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Item 2. Management’s Discussion and Analysis

2026-08-12 compared with 2026-05-14 · 200 added, 97 removed, 328 unchanged (48% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations

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.

Management’s discussion and analysis of the financial condition and results of operations at and for the three and six months ended June 30, 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.

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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 bank owned life insurance, realized gains on sales of loans and securities and other income.

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.

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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.

At June 30, 2026, and December 31, 2025, the allowance for credit losses on loans totaled $1.8 million and $1.9 million, respectively

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.

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.

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Loans evaluated individually are also not included in the collective evaluation.

During the three months ended June 30, 2026, individually evaluated loans were also expanded to include commercial loans that were risk rated special mention along with loans risk rated substandard.

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.

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

GDP growth, this would increase the model’s total calculated allowance for credit losses on loans by $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.

GDP growth, this would increase the model’s total calculated allowance for credit losses on loans by $1.2 million or 71.9%, representing a 53 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 June 30, 2026.

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

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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.

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

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.

Comparison of Financial Condition at June 30, 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%.

Total assets were $312.4 million as of June 30, 2026 and $312.1 million as of December 31, 2025, an increase of $263,000, or 0.1%.

The increase in assets was primarily due to a $10.7 million increase in net loans, and a $2.8 million increase in cash and cash equivalents, offset by a $13.5 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.

Cash and cash equivalents increased $2.8 million, or 53.0%, to $8.2 million at June 30, 2026 from $5.3 million at December 31, 2025.

The increase primarily resulted from a $13.5 million decrease in available-for-sale securities, partially offset by a $10.7 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.

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.

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.

Available-for-sale securities decreased by $13.5 million, or 27.8%, to $35.1 million at June 30, 2026 from $48.6 million at December 31, 2025.

This decrease was primarily due to maturities of $11.6 million and $1.5 million in principal repayments during the first six months of 2026.

Loans receivable, net of the allowance for credit losses, increased $10.7 million, or 4.7%, to $236.7 million at June 30, 2026 from $226.0 million at December 31, 2025.

The increase in net loans was primarily driven by the origination of $24.1 million of loans, partially offset by $13.3 million of paydowns and $3.4 million of loan sales during the six months ended June 30, 2026.

Commercial real estate loans increased to $97.3 million at June 30, 2026 from $88.0 million at December 31, 2025 and commercial and industrial loans increased to $25.0 million at June 30, 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 $18.9 million at June 30, 2026 from $15.9 million at December 31, 2025.

Residential construction loans increased to $3.9 million at June 30, 2026 from $3.2 million at December 31, 2025.

One- to four-family residential mortgage loans decreased to $88.6 million at June 30, 2026 from $93.0 million at December 31, 2025 due to payoffs and amortization.

Consumer and other loans decreased to $3.7 million at June 30, 2026 from $4.3 million at December 31, 2025.

Total deposits increased by $559,000, or 0.2%, to $235.0 million at June 30, 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) decreased $2.5 million, or 1.4% to $169.6 million at June 30, 2026 from $172.1 million at December 31, 2025 primarily due to decreases in money market accounts and savings accounts.

As of June 30, 2026, money market deposits decreased by $1.6 million and savings account deposits decreased by $1.3 million, partially offset by an increase in time deposits of $3.0 million and NOW and demand deposits of $435,000 as compared to December 31, 2025.

There were $19.2 million and $16.7 million of brokered deposits included in time deposits at June 30, 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.

Total FHLB advances were $34.6 million at June 30, 2026 as compared to $35.6 million at December 31, 2025, a decrease of $938,000, or 2.6%.

FHLB advances were paid down using funds obtained through maturities and principal repayments in the available-for-sale securities portfolio.

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.

Stockholders’ equity increased by $25,000, or 0.1%, to $32.8 million at June 30, 2026.

The increase in stockholders’ equity was attributable in part to net income of $43,000 recorded during the six months ended June 30, 2026.

Analysis of Net Interest Income

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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.

The following tables set 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.

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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,

For the Three Months Ended June 30,

(Dollars in thousands)

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(4) Annualized.

For the Six Months Ended June 30,

(Dollars in thousands)

Interest-earning assets:

Available-for-sale securities

FHLB/FRB stock

Other interest-earning assets

Total interest-earning assets

Non-interest-earning assets

Interest-bearing liabilities:

Regular savings and demand club accounts

Money market accounts

Certificates of deposit and retirement accounts

Total interest-bearing deposits

FHLB borrowings

Total interest-bearing liabilities

Non-interest-bearing deposits

Other non-interest-bearing liabilities

Total liabilities

Stockholders’ equity

Total liabilities and stockholders’ equity

Net interest income

Net interest rate spread (1)

Net interest-earning assets (2)

Net interest margin (3)

Average interest-earning assets to average interest-bearing liabilities

(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.

