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Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is 0.12pp more bullish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
+0.12pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
losses+5
foreclosed+3
uninsured+2
discontinued+2
terminated+2
Positive rising
gain+4
improvements+2
advances+2
positive+1
improvement+1
MD&A (Item 7)
51,836 words
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following is a discussion and analysis of our financial position and results of operations and should be read in conjunction with the information set forth under Part I, Item 1A, Risk Factors, and our consolidated financial statements and notes thereto appearing under Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
INTRODUCTION
Financial Institutions, Inc. (the “Parent” and together with all its subsidiaries, “we,” “our,” or “us”), is a financial holding company headquartered in New York State. We offer a broad array of deposit, lending, and other financial services to individuals, municipalities and businesses in Western and Central New York through our wholly-owned New York-chartered banking subsidiary, Five Star Bank (the “Bank”). We have loan production offices in Baltimore, Maryland, and Syracuse, New York, which expands our footprint into the Mid-Atlantic and Central New York regions. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, and the Capital District of New York. We offer customized investment advice, wealth management, investment consulting and retirement plan services through our wholly-owned subsidiary Courier Capital, LLC (“Courier Capital”) an SEC-registered investment advisory and wealth management firm.
On April 1, 2024, the Company announced and closed the sale of the assets of its wholly owned subsidiary, SDN Insurance Agency, LLC (“SDN”), which provided a broad range of insurance services to personal and business clients, to NFP Property & Casualty Services, Inc. (“NFP”), a subsidiary of NFP Corp. The sale generated $27 million in proceeds, or a pre-tax of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024. 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. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.
EXECUTIVE OVERVIEW
Private Placement of Subordinated Notes and Subsequent Repayment of Past Issuances
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. The 2025 Notes have a maturity date of December 15, 2035, and bear interest, payable semi-annually, at the rate of 6.50% per annum until December 15, 2030. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financial Rate (“SOFR”) plus 312 basis points, payable quarterly until maturity. We are entitled to repay the 2025 Notes, in whole or in part, at any time on or after December 15, 2030, and to prepay the 2025 Notes in whole or in part at any time upon certain other specified events. We used the net proceeds to redeem the $65.0 million in outstanding debt issuances from 2015 and 2020, on January 15, 2026, as well as for general corporate purposes, including the repurchase of common shares under our Board authorized stock repurchase plan. The 2025 Notes qualify as Tier 2 capital for regulatory purposes.
2025 Share Repurchase Program
In September 2025, the Board approved a share repurchase program for up to 1,006,379 shares of its common stock, or approximately 5% of the Company’s then outstanding common shares (“2025 Share Repurchase Program”). The 2025 Share Repurchase Program replaced and terminated the prior share repurchase program authorized by the Board in June 2022. The 2025 Share Repurchase Program does not obligate us to purchase any shares, and it may be extended, modified, or discontinued at any time. As of December 31, 2025, 336,869 shares have been repurchased under the 2025 Share Repurchase Program at an average price of $31.98.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
2025 Financial Performance Review
We reported net income of $74.9 million for 2025, compared to a net loss of $41.6 million for 2024. 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. 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. We declared cash dividends of $1.24 per common share during 2025, an increase of more than 3% compared with 2024.
Net interest income was $200.0 million for 2025, compared to $163.6 million for 2024, an increase of $36.4 million. Fully-taxable equivalent net interest income was $200.2 million in 2025, an increase of $36.3 million, compared to 2024. Average interest-earning assets were $47.7 million lower than 2024 due to a $100.3 million decrease in average investment securities, and a $68.1 million decrease in the average balance of Federal Reserve interest-earning cash, partially offset by a $120.8 million increase in average loans.
Net interest margin was 3.53% for 2025, compared to 2.86% for 2024, primarily due to an increase in the average yield on investment securities, following the restructuring of the AFS portfolio in December 2024, which supported an increase in the average yield on interest-earning assets, along with loan growth and lower interest-bearing liability costs.
The provision for credit losses was $11.6 million in 2025 compared to a provision of $6.2 million in 2024. Net charge-offs were $10.9 million in 2025, representing 0.24% of average loans, compared with $8.7 million, or 0.20% of average loans in 2024. Non-performing loans decreased $5.7 million to $35.8 million compared to a year ago and represented 0.77% of total loans at December 31, 2025, compared to 0.92% of total loans at December 31, 2024. The decrease in non-performing loans in the current year reflected a foreclosed participated loan and partial charge-off of a credit facility recognized in the second quarter of 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. We have remained strategically focused on the importance of credit discipline, allocating resources to credit and risk management functions as the loan portfolio has grown. The ratio of allowance for credit losses on loans to non-performing loans was 133% at December 31, 2025, compared to 116% at December 31, 2024, with the increase reflective of the lower level of nonperforming loans at December 31, 2025.
Noninterest income was $45.0 million for 2025, compared to a net loss in noninterest income of $46.7 million for 2024. The 2024 net loss was reflective of the strategic investment securities portfolio restructuring in late December 2024 described above. Income from company owned life insurance (“COLI”) increased $5.9 million in 2025 compared to 2024, due to our surrender and redeploy strategy initiated in January 2025. The decrease in insurance income was reflective of the sale of the assets of our insurance agency subsidiary, SDN, in April 2024. The gain from this sale of $13.7 million was included in net gain (loss) on other assets in 2024.
Noninterest expense for the full year 2025 totaled $142.0 million, a $36.9 million decrease compared to $178.9 million in the prior year. The decrease in noninterest expense was primarily attributable to higher expenses in 2024 related to the fraud matter in the first quarter of 2024, and the provision for a litigation settlement for a long-standing automobile lending litigation in the fourth quarter of 2024. Salaries and benefits expense of $72.8 million increased $6.7 million from 2024, primarily driven by an increase in health insurance benefit expense, reflecting continued elevated medial claims under our self-insured plan, annual merit increases, incentive compensation, and investments in personnel. Professional services expense of $6.5 million decreased $1.2 million from 2024 primarily due to legal expenses associated with the previously mentioned fraud event that incurred in 2024.
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%. Effective tax rates are impacted by items of income and expense not subject to federal or state taxation. The Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities, earnings on COLI and tax credit investments placed in service.
Total assets were $6.27 billion at December 31, 2025, up $157.1 million from $6.12 billion at December 31, 2024.
Investment securities were $1.01 billion at December 31, 2025, down $19.9 million from December 31, 2024. The decrease from year-end 2024 was primarily due to repayment, sales, and maturities of investment securities, and the use of cash to fund loan originations.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Total loans were $4.66 billion at December 31, 2025, up $178.7 million, or 4.0%, from December 31, 2024. The increase in loans in 2025 was primarily driven by organic commercial loan growth. The following discusses significant changes within our loan portfolio for the current year:
Commercial business loans were $738.3 million, an increase of $73.0 million, or 11%.
Commercial mortgage–construction loans were $488.6 million, a decrease of $94.1 million, or 16%.
Commercial mortgage–multifamily loans were $588.7 million, an increase of $117.8 million, or 25%.
Commercial mortgage–non-owner occupied loans were $942.2 million, an increase of $84.2 million, or 10%.
Commercial mortgage–owner-occupied loans were $322.8 million, an increase of $34.7 million, or 12%.
Consumer indirect loans were $807.3 million, a decrease of $38.5 million, or 5%.
Total deposits were $5.21 billion at December 31, 2025, an increase of $101.6 million from December 31, 2024, which was attributable to growth in reciprocal and public deposits, in addition to a higher level of brokered deposits, partially offset by a reduction in non-public deposits. Brokered deposits were utilized to partially offset the anticipated reduction in BaaS-related deposits, which totaled approximately $7 million and $100 million at December 31, 2025, and 2024, respectively.
Short-term borrowings were $109.0 million at December 31, 2025, an increase of $10.0 million from December 31, 2024. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. Long-term borrowings, net, were $193.7 million at December 31, 2025, compared to $124.8 million at December 31, 2024, reflecting the December 2025 subordinated-debt offering.
Shareholders’ equity was $628.9 million at December 31, 2025, compared to $569.0 million at December 31, 2024. Common book value per share was $30.89 at December 31, 2025, an increase of $3.41, or 12.4%, from $27.48 at December 31, 2024. Tangible common book value per share (1) was $27.84 at December 31, 2025, an increase of $3.39, or 14%, from $24.45 at December 31, 2024. The increase in shareholders’ equity as compared to December 31, 2024, was reflective of net income retained, net of dividends, and a decrease in our accumulated other comprehensive loss associated with unrealized losses on AFS securities portfolio, partially offset by the impact of the shares repurchased under the 2025 Share Repurchase Program. Management believes the unrealized losses on the AFS securities portfolio are temporary in nature. The securities portfolio continues to generate cash flow and given the high quality of our agency mortgaged-backed securities portfolio, management expects the bonds to ultimately mature at a terminal value equivalent to par.
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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Our leverage ratio was 9.69% at December 31, 2025, compared to 9.15% at December 31, 2024. Our total risk-based capital ratio was 14.90% at December 31, 2025, compared to 13.25% at December 31, 2024. The increase in the total risk-based capital ratio was reflective of the additional $80.0 million of capital on the balance sheet at year-end related to the 2025 Notes, which impacted the ratio by approximately 150 basis points. 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.
Additional financial highlights are as follows:
At or For the Year Ended December 31,
Performance ratios:
Net income (loss), returns on:
Average assets
Average equity
Net income (loss) available to common shareholders, returns on:
Average common equity
Average tangible common equity (1)
Average tangible assets (1)
Common dividend payout ratio
Net interest margin (fully tax-equivalent)
Effective tax rate
Efficiency ratio (2)
Capital ratios:
Leverage ratio
Common equity Tier 1 capital ratio
Tier 1 capital ratio
Total risk-based capital ratio
Average equity to average assets
Common equity to assets
Tangible common equity to tangible assets (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.
The efficiency ratio provides a ratio of operating expenses to operating income. Efficiency ratio is calculated by dividing noninterest expense by net revenue, which is defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. The efficiency ratio is not a financial measurement required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
GAAP to Non-GAAP Reconciliation
(In thousands, except per share data)
At or For the Year Ended December 31,
Computation of ending tangible common equity:
Common shareholders’ equity
Less: goodwill and other intangible assets, net
Tangible common equity
Computation of ending tangible assets:
Total assets
Less: goodwill and other intangible assets, net
Tangible assets
Tangible common equity to tangible assets (1)
Common shares outstanding
Tangible common book value per share (2)
Computation of average tangible common equity:
Average common equity
Average goodwill and other intangible assets, net
Average tangible common equity
Computation of average tangible assets:
Average assets
Average goodwill and other intangible assets, net
Average tangible assets
Net income (loss) available to common shareholders
Return on average tangible common equity (3)
Return on average tangible assets (4)
Tangible common equity divided by tangible assets.
Tangible common equity divided by common shares outstanding.
Net income available to common shareholders divided by average tangible common equity.
Net income available to common shareholders divided by average tangible assets.
This table contains disclosure that includes calculations for tangible common equity, tangible assets, tangible common equity to tangible assets, tangible common book value per share, average tangible common equity, average tangible assets, return on average tangible common equity and return on average tangible assets, which are determined by methods other than in accordance with GAAP. We believe that these non-GAAP measures are useful to our investors as measures of the strength of our capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets. Non-GAAP financial measures have inherent limitations and are not uniformly utilized by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP.
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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. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.
We use interest rate spread and net interest margin to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds (“net free funds”), principally noninterest-bearing demand deposits and shareholders’ equity, also support interest-earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt investment securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis.
The Federal Reserve influences the general market rates of interest, which impacts the deposit and loan rates offered by many financial institutions. 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 federal funds rate remained at 5.50% until a 50-basis point reduction in September 2024. Amid cooling inflation, the rate decreased 25-basis points in both November and December 2024, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2024. This level was maintained until three consecutive 25-basis point rate cuts were made in September, October, and December 2025, in an attempt to allow inflation to resume its downward trend, decreasing the federal funds rate to 3.50% to 3.75% as of December 31, 2025.
Our loan portfolio is significantly affected by changes in the prime interest rate, which generally follows changes in the federal funds rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 6.75% at December 31, 2025, compared to 7.50% and 8.50% at December 31, 2024, and 2023, respectively.
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):
Interest income per consolidated statements of operations
Adjustment to fully taxable equivalent basis (1)
Interest income adjusted to a fully taxable equivalent basis
Interest expense per consolidated statements of operations
Net interest income on a taxable equivalent basis
The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.
Analysis of Net Interest Income and Net Interest Margin
Net interest income on a taxable equivalent basis for 2025 was $200.2 million, an increase of $36.3 million compared to $163.9 million for 2024. Our net interest margin for 2025 was 3.53%, 67-basis points higher than 2.86% from the prior year. This increase was a function of a 76-basis points increase in the interest rate spread, partially offset by a 9-basis points lower contribution from net free funds. The increase in interest rate spread was comprised of a 39-basis points increase in the average yield on average interest-earning assets, and a 37-basis points decrease in the average cost of interest-bearing liabilities.
For the year ended December 31, 2025, the average yield on total average interest-earning assets of 5.87% was 39-basis points higher than 2024. The average yield on investment securities increased 218-basis points during 2025 to 4.38%, reflective of the December 2024 investment securities restructuring, resulting in a $23.7 million increase in interest income. The average yield on federal reserve interest-earning cash decreased 60-basis points to 4.25%, decreasing net interest income by $624 thousand, and the average loan yield decreased 12-basis points during 2025 to 6.24%, decreasing interest income by $6.0 million.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Average interest-earning assets were $5.68 billion for 2025 compared to $5.72 billion for 2024, a decrease of $47.7 million, or 1%. The $100.3 million decrease in average investment securities and the $68.1 million decrease in average federal reserve interest-earning cash in 2025 was partially offset by an increase in average loans of $120.8 million. Average investment securities represented 18.9% of average interest-earning assets during 2025 compared to 20.5% in 2024, and decreased interest income by $2.5 million. The decrease in average investment securities was primarily due to repayment and maturities of investment securities, and the use of cash to fund loan originations. Loans comprised 80.3% of average interest-earning assets during 2025 compared to 77.5% during 2024. The growth in average loans was primarily due to organic growth in commercial loans, partially offset by a planned reduction in our consumer indirect portfolio. An increase in the volume of average loans resulted in an $8.1 million increase in interest income.
For the year ended December 31, 2025, the average cost of total average interest-bearing liabilities of 2.95% was 37-basis points lower than 2024. The average cost of total average interest-bearing deposits of 2.90% was 39-basis points lower than 2024 primarily due to the continued repricing of deposits at lower rates, which decreased interest expense $18.6 million. The average cost of total borrowings increased 21-basis points to 4.05% in 2025, compared to 3.84% in 2024.
Average interest-bearing liabilities of $4.50 billion in 2025 were generally flat with 2024. 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. The increase in average deposits was primarily due to growth in public and brokered deposits, partially offset by a decrease in reciprocal deposits. Brokered deposits were utilized to offset the anticipated reduction in BaaS-related deposits, which totaled $7 million and $100 million at December 31, 2025, and 2024, respectively. Average short-term borrowings decreased $33.4 million from $126.2 million in 2024 to $92.8 million in 2025 as deposit growth enabled us to pay down short-term borrowings. For further discussion of our reciprocal and brokered deposits, refer to the “Funding Activities—Deposits” section of this Management’s Discussion and Analysis. 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.
The following table presents, for the years indicated, information regarding: (i) average balances, which were derived from daily balances; (ii) the amount of interest income from interest-earning assets and the resulting annualized yields (tax-exempt yields have been adjusted to a tax-equivalent basis using the applicable Federal tax rate in each year); (iii) the amount of interest expense on interest-bearing liabilities and the resulting annualized rates; (iv) net interest income; (v) net interest rate spread; (vi) net interest income as a percentage of average interest-earning assets (“net interest margin”); and (vii) the ratio of average interest-earning assets to average interest-bearing liabilities. Investment securities are at amortized cost for both held to maturity and available for sale securities. Loans include net unearned income, net deferred loan fees and costs and non-accruing loans. Dollar amounts are shown in thousands.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Years Ended December 31,
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
Investment securities (1) :
Taxable
Tax-exempt (2)
Total investment securities
Loans:
Commercial business
Commercial mortgage
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total loans (3)
Total interest-earning assets
Less: Allowance for credit losses
Other noninterest-earning assets
Total assets
Interest-bearing liabilities:
Deposits:
Interest-bearing demand
Savings and money market
Time deposits
Total interest-bearing deposits
Short-term borrowings
Long-term borrowings
Total borrowings
Total interest-bearing liabilities
Noninterest-bearing demand deposits
Other noninterest-bearing liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Net interest income (tax-equivalent)
Interest rate spread
Net earning assets
Net interest margin (tax-equivalent)
Ratio of average interest-earning assets to average interest-bearing liabilities
Investment securities are shown at amortized cost.
The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.
Loans include net unearned income, net of deferred loan fees and costs, and non-accruing loans. Net deferred loan fees (costs) included in interest income were as follows (in thousands):
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Commercial business
Commercial mortgage
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
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. A discussion of the effects of changing interest rates on net interest income is set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included elsewhere in this report.
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. The change in interest income or interest expense not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands). No out-of-period adjustments were included in the rate/volume analysis.
Change from 2024 to 2025
Change from 2023 to 2024
Increase (decrease) in:
Volume
Rate
Total
Volume
Rate
Total
Interest income:
Federal funds sold and interest-earning deposits
Investment securities:
Taxable
Tax-exempt
Total investment securities
Loans:
Commercial business
Commercial mortgage
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total loans
Total interest income
Interest expense:
Deposits:
Interest-bearing demand
Savings and money market
Time deposits
Total interest-bearing deposits
Short-term borrowings
Long-term borrowings
Total borrowings
Total interest expense
Net interest income
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Provision for Credit Losses
The table below presents the composition of the provision for credit losses for the years ended December 31 (in thousands):
Provision for credit losses–loans
Credit loss provision (benefit) for unfunded commitments
Credit lossbenefit for debt securities
Provision for credit losses
The provision for credit losses–loans normalized in 2025 compared to 2024, driven primarily by net charge-offs incurred and the level of allowance for credit losses required by our CECL model results. The 2024 provision reflected positive trends in qualitative factors which drove a lower allowance and provision in 2024.
See the “Allowance for Credit Losses” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion.
Noninterest Income (Loss)
The following table summarizes our noninterest income (loss) for the years ended December 31 (in thousands):
Service charges on deposits
Insurance income
Card interchange income
Investment advisory
Company owned life insurance
Investments in limited partnerships
Loan servicing
Income from derivative instruments, net
Net gain on sale of loans held for sale
Net gain (loss) on investment securities
Net (loss) gain on other assets
Net loss on tax credit investments
Other
Total noninterest income (loss)
A net gain on investment securities of $931 thousand was recognized in 2025. The net loss in 2024 was due to the sale of $653.5 million of AFS securities as part of the strategic investment securities restructuring resulting from the common stock offering.
The sale of the assets of our insurance subsidiary in April 2024 resulted in a gain on other assets of $13.7 million. The $2.1 million decline in insurance income in 2025 was also attributed to this transaction.
Company owned life insurance (“COLI”) income increased $5.9 million to $11.4 million in 2025, compared to $5.5 million in 2024. The increase was reflective of the surrender and redeployment of a portion of our life insurance into a higher-yielding credit fund in January 2025.
