Ballston Spa Bancorp, Inc.: Form 10-Q for the period ended Mar 31, 2026

The following management discussion and analysis of the Company’s consolidated financial condition as of March 31, 2026 and the results of operations for the three months ended March 31, 2026 and 2025 should be read in conjunction with the audited Consolidated Financial Statements, including notes thereto, and the other information therein included in the Company’s Special Financial Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission, and in conjunction with the Consolidated Statements of Financial Condition as of March 31, 2026, the Consolidated Statements of Income, the Consolidated Statements of Comprehensive Income, the Consolidated Statements of Changes in Stockholders’ Equity and the Consolidated Statements of Cash Flows for the three months ended March 31, 2026 and 2025. The Consolidated Statement of Financial Condition as of December 31, 2025 was derived from the audited Consolidated Statements of Financial Condition that was included in the Company’s Special Financial Report on Form 10-K for the year ended December 31, 2025. As used in this Quarterly Report on Form 10-Q, “we,” “us,” “our,” and the “Company” refer to Ballston Spa Bancorp, Inc., and its consolidated subsidiaries, unless otherwise noted.

Forward-Looking Statements

This quarterly report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, which can be identified by the use of words such as “estimate,” “project,” “believe,” “intend,” “anticipate,” “assume,” “plan,” “seek,” “expect,” “will,” “may,” “should,” “indicate,” “would,” “believe,” “contemplate,” “continue,” “target” and words of similar meaning. These forward-looking statements include, but are not limited to:

• statements of our goals, intentions and expectations;
• statements regarding our business plans, prospects, financial condition and performance, growth and operating strategies;
• statements regarding the quality of our loan and investment portfolios; and
• estimates of our risks and future costs and benefits.

These forward-looking statements are based on our current beliefs and expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. We are under no duty to and do not take any obligation to update any forward-looking statements after the date of this report.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

• general economic conditions, either nationally or in our market areas, that are worse than expected, including potential recessionary conditions;
• inflation and changes in the interest rate environment that reduce our margins and yields, the fair value of financial instruments or our level of loan originations, and/or increase the level of defaults, losses and prepayments on loans we have made and make;
• changes in the level and direction of loan delinquencies and write-offs and changes in estimates of and the methodology calculating the adequacy of the allowance for credit losses;
• our ability to access cost-effective funding;
• changes in liquidity, including the size and composition of our deposit portfolio and the percentage of uninsured deposits in the portfolio;
• fluctuations in real estate values and both residential and commercial real estate market conditions;
• demand for loans and deposits in our market area;
• our ability to implement and change our business strategy;
• competition among depository and other financial institutions;
• adverse changes in the securities or secondary mortgage markets;
• changes in laws or government regulations or policies affecting financial institutions, including changes in regulatory fees, capital requirements and insurance premiums or changes in the fiscal or monetary policies of the U.S. Treasury or Board of Governors of the Federal Reserve System;
• the imposition of tariffs or other domestic or international governmental policies and any retaliatory responses;
• the impact of any federal government shutdown;
• changes in the quality or composition of our loan or investment portfolios;
• technological changes that may be more difficult or expensive than expected to implement;
• the failure to maintain current technologies and/or to successfully implement future information technology enhancements;
• the inability of third-party providers to perform as expected;
• a failure or breach of our operational or security systems or infrastructure, including cyberattacks;
• our ability to manage market risk, credit risk and operational risk;
• changes in consumer spending, borrowing and savings habits;
• changes in accounting policies and practices, as may be adopted by the bank regulatory agencies, the Financial Accounting Standards Board, the Securities and Exchange Commission or the Public Company Accounting Oversight Board;
• the current or anticipated impact of military conflict, terrorism or other geopolitical event;
• our ability to retain key employees;
• our compensation expense associated with equity allocated or awarded to our employees; and
• changes in the financial condition, results of operations or future prospects of issuers of securities that we own.

Because of these and a wide variety of other uncertainties, our actual future results may be materially different from the results indicated by these forward-looking statements.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS OF BALLSTON SPA BANCORP, INC.

