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FINANCIAL INSTITUTIONS INC

FINANCIAL INSTITUTIONS INCFISI決算レポート

Nasdaq · 金融 · 全国商業銀行

The Mizuho Financial Group, Inc. , known from 2000 to 2003 as Mizuho Holdings and abbreviated as MHFG or simply Mizuho, is a Japanese banking holding company headquartered in the Ōtemachi district of Chiyoda, Tokyo, Japan. The group was formed in 2000–2002 by merger of Dai-Ichi Kangyo Bank, Fuji Bank, and Industrial Bank of Japan. The name mizuho (瑞穂) literally means "abundant rice" in Japanese and "harvest" in the figurative sense.

What changed in FINANCIAL INSTITUTIONS INC's 10-K — 2024 vs 2025

Top changes in FINANCIAL INSTITUTIONS INC's 2025 10-K

387 paragraphs added · 421 removed · 328 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

91 edited+7 added−21 removed143 unchanged
In addition to market competitive base wages, our rewards programs include performance-based bonus opportunities, equity compensation, Company-sponsored retirement plans, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, hybrid remote work opportunities, flexible work schedules, and employee assistance programs.
In addition to competitive market base wages, our rewards programs include performance-based bonus opportunities, equity compensation, Company-sponsored retirement plans, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, hybrid remote work opportunities, flexible work schedules, and employee assistance programs.
Includes SBA “Guaranteed Interest Certificates,” which represent a beneficial interest in the entire SBA-guaranteed portion of an individual loan, provided the loan is for commercial and industrial purposes. - 8 - Table of Contents • Investment grade municipal securities, including revenue, tax and bond anticipation notes, statutory installment notes and general obligation bonds; • Certain creditworthy unrated securities issued by municipalities; • Certificates of deposit; • Subordinated debt issues for a public bank holding company; • Equity securities at the holding company level; • Derivative instruments; and • Limited partnership investments.
Includes SBA “Guaranteed Interest Certificates,” which represent a beneficial interest in the entire SBA-guaranteed portion of an individual loan, provided the loan is for commercial and industrial purposes. • Investment grade municipal securities, including revenue, tax and bond anticipation notes, statutory installment notes and general obligation bonds; • Certain creditworthy unrated securities issued by municipalities; • Certificates of deposit; • Subordinated debt issues for a public bank holding company; - 8 - Table of Contents • Equity securities at the holding company level; • Derivative instruments; and • Limited partnership investments.
Commercial construction loans typically have a 3-year term or less, while other commercial mortgages generally have a term of up to 10 years. The majority of our commercial mortgage loans are secured by first liens on the real estate and are typically amortized over a 15- to 30-year period.
Commercial construction loans typically have a 3-year term or less, while other commercial mortgages generally have a term of up to 10 years. The majority of our commercial mortgage loans are secured by first liens on real estate and are typically amortized over a 15- to 30-year period.
The Dodd-Frank Act, Economic Growth Act, and Volcker Rule The Dodd-Frank Act significantly changed the regulation of financial institutions, such as community banks, thrifts, and small bank and thrift holding companies, and the financial services industry.
The Dodd-Frank Act, Economic Growth Act, and Volcker Rule The Dodd-Frank Act significantly changed the regulation of financial institutions, such as community banks, thrifts, small bank and thrift holding companies, and the financial services industry.
For further information regarding the capital ratios and leverage ratio of the Company and the Bank, see the section titled “Sources and Uses of Capital Resources” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Annual Report on Form 10-K.
For further information regarding the capital ratios and leverage ratio of the Company and the Bank, see section titled “Sources and Uses of Capital Resources” in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, included in this Annual Report on Form 10-K.
Our current policy generally limits security purchases to the following: • U.S. treasury securities; • U.S. government agency securities, which are securities issued by official Federal government bodies (e.g., the Government National Mortgage Association (“GNMA”) and the Small Business Administration (“SBA”)), and U.S. government-sponsored enterprise securities, which are securities issued by independent organizations that are in part sponsored by the federal government (e.g., the Federal Home Loan Bank (“FHLB”) system, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Farm Credit Bureau); • Mortgage-backed securities (“MBS”), which include mortgage-backed pass-through securities, collateralized mortgage obligations, and multi-family MBS issued by GNMA, FNMA and FHLMC; • Government Guaranteed Loans (“GGLs”) or loans to business enterprises guaranteed by the Small Business Administration (“SBA”) or U.S.
Our current policy generally limits securities purchases to the following: • U.S. treasury securities; • U.S. government agency securities, which are securities issued by official Federal government bodies (e.g., the Government National Mortgage Association (“GNMA”) and the Small Business Administration (“SBA”)), and U.S. government-sponsored enterprise securities, which are securities issued by independent organizations that are in part sponsored by the federal government (e.g., the Federal Home Loan Bank (“FHLB”) system, the Federal National Mortgage Association (“FNMA”), the Federal Home Loan Mortgage Corporation (“FHLMC”) and the Federal Farm Credit Bureau); • Mortgage-backed securities (“MBS”), which include mortgage-backed pass-through securities, collateralized mortgage obligations, and multi-family MBS issued by GNMA, FNMA and FHLMC; • Government Guaranteed Loans (“GGLs”) or loans to business enterprises guaranteed by the Small Business Administration (“SBA”) or U.S.
We rely primarily on competitive pricing of our deposit products, customer service and long-standing relationships with customers to attract and retain these deposits and seek to make our services convenient to the community by offering a choice of several delivery systems and channels, including telephone, mail, online, automated teller machines (“ATMs”), debit cards, point-of-sale transactions, automated clearing house transactions (“ACH”), ITMs, remote deposit, and mobile banking via telephone or wireless devices.
We rely primarily on competitive pricing of our deposit products, customer service and long-standing relationships with customers to attract and retain these deposits and seek to make our services convenient to the community by offering a choice of several delivery systems and channels, including telephone, mail, online, automated teller machines (“ATMs”), debit cards, point-of-sale transactions, automated clearing house transactions (“ACH”), remote deposit, and mobile banking via telephone or wireless devices.
Federal Deposit Insurance Assessments The Bank is a member of the FDIC and pays an insurance premium to the FDIC to fund the DIF based upon the Bank’s assessable assets on a quarterly basis. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the U.S.
Federal Deposit Insurance Assessments The Bank is a member of the FDIC and pays an insurance premium to the FDIC to fund the DIF based upon the Bank’s assessable assets on a quarterly basis. Deposits are insured up to applicable limits by the FDIC and such insurance is backed by the full faith and credit of the U.S. Government.
Our investment securities strategy is focused on providing liquidity to meet loan demand and redeeming liabilities, providing collateral to meet pledging requirements, maximize after tax income, managing credit risks, managing overall interest rate risks and maximizing portfolio yield.
Our investment securities strategy is focused on providing liquidity to meet loan demand and redeeming liabilities, providing collateral to meet pledging requirements, maximizing after tax income, managing credit risks, managing overall interest rate risks and maximizing portfolio yield.
We also champion five core corporate values that employees at all levels of our company are expected to live up to by being humble, empowered, ambitious, resilient and transparent.
We also champion five core corporate values, our HEART values, that employees at all levels of our Company are expected to live up to by being humble, empowered, ambitious, resilient and transparent.
Approximately 92% of the loans and lines in our residential real estate portfolios were in first lien positions at December 31, 2024. We do not engage in sub-prime or other high-risk residential mortgage lending as a line of business. We sell certain one-to-four family residential mortgages to the secondary mortgage market and typically retain the right to service the mortgages.
Approximately 92% of the loans and lines in our residential real estate portfolios were in first lien positions at December 31, 2025. We do not engage in sub-prime or other high-risk residential mortgage lending as a line of business. We sell certain one-to-four family residential mortgages to the secondary mortgage market and typically retain the right to service the mortgages.
This regulatory structure includes: • Real estate lending standards, which provide guidelines concerning loan-to-value ratios for various types of real estate loans; • Risk-based capital rules, including accounting for interest rate risk, concentration of credit risk and the risks posed by non-traditional activities; • Rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks; • Rules restricting types and amounts of equity investments; and • Rules addressing various safety and soundness issues, including operations and managerial standards, standards for asset quality, earnings and compensation standards.
This regulatory structure includes: • Real estate lending standards, which provide guidelines concerning loan-to-value ratios for various types of real estate loans; • Risk-based capital rules, including accounting for interest rate risk, concentration of credit risk and the risks posed by non-traditional activities; • Rules requiring depository institutions to develop and implement internal procedures to evaluate and control credit and settlement exposure to their correspondent banks; - 13 - Table of Contents • Rules restricting types and amounts of equity investments; and • Rules addressing various safety and soundness issues, including operations and managerial standards, standards for asset quality, earnings and compensation standards.
Borrowings from time-to-time include federal funds purchased, securities sold under agreements to repurchase, brokered deposits, FHLB advances, and borrowings from the discount window of the Federal Reserve Bank (“FRB”). Other sources of funds include scheduled amortization and prepayments of principal from loans and mortgage-backed securities, maturities and calls of investment securities and funds provided by operations.
Borrowings from time-to-time include subordinated notes, federal funds purchased, securities sold under agreements to repurchase, brokered deposits, FHLB advances, and borrowings from the discount window of the Federal Reserve Bank (“FRB”). Other sources of funds include scheduled amortization and prepayments of principal from loans and mortgage-backed securities, maturities and calls of investment securities and funds provided by operations.
Through this platform, we are able to deliver e-Learning trainings that employees can complete on their own time as well as live instructor-led trainings on a variety of topics, including compliance, anti-discrimination, active shooter prevention, people leadership skills, and more.
Through this platform, we are able to deliver e-Learning training that employees can complete on their own time as well as live instructor-led training on a variety of topics, including compliance, anti-discrimination, active shooter prevention, people leadership skills, and more.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (“Economic Growth Act”) was enacted and impacted several of the provisions of the Dodd-Frank Act. The law provided certain regulatory relief to community banks, like us, with less than $10 billion in total consolidated assets.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (“Economic Growth Act”) was enacted and impacted several of the provisions of the Dodd-Frank Act. The law provided certain regulatory relief to community banks, like the Bank, with less than $10 billion in total consolidated assets.
All information in the table was obtained from S&P Global Market Intelligence, which compiles deposit data published by the FDIC as of June 30, 2024, and updates the information for any bank mergers and acquisitions completed subsequent to the reporting date.
All information in the table was obtained from S&P Global Market Intelligence, which compiles deposit data published by the FDIC as of June 30, 2025, and updates the information for any bank mergers and acquisitions completed subsequent to the reporting date.
INVESTMENT ACTIVITIES Our investment policy is contained within our overall Asset-Liability Management and Investment Policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, need for collateral and desired risk parameters.
INVESTMENT ACTIVITIES Our investment policy is contained within our overall Asset-Liability Management and Investment Policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flows targets, need for collateral, and desired risk parameters.
We also maintain a positive culture through promoting recognition, utilizing an engagement tool where employees can post peer-to-peer recognition for accomplishments and career milestones that is adaptive to our growing footprint as well as formal, annual recognition through our HEART awards.
We also maintain a positive culture through promoting recognition, utilizing an engagement tool where employees can post peer-to-peer recognition for accomplishments and career milestones that are adaptive to our growing footprint as well as formal, annual recognition through our HEART awards.
However, the GLBA amended portions of the BHC Act to authorize FHCs, such as us, to directly or through non-bank subsidiaries engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity.
However, the GLBA amended portions of the BHC Act to authorize FHCs, such as the Company, to directly or through non-bank subsidiaries engage in securities, insurance and other activities that are financial in nature or incidental to a financial activity.
Holding Company Regulation We are subject to comprehensive regulation by the Board of Governors of the Federal Reserve System, frequently referred to as the Federal Reserve Board (“FRB” or “Federal Reserve”), under the Bank Holding Company Act (the “BHC Act”), as amended by, among other laws, the Gramm-Leach-Bliley Act of 1999 (the “GLBA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
Holding Company Regulation The Company is subject to comprehensive regulation by the Board of Governors of the Federal Reserve System, frequently referred to as the Federal Reserve Board (“FRB” or “Federal Reserve”), under the Bank Holding Company Act (the “BHC Act”), as amended by, among other laws, the Gramm-Leach-Bliley Act of 1999 (the “GLBA”) and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).
This relief includes an exemption from the Volcker Rule (i.e., a provision of the Dodd-Frank Act which prohibits banks and their affiliates from engaging in proprietary trading and from investing and sponsoring hedge funds and private equity funds.) - 13 - Table of Contents Depository Institution Regulation The Bank is organized under the laws of the state of New York.
This relief includes an exemption from the Volcker Rule (i.e., a provision of the Dodd-Frank Act which prohibits banks and their affiliates from engaging in proprietary trading and from investing and sponsoring hedge funds and private equity funds.) Depository Institution Regulation The Bank is organized under the laws of the state of New York.
The Company had made the election under the FASB’s Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments—Credit Losses, of not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above. 5.
The Company had made the election under the FASB’s Accounting Standards Codification (“ASC”) Topic 326, Financial Instruments—Credit Losses, of not measuring an allowance for credit losses for accrued interest receivable due to the Company’s policy of writing off uncollectible accrued interest receivable balances in a timely manner, as described above. - 11 - Table of Contents 5.
All of the reports we file with the SEC, including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments thereto may be accessed at www.sec.gov . SUPERVISION AND REGULATION We are subject to extensive regulation under federal and state laws.
All of the reports we file with the SEC, including this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments thereto may be accessed at www.sec.gov . - 12 - Table of Contents SUPERVISION AND REGULATION We are subject to extensive regulation under federal and state laws.
The lending, investment, deposit-taking, and other business authority of the Bank is governed primarily by state and federal law and regulations, and the Bank is prohibited from engaging in any operations not authorized by such laws and regulations.
The lending, investment, deposit-taking, and other business authorities of the Bank is governed primarily by state and federal law and regulations, and the Bank is prohibited from engaging in any operations not authorized by such laws and regulations.
Adjustments to the quantitative evaluation may be made for differences in current or expected qualitative risk characteristics such as changes in underwriting standards, delinquency level, regulatory environment, economic condition, Company management and the status of portfolio administration including the Company’s credit risk review function. - 11 - Table of Contents 3.
Adjustments to the quantitative evaluation may be made for differences in current or expected qualitative risk characteristics such as changes in underwriting standards, delinquency level, regulatory environment, economic condition, Company management and the status of portfolio administration including the Company’s credit risk review function. 3.
In 2023, the FDIC issued a special assessment, applicable to banks with uninsured deposits in excess of $5 billion, in order to recover losses sustained by the DIF as a result of the March 2023 failures of Silicon Valley Bank and Signature Bank. The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.
In 2023, the FDIC issued a special assessment, applicable to banks with uninsured deposits in excess of $5 billion, in order to recover losses sustained by the DIF as a result of the March 2023 failures of Silicon Valley Bank and Signature Bank. - 15 - Table of Contents The FDIC is authorized to conduct examinations of and require reporting by FDIC-insured institutions.
These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason, the policies of the FRB could have a material effect on our earnings. - 20 - Table of Contents
These methods are used in varying degrees and combinations to directly affect the availability of bank loans and deposits, as well as the interest rates charged on loans and paid on deposits. For that reason, the policies of the FRB could have a material effect on our earnings.
To facilitate talent attraction and retention, we strive to make the Company an inclusive, safe and healthy workplace, with opportunities for all of our employees to grow and develop in their careers, supported by strong compensation, benefits, health and welfare programs. Employee Profile As of December 31, 2024, we had 598 employees situated across the United States (the “U.S.”).
To facilitate talent attraction and retention, we strive to make the Company an inclusive, safe and healthy workplace, with opportunities for all of our employees to grow and develop in their careers, supported by strong compensation, benefits, health and welfare programs. Employee Profile As of December 31, 2025, we had 631 employees situated across the United States (the “U.S.”).
While the list set forth herein is not exhaustive, these laws include, among others, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service members Civil Relief Act, and these laws’ respective state-law counterparts, as well as state usury laws and federal and state laws regarding unfair, deceptive and abusive acts and practices, and each of these laws’ implementing regulations.
While the list set forth herein is not exhaustive, consumer protection laws include, among others, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Funds Transfer Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home Mortgage Disclosure Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Servicemembers Civil Relief Act, and these laws’ respective state-law counterparts, as well as state usury laws and federal and state laws regarding unfair, deceptive and abusive acts and practices, and each of these laws’ implementing regulations.
Additionally, approval of the NY DFS is required prior to paying a dividend if the dividend declared by the Bank exceeds the sum of the Bank’s net profits for that year and its retained net profits for the preceding two calendar years. The Bank declared dividends of $21.0 million and $14.0 million in 2024 and 2023, respectively.
Additionally, approval of the NY DFS is required prior to paying a dividend if the dividend declared by the Bank exceeds the sum of the Bank’s net profits for that year and its retained net profits for the preceding two calendar years. The Bank declared dividends of $32.0 million and $21.0 million in 2025 and 2024, respectively.
The Bank has adopted policies and procedures which are in compliance with these requirements. The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January 2021. The AMLA is intended to comprehensively reform and modernize U.S. anti-money laundering and anti-terrorist financing laws.
The Bank has adopted policies and procedures which are in compliance with these requirements. - 17 - Table of Contents The Anti-Money Laundering Act of 2020 (“AMLA”), which amends the BSA, was enacted in January 2021. The AMLA was intended to comprehensively reform and modernize U.S. anti-money laundering and anti-terrorist financing laws.
We were pleased to be Certified by Great Place To Work ® for the second time in 2024, placing us in an elite group of global employers who achieved an outstanding culture based on anonymous survey data collected from their own employees.
We were pleased to be Certified by Great Place To Work ® for the third time in 2025, placing us in an elite group of global employers who achieved an outstanding culture based on anonymous survey data collected from their own employees.
The rule was effective April 1, 2022, with compliance required by May 1, 2022. The NY DFS requires New York State-chartered or licensed banks regulated by the NY DFS, such as us, to adopt broad cybersecurity protections.
The rule was effective April 1, 2022, with compliance required by May 1, 2022. - 16 - Table of Contents The NY DFS requires New York State-chartered or licensed banks regulated by the NY DFS, such as us, to adopt broad cybersecurity protections.
