Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Financial Condition


	June 30,			December 31,
	2023			2022
	(Unaudited)
	(Dollars in thousands, except share data)
Assets
Cash and due from banks	$	4,952			$	9,091
Interest earning deposits		30,630				542
Cash and Cash Equivalents		35,582				9,633
Securities		65,377				73,047
Federal Home Loan Bank stock, at cost		2,347				2,330
Loans receivable, net of allowance for credit losses 2023 $6,758; 2022 $7,065		569,503				573,537
Premises and equipment, net		8,209				8,286
Accrued interest receivable		2,724				2,796
Bank-owned life insurance		23,432				23,218
Other assets		6,867				7,067
Total Assets	$	714,041			$	699,914
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Interest bearing	$	485,701			$	464,441
Non-interest bearing		96,264				105,678
Total Deposits		581,965				570,119
Short-term borrowings		—				12,596
Long-term debt		36,450				24,950
Advances from borrowers for taxes and insurance		3,369				3,308
Other liabilities		8,863				7,757
Total Liabilities		630,647				618,730
Stockholders' Equity
Common stock, $0.01 par value per share, 25,000,000 shares authorized; 6,836,514 shares issued and 5,690,976 shares outstanding at June 30, 2023 and 6,836,514 shares issued and 5,705,225 shares outstanding at December 31, 2022		68				68
Additional paid-in capital		31,449				31,459
Treasury stock, at cost (1,145,538 shares at June 30, 2023 and 1,131,289 shares at December 31, 2022)		(13,715	)			(13,571	)
Unearned shares held by ESOP		(1,066	)			(1,108	)
Unearned shares held by compensation plans		(109	)			(191	)
Retained earnings		76,636				74,859
Accumulated other comprehensive loss		(9,869	)			(10,332	)
Total Stockholders' Equity		83,394				81,184
Total Liabilities and Stockholders' Equity	$	714,041			$	699,914

See notes to unaudited consolidated financial statements.

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Income


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(Unaudited)
	(Dollars in thousands, except per share data)
Interest Income
Loans, including fees	$	7,480		$	5,869		$	14,727		$	11,289
Investment securities, taxable		236			211			464			400
Investment securities, tax-exempt		265			316			575			626
Other		489			35			655			50
Total Interest Income		8,470			6,431			16,421			12,365
Interest Expense
Deposits		1,915			329			3,228			676
Short-term borrowings		9			—			87			—
Long-term debt		319			109			575			213
Other		13			15			26			30
Total Interest Expense		2,256			453			3,916			919
Net Interest Income		6,214			5,978			12,505			11,446
(Credit) Provision for Credit Losses		(187	)		100			(812	)		500
Net Interest Income after (credit) provision for credit losses		6,401			5,878			13,317			10,946
Non-Interest Income
Service charges and fees		263			315			536			557
Debit card fees		215			225			420			425
Increase in cash surrender value of bank-owned life insurance		109			98			214			196
Unrealized gain (loss) on equity securities		1			(8	)		2			(9	)
Unrealized (loss) gain on interest rate swap		(9	)		70			(58	)		253
Recovery on previously impaired investment securities		3			4			5			10
Loss on sale of securities available for sale		(49	)		—			(49	)		—
Net loss on sale of loans		—			(6	)		—			(18	)
Other		20			22			37			38
Total Non-Interest Income		553			720			1,107			1,452
Non-Interest Expense
Salaries and employee benefits		2,811			2,460			5,590			4,867
Occupancy and equipment		700			778			1,497			1,535
Data processing		474			376			852			691
Professional services		848			335			1,698			634
Advertising		179			123			357			259
FDIC insurance		436			47			531			92
Postage and Supplies		62			60			130			114
Other		391			398			763			917
Total Non-Interest Expense		5,901			4,577			11,418			9,109
Income before Income Taxes		1,053			2,021			3,006			3,289
Income Tax Expense		237			337			506			544
Net Income	$	816		$	1,684		$	2,500		$	2,745
Basic and diluted earnings per common share		0.14			0.29			0.43			0.47
Dividends declared per share	$	—		$	0.16		$	—		$	0.32

See notes to unaudited consolidated financial statements.

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Comprehensive Income (Loss)


	Three Months Ended June 30,
	2023			2022
	(Unaudited)
	(Dollars in thousands)
Net Income	$	816		$	1,684
Other Comprehensive (Loss), net of tax benefit:
Unrealized holding (losses) on securities available for sale, net of tax benefit		(826	)		(3,434	)
Reclassification adjustments related to:
Recovery on previously impaired investment securities included in net income, net of tax expense		(3	)		(3	)
Net loss on sale of securities included in net income, net of tax benefit		39			—
Total Other Comprehensive Loss		(790	)		(3,437	)
Total Comprehensive Income (Loss)	$	26		$	(1,753	)

	Six Months Ended June 30,
	June 30,
	2023			2022
	(Unaudited)
	(Dollars in thousands)
Net Income	$	2,500		$	2,745
Other Comprehensive Income (Loss), net of tax expense (benefit):
Unrealized holding gains (losses) on securities, net of tax expense (benefit)		428			(9,563	)
Reclassification adjustments related to:
Recovery on previously impaired investment securities included in net income, net of tax expense		(4	)		(8	)
Net loss on sale of securities included in net income, net of tax benefit		39			—
Total Other Comprehensive Income (Loss)		463			(9,571	)
Total Comprehensive Income (Loss)	$	2,963		$	(6,826	)

See notes to unaudited consolidated financial statements.

Lake Shore Bancorp, Inc. and Subsidiary

Consolidated Statements of Stockholders’ Equity

Three Months Ended March 31, and June 30, ~~2021~~2023 and 2022 (Unaudited)


								Unearned			Unearned Shares						Accumulated
			Additional					Shares			Held by						Other
	Common		Paid-In		Treasury			Held by			Compensation			Retained			Comprehensive
	Stock		Capital		Stock			ESOP			Plans			Earnings			Income (Loss)			Total
	(Dollars in thousands, except share and per share data)
Balance - January 1, 2022	$	68	$	31,350	$	(13,660	)	$	(1,194	)	$	(157	)	$	70,591		$	978		$	87,976
Net income		—		—		—			—			—			1,061			—			1,061
Other comprehensive loss, net of tax benefit of $1,630		—		—		—			—			—			—			(6,134	)		(6,134	)
ESOP shares earned (1,984 shares)		—		8		—			22			—			—			—			30
Compensation plan shares granted (27,132 shares)		—		—		255			—			(255	)		—			—			—
Compensation plan shares earned (2,749 shares)		—		16		—			—			26			—			—			42
Cash dividends declared ($0.16 per share)		—		—		—			—			—			(312	)		—			(312	)
Balance - March 31, 2022		68		31,374		(13,405	)		(1,172	)		(386	)		71,340			(5,156	)		82,663
Net income		—		—		—			—			—			1,684			—			1,684
Other comprehensive loss, net of tax benefit of $914		—		—		—			—			—			—			(3,437	)		(3,437	)
ESOP shares earned (1,984 shares)		—		7		—			21			—			—			—			28
Compensation plan shares forfeited (3,062 shares)		—		—		(29	)		—			29			—			—			—
Compensation plan shares earned (4,942 shares)		—		29		—			—			45			—			—			74
Purchase of treasury stock, at cost (5,701 shares)		—		—		(85	)		—			—			—			—			(85	)
Cash dividends declared ($0.16 per share)		—		—		—			—			—			(313	)		—			(313	)
Balance - June 30, 2022	$	68	$	31,410	$	(13,519	)	$	(1,151	)	$	(312	)	$	72,711		$	(8,593	)	$	80,614


									Unearned			Unearned Shares						Accumulated
			Additional						Shares			Held by						Other
	Common		Paid-In			Treasury			Held by			Compensation			Retained			Comprehensive
	Stock		Capital			Stock			ESOP			Plans			Earnings			Loss			Total
	(Dollars in thousands, except share and per share data)
Balance - January 1, 2023	$	68	$	31,459		$	(13,571	)	$	(1,108	)	$	(191	)	$	74,859		$	(10,332	)	$	81,184
Cumulative change in accounting principle (Note 2)		—		—			—			—			—			(723	)		—			(723	)
Net Income		—		—			—			—			—			1,684			—			1,684
Other comprehensive income, net of tax expense of $333		—		—			—			—			—			—			1,253			1,253
ESOP shares earned (1,984 shares)		—		1			—			21			—			—			—			22
Compensation plan shares granted (8,282 shares)		—		—			78			—			(78	)		—			—			—
Compensation plan shares earned, net of forfeitures (2,510 shares)		—		(21	)		—			—			(28	)		—			—			(49	)
Compensation plan shares forfeited (15,385 shares)		—		—			(144	)		—			144			—			—			—
Common stock repurchased on vesting for payroll taxes (4,764 shares)		—		—			(56	)		—			—			—			—			(56	)
Balance - March 31, 2023		68		31,439			(13,693	)		(1,087	)		(153	)		75,820			(9,079	)		83,315
Net Income		—		—			—			—			—			816			—			816
Other comprehensive loss, net of tax benefit of $209		—		—			—			—			—			—			(790	)		(790	)
ESOP shares earned (1,984 shares)		—		1			—			21			—			—			—			22
Compensation plan shares earned, net of forfeitures (2,328 shares)		—		9			—			—			22			—			—			31
Compensation plan shares forfeited (2,382 shares)		—		—			(22	)		—			22			—			—			—
Balance - June 30, 2023	$	68	$	31,449		$	(13,715	)	$	(1,066	)	$	(109	)	$	76,636		$	(9,869	)	$	83,394

Unearned
Unearned Shares
Accumulated
Additional
Shares
Held by
Other
Common
Paid-In
Treasury
Held by
Compensation
Retained
Comprehensive
Stock
Capital
Stock
ESOP
Plans
Earnings
Income
Total
(Dollars in thousands, except share and per share data)
Balance - January 1, 2021
$
68
$
31,201
$
(11,584)
$
(1,279)
$
(118)
$
65,488
$
2,148
$
85,924
Net income
-
-
-
-
-
1,688
-
1,688
Other comprehensive loss, net of tax benefit of $213
-
-
-
-
-
-
(803)
(803)
ESOP shares earned (1,984 shares)
-
8
-
21
-
-
-
29
Stock based compensation
-
11
-
-
-
-
-
11
Compensation plan shares granted (20,958 shares)
-
-
196
-
(196)
-
-
-
Compensation plan shares forfeited (1,392 shares)
-
-
(13)
-
13
-
-
-
Compensation plan shares earned (2,057 shares)
-
10
-
-
21
-
-
31
Purchase of treasury stock, at cost (43,834 shares)
-
-
(652)
-
-
-
-
(652)
Cash dividends declared ($0.13 per share)
-
-
-
-
-
(268)
-
(268)
Balance - March 31, 2021
$
68
$
31,230
$
(12,053)
$
(1,258)
$
(280)
$
66,908
$
1,345
$
85,960
Balance - April 1, 2021
$
68
$
31,230
$
(12,053)
$
(1,258)
$
(280)
$
66,908
$
1,345
$
85,960
Net income
-
-
-
-
-
993
-
993
Other comprehensive income, net of tax expense of $55
-
-
-
-
-
-
211
211
ESOP shares earned (1,984 shares)
-
8
-
22
-
-
-
30
Stock based compensation
-
11
-
-
-
-
-
11
Compensation plan shares earned (4,375 shares)
-
24
-
-
42
-
-
66
Purchase of treasury stock, at cost (36,094 shares)
-
-
(547)
-
-
-
-
(547)
Cash dividends declared ($0.13 per share)
-
-
-
-
-
(280)
-
(280)
Balance - June 30, 2021
$
68
$
31,273
$
(12,600)
$
(1,236)
$
(238)
$
67,621
$
1,556
$
86,444

Lake Shore Bancorp, Inc. and Subsidiary

Notes to Unaudited Consolidated Financial Statements ~~(Unaudited)~~

Note 1 – Basis of Presentation

The interim unaudited consolidated financial statements include the accounts of Lake Shore Bancorp, Inc. (the “Company”, “us”, “our”, or “we”) and Lake Shore Savings Bank (the “Bank”), its wholly owned subsidiary. All intercompany accounts and transactions of the consolidated subsidiary have been eliminated in consolidation.

The interim unaudited consolidated financial statements included herein as of June 30, ~~2022~~2023 and for the three and six months ended June 30, ~~2022~~2023 and ~~2021~~2022 have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission, and therefore, do not include all information or footnotes necessary for a complete presentation of the consolidated statements of financial condition, results of operations and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The consolidated statement of financial condition at December 31, ~~2021~~2022 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete consolidated financial statements. The consolidated financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair statement of such information and to make the financial statements not misleading. These interim unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. The consolidated statements of income for the three and six months ended June 30, 2023 and 2022 are not necessarily indicative of the results for any subsequent period or the entire year ending December 31, ~~2022.~~

2023.

To prepare these unaudited consolidated financial statements in conformity with GAAP, management of the Company made a number of estimates and assumptions relating to the reporting of assets and liabilities and the reporting of revenue and expenses. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for ~~loan~~credit losses, securities valuation estimates, evaluation of impairment of securities, and income ~~taxes and deferred compensation liabilities.~~taxes.

Subsequent Events

The Company has evaluated events and transactions occurring subsequent to the statement of financial condition asdate of June 30, ~~2022~~2023 for items that should potentially be recognized or disclosed in ~~these~~the unaudited consolidated financial statements. The evaluation was conducted through the date these unaudited consolidated financial statements were issued.

Note 2 – New Accounting Standards

Adoption of New Accounting Standards

~~Accounting Standards to be Adopted~~

~~In June 2016,~~On January 1, 2023, the Company adopted the Financial Accounting Standards Board (“FASB”) ~~issued~~ Accounting Standard Update (“ASU”) 2016-13, “Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments” (“ASU 2016-13”). , as amended. ASU 2016-13 ~~requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using~~ (also known as Accounting Standard Codification 326 or “ASC 326”) replaces the incurred loss methodology with an expected ~~credit~~ loss ~~model (referred~~methodology that is referred to as the current expected credit loss (“CECL”) ~~model). Under~~methodology. The measurement of expected credit losses under the CECL ~~model entities will estimate~~methodology is applicable to financial assets measured at amortized cost, including loans receivable. It also applies to certain off-balance sheet credit ~~losses over the entire contractual term~~exposures, such as loan commitments and standby letters of the instrument (considering estimated prepayments, but not expected extensions or modifications unless reasonable expectation of a troubled debt restructuring exists) from the date of initial recognition of that instrument. Further,credit. In addition, ASU 2016-13 ~~made certain targeted amendments to~~updated the ~~existing impairment standards~~accounting for available for sale ~~(“AFS”)~~ debt ~~securities. For an AFS debt security for which there is neither the intent nor a more-likely-than-not requirement~~securities to ~~sell, an entity will record~~require credit losses to be presented as an allowance rather than a write-down on available-for-sale debt securities that management does not intend to sell or believes that it is more likely than not they will be required to sell.

The Company utilized the modified retrospective method for all financial assets measured at amortized cost, specifically loans receivable and off-balance sheet credit exposures. Upon adoption, the Company recorded a decrease to retained earnings of $723,000 for the cumulative effect of adopting ASC 326. The transaction adjustment included a $282,000 impact to reflect the expected credit losses inherent within the Company’s loan portfolio for the life of the loan portfolio and a $633,000 impact to reflect the expected credit losses inherent with the Company’s off-balance sheet credit exposures, offset by a $192,000 deferred tax entry relating to the additional expected loss.

The Company adopted ASC 326 using the prospective transition appropriate for available-for-sale debt securities for which other-than-temporary impairment had been recognized prior to January 1, 2023. As a result, the amortized cost ~~basis. An entity~~basis remains the same before and after the effective date of ASC 326. The effective interest rate on the debt securities was not changed. Recoveries of amounts previously written-off relating to improvements in cash flows after January 1, 2023 will ~~apply the amendments~~be recorded in ~~ASU 2016-13 through a cumulative-effect adjustment to retained~~ earnings as received.

Allowance for Credit Losses – Loans: The allowance for credit losses is a valuation account that is deducted from or added to the loans receivable amortized cost basis to present the net amount expected to be collected on the loans. Loans are charged off against the allowance when management believes the uncollectibility of a loan balance is confirmed. Expected recoveries recorded in the allowance for credit loss account should not exceed the aggregate of amounts previously charged off and expected to be charged-off.

Management estimates the allowance balance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Adjustments to historical information are made for differences in current loan-specific risk characteristics such as differences in underwriting standards, portfolio mix, delinquency level, or term as well as for changes in environmental conditions, such as change in unemployment rates, property values or other relevant factors.

The Company uses the vintage model to estimate expected credit losses for all loan segments. The vintage model measures the expected loss calculation for future periods based on the historical performance by the origination period of loans with similar life cycles and risk characteristics. For each loan segment, the Company utilizes historical loss data through the current period to calculate the actual loss percentage for each loan type by vintage year of loan origination. The calculated loss percentages are then applied to the remaining outstanding balance for each vintage year, for the estimated remaining life of the ~~beginning~~loans in the loan segment. In addition to this calculation, the Company applies qualitative factors for current conditions, including trends in the nature and volume of the ~~first~~loan portfolio, loan concentrations, changes in the experience, ability and depth of the Company’s lending management, and national and local economic conditions. In addition, the Company utilizes an economic forecast factor consisting of unemployment data and changes in gross domestic production (GDP) to determine the impact to the Bank’s loan portfolio. No reversion adjustments were necessary for our calculation as the starting point for the Company’s estimate was a cumulative loss rate covering the expected contractual term of the loan portfolio.

The allowance for credit losses is measured on a collective (pool) basis when similar risk characteristics exist. Loans that do not share risk characteristics are evaluated on an individual basis. Loans evaluated individually are not included in the collective evaluation. When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for selling costs as appropriate.

Accrued interest on loans of $2.4 million at June 30, 2023 is included in accrued interest receivable on the consolidated statements of financial condition and is excluded from the estimate of credit losses.

The Company's determination as to the amount of expected credit losses are subject to review by bank regulators, which can require the establishment of additional expected credit losses. Although the allowance for credit losses is allocated by loan type, the allowance for credit losses is general in nature and is available to offset losses from any loan in the Company’s portfolio.

Allowance for Credit Losses – Off Balance Sheet Credit Exposure: The Company estimates expected credit losses over the contractual period in which the ~~guidance~~Company is ~~effective.~~exposed to credit risk via a contractual obligation to extend credit, unless the obligation is unconditionally cancellable by the Company. Off-balance sheet credit exposure includes loan commitments. The Company’s commercial overdraft line of credit and consumer overdraft line of credit products are unconditionally cancellable by the Company and therefore, the Company does not record an allowance for credit losses on these loan types. The allowance for credit losses for off balance sheet credit exposure is derived through the use of the vintage model and a utilization rate concept, applied to those commitments which are not unconditionally cancellable.

~~The Company has determined its data requirements and is developing its methodologies~~Allowance for ~~calculating the expected credit losses under ASU 2016-13 which has allowed~~Credit Losses – Available-for-Sale Securities: For available-for-sale debt securities in an unrealized loss position, the Company first assesses whether it intends to ~~run parallel loss reserve calculations. Data integrity associated with these methodologies~~sell, or if it is ~~being reviewed and enhancements to the current process are being considered. We expect~~more likely than not that ~~the new guidance will result in an increase to the allowance for loan losses given that the allowance~~it will be required to ~~cover~~sell the ~~full remaining expected life~~security before the recovery of its amortized cost basis. If either of the ~~portfolio, rather~~criteria regarding intent or requirement to sell is

met, the security’s amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Company will evaluate whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the ~~incurred~~amortized cost basis, any excess cost is recorded as an allowance for credit losses. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. The Company elected the practical expedient of zero loss ~~under~~estimates for securities issued by U.S. government entities and agencies. These securities are either explicitly or implicitly guaranteed by the ~~current accounting standard. The extent~~U.S. government, are highly rated by major agencies and have a long history of ~~this increase is still being evaluated. We are also reviewing the impact of additional disclosures required under ASU 2016-13 on our ongoing financial reporting procedures.~~no losses.

