Item 7. Management’s Discussion and Analysis
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This discussion and analysis reflects our consolidated financial statements and other relevant statistical data, and is intended to enhance your understanding of our financial condition and results of operations. The information in this section has been derived from the financial statements which appear beginning on page F-1 herein. You should read the information in this section in conjunction with the business and financial information contained elsewhere in this annual report on Form 10-K, including the financial statements and related notes.
Overview
Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on our interest-earning assets, consisting primarily of loans, investment securities and other interest-earning assets (cash and cash equivalents), and the interest we pay on our interest-bearing liabilities, consisting primarily of demand accounts, NOW accounts, savings accounts, money market accounts, certificate of deposit accounts and borrowings.
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Our results of operations also are affected by non-interest income, our provision for credit losses and non-interest expense. Non-interest income consists primarily of fee income and service fees, income from our financial services division, earnings on deferred compensation plan assets, realized gains on sales of loans and securities and other income. Non-interest expenses consist primarily of compensation and employee benefits, core processing, premises and equipment, professional fees, postage and office supplies, FDIC premiums, advertising and other expenses.
Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in Onondaga and Madison Counties and the greater Syracuse, New York area, and our operations and earnings are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies, as well as regulatory actions, may materially impact our financial performance.
Business Strategy
We intend to continue to operate as a well-capitalized and profitable community bank dedicated to providing exceptional personal service to our individual and business customers. We believe that we have a competitive advantage in the markets we serve because of our knowledge of the local marketplace and our long-standing history of providing superior, relationship-based customer service. Our current executive management team is comprised of individuals with strong banking backgrounds who joined Seneca Savings Bank beginning in 2013. In October 2013, we appointed Joseph G. Vitale as our President and Chief Executive Officer. Shortly thereafter, we hired Vincent J. Fazio as Executive Vice President and Chief Financial Officer. In 2016, we hired Angelo Testani, our Senior Vice President of Commercial Lending, Laurie Ucher, our Senior Vice President of Retail Banking, and Jamie Nastri, our Senior Vice President of Operations. The management team has significant banking experience with our top two executives each having approximately 30 years or more of banking experience. Beginning with the completion of Seneca Savings Bank’s mutual holding company reorganization in October 2017 and continuing with the completion of our second step conversion in October 2025, the management team has worked to implement our business strategy to transition Seneca Savings Bank from a traditional savings association into a full-service commercial bank.
Our current business strategy consists of the following key components:
● Increasing commercial real estate and commercial and industrial lending, while maintaining our focus on strong asset quality. In order to increase the yield on our loan portfolio and diversify our balance sheet, we have strategically focused on increasing our commercial real estate and commercial and industrial loan portfolios, while maintaining what we believe are conservative underwriting standards. We focus our commercial lending on small businesses located in our market area, targeting owner-occupied businesses such as manufacturers and professional service providers. Our commercial loan portfolio, which includes commercial real estate and commercial and industrial loans, has increased to $110.2 million, or 48.6% of total loans, at December 31, 2025 from $60.1 million, or 37.2% of total loans, at December 31, 2020. We believe strong asset quality is a key to our long-term financial success. Our strategy for credit risk management focuses on having an experienced team of credit professionals, well-defined policies and procedures, appropriate loan underwriting criteria and active credit monitoring. Our non-performing loans to total loans ratio was 1.37% at December 31, 2025 and 0.22% at December 31, 2024. The majority of our non-performing loans have historically related to one- to four-family residential real estate loans. At December 31, 2025, we also had four non-accrual commercial and industrial loans totaling $1.6 million.
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● Growing and enhancing our low-cost deposit base . Core deposits, which we define as all deposits other than certificates of deposit and brokered deposits, are a lower cost source of funds than time deposits. We have made a concerted effort to increase these lower cost transaction deposit accounts following a period of higher interest rates where customers migrated to higher cost time deposits. As of December 31, 2025, core deposits totaled $ 172.1 million, or 73.4% of total deposits. We plan to continue to market our core transaction accounts, emphasizing our high-quality service and competitive pricing of these products. We offer the convenience of technology-based products, such as mobile deposit capture, bill pay, card valet, and internet and mobile banking.
