Item 2. Management’s Discussion and Analysis
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
General
Management’s discussion and analysis of the financial condition and results of operations at and for the three months ended March 31, 2026 and 2025 is intended to assist in understanding the financial condition and results of operations of the Company. The information in this section should be read in conjunction with the unaudited financial statements and the notes thereto, appearing in Part 1, Item 1 of this quarterly report on Form 10-Q.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). These forward-looking statements can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:
● statements of our goals, intentions and expectations;
● statements regarding our business plans, prospects, growth and operating strategies;
● statements regarding the quality of our loan and investment portfolios; and
● estimates of our risks and future costs and benefits.
These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change.
The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:
● inflation, tariffs and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, or increase the level of defaults, losses and prepayments on loans we have made and make;
● general economic conditions, either nationally or in our market areas, that are worse than expected;
● events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock;
● changes in the level and direction of loan delinquencies and write-offs and changes in estimates of the adequacy of the allowance for credit losses;
● our ability to access cost-effective funding;
● fluctuations in real estate values and both residential and commercial real estate market conditions;
● demand for loans and deposits in our market area;
● our ability to implement and change our business strategies;
● competition among depository and other financial institutions;
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● adverse changes in the securities or secondary mortgage markets, including our ability to sell loans in the secondary market;
● changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees and capital requirements;
● changes in the quality or composition of our loan or investment portfolios;
● technological changes that may be more difficult or expensive than expected;
● the inability of third-party providers to perform as expected;
● a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
● our ability to manage market risk, credit risk and operational risk in the current economic environment;
● our ability to enter new markets successfully and capitalize on growth opportunities;
● our ability to successfully integrate into our operations any assets, liabilities, customers, systems and management personnel we may acquire and our ability to realize related revenue synergies and cost savings within expected time frames, and any goodwill charges related thereto;
● changes in consumer spending, borrowing and savings habits;
● changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
● our ability to retain key employees;
● any future FDIC insurance premium increases or special assessments may adversely affect our earnings;
● our ability to prevent or mitigate fraudulent activity;
● our ability to evaluate the amount and timing of recognition of future tax assets and liabilities;
● political instability or civil unrest;
● acts of war or terrorism or public health emergencies such as the COVID-19 pandemic;
● our ability to control operating costs and expenses, including compensation expense associated with equity allocated or awarded to our employees;
● changes in the financial condition, results of operations or future prospects of issuers of securities that we own; and
● our inability to sell our foreclosed assets, net at an amount equal to or greater than the carrying amount.
Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements. Except as required by applicable law or regulation, we do not undertake, and we specifically disclaim any obligation, to release publicly the results of any revisions that may be made to any forward-looking statements to reflect events or circumstances after the date of the statements or to reflect the occurrence of anticipated or unanticipated events.
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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.
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 bank owned life insurance, 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.
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 periods 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 Quarterly Report on Form 10-Q.
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 March 31, 2026, and December 31, 2025, the allowance for credit losses on loans totaled $2.0 million and $1.9 million, respectively. 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 commercial real estate portfolio. As of March 31, 2026, and December 31, 2025, the allowance for credit losses on loans allocated to our commercial real estate portfolio was $672,000, or 34.3%, and $676,000, or 37.3%, respectively.
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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.
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 $1.1 million or 53.4%, 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 March 31, 2026. 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 March 31, 2026.
Unexpected changes in economic growth could adversely affect our results of operations, including causing increases in delinquencies and default rates on loans, which would adversely impact our charge-offs, allowance for credit losses, and provision for credit losses. 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
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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.
Comparison of Financial Condition at March 31, 2026 and December 31, 2025
Total Assets. Total assets were $315.9 million as of March 31, 2026 and $312.1 million as of December 31, 2025, an increase of $3.7 million, or 1.2%. The increase in assets was primarily due to a $7.3 million increase in net loans, and a $1.9 million increase in cash and cash equivalents, offset by a $5.6 million decrease in available-for-sale securities.
Cash and Cash Equivalents. Cash and cash equivalents increased $1.9 million, or 35.2%, to $7.2 million at March 31, 2026 from $5.3 million at December 31, 2025. The increase primarily resulted from a $6.4 million increase in total deposits and a $5.6 million decrease in available-for-sale securities, partially offset by a $7.3 million increase in net loans.
Available-for-Sale Securities. Available-for-sale securities decreased by $5.6 million, or 11.5%, to $43.0 million at March 31, 2026 from $48.6 million at December 31, 2025. This decrease was primarily due to maturities of $4.5 million and $838,000 in principal repayments during the first three months of 2026.