~~The Company~~Changes in the allowance for credit losses are recorded as a provision for (or reversal of) credit loss. Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale debt security is ~~required~~confirmed or when either of the criteria regarding intent or requirement to ~~adopt this guidance on January 1, 2023.~~sell is met.

Accrued interest of $302,000 as of June 30, 2023 on available-for-sale debt securities is included in accrued interest receivable on the consolidated statements of financial condition and is excluded from the estimate of credit losses.

In March 2022, the FASB issued ASU No. 2022-02, "“Financial Instruments – Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage ~~Disclosures”~~Disclosures. (“" This ASU ~~2022-02”). The final standard affects all entities after adoption of ASU 2016-13, mentioned above. ASU 2022-02~~ eliminates the ~~accounting~~separate recognition and measurement guidance for ~~troubled debt restructurings (“TDRs”) by creditors in Subtopic 310-40,~~ ~~Receivables –~~ Troubled Debt Restructurings ("TDRs") by ~~Creditors, while enhancing~~creditors. The amendments in this update require the ~~disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The FASB’s decision~~Company to eliminate the TDR accounting model is in response to feedback that the CECL model already incorporates credit losses from loans modified as TDRs, and consequently, the related accounting and disclosures no longer provide the same level of benefit to users. In lieu of the TDR accounting model, creditors will apply the general loan modification guidance in Subtopic 310-20 to all loan modifications, including modifications for borrowers experiencing financial difficulty. The Company must evaluate whether the modification represents a new loan or a continuation of an existing loan. ASU ~~also requires public business entities~~2022-02 may be adopted prospectively for loan modifications after adoption or on a modified retrospective basis, which would apply to ~~expand~~loans previously modified, resulting in a cumulative effect adjustment to retained earnings in the period of adoption for changes in the allowance for credit losses. On January 1, 2023, the Company adopted ASU 2022-02 utilizing the prospective method, which did not have a material impact on its unaudited consolidated financial statements. The adoption of ASU-2022-02 required the Company to enhance the vintage disclosures to include gross charge-off by year of origination. The Company currently qualifies as a smaller reporting company and, as such, will be required to implement CECL and ASU 2022-02 for fiscal years beginning after December 15, 2022. The Company does not expect this ASU to have a significant impact on its consolidated financial statements.

~~Note 3 – COVID-19~~

On March 11, 2020, the World Health Organization recognized an outbreak of a novel strain of the coronavirus, COVID-19, as a pandemic. The COVID-19 pandemic adversely affected the economy, including lower interest rates, and resulted in the enactment of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).

As reported during prior periods, at the onset of the pandemic the Bank became a participating lender in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) to assist small businesses in our market areas that were impacted by the pandemic. As of June 30, 2022, all of the PPP loans that we originated as of December 31, 2021 have been forgiven by the SBA. There are 0 CARES Act modifications outstanding as of June 30, 2022.

The Company continues to evaluate the risks presented by the ongoing pandemic, along with the impact of the federal and state regulations that have been enacted due to the pandemic, as these events may have a material adverse impact on the Company’s future results, operations, financial position, capital and liquidity. At this time the Company cannot quantify the potential impact of the ongoing pandemic on future operations.

Note 43 – Investment Securities

The amortized cost and fair value of securities are as follows:

June 30, 2022
Gross
Gross
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
(Dollars in thousands)
SECURITIES
Debt Securities Available for Sale
U.S. government agencies
$
2,008
$
-
$
(86)
$
1,922
Municipal bonds
50,749
32
(7,752)
43,029
Mortgage-backed securities:
Collateralized mortgage obligations-private label
13
-
(1)
12
Collateralized mortgage obligations-government sponsored entities
15,065
9
(977)
14,097
Government National Mortgage Association
64
1
-
65
Federal National Mortgage Association
13,890
8
(1,428)
12,470
Federal Home Loan Mortgage Corporation
6,612
4
(788)
5,828
Asset-backed securities-private label
-
101
-
101
Asset-backed securities-government sponsored entities
6
-
-
6
Total Debt Securities Available for Sale
$
88,407
$
155
$
(11,032)
$
77,530
Equity Securities
22
-
(12)
10
Total Securities
$
88,429
$
155
$
(11,044)
$
77,540


	June 30, 2023
			Gross		Gross
	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	(Dollars in thousands)
SECURITIES
Debt Securities Available for Sale
U.S. government agencies	$	2,007	$	—	$	(166	)	$	1,841
Municipal bonds		44,572		4		(7,884	)		36,692
Mortgage-backed securities:
Collateralized mortgage obligations-private label		11		—		(1	)		10
Collateralized mortgage obligations-government sponsored entities		12,791		—		(1,694	)		11,097
Government National Mortgage Association		59		—		(2	)		57
Federal National Mortgage Association		12,407		1		(1,845	)		10,563
Federal Home Loan Mortgage Corporation		6,009		1		(999	)		5,011
Asset-backed securities-private label		—		93		—			93
Asset-backed securities-government sponsored entities		3		—		—			3
Total Debt Securities Available for Sale	$	77,859	$	99	$	(12,591	)	$	65,367
Equity Securities		22		—		(12	)		10
Total Securities	$	77,881	$	99	$	(12,603	)	$	65,377


	December 31, 2021								December 31, 2022
			Gross		Gross						Gross		Gross
	Amortized		Unrealized		Unrealized		Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses		Value		Cost		Gains		Losses			Value
		(Dollars in thousands)							(Dollars in thousands)
SECURITIES
Debt Securities Available for Sale
U.S. government agencies	$	2,009	$	204	$	-	$	2,213	$	2,008	$	—	$	(175	)	$	1,833
Municipal bonds		49,812		1,085		(141)		50,756		50,734		16		(8,336	)		42,414
Mortgage-backed securities:
Collateralized mortgage obligations-private label		14		1		-		15		12		—		(1	)		11
Collateralized mortgage obligations-government sponsored entities		17,798		209		(193)		17,814		13,790		1		(1,636	)		12,155
Government National Mortgage Association		76		7		-		83		61		—		(2	)		59
Federal National Mortgage Association		10,773		53		(66)		10,760		13,232		1		(1,987	)		11,246
Federal Home Loan Mortgage Corporation		7,068		87		(119)		7,036		6,277		—		(1,056	)		5,221
Asset-backed securities-private label		-		110		-		110		—		96		—			96
Asset-backed securities-government sponsored entities		9		1		-		10		4		—		—			4
Total Debt Securities Available for Sale	$	87,559	$	1,757	$	(519)	$	88,797	$	86,118	$	114	$	(13,193	)	$	73,039
Equity Securities		22		-		(3)		19		22		—		(14	)		8
Total Securities	$	87,581	$	1,757	$	(522)	$	88,816	$	86,140	$	114	$	(13,207	)	$	73,047

Debt Securities

All of ~~our~~the Company's collateralized mortgage obligations are backed by one- to four-family residential mortgages.

At June 30, ~~2022~~2023 and December 31, ~~2021, 31~~2022, five and 29thirty-eight municipal bonds with a cost of ~~$12.1~~$1.7 million and ~~$10.6~~$14.4 million and fair value of ~~$10.6~~$1.2 million and ~~$11.0~~$12.2 million, respectively, were pledged under a collateral agreement with the Federal Reserve Bank (“FRB”) of New York for liquidity borrowing. In addition, at June 30, ~~2022~~2023 and December 31, ~~2021, 21~~2022, twenty-four and 20twenty-two municipal bonds with a cost of ~~$6.3~~$6.1 million and ~~$6.0~~$6.6 million and fair value of ~~$5.5~~$5.0 million and ~~$6.2~~$5.6 million, respectively, were pledged as collateral for customer deposits in excess of the Federal Deposit Insurance Corporation (“FDIC”) insurance limits.

The following table sets forth the Company’s investment in securities with gross unrealized losses of less than twelve months and gross unrealized losses of twelve months or more and associated fair values asfor which an allowance for credit losses has not been recorded for the periods indicated:


	Less than 12 months					12 months or more					Total
			Gross					Gross					Gross
			Unrealized					Unrealized					Unrealized
	Fair Value		Losses			Fair Value		Losses			Fair Value		Losses
	(Dollars in thousands)
June 30, 2023
U.S. government agencies	$	—	$	—		$	1,841	$	(166	)	$	1,841	$	(166	)
Municipal bonds		2,699		(94	)		30,577		(7,790	)		33,276		(7,884	)
Mortgage-backed securities		3,729		(193	)		22,904		(4,348	)		26,633		(4,541	)
	$	6,428	$	(287	)	$	55,322	$	(12,304	)	$	61,750	$	(12,591	)


December 31, 2022
U.S. government agencies	$	1,833	$	(175	)	$	—	$	—		$	1,833	$	(175	)
Municipal bonds		12,227		(1,114	)		23,259		(7,222	)		35,486		(8,336	)
Mortgage-backed securities		6,981		(410	)		21,561		(4,272	)		28,542		(4,682	)
	$	21,041	$	(1,699	)	$	44,820	$	(11,494	)	$	65,861	$	(13,193	)

As of June 30, 2023, the ~~dates indicated:~~Company determined that no individual securities in an unrealized loss position represented credit losses that would require an allowance for credit losses. The Company concluded that the unrealized losses were primarily attributed to increases in market interest rates since these securities were purchased and other market conditions.

Less than 12 months
12 months or more
Total
Gross
Gross
Gross
Unrealized
Unrealized
Unrealized
Fair Value
Losses
Fair Value
Losses
Fair Value
Losses
(Dollars in thousands)
June 30, 2022
U.S. Government Agencies
$
1,922
$
(86)
$
-
$
-
$
1,922
$
(86)
Municipal bonds
32,442
(7,130)
2,669
(622)
35,111
(7,752)
Mortgage-backed securities
25,321
(2,475)
3,837
(719)
29,158
(3,194)
$
59,685
$
(9,691)
$
6,506
$
(1,341)
$
66,191
$
(11,032)

December 31, 2021
Municipal bonds
$
9,601
(120)
$
857
$
(21)
$
10,458
$
(141)
Mortgage-backed securities
21,141
(211)
3,083
(167)
24,224
(378)
$
30,742
$
(331)
$
3,940
$
(188)
$
34,682
$
(519)

~~The Company reviews all investment securities on an ongoing basis for the presence~~As of ~~other-than-temporary-impairment (“OTTI”) with formal reviews performed quarterly.~~

At June 30, ~~2022,~~2023, the Company’s investment portfolio included ~~172~~twenty-one securities in the “unrealized losses less than twelve months” category and 12159 securities in the “unrealized losses twelve months or more” category. ~~Management has~~

As of December 31, 2022, the Company had the intent and ability to hold ~~these~~those securities in an unrealized loss position until maturity. Management ~~believes~~believed the temporary impairments were due to declines in fair value resulting from changes in interest rates and/or increased credit liquidity spreads since the securities were ~~purchased~~purchased.

. Therefore, under the accounting principles effective at December 31, 2022, the Company did not consider these securities to have other-than-temporary impairment.

The unrealized losses on debt securities shown in the previous tables were recorded as a component of other comprehensive ~~loss,~~income (loss), net of tax ~~benefit~~expense (benefit) on the Company’s consolidated statements of stockholders’ equity.

~~The following table presents a summary of the credit-related OTTI charges recognized as components of income:~~

For The Six Months Ended June 30,
2022
2021
(Dollars in thousands)
Beginning balance
$
162
$
221
Additions:
Credit loss not previously recognized
-
-
Reductions:
Losses realized during the period on OTTI previously recognized
-
-
Receipt of cash flows on previously recorded OTTI
(10)
(32)
Ending balance
$
152
$
189

A deterioration in credit quality and/or other factors that may limit the liquidity of a security in our portfolio might adversely affect the fair values of the Company’s investment portfolio and may increase the potential that certain unrealized losses will be designated as “other-than-temporary” and that the Company may incur additional write-downs in future periods.

During the three and six months ended June 30, 2023, the Company sold twenty-three municipal bonds and two mortgage-backed securities resulting in gross realized losses of $49,000, with an amortized cost of $6.0 million. During the three and six months ended June 30, 2022, ~~and 2021,~~ the Company did 0tnot sell any debt securities.

Scheduled contractual maturities of debt securities are as follows:


	Amortized		Fair		Amortized		Fair
	Cost		Value		Cost		Value
	(Dollars in thousands)				(Dollars in thousands)
June 30, 2022:
June 30, 2023:
Less than one year	$	415	$	416	$	370	$	371
After one year through five years		5,071		4,954		3,994		3,829
After five years through ten years		10,320		9,636		9,415		8,388
After ten years		36,951		29,945		32,800		25,945
Mortgage-backed securities		35,644		32,472		31,277		26,738
Asset-backed securities		6		107		3		96
	$	88,407	$	77,530	$	77,859	$	65,367

The Company's mortgage-backed securities and asset-backed securities have stated maturities that may differ from actual maturities due to the borrowers' ability to prepay obligations. Cash flows from such investments are dependent upon the performance of the underlying assets and are generally influenced by interest rates. In the table above, mortgage-backed securities and asset-backed securities are shown in one period.

Equity Securities

At June 30, ~~2022~~2023 and December 31, ~~2021,~~2022, equity securities consisted of 22,368 shares of Federal Home Loan Mortgage Corporation (“FHLMC”) common stock. During the three months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized an unrealized gain of $1,000 and unrealized loss of ~~$8,000 and $14,000,~~$8,000, respectively, on the equity securities, which was recorded in non-interest income in the consolidated statements of income. During the six months ended June 30, ~~2022~~2023 and ~~2021,~~2022, the Company recognized an unrealized gain of $2,000 and an unrealized loss of ~~$9,000 and $20,000,~~$9,000, respectively, on the equity securities, which was recorded in non-interest income in the consolidated statements of income. There were 0no sales of equity securities during the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

AThe Company’s allowance for credit losses on unfunded loan commitments is ~~considered impaired when, based~~recognized as a liability and included within other liabilities on ~~current information and events, it is probable that~~ the ~~Company will not be able to collect the scheduled payments~~unaudited consolidated statement of ~~principal and interest when due according~~financial condition, with adjustments to the ~~contractual~~

⁽²⁾There was ~~Commercial Real Estate~~no interest income recognized on nonaccrual loans ~~on non-accrual consists of one loan which was moved to non-accrual status~~ during the ~~year ended December 31, 2021. This loan was paid off during the~~three and six months ended June 30, ~~2022.~~

⁽³⁾2023 and there was $~~Includes $4.6 million~~4,000 of ~~Paycheck Protection Program (“PPP”) loans at December 31, 2021, which do not require payments for a certain amount of time under~~interest income recognized during the ~~CARES Act~~three and ~~are 100% guaranteed by SBA. All PPP loans were forgiven as of~~six months ended June 30, ~~2022.~~

2022, respectively. The accrual of interest on loans is discontinued when in management’s opinion, the borrower may be unable to meet payments as they become due. A loan does not have to be 90 days delinquent in order to be classified as non-accrual. When interest accrual is discontinued, all unpaid accrued interest is reversed. If ultimate collection of principal is in doubt, all cash receipts on impaired loans are applied to reduce the principal ~~balance~~.balance.

The following tables provide an analysis of past due loans as of the dates indicated:

The Company designates individually evaluated loans on a nonaccrual status as collateral-dependent loans, as well as other loans that management of the Company designates as having higher risk. Collateral-dependent loans are loans for which the repayment is expected to be provided substantially through the operation or sale of the collateral and the borrower is experiencing financial difficulty. These loans do not share common risk characteristics and are not included within the collectively evaluated loans for determining the allowance for credit losses. Under CECL, for collateral-dependent loans, the Company has adopted the practical expedient to measure the allowance for credit losses based on the fair value of collateral. The allowance for credit losses is measured on an individual loan basis based on the difference between the fair value of the loan’s collateral, which is adjusted for liquidation costs, and the amortized cost. If the fair value of the collateral exceeds the amortized cost, no allowance is required. Refer to Note 8 - Fair Value of Financial Instruments for additional information.

The following table presents an analysis of collateral-dependent loans of the Company as of June 30, 2023 by collateral type and loan segment:

There was no allowance recorded on the above noted collateral-dependent loans as of June 30, 2023.

For periods prior to the adoption of ASC 326, a loan was considered impaired when, based on current information and events, it was probable that the Company would not be able to collect the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement. Factors considered in determining impairment include payment status, collateral value and the probability of collecting scheduled payments when due. Impairment was measured on a loan-by-loan basis for commercial real estate loans and commercial loans. Larger groups of smaller balance homogeneous loans were collectively evaluated for impairment. Accordingly, the Company did not separately identify individual consumer, home equity, or one- to four-family loans for impairment disclosure, unless they were subject to a troubled debt restructuring.

The following is a summary of information pertaining to impaired loans at or for the periods indicated:

~~The Company’s Asset Classification Committee is responsible for monitoring risk ratings and making changes as deemed appropriate.~~ Each commercial loan is individually assigned a loan classification. The Company’s consumer loans, including residential one- to four-family loans and home equity loans, are ~~not~~ classified ~~as described above. Instead, the Company uses~~by using the delinquency status as the basis for classifying

these loans. Generally, all consumer loans more than 90 days past due are classified and placed in non-accrual. Such loans that are well-secured and in the process of collection will remain in accrual status.

Asset quality indicators for all loans and the Company’s risk rating process are reviewed on a monthly basis. Risk ratings are updated as circumstances that could affect the repayment of individual loans are brought to management’s attention through an established monitoring process. Written action plans are maintained and reviewed on a quarterly basis for all classified commercial loans. In addition to the Company’s internal process, an outsourced independent credit review function is in place for commercial loans to further assess assigned risk classifications and monitor compliance with internal lending policies and procedures.