The increase in income from derivative instruments, net, in 2025, reflects the number and value of interest rate swap transactions executed during each year, combined with the impact of changes in the fair value of borrower-facing trades.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Noninterest Expense
The following table summarizes our noninterest expense for the years ended December 31 (in thousands):
Salaries and employee benefits
Occupancy and equipment
Professional services
Computer and data processing
Supplies and postage
FDIC assessments
Advertising and promotions
Amortization of intangibles
Provision for litigation settlement
Deposit-related charged-off items
Other
Total noninterest expense
Salaries and employee benefits expense increased $6.7 million, or 10%, to $72.8 million in 2025, compared to $66.1 million in 2024. The increase reflected a combination of factors, including annual merit increases, incentive compensation and investments in personnel.
Professional services expense decreased $1.2 million, or 15%, to $6.5 million in 2025, compared to $7.7 million in 2024. Professional services expense for 2024 included $1.4 million of legal and other professional expense associated with the deposit-related fraud event.
Provision for litigation settlement of $23.0 million in 2024 represented the pre-tax litigation accrual, which reflected the final resolution of the long-standing automobile lending litigation.
Deposit related charged-off items in 2024 included an $18.2 million loss associated with charge-offs related to the deposit-related fraud event we experienced in early March 2024.
The efficiency ratio for the year ended December 31, 2025 was 58.13% compared with 82.35% for 2024. The lower efficiency ratio was reflective of the increase in net interest income, as a result of the AFS restructuring in 2024, and our focus on effectively managing expenses in 2025 as described above. 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. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.
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. 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. Effective tax rates are typically impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments. In addition, our effective tax rate for 2025 and 2024 reflects the New York State tax benefit generated by our real estate investment trust.
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.
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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. 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. Non-performing assets totaled $35.8 million as of December 31, 2025, down $5.6 million compared to December 31, 2024. The decrease in non-performing assets reflected a foreclosed participated loan and partial charge-off of a credit facility in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. Total deposits amounted to $5.21 billion as of December 31, 2025, up $101.6 million, or 2%, compared to December 31, 2024. As of December 31, 2025, borrowings totaled $302.7 million, compared to $223.8 million as of December 31, 2024, and included $80.0 million related to our December 2025 sub-debt offering, in addition to the $65.0 million balance of our 2025 and 2020 Notes, which were subsequently redeemed on January 15, 2026. Common book value per common share was $30.89 and $27.48 as of December 31, 2025 and 2024, respectively. As of December 31, 2025, our total shareholders’ equity was $628.9 million compared to $569.0 million as of December 31, 2024. The increase in shareholders’ equity as compared to December 31, 2024, was reflective of net income retained, net of dividends, and a reduction in accumulated other comprehensive loss associated with unrealized losses on the AFS securities portfolio, partially offset by the increase in treasury stock due to the impact of the common shares repurchased under our 2025 Share Repurchase Program.
INVESTING ACTIVITIES
The following table summarizes the composition of our available for sale and held to maturity securities portfolios (in thousands).
Investment Securities Portfolio Composition
At December 31,
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Securities available for sale:
Mortgage-backed securities:
Agency mortgage-backed securities
Non-Agency mortgage-backed securities
Other debt securities
Total available for sale securities
Securities held to maturity:
U.S. Government agency and government-sponsored enterprise securities
State and political subdivisions
Mortgage-backed securities
Total held to maturity securities
Allowance for credit losses–securities
Total held to maturity securities, net
Total investment securities
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. In pursuing these objectives, we consider the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability, pledgeable nature and risk diversification. 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. The net unrealized loss on our AFS portfolio at December 31, 2025 was $35.7 million, and was comprised of an unrealized loss of $46.3 million, partially offset by an unrealized gain of $10.6 million. The net unrealized loss at December 31, 2024 was $61.6 million. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.
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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. If either case is affirmative, any previously recognized allowances are charged-off and the security’s amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. 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.
The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. 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 the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The following discussion provides further details of our assessment of the AFS securities portfolio by investment category.
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. The GNMA mortgage-backed securities are backed by the full faith and credit of the U.S. Government.
As of December 31, 2025, there were 46 securities in the AFS Agency MBS portfolio with an aggregate fair value of $355.8 million that were in an unrealized loss position with unrealized losses totaling $46.0 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 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. 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. As of December 31, 2025, we did not intend to sell any Agency MBS that were in an unrealized loss position, all of which were performing in accordance with their terms.
Other Debt Securities
In September 2025, we purchased subordinated debt of bank holding companies with a maturity of 10 years, with a call in 5 years. As of December 31, 2025, there were eight corporate bonds with an aggregate fair value of $19.1 million, in an unrealized loss position for less than 12 months of $237 thousand.
FHLB and FRB Stock
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. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. 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.
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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 composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, is summarized as follows (in thousands):
Loan Portfolio Composition
At December 31,
Amount
Percent
Amount
Percent
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Total commercial mortgage
Total commercial
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total consumer
Total loans
Less: Allowance for credit losses
Total loans, net
Total commercial loans of $3.08 billion, represented 66% of total loans at December 31, 2025, compared to $2.86 billion, or 64% of total loans as of December 31, 2024. Commercial business loans of $738.3 million, or 16% of total loans, were up $73.0 million, or 11%, from December 31, 2024, and total commercial mortgage loans of $2.34 billion, or 50% of total loans, were up $142.7 million, or 6%, from December 31, 2024. The increase in commercial mortgage loans was attributable to increases in construction, multifamily, owner and non-owner occupied loans. As of December 31, 2025, commercial real estate (“CRE”) loans made up approximately 68% of total commercial loans, and 44% of total loans, commercial and industrial loans approximated 27% of total commercial loans, and 18% of total loans, and business banking unit loans were approximately 5% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at December 31, 2025 related to approximately 46% multi-family, 19% office, 9% retail, 8% hospitality, 6% industrial property, and 8% land. Approximately 74% of our office exposure at December 31, 2025, or 14% of our total CRE exposure, related to Class B or medical office space. More than 75% of our office and 90% of our multifamily CRE loans have full or limited personal or corporate recourse.
We typically originate commercial business loans of up to $25.0 million for small- to mid-sized businesses in our market area for working capital, equipment financing, inventory financing, accounts receivable financing, or other general business purposes. Loans of this type are in a diverse range of industries. We also offer commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures. The majority of our commercial mortgage loans are secured by office buildings, manufacturing facilities, distribution/warehouse facilities, and retail centers, which are generally located in our local market area.
The credit risk related to commercial loans is largely influenced by general economic conditions, inflation, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an appropriate allowance for credit losses, and sound nonaccrual and charge off policies. An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analyses by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations.
We participate in various lending programs in which guarantees are supplied by U.S. government agencies, such as the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. 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.
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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. 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. Loans in this classification include residential real estate loans, residential real estate lines, indirect consumer and other consumer installment loans. Credit risk for these types of loans is generally influenced by general economic conditions, including inflation, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.
Residential real estate portfolios include conventional first lien mortgages and home equity loans and lines of credit. For conventional first lien mortgages, we generally limit the maximum loan to 85% of collateral value without credit enhancement (e.g., personal mortgage insurance). A portion of our fixed-rate conventional mortgage loans are sold in the secondary market with servicing rights retained. Our conventional mortgage products continue to be underwritten using FHLMC secondary marketing guidelines. Our underwriting guidelines for home equity products include a combination of borrower FICO (credit score), the LTV of the property securing the loan and evidence of the borrower having sufficient income to repay the loan. Currently, for home equity products, the maximum acceptable LTV is 90%. The average FICO score for new home equity production was 746 and 742 during the years ended December 31, 2025 and 2024, respectively.
Residential real estate loans totaled $657.0 million at the end of 2025, up $6.8 million, from the end of the prior year and comprised 14% and 15% of total loans outstanding at December 31, 2025 and December 31, 2024, respectively. The residential real estate line portfolio amounted to $75.1 million at December 31, 2025, down $431 thousand, compared to year end 2024 and represented 2% of total loans at both December 31, 2025 and December 31, 2024. The residential real estate loans and lines portfolios had a weighted average LTV at origination of approximately 70% at December 31, 2025 and 2024. Approximately 92% of the loans and lines were first lien positions at December 31, 2025 and 2024.
Consumer indirect loans amounted to $807.3 million at December 31, 2025 down $38.5 million, or 5%, compared to year end 2024 and represented 17% of the 2025 year-end loan portfolio versus 19% at year-end 2024. The loans are primarily for the purchase of automobiles (both new and used) and light duty trucks primarily by individuals, but also by corporations and other organizations. The loans are originated through our network of approximately 370 new automobile dealers in our core Upstate New York market, and assigned to us with terms that typically range from 36 to 84 months. During the year ended December 31, 2025, we originated $319.4 million in indirect loans with a mix of approximately 30% new vehicles and 70% used vehicles. This compares with originations of $239.5 million in indirect loans with a mix of approximately 26% new vehicles and 74% used vehicles for 2024. The average FICO score for indirect loan production was approximately 729 and 724 during the years ended December 31, 2025 and 2024, respectively.
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.
Our loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our operating footprint. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2025, no significant concentrations, as defined above, existed in our portfolio. Our largest loan portfolios are CRE and indirect automobile lending. Our CRE loan portfolio is geographically diversified through multiple property types, as well as cities and markets in New York State, and the Mid-Atlantic region (Maryland, Virginia, Washington, DC) with various sources of borrower repayment. The indirect automobile loan portfolio consists of geographically diverse small loans with an average loan size of approximately $30,000. 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.
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. 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.
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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.
Credit Loss–Loans Analysis
Year Ended December 31,
Allowance for credit losses–loans, beginning of period
Net charge-offs (recoveries):
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total net charge-offs
Provision for credit losses–loans
Allowance for credit losses–loans, end of year
Net loan charge-offs (recoveries) to average loans:
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total loans
Allowance for credit losses–loans to total loans
Allowance for credit losses–loans to nonaccrual loans
Allowance for credit losses–loans to non-performing loans
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. The allowance for credit losses–loans decreased to $47.4 million at December 31, 2025, compared with $48.0 million at December 31, 2024, reflective of higher net charge-offs in 2025. The provision for credit losses–loans normalized in 2025 compared to 2024, as the 2024 provision reflected positive trends in qualitative factors which drove a lower provision for 2024. Non-performing loans decreased $5.7 million to $35.8 million at December 31, 2025 from prior year end, reflective of a foreclosed participated loan and partial charge-off of a credit facility in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. The ratio of the allowance for credit losses–loans to total loans was 1.02% and 1.07% at December 31, 2025 and 2024, respectively, reflective of the lower allowance for credit losses–loans. 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.
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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 allocation is made for analytical purposes and is not necessarily indicative of the categories in which actual losses may occur. The total allowance is available to absorb losses from any segment of the loan portfolio (in thousands).
Allowance for Credit Losses–Loans by Loan Category
At December 31,
Credit Loss Allowance
Percentage of Loans By Category to Total Loans
Credit Loss Allowance
Percentage of Loans By Category to Total Loans
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
Loans not analyzed for a specific reserve are segmented into “pools” of loans based upon similar risk characteristics. This is referred to as the “pooled loan” component of the allowance for credit losses estimate. The allowance for credit losses for pooled loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. 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. The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, and other loans deemed appropriate by management. 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.
Assessing the adequacy of the allowance for credit losses involves substantial uncertainties and is based upon management’s evaluation of the amounts required to meet estimated charge-offs in the loan portfolio after weighing a variety of factors, including the risk profile of our loan products and customers.
Factors beyond our control, however, such as general national and local economic conditions, can adversely impact the adequacy of the allowance for credit losses. As a result, no assurance can be given that adverse economic conditions or other circumstances will not result in increased losses in the portfolio or that the allowance for credit losses will be sufficient to meet actual loan losses. See Part I, Item 1A “Risk Factors” for the risks impacting this estimate. Management presents a quarterly review of the adequacy of the allowance for credit losses to the Audit Committee of our Board of Directors based on the methodology that is described in further detail in Part I, Item I “Business” under the section titled “Lending Activities.” See also “Critical Accounting Estimates” for additional information on the allowance for credit losses.
The adequacy of the allowance for credit losses is subject to ongoing management review. While management evaluates currently available information in establishing the allowance for credit losses–loans, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses–loans. Such agencies may require us to increase the allowance based on their judgments about information available to them at the time of their examination.
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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,
Nonaccrual loans:
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total nonaccrual loans
Accruing loans 90 days or more delinquent
Total non-performing loans
Foreclosed assets
Total non-performing assets
Nonaccrual loans to total loans
Non-performing loans to total loans
Non-performing assets to total assets
Non-performing assets include non-performing loans and foreclosed assets. 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. The decrease in nonperforming loans reflected the foreclosure of a participated loan and partial charge-off of a credit facility reported in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023.
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.
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.
Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes us to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. We consider loans classified as substandard, which continue to accrue interest, to be potential problem loans. 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.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
FUNDING ACTIVITIES
Deposits
The following table summarizes the composition of our deposits (in thousands) as of the dates indicated.
At December 31,
Amount
Percent
Amount
Percent
Noninterest-bearing demand
Interest-bearing demand
Savings and money market
Time deposits
Total deposits
We offer a variety of deposit products designed to attract and retain customers, with the primary focus on building and expanding long-term relationships. 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.
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. We have managed this segment of funding through a strategy of competitive pricing that minimizes the number of customer relationships that have only a single service high-cost deposit account.
As an additional source of funding, we offer a variety of public (municipal) deposit products to the towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 30% of our total deposits. There is a high degree of seasonality in this component of funding, because the level of deposits varies with the seasonal cash flows for these public customers. We maintain the necessary levels of short-term liquid assets to accommodate the seasonality associated with public deposits. 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. 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.
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.
As of December 31, 2025 and 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250 thousand, which is the maximum amount for federal deposit insurance) was $2.26 billion, or 43% of total deposits, and $1.93 billion, or 38% of total deposits, 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. 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. 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. As of December 31, 2025, estimated uninsured nonpublic deposits were approximately 24% of total deposits.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Borrowings
The Company classifies borrowings as short-term or long-term in accordance with the original terms of the agreement. Outstanding borrowings are summarized as follows as of December 31 (in thousands):
Short-term borrowings:
FHLB
Long-term borrowings:
FHLB
Subordinated notes, net
Total long-term borrowings
Total borrowings
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. 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. As of December 31, 2025, loans pledged also served as collateral for letters of credit issued through the FHLB for the benefit of uninsured public funds deposits totaling $270.3 million. At December 31, 2025 and 2024, our short-term borrowings had a weighted average rate of 3.96% and 4.68%, respectively.
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%.
We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $240.1 million of immediate credit capacity with the FHLB and $942.2 million in secured borrowing capacity at the FRB discount window, none of which was outstanding at December 31, 2025. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had $155.0 million of credit available under unsecured federal funds purchased lines with various banks, with no amounts outstanding at December 31, 2025. Additionally, we had approximately $134.4 million of unencumbered liquid securities available for pledging.
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.
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.
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. The 2025 Notes have a maturity date of December 15, 2035, and bear interest, payable semi-annually, at the rate of 6.50% per annum until December 15, 2030. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financial Rate (“SOFR”) plus 312 basis points, payable quarterly until maturity. We are entitled to repay the 2025 Notes, in whole or in part, at any time on or after December 15, 2030, and to prepay the 2025 Notes in whole or in part at any time upon certain other specified events. The 2025 Notes qualify as Tier 2 capital for regulatory purposes. We used the net proceeds to redeem the $65.0 million of outstanding debt issuances from 2015 and 2020, at the first call date of 2026, as well as for general corporate purposes including repurchasing shares of the Company’s common stock under our 2025 Share Repurchase Program.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
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. 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. The 2020 Notes became redeemable by us, in whole or in part, on any interest payment date on or after October 15, 2025. As expected, on January 15, 2026, we utilized a portion of the net proceeds of the 2025 issuance to redeem the $35.0 million outstanding principal balance. The 2020 Notes qualified as Tier 2 capital for regulatory purposes.
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. 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. As expected, on January 15, 2026, we utilized a portion of the net proceeds of the 2025 issuance to redeem the $30.0 million outstanding principal balance. The 2015 Notes qualified as Tier 2 capital for regulatory purposes.
Shareholders’ Equity
Total shareholders’ equity was $628.9 million at December 31, 2025, an increase of $59.9 million from $569.0 million at December 31, 2024. The increase in shareholders’ equity was reflective of current year net income of $74.9 million, partially offset by common and preferred stock dividends of $26.4 million. A decrease in accumulated other comprehensive loss increased shareholders’ equity $19.6 million during the year primarily due to lower net unrealized losses on securities available for sale, while the increase in treasury stock primarily due to the repurchase of shares of common stock under the 2025 Share Repurchase Program decreased shareholders’ equity by $9.2 million. For detailed information on shareholders’ equity, see Note 14, Shareholders’ Equity, of the notes to the consolidated financial statements. FII and the Bank are subject to various regulatory capital requirements. At December 31, 2025, 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 the consolidated financial statements.
LIQUIDITY AND CAPITAL MANAGEMENT
The objective of maintaining adequate liquidity is to assure that we meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of matured borrowings, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. 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.
Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits and wholesale funds. The strength of the Bank’s liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources that include credit lines with the other banking institutions such as the FHLB and the FRB.
The primary sources of liquidity for FII are dividends from the Bank and access to financial and capital markets. Dividends from the Bank are limited by various regulatory requirements related to capital adequacy and earnings trends. The Bank relies on cash flows from operations, core deposits, borrowings and short-term liquid assets.
In September 2025, the Board approved a share repurchase program for up to 1,006,379 shares of the Company’s common stock, or approximately 5% of our then outstanding common shares. The new share repurchase program replaced and terminated the prior share repurchase program authorized by the Board in June 2022. The repurchase program does not obligate us to purchase any shares and it may be extended, modified, or discontinued at any time. As of December 31, 2025, 336,869 shares have been repurchased under this program.
Cash and cash equivalents were $108.8 million as of December 31, 2025, an increase of approximately $21.4 million from $87.3 million as of December 31, 2024. During 2025, net cash provided by operating activities totaled $18.8 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled $140.0 million, which included outflows of $189.6 million for net loan originations, $5.5 million for purchases of premises and equipment, partially offset by $53.3 million of net cash used for the purchase of investment securities. Net cash provided by financing activities of $142.7 million was primarily attributed to a $101.6 million net increase in deposits, and $78.6 million of net proceeds from the issuance of the 2025 Notes, partially offset by $26.2 million in dividend payments, and $11.4 million in stock repurchases under the 2025 Repurchase Plan.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Planned Uses of Capital Resources
The Company has various long-term contractual obligations as of December 31, 2025, which include:
Time deposits for $1.69 billion;
Supplemental executive retirement plans for $101 thousand;
Subordinated notes for $145.0 million
FHLB long-term advances for $50.0 million; and
Operating leases for $50.6 million.
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. 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.
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. 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.
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. For additional information on off-balance sheet arrangements, see Note 1, Summary of Significant Accounting Policies and Note 12, Commitments and Contingencies, in the notes to the accompanying consolidated financial statements.
Shelf Registration
We have an effective shelf registration statement on file with the SEC for an indeterminate number of securities that is effective for three years (expires December 4, 2027), around which time we expect to file a replacement shelf registration statement. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time securities, including common stock, debt securities, preferred stock, warrants and units. Under this shelf registration, we completed an underwritten public offering of 4,600,000 shares of common stock at $25.00 per share on December 13, 2024.
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). Mortgage-backed securities are included in maturity categories based on their stated maturity date. Actual maturities may differ from the contractual maturities presented because borrowers may have the right to call or prepay certain investments. No tax-equivalent adjustments were made to the weighted average yields.
Due in less
than one
year
Due from one
to five years
Due after five
years through
ten years
Due after ten
years
Total
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Cost
Yield
Available for sale debt securities:
Mortgage-backed securities
Other debt securities
Held to maturity debt securities:
U.S. Government agencies and government-sponsored enterprises
State and political subdivisions
Mortgage-backed securities
Total investment securities
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Contractual Loan Maturity Schedule
The following table summarizes the contractual maturities of our loan portfolio at December 31, 2025. Loans, net of deferred loan origination costs, include principal amortization and non-accruing loans. Demand loans having no stated schedule of repayment or maturity and overdrafts are reported as due in one year or less (in thousands).
