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 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.

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 June 30, 2026 compared to the consolidated financial condition as of December 31, 2025 and the consolidated results of operations for the three and six months ended June 30, 2026 and 2025.

Previous wording

As previously disclosed on a Current Report on Form 8-K, on April 22, 2026, the Board of Directors of the Company declared a cash dividend of $0.09 per share on its outstanding common stock. The dividend is expected to be paid on May 13, 2026 to stockholders of record as of May 4, 2026.

Current wording

As previously disclosed on a Current Report on Form 8-K, the Board of Directors of the Company declared a cash dividend of $0.09 per share on its outstanding common stock. The dividend is expected to be paid on August 12, 2026 to stockholders of record as of August 3, 2026.

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 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.

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 June 30, 2026 and December 31, 2025, the allowance for credit losses on loans totaled $4.7 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 June 30, 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 78.1%, 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 $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.

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 $391,000, or 8.3%, 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 June 30, 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 June 30, 2026.

Previous 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.

Current 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 $122,000 and $100,000 for the three months ended June 30, 2026 and 2025, respectively. The net amortization of deferred loan fees and costs were $215,000 and $163,000 for the six months ended June 30, 2026 and 2025, respectively. Interest income on securities does not include a tax equivalent adjustment for tax exempt securities.

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 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.

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 2.92% and 3.03% for the three months ended June 30, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

Previous 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.

Current 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 for the major components of interest-earning assets and interest-bearing liabilities 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 for the major components of interest-earning assets and interest-bearing liabilities 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 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.

Current wording

As shown in the above tables, the increase in net interest income for the three months ended June 30, 2026 when compared to the three months ended June 30, 2025 was primarily impacted by a decrease in average rate paid on interest-bearing liabilities, an increase in the average balance of interest-earning assets, and a decrease in the average balance of interest-bearing liabilities. This increase was partially offset by a decrease in the average yield of interest-earning assets when compared to the prior year period. The average interest rate paid on interest-bearing liabilities decreased 33 basis points from 2.40% during the three months ended June 30, 2025 to 2.07% during the three months ended June 30, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended June 30, 2026 was primarily due to a 33 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, time deposit repricing, and a marginal shift in deposit composition. The increase in the average balance of interest-earning assets was primarily due to a $37.6 million, or 138.6%, increase in average interest-earning deposits when compared to the prior year period. The average yield of interest-earning assets decreased by 19 basis points to 5.53% for the three months ended June 30, 2026 as compared to 5.72% for the same period in the prior year primarily as a result of a 42 basis point decrease in the average yield earned on interest-earning deposits and a seven basis points decrease in the average yield of the loan portfolio. The average balance of interest-bearing liabilities decreased $15.1 million, from $497.1 million during the three months ended June 30, 2025 to $482.1 million during the three months ended June 30, 2026 as a result of a decrease in the average balance of deposits of $14.3 million. Net interest margin increased to 4.06% for the three months ended June 30, 2026 as compared to 3.84% for the same period of the prior year.

Previous 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.

Current wording

Total assets at June 30, 2026 were $736.7 million, an increase of $9.3 million, or 1.3%, as compared to $727.3 million at December 31, 2025 primarily due to increases in cash and cash equivalents and loans receivable, net.

Previous wording

Cash and cash equivalents decreased by $2.7 million, or 4.2%, from $64.3 million at December 31, 2025 to $61.6 million at March 31, 2026. The decrease in cash and cash equivalents was primarily due to a decrease in deposits of $6.7 million, or 1.2%, partially offset by a decrease in loans receivable of $1.6 million, or 0.3%.

Current wording

Cash and cash equivalents increased by $8.0 million, or 12.4%, from $64.3 million at December 31, 2025 to $72.2 million at June 30, 2026. The increase in cash and cash equivalents was primarily due to an increase in deposits of $5.0 million, or 0.9% and a decrease in securities of $2.6 million, or 4.6%, partially offset by an increase in loans receivable of $2.9 million, or 0.5%.

Previous 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.

Current wording

Securities, at fair value, decreased by $2.6 million, or 4.6%, from $56.1 million at December 31, 2025 to $53.6 million at June 30, 2026, primarily due to securities paydowns of $2.5 million, as well as a $15,000 decrease in the market value of the securities.

Previous wording

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

Current wording

Net loans receivable increased during the six months ended June 30, 2026, as shown in the table below:

Previous 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.

Current wording

The loans receivable, net balance increased $2.9 million, or 0.5%, from $555.4 million at December 31, 2025 to $558.3 million at June 30, 2026. The increase was primarily due to increases in commercial loans and commercial real estate loans, partially offset by decreases in residential, one- to four-family real estate loans and consumer loans. During the six months ended June 30, 2026, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk.

