What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-05-12 compared with 2025-11-12 · 110 added, 197 removed, 238 unchanged (56% of the section changed)

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It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith.

The detailed discussion focuses on our consolidated financial condition as of September 30, 2025 compared to the consolidated financial condition as of December 31, 2024 and the consolidated results of operations for the three and nine months ended September 30, 2025 and 2024.

The detailed discussion focuses on our consolidated financial condition as of March 31, 2026 compared to the consolidated financial condition as of December 31, 2025 and the consolidated results of operations for the three months ended March 31, 2026 and 2025.

Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits, borrowings, and other interest-bearing liabilities.

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Future changes in applicable law, regulations, or government policies may materially impact the Company.

Recent Events

On January 27, 2025, Lake Shore, MHC, the former parent mutual holding company of Lake Shore Bancorp, Inc., a federal corporation ("Lake Shore Federal Bancorp"), adopted a Plan of Conversion and Reorganization pursuant to which Lake Shore, MHC, would undertake a "second-step" conversion (the “Conversion”) and Lake Shore Savings Bank, a federally chartered savings bank, the wholly-owned subsidiary of Lake Shore Bancorp Federal, would reorganize from the two-tier mutual holding company structure to the fully-public stock holding company structure.

Completion of Second-Step Conversion

On January 27, 2025, Lake Shore, MHC, the former parent mutual holding company of Lake Shore Federal Bancorp, adopted a Plan of Conversion and Reorganization pursuant to which Lake Shore, MHC, would undertake a "second-step" conversion (the “Conversion”) and Lake Shore Savings Bank, a federally chartered savings bank, the wholly-owned subsidiary of Lake Shore Federal Bancorp, would reorganize from the two-tier mutual holding company structure to the fully-public stock holding company structure.

In addition, Lake Shore Savings Bank would convert its charter from a federal savings bank to a New York commercial bank renamed Lake Shore Bank.

Effective July 18, 2025, Lake Shore Bancorp, Inc.

(“Lake Shore Bancorp”), a new corporation incorporated under the laws of the State of Maryland, became the bank holding company of Lake Shore Bank, a New York commercial bank and its only wholly-owned subsidiary in connection with the completion of Conversion.

Effective July 18, 2025, Lake Shore Bancorp, a new corporation incorporated under the laws of the State of Maryland, became the bank holding company of Lake Shore Bank, a New York commercial bank and its only wholly-owned subsidiary in connection with the completion of Conversion.

The Conversion was consummated through the merger of Lake Shore, MHC with and into Lake Shore Federal Bancorp, followed by the merger of Lake Shore Federal Bancorp with and into Lake Shore Bancorp, which occurred on July 18, 2025.

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stock as they owned of Lake Shore Federal Bancorp's common stock immediately prior to the Conversion.

A total of 7,825,501 shares of common stock were outstanding following the completion of the stock offering.

A total of 7,825,501 shares of common stock were outstanding immediately following the completion of the stock offering.

Share and per share amounts related to periods prior to the date of Conversion (July 18, 2025) have been adjusted to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3549).

As previously disclosed on a Current Report on Form 8-K , on October 22, 2025, the Board of Directors of the Company declared a cash dividend of $0.09 per share on its outstanding common stock.

The dividend is expected to be paid on November 12, 2025 to stockholders of record as of November 3, 2025.

As previously disclosed on a Current Report on Form 8-K , on October 22, 2025, the Board of Directors of the Company adopted a plan to repurchase up to 5% of its outstanding shares of common stock, which may commence following the one-year anniversary of the Conversion, or on July 20, 2026.

Recent Events

As previously disclosed on a Current Report on Form 8-K , on April 22, 2026, the Board of Directors of the Company declared a cash dividend of $0.09 per share on its outstanding common stock.

The dividend is expected to be paid on May 13, 2026 to stockholders of record as of May 4, 2026.

Management Strategy

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In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses.

As of September 30, 2025 and December 31, 2024, the allowance for credit losses on loans totaled $4.9 million and $5.1 million, respectively.

As of March 31, 2026 and December 31, 2025, the allowance for credit losses on loans totaled $4.8 million and $4.9 million, respectively.

Due to the nature and composition of the Bank's lending activities, a significant portion of the allowance for credit losses on loans is allocated to the commercial real estate portfolio.

As of September 30, 2025 and December 31, 2024, the allowance for credit losses on loans allocated to the total commercial real estate portfolio was $3.9 million, or 80.2%, and $4.2 million, or 81.3%, respectively.

As of March 31, 2026 and December 31, 2025, the allowance for credit losses on loans allocated to the total commercial real estate portfolio was $3.7 million, or 78.0%, and $3.9 million, or 80.2%, respectively.

The Company's methodology for maintaining its allowance for credit losses is based on historical loan-level performance experience and data, peer data, current economic information, and reasonable and supportable forecasts.

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civilian unemployment, and a decrease of 100 basis points in the FOMC's projected rate of U.S.

GDP growth, this would increase the model's total calculated allowance for credit losses on loans by $297,000, or 6.1%, representing a five basis points increase in the coverage ratio of the allowance for credit losses as a percentage of loans at amortized cost, assuming all other quantitative and qualitative factors are kept at current levels, as of September 30, 2025.

