Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Statements contained in this report that are not historical facts may constitute forward-looking statements (within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended), which involve significant risks and uncertainties. The Company intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and is including this statement for purposes of invoking these safe harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by the use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “plan,” or similar expressions. The Company’s ability to predict results or the actual effect of future plans or strategies is inherently uncertain and actual results may differ from those predicted. The Company undertakes no obligation to update these forward-looking statements in the future.
The Company cautions readers of this report that a number of important factors could cause the Company’s actual results to differ materially from those expressed in forward-looking statements. Factors that could cause actual results to differ from those predicted and could affect the future prospects of the Company include, but are not limited to:
(i) General economic conditions, including higher inflation or recessionary conditions, either nationally or in our market area, that are worse than expected;
(ii) Changes in the interest rate environment that reduce our interest margins, reduce the fair value of financial instruments or reduce the demand for our loan products;
(iii) Increased competitive pressures among financial services companies;
(iv) Changes in consumer spending, borrowing and savings habits;
(v) Changes in the quality and composition of our loan or investment portfolios and the adequacy of credit loss allowances;
(vi) Changes in real estate market values in our market area;
(vii) Decreased demand for loan products, deposit flows, competition, or decreased demand for financial services in our market area;
(viii) Major catastrophes such as earthquakes, floods or other natural or human disasters and pandemics or infectious disease outbreaks, the related disruption to local, regional and global economic activity and financial markets, and the impact that any of the foregoing may have on us and our customers and other constituencies;
(ix) Legislative, regulatory or policy changes, including those relating, but not limited, to banking, securities, rent regulation and housing (including recent regulatory action in New York City to freeze rents on certain rent-regulated properties), financial accounting and reporting, environmental protection and insurance matters and the impact of such changes, as well as our ability to comply such changes in a timely manner
(x) Changes in the monetary and fiscal policies of the U.S. government, including policies of the U.S. Treasury and the Federal Reserve Board;
(xi) The impacts of tariffs, sanctions and other trade policies of the United States and its global trading counterparts and the impact of changing political conditions or federal government shutdowns;
(xii) Technological changes that may be more difficult or expensive than expected;
(xiii) Success or consummation of new business initiatives may be more difficult or expensive than expected;
(xiv) The inability to successfully integrate acquired businesses and financial institutions into our business operations;
(xv) Adverse changes in the securities markets;
(xvi) The impact of failures or disruptions in or breaches of the Company’s operational or security systems, data or infrastructure, or those of third parties, including as a result of cyberattacks or campaigns;
(xvii) The inability of third party service providers to perform; and
(xviii) Changes in accounting policies and practices, as may be adopted by bank regulatory agencies or the Financial Accounting Standards Board.
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Critical Accounting Policies
We consider accounting policies involving significant judgements and assumptions by management that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. We consider these accounting policies to be our crucial accounting policies. The judgements and assumptions we use are based on historical experience and other factors, which we believe to be reasonable under the circumstances. Actual results could differ from these judgements and estimates under different conditions, resulting in a change that could have a material impact on the carrying values of our assets and liabilities and our results of operations. There have been no changes in the critical accounting policies since the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2025.
Balance Sheet Analysis
General
Total assets increased $51.7 million, or 2.5%, to $2.1 billion at June 30, 2026, from $2.1 billion at December 31, 2025. The increase in assets was primarily due to an increase in net loans of $59.4 million, partially offset by a decrease in cash and cash equivalents of $7.8 million.
Cash and cash equivalents decreased $7.8 million, or 9.6%, to $73.4 million at June 30, 2026 from $81.2 million at December 31, 2025. The decrease in cash and cash equivalents partially funded the increase of $59.4 million in net loans.
Equity securities increased $757,000, or 2.8%, to $27.3 million at June 30, 2026 from $26.6 million at December 31, 2025. The increase in equity securities was attributable to the purchase of $1.0 million in equity securities during the six months ended June 30, 2026, partially offset by market depreciation of $243,000 due to market interest rate volatility during the six months ended June 30, 2026.
Securities held-to-maturity decreased $564,000, or 3.1%, to $17.8 million at June 30, 2026 from $18.3 million at December 31, 2025 due to pay-downs of various investment securities and an increase of $9,000 to the allowance for credit losses for held-to-maturity securities, partially offset by the purchase of $470,000 in municipal securities.
Loans, net of the allowance for credit losses, increased $59.4 million, or 3.2%, to $1.9 billion at June 30, 2026 from $1.9 billion at December 31, 2025. The increase in loans consisted of an increase of $67.2 million in construction loans, partially offset by decreases of $4.9 million in multi-family loans, $2.2 million in non-residential loans, $200,000 in mixed-use loans, $69,000 in one-to-four family loans, $23,000 in consumer loans, and $3,000 in commercial and industrial loans.
During the six months ended June 30, 2026, we originated loans totaling $653.2 million, which includes commitments and funded loans, consisting primarily of $606.7 million in construction loans, $25.1 million in commercial and industrial loans, $20.8 million in multi-family loans, and $675,000 in mixed-use loans. The $606.7 million in construction loans had $262.7 million, or 43.3%, disbursed at loan closing, with the remaining funds to be disbursed over the terms of the construction loans. These disbursements were offset by normal pay-downs and principal reductions as construction projects were completed and either condominium units were sold to end buyers or multi-family rental buildings were refinanced by other financial institutions. The commercial and industrial loans had $19.0 million, or 75.7%, disbursed at loan closing as of June 30, 2026.
Multi-family loan originations decreased by $74.6 million, or 78.2%, to $20.8 million for the six months ended June 30, 2026 from $95.4 million for the six months ended June 30, 2025 due to changes related to rent and housing regulations in New York City and the uncertainty regarding interest rates.