Due in less
than one
year
Due from
one to
five years
Due from
five to
fifteen years
Due after
fifteen years
Total
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect (1)
Other consumer
Total loans
Loans maturing after one year:
With a predetermined interest rate
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect (1)
Other consumer
With a floating or adjustable rate
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect (1)
Other consumer
Total loans maturing after one year
(1) Amounts include prepayment assumptions based on actual historical experience.
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MANAGEMENT’S DISCUSSION AND ANALYSIS
Capital Resources
The FRB has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of bank holding companies on a consolidated basis. 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. See Note 13, Regulatory Matters of the notes to consolidated financial statements and the “Basel III Capital Rules” section below for further discussion. The following table reflects the Company’s ratios and their components as of December 31 (in thousands):
Common shareholders’ equity
Less:
Goodwill and other intangible assets
Net unrealized loss on investment securities (1)
Hedging derivative instruments
Net periodic pension and postretirement benefits plan adjustments
Other
Common Equity Tier 1 (“CET1”) capital
Plus:
Preferred stock
Tier 1 Capital
Plus:
Qualifying allowance for credit losses
Subordinated Notes
Total regulatory capital
Adjusted average total assets (for leverage capital purposes)
Total risk-weighted assets
Regulatory Capital Ratios
Tier 1 Leverage (Tier 1 capital to adjusted average assets)
CET1 Capital (CET1 capital to total risk-weighted assets)
Tier 1 Capital (Tier 1 capital to total risk-weighted assets)
Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets)
Includes unrealized gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category.
We have elected to apply the 2020 Current Expected Credit Losses methodology (“CECL”) transition provision related to the impact of the CECL accounting standard on regulatory capital, as provided by the US banking agencies’ March 2020 interim final rule. Under the 2020 CECL transition provision, the regulatory capital impact of the Day 1 adjustment to the allowance for credit losses (after-tax) upon the January 1, 2020, CECL adoption date has been deferred and will phase in to regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, we were allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020, and December 31, 2021. The cumulative adjustment to the allowance for credit losses between January 1, 2020, and December 31, 2021, was also phased in to regulatory capital at 25% per year commencing January 1, 2022.
Basel III Capital Rules
Under the Basel III Rules, the current minimum capital ratios, including an additional capital conservation buffer (2.5%) applicable to the Company and the Bank, are:
7.0% CET1 to risk-weighted assets;
8.5% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets; and
10.5% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets.
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.
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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. Application of critical accounting policies, which are those policies that management believes are the most important to our financial position and results, requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes and are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions and judgments, which, in turn, may affect amounts reported in the financial statements.
We have numerous accounting policies, of which the most significant are presented in Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and, in this discussion, provide information on how significant assets, liabilities, revenues and expenses are reported in the consolidated financial statements and how those reported amounts are determined. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy with respect to the allowance for credit losses requires particularly subjective or complex judgments important to our financial position and results of operations, and, as such, is considered to be a critical accounting estimate as discussed below.
Adequacy of the Allowance for Credit Losses
The allowance for credit losses represents management’s estimate of probable credit losses inherent in the loan portfolio, and consists of an allowance for credit losses for pooled loans and a specific reserve for individually evaluated loans. Management estimates the allowance for credit losses for pooled loans utilizing a Discounted Cash Flow (“DCF”) method. The DCF method implements a probability of default with loss given default and exposure at default estimation. The probability of default and loss given default are applied to future cash flows that are adjusted to present value and these discounted expected losses become the allowance for credit losses. In the analysis at the portfolio level, we found that the best model for predicting defaults considers the national unemployment rate. With the large number of observations afforded by using peer data, the default curve is less sensitive to unusual loss events and has a much smoother shape. The national unemployment rate is an extremely strong predictor of defaults and explains almost all variation in the default rate. Excluded from the pooled analysis are loans to be individually evaluated due to the assets not maintaining similar risk characteristics to those included in pooled loans. These loans are generally considered to be collateral dependent and, therefore, an analysis of the collateral position versus the pooled loan discounted cash flow approach better reflects the potential loss. Individually evaluated accounts include: loans over 90 days past due, loans placed on non-accrual status and classified assets with exposure greater than $2.0 million.
Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of subjective measurements including, but not limited to, management’s assessment of the internal risk classifications of loans, estimating future losses utilizing current forecasts, forward-looking estimates of qualitative factors including national and local economic trends and conditions (excluding national unemployment), levels and trends in delinquencies, non-accrual loans and classified assets, trends in volume, terms and concentrations of loans, changes in lending policies and procedures, quality of credit review function and administration and changes in the regulatory environment, management, markets and product offerings. Because current economic conditions and borrower strength can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for credit losses, could change significantly. Management will periodically assess what adjustments are necessary to qualitatively adjust the allowance for credit losses based on their assessment of current expected credit losses. Various regulatory agencies also review the allowance for credit losses as an integral part of their examination process. Such agencies may require additions to the allowance for credit losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. We believe the level of the allowance for credit losses is appropriate as recorded in the consolidated financial statements. As future events cannot be determined with precision, actual results could differ significantly from our estimates.
For additional discussion related to our accounting policies for the allowance for credit losses, see the sections titled “Allowance for Credit Losses” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements.
ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED
For a discussion of recent accounting pronouncements see the section titled “Accounting Standards Recently Adopted or Issued” in Note 1, Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K,
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ITEM 7A. QUANTITATIVE AND QUALITA TIVE DISCLOSURES ABOUT MARKET RISK
Asset-Liability Management
The principal objective of our interest rate risk management is to evaluate the interest rate risk inherent in assets and liabilities, determine the appropriate level of risk to us given our business strategy, operating environment, capital and liquidity requirements and performance objectives, and manage the risk consistent with the guidelines approved by our Board of Directors. Management is responsible for reviewing with the Board of Directors our activities and strategies, the effect of those strategies on net interest income, the fair value of the portfolio and the effect that changes in interest rates will have on the portfolio and exposure limits. Management has developed an Asset-Liability Management and Investment Policy that meets the strategic objectives and regularly reviews the activities of the Bank.
Portfolio Composition
Our balance sheet assets are a mix of fixed and variable rate assets with consumer indirect loans, commercial loans, and MBSs comprising a significant portion of our assets. 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 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. 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 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. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on net interest income as well as economic value of equity.
Net interest income at risk is measured by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of different magnitudes over a period of 12 months. 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
Estimated change in net interest income
% Change
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. This is a combination of an increase across the entire deposit portfolio, which has decreased wholesale borrowings and the higher costs associated with borrowings. The simulation does not consider balance sheet growth or a change in the balance sheet mix. As intermediate and longer-term assets continue to mature and are replaced at higher yields, net interest income should improve over the longer-term time frame. Model results in the declining rate scenario show a decrease in net interest income due to a combination of increases in the yield curve, as well as increases in higher yielding public and nonpublic deposits, which will reprice downwardslower due to market deposit competition.
In addition to the changes in interest rate scenarios listed above, other scenarios are typically modeled to measure interest rate risk. These scenarios vary depending on the economic and interest rate environment. Furthermore, given the static balance sheet approach, retained earnings are considered to be reinvested in a noninterest earning asset.
The simulation referenced above is based on our assumption as to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of the yield curve. It also includes certain assumptions about the future pricing of loans and deposits in response to changes in interest rates. Further, it assumes that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. 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.
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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. This variance is measured by simulating changes in our economic value of equity (“EVE”), which is calculated by subtracting the estimated fair value of liabilities from the estimated fair value of assets. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at current replacement rates for each account type, while fair values of non-financial assets and liabilities are assumed to equal book value and do not vary with interest rate fluctuations. An economic value simulation is a static measure for balance sheet accounts at a given point in time, but this measurement can change substantially over time as the characteristics of our balance sheet evolve and as interest rate and yield curve assumptions are updated.
The amount of change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including the stated interest rate or spread relative to current market rates or spreads, the likelihood of prepayment, whether the rate is fixed or floating, and the maturity date of the instrument. As a general rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical data (back-testing), based on third-party review and inputs.
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 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. 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
- 300 Basis Points
- 200 Basis Points
- 100 Basis Points
+ 100 Basis Points
The Pre-Shock Scenario EVE was $828.3 million at December 31, 2025, compared to $903.8 million at December 31, 2024. 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. 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 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.
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Interest Rate Sensitivity Gap
The following table presents an analysis of our interest rate sensitivity gap position at December 31, 2025. All interest-earning assets and interest-bearing liabilities are shown based on the earlier of their contractual maturity or re-pricing date. The expected maturities are presented on a contractual basis or, if more relevant, based on projected call dates. Investment securities are at amortized cost for both securities available for sale and securities held to maturity. Loans, net of deferred loan origination costs, include principal amortization adjusted for estimated prepayments (principal payments in excess of contractual amounts) and non-accruing loans. Because the interest rate sensitivity levels shown in the table could be changed by external factors such as loan prepayments and liability decay rates or by factors controllable by us, such as asset sales, it is not an absolute reflection of our potential interest rate risk profile (in thousands).
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
Investment securities
Loans
Total interest-earning assets
Cash and due from banks
Other assets (1)
Total assets
INTEREST-BEARING LIABILITIES:
Interest-bearing demand, savings and money market
Time deposits
Borrowings
Total interest-bearing liabilities
Noninterest-bearing deposits
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
Interest sensitivity gap
Cumulative gap
Cumulative gap ratio (2)
Cumulative gap as a percentage of total assets
Includes net unrealized loss on securities available for sale and allowance for credit losses.
Cumulative total interest-earning assets divided by cumulative total interest-bearing liabilities.
For purposes of interest rate risk management, we direct more attention on simulation modeling, such as “net interest income at risk” as previously discussed, rather than gap analysis. We consider the net interest income at risk simulation modeling to be more informative in forecasting future income at risk.
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ITEM 8. FINANCIAL STATEME NTS AND SUPPLEMENTARY DATA
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Page
Management’s Report on Internal Control over Financial Reporting
Report of Independent Registered Public Accounting Firm (on the Consolidated Financial Statements) (PCAOB ID: 49 )
Report of Independent Registered Public Accounting Firm (on Internal Control over Financial Reporting) (PCAOB ID: 49)
Consolidated Statements of Financial Condition at December 31, 2025 and 2024
Consolidated Statements of Operations for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2025, 2024 and 2023
Consolidated Statements of Cash Flows for the years ended December 31, 2025, 2024 and 2023
Notes to Consolidated Financial Statements
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Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for Financial Institutions, Inc. and its subsidiaries (the “Company”), as such term is defined in Exchange Act Rule 13a-15(f). The Company’s system of internal control over financial reporting has been designed to provide reasonable assurance to the Company’s management and board of directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Any system of internal control over financial reporting, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company’s management has, including the Company’s principal executive officer and principal financial officer as identified below, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2025. To make this assessment, we used the criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment and based on such criteria, we believe that, as of December 31, 2025, the Company’s internal control over financial reporting was effective.
RSM US LLP, the Company’s independent registered public accounting firm that audited the Company’s consolidated financial statements as of and for the year ended December 31, 2025 has issued a report on internal control over financial reporting as of December 31, 2025. That report appears herein.
/s/ Martin K. Birmingham
/s/ W. Jack Plants, II
President and Chief Executive Officer
Executive Vice President, Chief Financial Officer and Treasurer
March 9, 2026
March 9, 2026
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Financial Institutions, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Financial Institutions, Inc. and Subsidiaries (the Company) as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of
December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 9, 2026 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
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Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses – Loans
As described in Notes 1 and 4 to the financial statements, the Company’s allowance for credit losses - loans was $47,386,000 at December 31, 2025, which consisted of an allowance for credit losses for pooled loans ($44,168,000) and a specific reserve for individually evaluated loans ($3,218,000). Management estimates the allowance for credit losses for pooled loans utilizing a discounted cash flow (DCF) method. The DCF method implements a probability of default with a loss given default applied to future cash flows that are adjusted to present value. The Company uses forecasts to predict the performance of modeled economic factors. In addition, the Company uses qualitative factors that management believes are likely to cause estimated credit losses to differ from historical loss experience, including but not limited to: national and local economic trends and conditions (excluding national unemployment), levels and trends in delinquencies, non-accrual loans and classified assets, trends in volume, terms and concentrations of loans, changes in lending policies and procedures, quality of credit review function and administration and changes in regulatory environment. The establishment of probability of default, loss given default, reasonable and supportable forecasts, and qualitative factor adjustments require a significant amount of judgment by management and involve a high degree of estimation uncertainty.
We identified the determination of the allowance for credit losses for pooled loans as a critical audit matter as auditing the underlying development of reasonable and supportable forecasts and qualitative factor adjustments required significant auditor judgment as amounts determined by management rely on analyses that are highly subjective and include significant estimation uncertainty.
Our audit procedures related to the determination of the allowance for credit losses for pooled loans included the following, among others:
We obtained an understanding of the relevant controls related to management’s establishment, review and approval of reasonable and supportable forecasts and qualitative factor adjustments and tested such controls for design and operating effectiveness.
We tested the accuracy and the relevancy of the forecast utilized by management by comparing the data inputs to external source data.
We tested the completeness and accuracy of information used by management in determining the qualitative factor adjustments.
We evaluated whether management’s conclusions were consistent with the gathered data and agreed the impact from the adjustments included in the allowance for credit losses - loans calculation.
/s/ RSM US LLP
We have served as the Company's auditor since 2018.
Chicago, Illinois
March 9, 2026
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Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Financial Institutions, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Financial Institutions, Inc. and Subsidiaries' (the Company) internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements of financial condition of the Company as of December 31, 2025 and 2024, the related consolidated statements of operations, comprehensive income (loss), changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2025, and the related notes to the consolidated financial statements of the Company and our report dated March 9, 2026 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
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Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Chicago, Illinois
March 9, 2026
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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Financial Condition
(in thousands, except share and per share data)
December 31,
ASSETS
Cash and due from banks
Interest-bearing deposits in banks
Total cash and cash equivalents
Securities available for sale, at fair value (amortized cost of $ 958,142 and $ 972,720, respectively)
Securities held to maturity, at amortized cost (net of allowance for credit losses of $ 2 ) (fair value of $ 76,256 and $ 104,556 , respectively)
Loans held for sale
Loans (net of allowance for credit losses of $ 47,386 and $ 48,041 , respectively)
Company owned life insurance
Premises and equipment, net
Goodwill
Other intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Noninterest-bearing demand
Interest-bearing demand
Savings and money market
Time deposits
Total deposits
Short-term borrowings
Long-term borrowings, net of issuance costs of $ 1,347 and $ 158 , respectively
Other liabilities
Total liabilities
Commitments and contingencies (Note 12)
Shareholders’ equity:
Series A 3 % preferred stock, $ 100 par value; 1,533 shares authorized; 1,435 shares issued
Series B-1 8.48 % preferred stock, $ 100 par value; 200,000 shares authorized; 171,413 shares issued
Total preferred equity
Common stock, $ 0.01 par value; 50,000,000 shares authorized; 20,699,556 shares issued
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss
Treasury stock, at cost; 902,149 and 622,984 shares, respectively
Total shareholders’ equity
Total liabilities and shareholders’ equity
See accompanying notes to the consolidated financial statements.
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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(in thousands, except per share data)
Years Ended December 31,
Interest income:
Interest and fees on loans
Interest and dividends on investment securities
Other interest income
Total interest income
Interest expense:
Deposits
Short-term borrowings
Long-term borrowings
Total interest expense
Net interest income
Provision for credit losses
Net interest income after provision for credit losses
Noninterest income (loss):
Service charges on deposits
Insurance income
Card interchange income
Investment advisory
Company owned life insurance
Investments in limited partnerships
Loan servicing
Income from derivative instruments, net
Net gain on sale of loans held for sale
Net gain (loss) on investment securities
Net (loss) gain on other assets
Net loss on tax credit investments
Other
Total noninterest income (loss)
Noninterest expense:
Salaries and employee benefits
Occupancy and equipment
Professional services
Computer and data processing
Supplies and postage
FDIC assessments
Advertising and promotions
Amortization of intangibles
Provision for litigation settlement
Deposit-related charged-off items
Other
Total noninterest expense
Income (loss) before income taxes
Income tax expense (benefit)
Net income (loss)
Preferred stock dividends
Net income (loss) available to common shareholders
Earnings (loss) per common share (Note 18):
Basic
Diluted
Cash dividends declared per common share
Weighted average common shares outstanding:
Basic
Diluted
See accompanying notes to the consolidated financial statements.
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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Loss)
(in thousands)
Years Ended December 31,
Net income (loss)
Other comprehensive income (loss), net of tax:
Securities available for sale and transferred securities
Hedging derivative instruments
Pension and post-retirement obligations
Total other comprehensive income, net of tax
Comprehensive income
See accompanying notes to the consolidated financial statements.
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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
Years ended December 31, 2025, 2024 and 2023
(in thousands, except per share data)
Preferred Equity
Common Stock
Additional Paid-in Capital
Retained Earnings
Accumulated Other Comprehensive (Loss) Income
Treasury Stock
Total Shareholders’ Equity
Balance at December 31, 2022
Comprehensive income:
Net income
Other comprehensive income, net of tax
Purchases of common stock for treasury
Share-based compensation plans:
Share-based compensation
Restricted stock units released
Restricted stock awards issued, net
Stock awards
Cash dividends declared:
Series A 3 % Preferred–$ 3.00 per share
Series B-1 8.48 % Preferred–$ 8.48 per share
Common–$ 1.20 per share
Balance at December 31, 2023
Comprehensive income:
Net loss
Other comprehensive income, net of tax
Common stock issued for equity offering, net
Purchases of common stock for treasury
Purchases of shares of 3% preferred stock
Share-based compensation plans:
Share-based compensation
Restricted stock units released
Restricted stock awards issued, net
Stock awards
Cash dividends declared:
Series A 3 % Preferred–$ 3.00 per share
Series B-1 8.48 % Preferred–$ 8.48 per share
Common–$ 1.20 per share
Balance at December 31, 2024
Comprehensive income:
Net income
Other comprehensive income, net of tax
Purchases of common stock for treasury
Share-based compensation plans:
Share-based compensation
Restricted stock units released
Restricted stock awards issued, net
Stock awards
Cash dividends declared:
Series A 3 % Preferred–$ 3.00 per share
Series B-1 8.48 % Preferred–$ 8.48 per share
Common–$ 1.24 per share
Balance at December 31, 2025
See accompanying notes to the consolidated financial statements.
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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands)
Years Ended December 31,
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization
Net amortization of (discounts) premiums on investment securities
Provision for credit losses
Share-based compensation
Provision for litigation settlement
Deferred income tax expense (benefit)
Proceeds from sale of loans held for sale
Originations of loans held for sale
Income on company owned life insurance
Net gain on sale of loans held for sale
Net (gain) loss on sale of investment securities
Net gain on sale of assets of subsidiary
Net loss on other assets
Decrease (increase) in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of investment securities:
Available for sale
Held to maturity
Proceeds from principal payments, maturities and calls on investment securities:
Available for sale
Held to maturity
Proceeds from sales of securities available for sale
Net increase in loans
Purchases of company owned life insurance, net of benefits received
Proceeds from surrender of company owned life insurance
Proceeds from sale of assets of subsidiary
Proceeds from sale of other assets
Purchases of premises and equipment
Net cash used in investing activities
Cash flows from financing activities:
Net increase (decrease) in deposits
Short-term borrowings, by original maturity:
More than three months - borrowings
More than three months - repayments
Three months or less, net
Repurchase of preferred stock
Proceeds from issuance of common stock
Issuance of long-term borrowings
Payment of long-term borrowings
Long-term borrowing issuance costs
Purchases of common stock for treasury
Cash dividends paid to preferred shareholders
Cash dividends paid to common shareholders
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents, beginning of period
Cash and cash equivalents, end of period
See accompanying notes to the consolidated financial statements.
