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 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.

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

Previous wording

As previously disclosed on a Current Report on Form 8-K, on October 22, 2025, the Company adopted a plan to repurchase up to 5% of its outstanding shares of common stock. On July 28, 2026, the Company commenced repurchases of shares under this plan.

Current wording

As previously disclosed on a Current Report on Form 8-K, on October 22, 2025, the Company adopted a plan to repurchase up to 5% of its outstanding shares of common stock, or 393,191 shares. On July 28, 2026, the Company commenced repurchases of shares under this plan. During the three months ended September 30, 2026, the Company repurchased 105,090 shares of common stock for an average cost of $17.92 per share, inclusive of fees and costs.

Previous wording

The Company's consolidated financial statements are prepared in accordance with GAAP. As a result, the Company is required to make certain estimates, judgments, and assumptions that it believes are reasonable based upon the information available at that time. Critical accounting estimates includes the areas where the Company has made what it considers to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect the Company's financial results under different assumptions and conditions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Significant accounting policies followed by the Company are presented in Note 2 - Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included within Part II. Item 8. of its Annual Report on Form 10-K for the year ended December 31, 2025, and in Note 1: Basis of Presentation and Significant Accounting Policies and Estimates in Part I. Item 1. of this Form 10-Q.

Current wording

The Company's consolidated financial statements are prepared in accordance with GAAP. As a result, the Company is required to make certain estimates, judgments, and assumptions that it believes are reasonable based upon the information available at that time. Critical accounting estimates include the areas where the Company has made what it considers to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect the Company's financial results under different assumptions and conditions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. The Company evaluates its critical accounting estimates and assumptions on an ongoing basis and updates them as needed. Significant accounting policies followed by the Company are presented in Note 2 - Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included within Part II. Item 8. of its Annual Report on Form 10-K for the year ended December 31, 2025, and in Note 1: Basis of Presentation and Significant Accounting Policies and Estimates in Part I. Item 1. of this Form 10-Q.

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 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.

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 September 30, 2026 and December 31, 2025, the allowance for credit losses on loans totaled $5.3 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 September 30, 2026 and December 31, 2025, the allowance for credit losses on loans allocated to the total commercial real estate portfolio was $4.1 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 $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.

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 7.5%, 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 September 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 September 30, 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 $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.

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 $109,000 and $112,000 for the three months ended September 30, 2026 and 2025, respectively. The net amortization of deferred loan fees and costs were $324,000 and $275,000 for the nine months ended September 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 2.92% and 3.03% for the three months ended June 30, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

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 3.00% for the three months ended September 30, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

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 2.88% and 3.03% for the six months ended June 30, 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 2.91% and 3.02% for the nine months ended September 30, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

Previous 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.

Current wording

As shown in the above tables, the increase in net interest income for the three months ended September 30, 2026 when compared to the three months ended September 30, 2025 was primarily impacted by a decrease in average 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 38 basis points from 2.45% during the three months ended September 30, 2025 to 2.07% during the three months ended September 30, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended September 30, 2026 was primarily due to a 37 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.

Previous wording

As shown in the above tables, the increase in net interest income for the six months ended June 30, 2026 was primarily impacted by a decrease in the average interest 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. The average interest rate paid on interest-bearing liabilities decreased 35 basis points from 2.40% during the six months ended June 30, 2025 to 2.05% during the six months ended June 30, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the six 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 $34.1 million, or 134.4%, increase in average interest-earning deposits when compared to the prior year period. The average yield of interest-earning assets decreased by three basis points to 5.50% for the six months ended June 30, 2026 as compared to 5.53% for the same period in the prior year primarily as a result of a 46 basis point decrease in the average yield on interest-earning deposits, partially offset by an 11 basis points increase in the average yield of the loan portfolio. The average balance of interest-bearing liabilities decreased $14.3 million, from $490.6 million during the six months ended June 30, 2025 to $476.3 million during the six months ended June 30, 2026 as a result of decreases in the average balance of interest-bearing deposits of $12.0 million and the average balance of borrowed funds and other interest-bearing liabilities of $2.3 million. Net interest margin increased to 4.04% for the six months ended June 30, 2026 as compared to 3.67% for the same period of the prior year.