The allowance for credit losses related to loans was $4.6 million at June 30, 2026 and December 31, 2025. The allowance for credit losses related to loans had a provision for credit losses totaling $568,000 and charge-offs totaling $547,000. The provision for credit losses totaling $568,000 was due to an increase in the loan portfolio and a slight increase in the remaining terms of the loan portfolio.
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The allowance for credit losses for off-balance sheet commitments increased $284,000, or 32.3%, to $1.2 million at June 30, 2026 from $879,000 at December 31, 2025 due primarily to an increase of $204.2 million, or 30.0%, in off-balance sheet commitments from December 31, 2025 to June 30, 2026.
The allowance for credit losses for held-to-maturity securities increased $9,000, or 7.1%, to $135,000 at June 30, 2026 from $126,000 at December 31, 2025 due to an increase in our municipal bond portfolio.
Premises and equipment decreased $356,000, or 1.4%, to $25.0 million at June 30, 2026 from $25.4 million at December 31, 2025 primarily due to the amortization of fixed assets. Federal Home Loan Bank stock increased by $133,000, or 32.4%, to $543,000 at June 30, 2026 from $410,000 at December 31, 2025 primarily due to an increase in our mortgage-related assets. Bank owned life insurance (“BOLI”) increased $364,000, or 1.4%, to $26.8 million at June 30, 2026 from $26.4 million at December 31, 2025 due to increases in the BOLI cash value. Accrued interest receivable decreased $39,000, or 0.3%, to $12.2 million at June 30, 2026 from $12.2 million at December 31, 2025 due to a decrease in the yield in the loan portfolio. Property held for investment was $1.3 million at both June 30, 2026 and December 31, 2025.
Right of use assets — operating decreased $360,000, or 7.7%, to $4.3 million at June 30, 2026 from $4.7 million at December 31, 2025, primarily due to depreciation of the right of use assets.
Other assets increased $117,000, or 1.1%, to $11.1 million at June 30, 2026 from $11.0 million at December 31, 2025 due to an increase of $725,000 in suspense accounts, partially offset by decreases of $528,000 in tax assets and $90,000 in prepaid expenses.
Total deposits decreased $80.4 million, or 5.0%, to $1.5 billion at June 30, 2026 from $1.6 billion at December 31, 2025. The decrease in deposits was primarily due to decreases in certificates of deposit of $190.8 million, or 21.2%, and savings account balances of $10.6 million, or 7.5%, partially offset by increases in NOW/money market accounts of $67.5 million, or 22.3% and non-interest bearing deposits of $53.5 million, or 19.7%.
The decrease of $190.8 million in certificates of deposit consisted of decreases of $129.0 million, or 34.9%, in brokered certificates of deposit, $38.3 million, or 56.6%, in non-brokered listing services certificates of deposit, and $23.4 million, or 5.3% in retail certificates of deposit.
The decrease in brokered certificates of deposit and non-brokered listing services certificates of deposit was due to management’s strategy to reduce the cost of funds by “calling” higher rate brokered deposits on their call dates and to rely less on brokered deposits and non-brokered listing service deposits. The decrease in retail certificates of deposit was due to a shift in deposits to our retail high yield money market accounts.
Advance payments by borrowers for taxes and insurance increased $210,000, or 8.9%, to $2.6 million at June 30, 2026 from $2.4 million at December 31, 2025 due primarily to accumulation of real estate tax payments from borrowers.
Borrowings increased $120.0 million, or 171.4%, to $190.0 million at June 30, 2026 from $70.0 million at December 31, 2025 due primarily to management’s strategy to reduce the cost of funds and lessen reliance on brokered deposits and non-brokered listing service deposits.
Lease liability – operating decreased $329,000, or 6.9%, to $4.5 million at June 30, 2026 from $4.8 million at December 31, 2025, primarily due to the amortization of the lease liability.
Accounts payable and accrued expenses increased $980,000, or 6.0%, to $18.6 million at June 30, 2026 from $17.3 million at December 31, 2025 due primarily to increases in accounts payable of $1.3 million, suspense account – loan closings of $322,000, deferred compensation of $291,000, the allowance for credit losses for off-balance sheet commitments of $284,000, and accrued interest expense of $107,000, partially offset by a decrease in accrued expenses of $1.0 million.
Stockholders’ equity increased $10.9 million, or 3.1% to $362.6 million at June 30, 2026, from $351.7 million at December 31, 2025. The increase in stockholders’ equity was due to net income of $19.7 million for the six months ended June 30, 2026, the amortization expense of $1.1 million relating to restricted stock and stock options granted
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under the Company’s 2022 Equity Incentive Plan, an increase of $371,000 in earned employee stock ownership plan shares coupled with a reduction of $261,000 in unearned employee stock ownership plan shares, $37,000 in stock options exercised, and $25,000 in other comprehensive income. These increases were offset by dividends declared of $6.0 million and stock repurchases and excise taxes of $4.7 million.
Results of Operations for the Three Months Ended June 30, 2026 and 2025
Financial Highlights
Net income for the three months ended June 30, 2026 was $9.8 million compared to net income of $11.2 million for the three months ended June 30, 2025. The decrease in net income of $1.4 million, or 12.3%, between periods was primarily due to a credit loss expense of $860,000 for the three months ended June 30, 2026 compared to no credit loss expense for the three months ended June 30, 2025, a decrease of $424,000 in net interest income, a decrease of $216,000 in non-interest income, and an increase of $110,000 in non-interest expense, partially offset by a decrease of $235,000 in income tax expense.
Net Interest Income
Net interest income was $24.7 million for the three months ended June 30, 2026, as compared to $25.1 million for the three months ended June 30, 2025. The decrease in net interest income of $424,000, or 1.7%, was primarily due to a decrease in interest income that exceeded a decrease in interest expense caused by a decrease in the yield on interest-earning assets that exceeded the decrease in the cost of funds for interest-bearing liabilities.
