LSBK 10-K & 10-Q changes, risk factors and insider trading

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 MarchJune 31,30, 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 MarchJune 31,30, 2026 and 2025.

As previously disclosed on a Current Report on Form 8-K, on April 22, 2026, the Board of Directors of the Company declared a cash dividend of $0.09 per share on its outstanding common stock. The dividend is expected to be paid on MayAugust 13,12, 2026 to stockholders of record as of MayAugust 4,3, 2026.

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 MarchJune 31,30, 2026 and December 31, 2025, the allowance for credit losses on loans totaled $4.8$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 MarchJune 31,30, 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 78.0%,78.1%, and $3.9 million, or 80.2%, respectively.

The allowance for credit losses is sensitive to various forecasted macroeconomic drivers, including the Federal Open Market Committee's ("FOMC") median forecasted U.S. civilian unemployment rate and the year-over-year change in U.S. Gross Domestic Product ("GDP"). While it is difficult to estimate how potential changes to various factors may impact the allowance for credit losses because such changes to factors may not occur at the same rate or in the same direction, management compared the modeled allowance for credit losses on loans to a hypothetical model using a downside economic forecast. Using an immediate "shock" or increase of 20 basis points in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 100 basis points in the FOMC's projected rate of U.S. GDP growth, this would increase the model's total calculated allowance for credit losses on loans by $382,000,$391,000, or 8.0%,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 MarchJune 31,30, 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 MarchJune 31,30, 2026.

Average Balances, Interest and Average Yields. The following tabletables setsset 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,losses but include non-accrual loans. The loan yields include net amortization of certain deferred fees and costs that are considered adjustments to yields. The net amortization of deferred loan fees and costs were $93,000$122,000 and $63,000$100,000 for the three months ended MarchJune 31,30, 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 banktax qualifiedexempt municipal bonds.securities.

(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%2.92% and 3.04%3.03% for the three months ended MarchJune 31,30, 2026 and 2025, respectively. Yields above are not presented on a tax equivalent basis.

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

As shown in the above tables, the increase in net interest income for the three months ended MarchJune 31,30, 2026 when compared to the three months ended MarchJune 31,30, 2025 was primarily impacted by a decrease in the average interest rate paid on interest-bearing liabilities, an increase in the average yield of interest-earning assets, an increase in the average balance of interest-earning assets, and a decrease in the average balance of interestinterest-bearing bearing-liabilities.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 3633 basis points from 2.40% during the three months ended MarchJune 31,30, 2025 to 2.04%2.07% during the three months ended MarchJune 31,30, 2026. The decrease in the average interest rate paid on interest-bearing liabilities during the three months ended MarchJune 31,30, 2026 was primarily due to a 3533 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 andrates, time deposit repricing.repricing, Theand averagea yieldmarginal earnedshift onin interest-earningdeposit assets increased 13 basis points from 5.34% during the three months ended March 31, 2025 to 5.47% during the three months ended March 31, 2026.composition. The increase in the average yieldbalance of interest-earning assets was primarily due to a 29$37.6 basismillion, pointsor 138.6%, increase in the average yieldinterest-earning on the loan portfoliodeposits when compared to the prior year period. The average balanceyield of interest-earning assets increaseddecreased by $35.319 millionbasis points to $662.2 million5.53% for the three months ended MarchJune 31,30, 2026 as compared to $626.9 million5.72% for the threesame months ended March 31, 2025. The increase in average balance of interest-earning assets was primarily related to an increaseperiod in the averageprior balanceyear of interest-earning depositsprimarily as a result of fundsa received42 frombasis point decrease in the secondaverage stepyield conversionearned noton yetinterest-earning deployed.deposits and a seven basis points decrease in the average yield of the loan portfolio. The average balance of interest-bearing liabilities decreased $13.6$15.1 million, from $484.0$497.1 million during the three months ended MarchJune 31,30, 2025 to $470.5$482.1 million during the three months ended MarchJune 31,30, 2026 as a result of decreasesa decrease in the average balance of deposits of $9.7 million and in the balance of borrowed funds and other interest-bearing liabilities of $3.9$14.3 million. Net interest margin increased to 4.02%4.06% for the three months ended MarchJune 31,30, 2026 as compared to 3.49%3.84% for the same period of the prior year.

Comparison of Financial Condition at MarchJune 31,30, 2026 and December 31, 2025

Total assets at MarchJune 31,30, 2026 were $722.0$736.7 million, aan decreaseincrease of $5.3$9.3 million, or 0.7%,1.3%, as compared to $727.3 million at December 31, 2025 primarily due to decreasesincreases in cash and cash equivalents and securities,loans atreceivable, fair value.net.

