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

On May 8, 2019, the Company filed Articles Supplementary with the Maryland Department of Assessments and Taxation to issue 1,155,283 shares of Series B Preferred Stock to Castle Creek. Each share of the Series B Preferred Stock was convertible on a one-for-one basis into either (i) Common Stock under certain circumstances or (ii) non-voting common stock, par value $0.01 per share (which willwas also be convertible into Common Stock), subject to approval of the creation of such class of non-voting common stock by the Company’s stockholders.

On November 13, 2020, the Company entered into an agreement (the “Exchange Agreement”) with Castle Creek providing for the exchange of 225,000 shares of the Company’s Common stock owned by Castle Creek for 225,000 shares of the Company’s Series B Preferred Stock. The exchange was consummated simultaneously with the execution and delivery of the Exchange Agreement. The Company and Castle Creek entered into the Exchange Agreement to enable the equity ownership of Castle Creek to comply with applicable banking laws and regulations. As a result of the Exchange Agreement, on November 13, 2020, the Company issued to Castle Creek 225,000 shares of its Series B Preferred Stock in exchange for an equivalent number of shares of Company Common Stock held by Castle Creek in a transaction exempt from registration under Section 3(a)(9) of the Securities Act of 1933, as amended. Castle Creek was the only stockholder of the Series B Preferred Stock. The Company received no cash proceeds as a result of the exchange. In addition, the Company did not pay any commission or remuneration for the solicitation of the exchange.

Conversion: Each share of Non-Voting Common Stock will be convertible into one share of the Company’s Common Stock (i) at any time and from time to time at the request of the holder thereof or at the written request of the Company; provided that upon such conversion, the holder, together with all affiliates of the holder, will not own or control in the aggregate more than 9.9% of the Company’s Common Stock (or of any class of the Company’s voting securities), excluding for the purpose of this calculation any reduction in the ownership resulting from transfers by such holder of voting securities (which, for the avoidance of doubt, does not includedinclude the Non-Voting Common Stock); or (ii) automatically, without any further action of the part of the holder, on the date that the holder transfers such share of Non-Voting Common Stock to a non-affiliate of the holder in a permissible transfer.

AsAllowance notedfor above,Credit Losses. On January 1, 2023 the Company adopted ASC 326, Financial Instruments—Credit Losses, and accounts for its allowance for credit losses on loans in accordance with the Current Expected Credit Loss ("CECL") methodology. The allowance for credit losses on loans and unfunded commitments is a valuation allowance for management’s estimate of expected credit losses in the loan portfolio and commitments to extend credit. Determining the amount of the allowance for credit losses (“ACL”)is representsconsidered management’sa critical accounting estimate ofbecause lifetime losses in the Bank’s loan portfolio. Determining the amount of the ACLit requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, as correlated to historical economic metrics and in consideration of current economic trends and conditions, and other qualitativeenvironmental factors, all of which may be susceptible to significant change.

In estimating the ACL on loans, 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. At December 31, 2024,2025, the Bank held $535.0$536.9 million in commercial real estate and commercial & industrial loans (collectively, commercial loans) representing 58.2%59.9% of the Bank’s entire loan portfolio. The Bank allocated $10.4$23.3 million to the ACL for these loans, including $4.3 million$326,000 derived from the use of qualitative factors in the calculation. Given the concentration of ACL allocation to the total commercial loan portfolio and the significant judgments made by management in deriving the qualitative loss factors, management considers the impact that changes in judgments could have on the ACL. The ACL could increase (or decrease) by approximately $1.1 million,$82,000, assuming a 25% negative (or positive) change within the group of qualitative factors used to determine the ACL for commercial loans. The sensitivity and related range of impacts for various judgments on the ACL is a hypothetical analysis and is used to determine management’s judgments or assumptions of qualitative loss factors that were utilized at December 31, 20242025 in the final recorded estimation of the ACL on loans recognized on the StatementConsolidated Statements of Financial Condition.

Estimation of Fair Value. The estimation of fair value is significant to several of our assets; including AFS investment securities available-for-sale,securities, interest rate derivativederivatives (discussed in detail in Note 22 of the consolidated financial statements), intangible assets, foreclosed real estate, and the value of loan collateral when valuing loans. These are all recorded at either fair value, or the lower of cost or fair value. Fair values are determined based on third party sources, when available. Furthermore, accounting principles generally accepted in the United States require disclosure of the fair value of financial instruments as a part of the notes to the consolidated financial statements. Fair values on our available-for-saleAFS securities may be influenced by a number of factors; including market interest rates, prepayment speeds, discount rates, and the shape of yield curves.

Fair values for AFS securities available-for-sale are obtained from an independent third party pricing service. Where available, fair values are based on quoted prices on a nationally recognized securities exchange. If quoted prices are not available, fair values are measured using quoted market prices for similar benchmark securities. Management made no adjustments to the fair value quotes that were provided by the pricing source. The fair values of foreclosed real estate and the underlying collateral value of individually analyzed loans are typically determined based on evaluations by third parties, less estimated costs to sell. When necessary, appraisals are updated to reflect changes in market conditions.