Total interest and dividend income decreased $2.0 million, or 5.2%, to $36.1 million for the three months ended June 30, 2026 from $38.1 million for the three months ended June 30, 2025. The decrease in interest and dividend income was due to a decrease in the yield on interest-earning assets by 60 basis points from 8.11% for the three months ended June 30, 2025 to 7.51% for the three months ended June 30, 2026, partially offset by an increase in the average balance of interest-earning assets of $43.8 million, or 2.3%, to $1.9 billion for the three months ended June 30, 2026 from $1.9 billion for the three months ended June 30, 2025.
Interest expense decreased $1.6 million, or 12.0%, to $11.4 million for the three months ended June 30, 2026 from $13.0 million for the three months ended June 30, 2025. The decrease in interest expense was due to a decrease in the cost of interest-bearing liabilities by 43 basis points from 3.88% for the three months ended June 30, 2025 to 3.45% for the three months ended June 30, 2026. The decrease in interest expense was also due to a decrease in the average balance of interest-bearing liabilities of $16.0 million, or 1.2%, to $1.3 billion for the three months ended June 30, 2026 from $1.3 billion for the three months ended June 30, 2025.
Our net interest margin decreased 21 basis points, or 3.9%, to 5.14% for the three months ended June 30, 2026 compared to 5.35% for the three months ended June 30, 2025. The decrease in the net interest margin was due to a 75 basis points decrease in the Federal Funds rate from September 2025 to December 2025 that resulted in a decrease in the yield on interest-earning assets, partially offset by a smaller decrease in the cost of funds on interest-bearing liabilities.
Credit Loss Expense
The Company recorded credit loss expense of $860,000 for the three months ended June 30, 2026 compared to no credit loss expense for the three months ended June 30, 2025.
The credit loss expense of $860,000 for the three months ended June 30, 2026 was comprised of credit loss expense for loans of $680,000, credit loss expense for off-balance sheet commitments of $171,000, and credit loss expense for held-to-maturity securities of $9,000. The credit loss expense for loans of $680,000 for the three months ended June 30, 2026 was primarily due to an increase in the loan portfolio and increased credit risk in commercial and industrial loans due to a $500,000 loan charge-off. The credit loss expense for off-balance sheet commitments of $171,000 for the three months ended June 30, 2026 was primarily due to an increase in unfunded off-balance sheet commitments. The credit loss expense for held-to-maturity securities of $9,000 for the three months ended June 30, 2026 was primarily due to an increase in the municipal bond portfolio.
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With respect to the allowance for credit losses for loans, we charged-off $520,000 during the quarter ended June 30, 2026, as compared to charge-offs of $485,000 during the quarter ended June 30, 2025. The charge-offs during the quarter ended June 30, 2026 comprised of $500,000 against a commercial and industrial loan and $20,000 against various unpaid overdrafts in our demand deposit accounts. The charge-offs during the quarter ended June 30, 2025 were against various unpaid overdrafts in our demand deposit accounts.
We recorded no recoveries during the quarter ended June 30, 2026 compared to recoveries of $82,000 during the quarter ended June 30, 2025. The recoveries of $82,000 during the quarter ended June 30, 2025 comprised of recoveries from a previously charged-off unpaid overdraft on a demand deposit account.
Non-Interest Income
Non-interest income for the three months ended June 30, 2026 was $642,000 compared to non-interest income of $858,000 for the three months ended June 30, 2025. The decrease of $216,000, or 25.2%, in total non-interest income was primarily due to decreases of $173,000 in unrealized gain/(loss) on equity securities and $62,000 in other loan fees and service charges, partially offset by increases of $15,000 in BOLI income and $4,000 in miscellaneous other non-interest income.
The decrease in unrealized gain/(loss) on equity securities was due to an unrealized loss of $122,000 on equity securities during the quarter ended June 30, 2026 compared to an unrealized gain of $51,000 on equity securities during the quarter ended June 30, 2025. The unrealized loss of $122,000 and unrealized gain of $51,000 on equity securities during the quarters ended June 30, 2026 and 2025, respectively, were due to market interest rate volatility during both periods.
The decrease of $62,000 in other loan fees and service charges was due to decreases of $82,000 in loan service charges and fees, partially offset by an increase of $20,000 in ATM/debit card/ACH fees. The increase of $15,000 in BOLI income was due to an increase in the yield on BOLI assets. The increase of $4,000 in miscellaneous other non-interest income was due to increases in miscellaneous operating income during the quarter.
Non-Interest Expense
Non-interest expense increased $110,000, or 1.0%, to $10.6 million for the three months ended June 30, 2026 from $10.5 million for the three months ended June 30, 2025. The increase resulted primarily from increases of $291,000 in other operating expense, $166,000 in salaries and employee benefits, and $44,000 in occupancy expense, partially offset by decreases of $247,000 in real estate owned expense, $79,000 in advertising expense, $33,000 in outside data processing expense, and $32,000 in equipment expense.
Other non-interest operating expense increased $291,000, or 10.6%, to $3.0 million for the three months ended June 30, 2026 from $2.7 million for the three months ended June 30, 2025 due mainly to increases of $331,000 in miscellaneous other non-interest expense, $35,000 in consulting fees, $29,000 in service contracts expense, $28,000 in insurance expense, $16,000 in legal fees, $12,000 in directors, officers and employees expense, and $1,000 in directors compensation. These were partially offset by decreases of $77,000 in regulatory fees, $32,000 in audit and accounting expense, $22,000 in telephone expense, $17,000 in recruitment expense, $7,000 in office supplies expense, and $6,000 in dues and subscription expense.
The increase of $331,000 in miscellaneous other non-interest expense was mainly due to increases of $314,000 in miscellaneous charge-offs, $49,000 in public company expense, and $12,000 in check and correspondence bank charges, partially offset by a decrease of $44,000 in miscellaneous other non-interest expense. The increase of $314,000 in miscellaneous charge-offs was due to an increase in customer fraud involving checks and debit cards.