We offer a full suite of treasury services for business customers and encourage commercial borrowers to maintain deposit accounts at Seneca Savings. We continue to invest in technology-based deposit products such as our commercial cash management platform, Positive Pay fraud prevention services, and Interactive Teller Machines (ITMs) in order to accommodate business customers.
Additionally, following our charter conversion to a national association, we are able to attract and accept deposits from New York municipalities, which we believe will promote deposit growth and enhance our low-cost deposit base.
● Continuing to originate one- to four-family residential mortgage loans in our communities while selling the majority of our newly originated longer-term, fixed-rate residential loans. Historically, we have been a significant one- to four-family residential mortgage lender to borrowers in our market area. As of December 31, 2025, $93.0 million, or 41.0%, of our total loans consisted of one- to four-family residential mortgage loans. We have recently resumed selling and will continue to sell residential mortgage loans into the secondary market in order to increase our fee income and mitigate interest rate risk. Loans that we sell into the secondary market consist of longer-term (20 years or greater), conforming fixed-rate residential real estate mortgage loans, which we primarily sell to the FHLB of New York’s Mortgage Asset Program and Freddie Mac. Net gain on sales of such loans constituted approximately $136,000 and $87,000 during the year ended December 31, 2025 and the year ended December 31, 2024, respectively, representing 6.2% and 4.7% of our non-interest income during such years, respectively.
● Expand our market area and access to customers through organic growth and de novo branching, while also considering opportunistic acquisitions of banks, branches or lines of business. We believe opportunities exist to both increase our market share in our historical markets and to continue our growth in the greater Syracuse, New York area. We intend to grow our balance sheet organically on a managed basis, and the capital we are raising in the stock offering will enable us to increase our lending and investment capacity. We will also consider establishing de novo branches. On June 2, 2025, we opened our newest branch in Manlius, New York. In 2025, we purchased a 1.2-acre parcel of land in Camillus, New York. We currently expect to construct a full-service branch with drive-through on this land and open the branch in early 2027. Additionally, in 2024, we purchased 2.5 acres of land in Clay, New York, directly across from the future site of the Micron Technology, Inc. semiconductor fabrication facility, where we intend to establish a branch office. This strategic investment positions us to support the economic growth expected in the region and to provide financial solutions to businesses and families as this transformative development takes shape. We anticipate developing this property in 2028, consistent with the extended timeline for construction of the Micron facility.
In addition to organic growth, we will also consider acquisition opportunities that we believe would enhance the value of our franchise and yield potential financial benefits for our stockholders. These opportunities may include strategic acquisitions of other financial institutions, branch offices or lines of business, although we have no current plans or understandings regarding any acquisitions.
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● Offering a wide selection of non-deposit investment products and financial advisory services. Financial Quest, a subsidiary of Seneca Savings Bank, offers employee benefit plan consulting services, asset management services, and tax and financial planning services. We have dedicated investment representatives who evaluate the needs of both retail and retirement plan clients to determine suitable investment solutions to meet their short and long-term wealth management goals. We intend to continue to grow this part of our business as a means to increase our non-interest income. In February 2024, Financial Quest acquired a $131.6 million retirement plan book of business for $714,500 in cash and $475,500 in contingent consideration. At December 31, 2025, we had $259.3 million of assets held under management. Income from these activities totaled $969,000, or 43.9% of our non-interest income, for the year ended December 31, 2025 as compared to $893,000, or 47.9% of our non-interest income, for the year ended December 31, 2024.
Summary of Critical Accounting Policies and Critical Accounting Estimates
Our consolidated financial statements are prepared in accordance with GAAP. As a result, we are required to make certain estimates, judgments, and assumptions that we believe are reasonable based upon the information available at that time. Critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the years presented. Actual results could be different from these estimates. We evaluate our critical accounting estimates and assumptions on an ongoing basis and update them as needed. Significant accounting policies are presented in Note 2. Summary of Significant Accounting Policies of the notes to the consolidated financial statements included within this annual report on Form 10-K.
Allowance for Credit Losses
The allowance for credit losses on loans represents management’s current estimate of expected credit losses over the contractual term of loans, and is recorded at an amount that, in management’s judgment, reduces the recorded investment in loans to the net amount expected to be collected. Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to our portfolios of assets exhibiting credit risk, particularly in our loan portfolio, and the material effect that such judgments can have on our results of operations. Determining the amount requires significant judgment on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.