This example is only one of the numerous possible economic scenarios that could be utilized in assessing the sensitivity of the allowance for credit losses and does not represent management’s assumptions or judgment of factors as of September 30, 2025.

GDP growth, this would increase the model's total calculated allowance for credit losses on loans by $382,000, or 8.0%, representing a seven basis points increase in the coverage ratio of the allowance for credit losses as a percentage of loans at amortized cost, assuming all other quantitative and qualitative factors are kept at current levels, as of March 31, 2026.

Unexpected changes in economic growth could adversely affect our results of operations, including causing increases in delinquencies and default rates on loans, which would adversely impact our charge-offs, allowance for credit losses, and provision for credit losses.

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Average Balances, Interest and Average Yields.

The following tables set forth certain information relating to our average balance sheets for each principal category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the periods indicated.

The following table sets forth certain information relating to our average balance sheets for each principal category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the periods indicated.

Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented.

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The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields.

The net amortization of deferred loan fees and costs were $112,000 and $103,000 for the three months ended September 30, 2025 and 2024, respectively.

amortization of deferred loan fees and costs were $275,000 and $369,000 for the nine months ended September 30, 2025 and 2024, respectively.

Interest income on securities does not include a tax equivalent adjustment for tax exempt securities.

The net amortization of deferred loan fees and

costs were $93,000 and $63,000 for the three months ended March 31, 2026 and 2025, respectively.

Interest income on securities does not include a tax equivalent adjustment for bank qualified municipal bonds.

For the Three Months Ended

September 30, 2025

September 30, 2024

Interest Income/

(Dollars in thousands)

Interest-earning assets:

Interest-earning deposits

Securities (1)

Loans, including fees

Total interest-earning assets

Interest-bearing liabilities

Demand & NOW accounts

Money market accounts

Savings accounts

Time deposits

Total interest-bearing deposits

Borrowed funds & other interest-bearing liabilities

Total interest-bearing liabilities

Other non-interest bearing liabilities

Stockholders' equity

Total liabilities & stockholders' equity

Net interest income

Interest rate spread

Net interest margin

(1) The tax equivalent adjustment for bank qualified tax exempt municipal securities, using a federal statutory rate of 21%, results in rates of 3.00% and 3.11% for the three months ended September 30, 2025 and 2024, respectively.

Yields above are not presented on a tax equivalent basis.

(2) Annualized.

For the Nine Months Ended

September 30, 2025

September 30, 2024

March 31, 2026

March 31, 2025

Interest Income/

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Net interest margin

(1) The tax equivalent adjustment for bank qualified tax exempt municipal securities, using a federal statutory rate of 21%, results in rates of 3.02% and 3.14% for the nine months ended September 30, 2025 and 2024, respectively.

(1) The tax equivalent adjustment for bank qualified tax exempt municipal securities, using a federal statutory rate of 21%, results in rates of 2.85% and 3.04% for the three months ended March 31, 2026 and 2025, respectively.

Yields above are not presented on a tax equivalent basis.

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Rate Volume Analysis .

The following tables analyze the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.

The tables show the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates.

The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities.

The table shows the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates.

The effect of a change in volume is measured by applying the average rate during the later period to the volume change between

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The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period.

Three Months Ended September 30, 2025

Three Months Ended September 30, 2024

(Dollars in thousands)

Interest-earning assets:

Interest-earning deposits

Loans, including fees

Total interest-earning assets

Interest-bearing liabilities:

Demand & NOW accounts

Money market accounts

Savings accounts

Time deposits

Total deposits

Other interest-bearing liabilities:

Borrowed funds & other interest-bearing liabilities

Total interest-bearing liabilities

Total change in net interest income

Nine Months Ended September 30, 2025

Nine Months Ended September 30, 2024

Three Months Ended March 31, 2026

Three Months Ended March 31, 2025

(Dollars in thousands)

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Total change in net interest income

As shown in the above tables, the increase in net interest income for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024 was primarily impacted by an increase in the average balance of interest-earning assets, a decrease in the average interest rate paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities, and an increase in the average yield of interest-earning assets.

The average balance of interest-earning assets increased by $26.9 million to $683.6 million for the three months ended September 30, 2025 as compared to $656.7 million for the three months ended September 30, 2024.

The average interest rate paid on interest-bearing liabilities decreased 27 basis points from 2.72% during the three months ended September 30, 2024 to 2.45% during the three months ended September 30, 2025.

The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended September 30, 2025 was primarily due to a 27 basis points decrease in the average interest

rate paid on deposit accounts.

As shown in the above tables, the increase in net interest income for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 was primarily impacted by a decrease in the average interest rate paid on interest-bearing liabilities, an increase in the average yield of interest-earning assets, an increase in the average balance of interest-earning assets, and a decrease in the average balance of interest bearing-liabilities.

The average interest rate paid on interest-bearing liabilities decreased 36 basis points from 2.40% during the three months ended March 31, 2025 to 2.04% during the three months ended March 31, 2026.

The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended March 31, 2026 was primarily due to a 35 basis points decrease in the average interest rate paid on interest-bearing deposit accounts.

The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates and time deposit repricing.

The average balance of interest-bearing liabilities decreased $20.8 million, from $509.8 million during the three months ended September 30, 2024 to $489.0 million during the three months ended September 30, 2025 as a result of decreases in the average balance of borrowed funds and other interest-bearing liabilities of $18.2 million and in the average balance of deposits of $2.6 million.

The average yield earned on interest-earning assets increased eight basis points from 5.39% during the three months ended September 30, 2024 to 5.47% during the three months ended September 30, 2025.

The average yield earned on interest-earning assets increased 13 basis points from 5.34% during the three months ended March 31, 2025 to 5.47% during the three months ended March 31, 2026.

The increase in the average yield of interest-earning assets was primarily due to a 29 basis points increase in the average yield on the loan portfolio when compared to the prior year period.

Net interest margin increased to 3.72% for the three months ended September 30, 2025 as compared to 3.28% for the same period of the prior year.

As shown in the above tables, the increase in net interest income for the nine months ended September 30, 2025 was primarily impacted by a decrease in the average interest rate paid on interest-bearing liabilities, an increase in the average yield of interest-earning assets, and a decrease in the average balance of interest-bearing liabilities.

This increase was partially offset by a decrease in the average balance of interest-earning assets when compared to the same period in the prior year.

The average interest rate paid on interest-bearing liabilities decreased 28 basis points from 2.70% during the nine months ended September 30, 2024 to 2.42% during the nine months ended September 30, 2025.

The decrease in the average interest rate paid on interest-bearing liabilities during the nine months ended September 30, 2025 was primarily due to a 28 basis points decrease in the average interest rate paid on deposit accounts.

The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates and time deposit repricing.

The average yield of interest-earning assets increased by 22 basis points to 5.51% for the nine months ended September 30, 2025 as compared to the same period in the prior year primarily as a result of a 33 basis points increase in the average yield of the loan portfolio.

The average balance of interest-bearing liabilities decreased $28.4 million, from $518.5 million during the nine months ended September 30, 2024 to $490.1 million during the nine months ended September 30, 2025 as a result of decreases of the average balance of borrowed funds and other interest-bearing liabilities of $21.0 million and decreases in the average balance of deposits of $7.4 million.

The average balance of interest-earning assets decreased by $11.1 million to $649.3 million for the nine months ended September 30, 2025 as compared to $660.4 million for the nine months ended September 30, 2024.

The decrease in the average balance of interest-earning assets was primarily due to an $8.9 million, or 17.7%, decrease in average interest-earning deposits when compared to the prior year period.

Net interest margin increased to 3.68% for the nine months ended September 30, 2025 as compared to 3.17% for the same period of the prior year.

Comparison of Financial Condition at September 30, 2025 and December 31, 2024

Total assets at September 30, 2025 were $742.8 million, an increase of $57.3 million, or 8.4%, as compared to $685.5 million at December 31, 2024 primarily due to increases in cash and cash equivalents and loans receivable, net.

Cash and cash equivalents increased by $50.5 million, or 152.4%, from $33.1 million at December 31, 2024 to $83.6 million at September 30, 2025.

The increase in cash and cash equivalents was primarily due to an increase in interest earning deposits of $49.9 million, or 164.1%, as the result of the second step conversion and offering that was completed during the third quarter of 2025.

Securities, at fair value, decreased by $446,000, or 0.8%, from $56.5 million at December 31, 2024 to $56.0 million at September 30, 2025, primarily due to securities paydowns of $2.3 million, partially offset by a $1.7 million increase in the market value of the securities.

Net loans receivable increased during the nine months ended September 30, 2025, as shown in the table below:

At September 30,

The average balance of interest-earning assets increased by $35.3 million to $662.2 million for the three months ended March 31, 2026 as compared to $626.9 million for the three months ended March 31, 2025.

The increase in average balance of interest-earning assets was primarily related to an increase in the average balance of interest-earning deposits as a result of funds received from the second step conversion not yet deployed.

The average balance of interest-bearing liabilities decreased $13.6 million, from $484.0 million during the three months ended March 31, 2025 to $470.5 million during the three months ended March 31, 2026 as a result of decreases in the average balance of deposits of $9.7 million and in the balance of borrowed funds and other interest-bearing liabilities of $3.9 million.

Net interest margin increased to 4.02% for the three months ended March 31, 2026 as compared to 3.49% for the same period of the prior year.

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total assets at March 31, 2026 were $722.0 million, a decrease of $5.3 million, or 0.7%, as compared to $727.3 million at December 31, 2025 primarily due to decreases in cash and cash equivalents and securities, at fair value.

Cash and cash equivalents decreased by $2.7 million, or 4.2%, from $64.3 million at December 31, 2025 to $61.6 million at March 31, 2026.

The decrease in cash and cash equivalents was primarily due to a decrease in deposits of $6.7 million, or 1.2%, partially offset by a decrease in loans receivable of $1.6 million, or 0.3%.

Securities, at fair value, decreased by $2.0 million, or 3.5%, from $56.1 million at December 31, 2025 to $54.2 million at March 31, 2026, primarily due to securities paydowns of $1.1 million and an $872,000 decrease in the market value of the securities.

Net loans receivable decreased during the three months ended March 31, 2026, as shown in the table below:

At December 31,

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Loans receivable, net

(1) There were no one- to four- family construction loans as of September 30, 2025 or December 31, 2024.

(1) There were no one- to four- family construction loans as of March 31, 2026 or December 31, 2025.

(2) Includes commercial construction loans.

The loans receivable, net balance increased $8.0 million, or 1.5%, from $544.6 million at December 31, 2024 to $552.6 million at September 30, 2025.

The increase was primarily due to increases in consumer loans and commercial real estate loans, partially offset by a decrease in residential, one- to four-family real estate loans.

During the nine months ended September 30, 2025, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.

Net loans receivable decreased $1.6 million, or 0.3%, from $555.4 million at December 31, 2025 to $553.9 million at March 31, 2026.

The decrease was primarily due to decreases in residential, one- to four-family real estate loans, home equity loans, and consumer loans, partially offset by increases in commercial real estate loans and commercial loans.

During the three months ended March 31, 2026, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.

Asset Quality .

The following tables set forth activity in our allowance for credit losses on loans and other ratios at or for the dates indicated:

At or For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

Balance at beginning of period

Balance at beginning of year

Credit to provision for credit losses

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Balance at end of period

At September 30,

At December 31,

Average loans outstanding, including fees

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Allowance for credit losses as a percent of non-performing loans at amortized cost

When compared to December 31, 2024, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $263 thousand, or 5.13%, which was comprised of a decrease of $354 thousand due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $91 thousand related to an increase in loan balance.

When compared to December 31, 2025, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $85,000, or 1.74%, which was comprised of a decrease of $92,000 due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $7,000 related to an increase in loan balance for the commercial real estate and commercial loan pools.

Such allowance for credit losses was calculated utilizing a discounted cash flow model as further described in Part I Item 1 - Note 1 - Basis of Presentation and Significant Accounting Policies and Estimates.

For the Nine Months Ended September 30,

Ratio of net recoveries (charge-offs) to average loans outstanding by loan type, annualized:

For the Three Months Ended March 31,

Ratio of net charge-offs to average loans outstanding by loan type, annualized:

Real estate loans:

Residential, one- to four-family

Ratio of net recoveries to average loans outstanding

For the nine months ended September 30, 2025, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.20)% from (2.81)% for the prior year period.

This improvement was primarily driven by an increase in average consumer loans outstanding of $8.6 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024.

At September 30,

Ratio of net charge-offs to average loans outstanding

For the three months ended March 31, 2026, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.06)% from (0.13)% for the prior year period.

This improvement was primarily driven by an increase in average consumer loans outstanding of $10.8 million for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025.

At December 31,

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Non-performing assets as a percent of total assets

(1) There were no one- to four-family construction loans at March 31, 2026 or December 31, 2025.

(2) Includes commercial construction loans.

Total non-performing assets decreased by $2.0 million, or 51.8%, to $1.8 million at September 30, 2025 from $3.8 million at December 31, 2024, due to a decrease in non-accrual loans of $2.0 million.

Contributing to this decrease was one commercial relationship representing two loans with a total amortized cost of $1.2 million being sold at foreclosure and one nonaccrual home equity loan with an amortized cost of $545,000 being paid in full during the second quarter of 2025.

The Company had no loans past due 90 days or more but still accruing at September 30, 2025 or December 31, 2024.

Other assets decreased $490,000, or 4.6%, to $10.2 million at September 30, 2025 from $10.7 million at December 31, 2024 as a result of normal operations.

The table below shows changes in deposit balances by type of deposit account between September 30, 2025 and December 31, 2024:

At September 30,

Total non-performing assets decreased by $95,000, or 5.7%, to $1.6 million at March 31, 2026 from $1.7 million at December 31, 2025, due to a decrease in non-accrual loans of $95,000.

The Company had no loans past due 90 days or more but still accruing at March 31, 2026 or December 31, 2025.

Other assets increased $774,000, or 8.4%, to $10.0 million at March 31, 2026 from $9.2 million at December 31, 2025 as a result of normal operations.

The table below shows changes in deposit balances by type of deposit account between March 31, 2026 and December 31, 2025:

At December 31,

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Total deposits

The increase in total deposits was primarily due to the 13.9% increase in money market accounts, a 3.4% increase in time deposits less than or equal to $250,000, and a 4.7% increase in interest bearing transaction accounts.

These increases were partially offset by a 7.6% decrease in non-interest bearing transaction accounts, a 4.9% decrease in savings accounts and a 6.8% decrease in time deposits greater than $250,000.

The increase in core time deposits and money market deposits was primarily due to an increase in customer demand for these types of deposit products as the result of the competitive interest rate environment.

The decrease in total deposits was primarily due to a 4.6% decrease in money market accounts, a 5.3% decrease in non-interest bearing deposit accounts, and a 0.6% decrease in savings accounts, as a result of changes to customer demand for these types of deposit products.

These decreases were partially offset by a 4.6% increase in interest bearing transaction accounts, a 1.5% increase in time deposits less than or equal to $250,000, and a 2.2% increase in time deposits greater than $250,000.

The increase in interest bearing core deposits, core time deposits and time deposits greater than $250,000 was

primarily due to an increase in customer demand for these types of deposit products as the result of the competitive interest rate environment.

Our strategic focus remains centered on organic growth of deposits among our retail and commercial customers to reduce our reliance on wholesale funding and to strengthen customer relationships.

At September 30, 2025 and December 31, 2024, our percentage of uninsured deposits to total deposits was 13.3% and 13.5%, respectively.

During the nine months ended September 30, 2025, long-term borrowings decreased by $8.3 million, or 80.5%, to $2.0 million at September 30, 2025 from $10.3 million at December 31, 2024 in connection with the repayment of $8.3 million of long-term debt with the FHLBNY.

The borrowings were paid off at maturity as part of a balance sheet management strategy to focus on organic deposit growth and reduce reliance on wholesale funding sources.

Total stockholders’ equity increased $49.4 million, or 55.0%, to $139.3 million at September 30, 2025 from $89.9 million at December 31, 2024.

The increase in stockholders’ equity was primarily attributed to the completion of the second step conversion and offering during the third quarter of 2025, as well as $5.3 million in net income earned during the first nine months of 2025.

Comparison of Results of Operations for the Three Months Ended September 30, 2025 and 2024

Net income increased to $2.4 million during the three months ended September 30, 2025, or $0.32 per diluted share, an increase of $1.0 million, or 77.1%, compared to net income of $1.3 million, or $0.18 per diluted share, for the three months ended September 30, 2024.

Our financial performance for the three months ended September 30, 2025 was positively impacted by a $972,000 increase in net interest income along with an increase in non-interest income.

At March 31, 2026 and December 31, 2025, our percentage of uninsured deposits to total deposits was 10.0% and 11.3%, respectively.

Total stockholders’ equity increased $739,000, or 0.5%, to $142.4 million at March 31, 2026 from $141.6 million at December 31, 2025.

The increase in stockholders’ equity was primarily attributed to $1.9 million in net income earned during the three months ended March 31, 2026, partially offset by an increase in accumulated other comprehensive loss of $689,000 and dividends declared and paid of $662,000.

Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025

Net income increased to $1.9 million during the three months ended March 31, 2026, or $0.26 per diluted share, an increase of $866,000, or 81.9%, compared to net income of $1.1 million, or $0.14 per diluted share, for the three months ended March 31, 2025.

Our financial performance for the three months ended March 31, 2026 was positively impacted primarily by a $1.2 million increase in net interest income.

Net Interest Income.

Net interest income for the three months ended September 30, 2025 increased by $972,000, or 18.1%, to $6.4 million as compared to $5.4 million for the three months ended September 30, 2024.

Net interest margin and interest rate spread were 3.72% and 3.02%, respectively, for the three months ended September 30, 2025 as compared to 3.28% and 2.67%, respectively, for the three months ended September 30, 2024.

Net interest income for the three months ended March 31, 2026 increased by $1.2 million, or 21.9%, to $6.7 million as compared to $5.5 million for the three months ended March 31, 2025.

Net interest margin and interest rate spread were 4.02% and 3.43%, respectively, for the three months ended March 31, 2026 as compared to 3.49% and 2.94%, respectively, for the three months ended March 31, 2025.

Interest Income.

Interest income for the three months ended September 30, 2025 was $9.4 million, an increase of $500,000, or 5.6%, compared to $8.9 million for the three months ended September 30, 2024.

The increase in interest income from the prior year quarter was primarily due to an increase in interest earned on loans of $463,000, or 6.0%, as a result of an

increase in the average yield on loans of 21 basis points and an increase in the average balance of loans of $12.0 million, or 2.2%.

The increase in the average yield on loans was primarily attributable to the origination and repricing of loans at higher interest rates since the third quarter of 2024.

Interest income for the three months ended March 31, 2026 was $9.1 million, an increase of $688,000, or 8.2%, compared to $8.4 million for the three months ended March 31, 2025.

The increase in interest income from the prior year quarter was primarily due to a $35.3 million, or 5.6%, increase in the average balance of interest-earning assets and a 13 basis point increase in the average yield of interest-earning assets.

During the first quarter of 2026 as compared to the same period in 2025, there was a $480,000 increase in interest income on loans due to a 29 basis point increase in the average yield earned on loans and $5.6 million, or 1.0%, increase in the average balance of loans.

The increase in the average yield on loans and average balance of loans was primarily attributable to the origination of loans at higher interest rates since the first quarter of 2025.

Further, interest income on interest-earning deposits increased by $235,000, or 100.4%, primarily due to a $30.5 million, or 129.4%, increase in the average balance of interest-earning deposits.

Interest Expense.

Interest expense for the three months ended September 30, 2025 was $3.0 million, a decrease of $472,000, or 13.6%, from $3.5 million for the three months ended September 30, 2024.

The decrease in interest expense when compared to the prior year quarter was primarily due to a 27 basis points decrease in average interest rate paid on interest-bearing liabilities and a $20.8 million, or 4.1%, decrease in the average balance of interest-bearing liabilities.

During the three months ended September 30, 2025 as compared to the same period in 2024, interest expense on deposits decreased by $353,000, or 10.6%, due to a 27 basis points decrease in the average interest rate paid on deposit accounts and a $2.6 million, or 0.5%, decrease in the average balance of deposits.

The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates, time deposit repricing, and a marginal shift in deposit composition to core deposits.

Average interest-bearing deposit balances decreased during the three months ended September 30, 2025 when compared to the three months ended September 30, 2024 due to a decrease in all deposit categories except money market accounts.

During the three months ended September 30, 2025, interest expense on borrowed funds and other interest-bearing liabilities decreased by $119,000, or 79.9%, compared to the three months ended September 30, 2024, primarily due to a $18.2 million, or 88.7%, decrease in average borrowed funds and other interest-bearing liabilities outstanding due to the repayment of $8.3 million in borrowed funds during the first nine months of 2025.

Interest expense for the three months ended March 31, 2026 was $2.4 million, a decrease of $507,000, or 17.5%, from $2.9 million for the three months ended March 31, 2025.

The decrease in interest expense when compared to the prior year quarter was primarily due to a 36 basis point decrease in average interest rate paid on interest-bearing liabilities and a $13.6 million, or 2.8%, decrease in the average balance of interest-bearing liabilities.

During the three months ended March 31, 2026 as compared to the same period in 2025, interest expense on interest-bearing deposits decreased by $470,000, or 16.5%, due to a 35 basis point decrease in the average interest rate paid on interest-bearing deposit accounts, along with a $9.7 million, or 2.0% decrease in the average balance of interest-bearing deposits.

The decrease in average interest-bearing deposits accounts was due to a decrease in the average balance of all deposit account types except money market accounts.

During the three months ended March 31, 2026 as compared to the same period in 2025, there was a $337,000 decrease in interest paid on time deposit accounts due to a 48 basis point decrease in the average interest rate paid on time deposits.

The decrease in the average interest rate paid on time deposit accounts was primarily due to the decrease in market interest rates and proactive management of deposit funding costs.

During the first quarter of 2026, interest expense on borrowed funds and other interest-bearing liabilities decreased by $37,000, or 61.7%, compared to the first quarter of 2025, primarily due to a $3.9 million, or 62.4% decrease in average borrowed funds and other interest-bearing liabilities outstanding due to the repayment of our borrowings during 2025.

Provision (Credit) for Credit Losses.

The Company recorded a $269,000 credit to the provision for credit losses for the three months ended September 30, 2025, as compared to a credit to the provision of $229,000 for the three months ended September 30, 2024.

The credit to the provision for credit losses of $269,000 for the three months ended September 30, 2025 was primarily attributable to a decrease in the qualitative factors related to current economic conditions within the modeled allowance for credit losses estimate derived as of September 30, 2025.

The Company recorded a credit to provision for credit losses of $113,000 for the three months ended March 31, 2026, as compared to a provision for credit losses of $48,000 for the three months ended March 31, 2025.

The credit to the provision for credit losses of $113,000 for the three months ended March 31, 2026 was primarily attributable to a decrease in the quantitative and qualitative loss rates, inclusive of forecasted economic trends, primarily for the commercial real estate and home equity loan pools.

Non-Interest Income.

Non-interest income was $1.1 million for the three months ended September 30, 2025, an increase of $274,000, or 34.6%, as compared to $791,000 for the three months ended September 30, 2024.

The increase was primarily due to a $182,000 increase in earnings on bank-owned life insurance as a result of a death benefit, an $83,000 increase in unrealized gain on equity securities, and a $24,000 increase in earnings on annuity assets in connection with the purchase of annuities during the fourth quarter of 2024, partially offset by a $14,000 decrease in debit card fees.

Non-interest income was $703,000 for the three months ended March 31, 2026, a decrease of $21,000, or 2.9%, as compared to $724,000 for the three months ended March 31, 2025.

The decrease was primarily due to a $46,000 gain on equity securities during the three months ended March 31, 2025, partially offset by a $26,000 increase in earnings on bank-owned life insurance for the current quarter when compared to the three months ended March 31, 2025.

Non-Interest Expense.

Non-interest expense remained relatively consistent at $4.8 million for both the three months ended September 30, 2025 and 2024, increasing $30,000, or 0.6%.

Non-interest expense was $5.1 million for the three months ended March 31, 2026, an increase of $245,000, or 5.0%, as compared to $4.9 million for the three months ended March 31, 2025.

The increase was primarily related to an increase in the cost of health insurance, taxes, and other non-salary benefits of $300,000, or 30.3%, and an increase in occupancy and equipment expenses of $43,000, or 6.4%.

These increases were partially offset by a $98,000 decrease in data processing costs as we renegotiated our primary data processing contract, and a $53,000 decrease in professional services.

Income Tax Expense.

Income tax expense was $487,000 for the three months ended September 30, 2025, an increase of $229,000, or 88.8%, as compared to $258,000 for the three months ended September 30, 2024.

The increase in income tax expense from the prior year quarter was due to an increase in pre-tax income earned during the current quarter as well as an increase in the effective tax rate during the third quarter of 2025.

The effective tax rate was 17.1% for the three months ended September 30, 2025 as compared to 16.2% for the three months ended September 30, 2024, as a result of an increase in pre-tax, taxable income.

Comparison of Results of Operations for the Nine Months Ended September 30, 2025 and 2024

Net income was $5.3 million for the nine months ended September 30, 2025, or $0.70 per diluted share, an increase of $1.9 million, or 54.1%, compared to net income of $3.5 million, or $0.46 per diluted share, for the nine months ended September 30, 2024.

Net income for the nine months ended September 30, 2025 was positively impacted by a $2.2 million increase in net interest income along with a decrease in non-interest expenses.

Net Interest Income.

Net interest income for the nine months ended September 30, 2025 increased by $2.2 million, or 14.1%, to $17.9 million as compared to $15.7 million for the nine months ended September 30, 2024.

Net interest margin and interest rate spread were 3.68% and 3.09%, respectively, for the nine months ended September 30, 2025 as compared to 3.17% and 2.59%, respectively, for the nine months ended September 30, 2024.

Interest Income.

Interest income increased by $610,000, or 2.3%, to $26.8 million for the nine months ended September 30, 2025 when compared to $26.2 million for the nine months ended September 30, 2024.

This increase was primarily due to an increase in the interest earned on loans of $1.4 million, or 6.1%, as a result of an increase in the average yield on loans of 33 basis points and an increase in the average balance of loans of $1.4 million.

The increase in the average yield on loans was primarily attributable to the origination and repricing of loans at higher interest rates since the third quarter of 2024.

This increase in interest income was partially offset by a decrease in interest earned on interest-earning deposits of $665,000 or 33.9%, resulting from a decrease in the average yield on interest-earning deposits of 102 basis points and a decrease in the average balance of interest-earning deposits of $8.9 million, or 17.7%.

Interest Expense.

Interest expense decreased $1.6 million, or 15.3%, to $8.9 million for the nine months ended September 30, 2025, compared to $10.5 million for the nine months ended September 30, 2024.

The decrease in interest expense was primarily due to a 28 basis points decrease in average interest rate paid on interest-bearing liabilities and a decrease in the average balance of interest-bearing liabilities of $28.4 million, or 5.5%.

During the first nine months of 2025, there was a $1.2 million decrease in interest expense on total deposit accounts when compared to the first nine months of 2024 due to a 28 basis points decrease in the average interest rate paid on total deposits along with a decrease in average total deposit balance of $7.4 million, or 1.5%.

Interest expense on borrowed funds and other interest-bearing liabilities also decreased $431,000, or 77.2%, during the first nine months of 2025 when compared to the first nine months of 2024, primarily due to a $21.0 million, or 83.6%, decrease in the average balance of borrowed funds and other interest-bearing liabilities outstanding as we reduced our FHLBNY borrowings.

Provision (Credit) for Credit Losses.

The Company recorded a $221,000 credit to the provision for credit losses on loans and unfunded commitments during the nine months ended September 30, 2025, as compared to a credit of $866,000 to the provision for credit losses during the nine months ended September 30, 2024.

The decrease in the allowance for credit losses on loans and corresponding credit to the provision for credit losses recognized during the first nine months of 2025 was the result of a decrease in expected loss rates derived from expected quantitative losses inclusive of forecasted economic trends and qualitative considerations including current local economic conditions as of September 30, 2025.

Non-Interest Income.

Non-interest income increased by $354,000, or 15.8%, to $2.6 million for the nine months ended September 30, 2025, as compared to $2.2 million for the nine months ended September 30, 2024.

The increase was primarily due to a $185,000 increase in earnings on bank owned life insurance as a result of the recognition of a death benefit during the third quarter of 2025, a $182,000 increase in unrealized gain on equity securities, and a $69,000 increase in earnings on annuity assets in connection with the purchase of annuities during the fourth quarter of 2024, partially offset by a $49,000 decrease in service charges and fees and a $31,000 decrease in debit card fees.

Non-Interest Expense.

Non-interest expense was $14.3 million for the nine months ended September 30, 2025, a decrease of $360,000, or 2.4%, as compared to $14.7 million for the nine months ended September 30, 2024.

The decrease related primarily to a decline in FDIC insurance expense of $469,000, or 67.7%, due to a decrease in premium assessments related to remediating regulatory matters.

As a result of management's efforts to decrease the use of external consultants and optimize operating expenses, professional services decreased by $217,000, or 20.0%, and occupancy and equipment expenses decreased by $143,000, or 6.9%.

These decreases were partially offset by an increase in salaries and employee benefits of $469,000, or 5.8%, and a $94,000, or 7.0%, increase in data processing primarily due to an increase in costs related to core system maintenance when compared to the prior year period.

Income Taxes Expense.

Income tax expense was $1.1 million for the nine months ended September 30, 2025, an increase of $415,000, or 63.2%, as compared to $657,000 for the first nine months of 2024.

The increase in income tax expense from the first nine months of 2024 was primarily related to the increase in pre-tax income earned during the first nine months of 2025 and an increase in the effective tax rate during the first nine months of 2025.

The effective tax rate was 16.7% for the first nine months of 2025 and 16.0% for the first nine months of 2024, as a result of an increase in pre-tax, taxable income.

Income tax expense was $430,000 for the three months ended March 31, 2026, an increase of $224,000, or 108.7%, as compared to $206,000 for the three months ended March 31, 2025.

The increase in income tax expense from the prior year quarter was primarily related to the increase in taxable income earned during the current quarter.

Liquidity and Capital Resources

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We have written agreements with the FHLBNY, which allow us to borrow the maximum lending values designated by the type of collateral pledged.

As of September 30, 2025, the maximum amount that we could borrow from the FHLBNY, based on the market value of certain fixed-rate residential, one- to four-family loans pledged to FHLBNY, was $88.6 million, which was collateralized by certain fixed-rate residential, one- to four-family loans.