Net Loans. Loans receivable, net of the allowance for credit losses, increased $7.3 million, or 3.2%, to $233.3 million at March 31, 2026 from $226.0 million at December 31, 2025. The increase in net loans was primarily driven by the origination of $13.0 million of loans, partially offset by $4.4 million of paydowns and $1.3 million of loan sales during the three months ended March 31, 2026. Commercial real estate loans increased to $94.9 million at March 31, 2026 from $88.0 million at December 31, 2025 and commercial and industrial loans increased to $23.7 million at March 31, 2026 as compared to $22.2 million at December 31, 2025 as we continue to focus on growth in these portfolios. Home equity loans and lines of credit increased to $16.8 million at March 31, 2026 from $15.9 million at December 31, 2025. One- to four-family residential mortgage loans decreased to $92.3 million at March 31, 2026 from $93.0 million at December 31, 2025. Residential construction loans decreased to $2.4 million at March 31, 2026 from $3.2 million at December 31, 2025. Consumer and other loans decreased to $4.0 million at March 31, 2026 from $4.3 million at December 31, 2025.
Deposits. Total deposits increased by $6.4 million, or 2.7%, to $240.9 million at March 31, 2026 from $234.4 million at December 31, 2025. Core deposits (which we define as all deposits other than certificates of deposit and brokered deposits) increased $9.2 million, or 5.4% to $181.3 million at March 31, 2026 from $172.1 million at December 31, 2025 primarily due to an increase in business money market accounts. As of March 31, 2026, money market deposits increased by $8.7 million and NOW and demand deposits increased by $1.1 million, partially offset by decreases in time deposits of $2.8 million and savings accounts of $576,000 as compared to December 31, 2025. There were $15.7 million and $16.7 million of brokered deposits included in time deposits at March 31, 2026 and December 31, 2025, respectively.
FHLB Advances. Total FHLB advances were $34.6 million at March 31, 2026 as compared to $35.6 million at December 31, 2025, a decrease of $1.0 million, or 2.8%. FHLB advances were paid down using funds obtained through deposit growth.
Stockholders’ Equity . Stockholders’ equity decreased by $193,000, or 0.6%, to $32.6 million at March 31, 2026 from $32.8 million at December 31, 2025. The decrease in stockholders’ equity was due to a $196,000 increase in net unrealized mark-to-market loss on the available-for-sale securities portfolio recognized in accumulated other comprehensive loss as a result of changes in interest rates during the three months ended March 31, 2026 in addition to a net loss of $50,000 recorded during the three months ended March 31, 2026.
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.
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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 Three Months Ended March 31,
2026
2025
Average
Average
Outstanding
Yield/
Outstanding
Yield/
Balance
Interest
Rate (4)
Balance
Interest
Rate (4)
(Dollars in thousands)
Interest-earning assets:
Loans
$
232,862
$
3,326
5.71
%
$
204,506
$
2,929
5.73
%
Available-for-sale securities
48,168
405
3.36
47,483
381
3.21
FHLB/FRB stock
3,522
67
7.61
3,336
76
9.11
Other interest-earning assets
6,285
30
1.91
6,316
51
3.23
Total interest-earning assets
290,837
3,828
5.26
261,641
3,437
5.25
Non-interest-earning assets
24,790
16,623
Total assets
$
315,627
$
278,264
Interest-bearing liabilities:
NOW accounts
$
27,965
6
0.09
$
26,033
6
0.09
Regular savings and demand club accounts
24,996
22
0.35
23,361
18
0.31
Money market accounts
92,766
599
2.58
65,701
396
2.41
Certificates of deposit and retirement accounts
60,400
467
3.09
65,013
508
3.13
Total interest-bearing deposits
206,127
1,094
2.12
180,108
928
2.06
FHLB borrowings
34,761
290
3.34
40,028
381
3.81
Total interest-bearing liabilities
240,888
1,384
2.30
220,136
1,309
2.38
Non-interest-bearing deposits
33,169
31,505
Other non-interest-bearing liabilities
8,323
3,289
Total liabilities
282,380
254,930
Stockholders’ equity
33,247
23,334
Total liabilities and stockholders’ equity
$
315,627
$
278,264
Net interest income
$
2,444
$
2,128
Net interest rate spread (1)
2.97
%
2.88
%
Net interest-earning assets (2)
$
49,949
$
41,505
Net interest margin (3)
3.36
%
3.25
%
Average interest-earning assets to average interest-bearing liabilities
120.74
%
118.85
%
(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.