The allowance is established through a provision for credit losses in our consolidated statements of income, and evaluation of the adequacy of the allowance for credit losses is performed by management on a quarterly basis. While management uses available information to anticipate credit losses, future additions to the allowance may be necessary based on changes in economic conditions or the composition of our portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses. At December 31, 2025, the allowance for credit losses on loans totaled $1.9 million. Due to the nature and composition of our lending activities, a significant portion of the allowance for credit losses on loans is allocated to the real estate mortgage portfolio. As of December 31, 2025, the allowance for credit losses on loans allocated to our real estate mortgage portfolio was $1.2 million, or 61.0%.
Our methodology for maintaining our allowance for credit losses is based on historical experience and data, current economic information, and reasonable and supportable forecasts. Accordingly, the estimation of the allowance for credit losses is impacted by the economic forecasts utilized, which require the use of significant judgment. Deterioration in forecasted economic conditions may lead to further required increases to the allowance for credit losses. Conversely, improvements in forecasted economic conditions may warrant further reductions to the allowance for credit losses. In estimating the allowance for credit losses, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate.
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Loans that have similar risk characteristics are evaluated on a collective basis for the purposes of establishing the allowance for credit losses. Qualitative risk factors evaluated include:
● changes in the local economy and economic forecasts;
● changes in the nature and volume of the portfolio and in the terms of loans;
● concentration of credit exposure;
● changes in lending policies and procedures, including changes in underwriting standards and collection, charge-off, and recovery practices not considered elsewhere in estimating credit losses;
● digital lending risk; and
● changes in the experience, ability, and depth of lending management and other relevant staff.
Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are also not included in the collective evaluation. A collateral-dependent asset is a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower, based on management’s assessment, is experiencing financial difficulty. The allowance for credit loss for a collateral dependent financial asset is measured using the fair value of collateral. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.
An unallocated component is maintained to cover uncertainties that could affect management's estimate of probable losses. The unallocated component of the allowance reflects the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating specific and general losses in the portfolio.
The allowance for credit losses is sensitive to various forecasted macroeconomic drivers, including the Federal Open Market Committee's (“FOMC”) median forecasted U.S. civilian unemployment rate and the year-over-year change in U.S. Gross Domestic Product (“GDP”). While it is difficult to estimate how potential changes to various factors may impact the allowance for credit losses because such changes to factors may not occur at the same rate or in the same direction, management compared the modeled allowance for credit losses on loans to a hypothetical model using a downside economic forecast. Using an immediate “shock” or increase of 20 basis points in the FOMC’s projected rate of U.S. 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 $1.0 million, or 55.4%, representing a 45 basis points increase to 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 December 31, 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 December 31, 2025.
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. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.
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Analysis of Net Interest Income
Net interest income represents the difference between the interest we earn on our interest-earning assets, such as commercial and residential mortgage loans and investment securities, and the expense we pay on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on them.
Average Balances and Yields . The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments were made, as the effect thereof was not material. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances but have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or interest expense.
For the Year Ended December 31,
2025
2024
Average
Average
Outstanding
Yield/
Outstanding
Yield/
Balance
Interest
Rate
Balance
Interest
Rate
(Dollars in thousands)
Interest-earning assets:
Loans
$
212,318
$
12,362
5.82
%
$
202,927
$
11,632
5.73
%
Available-for-sale securities
53,456
1,732
3.24
40,385
1,190
2.95
FHLB/FRB Stock
3,401
258
7.59
3,047
287
9.42
Other interest-earning assets
8,580
275
3.21
6,432
255
3.96
Total interest-earning assets
277,755
14,627
5.27
252,791
13,364
5.29
Non-interest-earning assets
20,076
12,698
Total assets
$
297,831
$
265,489
Interest-bearing liabilities:
NOW accounts
$
26,895
25
0.09
$
25,286
24
0.09
Regular savings and demand club accounts
25,072
110
0.44
22,887
20
0.09
Money market accounts
76,409
2,159
2.83
56,305
1,407
2.50
Certificates of deposit and retirement accounts
64,186
2,017
3.14
66,007
2,386
3.61
Total interest-bearing deposits
192,562
4,311
2.24
170,485
3,837
2.25
FHLB borrowings
38,957
1,420
3.65
36,839
1,393
3.78
Total interest-bearing liabilities
231,519
5,731
2.48
207,324
5,230
2.52
Non-interest-bearing deposits
34,217
31,577
Other non-interest-bearing liabilities
11,101
4,744
Total liabilities
276,837
243,645
Stockholders’ equity
20,994
21,844
Total liabilities and stockholders’ equity
$
297,831
$
265,489
Net interest income
$
8,896
$
8,134
Net interest rate spread (1)
2.79
%
2.77
%
Net interest-earning assets (2)
$
46,236
$
45,467
Net interest margin (3)
3.20
%
3.22
%
Average interest-earning assets to average interest-bearing liabilities
119.97
%
121.93
%
(1)
Interest rate spread represents the difference between the yield on average interest-earning assets and the cost of average interest-bearing liabilities.