Current wording

As shown in the above tables, the increase in net interest income for the nine months ended September 30, 2026 was primarily impacted by a decrease in the average interest rate paid on interest-bearing liabilities, an increase in the average balance of interest-earning assets, an increase in the average yield on 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 2.42% during the nine months ended September 30, 2025 to 2.06% during the nine months ended September 30, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the nine months ended September 30, 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, 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 $19.9 million, or 48.1%, increase in average interest-earning deposits when compared to the prior year period. The average yield of interest-earning assets increased by three basis points to 5.54% for the nine months ended September 30, 2026 as compared to 5.51% for the same period in the prior year primarily as a result of a 14 basis point increase in the average yield on loans, partially offset by a 62 basis points decrease in the average yield on interest-earning deposits. The average balance of interest-bearing liabilities decreased $12.2 million, from $490.1 million during the nine months ended September 30, 2025 to $477.9 million during the nine months ended September 30, 2026 as a result of decreases in the average balance of interest-bearing deposits of $11.1 million and the average balance of borrowed funds and other interest-bearing liabilities of $1.1 million. Net interest margin increased to 4.08% for the nine months ended September 30, 2026 as compared to 3.68% for the same period of the prior year.

Previous 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.

Current wording

Total assets at September 30, 2026 were $734.2 million, an increase of $6.9 million, or 1.0%, as compared to $727.3 million at December 31, 2025 primarily due to an increase in loans receivable, net.

Previous 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%.

Current wording

Cash and cash equivalents decreased by $6.6 million, or 10.3%, from $64.3 million at December 31, 2025 to $57.7 million at September 30, 2026. The decrease in cash and cash equivalents was primarily due to an increase in loans receivable of $18.6 million, or 3.4% partially offset by an increase in deposits of $7.1 million, or 1.2%.

Previous 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.

Current wording

Securities, at fair value, decreased by $7.9 million, or 14.1%, from $56.1 million at December 31, 2025 to $48.2 million at September 30, 2026, primarily due to securities paydowns of $3.7 million, as well as a $4.2 million decrease in the market value of the securities as a result of changes in interest rates.

Previous wording

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

Current wording

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

Previous wording

Includes commercial construction loans of $21.1 million and $18.8 million at June 30, 2026 and December 31, 2025, respectively.

Current wording

Includes commercial construction loans of $25.6 million and $18.8 million at September 30, 2026 and December 31, 2025, respectively.

Previous wording

Includes overdraft protection of $32,000 and $24,000 at June 30, 2026 and December 31, 2025, respectively.

Current wording

Includes overdraft protection of $46,000 and $24,000 at September 30, 2026 and December 31, 2025, respectively.

Previous 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.

Current wording

The loans receivable, net balance increased $18.6 million, or 3.4%, from $555.4 million at December 31, 2025 to $574.1 million at September 30, 2026. The increase was primarily due to increases in commercial real estate loans and commercial loans, partially offset by decreases in residential, one- to four-family real estate loans and consumer loans. During the nine months ended September 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 $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.

Current wording

When compared to December 31, 2025, the current modeled allowance for credit losses related to the loan portfolio increased by approximately $367,000, or 7.51%, comprised of an increase of $300,000 as the result of an increase in loan balances and an increase of $67,000 due to an increase in reserve rate for the blended portfolio. 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 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.

Current wording

For the nine months ended September 30, 2026, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to 0.17% from 0.20% for the prior year period. This was primarily driven by an increase in average consumer loans outstanding of $5.2 million for the nine months ended September 30, 2026 when compared to the nine months ended September 30, 2025.

Previous 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.

Current wording

Total non-performing assets increased by $81,000, or 4.8%, to $1.8 million at September 30, 2026 from $1.7 million at December 31, 2025, primarily due to an increase in foreclosed real estate of $57,000. The Company had no loans past due 90 days or more but still accruing at September 30, 2026 or December 31, 2025.

Previous 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.

Current wording

The increase in total deposits was primarily due to a 12.8% increase in non-interest bearing demand accounts and a 3.9% increase in interest-bearing demand deposits, as a result of increased customer demand for these types of products. The increases were partially offset by a 2.1% decrease in money market accounts, a 5.8% decrease in savings accounts, a 0.5% decrease in time deposits less than or equal to $250,000, and a 1.7% decrease in time deposits greater than $250,000. 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 September 30, 2026 and December 31, 2025, our percentage of uninsured deposits to total deposits was 13.5% and 11.3%, respectively.