(4) Annualized.
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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.
Three Months Ended March 31,
2026 vs. 2025
Increase (Decrease)
Due
Total
to
Increase
(In thousands)
Volume
Rate
(Decrease)
Interest-earning assets:
Loans
$
406
$
(9)
$
397
Available-for-sale securities
5
19
24
FHLB/FRB stock
4
(13)
(9)
Other interest-earning assets
—
(21)
(21)
Total interest-earning assets
415
(24)
391
Interest-bearing liabilities:
Regular savings and demand club accounts
1
3
4
Money market accounts
163
40
203
Certificates of deposit and retirement accounts
(36)
(5)
(41)
Total deposits
128
38
166
FHLB borrowings
(50)
(41)
(91)
Total interest-bearing liabilities
78
(3)
75
Change in net interest income
$
337
$
(21)
$
316
Comparison of Results of Operations for the Three Months Ended March 31, 2026 and 2025
Net Income. A net loss of $50,000 was recorded for the three months ended March 31, 2026, a decrease of $198,000 as compared to net income of $148,000 for the three months ended March 31, 2025. The decrease in net income was attributable to a $644,000 increase in non-interest expense and a $10,000 increase in provision for credit losses on loans during the three months ended March 31, 2026, partially offset by a $316,000 increase in net interest income, a $118,000 increase in non-interest income, and a $22,000 decrease in income tax expense.
Interest Income. Interest income increased $391,000, or 11.4%, to $3.8 million for the three months ended March 31, 2026, as compared to $3.4 million for the three months ended March 31, 2025 primarily due to increases in loan interest income and interest and dividend income earned on the available-for-sale securities portfolio.
Interest income on loans increased by $397,000, or 13.6%, to $3.3 million for the three months ended March 31, 2026 as compared to $2.9 million for the three months ended March 31, 2025. The increase was due to a $28.4 million, or 13.9%, increase in the average balance of the loan portfolio to $232.9 million for the three months ended March 31, 2026 from $204.5 million for the three months ended March 31, 2025. 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, partially offset by loan repayments and one- to four-family residential real estate loan sales. The average yield earned on the loan portfolio decreased by two basis points to 5.71% for the three months ended March 31, 2026 from 5.73% for the three months ended March 31, 2025.
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Interest income earned on the available-for-sale securities portfolio increased by $24,000, or 6.3%, to $405,000 for the three months ended March 31, 2026 as compared to $381,000 for the three months ended March 31, 2025. The increase was primarily attributable to a $685,000, or 1.4%, increase in the average balance of the available-for-sale securities portfolio to $48.2 million for the three months ended March 31, 2026 as compared to $47.5 million for the three months ended March 31, 2025. The average yield earned on the available-for-sale securities portfolio increased by 15 basis points to 3.36% for the three months ended March 31, 2026 from 3.21% for the three months ended March 31, 2025, due to an increase in interest rates earned on the portfolio, resulting from purchases of higher-yielding securities.
Interest Expense. Interest expense increased $75,000, or 5.7%, to $1.4 million for the three months ended March 31, 2026 from $1.3 million for the three months ended March 31, 2025 due to an increase in interest expense on deposits.
Interest expense on deposits increased $166,000, or 17.9%, to $1.1 million for the three months ended March 31, 2026 from $928,000 for the three months ended March 31, 2025. The average interest rate paid on deposit accounts increased six basis points to 2.12% for the three months ended March 31, 2026 from 2.06% for the three months ended March 31, 2025, primarily due to a 17 basis points increase in interest paid on money market accounts. The average balance of deposits increased by $26.0 million, or 14.4%, to $206.1 million for the three months ended March 31, 2026 from $180.1 million for the three months ended March 31, 2025. The increase in the average balance of deposits was primarily attributable to a $27.1 million increase in money market accounts, a $1.9 million increase in NOW accounts, and a $1.6 million increase in regular savings and demand club deposits, partially offset by a $4.6 million decrease in certificate of deposit and retirement accounts.
Interest expense paid on FHLB and other borrowings decreased $91,000, or 23.9%, to $290,000 for the three months ended March 31, 2026 from $381,000 for the three months ended March 31, 2025. The decrease in the interest paid on borrowings was due to a 47 basis points decrease in the average interest rate paid on FHLB borrowings to 3.34% for the three months ended March 31, 2026 from 3.81% for the three months ended March 31, 2025. The average balance of FHLB borrowings decreased $5.3 million, or 13.2%, to $34.8 million for the three months ended March 31, 2026 as compared to $40.0 million for the three months ended March 31, 2025 due to an increase in funding from deposits.