(2)
Net interest-earning assets represents total interest-earning assets less total interest-bearing liabilities.
(3)
Net interest margin represents net interest income divided by total interest-earning assets.
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Rate/Volume Analysis. The following table presents the effects of changing rates and volumes on our net interest income for the periods indicated. 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 net column represents the sum of the prior columns. For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately, based on the changes due to rate and the changes due to volume. There were no out-of-period items or adjustments required to be excluded from the table below.
Year Ended December 31,
2025 vs. 2024
Increase (Decrease)
Due
Total
to
Increase
Volume
Rate
(Decrease)
(In thousands)
Interest-earning assets:
Loans
$
538
$
192
$
730
Available-for-sale securities
386
156
542
FHLB/FRB stock
33
(62)
(29)
Other interest-earning assets
85
(65)
20
Total interest-earning assets
1,042
221
1,263
Interest-bearing liabilities:
NOW accounts
1
—
1
Regular savings and demand club accounts
2
88
90
Money market accounts
503
249
752
Certificates of deposit and retirement accounts
(66)
(303)
(369)
Total deposits
440
34
474
FHLB borrowings
80
(53)
27
Total interest-bearing liabilities
520
(19)
501
Change in net interest income
$
522
$
240
$
762
Comparison of Financial Condition at December 31, 2025 and December 31, 2024
Total Assets. Total assets were $312.1 million as of December 31, 2025 and $280.9 million as of December 31, 2024, an increase of $31.2 million, or 11.1%. The increase in assets was primarily due to a $23.6 million, or 11.7%, increase in net loans, a $4.4 million, or 49.9%, increase in premises and equipment, and a $2.2 million, or 4.6%, increase in available-for-sale securities.
Cash and Cash Equivalents. Cash and cash equivalents decreased $1.5 million, or 21.5%, to $5.3 million at December 31, 2025 from $6.8 million at December 31, 2024. The decrease primarily resulted from increases in net loans receivable and premises and equipment as well as a decrease in FHLB advances.
Available-for-Sale Securities. Available-for-sale securities increased by $2.2 million, or 4.6%, to $48.6 million at December 31, 2025 from $46.5 million at December 31, 2024. The increase was primarily due to $28.6 million of available-for-sale securities purchases during the year ended December 31, 2025 along with a $674,000 decrease in net unrealized losses in the market value of the portfolio, partially offset by $27.2 million in proceeds from maturities and principal received from securities during the year ended December 31, 2025.
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Net Loans. Loans receivable, net of the allowance for credit losses, increased $23.6 million, or 11.7%, to $226.0 million at December 31, 2025 from $202.4 million at December 31, 2024. The increase in net loans was primarily driven by the origination of $52.6 million of loans during the year ended December 31, 2025, partially offset by $27.9 million of paydowns and the sale of $8.2 million of one- to four-family residential mortgage loans on the secondary market. Commercial real estate loans increased $28.4 million, or 47.8%, to $87.9 million at December 31, 2025 from $59.5 million at December 31, 2024, due to our continued strategic focus on commercial lending to diversify the loan portfolio and manage interest rate risk. Home equity loans and lines of credit increased $4.0 million, or 33.6%, to $15.9 million at December 31, 2025 from $11.9 million at December 31, 2024. Residential construction loans increased $1.9 million, or 148.1%, to $3.2 million at December 31, 2025 from $1.3 million at December 31, 2024. One- to- four-family residential mortgage loans decreased $8.2 million, or 8.1%, to $93.0 million at December 31, 2025 from $101.2 million at December 31, 2024 as we sold loans into the secondary market. Commercial and industrial loans decreased $1.2 million, or 5.0%, to $22.2 million at December 31, 2025 from $23.4 million at December 31, 2024. Consumer and other loans decreased $990,000, or 18.5%, to $4.3 million at December 31, 2025 from $5.3 million at December 31, 2024.
