Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

Item7. Management's Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis reflects our consolidated financial statements and other relevant statistical data and is intended to enhance your understanding of our consolidated financial condition and results of operations. You should read the information in this section in conjunction with our audited consolidated financial statements and accompanying notes to the audited consolidated financial statements beginning on page F-1 of this Form 10-K, and the other statistical data provided in this Form 10-K.

Overview

Our results of operations depend primarily on our net interest income, which is the difference between the interest income we earn on loans and investments and the interest expense we pay on deposits, borrowings and other interest-bearing liabilities. Net interest income is affected by the relative amounts of interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on these balances.

Our operations are also affected by non-interest income, such as service charges and fees, debit card fees, earnings on bank owned life insurance, gains and losses on interest rate swaps and the sales of securities and loans, our provision for credit losses and non-interest expenses which include salaries and employee benefits, occupancy and equipment costs, data processing, professional services, advertising and other general and administrative expenses.

Financial institutions like us, in general, are significantly affected by economic conditions, competition, and the monetary and fiscal policies of the federal government. Lending activities are influenced by the demand for and supply of housing and commercial real estate, competition among lenders, interest rate conditions, and funds availability. Our operations and lending are principally concentrated in the Western New York area, and our operations and earnings are influenced by local economic conditions. Deposit balances and cost of funds are influenced by prevailing market rates on competing investments, customer preferences, and levels of personal income and savings in our primary market area. Operations are also significantly impacted by government policies and actions of regulatory authorities. Future changes in applicable law, regulations or government policies, as well as regulatory actions, may materially impact our financial performance.

Completion of Second-Step Conversion

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

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

As part of the Conversion transaction, each outstanding share of Lake Shore Federal Bancorp common stock owned by the public stockholders of Lake Shore Federal Bancorp (stockholders other than Lake Shore, MHC) as of July 18, 2025 were converted into shares of Lake Shore Bancorp's common stock based on an exchange ratio of 1.3549 shares of Lake Shore Bancorp's common stock for each share of Lake Shore Federal Bancorp common stock so that Lake Shore Federal Bancorp's existing public stockholders would own approximately the same percentage of Lake Shore Bancorp's common

stock as they owned of Lake Shore Federal Bancorp's common stock immediately prior to the Conversion. A total of 7,825,501 shares of common stock were outstanding following the completion of the stock offering.

Share and per share amounts related to periods prior to the date of Conversion (July 18, 2025) have been adjusted to give the retroactive recognition to the exchange ratio applied in the Conversion (1.3549).

Recent Events

As previously disclosed on a Current Report on Form 8-K, on October 22, 2025, the Board of Directors of the Company adopted a plan to repurchase up to 5% of its outstanding shares of common stock, which may commence following the one-year anniversary of the Conversion, or on July 20, 2026.

Business Strategy

In April 2023, Kim C. Liddell was appointed President and Chief Executive Officer of Lake Shore Savings Bank and its holding companies, Lake Shore Federal Bancorp and Lake Shore, MHC, in order to lead a new management team to expeditiously resolve the Consent Order which the Bank entered into with the OCC in February 2023, as well as position the Bank for future market opportunities. The Consent Order required the Bank to correct certain deficiencies relating to information technology, security, automated clearing house program, audit, management and BSA/AML. In addition, Lake Shore Federal Bancorp and Lake Shore, MHC entered into a written agreement with the Federal Reserve Bank of Philadelphia in June 2023 to support the remediation activities at the Bank. As a result of the new management team's efforts, the Consent Order was terminated by the OCC on December 3, 2024 followed by the termination of the written agreement with the Federal Reserve Bank of Philadelphia on March 4, 2025. On July 18, 2025, the Company completed the Conversion raising gross proceeds of $49.5 million. With the resolution of the regulatory matters and the completion of the Conversion, we can focus on our core strategy of positioning ourselves as a leading community bank, locally headquartered in Western New York, with more than 134 years of service to our community. We strive to accomplish our goals by continuing to emphasize our exceptional individualized customer service and financial strength, continued community involvement, strong capital levels, multi-channel banking services, and penetration in our market areas via organic growth of loans and deposits. Highlights of our current business strategy include the following:

Provide high-quality, personalized service as a leading community bank to our local and loyal customers. We currently operate ten full-service branch offices throughout Western New York, where our branch teams initiate and develop both consumer and commercial customer relationships in and around the surrounding market areas. We offer concierge banking services, together with our online and mobile customer conveniences, creating a truly individualized approach for customers to manage their finances whenever, wherever and however they wish. As a true local bank, we pride ourselves on offering competitive products delivered with the individualized service our customers have come to expect. Our experienced team of commercial bankers can meet the needs of nearly any type of business through a variety of checking and credit products, and banking services. The retail banking team located in our branch offices focuses on meeting the deposit and lending needs of consumer customers throughout various life stages as well as small business customers.

From local decision-making, responding quickly and efficiently to customer needs, and utilizing technology to level the playing field with our competitors, we are committed to developing long-term relationships with our customers. Staying true to our local roots and mission of "Putting People First" continues to uniquely position us as a bank of choice in Western New York.

Grow our loan portfolio with an emphasis on commercial lending while maintaining our historical residential mortgage program. We have been strategically focused on increasing the originations of commercial real estate loans to finance the purchase of real property, which generally consists of developed real estate, particularly due to the interest rate risk inherent in holding long-term, fixed rate, residential, one- to four-family real estate loans in our portfolio. We have also focused on commercial business lending to small businesses, including business installment loans, lines of credit and other commercial loans. These types of commercial loans are generally made at higher interest rates and for shorter terms than one- to four-family real estate loans, which mitigates interest rate risk. At December 31, 2025, our commercial real estate loan portfolio (including loans to finance the construction of commercial real estate) represented the largest holdings in our

loan portfolio at 58.8% of total gross loans. We monitor our commercial concentrations, none of which are in excess of regulatory limits as of December 31, 2025.

At December 31, 2025, residential one- to four-family mortgage loans (including loans to finance the construction of one- to four-family homes) represented the second largest holding in our loan portfolio at 26.9% of total gross loans. Residential mortgage lending has historically been a significant part of our business, and we recognize that continuing to originate residential one- to four-family mortgage loans is essential to our status as a community-oriented bank. We may sell long-term conforming fixed rate one- to four-family residential loans that we originate on the secondary market, as part of our interest rate and liquidity risk strategy and asset/liability management, if it is deemed appropriate. We typically retain servicing rights when we sell one- to four-family residential mortgage loans. We did not sell any one- to four-family residential loans in the secondary market during the year ended December 31, 2025.

Manage credit risk to maintain a low level of non-performing assets.We remain committed to maintaining prudent underwriting standards and aggressively monitoring our loan portfolio to maintain asset quality. We have established an experienced commercial credit and lending team and we have implemented well-defined policies, a thorough and efficient loan underwriting process, and active credit monitoring. Furthermore, management and our Board of Directors review robust loan portfolio analytics on a monthly basis to identify trends that could represent heightened credit risk for the organization. As a result of our continued focus on credit risk management, we had non-performing assets of $1.7 million, or 0.23% of total assets, at December 31, 2025. Our goal is to continue to improve our asset quality through prudent underwriting standards and the diligence of our loan collection personnel.

Increase our share of lower-cost core deposit growth.As a community-based bank, we are focused on growing core deposits within our local communities. As interest rates increased in recent years, customers migrated to higher cost certificates of deposit and we have made a concerted effort in recent periods to begin to reduce our reliance on higher cost certificates of deposit in favor of obtaining lower cost retail and commercial deposit accounts. We also continue to enhance our technology-based deposit products such as remote deposit capture, commercial cash management, and mobile deposits in order to accommodate business customers. Our core deposits (which is defined as our deposits other than certificates of deposit with a balance greater than $250,000 and brokered certificates of deposit), represented 94.8% of total deposits at December 31, 2025. Following our conversion to a New York-chartered commercial bank, we are able to attract and accept municipal deposits which we believe can further enhance core deposits. We intend to continue our focus on core deposit growth by offering our retail and commercial customers a full selection of deposit-related services, and making further investments in technology so that we can enhance our value proposition and deliver high-quality, innovative products and services to our customers.