We are registered with the Federal Reserve as a financial holding company (“FHC”). We must file reports with the FRB and submit such additional information as the FRB may require, and our holding company and non-banking affiliates are subject to examination by the FRB.
The Company is registered with the Federal Reserve as a financial holding company (“FHC”). The Company must file reports with the FRB and submit such additional information as the FRB may require, and the Company and its non-banking affiliates are subject to examination by the FRB.
Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $746.7 million at December 31, 2024. Borrowings We have access to a variety of borrowing sources and use both short-term and long-term borrowings to support our asset base.
Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $829.2 million at December 31, 2025. Borrowings We have access to a variety of borrowing sources and use both short-term and long-term borrowings to support our asset base.
We typically follow the underwriting and appraisal guidelines of the secondary market, including the FHLMC and the Federal Housing Administration, and service the loans in a manner that satisfies the secondary market agreements. As of December 31, 2024, our residential mortgage servicing portfolio totaled $280.8 million, the majority of which has been sold to the FHLMC.
We typically follow the underwriting and appraisal guidelines of the secondary market, including the FHLMC and the Federal Housing Administration, and service the loans in a manner that satisfies the secondary market agreements. As of December 31, 2025, our residential mortgage servicing portfolio totaled $293.3 million, the majority of which has been sold to the FHLMC.
With $3.09 billion in assets under management as of December 31, 2024, Courier Capital offers customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses and institutions. For the year ended December 31, 2024, Courier Capital had total revenue of $10.3 million. Five Star REIT, Inc. Five Star REIT, Inc.
With $3.60 billion in assets under management as of December 31, 2025, Courier Capital offers customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses and institutions. For the year ended December 31, 2025, Courier Capital had total revenue of $11.6 million. Five Star REIT, Inc. Five Star REIT, Inc.
Term loans generally have a term up to 7 years, or up to 10 years with an SBA guarantee, while revolving lines generally have a 3-year term or less. As of December 31, 2024, our commercial business loan portfolio totaled $665.3 million, or 15% of our total loan portfolio.
Term loans generally have a term up to 7 years, or up to 10 years with an SBA guarantee, while revolving lines generally have a 3-year term or less. As of December 31, 2025, our commercial business loan portfolio totaled $738.3 million, or 16% of our total loan portfolio.
The impact of the DOJ ’ s rescission of the Cole Memo and related memoranda is unclear, but in the future may result in increased enforcement actions against the regulated cannabis industry generally. Enforcement policies and practices may be highly variable between political administrations.
The impact of the DOJ ’ s rescission of the Cole Memo and related memoranda is unclear, but in the future may result in increased enforcement actions against the regulated cannabis industry generally. Enforcement policies and practices may be highly variable between political administrations, and it is unclear what effect the Executive Order will have.
Section 23A of the Federal Reserve Act and Regulation W also generally requires that an insured depository institution’s loans to its affiliates be, at a minimum, 100% secured, Section 23B of the Federal Reserve Act and Regulation W generally require that an insured depository institution’s transactions with its affiliates, including but not limited to “covered transactions” be on terms and under circumstances that are substantially the same or at least as favorable to the Bank, as those prevailing for comparable transactions with or involving non-affiliates.
Section 23B of the Federal Reserve Act and Regulation W generally require that an insured depository institution’s transactions with its affiliates, including but not limited to “covered transactions,” be on terms and under circumstances that are substantially the same or at least as favorable to the Bank, as those prevailing for comparable transactions with or involving non-affiliates.
Consumer Lending We offer a variety of loan products to our consumer customers, including automobile loans, secured installment loans and other types of secured and unsecured personal loans. As of December 31, 2024, our consumer indirect portfolio totaled $845.8 million, or 19% of our total loan portfolio. Outstanding consumer loan balances were concentrated in indirect automobile loans.
Consumer Lending We offer a variety of loan products to our consumer customers, including automobile loans, secured installment loans and other types of secured and unsecured personal loans. As of December 31, 2025, our consumer indirect portfolio totaled $807.3 million, or 17% of our total loan portfolio. Outstanding consumer loan balances were concentrated in indirect automobile loans.
The Federal Reserve Act and Regulation W impose limitations on a bank with respect to extensions of credit to, investments in, and certain other transactions with, its affiliates, including its parent FHC and the holding company’s other subsidiaries.
The Federal Reserve Act and Regulation W impose limitations on a bank with respect to extensions of credit to, investments in, and certain other transactions with, its affiliates, including its parent FHC and the holding company’s other subsidiaries. Furthermore, bank loans and extensions of credit to affiliates also are subject to various collateral requirements.
Incentive Compensation Our compensation practices are subject to oversight by the Federal Reserve. The federal banking agencies’ guidance on incentive compensation policies intends to ensure that the incentive compensation policies of banking organizations do not encourage excessive risk-taking and undermine the safety and soundness of those organizations.
The federal banking agencies’ guidance on incentive compensation policies intends to ensure that the incentive compensation policies of banking organizations do not encourage excessive risk-taking and undermine the safety and soundness of those organizations.
The underwriting analysis includes credit verification, appraisals and a review of the borrower’s financial condition and repayment capacity. As of December 31, 2024, our commercial mortgage loan portfolio totaled $2.20 billion, or 49.1% of our total loan portfolio.
The underwriting analysis includes credit verification, appraisals and a review of the borrower’s financial condition and repayment capacity. As of December 31, 2025, our commercial mortgage loan portfolio totaled $2.34 billion, or 50.3% of our total loan portfolio.
Delinquent loan reports are monitored by credit administration to identify adverse levels and trends. Loans, including loans individually evaluated for impairment, are generally classified as non-accruing if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-collateralized and in the process of collection.
Loans, including loans individually evaluated for impairment, are generally classified as non-accruing if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-collateralized and in the process of collection.
Courier Capital, LLC Courier Capital is an SEC-registered investment advisory and wealth management firm founded in 1967 and headquartered in Western New York, with offices in Buffalo, Rochester and Jamestown, New York, and Pittsburgh, Pennsylvania.
Courier Capital, LLC Courier Capital is an SEC-registered investment advisory and wealth management firm founded in 1967 and headquartered in Western New York, with offices in Buffalo, Rochester and Jamestown, New York, and Pittsburgh, Pennsylvania. We also added an office in Sarasota, Florida in September 2025.
As of December 31, 2024, approximately 66% of our current workforce was female, 34% male, and our average tenure was 6.84 years, which remained flat with December 31, 2023. - 6 - Table of Contents Total Rewards As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent.
As of December 31, 2025, approximately 65% of our current workforce was female, 35% male, and our average tenure was 6.44 years, which slightly decreased from 6.84 years at December 31, 2024. - 6 - Table of Contents Total Rewards As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent.
The proceeds may also be used for general corporate purposes which may include the repayment of indebtedness. - 12 - Table of Contents OTHER INFORMATION We also make available, free of charge through our website, all reports filed with or furnished to the Securities and Exchange Commission (“SEC”), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with or furnished to the SEC.
OTHER INFORMATION We also make available, free of charge through our website, all reports filed with or furnished to the Securities and Exchange Commission (“SEC”), including our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments to those reports, as soon as reasonably practicable after those documents are filed with or furnished to the SEC.
Furthermore, bank loans and extensions of credit to affiliates also are subject to various collateral requirements. - 18 - Table of Contents Section 23A of the Federal Reserve Act and Regulation W limit the aggregate outstanding amount of any insured depository institution’s loans and other “covered transactions” with any particular affiliate to no more than 10% of the institution’s capital stock and surplus, and limits the aggregate outstanding amount of any insured depository institution’s covered transactions with all of its affiliates to no more than 20% of its capital stock and surplus.
Section 23A of the Federal Reserve Act and Regulation W limit the aggregate outstanding amount of any insured depository institution’s loans and other “covered transactions” with any particular affiliate to no more than 10% of the institution’s capital stock and surplus, and limits the aggregate outstanding amount of any insured depository institution’s covered transactions with all of its affiliates to no more than 20% of its capital stock and surplus.
At December 31, 2024, the Bank had total assets of $6.08 billion, investment securities of $1.03 billion, net loans of $4.43 billion, deposits of $5.15 billion and shareholders’ equity of $595.5 million. The Bank offers deposit products, which include checking and NOW accounts, savings accounts, and certificates of deposit, as its principal source of funding.
At December 31, 2025, the Bank had total assets of $6.24 billion, investment securities of $1.01 billion, net loans of $4.61 billion, deposits of $5.29 billion and shareholders’ equity of $662.3 million. The Bank offers deposit products, which include checking and NOW accounts, savings accounts, and certificates of deposit, as its principal source of funding.
To render an independent and objective evaluation of our asset quality and credit administration process, our policy includes loan reviews, performed by our Credit Review function under the supervision of the Chief Risk Officer and governance provided by our Audit and Risk Oversight committees of the Board of Directors. - 10 - Table of Contents We assign risk ratings to loans in the commercial business and commercial mortgage portfolios.
To render an independent and objective evaluation of our asset quality and credit administration process, our policy includes loan reviews, performed by our Credit Review function under the supervision of the Chief Risk Officer and governance provided by our Audit and Risk Oversight committees of the Board of Directors.
The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors. - 19 - Table of Contents The FRB reviews, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not “large, complex banking organizations.” These reviews are tailored to each organization based on the scope and complexity of the organization’s activities and the prevalence of incentive compensation arrangements.
The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.
Mortgage title insurance and hazard insurance are normally required. As of December 31, 2024, our residential real estate loan portfolio totaled $650.2 million, or 15% of our total loan portfolio. As of December 31, 2024, our residential real estate lines portfolio totaled $75.6 million, or 2% of our total loan portfolio.
Mortgage title insurance and hazard insurance are normally required. As of December 31, 2025, our residential real estate loan portfolio totaled $657.0 million, or 14% of our total loan portfolio. As of December 31, 2025, our residential real estate lines portfolio totaled $75.1 million, or 2% of our total loan portfolio.
At December 31, 2024, the Company had consolidated total assets of $6.12 billion, deposits of $5.10 billion and shareholders’ equity of $569.0 million and the Bank represented 99%, and Courier Capital represented less than 1%, of the consolidated assets of the Company.
At December 31, 2025, the Company had consolidated total assets of $6.27 billion, deposits of $5.21 billion and shareholders’ equity of $628.9 million and the Bank represented 99%, and Courier Capital represented less than 1% of the consolidated assets of the Company.
These guidelines clarify how financial institutions can provide services to marijuana-related businesses “in a manner consistent with their obligations to know their customers and to report possible criminal activity.” The Bank has and will continue to follow this and other FinCEN guidance in the areas of cannabis banking. - 17 - Table of Contents Anti-Money Laundering and the USA Patriot Act A major focus of governmental policy on financial institutions is combating money laundering and terrorist financing.
These guidelines clarify how financial institutions can provide services to marijuana-related businesses “in a manner consistent with their obligations to know their customers and to report possible criminal activity.” The Bank has and will continue to follow this and other FinCEN guidance in the areas of cannabis banking.
The policy also sets limits on individual lending authority and various forms of joint lending authority, while designating which loans are required to be approved at the committee level.
The policy establishes requirements for extending credit based on the size, risk rating and type of credit involved. The policy also sets limits on individual lending authority and various forms of joint lending authority, while designating which loans are required to be approved at the committee level.
For example, the Dodd-Frank Act applies the 10% of capital and surplus limit on covered transactions to financial subsidiaries and amended the definition of “covered transaction” to include (i) securities borrowing or lending transactions with an affiliate, and (ii) all derivatives transactions with an affiliate, to the extent that either causes a bank or its affiliate to have credit exposure to the securities borrowing/lending or derivative counterparty.
For example, the Dodd-Frank Act applies the 10% of capital and surplus limit on covered transactions to financial subsidiaries and amended the definition of “covered transaction” to include (i) securities borrowing or lending transactions with an affiliate, and (ii) all derivatives transactions with an affiliate, to the extent that either causes a bank or its affiliate to have credit exposure to the securities borrowing/lending or derivative counterparty. - 18 - Table of Contents Investment Advisory Regulation Courier Capital is a provider of investment consulting and financial planning services and, as such, is considered an “investment adviser” under the U.S.
Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws, as marijuana remains illegal at the federal level. In January 2018, the U.S.
Our exposure to these types of businesses has been tempered by our exit from the BaaS line of business. Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws, as marijuana still remains illegal at the federal level. In January 2018, the U.S.
Under the Dodd-Frank Act, the FDIC defined the deposit insurance assessment base for an insured depository institution as an amount equal to the institution’s average consolidated total assets during the assessment period minus average tangible equity.
The current level of deposit insurance is $250 thousand. The coverage limit is per depositor, per insured depository institution for each account ownership category. Under the Dodd-Frank Act, the FDIC defined the deposit insurance assessment base for an insured depository institution as an amount equal to the institution’s average consolidated total assets during the assessment period minus average tangible equity.
Our purpose is to keep the people of Five Star’s well-being at the heart of everything we do, so that our team, our customers and our communities will thrive and realize their dreams.
Our vision is to be a high-performing community bank, offering a simple, connected and trusted experience in the markets we serve. Our purpose is to keep the people of Five Star’s well-being at the heart of everything we do, so that our team, our customers and our communities will thrive and realize their dreams.
As of December 31, 2024, $479.5 million, or 74%, of the loans in our residential real estate loan portfolio were at fixed interest rates, while $170.7 million, or 26%, were at variable interest rates. The residential real estate lines portfolio primarily consists of variable rate lines.
As of December 31, 2025, $457.3 million, or 70%, of the loans in our residential real estate loan portfolio were at fixed interest rates, while $199.8 million, or 30%, were at variable interest rates. The residential real estate lines portfolio primarily consists of variable rate lines.
If a bank is not a qualifying community banking organization, does not opt in to using the CBLR, or cannot maintain a CBLR of greater than 9.0%, the bank would have to comply with the Basel III Rules.
In November 2025, the federal banking agencies issued a proposed rule to lower the CBLR to 8%. If a bank is not a qualifying community banking organization, does not opt in to using the CBLR, or cannot maintain the CBLR, the bank would have to comply with the Basel III Rules.
As of December 31, 2024, $747.6 million, or 34%, of the loans in our aggregate commercial mortgage portfolio were at fixed interest rates, while $1.45 billion, or 66%, were at variable interest rates. We utilize government loan guarantee programs when available and appropriate. Government Guarantee Programs We participate in government loan guarantee programs offered by the SBA, U.S.
As of December 31, 2025, $753.7 million, or 32%, of the loans in our aggregate commercial mortgage portfolio were at fixed interest rates, while $1.59 billion, or 68%, were at variable interest rates. We utilize government loan guarantee programs when available and appropriate.
We believe our capital position remains strong enough to support an active merger and acquisition strategy and the expansion of our core financial service businesses. Consequently, we continue to explore acquisition opportunities in these activities.
While organic growth remains our primary focus, we believe our capital position remains strong enough to support selective merger and acquisition activity in support of expansion of our core financial service businesses. Consequently, we will continue to evaluate acquisition opportunities in these activities.
During 2024, our consumer indirect lending presence included the Capital District of New York and Northern and Central Pennsylvania, and we have commercial loan production offices in Baltimore, Maryland and Syracuse, New York, serving the Mid-Atlantic and Central New York regions, respectively.
Our banking activities, though concentrated in the communities where we maintain branches, also extend into neighboring counties. During 2025, our consumer indirect lending presence included the Capital District of New York, and we have commercial loan production offices in Baltimore, Maryland and Syracuse, New York, serving the Mid-Atlantic and Central New York regions, respectively.
We use those risk ratings to: • Profile the risk and exposure in the loan portfolio and identify developing trends and relative levels of risk; • Identify deteriorating credits; • Reflect the probability that a given customer may default on its obligations; and • Assist with risk-based pricing.
We use those risk ratings to: • Profile the risk and exposure in the loan portfolio and identify developing trends and relative levels of risk; • Identify deteriorating credits; • Reflect the probability that a given customer may default on its obligations; and • Assist with risk-based pricing. - 10 - Table of Contents Through the loan approval process, loan administration and loan review program, management seeks to continuously monitor our credit risk profile and assess the overall quality of the loan portfolio and adequacy of the allowance for credit losses.
Investment Advisory Regulation Courier Capital is a provider of investment consulting and financial planning services and, as such, is considered an “investment adviser” under the U.S. Investment Advisers Act of 1940, as amended (the “Advisers Act”). An investment adviser is any person or entity that provides advice to others, or that issues reports or analyses, regarding securities for compensation.
Investment Advisers Act of 1940, as amended (the “Advisers Act”). An investment adviser is any person or entity that provides advice to others, or that issues reports or analyses, regarding securities for compensation.
The following table presents the Bank’s market share percentage for total deposits as of June 30, 2024, in each county where we have operations in New York. The table also indicates the ranking by deposit size in each market.
Our industry frequently experiences merger activity, which affects competition by eliminating some institutions while potentially strengthening the franchises of others. The following table presents the Bank’s market share percentage for total deposits as of June 30, 2025, in each county where we have operations in New York. The table also indicates the ranking by deposit size in each market.
Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2024, we had loans with an aggregate principal balance of $23.3 million that were covered by guarantees under these programs. The guarantees typically cover only a certain percentage of these loans.
Government Guarantee Programs We participate in government loan guarantee programs offered by the SBA, USDA, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2025, we had loans with an aggregate principal balance of $40.9 million that were covered by guarantees under these programs.
HUMAN CAPITAL RESOURCES STRATEGY Our Company’s vision, purpose and core values collectively make up what we consider to be our “Five Star Promise” and they provide clarity around what we believe as a Company and why we exist. Our vision is to be a high-performing community bank, offering a simple, connected and trusted experience in the markets we serve.
We believe this experience positions us to successfully acquire and integrate additional financial services and banking businesses. HUMAN CAPITAL RESOURCES STRATEGY Our Company’s vision, purpose and core values collectively make up what we consider to be our “Five Star Promise” and they provide clarity around what we believe as a Company and why we exist.
As of December 31, 2024, $140.9 million, or 21%, of our aggregate commercial business loan portfolio were at fixed interest rates, while $524.4 million, or 79%, were at variable interest rates.