The objective of this section is to help potential investors understand Ballston Spa Bancorp Inc.’s (“Ballston Spa”) views on its results of operations and financial condition. In order to fully understand this analysis, the reader is encouraged to review the consolidated financial statements and accompanying notes thereto appearing elsewhere in this report.

Critical Accounting Policies

Our accounting policies are integral to understanding the results reported. We consider accounting policies that require management to exercise significant judgment or discretion or to make significant assumptions that have, or could have, a material impact on the carrying value of certain assets or on income to be critical accounting policies. As of March 31, 2026, there have been no material changes to our critical accounting policies as compared to the critical accounting policies disclosed in our most recent Special Financial Report on Form 10-K for the year ended December 31, 2025.

Comparison of Financial Condition at March 31, 2026 and December 31, 2025

Total Assets. Total assets increased $13.1 million, or 1.41%, to $941.6 million at March 31, 2026 from $928.5 million at December 31, 2025. The increase was primarily the result of a $19.7 million increase in cash and cash equivalents, a $0.6 million increase in premises and equipment and a $0.9 million increase in other assets partially offset by a $6.1 million decrease in investment securities (including FHLB and FRB stock) and a $2.2 million decrease in net total loans.

Cash and Cash Equivalents. Cash and cash equivalents increased $19.7 million, or 70.11%, to $47.8 million at March 31, 2026 from $28.1 million at December 31, 2025, primarily as a result of the Company’s junior subordinated note issuance of $25.4 million, net of applicable fees, on March 25, 2026.

Securities. Total securities decreased $3.9 million, or 5.86%, to $62.7 million at March 31, 2026 from $66.6 million at December 31, 2025. The decrease was due to the Bank increasing its overall liquidity position as well as the regular principal and interest payments on Ballston Spa’s securities portfolio.

Loans. Loans held for investment, net, decreased $2.2 million, or 0.28%, to $792.3 million at March 31, 2026 from $794.5 million at December 31, 2025. Commercial real estate loans decreased $1.6 million, or 0.43%, to $368.8 million at March 31, 2026 from $370.4 million at December 31, 2025. Residential mortgage loans decreased $1.0 million, or 0.31%, to $317.7 million at March 31, 2026 from $318.7 million at December 31, 2025.

Deposits. Deposits increased $42.5 million, or 5.55%, to $807.7 million at March 31, 2026 from $765.2 million at December 31, 2025. NOW and money market accounts increased $42.5 million, or 11.12%, to $424.8 million at March 31, 2026 from $382.3 million at December 31, 2025. Savings accounts decreased $1.8 million, or 2.06%, to $85.4 million at March 31, 2026 from $87.2 million at December 31, 2025. Non-interest-bearing deposits decreased $2.2 million, or 1.48%, to $146.3 million at March 31, 2026 from $148.5 million at December 31, 2025. Certificates of deposit increased $4.1 million, or 2.78%, to $151.3 million at March 31, 2026 from $147.2 million at December 31, 2025. The increase in certificates of deposit and the decrease in savings accounts reflected the decision of many depositors to take advantage of increased market rates being paid on certificates of deposit.

Borrowings. As of March 31, 2026, Ballston Spa had $20.0 million in Federal Home Loan Bank advances, compared to $74.0 million in Federal Home Loan Bank advances at December 31, 2025. The decrease in Federal Home Loan Bank advances was primarily due to deposit growth during the three months ended March 31, 2026, as well as the issuance of the Company’s junior subordinated note of $25.4 million, net of applicable fees, on March 25, 2026.

Junior subordinated debentures. The Company issued $26.0 million ($25.4 million net of applicable fees) in subordinated notes on March 25, 2026. The subordinated notes issued mature on April 1, 2036 and bear interest at a fixed annual rate of 7.375%, payable quarterly in arrears, up to but excluding April 1, 2031. From and including April 1, 2031 to but excluding the maturity date or early redemption date, the interest rate will reset quarterly to an interest rate per annum initially equal to the then-current three-month Secured Overnight Financing Rate plus 378 basis points, payable quarterly in arrears. The Company is entitled to redeem the Subordinated Notes, in whole or in part, any time on or after April 1, 2031.