Pursue opportunistic mergers and acquisitions.In addition to organic growth, we intend to pursue opportunities to acquire banks that offer opportunities for strong financial returns. We recognize the importance of scale and technological innovation in banking. Our primary focus will be on franchises that have strong core deposit and lending relationships, new product capabilities and contiguous market footprints, while maintaining an acceptable risk profile. In addition, we believe that the accelerated rate of consolidation in the banking industry will continue over the next several years providing us with the ability to prudently evaluate and acquire other financial institutions. However, we currently have no understandings or agreements with respect to acquiring any specific financial institution.

Utilize technology to adapt to evolving customer needs.As the banking industry continues to rapidly evolve in terms of technological conveniences, we remain proactive in our efforts to provide e-banking services that our customers expect. We are committed to making investments in technology to make our organization more efficient and to meet customer needs. To this end, we have enhanced the security, monitoring, and updating of our customer systems via the deployment of a cloud-based computing system, in addition to the supporting hardware and software. During 2025, we continued to leverage the use of our core banking system to efficiently serve our customers and provide them with cutting-edge banking services for their convenience.

Leverage management expertise.We intend to rely on management's extensive experience to execute our business strategy. Our management team, led by Mr. Liddell, has a track record of profitably, growing financial institutions and creating value and providing liquidity for stockholders. With the enhancements to our management team over the last two years, we have positioned ourselves to capitalize on market opportunities and enhance our profitability.

Attract and retain key talent.Key to our strategy is our ability to attract and retain exceptional talent. As a community-based bank, we are focused on recruiting experienced lenders with knowledge of our markets who have either been displaced or are dissatisfied due to consolidation. We will seek to attract lenders with local relationships that can have a near-term impact on growing our loan portfolio.

Critical Accounting Estimates

Our consolidated financial statements are prepared in accordance with GAAP. As a result, we are required to make certain estimates, judgments, and assumptions that we believe are reasonable based upon the information available at that time. Critical accounting estimates include the areas where we have made what we consider to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect our financial results under different assumptions and conditions. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the years presented. Actual results could be different from these estimates. We evaluate our critical accounting estimates and assumptions on an ongoing basis and update them as needed. Our significant accounting policies are presented in Note 2 - Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included within Part II. Item 8. of this Annual Report on Form 10-K for the year ended December 31, 2025.

Allowance for Credit Losses

Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to our portfolios of assets exhibiting credit risk, particularly in our loan portfolio, and the material effect that such judgments can have on our results of operations. Determining the amount requires significant judgment on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management's ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.

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

Our methodology for maintaining our allowance for credit losses is based on historical experience and data, current economic information, and reasonable and supportable forecasts. Accordingly, the estimation of the allowance for credit losses is impacted by the economic forecasts utilized, which require the use of significant judgment. Deterioration in forecasted economic conditions may lead to required increases to the allowance for credit losses. Conversely, improvements in forecasted economic conditions may warrant further reductions to the allowance for credit losses. In estimating the allowance for credit losses, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management's estimate.

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 $285,000, or 5.9%, representing a five basis point increase to the coverage ratio of the allowance for credit losses as a percentage of loans at amortized cost, assuming all other

quantitative and qualitative factors are kept at current levels, as of December 31, 2025. This example is only one of the numerous possible economic scenarios that could be utilized in assessing the sensitivity of the allowance for credit losses and does not represent management's assumptions or judgment of factors as of December 31, 2025.

Unexpected changes in economic growth could adversely affect our results of operations, including causing increases in delinquencies and default rates on loans, which would adversely impact our charge-offs, allowance for credit losses, and provision for credit losses. Deterioration in real estate values, employment data and household incomes may also result in higher credit losses for us. Also, in the ordinary course of business, we may be subject to a concentration of credit risk to a particular industry, counterparty, borrower or issuer. A deterioration in the financial condition or prospects of a particular industry or a failure or downgrade of, or default by, any particular entity or group of entities could negatively impact our business, perhaps materially, and the systems by which we set limits and monitor the level of our credit exposure to individual entities and industries, may not function as we have anticipated.