Previous 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.

Current wording

Total stockholders’ equity at September 30, 2026 was $141.6 million, a $44,000 decrease, as compared to $141.6 million at December 31, 2025. The decrease in stockholders’ equity was primarily attributed to an increase in accumulated other comprehensive loss of $3.3 million due to changes in interest rates, dividends declared and paid of $2.0 million during the first nine months of 2026, and share repurchases of $1.9 million, partially offset by net income of $6.4 million.

Previous 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.

Current wording

General. Net income decreased to $2.3 million during the three months ended September 30, 2026, or $0.31 per diluted share, a decrease of $45,000, or 1.9%, compared to net income of $2.4 million, or $0.32 per diluted share, for the three months ended September 30, 2025. The modest year-over-year decline in quarterly net income was primarily attributable to two one-time, nonrecurring, non-interest income events recognized in the third-quarter 2025. Our financial performance for the three months ended September 30, 2026 was positively impacted primarily by higher net interest income, partially offset by a higher provision for credit losses.

Previous wording

Net Interest Income. Net interest income for the second quarter of 2026 increased by $771,000, or 12.6%, to $6.9 million as compared to $6.1 million for the second quarter of 2025. Net interest margin and interest rate spread were 4.06% and 3.46%, respectively, for the three months ended June 30, 2026 as compared to 3.84% and 3.32%, respectively, for the three months ended June 30, 2025.

Current wording

Net Interest Income. Net interest income for the third quarter of 2026 increased by $786,000, or 12.4%, to $7.1 million as compared to $6.4 million for the third quarter of 2025. Net interest margin and interest rate spread were 4.17% and 3.55%, respectively, for the three months ended September 30, 2026 as compared to 3.72% and 3.02%, respectively, for the three months ended September 30, 2025.

Previous 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.

Current wording

Interest Income. Interest income for the three months ended September 30, 2026 was $9.6 million, an increase of $283,000, or 3.0%, compared to $9.4 million for the three months ended September 30, 2025. The increase in interest income from the prior year quarter was primarily due to a 15 basis point increase in the average yield on interest-earning assets, along with a $2.1 million, or 0.3%, increase in the average balance of interest-earning assets. During the third quarter of 2026 as compared to the same period in 2025, there was a $512,000, or 6.2%, increase in interest income on loans due to a 22 basis point increase in the average yield on loans and a $13.1 million, or 2.4%, increase in the average balance of loans, as a result of an increase in commercial real estate and commercial loans. This increase was partially offset by a $202,000, or 25.5%, decrease in interest income on interest-earning deposits due to a $7.9 million decrease in the average balance of interest-earning deposits and a 71 basis point decrease in the average yield on interest-earning deposits as a result of a decrease in market interest rates.

Previous 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.

Current wording

Interest Expense. Interest expense for the three months ended September 30, 2026 was $2.5 million, a decrease of $503,000, or 16.8%, from $3.0 million for the three months ended September 30, 2025. The decrease in interest expense when compared to the prior year quarter was primarily due to a 38 basis points decrease in the average interest rate paid on interest-bearing liabilities and a $7.9 million, or 1.6%, decrease in the average balance of interest-bearing liabilities. The decrease in the average interest rate paid on interest-bearing liabilities was primarily due to a decrease in the average interest rate paid on deposit accounts as the result of a decrease in market interest rates, time deposit repricing, and a marginal shift in deposit composition. During the third quarter of 2026 as compared to the same period in 2025, interest expense on deposits decreased by $499,000, or 16.8%, due to a 37 basis points decrease in the average interest rate paid on interest-bearing deposit accounts and a $9.3 million, or 1.9%, decrease in the average balance of interest-bearing deposits. Average interest-bearing deposit balances decreased due to decreases in all deposit categories other than savings accounts.