Salaries and employee benefits increased $166,000, or 2.9%, to $5.8 million for the three months ended June 30, 2026 from $5.7 million for the three months ended June 30, 2025 primarily due to the hiring of additional personnel to support the growth of the Company and an increase in employee compensation and benefits expense in order to retain key personnel, partially offset by an increase in loan origination offset expenses.
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Occupancy expense increased $44,000, or 5.9%, to $787,000 for the three months ended June 30, 2026 from $743,000 for the three months ended June 30, 2025 primarily due to repairs and maintenance at various offices and increased utilities cost.
Real estate owned expense decreased $247,000 to none for the three months ended June 30, 2026 from $247,000 for the three months ended June 30, 2025 due to the sale of two real estate owned properties during 2025, with the Bronx real estate owned property sold in June 2025 and the Pittsburgh real estate owned property sold in December 2025. The $247,000 real estate owned expense during the second quarter of 2025 comprised mainly of closing costs of $231,000 associated with the sale of the Bronx property and the operating expense of the Pittsburgh property.
Advertising expense decreased $79,000, or 64.2%, to $44,000 for the three months ended June 30, 2026 from $123,000 for the three months ended June 30, 2025 due to a decrease in various marketing campaigns.
Outside data processing expense decreased $33,000, or 4.4%, to $725,000 for the three months ended June 30, 2026 from $758,000 for the three months ended June 30, 2025 due to a reduction in one-time initial fees for new services. Equipment expense decreased $32,000, or 12.6%, to $221,000 for the three months ended June 30, 2026 from $253,000 for the three months ended June 30, 2025 due to a reduction in the upgrades of equipment.
Income Taxes
We recorded income tax expense of $4.0 million and $4.3 million for the three months ended June 30, 2026 and 2025, respectively. For the three months ended June 30, 2026, we had approximately $252,000 in tax exempt income, compared to approximately $210,000 in tax exempt income for the three months ended June 30, 2025. Our effective income tax rate was 29.1% for the three months ended June 30, 2026 compared to 27.6% for the three months ended June 30, 2025.
Results of Operations for the Six Months Ended June 30, 2026 and 2025
Financial Highlights
Net income for the six months ended June 30, 2026 was $19.7 million compared to net income of $21.7 million for the six months ended June 30, 2025. The decrease in net income of $2.0 million, or 9.2%, between periods was primarily due to a decrease of $554,000 in net interest income, an increase of $623,000 in credit loss expense, a decrease of $655,000 in non-interest income, and an increase of $371,000 in non-interest expense, partially offset by a decrease of $213,000 in income tax expense.
Net Interest Income
Net interest income was $48.8 million for the six months ended June 30, 2026 as compared to $49.3 million for the six months ended June 30, 2025. The decrease in net interest income of $555,000, or 1.1%, was primarily due to a decrease in interest income that exceeded a decrease in interest expense and a decrease in the yield on interest earning assets, partially offset by a smaller decrease in the cost of funds for interest bearing liabilities.
Total interest and dividend income decreased $4.2 million, or 5.5%, to $72.0 million for the six months ended June 30, 2026 from $76.2 million for the six months ended June 30, 2025. The decrease in interest and dividend income was due to a decrease in the yield on interest earning assets by 60 basis points from 8.08% for the six months ended June 30, 2025 to 7.48% for the six months ended June 30, 2026, partially offset by an increase in the average balance of interest earning assets of $39.5 million, or 2.1%, to $1.9 billion for the six months ended June 30, 2026 from $1.9 billion for the six months ended June 30, 2025.
Interest expense decreased $3.7 million, or 13.6%, to $23.2 million for the six months ended June 30, 2026 from $26.9 million for the six months ended June 30, 2025. The decrease in interest expense was due to a decrease in the cost of interest bearing liabilities by 51 basis points from 3.97% for the six months ended June 30, 2025 to 3.46% for the six months ended June 30, 2026 and a decrease in average interest bearing liabilities of $13.0 million, or 1.0%, to $1.3 billion for the six months ended June 30, 2026 from $1.4 billion for the six months ended June 30, 2025.
Net interest margin decreased 17 basis points, or 3.2%, to 5.06% for the six months ended June 30, 2026 compared to 5.23% for the six months ended June 30, 2025. The decrease in the net interest margin was due to a 75 basis points
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decrease in the Federal Funds rate from September 2025 to December 2025 that resulted in a decrease in the yield on interest-earning assets, partially offset by a smaller decrease in the cost of funds on interest-bearing liabilities.
Credit Loss Expense
The Company recorded a credit loss expense of $860,000 for the six months ended June 30, 2026 compared to a credit loss expense of $237,000 for the six months ended June 30, 2025. The credit loss expense of $860,000 for the six months ended June 30, 2026 was comprised of credit loss expense for loans of $568,000, credit loss expense for off-balance sheet commitments of $283,000, and credit loss expense for held-to-maturity securities of $9,000. The credit loss expense of $237,000 for the six months ended June 30, 2025 was comprised of credit loss expense for loans of $62,000 and credit loss expense for off-balance sheet commitments of $175,000.
The credit loss expense for loans of $568,000 for the six months ended June 30, 2026 was primarily due to an increase in the loan portfolio. The credit loss expense for off-balance sheet commitments of $283,000 for the six months ended June 30, 2026 was primarily due to an increase in unfunded off-balance sheet commitments. The credit loss expense for held-to-maturity securities of $9,000 for the six months ended June 30, 2026 was primarily due to an increase in the municipal bond portfolio.
The credit loss expense for loans of $62,000 for the six months ended June 30, 2025 was primarily due to an increase in the multi-family loan portfolio. The credit loss expense for off-balance sheet commitments of $175,000 for the six months ended June 30, 2025 was primarily due to an increase in unfunded off-balance sheet commitments.