Total Shareholders’ Equity. Total shareholders’ equity decreased $0.4 million, or 0.56%, to $70.7 million at March 31, 2026 from $71.1 million at December 31, 2025. The decrease resulted from other comprehensive loss due to unrealized losses in the investment portfolio as well as dividend payments which were offset by net income.

Average Balances and Yields. The following table sets forth average balance sheets, average yields and costs, and certain other information for the periods indicated. No tax-equivalent yield adjustments have been made, as the effects are immaterial. Average balances are calculated using month-end average balances, rather than daily average balances. Ballston Spa believes the use of month-end average balances is representative of its operations. Non-accrual loans are included in average balances only. Average yields include the effect of deferred fees, discounts, and premiums that are amortized or accreted to interest income or interest expense. Deferred loan fees are immaterial.

(Dollars in thousands)

(1) Annualized.

(2) Net interest-earning assets represent total interest-earning assets less total interest-bearing liabilities.

(3) Net interest margin represents net interest income divided by average total interest-earning assets.

Rate/Volume Analysis

The following table sets forth the effects of changing rates and volumes on Ballston Spa’s net interest income. The rate column shows the effects attributable to changes in rate (changes in rate multiplied by prior volume). The volume column shows the effects attributable to changes in volume (changes in volume multiplied by prior rate). The net column represents the sum of the prior columns. Changes attributable to both rate and volume that cannot be segregated have been allocated proportionately based on the changes due to rate and the changes due to volume.

(Dollars in thousands)

Comparison of Operating Results for the Three Months Ended March 31, 2026 and 2025

General. Net income decreased $1.1 million, or 84.62%, to $0.2 million for the three months ended March 31, 2026 from $1.3 million for the three months ended March 31, 2025. The decrease was driven by an increase in non-interest expenses—primarily compensation and benefits, merger-related expense, and occupancy and equipment—partially offset by an increase in net interest income.

Interest Income. Interest income increased $0.5 million, or 4.81%, to $10.9 million for the three months ended March 31, 2026 from $10.4 million for the three months ended March 31, 2025. The increase resulted primarily from a $0.7 million, or 7.53%, increase in interest income on loans, offset in part by a $0.2 million, or 22.22%, decrease in income on investments. The average balance of loans increased $34.8 million, or 4.53%, to $802.3 million for the three months ended March 31, 2026, compared to $767.5 million for the three months ended March 31, 2025. In addition, there was an increase of 16 basis points in the average yield of loans to 5.05% for the three months ended March 31, 2026 from 4.89% for the three months ended March 31, 2025. The average balance of securities decreased $10.7 million, or 12.97%, to $71.8 million for the three months ended March 31, 2026, compared to $82.5 million for the three months ended March 31, 2025. The average yield on securities decreased by 17 basis points to 5.17% for the three months ended March 31, 2026 from 5.34% for the three months ended March 31, 2025.

Interest Expense. Interest expense increased $0.2 million or 5.00%, to $4.2 million for the three months ended March 31, 2026 from $4.0 million for the three months ended March 31, 2025. The increase in interest expense resulted primarily from an increase in interest expense on deposits. The average rate Ballston Spa paid on deposits increased 12 basis points to 2.32% for the three months ended March 31, 2026 from 2.20% for the three months ended March 31, 2025 and the average balance of deposits increased $54.8 million, or 9.42%, to $636.5 million for the three months ended March 31, 2026 from $581.7 million for the three months ended March 31, 2025. The overall increase was driven by an increase in the average balance of money market accounts and time deposit accounts. The average balance of money market accounts increased by $52.4 million, or 21.37%, to $297.6 million at March 31, 2026 from $245.2 million at March 31, 2025. Additionally, there was an increase in the average balance of time deposits of $18.6 million, or 14.30%, from $130.1 million at March 31, 2025 to $148.7 million at March 31, 2026. There was a decrease in the rate paid on these accounts of 43 basis points from 4.17% for the three months ended March 31, 2025 to 3.74% for the three months ended March 31, 2026.