Previous 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.

Current wording

When compared to December 31, 2025, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $137,000, or 2.80%, comprised of a decrease of $207,000 due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $70,000 as the result of 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.

Previous 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.

Current wording

For the six months ended June 30, 2026, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.06)% from (0.14)% for the prior year period. This improvement was primarily driven by an increase in average consumer loans outstanding of $6.9 million for the six months ended June 30, 2026 when compared to the six months ended June 30, 2025.

Previous wording

There were no one- to four- family construction loans as of March 31, 2026 or December 31, 2025.

Current wording

(1) Includes one- to four- family construction loans.

Previous 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.

Current wording

Total non-performing assets decreased by $193,000, or 11.5%, to $1.5 million at June 30, 2026 from $1.7 million at December 31, 2025, due to a decrease in non-accrual loans of $250,000, partially offset by an increase in foreclosed real estate of $57,000. The Company had no loans past due 90 days or more but still accruing at June 30, 2026 or December 31, 2025.

Previous 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.

Current wording

Other assets increased $821,000, or 8.9%, to $10.0 million at June 30, 2026 from $9.2 million at December 31, 2025 as a result of normal operations.

Previous 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.

Current wording

The increase in total deposits was primarily due to a 3.6% increase in time deposits less than or equal to $250,000, a 7.0% increase in time deposits greater than $250,000 and a 3.3% increase in interest-bearing demand deposits, as a result of increased customer demand for these types of products as the result of the competitive interest rate environment. The increases were partially offset by a 2.5% decrease in money market accounts and a 3.5% decrease in savings accounts. Our strategic focus remains centered on organic growth of deposits among our retail and commercial customers to maintain low reliance on wholesale funding and to strengthen customer relationships. At June 30, 2026 and December 31, 2025, our percentage of uninsured deposits to total deposits was 10.9% and 11.3%, respectively.

Previous wording

Total stockholders’ equity increased $739,000, or 0.5%, to $142.4 million at March 31, 2026 from $141.6 million at December 31, 2025. The increase in stockholders’ equity was primarily attributed to $1.9 million in net income earned during the three months ended March 31, 2026, partially offset by an increase in accumulated other comprehensive loss of $689,000 and dividends declared and paid of $662,000.

Current wording

Total stockholders’ equity increased $3.1 million, or 2.2%, to $144.8 million at June 30, 2026 from $141.6 million at December 31, 2025. The increase in stockholders’ equity was primarily attributed to $4.1 million in net income earned during the six months ended June 30, 2026, partially offset by dividends declared and paid of $1.3 million during the same time period.

Previous 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.

Current wording

General. Net income increased to $2.2 million during the three months ended June 30, 2026, or $0.29 per diluted share, an increase of $254,000, or 13.2%, compared to net income of $1.9 million, or $0.25 per diluted share, for the three months ended June 30, 2025. Our financial performance for the three months ended June 30, 2026 was positively impacted primarily by higher net interest income.

Previous 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.

Current wording

Interest Income. Interest income for the three months ended June 30, 2026 was $9.4 million, an increase of $281,000, or 3.1%, compared to $9.1 million for the three months ended June 30, 2025. The increase in interest income from the prior year quarter was primarily due to $42.0 million, or 6.6%, increase in the average balance of interest-earning assets, partially offset by a 19 basis point decrease in the average yield on interest-earning assets. During the second quarter of 2026 as compared to the same period in 2025, there was a $306,000, or 113.3%, increase in interest income on interest-earning deposits due to a $37.6 million increase in the average balance of interest-earnings deposits. This increase was partially offset by a 42 basis point decrease in the average yield on interest-earnings deposits.

Previous 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.

Current wording

Interest Expense. Interest expense for the three months ended June 30, 2026 was $2.5 million, a decrease of $490,000, or 16.4%, from $3.0 million for the three months ended June 30, 2025. The decrease in interest expense when compared to the prior year quarter was primarily due to a 33 basis points decrease in average interest rate paid on interest-bearing liabilities and a $15.1 million, or 3.0%, decrease in the average balance of interest-bearing liabilities. During the second quarter of 2026 as compared to the same period in 2025, interest expense on deposits decreased by $476,000, or 16.1%, due to a 33 basis points decrease in the average interest rate paid on deposit accounts and a $14.3 million, or 2.9%, decrease in the average balance of interest-bearing 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. Average interest-bearing deposit balances decreased 2.9% during the second quarter of 2026 when compared to the second quarter of 2025 due to a decrease in all deposit categories except money market accounts.