Previous wording

Provision for Credit Losses. The Company recorded a $119,000 provision for credit losses for the three months ended June 30, 2026, as compared to no provision for the three months ended June 30, 2025. Of the amount recorded for the second quarter of 2026, $169,000 related to a provision recorded to the allowance for credit losses for unfunded commitments, and $50,000 related to a credit recorded to the allowance for credit losses on the loan portfolio. The allowance for credit losses on loans and unfunded commitments and the corresponding provision for credit losses of $119,000 recognized during the second quarter of 2026 was primarily the result of an increase in outstanding unfunded commitments between the periods. The decrease in the allowance for credit losses on the loan portfolio was primarily related to a decrease in the calculated reserve rates, including the expected quantitative losses inclusive of forecasted economic trends, and the qualitative factor loss rates related to economic factors. The decrease primarily related to the commercial real estate and residential mortgage loan pools, partially offset by an increase in the calculation of expected losses for the commercial loan pool.

Current wording

Provision for Credit Losses. The Company recorded a $290,000 provision for credit losses for the three months ended September 30, 2026, as compared to a $269,000 credit to the provision for credit losses for the three months ended September 30, 2025. For the third quarter of 2026, $522,000 related to a provision for credit losses for the loan portfolio, inclusive of net charge-offs of $18,000, which was partially offset by a $230,000 credit recorded to the allowance for credit losses for unfunded commitments. The increase in the provision for credit losses on the loan portfolio was primarily related to an increase in the calculated reserve rates, largely due to changes to the qualitative factor loss rates. The qualitative factor related to industry concentration increased the reserve rate for the commercial real estate and commercial loan pools, while the qualitative factor related to adversely classified loans increased the reserve rate for the residential mortgage loan pool.

Previous 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.

Current wording

Non-Interest Income. Non-interest income was $792,000 for the three months ended September 30, 2026, a decrease of $273,000, or 25.6%, as compared to $1.1 million for the three months ended September 30, 2025. The decrease from the prior year quarter was primarily due to a $212,000 decrease in earnings on bank-owned life insurance as the result of a one-time death benefit occurring in the previous year period, and a $79,000 decrease in gain on equity securities that were held in the prior year period.

Previous 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%.

Current wording

Non-Interest Expense. Non-interest expense was $4.8 million for the three months ended September 30, 2026, a decrease of $8,000, or 0.2%, as compared to the three months ended September 30, 2025. The decrease from the third quarter of 2025 was primarily related to a decrease in data processing costs of $161,000, or 31.3%, as we renegotiated our contract with our core processor in 2026, a decrease in professional services of $35,000, or 11.6%, and a decrease in postage and supplies of $28,000, or 29.8%, nearly offset by increases in the cost of health insurance, taxes, and other non-salary benefits of $235,000, or 8.2%.

Previous 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.

Current wording

Income Tax Expense. Income tax expense was $494,000 for the three months ended September 30, 2026, an increase of $7,000, or 1.4%, as compared to $487,000 for the three months ended September 30, 2025. The increase from the prior year quarter was primarily due to an increase in the effective tax rate, as the result of the decline in non-taxable earnings on bank owned life insurance during the third quarter of 2026 as compared to the third quarter of 2025. The effective tax rate was 17.6% for the three months ended September 30, 2026 as compared to 17.1% for the three months ended September 30, 2025.

Previous wording

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

Current wording

Comparison of Results of Operations for the Nine Months Ended September 30, 2026 and 2025

Previous wording

General. Net income was $4.1 million for the six months ended June 30, 2026, or $0.56 per diluted share, an increase of $1.1 million, or 37.7%, compared to net income of $3.0 million, or $0.39 per diluted share, for the six months ended June 30, 2025. Net income for the six months ended June 30, 2026 was positively impacted by a $2.0 million, or 17.0% increase in net interest income, when compared to the first half of 2025.

Current wording

General. Net income was $6.4 million for the nine months ended September 30, 2026, or $0.87 per diluted share, an increase of $1.1 million, or 20.1%, compared to net income of $5.3 million, or $0.70 per diluted share, for the nine months ended September 30, 2025. Net income for the nine months ended September 30, 2026 was positively impacted by an increase in net interest income when compared to the first nine months of 2025.

Previous 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.

Current wording

Net Interest Income. Net interest income for the nine months ended September 30, 2026 increased by $2.8 million, or 15.3%, to $20.7 million as compared to $17.9 million for the first nine months of 2025. Net interest margin and interest rate spread were 4.08% and 3.48%, respectively, for the nine months ended September 30, 2026 as compared to 3.68% and 3.09%, respectively, for the nine months ended September 30, 2025.