Rate/Volume Analysis.

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There were no out-of-period items or adjustments required to be excluded from the table below.

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Increase (Decrease)

(In thousands)

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Change in net interest income

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

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.

Comparison of Results of Operations for the Three Months Ended June 30, 2026 and 2025

Net income of $93,000 was recorded for the three months ended June 30, 2026, an increase of $289,000, or 147.4%, as compared to a net loss of $196,000 for the three months ended June 30, 2025.

The increase in net income was attributable to a $377,000 increase in net interest income, a $95,000 increase in non-interest income, and a $391,000 decrease in provision for credit losses, partially offset by a $553,000 increase in non-interest expense and a $21,000 decrease in income tax benefit during the three months ended June 30, 2026.

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.

Interest income increased $371,000, or 10.3%, to $4.0 million for the three months ended June 30, 2026, as compared to $3.6 million for the three months ended June 30, 2025 due to an increase in loan interest income.

Interest income on loans increased by $393,000, or 12.7%, to $3.5 million for the three months ended June 30, 2026 as compared to $3.1 million for the three months ended June 30, 2025.

The increase was due to a $24.8 million, or 11.8%, increase in the average balance of the loan portfolio to $234.8 million for the three months ended June 30, 2026 from $210.0 million for the three months ended June 30, 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.

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.

The average yield earned on the loan portfolio increased by five basis points to 5.95% for the three months ended June 30, 2026 from 5.90% for the three months ended June 30, 2025.

Interest income earned on the available-for-sale securities portfolio decreased by $14,000, or 3.6%, to $372,000 for the three months ended June 30, 2026 as compared to $386,000 for the three months ended June 30, 2025.

The decrease was primarily attributable to a $2.9 million, or 6.1%, decrease in the average balance of the available-for-sale securities portfolio to $45.5 million for the three months ended June 30, 2026 as compared to $48.4 million for the three months ended June 30, 2025.

The average yield earned on the available-for-sale securities portfolio increased by eight basis points to 3.27% for the three months ended June 30, 2026 from 3.19% for the three months ended June 30, 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.

Interest expense decreased $6,000, or 0.4%, to $1.4 million for the three months ended June 30, 2026 due to a decrease in interest expense on FHLB and other borrowings.

Interest expense on deposits increased $53,000, or 5.3%, to $1.0 million for the three months ended June 30, 2026 from $994,000 for the three months ended June 30, 2025.

The average balance of deposits increased by $16.5 million, or 8.9%, to $203.4 million for the three months ended June 30, 2026 from $186.9 million for the three months ended June 30, 2025.

The increase in the average balance of deposits was primarily attributable to a $19.9 million increase in money market accounts and a $1.1 million increase in NOW accounts, partially offset by a $4.2 million decrease in certificate of deposit and retirement accounts.

The average interest rate paid on deposit accounts decreased seven basis points to 2.06% for the three months ended June 30, 2026 from 2.13% for the three months ended June 30, 2025, primarily due to a 30 basis points decrease in interest paid on regular savings and demand club accounts in addition to a 22 basis points decrease in interest paid on certificate of deposit and retirement accounts.

Interest expense paid on FHLB and other borrowings decreased $59,000, or 15.9%, to $311,000 for the three months ended June 30, 2026 from $370,000 for the three months ended June 30, 2025.

The decrease in the interest paid on borrowings was due to a 60 basis points decrease in the average interest rate paid on FHLB borrowings to 3.38% for the three months ended June 30, 2026 from 3.98% for the three months ended June 30, 2025.

The average balance of FHLB borrowings decreased $407,000, or 1.1%, to $36.8 million for the three months ended June 30, 2026 as compared to $37.2 million for the three months ended June 30, 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.

Net interest income increased by $377,000, or 16.9%, to $2.6 million for the three months ended June 30, 2026 from $2.2 million for the three months ended June 30, 2025.

Net interest rate spread increased 26 basis points to 3.21% for the three months ended June 30, 2026 as compared to 2.95% for the three months ended June 30, 2025, reflecting a nine basis points increase in the average yield on interest-earning assets in addition to a 17 basis points decrease in the average cost of interest-bearing liabilities.

The net interest margin increased by 26 basis points to 3.60% for the three months ended June 30, 2026 from 3.34% for the three months ended June 30, 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.