Net Interest Income. Net interest income increased $0.4 million, or 6.25%, to $6.8 million for three months ended March 31, 2026 from $6.4 million for the three months ended March 31, 2025. Ballston Spa had increases in its net interest rate spread of 9 basis points to 2.57% for the three months ended March 31, 2026 from 2.48% for the three months ended March 31, 2025, and net interest margin of 7 basis points to 3.12% for the three months ended March 31, 2026 from 3.05% for the three months ended March 31, 2025, and a decrease in its net interest-earning assets of $1.1 million, or 0.55%, to $198.6 million for the three months ended March 31, 2026 from $199.7 million for the three months ended March 31, 2025. The increases in Ballston Spa’s net interest rate spread and net interest margin were primarily a result of increases in the yields on interest-earning assets, coupled with a leveling off of the cost of interest-bearing liabilities.

Provision for credit losses. Ballston Spa establishes provisions for credit losses, which are charged to operations in order to maintain the allowance for credit losses at a level Ballston Spa considers necessary to absorb expected credit losses in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. In determining the level of the allowance for credit losses, Ballston Spa considers, among other things, past and current loss experience, evaluations of real estate collateral, current economic conditions, volume and type of lending, adverse situations that may affect a borrower’s ability to repay a loan and the levels of delinquent loans. The amount of the allowance is based on estimates and the ultimate losses may vary from such estimates as more information becomes available or conditions change. Ballston Spa assesses the allowance for credit losses and makes provisions for credit losses on a quarterly basis.

Based on Ballston Spa’s evaluation of the above factors, Ballston Spa recorded a provision for credit losses of $180,000 for the three months ended March 31, 2026 and $150,000 for the three months ended March 31, 2025, respectively. Ballston Spa had $0.6 million of non-performing loans and $5.5 million of classified and special mention loans at March 31, 2026, and net charge offs of $13 thousand for the three months ended March 31, 2026. This compares to $1.4 million of non-performing loans and $7.1 million of classified and special mention loans at December 31, 2025. Net charge-offs for the three months ended March 31, 2025 were $60 thousand. Ballston Spa’s allowance for credit losses as a percentage of total loans was 1.11% at March 31, 2026 compared to 1.09% at December 31, 2025.

Non-interest Income. Non-interest income increased $0.1 million, or 11.11%, to $1.0 million for three months ended March 31, 2026 from $0.9 million for the three months ended March 31, 2025, primarily as a result of a net gain on the sale and servicing of loans during the three months ended March 31, 2026 of $0.2 million.

Non-interest Expense. Non-interest expense increased $1.6 million, or 29.09%, to $7.1 million for the three months ended March 31, 2026 from $5.5 million for the three months ended March 31, 2025, primarily as a result of a $0.8 million increase in merger expense, a $0.5 million, or 14.44%, increase in compensation and employee benefits and a $0.3 million, or 43.12%, increase in occupancy and equipment. The increase in merger expense related to legal and professional consulting contracts related to the strategic merger. The increase in compensation and employee benefits represents annual merit adjustments and increased health care and pension plan costs. The increase in occupancy and equipment represents increased spending in various technology and branch infrastructure initiatives throughout the three months ended March 31, 2026, including the renovation of our home office branch in downtown Ballston Spa, NY.

Income Tax Expense. The provision for income taxes was $0.2 million for the three months ended March 31, 2026, compared to $0.3 million for the three months ended March 31, 2025.

Market Risk

General. Ballston Spa’s most significant form of market risk is interest rate risk because, as a financial institution, the majority of its assets and liabilities are sensitive to changes in interest rates. Therefore, a principal part of Ballston Spa’s operations is to manage interest rate risk and limit the exposure of its financial condition and results of operations to changes in market interest rates. Ballston Spa’s ALCO Committee, which consists of members of management, is responsible for evaluating the interest rate risk inherent in its assets and liabilities, for determining the level of risk that is appropriate, given its business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the policy and guidelines approved by Ballston Spa’s board of directors. Ballston Spa currently utilizes a third-party modeling program, prepared on a quarterly basis, to evaluate its sensitivity to changing interest rates, given its business strategy, operating environment, capital, liquidity and performance objectives, and for managing this risk consistent with the guidelines approved by the board of directors.