As of December 31, 2025, $165.7 million, or 22%, of our aggregate commercial business loan portfolio were at fixed interest rates, while $572.6 million, or 78%, were at variable interest rates.
Rochester and Buffalo are the two largest metropolitan areas in New York outside of New York City, with a combined population of over two million people. We anticipate continuing to increase our presence in and around these metropolitan statistical areas and complementary market areas in the coming years.
Our market area is economically diversified in that we serve both rural markets and the larger markets in and around Rochester and Buffalo, New York. Rochester and Buffalo are the two largest metropolitan areas in New York outside of New York City, with a combined population of over two million people.
MARKET AREAS AND COMPETITION We provide a wide range of banking and financial services to individuals, municipalities and businesses through a network of more than 48 offices and an extensive ATM network throughout Western and Central New York.
MARKET AREAS AND COMPETITION We provide a wide range of banking and financial services to individuals, municipalities and businesses through a network of 48 offices and an extensive ATM network throughout Western and Central New York. The region includes the counties of Allegany, Cattaraugus, Cayuga, Chautauqua, Chemung, Erie, Genesee, Livingston, Monroe, Ontario, Orleans, Schuyler, Seneca, Steuben, Wayne, Wyoming and Yates.
These requirements provide for a minimum ratio of Tier 1 capital to total consolidated quarterly average assets (as defined for regulatory purposes), net of the loan loss reserve, goodwill and certain other intangible assets (the “leverage ratio”), of 4.0%. - 14 - Table of Contents Prompt Corrective Action The Federal Deposit Insurance Act, as amended (“FDIA”), requires, among other things, the federal banking agencies to take “prompt corrective action” with respect to depository institutions that do not meet minimum capital requirements.
These requirements provide for a minimum ratio of Tier 1 capital to total consolidated quarterly average assets (as defined for regulatory purposes), net of the loan loss reserve, goodwill and certain other intangible assets (the “leverage ratio”), of 4.0%.
Credit Administration Our loan policy establishes standardized underwriting guidelines, as well as the loan approval process and the committee structures necessary to facilitate and ensure the highest possible loan quality decision-making in a timely and businesslike manner. The policy establishes requirements for extending credit based on the size, risk rating and type of credit involved.
The other loans in our consumer portfolio approximated $9 million as of December 31, 2025, all of which were fixed interest rate loans. Credit Administration Our loan policy establishes standardized underwriting guidelines, as well as the loan approval process and the committee structures necessary to facilitate and ensure the highest possible loan quality decision-making in a timely and businesslike manner.
The consolidated financial statements include the accounts of the Parent, the Bank, Courier Capital, and prior to April 1, 2024, SDN.
As of December 31, 2025, the consolidated financial statements include the accounts of the Parent, the Bank, and Courier Capital.
County Market Share Market Rank Number of Branches (1) Allegany 9.89% 2 1 Cattaraugus 23.57% 2 4 Cayuga 15.25% 2 1 Chemung 13.97% 3 2 Erie 0.66% 9 6 Genesee 20.76% 3 2 Livingston 36.16% 1 5 Monroe 2.44% 8 8 Ontario 10.68% 4 4 Orleans 28.76% 2 2 Seneca 33.74% 1 2 Steuben 34.99% 2 5 Wyoming 68.03% 1 4 Yates 29.42% 2 2 (1) Number of branches current as of December 31, 2024.
County Market Share Market Rank Number of Branches (1) Allegany 10.94% 2 1 Cattaraugus 21.86% 2 4 Cayuga 15.85% 2 1 Chemung 12.11% 3 2 Erie 0.67% 9 6 Genesee 20.89% 2 2 Livingston 37.09% 1 5 Monroe 2.23% 8 8 Ontario 9.33% 4 4 Orleans 27.23% 2 2 Seneca 33.82% 1 2 Steuben 37.25% 1 5 Wyoming 67.34% 1 4 Yates 28.79% 2 2 (1) Number of full-service branches current as of December 31, 2025; does not include limited- or mobile-branches.
Our senior management team has experience in acquisitions and post-acquisition integration of operations and is prepared to act promptly should a potential opportunity arise but will remain disciplined with its approach. We believe this experience positions us to successfully acquire and integrate additional financial services and banking businesses.
The evaluation of any potential opportunity will favor a transaction that complements our core competencies and strategic intent. Additionally, we remain committed to maintaining a diversified revenue stream. Our senior management team has experience in acquisitions and post-acquisition integration of operations and is prepared to act promptly should a potential opportunity arise but will remain disciplined with its approach.
Other Future Legislation and Changes in Regulations In addition to the specific proposals described above, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies.
In May 2024, several federal banking agencies sought to re-propose the incentive compensation regulation, but the FRB did not adopt the proposal; in 2025, the FDIC withdrew its authorization for the proposal. - 19 - Table of Contents Other Future Legislation and Changes in Regulations In addition to the specific proposals described above, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies.
Brokered Deposits The FDIA and FDIC regulations thereunder limit the ability of banks to accept, renew or rollover brokered deposits unless the institution is well-capitalized under the prompt corrective action framework discussed above, or unless it is adequately capitalized and obtains a waiver from the FDIC.
The current requirements and the actual levels for the Company and the Bank are detailed in Note 13, Regulatory Matters, of the notes to consolidated financial statements, included in Part II, Item 8, of this Annual Report on Form 10-K. - 14 - Table of Contents Brokered Deposits The FDIA and FDIC regulations thereunder limit the ability of banks to accept, renew or rollover brokered deposits unless the institution is well-capitalized under the prompt corrective action framework discussed above, or unless it is adequately capitalized and obtains a waiver from the FDIC.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Whether it be hurricanes, tornados, or wildfires, companies risk the loss of facilities, technical infrastructure and even the lives of irreplaceable talent, and the lack of quality business continuity and disaster recovery plans heightens the impact risk. The risk of failing to train and test these plans could challenge the ability to recover.
Whether it be hurricanes, tornados, or wildfires, companies risk the loss of facilities, technical infrastructure and even the lives of irreplaceable talent, and the lack of quality business continuity and disaster recovery plans heightens the risk impact. The risk of failing to train and test these plans could challenge the ability to recover.
Most regulatory agencies have enhanced cybersecurity requirements and oversight, requiring increased focus and investment in cybersecurity controls. The failure to keep up with regulatory cybersecurity requirements not only presents the risk of regulatory sanctions but also presents an ill-advised risk due to sub-standard cyber risk controls, thus increasing the risk compromise.
Most regulatory agencies have enhanced cybersecurity requirements and oversight, requiring increased focus and investment in cybersecurity controls. The failure to keep up with regulatory cybersecurity requirements not only presents the risk of regulatory sanctions but also presents an ill-advised risk due to sub-standard cyber risk controls, thus increasing the risk of compromise.
Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict.
Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, geopolitical risks associated with international conflict.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • volatility of stock market prices and volumes in general; • changes in market valuations of similar companies; • changes in conditions in credit markets; • changes in accounting policies or procedures as required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies; • legislative and regulatory actions subjecting us to additional or different regulatory oversight which may result in increased compliance costs and/or require us to change our business model; • government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; • political instability and uncertainty, both within the U.S. and internationally; • additions or departures of key members of management; • negative publicity regarding our business; • fluctuations in our quarterly or annual operating results; and • changes in analysts’ estimates of our financial performance. - 32 - Table of Contents General Risk Factors We may not be able to attract and retain skilled people.
Our stock price can fluctuate significantly in response to a variety of factors including, among other things: • volatility of stock market prices and volumes in general; • changes in market valuations of similar companies; • changes in conditions in credit markets; • changes in accounting policies or procedures as required by the Financial Accounting Standards Board (“FASB”) or other regulatory agencies; • legislative and regulatory actions subjecting us to additional or different regulatory oversight which may result in increased compliance costs and/or require us to change our business model; • government intervention in the U.S. financial system and the effects of and changes in trade and monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board; • political instability and uncertainty, both within the U.S. and internationally; • additions or departures of key members of management; • negative publicity regarding our business; • fluctuations in our quarterly or annual operating results; and • changes in analysts’ estimates of our financial performance. - 31 - Table of Contents General Risk Factors We may not be able to attract and retain skilled people.
In addition to customer deposits, sources of liquidity include brokered deposits and borrowings from securities dealers, the FHLBNY and the FRB of New York, as well as the debt and equity capital markets. - 28 - Table of Contents If we are unable to continue to fund assets through customer bank deposits or access funding sources on reasonable terms or if we suffer an increase in borrowing costs or otherwise fail to manage liquidity effectively, our liquidity, operating margins, financial condition and results of operations may be materially adversely affected.
In addition to customer deposits, sources of liquidity include brokered deposits and borrowings from securities dealers, the FHLBNY and the FRB of New York, as well as the debt and equity capital markets. - 27 - Table of Contents If we are unable to continue to fund assets through customer bank deposits or access funding sources on reasonable terms or if we suffer an increase in borrowing costs or otherwise fail to manage liquidity effectively, our liquidity, operating margins, financial condition and results of operations may be materially adversely affected.
It is also possible that even with adequate capital we may still be unable to complete an acquisition on favorable terms, causing us to miss opportunities to increase our earnings and expand or diversify our operations. - 27 - Table of Contents Our growth strategy is also dependent upon the successful integration of new businesses and any future acquisitions into our existing operations.
It is also possible that even with adequate capital we may still be unable to complete an acquisition on favorable terms, causing us to miss opportunities to increase our earnings and expand or diversify our operations. - 26 - Table of Contents Our growth strategy is also dependent upon the successful integration of new businesses and any future acquisitions into our existing operations.
Replacing these third-party providers could also entail significant time and expense, further emphasizing the need for stringent vendor due diligence processes. - 30 - Table of Contents Each year, more third-party service providers perform significant operational services on our behalf. These third-party vendors are subject to similar risks as us relating to cybersecurity, technology infrastructure, processes and talent.
Replacing these third-party providers could also entail significant time and expense, further emphasizing the need for stringent vendor due diligence processes. - 29 - Table of Contents Each year, more third-party service providers perform significant operational services on our behalf. These third-party vendors are subject to similar risks as us relating to cybersecurity, technology infrastructure, processes and talent.
Market Risks We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments. Our earnings and cash flows depend largely upon our net interest income.
Market Risks We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments. Our earnings and cash flow depend largely upon our net interest income.
Similarly, cyber-attacks also challenge our preparedness to respond and recover. The volume and impact of cyber-attacks continues to grow and regardless of security controls, every company is susceptible to a compromise, making the existence of an incident response plan critical. Failure to train and test the plan periodically is a critical risk to any company.
Similarly, cyber-attacks also challenge our preparedness to respond and recover. The volume and impact of cyber-attacks continue to grow and regardless of security controls, every company is susceptible to a compromise, making the existence of an incident response plan critical. Failure to train and test the plan periodically is a critical risk to any company.
The occurrence of any such event or a combination of the foregoing factors could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. - 33 - Table of Contents Negative public opinion could damage our reputation and impact business operations and revenues.
The occurrence of any such event or a combination of the foregoing factors could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations. - 32 - Table of Contents Negative public opinion could damage our reputation and impact business operations and revenues.
Deterioration in economic conditions in our market, whether caused by inflation, recessionary conditions, public health emergencies, unemployment, or other factors beyond our control, could: • increase loan delinquencies; • increase problem assets and foreclosures; • increase claims and lawsuits; • decrease the demand for our products and services; and - 21 - Table of Contents • decrease the value of collateral for loans, especially real estate, reducing customers’ borrowing power, the value of assets associated with non-performing loans and collateral coverage.
Deterioration in economic conditions in our market, whether caused by inflation, recessionary conditions, public health emergencies, unemployment, or other factors beyond our control, could: • increase loan delinquencies; • increase problem assets and foreclosures; • increase claims and lawsuits; • decrease the demand for our products and services; and • decrease the value of collateral for loans, especially real estate, reducing customers’ borrowing power, the value of assets associated with non-performing loans and collateral coverage.
Such security attacks can originate from a wide variety of sources, including people who are involved with organized crime or rogue attackers taking advantage of modern tolls and services that have become readily available.
Such security attacks can originate from a wide variety of sources, including people who are involved with organized crime or rogue attackers taking advantage of modern schemes and services that have become readily available.
A decline in the fair value of the assets under management would decrease our investment advisory revenue. - 26 - Table of Contents Investment performance is one of the most important factors in retaining existing investment advisory clients and competing for new investment advisory clients.
A decline in the fair value of the assets under management would decrease our investment advisory revenue. - 25 - Table of Contents Investment performance is one of the most important factors in retaining existing investment advisory clients and competing for new investment advisory clients.
Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded which could have a material adverse effect on our results of operations.
Adverse events or circumstances could impact the recoverability of these intangible assets including significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded which could have a material adverse effect on our results of operations.
ITEM 1A. R ISK FACTORS An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes could affect us are described below.
ITEM 1A. R ISK FACTORS An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believe could affect us are described below.
In addition, a significant portion of our operations relies heavily on the secure processing, storage and transmission of personal and confidential information of our customers and clients. These risks have increased as our customers have adopted digital banking solutions, and we have migrated many former on-premises services and technology to hosted third-party service providers.
In addition, a significant portion of our operations relies heavily on the secure processing, retention, disposal, and transmission of personal and confidential information of our customers and clients. These risks have increased as our customers have adopted digital banking solutions, and we have migrated many former on-premises services and technology to hosted third-party service providers.
Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet. The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.
Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet. - 28 - Table of Contents The soundness of other financial institutions could adversely affect us. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships.
If the losses from our indirect loan portfolio are higher than anticipated, it could have a material adverse effect on our financial condition and results of operations. - 22 - Table of Contents In addition, our consumer lending activities are subject to numerous consumer protection laws and regulations, including fair lending laws.
If the losses from our indirect loan portfolio are higher than anticipated, it could have a material adverse effect on our financial condition and results of operations. In addition, our consumer lending activities are subject to numerous consumer protection laws and regulations, including fair lending laws.
See the section captioned “Supervision and Regulation” included in Part I, Item 1 “Business” for more information about FDIC insurance premiums. - 24 - Table of Contents We are highly regulated, and any adverse regulatory action may result in additional costs, loss of business opportunities, and reputational damage.
See the section captioned “Supervision and Regulation” included in Part I, Item 1 “Business” for more information about FDIC insurance premiums. We are highly regulated, and any adverse regulatory action may result in additional costs, loss of business opportunities, and reputational damage.
If we are unable to manage these risks effectively, our financial condition and results of operations could be materially adversely affected. - 29 - Table of Contents Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.
If we are unable to manage these risks effectively, our financial condition and results of operations could be materially adversely affected. Any substantial, unexpected or prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations.
Municipal deposits are a significant source of funds for our lending and investment activities. At December 31, 2024, $1.07 billion, or 21% of our total deposits, consisted of municipal deposits from local government entities such as towns, cities, school districts and other municipalities, which are collateralized by letters of credit from the FHLB of New York (“FHLBNY”) and investment securities.
Municipal deposits are a significant source of funds for our lending and investment activities. At December 31, 2025, $1.09 billion, or 21% of our total deposits, consisted of municipal deposits from local government entities such as towns, cities, school districts and other municipalities, which are collateralized by letters of credit from the FHLB of New York (“FHLBNY”) and investment securities.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. - 23 - Table of Contents We operate in a highly competitive industry and market area.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations. We operate in a highly competitive industry and market area.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; tariffs; high unemployment, natural disasters; or a combination of these or other factors.
Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; political instability; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; tariffs and trade wars; high unemployment, natural disasters; or a combination of these or other factors.
If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations. Identifiable intangible assets other than goodwill consist of core deposit intangibles and other intangible assets (primarily customer relationships).
If we were to conclude that a future write-down of our goodwill is necessary, we would record the appropriate charge, which could have a material adverse effect on our results of operations. Identifiable intangible assets other than goodwill consist of other intangible assets (primarily customer relationships).
Liquidity is essential to our businesses. We must maintain sufficient cash flow and liquid assets to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs, and for other corporate purposes, as well as meet regulatory requirements and supervisory expectations.
Liquidity is essential to our business. We must maintain sufficient cash flow and liquid assets to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs, and for other corporate purposes, as well as meeting regulatory requirements and supervisory expectations.
The recent emergence of artificial intelligence (“AI”) is a recent example of an emerging technology providing significant value to operations and service, although the mere existence of AI capabilities presents a myriad of risks for consideration. Regardless of direct AI adoption by the Company, we face the risk of associates utilizing unauthorized publicly sourced AI tools to complete business functions.
The emergence of AI is an example of an emerging technology providing significant value to operations and service, although the mere existence of AI capabilities presents a myriad of risks for consideration. Regardless of AI adoption by the Company, we face the risk of associates utilizing unauthorized publicly sourced AI tools to complete business functions.
Those same parties may also attempt to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information.
Those same parties initiate social engineering attacks to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information.
The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2024, we had $58.1 million of goodwill and $2.6 million of other intangible assets.
The value of our goodwill and other intangible assets may decline in the future. As of December 31, 2025, we had $58.1 million of goodwill and $2.2 million of other intangible assets.
At December 31, 2024, we had $3.56 billion of deposit liabilities, or 70% of our total deposits, that have no maturity and, therefore, may be withdrawn by the depositor at any time. These deposit liabilities include our checking, savings, and money market deposit accounts. Market conditions may impact the competitive landscape for deposits in the banking industry.
At December 31, 2025, we had $3.52 billion of deposit liabilities, or 68% of our total deposits, that have no maturity and, therefore, may be withdrawn by the depositor at any time. These deposit liabilities include our checking, savings, and money market deposit accounts. Market conditions may impact the competitive landscape for deposits in the banking industry.
If we are forced to pay higher rates on our municipal accounts to retain those funds, or if we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment activities, such as borrowings from the FHLBNY, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our municipal deposits, which would adversely affect our net income.
If we are forced to pay higher rates on our municipal accounts to retain those funds, or if we are unable to retain such funds and we are forced to resort to other sources of funds for our lending and investment activities, such as borrowings from the FHLBNY, the interest expense associated with these other funding sources may be higher than the rates we are currently paying on our municipal deposits, which would adversely affect our net income. - 22 - Table of Contents We are subject to environmental liability risk associated with our lending activities.