Cash and cash equivalents decreasedincreased by $2.7$8.0 million, or 4.2%,12.4%, from $64.3 million at December 31, 2025 to $61.6$72.2 million at MarchJune 31,30, 2026. The decreaseincrease in cash and cash equivalents was primarily due to aan decreaseincrease in deposits of $6.7$5.0 million, or 1.2%,0.9% and a decrease in securities of $2.6 million, or 4.6%, partially offset by aan decreaseincrease in loans receivable of $1.6$2.9 million, or 0.3%.0.5%.

Securities, at fair value, decreased by $2.0$2.6 million, or 3.5%,4.6%, from $56.1 million at December 31, 2025 to $54.2$53.6 million at MarchJune 31,30, 2026, primarily due to securities paydowns of $1.1$2.5 millionmillion, andas anwell $872,000as a $15,000 decrease in the market value of the securities.

Net loans receivable decreasedincreased during the threesix months ended MarchJune 31,30, 2026, as shown in the table below:

There were no one- to four- familyfour-family construction loans asat ofJune March 31,30, 2026 or December 31, 2025.

NetThe loans receivablereceivable, decreasednet $1.6balance increased $2.9 million, or 0.3%,0.5%, from $555.4 million at December 31, 2025 to $553.9$558.3 million at MarchJune 31,30, 2026. The decreaseincrease 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, home equity loans,loans and consumer loans, partially offset by increases in commercial real estate loans and commercial loans. During the threesix months ended MarchJune 31,30, 2026, we remained strategically focused on originating shorter duration, adjustable-rate loans to diversify our asset mix and to manage interest rate risk while continuing to reduce our reliance on wholesale funding sources.risk.

When compared to December 31, 2025, the current modeled allowance for credit losses related to the loan portfolio decreased by approximately $85,000,$137,000, or 1.74%, which was2.80%, comprised of a decrease of $92,000$207,000 due to a decrease in reserve rate for the blended portfolio, partially offset by an increase of $7,000$70,000 relatedas tothe result of an increase in loan balance for the commercial real estate and commercial loan pools.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.

For the threesix months ended MarchJune 31,30, 2026, consumer loan net charge-offs to average consumer loans outstanding, annualized, improved to (0.06)% from (0.130.14)% for the prior year period. This improvement was primarily driven by an increase in average consumer loans outstanding of $10.8$6.9 million for the threesix months ended MarchJune 31,30, 2026 when compared to the threesix months ended MarchJune 31,30, 2025.

(1) There were noIncludes one- to four-familyfour- family construction loans at March 31, 2026 or December 31, 2025.loans.

Total non-performing assets decreased by $95,000,$193,000, or 5.7%,11.5%, to $1.6$1.5 million at MarchJune 31,30, 2026 from $1.7 million at December 31, 2025, due to a decrease in non-accrual loans of $95,000.$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 MarchJune 31,30, 2026 or December 31, 2025.

Other assets increased $774,000,$821,000, or 8.4%,8.9%, to $10.0 million at MarchJune 31,30, 2026 from $9.2 million at December 31, 2025 as a result of normal operations.

The table below shows changes in deposit balances by type of deposit account between MarchJune 31,30, 2026 and December 31, 2025:

The decreaseincrease in total deposits was primarily due to a 4.6% decrease in money market accounts, a 5.3% decrease in non-interest bearing deposit accounts, and a 0.6% decrease in savings accounts, as a result of changes to customer demand for these types of deposit products. These decreases were partially offset by a 4.6% increase in interest bearing transaction accounts, a 1.5%3.6% increase in time deposits less than or equal to $250,000, and a 2.2%7.0% increase in time deposits greater than $250,000.$250,000 Theand a 3.3% increase in interestinterest-bearing bearing coredemand deposits, coreas timea depositsresult andof time deposits greater than $250,000 was primarily due to an increase inincreased customer demand for these types of deposit 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 reducemaintain ourlow reliance on wholesale funding and to strengthen customer relationships. At MarchJune 31,30, 2026 and December 31, 2025, our percentage of uninsured deposits to total deposits was 10.0%10.9% and 11.3%, respectively.

Total stockholders’ equity increased $739,000,$3.1 million, or 0.5%,2.2%, to $142.4$144.8 million at MarchJune 31,30, 2026 from $141.6 million at December 31, 2025. The increase in stockholders’ equity was primarily attributed to $1.9$4.1 million in net income earned during the threesix months ended MarchJune 31,30, 2026, partially offset by an increase in accumulated other comprehensive loss of $689,000 and dividends declared and paid of $662,000.$1.3 million during the same time period.