Net Interest Income. Net interest income increased by $316,000, or 14.8%, to $2.4 million for the three months ended March 31, 2026 from $2.1 million for the three months ended March 31, 2025. Net interest rate spread increased nine basis points to 2.97% for the three months ended March 31, 2026 as compared to 2.88% for the three months ended March 31, 2025, reflecting a one basis point increase in the average yield on interest-earning assets in addition to an eight basis points decrease in the average cost of interest-bearing liabilities. The net interest margin increased by 11 basis points to 3.36% for the three months ended March 31, 2026 from 3.25% for the three months ended March 31, 2025.
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 Quarterly Report on Form 10-Q, we recorded a provision for credit losses on loans of $120,000 for the three months ended March 31, 2026 as compared to a $110,000 provision for credit losses on loans for the three month period ended March 31, 2025. The increased provision for the three months ended March 31, 2026 related to commercial loan growth. The allowance for credit losses on loans was $2.0 million at March 31, 2026, or 0.85%, of total loans outstanding, and $1.9 million, or 0.84% of total loans outstanding at December 31, 2025.
Non-Interest Income. Non-interest income increased by $118,000, or 24.3%, to $604,000 for the three months ended March 31, 2026 from $486,000 for the three months ended March 31, 2025. The increase was attributable to a $73,000 increase in fee income primarily due to our increased focus on core deposit growth and a $38,000 increase in income earned from financial services and retirement planning income generated by our subsidiary, Financial Quest.
Non-Interest Expense. Non-interest expense increased by $644,000, or 27.7%, to $3.0 million for the three months ended March 31, 2026 from $2.3 million for the three months ended March 31, 2025. Compensation and benefits increased by $293,000, or 22.8%, due to an increase in the number of employees as a result of opening a new branch office in Manlius, New York in June 2025 as well as annual salary increases and increases in benefit expenses. Core processing expense increased $128,000, or 38.2%, as a result of IT managed services. Professional fees increased $117,000, or 205.3%, primarily due to increases in consulting, legal, and audit and accounting services in connection with becoming a public company. Premises and equipment expense increased by $87,000, or 39.0%, primarily due to the opening of the new Manlius branch office.
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Income Tax Expense. Income tax expense decreased $22,000, or 75.9%, to $7,000 for the three months ended March 31, 2026 as compared to income tax expense of $29,000 for the three months ended March 31, 2025. The decrease in income tax expense resulted from the decrease in income before taxes.
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 Bank, National Association (the “Bank”) 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.
The following tables present the statements of income and total assets for our reportable business segments at or for the periods indicated:
At or for the Three Months Ended March 31,
2026
2025
Wealth
Total
Wealth
Total
(In thousands)
Banking
Management
Segments (2)
Banking
Management
Segments (2)
Net interest income
$
2,444
$
—
$
2,444
$
2,128
$
—
$
2,128
Non-interest income
334
270
604
254
232
486
Provision for credit losses on loans
120
—
120
110
—
110
Non-interest expense
2,753
218
2,971
2,152
175
2,327
Provision for income taxes
7
—
7
29
—
29
Net (loss) income
$
(102)
$
52
$
(50)
$
91
$
57
$
148
Assets under management (AUM) (market value) (1)
$
—
$
254,870
$
254,870
$
—
$
223,130
$
223,130
Total assets
$
315,155
$
1,296
$
315,862
$
279,375
$
1,187
$
280,247
(1) Assets under management represents customer assets managed by Financial Quest, and not assets of Financial Quest or the Bank.
(2) Reflects intercompany eliminations. See Footnote 15, Segment Information, for more information.
Comparison at or for the three months ended March 31, 2026 and 2025 . The market value of assets under management was $254.9 million at March 31, 2026 as compared to $223.1 million at March 31, 2025. This increase was 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 $38,000, or 16.4%, to $270,000 for the three months ended March 31, 2026 as compared to $232,000 for the three months ended March 31, 2025. The increase was mainly due to the impact of changes in equity markets and the interest rate environment during the three months ended March 31, 2026 as compared to the same prior year period.
Expenses related to our wealth management business segment, which we record as non-interest expense, increased $43,000, or 24.6%, to $218,000 for the three months ended March 31, 2026 as compared to $175,000 for the three months ended March 31, 2025. The increase was due to the continued growth in our operations and an increase in compensation expense.