Summary of Significant Accounting Policies of notes to the consolidated financial statements included within this Quarterly Report on Form 10-Q, we recorded a $148,000 provision for credit losses related to the available-for-sale securities portfolio and reduced our provision for credit losses on loans by $28,000 for the three months ended June 30, 2026 as compared to a $511,000 provision for credit losses on loans for the three months ended June 30, 2025.

During the three months ended June 30, 2026, we also made several changes to our CECL model assumptions which included the individual evaluation of all special mention and substandard risk rated loans, adding an additional qualitative factor for loans delinquent 15-29 days, and removing a minimum loss rate relative to historical losses.

Prior to June 30, 2026, we used the highest of the minimum loss rate, peer loss rate, and the Bank’s historical loss rate for each loan pool and now use only our own historical loss rates.

The $148,000 provision for credit losses on the available-for-sale securities portfolio for the three months ended June 30, 2026 was due to the Madison County Capital Resource Corp.

(Cazenovia College) bond that was in default.

The allowance for credit losses on loans was $1.8 million at June 30, 2026, or 0.78%, 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 income increased by $95,000, or 17.9%, to $626,000 for the three months ended June 30, 2026 from $531,000 for the three months ended June 30, 2025.

The increase was attributable to an $82,000 increase in fee income, specifically debit card interchange fee income and insufficient fund fees, primarily due to our increased focus on core deposit growth.

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.

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.

Non-interest expense increased by $553,000, or 22.3%, to $3.0 million for the three months ended June 30, 2026 from $2.5 million for the three months ended June 30, 2025.

Compensation and benefits increased by $184,000, or 13.3%, to

$1.6 million for the three months ended June 30, 2026 from $1.4 million for the three months ended June 30, 2025 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.

Professional fees increased $143,000, or 134.9%, to $249,000 for the three months ended June 30, 2026 from $106,000 for the three months ended June 30, 2025 primarily due to increases in consulting, legal, and audit and accounting services in connection with becoming a public company.

Core processing expense increased $103,000, or 27.4%, to $479,000 for the three months ended June 30, 2026 from $376,000 for the three months ended June 30, 2025 as a result of IT managed services.

Income Tax Benefit.

Income tax benefit decreased $21,000, or 60.0%, to $14,000 for the three months ended June 30, 2026 as compared to an income tax benefit of $35,000 for the three months ended June 30, 2025.

The decrease in income tax benefit resulted from an increase in income before taxes.

Comparison of Results of Operations for the Six Months Ended June 30, 2026 and 2025

Net income of $43,000 was recorded for the six months ended June 30, 2026, an increase of $91,000, or 189.6%, as compared to a net loss of $48,000 for the six months ended June 30, 2025.

The increase in net income was attributable to a $693,000 increase in net interest income, a $213,000 increase in non-interest income, a $1,000 increase in income tax benefit, and a $381,000 decrease in provision for credit losses, partially offset by a $1.2 million increase in non-interest expense.

Interest Income.

Interest income increased $762,000, or 10.8%, to $7.8 million for the six months ended June 30, 2026 as compared to $7.0 million for the six months ended June 30, 2025 due primarily to an increase in loan interest income.

Interest income on loans increased by $790,000, or 13.1%, to $6.8 million for the six months ended June 30, 2026 as compared to $6.0 million for the six months ended June 30, 2025.

The increase was due to a $25.0 million, or 12.1%, increase in the average balance of the loan portfolio to $232.3 million for the six months ended June 30, 2026 from $207.3 million for the six months ended June 30, 2025.

The average yield earned on the loan portfolio increased by five basis points to 5.87% for the six months ended June 30, 2026 from 5.82% for the six months ended June 30, 2025.

Interest income earned on the available-for-sale securities portfolio increased by $10,000, or 1.3%, to $777,000 for the six months ended June 30, 2026 as compared to $767,000 for the six months ended June 30, 2025.

The increase was primarily attributable to an increase in the average yield earned on the available-for-sale securities portfolio by three basis points to 3.23% for the six months ended June 30, 2026 from 3.20% for the six months ended June 30, 2025 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 increased $192,000, or 0.4%, to $48.1 million for the six months ended June 30, 2026 as compared to $47.9 million for the six months ended June 30, 2025.

Interest Expense.

Interest expense increased $69,000, or 2.6%, to $2.7 million for the six months ended June 30, 2026 due to an increase in interest expense on deposits.

Interest expense on deposits increased $219,000, or 11.4%, to $2.1 million for the six months ended June 30, 2026 from $1.9 million for the six months ended June 30, 2025.