The ~~Substandard classification category for Commercial Real Estate~~following table presents loans ~~includes one $7.0 million loan relationship that was deemed to be impaired during the year ended December 31, 2021. This loan was paid off during the six months ended June 30, 2022.~~

⁽³⁾~~The Pass/Performing category for Commercial Loans includes $4.6 million of PPP loans~~by credit quality indicator at December 31, ~~2021, which do not require payments for a certain amount of time under the CARES Act and are 100% guaranteed by SBA. All PPP loans were forgiven as of June 30, 2022.~~2022:

Occasionally, the Company modifies loans to borrowers ~~concessions~~in financial distress by providing modifications to loans that weit would not otherwise grant but for economic or legal reasons pertaining to the borrower’s financial difficulties. A concession is made when the terms of the loan modification are more favorable than the terms the borrower would have received in the current market under similar financial difficulties. These concessions maynormally grant. Such modifications could include ~~but are not limited to, modifications of the terms of the debt, the transfer of assets or the issuance of~~principal forgiveness, term extension, a significant payment delay, an ~~equity~~ interest ~~by the borrower to satisfy all or part of the~~

At June 30, ~~2022,~~2023, stock options had no intrinsic value and there were 0no remaining options available for grant under the EIP. There were 0no stock options exercised during the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022. At June 30, 2023 and 2022, respectively, all compensation cost and expense related to the stock options granted under the EIP has been recognized in prior periods. ~~Compensation expense related to stock options outstanding under the EIP amounted to $3,000 for the three months ended June 30, 2021 and $5,000 for the six months ended June 30, 2021.~~

The Company established the ESOP for the benefit of eligible employees of the Company and Bank. All Company and Bank employees meeting certain age and service requirements are eligible to participate in the ESOP. Participants’ benefits become fully vested after five years of service once the employee is eligible to participate in the ESOP. The Company utilized ~~$2.6~~$2.6 million of the proceeds of its 2006 stock offering to extend a loan to the ESOP and the ESOP used such proceeds to purchase 238,050 shares of stock on the open market at an average price of ~~$10.70~~$10.70 per share, plus commission expenses. As a result of the purchase of shares by the ESOP, total stockholders’ equity of the Company was reduced by ~~$2.6~~$2.6 million. As of June 30, ~~2022,~~2023, the balance of the loan to the ESOP was ~~$1.4~~$1.4 million and the fair value of unallocated shares was ~~$1.5~~$1.1 million. As of June 30, ~~2022,~~2023, there were ~~80,403~~76,815 allocated shares and ~~111,089~~103,154 unallocated shares compared to ~~81,719~~80,403 allocated shares and ~~119,024~~111,089 unallocated shares at June 30, ~~2021.~~2022. The ESOP compensation expense was ~~$28,000 for the~~$

on a recurring basis, the fair value measurements by level within the fair value hierarchy used at June 30, ~~2022~~2023 and December 31, ~~2021~~2022 were as follows:


	Fair Value Measurements at June 30, 2023
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	Fair Value			(Level 1)		(Level 2)		(Level 3)
		(Dollars in thousands)
Measured at fair value on a recurring basis:
Securities:
Debt Securities
U.S. government agencies	$		1,841	$	—	$	1,841	$	—
Municipal bonds			36,692		—		36,692		—
Mortgage-backed securities:
Collateralized mortgage obligations-private label			10		—		10		—
Collateralized mortgage obligations-government sponsored entities			11,097		—		11,097		—
Government National Mortgage Association			57		—		57		—
Federal National Mortgage Association			10,563		—		10,563		—
Federal Home Loan Mortgage Corporation			5,011		—		5,011		—
Asset-backed securities:
Private label			93		—		93		—
Government sponsored entities			3		—		3		—
Total Debt Securities	$		65,367	$	—	$	65,367	$	—
Equity securities			10		10		—		—
Total Securities	$		65,377	$	10	$	65,367	$	—

Fair Value Measurements at June 30, 2022
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Other Unobservable Inputs
Fair Value
(Level 1)
(Level 2)
(Level 3)
(Dollars in thousands)
Measured at fair value on a recurring basis:
Securities:
Debt Securities Available for Sale
U.S. government agencies
$
1,922
$
-
$
1,922
$
-
Municipal bonds
43,029
-
43,029
-
Mortgage-backed securities:
Collateralized mortgage obligations-private label
12
-
12
-
Collateralized mortgage obligations-government sponsored entities
14,097
-
14,097
-
Government National Mortgage Association
65
-
65
-
Federal National Mortgage Association
12,470
-
12,470
-
Federal Home Loan Mortgage Corporation
5,828
-
5,828
-
Asset-backed securities:
Private label
101
-
101
-
Government sponsored entities
6
-
6
-
Total Debt Securities Available for Sale
$
77,530
$
-
$
77,530
$
-
Equity securities
10
10
-
-
Total Securities
$
77,540
$
10
$
77,530
$
-
Interest Rate Swap⁽¹⁾
$
194
$
-
$
194
$
-


	Fair Value Measurements at December 31, 2022
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	Fair Value			(Level 1)		(Level 2)		(Level 3)
		(Dollars in thousands)
Measured at fair value on a recurring basis:
Securities:
Debt Securities
U.S. government agencies	$		1,833	$	—	$	1,833	$	—
Municipal bonds			42,414		—		42,414		—
Mortgage-backed securities:
Collateralized mortgage obligations-private label			11		—		11		—
Collateralized mortgage obligations-government sponsored entities			12,155		—		12,155		—
Government National Mortgage Association			59		—		59		—
Federal National Mortgage Association			11,246		—		11,246		—
Federal Home Loan Mortgage Corporation			5,221		—		5,221		—
Asset-backed securities:
Private label			96		—		96		—
Government sponsored entities			4		—		4		—
Total Debt Securities	$		73,039	$	—	$	73,039	$	—
Equity securities			8		8		—		—
Total Securities	$		73,047	$	8	$	73,039	$	—
Interest Rate Swap(1)	$		273	$	—	$	273	$	—

(1)

Included in Other Assets on the consolidated statements of financial condition.

Fair Value Measurements at December 31, 2021
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Other Unobservable Inputs
Fair Value
(Level 1)
(Level 2)
(Level 3)
(Dollars in thousands)
Measured at fair value on a recurring basis:
Securities:
Debt Securities Available for Sale
U.S. government agencies
$
2,213
$
-
$
2,213
$
-
Municipal bonds
50,756
-
50,756
-
Mortgage-backed securities:
Collateralized mortgage obligations-private label
15
-
15
-
Collateralized mortgage obligations-government sponsored entities
17,814
-
17,814
-
Government National Mortgage Association
83
-
83
-
Federal National Mortgage Association
10,760
-
10,760
-
Federal Home Loan Mortgage Corporation
7,036
-
7,036
-
Asset-backed securities:
Private label
110
-
110
-
Government sponsored entities
10
-
10
-
Total Debt Securities Available for Sale
$
88,797
$
-
$
88,797
$
-
Equity securities
19
19
-
-
Total Securities
$
88,816
$
19
$
88,797
$
-
Interest Rate Swap⁽¹⁾
$
(60)
$
-
$
(60)
$
-

⁽¹⁾~~Included in Other Liabilities on the consolidated statements of financial condition~~

Level 2 inputs for assets or liabilities measured at fair value on a recurring basis might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment projections, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. The following is a description of valuation methodologies used for financial assets recorded at fair value on a recurring basis:

•



Investment securities - the fair values are determined by obtaining quoted market prices on nationally recognized securities exchanges (Level 1) or matrix pricing (Level 2), which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities, but rather by relying on the securities’ relationship to other benchmark quoted prices. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution date, market consensus prepayment projections, credit information, and the security’ terms and conditions, among other things. Level 2 securities which are fixed income instruments that are not quoted on an exchange, but are traded in active markets, are valued using prices obtained from our custodian, who use third party data service ~~providers~~.providers.

•



Interest Rate Swap – the fair value is based on a discounted cash flow model. The model’s key assumptions include the contractual term of the derivative contract, including the period to maturity, and the use of observable market based inputs, such as interest rates, yield curves, nonperformance risk and implied volatility.

Assets Measured at Fair Value on a Non-Recurring Basis

In addition to disclosure of the fair value of assets on a recurring basis, GAAP requires disclosures for assets and liabilities measured at fair value on a non-recurring ~~basis, such as impaired~~basis. The following is a description of the valuation methods used for assets ~~foreclosed real estate and mortgage servicing rights. Loans are generally not recorded~~measured at fair value on a ~~recurring~~non-recurring basis. ~~Periodically,~~

Collateral-Dependent Loans. Loans for which repayment is substantially expected to be provided through the ~~Company records non-recurring adjustments to~~operations or sale of collateral are considered collateral dependent, and are valued based on the ~~carrying~~estimated fair value of ~~loans based on fair value measurements for partial charge-offs of~~ the ~~uncollectible portions of these loans. Non-recurring adjustments also include certain impairment amounts for collateral-dependent loans calculated when establishing~~collateral,

less estimated costs to sell at the ~~allowance for loan losses. An impaired loan is carried at fair value~~reporting date, based on either a recent appraisal ~~less estimated selling costs of underlying collateral~~ or discounted cash flows based on current market conditions. ~~Once a loan is foreclosed,~~Accordingly, collateral dependent loans are classified within Level 3 of the fair value hierarchy. As of June 30, 2023 and December 31, 2022, the Company did not record any non-recurring adjustments on collateral dependent loans.

Foreclosed Real Estate and Repossessed Assets. Foreclosed real estate and repossessed assets are held at the lower of cost or fair value and are considered to be measured at fair value when recorded below cost. The fair value of foreclosed real estate is calculated using independent appraisals, less estimated selling costs. Certain repossessed assets may require assumptions about factors that are not observable in an active market when determining fair value. Accordingly, foreclosed real estate and repossessed assets are classified within Level 3 of the fair value hierarchy. Foreclosed real estate ~~owned continues~~was $139,000 and $95,000 at June 30, 2023 and December 31, 2022, respectively and was included as a component of other assets on the consolidated statements of financial condition. No non-recurring adjustments were made to ~~be evaluated based upon the market value of the repossessed~~foreclosed real estate ~~originally securing the loan.~~at June 30, 2023 or December 31, 2022.

Mortgage Servicing Rights. Mortgage servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The key assumptions used in the model include the estimated life of loans sold with servicing retained and the estimated cost to service the loans. Loan servicing rights are classified as Level 3 measurements due to the use of unobservable inputs, as well as management judgment and estimation.

For assets ~~measured~~subject to measurement at fair value on a non-recurring basis, ~~at June 30, 2022 and December 31, 2021,~~ the fair value measurements by level within the fair value hierarchy used at June 30, 2023 and December 31, 2022 were as follows:


	Fair Value Measurements
				Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	Fair Value			(Level 1)		(Level 2)		(Level 3)
		(Dollars in thousands)
Measured at fair value on a non-recurring basis:

At June 30, 2023
Collateral-dependent loans	$		160	$	—	$	—	$	160
Foreclosed real estate			139		—		—		139
Mortgage servicing rights			202		—		—		202

At December 31, 2022
Mortgage servicing rights			209		—		—		209

Fair Value Measurements
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Other Unobservable Inputs
Fair Value
(Level 1)
(Level 2)
(Level 3)
(Dollars in thousands)
Measured at fair value on a non-recurring basis:
At June 30, 2022
Mortgage servicing rights
$
219
$
-
$
-
$
219
At December 31, 2021
Foreclosed real estate
$
35
$
-
$
-
$
35
Mortgage servicing rights
220
-
-
220

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis and for which the Company has utilized Level 3 inputs to determine fair value:


	Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)	Fair Value Estimate		Valuation Technique	Unobservable Input	Range			Weighted Average
At June 30, 2023
Collateral-dependent loans	$	160	Appraisal of collateral (1)	Direct Disposal Costs (3)		8.00	%		8.00	%
Foreclosed real estate		139	Appraisal of collateral (1)	Direct Disposal Costs (3)	7.00% - 8.00%				7.33	%
Mortgage servicing rights		202	Discounted Cash Flow Model (2)	Servicing Fees		0.25	%		0.25	%
				Servicing Costs		0.14	%		0.14	%
				Estimated Life of Loans	4.6 years			4.6 years


At December 31, 2022
Mortgage servicing rights		209	Discounted Cash Flow Model (2)	Servicing Fees		0.25	%		0.25	%
				Servicing Costs		0.15	%		0.15	%
				Estimated Life of Loans	5.0 years			5.0 years

Quantitative Information about Level 3 Fair Value Measurements
(Dollars in thousands)
Fair Value Estimate
Valuation Technique
Unobservable Input
Range
Weighted Average
At June 30, 2022
Mortgage servicing rights
$
219
Discounted Cash Flow Model ⁽¹⁾
Discount Rate
10.00%
10.00%
Servicing Fees
0.25%
0.25%
Servicing Costs
0.15%
0.15%
Estimated Life of Loans
5.5-7.3 years
5.5 years
At December 31, 2021
Foreclosed real estate
$
35
Market valuation of property ⁽²⁾
Direct Disposal Costs ⁽³⁾
7.00%
7.00%
Mortgage servicing rights
220
Discounted Cash Flow Model ⁽¹⁾
Discount Rate
10.00%
10.00%
Servicing Fees
0.25%
0.25%
Servicing Costs
0.15%
0.15%
Estimated Life of Loans
5.9 years
5.9 years
(1)

Fair value is generally determined through independent third-party appraisals of the underlying collateral or by a purchase offer for the related property, which generally includes various Level 3 inputs which are not observable.

(2)

⁽¹⁾

The fair value is based on a discounted cash flow model. The model's key assumptions are the estimated life of loans sold with servicing retained and the estimated cost to service the loans.

(3)

⁽²⁾Fair value is generally determined through independent third-party appraisals of the underlying collateral or by a purchase offer for the related property, which generally includes various Level 3 inputs which are not observable.

⁽³⁾

The fair value basis ~~of foreclosed real estate~~ may be adjusted to reflect management estimates of disposal costs including, but not necessarily limited to, real estate brokerage commissions, legal fees, and delinquent property taxes.

~~At December 31, 2021, foreclosed real estate valued using Level 3 inputs had a carrying amount of $73,000 and valuation allowance of $38,000.~~

The carrying amount and estimated fair value of the Company’s financial instruments, whether carried at cost or fair value, are as follows:


	Fair Value Measurements at June 30, 2022										Fair Value Measurements at June 30, 2023
	Carrying		Estimated		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs		Carrying		Estimated		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)		Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)										(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	27,156	$	27,156	$	27,156	$	-	$	-	$	35,582	$	35,582	$	35,582	$	—	$	—
Securities		77,540		77,540		10		77,530		-		65,377		65,377		10		65,367		—
Federal Home Loan Bank stock		1,763		1,763		-		1,763		-		2,347		2,347		—		2,347		—
Loans receivable, net		547,200		522,792		-		-		522,792		569,503		527,330		—		—		527,330
Accrued interest receivable		2,379		2,379		-		2,379		-		2,724		2,724		—		2,724		—
Interest rate swap		194		194		-		194		-
Bank-owned life insurance												23,432		23,432		—		23,432		—
Mortgage servicing rights		219		219		-		-		219		202		202		—		—		202
Financial liabilities:
Deposits		578,268		579,437		-		579,437		-		581,965		583,954		—		583,954		—
Long-term debt		24,950		23,869		-		23,869		-		36,450		35,191		—		35,191		—
Accrued interest payable		49		49		-		49		-		435		435		—		435		—
Off-balance-sheet financial instruments		-		-		-		-		-

Fair Value Measurements at December 31, 2021
Carrying
Estimated
Quoted Prices in Active Markets for Identical Assets
Significant Other Observable Inputs
Significant Other Unobservable Inputs
Amount
Fair Value
(Level 1)
(Level 2)
(Level 3)
(Dollars in thousands)
Financial assets:
Cash and cash equivalents
$
67,585
$
67,585
$
67,585
$
-
$
-
Securities
88,816
88,816
19
88,797
-
Federal Home Loan Bank stock
1,606
1,606
-
1,606
-
Loans receivable, net
517,206
504,018
-
-
504,018
Accrued interest receivable
2,483
2,483
-
2,483
-
Mortgage servicing rights
220
220
-
-
220
Financial liabilities:
Deposits
593,184
596,273
-
596,273
-
Long-term debt
21,950
22,073
-
22,073
-
Accrued interest payable
55
55
-
55
-
Interest rate swap
60
60
-
60
-
Off-balance-sheet financial instruments
-
-
-
-
-


	Fair Value Measurements at December 31, 2022
	Carrying		Estimated		Quoted Prices in Active Markets for Identical Assets		Significant Other Observable Inputs		Significant Other Unobservable Inputs
	Amount		Fair Value		(Level 1)		(Level 2)		(Level 3)
	(Dollars in thousands)
Financial assets:
Cash and cash equivalents	$	9,633	$	9,633	$	9,633	$	—	$	—
Securities		73,047		73,047		8		73,039		—
Federal Home Loan Bank stock		2,330		2,330		—		2,330		—
Loans receivable, net		573,537		546,278		—		—		546,278
Accrued interest receivable		2,796		2,796				2,796
Interest rate swap		273		273		—		273		—
Mortgage servicing rights		209		209		—		—		209
Financial liabilities:
Deposits		570,119		571,521		—		571,521		—
Short-term borrowings		12,596		12,596		—		12,596		—
Long-term debt		24,950		23,946		—		23,946		—
Accrued interest payable		66		66		—		66		—

Note 109 – Treasury Stock

During the three and six months ended June 30, 2023, the Company did not repurchase any shares of common stock under the existing stock repurchase program. As of June 30, 2023, there were 30,626 shares remaining to be repurchased under the existing stock repurchase program. During the six months ended June 30, 2023, the Company transferred 8,282 shares of common stock out of treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of $9.39 per share to fund awards that had been granted under the plan. During the six months ended June 30, 2023, there were 17,767 shares transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of $9.39 per share due to forfeitures. The Company repurchased 4,764 shares upon vesting of shares under the 2012 Equity Incentive Plan for the purpose of remitting payroll taxes on behalf of awardees who were employees, at an average cost of $11.63 per share, during the six months ended June 30, 2023.

During the three and six months ended June 30, 2022, the Company repurchased 5,701 shares of common stock at an average cost of ~~$14.91~~$14.91 per share. These shares were repurchased pursuant to the Company’s publicly announced common stock repurchase program. As of June 30, 2022, there were 30,626 shares remaining to be repurchased under the existing stock repurchase program. During the six months ended June 30, 2022, the Company transferred 27,132 shares of common stock out of treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of ~~$9.39 per share to fund awards that had been granted under the plan. During~~$

309.39

~~the six months ended June 30, 2022, there were 3,062 shares transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of $9.39 per share due to forfeitures.~~

During the three months ended June 30, 2021, the Company repurchased 36,094 shares of common stock at an average cost of $15.15 per share. During the six months ended June 30, 2021, the Company repurchased 79,928 shares of common stock at an average cost of $15.00 per share. The shares were repurchased pursuant to the Company’s publicly announced common stock repurchase program. As of June 30, 2021, the Company had completed the repurchase of shares from the stock repurchase plan put in place during August 2020. During the six months ended June 30, 2021, the Company transferred 20,958 shares of common stock out of treasury stock reserved for the 2012 Equity Incentive Plan, at an average cost of $9.39 per share to fund awards that had been granted under the plan. During the six months ended June 30, ~~2021,~~2022, there were ~~1,392~~3,062 shares transferred back into treasury stock reserved for the 2012 Equity Incentive Plan at an average cost of ~~$9.39~~$9.39 per share due to forfeitures.

