognized in the provision for credit losses.
Allowance for Credit Losses
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,
2025
2024
% of
% of
Total
Total
(dollars in thousands)
Amount
Loans
Amount
Loans
Residential real estate
$
5,035
0.65
%
$
6,236
0.86
%
Multifamily
3,387
0.63
%
5,284
0.96
%
Commercial real estate
5,123
0.97
%
5,605
1.03
%
Commercial and industrial
4,912
3.37
%
5,447
3.74
%
Construction
215
1.94
%
180
1.34
%
Consumer
22
5.12
%
27
5.37
%
Total allowance for credit losses
$
18,694
0.93
%
$
22,779
1.15
%
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The following table presents information related activity in the allowance for credit losses for the periods presented:
Year Ended December 31,
(dollars in thousands)
2025
2024
Beginning balance
$
22,779
$
19,658
Provision for credit losses
10,070
4,750
Charge-Offs:
Residential real estate
(709)
(280)
Multifamily
(33)
(765)
Commercial real estate
(1,609)
(30)
Commercial and industrial
(11,838)
(572)
Construction
—
—
Consumer
—
—
Total loan charge-offs
(14,189)
(1,647)
Recoveries:
Commercial and industrial
34
18
Total recoveries
34
18
Total net charge-offs
(14,155)
(1,629)
Ending balance
$
18,694
$
22,779
Allowance for credit losses to total loans held-for- investment
0.93
%
1.15
%
Net charge-offs to average loans held-for-investment
(0.71)
%
(0.08)
%
Sources of Funds and Liquidity
Liquidity management is defined as the ability of the Company and the Bank to meet their financial obligations on a continuous basis without material loss or disruption of normal operations. 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, 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. Liquidity is also provided by the maintenance of a base of core deposits, cash and non-interest-bearing deposits due from banks, the ability to sell or pledge marketable assets and access to lines of credit.
Liquidity is continuously monitored, thereby allowing management to better understand and react to emerging balance sheet trends, including temporary mismatches with regard to sources and uses of funds. After assessing actual and projected cash flow needs, management seeks to obtain funding at the most economical cost. These funds can be obtained by converting liquid assets to cash or by attracting new deposits or other sources of funding. Many factors affect the Company’s ability to meet liquidity needs, including variations in the markets served, loan demand, its asset/liability mix, its reputation and credit standing in its markets and general economic conditions. Borrowings and the scheduled amortization of investment securities and loans are more predictable funding sources. Deposit flows and securities prepayments are somewhat less predictable as they are often subject to external factors. Among these are changes in the local and national economies, competition from other financial institutions and changes in market interest rates.
The Liquidity and Wholesale Funding Policy of the Bank establishes specific policies and operating procedures governing liquidity levels to assist management in developing plans to address future and current liquidity needs. Management monitors the rates and cash flows from the loan and investment portfolios while also examining the maturity structure and volatility characteristics of liabilities to develop an optimum asset/liability mix. Available funding sources include retail, commercial and municipal deposits, purchased liabilities and stockholders’ equity. Daily, management receives a current cash position update to ensure that all obligations are satisfied. On a weekly basis, appropriate senior management receives a current liquidity position report and a ninety day forecasted cash flow to ensure that all short-term obligations will be met and there is sufficient liquidity available.
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As of December 31, 2025, we held $304.8 million of deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit. At December 31, 2025, undrawn liquidity sources, which include cash and unencumbered securities and secured and unsecured funding capacity, totaled $776.9 million, or approximately 255% of uninsured deposit balances.
Deposits
We provide a range of deposit services, including non-interest bearing demand accounts, interest-bearing demand and savings accounts, money market accounts and time deposits. These accounts generally pay interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits. Deposits continue to be our primary funding source.
Total deposits at December 31, 2025 were $2.03 billion, an increase of $74.1 million from total deposits of $1.95 billion at December 31, 2024. Insured and collateralized deposits, which include municipal deposits, accounted for approximately 85% of total deposits at December 31, 2025. Time deposits of $501.0 million are scheduled to mature within the next 12 months. Based on historical experience, the Company expects to be able to replace a substantial portion of those maturing deposits with comparable deposit products.