Delinquencies and Asset Quality
Loans Past Due and Non-Performing Assets . Loans are reviewed on a regular basis. Non-accrual loans are loans for which collectability is questionable and, therefore, interest on such loans will no longer be recognized on an accrual basis. All loans that become 90 days or more delinquent are placed on non-accrual status unless the loan is well secured and in the process of collection. When loans are placed on non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received on a cash basis or cost recovery method.
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When we acquire real estate as a result of foreclosure, the real estate is classified as real estate owned. The real estate owned is recorded at the lower of carrying amount or fair value, less estimated costs to sell. Any excess of the recorded value of the loan satisfied over the market value of the property is charged against the allowance for credit losses, or, if the existing allowance is inadequate, charged to expense of the current period. After acquisition, all costs incurred in maintaining the property are expensed. Costs relating to the development and improvement of the property, however, are capitalized to the extent of estimated fair value less estimated costs to sell.
Loans modified for borrowers experiencing financial difficulties occur when we grant borrowers favorable loan modifications that we would not consider but for economic or legal reasons pertaining to the borrower’s financial difficulties. These concessions typically include a modification of loan terms such as a reduction of the interest rate to below market terms, capitalizing past due interest or extending the maturity date, or possibly a partial forgiveness of the principal amount due. We identify loans for potential modifications related to borrowers experiencing financial difficulty primarily through direct communication with the borrower and evaluation of the borrower’s financial statements, revenue projections, tax returns and credit reports. Even if the borrower is not presently in default, management will consider the likelihood that cash flow shortages, adverse economic conditions, and negative trends may result in a payment default in the near future. Interest income on restructured loans is accrued after the borrower demonstrates the ability to pay under the restructured terms through a sustained period of repayment performance, which is generally six consecutive months. We did not modify any loans to borrowers experiencing financial difficulty during the three months ended March 31, 2026. We closely monitor the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of our modification efforts. Loans modified to borrowers experiencing financial difficulty did not have payment default during the three months ended March 31, 2026 and all such loans were current as of March 31, 2026.
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Non-Performing Assets. The table below sets forth the amounts and categories of our non-performing assets at the dates indicated.
At March 31,
At December 31,
(Dollars in thousands)
2026
2025
Non-accrual loans:
Residential:
One- to four-family
$
942
$
1,455
Construction
—
—
Home equity loans and lines of credit
—
—
Commercial real estate
1,579
1,578
Commercial and industrial
—
41
Consumer and other
—
—
Total non-accrual loans
2,521
3,074
Accruing loans 90 days or more past due:
Residential:
One- to four-family
—
—
Construction
—
—
Home equity loans and lines of credit
32
32
Commercial real estate
—
—
Commercial and industrial
—
—
Consumer and other
—
—
Total accruing loans 90 days or more past due
32
32
Total non-performing loans
2,553
3,106
Real estate owned
—
—
Other non-performing assets
148
148
Total non-performing assets
$
2,701
$
3,254
Ratios:
Total non-performing loans to total loans
1.09
%
1.37
%
Total non-performing loans to total assets
0.81
%
1.00
%
Total non-performing assets to total assets
0.86
%
1.04
%
Non-accrual loans decreased by $553,000, or 18.0%, to $2.5 million at March 31, 2026 as compared to $3.1 million at December 31, 2025, primarily due to a decrease in one- to four family residential loans as two loans transitioned to accrual status during the three months ended March 31, 2026.
Classified Assets. Federal regulations provide for the classification of loans and other assets, such as debt and equity securities considered by the OCC to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss allowance is not warranted. Assets which do not currently expose the insured institution to sufficient risk to warrant classification in one of the aforementioned categories but possess weaknesses are designated as “special mention” by our management.
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When an insured institution classifies problem assets as either substandard or doubtful, it may establish general allowances in an amount deemed prudent by management to cover probable accrued losses. General allowances represent loss allowances which have been established to cover probable accrued losses associated with lending activities, but which, unlike specific allowances, have not been allocated to particular problem assets. When an insured institution classifies problem assets as “loss,” it is required either to establish a specific allowance for losses equal to 100% of that portion of the asset so classified or to charge-off such amount. An institution’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by the regulatory authorities, which may require the establishment of additional general or specific loss allowances.
In connection with the filing of our periodic reports with the OCC and in accordance with our classification of assets policy, we regularly review the problem loans in our portfolio to determine whether any loans require classification in accordance with applicable regulations.