Note 1110 – Other Comprehensive Income (Loss) ~~Income~~

In addition to presenting the consolidated statements of comprehensive income (loss) ~~income~~ herein, the following table shows the tax effects allocated to the Company’s single component of other comprehensive income (loss) ~~income~~ for the periods presented:


	For the Three Months Ended June 30, 2023									For The Three Months Ended June 30, 2022
	Pre-Tax Amount			Tax Benefit (Expense)			Net of Tax Amount			Pre-Tax Amount			Tax Benefit			Net of Tax Amount
	(Unaudited)
	(Dollars in thousands)
Net unrealized losses on securities available for sale:
Net unrealized losses arising during the period	$	(1,045	)	$	219		$	(826	)	$	(4,347	)	$	913		$	(3,434	)
Less: reclassification adjustment related to:
Loss on sale of securities included in net income		49			(10	)		39			—			—	—		—
Recovery on previously impaired investment securities included in net income		(3	)		—			(3	)		(4	)		1			(3	)
Total Other Comprehensive Loss	$	(999	)	$	209		$	(790	)	$	(4,351	)	$	914		$	(3,437	)

For the Three Months Ended June 30, 2022
For The Three Months Ended June 30, 2021
Pre-Tax Amount
Tax Benefit
Net of Tax Amount
Pre-Tax Amount
Tax Expense
Net of Tax Amount
(Unaudited)
(Dollars in thousands)
Net unrealized (losses) gains on securities available for sale:
Net unrealized (losses) gains arising during the period
$
(4,347)
$
913
$
(3,434)
$
277
$
(58)
$
219
Less: reclassification adjustment related to:
Recovery on previously impaired investment securities included in net income
(4)
1
(3)
(11)
3
(8)
Total Other Comprehensive (Loss) Income
$
(4,351)
$
914
$
(3,437)
$
266
$
(55)
$
211

For the Six Months Ended June 30, 2022
For The Six Months Ended June 30, 2021
Pre-Tax Amount
Tax Benefit
Net of Tax Amount
Pre-Tax Amount
Tax Benefit
Net of Tax Amount
(Dollars in thousands)
Net unrealized losses on securities available for sale:
Net unrealized losses arising during the period
$
(12,105)
$
2,542
$
(9,563)
$
(718)
$
151
$
(567)
Less: reclassification adjustment related to:
Recovery on previously impaired investment securities included in net income
(10)
2
(8)
(32)
7
(25)
Total Other Comprehensive Loss
$
(12,115)
$
2,544
$
(9,571)
$
(750)
$
158
$
(592)


	For the Six Months Ended June 30, 2023										For The Six Months Ended June 30, 2022
	Pre-Tax Amount				Tax Benefit (Expense)			Net of Tax Amount			Pre-Tax Amount			Tax Benefit			Net of Tax Amount
	(Unaudited)
	(Dollars in thousands)
Net unrealized gains (losses) on securities available for sale:
Net unrealized gains (losses) arising during the period	$	542			$	(114	)	$	428		$	(12,105	)	$	2,542		$	(9,563	)
Less: reclassification adjustment related to:
Loss on sale of securities included in net income		49				(10	)		39			—			—	—		—
Recovery on previously impaired investment securities included in net income		(5	)			1			(4	)		(10	)		2			(8	)
Total Other Comprehensive Income	$	586		$	$	(123	)	$	463		$	(12,115	)	$	2,544		$	(9,571	)

The following table presents the amounts reclassified out of the single component of the Company’s accumulated other comprehensive ~~(loss) income~~loss for the indicated periods:


	Amounts Reclassified from Accumulated
Details about Accumulated Other	Other Comprehensive Loss							Affected Line Item
Comprehensive Loss	for the three months ended June 30,							on the Consolidated
Components	2023				2022			Statements of Income
	(Dollars in thousands)
Net unrealized losses on securities available for sale:
Loss on sale of securities included in net income		$	49		$	—		Loss on sale of securities available for sale
Recovery on previously impaired investment securities			(3	)		(4	)	Recovery on previously impaired investment securities
Provision for income tax expense			(10	)		1		Income Tax Expense
Total reclassification for the period		$	36		$	(3	)	Net Income

Amounts Reclassified from Accumulated
Details about Accumulated Other
Other Comprehensive (Loss) Income
Affected Line Item
Comprehensive (Loss) Gain
for the three months ended June 30,
on the Consolidated
Components
2022
2021
Statements of Income
(Dollars in thousands)
Net unrealized losses on securities available for sale:
Recovery on previously impaired investment securities
$
(4)
$
(11)
Recovery on previously impaired investment securities
Provision for income tax expense
1
3
Income Tax Expense
Total reclassification for the period
$
(3)
$
(8)
Net Income


	Amounts Reclassified from Accumulated
Details about Accumulated Other	Other Comprehensive Loss							Affected Line Item
Comprehensive Loss	for the six months ended June 30,							on the Consolidated
Components	2023				2022			Statements of Income
	(Dollars in thousands)
Net unrealized gains (losses) on securities available for sale:
Loss on sale of securities included in net income		$	49		$	—		Loss on sale of securities available for sale
Recovery on previously impaired investment securities			(5	)		(10	)	Recovery on previously impaired investment securities
Provision for income tax expense			(9	)		2		Provision for income tax expense
Total reclassification for the period		$	35		$	(8	)	Net Income

Amounts Reclassified from Accumulated
Details about Accumulated Other
Other Comprehensive Loss
Affected Line Item
Comprehensive Loss
for the six months ended June 30,
on the Consolidated
Components
2022
2021
Statements of Income
(Dollars in thousands)
Net unrealized losses on securities available sale:
Recovery on previously impaired investment securities
$
(10)
$
(32)
Recovery on previously impaired investment securities
Provision for income tax expense
2
7
Income Tax Expense
Total reclassification for the period
$
(8)
$
(25)
Net Income

~~Note 12 – Subsequent Events~~

On July 20, 2022, the Board of Directors declared a quarterly cash dividend of $0.18 per share on the Company’s common stock, payable on August 19, 2022 to shareholders of record as of August 2, 2022. Lake Shore, MHC (the “MHC”), which holds 3,636,875 shares, or approximately 63.7% of the Company’s total outstanding stock, has elected to waive receipt of the dividend on its shares. On March 10, 2022, the MHC received the non-objection of the Federal Reserve Bank of Philadelphia to waive its right to receive dividends paid by the Company during the twelve months ending February 9, 2023, aggregating up to $0.68 per share. The MHC waived $582,000 and $1.2 million of dividends during the three and six months ended June 30, 2022, respectively. Cumulatively the MHC has waived approximately $17.3 million of cash dividends as of June 30, 2022. The dividends waived by the MHC are considered a restriction on the retained earnings of the Company.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Safe-Harbor

This Quarterly Report on Form 10-Q contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, that are based on current expectations, estimates and projections about the Company’s and the Bank’s industry, and management’s beliefs and assumptions. Words such as anticipates, expects, intends, plans, believes, estimates and variations of such words and expressions are intended to identify forward-looking statements. Such statements are not guarantees of future performance

and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Therefore, actual results may differ materially from those expressed or forecast in such forward-looking statements.

Potential risks and uncertainties that could cause our actual results to differ from those anticipated in any forward-looking statements include, but are not limited to, those described in Part I, Item 1A of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021,~~2022, Part II, Item 1A of this Quarterly Report on Form 10-Q and the following:

•

compliance with the Consent Order and Individual Minimum Capital Requirement from the Office of the Comptroller of the Currency;

•

compliance with the Written Agreement with the Federal Reserve Bank of Philadelphia;

•

risks from data loss or other security breaches, including a breach of our operational or security systems, policies, or procedures, including cyber-attacks on us or on our ~~third party~~third-party vendors or service providers;

•

~~risks relating to~~

recent events involving the ~~COVID-19 pandemic;~~

~~compliance with~~failure of financial institutions may adversely affect our business, and the ~~Bank’s Formal Agreement with the Office~~market price of ~~the Comptroller of the Currency;~~our common stock;

•



the strength of the United States economy in general and of the local economies in which we conduct operations;

•



the effect of change in monetary and fiscal policy, including changes in interest rate policies of the Board of Governors of the Federal Reserve System;

•



inflation, and market and monetary fluctuations;

•



climate change;

•



deterioration in the credit quality of our loan portfolio and/or the value of the collateral securing repayment of loans;

•

unanticipated changes in our liquidity position;

•

reduction in the value of our investment securities;

•



the cost and ability to attract and retain key employees;

•



regulatory or legal developments, tax policy changes;

•



our ability to implement and execute our business plan and strategy and expand our operations;

•



the ability of our customers to make loan payments;

•



the effect of competition on rates of deposit and loan growth and net interest margin;

•



our ability to continue to control costs and expenses;

•

any future FDIC insurance premium increases, or special assessment may adversely affect our earnings;

•

risks relating to the COVID-19 pandemic;

•

changes in accounting principles, policies, or guidelines;

•



our success in managing the risks involved in our business; and

•



other economic, competitive, governmental, regulatory and technological factors affecting our operations, pricing, products and services.

Any and all of our forward-looking statements in this Quarterly Report on Form 10-Q and in any other public statements we make may differ from actual outcomes. They can be affected by inaccurate assumptions we might make or known or unknown risks and uncertainties. Consequently, no forward-looking statement can be guaranteed. We undertake no obligation to publicly update any forward-looking statement, whether as a result of new information, future events or otherwise.

Overview

The following discussion and analysis is presented to assist in the understanding and evaluation of our consolidated financial condition, ~~and~~ results of ~~operations.~~operations and other relevant statistical data. It is intended to complement the unaudited consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q and should be read in conjunction therewith. The detailed discussion focuses on our consolidated financial condition as of June 30, ~~2022~~2023 compared to the consolidated financial condition as of December 31, ~~2021~~2022 and the consolidated results of operations for the three and six months ended June 30, ~~2022~~2023 and ~~2021.~~2022.

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, and gains and losses on interest rate swaps and the sales of securities and loans, our provision for ~~loan~~credit losses and non-interest expenses which include salaries and employee benefits,

occupancy and equipment costs, data processing, professional services, advertising, FDIC insurance 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 may materially impact the Company.

To operate successfully, we must manage various types of risk, including but not limited to, interest rate risk, credit risk, liquidity risk, operational and information technology risks, strategic risk, reputation risk and compliance risk. A significant form of market risk for the Company is interest rate risk, as the Company’s assets and liabilities are sensitive to changes in interest rates. Interest rate risk is the exposure of our net interest income to adverse movements in interest rates. Net interest income is our primary source of revenue and interest rate risk is a significant non-credit related risk to which our Company is exposed. Net interest income is affected by changes in interest rates as well as fluctuations in the level and duration of our assets and liabilities. In addition to directly impacting net interest income, changes in interest rates can also affect the amount of new loan originations, the ability of borrowers and debt issuers to repay loans and debt securities, the volume of loan repayments and refinancing, the flow and mix of deposits and the fair value of securities.

In recent years, the Company has adjusted its strategies to manage interest rate risk by originating a greater volume of shorter-term, adjustable rate commercial real estate and commercial business loans and increasing its concentration of core deposits, which are less interest rate sensitive. The Company has entered into two interest rate swap arrangements with a total notional amount of $6.0 million to convert portions of its interest earning assets into fixed or adjustable rate interest-earning assets, as applicable, to manage its exposure to movements in interest rates.

Credit risk is the risk to our earnings and stockholders’ equity that results from customers, to whom loans have been made, and from issuers of debt securities in which the Company has invested, failing to repay their obligations. The magnitude of this risk depends on the capacity and willingness of borrowers and debt issuers to repay and the sufficiency of the value of collateral obtained to secure the loans made or investments purchased. This risk is managed by policies approved by the Company’s Board of Directors, review of compliance with the policies and periodic reporting and evaluation of loans or securities that are non-performing or demonstrate other characteristics of potential loss.

Recent Events

As previously reported on a Current Report on Form 8-K filed on ~~July 19, 2022~~June 28, 2023 with the SEC, Lake Shore, MHC and Lake Shore Bancorp, Inc. (collectively, the “Companies”), the parent savings and loan holding companies of Lake Shore Savings Bank, entered into a written agreement (the “Agreement”) with the Federal Reserve Bank of Philadelphia (the “Reserve Bank”), the Companies’ regulator. The Agreement provides, among other things, that the Companies take appropriate steps to fully utilize the Companies’ financial and managerial resources to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the Consent Order (described below) and not, directly or indirectly, declare or pay dividends, increase or guarantee any debt. We expect that our non-interest expenses will continue at their increased levels as a result of the Agreement and the Order, which may adversely affect our financial performance.

As previously reported on a Current Report on Form 8-K filed on February 9, 2023 with the SEC, the Bank ~~and~~consented to the issuance of a Consent Order (the “Order”) by the Office of the Comptroller of the Currency (the “OCC”), the Bank’s primary federal ~~regulator, entered into a formal written agreement (the “Agreement”) effective as of July 13, 2022 relating~~regulator. The Order requires the Bank to correct deficiencies related to information technology, security, ~~and~~ automated clearing house program, ~~deficiencies.~~audit, management and BSA/AML. Management and the Bank’s Board of Directors are committed to promptly addressing the action items included in the ~~Agreement.~~Order. We expect that our non-interest expenses will increase as a result of remediation actions we will take in order to comply with the requirements of the Order which may adversely affect our financial performance.

~~Refer to Part II, Item 1A of this Quarterly Report on Form 10-Q for additional details related to the Agreement.~~

Management Strategy

There have been no material changes in the Company’s management strategy from what was disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

3432

Critical Accounting Estimates

Disclosure of the Company’s significant accounting estimates is included in the notes to the unaudited consolidated financial statements of the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Some of these estimates require significant judgment, estimates and assumptions to be made by management, most particularly in connection with determining ~~the provision for loan losses and the appropriate level of the allowance for loan losses, as well as management’s evaluation of~~ securities valuation, impairment of securities and income taxes. ~~There have been no material changes~~The Company adopted ASU 2016-13 - Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, as amended, ("CECL") for all financial assets measured at amortized cost using the modified retrospective method on January 1, 2023 and replaced the allowance for loan losses “incurred loss” model discussed in ~~critical accounting estimates since~~the Form 10-K for the year ended December 31, ~~2021.~~ 2022 with the allowance for credit losses model. Refer to Notes 2 and 4 in the unaudited consolidated financial statements for additional information and accounting policies related to the CECL model.

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 tables set forth certain information relating to our average balance sheets and reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities, interest earned and interest 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 ~~loan~~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 ~~$58,000~~$177,000 and ~~$159,000~~$58,000 for the three ~~month periods~~months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. The net amortization of deferred loan fees and costs were

~~$147,000~~ $315,000 and ~~$232,000~~$147,000 for the six ~~month periods~~months ended June 30, ~~2022~~2023 and ~~2021,~~2022, respectively. Interest income on securities does not include a tax equivalent adjustment for tax exempt securities.


	For the Three Months Ended							For the Three Months Ended
	June 30, 2023							June 30, 2022
	Average		Interest Income/		Yield/			Average		Interest Income/		Yield/
	Balance		Expense		Rate(2)			Balance		Expense		Rate(2)
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold	$	38,438	$	489		5.09	%	$	19,420	$	35		0.72	%
Securities(1)		69,926		501		2.87	%		83,206		527		2.53	%
Loans, including fees		572,129		7,480		5.23	%		542,027		5,869		4.33	%
Total interest-earning assets		680,493		8,470		4.98	%		644,653		6,431		3.99	%
Other assets		45,622							48,985
Total assets	$	726,115						$	693,638

Interest-bearing liabilities
Demand & NOW accounts	$	77,525	$	19		0.10	%	$	89,053	$	20		0.09	%
Money market accounts		132,748		376		1.13	%		176,359		94		0.21	%
Savings accounts		71,307		12		0.07	%		77,936		10		0.05	%
Time deposits		213,224		1,508		2.83	%		131,317		205		0.62	%
Borrowed funds & other interest-bearing liabilities		39,676		341		3.44	%		22,811		124		2.17	%
Total interest-bearing liabilities		534,480		2,256		1.69	%		497,476		453		0.36	%
Other non-interest bearing liabilities		107,738							114,140
Stockholders' equity		83,897							82,022
Total liabilities & stockholders' equity	$	726,115						$	693,638
Net interest income			$	6,214						$	5,978
Interest rate spread						3.29	%						3.63	%
Net interest margin						3.65	%						3.71	%

For the Three Months Ended
For the Three Months Ended
June 30, 2022
June 30, 2021
Average
Interest Income/
Yield/
Average
Interest Income/
Yield/
Balance
Expense
Rate⁽²⁾
Balance
Expense
Rate⁽²⁾
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold
$
19,420
$
35
0.72%
$
44,708
$
8
0.07%
Securities⁽¹⁾
83,206
527
2.53%
76,804
461
2.40%
Loans, including fees
542,027
5,869
4.33%
541,142
5,700
4.21%
Total interest-earning assets
644,653
6,431
3.99%
662,654
6,169
3.72%
Other assets
48,985
46,321
Total assets
$
693,638
$
708,975
Interest-bearing liabilities
Demand & NOW accounts
$
89,053
$
20
0.09%
$
83,021
$
19
0.09%
Money market accounts
176,359
94
0.21%
164,111
85
0.21%
Savings accounts
77,936
10
0.05%
72,373
9
0.05%
Time deposits
131,317
205
0.62%
155,120
470
1.21%
Borrowed funds & other interest-bearing liabilities
22,811
124
2.17%
28,670
155
2.16%
Total interest-bearing liabilities
497,476
453
0.36%
503,295
738
0.59%
Other non-interest bearing liabilities
114,140
118,536
Stockholders' equity
82,022
87,144
Total liabilities & stockholders' equity
$
693,638
$
708,975
Net interest income
$
5,978
$
5,431
Interest rate spread
3.63%
3.13%
Net interest margin
3.71%
3.28%

(1)

⁽¹⁾

The tax equivalent adjustment for bank qualified tax exempt municipal securities results in rates of ~~2.94%~~3.27% and ~~2.79%~~2.94% for the three months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

⁽²⁾~~Annualized.~~

(2)

For the Six Months Ended
For the Six Months Ended
June 30, 2022
June 30, 2021
Average
Interest Income/
Yield/
Average
Interest Income/
Yield/
Balance
Expense
Rate⁽²⁾
Balance
Expense
Rate⁽²⁾
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold
$
29,236
$
50
0.34%
$
38,257
$
14
0.07%
Securities⁽¹⁾
86,386
1,026
2.38%
77,952
935
2.40%
Loans, including fees
530,458
11,289
4.26%
535,938
11,277
4.21%
Total interest-earning assets
646,080
12,365
3.83%
652,147
12,226
3.75%
Other assets
52,289
45,904
Total assets
$
698,369
$
698,051
Interest-bearing liabilities
Demand & NOW accounts
$
89,342
$
39
0.09%
$
82,205
$
38
0.09%
Money market accounts
178,175
186
0.21%
162,181
170
0.21%
Savings accounts
76,251
20
0.05%
70,050
18
0.05%
Time deposits
132,925
431
0.65%
156,385
984
1.26%
Borrowed funds & other interest-bearing liabilities
22,688
243
2.14%
29,147
315
2.16%
Total interest-bearing liabilities
499,381
919
0.37%
499,968
1,525
0.61%
Other non-interest bearing liabilities
114,373
111,141
Stockholders' equity
84,615
86,942
Total liabilities & stockholders' equity
$
698,369
$
698,051
Net interest income
$
11,446
$
10,701
Interest rate spread
3.46%
3.14%
Net interest margin
3.54%
3.28%
Annualized.

For the Six Months Ended

For the Six Months Ended

June 30, 2023

June 30, 2022

Average

Interest Income/

Yield/

Average

Interest Income/

Yield/

Balance

Expense

Rate(2)

Balance

Expense

Rate(2)

(Dollars in thousands)

Interest-earning assets:

Interest-earning deposits & federal funds sold

$

29,558

$

655

4.43
%

$

29,236

$

50

0.34
%
Securities(1)

72,935

1,039

2.85
%

86,386

1,026

2.38
%
Loans, including fees

572,501

14,727

5.14
%

530,458

11,289

4.26
%
Total interest-earning assets

674,994

16,421

4.87
%

646,080

12,365

3.83
%
Other assets

45,785

52,289

Total assets

$

720,779

$

698,369

Interest-bearing liabilities

Demand & NOW accounts

$

78,851

$

38

0.10
%

$

89,342

$

39

0.09
%
Money market accounts

138,316

686

0.99
%

178,175

186

0.21
%
Savings accounts

73,527

22

0.06
%

76,251

20

0.05
%
Time deposits

198,060

2,482

2.51
%

132,925

431

0.65
%
Borrowed funds & other interest-bearing liabilities

40,721

688

3.38
%

22,688

243

2.14
%
Total interest-bearing liabilities

529,475

3,916

1.48
%

499,381

919

0.37
%
Other non-interest bearing liabilities

108,053

114,373

Stockholders' equity

83,251

84,615

Total liabilities & stockholders' equity

$

720,779

$

698,369

Net interest income

$

12,505

$

11,446

Interest rate spread

3.39
%

3.46
%
Net interest margin

3.71
%

3.54
%

⁽³⁾(1)

The tax equivalent adjustment for bank qualified tax exempt municipal securities results in rates of ~~2.76%~~3.27% and ~~2.79%~~2.76% for the six months ended June 30, 2023 and 2022, ~~and 2021,~~ respectively.

(2)

Annualized.

⁽⁴⁾~~Annualized.~~

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

average volume during the first period.

Changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the absolute value of the change due to volume and the change due to rate.