With respect to the allowance for credit losses for loans, we charged-off $547,000 during the six months ended June 30, 2026 as compared to charge-offs of $602,000 during the six months ended June 30, 2025. The charge-offs during the six months ended June 30, 2026 comprised of $500,000 against a commercial and industrial loan and $47,000 against various unpaid overdrafts in our demand deposit accounts. The charge-offs during the six months ended June 30, 2025 were against various unpaid overdrafts in our demand deposit accounts.
We recorded no recoveries during the six months ended June 30, 2026 compared to recoveries of $434,000 during the six months ended June 30, 2025. The recoveries of $434,000 during the six months ended June 30, 2025 comprised of recoveries of $350,000 with respect to a previously charged-off non-residential mortgage loan and $84,000 from previously charged-off unpaid overdrafts on demand deposit accounts.
Non-Interest Income
Non-interest income for the six months ended June 30, 2026 was $1.4 million compared to non-interest income of $2.1 million for the six months ended June 30, 2025. The decrease of $655,000, or 31.3%, in total non-interest income was primarily due to decreases of $594,000 in unrealized gain/(loss) on equity securities and $133,000 in other loan fees and service charges, partially offset by increases of $45,000 in miscellaneous other non-interest income and $27,000 in BOLI income.
The decrease in unrealized gain on equity securities was due to an unrealized loss of $243,000 on equity securities during the six months ended June 30, 2026 compared to an unrealized gain of $351,000 on equity securities during the six months ended June 30, 2025. Both the unrealized loss of $243,000 on equity securities during the 2026 period and the unrealized gain of $351,000 on equity securities during the 2025 period were due to market interest rate volatility during both periods.
The decrease of $133,000 in other loan fees and service charges was due to a decrease of $226,000 in other loan fees and loan servicing fees, partially offset by an increase of $92,000 in ATM/debit card/ACH fees. The increase of $45,000 in miscellaneous other non-interest income was due to general accrual adjustments during the first quarter of 2026. The increase in BOLI income of $27,000 was due to an increase in the yield on BOLI assets.
Non-Interest Expense
Non-interest expense increased $371,000, or 1.8%, to $21.5 million for the six months ended June 30, 2026 from $21.1 million for the six months ended June 30, 2025. The increase resulted primarily from increases of $406,000 in salaries and employee benefits, $208,000 in other operating expense, $172,000 in occupancy expense, and $27,000 in
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outside data processing expense, partially offset by decreases of $277,000 in real estate owned expense, $139,000 in advertising expense, and $26,000 in equipment expense.
Salaries and employee benefits increased $406,000, or 3.5%, to $12.0 million for the six months ended June 30, 2026 from $11.6 million for the six months ended June 30, 2025 primarily due to the hiring of additional personnel to support the growth of the Company and an increase in employee compensation and benefits expense in order to retain key personnel, partially offset by an increase in loan origination offset expenses.
Other non-interest expense increased $208,000, or 3.7%, to $5.8 million for the six months ended June 30, 2026 from $5.6 million for the six months ended June 30, 2025 due mainly to increases of $351,000 in miscellaneous other non-interest expense, $60,000 in service contract expense, $44,000 in legal fees, $34,000 on insurance expense, $32,000 in directors, officers, and employee expense, $23,000 in consultant fees, and $19,000 in directors compensation, partially offset by decreases of $189,000 in regulatory fees, $41,000 in recruitment expense, $40,000 in audit and accounting fees, $39,000 in telephone expense, $28,000 in office supplies expense, and $18,000 in dues and subscriptions expense.
The increase of $351,000 in miscellaneous other non-interest expense was mainly due to increases of $336,000 in miscellaneous charge-offs, $46,000 in public company expenses, and $22,000 in check and correspondence bank charges, partially offset by decreases of $51,000 in miscellaneous other non-interest expense and $3,000 in postage expense. The increase of $336,000 in miscellaneous charge-offs was due to an increase in customer fraud involving checks and debit cards.
Occupancy expense increased $172,000, or 11.6%, to $1.7 million for the six months ended June 30, 2026 from $1.5 million for the six months ended June 30, 2025 primarily due to repairs and maintenance at various offices and increased utilities cost. Outside data processing expense increased nominally by $27,000, or 1.8%, to $1.5 million for the six months ended June 30, 2026 from $1.5 million for the six months ended June 30, 2025.
Real estate owned expense decreased $277,000 to none for the six months ended June 30, 2026 from $277,000 for the six months ended June 30, 2025 due to the sale of two real estate owned properties during 2025, with the Bronx real estate owned property sold in June 2025 and the Pittsburgh real estate owned property sold in December 2025. The $277,000 real estate owned expense during the second quarter of 2025 comprised mainly of closing costs of $231,000 associated with the sale of the Bronx property and the operating cost of the Pittsburgh property.
Advertising expense decreased $139,000, or 61.8%, to $86,000 for the six months ended June 30, 2026 from $225,000 for the six months ended June 30, 2025 due to a decrease in various marketing campaigns. Equipment expense decreased $26,000, or 5.5%, to $444,000 for the six months ended June 30, 2026 from $470,000 for the six months ended June 30, 2025 due to a reduced need to purchase additional equipment for upgrading purposes.
Income Taxes
We recorded income tax expense of $8.1 million and $8.3 million for the six months ended June 30, 2026 and 2025, respectively. For the six months ended June 30, 2026, we had approximately $500,000 in tax exempt income, compared to approximately $415,000 in tax exempt income for the six months ended June 30, 2025. Our effective income tax rates were 29.1% and 27.7% for the six months ended June 30, 2026 and 2025, respectively.
Average Balances and Yields
The following tables present information regarding average balances of assets and liabilities, the total dollar amounts of interest income and dividends from average interest-earning assets, the total dollar amounts of interest expense on average interest-bearing liabilities, and the resulting annualized average yields and costs. The yields and costs for the periods indicated are derived by dividing income or expense by the average daily balances of assets or liabilities, respectively, for the periods presented. Loan fees, including prepayment fees, are included in interest income on loans and are not material. Non-accrual loans are included in the average balances only. In addition, yields are not presented on a tax-equivalent basis. Any adjustments necessary to present yields on a tax-equivalent basis are insignificant.