Premises and Equipment, net. Premises and equipment, net, increased by $4.4 million, or 49.9%, to $13.2 million at December 31, 2025 as compared to $8.8 million at December 31, 2024. The increase was primarily attributed to our strategic investment in organic growth via building a new branch office in Manlius, New York as well as future branch locations in Camillus and Clay, New York.
Deposits. Total deposits increased by $23.9 million, or 11.3%, to $234.4 million at December 31, 2025 from $210.6 million at December 31, 2024. The increase was primarily a result of an increase in commercial deposits of $5.9 million and an increase in retail deposits of $17.9 million. Core deposits (which we define as all deposits other than certificates of deposit and brokered deposits) increased $28.9 million, or 20.2% to $172.1 million at December 31, 2025 as compared to $143.2 million as of December 31, 2024. At December 31, 2025, money market deposits increased by $23.7 million, savings accounts increased by $2.9 million, NOW and demand deposits increased by $2.3 million, while time deposits decreased by $5.0 million as compared to December 31, 2024. There were $16.7 million and $16.9 million of brokered deposits included in time deposits at December 31, 2025 and December 31, 2024, respectively. The increase in deposits was attributed to our increased focus on commercial deposit relationships and a competitive money market promotion throughout the year as market conditions changed in the lower interest rate environment.
FHLB Advances. Total FHLB advances were $35.6 million at December 31, 2025 as compared to $41.3 million at December 31, 2024, a decrease of $5.7 million, or 13.8%. The decrease in FHLB advances was primarily due to $63.0 million in repayments, partially offset by $57.3 million in new advances. The decrease in advances was primarily due to the increase in deposits.
Stockholders’ Equity . Stockholders’ equity increased by $8.9 million, or 37.3%, to $32.8 million at December 31, 2025 from $23.9 million at December 31, 2024. The increase in stockholders’ equity was primarily due to $7.9 million in net proceeds related to the second step conversion, a $838,000 increase in net unrealized mark-to-market gains on the available-for-sale securities portfolio recognized in accumulated other comprehensive loss as a result of changes in interest rates, and $172,000 of net income earned during the year ended December 31, 2025.
Comparison of Results of Operations for the Years Ended December 31, 2025 and 2024
Net Income. Net income was $172,000 for the year ended December 31, 2025, a decrease of $540,000, or 75.8% as compared to net income of $712,000 for the year ended December 31, 2024. The decrease in net income was primarily attributable to a $1.2 million, or 13.6%, increase in non-interest expense, a $535,000, or 174.8% increase in provision for credit losses, and a $501,000, or 9.6%, increase in interest expense, partially offset by a $1.3 million, or 9.5%, increase in interest income, a $343,000, or 18.4%, increase in non-interest income, and a $95,000, or 91.3%, decrease in provision for income taxes.
Interest Income. Interest income increased by $1.3 million, or 9.5%, to $14.6 million for the year ended December 31, 2025 as compared to $13.4 million for the year ended December 31, 2024. The increase was primarily due to a $730,000 increase in loan interest income.
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Loan interest income increased by $730,000, or 6.3%, to $12.4 million for the year ended December 31, 2025 as compared to $11.6 million for the year ended December 31, 2024. The increase was due to a $9.4 million, or 4.6%, increase in the average balance of the loan portfolio to $212.3 million for the year ended December 31, 2025 from $202.9 million for the year ended December 31, 2024. The increase in the average balance of the loan portfolio was primarily due to an increase in the average balance of commercial real estate loans, with a continued focus on small business lending, partially offset by loan repayments and one- to four-family residential real estate loan sales. The average yield earned on the loan portfolio increased by nine basis points to 5.82% for the year ended December 31, 2025 from 5.73% for the year ended December 31, 2024, primarily due to an increase in market interest rates and originations of higher yielding commercial real estate and commercial and industrial loans.