The following is our average deposits and weighted-average interest rates paid thereon for the periods presented:
Year Ended December 31,
2025
2024
Average
Average
Average
Average
(dollars in thousands)
Balance
Rate
Balance
Rate
Non-interest bearing demand
$
223,564
0.00
%
$
196,595
0.00
%
Savings
44,577
2.43
%
48,749
2.21
%
NOW
692,339
3.65
%
631,267
4.56
%
Money market
440,116
3.83
%
480,099
4.49
%
Time deposits
493,602
4.17
%
483,668
4.35
%
Total average deposits
$
1,894,198
3.37
%
$
1,840,378
3.94
%
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, 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:
December 31,
(in thousands)
2025
Three months or less
$
43,886
Over three months through twelve months
61,909
Over one year through three years
2,101
Over three years
266
Total
$
108,162
See Note 6, “Deposits” to the accompanying Consolidated Financial Statements contained in Item 8 for additional details.
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Borrowings
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 due within 12 months. Long-term funding is comprised of long-term FHLB advances and subordinated debentures. The Company will prepay FHLB advances from time to time as funding needs change. 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 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, 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. No borrowings were outstanding under lines of credit with correspondent banks at December 31, 2025.
Derivatives
We utilize derivative instruments in the form of interest rate swaps to hedge our exposure to interest rate risk in conjunction with our overall asset/liability management process. In accordance with accounting requirements, we formally designate all of our hedging relationships as either fair value hedges or cash flow hedges, and document the strategy for undertaking the hedge transactions and its method of assessing ongoing effectiveness.
At December 31, 2025, our derivative instruments were comprised of interest rate swaps with a total notional amount of $125.0 million. These instruments are intended to manage the interest rate exposure relating to certain brokered certificates of deposit and certain fixed rate residential mortgages.
Additional information regarding our use of interest rate derivatives is presented in Note 1 and Note 9 to Consolidated Financial Statements contained in Item 8.
Off-Balance Sheet Arrangements
The Bank is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated financial statements. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
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Table of Contents
Commitments to extend credit are agreements to lend to customers provided there are no violations of material conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the customer. Collateral required varies, but may include accounts receivable, inventory, equipment, real estate and income-producing commercial properties. At December 31, 2025 and 2024, commitments to originate loans and commitments under unused lines of credit for which the Bank is obligated amounted to approximately $160.9 million and $130.3 million, respectively.
Letters of credit are conditional commitments guaranteeing payments of drafts in accordance with the terms of the letter of credit agreements. 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. 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, 2025 and 2024, letters of credit outstanding were both approximately $0.8 million.
Capital Resources
Total stockholders’ equity was $200.3 million at December 31, 2025, an increase of $3.7 million from stockholders’ equity of $196.6 million at December 31, 2024. The increase was primarily due to an increase of $4.5 million in retained earnings and a decrease of $0.7 million in accumulated other comprehensive loss. The increase in retained earnings was due primarily to net income of $7.5 million for the year ended December 31, 2025, which was offset by $3.0 million of dividends declared. The accumulated other comprehensive loss at December 31, 2025 was 0.34% of total equity and was comprised of a $0.2 million after tax net unrealized loss on the investment portfolio and a $0.5 million after tax net unrealized loss on derivatives.
We are subject to various regulatory capital requirements administered by the federal banking agencies. Capital adequacy guidelines and the regulatory framework for prompt corrective action prescribe specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Our capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. We use our capital primarily for our lending activities as well as acquisitions and expansions of our business and other operating requirements.
In addition to establishing the minimum regulatory requirements, the regulations limit the Bank’s ability to pay dividends to the Company and to pay certain compensation to its executives if the Bank does not hold a capital conservation buffer consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets above the amount necessary to meet its minimum risk-based capital requirements. The Bank’s capital conservation buffer was greater than 2.5% of risk-weighted assets at December 31, 2025.
The Bank capital level is characterized as "well-capitalized" under the Basel III Capital Rules. A summary of the Bank’s regulatory capital amounts and ratios are presented below:
December 31,
(dollars in thousands)
2025
2024
Total capital
$
224,239
$
220,696
Tier 1 capital
204,431
201,744
Common equity tier 1 capital
204,431
201,744
Total capital ratio
14.15
%
14.58
%
Tier 1 capital ratio
12.90
%
13.32
%
Common equity tier 1 capital ratio
12.90
%
13.32
%
Tier 1 leverage ratio
9.05
%
9.13
%
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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 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. 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.