Analysis of Net Interest Income

Net interest income represents the difference between the interest we earn on our interest-earning assets, such as commercial and residential mortgage loans and investment securities, and the expense we pay on interest-bearing liabilities, such as deposits and borrowings. Net interest income depends on both the volume of our interest-earning assets and interest-bearing liabilities and the interest rates we earn or pay on them.

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 years 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 years presented. Average balances are derived from daily balances over the years 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 $385,000 and $496,000 for the years ended December 31, 2025 and 2024, respectively. Interest income on securities does not include a tax equivalent adjustment for bank qualified municipal bonds.

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 year to the volume change between the two years. The effect of changes in rate is measured by applying the change in rate between the two years to the average volume during the first year.

As shown in the above tables, the increase in net interest income for the year ended December 31, 2025 as compared to the prior year was primarily due to a decrease in the average rate paid on interest-bearing liabilities and an increase in the average yield earned on interest-earning assets. Interest rate spread increased by 51 basis points to 3.13% for the year ended December 31, 2025 as compared to 2.62% for the year ended December 31, 2024. Net interest margin increased by 52 basis points to 3.73% for the year ended December 31, 2025 as compared to 3.21% for the year ended December 31, 2024.

Comparison of Financial Condition at December 31, 2025 and December 31, 2024

Total assets at December 31, 2025 were $727.3 million, an increase of $41.8 million, or 6.1%, as compared to $685.5 million at December 31, 2024 primarily due to increases in cash and cash equivalents, loans receivable, net, and bank-owned life insurance.

Cash and cash equivalents increased by $31.1 million, or 94.0%, from $33.1 million at December 31, 2024 to $64.3 million at December 31, 2025. The increase in cash and cash equivalents was primarily due to an increase in interest earning deposits of $30.8 million, or 101.3%, as the result of the second step conversion and offering that was completed during 2025.

Securities, at fair value, decreased by $357,000, or 0.6%, from $56.5 million at December 31, 2024 to $56.1 million at December 31, 2025, primarily due to securities paydowns of $3.1 million, partially offset by a $2.9 million increase in the market value of the securities.

Net loans receivable increased during the year ended December 31, 2025, as shown in the table below:

The loans receivable, net balance increased $10.8 million, or 2.0%, from $544.6 million at December 31, 2024 to $555.4 million at December 31, 2025. The increase was primarily due to increases in consumer loans and commercial real estate loans, partially offset by a decrease in residential, one- to four-family real estate loans. During the year ended December 31, 2025, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.

Asset Quality.The following table presents information regarding activity in our allowance for credit losses and our asset quality ratios at or for the dates indicated, including non-performing loan and non-performing asset ratios.

When compared to December 31, 2024, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $249,000, or 4.9%. The decrease was primarily attributable to a $281,000 decrease for the commercial loan portfolio and a $255,000 decrease for the commercial real estate loan portfolio, partially offset by a

$331,000 increase for the residential real estate loan portfolio. Of the total decrease in the allowance for credit losses on loans from December 31, 2024 to December 31, 2025, a decrease of $355,000 was due to a decrease in the reserve rate for the blended portfolio, partially offset by an increase of $106,000 related to an increase in the size of the loan portfolio. The decrease in the ACL reserve rate was due to the decrease in the qualitative loss rates, partially offset by an increase in the expected loss rates derived from quantitative losses, which are inclusive of forecasted economic trends.

For the year ended December 31, 2025, consumer loan net charge-offs to average consumer loans outstanding shifted to 0.24% from 3.10% for the prior year. Net charge-offs in the consumer loan portfolio declined year over year, from $32,000 to $26,000, which was partially offset by an increase in the consumer loan portfolio average balance of $9.7 million.

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

(2)Includes commercial construction loans.

Total non-performing assets decreased by $2.1 million, or 55.8%, to $1.7 million at December 31, 2025 as compared to $3.8 million at December 31, 2024, primarily due to a decrease in non-accrual loans, including one commercial relationship representing two loans being sold at foreclosure and one non accrual home equity loan being paid off in full during the second quarter of 2025. Non-performing loans were $1.7 million at December 31, 2025 compared to $3.8 million at December 31, 2024. We had no loans past due 90 days or more but still accruing at December 31, 2025 or December 31, 2024. The Company had no foreclosed real estate at December 31, 2025 or December 31, 2024.