Interest income earned on the available-for-sale securities portfolio increased by $542,000, or 45.6%, to $1.7 million for the year ended December 31, 2025 as compared to $1.2 million for the year ended December 31, 2024. The average yield earned on the available-for-sale securities portfolio increased by 29 basis points to 3.24% for the year ended December 31, 2025 from 2.95% for the year ended December 31, 2024 due to an increase in interest rates earned on the portfolio, resulting from purchases of higher-yielding securities. The average balance of the available-for-sale securities portfolio was $53.5 million for the year ended December 31, 2025 as compared to $40.4 million for the year ended December 31, 2024.
Interest Expense. Interest expense increased $501,000, or 9.6%, to $5.7 million for the year ended December 31, 2025 from $5.2 million for the year ended December 31, 2024 due to a $474,000, or 12.4%, increase in interest paid on deposits and a $27,000, or 1.9%, increase in interest paid on borrowings.
Interest expense on deposits increased $474,000, or 12.4%, to $4.3 million for the year ended December 31, 2025 from $3.8 million for the year ended December 31, 2024. The average balance of deposits increased by $22.1 million, or 13.0%, to $192.6 million for the year ended December 31, 2025 from $170.5 million for the year ended December 31, 2024. The increase in the average balance of deposits was primarily attributed to a $20.1 million increase in the average balance of money market accounts, a $2.1 million increase in the average balance of savings accounts, and a $1.6 million increase in the average balance of NOW accounts. The average interest rate paid on deposit accounts decreased by one basis point to 2.24% for the year ended December 31, 2025 from 2.25% for the year ended December 31, 2024.
Interest expense paid on FHLB and other borrowings increased $27,000, or 1.9%, to $1.4 million for the year ended December 31, 2025. The increase in the interest paid on borrowings was primarily due to a $2.1 million, or 5.8%, increase in the average balance of FHLB borrowings to $39.0 million for the year ended December 31, 2025 as compared to $36.8 million for the year ended December 31, 2024 in order to fund loan growth. The average rate paid on borrowings decreased 13 basis points during the year ended December 31, 2025 to 3.65% as compared to 3.78% for the year ended December 31, 2024 due to a decrease in borrowing costs.
Net Interest Income. Net interest income increased by $762,000, or 9.4% to $8.9 million for the year ended December 31, 2025 from $8.1 million for the year ended December 31, 2024. The average balance of net interest earning assets increased by $769,000, or 1.7%, to $46.2 million for the year ended December 31, 2025 from $45.5 million for the year ended December 31, 2024 primarily due to organic loan growth. Net interest rate spread increased by two basis points to 2.79% for the year ended December 31, 2025, reflecting a four basis points decrease in the average rate paid on interest-bearing liabilities, partially offset by a two basis points decrease in the average yield earned on interest earning assets. The net interest margin decreased by two basis points to 3.20% for the year ended December 31, 2025 from 3.22% for the year ended December 31, 2024.
Provision for Credit Losses. Based on management’s analysis of the allowance for credit losses described under “–Summary of Critical Accounting Policies and Critical Accounting Estimates” and in Note 2. Summary of Significant Accounting Policies of notes to the consolidated financial statements included within this Annual Report on Form 10-K, we recorded a provision for credit losses of $841,000 and $306,000 during the years ended December 31, 2025 and 2024, respectively. For the year ended December 31, 2025, we recorded a $20,000 provision for credit losses related to the available-for-sale securities portfolio and an $821,000 provision for credit losses related to the loan portfolio. For the year ended December 31, 2024, we recorded a $451,000 provision for credit losses related to the available-for-sale securities portfolio, which was partially offset by a $145,000 credit to the provision for credit losses related to the loan portfolio.
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The $20,000 provision for credit losses on the available-for-sale securities portfolio for the year ended December 31, 2025 was primarily due to one municipal bond that was in default. The bond is collateralized with all the assets and real estate of the issuer which will be monetized to satisfy bond holders.
The $821,000 provision for credit losses on the loan portfolio during the year ended December 31, 2025 was primarily related to one borrowing relationship consisting of three loans, including two commercial and industrial loans and a commercial real estate loan. At December 31, 2025 the two commercial and industrial loans totaling $599,000 were fully charged off and the commercial real estate loan with a balance of $454,000 was fully paid off. Additionally, overall growth in the loan portfolio also contributed to the increase in the allowance for credit losses. The allowance for credit losses was $1.9 million, or 0.84%, of total loans outstanding at December 31, 2025, and $1.8 million, or 0.89%, of total loans outstanding at December 31, 2024.