The following table sets forth our amounts of classified loans and loans designated as special mention as of March 31, 2026 and December 31, 2025 in our commercial real estate and commercial and industrial loan portfolios. All other loans are assigned a “pass” rating until the loan becomes 90 days past due at which time it is either downgraded to “non-performing” status or charged off. Generally loans 90 days or more past due are placed on non-accrual status.
At March 31,
At December 31,
(In thousands)
2026
2025
Substandard
$
3,410
$
3,253
Doubtful
—
—
Loss
—
—
Total Classified Assets
$
3,410
$
3,253
Special Mention
$
576
$
1,082
At March 31, 2026, a loan relationship consisting of one commercial real estate loan totaling $576,000 and seven commercial and industrial loans totaling $506,000 were upgraded from special mention to pass, offset by two newly classified special mention loans that were downgraded from pass during the three months ended March 31, 2026 as compared to December 31, 2025.
Allowance for Credit Losses on Loans
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.
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. 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.
For additional information on the allowance for credit losses, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Summary of Critical Accounting Policies and Critical Accounting Estimates—Allowance for Credit Losses.”
The following table sets forth activity in our allowance for credit losses on loans for the periods indicated.
At or For the Three Months Ended March 31,
(Dollars in thousands)
2026
2025
Balance at beginning of period
$
1,915
$
1,804
Charge-offs:
Residential:
One- to four-family
—
(10)
Home equity loans and lines of credit
—
—
Construction
—
—
Commercial real estate
—
—
Commercial and industrial
—
(51)
Consumer and other
(38)
(14)
Total charge-offs
(38)
(75)
Recoveries:
Residential:
One- to four-family
—
—
Home equity loans and lines of credit
—
—
Construction
—
—
Commercial real estate
—
—
Commercial and industrial
—
2
Consumer and other
4
1
Total recoveries
4
3
Net charge-offs
(34)
(72)
Provision for credit losses on loans
120
110
Balance of allowance at end of period
$
2,001
$
1,842
Net (charge-offs) recoveries to average loans outstanding during period (annualized)
(0.06)
%
(0.14)
%
Allowance for credit losses on loans to non-accrual loans at end of period
79.37
%
178.66
%
Non-accrual loans to total loans outstanding at end of period
1.08
%
0.50
%
Allowance for credit losses on loans to total loans outstanding at end of period
0.85
%
0.90
%
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The following table sets forth additional information with respect to charge-offs by category for the periods indicated.
For the Three Months Ended March 31,
2026
2025
Net (charge-offs) recoveries to average loans outstanding during the period by loan type (annualized):
Residential:
One- to four-family
0.00
%
(0.02)
%
Home equity loans and lines of credit
0.00
%
0.00
%
Construction
0.00
%
0.00
%
Commercial real estate
0.00
%
0.00
%
Commercial and industrial
0.00
%
(0.10)
%
Consumer and other
(0.06)
%
(0.03)
%
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 March 31, 2026, we had an $85.6 million line of credit with the FHLB of New York, a $5.0 million line of credit with Pacific Coast Bankers Bank (“PCBB”), and a $4.0 million line of credit with Zions Bank. At March 31, 2026, we had outstanding borrowings of $34.6 million from the FHLB of New York. We did not borrow against the line of credit with Zions Bank or PCBB during the three months ended March 31, 2026. 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 to meet 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 March 31, 2026.
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 March 31, 2026, cash and cash equivalents totaled $7.2 million. Securities classified as available-for-sale, which provide additional sources of liquidity, had a total market value of $43.0 million at March 31, 2026.
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 March 31, 2026 totaled $39.7 million, or 16.5% 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. The Bank in turn makes loans to small businesses located in the market area with the proceeds.
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We anticipate a material capital expenditure in 2026 related to the construction of our Camillus branch which we expect to open in early 2027. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.
At March 31, 2026, we exceeded all of our regulatory capital requirements, and we were categorized as “well capitalized” at March 31, 2026, including applicable grace periods. Management is not aware of any conditions or events since March 31, 2026 that would change our categorization. See Note 12. 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 11. Commitments and Contingencies of the notes to our consolidated financial statements. At March 31, 2026, we had loan commitments to borrowers of approximately $668,000 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 $26.3 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 are material to investors. The allowance for credit losses on unfunded loan commitments was immaterial at March 31, 2026.
Impact of Inflation and Changing Price
The unaudited consolidated financial statements and related data presented elsewhere in this Quarterly Report on Form 10-Q 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable, as the Company is a smaller reporting company.
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.