Other assets decreased $1.5 million, or 14.1%, to $9.2 million at December 31, 2025 from $10.7 million at December 31, 2024 as a result of normal operations.

The table below shows changes in deposit balances by type of deposit account between December 31, 2025 and December 31, 2024:

The increase in total deposits was primarily due to the 6.5% increase in money market accounts and a 0.3% increase in time deposits less than or equal to $250,000. These increases were partially offset by a 12.7% decrease in time deposits greater than or equal to $250,000, 4.7% decrease in savings accounts, a 4.1% decrease in interest bearing transaction accounts, and a 0.3% decrease in non-interest bearing transaction accounts. The increase in core time deposits and money market deposits was primarily due to an increase in customer demand for these types of deposit products as a 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 December 31, 2025 and December 31, 2024, our percentage of uninsured deposits to total deposits was 11.3% and 13.5%, respectively.

During the year ended December 31, 2025, all outstanding borrowings with the FHLBNY of $10.3 million at December 31, 2024 were paid off. The borrowings were paid off as part of a balance sheet management strategy to focus on organic deposit growth and reduce reliance on wholesale funding sources.

Total stockholders' equity increased $51.8 million, or 57.6%, to $141.6 million at December 31, 2025 from $89.9 million at December 31, 2024. The increase in stockholders' equity was primarily attributed to the completion of the second step conversion and offering during 2025, net income of $7.3 million earned during 2025, and a $2.3 million decrease in accumulated other comprehensive losses, partially offset by $1.7 million of dividends paid.

Comparison of Results of Operations for the Year Ended December 31, 2025 and 2024

General. Net income was $7.3 million for the year ended December 31, 2025, or $0.97 per diluted share, an increase of $2.3 million, or 47.4%, compared to net income of $4.9 million, or $0.65 per diluted share, for the year ended December 31, 2024. Our 2025 financial performance was positively impacted by an increase in net interest income and a decrease in non-interest expenses.

Net Interest Income. Net interest income increased by $3.5 million, or 16.6%, to $24.6 million for the year ended December 31, 2025 as compared to $21.1 million for the year ended December 31, 2024. Interest income increased by 4.2% while interest expense decreased by 14.7% for the year ended December 31, 2025 when compared to the year ended December 31, 2024. Interest rate spread and net interest margin were 3.13% and 3.73%, respectively, for the year ended December 31, 2025 as compared to 2.62% and 3.21%, respectively, for the year ended December 31, 2024.

Interest Income.Interest income for the year ended December 31, 2025 was $36.3 million, an increase of $1.5 million, or 4.2%, compared to $34.8 million for the year ended December 31, 2024. The increase was due to a 20 basis points increase in the average yield on interest-earning assets primarily due to an increase in the average yield earned on loans. During the year ended December 31, 2025 as compared to the prior year, there was a $2.1 million increase in interest income on loans

due to a 32 basis points increase in the average yield on loans and a $4.5 million, or 0.8%, increase in the average balance of loans, partially offset by a decrease in interest income on interest earning deposits. The average yield on loans increased due to loans originating and rates resetting at higher interest rates while the average balance of loans increased due to loan originations and purchases outpacing loan paydowns, primarily in consumer, commercial real estate and commercial loans.

Interest-earning deposit income decreased by $410,000, or 16.7%, to $2.1 million for the year ended December 31, 2025, as compared to $2.5 million for the year ended December 31, 2024. The decrease in income during the most recent year was impacted by 100 basis point decrease in average yield of interest-earning deposits, partially offset by a $1.8 million, or 3.8%, increase in the average balance of interest-earning deposits. The average yield of interest-earning deposits for the year ended December 31, 2025 decreased as the result of a decrease in the fed funds rate. The average balance of interest-earning deposits increased due to loan repayments received during the year that were not immediately redeployed into like-kind assets and due to proceeds from the second-step conversion.

Investment interest income decreased by $158,000, or 9.7%, to $1.5 million for the year ended December 31, 2025 compared to $1.6 million for the year ended December 31, 2024, due to a decrease in the average balance of securities of $3.7 million, or 6.1%, and a 10 basis points decrease in the average yield of the investment portfolio due to the repayment and maturities of higher yielding securities.