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( 1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Financial Institutions, Inc. (individually referred to herein as the “Parent Company,” or “Parent,” and together with all of its subsidiaries, collectively referred to herein as the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Parent’s common stock is traded on the Nasdaq Global Select Market under the ticker symbol “FISI.” At December 31, 2025, the Company conducted its business through its subsidiaries: Five Star Bank (the “Bank”), a New York chartered bank, which provides a full range of banking services to consumer, commercial and municipal customers in Western and Central New York, and commercial loans in the Mid-Atlantic region, through a loan production office in Ellicott City, Maryland (a suburb of Baltimore, Maryland), and the Central New York region, through an office in Syracuse, New York; and Courier Capital, LLC (“Courier Capital”), a Securities and Exchange Commission (“SEC”)-registered investment advisory and wealth management firm. The Company provides a full range of banking and related financial services to consumer, commercial and municipal customers through its bank and non-bank subsidiaries.
Prior to April 1, 2024, the Company also owned SDN Insurance Agency, LLC (“SDN”), which sold various premium-based insurance policies on a commission basis to commercial and consumer customers. On April 1, 2024, the Company announced and closed the sale of the assets of SDN to NFP Property & Casualty Services, Inc., a subsidiary of NFP Corp.
Basis of Presentation
The accounting and reporting policies conform to general practices within the banking industry and to accounting standards set by the Financial Accounting Standards Board (“FASB”) under accounting principles generally accepted in the Unites States of America (“GAAP”).
Reclassifications
Certain items in prior financial statements have been reclassified to conform to the current presentation, including updating the presentation of short-term borrowings, net to show gross amounts on the statement of cash flows for 2023 and 2024. These reclassifications did not result in any changes to previously reported net income or shareholders’ equity.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
In preparing the consolidated financial statements in conformity with GAAP, management is required to make estimates and assumptions that affect the reported amount of assets and liabilities as of the date of the statement of financial condition and reported amounts of revenue and expenses during the reporting period. These estimates and assumptions are based on management’s best estimates and judgment and are evaluated on an ongoing basis using historical experience and other factors, including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates and assumptions.
Subsequent Events
The Company has evaluated events and transactions for potential recognition or disclosure through the day the financial statements were issued and determined there were no material recognizable subsequent events.
Cash and Cash Equivalents and Cash Flow Reporting
Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings of three months or less.
Supplemental cash flow information is summarized as follows for the years ended December 31 (in thousands):
Supplemental information:
Cash paid for interest
Net cash (received) paid for income taxes
Noncash investing and financing activities:
Real estate and other assets acquired in settlement of loans
Accrued and declared unpaid dividends
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Investment Securities
Investment securities are classified as either available for sale (“AFS”) or held to maturity (“HTM”). Debt securities that management has the positive intent and ability to hold to maturity are classified as held to maturity and are recorded at amortized cost. Debt securities not classified as HTM are classified as available for sale and recorded at fair value, with unrealized gains and losses excluded from earnings and reported, net of related income tax effects, as a component of comprehensive income (loss) and shareholders’ equity.
Purchase premiums and discounts on investment securities are recognized in interest income using the interest method over the terms of the securities. Premiums on callable debt securities are amortized to their earliest call date. Gains and losses on the sale of securities are recorded on the trade date and are determined using the specific identification method.
For a discussion of our policy on expected credit losses on HTM and AFS investment securities, see “ Allowance for Credit Losses” section below .
Loans Held for Sale and Loan Servicing Rights
The Company generally makes the determination of whether to identify a mortgage as held for sale at the time the loan is closed based on the Company’s intent and ability to hold the loan. Loans held for sale are recorded at the lower of cost or market computed on the aggregate portfolio basis. The amount by which cost exceeds market value, if any, is accounted for as a valuation allowance with changes included in the determination of results of operations for the period in which the change occurs. The amount of loan origination costs and fees are deferred at origination and recognized as part of the gain or loss on sale of the loans, determined using the specific identification method, in the consolidated statements of operations.
The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. Mortgage-servicing rights (“MSRs”) represent the cost of acquiring the contractual rights to service loans for others. MSRs are recorded at their fair value at the time a loan is sold, and servicing rights are retained. MSRs are reported in other assets in the consolidated statements of financial position and are amortized to noninterest income in the consolidated statements of operations in proportion to and over the period of estimated net servicing income. The Company uses a valuation model that calculates the present value of future cash flows to determine the fair value of servicing rights. In using this valuation method, the Company incorporates assumptions to estimate future net servicing income, which include estimates of the cost to service the loan, the discount rate, an inflation rate and prepayment speeds. On a quarterly basis, the Company evaluates its MSRs for impairment and charges any such impairment to current period earnings. In order to evaluate its MSRs, the Company stratifies the related mortgage loans on the basis of their predominant risk characteristics, such as interest rates, year of origination and term, using discounted cash flows and market-based assumptions. Impairment of MSRs is recognized through a valuation allowance, determined by estimating the fair value of each stratum and comparing it to its carrying value. Subsequent increases in fair value are adjusted through the valuation allowance, but only to the extent of the valuation allowance.
Mortgage loan servicing includes collecting monthly mortgagor payments, forwarding payments and related accounting reports to investors, collecting escrow deposits for the payment of mortgagor property taxes and insurance, paying taxes and insurance from escrow funds when due and administrating foreclosure actions when necessary. Loan servicing income (a component of noninterest income in the consolidated statements of operations) consists of fees earned for servicing mortgage loans sold to third parties, net of amortization expense and impairmentlosses associated with capitalized mortgage servicing assets.
Loans
Loans are classified as held for investment when management has both the intent and ability to hold the loan for the foreseeable future, or until maturity or payoff. Loans are carried at the principal amount outstanding, net of any unearned income and unamortized deferred fees and costs on originated loans. Loan origination fees and certain direct loan origination costs are deferred, and the net amount is amortized into net interest income over the contractual life of the related loans or over the commitment period as an adjustment of yield. Interest income on loans is based on the principal balance outstanding computed using the effective interest method.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
A loan is considered delinquent when a payment has not been received in accordance with the contractual terms. The accrual of interest income for commercial loans is discontinued when there is a clear indication that the borrower’s cash flow may not be sufficient to meet payments as they become due, while the accrual of interest income for retail loans is discontinued when loans reach specific delinquency levels. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments, unless the loan is well secured and in the process of collection. Additionally, if management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on a nonaccrual status immediately, rather than delaying such action until the loans become 90 days past due. When a loan is placed on nonaccrual status, previously accrued and uncollected interest is reversed, amortization of related deferred loan fees or costs is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash and a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal. A nonaccrual loan may be returned to accrual status when all delinquent principal and interest payments become current in accordance with the terms of the loan agreement, the borrower has demonstrated a period of sustained performance (generally a minimum of six months) and the ultimate collectability of the total contractual principal and interest is no longer in doubt.
The Company’s loan policy dictates the guidelines to be followed in determining when a loan is charged-off. All charge offs are approved by the Bank’s senior loan officers or loan committees, depending on the amount of the charge off, and are reported in aggregate to the Bank’s Board of Directors. Commercial business and commercial mortgage loans are charged-off when a determination is made that the financial condition of the borrower indicates that the loan will not be collectible in the ordinary course of business. Residential mortgage loans and home equities are generally charged-off or written down when the credit becomes severelydelinquent, and the balance exceeds the fair value of the property less costs to sell. Indirect and other consumer loans, both secured and unsecured, are generally charged-off in full during the month in which the loan becomes 120 days past due, unless the collateral is in the process of repossession in accordance with the Company’s policy.
The Company evaluates loan modifications to determine whether a modification represents a new loan or a continuation of an existing loan and discloses information about the type and magnitude of certain loan modifications made to borrowers experiencing financial difficulty. Loan modifications to borrowers experiencing financial difficulty may be in the form of principal forgiveness, an interest rate reduction, an other-than-insignificant payment delay, a term extension, or a combination of these concessions.
See “ Allowance for Credit Losses” section below for further policy discussion.
Off-Balance Sheet Financial Instruments
In the ordinary course of business, the Company enters into off-balance sheet financial instruments consisting of commitments to extend credit, standby letters of credit and financial guarantees. Such financial instruments are recorded in the consolidated financial statements when they are funded or when related fees are incurred or received. The Company periodically evaluates the credit risks inherent in these commitments and establishes loss allowances for such risks if and when these are deemed necessary.
The Company recognizes as liabilities the fair value of the obligations undertaken in issuing the guarantees under the standby letters of credit, net of the related amortization at inception. The fair value approximates the unamortized fees received from the customers for issuing the standby letters of credit. The fees are deferred and recognized on a straight-line basis over the commitment period. Standby letters of credit outstanding typically have original terms ranging from one to five years . Fees received for providing loan commitments and letters of credit that result in loans are typically deferred and amortized to interest income over the life of the related loan, beginning with the initial borrowing. Fees on commitments and letters of credit are amortized to other income as banking fees and commissions over the commitment period when funding is not expected.
Allowance for Credit Losses
The allowance for credit losses (“ACL”) is evaluated on a regular basis and established through charges to earnings in the form of a provision (benefit) for credit losses. When a loan or portion of a loan is determined to be uncollectible, the portion deemed uncollectible is charged against the allowance and subsequent recoveries, if any, are credited to the allowance. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available.
Portfolio Segmentation and “Pooled Loans” Calculation
Loans are pooled based on their homogeneous risk characteristics. Once loans have been segmented into pools, a loss rate is applied to the amortized cost basis. The Company has divided its portfolio into six segments, as the loans within the segments have similar characteristics. Characteristics considered include: purpose, tenor, amortization, repayment source, payment frequency, collateral and recourse. The Company has identified nine portfolio segments of loans including Commercial Business, Commercial Mortgage–Construction, Commercial Mortgage–Multifamily, Commercial Mortgage–Non-Owner Occupied, Commercial Mortgage–Owner Occupied, Residential Real Estate Loans, Residential Real Estate Lines, Consumer Indirect Loans, and Other.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company utilizes the Discounted Cash Flow (“DCF”) method for its pooled segment calculation. The DCF method implements a probability of default with loss given default and exposure at default estimation. The probability of default and loss given default are applied to future cash flows that are adjusted to present value, and these discounted expected losses become the Allowance for Credit Losses.
DCF analysis is reliant upon a variety of loan-level data, peripheral model outputs and key assumptions. The data fields required to create the contractual portion of the forward-looking cash flow schedule relate to the terms of each loan and include information regarding payment amount, payment frequency, interest rate, interest type, maturity date, amortization term, etc. Contractual terms must be adjusted for prepayments to arrive at expected cashflows. The Company modeled amortizing/installment notes with a prepayment rate, annualized to one-year. For loans where principal collection is dominated by borrower election, e.g., lines of credit, interest-only, etc., and not by contractual obligation, the Company modeled a statistical tendency to repay as a curtailment rate, normalized to a one-year rate.
The Company uses forecasts to predict how modeled economic factors will perform. The Company currently elects to forecast economic factors over a period for which it can produce a reliable and defensible forecast from widely accepted economic forecast resources. After the forecast period, the following eight quarters are reverted on a straight-line basis to the economic factor’s average. The Company uses an eight-quarter straight-line reversion to reduce the potential for a spike impact on the model caused by a rapid reversion. Additionally, as the Company is past its point of forecast, a straight-line reversion represents a most-likely scenario absent a reasonable and supportable forecast.
In the Company’s analysis at the portfolio level, it found that the best model for predicting defaults considers the National Unemployment Rate. With the large number of observations afforded by using peer data, the default curve is less sensitive to unusual loss events and has a much smoother shape. The national unemployment rate is an extremely strong predictor of defaults and explains almost all variation in the default rate.
The reserve is calculated based on a life of loan basis. The life of loan is assumed with consideration of prepayments and contractual maturity dates. If a given loan does not have a populated maturity date, based upon historical experience, the Company elected to amortize the loan for a length of time equal to the average life of the loan’s segment before the remaining balance will balloon with the exception of Commercial Demand Lines of Credit where the Company uses one year, reflecting the demand nature of these exposures with annual review.
Management also considers Qualitative Factors (“QF”) that are likely to cause estimated credit losses with the Company’s existing portfolio to differ from historical loss experience, including but not limited to: national and local economic trends and conditions (excluding national unemployment), levels and trends in delinquencies, non-accrual loans and classified assets, trends in volume, terms and concentrations of loans, changes in lending policies and procedures, quality of credit review function and administration, and changes in regulatory environment, management, markets and product offerings. The Company will periodically assess what adjustments are necessary to qualitatively adjust the ACL based on their assessment of current expected credit losses.
The range for the QF in a specific pool represents the difference, in basis points, between the portfolio segment loss explained by the regression analysis (r-squared factor) and the total loss for that period, looking back to 2006, when the Company experienced its highest four quarter loss rate. In this approach, the Company is capturing, based upon historical experience, its largest potential loss rate. Where possible, the QFs are calculated using available data sources to support the allocation of basis points within the ranges. For example, delinquency for a segment is mapped back to 2006 and current delinquency is allocated a QF based upon where it lies in that range.
Individually Evaluated Loans
Excluded from pooled analysis are loans to be individually evaluated due to the assets not maintaining similar risk characteristics to those in the nine designated segments. These loans are generally considered to be collateral dependent and, therefore, an analysis of the collateral position versus the pooled loan discounted cash flow approach better reflects the potential loss. Individually evaluated accounts include: loans over 90 days past due, loans to borrowers experiencing financial difficulty, loans placed on non-accrual status and classified assets with exposure greater than $ 2.0 million.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Held to Maturity (“HTM”) Debt Securities
The Company’s HTM debt securities are also required to utilize the current expected credit losses approach to estimate expected credit losses. The Company’s HTM debt securities included securities that are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. The Company also carries a portfolio of HTM municipal bonds. The Company measures its allowance for credit losses on HTM debt securities on a collective basis by major security type. The estimate is based on historical credit losses, if any, adjusted for current conditions and reasonable and supportable forecasts. The Company considers the nature of the collateral, potential future changes in collateral values and available loss information.
Available for Sale (“AFS”) Debt Securities
For AFS securities in an unrealized loss position, the Company first assesses whether (i) it intends to sell, or (ii) it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security’s amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of provision for credit losses. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met.
Accrued Interest Receivable
Accrued interest receivable balances are presented separately within other assets on the statement of financial condition. Accrued interest receivable that is included in the amortized cost of financial receivables and debt securities are excluded from related disclosure requirements. The Company does not measure an allowance for credit losses for accrued interest receivable as the Company writes off accrued interest receivable, in a timely manner, by reversing interest income. For commercial loans, the write off typically occurs upon becoming 90 days past due. For consumer loans, the write off typically occurs upon becoming 120 days past due. Historically, the Company has not experienced uncollectible accrued interest receivable on its investment securities. However, the Company would generally write off accrued interest receivable by reversing interest income if the Company does not reasonably expect to receive payments. Due to the timely manner in which accrued interest receivables are written off, the amounts of such write-offs are immaterial.
Reserve for Unfunded Commitments
The reserve for unfunded commitments (the “Unfunded Reserve”) represents the expected credit losses on off-balance sheet commitments such as unfunded commitments to extend credit and standby letters of credit. However, a liability is not recognized for commitments unconditionally cancellable by the Company. The Unfunded Reserve is recognized as a liability (other liabilities in the consolidated statements of financial condition), with adjustments to the reserve recognized as a provision for credit loss expense in the consolidated statements of operations. The Unfunded Reserve is determined by estimating expected future fundings, under each segment, and applying the expected loss rates. Expected future fundings are based on historical averages of funding rates (i.e., the likelihood of draws taken). Average funding rates are determined based on the most recent 20 quarters (5 years) of actual fundings on lines of credit. The average funding rate for each segment is compared to the current funding rate on each line to determine the average fundings available to be drawn. The fund up rate (the difference between the average funding rate and the current funding rate) for each segment is then applied within the Current Expected Credit Losses (“CECL”) model to the unfunded commitment balance to estimate the expected future fundings under each segment. The loss rate derived for each segment in the current CECL calculation is then applied to the expected future fundings to derive the estimate of allowance for credit losses for unfunded commitments.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Real Estate Owned
Other real estate owned consists of properties acquired through foreclosure or by acceptance of a deed in lieu of foreclosure. These assets are initially recorded at fair value less estimated costs to sell, which establishes the cost basis. Subsequently, other real estate owned is carried at the lower of the cost basis or fair value less estimated selling costs. At the time of foreclosure, or when foreclosure occurs in-substance, the excess, if any, of the loan over the fair market value of the assets received, less estimated selling costs, is charged to the allowance for credit losses and any subsequent valuation write-downs are charged to other expense. In connection with the determination of the allowance for credit losses and the valuation of other real estate owned, management obtains appraisals for properties. Operating costs associated with the properties are charged to expense as incurred. Gains on the sale of other real estate owned are included in income when title has passed, and the sale has met the minimum down payment requirements prescribed by GAAP. The balance of other real estate owned was $ 94 thousand and $ 60 thousand at December 31, 2025 and 2024 , respectively.
Company Owned Life Insurance (“COLI”)
The Company holds life insurance policies on certain current and former employees and is the owner and beneficiary of the policies. The Company invests in these policies to provide an efficient form of funding for long-term retirement and other employee benefit costs. Certain life insurance policies have a stable value contract that provides limited cash surrender value protection from declines in the value of the policy’s underlying investments and may result in an extended surrender redemption period. The cash surrender value of these policies is included as an asset on the consolidated statements of financial condition, and changes in cash surrender value are recorded as noninterest income on the consolidated statements of operations. In the event of the death of an insured individual under these policies, the Company would receive a death benefit which would be recorded as noninterest income.
Premises and Equipment
Land and land improvements are carried at cost and are not subject to depreciation. Premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation is computed on the straight-line method over the estimated useful lives of the assets. The Company generally amortizes buildings and building improvements over a period of 7 – 39 years and software, furniture, fixtures, equipment and vehicles over a period of 3 – 7 years . Leasehold improvements are amortized over the shorter of the lease term or the useful life of the improvements. Premises and equipment are periodically reviewed for impairment or when circumstances present indicators of impairment. Cloud-based software costs that do not qualify as internal-use software are capitalized as service contracts within other assets on the consolidated statements of financial condition and expensed ratably over the term of the contract period.
Repairs and maintenance costs that are not an improvement or do not extend the estimated useful life of the asset are charged to noninterest expense as incurred.
Goodwill and Other Intangible Assets
The excess of the cost of an acquisition over the fair value of the net assets acquired consists primarily of goodwill, core deposit intangibles, and other identifiable intangible assets. Intangible assets are acquired assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights or because the asset is capable of being sold or exchanged either on its own or in combination with a related contract, asset, or liability. The Company’s intangible assets consist of core deposits and other intangible assets (primarily customer relationships). Core deposit intangible assets are amortized on an accelerated basis over their estimated life of approximately nine and a half years . Other intangible assets are amortized on an accelerated basis over their weighted average estimated life of approximately twenty years . The Company reviews long-lived assets and certain identifiable intangibles for impairment at least annually, or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded.
Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The impairment testing process is conducted by assigning net assets and goodwill to each reporting unit. An initial qualitative evaluation is made to assess the likelihood of impairment and determine whether further quantitative testing to calculate the fair value is necessary. When the qualitative evaluation indicates that impairment is more likely than not, quantitative testing is required whereby the fair value of each reporting unit is calculated and compared to the recorded book value. If the calculated fair value of the reporting unit exceeds its carrying value, then goodwill is not considered impaired. However, if the carrying value of a reporting unit exceeds its calculated fair value, a goodwill impairment charge is recognized. See Note 6 , Goodwill and Other Intangible Assets, for additional information on goodwill and other intangible assets.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) Stock
As a member of the FHLB system, the Company is required to maintain a specified investment in FHLB of New York (“FHLBNY”) stock in proportion to its volume of certain transactions with the FHLB. The Company is also a member of the FRB system and is required to maintain a specified investment in FRB stock based on a ratio relative to the Company’s capital. The non-marketable investments in FHLB and FRB stock are included in other assets in the consolidated statements of financial condition at par value or cost and are periodically reviewed for impairment. The dividends received relative to these investments are included in other noninterest income in the consolidated statements of operations.
Investments in Limited Partnerships and Limited Liability Companies
The Company has investments in limited partnerships and limited liability companies. The Company evaluates its interests in these investments to determine whether it has a variable interest and whether it is required to consolidate these entities both at inception and on an ongoing basis. A variable interest is an investment or other interest that will absorb portions of an entity’s expected losses or receive portions of the entity’s expected residual returns. If the Company determines it has a variable interest in an entity, it evaluates whether such interest is a Variable Interest Entity (“VIE”). Significant judgments are made to determine whether these entities are a VIE and which entities have the power to direct activities. The Company is required to consolidate any VIE when it is determined to be the primary beneficiary of the VIE’s operations.
The Company’s investments in limited partnerships meet the definition of a VIE as the entities are structured such that the limited partner investors lack substantive voting rights. The general partner has both the power to direct the activities that most significantly impact the economic performance of the entities and the obligation to absorb losses or the right to receive benefits that could be significant to the entities. Accordingly, as a limited partner in the partnerships, the Company has determined that it is not the primary beneficiary of these investments and is not required to consolidate them.
Investments in limited partnerships and limited liability companies are accounted for under the equity method. These investments, primarily in Small Business Investment Companies, are included in other assets in the consolidated statements of financial condition and totaled $ 24.0 million and $ 18.4 million as of December 31, 2025 and 2024, respectively.
The Company also invests directly and indirectly in limited partnerships formed by third parties that generate tax credits related to the rehabilitation of certified real property and qualified affordable housing projects. The Company has determined that these investments meet the definition of a VIE and that it is not the primarily beneficiary of these investments and is not required to consolidate them. At the time that a structure is placed into service, the limited partnership is eligible for federal and New York State tax credits. The federal tax credit impact is recorded as a reduction of income tax expense. For a New York State tax credit generated after January 1, 2015, the amount not used in the current tax year is treated as a refund or overpayment of tax to be credited to next year’s tax. Since the realization of the tax credit does not depend on the Company’s generation of future taxable income or the Company’s ongoing tax status or tax position, the credit is not considered an element of income tax accounting (ASC 740). The Company includes the tax credit in non-interest income as opposed to a reduction of income tax expense. At the time that a structure is placed into service, the Company records a loss on tax credit investments in noninterest income to reduce the investment to the present value of the expected cash flows from its partnership interest.
For limited partnerships that generate tax credits related to qualified affordable housing projects, the investments are accounted for using the proportional amortization method. Under this method, the Company amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net amount as a reduction of income tax expense.
The tax credit investments are included in other assets in the consolidated statements of financial condition and totaled $ 60.8 million and $ 71.9 million as of December 31, 2025 and 2024, respectively. For all legally binding unfunded equity commitments, the Company increases its recognized investment and recognizes a liability. The Company’s maximum exposure to loss related to its investments in these unconsolidated VIEs is limited to the carrying amount of the investment, net of any unfunded capital commitments and previously recorded tax credits which remain subject to recapture by taxing authorities based on compliance features required to be met at the project level, if applicable. The Company believes potential losses from these investments are remote and does not have any loss reserves recorded related to these investments. As of December 31, 2025 and 2024, the Company had liabilities of $ 2.1 million and $ 16.4 million , respectively, related to these investments that are included in other liabilities in the consolidated statements of financial condition.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Derivative Instruments and Hedging Activities
ASC Topic 815, Derivatives and Hedging (“ASC 815”), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain the Company’s objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments.
As required by ASC 815, the Company records all derivatives on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative. Changes in fair value of the Company’s derivatives designated in a qualifying hedging relationship are recorded, net of related income tax effects, in comprehensive income (loss) and shareholders’ equity. Changes in fair value of the Company’s derivatives not designated in a qualifying hedging relationship are recognized directly in earnings.
In accordance with the FASB’s fair value measurement guidance, the Company made an accounting policy election to measure the credit risk of its derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.
Cash flows from the settlement of derivatives, including both economic hedges and those designated in hedge accounting relationships, appear on our statements of cash flows in the same categories as the cash flow of the hedged item.
Treasury Stock
Acquisitions of treasury stock are recorded at cost. The reissuance of shares in treasury is recorded at weighted-average cost.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over financial assets is deemed surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.
Revenue Recognition
ASC 606, Revenue from Contracts with Customers (“ASC 606”), establishes principles for reporting information about the nature, amount, timing and uncertainty of revenue and cash flows arising from the entity’s contracts to provide goods or services to customers. The core principle requires an entity to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration that it expects to be entitled to receive in exchange for those goods or services recognized as performance obligations are satisfied.
The majority of our revenue-generating transactions are not subject to ASC 606, including revenue generated from financial instruments, such as our loans, letters of credit, derivatives and investment securities, as well as revenue related to our loan servicing activities, as these activities are subject to other GAAP. Descriptions of our primary revenue-generating activities that are within the scope of ASC 606, which are presented in our income statements as components of noninterest income are as follows:
Transactions and service-based revenues–these include service charges on deposits, investment advisory, and ATM and debit card fees. Revenue is recognized when the transactions occur or as services are performed over primarily monthly or quarterly periods. Payment is typically received in the period the transactions occur or, in some cases, within 90 days of the service period. Fees may be fixed or, where applicable, based on a percentage of transaction size or managed assets.
Insurance income–Prior to the sale of the assets of SDN in April 2024, insurance commissions were received from the sale of insurance products, and revenue was recognized upon the placement date of the insurance policies. Payment was normally received within the policy period. In addition to placement, SDN also provided insurance policy related risk management services. Revenue was recognized as these services were provided.
Employee Benefits
The Company maintains an employer sponsored 401(k) plan where participants may make contributions in the form of salary deferrals and the Company may provide discretionary matching contributions in accordance with the terms of the plan. Contributions due under the terms of our defined contribution plans are accrued as earned by employees.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The Company also participates in a non-contributory defined benefit pension plan for certain employees who meet participation requirements. The actuarially determined pension benefit is based on years of service and the employee’s highest average compensation during five consecutive years of employment. The Company’s policy is to at least fund the minimum amount required by the Employment Retirement Income Security Act of 1974. The cost of the pension is based on actuarial computations of current and future benefits for employees and is charged to noninterest expense in the consolidated statements of operations. The Company also provides post-retirement benefits, principally health and dental care, to retirees of a previously acquired entity. The Company has closed the post-retirement plan to new participants.
The Company recognizes an asset or a liability for a pension plan’s overfunded status or underfunded status, respectively, in the consolidated financial statements and reports changes in the funded status as a component of comprehensive income and shareholders’ equity, net of related income tax effects, in the year in which changes occur.
Share-Based Compensation Plans
Compensation expense for stock options, restricted stock awards and restricted stock units is based on the fair value of the award on the measurement date, which, for the Company, is the date of grant, and is recognized ratably over the service period of the award. The fair value of stock options is estimated using the Black-Scholes option-pricing model. The fair value of restricted stock awards is generally the closing market price of the Company’s common stock on the date of grant. The fair value of restricted stock unit awards is generally equal to the closing market price of the Company’s common stock on the date of grant, reduced by the present value of the dividends expected to be paid on the underlying shares. The Company accounts for forfeitures as they occur.
Share-based compensation expense is included in the consolidated statements of operations under salaries and employee benefits for awards granted to management and in other noninterest expense for awards granted to directors.
Income Taxes
Income taxes are accounted for using the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date. A valuation allowance is recognized on deferred tax assets if, based upon the weight of available evidence, it is more likely than not that some or all of the assets may not be realized. The Company recognizes interest and/or penalties related to income tax matters in income tax expense.
Comprehensive Income (Loss)
Comprehensive income (loss) includes net income and other comprehensive income (loss), including the after-tax effect of changes in net unrealized gain (loss) on securities available for sale, changes in unrealized gain (loss) on hedging derivative instruments and changes in net actuarial gain (loss) on defined benefit pension plans. Comprehensive income (loss) is reported in the accompanying consolidated statements of changes in shareholders’ equity and consolidated statements of comprehensive income (loss). The Company generally releases income tax effects from accumulated other comprehensive income when the corresponding pre-tax items are reclassified to earnings.
Earnings Per Common Share
The Company calculates earnings per common share (“EPS”) using the two-class method in accordance with ASC Topic 260, “Earnings Per Share”. The two-class method requires the Company to present EPS as if all of the earnings for the period are distributed to common shareholders and any participating securities, regardless of whether any actual dividends or distributions are made. All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities.
Basic EPS is computed by dividing distributed and undistributed earnings available to common shareholders by the weighted average number of common shares outstanding for the period. Distributed and undistributed earnings available to common shareholders represent net income reduced by preferred stock dividends and distributed and undistributed earnings available to participating securities. Common shares outstanding include common stock and vested restricted stock awards. Diluted EPS reflects the assumed conversion of all potential dilutive securities using the treasury stock method.
Dividend Restrictions
Banking regulations require the maintenance of certain capital levels and may limit the dividends paid by the Bank to the Company, or by the Company to its shareholders. Refer to Note 13 , Regulatory Matters, for more information on capital ratios.
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(1.) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Leases
In determining whether a contract contains a lease, the Company examines the contract to ensure an asset was specifically identified and that the Company has the right to control the use of the asset for a period of time in exchange for consideration.
Lessee lease agreements are classified at inception date as finance or operating leases. Operating leases with an initial term longer than 12 months are recorded on the consolidated statement of financial condition as a right of use (“ROU”) asset at the lower of the present value of the minimum lease payments or the fair value of the leased asset at the lease inception date, along with a corresponding lease obligation (liability). The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate. At lease inception, the Company determines the lease term by adding together the minimum lease term and all optional renewal periods that are reasonably certain to renew. In recognizing ROU assets and related lease liabilities, the Company accounts for lease and non-lease components (such as taxes, insurance, and common area maintenance costs) separately, as such amounts are generally readily determinable under the lease contracts. Lease expense is recognized on a straight-line basis over the lease term.
The Company has made the accounting policy election to record all leases with terms of 12 months or less, and does not include an option to purchase the underlying asset, as short-term leases. Short-term leases are not capitalized therefore; no ROU assets or corresponding lease liabilities are recognized at lease inception.
All leases that do not meet the criteria for finance leases are, by definition, operating leases.
Accounting Standards Recently Adopted or Issued
Standards Adopted in 2025
In December 2023, the FASB issued Accounting Standards Update (“ASU”) 2023-09, Income Tax (Topic 740): Improvements to Income Tax Disclosures. The ASU expands the disclosure requirements of income taxes, primarily related to the income tax rate reconciliation and income taxes paid. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred income tax liabilities. The Company adopted ASU 2023-09 for the year ended December 31, 2025 and applied the new disclosure requirements prospectively in Note 17, Income Taxes.
Standards Issued – Not Yet Effective
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses . The amendments require the disclosure of specified information about certain costs and expenses, in the notes to the financial statements. The amendments are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. This ASU affects financial statement disclosure only, and will not have a material impact on the Company’s operations or financial condition.
In November 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. The ASU introduces the concept of purchased seasoned loans and requires certain acquired loans (excluding credit cards) that have not experienced significant credit deterioration since origination to be accounted for using the gross-up method. The amendments clarify initial and subsequent measurement, including recognition of an allowance for credit losses at acquisition with an offsetting gross-up to the purchase price, and require purchased seasoned loans to follow the same interest income recognition model as originated financial assets. The ASU also updates disclosure requirements to include separate presentation of the initial allowance recognized for purchased seasoned loans. The amendments in this Update are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, and should be applied prospectively to loans that are acquired on or after the initial application date. Early adoption is permitted. The Company is currently evaluating the impact of this ASU, but it is not expected to have a material impact on its financial statements.
In November 2025, the FASB issued ASU 2025-09, Derivative and Hedging (Topic 815): Hedge Accounting Improvements. The five issues addressed in this Update are intended to better reflect those strategies in financial reporting by enabling entities to achieve and maintain hedge accounting for highly effective economic hedges of forecasted transactions. The amendments are effective for annual and reporting periods beginning after December 15, 2026, and interim periods within those annual reporting periods, and should be applied on a prospective basis for all hedging relationships. An election may be made to adopt the amendments in this update for hedging relationships that exist as of the date of adoption. The Company is currently evaluating the impact of this ASU, but it does not expect it to have a material impact on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements . The amendments provide guidance on accounting and disclosures specific to interim reporting. The amendments are effective for interim reporting periods in fiscal years beginning after December 15, 2027. Early adoption is permitted. The Company is currently assessing this ASU and the impact, if any, it will have on disclosures within our interim financial statements.
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( 2.) INVESTMENT SECURITIES
The amortized cost and fair value of investment securities, by security type, are summarized below (in thousands). Certain balances as of December 31, 2024 have been reclassified to conform to the 2025 presentation.
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
December 31, 2025
Securities available for sale:
Mortgage-backed securities :
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal National Mortgage Association
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Government National Mortgage Association
Total collateralized mortgage obligations
Total mortgage-backed securities
Other debt securities
Total available for sale securities
Securities held to maturity:
U.S. Government agencies and government sponsored enterprises
State and political subdivisions
Mortgage-backed securities:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal Home Loan Mortgage Corporation
Total collateralized mortgage obligations
Total mortgage-backed securities
Total held to maturity securities
Allowance for credit losses–securities
Total held to maturity securities, net
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(2.) INVESTMENT SECURITIES (Continued)
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Fair
Value
December 31, 2024
Securities available for sale:
Mortgage-backed securities:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal National Mortgage Association
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Privately issued
Commercial:
Government National Mortgage Association
Total collateralized mortgage obligations
Total mortgage-backed securities
Other debt securities
Total available for sale securities
Securities held to maturity:
U.S. Government agencies and government sponsored enterprises
State and political subdivisions
Mortgage-backed securities:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal Home Loan Mortgage Corporation
Total collateralized mortgage obligations
Total mortgage-backed securities
Total held to maturity securities
Allowance for credit losses–securities
Total held to maturity securities, net
The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. For AFS debt securities, AIR totaled $ 3.5 million and $ 3.4 million as of December 31, 2025 and December 31, 2024, respectively. For HTM debt securities, AIR totaled $ 348 thousand and $ 456 thousand as of December 31, 2025 and December 31, 2024, respectively. AIR is included in other assets on the Company’s consolidated statements of financial condition.
For the years ended December 31, 2025, 2024 and 2023 , credit loss (credit) expense for HTM investment securities was a credit of $ 1 thousand, $ 1 thousand and less than $ 1 thousand, respectively.
Investment securities with a total fair value of $ 860.3 million and $ 828.8 million at December 31, 2025 and 2024, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.
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(2.) INVESTMENT SECURITIES (Continued)
Interest and dividends on securities for the years ended December 31 are summarized as follows (in thousands):
Taxable interest and dividends
Tax-exempt interest and dividends
Total interest and dividends on securities
Sales of securities available for sale for the years ended December 31 were as follows (in thousands):
Proceeds from sales
Gross realized gains
Gross realized losses
The scheduled maturities of securities available for sale and securities held to maturity at December 31, 2025 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.
Amortized
Cost
Fair
Value
Debt securities available for sale:
Due in one year or less
Due from one to five years
Due after five years through ten years
Due after ten years
Total available for sale securities
Debt securities held to maturity:
Due in one year or less
Due from one to five years
Due after five years through ten years
Due after ten years
Total held to maturity securities
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(2.) INVESTMENT SECURITIES (Continued)
Unrealized losses on investment securities for which an allowance for credit losses has not been recorded and the fair value of the related securities, aggregated by security type and length of time that individual securities have been in a continuous unrealized loss position as of December 31 are summarized as follows (in thousands):
Less than 12 months
12 months or longer
Total
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
December 31, 2025
Securities available for sale:
Mortgage-backed securities:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Commercial:
Government National Mortgage Association
Total collateralized mortgage obligations
Total mortgage-backed securities
Other debt securities
Total available for sale securities
Total temporarily impaired securities
December 31, 2024
Securities available for sale:
Mortgage-backed securities:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Federal National Mortgage Association
Collateralized mortgage obligations:
Residential:
Federal National Mortgage Association
Federal Home Loan Mortgage Corporation
Government National Mortgage Association
Commercial:
Government National Mortgage Association
Total collateralized mortgage obligations
Total mortgage-backed securities
Other debt securities
Total available for sale securities
Total temporarily impaired securities
The total number of available for sale securities positions, for which an allowance for credit losses has not been recorded, in the investment portfolio in an unrealized loss position at December 31, 2025 was 54 compared to 76 at December 31, 2024. At December 31, 2025 , the Company had a position in 36 investment securities with a fair value of $ 219.0 million and a total unrealized loss of $ 43.7 million that has been in a continuous unrealized loss position for more than 12 months and a total of 18 securities positions in the Company’s investment portfolio with a fair value of $ 155.9 million and a total unrealized loss of $ 2.5 million that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the investment securities in the Company’s portfolio fluctuates as market interest rates change.
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(2.) INVESTMENT SECURITIES (Continued)
Securities Available for Sale
As of December 31, 2025 , no allowance for credit losses has been recognized on available for sale securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale sec urities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, the Company expects to recover the amortized cost basis of its investments and more than likely will not need to sell before the recovery period for operating purposes, with no impairment identified. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.
Securities Held to Maturity
The Company’s HTM investment securities include debt securities that are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. In addition, the Company’s HTM investment securities include debt securities that are issued by state and local government agencies, or municipal bonds.
The Company monitors the credit quality of our municipal bonds through the use of a credit rating agency or by ratings that are derived by an internal scoring model. The scoring methodology for the internally derived ratings is based on a series of financial ratios for the municipality being reviewed as compared to typical industry figures. This information is used to determine the financial strengths and weaknesses of the municipality, which is indicated with a numeric rating. This number is then converted into a letter rating to better match the system used by the credit rating agencies. As of December 31, 2025, $ 28.8 million of our municipal bonds were rated as an equivalent to Standard & Poor’s A/AA/AAA, with $ 4.1 million internally rated to be the equivalent of Standard & Poor’s A/AA/AAA rating. Additionally, no municipal bonds were rated below investment grade.
As of December 31, 2025, the Company h ad no pa st due or nonaccrual held to maturity investment securities.
( 3.) LOANS HELD FOR SALE AND LOAN SERVICING RIGHTS
Loans held for sale 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.
The Company originates and sells certain residential real estate loans in the secondary market. The Company typically retains the right to service the mortgages upon sale. 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. In connection with these mortgage-servicing activities, the Company administered escrow and other custodial funds which amounted to approximately $ 4.9 million as of December 31, 2025 and 2024.
The activity in capitalized loan servicing assets is summarized as follows for the years ended December 31 (in thousands):
Mortgage servicing assets, beginning of year
Originations
Amortization
Mortgage servicing assets, end of year
Valuation allowance
Mortgage servicing assets, net, end of year
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( 4.) LOANS
The Company’s loan portfolio consisted of the following at December 31 (in thousands):
Principal
Amount
Outstanding
Net Deferred
Loan (Fees)
Costs
Loans, Net
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
Allowance for credit losses–loans
Total loans, net
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
Allowance for credit losses–loans
Total loans, net
The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of December 31, 2025 and December 31, 2024, AIR for loans totaled $ 21.3 million and $ 19.9 million , respectively, and is included in other assets on the Company’s consolidated statements of financial condition.