Comparison of Results of Operations for the Three Months Ended MarchJune 31,30, 2026 and 2025

General. Net income increased to $1.9$2.2 million during the three months ended MarchJune 31,30, 2026, or $0.26$0.29 per diluted share, an increase of $866,000,$254,000, or 81.9%,13.2%, compared to net income of $1.1$1.9 million, or $0.14$0.25 per diluted share, for the three months ended MarchJune 31,30, 2025. Our financial performance for the three months ended MarchJune 31,30, 2026 was positively impacted primarily by a $1.2 million increase inhigher net interest income.

Net Interest Income. Net interest income for the threesecond monthsquarter ended March 31,of 2026 increased by $1.2 million,$771,000, or 21.9%,12.6%, to $6.7$6.9 million as compared to $5.5$6.1 million for the threesecond monthsquarter ended March 31,of 2025. Net interest margin and interest rate spread were 4.02%4.06% and 3.43%,3.46%, respectively, for the three months ended MarchJune 31,30, 2026 as compared to 3.49%3.84% and 2.94%,3.32%, respectively, for the three months ended MarchJune 31,30, 2025.

Interest Income. Interest income for the three months ended MarchJune 31,30, 2026 was $9.1$9.4 million, an increase of $688,000,$281,000, or 8.2%,3.1%, compared to $8.4$9.1 million for the three months ended MarchJune 31,30, 2025. The increase in interest income from the prior year quarter was primarily due to a $35.3$42.0 million, or 5.6%,6.6%, increase in the average balance of interest-earning assetsassets, andpartially offset by a 1319 basis point increasedecrease in the average yield ofon interest-earning assets. During the firstsecond quarter of 2026 as compared to the same period in 2025, there was a $480,000$306,000, or 113.3%, increase in interest income on loansinterest-earning deposits due to a 29$37.6 basis point increase in the average yield earned on loans and $5.6 million, or 1.0%,million increase in the average balance of loans.interest-earnings Thedeposits. This increase was partially offset by a 42 basis point decrease in the average yield on loans and average balance of loans was primarily attributable to the origination of loans at higher interest rates since the first quarter of 2025. Further, interest income on interest-earning deposits increased by $235,000, or 100.4%, primarily due to a $30.5 million, or 129.4%, increase in the average balance of interest-earninginterest-earnings deposits.

Interest Expense. Interest expense for the three months ended MarchJune 31,30, 2026 was $2.4$2.5 million, a decrease of $507,000,$490,000, or 17.5%,16.4%, from $2.9$3.0 million for the three months ended MarchJune 31,30, 2025. The decrease in interest expense when compared to the prior year quarter was primarily due to a 3633 basis pointpoints decrease in average interest rate paid on interest-bearing liabilities and a $13.6$15.1 million, or 2.8%,3.0%, decrease in the average balance of interest-bearing liabilities. During the threesecond monthsquarter ended March 31,of 2026 as compared to the same period in 2025, interest expense on interest-bearing deposits decreased by $470,000,$476,000, or 16.5%,16.1%, due to a 3533 basis pointpoints decrease in the average interest rate paid on interest-bearing deposit accounts,accounts along withand a $9.7$14.3 million, or 2.0%2.9%, decrease in the average balance of interest-bearing deposits. The decrease in average interest-bearing deposits accounts was due to a decrease in the average balance of all deposit account types except money market accounts. During the three months ended March 31, 2026 as compared to the same period in 2025, there was a $337,000 decrease in interest paid on time deposit accounts due to a 48 basis point decrease in the average interest rate paid on time deposits. The decrease in the average interest rate paid on time deposit accounts was primarily due to the decrease in market interest ratesrates, time deposit repricing, and proactivea managementmarginal ofshift in deposit fundingcomposition. costs.Average Duringinterest-bearing deposit balances decreased 2.9% during the firstsecond quarter of 2026,2026 interest expense on borrowed funds and other interest-bearing liabilities decreased by $37,000, or 61.7%,when compared to the firstsecond quarter of 2025, primarily2025 due to a $3.9 million, or 62.4% decrease in averageall borroweddeposit fundscategories andexcept othermoney interest-bearingmarket liabilities outstanding due to the repayment of our borrowings during 2025.accounts.

Non-Interest Income. Non-interest income was $703,000$749,000 for the three months ended MarchJune 31,30, 2026, a decrease of $21,000,$51,000, or 2.9%,6.4%, as compared to $724,000$800,000 for the three months ended MarchJune 31,30, 2025. The decrease was primarily due to a $46,000$65,000 decrease in gain on equity securities duringthat were held in the threeprior monthsyear ended March 31, 2025,period, partially offset by a $26,000$28,000 increase in earnings on bank-owned life insurance for the current quarter when compared to the three months ended March 31, 2025.insurance.