	Three Months Ended June 30, 2022						Three Months Ended June 30, 2023
	Compared to						Compared to
	Three Months Ended June 30, 2021						Three Months Ended June 30, 2022
	Rate		Volume		Net Change		Rate			Volume			Net Change
		(Dollars in thousands)						(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold	$	34	$	(7)	$	27	$		390	$	64		$	454
Securities		26		40		66			64		(90	)		(26	)
Loans, including fees		160		9		169			1,271		340			1,611
Total interest-earning assets		220		42		262			1,725		314			2,039
Interest-bearing liabilities:
Demand & NOW accounts		-		1		1			2		(3	)		(1	)
Money market accounts		3		6		9			311		(29	)		282
Savings accounts		-		1		1			3		(1	)		2
Time deposits		(201)		(64)		(265)			1,107		196			1,303
Total deposits		(198)		(56)		(254)			1,423		163			1,586
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing liabilities		-		(31)		(31)			104		113			217
Total interest-bearing liabilities		(198)		(87)		(285)			1,527		276			1,803
Total change in net interest income	$	418	$	129	$	547	$		198	$	38		$	236

Six Months Ended June 30, 2022
Compared to
Six Months Ended June 30, 2021
Rate
Volume
Net Change
(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold
$
40
$
(4)
$
36
Securities
(9)
100
91
Loans, including fees
128
(116)
12
Total interest-earning assets
159
(20)
139
Interest-bearing liabilities:
Demand & NOW accounts
(2)
3
1
Money market accounts
(1)
17
16
Savings accounts
-
2
2
Time deposits
(422)
(131)
(553)
Total deposits
(425)
(109)
(534)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing liabilities
(7)
(65)
(72)
Total interest-bearing liabilities
(432)
(174)
(606)
Total change in net interest income
$
591
$
154
$
745


	Six Months Ended June 30, 2023
	Compared to
	Six Months Ended June 30, 2022
	Rate		Volume				Net Change
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold	$	604	$	1		$		605
Securities		187		(174	)			13
Loans, including fees		2,492		946				3,438
Total interest-earning assets		3,283		773				4,056
Interest-bearing liabilities:
Demand & NOW accounts		4		(5	)			(1	)
Money market accounts		550		(50	)			500
Savings accounts		3		(1	)			2
Time deposits		1,750		300				2,050
Total deposits		2,307		244				2,551
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing liabilities		209		237				446
Total interest-bearing liabilities		2,516		481				2,997
Total change in net interest income	$	767	$	292		$		1,059

As shown in the above tables, the increase in net interest income for ~~second quarter 2022~~three months ended June 30, 2023 was primarily impacted by ~~a decrease in the average cost of interest-bearing liabilities and~~ an increase in the average ~~rate~~yield on interest-earning assets when compared to the prior year period. Net interest margin ~~increased~~decreased to 3.65% for the three months ended June 30, 2023 as compared to 3.71% for the second quarter 2022 as compared to 3.28% for the second quarter 2021. The average interest rate paid on interest-bearing liabilities decreased 23 basis points from 0.59% during second quarter 2021 to 0.36% during second quarter 2022. The decrease in the average interest rate paid on interest-bearing liabilities during second quarter 2022 was primarily due to a $23.8 million decrease in the average balancesame period of ~~time deposits and a 59 basis points decrease in the average interest rate paid on time deposits in comparison to~~ the prior ~~year period. The increase in net interest margin was also due to an increase in the average yield on interest-earning assets.~~year. The average yield on interest-earning assets for the ~~2022 second quarter~~three months ended June 30, 2023 increased by 2799 basis points when compared to the prior year period primarily due to an increase in market interest rates and a $30.1 million, or 5.6%, increase in average loans during the ~~first six~~three months ended June 30, 2023. The average interest rate paid on interest-bearing liabilities increased 133 basis points from 0.36% during the three months ended June 30, 2022 to 1.69% during three months ended June 30, 2023. The increase in the average interest rate paid on interest-bearing liabilities during three months ended June 30, 2023 was primarily due to a 221 basis points increase in the average interest rate paid on time deposits and a $81.9 million increase in the average balance of ~~2022.~~time deposits in comparison to the prior year period. The increase in average interest rate paid on time deposits and average time deposit balances was primarily due to an increase in customer demand for these types of deposit products due to the rising and competitive interest rate environment.

As shown in the above tables, the increase in net interest income for the six months ended June 30, ~~2022~~2023 was primarily due to ~~a decrease~~an increase in the average ~~cost~~yield of ~~interest-bearing liabilities~~interest-earning assets when compared to the prior year period. Net interest margin increased to 3.71% for the six months ended June 30, 2023 as compared to 3.54% for the six months ended June 30, ~~2022 as compared to 3.28% for the six months ended June 30, 2021.~~2022. The average ~~interest rate paid on interest-bearing liabilities decreased 24~~yield of interest-earning assets increased 104 basis points from 0.61% during the six months ended June 30, 2021 to 0.37% during the six months ended June 30, 2022. The decrease in the average interest rate paid on interest-bearing liabilities was primarily driven by a 61 basis points decrease in the average interest rate paid on time deposits and a $23.5 million decrease in the average balance of time deposits. The decrease in the average interest rate paid on interest-bearing liabilities3.83% during the six months ended June 30, 2022 to 4.87% during the six months ended June 30, 2023. The increase in the average yield of interest-earning assets was primarily driven by an 88 basis points increase in the average yield of average loans and a $42.0 million increase in the average balance of loans. The increase in the average yield of interest-earning assets during the six months ended June 30, 2023 was partially offset by a ~~$5.9~~$30.1 million increase in the average balance of interest-bearing ~~deposits~~liabilities in comparison to the prior year period. The increase in the average balance of interest-bearing deposits was primarily driven by an increase in the average balance of ~~core~~time deposit accounts. The ~~increase in net~~average interest ~~margin was also partly due to an increase in the average yield~~rate paid on ~~interest-earning assets. The average yield on interest-earning assets~~interest-bearing liabilities for the six months ended June 30, ~~2022~~2023 increased by ~~eight~~111 basis points when compared to the prior year period primarily due to an increase in market interest rates during the first six months of ~~2022. The average balance of interest earning assets decreased $6.1 million, or 0.9%, during the six months ended June 30, 2022 when compared to the prior year period.~~2023.

Comparison of Financial Condition at June 30, ~~2022~~2023 and December 31, ~~2021~~2022

Total assets at June 30, ~~2022~~2023 were ~~$694.5~~$714.0 million, ~~a decrease~~an increase of ~~$19.2~~$14.1 million, or ~~2.7%~~2.0%, from ~~$713.7~~$699.9 million at December 31, ~~2021.~~2022. The ~~decrease~~increase in total assets was primarily due to a ~~$40.4~~$25.9 million ~~decrease~~increase in cash and cash equivalents, ~~and an $11.3 million decrease in securities available for sale,~~ partially offset by a ~~$30.0~~decrease in securities of $7.7 million, ~~increase~~or 10.5% and a decrease in loans receivable, ~~net.~~net of $4.0 million, or 0.7%.

Cash and cash equivalents ~~decreased~~increased by ~~$40.4~~$25.9 million, or ~~59.8%~~269.4%, from ~~$67.6~~$9.6 million at December 31, ~~2021~~2022 to ~~$27.2~~$35.6 million at June 30, ~~2022.~~2023. The ~~decrease~~increase was primarily ~~due to a $30.8 million cash outflow relating to net loan originations and a $14.9 million cash outflow related to a decrease in deposits.~~

Securities available for sale decreased by $11.3 million, or 12.7%, from $88.8 million at December 31, 2021 to $77.5 million at June 30, 2022. The decrease was primarily due to a $12.1 million increase in unrealized mark to market losses due to an increase in ~~market interest rates~~deposits and the sale of $6.0 million of securities during the six months ended June 30, ~~2022. The decrease was~~2023.

Securities decreased by $7.7 million, or 10.5%, from $73.0 million at December 31, 2022 to $65.3 million at June 30, 2023, primarily due to the sale of $6.0 million of securities and securities paydowns of $2.2 million, partially offset by ~~net securities purchases.~~a $0.6 million decrease in unrealized losses on the mark to market value of the available-for-sale securities.

Net loans receivable ~~increased~~decreased during the six months ended June 30, ~~2022~~2023 as shown in the table below:


	At June 30,			At December 31,			Change
	2023			2022			$			%
	(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family(1)	$	174,940		$	175,904		$	(964	)		(0.5	)	%
Home equity		50,750			53,057			(2,307	)		(4.3	)	%
Commercial(2)		326,987			326,955			32			0.0		%
Total real estate loans		552,677			555,916			(3,239	)		(0.6	)	%
Other Loans:
Commercial		18,585			19,576			(991	)		(5.1	)	%
Consumer		1,151			1,217			(66	)		(5.4	)	%
Total gross loans		572,413			576,709			(4,296	)		(0.7	)	%
Allowance for credit losses		(6,758	)		(7,065	)		307			(4.3	)	%
Net deferred loan costs		3,848			3,893			(45	)		(1.2	)	%
Loans receivable, net	$	569,503		$	573,537		$	(4,034	)		(0.7	)	%

At June 30,
At December 31,
Change
2022
2021
$
%
(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family⁽¹⁾
$
164,006
$
158,826
$
5,180
3.3
%
Home equity
49,931
48,071
1,860
3.9
%
Commercial
288,975
266,525
22,450
8.4
%
Construction - Commercial
22,615
21,824
791
3.6
%
Total real estate loans
525,527
495,246
30,281
6.1
%
Other Loans:
Commercial
23,358
23,216
142
0.6
%
Consumer
1,333
1,317
16
1.2
%
Total gross loans
550,218
519,779
30,439
5.9
%
Allowance for loan losses
(6,747)
(6,118)
(629)
10.3
%
Net deferred loan costs
3,729
3,545
184
5.2
%
Loans receivable, net
$
547,200
$
517,206
$
29,994
5.8
%

(1)

⁽¹⁾

Includes one- to four-family construction loans.

(2)

Includes commercial construction loans.

The ~~increase in~~ loans receivable, net balance decreased $4.0 million, or 0.7%, from $573.5 million at December 31, 2022 to $569.5 million at June 30, 2023. The decrease was primarily due to ~~increases~~decreases in ~~commercial real estate, one-to four-family real estate,~~ home equity, commercial, and ~~commercial construction~~one- to four-family loans. ~~The Bank remains strategically focused on originating shorter duration, adjustable rate commercial real estate loans and commercial business loans to properly manage interest rate risk.~~ During the six months ended June 30, ~~2022, $4.6 million of Small Business Administration (“SBA”) Paycheck Protection Program (“PPP”)~~2023, we remained strategically focused on originating shorter duration, adjustable-rate loans ~~originated during 2021 or 2020 were forgiven. There are no outstanding PPP loans at June 30, 2022, as compared~~ to ~~$4.6 million at December 31, 2021. During the six months ended June 30, 2022, $90,000 of fee income related~~diversify our asset mix and to ~~PPP loan forgiveness was recorded as loan~~manage interest ~~income on the consolidated statements of income.~~rate risk.

Asset Quality. The following table ~~presents information regarding~~sets forth activity in our allowance for ~~loan~~credit losses on loans and ~~our asset quality~~other ratios at or for the dates indicated:


	At or for the Six Months Ended June 30,						At or for the Six Months Ended June 30,
	2022			2021			2023				2022
	(Dollars in thousands)						(Dollars in thousands)
Balance at beginning of year	$	6,118		$	5,857
Provision for loan losses		500			650
Beginning balance, prior to adoption of ASC 326							$	7,065			$	6,118
Impact of adopting ASC 326								282				—
(Credit) provision for credit losses								(590	)			500
Charge-offs:
Real estate loans:
Residential, one- to four-family		-			(12)
Home equity		-			-
Commercial		(4)			(3)			—				(4	)
Construction – Commercial and Residential, one- to four-family		-			-
Other loans:
Commercial		-			-
Consumer		(41)			(8)			(32	)			(41	)
Total charge-offs		(45)			(23)			(32	)			(45	)
Recoveries:
Real estate loans:
Residential, one- to four-family		17			-			—				17
Home equity		1			-			—				1
Commercial		154			2			—				154
Construction – Commercial and Residential, one- to four-family		-			-
Other loans:
Commercial		-			-			29				—
Consumer		2			5			4				2
Total recoveries		174			7			33				174
Net recoveries (charge-offs)		129			(16)
Net recoveries								1				129
Balance at end of period	$	6,747		$	6,491		$	6,758			$	6,747

Average loans outstanding	$	530,458		$	535,938		$	572,501			$	530,458
Allowance for loan losses as a percent of total net loans		1.23	%		1.19	%
Allowance for loan losses as a percent of non-performing loans		239.17	%		249.85	%
Ratio of net recoveries (charge-offs) to average loans outstanding by loan type⁽¹⁾:
Real estate loans:
Residential, one- to four-family		0.02	%		(0.02)	%
Home equity		-	%		-	%
Commercial		0.11	%		-	%
Construction – Commercial		-	%		-	%
Other loans:
Commercial		-	%		-	%
Consumer		(5.99)	%		(0.47)	%
Ratio of net recoveries (charge-offs) to average loans outstanding		0.05	%		(0.01)	%
⁽¹⁾ Annualized
		At June 30,			At December 31,
		2022			2021
Non-performing loans as a percent of total net loans:		0.52	%		1.86	%
Non-performing assets as a percent of total assets:		0.44	%		1.37	%
Allowance for credit losses as a percent of total net loans								1.19		%		1.23		%
Allowance for credit losses as a percent of non-performing loans								240.58		%		239.17		%


	For the Six Months Ended June 30,
	2023				2022
	(Dollars in thousands)
Ratio of net recoveries (charge-offs) to average loans outstanding by loan type, annualized:
Real estate loans:
Residential, one- to four-family		—		%		0.02		%
Home equity		—		%		—		%
Commercial		—		%		0.11		%
Construction – Commercial		—		%		—		%
Other loans:
Commercial		0.30		%		—		%
Consumer		(4.71	)	%		(5.99	)	%
Ratio of net recoveries to average loans outstanding		—		%		0.05		%


	At June 30,			At December 31,
	2023			2022
Loans past due 90 days or more but still accruing:
Real estate loans:
Residential, one- to four-family	$	—		$	1
Home equity		—			—
Commercial		—			—
Other loans:
Commercial		—			—
Consumer		—			—
Total	$	—		$	1
Loans accounted for on a non-accrual basis:
Real estate loans:
Residential, one- to four-family(1)	$	2,388		$	2,295
Home equity		410			602
Commercial(2)		—			—
Other loans:
Commercial		—			—
Consumer		11			34
Total non-accrual loans		2,809			2,931
Total non-performing loans		2,809			2,932
Foreclosed real estate		139			95
Total non-performing assets	$	2,948		$	3,027
Ratios:
Non-performing loans as a percent of total net loans:		0.49	%		0.51	%
Non-performing assets as a percent of total assets:		0.41	%		0.43	%

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

(2) Includes Commercial construction loans.

Total non-performing assets decreased by ~~$6.7 million,~~$79,000, or ~~68.3%~~2.6%, to ~~$3.1~~$2.9 million at June 30, ~~2022~~2023 from ~~$9.8~~$3.0 million at December 31, ~~2021,~~2022, primarily due to a decrease in non-accrual loans during the first six months of 2022 which was impacted by a payoff received on one impaired commercial real estate loan. As a result of this payoff, the non-performing loans as a percent of total net loans ratio decreased to 0.52% at June 30, 2022 from 1.86% at December 31, 2021.loans.

Other assets ~~increased $2.5 million,~~decreased $200,000, or ~~55.9%~~2.8%, to $6.9 million at June 30, ~~2022~~2023 from ~~$4.4~~$7.1 million at December 31, ~~2021. The increase was~~2022 primarily due to ~~a $2.5 million increase~~the unwind of the Company's interest rate swaps in ~~deferred tax receivables related to unrealized mark to market losses on the debt securities available for sale portfolio due to the increase in market interest rates.~~June 2023.

The table below shows changes in deposit balances by type of deposit account between June 30, ~~2022~~2023 and December 31, ~~2021:~~2022:


	At June 30,		At December 31,		Change				At June 30,		At December 31,		Change
	2022		2021		$		%		2023		2022		$			%
	(Dollars in thousands)								(Dollars in thousands)
Core Deposits
Demand deposits and NOW accounts:
Non-interest bearing	$	108,147	$	110,676	$	(2,529)	(2.3)	%	$	96,264	$	105,678	$	(9,414	)		(8.9	)	%
Interest bearing		88,719		95,104		(6,385)	(6.7)	%		77,373		85,033		(7,660	)		(9.0	)	%
Money market		169,370		175,886		(6,516)	(3.7)	%		124,589		149,250		(24,661	)		(16.5	)	%
Savings		78,530		74,155		4,375	5.9	%		69,940		77,200		(7,260	)		(9.4	)	%
Total core deposits		444,766		455,821		(11,055)	(2.4)	%		368,166		417,161		(48,995	)		(11.7	)	%
Non-core Deposits
Time deposits		133,502		137,363		(3,861)	(2.8)	%		213,799		152,958		60,841			39.8		%
Total deposits	$	578,268	$	593,184	$	(14,916)	(2.5)	%	$	581,965	$	570,119	$	11,846			2.1		%

The ~~decrease~~increase in total deposits was primarily due to a 39.8% increase in time deposits, partially offset by a decrease in ~~net~~ core ~~deposits and time~~ deposits. The ~~decrease in net core deposits was primarily due to the use of deposit balances by commercial customers to fund business operations. The decrease~~increase in time deposits was primarily due to a ~~decrease~~$44.8 million increase in customer time deposits, and a $16.0 million increase in brokered time deposits. The increase in brokered time deposits was a result of management’s strategy to

lock in liquidity during a rising interest rate environment, and increased competition for deposits in our market area. The increase in customer time deposits was primarily due to an increase in customer demand for these types of deposit ~~products.~~products due to the rising and competitive interest rate environment. The Company’s strategic focus ~~continues to be~~is centered on organic growth of ~~low-cost core~~ deposits among its retail and commercial customers ~~in an effort~~ to ~~manage interest expense~~reduce the reliance on wholesale funding and to strengthen customer relationships. At June 30, 2023 and December 31, 2022 the Company’s percentage of uninsured deposits to total deposits was 10.4% and 16.6%, respectively.

~~Long-term~~During the six months ended June 30, 2023, short term borrowings decreased by $12.6 million, as the Company transferred its borrowings into long-term debt ~~consisting of advances from~~with the Federal Home Loan Bank of New York (“FHLBNY”) to lock in interest rates and repaid $2.8 million of debt.

Stockholders’ equity at June 30, 2023 was $83.4 million, a $2.2 million increase, or 2.7%, ~~increased by $3.0 million, or 13.7%, from $22.0~~as compared to $81.2 million at December 31, ~~2021 to $25.0 million at June 30,~~ 2022. The ~~additional borrowings were utilized to provide liquidity at a fixed cost for business operations and to partially mitigate interest rate risk.~~

~~Total stockholders’ equity decreased $7.4 million, or 8.4%, to $80.6 million at June 30, 2022 from $88.0 million at December 31, 2021. The decrease~~increase in stockholders’ equity was primarily attributed to ~~a $9.6~~$2.5 million ~~decrease~~ in ~~accumulated other comprehensive (loss) income as a result of an increase in market interest rates. Total stockholders’ equity was also impacted by dividends paid of $625,000, partially offset by~~ net income ~~of $2.7 million~~earned during the first six months of ~~2022~~.2023 and a $0.5 million unrealized mark-to-market gain on the available for sales securities portfolio recognized in other comprehensive income, partially offset by the initial entry of $0.7 million recorded to retained earnings upon the adoption of CECL.

Comparison of Results of Operations for the Three Months Ended June 30, ~~2022~~2023 and ~~2021~~2022

General. Net income was ~~$1.7~~$0.8 million for the three months ended June 30, ~~2022,~~2023, or ~~$0.29~~$0.14 per diluted share, ~~an increase~~a decrease of ~~$691,000,~~$0.9 million, or ~~69.6%~~51.5%, compared to net income of ~~$1.0~~$1.7 million, or ~~$0.17~~$0.29 per diluted share, for the three months ended June 30, ~~2021.~~2022. Net income for the three months ended June 30, ~~2022~~2023 reflected a ~~$547,000~~

~~increase in net interest income, a $400,000 decrease in provision for loans losses and a $37,000~~$1.3 million increase in non-interest ~~income, which was~~expense related to costs incurred to remediate regulatory matters, an increase in FDIC insurance premiums, and an increase in salaries and employee benefits, and a $1.8 million increase in interest expense. These were partially offset by a ~~$182,000~~$2.0 million increase in ~~non-interest expense~~interest income and a ~~$111,000 increase~~$0.2 million credit to the provision for credit losses, as compared to a $0.1 million provision in the prior year period.