As indicated in Note 1, Summary of Significant Accounting Policies–Recent Accounting Pronouncements, to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K, the regulations, rules, standards, policies, and interpretations underlying GAAP are constantly evolving and may change significantly over time.
As indicated in Note 1, Summary of Significant Accounting Policies— Accounting Standards Recently Adopted or Issued , to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K, the regulations, rules, standards, policies, and interpretations underlying GAAP are constantly evolving and may change significantly over time.
At the same time, emerging technologies present new risks directly associated with adoption or indirectly by third-party service provider adoption. The continued expansion of cloud computing services has drastically increased the adoption risk as we depend on our third-party service providers to implement effective controls to manage new risk.
At the same time, emerging technologies present new risks directly associated with adoption or indirectly by third-party service provider adoption. The continued expansion of cloud computing services has drastically increased the risk of dependency on our third-party service providers to implement effective controls to manage the risk of cloud service reliability and security.
We are subject to environmental liability risk associated with our lending activities. A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on properties we have foreclosed upon.
A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. There is a risk that hazardous or toxic substances could be found on properties we have foreclosed upon.
The interest rate environment and future actions of the Federal Reserve may impact pricing and demand for deposits in the banking industry.
National and local economic conditions, the interest rate environment and future actions of the Federal Reserve may impact pricing and demand for deposits in the banking industry.
And, with the increased volume of cloud computing, our business could be directly impacted if similar disruptions are experienced by fourth-party vendors. Some of our vendors may have limited indemnification obligations or may not have the financial capacity to satisfy their indemnification obligations.
And, with the increased volume of cloud computing, our business could be directly impacted if similar disruptions are experienced by fourth-party vendors, which has been a growing trend in recent years. Some of our vendors may have limited indemnification obligations or may not have the financial capacity to satisfy their indemnification obligations.
If our non-performing assets increase, our earnings will be adversely affected. At December 31, 2024, our non-performing assets, which consist of non-performing loans and other real estate owned, were $41.5 million, or 0.68% of total assets.
If our non-performing assets increase, our earnings will be adversely affected. At December 31, 2025, our non-performing assets, which consist of non-performing loans and other real estate owned, were $35.8 million, or 0.57% of total assets.
In addition, in a falling rate environment, or the recent pandemic-related environment where the Federal Reserve held the federal reference rate near 0.00%, loans may be prepaid sooner than we expect, which could result in a delay between when we receive the prepayment and when we are able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income we are able to earn on those assets.
In addition, in a falling or low rate environment, loans may be prepaid sooner than we expect, which could result in a delay between when we receive the prepayment and when we are able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income we are able to earn on those assets.
We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM and ITM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals.
We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals. While we have policies and procedures designed to prevent such losses, losses may occur.
Our commercial business and commercial mortgage loans increase our exposure to credit risks. At December 31, 2024, our portfolio of commercial business and commercial mortgage loans totaled $1.25 billion, or 28% of total loans.
Our commercial business and commercial mortgage loans increase our exposure to credit risks. At December 31, 2025, our portfolio of commercial business and commercial mortgage loans totaled $3.08 billion, or 66% of total loans.
Additionally, international conflict, such as the war in Ukraine and the impact of sanctions on Russia and Russian companies may impact global markets, which may create unfavorable or uncertain economic conditions. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.
Additionally, international conflict may create unfavorable or uncertain economic conditions. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings.
Third-party vendors provide key components of our business infrastructure, such as infrastructure service delivery, application delivery, and an increased volume managed service functions. While we have selected these third-party vendors carefully, we relinquish many aspects of control.
Third-party vendors provide key components of our business infrastructure, such as infrastructure service delivery, application delivery, and a growing volume of managed service functions. While we select these third-party vendors carefully, we relinquish many aspects of control and rely on oversight processes to minimize risk.
Our CRE level equaled 297% of total risk-based capital at December 31, 2024. If our regulators were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, our earnings would be adversely affected.
If our regulators were to impose restrictions on the amount of commercial real estate loans we can hold in our portfolio, or require higher capital ratios as a result of the level of commercial real estate loans held, our earnings would be adversely affected. - 21 - Table of Contents Our indirect and consumer lending involves risk elements in addition to normal credit risk.
With respect to the Bank, the NY DFS, FRB, the United States Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations.
The Community Reinvestment Act (the “CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. With respect to the Bank, the NY DFS, FRB, the United States Department of Justice and other federal and state agencies are responsible for enforcing these laws and regulations.
Our indirect and consumer lending involves risk elements in addition to normal credit risk. A portion of our lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located in Western, Central and the Capital District of New York, and Northern and Central Pennsylvania.
A portion of our lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located in Western, Central and the Capital District of New York, and Northern and Central Pennsylvania prior to our planned exit from the Pennsylvania automobile market in 2024. These loans are for the purchase of new or used automobiles.
The failure to train and periodically test for possible threats, greatly increases the risk of compromise and impact. As the threat of cyber-attacks continue to evolve, we may be required to expend significant additional resources to continue to modify or enhance our systems, or to investigate and remediate vulnerabilities in our systems.
The failure to train and periodically test for possible threats, greatly increases the risk of compromise and impact. As the threat of cyber-attacks continue to evolve, we may be required to increase the resources dedicated to minimize and respond to these risks.
The lack of cyber liability insurance is not only a financial risk, but a regulatory risk. - 31 - Table of Contents Risks Related to our Common Stock We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions.
Failure to meet reasonable cybersecurity control requirements could risk the Company’s ability to obtain cyber liability insurance, which poses financial and regulatory risks, or influence significantly higher rates. - 30 - Table of Contents Risks Related to our Common Stock We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions.
While these loans have higher yields than many of our other loans, such loans involve risk elements in addition to normal credit risk. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.
Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.
During the first quarter of 2024, the Bank experienced charge offs associated with fraudulent activity pertaining to deposit transactions conducted over the course of several business days ending in early March 2024 by an in-market business customer of the Bank. The deposit-related fraud event resulted in an $18.2 million pre-tax loss.
In March 2024, we experienced a loss associated with fraudulent activity pertaining to deposit transactions conducted over the course of several business days by an in-market business customer of the Bank, which resulted in an $18.2 million pre-tax loss. - 20 - Table of Contents Geographic concentration may unfavorably impact our operations.
While cloud computing services typically support improved availability, performance and elasticity, it also presents increased risk of system and data compromise. Cloud computing services are rapidly evolving as are the technology solutions running in cloud services. Cloud and associated technology have influenced the opportunity for rapid change, which inherently increases change management risk.
While cloud computing services typically support improved availability, performance and elasticity, it also presents increased risk of system and data compromise. And, while improved availability is a goal of cloud computing, service outages can be more significantly impactful. Cloud computing services are rapidly evolving as are the technology solutions running in cloud services.
While the heightened pace of change is often desirable, it may lead to undesirable outcomes impacting operational risk, financial risk, reputations risk and sometimes, regulatory risk.
Cloud and associated technology have influenced the opportunity for rapid change, which inherently increases change management risk. While the heightened pace of change is often desirable, it may lead to undesirable outcomes impacting operational risk, financial risk, reputations risk and sometimes, regulatory risk. As such, the adoption of cloud services must include comprehensive assessment and risk management.
Failure to adequately develop, design and maintain our Bank Secrecy Act programs could lead to sanctions and other negative actions, restrictions on conducting acquisitions or establishing new branches and other regulatory actions which would have serious reputational consequences for us, and which would have a material adverse effect on our business, financial condition or results of operations.
Failure to adequately design, implement, and maintain our BSA/AML and OFAC compliance programs could result in supervisory criticism, enforcement actions, monetary penalties, restrictions on acquisitions or new branches, reputational harm, or other regulatory consequences that could have a material adverse effect on our business, financial condition, or results of operations.
The amount that is assessed by the FDIC for deposit insurance is set by the FDIC based on a variety of factors. These include the depositor insurance fund’s reserve ratio, the Bank’s assessment base, which is equal to average consolidated total assets minus average tangible equity, and various inputs into the FDIC’s assessment rate calculation.
These include the depositor insurance fund’s reserve ratio, the Bank’s assessment base, which is equal to average consolidated total assets minus average tangible equity, and various inputs into the FDIC’s assessment rate calculation. - 23 - Table of Contents If there are financial institution failures, we may be required to pay higher FDIC premiums or special assessments.
We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties. The Community Reinvestment Act (the “CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
Non-compliance with other applicable state or federal laws and regulations could also expose us to fines, penalties, or other negative actions. We are subject to the CRA and fair lending laws, and failure to comply with these laws could lead to material penalties.
The impact of the DOJ’s rescission of the Cole Memo and related memoranda is unclear, but in the future may result in increased enforcement actions against the regulated cannabis industry generally.
The impact of the DOJ’s rescission of the Cole Memo and related memoranda is unclear. Enforcement policies and practices may be highly variable between political administrations.
Effective January 1, 2024, we exited the Pennsylvania automobile market in order to align our focus more fully around our core Upstate New York market. These loans are for the purchase of new or used automobiles. We serve customers that cover a range of creditworthiness, and the required terms and rates are reflective of those risk profiles.
We serve customers that cover a range of creditworthiness, and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, such loans involve risk elements in addition to normal credit risk.
Insurance carriers have also enhanced their cybersecurity posture requirements and oversight. Failure to meet reasonable cybersecurity control requirements could risk the Company’s ability to obtain cyber liability insurance or influence significantly higher rates.
Insurance carriers have also enhanced their cybersecurity posture requirements and oversight.
Non-compliance with the USA PATRIOT Act and the Bank Secrecy Act could subject us to fines, sanctions or other negative actions. The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.
Non-compliance with the USA PATRIOT Act, the BSA, OFAC sanction regulations, or other applicable state and federal laws could subject us to fines, penalties, or other regulatory actions.
This could adversely affect the borrower’s earnings and ability to repay its loan, which could have a material adverse effect on our financial condition and results of operations. - 25 - Table of Contents We have implemented a program to provide financial products and services to customers that do business in the cannabis industry and the strict enforcement of federal laws and regulations regarding cannabis could result in our inability to continue to provide financial products and services to these customers and we could have legal action taken against us by the federal government and exposure to additional liabilities and regulatory compliance costs.
This could adversely affect the borrower’s earnings and ability to repay their loan, which could have a material adverse effect on our financial condition and results of operations. - 24 - Table of Contents We offer financial services to a limited number of New York State-licensed cannabis businesses under New York State’s regulatory framework, with supporting policy and procedures, enhanced due diligence, monitoring, and required regulatory reporting.
Removed
The Bank is pursuing all available sources of recovery, including legal recourse, to minimize the loss. On December 2, 2024, the primary perpetrator of the fraud pled guilty in the United States District Court of the Western District of New York to two felonies – financial institutions fraud and money laundering.
Added
Our CRE level equaled 295% of total risk-based capital at December 31, 2025.
Removed
Among other things, the plea agreement requires the perpetrator to pay full restitution to the Bank. There can be no assurance that the Bank will be able to effect any further recovery or that the Bank will receive restitution from the perpetrator of the fraud, in whole or in part.
Added
The amount that is assessed by the FDIC for deposit insurance is set by the FDIC based on a variety of factors.
Removed
While the Bank believes this incident was an isolated occurrence and has since instituted a remediation plan designed to strengthen its risk mitigation practices, there can be no assurance that such fraudulent actions will not occur again or that such acts will be detected in a timely manner.
Added
The USA PATRIOT Act and the BSA require financial institutions to maintain a written anti-money laundering program, including customer identification procedures, customer due diligence, ongoing monitoring, and the filing of suspicious activity reports with FinCEN when suspicious activity is identified. OFAC regulations prohibit U.S. financial institutions from engaging in transactions with sanctioned parties or jurisdictions.
Removed
We maintain a system of internal controls and insurance coverage to mitigate against such risks, including data processing system failures and errors, and customer fraud.
Added
To comply with these obligations, institutions screen customers and transactions against OFAC’s sanctions lists and are required to block or reject prohibited transactions and submit required reports to OFAC.
Removed
If our internal controls fail to prevent or detect any such occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations. Geographic concentration may unfavorably impact our operations.
Added
While federal law continues to classify cannabis as illegal, the risk of strict federal enforcement remains uncertain. Any significant change in federal enforcement posture could affect our ability to continue services these customers and could increase our legal, regulatory, or compliance-related obligations.
Removed
If there are financial institution failures, we may be required to pay higher FDIC premiums or special assessments.
Added
Modern cyber-attacks attempt to obtain unauthorized access to directly access financial assets or indirectly benefit by accessing confidential data for future gains. Cyber-attacks may be executed in multiple stages but generally begin with social engineering attacks which pose a significant risk to employees and customers.
Removed
Once such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers that open new financial accounts. Failure to comply with these regulations could result in fines or sanctions.
Removed
Under the Biden administration, the United States Attorney General indicated that the DOJ did not intend to pursue cases against parties who comply with the laws in states which have legalized and are effectively regulating marijuana. However, the second Trump administration took office on January 20, 2025, and enforcement policies and practices may be highly variable between political administrations.
Removed
During 2022 and 2023, in response to accelerated inflation, the Federal Reserve implemented monetary tightening policies, resulting in significantly increased interest rates. In the fourth quarter of 2024, the Federal Reserve started to implement a monetary loosening policy, reducing the Federal Funds target rate three times, resulting in an aggregate decrease of 100-basis points.
Removed
The result of the changes has provided a flattened yield curve in comparison to an inverted yield curve that had been experienced in 2023 and a majority of 2024.
Removed
Potential attacks have attempted to obtain unauthorized access to confidential information to obtain for sale or destroy, often through the introduction of computer viruses or malware (ransomware), cyber-attacks and other means.

Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Should there be a cybersecurity incident, we have a formal Incident Response plan including escalation processes designed to keep relevant management and committees informed of the mitigation and remediation efforts. The identification of incidents may come through internal monitoring and detection resources, external threat intelligence, third-party risk management efforts or various other event escalation methods.
Should there be a cybersecurity incident, we have a formal Incident Response plan including escalation processes designed to keep relevant management and board committees informed of the mitigation and remediation efforts. The identification of incidents may come through internal monitoring and detection resources, external threat intelligence, third-party risk management efforts or various other event escalation methods.
The ISP is designed and implemented to comply with or exceed regulatory control requirements. Multiple internal and independent third-party assessments and audits are conducted annually to ensure our compliance with its policies, controls, and regulatory requirements. The execution of the ISP relies on our committed investment in people, processes, and technology.
The ISP is designed and implemented to comply with or exceed regulatory control requirements. Multiple internal and independent third-party assessments and audits are conducted annually to ensure our compliance with policies, controls, and regulatory requirements. The execution of the ISP relies on our committed investment in people, processes, and technology.
We have not experienced any cybersecurity threats or incidents that have materially affected or are reasonably likely to affect our business strategy, results of operations, or financial condition.
We have not experienced any cybersecurity incidents that have materially affected or are reasonably likely to affect our business strategy, results of operations, or financial condition.
Risks relating to cybersecurity and their potential impact are discussed more fully in “Risk Factors” in Part I, Item 1A herein. - 34 - Table of Contents Governance We have established a dedicated team to manage and execute the ISP. A Chief Information Security Officer (“CISO”) has been appointed as a Senior Vice President of the Company.
Risks relating to cybersecurity and their potential impact are discussed more fully in “Risk Factors” in Part I, Item 1A herein. - 33 - Table of Contents Governance We have established a dedicated team to manage and execute the ISP. A Chief Information Security Officer (“CISO”) has been appointed as a Senior Vice President of the Company.
Third-party risks are identified and evaluated in coordination with period reviews, although threat intelligence monitoring and sound vendor relationships are leveraged to identify third-party risks as announced. TPRM is a function of our Risk Organization overseen by our Chief Risk Officer (“CRO”).
Third-party risks are identified and evaluated in coordination with periodic reviews, although threat intelligence monitoring and sound vendor relationships are leveraged to identify third-party risks as announced. TPRM is a function of our Risk Organization overseen by our Chief Risk Officer (“CRO”).
VanGelder, the current Chair of the ROC, has served as a member of our Board since 2016, and has held progressive information technology leadership roles at the Eastman Kodak Company, with responsibilities including cybersecurity, global applications, and global technology infrastructure, and has served as its Chief Information Officer since 2004.
VanGelder, the current Chair of the ROC, has served as a member of our Board since 2016, and has held progressive information technology leadership roles at the Eastman Kodak Company, with responsibilities including cybersecurity, global applications, and global technology infrastructure, and served as its Chief Information Officer from 2004 to 2025.
The ISP, which is part of our Enterprise Risk Management Program, is organized in an operating framework that is supported by policies, standards, procedures, and guidelines that establish the information security control environment. The Information Security team collaborates with additional areas of our Enterprise Risk Management Program to ensure comprehensive risk oversight and reporting.
The ISP, which is part of our Enterprise Risk Management Program, is organized in an operating framework that is supported by additional policies and procedures that establish the information security control environment. The Information Security team collaborates with additional functions of our Enterprise Risk Management Program to ensure comprehensive risk oversight and reporting.
We have invested in market-leading technology and award-winning security partners to execute key processes that ensure the confidentiality, integrity, and availability of company assets. Recent investments have ensured the use of innovative technology and services with best-in-class providers.
We have invested in market-leading technology and award-winning security partners to execute key processes that ensure the confidentiality, integrity, and availability of company assets. Recent investments have ensured the use of innovative technology and services with best-in-class providers while enhancing the maturity of our program.
The CSF provides guidance for organizations to better manage and reduce cybersecurity risk while helping organizations understand, assess, prioritize, and communicate cybersecurity risks and mitigation. The ISP encompasses critical management components such as risk management, asset management, access controls, cyber awareness training, data security, detection and response, incident response, and business continuity.
The CSF provides a framework of best practices to better manage and reduce cybersecurity risk while helping organizations assess, prioritize, and communicate cybersecurity risks and associated mitigation and program maturity plans. The ISP encompasses critical management components such as risk management, asset management, access controls, cyber awareness training, data security, detection and response, incident response, and business continuity.
Our present CISO, Scott Bader, was appointed in August 2023 after serving the Company as a senior officer and technology leader for over 15 years and leads a team of Information Security professionals with diverse security backgrounds including relevant certifications (e.g., CISSP, GSEC, GCTI) .