The Company’s significant concentrations of credit risk in the loan portfolio relate to a geographic concentration in the communities that the Company serves.
Certain executive officers, directors and their business interests are customers of the Company. Transactions with these parties are based on the same terms as similar transactions with unrelated third parties and do not carry more than normal credit risk. At December 31, 2025 and December 31, 2024 , no related party loans were past due 90 days or more or on nonaccrual status. Activity in related party loans during 2025 and 2024 was as follows (in thousands):
Beginning balance
New loans and advances
Effect of changes in composition of related parties
Repayments
Ending balance
Unused commitments to related parties
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(4.) LOANS (Continued)
Past Due Loans Aging
The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of December 31 (in thousands):
Past Due
30-59 Days
60-89 Days
Greater Than 90 Days
Total
Nonaccrual
Current
Total Loans
Nonaccrual With No Specific Allowance
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total loans, gross
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total loans, gross
There were no overdrafts which were past due greater than 90 days as of December 31, 2025, and $ 35 thousand in consumer as of December 31, 2024. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.
Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the years ended December 31, 2025, 2024 and 2023. For the years ended December 31, 2025, 2024 and 2023, estimated interest income of $ 1.0 million , $ 748 thousand , and $ 589 thousand , respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.
The amount of accrued interest written off by the Company by reversing interest income was not material for the years ended December 31, 2025, 2024 and 2023.
Loans Modifications for Borrower Experiencing Financial Difficulty
Loans may be modified when it is determined that a borrower is experiencing financial difficulty. Loan modifications may include principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, and term extensions, or a combination of these concessions.
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(4.) LOANS (Continued)
The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted as of December 31, 2025 (in thousands):
Amortized Cost Basis
Loan Type
Interest Rate Reduction
Term Extension
Principal Forgiveness
Combination - Term Extension and Principal Forgiveness
Combination - Term Extension and Interest Rate Reduction
Total
% of Total Loans
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty:
Term Extension
Loan Type
Financial Effect
Residential real estate loans
Added a weighted average 10.0 years to the life of the loans, which reduced monthly payment amount for the borrower.
The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified during the year ended December 31, 2025 (in thousands):
Payment Status (Amortized Cost Basis)
Loan Type
Current
30-89 Days
Past Due
90+ Days
Past Due
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Residential real estate loans
Residential real estate lines
Consumer indirect
Other consumer
Total
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(4.) LOANS (Continued)
Collateral Dependent Loans
Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured when a borrower is experiencing financial difficulty, and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. The amortized cost basis of collateral dependent loans categorized by collateral type are set forth as of December 31 (in thousands):
Collateral Type
Business Assets
Real Property
Total
Specific Reserve
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Total
Commercial business
Commercial mortgage–construction
Commercial mortgage–multifamily
Commercial mortgage–non-owner occupied
Commercial mortgage–owner occupied
Total
Credit Quality Indicators
The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Commercial loans are generally evaluated annually depending on the size of the relationship, unless the credit quality of a loan deteriorates to a level of “special mention” or below, when the loan is evaluated quarterly. For pass-rated loans (risk rating 1-4), interim reviews may take place if circumstances of the borrower or industry warrant a more frequent review.
The Company uses the following definitions for risk ratings:
Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.
Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.
Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.
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(4.) LOANS (Continued)
The following tables set forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):
Term Loans Amortized Cost Basis by Origination Year
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
December 31,
Commercial business:
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–construction
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–multifamily
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–non-owner occupied
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–owner occupied
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
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(4.) LOANS (Continued)
The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following tables set forth the Company’s retail loan portfolio, categorized by payment status, as of the dates indicated (in thousands):
Term Loans Amortized Cost Basis by Origination Year
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
December 31,
Residential real estate loans:
Performing
Nonperforming
Total
Current period gross write-offs
Residential real estate lines:
Performing
Nonperforming
Total
Current period gross write-offs
Consumer indirect:
Performing
Nonperforming
Total
Current period gross write-offs
Other consumer:
Performing
Nonperforming
Total
Current period gross write-offs
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(4.) LOANS (Continued)
Term Loans Amortized Cost Basis by Origination Year
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
December 31, 2024
Commercial business:
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–construction
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–multifamily
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–non-owner occupied
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
Commercial mortgage–owner occupied
Uncriticized
Special mention
Substandard
Doubtful
Total
Current period gross write-offs
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(4.) LOANS (Continued)
Term Loans Amortized Cost Basis by Origination Year
Prior
Revolving
Loans
Amortized
Cost Basis
Revolving
Loans
Converted
to Term
Total
December 31, 2024
Residential real estate loans:
Performing
Nonperforming
Total
Current period gross write-offs
Residential real estate lines:
Performing
Nonperforming
Total
Current period gross write-offs
Consumer indirect:
Performing
Nonperforming
Total
Current period gross write-offs
Other consumer:
Performing
Nonperforming
Total
Current period gross write-offs
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(4.) LOANS (Continued)
Allowance for Credit Losses–Loans
The following tables set forth the changes in the allowance for credit losses–loans for the years ended December 31 (in thousands):
Commercial Mortgage
Residential Real Estate
Commercial
Business
Construction
Multi-
Family
Non-Owner
Occupied
Owner
Occupied
Loans
Lines
Consumer
Indirect
Other
Consumer
Total
Beginning balance
Charge-offs
Recoveries
(Benefit) provision
Ending balance
Beginning balance
Charge-offs
Recoveries
(Benefit) provision
Ending balance
Beginning balance
Charge-offs
Recoveries
Provision (benefit)
Ending balance
The allowance for credit losses–loans decreased to $ 47.4 million at December 31, 2025, compared with $ 48.0 million at December 31, 2024, reflective of higher net charge-offs in 2025. The provision for credit losses–loans normalized in 2025 compared to 2024 , driven primarily by net charge-offs incurred and the level of allowance for credit losses required by our CECL model results. The 2024 provision reflected positive trends in qualitative factors which drove a lower allowance and provision in 2024.
( 5.) PREMISES AND EQUIPMENT, NET
Major classes of premises and equipment, excluding amounts reclassified to assets held for sale, at December 31 are summarized below (in thousands):
Land and land improvements
Buildings and leasehold improvements
Furniture, fixtures, equipment and vehicles
Premises and equipment
Accumulated depreciation and amortization
Premises and equipment, net
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(5.) PREMISES AND EQUIPMENT, NET (Continued)
Depreciation and amortization expense included in noninterest expense on the consolidated statements of operations for the years ended December 31 was as follows (in thousands):
Occupancy and equipment
Computer and data processing
Total depreciation and amortization expense
( 6.) GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill
Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performs its annual impairment test of goodwill as of October 1 st of each year. See Note 1, Summary of Significant Accounting Policies, for the Company’s accounting policy for goodwill and other intangible assets.
The Company completed annual impairment assessments for its reporting units during the fourth quarter of 2025, utilizing a quantitative assessment. Based on the results of the 2025 annual impairment tests, management concluded that there was no goodwill impairment. There were no goodwill impairment charges recorded in 2025, 2024 or 2023.
Declines in the market value of the Company’s publicly traded stock price or declines in the Company’s ability to generate future cash flows may increase the potential that goodwill recorded on the Company’s consolidated statement of financial condition be designated as impaired and that the Company may incur a goodwill write-down in the future.
The carrying amount of goodwill totaled $ 58.1 million as of December 31, 2025 and 2024 . On April 1, 2024, the Company announced and closed on the sale of the assets of its wholly owned subsidiary, SDN. The sale resulted in a $ 9.0 million reduction in the carrying amount of goodwill.
The change in the balance for goodwill during the years ended December 31 was as follows (in thousands):
Banking
All Other (1)
Total
Balance, December 31, 2023
Sale of assets
Balance, December 31, 2024
No activity during the period
Balance, December 31, 2025
All Other includes SDN, prior to the sale of the assets of the subsidiary on April 1, 2024, and Courier Capital.
Other Intangible Assets
The Company’s other intangible assets that are amortized primarily relate to customer relationships. Changes in the gross carrying amount, accumulated amortization and net book value for the years ended December 31 were as follows (in thousands):
Other intangibles:
Gross carrying amount
Accumulated amortization
Net book value
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(6.) GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)
Other intangibles amortization expense was $ 415 thousand , $ 552 thousand and $ 910 thousand for the years ended December 31, 2025, 2024 and 2023. The weighted average remaining amortization period for other intangibles was 11.3 years. Estimated amortization expense of other intangible assets for each of the next five years is as follows (in thousands):
Amount
Thereafter
Total
( 7.) LEASES
The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings, and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2061. There were no residual value guarantees, restrictions, or covenants imposed by leases.
The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities as of December 31 (in thousands):
Balance Sheet Location
Operating Lease Right of Use Assets:
Gross carrying amount
Other assets
Accumulated amortization
Other assets
Net book value
Operating Lease Liabilities:
Right of use lease obligations
Other liabilities
The weighted average remaining lease term for operating leases was 21.2 years at December 31, 2025 and the weighted-average discount rate used in the measurement of operating lease liabilities was 4.39 % .
The following table represents components of lease costs, primarily included in occupancy and equipment expenses on the consolidated statement of operations, and other cash flow information for the years ended December 31 (in thousands):
Lease Costs:
Operating lease costs
Variable lease costs (1)
Short-term lease costs
Net lease costs
Other information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
Right of use assets obtained in exchange for new operating lease liabilities
Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.
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(7.) LEASES (Continued)
Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more are as follows at December 31, 2025 (in thousands):
Amount
Thereafter
Total future minimum operating lease payments
Amounts representing interest
Present value of net future minimum operating lease payments
( 8.) OTHER ASSETS AND OTHER LIABILITIES
A summary of other assets and other liabilities as of December 31 is as follows (in thousands):
Other Assets
Tax credit investments
Net deferred tax asset
Derivative instruments
Operating lease right of use assets
Federal Home Loan Bank (FHLB) and Federal Reserve Bank (FRB) stock
Accrued interest receivable
Other
Total other assets
Other Liabilities
Collateral on derivative instruments
Derivative instruments
Operating lease right of use obligations
Accrued interest expense
Other
Total other liabilities
Included in Other Liabilities–Other at December 31, 2024 was a $ 23.0 million accrual for a contingent litigation liability, which was paid during the third quarter of 2025. Refer to Note 12 , Commitments and Contingencies, for more information related to this legal proceeding.
( 9.) DEPOSITS
A summary of deposits and scheduled maturities of time deposits as of December 31 is as follows (in thousands):
Noninterest-bearing demand
Interest-bearing demand
Savings and money market
Time deposits, due:
Within one year
One to two years
Two to three years
Three to four years
Four to five years
Thereafter
Total time deposits
Total deposits
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(9.) DEPOSITS (Continued)
As of December 31, 2025 and 2024 , the aggregate amount of uninsured deposits (deposits in amounts greater than $ 250 thousand, which is the maximum amount for federal deposit insurance) was $ 2.26 billion , or 43 % of total deposits, and $ 1.93 billion , or 38 % of total deposits, respectively. The portion of time deposits by account that were in excess of the FDIC insurance limit at December 31, 2025 and 2024 amounted to $ 394.2 million and $ 328.4 million , respectively.
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.
As of December 31, 2025 and 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 are brokered deposit accounts.
Interest expense by deposit type for the years ended December 31 is summarized as follows (in thousands):
Interest-bearing demand
Savings and money market
Time deposits
Total interest expense on deposits
Interest expense included in the table above attributable to brokered deposits was $ 7.1 million , $ 7.1 million , and $ 20.2 million and for the years ended December 31, 2025, 2024 and 2023 , respectively.
( 10.) BORROWINGS
The Company classifies borrowings as short-term or long-term in accordance with the original terms of the applicable agreement. Outstanding borrowings consisted of the following as of December 31 (in thousands):
Short-term borrowings:
FHLB
Long-term borrowings:
FHLB
Subordinated notes, net
Total long-term borrowings
Total borrowings
Short-term borrowings
Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which the Company typically utilizes to address short-term funding needs as they arise. Short-term FHLB borrowings at December 31, 2025 and 2024 consisted of $ 109.0 million and $ 99.0 million , respectively. The FHLB borrowings are collateralized by securities from the Company’s investment portfolio and certain qualifying loans. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. As of December 31, 2025 , loans pledged also served as collateral for letters of credit issued through the FHLB for the benefit of uninsured public funds deposits totaling $ 270.3 million. At December 31, 2025 and 2024, the Company’s short-term borrowings had a weighted average rate of 3.96 % and 4.68 % , respectively.
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 %.
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(10.) BORROWINGS (Continued)
The Company has credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. The Company had approximately $ 240.1 million of immediate credit capacity with the FHLB and $ 942.2 million in secured borrowing capacity at the FRB discount window, none of which was outstanding at December 31, 2025. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. The Company had $ 155.0 million of credit available under unsecured federal funds purchased lines with various banks, with no amounts outstanding at December 31, 2025. Additionally, the Company had approximately $ 134.4 million of unencumbered liquid securities available for pledging as of December 31, 2025.
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. At December 31, 2025 and 2024, no amounts have been drawn on the line of credit.
Long-term borrowings
As of December 31, 2025 the Company 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.
On December 11, 2025, the Company 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. The 2025 Notes have a maturity date of December 15, 2035, and bear interest, payable semi-annually, at the rate of 6.50 % per annum until December 15, 2030 . Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financial Rate (“SOFR”) plus 312 basis points, payable quarterly until maturity. The Company is entitled to repay the 2025 Notes, in whole or in part, at any time on or after December 15, 2030, and to prepay the 2025 Notes in whole or in part at any time upon certain other specified events. Proceeds, net of debt issuance costs of $ 1.4 million, were $ 78.6 million. The Company intends to use the net proceeds to redeem the $ 65.0 million in outstanding debt issuances from 2015 and 2020, in the first quarter of 2026, as well as for general corporate purposes. Refer to Note 23, Subsequent Event, for more information. The 2025 Notes qualify as Tier 2 capital for regulatory purposes.
On October 7, 2020, the Company 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. 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. Commencing on that 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 . The 2020 Notes became redeemable by the Company, in whole or in part, on any interest payment date after October 15, 2025. The 2020 Notes qualify as Tier 2 capital for regulatory purposes.
On April 15, 2015, the Company issued $ 40.0 million of 6.0 % fixed to floating rate subordinated notes due April 15, 2030 (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. From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to an annual interest rate equal to the then current three-month CME Term SOFR plus 4.20561 %. T he 2015 Notes became redeemable by the Company at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest. The 2015 Notes qualify as Tier 2 capital for regulatory purposes.
( 11.) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
Risk Management Objective of Using Derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments.
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(11.) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Cash Flow Hedges of Interest Rate Risk
The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. During 2025, such derivatives were used to hedge the variable cash flows associated with short-term borrowings. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.
The following table summarizes the terms of the Company’s outstanding interest rate swap agreements entered into to manage its exposure to the variability in future cash flows as of December 31, 2025 (dollars in thousands):
Effective Date
Expiration Date
Notional Amount
Pay Fixed Rate
For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. During the next twelve months, the Company estimates that $ 1.4 million in accumulated other comprehensive loss will be reclassified as a decrease to interest expense.
Interest Rate Swaps
The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.
Credit-risk-related Contingent Features
The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.
Mortgage Banking Derivatives
The Company extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value.
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(11.) DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Continued)
Fair Values of Derivative Instruments on the Balance Sheet
The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of December 31 (in thousands):
Asset Derivatives
Liability Derivatives
Gross Notional Amount
Balance Sheet
Fair Value
Balance Sheet
Fair Value
Line Item
Line Item
Derivatives designated as hedging instruments
Cash flow hedges
Other assets
Other liabilities
Total derivatives
Derivatives not designated as hedging instruments
Interest rate swaps (1)
Other assets
Other liabilities
Credit contracts
Other assets
Other liabilities
Mortgage banking
Other assets
Other liabilities
Total derivatives
The Company was holding collateral of $ 21.3 million and $ 46.0 million against its net obligations under these contracts at December 31, 2025 and December 31, 2024 , respectively.
Effect of Derivative Instruments on the Income Statement
The table below presents the effect of the Company’s derivative financial instruments on the income statement for the years ended December 31 (in thousands):
Line Item of Gain (Loss) Recognized in Income
Gain (Loss) Recognized in Income
Undesignated Derivatives
Interest rate swaps
Income from derivative instruments, net
Credit contracts
Income from derivative instruments, net
Mortgage banking
Income from derivative instruments, net
Total undesignated
( 12.) COMMITMENTS AND CONTINGENCIES
Financial Instruments with Off-Balance Sheet Risk
The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond amounts recognized in the financial statements.
The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for on-balance sheet instruments.
Off-balance sheet commitments as of December 31 consist of the following (in thousands):
Commitments to extend credit
Standby letters of credit
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(12.) COMMITMENTS AND CONTINGENCIES (Continued)
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.
Unfunded Commitments
At December 31, 2025 and December 31, 2024, the allowance for credit losses for unfunded commitments totaled $ 5.5 million and $ 4.1 million , respectively, and was included in other liabilities on the Company’s consolidated statements of financial condition. For the years ended December 31, 2025 and 2023, credit loss (benefit) expense for unfunded commitments was of a benefit of $ 1.4 million and $ 531 thousand , respectively, and for the year ended December 31, 2024 was a credit loss expense of $ 507 thousand , and was included in provision (benefit) for credit losses on the Company’s consolidated statements of operations.
Contingent Liabilities and Litigation
In the ordinary course of business there are various threatened and pending legal proceedings against the Company. Other than as disclosed below, 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.
The court approved the previously disclosed settlement reached in the class action lawsuit to which the Company and the Bank were parties, brought by borrowers in New York and Pennsylvania in Pennsylvania state court regarding notices the Bank sent to defaulting borrowers after their vehicles were repossessed. As of December 31, 2025, the Company had met all of its obligations under the settlement agreement that was reached.
( 13.) REGULATORY MATTERS
General
The supervision and regulation of financial and bank holding companies and their subsidiaries is intended primarily for the protection of depositors, the deposit insurance fund regulated by the FDIC and the banking system as a whole, and not for the protection of shareholders or creditors of bank holding companies. The various bank regulatory agencies have broad enforcement power over financial holding companies and banks, including the power to impose substantial fines, operational restrictions and other penalties for violations of laws and regulations and for safety and soundness considerations.
Capital
Banks and bank holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
The Basel III Capital Rules, a comprehensive capital framework for U.S. banking organizations, became effective for the Company and the Bank on January 1, 2015 (subject to a phase-in period for certain provisions). Quantitative measures established by the Basel III Capital Rules to ensure capital adequacy require the maintenance of minimum amounts and ratios (set forth in the table that follows) of Common Equity Tier 1 capital (“CET1”), Tier 1 capital and Total capital to risk-weighted assets, and of Tier 1 capital to adjusted quarterly average assets (each as defined in the regulations).
The Economic Growth Act provided for a potential exception from the Basel III Rules for community banks that maintain a Community Bank Leverage Ratio (“CBLR”) of at least 8.0 % to 10.0 %. The CBLR is calculated by dividing Tier 1 capital by the bank’s average total consolidated assets. In the final rules approved by the FDIC in September 2019, qualifying community banking organizations that opt in to using the CBLR are considered to be in compliance with the Basel III Rules as long as the bank maintains a CBLR of greater than 9.0 %. 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. The Company determined to comply with the Basel III Rules instead of using the CBLR framework.