The average balance of deposits increased by $19.9 million, or 10.9%, to $203.4 million for the six months ended June 30, 2026 from $183.5 million for the six months ended June 30, 2025.

The increase in the average balance of deposits was primarily attributable to a $21.6 million increase in money market accounts and a $1.5 million increase in NOW accounts, partially offset by a $3.8 million decrease in certificate of deposit and retirement accounts.

The average interest rate paid on deposit accounts increased one basis point to 2.10% for the six months ended June 30, 2026 from 2.09% for the six months ended June 30, 2025.

Interest expense paid on FHLB and other borrowings decreased $150,000, or 20.0%, to $601,000 for the six months ended June 30, 2026 from $751,000 for the six months ended June 30, 2025.

The decrease in the interest paid on borrowings was due to a 62 basis points decrease in the average interest rate paid on FHLB borrowings to 3.27% for the six months ended June 30, 2026 from 3.89% for the six months ended June 30, 2025.

The average balance of FHLB borrowings decreased $1.9 million, or 4.9%, to $36.7 million for the six months ended June 30, 2026 as compared to $38.6 million for the six months ended June 30, 2025 due to an increase in funding from deposits.

Net Interest Income.

Net interest income increased by $693,000, or 15.9%, to $5.1 million for the six months ended June 30, 2026 from $4.4 million for the six months ended June 30, 2025.

Net interest rate spread increased 19 basis points to 3.10% for the six months ended June 30, 2026 as compared to 2.91% for the six months ended June 30, 2025, reflecting a six basis points increase in the average yield on interest-earning assets in addition to a 13 basis points decrease in the average cost of interest-bearing liabilities.

The net interest margin increased by 19 basis points to 3.49% for the six months ended June 30, 2026 from 3.30% for the six months ended June 30, 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 $148,000 provision for credit losses related to the available-for-sale securities portfolio and a $92,000 provision for credit losses on loans for the six months ended June 30, 2026 as compared to a $621,000 provision for credit losses on loans for the six months ended June 30, 2025.

The $148,000 provision for credit losses on the available-for-sale securities portfolio for the six months ended June 30, 2026 was due to the Madison County Capital Resource Corp.

(Cazenovia College) bond that was in default.

The decreased provision for credit losses on loans for the six months ended June 30, 2025 was the result of two commercial and industrial loans totaling $599,000 being fully charged off.

During the six months ended June 30, 2026, we also made several changes to our CECL model assumptions which included the individual evaluation of all special mention and substandard risk rated loans, adding an additional qualitative factor for loans delinquent 15-29 days, and removing a minimum loss rate relative to historical losses.

Prior to June 30, 2026, we used the highest of the minimum loss rate, peer loss rate, and the Bank’s historical loss rate for each loan pool and now use only our own historical loss rates.

The allowance for credit losses on loans was $1.8 million at June 30, 2026, or 0.78%, 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 $213,000, or 20.9%, to $1.2 million for the six months ended June 30, 2026 from $1.0 million for the six months ended June 30, 2025.

The increase was attributable to a $155,000 increase in fee income, specifically debit card interchange fee income and insufficient fund fees, primarily due to our increased focus on core deposit growth and a $43,000 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 $1.2 million, or 24.9%, to $6.0 million for the six months ended June 30, 2026 from $4.8 million for the six months ended June 30, 2025.

Compensation and benefits increased by $477,000, or 17.8%, to $3.2 million for the six months ended June 30, 2026 from $2.7 million for the six months ended June 30, 2025 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.

Professional fees increased $260,000, or 159.5%, to $423,000 for the six months ended June 30, 2026 from $163,000 for the six months ended June 30, 2025 primarily due to increases in consulting, legal, and audit and accounting services in connection with becoming a public company.

Core processing expense increased $231,000, or 32.5%, to $942,000 for the six months ended June 30, 2026 from $711,000 for the six months ended June 30, 2025 as a result of IT managed services.

Premises and equipment expense increased by $126,000, or 28.3%, to $571,000 for the six months ended June 30, 2026 from $445,000 for the six months ended June 30, 2025 primarily due to the opening of the new Manlius branch office and the renovation of the Liverpool branch office.

Income Tax Benefit.

Income tax benefit increased $1,000, or 16.7%, to $7,000 for the six months ended June 30, 2026 as compared to an income tax benefit of $6,000 for the six months ended June 30, 2025.

Financial Position and Results of Operations of Our Wealth Management Business Segment

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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,

At or for the Three Months Ended June 30,

(In thousands)

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Provision for credit losses on loans

Provision for credit losses on available-for-sale securities

Non-interest expense

Provision for income taxes

Benefit for income taxes

Net income (loss)

Assets under management (AUM) (market value) (1)

(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.