Return on average assets decreased 4436 basis points to negative 0.13% in 2025 from 0.23% in 2024 from 0.67% in 2023.2024. Return on average equity decreased 534429 basis points to 2.75%negative 1.54% in 20242025 as compared to 8.09%2.75% in 2023.2024. The decreases in return on average assets and return on average equity in 2024,2025, as compared to the previous year, were both primarily due to the aforementioned decrease in net income. Average assets increased in 20242025 by $60.7$17.6 million, or 4.4%, as the Company grew its total assets by $9.1 million from December 31, 2023 to $1.47 billion at December 31, 2024.1.2%.

The Company recorded a provision for credit losses of $11.0$16.3 million in 20242025 as compared to $2.9$11.0 million in the prior year. The $8.1$5.3 million year-over-year increase in provision for credit losses primarily resultedreflects a risk-based reserve build from athe comprehensive loan portfolio review duringof 2024all thatcommercial loan relationships with exposures of $500,000 or more, representing approximately 90% of the Bankcommercial electedportfolio, towhich undertakewas asannounced partin ofOctober its2025 commitmentand tocompleted continuouslyin improveDecember its credit risk management approach.2025. Additionally, the provision for credit losses in 20242025 reflected an increase in nonperforming loans of $4.9$5.5 million at December 31, 2024,2025 as compared to December 31, 2023.2024. The Company recorded $10.2$4.2 million in total loannet charge-offs in 20242025 as compared to $4.2$9.8 million in 2023.net charge-offs in 2024. The increaseelevated inloan charge-offcharge-offs activityfor in2024 2024, as compared to the previous year, was primarilywere related to the aforementioned comprehensive loan portfolio review duringconducted in the third quarter.quarter Theof charge-offs in 2024 involved loans for which the charged-off amounts had been fully reserved for in prior periods.2024.

Net loan charge-offs to average loans were 0.46% for 2025, as compared to 1.09% for 2024. Total past due loans measured as a percentpercentage of total loans, increased from 3.79% at December 31, 2023 to 3.81% at December 31, 2024,2024 to 5.91% at December 31, 2025, primarily due to increases of $2.0$16.6 million in past due commercial loans and $728,000$1.6 million in past due residential loans, offset by a $1.7 million decrease in past due consumer loans. TheNonperforming levelloans ofto nonperformingtotal loans increased into aggregate3.07% byat $4.9December million31, led2025, compared to 2.40% at December 31, 2024. Total nonperforming assets increased $5.6 million, or 25.4%, between December 31, 2024 and December 31, 2025, largely driven by an increase of $5.9$6.7 million in nonperforming commercial real estate and commercial realand estateindustrial loans, inoffset addition to an increase of $1.4 million in nonperforming residential real estate loans, andby a decrease in nonperforming consumerresidential loans of $2.4$1.2 million. Commensurate with the increase in nonperforming loans to year end loans, the ratio of nonperforming assets to total assets increased to 1.94% at December 31, 2025 from 1.50% at December 31, 20242024. fromThe 1.19%allowance for credit losses to non-performing loans at December 31, 2023.2025 was 106.80%, compared with 78.08% at December 31, 2024.

The Company’s shareholders’ equity increased $2.0 million,$968,000 or 1.7%,0.8%, to $122.5 million at December 31, 2025 from $121.5 million at December 31, 2024 from $119.5 million at December 31, 2023.2024. This increase was primarily due to a $1.8$3.8 million increase in retained earnings, a $461,000 decrease in accumulated other comprehensive loss, aand $364,000an decreaseincrease of $1.6 million in additional paid in capital, andoffset by a $135,000$4.5 increasemillion decrease in ESOPretained sharesearnings. earned.Comprehensive loss decreased primarily due to net unrealized gains on pension and post-retirement benefits and AFS securities. The increase of $1.6 million for additional paid in capital was due to increased stock option exercise activity during the year. The decrease in retained earnings resulted from $3.4a $1.9 million in net incomeloss recorded in 2024, and $863,000 fromfor the deconsolidationyear ofended aDecember subsidiary31, related to the insurance agency assets sale. Partially offsetting these increases in retained earnings were2025, $1.9 million for cash dividends declared on our voting common stock, $552,000 for cash dividends declared on our non-voting common stock and $50,000 for cash dividends declared on our issued warrant. Comprehensive loss decreased primarily as the result of a $363,000 gain on derivatives and hedging activities, an $82,000 adjustment to pension and post-retirement benefits, and a gain of $16,000 on available-for-sale securities.warrants.

Net interest income, before provision for credit losses, increased $2.1$3.3 million, or 5.3%,8.2%, to $41.0$44.3 million in 20242025 as compared to $38.9$41.0 million in the previous year. Our net interest margin for the year ended December 31, 20242025 increased to 2.98%3.21% from 2.95%2.98% forcompared to the comparable prior year. The increase in net interest income was primarily due to anlower increaseinterest inexpense of $5.1 million, or 13.5%, partially offset by lower interest and dividend income of $10.7$1.7 million,million or 15.8%, offset by a lesser increase in interest expense of $8.6 million, or 30.0%.2.2%. The $1.2$1.7 million increasedecrease in interest and dividend income was primarily driven by thelower $21.8average milliontaxable increaseinvestment insecurities loanbalances balances,of $2.6 million, combined with alower 57average yield of taxable investment securities of 45 basis points increase in average yield.points. The increasedecrease in interest expense was thea result of anthe increaselower interest rate environment in 2025, which reduced cost of funds on MMDA accounts, time deposits, and borrowings, of 40 basis points, 46 basis points, and 63 basis points, respectively. Additionally, interest expense decreased due to lower average balances of deposittime accounts, as well as an increase in average costdeposits of deposits$31.4 resultingmillion fromand borrowings of $50.0 million for the highyear interestended rateDecember environment31, and increased competition.2025.