The Company’s and the Bank’s Common Equity Tier 1 capital includes common stock and related paid-in capital, net of treasury stock, and retained earnings. In connection with the adoption of the Basel III Capital Rules, The Company elected to opt-out of the requirement to include most components of accumulated other comprehensive income in Common Equity Tier 1. Common Equity Tier 1 for both the Company and the Bank is reduced by goodwill and other intangible assets, net of associated deferred tax liabilities.
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(13.) REGULATORY MATTERS (Continued)
Tier 1 capital includes Common Equity Tier 1 capital and additional Tier 1 capital. For the Company, additional Tier 1 capital at December 31, 2025 includes, subject to limitation, $ 17.3 million of preferred stock.
Total capital includes Tier 1 capital and Tier 2 capital. Tier 2 capital for both the Company and the Bank includes a permissible portion of the allowance for credit losses. Tier 2 capital for the Company also includes qualified subordinated debt. At December 31, 2025, the Company’s Tier 2 capital included $ 130.7 million of subordinated notes.
The Common Equity Tier 1, Tier 1 and Total capital ratios are calculated by dividing the respective capital amounts by risk-weighted assets. Risk-weighted assets are calculated based on regulatory requirements and include total assets, with certain exclusions, allocated by risk weight category, and certain off-balance-sheet items, among other things. The leverage ratio is calculated by dividing Tier 1 capital by adjusted quarterly average total assets, which exclude goodwill and other intangible assets, among other things.
The Basel III Capital Rules require the Company and the Bank to maintain (i) a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 4.5 %, plus a 2.5 % “capital conservation buffer” (which is added to the 4.5% Common Equity Tier 1 capital ratio, effectively resulting in a minimum ratio of Common Equity Tier 1 capital to risk-weighted assets of at least 7.0 %), (ii) a minimum ratio of Tier 1 capital to risk-weighted assets of at least 6.0 %, plus the capital conservation buffer (which is added to the 6.0% Tier 1 capital ratio, effectively resulting in a minimum Tier 1 capital ratio of 8.5 %), (iii) a minimum ratio of Total capital (that is, Tier 1 plus Tier 2) to risk-weighted assets of at least 8.0 %, plus the capital conservation buffer (which is added to the 8.0% total capital ratio, effectively resulting in a minimum total capital ratio of 10.5 %) and (iv) a minimum leverage ratio of 4.0 %, calculated as the ratio of Tier 1 capital to average quarterly assets.
The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. The capital conservation buffer is designed to absorb losses during periods of economic stress and effectively increases the minimum required risk-weighted capital ratios. Banking institutions with a ratio of Common Equity Tier 1 capital to risk-weighted assets below the effective minimum will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall.
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(13.) REGULATORY MATTERS (Continued)
The following table presents actual and required capital ratios as of December 31, 2025 and 2024 for the Company and the Bank under the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, as amended to reflect the changes under the Basel III Capital Rules (dollars in thousands):
Actual
Minimum Capital
Required – Basel III
Required to be
Considered Well
Capitalized
Amount
Ratio
Amount
Ratio
Amount
Ratio
Tier 1 leverage:
Company
Bank
CET1 capital:
Company
Bank
Tier 1 capital:
Company
Bank
Total capital:
Company
Bank
Tier 1 leverage:
Company
Bank
CET1 capital:
Company
Bank
Tier 1 capital:
Company
Bank
Total capital:
Company
Bank
As of December 31, 2025 and 2024, the Company and Bank were considered “well capitalized” under all regulatory capital guidelines. Such determination has been made based on the Tier 1 leverage, CET1 capital, Tier 1 capital and total capital ratios.
Federal Reserve Requirements
The Bank is typically required to maintain cash on hand or on deposit at the FRB of New York according to the reserve requirements set by the FRB. In March 2020, the FRB reduced the required reserve to 0 %. Accordingly, as of December 31, 2025 and 2024, the Bank was not required to maintain a reserve balance at the FRB of New York.
Dividend Restrictions
In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years. As of December 31, 2025, $ 48.5 million of retained earnings was available to pay dividends.
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( 14.) SHAREHOLDERS’ EQUITY
The Company’s authorized capital stock consists of 50,201,533 shares of capital stock, 50,000,000 of which are common stock, par value $ 0.01 per share, and 201,533 of which are preferred stock, par value $ 100 per share, which is designated into two classes: Class A of which 1,533 shares are authorized, and Class B of which 200,000 shares are authorized. There are two series of Class A preferred stock: Series A 3% preferred stock, of which 1,533 shares are authorized, and Fixed Rate Cumulative Perpetual Preferred Stock, Series A preferred stock, of which 7,503 shares are authorized. There is one series of Class B preferred stock: Series B-1 8.48% preferred stock. There wer e 172,848 shares of preferred stock issued and outstanding as of December 31, 2025 and 2024.
Common Stock
The following table sets forth the changes in the number of shares of common stock for the years ended December 31:
Outstanding
Treasury
Issued
Shares outstanding at beginning of year
Restricted stock awards issued
Restricted stock units released
Stock awards
Treasury stock purchases
Shares outstanding at end of year
Shares outstanding at beginning of year
Common stock issued
Restricted stock awards issued
Restricted stock awards forfeited
Restricted stock units released
Stock awards
Treasury stock purchases
Shares outstanding at end of year
Shares outstanding at beginning of year
Restricted stock awards issued
Restricted stock units released
Stock awards
Treasury stock purchases
Shares outstanding at end of year
Common Stock Offering
On December 13, 2024, the Company completed a public, underwritten offering of 4,600,000 shares of common stock at $ 25.00 per share, which included 600,000 as a result of the underwriters exercise of their overallotment option. The Company received net proceeds of $ 108.6 million after deducting underwriting discounts and commissions and other offering expenses from the sale of its common stock. See Note 18, Earnings (Loss) Per Share, for additional information regarding the common stock offering.
Share Repurchase Programs
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. 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 Share Repurchase Program at an average price of $ 31.98 .
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(14.) SHAREHOLDERS’ EQUITY (Continued)
Preferred Stock
Series A 3% Preferred Stock. There were 1,435 shares of Series A 3 % preferred stock issued and outstanding as of December 31, 2025 and 2024 . Holders of Series A 3% preferred stock are entitled to receive an annual dividend of $ 3.00 per share, which is cumulative and payable quarterly. Holders of Series A 3% preferred stock have no pre-emptive right to, or right to purchase or subscribe for, any additional shares of the Company’s capital stock and have no voting rights. Dividend or dissolution payments to the Class A shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments can be declared and paid, or set apart for payment, to the holders of Class B preferred stock or common stock. The Series A 3% preferred stock is not convertible into any other of the Company’s securities.
Series B-1 8.48% Preferred Stock. There were 171,413 shares of Series B-1 8.48 % preferred stock issued and outstanding as of December 31, 2025 and 2024 . Holders of Series B-1 8.48% preferred stock are entitled to receive an annual dividend of $ 8.48 per share, which is cumulative and payable quarterly. Holders of Series B-1 8.48% preferred stock have no pre-emptive right to, or right to purchase or subscribe for, any additional shares of the Company’s common stock and have no voting rights. Accumulated dividends on the Series B-1 8.48% preferred stock do not bear interest, and the Series B-1 8.48% preferred stock is not subject to redemption. Dividend or dissolution payments to the Class B shareholders must be declared and paid, or set apart for payment, before any dividends or dissolution payments are declared and paid, or set apart for payment, to the holders of common stock. The Series B-1 8.48% preferred stock is not convertible into any other of the Company’s securities.
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( 15.) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table presents the components of other comprehensive income (loss) for the years ended December 31 (in thousands):
Pre-Tax
Amount
Tax Effect
Net-of-Tax
Amount
Securities available for sale and transferred securities:
Change in unrealized gain (loss) during the year
Changes in unrealized gain on securities transferred to held to maturities
Reclassification adjustment for net losses included in net income (1)
Total securities available for sale and transferred securities
Hedging derivative instruments:
Change in unrealized gain (loss) during the year
Pension obligations:
Net actuarial gain arising during the year
Amortization of prior year service cost
Amortization of net actuarial loss and prior service cost included in income
Total pension obligations
Other comprehensive income
Securities available for sale and transferred securities:
Change in unrealized (loss) gain during the year
Changes in unrealized gain on securities transferred to held to maturities
Reclassification adjustment for net gains included in net income (1)
Total securities available for sale and transferred securities
Hedging derivative instruments:
Change in unrealized gain (loss) during the year
Pension obligations:
Net actuarial (loss) gain arising during the year
Amortization of net actuarial loss and prior service cost included in income
Total pension obligations
Other comprehensive loss
Securities available for sale and transferred securities:
Change in unrealized (loss) gain during the year
Reclassification adjustment for net gains included in net income (1)
Total securities available for sale and transferred securities
Hedging derivative instruments:
Change in unrealized gain (loss) during the year
Pension and post-retirement obligations:
Net actuarial gain (loss) arising during the year
Amortization of net actuarial loss and prior service cost included in income
Total pension and post-retirement obligations
Other comprehensive loss
Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.
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(15.) ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Continued)
Activity in accumulated other comprehensive income (loss), net of tax, was as follows (in thousands):
Hedging Derivative Instruments
Securities Available for Sale and Transferred Securities
Pension Obligations
Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2025
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive (loss) income
Balance at December 31, 2025
Balance at January 1, 2024
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive (loss) income
Balance at December 31, 2024
Balance at January 1, 2023
Other comprehensive (loss) income before reclassifications
Amounts reclassified from accumulated other comprehensive income (loss)
Net current period other comprehensive (loss) income
Balance at December 31, 2023
The following table presents the amounts reclassified out of each component of accumulated other comprehensive income (loss) for the years ended December 31 (in thousands):
Details About Accumulated Other
Comprehensive Income (Loss) Components
Amount Reclassified from Accumulated Other Comprehensive (Loss) Income
Affected Line Item in the Consolidated Statement of Operations
Realized gain (loss) on sale of investment securities
Net gain (loss) on investment securities
Amortization of unrealized holding losses on investment securities transferred from available for sale to held to maturity
Interest and dividends on investment securities
Total before tax
Income tax benefit
Net of tax
Amortization of pension items:
Net actuarial losses (1)
Salaries and employee benefits
Amortization of net actuarial losses
Salaries and employee benefits
Settlement charge (1)
Salaries and employee benefits
Total before tax
Income tax benefit
Net of tax
Total reclassified for the period
These items are included in the computation of net periodic pension expense. See Note 19 , Employee Benefit Plans, for additional information.
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( 16.) SHARE-BASED COMPENSATION
The Company maintains certain stock-based compensation plans, approved by the Company’s shareholders, that are administered by the Management Development and Compensation Committee (the “Compensation Committee”) of the Board. The share-based compensation plans were established to allow for the granting of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the long-term growth and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.
In May 2015, the Company’s shareholders approved the 2015 Long-Term Incentive Plan (the “2015 Plan”) to replace the 2009 Management Stock Incentive Plan and the 2009 Directors’ Stock Incentive Plan (collectively, the “2009 Plans”). A total of 438,076 shares transferred from the 2009 Plans were available for grant pursuant to the 2015 Plan. In addition, any shares subject to outstanding awards under the 2009 Plans that were canceled, expired, forfeited or otherwise not issued or are settled in cash became available for future award grants under the 2015 Plan. In June 2021, the Company’s shareholders approved the Amended and Restated 2015 Long-Term Incentive Plan, which increased the total number of shares available for grant under the 2015 Plan by 734,000 s hares, and in May 2025, the Company’s shareholders approved the Second Amended and Restated 2015 Long-Term Incentive Plan, which increased the total number of shares available for grant under the 2015 Plan by 400,000 shares. As of December 31, 2025, there were approximately 594,000 shares available for grant under the 2015 Plan.
Under the 2015 Plan, the Compensation Committee may establish and prescribe grant guidelines including various terms and conditions for the granting of stock-based compensation. For stock options, the exercise price of each option equals the closing market price of the Company’s common stock on the date of the grant. All options expire after a period of ten years from the date of grant and generally become fully exercisable over a period of 3 to 5 years from the grant date. When an option recipient exercises their options, the Company issues shares from treasury stock and records the proceeds as additions to capital. The Company uses the Black-Scholes valuation method to estimate the fair value of its stock option awards. Shares of restricted stock awards granted to employees generally vest over 2 to 3 years from the grant date. Fifty percent of the shares of restricted stock awards granted to non-employee directors generally vests on the date of grant and the remaining fifty percent generally vests the day before the next annual shareholder meeting. Vesting of the shares may be based on years of service, established performance measures or both. If restricted stock awards are forfeited before they vest, the shares are reacquired into treasury stock. The grant-date fair value for restricted stock awards is generally equal to the closing market price of the Company’s common stock on the date of grant. The grant-date fair value for restricted stock unit awards is generally equal to the closing market price of the Company’s common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.
The Company awards grants of performance-based restricted stock units (“PSUs”) to certain members of management. In 2020, the Compensation Committee approved new PSUs under the 2015 Plan. Fifty percent of the shares subject to each grant that ultimately vest are contingent on achieving specified return on average equity (“ROAE”) targets relative to the market index the Compensation Committee has selected as a peer group for this purpose. These shares will be earned based on the Company’s achievement of a relative ROAE performance requirement, on a percentile basis, compared to the market index over a three-year performance period. The shares earned based on the achievement of the ROAE performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company. The remaining fifty percent of the PSUs that ultimately vest are contingent upon achievement of an average return on average assets (“ROAA”) performance requirement over a three-year performance period. The shares earned based on the achievement of the ROAA performance requirement, if any, will vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company.
The restricted stock awards granted to the directors and the restricted stock units granted to employees in 2025, 2024 and 2023 do not have rights to dividends or dividend equivalents.
There were no stock options awarded during 2025, 2024 or 2023 . There was no unrecognized compensation expense related to unvested stock options as of December 31, 2025. There was no stock option activity for the year ended December 31, 2025.
The following table is a summary of restricted stock award activity for the year ended December 31, 2025:
Number of Shares
Weighted Average Grant Date Fair Value
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
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(16.) SHARE-BASED COMPENSATION (Continued)
The weighted average grant date fair value of restricted stock granted during the years ended December 31, 2025, 2024 and 2023 was $ 25.35 , $ 17.49 , and $ 16.34 , respectively. The total fair value of restricted stock units that vested during the years ended December 31, 2025, 2024 and 2023 was $ 470 thousand , $ 368 thousand and $ 265 thousand , respectively.
The following is a summary of restricted stock units’ activity for the year ended December 31, 2025:
Number of Shares
Weighted Average Grant Date Fair Value
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
The weighted average grant date fair value of restricted stock units granted during the years ended December 31, 2025, 2024 and 2023 was $ 23.42 , $ 16.34 , and $ 16.46 , respectively. The total fair value of restricted stock units that vested during the years ended December 31, 2025, 2024 and 2023 was $ 1.5 million , $ 808 thousand and $ 976 thousand , respectively.
The following table is a summary of performance-based restricted stock units’ activity for the year ended December 31, 2025. Actual shares that have vested, or will vest depend on the level of attainment of the performance-based criteria:
Number of Shares
Weighted Average Grant Date Fair Value
Non-vested at beginning of year
Granted
Vested
Forfeited
Non-vested at end of year
The weighted average grant date fair value of PSUs granted during the years ended December 31, 2025, 2024 and 2023 was $ 23.27 , $ 15.59 , and $ 16.66 , respectively. The total fair value of PSUs that vested during the years ended December 31, 2025 and 2024 was $ 0 and $ 401 thousand respectively. As of December 31, 2025 , the Company expects to pay out 0 % of the 2023 and 2024 awards, as the threshold performance for any payout has not been met.
The Company amortizes the expense related to share-based compensation over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of operations for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense and the total income tax benefit included in the statements on income for the years ended December 31 were as follows (in thousands):
Salaries and employee benefits
Other noninterest expense
Total share-based compensation expense
Income tax benefit realized for compensation costs
As of December 31, 2025, there was $ 5.5 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of 2.01 years.
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( 17.) INCOME TAXES
The income tax expense (benefit) for the years ended December 31 consisted of the following (in thousands):
Current tax expense (benefit):
Federal
State
Total current tax expense
Deferred tax expense (benefit):
Federal
State
Total deferred tax expense (benefit)
Total income tax expense (benefit)
The effective income tax rate differed from the U.S. federal statutory income tax rate for the years ended December 31 due to the following (dollars in thousands):
Amount
Percent
Income before provision for income taxes
Income tax expense (benefit) at U.S. federal statutory rate
State and local income tax, net of federal income tax effect (1)
Tax credits:
Low-income housing tax credits
Historic tax credits
Nontaxable and nondeductible items
Company owned life insurance - Cash surrender value/premium
Company owned life insurance - Surrender gain & MEC penalty
Other nontaxable and nondeductible items
Other adjustments
Total
State taxes in New York made up the majority of the effect of the state and local tax category.
Federal statutory income tax
Increase (decrease) resulting from:
Tax exempt interest income
Tax credits and adjustments
Net non-taxable earnings on company owned life insurance
State taxes, net of federal tax benefit
Other, net
Total
Total income tax expense (benefit) was as follows for the years ended December 31 (in thousands):
Income tax expense (benefit)
Shareholders’ equity
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(17.) INCOME TAXES (Continued)
The Company recognizes deferred income taxes for the estimated future tax effects of differences between the tax and financial statement bases of assets and liabilities considering enacted tax laws. These differences result in deferred tax assets and liabilities, which are included in other assets in the Company’s consolidated statements of financial condition. The Company also assesses the likelihood that deferred tax assets will be realizable based on, among other considerations, future taxable income and establishes, if necessary, a valuation allowance for those deferred tax assets determined to not likely be realizable. A deferred tax asset valuation allowance is recognized if, based on the weight of available evidence (both positive and negative), it is more likely than not that some portion or all of the deferred tax assets will not be realized. The future realization of deferred tax benefits depends upon the existence of sufficient taxable income within the carry-back and carry-forward periods. Management’s judgment is required in determining the appropriate recognition of deferred tax assets and liabilities, including projections of future taxable income.
Based upon the Company’s historical and projected future levels of pre-tax and taxable income, the scheduled reversals of taxable temporary differences to offset future deductible amounts, and prudent and feasible tax planning strategies, management believes it is more likely than not that the deferred tax assets will be realized. Therefore, no valuation allowance has been recorded as of December 31, 2025 and 2024.
In 2025 and 2024, the Company recognized the impact of its investments in limited partnerships and limited liability companies that generated qualifying tax credits resulting in a $ 4.5 million and $ 4.6 million reduction in income tax expense, respectively, and a $ 2.0 million and $ 775 thousand net loss recorded in noninterest income, respectively. See Note 1, Summary of Significant Accounting Policies, for the Company’s accounting policy for income taxes and these tax credit investments.
The Company’s net deferred tax asset is included in other assets in the consolidated statements of financial condition. The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows at December 31 (in thousands):
Deferred tax assets:
Allowance for credit losses
Leases–right of use obligations
Deferred compensation
Investments in limited partnerships
SERP agreements
Litigation settlement reserve
Share-based compensation
Tax attribute carryforward benefit
Net unrealized loss on securities available for sale
Accrued pension costs
Deferred loan origination costs
Other
Gross deferred tax assets
Deferred tax liabilities:
Leases–right of use assets
Prepaid expenses
Intangible assets
Depreciation and amortization
Loan servicing assets
Other
Gross deferred tax liabilities
Net deferred tax asset
The Company and its subsidiaries are primarily subject to federal and New York income taxes. The federal income tax years currently open for audit are 2022 through 2025 . The New York income tax years currently open for audit are 2022 through 2025 .