Prior to the CISO appointment, he served the Company as a senior officer and technology leader for over 15 years and leads a team of Information Security professionals with diverse security backgrounds including relevant certifications (e.g., CISSP, GSEC, GCTI) .
The CISO leads the strategy and execution of the program while ensuring clear lines of communication with executive management, committees, the Board of Directors, and external stakeholders such as regulators and insurance carriers.
The CISO leads the strategy and execution of the program while ensuring clear lines of communication with executive management, management committees, the Board of Directors, and external stakeholders such as regulators and insurance carriers. Our CISO, Scott Bader, was appointed in August 2023 and has over 25 years of technology and security leadership experience.

Item 2. Properties

Properties — owned and leased real estate

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The operating leases for our branch offices expire at various dates through the year 2061 and generally include options to renew. Courier Capital operates from an owned 11,000 square foot office, located in Buffalo, New York. Courier Capital also has operations at an owned facility in Jamestown, New York.
The operating leases for our branch offices expire at various dates through the year 2061 and generally include options to renew. Courier Capital operates from an owned 11,000 square foot office, located in Buffalo, New York. Courier Capital also has operations at an owned facility in Jamestown, New York, and leased offices in Pittsburgh, Pennsylvania and Sarasota, Florida.
ITEM 2. PR OPERTIES We own a 27,400 square foot building in Warsaw, New York that serves as our headquarters, and principal executive and administrative offices. We lease a 52,300 square foot regional administrative facility located in Rochester, New York. This lease expires in August 2027, with options for two additional ten-year extensions.
ITEM 2. PR OPERTIES We own a 27,400 square foot building in Warsaw, New York that serves as our headquarters, and principal executive and administrative offices. We lease a 56,000 square foot regional administrative facility located in Rochester, New York. This lease expires in April 2042, with options for two additional ten-year extensions.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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For more information with respect to our recent legal proceedings please refer to Note 12, Commitments and Contingencies, of the notes to the to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K.
For more information with respect to our legal proceedings see Note 12, Commitments and Contingencies, of the notes to the to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K. - 34 - Table of Contents ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. PART II
Except as described in Note 12, management believes that the aggregate liability, if any, arising from such litigation would not have a material adverse effect on the Company’s consolidated financial statements. - 35 - Table of Contents ITEM 4. MINE SAF ETY DISCLOSURES Not applicable. PART II
Management believes that the aggregate liability, if any, arising from such litigation would not have a material adverse effect on the Company’s consolidated financial statements.

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Item 4. Mine Safety Disclosures 36 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 36 Item 6. [Reserved] 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 63 Item 8.
Item 4. Mine Safety Disclosures 35 PART II Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6. [Reserved] 36 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 62 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED ST OCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Select Market under the ticker symbol “FISI.” At February 28, 2025, there were 20,077,893 shares of our common stock outstanding and there were 256 registered shareholders of record.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED ST OCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is traded on the Nasdaq Global Select Market under the ticker symbol “FISI.” At February 27, 2026, there were 19,634,210 shares of our common stock outstanding and there were 289 registered shareholders of record.
The Company’s repurchases of its common shares during the fourth quarter of 2024 were as follows: Issuer Purchases of Equity Securities Period Total Number of Shares Purchased (1) 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 October 1 - 31, 2024 — $ — — 766,447 November 1 - 30, 2024 180 23.84 — 766,447 December 1 - 31, 2024 — — — 766,447 Total 180 $ 23.84 — (1) This column reflects shares of Company common stock deemed surrendered to us to satisfy tax withholding obligations in connection with the vesting of employee restricted stock units. - 36 - Table of Contents Stock Performance Graph The stock performance graph below compares (a) the cumulative total return on our common stock for the period beginning December 31, 2019 as reported by the Nasdaq Global Select Market, through December 31, 2024, (b) the cumulative total return on stocks included in the NASDAQ Composite Index over the same period, and (c) the cumulative total return of the Standard and Poor’s (“S&P”) U.S.
The Company’s repurchases of its common shares during the fourth quarter of 2025 were as follows: Issuer 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 October 1 - 31, 2025 — $ — — 1,006,379 November 1 - 30, 2025 — — — 1,006,379 December 1 - 31, 2025 336,869 31.98 336,869 669,510 Total 336,869 $ 31.98 336,869 - 35 - Table of Contents Stock Performance Graph The stock performance graph below compares (a) the cumulative total return on our common stock for the period beginning December 31, 2020 as reported by the Nasdaq Global Select Market, through December 31, 2025, (b) the cumulative total return on stocks included in the NASDAQ Composite Index over the same period, and (c) the cumulative total return of the Standard and Poor’s (“S&P”) U.S.
The graph was prepared by S&P Global Market Intelligence and is expressed in dollars based on an assumed investment of $100. Period Ending Index 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 Financial Institutions, Inc. 100.00 73.99 108.30 86.65 80.80 109.51 NASDAQ Composite Index 100.00 144.92 177.06 119.45 172.77 223.87 S&P U.S. SmallCap Banks Index 100.00 90.82 126.43 111.47 112.03 132.44
The graph was prepared by S&P Global Market Intelligence and is expressed in dollars based on an assumed investment of $100. Period Ending Index 12/31/2020 12/31/2021 12/31/2022 12/31/2023 12/31/2024 12/31/2025 Financial Institutions, Inc. 100.00 146.37 117.11 109.20 148.01 176.83 NASDAQ Composite Index 100.00 122.18 82.43 119.22 154.48 187.14 S&P U.S. SmallCap Banks Index 100.00 139.21 122.74 123.35 145.82 160.37
In June 2022, the Company’s Board of Directors (the “Board”) authorized a share repurchase program for up to 766,447 shares of common stock (the “2022 Repurchase Program”). The program will expire at the earlier of the completion of all share repurchases or a Board vote to retire the program.
In September 2025, the Company’s Board of Directors (the “Board”) authorized a share repurchase program for up to 1,006,379 shares of common stock, or approximately 5% of the Company’s then outstanding common shares (the “2025 Repurchase Program”), which replaced the prior share repurchase program authorized by the Board in June 2022.
Removed
During the quarter ended December 31, 2024, there were no shares repurchased pursuant to the 2022 Repurchase Program.
Added
The 2025 Repurchase Program will expire at the earlier of the completion of all share repurchases or a Board vote to retire the program. As of December 31, 2025, 336,869 shares have been repurchased under the 2025 Repurchase Program.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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(2) The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%. (3) Loans include net unearned income, net deferred loan fees and costs and non-accruing loans.
(2) The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%. (3) Loans include net unearned income, net of deferred loan fees and costs, and non-accruing loans.
We achieve liquidity by maintaining a strong base of both core customer funds and maturing short-term assets; we also rely on our ability to sell or pledge securities and lines-of-credit and our overall ability to access to the financial and capital markets.
We achieve liquidity by maintaining a strong base of both core customer funds and maturing short-term assets; we also rely on our ability to sell or pledge securities and lines-of-credit and our overall ability to access the financial and capital markets.
With the exception of obligations in connection with our irrevocable loan commitments, limited partnership investments and tax credit investments as of December 31, 2024, we had no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
With the exception of obligations in connection with our irrevocable loan commitments, limited partnership investments and tax credit investments as of December 31, 2025, we had no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal and the proceeds will be invested at current market rates. Given the high credit quality inherent in Agency MBS, we do not consider any of the unrealized losses as of December 31, 2024 on such Agency MBS to be credit related.
However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal, and the proceeds will be invested at current market rates. Given the high credit quality inherent in Agency MBS, we do not consider any of the unrealized losses as of December 31, 2025 on such Agency MBS to be credit related.
Long-term Borrowings As of December 31, 2024 and 2023 and we had a long-term advance payable to FHLB of $50.0 million. The advance matures on January 20, 2026 and bears interest at a fixed rate of 4.05%. FHLB advances are collateralized by securities from our investment portfolio and certain qualifying loans.
Long-term Borrowings As of December 31, 2025 and 2024 and we had a long-term advance payable to FHLB of $50.0 million. The advance matures on January 20, 2026 and bears interest at a fixed rate of 4.05%. FHLB advances are collateralized by securities from our investment portfolio and certain qualifying loans.
Security Yields and Maturities Schedule The following table sets forth certain information regarding the amortized cost (“Cost”), cost-weighted average yields (“Yield”), which is defined as the book yield weighted against the ending book value, and contractual maturities of our debt securities portfolio as of December 31, 2024 (dollars in thousands).
Security Yields and Maturities Schedule The following table sets forth certain information regarding the amortized cost (“Cost”), cost-weighted average yields (“Yield”), which is defined as the book yield weighted against the ending book value, and contractual maturities of our debt securities portfolio as of December 31, 2025 (dollars in thousands).
We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2024, we concluded that unrealized losses on our AFS securities were not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities.
We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2025, we concluded that unrealized losses on our AFS securities were not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities.
As of December 31, 2024, $50.0 million of the short-term borrowings balance was designated as a cash-flow hedge, which became effective in April 2022, at a fixed rate of 0.787%, $30.0 million was designated as a cash-flow hedge, which became effective in January 2023, at a fixed rate of 3.669%, and $25.0 million was designated as a cash-flow hedge, which became effective in May 2023, at a fixed rate of 3.4615%.
As of December 31, 2025, $50.0 million of the short-term borrowings balance was designated as a cash-flow hedge, which became effective in April 2022, at a fixed rate of 0.787%, $30.0 million was designated as a cash-flow hedge, which became effective in January 2023, at a fixed rate of 3.669%, and $25.0 million was designated as a cash-flow hedge, which became effective in May 2023, at a fixed rate of 3.4615%.
The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. No amounts have been drawn on the line of credit at December 31, 2024 and 2023.
The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. No amounts have been drawn on the line of credit at December 31, 2025 and 2024.
The final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks were fully phased-in on January 1, 2019. As of December 31, 2024, the Company’s capital levels remained characterized as “well-capitalized” under the BCBS rules.
The final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks were fully phased-in on January 1, 2019. As of December 31, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the BCBS rules.
Throughout 2022 and 2023, the Federal Reserve increased the intended federal funds rate, which is the cost of immediately available overnight funds in an attempt by the Federal Reserve to curb inflation, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2022.
Throughout 2022 and 2023, the Federal Reserve increased the intended federal funds rate, which is the cost of immediately available overnight funds in an attempt by the Federal Reserve to curb inflation, resulting in a federal funds rate of 5.25% to 5.50% as of December 31, 2023.
The unrealized loss of these securities was driven by the timing of the purchases of fixed-rate securities during the extended low interest rate environments experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates.
The unrealized loss of these securities was driven by the timing of the purchases of fixed-rate securities during the extended low-interest rate environment experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates.
Loans Held for Sale and Loan Servicing Portfolio Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $2.3 million and $1.4 million as of December 31, 2024 and 2023, respectively. We sell certain qualifying newly originated or refinanced residential real estate loans on the secondary market.
Loans Held for Sale and Loan Servicing Portfolio Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $3.4 million and $2.3 million as of December 31, 2025 and 2024, respectively. We sell certain qualifying newly originated or refinanced residential real estate loans on the secondary market.
Rate/Volume Analysis The following table presents, on a tax-equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the periods indicated.
Rate/Volume Analysis The following table presents, on a tax-equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the years indicated.
Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP. - 42 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS FOR THE YEARS ENDED December 31, 2024 AND December 31, 2023 Net Interest Income and Net Interest Margin Net interest income was our primary source of revenue for the year ended December 31, 2024.
Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP. - 41 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS FOR THE YEARS ENDED December 31, 2025 AND December 31, 2024 Net Interest Income and Net Interest Margin Net interest income was our primary source of revenue for the year ended December 31, 2025.
The process we use to determine the overall allowance for credit losses is based on this analysis. Based on this analysis, we believe the allowance for credit losses is adequate as of December 31, 2024.
The process we use to determine the overall allowance for credit losses is based on this analysis. Based on this analysis, we believe the allowance for credit losses is adequate as of December 31, 2025.
As of December 31, 2024, the Company’s capital levels remained characterized as “well-capitalized” under the Basel III rules, including the additional capital conservation buffer. - 61 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements are prepared in accordance with GAAP and are consistent with predominant practices in the financial services industry.
As of December 31, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the Basel III rules, including the additional capital conservation buffer. - 60 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS CRITICAL ACCOUNTING ESTIMATES Our consolidated financial statements are prepared in accordance with GAAP and are consistent with predominant practices in the financial services industry.
In addition, our effective tax rate for 2024 and 2023 reflects the New York State tax benefit generated by our real estate investment trust.
In addition, our effective tax rate for 2025 and 2024 reflects the New York State tax benefit generated by our real estate investment trust.
From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then current three-month CME Term SOFR plus 0.26262%. The 2015 Notes are redeemable by us at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest.
From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then current three-month CME Term SOFR plus 4.20561%. The 2015 Notes are redeemable by us at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest.
Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. We had $60 thousand and $142 thousand of properties representing foreclosed asset holdings at December 31, 2024 and 2023, respectively.
Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. We had $94 thousand and $60 thousand of properties representing foreclosed asset holdings at December 31, 2025 and 2024, respectively.
For the year ended December 31, 2024 and 2023 no allowance for credit losses has been recognized on AFS securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality.
For the years ended December 31, 2025 and 2024 no allowance for credit losses has been recognized on AFS securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality.
Approximately $1.1 million, or 3%, of the $41.4 million of nonaccrual loans, a component of non-performing loans, as of December 31, 2024 were current with respect to payment of principal and interest but were classified as non-accruing because repayment in full of principal and/or interest was uncertain.
Approximately $1.3 million, or 4%, of the $35.1 million of nonaccrual loans, a component of non-performing loans, as of December 31, 2025 were current with respect to payment of principal and interest but were classified as non-accruing because repayment in full of principal and/or interest was uncertain.
Total public deposits were $1.07 billion and $1.02 billion at December 31, 2024 and December 31, 2023, respectively, and represented 21% and 20% of total deposits as of the end of each year, respectively. We participate in reciprocal deposit programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount.
Total public deposits were $1.09 billion and $1.07 billion at December 31, 2025 and December 31, 2024, respectively, and represented 21% of total deposits as of the end of each year. We participate in reciprocal deposit programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount.
For additional information on the Company’s long-term contractual obligations above, see Note 9, Deposits, Note 19, Employee Benefit Plans, Note 10, Borrowings, and Note 7, Leases, in the accompanying consolidated financial statements. - 58 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS We have financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of customers.
For additional information on the Company’s long-term contractual obligations above, see Note 9, Deposits, Note 19, Employee Benefit Plans, Note 10, Borrowings, and Note 7, Leases, in the accompanying consolidated financial statements. We have financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of customers.
Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $746.7 million at December 31, 2024, compared to $817.6 million at December 31, 2023, and represented 15% and 16% of total deposits as of the end of each year, respectively.
Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $829.2 million at December 31, 2025, compared to $746.7 million at December 31, 2024, and represented 16% and 15% of total deposits as of the end of each year, respectively.
We have committed to investments in limited partnerships, primarily related to small business investment companies, tax credit investments and FinTech and ESG-related investment funds. As of December 31, 2024, the off-balance sheet commitments related to these investments totaled $8.6 million.
We have committed to investments in limited partnerships, primarily related to small business investment companies, tax credit investments and FinTech and ESG-related investment funds. As of December 31, 2025, the off-balance sheet commitments related to these investments totaled $9.9 million.
As of December 31, 2024, the principal balance of such loans (included in commercial loans) was $21.8 million, and the guaranteed portion amounted to $13.4 million. - 51 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS We determine our current lending standards for commercial real estate and real estate construction lending by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing or pre-sales, minimum debt-service coverage ratios, minimum borrower equity, and maximum loan to cost.
As of December 31, 2025, the principal balance of such loans (included in commercial loans) was $40.9 million, and the guaranteed portion amounted to $30.9 million. - 50 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS We determine our current lending standards for commercial real estate and real estate construction lending by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing or pre-sales, minimum debt-service coverage ratios, minimum borrower equity, and maximum loan to cost.
We identified $33.7 million and $29.9 million in loans that continued to accrue interest which were classified as substandard as of December 31, 2024 and 2023, respectively. - 55 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS FUNDING ACTIVITIES Deposits The following table summarizes the composition of our deposits (in thousands) as of the dates indicated.
We identified $27.6 million and $33.7 million in loans that continued to accrue interest which were classified as substandard as of December 31, 2025 and 2024, respectively. - 54 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS FUNDING ACTIVITIES Deposits The following table summarizes the composition of our deposits (in thousands) as of the dates indicated.
The average FICO score for new home equity production was 742 and 750 during the years ended December 31, 2024 and 2023, respectively.
The average FICO score for new home equity production was 746 and 742 during the years ended December 31, 2025 and 2024, respectively.
These financial instruments include commitments to extend credit for $1.27 billion and standby letters of credit for $14.6 million as of December 31, 2024. We do not expect all of the commitments to extend credit and standby letters of credit to be funded. Thus, the total commitment amounts do not necessarily represent our future cash requirements.
These financial instruments include commitments to extend credit for $1.40 billion and standby letters of credit for $20.5 million as of December 31, 2025. We do not expect all of the commitments to extend credit and standby letters of credit to be funded. Thus, the total commitment amounts do not necessarily represent our future cash requirements.
Currently, the maximum standard for LTV is 85%, with lower limits established for certain higher risk types, such as raw land which has a 65% LTV maximum. Consumer loans totaled $1.61 billion at December 31, 2024, down $106.8 million compared to 2023, and represented 36% of the 2024 year-end loan portfolio versus 39% at December 31, 2023.
Currently, the maximum standard for LTV is 85%, with lower limits established for certain higher risk types, such as raw land which has a 65% LTV maximum. Consumer loans totaled $1.58 billion at December 31, 2025, down $37.0 million compared to year end 2024, and represented 34% of the 2025 year-end loan portfolio versus 36% at December 31, 2024.
Agency Mortgage-backed Securities With the exception of the non-Agency mortgage-backed securities (“non-Agency MBS”) discussed below, all of the mortgage-backed securities held by us as of December 31, 2024, were issued by U.S. Government sponsored entities and agencies (“Agency MBS”), primarily FNMA and FHLMC. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA.