Ballston Spa has sought to manage its interest rate risk in order to minimize the exposure of its earnings and capital to changes in interest rates. Ballston Spa has implemented the following strategies to manage its interest rate risk:

• growing target deposit accounts;
• utilizing Ballston Spa’s investment securities portfolio as part of its balance sheet asset and liability and interest rate risk management strategy to reduce the impact of movements in interest rates on net interest income and economic value of equity, which can create temporary valuation adjustments to equity in Accumulated Other Comprehensive Income; and
• continuing to price Ballston Spa’s one-to-four family residential real estate loan products in a way that encourages borrowers to select its fixed-rate, longer term loans as opposed to variable-rate shorter term loans.

By following these strategies, Ballston Spa believes that it is better positioned to react to increases and decreases in market interest rates.

Ballston Spa generally does not engage in hedging activities, such as engaging in futures or options, or investing in high-risk mortgage derivatives, such as collateralized mortgage obligation residual interests, real estate mortgage investment conduit residual interests or stripped mortgage-backed securities.

Liquidity and Capital Resources

Liquidity is the ability to fund assets and meet obligations as they come due. Ballston Spa’s primary sources of funds consist of deposit inflows, loan repayments, and repayments from investment securities. In addition, Ballston Spa has the ability to collateralize borrowings in the wholesale markets or borrow advances from the Federal Home Loan Bank of New York. While maturities and scheduled amortization of loans and securities are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by general interest rates, economic conditions and competition. Ballston Spa’s ALCO Committee is responsible for establishing and monitoring its liquidity targets and strategies in order to ensure that sufficient liquidity exists for meeting the borrowing needs and deposit withdrawals of its customers as well as unanticipated contingencies. Ballston Spa seeks to maintain a ratio of liquid assets (including cash and federal funds sold) as a percentage of total deposits ranging between 1% and 25%. At March 31, 2026, this ratio was 5.00%. Ballston Spa believes that it has enough sources of liquidity to satisfy its short- and long-term liquidity needs as of March 31, 2026. Ballston Spa anticipates that it will maintain higher liquidity levels following the completion of the transaction.

Ballston Spa regularly adjusts its investments in liquid assets based upon its assessment of:

(i) expected loan demand;

(ii) expected deposit flows;

(iii) yields available on interest-earning deposits and securities; and

(iv) the objectives of Ballston Spa’s asset/liability management program.

Excess cash is invested generally in interest-earning deposits and short- and intermediate-term securities.

Ballston Spa’s most liquid assets are cash and cash equivalents. The levels of these assets depend on its operating, financing and investing activities during any given period. At March 31, 2026, cash and cash equivalents totaled $47.8 million. Securities classified as available-for-sale, which provide additional sources of liquidity, totaled $62.7 million at March 31, 2026.

At March 31, 2026, Ballston Spa had $65.3 million in outstanding loan commitments and $35.2 million of unused lines of credit. Certificates of deposit due within one year of March 31, 2026 totaled $141.2 million, or 10.00% of total deposits. If these deposits do not remain with Ballston Spa, it will be required to seek other sources of funds, including loan sales, other deposit products, including replacement certificates of deposit, securities sold under agreements to repurchase (repurchase agreements) and advances from the Federal Home Loan Bank of New York and other borrowing sources. Depending on market conditions, Ballston Spa may be required to pay higher rates on such deposits or other borrowings than it currently pays on the certificates of deposit due on or after March 31, 2026. Ballston Spa believes, however, based on past experience that a significant portion of such deposits will remain with it. Ballston Spa has the ability to attract and retain deposits by adjusting the interest rates offered.

Ballston Spa’s cash flows are derived from operating activities, investing activities and financing activities as reported in its Consolidated Statements of Cash Flows included in its Consolidated Financial Statements.

Ballston Spa’s primary investing activities are originating and purchasing loans and purchasing mortgage-backed securities. During the three months ending March 31, 2026, Ballston Spa originated $19.3 million of loans. Ballston Spa did not purchase any securities during the three months ended March 31, 2026.