At or for the Six Months Ended June 30,

(In thousands)

Net interest income

Non-interest income

Provision for credit losses on loans

Provision for credit losses on available-for-sale securities

Non-interest expense

Benefit for income taxes

Net (loss) income

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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.

Comparison at or for the three months ended June 30, 2026 and 2025 .

The market value of assets under management was $238.5 million at June 30, 2026 as compared to $249.9 million at June 30, 2025.

The decrease in assets under management was primarily attributable to the withdrawal of approximately $38.0 million of client assets following the termination of a client relationship during the three months ended June 30, 2026.

Income related to our wealth management business segment, which we record as non-interest income, increased $5,000, or 2.0%, to $253,000 for the three months ended June 30, 2026 as compared to $248,000 for the three months ended June 30, 2025.

The increase was mainly due to the impact of changes in equity markets and the interest rate environment during the three months ended June 30, 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 $21,000, or 11.5%, to $203,000 for the three months ended June 30, 2026 as compared to $182,000 for the three months ended June 30, 2025.

The increase was due to an increase in compensation expense.

Comparison at or for the six months ended June 30, 2026 and 2025 .

The market value of assets under management was $238.5 million at June 30, 2026 as compared to $249.9 million at June 30, 2025.

Income related to our wealth management business segment, which we record as non-interest income, increased $43,000, or 9.0%, to $523,000 for the six months ended June 30, 2026 as compared to $480,000 for the six months ended June 30, 2025.

The increase was mainly due to the impact of changes in equity markets and the interest rate environment during the six months ended June 30, 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 $66,000, or 18.6%, to $421,000 for the six months ended June 30, 2026 as compared to $355,000 for the six months ended June 30, 2025.

The increase was primarily due to increases in compensation expense and professional services.

Delinquencies and Asset Quality

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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 did not modify any loans to borrowers experiencing financial difficulty during the three or six months ended June 30, 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.

Loans modified to borrowers experiencing financial difficulty did not have payment default during the three or six months ended June 30, 2026 and all such loans were current as of June 30, 2026.

Non-Performing Assets.

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Total non-performing assets to total assets

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.

Non-accrual loans decreased by $518,000, or 16.9%, to $2.6 million at June 30, 2026 as compared to $3.1 million at December 31, 2025, primarily due to a decrease in one- to four family residential loans as three loans transitioned to accrual status and two loans were charged off during the six months ended June 30, 2026.

Classified Assets.

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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.

The following table sets forth our amounts of classified loans and loans designated as special mention as of June 30, 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.

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Special Mention

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.

At June 30, 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 criticized special mention loans that were downgraded from pass during the six months ended June 30, 2026 as compared to December 31, 2025.

A commercial real estate loan totaling $115,000 and a commercial and industrial loan totaling $147,000 were downgraded to substandard from pass during the six months ended June 30, 2026 as compared to December 31, 2025.

Allowance for Credit Losses on Loans

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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.

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.

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Loans evaluated individually are also not included in the collective evaluation.

During the three months ended June 30, 2026, individually evaluated loans were also expanded to include commercial loans that were risk rated special mention along with loans risk rated substandard.

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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,

For the Six Months Ended June 30,

(Dollars in thousands)

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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,

For the Six Months Ended June 30,

Net (charge-offs) recoveries to average loans outstanding during the period by loan type (annualized):

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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.

At June 30, 2026, we had a $73.0 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 June 30, 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 or six months ended June 30, 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.

We believe that we had sufficient sources of liquidity to satisfy our short and long-term liquidity needs as of June 30, 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.

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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.

At June 30, 2026, cash and cash equivalents totaled $8.2 million.

Securities classified as available-for-sale, which provide additional sources of liquidity, had a total market value of $35.1 million at June 30, 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.

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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.

Certificates of deposit due within twelve months of June 30, 2026 totaled $49.3 million, or 21.0% 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.

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

At 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.

At June 30, 2026, we exceeded all of our regulatory capital requirements, and we were categorized as “well capitalized” at June 30, 2026, including applicable grace periods.

Management is not aware of any conditions or events since June 30, 2026 that would change our categorization.

Regulatory Capital Requirements of the notes to our consolidated financial statements for more information.

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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.

At June 30, 2026, we had loan commitments to borrowers of approximately $1.8 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 $31.2 million.

capital resources that are material to investors.

The allowance for credit losses on unfunded loan commitments was immaterial at June 30, 2026.

Impact of Inflation and Changing Price

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis