Lake Shore Bancorp, Inc. /MD/

Previous wording

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition, results of operations and other relevant statistical data. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of September 30, 2025 compared to the consolidated financial condition as of December 31, 2024 and the consolidated results of operations for the three and nine months ended September 30, 2025 and 2024.

Current wording

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition, results of operations and other relevant statistical data. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of March 31, 2026 compared to the consolidated financial condition as of December 31, 2025 and the consolidated results of operations for the three months ended March 31, 2026 and 2025.

Previous wording

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

Current wording

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

Previous wording

Effective July 18, 2025, Lake Shore Bancorp, Inc. (“Lake Shore Bancorp”), a new corporation incorporated under the laws of the State of Maryland, became the bank holding company of Lake Shore Bank, a New York commercial bank and its only wholly-owned subsidiary in connection with the completion of Conversion. The Conversion was consummated through the merger of Lake Shore, MHC with and into Lake Shore Federal Bancorp, followed by the merger of Lake Shore Federal Bancorp with and into Lake Shore Bancorp, which occurred on July 18, 2025. In the subscription offering, Lake Shore Bancorp raised gross proceeds of $49.5 million by selling 4,950,460 shares of its common stock (approximately the midpoint of the offering range) at $10.00 per share to depositors of the Bank. The Company used $4.0 million of the proceeds to fund an addition to its Employee Stock Ownership Plan ("ESOP") loan for the acquisition of an additional 396,036 shares at $10.00 per share. Expenses incurred related to the offering were approximately $2.3 million and have been recorded against offering proceeds.

Current wording

Effective July 18, 2025, Lake Shore Bancorp, a new corporation incorporated under the laws of the State of Maryland, became the bank holding company of Lake Shore Bank, a New York commercial bank and its only wholly-owned subsidiary in connection with the completion of Conversion. The Conversion was consummated through the merger of Lake Shore, MHC with and into Lake Shore Federal Bancorp, followed by the merger of Lake Shore Federal Bancorp with and into Lake Shore Bancorp, which occurred on July 18, 2025. In the subscription offering, Lake Shore Bancorp raised gross proceeds of $49.5 million by selling 4,950,460 shares of its common stock (approximately the midpoint of the offering range) at $10.00 per share to depositors of the Bank. The Company used $4.0 million of the proceeds to fund an addition to its Employee Stock Ownership Plan ("ESOP") loan for the acquisition of an additional 396,036 shares at $10.00 per share. Expenses incurred related to the offering were approximately $2.3 million and have been recorded against offering proceeds.

Previous wording

As part of the Conversion transaction, each outstanding share of Lake Shore Federal Bancorp common stock owned by the public stockholders of Lake Shore Federal Bancorp (stockholders other than Lake Shore, MHC) as of July 18, 2025 were converted into shares of Lake Shore Bancorp's common stock based on an exchange ratio of 1.3549 shares of Lake Shore Bancorp's common stock for each share of Lake Shore Federal Bancorp common stock so that Lake Shore Federal Bancorp's existing public stockholders would own approximately the same percentage of Lake Shore Bancorp's common stock as they owned of Lake Shore Federal Bancorp's common stock immediately prior to the Conversion. A total of 7,825,501 shares of common stock were outstanding following the completion of the stock offering.

Current wording

As part of the Conversion transaction, each outstanding share of Lake Shore Federal Bancorp common stock owned by the public stockholders of Lake Shore Federal Bancorp (stockholders other than Lake Shore, MHC) as of July 18, 2025 were converted into shares of Lake Shore Bancorp's common stock based on an exchange ratio of 1.3549 shares of Lake Shore Bancorp's common stock for each share of Lake Shore Federal Bancorp common stock so that Lake Shore Federal Bancorp's existing public stockholders would own approximately the same percentage of Lake Shore Bancorp's common stock as they owned of Lake Shore Federal Bancorp's common stock immediately prior to the Conversion. A total of 7,825,501 shares of common stock were outstanding immediately following the completion of the stock offering.

Previous wording

The allowance is established through a provision for credit losses in the 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 its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. As of September 30, 2025 and December 31, 2024, the allowance for credit losses on loans totaled $4.9 million and $5.1 million, respectively. Due to the nature and composition of the Bank's lending activities, a significant portion of the allowance for credit losses on loans is allocated to the commercial real estate portfolio. As of September 30, 2025 and December 31, 2024, the allowance for credit losses on loans allocated to the total commercial real estate portfolio was $3.9 million, or 80.2%, and $4.2 million, or 81.3%, respectively.

Current wording

The allowance is established through a provision for credit losses in the 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 its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's allowance for credit losses. As of March 31, 2026 and December 31, 2025, the allowance for credit losses on loans totaled $4.8 million and $4.9 million, respectively. Due to the nature and composition of the Bank's lending activities, a significant portion of the allowance for credit losses on loans is allocated to the commercial real estate portfolio. As of March 31, 2026 and December 31, 2025, the allowance for credit losses on loans allocated to the total commercial real estate portfolio was $3.7 million, or 78.0%, and $3.9 million, or 80.2%, respectively.

Previous wording

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 $297,000, or 6.1%, representing a five basis points increase in the coverage ratio of the allowance for credit losses as a percentage of loans at amortized cost, assuming all other quantitative and qualitative factors are kept at current levels, as of September 30, 2025. This example is only one of the numerous possible economic scenarios that could be utilized in assessing the sensitivity of the allowance for credit losses and does not represent management’s assumptions or judgment of factors as of September 30, 2025.

Current wording

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 $382,000, or 8.0%, representing a seven basis points increase in the coverage ratio of the allowance for credit losses as a percentage of loans at amortized cost, assuming all other quantitative and qualitative factors are kept at current levels, as of March 31, 2026. 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.

Previous wording

Average Balances, Interest and Average Yields. The following tables set forth certain information relating to our average balance sheets for each principal category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for credit losses but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. The net amortization of deferred loan fees and costs were $112,000 and $103,000 for the three months ended September 30, 2025 and 2024, respectively. The net amortization of deferred loan fees and costs were $275,000 and $369,000 for the nine months ended September 30, 2025 and 2024, respectively. Interest income on securities does not include a tax equivalent adjustment for tax exempt securities.

Current wording

Average Balances, Interest and Average Yields. The following table sets forth certain information relating to our average balance sheets for each principal category, and the amount of interest income or expense associated with that category, as well as corresponding average yields earned and rates paid for the periods indicated. Such yields and costs are derived by dividing income or expense by the average balance of interest-earning assets or interest-bearing liabilities, respectively, for the periods presented. Average balances are derived from daily balances over the periods indicated. The average balances for loans are net of allowance for credit losses, but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. The net amortization of deferred loan fees and costs were $93,000 and $63,000 for the three months ended March 31, 2026 and 2025, respectively. Interest income on securities does not include a tax equivalent adjustment for bank qualified municipal bonds.

Previous wording

(1) The tax equivalent adjustment for bank qualified tax exempt municipal securities, using a federal statutory rate of 21%, results in rates of 3.00% and 3.11% for the three months ended September 30, 2025 and 2024, respectively. Yields above are not presented on a tax equivalent basis.

Current wording

(1) The tax equivalent adjustment for bank qualified tax exempt municipal securities, using a federal statutory rate of 21%, results in rates of 2.85% and 3.04% for the three months ended March 31, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

Previous wording

Rate Volume Analysis. The following tables analyze the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The tables show the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates. The effect of a change in volume is measured by applying the average rate during the later period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period.

Current wording

Rate Volume Analysis. The following table analyzes the dollar amount of changes in interest income and interest expense for major components of interest-earning assets and interest-bearing liabilities. The table shows the amount of the change in interest income or expense caused by either changes in outstanding balances (volume) or changes in interest rates. The effect of a change in volume is measured by applying the average rate during the later period to the volume change between the two periods. The effect of changes in rate is measured by applying the change in rate between the two periods to the average volume during the first period.

Previous wording

As shown in the above tables, the increase in net interest income for the three months ended September 30, 2025 when compared to the three months ended September 30, 2024 was primarily impacted by an increase in the average balance of interest-earning assets, a decrease in the average interest rate paid on interest-bearing liabilities, a decrease in the average balance of interest-bearing liabilities, and an increase in the average yield of interest-earning assets. The average balance of interest-earning assets increased by $26.9 million to $683.6 million for the three months ended September 30, 2025 as compared to $656.7 million for the three months ended September 30, 2024. The average interest rate paid on interest-bearing liabilities decreased 27 basis points from 2.72% during the three months ended September 30, 2024 to 2.45% during the three months ended September 30, 2025. The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended September 30, 2025 was primarily due to a 27 basis points decrease in the average interest rate paid on deposit accounts. The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates and time deposit repricing. The average balance of interest-bearing liabilities decreased $20.8 million, from $509.8 million during the three months ended September 30, 2024 to $489.0 million during the three months ended September 30, 2025 as a result of decreases in the average balance of borrowed funds and other interest-bearing liabilities of $18.2 million and in the average balance of deposits of $2.6 million. The average yield earned on interest-earning assets increased eight basis points from 5.39% during the three months ended September 30, 2024 to 5.47% during the three months ended September 30, 2025. The increase in the average yield of interest-earning assets was primarily due to a 21 basis points increase in the average yield on the loan portfolio when compared to the prior year period. Net interest margin increased to 3.72% for the three months ended September 30, 2025 as compared to 3.28% for the same period of the prior year.

Current wording

As shown in the above tables, the increase in net interest income for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025 was primarily impacted by a decrease in the average interest rate paid on interest-bearing liabilities, an increase in the average yield of interest-earning assets, an increase in the average balance of interest-earning assets, and a decrease in the average balance of interest bearing-liabilities. The average interest rate paid on interest-bearing liabilities decreased 36 basis points from 2.40% during the three months ended March 31, 2025 to 2.04% during the three months ended March 31, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended March 31, 2026 was primarily due to a 35 basis points decrease in the average interest rate paid on interest-bearing deposit accounts. The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates and time deposit repricing. The average yield earned on interest-earning assets increased 13 basis points from 5.34% during the three months ended March 31, 2025 to 5.47% during the three months ended March 31, 2026. The increase in the average yield of interest-earning assets was primarily due to a 29 basis points increase in the average yield on the loan portfolio when compared to the prior year period. The average balance of interest-earning assets increased by $35.3 million to $662.2 million for the three months ended March 31, 2026 as compared to $626.9 million for the three months ended March 31, 2025. The increase in average balance of interest-earning assets was primarily related to an increase in the average balance of interest-earning deposits as a result of funds received from the second step conversion not yet deployed. The average balance of interest-bearing liabilities decreased $13.6 million, from $484.0 million during the three months ended March 31, 2025 to $470.5 million during the three months ended March 31, 2026 as a result of decreases in the average balance of deposits of $9.7 million and in the balance of borrowed funds and other interest-bearing liabilities of $3.9 million. Net interest margin increased to 4.02% for the three months ended March 31, 2026 as compared to 3.49% for the same period of the prior year.

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

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

Current wording

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

Previous wording

The loans receivable, net balance increased $8.0 million, or 1.5%, from $544.6 million at December 31, 2024 to $552.6 million at September 30, 2025. The increase was primarily due to increases in consumer loans and commercial real estate loans, partially offset by a decrease in residential, one- to four-family real estate loans. During the nine months ended September 30, 2025, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.

Current wording

Net loans receivable decreased $1.6 million, or 0.3%, from $555.4 million at December 31, 2025 to $553.9 million at March 31, 2026. The decrease was primarily due to decreases in residential, one- to four-family real estate loans, home equity loans, and consumer loans, partially offset by increases in commercial real estate loans and commercial loans. During the three months ended March 31, 2026, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.

Previous wording

When compared to December 31, 2024, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $263 thousand, or 5.13%, which was comprised of a decrease of $354 thousand due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $91 thousand related to an increase in loan balance. Such allowance for credit losses was calculated utilizing a discounted cash flow model as further described in Part I Item 1 - Note 1 - Basis of Presentation and Significant Accounting Policies and Estimates.

Current wording

When compared to December 31, 2025, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $85,000, or 1.74%, which was comprised of a decrease of $92,000 due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $7,000 related to an increase in loan balance for the commercial real estate and commercial loan pools. Such allowance for credit losses was calculated utilizing a discounted cash flow model as further described in Part I Item 1 - Note 1 - Basis of Presentation and Significant Accounting Policies and Estimates.

Previous wording

For the nine months ended September 30, 2025, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.20)% from (2.81)% for the prior year period. This improvement was primarily driven by an increase in average consumer loans outstanding of $8.6 million for the nine months ended September 30, 2025 when compared to the nine months ended September 30, 2024.

Current wording

For the three months ended March 31, 2026, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.06)% from (0.13)% for the prior year period. This improvement was primarily driven by an increase in average consumer loans outstanding of $10.8 million for the three months ended March 31, 2026 when compared to the three months ended March 31, 2025.

Previous wording

Total non-performing assets decreased by $2.0 million, or 51.8%, to $1.8 million at September 30, 2025 from $3.8 million at December 31, 2024, due to a decrease in non-accrual loans of $2.0 million. Contributing to this decrease was one commercial relationship representing two loans with a total amortized cost of $1.2 million being sold at foreclosure and one nonaccrual home equity loan with an amortized cost of $545,000 being paid in full during the second quarter of 2025. The Company had no loans past due 90 days or more but still accruing at September 30, 2025 or December 31, 2024.

Current wording

Total non-performing assets decreased by $95,000, or 5.7%, to $1.6 million at March 31, 2026 from $1.7 million at December 31, 2025, due to a decrease in non-accrual loans of $95,000. The Company had no loans past due 90 days or more but still accruing at March 31, 2026 or December 31, 2025.

Previous wording

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

Current wording

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

Previous wording

The increase in total deposits was primarily due to the 13.9% increase in money market accounts, a 3.4% increase in time deposits less than or equal to $250,000, and a 4.7% increase in interest bearing transaction accounts. These increases were partially offset by a 7.6% decrease in non-interest bearing transaction accounts, a 4.9% decrease in savings accounts and a 6.8% decrease in time deposits greater than $250,000. The increase in core time deposits and money market deposits was primarily due to an increase in customer demand for these types of deposit products as the result of the competitive interest rate environment. Our strategic focus remains centered on organic growth of deposits among our retail and commercial customers to reduce our reliance on wholesale funding and to strengthen customer relationships. At September 30, 2025 and December 31, 2024, our percentage of uninsured deposits to total deposits was 13.3% and 13.5%, respectively.

Current wording

The decrease in total deposits was primarily due to a 4.6% decrease in money market accounts, a 5.3% decrease in non-interest bearing deposit accounts, and a 0.6% decrease in savings accounts, as a result of changes to customer demand for these types of deposit products. These decreases were partially offset by a 4.6% increase in interest bearing transaction accounts, a 1.5% increase in time deposits less than or equal to $250,000, and a 2.2% increase in time deposits greater than $250,000. The increase in interest bearing core deposits, core time deposits and time deposits greater than $250,000 was primarily due to an increase in customer demand for these types of deposit products as the result of the competitive interest rate environment. Our strategic focus remains centered on organic growth of deposits among our retail and commercial customers to reduce our reliance on wholesale funding and to strengthen customer relationships. At March 31, 2026 and December 31, 2025, our percentage of uninsured deposits to total deposits was 10.0% and 11.3%, respectively.

Previous wording

General. Net income increased to $2.4 million during the three months ended September 30, 2025, or $0.32 per diluted share, an increase of $1.0 million, or 77.1%, compared to net income of $1.3 million, or $0.18 per diluted share, for the three months ended September 30, 2024. Our financial performance for the three months ended September 30, 2025 was positively impacted by a $972,000 increase in net interest income along with an increase in non-interest income.

Current wording

General. Net income increased to $1.9 million during the three months ended March 31, 2026, or $0.26 per diluted share, an increase of $866,000, or 81.9%, compared to net income of $1.1 million, or $0.14 per diluted share, for the three months ended March 31, 2025. Our financial performance for the three months ended March 31, 2026 was positively impacted primarily by a $1.2 million increase in net interest income.

Previous wording

Net Interest Income. Net interest income for the three months ended September 30, 2025 increased by $972,000, or 18.1%, to $6.4 million as compared to $5.4 million for the three months ended September 30, 2024. Net interest margin and interest rate spread were 3.72% and 3.02%, respectively, for the three months ended September 30, 2025 as compared to 3.28% and 2.67%, respectively, for the three months ended September 30, 2024.

Current wording

Net Interest Income. Net interest income for the three months ended March 31, 2026 increased by $1.2 million, or 21.9%, to $6.7 million as compared to $5.5 million for the three months ended March 31, 2025. Net interest margin and interest rate spread were 4.02% and 3.43%, respectively, for the three months ended March 31, 2026 as compared to 3.49% and 2.94%, respectively, for the three months ended March 31, 2025.

Previous wording

Interest Income. Interest income for the three months ended September 30, 2025 was $9.4 million, an increase of $500,000, or 5.6%, compared to $8.9 million for the three months ended September 30, 2024. The increase in interest income from the prior year quarter was primarily due to an increase in interest earned on loans of $463,000, or 6.0%, as a result of an increase in the average yield on loans of 21 basis points and an increase in the average balance of loans of $12.0 million, or 2.2%. The increase in the average yield on loans was primarily attributable to the origination and repricing of loans at higher interest rates since the third quarter of 2024.

Current wording

Interest Income. Interest income for the three months ended March 31, 2026 was $9.1 million, an increase of $688,000, or 8.2%, compared to $8.4 million for the three months ended March 31, 2025. The increase in interest income from the prior year quarter was primarily due to a $35.3 million, or 5.6%, increase in the average balance of interest-earning assets and a 13 basis point increase in the average yield of interest-earning assets. During the first quarter of 2026 as compared to the same period in 2025, there was a $480,000 increase in interest income on loans due to a 29 basis point increase in the average yield earned on loans and $5.6 million, or 1.0%, increase in the average balance of loans. The increase in the average yield on loans and average balance of loans was primarily attributable to the origination of loans at higher interest rates since the first quarter of 2025. Further, interest income on interest-earning deposits increased by $235,000, or 100.4%, primarily due to a $30.5 million, or 129.4%, increase in the average balance of interest-earning deposits.

Previous wording

Interest Expense. Interest expense for the three months ended September 30, 2025 was $3.0 million, a decrease of $472,000, or 13.6%, from $3.5 million for the three months ended September 30, 2024. The decrease in interest expense when compared to the prior year quarter was primarily due to a 27 basis points decrease in average interest rate paid on interest-bearing liabilities and a $20.8 million, or 4.1%, decrease in the average balance of interest-bearing liabilities. During the three months ended September 30, 2025 as compared to the same period in 2024, interest expense on deposits decreased by $353,000, or 10.6%, due to a 27 basis points decrease in the average interest rate paid on deposit accounts and a $2.6 million, or 0.5%, decrease in the average balance of deposits. The decrease in the average interest rate paid on deposit accounts was primarily due to the decrease in market interest rates, time deposit repricing, and a marginal shift in deposit composition to core deposits. Average interest-bearing deposit balances decreased during the three months ended September 30, 2025 when compared to the three months ended September 30, 2024 due to a decrease in all deposit categories except money market accounts. During the three months ended September 30, 2025, interest expense on borrowed funds and other interest-bearing liabilities decreased by $119,000, or 79.9%, compared to the three months ended September 30, 2024, primarily due to a $18.2 million, or 88.7%, decrease in average borrowed funds and other interest-bearing liabilities outstanding due to the repayment of $8.3 million in borrowed funds during the first nine months of 2025.

Current wording

Interest Expense. Interest expense for the three months ended March 31, 2026 was $2.4 million, a decrease of $507,000, or 17.5%, from $2.9 million for the three months ended March 31, 2025. The decrease in interest expense when compared to the prior year quarter was primarily due to a 36 basis point decrease in average interest rate paid on interest-bearing liabilities and a $13.6 million, or 2.8%, decrease in the average balance of interest-bearing liabilities. During the three months ended March 31, 2026 as compared to the same period in 2025, interest expense on interest-bearing deposits decreased by $470,000, or 16.5%, due to a 35 basis point decrease in the average interest rate paid on interest-bearing deposit accounts, along with a $9.7 million, or 2.0% decrease in the average balance of interest-bearing deposits. The decrease in average interest-bearing deposits accounts was due to a decrease in the average balance of all deposit account types except money market accounts. During the three months ended March 31, 2026 as compared to the same period in 2025, there was a $337,000 decrease in interest paid on time deposit accounts due to a 48 basis point decrease in the average interest rate paid on time deposits. The decrease in the average interest rate paid on time deposit accounts was primarily due to the decrease in market interest rates and proactive management of deposit funding costs. During the first quarter of 2026, interest expense on borrowed funds and other interest-bearing liabilities decreased by $37,000, or 61.7%, compared to the first quarter of 2025, primarily due to a $3.9 million, or 62.4% decrease in average borrowed funds and other interest-bearing liabilities outstanding due to the repayment of our borrowings during 2025.

Previous wording

Provision (Credit) for Credit Losses. The Company recorded a $269,000 credit to the provision for credit losses for the three months ended September 30, 2025, as compared to a credit to the provision of $229,000 for the three months ended September 30, 2024. The credit to the provision for credit losses of $269,000 for the three months ended September 30, 2025 was primarily attributable to a decrease in the qualitative factors related to current economic conditions within the modeled allowance for credit losses estimate derived as of September 30, 2025.

Current wording

Provision (Credit) for Credit Losses. The Company recorded a credit to provision for credit losses of $113,000 for the three months ended March 31, 2026, as compared to a provision for credit losses of $48,000 for the three months ended March 31, 2025. The credit to the provision for credit losses of $113,000 for the three months ended March 31, 2026 was primarily attributable to a decrease in the quantitative and qualitative loss rates, inclusive of forecasted economic trends, primarily for the commercial real estate and home equity loan pools.

Previous wording

Non-Interest Income. Non-interest income was $1.1 million for the three months ended September 30, 2025, an increase of $274,000, or 34.6%, as compared to $791,000 for the three months ended September 30, 2024. The increase was primarily due to a $182,000 increase in earnings on bank-owned life insurance as a result of a death benefit, an $83,000 increase in unrealized gain on equity securities, and a $24,000 increase in earnings on annuity assets in connection with the purchase of annuities during the fourth quarter of 2024, partially offset by a $14,000 decrease in debit card fees.

Current wording

Non-Interest Income. Non-interest income was $703,000 for the three months ended March 31, 2026, a decrease of $21,000, or 2.9%, as compared to $724,000 for the three months ended March 31, 2025. The decrease was primarily due to a $46,000 gain on equity securities during the three months ended March 31, 2025, partially offset by a $26,000 increase in earnings on bank-owned life insurance for the current quarter when compared to the three months ended March 31, 2025.

Previous wording

Income Tax Expense. Income tax expense was $487,000 for the three months ended September 30, 2025, an increase of $229,000, or 88.8%, as compared to $258,000 for the three months ended September 30, 2024. The increase in income tax expense from the prior year quarter was due to an increase in pre-tax income earned during the current quarter as well as an increase in the effective tax rate during the third quarter of 2025. The effective tax rate was 17.1% for the three months ended September 30, 2025 as compared to 16.2% for the three months ended September 30, 2024, as a result of an increase in pre-tax, taxable income.

Current wording

Income Tax Expense. Income tax expense was $430,000 for the three months ended March 31, 2026, an increase of $224,000, or 108.7%, as compared to $206,000 for the three months ended March 31, 2025. The increase in income tax expense from the prior year quarter was primarily related to the increase in taxable income earned during the current quarter.

Previous wording

We have written agreements with the FHLBNY, which allow us to borrow the maximum lending values designated by the type of collateral pledged. As of September 30, 2025, the maximum amount that we could borrow from the FHLBNY, based on the market value of certain fixed-rate residential, one- to four-family loans pledged to FHLBNY, was $88.6 million, which was collateralized by certain fixed-rate residential, one- to four-family loans. At September 30, 2025, and December 31, 2024, we had outstanding advances under this agreement of $2.0 million and $10.3 million, respectively. As of September 30, 2025, we had available borrowing capacity of $86.6 million under the aforementioned agreement with the FHLBNY.

Current wording

We have written agreements with the FHLBNY, which allow us to borrow the maximum lending values designated by the type of collateral pledged. As of March 31, 2026, the unpaid principal balance of the fixed-rate residential, one-to four-family loans pledged to FHLBNY as collateral, was $125.1 million and the total collateral market value assigned by FHLNBY was $94.2 million. In support of arrangements entered into by certain municipal and other public sector counterparties, we have issued a letter of credit (“MULOC”) through FHLBNY to secure municipal deposits. As of March 31, 2026 we had a $2.5 million outstanding letter of credit related to municipal deposits, and as of December 31, 2025, we had no outstanding letters of credit related to municipal deposits. Such MULOCs are applied as a reduction to our total borrowing capacity with FHLBNY. As of March 31, 2026 and December 31, 2025, respectively, we had available borrowing capacity of $91.7 million and $88.0 million under the agreement with FHLBNY. At March 31, 2026 and December 31, 2025, there were no outstanding advances under this agreement.