Financing activities consist primarily of activity in deposit accounts. Ballston Spa experienced a net increase in total deposits of $42.5 million for the three months ended March 31, 2026. The increase resulted primarily from a $42.5 million increase in NOW and money market accounts and a $4.1 million increase in time deposits, offset by a $2.3 million decrease in demand deposit accounts and a $1.8 million decrease in savings accounts. Deposit flows are affected by the overall level of interest rates, the interest rates and products offered by Ballston Spa and its local competitors, and by other factors.

Ballston Spa had $20.0 million and $74.0 million in borrowings with the Federal Home Loan Bank of New York at March 31, 2026 and December 31, 2025, respectively. The decrease in Federal Home Loan Bank of New York borrowings was due to an increase in deposits and the issuance of $26.0 million in junior subordinated notes in March, 2026.

Ballston Spa National Bank is subject to various regulatory capital requirements, including a risk-based capital measure. The risk-based capital guidelines include both a definition of capital and a framework for calculating risk-weighted assets by assigning balance sheet assets and off-balance sheet items to broad risk categories. At March 31, 2026 and December 31, 2025, Ballston Spa National Bank exceeded all regulatory capital requirements. Ballston Spa National Bank is considered “well capitalized” under regulatory guidelines.

See tables below for a summary of actual capital amounts (dollars in thousands) and ratios as of March 31, 2026 and December 31, 2025 for the Bank and the Company (on a consolidated basis):

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 of the Notes to the Ballston Spa unaudited financial statements included in this document.

Impact of Inflation and Changing Prices

Ballston Spa’s consolidated financial statements and related notes have been prepared in accordance with generally accepted accounting principles (“GAAP”). GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of Ballston Spa’s operations. Unlike industrial companies, Ballston Spa’s assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on its performance than the effects of inflation.

Loan Portfolio Composition. The following table sets forth the composition of Ballston Spa’s loan portfolio by type of loan at the dates indicated.

(Dollars in thousands)

Non-Performing and Problem Assets

When a loan is 15 days past due, Ballston Spa sends the borrower a late charge notice. If the loan delinquency is not corrected, other forms of collections are implemented, including telephone calls and collection letters. Ballston Spa attempts personal, direct contact with the borrower to determine the reason for the delinquency, to ensure that the borrower correctly understands the terms of the loan and to emphasize the importance of making payments on or before the due date. If necessary, subsequent late charges and delinquency notices are issued and the account will be monitored on a regular basis thereafter. By the 90th day of delinquency, Ballston Spa will send the borrower a final demand for payment and it may refer the loan to legal counsel to commence foreclosure proceedings. Any of Ballston Spa’s loan officers can shorten these time frames in consultation with the senior lending officer.

Generally, loans are placed on non-accrual status when payment of principal or interest 90 days or more delinquent unless the loan is considered well-secured and in the process of collection. Loans are also placed on non-accrual status if collection of principal or interest in full is in doubt. When loans are placed on a non-accrual status, unpaid accrued interest is fully reversed, and further income is recognized only to the extent received. The loan may be returned to accrual status if both principal and interest payments are brought current and factors indicating doubtful collection no longer exist, including performance by the borrower under the loan terms for a six-month period. Ballston Spa’s Mortgage Lending Officer reports monitored loans, including all loans rated special mention, substandard, doubtful or loss, to the board of directors on a quarterly basis. In addition, management presents a quarterly loan loss allowance analysis to Ballston Spa’s board of directors.

The following table sets forth Ballston Spa’s loan delinquencies by type and amount at the dates indicated.

(In thousands)

Non-Performing Assets. The following table sets forth information regarding Ballston Spa’s non-performing assets as of March 31, 2026 and December 31, 2025.