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Table of Contents
Three Months Ended June 30,
2026
2025
Average
Interest and
Yield/
Average
Interest and
Yield/
Balance
Dividends
Cost
Balance
Dividends
Cost
Loans receivable
$
1,823,222
$
35,174
7.72
%
$
1,754,363
$
36,740
8.38
%
Securities
45,375
324
2.86
37,839
265
2.80
Federal Home Loan Bank stock
536
8
5.97
438
7
6.39
Other interest-earning assets
50,466
554
4.39
83,135
1,027
4.94
Total interest-earning assets
1,919,599
36,060
7.51
1,875,775
38,039
8.11
Allowance for credit losses
(4,594)
(5,122)
Non-interest-earning assets
93,251
95,651
Total assets
$
2,008,256
$
1,966,304
Interest bearing demand
$
346,797
$
2,652
3.06
%
$
298,689
$
2,401
3.22
%
Savings and club accounts
133,982
662
1.98
141,238
761
2.16
Certificates of deposit
754,660
7,296
3.87
815,000
8,891
4.36
Interest-bearing deposits
1,235,439
10,610
3.44
1,254,927
12,053
3.84
Borrowed money
$
86,151
800
3.71
82,712
912
4.41
Interest-bearing liabilities
1,321,590
11,410
3.45
1,337,639
12,965
3.88
Non-interest-bearing demand
299,529
274,466
Other non-interest-bearing liabilities
24,773
20,114
Total liabilities
1,645,892
1,632,219
Equity
362,364
334,085
Total liabilities and equity
$
2,008,256
$
1,966,304
Net interest income/interest spread
$
24,650
4.06
%
$
25,074
4.23
%
Net interest margin
5.14
%
5.35
%
Net interest-earning assets
$
598,009
$
538,136
Average interest-earning assets to interest-bearing liabilities
145.25
%
140.23
%
Six Months Ended June 30,
2026
2025
Average
Interest and
Yield/
Average
Interest and
Yield/
Balance
Dividends
Cost
Balance
Dividends
Cost
Loans receivable
$
1,825,651
$
70,216
7.69
%
$
1,761,069
$
73,622
8.36
%
Securities
45,234
643
2.84
37,298
500
2.68
Federal Home Loan Bank stock
473
14
5.92
418
16
7.66
Interest-bearing deposits
55,251
1,156
4.18
88,277
2,108
4.78
Total interest-earning assets
1,926,609
72,029
7.48
1,887,062
76,246
8.08
Allowance for credit losses
(4,661)
(4,978)
Non-interest-earning assets
92,237
96,071
Total assets
$
2,014,185
$
1,978,155
Interest bearing demand
$
334,730
$
5,105
3.05
%
$
286,726
$
4,846
3.38
%
Savings and club accounts
134,899
1,332
1.97
140,077
1,491
2.13
Certificates of deposit
806,181
15,575
3.86
888,136
19,649
4.42
Interest-bearing deposits
1,275,810
22,012
3.45
1,314,939
25,986
3.95
Borrowed money
67,710
1,233
3.64
41,584
922
4.43
Interest-bearing liabilities
1,343,520
23,245
3.46
1,356,523
26,908
3.97
Non-interest-bearing demand
287,324
272,680
Other non-interest-bearing liabilities
23,389
19,107
Total liabilities
1,654,233
1,648,310
Equity
359,952
329,845
Total liabilities and equity
$
2,014,185
$
1,978,155
Net interest income/interest spread
$
48,784
4.02
%
$
49,338
4.11
%
Net interest margin
5.06
%
5.23
%
Net interest-earning assets
$
583,089
$
530,539
Average interest-earning assets to interest-bearing liabilities
143.40
%
139.11
%
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Table of Contents
Rate/Volume Analysis
The following tables set forth the effects of changing rates and volumes on our net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The total column represents the sum of the prior columns.
Three Months Ended 6/30/2026
Compared to
Three Months Ended 6/30/2025
Increase (Decrease)
Due to
Volume
Rate
Total
(Dollars in thousands)
Interest income:
Loans receivable
$
7,179
$
(8,745)
$
(1,566)
Securities
54
5
59
Federal Home Loan Bank stock
4
(3)
1
Other interest-earning assets
(369)
(104)
(473)
Total
$
6,868
$
(8,847)
$
(1,979)
Interest expense:
Interest bearing demand deposit
$
911
$
(660)
$
251
Savings accounts
(38)
(61)
(99)
Certificates of deposits
(629)
(966)
(1,595)
Borrowed money
217
(329)
(112)
Total
461
(2,016)
(1,555)
Net change in net interest income
$
6,407
$
(6,831)
$
(424)
Six Months Ended 6/30/2026
Compared to
Six Months Ended 6/30/2025
Increase (Decrease)
Due to
Volume
Rate
Total
(Dollars in thousands)
Interest income:
Loans receivable
$
6,335
$
(9,741)
$
(3,406)
Securities
111
32
143
Federal Home Loan Bank stock
5
(7)
(2)
Interest-bearing deposits
(715)
(237)
(952)
Total
$
5,736
$
(9,953)
$
(4,217)
Interest expense:
Interest bearing demand deposit
$
1,359
$
(1,100)
$
259
Savings accounts
(54)
(105)
(159)
Certificates of deposits
(1,716)
(2,358)
(4,074)
Borrowed money
755
(444)
311
Total
344
(4,007)
(3,663)
Net change in net interest income
$
5,392
$
(5,946)
$
(554)
Asset Quality
We had no non-performing assets at June 30, 2026 and at December 31, 2025. During the six months ended June 30, 2026 and 2025, we did not collect any interest income from loans that were in non-accrual status.