Interest Income. Interest income ~~tax expense~~increased by $2.0 million, or 31.7%, to $8.5 million for the three months ended June 30, 2023, when compared to the three months ended June 30, ~~2021.~~

~~Interest Income.~~ ~~Interest~~2022. Loan interest income increased by ~~$262,000,~~$1.6 million, or ~~4.2%~~27.4%, to ~~$6.4~~$7.5 million for the three months ended June 30, ~~2022 when compared to the three months ended June 30, 2021. Loan interest income increased by $169,000, or 3.0%, to $5.9 million for the three months ended June 30, 2022~~2023, as compared to the prior year period primarily due to an increase in the average ~~yield on~~balance of the loan portfolio of $30.1 million, or 5.6%, from $542.0 million for the three months ended June 30, 2022, to $572.1 million for the three months ended June 30, 2023. The increase in the average balance of the loan portfolio was primarily driven by growth in commercial real estate loans. The average yield on loans was 5.23% for the three months ended June 30, 2023, as compared to 4.33% for the three months ended June 30, 2022, ~~as compared~~primarily due to ~~4.21%~~the impact of higher interest rates on variable rate loans, new loan originations, and portfolio composition.

Investment securities interest income decreased $26,000, or 4.9%, to $501,000 for the three months ended June 30, ~~2021~~2023, compared to the three months ended June 30, 2022, primarily due to ~~an increase~~a $13.3 million decrease in ~~interest rates since June 30, 2021. The~~the average balance of ~~loans~~investment securities during the three months ended June 30, 2023 when compared to the same period of 2022, partially offset by a 33 basis points increase in the average yield of investment securities.

Interest Expense. Interest expense increased $1.8 million, or 398.0%, to $2.3 million for the three months ended June 30, 2023, compared to $453,000 for the three months ended June 30, 2022, ~~was $542.0~~primarily due to an increase in interest paid on deposits. Interest paid on deposits increased by $1.6 million, ~~compared~~or 482.1%, to ~~the average balance of loans of $541.1~~$1.9 million for the three months ended June 30, ~~2021.~~

~~Investment interest income increased $66,000, or 14.3%, to $527,000 for the three months ended June 30, 2022~~2023, when compared to the three months ended June 30, 2021, primarily due to a $6.4 million, or 8.3%, increase in the average balance of the investment portfolio from $76.8 million for the three months ended June 30, 2021 to $83.2 million for the three months ended June 30, 2022. The increase in ~~the average balance~~interest expense on deposits was primarily due to securities purchases which largely consisted of municipal bond and mortgage backed securities, partially offset by securities paydowns and redemptions of callable municipal bonds. The increase in investment income was also due to a 13127 basis points increase in the average ~~yield earned~~interest rate paid on deposit accounts as the ~~investment portfolio.~~deposit mix shifted towards higher cost time deposits. The average ~~yield was 2.53%~~balance of deposits increased by $20.1 million, or 4.2%, from $474.7 million for the three months ended June 30, 2022, ~~as compared~~ to ~~2.40%~~$494.8 million for the three months ended June 30, ~~2021. The increase in the average yield was~~2023 primarily due to an increase in ~~interest rates since June 30, 2021.~~

~~Other interest income~~time deposits. Interest expense on borrowings increased by ~~$27,000,~~$217,000, or ~~337.5%~~175.0%, ~~to $35,000~~ for the three months ended June 30, ~~2022 as~~2023 when compared to the three months ended June 30, ~~2021.~~2022, primarily due to a $16.9 million increase in average borrowings outstanding, and a 126 basis points increase in the average rate paid on borrowings. The ~~average yield~~increase in borrowings was a result of management’s strategy to add liquidity to the balance sheet as a result of economic volatility, anticipated loan growth, and increased competition for deposits in the current rising interest rate environment.

Provision for Credit Losses. The provision for credit losses represents a charge or credit made to ~~0.72%~~earnings to maintain a sufficient allowance for credit losses. The allowance for credit losses is management’s estimate of expected lifetime losses

in the loan portfolio as of the balance sheet date and is measured using the vintage method. The allowance for credit losses also applies to off-balance sheet credit exposures, including loan commitments and standby letters of credit, as well as available-for-sale debt securities. Management considers past events, current conditions, and reasonable and supportable forecasts as the basis for the estimation of excepted credit losses.

The Company recorded a $187,000 credit to the allowance for credit losses on loans and unfunded commitments during the three months ended June 30, 2023, as compared to a $100,000 provision for loan losses during the three months ended June 30, 2022. The current period (credit) provision for credit losses was primarily due to a decrease in loan commitments during the three months ended June 30, 2023.

Non-Interest Income. Non-interest income decreased by $167,000, or 23.2%, to $553,000 for the three months ended June 30, ~~2022 from 0.07% for the three months ended June 30, 2021, while the average balance of other interest earning assets decreased from $44.7 million for the three months ended June 30, 2021~~2023, as compared to ~~$19.4 million~~$720,000 for the three months ended June 30, 2022. The increase in the average yield on other interest earning assets was primarily due to higher average rates earned on excess funds, as a result of the increase in short term market interest rates since June 30, 2021. The decrease ~~in the average balance of other interest earning assets was primarily due to the use of excess funds to fund loan originations.~~

~~Interest Expense.~~ Interest expense decreased $285,000, or 38.6%, to $453,000 for the three months ended June 30, 2022 compared to $738,000 for the three months ended June 30, 2021 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by $254,000, or 43.6%, to $329,000 for the three months ended June 30, 2022 when compared to the three months ended June 30, 2021. The decrease in interest expense on deposits was primarily due to a ~~21 basis points~~$79,000 decrease in unrealized gains on the ~~average~~ interest rate paid on deposit accounts and a $23.8 million, or 15.3%, decrease in the average balance of time deposits. The decrease in the average balance of time deposits was primarily due to a decrease in customer demand for these types of deposit products. The average balance of deposits for the three months ended June 30, 2022 was $474.7 million with an average rate of 0.28% compared to the average balance of deposits of $474.6 million and an average rate of 0.49% for the three months ended June 30, 2021. The decrease in the average rate paid on deposits was primarilyswaps due to the ~~maturity of~~continued higher interest rate ~~time deposits since June 30, 2021.~~

~~Interest expense on long-term debt decreased by $30,000, or 21.6%, to $109,000 for the three months ended June 30, 2022 when compared to the three months ended June 30, 2021 primarily due to~~environment, a $52,000 decrease in service charges and fees, and a $49,000 loss on the ~~average balance~~sale of ~~advances from the FHLBNY. The average balance~~$6.0 million of advances from the FHLBNY for the three months ended June 30, 2022 was $22.2 million with an average rate of 1.97% compared to an average balance of $28.0 million and an average rate of 1.99% for the three months ended June 30, 2021. The decrease in average balance was due to the Company paying off maturing debt with excess cash on hand since June 30, 2021.

~~Provision for Loan Losses.~~ ~~A $100,000 provision to the allowance for loan losses was recorded~~available-for-sale securities during the three months ended June 30, ~~2022 compared~~2023 to ~~$400,000 for~~reposition the ~~three months ended June 30, 2021. The~~Bank's balance sheet.

~~Company recorded a specific reserve related to the downgrade and impairment of one commercial real estate loan during the second quarter of 2021.~~

We complete a comprehensive quarterly evaluation to determine our provision for loan losses. The evaluation reflects analyses of individual borrowers and historical loss experience, supplemented as necessary by credit judgment that considers observable trends, conditions, and other relevant environmental and economic factors.

During the three months ended June 30, 2022, the Company recorded a credit provision of $226,000 for commercial real estate and construction – commercial loans. This consisted of a $154,000 recovery on a previously impaired commercial real estate loan that paid off during the 2nd quarter of 2022. The credit provision was also impacted by a decrease in general allowance due to a decrease in commercial real estate and construction – commercial loans and a decrease in criticized and classified loans for these loan types during the three months ended June 30, 2022. A $36,000 net provision was recorded for commercial business loans primarily due to an increase in unclassified loans for this loan type during the three months ended June 30, 2022. The net provision for commercial business loans was partially offset by a decrease in criticized and classified loans for this loan type during the three months ended June 30, 2022. A $125,000 net provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors and an increase in classified loans for these loan types during the three months ended June 30, 2022. A $165,000 provision was recorded for the unallocated category of loan losses to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.

During the three months ended June 30, 2021, the Company recorded a $662,000 net provision for commercial real estate and construction – commercial loans. This consisted of a $495,000 provision for a specific reserve related to the downgrade and impairment of one commercial real estate loan during the period. It also included a $167,000 general allowance to reflect inherent losses within the portfolio due to $11.0 million of organic growth during the 2021 period. A $79,000 net credit provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors for these loan types and a decrease in classified loans, partially offset by loan charge-offs for these loans types during the three months ended June 30, 2021. A $26,000 net credit provision was recorded for commercial business loans which primarily reflected adjustments to certain qualitative factors for this loan type. A $57,000 unallocated credit provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.

~~Refer to Note 5 of the Notes to the Consolidated Financial Statements for additional details on the provision for loan losses.~~

~~Non-Interest Income.~~ Non-interest income increased by $37,000, or 5.4%, to $720,000 for the three months ended June 30, 2022 as compared to the three months ended June 30, 2021. The increase was primarily due to a $60,000 increase in unrealized gains on interest rate swaps due to an increase in long-term interest rates during the three months ended June 30, 2022. The increase was also due to a $45,000, or 16.7%, increase in service charges and fees during the three months ended June 30, 2022 as compared to the prior year period. The increase in non-interest income was partially offset by $58,000 decrease in gains on the sale of residential mortgage loans due to the impact of a rising interest rate environment, a lower volume of loans sold, and less income earned per loan at time of sale.

Non-Interest Expense. Non-interest expense increased by ~~$182,000,~~$1.3 million, or ~~4.1%~~28.9%, to $5.9 million for the three months ended June 30, 2023, as compared to $4.6 million for the three months ended June 30, ~~2022 as compared~~2022. Professional services increased by $513,000, or 153.1%, primarily due to ~~$4.4 million~~an increase in legal, auditing services, regulatory assessments, and consulting costs during the 2023 second quarter associated with remediation activities related to regulatory matters. FDIC Insurance expense increased by $389,000, or 827.7%, during the current quarter due to an increase in premium assessments. Salary and employee benefits expense increased $351,000, or 14.3%, during the second quarter of 2023 primarily due to the addition of staffing resources, annual salary increases, and an increase in employee benefits. Data processing costs increased $98,000, or 26.1%, primarily due to an increase in costs related to core system maintenance and enhancements to existing IT security protocols. Advertising expense increased $56,000, or 45.5%, during the second quarter of 2023 primarily due to an increase in marketing costs during the second quarter of 2023. The increases were partially offset by a decrease in occupancy and equipment costs and other costs of $85,000, or 9.8%.

Income Taxes Expense.Income tax expense was $237,000 for the three months ended June 30, ~~2021. Salary and employee benefits expense increased $217,000, or 9.7%, primarily due to a $118,000 decrease in deferred salaries associated with~~2023, a decrease ~~in the number~~ of ~~loans originated during the three months ended June 30, 2022 when~~$100,000, or 29.7%, as compared to the three months ended June 30, 2021. The increase was also due to annual salary increases. Occupancy and equipment expense increased $120,000, or 18.2%, primarily due to an increase in maintenance contracts and equipment expenses related to the core processing system conversion completed in the third quarter of 2021 and the conversion to a cloud-based computing system completed in the second quarter of 2022. Other expenses increased $58,000, or 17.1%, primarily due to foreclosure related expenses. The increase in non-interest expense was partially offset by a $145,000, or 30.2%, decrease in professional services

~~primarily due to one-time costs associated with the Company’s core processing system conversion during the three months ended June 30, 2021.~~

~~Income Taxes Expense.~~ ~~Income tax expense was~~ $337,000 for the three months ended June 30, ~~2022, an increase of $111,000, or 49.1%, as compared to $226,000 for the three months ended June 30, 2021.~~2022. The ~~increase~~decrease in income tax expense was primarily due to ~~an increase~~a decrease in income before taxes, partially offset by ~~a decrease~~an increase in the effective tax rate. The effective tax rate for the three months ended June 30, 2023 and 2022 was 22.5% and ~~2021 was~~ 16.7% ~~and 18.5%~~, respectively. ~~The decrease in the effective tax rate was primarily due to an increase in the mix of tax-exempt income derived from our municipal bond portfolio in relation to our pre-tax income~~

Comparison of Results of Operations for the Six Months Ended June 30, ~~2022~~2023 and ~~2021~~2022

General. Net income was ~~$2.7~~$2.5 million for the six months ended June 30, ~~2022,~~2023, or ~~$0.47~~$0.43 per diluted share, ~~an increase~~a decrease of ~~$64,000,~~$245,000, or ~~2.4%~~8.9%, compared to net income of $2.7 million, or ~~$0.45~~$0.47 per diluted share, for the six months ended June 30, ~~2021.~~2022. Net income for the six months ended June 30, ~~2022~~2023 reflected a ~~$745,000~~$3.0 million increase in ~~net~~interest expense, a $2.3 million increase in non-interest expenses and a $345,000 decrease in non-interest income, partially offset by a $4.1 million increase in interest income and a ~~$150,000 decrease in~~$0.8 million (credit) provision for ~~loans~~credit losses, ~~which was partially offset~~as compared to a $0.5 million provision in the prior year.

Interest Income. Interest income increased by ~~a $761,000 increase in non-interest expense, a $51,000 decrease in non-interest income and a $19,000 increase in income tax expense~~$4.1 million, or 32.8%, to $16.4 million for the six months ended June 30, 2023, when compared to the six months ended June 30, ~~2021.~~

~~Interest Income.~~ ~~Interest~~2022. Loan interest income increased by ~~$139,000,~~$3.4 million, or ~~1.1%~~30.5%, to ~~$12.4~~$14.7 million for the six months ended June 30, 2023, as compared to the prior year period primarily due to an increase in the average balance of the loan portfolio of $42.0 million, or 7.9%, from $530.5 million for the six months ended June 30, 2022, ~~when compared~~ to ~~the six months ended June 30, 2021. Loan interest income increased by $12,000, or 0.1%, to $11.3~~$572.5 million for the six months ended June 30, ~~2022~~2023. The increase in the average balance of the loan portfolio was primarily driven by growth in commercial real estate loans. The average yield on loans was 5.14% for the six months ended June 30, 2023, as compared to ~~the prior year period. The average balance of loans~~4.26% for the six months ended June 30, 2022, ~~was $530.5 million with an average yield of 4.26% compared~~primarily due to the ~~average balance~~impact of higher interest rates on variable rate loans ~~of $535.9 million~~ and ~~an average yield of 4.21% for the six months ended June 30, 2021.~~new loan originations.

Investment securities interest income increased ~~$91,000,~~$13,000, or ~~9.7%~~1.3%, to $1.0 million for the six months ended June 30, ~~2022~~2023, compared to the six months ended June 30, ~~2021,~~2022, primarily due to ~~an $8.4 million, or 10.8%,~~a 47 basis points increase in the average yield of

investment securities. The average balance of ~~the investment portfolio~~securities decreased from ~~$78.0~~$86.4 million for the six months ended June 30, ~~2021~~2022, to ~~$86.4~~$72.9 million for the six months ended June 30, 2023.

Interest Expense. Interest expense increased $3.0 million, or 326.1%, to $3.9 million for the six months ended June 30, 2023, compared to $919,000 for the six months ended June 30, 2022, primarily due to an increase in interest paid on deposits. Interest paid on deposits increased by $2.6 million, or 377.4%, to $3.2 million for the six months ended June 30, 2023, when compared to the six months ended June 30, 2022. The increase in ~~the average balance~~interest expense on deposits was primarily due to ~~securities purchases which largely consisted of municipal bond and mortgage backed securities, partially offset by securities paydowns and redemptions of callable municipal bonds.~~a 104 basis points increase in the average interest rate paid on deposit accounts as the deposit mix shifted towards higher cost time deposits. The average ~~yield was 2.40% for the six months ended June 30, 2021 as compared to 2.38% for the six months ended June 30, 2022.~~

~~Other interest income~~balance of deposits increased by ~~$36,000,~~$12.1 million, or ~~257.1%~~2.5%, ~~to $50,000~~from $476.7 million for the six months ended June 30, 2022, ~~as compared~~ to the six months ended June 30, 2021. The average yield increased to 0.34% for the six months ended June 30, 2022 from 0.07% for the six months ended June 30, 2021, while the average balance of other interest earning assets decreased from $38.3$488.8 million for the six months ended June 30, ~~2021~~2023 primarily due to ~~$29.2 million~~an increase in time deposits. Interest expense on borrowing for the six months ended June 30, 2022. The increase in the average yield on other interest earning assets was primarily due to higher average rates earned on excess funds, as a result of the increase in short term market interest rates since June 30, 2021. The decrease in the average balance of other interest earning assets was primarily due to the use of excess funds to fund loan originations.

~~Interest Expense.~~ ~~Interest expense decreased $606,000,~~2023 increased by $445,000, or ~~39.7%~~183.1%, to $919,000 for the six months ended June 30, 2022 compared to $1.5 million for the six months ended June 30, 2021 primarily due to a decrease in interest paid on deposits. Interest paid on deposits decreased by $534,000, or 44.1%, to $676,000 for the six months ended June 30, 2022 when compared to the six months ended June 30, ~~2021. The decrease in interest expense on deposits was~~2022, primarily due to a 23$18.0 million increase in average borrowings outstanding, and a 124 basis points decrease in the average interest rate paid on deposit accounts and a $23.5 million, or 14.3%, decrease in average balance of time deposits for the six months ended June 30, 2022 as compared to the six months ended June 30, 2021. The decrease in average balance of time deposits was primarily due to a decrease in customer demand for these types of deposit products. The average balance of deposits for the six months ended June 30, 2022 was $476.7 million with an average rate of 0.28% compared to the average balance of deposits of $470.8 million and an average rate of 0.51% for the six months ended June 30, 2021. The decreaseincrease in the average rate paid on ~~deposits~~borrowings. The increase in borrowings was ~~primarily due~~a result of management’s strategy to add liquidity to the ~~maturity~~balance sheet as a result of ~~higher~~economic volatility, anticipated loan growth, and increased competition for deposits in the current rising interest rate ~~time deposits since June 30, 2021.~~

environment.

Interest expense on long-term debt decreased by $69,000, or 24.5%, to $213,000 for the six months ended June 30, 2022 when compared to the six months ended June 30, 2021 primarily due to a decrease in the average balance of advances from the FHLBNY. The average balance of advances from the FHLBNY for the six months ended June 30, 2022 was $22.1 million with an average rate of 1.95% compared to an average balance of $28.5 million and an average rate of 2.00% for the six months ended June 30, 2021. The decrease in average balance was due to the Company paying off maturing debt with excess cash on hand since June 30, 2021.

Provision for ~~Loan~~Credit Losses. ~~A $500,000~~The provision for credit losses represents a charge or credit made to earnings to maintain a sufficient allowance for credit losses. The allowance for credit losses is management’s estimate of expected lifetime losses in the loan portfolio as of the balance sheet date and is measured using the vintage method. The allowance for credit losses also applies to off-balance sheet credit exposures, including loan commitments and standby letters of credit, as well as available-for-sale debt securities. Management considers past events, current conditions, and reasonable and supportable forecasts as the basis for the estimation of excepted credit losses. Management considers past events, current conditions, and reasonable and supportable forecasts as the basis for the estimation of excepted credit losses.

The Company recorded a $812,000 credit to the allowance for ~~loan~~credit losses ~~was recorded~~on loans and unfunded commitments during the six months ended June 30, ~~2022~~2023, as compared to ~~$650,000 for the six months ended June 30, 2021. During the six months ended June 30, 2022, the Company’s~~a $500,000 provision for loan losses was primarily due to an increase in commercial real estate and construction – commercial loan balances when compared to the same period in 2021. The provision for the six months ended June 30, 2021 was primarily due to a specific reserve associated with the downgrade and impairment of one commercial real estate loan and general reserves for loan originations during the period.