Non-Interest Expense. Non-interest expense was $5.1 million for the three months ended March 31, 2026, an increase of $245,000, or 5.0%, as compared to $4.9 million for the three months ended MarchJune 31,30, 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 $300,000,$236,000, or 30.3%,8.3%, and an increase in occupancy and equipment expenses of $43,000,$27,000, or 6.4%. These increases were4.4%, partially offset by a $98,000 decrease in data processing costsof as$31,000, weor renegotiated our primary data processing contract, and a $53,000 decrease in professional services.6.8%.

Income Tax Expense. Income tax expense was $430,000$477,000 for the three months ended MarchJune 31,30, 2026, an increase of $224,000,$99,000, or 108.7%,26.2%, as compared to $206,000$378,000 for the three months ended MarchJune 31,30, 2025. The increase in income tax expense from the prior year quarter was primarily relateddue 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 currentsecond quarter.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.

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 MarchJune 31,30, 2026, the unpaid principal balance of the fixed-rate residential, one-to four-family loans pledged to FHLBNY as collateral, was $125.1$122.7 million and the total collateral market value assigned by FHLNBYFHLBNY was $94.2$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 MarchJune 31,30, 2026 we had a $2.5$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 MarchJune 31,30, 2026 and December 31, 2025, respectively, we had available borrowing capacity of $91.7$90.4 million and $88.0 million under the agreement with FHLBNY. At MarchJune 31,30, 2026 and December 31, 2025, there were no outstanding advances under this agreement.

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 MarchJune 31,30, 2026, and December 31, 2025, there were no securities pledged to the Federal Reserve Bank and we had no balances outstanding. Additionally, as of MarchJune 31,30, 2026, the Bank has un-collateralizeduncollateralized 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 on this line as of MarchJune 31,30, 2026 and December 31, 2025.

Our primary investing activities include the origination and purchase of loans and the purchase of investment securities. For the threesix months ended MarchJune 31,30, 2026, we originated loans of approximately $21.8$41.5 million as compared to approximately $18.1$37.9 million of loans originated during the threesix months ended MarchJune 31,30, 2025. PrincipalLoan originations and purchases exceeded principal payments and other deductions exceeded loan originations and purchases during the threesix months ended MarchJune 31,30, 2026 by $1.5$3.0 million. There were no purchases or sales of investment securities during the threesix months ended MarchJune 31,30, 2026 and 2025.

We have loan commitments to borrowers and borrowers have unused overdraft lines of protection, unused home equity lines of credit and unused commercial lines of credit that may require funding at a future date. Additionally, we have a commitment to provide a capital contribution to Castle Creek Launchpad Fund II (SBIC) LP, a limited partnership investment fund. We believe we have sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were $566.6$578.2 million at MarchJune 31,30, 2026, as compared to $573.3 million at December 31, 2025. Approximately $185.3$196.8 million of time deposit accounts are scheduled to mature within one year as of MarchJune 31,30, 2026. Based on our deposit retention experience, current pricing strategy, and competitive pricing policies, we anticipate that a significant portion of these time deposits will remain with us following their maturity.

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 MarchJune 31,30, 2026, the Bank exceeded all of its regulatory capital requirements.

The federal banking agencies have developed a “Community Bank Leverage Ratio” (“CBLR”) (bank’s tier 1 capital to average total consolidated assets) for financial institutions with assets of less than $10 billion and limited amounts of off-balance-sheet exposures and trading assets and liabilities. A “qualifying community bank” may elect to utilize the Community Bank Leverage Ratio in lieu of the general applicable risk-based capital requirements under Basel III. If the community bank exceeds this ratio it will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Basel III. The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 9.0%. The Bank elected to be subject to this new definition when it became effective on January 1, 2020, and has continued to use the Community Bank Leverage Ratio since that time. Effective July 1, 2026, the federal banking agencies set the minimum capital for the Community Bank Leverage Ratio at 8.00%. As of MarchJune 31,30, 2026 and December 31, 2025, the Bank’s Community Bank Leverage Ratio was 17.54%17.43% and 16.65%, respectively.

In order to be considered “well-capitalized” by the FDIC, a non-CBLR commercial bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%. At MarchJune 31,30, 2026 and December 31, 2025, the Bank’s Tier 1 Leverage capital ratio was 17.54%17.43% and 16.65%, respectively, and its Total Risk-Based capital ratio was 23.81%24.04% and 23.51%, respectively. Accordingly, the Bank was considered to be well-capitalized under applicable regulatory capital requirements.