Previous wording

Interest Income. Interest income increased by $968,000, or 5.5%, to $18.4 million for the six months ended June 30, 2026 when compared to $17.5 million for the six months ended June 30, 2025. This increase was primarily due to an increase in the average balance of interest-earning assets of $38.7 million, or 6.1%, when compared to the previous period. Interest earned on interest-earning deposits increased by $541,000, or 107.3%, primarily due to a $34.1 million, or 134.4%, increase in the average balance of interest-earning deposits. Interest earned on loans increased by $474,000, or 2.9%, due to an increase in the average balance of loans of $5.6 million, or 1.0%, along with an 11 basis points increase in the average yield earned on loans due to loans originating and rates resetting at higher interest rates.

Current wording

Interest Income. Interest income increased by $1.3 million, or 4.7%, to $28.1 million for the nine months ended September 30, 2026 when compared to $26.8 million for the nine months ended September 30, 2025. The increase in interest income during the first nine months of 2026 as compared to the previous year period was primarily due to an increase in the average balance of interest-earning assets of $26.4 million, or 4.1%. Interest earned on loans increased by $986,000, or 4.0%, due to an increase in the average balance of loans of $8.1 million, or 1.5%, as a result of an increase in commercial real estate and commercial loans, along with a 14 basis points increase in the average yield earned on loans. Interest earned on interest-earning deposits increased by $339,000, or 26.1%, primarily due to a $19.9 million, or 48.1%, increase in the average balance of interest-earning deposits, partially offset by a 62 basis point decrease in the average yield earned on interest-earning deposits as a result of a decrease in market interest rates.

Previous wording

Interest Expense. Interest expense decreased $997,000, or 16.9%, to $4.9 million for the six months ended June 30, 2026, compared to $5.9 million for the six months ended June 30, 2025. The decrease in interest expense was primarily due to a 35 basis points decrease in average interest rate paid on interest-bearing liabilities and a decrease in the average balance of interest-bearing liabilities of $14.3 million, or 2.9%. During the first half of 2026, there was a $946,000 decrease in interest expense on interest-bearing deposit accounts when compared to the first half of 2025 due to a 33 basis points decrease in the average interest rate paid on interest-bearing deposit accounts along with a decrease in average balance of interest-bearing deposits of $12.0 million, or 2.5%. 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.

Current wording

Interest Expense. Interest expense decreased $1.5 million, or 16.9%, to $7.4 million for the nine months ended September 30, 2026, compared to $8.9 million for the nine months ended September 30, 2025. The decrease in interest expense was primarily due to a 36 basis points decrease in the average interest rate paid on interest-bearing liabilities and a decrease in the average balance of interest-bearing liabilities of $12.2 million, or 2.5%. The decrease in the average interest rate paid on interest-bearing liabilities was primarily due to a decrease in the average interest rate paid on deposit accounts as the result of a decrease in market interest rates, time deposit repricing, and a marginal shift in deposit composition. During the first nine months of 2026, there was a $1.4 million decrease in interest expense on interest-bearing deposit accounts when compared to the first nine months of 2025 due to a 35 basis points decrease in the average interest rate paid on interest-bearing deposits along with a decrease in the average balance of interest-bearing deposits of $11.1 million, or 2.3%. Average interest-bearing deposit balances decreased due to a decrease in all deposit categories.

Previous wording

Provision for Credit Losses. The Company recorded a net provision for credit losses of $5,000 on loans and unfunded commitments during the six months ended June 30, 2026, as compared to a $48,000 provision for credit losses during the six months ended June 30, 2025. For the first half of 2026, $133,000 related to a provision recorded to the allowance for credit losses for unfunded commitments, and $128,000 related to a credit recorded to the allowance for credit losses on the loan portfolio. The increase in the allowance for credit losses on unfunded commitments and the corresponding provision for credit losses recognized during the first half of 2026 was primarily the result of an increase in outstanding unfunded commitments between the periods. The decrease in the allowance for credit losses on the loan portfolio was primarily related to a decrease in the calculated reserve rates, including the expected quantitative losses inclusive of forecasted economic trends, and the qualitative factor loss rates related to economic factors. The decrease primarily related to the commercial real estate and residential mortgage loan pools, partially offset by an increase in the calculation of expected losses for the commercial loan pool.