During the six months ended June 30, 2022, the Company recorded a net provision of $394,000 for commercial real estate and construction – commercial loans. This consisted of a $506,000 provision in general allowance due to an increase in commercial real estate and construction – commercial loans during the six months ended June 30, 2022, driven by organic loan growth in these loan categories. It also included a $42,000 increase in general allowance due to an increase in criticized and classified commercial real estate loans during the six months ended June 30, 2022. The ~~net~~current period (credit) provision ~~was partially offset by a $154,000 recovery on a previously impaired commercial real estate loan that paid off during the six months ended June 30, 2022. A $52,000 net~~for credit ~~provision~~losses was ~~recorded for commercial business loans~~ primarily due to a change in the qualitative economic forecasting factor and a decrease in ~~criticized and classified loans for this~~ loan ~~type. The net credit provision for commercial business loans was partially offset by an increase in unclassified loans for this loan type~~commitments during the six months ended June 30, 2022. A $198,000 net provision was recorded for one-to four-family, home equity and consumer loans that primarily reflected adjustments to certain qualitative factors and an increase in classified loans for these loan types during the six months ended June 30, 2022. A $40,000 credit provision was recorded for the unallocated categoryfirst half of ~~loan losses to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.~~

During the six months ended June 30, 2021, the Company recorded an $810,000 net provision for commercial real estate and construction – commercial loans. This consisted of a $495,000 provision for a specific reserve related to the downgrade and impairment of one commercial real estate loan during the period. The provision also reflected a $289,000 general allowance to reflect inherent losses within the portfolio due to $20.3 million of organic growth during the 2021 period. It also included a $26,000 provision to reflect the $1.0 million increase in criticized and classified commercial real estate loans. A $115,000 net credit provision was recorded for commercial business loans which reflected a $92,000 credit allowance to account for a $256,000 decrease in criticized and classified commercial business loans and adjustments to certain qualitative factors. Furthermore, a $24,000 credit allowance to account for a $2.4 million decrease in outstanding commercial business loans, excluding PPP loans, during the six months ended June 30, 2021 was recorded. A $44,000 unallocated credit provision was recorded to reflect the margin of imprecision inherent in the underlying assumptions used in the methodologies for estimating allocated and general losses in the loan portfolio.

~~Refer to Note 5 of the Notes to the Consolidated Financial Statements for additional details on the provision for loan losses.~~2023.

Non-Interest Income. Non-interest income decreased by ~~$51,000,~~$345,000, or ~~3.4%~~23.8%, to ~~$1.5~~$1.1 million for the six months ended June 30, ~~2022~~2023, as compared to the six months ended June 30, 2021. The decrease was primarily due to a $227,000 decrease in gains on the sale of residential mortgage loans due to the impact of a rising interest rate environment, a lower volume of loans sold, and less income earned per loan at time of sale. The decrease in non-interest income was partially offset by a $157,000 increase in unrealized gains on interest rate swaps due

~~to an increase in long-term interest rates during~~ the six months ended June 30, 2022. The decrease was ~~also partially offset by~~primarily due to a ~~$57,000, or 11.4%, increase~~$311,000 decrease in ~~service charges~~unrealized gains on the interest rate swaps due to the continued higher interest rate environment and ~~fees~~a $49,000 loss on the sale of $6.0 million of securities during the six months ended June 30, ~~2022 as compared~~2023 to reposition the ~~prior year period.~~Bank's balance sheet.

Non-Interest Expense.Non-interest expense increased by ~~$761,000,~~$2.3 million, or ~~9.1%~~25.3%, to $11.4 million for the six months ended June 30, 2023, as compared to $9.1 million for the six months ended June 30, ~~2022 as compared~~2022. Professional services increased by $1.1 million, or 167.8%, primarily due to ~~$8.3 million~~an increase in legal, auditing services, regulatory assessments, and consulting costs during the first six months of 2023 associated with remediation activities related to regulatory matters. Salary and employee benefits expense increased $723,000, or 14.9%, during the first six months of 2023 primarily due to the addition of staffing resources, annual salary increases, and an increase in employee benefits. FDIC Insurance expense increased by $439,000, or 477.2%, during the first six months of 2023 due to an increase in premium assessments. Data processing costs increased $161,000, or 23.3%, during the first six months of 2023 primarily due to an increase in costs related to core system maintenance and enhancements to existing IT security protocols. Advertising expense increased $98,000, or 37.8%, primarily due to an increase in marketing costs during the first six months of 2023. The increases were partially offset by a decrease in occupancy and equipment costs and other costs of $192,000, or 7.8%, primarily due to a one-time, insurance-related expense being recorded in the first six months of 2022.

Income Taxes Expense.Income tax expense was $506,000 for the six months ended June 30, ~~2021. Salary and employee benefits expense increased $523,000, or 12.0%, primarily due to a $403,000 decrease in deferred salaries associated with~~2023, a decrease ~~in the number~~ of ~~loans originated during the six months ended June 30, 2022 when~~$38,000, or 7.0%, as compared to the six months ended June 30, 2021. The increase was also due to annual salary increases. Other expenses increased $275,000, or 42.8%, primarily due to telephone, loan and foreclosure related expenses. Occupancy and equipment expense increased $195,000, or 14.6%, primarily due to an increase in maintenance contracts and equipment expenses related to the core processing system conversion completed in the third quarter of 2021 and the conversion to a cloud based computing system in the second quarter of 2022. The increase in non-interest expense was partially offset by a $115,000, or 15.4% decrease in professional services primarily due to one-time costs associated with the Company’s core processing system conversion during the six months ended June 30, 2021. The increase in total non-interest expenses was also partially offset by lower expenses for data processing, advertising, postage and supplies during the six months ended June 30, 2022 when compared to the same period in 2021.

~~Income Taxes Expense.~~ ~~Income tax expense was~~ $544,000 for the six months ended June 30, ~~2022, an increase of $19,000, or 3.6%, as compared to $525,000 for the six months ended June 30, 2021.~~2022. The ~~increase~~decrease in income tax expense was

primarily due to a decrease in income before taxes, partially offset by an increase in ~~income before taxes.~~the effective tax rate. The effective tax rate for the six months ended June 30, 2023 and 2022 was 16.8% and ~~2021 was~~ 16.5% ~~and 16.4%~~, respectively.

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 allows us to borrow the maximum lending values designated by the type of collateral pledged. As of June 30, ~~2022,~~2023, the maximum amount that we can borrow from the FHLBNY, ~~was $113.0 million and was collateralized by a pledge~~based on the market value of certain fixed-rate residential, one- to four-family ~~loans.~~loans pledged to FHLBNY, was $111.4 million. At June 30, ~~2022,~~2023, we had outstanding advances under this agreement of ~~$25.0~~$36.5 million. 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, which was equal to a book value of ~~$12.1~~$1.7 million and a fair value of ~~$10.6~~$1.2 million as of June 30, ~~2022.~~2023. There were no balances outstanding with the Federal Reserve Bank at June 30, ~~2022.~~2023. We have also established lines of credits with correspondent banks for ~~$42.0~~$27.0 million, of which ~~$40.0~~$25.0 million is unsecured and the remaining $2.0 million will be secured by a pledge of our securities when a draw is made. There were no borrowings on these lines as of June 30, ~~2022.~~2023.

As a result of the Order previously disclosed herein, the Company’s ability to access available sources of funds from the FHLB has been curtailed to short-term advances (i.e., 30 days or less) and the residential loans pledged as collateral for these borrowings are subject to reductions in value. The availability of lines of credit with one other correspondent bank was terminated, while the availability of lines of credit with other correspondent banks may also be reduced or eliminated. The Bank is not eligible to access the new Bank Term Funding Program created by the Federal Reserve Board on March 12, 2023. The Bank is ineligible to participate in the program due to the Consent Order. Lastly, the unsecured line of credit for our Master Account at the Federal Reserve has been withdrawn at this time.

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 of loans and the purchase of investment securities. For the six months ended June 30, ~~2022,~~2023, we originated loans of approximately ~~$92.9~~$39.0 million as compared to approximately ~~$81.0~~$92.9 million of loans originated during the six months ended June 30, ~~2021.~~2022. Loan ~~originations exceeded~~ principal repayments and other deductions exceeded originations during the ~~first~~ six months ended June 30, 2023 by $3.7 million. The Company did not make any purchases of ~~2022 by $30.8 million. Purchases~~investment securities during the six months ended June 30, 2023 and purchases of investment securities totaled $6.1 ~~million and $9.2~~ million during the six months ended June 30, ~~2022 and 2021, respectively.~~ ~~These activities were funded primarily through deposit growth, principal payments received on loans and~~2022. During the six months ended June 30, 2023, the Company sold investment securities ~~borrowings and cash reserves.~~amounting to $6.0 million. The Company did not sell any investment securities during the six months ended June 30, 2022.

As described elsewhere in this report, the Company has 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. The Company believes it has sufficient funds to fulfill these commitments, including sources of funds available through the use of FHLBNY advances or other liquidity sources. Total deposits were ~~$578.3~~$582.0 million at June 30, ~~2022,~~2023, as compared to ~~$593.2~~$570.1 million at December 31, ~~2021.~~2022. Approximately ~~$63.2~~$158.1 million of time deposit accounts are scheduled to mature within one year as of June 30, ~~2022.~~2023. Based on our deposit retention experience, and current pricing strategy, ~~and competitive pricing policies,~~ we anticipate that a significant portion of these time deposits will remain with us following their ~~maturity~~.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 ~~minimize~~manage our cost of funds, we may consider additional borrowings from the FHLBNY in the future.

We do not anticipate any material capital expenditures in ~~2022.~~2023. We do not have any balloon or other payments due on any long-term obligations, other than the borrowing agreements noted above.

RegulatoryCapital

Federal regulations require a federal savings bank to meet certain capital standards, as discussed in the “Supervision and ~~Regulation - Federal Banking Regulation – Capital Requirements”~~Regulation” section included in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

The federal banking agencies have developed a “Community Bank Leverage Ratio” (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.

As of June 30, ~~2022,~~2023, the ~~Bank was considered a “qualifying community bank” and its~~Bank’s Community Bank Leverage Ratio was ~~12.02% so it~~12.16%.

Pursuant to an Individual Minimum Capital Requirement, the Bank has been directed by the OCC to maintain a Tier 1 Leverage capital ratio of 10% and a Total Risk-Based capital ratio of 13%. In order to be considered “well-capitalized” by the OCC, a savings bank must maintain a Tier 1 Leverage capital ratio of 5% and a Total Risk-Based capital ratio of 10%. At June 30, 2023, the Bank’s Tier 1 Leverage capital ratio was ~~deemed to be~~12.16% and its Total Risk-Based capital ratio was 17.23% and accordingly the Bank was in compliance with ~~all other capital~~its Individual Minimum Capital Requirement and ~~leverage requirements, including the capital requirements to be~~was considered ~~“well capitalized” under Prompt Corrective Action statutes.~~well-capitalized.

Off-Balance Sheet Arrangements

Other than loan commitments, ~~and two interest rate swap agreements that are not designated as hedging instruments, as previously noted,~~ we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. Refer to Note 76 in the Notes to our ~~Consolidated Financial Statements~~unaudited consolidated financial statements for a summary of loan commitments outstanding as of June 30, ~~2022.~~2023.

ItemItem 3. Quantitative and Qualitative Disclosures About Market Risk

Disclosure is not required as the Company is a smaller reporting company.

Item 4. ~~Controls~~Controls and Procedures.

Disclosure Controls and Procedures

The Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13(a)-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective.

Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) during the quarter ended June 30, ~~2022~~2023 that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting.

PARTPART II

Item 1A. Risk Factors.

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk ~~factor~~factors represents a material update and addition to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk ~~factor~~factors set forth below also isare a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The ~~Bank is a party to a formal written agreement (the “Agreement”)~~Companies have entered into an Agreement with the ~~OCC relating to information technology, security and automated clearing house program deficiencies.~~Federal Reserve Bank of Philadelphia. Failure to comply with the Agreement may result in further regulatory enforcement actions. We ~~expect that our non-interest expense will increaseas a result of remediation actions we will take in order to comply with the requirements of the Agreementwhich may adversely affect our financial performance.~~

Effective as of July 13, 2022, the Bank and the OCC entered into the Agreement. The Agreement provides, among other things, that the Bank will take the following actions within specified time frames as set forth in the Agreement:

~~create a compliance committee to monitor and oversee the Bank’s compliance with the Agreement and submit quarterly reports to the Board of Directors of the Bank and the OCC;~~

ensure that the Bank has competent management in place, review the capabilities, experience, qualifications and performance of the Bank’s management, including, but not limited to, the Chief Executive Officer, Chief Operating Officer, Chief Technology Officer and Information Security Officer, and the Board will determine whether management changes should be made;

if an officer will continue in his or her position, but the Board determines the officer’s depth of skills needs improvement, it will develop and implement a written program to improve the officer’s supervision and management of the Bank;

develop, adopt and implement a written program to effectively assess and manage the Bank’s information technology (“IT”) activities, commensurate with the level of risk and complexity of the Bank’s IT activities, subject to review and prior written determination of no supervisory objection by the OCC;

develop, adopt and implement a written information security program that includes administrative, technical and physical safeguards to ensure the security and confidentiality of customer information, subject to review and prior written determination of no supervisory objection by the OCC; and

~~develop, adopt and implement a written automated clearing house risk management program, subject to review and prior written determination of no supervisory objection by the OCC.~~

~~As a result of the Agreement, the Bank must also obtain OCC written non-disapproval before effecting any change in its directors, senior executive officers or executive officers.~~

Management and the Bank’s Board of Directors are committed to promptly addressing the action items included in the Agreement. However, we may not be successful in complying fully with the provisions of the Agreement. The OCC will determine whether or not the provisions of the Agreement have been met. In the event we are in material non-compliance with the terms of the Agreement, the OCC has the authority to subject us to more restrictive enforcement actions, such as a cease and desist order, civil money penalties and removal of directors and officers from their positions with the Bank. Moreover, we expect that our non-interest expense will increase as a result of remediation actions we will take in order to comply with the requirements of the Agreement which may adversely affect our financial performance.

Effective as of June 28, 2023, the Companies entered into an Agreement with the Federal Reserve Bank of Philadelphia (the “Reserve Bank”). The Agreement provides, among other things, that the Companies and/or their Board of Directors:

•

take appropriate steps to fully utilize the Companies’ financial and managerial resources to serve as a source of strength to the Bank, including, but not limited to, taking steps to ensure that the Bank complies with the Consent Order entered into with the Office of the Comptroller of the Currency on February 9, 2023, and any other supervisory action taken by the Bank’s federal regulator;

•

not, directly or indirectly, declare or pay dividends, engage in share repurchases, or make any other capital distribution in respect of common shares, preferred shares, or other capital instruments, including, without limitation, any interest payments due on subordinated debentures, without the prior written approval of the Reserve Bank and the Director of Supervision and Regulation of the Board of Governors. All requests for prior approval must be received in writing at least 30 days prior to the earlier of the proposed declaration, payment, or distribution date, or required notice of deferral;

•

not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior approval must be received at least 30 days prior to the proposed transaction date;

•

comply with the prior notice requirements to the Reserve Bank in accordance with applicable federal law and regulation prior to appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position;

•

comply with the restrictions on indemnification and severance payments under applicable federal law and regulation; and

•

within 45 days after the end of each calendar quarter following the date of the Agreement, submit to the Reserve Bank written progress reports detailing the form and manner of all actions taken to secure compliance with the provisions of the Agreement and the results thereof.

Management and the Companies’ Board of Directors are committed to promptly addressing the action items included in the Agreement. In the event we are in material non-compliance with the terms of the Agreement, the Reserve Bank has the authority to subject us to additional enforcement actions, such as civil money penalties and removal of directors and officers from their positions with the Companies. We expect that our non-interest expense will increase as a result of remediation actions we will take in order to comply with the requirements of the Agreement which may adversely affect our financial performance.

Recent events involving the failure of financial institutions may adversely affect our business, and the market price of our common stock. Recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other

securities of banks in the capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact our business or financial condition, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of our common stock. These recent events may also result in changes to laws or regulations governing banks, savings bank and bank and savings and loan holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on our businesses. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

Item 2. Unregistered S~~ales~~Sales of Equity Securities, ~~and~~ Use of Proceeds, and Issuer Purchases of Equity Securities

The following table reports information regarding repurchases by Lake Shore Bancorp of its common stock in each month of the quarter ended June 30, ~~2022:~~2023. The Company has suspended its stock repurchase program.

COMPANY PURCHASES OF EQUITY SECURITIES


Period	Total Number of Shares Purchased		Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs		Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs (1)

April 1 through April 30, 2023		—	$	—		—		30,626
May 1 through May 31, 2023		—		—		—		30,626
June 1 through June 30, 2023		—		—		—		30,626
Total		—	$	—		—		30,626

Period
Total Number of Shares Purchased
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs
Maximum Number of Shares that May Yet be Purchased Under the Plans or Programs⁽¹⁾
April 1 through April 30, 2022
-
$
-
-
36,327
May 1 through May 31, 2022
5,701
14.91
5,701
30,626
June 1 through June 30, 2022
-
-
-
30,626
Total
5,701
$
14.91
5,701
30,626

⁽¹⁾

On August 13, 2021, our Board of Directors (the “Company”) adopted a new stock repurchase program. The stock repurchase program authorizes the Company to repurchase up to an aggregate of 106,327 shares, or approximately 5% of its outstanding shares, excluding the shares held by Lake Shore, MHC. The repurchase program permits shares to be repurchased in open market or private transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. The repurchase plan does not have an expiration date and superseded all of the prior stock repurchase programs.

Item 6. ~~Exhibits~~Exhibits




			31.1				Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002*
			31.2				Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes- Oxley Act of 2002*
			32.1				Certification by the Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
			32.2				Certification by the Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002*
			101.INS				Inline XBRL Instance Document^*
			101.SCH				Inline XBRL Taxonomy Extension Schema Document^*
			101.CAL				Inline XBRL Taxonomy Calculation Linkbase Document^*
			101.DEF				Inline XBRL Taxonomy Extension Definition Linkbase Document^*
			101.LAB				Inline XBRL Taxonomy Label Linkbase Document^*
			101.PRE				Inline XBRL Taxonomy Presentation Linkbase Document^*
			104				Cover Page Interactive Date File (formatted as inline XBRL and contained in Exhibit 101)*

________________

*Filed herewith.