Previous 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.

Current wording

Non-Interest Income. Non-interest income was $749,000 for the three months ended June 30, 2026, a decrease of $51,000, or 6.4%, as compared to $800,000 for the three months ended June 30, 2025. The decrease was primarily due to a $65,000 decrease in gain on equity securities that were held in the prior year period, partially offset by a $28,000 increase in earnings on bank-owned life insurance.

Previous wording

Non-Interest Expense. Non-interest expense was $5.1 million for the three months ended March 31, 2026, an increase of $245,000, or 5.0%, as compared to $4.9 million for the three months ended March 31, 2025. The increase was primarily related to an increase in the cost of health insurance, taxes, and other non-salary benefits of $300,000, or 30.3%, and an increase in occupancy and equipment expenses of $43,000, or 6.4%. These increases were partially offset by a $98,000 decrease in data processing costs as we renegotiated our primary data processing contract, and a $53,000 decrease in professional services.

Current wording

Non-Interest Expense. Non-interest expense was $4.9 million for the three months ended June 30, 2026, an increase of $248,000, or 5.4%, as compared to $4.6 million for the three months ended June 30, 2025. The increase from the prior year quarter was primarily related to an increase in the cost of health insurance, taxes, and other non-salary benefits of $236,000, or 8.3%, and an increase in occupancy and equipment of $27,000, or 4.4%, partially offset by a decrease in data processing of $31,000, or 6.8%.

Previous 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.

Current wording

Income Tax Expense. Income tax expense was $477,000 for the three months ended June 30, 2026, an increase of $99,000, or 26.2%, as compared to $378,000 for the three months ended June 30, 2025. The increase in income tax expense from the prior year quarter was due to an increase in pre-tax income during the current quarter as well as an increase in the effective tax rate, which was due to an increase in taxable income earned during the second quarter of 2026. The effective tax rate was 18.0% for three months ended June 30, 2026 as compared to 16.5% for the three months ended June 30, 2025.

Previous 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.

Current wording

Net Interest Income. Net interest income for the six months ended June 30, 2026 increased by $2.0 million, or 17.0%, to $13.6 million as compared to $11.6 million for the first half of 2025. Net interest margin and interest rate spread were 4.04% and 3.45%, respectively, for the six months ended June 30, 2026 as compared to 3.67% and 3.13%, respectively, for the six months ended June 30, 2025.

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 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.

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 June 30, 2026, the unpaid principal balance of the fixed-rate residential, one-to four-family loans pledged to FHLBNY as collateral, was $122.7 million and the total collateral market value assigned by FHLBNY was $91.9 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 June 30, 2026 we had a $1.5 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 June 30, 2026 and December 31, 2025, respectively, we had available borrowing capacity of $90.4 million and $88.0 million under the agreement with FHLBNY. At June 30, 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 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.

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 June 30, 2026, and December 31, 2025, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding. Additionally, as of June 30, 2026, 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.

Previous 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.

Current wording

Our primary investing activities include the origination and purchase of loans and the purchase of investment securities. For the six months ended June 30, 2026, we originated loans of approximately $41.5 million as compared to approximately $37.9 million of loans originated during the six months ended June 30, 2025. Loan originations and purchases exceeded principal payments and other deductions during the six months ended June 30, 2026 by $3.0 million. There were no purchases or sales of investment securities during the six months ended June 30, 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 $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.

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. Additionally, we have a commitment to provide a capital contribution to Castle Creek Launchpad Fund II (SBIC) LP, a limited partnership investment fund. 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 $578.2 million at June 30, 2026, as compared to $573.3 million at December 31, 2025. Approximately $196.8 million of time deposit accounts are scheduled to mature within one year as of June 30, 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. 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.

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 June 30, 2026 and December 31, 2025, the Bank’s Community Bank Leverage Ratio was 17.43% and 16.65%, respectively.

Previous 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.

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 June 30, 2026 and December 31, 2025, the Bank’s Tier 1 Leverage capital ratio was 17.43% and 16.65%, respectively, and its Total Risk-Based capital ratio was 24.04% and 23.51%, respectively. Accordingly, the Bank was considered to be well-capitalized under applicable regulatory capital requirements.

Previous wording

Other than loan commitments, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 7 in the Notes to our unaudited consolidated financial statements for a summary of loan commitments outstanding as of March 31, 2026.

Current wording

Other than the limited partnership investment commitment and our loan commitments, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 7 in the Notes to our unaudited consolidated financial statements for a summary of loan commitments outstanding as of June 30, 2026.