Non-Interest Income. Non-interest income increased by $343,000, or 18.4%, to $2.2 million for the year ended December 31, 2025 from $1.9 million for the year ended December 31, 2024. The increase was primarily attributable to a $123,000 increase in fee income primarily due to our increased focus on core deposit growth, a $90,000 increase in earnings on deferred compensation plan assets due to higher market interest rates, a $76,000 increase in income earned from financial services and retirement planning income generated by our subsidiary, Financial Quest, and a $49,000 increase in gain on sale of residential mortgage loans.
Non-Interest Expense. Non-interest expense increased by $1.2 million, or 13.6%, to $10.1 million for the year ended December 31, 2025 from $8.9 million for the year ended December 31, 2024. Compensation and benefits expense increased by $505,000, or 10.3%, to $5.4 million for the year ended December 31, 2025 as compared to $4.9 million for the year ended December 31, 2024 as a result of an increase in the number of employees related to the opening of a new branch office in Manlius, New York in June 2025 and due to annual salary increases and increases in benefit expenses. Professional fees increased by $194,000, or 83.6%, to $426,000 for the year ended December 31, 2025 as compared to $232,000 for the year ended December 31, 2024 due to increases in consulting, legal, and audit and accounting services as a result of becoming a public company. Premises and equipment expense increased by $158,000, or 20.6%, to $924,000 for the year ended December 31, 2025 from $766,000 for the year ended December 31, 2024 primarily due to the opening of a new branch office in Manlius, New York.
Income Tax Expense. We incurred income tax expense of $9,000 and $104,000 for the years ended December 31, 2025, and 2024, respectively, resulting in effective tax rates of 4.9% and 12.7%, respectively. The decrease in income tax expense resulted from the decrease in income before tax. See Footnote 8, Income Taxes, for disaggregated information regarding the effective rate in each year.
Financial Position and Results of Operations of Our Wealth Management Business Segment
We conduct our business through two business segments: (1) our banking business segment, which primarily involves the delivery of loan and deposit products to our customers through Seneca Savings and generates net interest income and service fees, and (2) our wealth management business segment, which includes investment management services for individuals and institutions offered through Financial Quest and provides commission income from 401(k) plan management and brokered accounts.
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The following table presents the statements of income and total assets for our reportable business segments at or for the years indicated:
At or for the Year Ended December 31,
2025
2024
Wealth
Total
Wealth
Total
(In thousands)
Banking
Management
Segments (2)
Banking
Management
Segments
Net interest income
$
8,896
$
—
$
8,896
$
8,134
$
—
$
8,134
Non-interest income
1,208
1,001
2,209
941
925
1,866
Provision for credit losses on loans
821
—
821
(145)
—
(145)
Provision for credit losses on investments
20
—
20
451
—
451
Non-interest expense
9,326
757
10,083
8,214
664
8,878
Provision for income taxes
9
—
9
104
—
104
Net (loss) income
$
(72)
$
244
$
172
$
451
$
261
$
712
Assets under management (AUM) (market value) (1)
$
—
$
259,250
$
259,250
$
—
$
233,580
$
233,580
Total assets
$
312,487
$
1,236
$
312,114
$
280,030
$
1,183
$
280,939
(1) Assets under management represents customer assets managed by Financial Quest, and not assets of Financial Quest or Seneca Savings.
(2) Reflects intercompany eliminations. See Footnote 17, Segment Information, for more information.
Comparison at or for the years ended December 31, 2025 and 2024 . The market value of assets under management was $259.3 million at December 31, 2025 as compared to $233.6 million at December 31, 2024. The increase was primarily due to continued organic acquisition of new assets under management combined with an increase in the market value of assets under management.
Income related to our wealth management business segment, which we record as non-interest income, increased $76,000, or 8.2%, to $1.0 million for the year ended December 31, 2025 as compared to $925,000 for the year ended December 31, 2024. The increase was mainly due to the impact of movement in equity markets and the interest rate environment during the year.