The Company recorded a provision for credit losses of $11.0$16.3 million in 20242025 as compared to $2.9$11.0 million in the prior year. The $8.1$5.3 million year-over-year increase in provision for credit losses was primarily due toreflected a comprehensive loan portfolio review duringof 2024all thatcommercial loan relationships of $500,000 or more, representing approximately 90% of the Bankcommercial electedportfolio, towhich undertakewas asannounced partin October 2025 and completed in December 2025. The increase in provision for credit losses reflects a risk-based reserve build of itsthe commitmentCompany's toforward-looking continuously improve its credit risk management approach. The Company recorded $9.8 million in net charge-offs in 2024 as compared to $4.2 million in net charge-offs in 2023. The ratioassessment of net charge-offs to average loans thereforeidentified increased to 1.09% in 2024 from 0.47% in 2023. Further information on earnings per share can be found in Note 1 tothrough the consolidatedcomprehensive financialloan statementsportfolio of this Form 10-K.review.

Noninterest expenses totaled $34.4$34.6 million for 2024,the year ended December 31, 2025, which was an increase of $5.0 million,$164,000, or 17.1%,0.5%, from the $29.4$34.4 million reported for the previousyear year.ended December 31, 2024. This increase can bewas primarily attributed to expenseshigher salaries and employee benefits associated with thegeneral Company'ssalary growth activities, including branch acquisitionincreases and operatinga change in workforce composition in 2025, as the Company strategically added more senior, key personnel across the organization and higher occupancy costs related to the newaddition of the East Syracuse location,branch, andoffset investmentsby lower expenses related to the divestiture of the Company's insurance company in technologyOctober to enhance digital banking services, which align with the Company’s long-term strategic plans.2024.

Basic and diluted earnings per share for the year ended December 31, 20242025 were both $0.54,($0.31), as compared to basic and diluted earnings per share of $1.51$0.54 for the year ended December 31, 2023.2024. The decrease in earnings per share between these two years was due to the decrease in net income available to common shareholders between these two time periods. Further information on earnings per share can be found in Note 3 to the consolidated financial statements of this Form 10-K.

The Company's total assets were $1.47$1.43 billion at December 31, 2024,2025, ana increasedecrease of $9.1$48.2 million, or 0.6%3.3% from December 31, 2023.2024. The increasedecrease was primarily the result of a $20.5decrease of $28.4 million increasein HTM securities, as well as a $34.5 million decrease in loans receivable, net, athat $12.6reflects the reclassification of $5.9 million increase in financeloans leaseto right-of-useheld-for-sale assets,status. andThese adecreases $10.6 million increase in available-for-sale securities,were partially offset by aincreases $20.6of $7.5 million decreasein AFS securities and $6.6 million in held-to-maturitybank securities,owned andlife a $18.8 million decrease in interest-earning deposits.insurance. All other asset categories had a net decreaseincrease of $4.8 million.$499,000.

The average balance of the investment portfolioportfolio, which represented 33.1%33.0% of the Company’s average interest-earning assets in 2024 and2025, is designed to generate a favorable rate of return in consideration of all risk factors associated with debt securities while assisting the Company in meeting its liquidity needs and interest rate risk strategies. All of the Company’s investments, with the exception of marketable equity securities, are classified as either available-for-saleAFS or held-to-maturity.HTM. The Company does not hold any trading securities. The Company invests in securities issued by United States Government agencies and sponsored enterprises (“GSE”), mortgage-backed securities, collateralized mortgage obligations, state and municipal obligations, mutual funds, equity securities, investment grade corporate debt instruments, and common stock issued by the FHLBNY.FHLB-NY. By investing in these types of assets, the Company reduces the credit risk of its asset base through geographical and collateral-type diversification but must accept lower yields than would typically be available on loan products. Our mortgage-backed securities and collateralized mortgage obligation portfolios include privately-issued but substantially collateralized pass-through securities as well as pass-through securities guaranteed by GSEs.

At December 31, 2024,2025, available-for-saleAFS investment securities increased 4.1%2.8% to $269.3$276.8 million and held-to-maturityHTM investment securities decreased 11.5%17.9% to $158.7$130.3 million as compared to December 31, 2023.2024. There were nofour securities that exceeded 10% of consolidated shareholders’ equity.

Our available-for-saleAFS investment securities are carried at fair value and our held-to-maturityHTM investment securities are carried at amortized cost.