Agency Mortgage-backed Securities All of the mortgage-backed securities held by us as of December 31, 2025, were issued by U.S. Government sponsored entities and agencies (“Agency MBS”), primarily FNMA and FHLMC. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA.
Non-public deposits, the largest component of our funding sources, totaled $3.21 billion and $3.12 billion at December 31, 2024 and 2023, respectively, and represented 63% and 60% of total deposits as of the end of each year, respectively.
Non-public deposits, the largest component of our funding sources, totaled $3.16 billion and $3.21 billion at December 31, 2025 and 2024, respectively, and represented 61% and 63% of total deposits as of the end of each year, respectively.
Net deferred loan fees (costs) included in interest income were as follows (in thousands): - 45 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS 2024 2023 2022 Commercial business $ 155 $ (56 ) $ 2,002 Commercial mortgage 2,192 2,324 2,200 Residential real estate loans (1,551 ) (1,672 ) (1,829 ) Residential real estate lines (393 ) (373 ) (327 ) Consumer indirect (3,534 ) (1,792 ) (2,141 ) Other consumer 44 19 18 Total $ (3,087 ) $ (1,550 ) $ (77 ) The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment.
Net deferred loan fees (costs) included in interest income were as follows (in thousands): - 44 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS 2025 2024 2023 Commercial business $ (1 ) $ 155 $ (56 ) Commercial mortgage 2,850 2,192 2,324 Residential real estate loans (1,557 ) (1,551 ) (1,672 ) Residential real estate lines (371 ) (393 ) (373 ) Consumer indirect (3,503 ) (3,534 ) (1,792 ) Other consumer (27 ) 44 19 Total $ (2,609 ) $ (3,087 ) $ (1,550 ) The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment.
Additional financial highlights are as follows: At or For the Year Ended December 31, 2024 2023 2022 Performance ratios: Net (loss) income, returns on: Average assets -0.68 % 0.83 % 1.01 % Average equity -8.74 % 11.86 % 12.81 % Net (loss) income available to common shareholders, returns on: Average common equity -9.39 % 12.01 % 12.99 % Average tangible common equity (1) -10.92 % 14.64 % 15.72 % Average tangible assets (1) -0.71 % 0.82 % 1.00 % Common dividend payout ratio -43.64 % 37.85 % 32.40 % Net interest margin (fully tax-equivalent) 2.86 % 2.94 % 3.20 % Effective tax rate -38.9 % 20.3 % 20.3 % Efficiency ratio (2) 82.35 % 62.96 % 60.39 % Capital ratios: Leverage ratio 9.15 % 8.33 % 8.23 % Common equity Tier 1 capital ratio 10.54 % 9.42 % 10.28 % Tier 1 capital ratio 10.87 % 9.78 % 10.68 % Total risk-based capital ratio 13.25 % 12.13 % 13.12 % Average equity to average assets 7.77 % 7.03 % 7.88 % Common equity to assets 9.02 % 7.10 % 8.84 % Tangible common equity to tangible assets (1) 8.11 % 6.00 % 5.50 % (1) This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition.
Additional financial highlights are as follows: At or For the Year Ended December 31, 2025 2024 2023 Performance ratios: Net income (loss), returns on: Average assets 1.20 % -0.68 % 0.83 % Average equity 12.38 % -8.74 % 11.86 % Net income (loss) available to common shareholders, returns on: Average common equity 12.49 % -9.39 % 12.01 % Average tangible common equity (1) 13.93 % -10.92 % 14.64 % Average tangible assets (1) 1.19 % -0.71 % 0.82 % Common dividend payout ratio 33.97 % -43.64 % 37.85 % Net interest margin (fully tax-equivalent) 3.53 % 2.86 % 2.94 % Effective tax rate 18.0 % -38.9 % 20.3 % Efficiency ratio (2) 58.13 % 82.35 % 62.96 % Capital ratios: Leverage ratio 9.69 % 9.15 % 8.33 % Common equity Tier 1 capital ratio 11.11 % 10.54 % 9.42 % Tier 1 capital ratio 11.43 % 10.87 % 9.78 % Total risk-based capital ratio 14.90 % 13.25 % 12.13 % Average equity to average assets 9.73 % 7.77 % 7.03 % Common equity to assets 9.75 % 9.02 % 7.10 % Tangible common equity to tangible assets (1) 8.87 % 8.11 % 6.00 % (1) This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition.
Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $280.8 million and $269.4 million as of December 31, 2024 and 2023, respectively. - 52 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Allowance for Credit Losses The following table summarizes the activity in the allowance for credit losses–loans (in thousands) for the periods indicated.
Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $293.3 million and $280.8 million as of December 31, 2025 and 2024, respectively. - 51 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Allowance for Credit Losses The following table summarizes the activity in the allowance for credit losses–loans (in thousands) for the years indicated.
The portion of our time deposits by account that were in excess of the FDIC insurance limit was $328.4 million and $302.6 million at December 31, 2024 and 2023, respectively.
The portion of our time deposits by account that were in excess of the FDIC insurance limit was $394.2 million and $328.4 million at December 31, 2025 and 2024, respectively.
We have also recorded a $16.4 million liability primarily related to committed contributions for tax credit investments in property placed in service on or before December 31, 2024.
We have also recorded a $2.1 million liability primarily related to committed contributions for tax credit investments in property placed in service on or before December 31, 2025.
The ratio of allowance for credit losses–loans to non-performing loans was 116% at December 31, 2024, compared with 192% at December 31, 2023, reflective of the lower allowance for credit losses–loans. - 53 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS The following table sets forth the allocation of the allowance for credit losses–loans by loan category as of the dates indicated.
The ratio of allowance for credit losses–loans to non-performing loans was 133% at December 31, 2025, compared with 116% at December 31, 2024, with the increase reflective of the lower level of nonperforming loans at December 31, 2025. - 52 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS The following table sets forth the allocation of the allowance for credit losses–loans by loan category as of the dates indicated.
Our Chief Financial Officer and Treasurer, guided by ALCO, is responsible for investment portfolio decisions within the established policies. Our AFS investment securities portfolio increased $23.4 million from $887.7 million at December 31, 2023 to $911.1 million at December 31, 2024.
Our Chief Financial Officer and Treasurer, guided by ALCO, is responsible for investment portfolio decisions within the established policies. Our AFS investment securities portfolio increased $11.4 million from $911.1 million at December 31, 2024 to $922.5 million at December 31, 2025.
In 2024 and 2023, we recognized tax credit investments resulting in a $4.6 million and $3.0 million, respectively, reduction in income tax expense, in each year, and a $775 thousand and $252 thousand net loss recorded in noninterest income, respectively. Our effective tax rate was -38.9% for 2024, compared to 20.3% for 2023.
In 2025 and 2024, we recognized tax credit investments resulting in a $4.5 million and $4.6 million, respectively, reduction in income tax expense, in each year, and a $2.0 million and $775 thousand net loss recorded in noninterest income, respectively. Our effective tax rate was 18.1% for 2025, compared to (38.9%) for 2024.
Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC and expect to utilize it to serve as a conduit to refer insurance business to NFP.
Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC to serve as a conduit for the Bank to refer insurance business to NFP.
Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits, and fees and other revenue from insurance, prior to the sale of the assets of SDN.
Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits.
(1) This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition. Refer to the “GAAP to Non-GAAP Reconciliation” section of this Item 7 for further information. Our leverage ratio was 9.15% at December 31, 2024 compared to 8.18% at December 31, 2023.
(1) This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition. Refer to the “GAAP to Non-GAAP Reconciliation” section of this Item 7 for further information. - 39 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Our leverage ratio was 9.69% at December 31, 2025, compared to 9.15% at December 31, 2024.
The following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands): 2024 2023 2022 Interest income per consolidated statements of operations $ 313,231 $ 286,133 $ 196,107 Adjustment to fully taxable equivalent basis (1) 294 418 544 Interest income adjusted to a fully taxable equivalent basis 313,525 286,551 196,651 Interest expense per consolidated statements of operations 149,642 120,418 28,735 Net interest income on a taxable equivalent basis $ 163,883 $ 166,133 $ 167,916 (1) The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.
The following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands): 2025 2024 2023 Interest income per consolidated statements of operations $ 332,989 $ 313,231 $ 286,133 Adjustment to fully taxable equivalent basis (1) 207 294 418 Interest income adjusted to a fully taxable equivalent basis 333,196 313,525 286,551 Interest expense per consolidated statements of operations 133,003 149,642 120,418 Net interest income on a taxable equivalent basis $ 200,193 $ 163,883 $ 166,133 (1) The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.
The 2020 Notes have a maturity date of October 15, 2030 and bear interest, payable semi-annually, at the rate of 4.375% per annum, until October 15, 2025. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 4.265%, payable quarterly until maturity.
The 2020 Notes have a maturity date of October 15, 2030 and bore interest, payable semi-annually, at the rate of 4.375% per annum, until October 15, 2025, at which date the interest rate began repricing quarterly to an interest rate per annum equal to the then current three-month SOFR plus 4.265%, payable quarterly until maturity.
At December 31, 2024, both FII and the Bank exceeded all regulatory requirements. For detailed information on regulatory capital requirements, see Note 13, Regulatory Matters, of the notes to consolidated financial statements. LIQUIDITY AND CAPITAL MANAGEMENT The objective of maintaining adequate liquidity is to assure that we meet our financial obligations.
For detailed information on regulatory capital requirements, see Note 13, Regulatory Matters, of the notes to the consolidated financial statements. LIQUIDITY AND CAPITAL MANAGEMENT The objective of maintaining adequate liquidity is to assure that we meet our financial obligations.
Other Investments As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists.
The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists.
Net loans were $4.43 billion as of December 31, 2024, up $20.1 million, compared to $4.41 billion as of December 31, 2023. The increase in net loans was primarily due to organic growth in our commercial mortgage loan portfolio, partially offset by a decrease in consumer indirect loans and commercial business loans.
Net loans were $4.61 billion as of December 31, 2025, up $179.3 million, or 4%, compared to $4.43 billion as of December 31, 2024. The increase in net loans was primarily due to organic growth in our commercial business and commercial mortgage loan portfolios, partially offset by a decrease in consumer indirect loans.
The net loss for 2024 was primarily the result of a strategic investment securities restructuring, in which a portion of the proceeds from our December 2024 common stock offering was used to fund losses on the sale of $653.5 million of available-for-sale securities (“AFS”) with a weighted average book yield of 1.74% for a pre-tax loss of $100.2 million.
The net loss for 2024 was primarily the result of a strategic investment securities restructuring, in which a portion of the proceeds from our December 2024 common stock offering was used to fund losses on the sale of $653.5 million of available-for-sale securities (“AFS”) for a pre-tax loss of $100.2 million, or approximately $75 million after taxes.
Credit Loss–Loans Analysis Year Ended December 31, 2024 2023 2022 Allowance for credit losses–loans, beginning of period $ 51,082 $ 45,413 $ 39,676 Net charge-offs (recoveries): Commercial business 98 (109 ) (64 ) Commercial mortgage–construction - 980 - Commercial mortgage–multifamily 12 - - Commercial mortgage–non-owner occupied (8 ) (875 ) (864 ) Commercial mortgage–owner occupied (4 ) (70 ) 11 Residential real estate loans 95 89 279 Residential real estate lines - 41 (1 ) Consumer indirect 7,927 7,595 4,538 Other consumer 566 893 1,339 Total net charge-offs 8,686 8,544 5,238 Provision for credit losses–loans 5,645 14,213 10,975 Allowance for credit losses–loans, end of year $ 48,041 $ 51,082 $ 45,413 Net loan charge-offs (recoveries) to average loans: Commercial business 0.01 % -0.02 % -0.01 % Commercial mortgage–construction 0.00 % 0.27 % 0.00 % Commercial mortgage–multifamily 0.00 % 0.00 % 0.00 % Commercial mortgage–non-owner occupied 0.00 % -0.10 % -0.12 % Commercial mortgage–owner occupied 0.00 % 0.30 % 0.00 % Residential real estate loans 0.01 % 0.01 % 0.05 % Residential real estate lines 0.00 % 0.05 % 0.00 % Consumer indirect 0.89 % 0.76 % 0.45 % Other consumer 1.23 % 3.11 % 9.15 % Total loans 0.20 % 0.20 % 0.14 % Allowance for credit losses–loans to total loans 1.07 % 1.14 % 1.12 % Allowance for credit losses–loans to nonaccrual loans 116 % 192 % 445 % Allowance for credit losses–loans to non-performing loans 116 % 192 % 445 % Net charge-offs of $8.7 million in 2024 represented 0.20% of average loans compared to $8.5 million, or 0.20%, in 2023.
Credit Loss–Loans Analysis Year Ended December 31, 2025 2024 2023 Allowance for credit losses–loans, beginning of period $ 48,041 $ 51,082 $ 45,413 Net charge-offs (recoveries): Commercial business 2,129 98 (109 ) Commercial mortgage–construction (367 ) - 980 Commercial mortgage–multifamily - 12 - Commercial mortgage–non-owner occupied 594 (8 ) (875 ) Commercial mortgage–owner occupied (3 ) (4 ) (70 ) Residential real estate loans 104 95 89 Residential real estate lines 27 - 41 Consumer indirect 7,256 7,927 7,595 Other consumer 1,151 566 893 Total net charge-offs 10,891 8,686 8,544 Provision for credit losses–loans 10,236 5,645 14,213 Allowance for credit losses–loans, end of year $ 47,386 $ 48,041 $ 51,082 Net loan charge-offs (recoveries) to average loans: Commercial business 0.30 % 0.01 % -0.02 % Commercial mortgage–construction -0.07 % 0.00 % 0.27 % Commercial mortgage–multifamily 0.00 % 0.00 % 0.00 % Commercial mortgage–non-owner occupied 0.07 % 0.00 % -0.10 % Commercial mortgage–owner occupied 0.00 % 0.00 % 0.30 % Residential real estate loans 0.02 % 0.01 % 0.01 % Residential real estate lines 0.04 % 0.00 % 0.05 % Consumer indirect 0.87 % 0.89 % 0.76 % Other consumer 2.95 % 1.23 % 3.11 % Total loans 0.24 % 0.20 % 0.20 % Allowance for credit losses–loans to total loans 1.02 % 1.07 % 1.14 % Allowance for credit losses–loans to nonaccrual loans 135 % 116 % 192 % Allowance for credit losses–loans to non-performing loans 133 % 116 % 192 % Net charge-offs of $10.9 million in 2025 represented 0.24% of average loans compared to $8.7 million, or 0.20%, in 2024.
Other consumer loans totaled $42.8 million at December 31, 2024, down $2.3 million, compared to 2023, and represented approximately 1% of the 2024 and 2023 year-end loan portfolio. Other consumer loans consist of BaaS loans, personal loans (collateralized and uncollateralized) and deposit account collateralized loans.
Other consumer loans totaled $37.8 million at December 31, 2025, down $4.9 million, compared to year end 2024, and represented approximately 1% of the 2025 and 2024 year-end loan portfolio. Other consumer loans consist of personal loans (collateralized and uncollateralized) and deposit account collateralized loans.
Income Taxes Income tax benefit was $26.5 million for 2024, reflective of the net loss reported for the year, compared to income tax expense of $12.8 million for 2023.
Income Taxes Income tax expense was $16.5 million for 2025, compared to an income tax benefit of $26.5 million for 2024, which was reflective of the net loss reported for the year.
At December 31, 2024, total deposits were $5.10 billion, representing a decrease of $108.2 million, or 2%, which was primarily the result of a decrease in brokered and reciprocal deposits, partially offset by increases in non-public and public deposits. Time deposits were approximately 30% and 27% of total deposits at December 31, 2024 and 2023, respectively.
At December 31, 2025, total deposits were $5.21 billion, representing an increase of $101.6 million, or 2%, which was primarily the result of an increase in brokered, reciprocal, and public deposits, partially offset by a decrease in non-public deposits. Time deposits were approximately 32% and 30% of total deposits at December 31, 2025 and 2024, respectively.
Brokered deposits totaled $80.9 million, or 2% of total deposits, and $256.8 million, or 5% of total deposits, at December 31, 2024 and 2023, respectively. As of December 31, 2024 and December 31, 2023, respectively, $28.1 million and $206.8 million of interest-bearing demand deposits and $52.8 million and $50.0 million of time deposits were brokered deposit accounts.
Brokered deposits totaled $125.2 million and $80.9 million, at December 31, 2025 and 2024, respectively, or 2% of total deposits at the end of each year. As of December 31, 2025 and December 31, 2024, respectively, $75.2 million and $28.1 million of interest-bearing demand deposits and $50.0 million and $52.8 million of time deposits were brokered deposit accounts.
Allowance for Credit Losses–Loans by Loan Category At December 31, 2024 2023 Credit Loss Allowance Percentage of Loans By Category to Total Loans Credit Loss Allowance Percentage of Loans By Category to Total Loans Commercial business $ 8,665 14.9 % $ 13,102 16.5 % Commercial mortgage–construction 6,824 13.0 3,710 11.0 Commercial mortgage–multifamily 3,458 10.5 4,009 10.1 Commercial mortgage–non-owner occupied 7,330 19.2 6,074 17.7 Commercial mortgage–owner occupied 4,183 6.4 2,065 6.1 Residential real estate loans 3,596 14.5 5,286 14.6 Residential real estate lines 793 1.7 764 1.7 Consumer indirect 12,705 18.9 14,099 21.3 Other consumer 487 0.9 1,973 1.0 Total $ 48,041 100.0 % $ 51,082 100.0 % Loans not analyzed for a specific reserve are segmented into “pools” of loans based upon similar risk characteristics.
Allowance for Credit Losses–Loans by Loan Category At December 31, 2025 2024 Credit Loss Allowance Percentage of Loans By Category to Total Loans Credit Loss Allowance Percentage of Loans By Category to Total Loans Commercial business $ 9,568 15.8 % $ 8,665 14.9 % Commercial mortgage–construction 4,425 10.5 6,824 13.0 Commercial mortgage–multifamily 3,316 12.7 3,458 10.5 Commercial mortgage–non-owner occupied 10,494 20.2 7,330 19.2 Commercial mortgage–owner occupied 3,380 6.9 4,183 6.4 Residential real estate loans 3,511 14.1 3,596 14.5 Residential real estate lines 778 1.6 793 1.7 Consumer indirect 11,554 17.4 12,705 18.9 Other consumer 360 0.8 487 0.1 Total $ 47,386 100.0 % $ 48,041 100.0 % Loans not analyzed for a specific reserve are segmented into “pools” of loans based upon similar risk characteristics.