Expenses related to our wealth management business segment, which we record as non-interest expense, increased $93,000, or 14.0%, to $757,000 for the year ended December 31, 2025 as compared to $667,000 for the year ended December 31, 2024. The increase was primarily due to a $47,000, or 11.0%, increase in compensation and employee benefits along with a $40,000 increase in professional fees.
Liquidity and Capital Resources
Liquidity describes our ability to meet the financial obligations that arise in the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers and to fund current and planned expenditures. Our primary sources of funds are deposits, principal and interest payments on loans and securities, proceeds from the sale of loans, and proceeds from calls, maturities and sales of securities. We also are able to borrow from the FHLB of New York. At December 31, 2025, we had a $86.1 million line of credit with the FHLB of New York, a $4.0 million line of credit with Zions Bank, and a $4.0 million line of credit with Pacific Coast Bankers Bank (“PCBB”). At December 31, 2025, we had outstanding borrowings of $35.6 million from the FHLB of New York. We did not borrow against the line of credit with Zions Bank or PCBB during the year ended December 31, 2025. We also have the ability to borrow from the Federal Reserve Bank of New York through the discount window lending program.
The Board of Directors is responsible for establishing and monitoring our liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of our customers as well as unanticipated contingencies. We believe that we had sufficient sources of liquidity to satisfy our short and long-term liquidity needs as of December 31, 2025.
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While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. Our most liquid assets are cash and cash equivalents, which includes cash and due from banks. The levels of these assets are dependent on our operating, financing, lending and investing activities during any given period. At December 31, 2025, cash and cash equivalents totaled $5.3 million. Securities classified as available-for-sale, which provide additional sources of liquidity, had a total market value of $48.6 million at December 31, 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 FHLB of New York advances and other liquidity sources. We are committed to maintaining a strong liquidity position. We monitor our liquidity position on a daily basis. Certificates of deposit due within twelve months of December 31, 2025 totaled $47.2 million, or 20.1%, of total deposits. If these deposits do not remain with us, we will be required to seek other sources of funds, including other deposits and FHLB of New York advances. Depending on market conditions, we may be required to pay higher rates on such deposits or borrowings than we currently pay. We believe, however, based on past experience that a significant portion of such deposits will remain with us. We have the ability to attract and retain deposits by adjusting the interest rates offered.
We have obtained an irrevocable letter of credit with the FHLB of New York to collateralize New York state deposits for the New York Banking Development District program. The Banking Development District program through incentives encourages banks to open branches in communities that are underserved in banking services. New York State has deposited a below-market rate certificate of deposit in our Bridgeport office, located in Madison County. Seneca Savings in turn makes loans to small businesses located in the market area with the proceeds.
At December 31, 2025, we exceeded all of our regulatory capital requirements, and we were categorized as “well capitalized” at December 31, 2025. Management is not aware of any conditions or events since December 31, 2025 that would change our categorization. See Note 13. Regulatory Capital Requirements of the notes to our consolidated financial statements for more information.
Off-Balance Sheet Arrangements and Contractual Obligations
Our off-balance sheet items include loan commitments as described in Note 12. Commitments and Contingencies of the notes to our consolidated financial statements. At December 31, 2025, we had loan commitments to borrowers of approximately $1.3 million and overdraft lines of credit, unused home equity lines of credit, unused commercial lines of credit, and commercial and standby letters of credit of approximately $28.0 million. We do not have any other 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. Allowance for credit losses on unfunded loan commitments was immaterial at December 31, 2025 and 2024.
Recent Accounting Pronouncements
See Note 2. Summary of Significant Accounting Policies of the notes to the consolidated financial statements included within this annual report on Form 10-K for a description of recent accounting pronouncements that may affect our financial condition and results of operations.
Impact of Inflation and Changing Price
The consolidated financial statements and related data presented elsewhere in this annual report on Form 10-K have been prepared in accordance with GAAP which require the measurement of financial position and operating results in terms of historical dollars without considering changes in the relative purchasing power of money over time due to inflation. The primary impact of inflation on our operations is reflected in increased operating costs. Unlike most industrial companies, virtually all of the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates, generally, have a more significant impact on a financial institution’s performance than does inflation. Interest rates do not necessarily move in the same direction or to the same extent as the prices of goods and services.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not required of a smaller reporting company.
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