AVAILABLE FOR SALEAVAILABLE-FOR-SALE

TheIn 2025, the outstanding balance of commercial real estate loans increased as the Bank continued to benefit from the expanding relationship-derived business activity within the markets that the Bank serves. The increase in home equity and junior liens was primarily the result of such loans acquired from the purchase of the East Syracuse branch in July 2024. The decrease in residential real estate and consumer loans was primarily the result of decreases in the percentage ofnewly originated loans allocated to the Bank's portfolio as rates remained elevated throughout 2024.loans.

Total nonperforming assets increased $4.7$5.6 million, or 27.1%,25.4%, between December 31, 20232024 and December 31, 2024,2025, driven by an increase of $5.9$6.4 million in nonperforming commercial and commercial real estate loans, and an increase of $1.4$258,000 in nonperforming consumer loans offset by a decrease of $1.2 million in nonperforming residential real estate loans. These increases were partially offset by decreases in nonperforming consumer loans and foreclosed real estate of $2.4 million and $151,000, respectively. The increase in nonperforming commercialloans andprimarily reflected certain legacy commercial realloans estatemoving to nonperforming status, including loans inthat 2024may washave primarilybeen dueless tothan two90 loandays relationshipsdelinquent inbut were identified as having unique risk characteristics through the amountCompany’s of2025 $5.4portfolio million that were placed on non-accrual status. The increase in nonperforming residential real estate loans in 2024 was primarily due to one loan relationship in the amount of $1.5 million that was placed on non-accrual status.review.

Management believes that the value of the collateral properties underlying the loans is sufficient to preclude any significant losses related to these loans. Management continues to monitor and react to national and local economic trendstrends, as well as general portfolio conditions which may impact the quality of the portfolio, and considers these environmental factors in support of the allowance for credit loss reserve. Management believes that the current level of the allowance for credit losses, at $17.2$29.4 million at December 31, 2024,2025, adequately addresses the current level of risk within the loan portfolio, particularly considering the types and levels of collateralization supporting the substantial majority of the portfolio. The Company maintains strict loan underwriting standards and carefully monitors the performance of the loan portfolio. See Note 1: Summary of Significant Accounting Policies contained in the financial statements herein.

The Company is a Maryland corporation headquartered in Oswego, New York. The Company is 100% owned by public shareholders. The primary business of the Company is its investment in Pathfinder Bank (the "Bank"),Bank, a New York State chartered commercial bank, which is 100% owned by the Company. The Bank has two wholly owned operating subsidiaries, Pathfinder Risk Management Company, Inc. (“PRMC”) and Whispering Oaks Development Corp.Oaks. All significant inter-company accounts and activity have been eliminated in consolidation.

At MarchJune 31,30, 2026, the Company and subsidiaries had total consolidated assets of $1.42$1.49 billion, total consolidated liabilities of $1.30$1.37 billion and shareholders' equity of $123.6$125.7 million.

The following discussion reviews the Company's financial condition at MarchJune 31,30, 2026 and the results of operations for the three and six month periodperiods ended MarchJune 31,30, 2026 and 2025. Operating results for the three and six months ended MarchJune 31,30, 2026 are not necessarily indicative of the results that may be expected for the year ending December 31, 2026 or any other period.

The following material under the heading "Management's Discussion and Analysis of Financial Condition and Results of Operations" is written with the presumption that the users of the interim financial statements have read, or have access to, the Company's latest audited financial statements and notes thereto, together with Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 2025 Annual Report on Form 10-K filed with the Securities and Exchange CommissionSEC on March 30, 2026 (“the consolidated annual financial statements”) as of December 31, 2025 and 2024 and for the two years then ended. Therefore, only material changes in financial condition and results of operations are discussed in the remainder of Item 2.

Certain statements contained herein are “forward looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements concern the financial condition, results of operations, plans, objectives, future performance and business of the Company and its subsidiaries, including, but not limited to, the Bank.

Actual results may differ materially from those expressed or implied by the forward-looking statements as a result of numerous factors. Although it is not possible to identify all factors that may cause actual results to differ materially from those described in forward-looking statements, factors that may cause actual results to differ materially include, but are not limited to: (i) risks related to the real estate and economic environment, particularly in the market areas in which the Company and the Bank operate; (ii) fiscal and monetary policies of the U.S. Government; (iii) inflation; (iv) changes in prevailing interest rates; (v) changes in government regulations affecting financial institutions, including regulatory compliance costs and capital requirements; (vi) the risk that actual credit losses, borrower performance, collateral values, or loan migration patterns differ from management’s forward-looking estimates or assumptions; (vii) fluctuations in the adequacy of the allowance for credit lossesACL; (viii) decreases in deposit levels or changes in deposit mix that may necessitate increased borrowing to fund loans and investments; (ix) access to wholesale or other funding sources; (x) operational risks including, cybersecurity threats, fraud, model risk and natural disasters; (xi) credit risk management; (xii) political developments, wars or other hostilities that may disrupt financial markets or economic conditions; (xiii) volatility or adverse trends in the securities markets that could affect the value of the Company’s investment portfolio or broader financial conditions; (xiv) delays or incomplete resolution of regulatory matters or supervisory issues that could impact the Company’s planning or operations; (xv) the outcome of regulatory or legal investigations, proceedings or other matters that may arise from time to time; and (xvi) the risk that the Company may not be successful in the implementation of its business strategy.