(In thousands)

On the basis of this review of Ballston Spa’s loans, its classified and special mention loans at the dates indicated were as follows:

(In thousands)

Classification of Assets. Ballston Spa’s policies, consistent with regulatory guidelines, provide for the classification of loans and other assets that are considered to be of lesser quality as substandard, doubtful, or loss assets. An asset is considered substandard if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard assets include those assets characterized by the distinct possibility that Ballston Spa will sustain some loss if the deficiencies are not corrected. Assets classified as doubtful have all of the weaknesses inherent in those classified substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. Assets (or portions of assets) classified as loss are those considered uncollectible and of such little value that their continuance as assets is not warranted. Assets that do not expose Ballston Spa to risk sufficient to warrant classification in one of the aforementioned categories, but which possess potential weaknesses that deserve Ballston Spa’s close attention, are required to be designated as special mention. As of March 31, 2026 and December 31, 2025, Ballston Spa had $3.7 million and $4.9 million, respectively, in assets designated as special mention.

Allowance for Credit Losses. The allowance for credit losses is the amount estimated by management as necessary to absorb credit losses incurred in the loan portfolio that are both probable and reasonably estimable at the balance sheet date. Ballston Spa’s determination as to the classification of its assets and the amount of its loss allowances are subject to review by the OCC, which can require that Ballston Spa establish additional loss allowances. Ballston Spa regularly reviews its asset portfolio to determine whether any assets require classification in accordance with applicable regulations. On the basis of Ballston Spa’s review of its assets at March 31, 2026, Ballston Spa had $1.8 million of assets classified as substandard, and no assets classified as doubtful or loss. At December 31, 2025, Ballston Spa had $2.2 million of assets classified as substandard, and no assets classified as doubtful or loss.

The following table sets forth activity in Ballston Spa’s allowance for credit losses by portfolio class for periods indicated (in thousands).

Allocation of Allowance for credit losses. The following tables set forth the allowance for credit losses allocated by loan category and the percent of the allowance in each category to the total allocated allowance at the dates indicated. The allowance for credit losses allocated to each category is not necessarily indicative of future losses in any particular category and does not restrict the use of the allowance to absorb losses in other categories.

(In thousands)

Investment Activities

General. The goals of Ballston Spa’s investment policy is to maximize portfolio yield over the long term in a manner that is consistent with minimizing risk, and meeting liquidity needs, pledging requirements, and asset/liability management and interest rate risk strategies. Subject to loan demand and Ballston Spa’s interest rate risk analysis, Ballston Spa will increase the balance of its investment securities portfolio when it has excess liquidity.

At March 31, 2026, Ballston Spa’s investment portfolio consisted primarily of securities and obligations issued by U.S. government-sponsored enterprises totaling $3.0 million, securities and obligations issued by New York and its political subdivisions of $11.9 million, residential mortgage-backed securities of $42.3 million, collateralized mortgage obligations totaling $42 thousand and corporate securities of $5.5 million. At March 31, 2026, Ballston Spa also owned $5.7 million of Federal Home Loan Bank of New York stock. As a member of Federal Home Loan Bank of New York, Ballston Spa is required to purchase stock in the Federal Home Loan Bank of New York, which is carried at cost and classified as a restricted investment.

At March 31, 2026, all of Ballston Spa’s available-for-sale securities are carried at fair value through accumulated other comprehensive income.

For additional information regarding Ballston Spa’s investment securities portfolio, see Note 2 to the Notes to Consolidated Financial Statements.

Deposit Activities and Other Sources of Funds

General. Deposits and loan repayments are the major sources of Ballston Spa’s funds for lending and other investment purposes. Scheduled loan repayments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general interest rates and money market conditions.

Deposit Accounts. Deposits are primarily attracted from within Ballston Spa’s market area through the offering of a broad selection of deposit instruments, including non-interest-bearing demand deposits (such as checking accounts), interest-bearing demand accounts (such as NOW accounts), savings accounts, money market accounts and certificates of deposit. As of March 31, 2026, Ballston Spa holds $144.1 million of accounts from a variety of local municipal relationships. As of March 31, 2026 Ballston Spa also has $60.4 million of brokered deposits.

Ballston Spa also offers a variety of deposit accounts designed for the businesses operating in its market area. Ballston Spa’s business banking deposit products include a business checking account designed for small businesses, savings and money market accounts. Ballston Spa offers bill payment services through its online banking system.