Previous wording

We have a written agreement with the Federal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities, and allows us to borrow up to the value of the securities pledged. At September 30, 2025, and December 31, 2024, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding. Additionally, as of September 30, 2025, the Bank has uncollateralized intraday credit with the Federal Reserve Bank that allows for certain transactions to not be rejected for which there are insufficient funds in our Federal Reserve Master Account during normal hours of operation.

Current wording

We have a written agreement with the Federal Reserve Bank discount window for overnight borrowings which is collateralized by a pledge of our securities, and allows us to borrow up to the value of the securities pledged. At March 31, 2026, and December 31, 2025, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding. Additionally, as of March 31, 2026, the Bank has un-collateralized intraday credit with the Federal Reserve Bank that allows for certain transactions to not be rejected for which there are insufficient funds in our Federal Reserve Master Account during normal hours of operation.

Previous wording

Our primary investing activities include the origination of loans and the purchase of investment securities. For the nine months ended September 30, 2025, we originated loans of approximately $56.9 million as compared to approximately $42.8 million of loans originated during the nine months ended September 30, 2024. Loan originations exceeded principal repayments and other deductions during the nine months ended September 30, 2025 by $8.1 million. The Company did not make any purchases of investment securities or sell any investment securities during the nine months ended September 30, 2025.

Current wording

Our primary investing activities include the origination and purchase of loans and the purchase of investment securities. For the three months ended March 31, 2026, we originated loans of approximately $21.8 million as compared to approximately $18.1 million of loans originated during the three months ended March 31, 2025. Principal payments and other deductions exceeded loan originations and purchases during the three months ended March 31, 2026 by $1.5 million. There were no purchases or sales of investment securities during the three months ended March 31, 2026 and 2025.

Previous wording

We have loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit, and unused commercial lines of credit that may require funding at a future date. We believe we have sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were $590.3 million at September 30, 2025 as compared to $573.0 million at December 31, 2024. Approximately $188.4 million of time deposit accounts are scheduled to mature within one year as of September 30, 2025. Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.

Current wording

We have loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date. We believe we have sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were $566.6 million at March 31, 2026, as compared to $573.3 million at December 31, 2025. Approximately $185.3 million of time deposit accounts are scheduled to mature within one year as of March 31, 2026. Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.

Previous wording

The federal banking agencies have developed a “Community Bank Leverage Ratio” ("CBLR") (bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A “qualifying community bank” may elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Basel III. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 9.0%. The Bank elected to be subject to this new definition when it became effective on January 1, 2020, and has continued to use the Community Bank Leverage Ratio since that time. As of September 30, 2025 and December 31, 2024, the Bank’s Community Bank Leverage Ratio was 16.34% and 13.83%, respectively.

Current wording

The federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A “qualifying community bank” may elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Basel III. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 9.0%. The Bank elected to be subject to this new definition when it became effective on January 1, 2020, and has continued to use the Community Bank Leverage Ratio since that time. Effective July 1, 2026, the federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 8.00%. As of March 31, 2026 and December 31, 2025, the Bank’s Community Bank Leverage Ratio was 17.54% and 16.65%, respectively.

Previous wording

In order to be considered “well-capitalized” by the FDIC, a non-CBLR bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%. At September 30, 2025 and December 31, 2024, the Bank’s Tier 1 Leverage capital ratio was 16.34% and 13.83%, respectively, and its Total Risk-Based capital ratio was 22.76% and 18.79%, respectively. Accordingly, the Bank was considered to be well-capitalized under applicable regulatory capital requirements.

Current wording

In order to be considered “well-capitalized” by the FDIC, a non-CBLR commercial bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%. At March 31, 2026 and December 31, 2025, the Bank’s Tier 1 Leverage capital ratio was 17.54% and 16.65%, respectively, and its Total Risk-Based capital ratio was 23.81% and 23.51%, respectively. Accordingly, the Bank was considered to be well-capitalized under applicable regulatory capital requirements.