At September 30, 2025, and December 31, 2024, we had outstanding advances under this agreement of $2.0 million and $10.3 million, respectively.

As of September 30, 2025, we had available borrowing capacity of $86.6 million under the aforementioned agreement with the FHLBNY.

As of March 31, 2026, the unpaid principal balance of the fixed-rate residential, one-to four-family loans pledged to FHLBNY as collateral, was $125.1 million and the total collateral market value assigned by FHLNBY was $94.2 million.

In support of arrangements entered into by certain municipal and other public sector counterparties, we have issued a letter of credit (“MULOC”) through FHLBNY to secure municipal deposits.

As of March 31, 2026 we had a $2.5 million outstanding letter of credit related to municipal deposits, and as of December 31, 2025, we had no outstanding letters of credit related to municipal deposits.

Such MULOCs are applied as a reduction to our total borrowing capacity with FHLBNY.

As of March 31, 2026 and December 31, 2025, respectively, we had available borrowing capacity of $91.7 million and $88.0 million under the agreement with FHLBNY.

At March 31, 2026 and December 31, 2025, there were no outstanding advances under this agreement.

We have a written agreement with the Federal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities, and allows us to borrow up to the value of the securities pledged.

At September 30, 2025, and December 31, 2024, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding.

Additionally, as of September 30, 2025, the Bank has uncollateralized intraday credit with the Federal Reserve Bank that allows for certain transactions to not be rejected for which there are insufficient funds in our Federal Reserve Master Account during normal hours of operation.

At March 31, 2026, and December 31, 2025, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding.

Additionally, as of March 31, 2026, the Bank has un-collateralized intraday credit with the Federal Reserve Bank that allows for certain transactions to not be rejected for which there are insufficient funds in our Federal Reserve Master Account during normal hours of operation.

Lastly, we have also established an unsecured line of credit with a correspondent bank for $20.0 million.

There were no borrowings on this line as of September 30, 2025 and December 31, 2024.

There were no borrowings on this line as of March 31, 2026 and December 31, 2025.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace.

These factors reduce the predictability of the timing of these sources of funds.

Our primary investing activities include the origination of loans and the purchase of investment securities.

For the nine months ended September 30, 2025, we originated loans of approximately $56.9 million as compared to approximately $42.8 million of loans originated during the nine months ended September 30, 2024.

Loan originations exceeded principal repayments and other deductions during the nine months ended September 30, 2025 by $8.1 million.

The Company did not make any purchases of investment securities or sell any investment securities during the nine months ended September 30, 2025.

Our primary investing activities include the origination and purchase of loans and the purchase of investment securities.

For the three months ended March 31, 2026, we originated loans of approximately $21.8 million as compared to approximately $18.1 million of loans originated during the three months ended March 31, 2025.

Principal payments and other deductions

exceeded loan originations and purchases during the three months ended March 31, 2026 by $1.5 million.

There were no purchases or sales of investment securities during the three months ended March 31, 2026 and 2025.

We have loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date.

We believe we have sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources.

Total deposits were $590.3 million at September 30, 2025 as compared to $573.0 million at December 31, 2024.

Approximately $188.4 million of time deposit accounts are scheduled to mature within one year as of September 30, 2025.

Total deposits were $566.6 million at March 31, 2026, as compared to $573.3 million at December 31, 2025.

Approximately $185.3 million of time deposit accounts are scheduled to mature within one year as of March 31, 2026.

Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.

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We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.

At September 30, 2025, the Bank exceeded all of its regulatory capital requirements.

At March 31, 2026, the Bank exceeded all of its regulatory capital requirements.

Regulatory Capital

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The Bank elected to be subject to this new definition when it became effective on January 1, 2020, and has continued to use the Community Bank Leverage Ratio since that time.

As of September 30, 2025 and December 31, 2024, the Bank’s Community Bank Leverage Ratio was 16.34% and 13.83%, respectively.

In order to be considered “well-capitalized” by the FDIC, a non-CBLR bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%.

At September 30, 2025 and December 31, 2024, the Bank’s Tier 1 Leverage capital ratio was 16.34% and 13.83%, respectively, and its Total Risk-Based capital ratio was 22.76% and 18.79%, respectively.

Effective July 1, 2026, the federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 8.00%.

As of March 31, 2026 and December 31, 2025, the Bank’s Community Bank Leverage Ratio was 17.54% and 16.65%, respectively.

In order to be considered “well-capitalized” by the FDIC, a non-CBLR commercial bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%.

At March 31, 2026 and December 31, 2025, the Bank’s Tier 1 Leverage capital ratio was 17.54% and 16.65%, respectively, and its Total Risk-Based capital ratio was 23.81% and 23.51%, respectively.

Accordingly, the Bank was considered to be well-capitalized under applicable regulatory capital requirements.

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Other than loan commitments, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Refer to Note 7 in the Notes to our unaudited consolidated financial statements for a summary of loan commitments outstanding as of September 30, 2025.

Refer to Note 7 in the Notes to our unaudited consolidated financial statements for a summary of loan commitments outstanding as of March 31, 2026.

Quantitative and Qualitative Disclosures About Market Risk

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Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended September 30, 2025 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended March 31, 2026 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

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-Q

Item 2. Management’s Discussion and Analysis