At December 31, 2025, the Company had tax attribute carryforward benefits totaling $ 20.0 million for federal and New York net operating losses and tax credit carryforwards generated in the fourth quarter of 2024, primarily due to the realized losses from the investment security repositioning. At December 31, 2025, the Company had a federal credit carryforward of $ 15.9 million that expires in 2044, and a New York net operating loss carryforward of $ 88.5 million that expires in 2044.
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(17.) INCOME TAXES (Continued)
The Company’s unrecognized tax benefits and changes in unrecognized tax benefits were not significant as of or for the years ended December 31, 2025, 2024 and 2023. There were no material i nterest or penalties recorded in the income statement in income tax expense for the years ended December 31, 2025, 2024 and 2023. As of December 31, 2025 and 2024 , there were no amounts accrued for interest or penalties related to uncertain tax positions.
During 2025, the Company made no income tax payments and received a refund of $ 17 thousand from New York.
( 18.) EARNINGS (LOSS) PER COMMON SHARE
The following table presents a reconciliation of earnings and shares used in calculating basic and diluted EPS for each of the years ended December 31 (in thousands, except per share amounts):
Net income (loss) available to common shareholders
Weighted average common shares outstanding:
Total shares issued
Unvested restricted stock awards
Treasury shares
Total basic weighted average common shares outstanding
Incremental shares from assumed:
Vesting of restricted stock awards
Total diluted weighted average common shares outstanding
Basic earnings (loss) per common share
Diluted earnings (loss) per common share
On December 13, 2024, the Company completed an underwritten public offering of 4,600,000 common shares at $ 25.00 per share. The Company’s basic weighted average common shares outstanding for the year ended December 31, 2025 included weighted average shares of 238,798 as a result of the public offering.
For the year ended December 31, 2024, basic loss per common share was the same as diluted loss per common share because all potentially dilutive securities were anti-dilutive due to the net loss for the period.
For each of the periods presented, average shares subject to the following instruments were excluded from the computation of diluted EPS because the effect would be antidilutive (in thousands):
Restricted stock awards
There were no participating securities outstanding for the years ended December 31, 2025, 2024 and 2023 . Therefore, the two-class method of calculating basic and diluted EPS was not applicable for the years presented.
( 19.) EMPLOYEE BENEFIT PLANS
Supplemental Executive Retirement Agreements
The Company has non-qualified Supplemental Executive Retirement Agreements (“SERPs”) covering certain former executives. The unfunded liability related to the SERPs was $ 101 thousand and $ 181 thousand at December 31, 2025 and 2024, respectively. SERP expense w as $ 5 thousand, $ 9 thousand and $ 17 t housand for 2025, 2024 and 2023, respectively.
Defined Contribution Plan
Employees that meet specified eligibility conditions are eligible to participate in the Company sponsored 401(k) plan. Under this plan, participants may make contributions, in the form of salary deferrals, up to the maximum Internal Revenue Code limit. The Company is also permitted to make additional discretionary contributions, although no such additional discretionary contributions were made in 2025, 2024 or 2023.
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(19.) EMPLOYEE BENEFIT PLANS (Continued)
Defined Benefit Pension Plan
The Company participates in The New York State Bankers Retirement System (the “Plan”), a defined benefit pension plan covering substantially all employees. For employees hired prior to December 31, 2006, who met participation requirements on or before January 1, 2008 (“Tier 1 Participant”), the benefits are generally based on years of service and the employee’s highest average compensation during five consecutive years of employment.
Effective January 1, 2016, the Plan was amended to open the Plan to eligible employees who were hired on and after January 1, 2007 (“Tier 2 Participant”) and provide these eligible participants with a cash balance benefit formula.
As part of the reorganization the Company implemented in December 2022, the Plan was amended such that effective January 31, 2023, benefits under Tier 1 will be frozen to future accruals and going forward all participants will be earning benefits under Tier 2.
The following table provides a reconciliation of the Company’s changes in the Plan’s benefit obligations, fair value of assets and a statement of the funded status as of and for the year ended December 31 (in thousands):
Change in projected benefit obligation:
Projected benefit obligation at beginning of period
Service cost
Interest cost
Actuarial gain
Benefits paid and plan expenses
Assumption changes
Settlements
Projected benefit obligation at end of period
Change in plan assets:
Fair value of plan assets at beginning of period
Actual return on plan assets
Benefits paid and plan expenses
Settlements
Fair value of plan assets at end of period
Funded status at end of period
The accumulated benefit obligation was $ 68.0 million and $ 67.0 million at December 31, 2025 and 2024, respectively.
The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2026 fiscal year.
Estimated benefit payments under the Plan over the next ten years as of December 31, 2025 are as follows (in thousands):
Amount
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(19.) EMPLOYEE BENEFIT PLANS (Continued)
Net periodic pension cost consists of the following components for the years ended December 31 (in thousands):
Service cost
Interest cost on projected benefit obligation
Expected return on plan assets
Amortization of unrecognized loss
Amortization of unrecognized prior service credit
Net periodic pension cost
Settlement charge
Total pension cost
The actuarial assumptions used to determine the net periodic pension cost were as follows:
Weighted average discount rate
Rate of compensation increase
Expected long-term rate of return
The actuarial assumptions used to determine the projected benefit obligation were as follows:
Weighted average discount rate
Rate of compensation increase
The weighted average discount rate was based upon the projected benefit cash flows and the market yields of high-grade corporate bonds that are available to pay such cash flows.
The Plan’s overall investment strategy is to invest in a diversified portfolio while managing the variability between the assets and projected liabilities of underfunded pension plans. The Plan’s Board Members approved a migration (the “Migration”) of substantially all of the Plan’s assets to one fund, Commingled Pensions Trust Fund (LDI Diversified Balanced) of JPMorgan Chase Bank, N.A. (“JPMCB LDI Diversified Balanced Fund” or the “Fund”). The Fund is a collective investment fund managed by the Plan’s trustee (the “Trustee”) under the Declaration of Trust. The Trustee is the Fund’s manager and makes day-to-day investment decisions for the Fund. The Fund is a group trust within the meaning of Internal Revenue Service Revenue Ruling 81-100, as amended. In reliance upon exemptions from the registration requirements of the federal securities laws, neither the Fund nor the Fund’s Units are registered with the SEC or any state securities commission. Because the Fund is not subject to registration under federal or state securities laws, certain protections that might otherwise be provided to investors in registered funds are not available to investors in the Fund. However, as a bank-sponsored collective investment trust holding qualified retirement plan assets, the Fund is required to comply with applicable provisions of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Trustee is subject to supervision and regulation by the Office of the Comptroller of the Currency and the Department of Labor.
The following table represents the Plan’s target asset allocation and actual asset allocation, respectively, as of December 31, 2025 and 2024:
Target
Actual
Target
Actual
Asset Category:
Allocation
Allocation
Allocation
Allocation
Cash and cash equivalents
Equity securities
Fixed income securities
Alternative investments
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(19.) EMPLOYEE BENEFIT PLANS (Continued)
Cash equivalents include repurchase agreements, banker’s acceptances, commercial paper, negotiable certificates of deposit, U.S. government securities with less than one year to maturity and funds (including the Commingled Pension Trust Fund (Liquidity) of JPMorgan Chase Bank, N.A. (“JPMorgan”)) established to invest in these types of highly liquid, high-quality instruments. Equity securities primarily include investments in common stocks, depository receipts, preferred stocks, commingled pension trust funds, exchange traded funds and real estate investment trusts. Fixed income securities include corporate bonds, government issues, credit card receivables, mortgage-backed securities, municipals, commingled pension trust funds and other asset backed securities. Alternative investments are real estate interests and related investments held within a commingled pension trust fund.
The Fund is valued utilizing the valuation policies set forth by JP Morgan’s asset management committee. Underlying investments for which market quotations are readily available are valued at their market value. Underlying investments for which market quotations are not readily available are fair valued by approved affiliated and/or unaffiliated pricing vendors, third-party broker-dealers or methodologies as approved by the asset management committee. Fixed income instruments are valued based on prices received from approved affiliated and unaffiliated pricing vendors or third-party broker-dealers (collectively referred to as “Pricing Services”). The Pricing Services use multiple valuation techniques to determine the valuation of fixed income instruments. In instances where sufficient market activity exists, the Pricing Services may utilize a market-based approach through which trades or quotes from market makers are used to determine the valuation of these instruments. In instances where sufficient market activity may not exist, the Pricing Services also utilize proprietary valuation models which may consider market transactions in comparable securities and the various relationships between securities in determining fair value and/or market characteristics in order to estimate the relevant cash flows, which are then discounted to calculate the fair values. Equities and other exchange-traded instruments are valued at the last sales price or official market closing price on the primary exchange on which the instrument is traded before the net asset values (“NAV”) of the Funds are calculated on a valuation date. Futures contracts are generally valued on the basis of available market quotations. Forward foreign currency exchange contracts are valued utilizing market quotations from approved Pricing Services. The Fund invests in the Commingled Pension Trust Fund (“Strategic Property Fund”) of JPMorgan (the “SPF”), which holds significant amounts of investments which have been fair valued at December 31, 2025 and 2024.
During the years ended December 31, 2025 and 2024, there were no transfers in or out of Levels 1, 2 or 3. In addition, there were no changes in valuation methodologies during the years ended December 31, 2025 and 2024.
The major categories of Plan assets measured at fair value on a recurring basis as of December 31 are presented in the following tables (in thousands).
Level 1
Level 2
Level 3
Total
Inputs
Inputs
Inputs
Fair Value
Cash equivalents:
Cash (including foreign currencies)
Short term investment funds
Total cash equivalents
Equity securities:
Commingled pension trust funds
Total equity securities
Fixed income securities:
Commingled pension trust funds
Corporate bonds
Total fixed income securities
Other investments:
Commingled pension trust funds
Total Plan investments
At December 31, 2025, the portfolio was substantially managed by one investment firm, with control of approximately 98 % of the Plan’s assets. A portfolio concentration of 98 % in the JPMCB LDI Diversified Balanced Fund, a commingled pension trust fund (“CPTF”), existed at December 31, 2025.
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(19.) EMPLOYEE BENEFIT PLANS (Continued)
Level 1
Level 2
Level 3
Total
Inputs
Inputs
Inputs
Fair Value
Cash equivalents:
Cash (including foreign currencies)
Short term investment funds
Total cash equivalents
Equity securities:
Commingled pension trust funds
Total equity securities
Fixed income securities:
Commingled pension trust funds
Corporate bonds
Total fixed income securities
Other investments:
Commingled pension trust funds
Total Plan investments
At December 31, 2024 , the portfolio was substantially managed by one investment firm, with control of approximately 96 % of the Plan’s assets. A portfolio concentration of 96 % in the JPMCB LDI Diversified Balanced Fund, a CPTF, existed at December 31, 2024 .
( 20.) FAIR VALUE MEASUREMENTS
Determination of Fair Value — Assets Measured at Fair Value on a Recurring and Nonrecurring Basis
Valuation Hierarchy
The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.
Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.
In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.
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(20.) FAIR VALUE MEASUREMENTS (Continued)
Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.
Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.
Collateral dependent loans: Fair value of collateral dependent loans with specific allocations of the allowance for credit losses - loans is measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.
Long-lived assets held for sale: The fair value of the long-lived assets held for sale was based on estimated market prices from independently prepared current appraisals, adjusted for expected costs to sell, and are classified as Level 3 in the fair value hierarchy.
Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that the Company believes market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company’s loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.
Other real estate owned (foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third-party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairmentloss is recognized.
Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments is not material.
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(20.) FAIR VALUE MEASUREMENTS (Continued)
Assets Measured at Fair Value
The following tables present for each of the fair-value hierarchy levels the Company’s assets that are measured at fair value on a recurring and non-recurring basis as of December 31 (in thousands):
Quoted Prices in Active Markets for Identical Assets or Liabilities
(Level 1)
Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Total
Measured on a recurring basis:
Securities available for sale:
Mortgage-backed securities
Other debt securities
Other assets:
Hedging derivative instruments
Fair value adjusted through comprehensive income
Other assets:
Derivative instruments–interest rate products
Derivative instruments–mortgage banking
Other liabilities:
Derivative instruments–interest rate products
Derivative instruments–mortgage banking
Fair value adjusted through net income
Measured on a nonrecurring basis:
Loans:
Loans held for sale
Collateral dependent loans
Other assets:
Long-lived assets held for sale
Mortgage servicing rights
Other real estate owned
Total
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(20.) FAIR VALUE MEASUREMENTS (Continued)
Quoted Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Measured on a recurring basis:
Securities available for sale:
U.S. Government agencies and government sponsored enterprises
Mortgage-backed securities
Other assets:
Hedging derivative instruments
Fair value adjusted through comprehensive income
Other assets:
Derivative instruments – interest rate products
Derivative instruments – mortgage banking
Other liabilities:
Derivative instruments – interest rate products
Derivative instruments – mortgage banking
Fair value adjusted through net income
Measured on a nonrecurring basis:
Loans:
Loans held for sale
Collateral dependent loans
Other assets:
Long-lived assets held for sale
Mortgage servicing rights
Other real estate owned
Total
There were no t ransfers between Levels 1 and 2 during the years ended December 31, 2025 and 2024. There were no liabilities measured at fair value on a nonrecurring basis during the years ended December 31, 2025 and 2024.
The following table presents additional quantitative information about assets measured at fair value on a nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value (dollars in thousands) at December 31, 2025:
Asset
Fair
Value
Valuation Technique
Unobservable Input
Unobservable Input
Value / Range
Collateral dependent loans
Appraisal of collateral (1)
Appraisal adjustments (2)
Loan servicing rights
Discounted cash flow
Discount rate
Constant prepayment rate
Long-lived assets held for sale
Appraisal of collateral (1)
Appraisal adjustments (2)
Other real estate owned
Appraisal of collateral (1)
Appraisal adjustments (2)
Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.
Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.
Weighted averages.
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(20.) FAIR VALUE MEASUREMENTS (Continued)
Changes in Level 3 Fair Value Measurements
There wer e no a ssets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the years ended December 31, 2025 and 2024.
Disclosures about Fair Value of Financial Instruments
The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.
Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.
The estimated fair value approximates carrying value for cash and cash equivalents, FHLB and FRB stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.
Securities held to maturity: The fair value of the Company’s investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.
Loans: The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type, such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.
Time deposits: The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.
Long-term borrowings: Long-term borrowings consist of $ 75 million of subordinated notes and $ 50 million of long-term borrowings from the FHLB. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy. The FHLB borrowings are valued using discounted cash flows based on current market rates for borrowings with similar remaining maturities and are characterized as Level 2 liabilities in the fair value hierarchy.
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(20.) FAIR VALUE MEASUREMENTS (Continued)
The following presents the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of December 31, 2025 and 2024 (in thousands):
Level in Fair Value Measurement Hierarchy
Carrying Amount
Estimated Fair Value
Carrying Amount
Estimated Fair Value
Financial assets:
Cash and cash equivalents
Level 1
Securities available for sale
Level 2
Securities held to maturity, net
Level 2
Loans held for sale
Level 2
Loans
Level 2
Loans⁽¹⁾
Level 3
Long-lived assets held for sale
Level 3
Accrued interest receivable
Level 1
Derivative instruments–cash flow hedge
Level 2
Derivative instruments–interest rate products
Level 2
Derivative instruments–mortgage banking
Level 2
FHLB and FRB stock
Level 2
Financial liabilities:
Non-maturity deposits
Level 1
Time deposits
Level 2
Short-term borrowings
Level 1
Long-term borrowings
Level 2
Accrued interest payable
Level 1
Derivative instruments–interest rate products
Level 2
Derivative instruments–mortgage banking
Level 2
Comprised of collateral dependent loans.
( 21.) PARENT COMPANY FINANCIAL INFORMATION
Condensed financial statements pertaining only to the Parent are presented below (in thousands).
Condensed Statements of Financial Condition
December 31,
Assets:
Cash and due from subsidiary
Investment in and receivables due from subsidiary
Other assets
Total assets
Liabilities and shareholders’ equity:
Deposits
Long-term borrowings, net of issuance costs of $ 1,347 and $ 158 , respectively
Other liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
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(21.) PARENT COMPANY FINANCIAL INFORMATION (Continued)
Condensed Statements of Operations
Years ended December 31,
Dividends from subsidiary and associated companies
Management and service fees from subsidiaries
Other income
Total income
Interest expense
Operating expenses
Total expense
Income before income tax benefit and equity in undistributed earnings of subsidiary
Income tax benefit
Income before equity in (excess distribution of) undistributed earnings of subsidiary
Equity in (excess distribution of) undistributed earnings of subsidiary
Net income (loss)
Condensed Statements of Cash Flows
Years ended December 31,
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income to net cash provided by operating activities:
(Equity in) excess distributions of undistributed earnings of subsidiary
Gain on sale of assets of subsidiary
Provision for litigation settlement
Provision for deferred taxes
Depreciation and amortization
Share-based compensation
Increase in other assets
(Decrease) increase in other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Capital investment in subsidiaries
Proceeds from sale of assets of subsidiary
Net cash used in investing activities
Cash flows from financing activities:
Issuance of long-term debt, net of issuance costs
Purchase of preferred and common shares
Proceeds from issuance of common shares
Dividends paid
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents as of beginning of year
Cash and cash equivalents as of end of the year
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( 22.) SEGMENT REPORTING
The Company’s Executive Management Team, which consists of the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Commercial Banking Officer, Chief Consumer Banking Officer, Chief Risk Officer, Chief Human Resource Officer, and Chief Marketing Officer, has been designated as its Chief Operating Decision Maker (“CODM”). The CODM determined the Company has one reportable segment, Banking, based upon information provided about the Company’s products and services offered. The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and customers are similar. The CODM evaluates the financial performance of the Company’s business components by evaluating revenue streams, significant expenses, and budget to actual results when assessing the Company’s segment and in the determination of allocating resources. The CODM has determined that net income is the reportable measure of segment profit or loss that is regularly reviewed and used to allocate resources and assess performance . Loans and investments provide the interest income in the banking operation, while deposits and borrowings account for the interest expense. The CODM also considers provisions for credit losses a significant expenses in the banking operation. All operations are domestic.
Accounting policies for the segment are the same as those described in Note 1, Summary of Significant Accounting Policies. Segment performance is evaluated using net income. Information reported internally for performance assessment by the CODM follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements.
The following table presents balance sheet information of the Company’s segment as of December 31, (in thousands):
Goodwill
Segment assets
Reconciliation of consolidated total assets:
Goodwill - Courier Capital
Intangible assets - Courier Capital
Other assets
Elimination of intercompany receivables
Consolidated total assets
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(22.) SEGMENT REPORTING (Continued)
The following table presents information regarding the Company’s segment for the years ended December 31, (in thousands).
Interest income
Interest expense
Segment net interest income
Noninterest income (loss)
Segment noninterest expense
Income (loss) before provision for credit losses and income taxes
Provision for credit losses
Income (loss) before income taxes
Income tax (expense) benefit
Segment net income (loss)
Reconciliation of consolidated net interest income:
Interest expense (1)
Consolidated net interest income
Reconciliation of consolidated net income (loss):
Gain on sale of assets of subsidiary
Insurance income (2)
Investment advisory income (3)
Other fees and income
Other noninterest expense
Income (loss) before income tax benefit
Income tax benefit
Consolidated net income (loss)
(1) Interest expense represents interest on the subordinated notes, held at the Parent .
(2) Insurance income represents income from our former subsidiary, SDN, which we sold the assets of on April 1, 2024.
(3) Investment advisory income represents income from our subsidiary Courier Capital.
( 23.) SUBSEQUENT EVENT
As anticipated, on January 15, 2026, the Company used $ 65.0 million of the proceeds from the debt issuance of the 2025 Notes to call the outstanding balances of the 2020 and 2015 Notes.