Additional factors that could cause actual results to differ materially are described in other periodic filings with the Securities and Exchange Commission (“SEC”),SEC, which are available at the SEC’s website, www.sec.gov. While the Company believes it has identified and discussed the material risks affecting its business, there may be additional risks and uncertainties not currently known or considered immaterial that could affect the forward-looking statements made herein.

The most significant accounting policies followed by the Company are presented in Note 1 to the annual audited consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated quarterly financial statements and how those values are determined. Based on the valuation techniques used and the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has identified the allowance for credit losses,ACL, deferred income taxes, pension obligations, the evaluation of investment securities for credit losses, the estimation of fair values for accounting and disclosure purposes, and the evaluation of goodwill for impairment to be the accounting areas that require the most subjective and complex judgments. These areas could be the most subject to revision as new information becomes available.

The Company applies ASC 326, Financial Instruments—Credit Losses, to account for its allowance for credit losses ("ACL") on loans in accordance with the Current Expected Credit Loss ("CECL") methodology. The allowance for credit lossesACL on loans and unfunded commitments is a valuation allowance for management’s estimate of expected credit losses in the loan portfolio and commitments to extend credit. Determining the amount of the ACL requires significant judgment on the part of management and the use of estimates related to the amount and timing of expected future cash flows on individually evaluated loans, estimated losses on pools of homogeneous loans based on historical loss experience, as correlated to historical economic metrics and in consideration of current economic trends and conditions, and other qualitative factors, all of which may be susceptible to significant change.

The Company establishes a specific allowance for all troubled credits identified through both normal and targeted credit review processes. Loans recognized within the internal review are identified as being individually evaluated and excluded from collective pools. Individually evaluated loans are considered to have unique risk characteristics when their risk profile, repayment characteristics, or loss exposure are sufficiently distinct such that inclusion in a pooled evaluation would not appropriately reflect its expected credit loss. Factors that may result in such classification include, but are not limited to, borrower-specific financial stress or credit deterioration, nonaccrual status or sustained delinquency, bankruptcy, insolvency, or restructuring proceedings, reliance on a single or materially weakened source of repayment, material adverse changes in collateral value, condition, or marketability, collateral dependency, unique or non-standard loan structures or modifications, adverse changes in guarantor support, or other circumstances indicating the loan no longer shares similar risk characteristics with the pool. For individually evaluated loans, management measures credit losses using a discounted cash flowDCF approach, collateral-dependent valuation techniques, observable market pricing (when available), or other methods permitted under ASC 326 that reasonably estimate expected credit losses based on the specific facts and circumstances of the loan. The selected methodology is applied consistently and is based on the specific facts and circumstances of each loan. At MarchJune 31,30, 2026, the Bank’sBank positionhad in117 individually evaluated loans consistedtotaling $78.6 million. Each of 135these loans totalingwas $84.7evaluated million. All were valued based onusing a collateralcollateral-dependent analysis.methodology. No individually evaluated loans were valuedmeasured using the present value of expected future cash flows method or otheranother methodsmethodology permitted under ASC 326. For all other loans, the Company usesapplies thea generalcollective allocationevaluation methodology that establishes an allowancedesigned to estimate the lifetime incurredexpected losscredit losses for eachpools risk-ratingof category.loans that share similar risk characteristics.

The Company utilizes the DCF method for its pooled segment calculation. The DCF method implements a probability of default and loss given default and loss exposure at default estimation. The probability of default and loss given default are applied to future cash flows that are adjusted to present value and these discounted expected losses become the Allowance for Credit Losses.ACL.

Management also considers Qualitative Factors (“QF”) that are likely to cause estimated credit losses with the Company’s existing portfolio to differ from historical loss experience, including but not limited to: national and local economic trends and conditions, levels and trends in delinquencies, non-accrual loans and classified assets, trends in volume, terms and concentrations of loans, changes in lending policies and procedures, quality of credit review function and administration, and changes in regulatory environment, management, markets and product offerings. On a quarterly basis, the Company assesses the magnitude of QF adjustments necessary to be applied to the quantitatively-derived ACL in order to incorporate forward-looking projections in its final evaluation of current expected credit losses.

In estimating the ACL on loans, 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. At MarchJune 31,30, 2026, the Bank held $549.5$544.6 million in commercial real estate and commercial & industrial loans (collectively, commercial loans) representing 61.4%61.3% of the Bank’s entire loan portfolio. The Bank allocated $23.3$21.5 million of the ACL to these commercial loans, which included a net qualitative adjustment that reduced the ACL by approximately $889,000$899,000 in the first quarterhalf of 2026. Given the concentration of ACL allocation to the total commercial loan portfolio and the significant judgments made by management in deriving the qualitative loss factors, management considers the impact that changes in judgments could have on the ACL. The ACL could increase (or decrease) by approximately $222,000,$225,000, assuming a 25% negative (or positive) change within the group of qualitative factors used to determine the ACL for commercial loans. The sensitivity and related range of impacts for various judgments on the ACL is a hypothetical analysis and is used to determine management’s judgments or assumptions of qualitative loss factors that were utilized at MarchJune 31,30, 2026 in the final recorded estimation of the ACL on loans recognized on the Statements of Financial Condition.