Deposit account terms vary according to the minimum balance required, the time period the funds must remain on deposit and the interest rate, among other factors. In determining the terms of its deposit accounts, Ballston Spa considers the rates offered by its competition, the rates on borrowings, its liquidity needs, profitability to Ballston Spa, and customer preferences and concerns. Ballston Spa generally reviews its deposit mix and pricing weekly. Ballston Spa’s deposit pricing strategy has generally been to offer competitive rates on all types of deposit products, and to periodically offer special rates in order to attract deposits of a specific type or term.

The following table sets forth the distribution of total deposits by account type at the dates indicated.

(In thousands)

As of March 31, 2026 and December 31, 2025, the aggregate amount of uninsured deposits (deposits in amounts greater than $250,000, which is the maximum amount for federal deposit insurance), was $36.5 million and $28.8 million, respectively. Ballston Spa has no deposits that are uninsured for any reason other than being in excess of the maximum amount for federal deposit insurance.

Borrowings. Ballston Spa has the ability to utilize advances from the Federal Home Loan Bank of New York to supplement its investable funds. The Federal Home Loan Bank functions as a central reserve bank providing credit for member financial institutions. As a member, Ballston Spa is required to own capital stock in the Federal Home Loan Bank and is authorized to apply for advances on the security of such stock and certain of Ballston Spa’s mortgage loans and other assets (principally securities that are obligations of, or guaranteed by, the United States), provided certain standards related to creditworthiness have been met. Advances are made under several different programs, each having its own interest rate and range of maturities. Depending on the program, limitations on the amount of advances are based either on a fixed percentage of an institution’s net worth or on the Federal Home Loan Bank’s assessment of the institution’s creditworthiness.

At March 31, 2026 and December 31, 2025, Ballston Spa had $20.0 million and $74.0 million, respectively, of outstanding advances from the Federal Home Loan Bank of New York. At March 31, 2026, Ballston Spa had access to additional Federal Home Loan Bank advances of up to $272.9 million based on Ballston Spa’s unused qualifying collateral available to support such advances.

Ballston Spa also has the ability to borrow from the Federal Reserve Bank of New York to supplement its investable funds. All borrowings are secured by pledges of qualifying loans and investment securities and are generally on overnight terms with interest rates quoted at the time of the borrowing. At March 31, 2026 and December 31, 2025, Ballston Spa had no outstanding borrowings with the Federal Reserve Bank of New York. At March 31, 2026, Ballston Spa had board of directors’ authorization to borrow up to $3.0 million from the Federal Reserve Bank of New York.

Recent Accounting Pronouncements

For a discussion of the impact of recent accounting pronouncements, see Note 1 of the Notes to the Consolidated Financial Statements.

Impact of Inflation and Changing Prices

Our Consolidated Financial Statements and related notes have been prepared in accordance with GAAP. GAAP generally requires the measurement of financial position and operating results in terms of historical dollars without consideration for changes in the relative purchasing power of money over time due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike industrial companies, our assets and liabilities are primarily monetary in nature. As a result, changes in market interest rates have a greater impact on our performance than the effects of inflation.

For information regarding material risk, see “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation—Market Risk.”

Evaluation of Disclosure Controls and Procedures

Management is responsible for the disclosure controls and procedures of the Company. Disclosure controls and procedures are controls and other procedures of an issuer that are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods required by the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be so disclosed by an issuer is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. As of the end of the period covered by this report, an evaluation was performed under the supervision and with the participation of the Company’s management, including the Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer), of the effectiveness of the design and operation of the Corporation’s disclosure controls and procedures. Based on that evaluation, expect as discussed below, the Company’s Chief Executive Officer and the Chief Financial Officer concluded that, as of the end of the period covered by this report, the Company’s disclosure controls and procedures were effective for the purpose of ensuring that the information required to be disclosed in the reports that the Company files or submits under the Exchange Act with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting (as defined in Rule 13a-15(f)) during the quarter ended March 31, 2026 that materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

There have been no material changes in risk factors applicable to the Company from those disclosed in “Risk Factors” of the Company’s Special Financial Report on Form 10-K for the year ended December 31, 2025.