Management also believes such information is useful to investors in evaluating Company performance. - 41 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS GAAP to Non-GAAP Reconciliation (In thousands, except per share data) At or For the Year Ended December 31, 2024 2023 2022 Computation of ending tangible common equity: Common shareholders’ equity $ 551,699 $ 437,504 $ 388,313 Less: goodwill and other intangible assets, net 60,758 72,504 73,414 Tangible common equity $ 490,941 $ 365,000 $ 314,899 Computation of ending tangible assets: Total assets $ 6,117,085 $ 6,160,881 $ 5,797,272 Less: goodwill and other intangible assets, net 60,758 72,504 73,414 Tangible assets $ 6,056,327 $ 6,088,377 $ 5,723,858 Tangible common equity to tangible assets (1) 8.11 % 6.00 % 5.50 % Common shares outstanding 20,077 15,407 15,340 Tangible common book value per share (2) $ 24.45 $ 23.69 $ 20.53 Computation of average tangible common equity: Average common equity $ 459,092 $ 406,394 $ 424,421 Average goodwill and other intangible assets, net 64,247 72,965 73,913 Average tangible common equity $ 394,845 $ 333,429 $ 350,508 Computation of average tangible assets: Average assets $ 6,129,430 $ 6,025,383 $ 5,606,733 Average goodwill and other intangible assets, net 64,247 72,965 73,913 Average tangible assets $ 6,065,183 $ 5,952,418 $ 5,532,820 Net (loss) income available to common shareholders $ (43,105 ) $ 48,805 $ 55,114 Return on average tangible common equity (3) -10.92 % 14.64 % 15.72 % Return on average tangible assets (4) -0.71 % 0.82 % 1.00 % (1) Tangible common equity divided by tangible assets.
Management also believes such information is useful to investors in evaluating Company performance. - 40 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS GAAP to Non-GAAP Reconciliation (In thousands, except per share data) At or For the Year Ended December 31, 2025 2024 2023 Computation of ending tangible common equity: Common shareholders’ equity $ 611,569 $ 551,699 $ 437,504 Less: goodwill and other intangible assets, net 60,343 60,758 72,504 Tangible common equity $ 551,226 $ 490,941 $ 365,000 Computation of ending tangible assets: Total assets $ 6,274,140 $ 6,117,085 $ 6,160,881 Less: goodwill and other intangible assets, net 60,343 60,758 72,504 Tangible assets $ 6,213,797 $ 6,056,327 $ 6,088,377 Tangible common equity to tangible assets (1) 8.87 % 8.11 % 6.00 % Common shares outstanding 19,797 20,077 15,407 Tangible common book value per share (2) $ 27.84 $ 24.45 $ 23.69 Computation of average tangible common equity: Average common equity $ 587,650 $ 459,092 $ 406,394 Average goodwill and other intangible assets, net 60,558 64,247 72,965 Average tangible common equity $ 527,092 $ 394,845 $ 333,429 Computation of average tangible assets: Average assets $ 6,214,610 $ 6,129,430 $ 6,025,383 Average goodwill and other intangible assets, net 60,558 64,247 72,965 Average tangible assets $ 6,154,052 $ 6,065,183 $ 5,952,418 Net income (loss) available to common shareholders $ 73,409 $ (43,105 ) $ 48,805 Return on average tangible common equity (3) 13.93 % -10.92 % 14.64 % Return on average tangible assets (4) 1.19 % -0.71 % 0.82 % (1) Tangible common equity divided by tangible assets.
Noninterest (Loss) Income The following table summarizes our noninterest (loss) income for the years ended December 31 (in thousands): 2024 2023 2022 Service charges on deposits $ 4,233 $ 4,625 $ 5,889 Insurance income 2,144 6,708 6,364 Card interchange income 7,855 8,220 8,205 Investment advisory 10,713 10,955 11,493 Company owned life insurance 5,487 12,106 5,542 Investments in limited partnerships 2,382 1,783 1,293 Loan servicing 716 479 507 Income from derivative instruments, net 726 1,350 1,919 Net gain on sale of loans held for sale 618 566 1,227 Net loss on investment securities (100,055 ) (3,576 ) (15 ) Net gain (loss) on other assets 13,614 (6 ) (16 ) Net loss on tax credit investments (775 ) (252 ) (815 ) Other 5,661 5,286 4,678 Total noninterest (loss) income $ (46,681 ) $ 48,244 $ 46,271 The sale of the assets of our insurance subsidiary in April 2024 resulted in a gain on other assets of $13.7 million.
Noninterest Income (Loss) The following table summarizes our noninterest income (loss) for the years ended December 31 (in thousands): 2025 2024 2023 Service charges on deposits $ 4,360 $ 4,233 $ 4,625 Insurance income 11 2,144 6,708 Card interchange income 7,794 7,855 8,220 Investment advisory 11,719 10,713 10,955 Company owned life insurance 11,379 5,487 12,106 Investments in limited partnerships 1,402 2,382 1,783 Loan servicing 692 716 479 Income from derivative instruments, net 2,546 726 1,350 Net gain on sale of loans held for sale 737 618 566 Net gain (loss) on investment securities 931 (100,055 ) (3,576 ) Net (loss) gain on other assets (506 ) 13,614 (6 ) Net loss on tax credit investments (1,985 ) (775 ) (252 ) Other 5,875 5,661 5,286 Total noninterest income (loss) $ 44,955 $ (46,681 ) $ 48,244 A net gain on investment securities of $931 thousand was recognized in 2025.
This resulted in a -0.68% return on average assets and a -8.74% return on average equity. After preferred dividends, net loss available to common shareholders was $43.1 million or ($2.75) per diluted share for 2024, compared to net income available to common shareholders of $48.8 million or $3.15 per diluted share for 2023.
This resulted in a 1.20% return on average assets and a 12.38% return on average equity. After preferred dividends, net income available to common shareholders was $73.4 million or $3.61 per diluted share for 2025, compared to net loss available to common shareholders of $43.1 million or $2.75 per diluted share for 2024.
Approximately $1.00 billion and $956.3 million of reciprocal and public deposits, characterized as preferred deposits for FDIC call report purposes, were collateralized by government-backed securities as of December 31, 2024 and 2023, respectively. As of December 31, 2024, estimated uninsured nonpublic deposits were approximately 18% of total deposits.
Approximately $1.03 billion and $1.00 billion of reciprocal and public deposits, characterized as preferred deposits for FDIC call report purposes, were collateralized by government-backed securities as of December 31, 2025 and 2024, respectively.
Income tax benefit for full year 2024 was $26.5 million, representing an effective tax rate of (38.9%), which was reflective of the net loss for the year. Income tax expense for 2023 was $12.8 million, representing an effective tax rate of 20.3%.
Income tax expense for full year 2025 was $16.5 million, representing an effective tax rate of 18.05%, while income tax benefit for 2024 was -$26.5 million, which was reflective of the net loss for the year, representing an effective tax rate of 38.9%.
The Bank’s leverage ratio and total risk-based capital ratio were 9.79% and 12.60%, respectively, at December 31, 2024, compared to 9.06% and 11.76%, respectively, at December 31, 2023.
The Bank’s leverage ratio and total risk-based capital ratio were 10.44% and 13.33%, respectively, at December 31, 2025, compared to 9.79% and 12.60%, respectively, at December 31, 2024.
Such agencies may require us to increase the allowance based on their judgments about information available to them at the time of their examination. - 54 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Non-performing Assets and Potential Problem Loans The following table summarizes our non-performing assets (in thousands) as of the dates indicated: Non-Performing Assets At December 31, 2024 2023 Nonaccrual loans: Commercial business $ 5,609 $ 5,664 Commercial mortgage–construction 20,280 5,320 Commercial mortgage–multifamily - 189 Commercial mortgage–non-owner occupied 4,773 4,651 Commercial mortgage–owner occupied 354 403 Residential real estate loans 6,918 6,364 Residential real estate lines 253 221 Consumer indirect 3,157 3,814 Other consumer 19 13 Total nonaccrual loans 41,363 26,639 Accruing loans 90 days or more delinquent 43 21 Total non-performing loans 41,406 26,660 Foreclosed assets 60 142 Total non-performing assets $ 41,466 $ 26,802 Nonaccrual loans to total loans 0.92 % 0.60 % Non-performing loans to total loans 0.92 % 0.60 % Non-performing assets to total assets 0.68 % 0.44 % Non-performing assets include non-performing loans and foreclosed assets.
Such agencies may require us to increase the allowance based on their judgments about information available to them at the time of their examination. - 53 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Non-performing Assets and Potential Problem Loans The following table summarizes our non-performing assets (in thousands) as of the dates indicated: Non-Performing Assets At December 31, 2025 2024 Nonaccrual loans: Commercial business $ 4,039 $ 5,609 Commercial mortgage–construction 20,321 20,280 Commercial mortgage–multifamily 540 - Commercial mortgage–non-owner occupied - 4,773 Commercial mortgage–owner occupied 1,095 354 Residential real estate loans 6,443 6,918 Residential real estate lines 374 253 Consumer indirect 2,155 3,157 Other consumer 118 19 Total nonaccrual loans 35,085 41,363 Accruing loans 90 days or more delinquent 670 43 Total non-performing loans 35,755 41,406 Foreclosed assets 94 60 Total non-performing assets $ 35,849 $ 41,466 Nonaccrual loans to total loans 0.75 % 0.92 % Non-performing loans to total loans 0.77 % 0.92 % Non-performing assets to total assets 0.57 % 0.68 % Non-performing assets include non-performing loans and foreclosed assets.
Approximately, 78% of the portfolio is to Tier 1 and Tier 2 borrowers with a FICO score greater than 670. Credit concentration limits are defined and established in our policies, and compliance with limits is monitored and reported to management and board-level committees, with defined actions to be taken in instances of a limit breach.
Credit concentration limits are defined and established in our policies, and compliance with limits is monitored and reported to management and board-level committees, with defined actions to be taken in instances of a limit breach.
The following table reflects the Company’s ratios and their components as of December 31 (in thousands): 2024 2023 Common shareholders’ equity $ 553,833 $ 441,773 Less: Goodwill and other intangible assets 58,127 69,594 Net unrealized loss on investment securities (1) (45,829 ) (111,761 ) Hedging derivative instruments 3,085 3,911 Net periodic pension and postretirement benefits plan adjustments (9,754 ) (11,946 ) Other (106 ) (145 ) Common Equity Tier 1 (“CET1”) capital 548,310 492,120 Plus: Preferred stock 17,285 17,292 Tier 1 Capital 565,595 509,412 Plus: Qualifying allowance for credit losses 49,266 48,916 Subordinated Notes 74,842 74,532 Total regulatory capital $ 689,703 $ 632,860 Adjusted average total assets (for leverage capital purposes) $ 6,180,275 $ 6,224,339 Total risk-weighted assets $ 5,203,418 $ 5,218,724 Regulatory Capital Ratios Tier 1 Leverage (Tier 1 capital to adjusted average assets) 9.15 % 8.18 % CET1 Capital (CET1 capital to total risk-weighted assets) 10.54 9.43 Tier 1 Capital (Tier 1 capital to total risk-weighted assets) 10.87 9.76 Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets) 13.25 12.13 (1) Includes unrealized gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category.
The following table reflects the Company’s ratios and their components as of December 31 (in thousands): 2025 2024 Common shareholders’ equity $ 611,569 $ 553,833 Less: Goodwill and other intangible assets 57,002 58,127 Net unrealized loss on investment securities (1) (26,531 ) (45,829 ) Hedging derivative instruments 1,329 3,085 Net periodic pension and postretirement benefits plan adjustments (7,754 ) (9,754 ) Other (74 ) (106 ) Common Equity Tier 1 (“CET1”) capital 587,597 548,310 Plus: Preferred stock 17,285 17,285 Tier 1 Capital 604,882 565,595 Plus: Qualifying allowance for credit losses 52,886 49,266 Subordinated Notes 130,653 74,842 Total regulatory capital $ 788,421 $ 689,703 Adjusted average total assets (for leverage capital purposes) $ 6,240,934 $ 6,180,275 Total risk-weighted assets $ 5,290,738 $ 5,203,418 Regulatory Capital Ratios Tier 1 Leverage (Tier 1 capital to adjusted average assets) 9.69 % 9.15 % CET1 Capital (CET1 capital to total risk-weighted assets) 11.11 10.54 Tier 1 Capital (Tier 1 capital to total risk-weighted assets) 11.43 10.87 Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets) 14.90 13.25 (1) Includes unrealized gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2023 AND DECEMBER 31, 2022 A discussion regarding our financial condition and results of operations at and for the year ended December 31, 2023 and year-to-year comparisons between 2023 and 2022, which are not included in this Form 10-K, can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023 and are incorporated by reference herein.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023 A discussion regarding our financial condition and results of operations at and for the year ended December 31, 2024 and year-to-year comparisons between 2024 and 2023, which are not included in this Form 10-K, can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and are incorporated by reference herein. - 47 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS ANALYSIS OF FINANCIAL CONDITION OVERVIEW At December 31, 2025, we had total assets of $6.27 billion, an increase of 3% from $6.12 billion as of December 31, 2024, primarily due to an increase in loans.
Outstanding borrowings are summarized as follows as of December 31 (in thousands): 2024 2023 Short-term borrowings: FHLB $ 99,000 $ 107,000 FRB - 78,000 Total short-term borrowings 99,000 185,000 Long-term borrowings: FHLB 50,000 50,000 Subordinated notes, net 74,842 74,532 Total long-term borrowings 124,842 124,532 Total borrowings $ 223,842 $ 309,532 Short-term Borrowings Short-term borrowings at December 31, 2024 and 2023 were $99.0 million and $185.0 million, respectively, which included $99.0 million and $107.0 million in short-term FHLB borrowings, respectively.
Outstanding borrowings are summarized as follows as of December 31 (in thousands): 2025 2024 Short-term borrowings: FHLB $ 109,000 $ 99,000 Long-term borrowings: FHLB 50,000 50,000 Subordinated notes, net 143,653 74,842 Total long-term borrowings 193,653 124,842 Total borrowings $ 302,653 $ 223,842 Short-term Borrowings Short-term borrowings at December 31, 2025 and 2024 were $109.0 million and $99.0 million, respectively, which was comprised of short-term FHLB borrowings.
Dollar amounts are shown in thousands. - 44 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Years Ended December 31, 2024 2023 2022 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate Interest-earning assets: Federal funds sold and other interest-earning deposits $ 115,635 $ 5,609 4.85 % $ 80,415 $ 3,927 4.88 % $ 49,055 $ 747 1.52 % Investment securities (1) : Taxable 1,124,116 24,314 2.16 1,177,615 22,048 1.87 1,283,575 22,498 1.79 Tax-exempt (2) 46,967 1,399 2.98 72,313 1,993 2.76 100,633 2,587 2.57 Total investment securities 1,171,083 25,713 2.20 1,249,928 24,041 1.92 1,384,208 25,085 1.81 Loans: Commercial business 689,585 51,922 7.53 698,861 50,388 7.21 628,729 30,188 4.80 Commercial mortgage 2,082,846 139,765 6.71 1,908,355 124,240 6.51 1,502,904 70,608 4.70 Residential real estate loans 648,604 26,404 4.07 612,767 22,728 3.71 579,362 19,558 3.38 Residential real estate lines 75,951 5,904 7.77 76,350 5,608 7.34 77,132 3,283 4.26 Consumer indirect 894,720 55,119 6.16 997,538 53,435 5.36 1,008,026 45,645 4.53 Other consumer 45,790 3,089 6.75 28,741 2,184 7.60 14,636 1,538 10.51 Total loans (3) 4,437,496 282,203 6.36 4,322,612 258,583 5.98 3,810,789 170,820 4.48 Total interest-earning assets 5,724,214 313,525 5.48 5,652,955 286,551 5.07 5,244,052 196,652 3.75 Less: Allowance for credit losses (46,620 ) (49,198 ) (42,689 ) Other noninterest-earning assets 451,836 421,626 405,370 Total assets $ 6,129,430 $ 6,025,383 $ 5,606,733 Interest-bearing liabilities: Deposits: Interest-bearing demand $ 734,731 8,641 1.18 $ 818,541 7,127 0.87 $ 909,799 2,180 0.24 Savings and money market 2,012,139 60,898 3.03 1,781,776 41,424 2.32 1,852,571 9,778 0.53 Time deposits 1,511,507 70,469 4.66 1,477,596 58,810 3.98 1,008,092 11,036 1.09 Total interest-bearing deposits 4,258,377 140,008 3.29 4,077,913 107,361 2.63 3,770,462 22,994 0.61 Short-term borrowings 126,192 3,366 2.67 186,910 6,890 3.69 86,139 1,500 1.74 Long-term borrowings 124,679 6,268 5.03 121,903 6,167 5.06 74,059 4,242 5.73 Total borrowings 250,871 9,634 3.84 308,813 13,057 4.23 160,198 5,742 3.58 Total interest-bearing liabilities 4,509,248 149,642 3.32 4,386,726 120,418 2.75 3,930,660 28,736 0.73 Noninterest-bearing demand deposits 953,417 1,030,648 1,105,281 Other noninterest-bearing liabilities 190,381 184,323 129,079 Shareholders’ equity 476,384 423,686 441,713 Total liabilities and shareholders’ equity $ 6,129,430 $ 6,025,383 $ 5,606,733 Net interest income (tax-equivalent) $ 163,883 $ 166,133 $ 167,916 Interest rate spread 2.16 % 2.32 % 3.02 % Net earning assets $ 1,214,966 $ 1,266,229 $ 1,313,392 Net interest margin (tax-equivalent) 2.86 % 2.94 % 3.20 % Ratio of average interest-earning assets to average interest-bearing liabilities 126.94 % 128.87 % 133.41 % (1) Investment securities are shown at amortized cost.