The Company’s effective tax rate typically differs from the 21% federal statutory tax rate due primarily to New York State income taxes, partially offset by tax-exempt income from specific types of investment securities and loans, bank owned life insurance,BOLI, and to a much lesser degree, the utilization of low income housing tax credits. In addition, the tax effects of certain incentive stock option activity may reduce the Company’s effective tax rate on a sporadic basis.

The Company carries all of its AFS investments at fair value with any unrealized gains or losses reported, net of tax, as an adjustment to shareholders' equity and included in accumulated other comprehensive income (loss),AOCI, except for the credit-related portion of debt securities’ credit losses securities which are charged to earnings. The Company's ability to fully realize the value of its investments in various securities, including corporate debt securities, is dependent on the underlying creditworthiness of the issuing organization. In evaluating the debt securities portfolio, for both AFS and HTM securities for credit losses, management considers (1) if we intend to sell the security; (2) if it is “more likely than not” we will be required to sell the security before recovery of its amortized cost basis; or (3) if the present value of expected cash flows is insufficient to recover the entire amortized cost basis.

Management performs an annual evaluation of our goodwill for possible impairment at each of our reporting units.impairment. Based on the December 31, 2025 evaluation, management has determined that the carrying value of goodwill was not impaired as of that date. Management will continuously evaluate all relevant economic and operational factors potentially affecting the Bank or the fair value of its assets, including goodwill. Should future economic consequences require a significant and sustained change in the operations of the Bank, re-evaluations of the Bank’s goodwill valuation will be conducted on a more frequent basis.

On MarchJune 30,29, 2026, the Company announced that its Board of Directors declared a cash dividend of $0.10 per share on the Company's voting common and non-voting common stock, and a cash dividend of $0.10 per notional share for the issued warrantstock relating to the fiscal quarter ended MarchJune 31,30, 2026. The dividends were payable to all shareholders of record on AprilJuly 17, 2026 and were paid on MayAugust 8,7, 2026.

Summary of 2026 FirstSecond Quarter Results

The Company recorded net income of $2.4$2.7 millionmillion, or $0.42 per diluted share, for the three months ended MarchJune 31,30, 2026, compared to $3.0$31,000, millionor less than $0.01 per diluted share, for the three months ended MarchJune 31,30, 2025. The $561,000 decreaseincrease in net income was primarily attributable to the absence of a $1.1$3.1 million decreasepre-tax inLOCOM totaladjustment net interest income, a $259,000 increase in total noninterest expense, and a $70,000 decrease in noninterest income, partially offset by a $625,000 decreaserecorded in the provisionsecond forquarter creditof losses2025 related to the July 2025 sale of $9.3 million of nonperforming and aclassified $214,000loans decreaseassociated inwith theone provisionlocal forcommercial incomerelationship. taxes.The adjustment reduced second quarter 2025 earnings by $2.5 million after tax, or $0.40 per diluted share.

Net interest income before the provision for credit lossesPCL decreased $1.1 million,$278,000, or 9.4%,2.6%, to $10.3$10.5 million for the three months ended MarchJune 31,30, 2026, as compared to the same three month period in 2025. This decrease was predominatelyprimarily the result of a decrease in interest and dividend income of $1.9$1.1 million, partially offset by a decrease in interest expense of $868,000.$836,000.

Interest and dividend income declined $1.9$1.1 million to $17.5$18.1 million for the firstsecond quarter of 2026, as compared to the firstsecond quarter of 2025. This decrease was primarily driven by a $1.3$21.9 million reductiondecline in interestaverage incomeinterest-earning onasset loans,balances resultingand froman aaverage yield decrease of 4924 basis points in the average yieldbps on loans,all reflectinginterest-earning inassets. partAverage aloan 15yields basisdeclined point16 benefitbps recognizeddue in the first quarter of 2025 attributableprimarily to 2024 interest recovered on loans removed from nonaccrual status and income from prepayment fees. The remaining decrease was driven by maturities and payoffs of higher-yielding loans, new originations at lower rates,loans and elevated nonperforming loansloan balances for which specific reserves were established as appropriate prior to the firstsecond quarter of 2026.2026, Interestwhile incomethe average yield on total investmenttaxable securities decreased $697,00033 asbps, a result of thereflecting lower average yieldbalances and decreaseda averagedeclining balancesrate environment. Compared to the year-ago quarter, decreases in portfolioloan assets.interest Interestincome, taxable securities income, and tax-exempt securities income onof Fed$536,000, $602,000, and $97,000, respectively, were partially offset by higher dividend income and income from federal funds sold and interest-earning deposits increased $73,000, reflecting higher average balances and increased yields.deposits.

The decrease in interestInterest expense ofdecreased $868,000$836,000 to $7.2$7.5 million forduring the firstsecond quarter of 2026,2026 compared to the priorprior-year yearquarter. quarter,The decrease was primarily attributedattributable to a 22 basis pointbps decline in the average cost of total interest-bearing liabilities, including a 33 bps reduction of 31 basis points in the average cost of interest-bearing depositsdeposits. thatThese wasfavorable changes were partially offset by ana 7 bps increase of 34 basis points in the average cost of borrowings, as well as ana 218 bps increase of 230 basis points in the average cost of subordinated loansdebt that reset from fixed-rate to floating-rate interest after October 15, 2025.