Interest Expense.Interest expense for the year ended December 31, 2025 was $11.7 million, a decrease of $2.0 million, or 14.7%, from $13.7 million for the year ended December 31, 2024. The decrease in interest expense was primarily due to a 31 basis points decrease in the average interest rate paid on interest-bearing liabilities and a $19.6 million, or 3.8%, decrease in the average balance of interest-bearing liabilities. During the year ended December 31, 2025 as compared to the prior year, there was a $1.5 million decrease in interest paid on time deposit accounts due to a 53 basis points decrease in the average interest rate paid on time deposits along with a decrease in average time deposit balances of $9.4 million, or 4.3%. 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 over the course of 2025. Average interest-bearing deposit balances were $487.6 million, a 0.9% decrease during the year ended December 31, 2025, resulting from a decrease in all deposit categories except money market accounts since December 31, 2024.

During the year ended December 31, 2025, interest expense on borrowed funds and other interest-bearing liabilities decreased by $496,000, or 74.7%, compared to the year ended December 31, 2024, primarily due to a $15.3 million decrease in average borrowed funds and other interest-bearing liabilities outstanding due to the repayment of our borrowings during 2025.

Provision for Credit Losses.The Company recorded a credit to provision for credit losses of $180,000 for the year ended December 31, 2025 as compared to a credit to provision for credit losses of $1.5 million for the year ended December 31, 2024. For the year ended December 31, 2025, $227,000 of the credit to provision for credit losses related to the loan portfolio, partially offset by a $47,000 provision related to the reserve for unfunded commitments.

The decrease in the allowance for credit losses on loans and the corresponding credit to the provision for credit losses recognized during the year ended December 31, 2025 was the result of a decrease in the qualitative loss rates, partially offset by an increase in the expected loss rates derived from quantitative losses, which are inclusive of forecasted economic trends.

Our allowance for credit losses on loans was $4.9 million as of December 31, 2025 as compared to $5.1 million as of December 31, 2024. Our allowance for credit losses on unfunded commitments was $361,000 as of December 31, 2025 as compared to $314,000 as of December 31, 2024. Non-performing assets as a percent of total assets decreased to 0.23% at December 31, 2025 as compared to 0.55% at December 31, 2024, due to a decrease in non-performing assets of $2.1 million, or 55.8%. Our allowance for credit losses on loans as a percent of net loans was 0.87% and 0.93% and its allowance for credit losses on loans as a percent of non-performing loans was 290.71% and 134.91%, at December 31, 2025, and 2024, respectively.

Refer to Notes 2 and 5 of the Notes to the Audited Consolidated Financial Statements for additional details on our allowance for credit losses and corresponding credit to the provision for credit losses.

Non-Interest Income.Non-interest income was $3.3 million for the year ended December 31, 2025, a decrease of $31,000, or 0.9%, as compared to the year ended December 31, 2024. The decrease was primarily due to a $103,000 decrease in

earnings on annuity assets in connection with a one-time earnings enhancement realized from the purchase of annuities during the fourth quarter of 2024, as well as a $49,000 decrease in service charges and fees and a $36,000 decrease in debit card fees. These decreases were partially offset by an increase in realized gains on sale of equity securities of $96,000, or 177.8%, during the year ended December 31, 2025 when compared to the year ended December 31, 2024.

Non-Interest Expense.Non-interest expense was $19.3 million for the year ended December 31, 2025, a decrease of $714,000, or 3.6%, as compared to $20.0 million for the year ended December 31, 2024. The decrease primarily related to a decline in FDIC insurance expense of $493,000, or 61.9%, as a result of a decrease in premium assessments. Additionally, as a result of management's efforts to decrease the use of external consultants and optimize operating expenses, professional services decreased by $312,000, or 21.5%, occupancy and equipment expense decreased by $127,000, or 4.7%, and telephone and communications expense decreased by $113,000, or 26.0%, for the year ended December 31, 2025 as compared to the prior year. These decreases were partially offset by an increase in salaries and employee benefits expense of $157,000, or 1.4%, as well as an increase in data processing costs of $147,000, or 8.2%, for the year ended December 31, 2025 when compared to the year ended December 31, 2024.