SIGNATURES

P~~ursuant~~Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



		LAKE SHORE BANCORP, INC.
		(Registrant)

August ~~15, 2022~~10, 2023	By:	/s/ ~~Daniel P. Reininga~~Kim C. Liddell
		~~Daniel P. Reininga~~Kim C. Liddell
		President and Chief Executive Officer
		(Principal Executive Officer)


August ~~15, 2022~~10, 2023	By:	/s/ ~~Rachel A. Foley~~Taylor M. Gilden
		~~Rachel A. Foley~~Taylor M. Gilden
		Chief Financial Officer
		(Principal Financial ~~Officer)~~

~~August 15, 2022~~	~~By:~~	~~/s/ Steven W. Schiavone~~
		~~Steven W. Schiavone~~
		~~Controller~~
		~~(Principal~~and Accounting Officer)



LAKE SHORE BANCORP, INC.
(Exact name of registrant as specified in its charter)
United States		20-4729288
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
31 East Fourth Street, Dunkirk, New York		14048
(Address of principal executive offices)	(Zip code)
~~(716)~~ (716) 366-4070
(Registrant’s telephone number, including area code)



Title of each class	Trading Symbol(s)		Name of each exchange on which registered
Common stock, par value $0.01 per share	~~LSBK~~	LSBK		The Nasdaq Stock Market LLC



Large accelerated filer ¨	Accelerated filer ¨
Non-accelerated filerx	Smaller reporting company x
Emerging growth company ¨


ITEM		PART I	PAGE

1	FINANCIAL STATEMENTS
	-	Consolidated Statements of Financial Condition as of June 30, 2023 (Unaudited) and December 31, 2022	1
	-	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	2
	-	Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2023 and 2022 (Unaudited)	3
	-	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, and June 30, 2023 and 2022 (Unaudited)	4
	-	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2023 and 2022 (Unaudited)	5
	-	Notes to Unaudited Consolidated Financial Statements	6
2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		31
3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		43
4	CONTROLS AND PROCEDURES		43

		PART II

1A	RISK FACTORS		44
2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		45
6	EXHIBITS		45
SIGNATURES			46


		TABLE OF CONTENTS

ITEM		PART I	PAGE

1	FINANCIAL STATEMENTS
	-	Consolidated Statements of Financial Condition as of June 30, 2022 (Unaudited) and December 31, 2021	1
	-	Consolidated Statements of Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	2
	-	Consolidated Statements of Comprehensive (Loss) Income for the Three and Six Months Ended June 30, 2022 and 2021 (Unaudited)	3
	-	Consolidated Statements of Stockholders’ Equity for the Three Months Ended March 31, and June 30, 2021 and 2022 (Unaudited)	4
	-	Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	6
	-	Notes to Unaudited Consolidated Financial Statements	7
2	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		32
3	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		48
4	CONTROLS AND PROCEDURES		49

		PART II

1A	RISK FACTORS		49
2	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS		50
6	EXHIBITS		51
SIGNATURES			51


December 31, 2021
Municipal bonds	$	9,601		(120)	$	857	$	(21)	$	10,458	$	(141)
Mortgage-backed securities		21,141		(211)		3,083		(167)		24,224		(378)
	$	30,742	$	(331)	$	3,940	$	(188)	$	34,682	$	(519)


	Real Estate Loans									Other Loans
	One- to Four-Family(1)			Home Equity			Commercial Real Estate (2)			Commercial			Consumer			Unallocated			Total
	(Dollars in thousands)
June 30, 2023
Allowance for Credit Loss: on Loans
Balance – April 1, 2023	$	544		$	261		$	5,384		$	519		$	—		$	—		$	6,708
Charge-offs		—			—			—			—			(15	)		—			(15	)
Recoveries		—			—			—			29			1			—			30
Provision (credit)		(3	)		(4	)		38			(28	)		32			—			35
Balance – June 30, 2023	$	541		$	257		$	5,422		$	520		$	18		$	—		$	6,758

Balance - January 1, 2023	$	411		$	217		$	5,746		$	509		$	47		$	135		$	7,065
Impact of adopting ASC 326		201			114			55			72			(25	)		(135	)		282
Charge-offs		—			—			—			—			(32	)		—			(32	)
Recoveries		—			—			—			29			4			—			33
(Credit) provision		(71	)		(74	)		(379	)		(90	)		24			—			(590	)
Balance – June 30, 2023	$	541		$	257		$	5,422		$	520		$	18		$	—		$	6,758
Ending balance: individually evaluated for impairment	$	—		$	—		$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	541		$	257		$	5,422		$	520		$	18		$	—		$	6,758

Gross Loans Receivable(3):
Ending balance	$	174,940		$	50,750		$	326,987		$	18,585		$	1,151		$	—		$	572,413
Ending balance: individually evaluated for impairment	$	146		$	14		$	—		$	—		$	—		$	—		$	160
Ending balance: collectively evaluated for impairment	$	174,794		$	50,736		$	326,987		$	18,585		$	1,151		$	—		$	572,253


	Real Estate Loans										Other Loans
	One- to Four-Family(2)		Home Equity		Commercial			Construction - Commercial			Commercial			Consumer			Unallocated			Total
	(Dollars in thousands)
June 30, 2022
Allowance for Loan Losses:
Balance – April 1, 2022	$	382	$	271	$	4,937		$	420		$	443		$	28		$	19		$	6,500
Charge-offs		—		—		(4	)		—			—			(21	)		—			(25	)
Recoveries		17		—		154			—			—			1			—			172
Provision (credit)		50		59		(179	)		(47	)		36			16			165			100
Balance – June 30, 2022	$	449	$	330	$	4,908		$	373		$	479		$	24		$	184		$	6,747

Balance – January 1, 2022	$	383	$	211	$	4,377		$	360		$	531		$	32		$	224		$	6,118
Charge-offs		—		—		(4	)		—			—			(41	)		—			(45	)
Recoveries		17		1		154			—			—			2			—			174
Provision (credit)		49		118		381			13			(52	)		31			(40	)		500
Balance – June 30, 2022	$	449	$	330	$	4,908		$	373		$	479		$	24		$	184		$	6,747
Ending balance: individually evaluated for impairment	$	—	$	—	$	—		$	—		$	—		$	—		$	—		$	—
Ending balance: collectively evaluated for impairment	$	449	$	330	$	4,908		$	373		$	479		$	24		$	184		$	6,747

Gross Loans Receivable(1):
Ending balance	$	164,006	$	49,931	$	288,975		$	22,615		$	23,358		$	1,333		$	—		$	550,218
Ending balance: individually evaluated for impairment	$	252	$	23	$	—		$	—		$	—		$	—		$	—		$	275
Ending balance: collectively evaluated for impairment	$	163,754	$	49,908	$	288,975		$	22,615		$	23,358		$	1,333		$	—		$	549,943


	Real Estate Loans								Other Loans
	One- to Four-Family⁽²⁾		Home Equity		Commercial		Construction - Commercial		Commercial		Consumer		Unallocated		Total
	(Dollars in thousands)
June 30, 2022
Allowance for Loan Losses:
Balance – April 1, 2022	$	382	$	271	$	4,937	$	420	$	443	$	28	$	19	$	6,500
Charge-offs		-		-		(4)		-		-		(21)		-		(25)
Recoveries		17		-		154		-		-		1		-		172
Provision (credit)		50		59		(179)		(47)		36		16		165		100
Balance – June 30, 2022	$	449	$	330	$	4,908	$	373	$	479	$	24	$	184	$	6,747

Balance – January 1, 2022	$	383	$	211	$	4,377	$	360	$	531	$	32	$	224	$	6,118
Charge-offs		-		-		(4)		-		-		(41)		-		(45)
Recoveries		17		1		154		-		-		2		-		174
Provision (credit)		49		118		381		13		(52)		31		(40)		500
Balance – June 30, 2022	$	449	$	330	$	4,908	$	373	$	479	$	24	$	184	$	6,747
Ending balance: individually evaluated for impairment	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Ending balance: collectively evaluated for impairment	$	449	$	330	$	4,908	$	373	$	479	$	24	$	184	$	6,747

Gross Loans Receivable ⁽¹⁾:
Ending balance	$	164,006	$	49,931	$	288,975	$	22,615	$	23,358	$	1,333	$	-	$	550,218
Ending balance: individually evaluated for impairment	$	252	$	23	$	-	$	-	$	-	$	-	$	-	$	275
Ending balance: collectively evaluated for impairment	$	163,754	$	49,908	$	288,975	$	22,615	$	23,358	$	1,333	$	-	$	549,943


	Real Estate Loans								Other Loans
	One- to Four-Family⁽¹⁾		Home Equity		Commercial		Construction - Commercial		Commercial		Consumer		Unallocated		Total

	(Dollars in thousands)
June 30, 2021
Allowance for Loan Losses:
Balance – April 1, 2021	$	375	$	220	$	4,158	$	477	$	587	$	24	$	163	$	6,004
Charge-offs		(12)		-		(3)		-		-		(2)		-		(17)
Recoveries		-		-		1		-		-		3		-		4
Provision (credit)		(38)		(51)		644		18		(26)		10		(57)		500
Balance – June 30, 2021	$	325	$	169	$	4,800	$	495	$	561	$	35	$	106	$	6,491

Balance – January 1, 2021	$	346	$	172	$	4,052	$	434	$	676	$	27	$	150	$	5,857
Charge-offs		(12)		-		(3)		-		-		(8)		-		(23)
Recoveries		-		-		2		-		-		5		-		7
Provision (credit)		(9)		(3)		749		61		(115)		11		(44)		650
Balance – June 30, 2021	$	325	$	169	$	4,800	$	495	$	561	$	35	$	106	$	6,491


			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
	Investment		Balance		Allowance		Investment		Recognized
							For the Six Months Ended
	At June 30, 2022						June 30, 2022
	(Dollars in thousands)
With no related allowance recorded:
Residential, one- to four-family	$	252	$	252	$	-	$	257	$	7
Home equity		23		23		-		23		-
Commercial real estate⁽¹⁾		-		-		-		4,921		-
Total impaired loans with no related allowance		275		275		-		5,201		7


	For the Three and Six Months Ended June 30, 2023
	(Dollars in thousands)
Balance at December 31, 2022	$	—
Impact of CECL Adoption		633
Balance at March 31, 2023		633
Provision for Credit Losses		(222	)
Balance at June 30, 2023	$	411


	Total Nonaccrual						Nonaccrual with no Allowance for Credit Losses						90 Days or More Past Due and Accruing
		June 30,			December 31,			June 30,			December 31,			June 30,			December 31,
		2023			2022			2023			2022			2023			2022
	(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family (1)	$		2,388	$		2,295	$		2,388	$		2,295	$		—	$		1
Home Equity			410			602			410			602			—			—
Commercial Real Estate (2)			—			—			—			—			—			—
Other Loans:
Commercial			—			—			—			—			—			—
Consumer			11			34			11			34			—			—
Total gross loans	$		2,809	$		2,931	$		2,809	$		2,931	$		—	$		1


	30-59 Days		60-89 Days		90 Days or More		Total Past			Current	Total Loans		Loans on Non-
	Past Due		Past Due		Past Due		Due			Due	Receivable		Accrual
	(Dollars in thousands)
June 30, 2022:
Real Estate Loans:
Residential, one- to four-family⁽¹⁾	$	448	$	233	$	1,656	$	2,337	$	161,669	$	164,006	$	2,035
Home equity		239		195		589		1,023		48,908		49,931		569
Commercial⁽²⁾		-		-		-		-		288,975		288,975		-
Construction - commercial		-		-		-		-		22,615		22,615		-
Other Loans:
Commercial⁽³⁾		-		-		-		-		23,358		23,358		-
Consumer		14		5		-		19		1,314		1,333		10
Total	$	701	$	433	$	2,245	$	3,379	$	546,839	$	550,218	$	2,614

	30-59 Days		60-89 Days		90 Days or More		Total Past			Current	Total Loans		Loans on Non-
	Past Due		Past Due		Past Due		Due			Due	Receivable		Accrual
	(Dollars in thousands)
December 31, 2021:
Real Estate Loans:
Residential, one- to four-family⁽¹⁾	$	373	$	758	$	1,096	$	2,227	$	156,599	$	158,826	$	1,878
Home equity		265		146		532		943		47,128		48,071		636
Commercial⁽²⁾		-		-		-		-		266,525		266,525		7,002
Construction - commercial		-		-		-		-		21,824		21,824		-
Other Loans:
Commercial⁽³⁾		-		-		-		-		23,216		23,216		-
Consumer		7		7		5		19		1,298		1,317		5
Total	$	645	$	911	$	1,633	$	3,189	$	516,590	$	519,779	$	9,521


		Residential			Business						Commercial						Total
		Properties			Assets			Land			Property			Other			Loans
	(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family	$		146	$		—	$		—	$		—	$		—	$		146
Home Equity			14			—			—			—			—			14
Total	$		160	$		—	$		—	$		—	$		—	$		160


		YTD 2023			2022			2021			2020			2019			Prior			Revolving Loans Amortized Cost Basis			Total
		(Dollars in thousands)
Residential, one-to four-family(1):
Pass	$		7,149	$		36,746	$		30,877	$		18,653	$		10,618	$		68,113	$		—	$		172,156
Substandard			—			195			42			95			285			2,167			—			2,784
Doubtful			—			—			—			—			—			—			—			—
Total	$		7,149	$		36,941	$		30,919	$		18,748	$		10,903	$		70,280	$		—	$		174,940
Current period gross chargeoffs	$		—	$		—	$		—	$		—	$		—	$		—	$		—	$		—

Home Equity:
Pass	$		1,598	$		3,319	$		117	$		52	$		323	$		620	$		44,212	$		50,241
Substandard			—			—			—			—			—			—			509			509
Doubtful			—			—			—			—			—			—			—			—
Total	$		1,598	$		3,319	$		117	$		52	$		323	$		620	$		44,721	$		50,750
Current period gross chargeoffs	$		—	$		—	$		—	$		—	$		—	$		—	$		—	$		—

Commercial Real Estate(2):
Pass	$		9,954	$		85,595	$		54,899	$		46,951	$		39,499	$		77,836	$		—	$		314,734
Special mention			—			—			—			995			691			—			—			1,686
Substandard			—			—			—			1,242			5,491			3,834			—			10,567
Doubtful			—			—			—			—			—			—			—			—
Total	$		9,954	$		85,595	$		54,899	$		49,188	$		45,681	$		81,670	$		—	$		326,987
Current period gross chargeoffs	$		—	$		—	$		—	$		—	$		—	$		—	$		—	$		—

Commercial Loans:
Pass	$		286	$		2,595	$		868	$		693	$		2,226	$		7,379	$		—	$		14,047
Special mention			—			—			311			—			816			—			—			1,127
Substandard			—			—			—			—			3,080			331			—			3,411
Doubtful			—			—			—			—			—			—			—			—
Total	$		286	$		2,595	$		1,179	$		693	$		6,122	$		7,710	$		—	$		18,585
Current period gross chargeoffs	$		—	$		—	$		—	$		—	$		—	$		—	$		—	$		—

Consumer Loans:
Pass	$		167	$		314	$		103	$		171	$		4	$		135	$		217	$		1,111
Substandard			—			—			3			2			—			—			35			40
Doubtful			—			—			—			—			—			—			—			—
Total	$		167	$		314	$		106	$		173	$		4	$		135	$		252	$		1,151
Current period gross chargeoffs	$		—	$		8	$		3	$		3	$		—	$		—	$		18	$		32


	Pass/Performing		Special Mention		Substandard		Doubtful		Loss		Total
	(Dollars in thousands)
June 30, 2022
Real Estate Loans:
Residential, one- to four-family⁽¹⁾	$	161,775	$	-	$	2,231	$	-	$	-	$	164,006
Home equity		48,886		-		1,045		-		-		49,931
Commercial⁽²⁾		282,026		5,876		1,073		-		-		288,975
Construction - commercial		22,615		-		-		-		-		22,615
Other Loans:
Commercial⁽³⁾		19,626		1,211		2,521		-		-		23,358
Consumer		1,323		-		6		-		4		1,333
Total	$	536,251	$	7,087	$	6,876	$	-	$	4	$	550,218


					Non-Accruing				Accruing				TDRs That Have Defaulted on Modified Terms Year to Date
	Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment		Number of Loans		Recorded Investment
	(Dollars in thousands)
At June 30, 2022
Real Estate Loans:
Residential, one- to four-family		7	$	252		1	$	8		6	$	244		-	$	-
Home equity		2		23		1		14		1		9		-		-
Total		9	$	275		2	$	22		7	$	253		-	$	-


At December 31, 2021
Real Estate Loans:
Residential, one- to four-family		7	$	261		1	$	11		6	$	250		-	$	-
Home equity		2		24		1		15		1		9		1		15
Commercial⁽¹⁾		1		7,002		1		7,002		-		-		-		-
Total		10	$	7,287		3	$	7,028		7	$	259		1	$	15



	For the Three Months Ended June 30, 2022						For The Three Months Ended June 30, 2021
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
		(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family		-	$	-	$	-		1	$	38	$	38
Home equity		-		-		-		1		10		10
Total		-	$	-	$	-		2	$	48	$	48


	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Add Co-Borrower/ Guarantor		Combination Term Extension and Add Co-Borrower		Percentage of Total Class of Financing Receivable
	(Dollars in thousands)

Real Estate Loans
Commercial real estate	$	—	$	—	$	—	$	—	$	4,935	$	—		1.50	%
Other loans
Commercial		—		—		—		—		—		1,114		5.80	%
Total	$	—	$	—	$	—	$	—	$	4,935	$	1,114


		Term Extension and Added Co-Borrower
Loan Type		Financial Effect

Commercial Real Estate		Added a co-borrower with financial ability to strengthen the credit risk related to this particular loans. No other modification was made to this loan that had a financial effect on the borrower(s).
Other - Commercial		Added a weighted-average of 5 years to the life of the loans, which reduced the monthly payment amount for the borrowers. Added a co-borrower with financial ability to strengthen the credit risk related to these particular loans.

	For the Six Months June 30, 2022						For the Six Months June 30, 2021
	Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Loans		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
	(Dollars in thousands)
Real Estate Loans:
Residential, one- to four-family		-	$	-	$	-		1	$	38	$	38
Home equity		-		-		-		1		10		10
Total		-	$	-	$	-		2	$	48	$	48


	Contract Amount
	June 30,		December 31,
	2022		2021
	(Dollars in thousands)

Commitments to grant loans	$	41,504	$	61,234
Unfunded commitments under lines of credit		76,288		73,387


	2023					2022
	Options		Weighted Average Exercise Price		Remaining Contractual Life	Options		Weighted Average Exercise Price		Remaining Contractual Life
Outstanding at beginning of year		58,857	$	14.38			64,548	$	14.38
Granted		—		—			—		—
Exercised		—		—			—		—
Forfeited		—		—			—		—
Outstanding at end of period		58,857	$	14.38	3.3 years		64,548	$	14.38	4.3 years

Options exercisable at end of period		58,857	$	14.38	3.3 years		64,548	$	14.38	4.3 years

Fair value of options granted		—		—			—	$	—


	At June 30, 2021		Weighted Average Grant Price (per Share)
Unvested shares outstanding at beginning of year	1,618	$	14.38
Granted	-		-
Vested	-		-
Unvested shares outstanding at end of period	1,618	$	14.38


Grant Date	Number of Restricted Stock Awards	Vesting		Fair Value per Share of Award on Grant Date	Awardees

March 17, 2022	4,577	100% on December 9, 2022	$	15.00	Non-employee directors
March 30, 2022	22,555	100% on March 31, 2025 if three year performance metric is achieved	$	14.96	Employees


	For the Six Months Ended June 30, 2022						For The Six Months Ended June 30, 2021
	Pre-Tax Amount		Tax Benefit		Net of Tax Amount		Pre-Tax Amount		Tax Benefit			Net of Tax Amount
	(Dollars in thousands)
Net unrealized losses on securities available for sale:
Net unrealized losses arising during the period	$	(12,105)	$	2,542	$	(9,563)	$	(718)	$	151	$	(567)
Less: reclassification adjustment related to:
Recovery on previously impaired investment securities included in net income		(10)		2		(8)		(32)		7		(25)
Total Other Comprehensive Loss	$	(12,115)	$	2,544	$	(9,571)	$	(750)	$	158	$	(592)


	Amounts Reclassified from Accumulated
Details about Accumulated Other	Other Comprehensive (Loss) Income				Affected Line Item
Comprehensive (Loss) Gain	for the three months ended June 30,				on the Consolidated
Components	2022		2021		Statements of Income
	(Dollars in thousands)
Net unrealized losses on securities available for sale:
Recovery on previously impaired investment securities	$	(4)	$	(11)	Recovery on previously impaired investment securities
Provision for income tax expense		1		3	Income Tax Expense
Total reclassification for the period	$	(3)	$	(8)	Net Income


	Six Months Ended June 30, 2022
	Compared to
	Six Months Ended June 30, 2021
	Rate		Volume			Net Change
	(Dollars in thousands)
Interest-earning assets:
Interest-earning deposits & federal funds sold	$	40	$	(4)	$	36
Securities		(9)		100		91
Loans, including fees		128		(116)		12
Total interest-earning assets		159		(20)		139
Interest-bearing liabilities:
Demand & NOW accounts		(2)		3		1
Money market accounts		(1)		17		16
Savings accounts		-		2		2
Time deposits		(422)		(131)		(553)
Total deposits		(425)		(109)		(534)
Other interest-bearing liabilities:
Borrowed funds & other interest-bearing liabilities		(7)		(65)		(72)
Total interest-bearing liabilities		(432)		(174)		(606)
Total change in net interest income	$	591	$	154	$	745