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Table of Contents
From time to time, as part of our loss mitigation strategy, we may modify loans to borrowers in financial distress by providing principal forgiveness, term extension, an other-than-insignificant payment delay, or interest rate reduction. When principal forgiveness is provided, the amount of forgiveness is charged-off against the allowance for credit losses.
During the three and six months ended June 30, 2026, three loans totaling $17.4 million were modified to one borrower experiencing financial difficulty whereby the weighted average contractual interest rates of the three loans were reduced to 5.63% from 8.75%. There were no loans modified to borrowers experiencing financial difficulty during the year ended December 31, 2025.
The performance of the loans made to the borrower experiencing financial difficulty in which modifications were made is closely monitored to determine the effectiveness of modification efforts. At June 30, 2026, the three loans were current.
The following table sets forth an analysis of the activity in the allowance for credit losses related to loans for the periods indicated:
June 30,
December 31,
2026
2025
(Dollars In Thousands)
Allowance at beginning of period
$
4,731
$
4,830
Provision for credit losses
568
(272)
Net Charge-offs (recovery):
Residential real estate loans:
One- to four-family
—
—
Multifamily
—
—
Mixed-use
—
—
Total residential real estate loans
—
—
Non-residential real estate loans
—
(350)
Construction loans
—
(334)
Commercial and industrial loans
500
—
Consumer loans
47
511
Total net charge-offs (recovery)
547
(173)
Allowance at end of period
$
4,752
$
4,731
Total loans outstanding
$
1,919,908
$
1,860,334
Average loans outstanding
1,825,651
1,805,645
Ratio of allowance to non-performing loans
—
%
—
%
Ratio of allowance to total loans
0.25
%
0.25
%
Ratio of net charge-offs (recovery) to average loans
0.03
%
(0.01)
%
Non-performing loans
$
—
$
—
The Company’s allowance for credit losses related to loans totaled $4.8 million, or 0.25% of total loans as of June 30, 2026 compared to $4.7 million, or 0.25% of total loans as of December 31, 2025. In addition, the Company’s allowance for credit losses related to off-balance sheet commitments totaled $1.2 million as of June 30, 2026 compared to $879,000 at December 31, 2025. The allowance for credit losses related to held-to-maturity debt securities totaled $135,000 at June 30, 2026 compared to $126,000 at December 31, 2025.
The allowance for credit losses related to loans increased $21,000 to $4.8 million at June 30, 2026 from $4.7 million at December 31, 2025 due primarily to a provision for credit losses of $568,000 due to an increase in the loan portfolio, partially offset by charge-offs totaling $547,000.
The allowance for credit losses related to off-balance sheet commitments increased $284,000 to $1.2 million at June 30, 2026 from $879,000 at December 31, 2025 due to a provision for credit losses of $284,000 due to an increase of $204.2 million, or 30.0%, in outstanding commitments between periods.
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Table of Contents
Liquidity and Capital Resources
We maintain liquid assets at levels we believe are adequate to meet our liquidity needs. We established a liquidity ratio policy that identifies three liquidity ratios consisting of (1) Cash/Deposits & Short Term Borrowings (“Cash Liquidity”), (2) Cash & Investments/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity”), and (3) Cash & Investments & Borrowing Capacity/Deposits & Short Term Borrowings (“On Balance Sheet Liquidity & Borrowing Capacity”) to assist in the management of our liquidity. We also establish targets of 2.0% for the Cash Liquidity ratio, 5.0% for the On Balance Sheet Liquidity ratio, and 20.0% for the On Balance Sheet Liquidity & Borrowing Capacity ratio.
Our Cash Liquidity ratio, On Balance Sheet Liquidity ratio, and On Balance Sheet Liquidity & Borrowing Capacity ratio averaged 4.2%, 6.9%, and 55.6%, respectively, for the six months ended June 30, 2026 compared to 5.0%, 7.4%, and 59.9%, respectively, for the year ended December 31, 2025. We adjust our liquidity levels to fund deposit outflows, pay real estate taxes on real estate loans, repay our borrowings, and fund loan commitments. We also adjust liquidity as appropriate to meet asset and liability management objectives.
Our liquidity ratios cannot be calculated using amounts disclosed in our consolidated financial statements, as many of the calculations involve monthly, quarterly or annual averages. To calculate our liquidity ratios, the average liquidity base from the prior month is used as the denominator to calculate a daily liquidity ratio. The liquidity base consists of savings account balances, certificates of deposit balances, checking and money market balances, deposit loans and borrowings. The daily balances of these components are averaged to arrive at the liquidity base for the month, and the daily cash balances in selected general ledger accounts are used to derive our liquidity position. A daily liquidity ratio is calculated using the liquidity for the day divided by the prior month’s average liquidity base. At the end of each month, a monthly liquidity position is calculated using the average liquidity position for the month divided by the prior month’s average liquidity base. To calculate quarterly and annual liquidity ratios, we take the average liquidity for the three- or twelve-month period, respectively, and average it.
Given the rapid movement of deposits in today’s banking environment, the Company also manages its liquidity position through a time-series approach to liquidity availability. Traditional liquidity management focuses on on-balance sheet capacity; however, converting those assets into cash may involve delays or market-driven losses. To address this, the Company emphasizes the actual accessibility of liquidity as measured by when cash becomes available in the Company’s Cash Accounts rather than simply its balance sheet presence.
This time-series liquidity framework is analyzed across the following intervals: Minute 1, Day 1, Week 1, Month 1, and Year 1. This structure ensures a proactive and disciplined approach to managing liquidity risk.
Minute 1: Represents the amount of cash the Company can immediately access and disperse within one minute while remaining solvent. It is defined as the cash and cash equivalents currently on the balance sheet and typically covers daily cash needs.