Dollar amounts are shown in thousands. - 43 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Years Ended December 31, 2025 2024 2023 Average Balance Interest Average Rate Average Balance Interest Average Rate Average Balance Interest Average Rate Interest-earning assets: Federal funds sold and other interest-earning deposits $ 47,560 $ 2,021 4.25 % $ 115,635 $ 5,609 4.85 % $ 80,415 $ 3,927 4.88 % Investment securities (1) : Taxable 1,042,232 45,914 4.41 1,124,116 24,314 2.16 1,177,615 22,048 1.87 Tax-exempt (2) 28,523 984 3.45 46,967 1,399 2.98 72,313 1,993 2.76 Total investment securities 1,070,755 46,898 4.38 1,171,083 25,713 2.20 1,249,928 24,041 1.92 Loans: Commercial business 714,100 49,099 6.88 689,585 51,922 7.53 698,861 50,388 7.21 Commercial mortgage 2,244,938 142,971 6.37 2,082,846 139,765 6.71 1,908,355 124,240 6.51 Residential real estate loans 647,722 27,714 4.28 648,604 26,404 4.07 612,767 22,728 3.71 Residential real estate lines 75,198 5,323 7.08 75,951 5,904 7.77 76,350 5,608 7.34 Consumer indirect 837,215 55,956 6.68 894,720 55,119 6.16 997,538 53,435 5.36 Other consumer 39,075 3,214 8.23 45,790 3,089 6.75 28,741 2,184 7.60 Total loans (3) 4,558,248 284,277 6.24 4,437,496 282,203 6.36 4,322,612 258,583 5.98 Total interest-earning assets 5,676,563 333,196 5.87 5,724,214 313,525 5.48 5,652,955 286,551 5.07 Less: Allowance for credit losses (48,567 ) (46,620 ) (49,198 ) Other noninterest-earning assets 586,614 451,836 421,626 Total assets $ 6,214,610 $ 6,129,430 $ 6,025,383 Interest-bearing liabilities: Deposits: Interest-bearing demand $ 719,126 8,386 1.17 $ 734,731 8,641 1.18 $ 818,541 7,127 0.87 Savings and money market 1,933,787 50,711 2.62 2,012,139 60,898 3.03 1,781,776 41,424 2.32 Time deposits 1,633,345 65,198 3.99 1,511,507 70,469 4.66 1,477,596 58,810 3.98 Total interest-bearing deposits 4,286,258 124,295 2.90 4,258,377 140,008 3.29 4,077,913 107,361 2.63 Short-term borrowings 92,817 1,901 2.05 126,192 3,366 2.67 186,910 6,890 3.69 Long-term borrowings 122,393 6,807 5.56 124,679 6,268 5.03 121,903 6,167 5.06 Total borrowings 215,210 8,708 4.05 250,871 9,634 3.84 308,813 13,057 4.23 Total interest-bearing liabilities 4,501,468 133,003 2.95 4,509,248 149,642 3.32 4,386,726 120,418 2.75 Noninterest-bearing demand deposits 941,650 953,417 1,030,648 Other noninterest-bearing liabilities 166,557 190,381 184,323 Shareholders’ equity 604,935 476,384 423,686 Total liabilities and shareholders’ equity $ 6,214,610 $ 6,129,430 $ 6,025,383 Net interest income (tax-equivalent) $ 200,193 $ 163,883 $ 166,133 Interest rate spread 2.92 % 2.16 % 2.32 % Net earning assets $ 1,175,095 $ 1,214,966 $ 1,266,229 Net interest margin (tax-equivalent) 3.53 % 2.86 % 2.94 % Ratio of average interest-earning assets to average interest-bearing liabilities 126.10 % 126.94 % 128.87 % (1) Investment securities are shown at amortized cost.
The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024. The all-cash transaction value represented approximately four times our 2023 insurance revenue.
The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024.
Non-performing assets at December 31, 2024 were $41.5 million, an increase of $14.7 million from $26.8 million at December 31, 2023. The primary component of non-performing assets is non-performing loans, which were $41.4 million or 0.92% of total loans at December 31, 2024, compared with $26.7 million or 0.60% of total loans at December 31, 2023.
Non-performing assets at December 31, 2025 were $35.8 million, a decrease of $5.6 million from $41.5 million at December 31, 2024. The primary component of non-performing assets is non-performing loans, which were $35.8 million or 0.77% of total loans at December 31, 2025, compared with $41.4 million or 0.92% of total loans at December 31, 2024.
At December 31, 2024, our ownership of FHLB and FRB stock totaled $11.3 million and $7.0 million, respectively, and is included in other assets and recorded at cost, which approximates fair value. - 50 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS LENDING ACTIVITIES Total loans were $4.48 billion at December 31, 2024, an increase of $17.1 million, from December 31, 2023.
At December 31, 2025, our ownership of FHLB and FRB stock totaled $12.4 million and $9.2 million, respectively, and is included in other assets on our statement of financial position, and recorded at cost, which approximates fair value. - 49 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS LENDING ACTIVITIES Total loans were $4.66 billion at December 31, 2025, an increase of $178.7 million, or 4%, from December 31, 2024.
The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities.
Our 2024 efficiency ratio reflected the increased expenses associated with the fraud event, as well as the automobile litigation settlement. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities.
Of these, 39 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $176.6 million and unrealized losses of $53.4 million.
Of these, 36 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $219.0 million and unrealized losses of $43.7 million.
The 2020 Notes qualify as Tier 2 capital for regulatory purposes. - 57 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS On April 15, 2015, we issued $40.0 million of subordinated notes (the “2015 Notes”) in a registered public offering. The 2015 Notes bear interest at a fixed rate of 6.0% per year, payable semi-annually, for the first 10 years.
On April 15, 2015, we issued $40.0 million of subordinated notes (the “2015 Notes”) in a registered public offering. The 2015 Notes bore interest at a fixed rate of 6.0% per year, payable semi-annually, for the first 10 years.
The maturities of our uninsured time deposits at December 31, 2024 were as follows: $102.7 million in three months or less; $94.6 million between three months and six months; $88.3 million between six months and one year; and $42.8 million over one year.
The maturities of our uninsured time deposits at December 31, 2025 were as follows: $110.7 million in three months or less; $92.4 million between three months and six months; $89.4 million between six months and one year; and $101.7 million over one year.
Overall, interest-bearing deposit interest rate changes and volume changes resulted in an increase in interest expense of $26.2 million and $6.4 million, respectively, as compared to 2023, and total borrowings volume and interest rate changes contributed $1.8 million and $1.7 million, respectively, of lower interest expense during 2024.
Overall, interest-bearing deposit volume changes resulted in an increase in interest expense of $2.9 million, as compared to 2024, and total borrowings volume contributed $897 thousand of lower interest expense during 2025.
Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which we typically utilize to address short-term funding needs as they arise. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. We continue to be proactive in managing funding costs and reduced short-term borrowings in 2024.
The FHLB borrowings are collateralized by securities from the Company’s investment portfolio and certain qualifying loans. Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which we typically utilize to address short-term funding needs as they arise. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits.
The net proceeds from the pre-tax sale of the securities were reinvested into higher yielding, agency wrapped investment securities. - 49 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Impairment Assessment For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.
The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change. - 48 - Table of Contents MANAGEMENT’S DISCUSSION AND ANALYSIS Impairment Assessment For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis.
On average, interest-bearing deposits grew $180.5 million from $4.08 billion for 2023 to $4.26 billion for 2024, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $77.2 million, or 7%, to $953.4 million.
On average, interest-bearing deposits grew $27.9 million from $4.26 billion for 2024 to $4.29 billion for 2025, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $11.8 million, or 1%, to $941.7 million for 2025.
On October 7, 2020, we completed a private placement of $35.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2030 to qualified institutional buyers and accredited institutional investors that were subsequently exchanged for subordinated notes with substantially the same terms (the “2020 Notes”) registered under the Securities Act of 1933, as amended.
On December 11, 2025, we completed a private placement of $80.0 million in aggregate principal of fixed-to-floating rate subordinated notes to qualified institutional buyers and institutional accredited investors that will be subsequently exchanged for subordinated notes with substantially the same terms (the “2025 Notes”) registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to registration rights agreements with the purchasers of the 2025 Notes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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While this simulation is a useful measure as to net interest income at risk due to a change in interest rates, it is not a forecast of the future results, does not measure the effect of changing interest rates on noninterest income and is based on many assumptions that, if changed, could cause a different outcome. - 63 - Table of Contents Economic Value of Equity At Risk The economic (or “fair”) value of financial instruments on our balance sheet will also vary under the interest rate scenarios previously discussed.
While this simulation is a useful measure as to net interest income at risk due to a change in interest rates, it is not a forecast of the future results, does not measure the effect of changing interest rates on noninterest income and is based on many assumptions that, if changed, could cause a different outcome. - 62 - Table of Contents Economic Value of Equity At Risk The economic (or “fair”) value of financial instruments on our balance sheet will also vary under the interest rate scenarios previously discussed.
The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at December 31, 2024 and 2023.
The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at December 31, 2025 and 2024.
The Bank also had a significant amount of public deposits, which represented 21% of total deposits as of December 31, 2024. Net Interest Income at Risk A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity.
The Bank also had a significant amount of public deposits, which represented 21% of total deposits as of December 31, 2025. Net Interest Income at Risk A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity.
Of these deposits, the majority, or 56%, was in nonpublic variable interest rate and noninterest bearing products including demand (both noninterest- and interest- bearing), savings and money market accounts. In addition, fixed interest rate nonpublic certificate of deposit products comprised 15% of total deposits.
Of these deposits, the majority, or 54%, was in nonpublic variable interest rate and noninterest bearing products including demand (both noninterest- and interest- bearing), savings and money market accounts. In addition, fixed interest rate nonpublic certificate of deposit products comprised 15% of total deposits.
The analysis additionally presents a measurement of the interest rate sensitivity at December 31, 2024 and 2023. EVE amounts are computed under each respective Pre-Shock Scenario and Rate Shock Scenario.
The analysis additionally presents a measurement of the interest rate sensitivity at December 31, 2025 and 2024. EVE amounts are computed under each respective Pre-Shock Scenario and Rate Shock Scenario.
We consider the net interest income at risk simulation modeling to be more informative in forecasting future income at risk. - 65 - Table of Contents
We consider the net interest income at risk simulation modeling to be more informative in forecasting future income at risk. - 64 - Table of Contents
The MBS portfolio, including collateralized mortgages obligations, totaled 17% of total assets with durations averaging three to five years. Our liabilities are comprised primarily of deposits, which accounted for 92% of total liabilities as of December 31, 2024.
The MBS portfolio, including collateralized mortgages obligations, totaled 15% of total assets with durations averaging three to five years. Our liabilities are comprised primarily of deposits, which accounted for 92% of total liabilities as of December 31, 2025.
As of December 31, 2024, our consumer indirect loan portfolio comprised 14% of total assets and was primarily fixed rate loans. Our commercial loan portfolio totaled 47% of total assets and was a combination of fixed and variable rate loans, lines and mortgages.
As of December 31, 2025, our consumer indirect loan portfolio comprised 13% of total assets and was primarily fixed rate loans. Our commercial loan portfolio totaled 49% of total assets and was a combination of fixed and variable rate loans, lines and mortgages.
The following table sets forth the estimated changes to net interest income over the 12-month period ending December 31, 2025 assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands): Changes in Interest Rate -300 bp -200 bp -100 bp +100 bp Estimated change in net interest income $ (15,663 ) $ (9,845 ) $ (4,058 ) $ 2,512 % Change -7.93 % (4.98 )% (2.05 )% 1.27 % In the rising rate scenarios, the model results indicate that net interest income is modeled to increase compared to the flat rate scenario over a one-year timeframe.
The following table sets forth the estimated changes to net interest income over the 12-month period ending December 31, 2026, assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands): Changes in Interest Rate -300 bp -200 bp -100 bp +100 bp Estimated change in net interest income $ (11,701 ) $ (7,951 ) $ (3,714 ) $ 1,769 % Change -5.71 % -3.88 % -1.81 % 0.86 % In the rising rate scenarios, the model results indicate that net interest income is modeled to increase compared to the flat rate scenario over a one-year timeframe.
An increase in the EVE amount is considered favorable, while a decline is considered unfavorable (dollars in thousands): December 31, 2024 December 31, 2023 Rate Shock Scenario: EVE Change Percentage Change EVE Change Percentage Change Pre-Shock Scenario $ 903,789 $ 627,519 - 300 Basis Points 906,208 $ 2,419 0.27 % 584,066 $ (43,453 ) -6.92 % - 200 Basis Points 908,905 5,116 0.57 603,181 (24,338 ) -3.88 - 300 Basis Points 908,459 4,670 0.52 616,940 (10,579 ) -1.69 + 100 Basis Points 894,135 (9,654 ) -1.07 626,463 (1,056 ) -0.17 The Pre-Shock Scenario EVE was $903.8 million at December 31, 2024, compared to $627.5 million at December 31, 2023.
An increase in the EVE amount is considered favorable, while a decline is considered unfavorable (dollars in thousands): December 31, 2025 December 31, 2024 Rate Shock Scenario: EVE Change Percentage Change EVE Change Percentage Change Pre-Shock Scenario $ 828,292 $ 903,789 - 300 Basis Points 885,771 $ 57,479 6.94 % 906,208 $ 2,419 0.27 % - 200 Basis Points 866,824 38,532 4.65 908,905 5,116 0.57 - 100 Basis Points 847,059 18,767 2.27 908,459 4,670 0.52 + 100 Basis Points 807,542 (20,750 ) -2.51 894,135 (9,654 ) -1.07 The Pre-Shock Scenario EVE was $828.3 million at December 31, 2025, compared to $903.8 million at December 31, 2024.
The increase in the Pre-Shock Scenario EVE at December 31, 2024 compared to December 31, 2023 was the result of overall value increase of the loan portfolio, slightly offset by deposits. The sensitivity in the down Rate Shock Scenarios to EVE grew more positive at December 31, 2024 compared to December 31, 2023.
The sensitivity in the down Rate Shock Scenarios to EVE grew more positive at December 31, 2025 compared to December 31, 2024.
This was a result from a combination of the strategic repositioning of the investment securities portfolio, commercial loan growth, and a better deposit valuation compared to the prior year. - 64 - Table of Contents Interest Rate Sensitivity Gap The following table presents an analysis of our interest rate sensitivity gap position at December 31, 2024.
This was a result of the continued increases in commercial loan valuation, as well as a strategic shift in certificate of deposit pricing from long-term to shorter-term buckets, allowing for a quicker repricing in a falling rate environment. - 63 - Table of Contents Interest Rate Sensitivity Gap The following table presents an analysis of our interest rate sensitivity gap position at December 31, 2025.
Removed
At December 31, 2024 Three Months or Less Over Three Months Through One Year Over One Year Through Five Years Over Five Years Total INTEREST-EARNING ASSETS: Federal funds sold and other interest-earning deposits $ 32,363 $ - $ - $ - $ 32,363 Investment securities 92,299 87,508 348,928 559,988 1,088,723 Loans 1,951,207 604,228 1,512,430 413,619 4,481,484 Total interest-earning assets $ 2,075,869 $ 691,736 $ 1,861,358 $ 973,607 5,602,570 Cash and due from banks 54,958 Other assets (1) 459,557 Total assets $ 6,117,085 INTEREST-BEARING LIABILITIES: Interest-bearing demand, savings and money market $ 2,609,208 $ - $ - $ - $ 2,609,208 Time deposits 545,435 942,911 56,826 - 1,545,172 Borrowings 99,000 34,880 50,000 39,962 223,842 Total interest-bearing liabilities $ 3,253,643 $ 977,791 $ 106,826 $ 39,962 4,378,222 Noninterest-bearing deposits 950,351 Other liabilities 219,528 Total liabilities 5,548,101 Shareholders’ equity 568,984 Total liabilities and shareholders’ equity $ 6,117,085 Interest sensitivity gap $ (1,177,774 ) $ (286,055 ) $ 1,754,532 $ 933,645 $ 1,224,348 Cumulative gap $ (1,177,774 ) $ (1,463,829 ) $ 290,703 $ 1,224,348 Cumulative gap ratio (2) 63.8 % 65.4 % 106.7 % 128.0 % Cumulative gap as a percentage of total assets (19.3 )% (23.9 )% 4.8 % 20.0 % (1) Includes net unrealized loss on securities available for sale and allowance for credit losses.
Added
The decrease in the Pre-Shock Scenario EVE at December 31, 2025 compared to December 31, 2024 was driven by the combination on increased borrowings and the continued deposit mix shift from non-maturity, non-public, to time and reciprocal, which offset the positive commercial loan growth during the period.
Added
At December 31, 2025 Three Months or Less Over Three Months Through One Year Over One Year Through Five Years Over Five Years Total INTEREST-EARNING ASSETS: Federal funds sold and other interest-earning deposits $ 51,613 $ - $ - $ - $ 51,613 Investment securities 124,296 65,627 322,778 530,151 1,042,852 Loans 2,063,769 600,732 1,537,673 459,057 4,661,231 Total interest-earning assets $ 2,239,678 $ 666,359 $ 1,860,451 $ 989,208 5,755,696 Cash and due from banks 57,138 Other assets (1) 461,306 Total assets $ 6,274,140 INTEREST-BEARING LIABILITIES: Interest-bearing demand, savings and money market $ 2,557,124 $ - $ - $ - $ 2,557,124 Time deposits 763,561 812,650 110,289 - 1,686,500 Borrowings 159,000 - - 143,653 302,653 Total interest-bearing liabilities $ 3,479,685 $ 812,650 $ 110,289 $ 143,653 4,546,277 Noninterest-bearing deposits 962,724 Other liabilities 136,285 Total liabilities 5,645,286 Shareholders’ equity 628,854 Total liabilities and shareholders’ equity $ 6,274,140 Interest sensitivity gap $ (1,240,007 ) $ (146,291 ) $ 1,750,162 $ 845,555 $ 1,209,419 Cumulative gap $ (1,240,007 ) $ (1,386,298 ) $ 363,864 $ 1,209,419 Cumulative gap ratio (2) 64.4 % 67.7 % 108.3 % 126.6 % Cumulative gap as a percentage of total assets (19.8 )% (22.1 )% 5.8 % 19.3 % (1) Includes net unrealized loss on securities available for sale and allowance for credit losses.

Other FISI 10-K year-over-year comparisons