Net interest margin ("NIM") was 3.10%3.08% for the first three months ended MarchJune 31,30, 2026, compared to 3.31%3.11% in the year-ago period. The decrease of 213 basis pointsbps primarily reflected lower earning asset yields that more than offset the reduction in the cost of interest bearinginterest-bearing deposits and other liabilities. In addition, approximately 10 basis points of net interest margin in the year-ago period reflected 2024 interest recovered from loans removed from nonaccrual status and income from prepayment fees in the first quarter of 2025.

Provision for credit lossesPCL was a benefit of $168,000$155,000 in the firstsecond quarter of 2026, reflectingattributed lowerto netthe chargelevel offsof average loans outstanding in the period and overallthe creditrisk-based performancereserve thatbuild resultedundertaken in the second half of 2025 to absorb future loss resolution activity related to commercial IALs, resulting in a smallmodest reserve release induring the first three months of this year.period. Provision expense was $457,000$1.2 million in the year-ago period.quarter. See the “Provision for Credit Losses” and “Loan and Asset Quality and Allowance for Credit Losses” sections of this Management’s Discussion and Analysis for further discussion.

Noninterest income was $1.1$1.2 million for the firstsecond quarter of 2026, downcompared slightlyto fromnegative $1.2$1.5 million in the same period of 2025. ResultsThe year-over-year increase primarily reflected the absence of the $3.1 million LOCOM adjustment on loans held for sale recognized during the firstsecond quarter of 2026 included a $203,000 loss resulting from fair value adjustments recorded during the period on $6.3 million of substandard loans that were moved to held-for-sale status in the fourth quarter of 2025, as the Bank continues active sale negotiations.2025.

For the firstsecond quarter of 2026, annualized noninterest expense represented 2.48%2.39% of average assets in the first quarter of 2026,assets, compared to 2.33%2.18% in the year-ago period. The efficiency ratio was 75.65%,74.26% for the firstsecond quarter of 2026, compared to 67.19%65.66% in the year-ago period. As the Company continues to maintain well-controlled noninterest expenses, the efficiency ratio was elevated during the second quarter of 2026 due to reduced revenues, which the Company views as temporary. In addition, the absence of FDIC assessment expense in the second quarter of 2025, due to modest over-accruals in prior periods, contributed to a lower efficiency ratio in the year-ago quarter. The efficiency ratio, which is not a financial metric under GAAP, is a measure that the Company believes is helpful to understanding its level of non-interestnoninterest expense as a percentage of total revenue.

Total interest expense decreased $868,000$836,000 to $7.2$7.5 million from $8.0$8.4 million for the three months ended MarchJune 31,30, 2026 and 20252025, respectively. The decrease was primarily attributed to a 22 basis pointbps decline in the average cost of total interest-bearing liabilities, which includesincluded a reduction of 3133 basis pointsbps in the average cost of interest-bearing depositsdeposits. thatThis was partially offset by an increase of 347 basis pointsbps in the average cost of borrowings, as well as an218 increase of 230 basis pointsbps in the average cost of subordinated loansdebt that reset from fixed-rate to floating-rate interest after October 15, 2025. Total average interest-bearing liabilities decreased by $38.5$32.8 million from the same period one year-ago.year ago. This decrease reflectswas driven by lower average balances of $57.6 million of time depositsdeposits, savings deposits, and $30.6money millionmarket ofaccounts, borrowings,which declined $71.4 million, $3.1 million, and $1.8 million, respectively, partially offset by higherincreases in average balancesMMDA deposits, NOW deposits, and borrowings of $42.4$20.9 millionmillion, of$9.2 MMDAmillion, deposits.and $13.4 million, respectively.

The Company’s deposit base is primarily drawn from eleven full-service branches and one motor bank in its market area. The deposit base consists of demand deposits, money management and money market deposit accounts, savings, and time deposits. Total deposits increaseddecreased by $27.9$9.6 million, or 2.4%0.8% from December 31, 2025. The increasedecrease in deposits during the threesix months ended MarchJune 31,30, 2026, reflects intentional runoff of higher-cost brokered deposits and non-relationship time deposits, partially offset by growth in MMDA deposits and both interest- and noninterest-bearing demand deposits, partially offset by runoff of higher-cost time deposits.

At MarchJune 31,30, 2026, 82.0%81.9% of the Company's deposit base of $1.21$1.17 billion consisted of core deposits. Core deposits, which exclude brokered deposits and certificates of deposit of $250,000 or more, are considered to be more stable and generally provide the Company with a lower cost of funds than time deposits of $250,000 or more. The Company will continue to emphasize retail and business core deposits in the future by providing depositors with a full range of deposit product offerings and will maintain its recent focus on deposit gathering within the Syracuse market.

A summary of deposits by category at MarchJune 31,30, 2026 and December 31, 2025 is as follows:

We establish a provision for credit losses,PCL, which is charged to operations, at a level management believes is appropriate to absorb lifetime credit losses in the loan portfolio. In evaluating the level of the allowance for credit losses,ACL, management considers historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral, and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as future events change. The provision for credit lossesPCL represents management’s estimate of the amount necessary to maintain the allowance for credit lossesACL at an adequate level.