Day 1: In the event of a liquidity run, this is the amount of cash that the Company can access and disperse within one day. It includes Minute 1 liquidity plus total borrowing capacity from the Federal Home Loan Bank, Federal Reserve Bank, and other secured and unsecured sources.
Week 1: In a prolonged liquidity event, this is the amount of cash available over one week. Week 1 liquidity includes Day 1 liquidity plus the estimated collateral value of unpledged investments that can be pledged or sold, as well as a portion (typically 10% each) of the Company’s brokered and listing service deposit capacity expected to be accessible within the week.
Month 1: Represents the total cash the Company can access and disperse over a one-month period while remaining solvent. It includes Week 1 liquidity plus the remaining brokered and listing service deposit capacity not already included in Week 1.
Year 1: Reflects the amount of liquidity the Company can access and deploy over a one-year time period. It includes Month 1 liquidity plus the value of unpledged but pledgeable loans available on the balance sheet.
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Table of Contents
To assess the adequacy of its liquidity, the Company compares time-series liquidity against Total Non-Contractual Deposits defined as total deposits less (1) brokered deposits outstanding, (2) other contractual funding outstanding, and (3) collateralized municipal deposits outstanding.
As of June 30, 2026, the Company’s ratios of Cash and Borrowing Capacity/Total Non-Contractual Deposits and Cash, Borrowing Capacity and Sourced Deposits Capacity/Total Non-Contractual Deposits were 55.2% and 100.9%, respectively. These figures demonstrate that the Company has sufficient liquidity resources to meet sudden and unexpected deposit outflow.
Our primary sources of liquidity are deposits, prepayment of loans and mortgage-backed securities, maturities of investment securities, other short-term investments, earnings, and funds provided from operations. While scheduled principal repayments on loans and mortgage-backed securities are a relatively predictable source of funds, deposit flows and loan prepayments are greatly influenced by market interest rates, economic conditions, and rates offered by our competition. We set the interest rates on our deposits to maintain a desired level of total deposits. In addition, we invest excess funds in short-term interest-earning assets, which provide liquidity to meet lending requirements.
Our cash flows are derived from operating activities, investing activities and financing activities as reported in our Consolidated Statements of Cash Flows included with our Consolidated Financial Statements.
Our primary investing activities are the origination of construction loans, commercial and industrial loans, multifamily loans, and to a lesser extent, mixed-use real estate loans and other loans. For the six months ended June 30, 2026 and 2025, our loan originations totaled $653.2 million and $462.7 million, respectively. Cash received from the maturities and pay-downs on securities totaled $1.0 million and $485,000 for the six months ended June 30, 2026 and 2025, respectively. We purchased $1.0 million in equity securities and $470,000 in municipal securities during the six months ended June 30, 2026 compared to purchases of $3.0 million in equity securities and $270,000 in municipal securities during the six months ended June 30, 2025.
Liquidity management is both a daily and long-term function of business management. If we require funds beyond our ability to generate them internally, borrowing agreements exist with the Federal Reserve Bank of New York (“FRBNY”) whereby the Bank pledged eligible loans under the Borrower-in-Custody program of the FRBNY allowing the Bank to borrow from the Discount Window at the FRBNY. We had an available borrowing limit of $633.0 million and $768.8 million from the FRBNY at June 30, 2026 and December 31, 2025, respectively. We had $190.0 million in FRBNY borrowings at June 30, 2026 compared to $70.0 million in FRBNY borrowings at December 31, 2025.
As a member of the Federal Home Loan Bank of New York (“FHLB-NY”), we are required to own capital stock in the FHLB-NY and are authorized to apply for advances on the security of such stock and certain of our mortgage loans and other assets (principally securities which are obligations of, or guaranteed by, the United States), provided certain standards related to credit-worthiness have been met. In February 2026, we withdrew our pledged eligible loans from the FHLB-NY’s advance program and are in the process of pledging these eligible loans with the FRBNY to increase our borrowing capacity with the FRBNY. Due to the withdrawal of pledged eligible loans from the FHLB-NY, we no longer have borrowing capacity at the FHLB-NY at June 30, 2026 compared to borrowing capacity at the FHLB-NY of $35.8 million at December 31, 2025. We had no FHLB-NY advances at June 30, 2026 and December 31, 2025.
In addition, we are party to a loan agreement with ACBB under which we can borrow up to $8.0 million in short-term borrowings. There were no outstanding borrowings with ACBB at June 30, 2026 and December 31, 2025.
At June 30, 2026, we had unfunded commitments on construction and multi-family mortgage loans of $507.4 million, outstanding commitments to originate loans of $292.2 million, unfunded commitments under commercial and industrial loans lines of credit of $70.2 million, and unfunded standby letters of credit of $14.2 million. At June 30, 2026, certificates of deposit scheduled to mature in less than one year totaled $682.1 million. Based on prior experience, management believes that a significant portion of such deposits will remain with us, although there can be no assurance that this will be the case. In the event a significant portion of our deposits are not retained by us, we will have to utilize other funding sources, such as various types of sourced deposits, or Federal Reserve Bank borrowings, in order to maintain our level of assets. Alternatively, we could reduce our level of liquid assets, such as our cash and cash equivalents. In addition, the cost of such deposits may be significantly higher or lower depending on market interest rates at the time of renewal.
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Table of Contents
The Company is a separate legal entity from the Bank and must provide for its own liquidity. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its stockholders and for the repurchase, if any, of its shares of common stock. At June 30, 2026, the Company had liquid assets of $6.2 million and $1.9 million in loan participations originated by the Bank which are held by the Company.
Off-Balance Sheet Arrangements
For the three and six months ended June 30, 2026, we did not engage in any off-balance sheet transactions reasonably likely to have a material adverse effect on our financial condition, results of operations or cash-flows.
Impact of Inflation and Changing Prices
The consolidated financial statements and related notes of NorthEast Community Bancorp have been prepared in accordance with GAAP, which generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on performance than the effects of inflation.
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.