Income Taxes Expense.Income tax expense was $1.5 million for the year ended December 31, 2025, an increase of $548,000, or 58.6%, as compared to $935,000 for the year ended December 31, 2024. The increase in income tax expense for the year ended December 31, 2025 when compared to the year ended December 31, 2024 was due to an increase in taxable income earned during 2025 when compared to 2024. The annual effective tax rate was 16.9% for the year ended December 31, 2025 as compared to 15.9% for the year ended December 31, 2024.

Liquidity and Capital Resources

Liquidity describes our ability to meet the financial obligations that arise during the ordinary course of business. Liquidity is primarily needed to fund loan commitments, to pay the deposit withdrawal requirements of our customers, as well as to fund current and planned expenditures. Our primary sources of funds consist of deposits, scheduled amortization and prepayments of loans and securities, maturities and sales of investments and loans, excess cash, interest earning deposits at other financial institutions and funds provided from operations.

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 December 31, 2025, the maximum amount that we could borrow from the FHLBNY, based on the market value of certain fixed-rate residential, one- to four-family loans pledged to FHLBNY, was $88.0 million, which was collateralized by certain fixed-rate residential, one- to four-family loans. At December 31, 2025, we had no outstanding advances, and at December 31, 2024, we had $10.3 million outstanding advances under this agreement. As of December 31, 2025, we had available borrowing capacity of $88.0 million under the aforementioned agreement with the FHLBNY.

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 December 31, 2025 and December 31, 2024, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding. Additionally, as of December 31, 2025, 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.

Lastly, we have also established an unsecured line of credit with a correspondent bank for $20.0 million. There were no borrowings outstanding on this line as of December 31, 2025 and December 31, 2024.

While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit outflows, calls of investment securities, and prepayments of loans and mortgage-backed securities are strongly influenced by interest rates, general and local economic conditions, and competition in the marketplace. These factors reduce the predictability of the timing of these sources of funds.

Our primary investing activities include the origination and purchase of loans and the purchase of investment securities. For the year ended December 31, 2025, we originated and purchased loans of approximately $72.8 million as compared to approximately $53.3 million of loans originated during the year ended December 31, 2024. Loan originations and purchases exceeded principal repayments and other deductions during the year ended December 31, 2025 by $11.0 million. There were no purchases of investment securities during the years ended December 31, 2025 or December 31, 2024. We sold two

investment securities that were previously written off, during the year ended December 31, 2025. We did not sell any investment securities during the year ended December 31, 2024.

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 $573.3 million at December 31, 2025 as compared to $573.0 million at December 31, 2024. Approximately $184.9 million of time deposit accounts are scheduled to mature within one year as of December 31, 2025. Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.

We are committed to maintaining a strong liquidity position; therefore, we monitor our liquidity position on a daily basis. We anticipate that we will have sufficient funds to meet our current funding commitments. The marginal cost of new funding, however, whether from deposits or borrowings from the FHLBNY, will be carefully considered as we monitor our liquidity needs. Therefore, in order to maintain sufficient liquidity and manage our cost of funds, we may consider wholesale funding options, including additional borrowings from the FHLBNY, in the future.

We do not anticipate any material capital expenditures in 2026. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above. At December 31, 2025, the Bank exceeded all of its regulatory capital requirements.

Off-Balance Sheet Arrangements

Our off-balance sheet items include loan commitments as described in Note 16 in the Notes to our Audited Consolidated Financial Statements. At December 31, 2025, we had loan commitments to borrowers of approximately $17.6 million and overdraft lines of credit, unused home equity lines of credit, unused commercial lines of credit, and commercial and standby letters of credit of approximately $93.5 million. We recorded an allowance for credit losses associated with these commitments of $361,000 as of December 31, 2025. We do not have any other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors.

Accounting Polices, Standards, and Pronouncements

Refer to Note 2 in the notes to our consolidated financial statements for a discussion of significant accounting policies, the impact of the adoption of new accounting standards and recent accounting pronouncements that may affect our financial condition and results of operations.