Provision for credit lossesPCL was a benefit of $168,000$155,000 for the three month period ended MarchJune 31,30, 2026, as compared to a $457,000$1.2 provisionmillion for credit lossesPCL expense for the three month period ended MarchJune 31,30, 2025. The provisioning in the firstsecond quarter of 2026 and 2025 reflects management’s determination of the appropriate level of additions to reserves, the composition of the loan portfolio, changes in quantifiable econometric data statistically correlated to historical charge-off rates, subjective qualitative assessments of changes in a broad array of factors including changes to underwriting criteria, loan staffing and local market conditions, and changes in the levels of delinquent and nonaccrual loans. The $625,000$1.4 million decrease in provisionPCL for credit losses in the firstsecond quarter of 2026, as compared to the same period in 2025, was primarily attributed to lowerthe netlevel chargeof offsaverage andloans overall credit performance that resulted in a small reserve releaseoutstanding in the firstperiod threeand monthsthe risk-based reserve build undertaken in the second half of this2025 year.to absorb future loss resolution activity associated with commercial IALs, and continued improvement in asset quality metrics. The Bank's credit sensitive portfolios continue to be carefully monitored, and the Bank will consistently apply its loan classification and reserve building methodologies to the analysis of these portfolios. Please refer to the asset quality section below for a further discussion of asset quality as it relates to the allowance for credit losses.ACL.

The Company measures delinquency based on the amount of past due loans (defined as loans equal to or greater than 30 days past due) as a percentage of total loans. The ratio of delinquent loans to total loans was 5.4%4.8% and 5.9% at MarchJune 31,30, 2026, and December 31, 2025, respectively. Delinquent loans (numerator) decreased $4.9$10.1 million from December 31, 2025 to MarchJune 31,30, 2026. Total loan balances (denominator) decreased $1.5$8.2 million from December 31, 2025 to MarchJune 31,30, 2026. The decrease in delinquent loans from December 31, 2025 to MarchJune 31,30, 2026 was driven by loans delinquent 30-59 days and loans delinquent 60-89 days, which decreased by $7.4$8.6 million and $8.1$9.7 million, respectively, partially offset by an increase of $10.6$8.2 million in loans delinquent 90 days and over.

Noninterest income totaledwas $1.1$1.2 million infor the firstsecond quarter of 2026, compared to $1.2negative $1.5 million duringin the same period inof 2025. FirstThe quarteryear-over-year 2026increase noninterestprimarily incomereflected includedthe a lossabsence of $203,000the for$3.1 fairmillion valueLOCOM adjustmentsadjustment madeon inloans held-for-sale recognized during the period to $6.3 million in substandard loans that were transferred to held-for-sale status in the fourthsecond quarter of 2025, as active sale negotiations remain ongoing.2025.

Compared to the year-ago period, second quarter 2026 noninterest income reflected increases of $174,000 in earnings and gains on BOLI, $8,000 in debit card interchange fees, and $1,000 in service charges on deposit accounts. In addition, compared to the year-ago period, firstsecond quarter 2026 noninterest income included increasesan increase of $121,000$12,000 in gains on sales of loans and foreclosed real estate and $3,000 in net realized losses on sales and redemptions of investment securities,estate, as well as decreasesa decrease of $142,000 in net unrealized gains on marketable equity securities and $12,000$29,000 in loan servicing fees. Net unrealized gains on marketable equity securities, which include twothree limited partnership equity method investments, remainsremained a variable contributor to noninterest income, decreasing $142,000$473,000 in the firstsecond quarter of 2026 from the year-ago quarter.period.

Noninterest expense totaled $8.7 million in the firstsecond quarter of 2026, comparedincreasing to$601,000, $8.4or 7.5%, from $8.1 million in the firstsecond quarter of 2025.

DataBuilding processingand occupancy expense was $733,000$1.4 million in the firstsecond quarter of 2026, increasing $67,000$150,000 from the year-ago quarter. The increases reflected higher facility-related maintenance and repair expenses, including ATM servicing, branch maintenance and various property improvement activities. Data processing expense was $774,000 in the second quarter of 2026, increasing $107,000 from the year-ago period. The increases from the year-ago quarter reflected higher costs primarily associated with data, ATM, and other technology maintenance costs.

Income tax expense decreased $214,000increased to $530,000$585,000 for the quarter ended MarchJune 31,30, 2026, as compared to $744,000$7,000 for the same three month period in 2025. The decreaseincrease in income tax expense for the quarter ended MarchJune 31,30, 2026, as compared to the same quarter in 2025, was primarily driven by aan decreaseincrease of $775,000$3.2 million in income before taxes. The effective income tax rate decreased 20040 basis pointsbps to 18.0% for the three months ended MarchJune 31,30, 2026 as compared to 20.0%18.4% for the same three month period in 2025. The decrease in the tax rate in the firstsecond quarter of 2026, as compared to the same quarter in 2025, was primarily related to aan decreaseincrease in income and fluctuations in permanent tax differences.