Current wording

Provision for Credit Losses. The Company recorded a provision for credit losses of $296,000 on loans and unfunded commitments during the nine months ended September 30, 2026, as compared to a $221,000 credit to the provision for credit losses during the nine months ended September 30, 2025. For the first nine months of 2026, $393,000 related to a provision for credit losses for the loan portfolio, inclusive of net charge-offs of $26,000, which was partially offset by a $97,000 credit recorded to the allowance for credit losses for unfunded commitments. The increase in the provision for credit losses on the loan portfolio was primarily related to an increase in the calculated reserve rates, largely due to changes to the qualitative factor loss rates. The qualitative factor related to industry concentration increased the reserve rate for the commercial real estate and commercial loan pools, while the qualitative factor related to adversely classified loans increased the reserve rate for the residential mortgage loan pool.

Previous wording

Non-Interest Income. Non-interest income decreased by $72,000, or 4.7%, to $1.5 million for the six months ended June 30, 2026, when compared to the six months ended June 30, 2025. The decrease was primarily due to a $111,000 decrease in gain on equity securities that were held in the prior year period and a $14,000 decrease in earnings on annuity assets, partially offset by a $53,000 increase in earnings on bank-owned life insurance and a $12,000 increase in service charges and fees.

Current wording

Non-Interest Income. Non-interest income decreased by $346,000, or 13.4%, to $2.2 million for the nine months ended September 30, 2026, when compared to the nine months ended September 30, 2025. The decrease was primarily due to a $190,000 decrease in gain on equity securities that were held in the prior year period and a $160,000 decrease in earnings on bank-owned life insurance as the result of a one-time death benefit occurring in the previous year period.

Previous wording

Non-Interest Expense. Non-interest expense was $10.0 million for the six months ended June 30, 2026, an increase of $493,000, or 5.2%, as compared to $9.5 million for the six months ended June 30, 2025. The increase related primarily to an increase in the cost of health insurance, taxes, and other non-salary benefits of $628,000, or 10.9%, partially offset by a decrease in data processing costs of $130,000, or 14.2% and professional services of $37,000, or 6.5%, as a result of management's efforts to optimize operating expenses.

Current wording

Non-Interest Expense. Non-interest expense was $14.8 million for the nine months ended September 30, 2026, an increase of $485,000, or 3.4%, as compared to $14.3 million for the nine months ended September 30, 2025. The increase related primarily to increases in the cost of health insurance, taxes, and other non-salary benefits of $863,000, or 10.0%, partially offset by decreases in data processing costs of $290,000, or 20.3%, as we renegotiated our contract with our core processor in 2026, and professional services of $72,000, or 8.3%, as a result of management's efforts to optimize operating expenses.

Previous wording

Income Taxes Expense. Income tax expense was $907,000 for the six months ended June 30, 2026, an increase of $322,000, or 55.0%, as compared to $585,000 for the six months ended June 30, 2025. The effective tax rate was 18.1% for the first half of 2026 and 16.4% for the first half of 2025. The increase in income tax expense from the first half of 2025 was primarily related to the increase in pre-tax income earned during the first half of 2026. The increase in the effective tax rate during the first half of 2026 was primarily due to an increase in taxable income earned during the first half of 2026.

Current wording

Income Tax Expense. Income tax expense was $1.4 million for the nine months ended September 30, 2026, an increase of $329,000, or 30.7%, as compared to $1.1 million for the nine months ended September 30, 2025. The effective tax rate was 17.9% for the first nine months of 2026 and 16.7% for the first nine months of 2025. The increase in income tax expense from the first nine months of 2025 was primarily related to the increase in pre-tax income earned during the first nine months of 2026. The increase in the effective tax rate during the first nine months of 2026 was primarily due to an increase in taxable income earned during the first nine months of 2026.

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 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.

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 September 30, 2026, the unpaid principal balance of the fixed-rate residential, one-to four-family loans pledged to the FHLBNY as collateral, was $119.1 million and the total collateral market value assigned by the FHLBNY was $88.0 million. In support of arrangements entered into by certain municipal and other public sector counterparties, we have issued a letter of credit (“MULOC”) through the FHLBNY to secure municipal deposits. As of September 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 the FHLBNY. As of September 30, 2026 and December 31, 2025, respectively, we had available borrowing capacity of $86.5 million and $88.0 million under the agreement with the FHLBNY. At September 30, 2026 and December 31, 2025, there were no outstanding advances under this agreement.