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YoY shift: Neutral
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.03pp more bearish 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
-0.26pp
Flat
Net-tone change vs last year's 10-K.
MD&A
+0.19pp
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.
Language change vs prior 10-K
Risk Factors (Item 1A) - words with the biggest YoY frequency increase
Negative rising
No words rose this year.
Positive rising
enabled+1
Risk Factors (Item 1A)
6,472 words
ITEM 1A.
RISK FACTORS
There are risks inherent to the Company’s business. The material risks and uncertainties that management believes affect the Company are described below. Any of the following risks could affect the Company’s financial condition and results of operations and could be material and/or adverse in nature. You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.
Risks Related to our Business and Industry
The Company may be adversely affected by conditions in the financial markets and economic conditions generally.
Key macroeconomic conditions historically have affected the Company’s business, results of operations and financial condition and are likely to affect them in the future. Consumer confidence, unemployment and other economic indicators are among the factors that often impact consumer spending and payment behavior and demand for credit. The Company relies primarily on interest and fees on our loan receivables to generate net earnings. The economy in the United States and globally has experienced volatility in recent years and may continue to do so for the foreseeable future. There can be no assurance that economic conditions will not worsen. Unfavorable or uncertain economic conditions can be caused by declines in economic growth, business activity or investor or business confidence, limitations on the availability or increases in the cost of credit and capital, trade wars or tariffs, inflation, changes in interest rates, the timing and impact of geopolitical uncertainties, natural disasters, epidemics and pandemics, terrorist attacks, acts of war or a combination of these or other factors. Federal budget deficitconcerns and the potential for political over legislation to fund U.S. government operations and raise the U.S. government’s debt limit may increase the possibility of a by the U.S. government on its debt obligations, related credit-rating , or an economic in the United States. A of business and economic conditions could have effects on our business, including the following:
investors may have less confidence in the equity markets in general and in financial services industry stocks in particular, which could place downward pressure on the Company’s stock price and resulting market valuation;
consumer and business confidence levels could be lowered and cause declines in credit usage and adverse changes in payment patterns, causing increases in delinquencies and default rates;
the Company’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches the Company uses to select, manage and underwrite its customers become less predictive of future behaviors;
the Company could suffer decreases in demand for loans or other financial products and services or decreased deposits or other investments in accounts with the Company;
demand for and income received from the Company’s fee-based services could decline;
customers of the Company’s trust and benefit plan administration business may liquidate investments, which together with lower asset values, may reduce the level of assets under management and administration and thereby decrease the Company’s investment management and administration revenues;
competition in the financial services industry could intensify as a result of the increasing consolidation of financial services companies in connection with current market conditions or otherwise; and
the value of loans and other assets or collateral securing loans may decrease.
Deterioration in local economic conditions may negatively impact our financial performance.
The Company’s success depends primarily on the general economic conditions in upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine, central and northwestern Connecticut and the specific local markets in which the Company operates. Unlike larger national or other regional banks that are more geographically diversified, the Company provides banking and financial services to customers primarily in the upstate New York areas of Norwich, Albany, Amsterdam-Gloversville, Binghamton, Buffalo, Glens Falls, Hudson Valley, Ogdensburg-Massena, Oneonta, Plattsburgh, Rochester, Syracuse and Utica-Rome, the northeastern Pennsylvania areas of Scranton and Wilkes-Barre, Berkshire County, Massachusetts, southern New Hampshire, Vermont, southern Maine and central and northwestern Connecticut. The local economic conditions in these areas have a significant impact on the demand for the Company’s products and services as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources.
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A downturn in our local economies could cause significant increases in nonperforming loans, which could negatively impact our earnings. Declines in real estate values in our market areas could cause any of our loans to become inadequately collateralized, which would expose us to greater risk of loss. Additionally, a decline in real estate values could result in the decline of originations of such loans, as most of our loans and the collateral securing our loans are located in those areas.
Severe weather, flooding and other effects of climate change and other natural disasters could adversely affect our financial condition, results of operations or liquidity.
Our branch locations and our customers’ properties may be adversely impacted by flooding, wildfires, high winds and other effects of severe weather conditions. These events can force property closures, result in property damage and/or result in delays in expansion, development or renovation of our properties and those of our customers. Even if these events do not directly impact our properties or our customers’ properties, they may impact us and our customers through increased insurance, energy or other costs. In addition, changes in laws or regulations, including federal, state or city laws, relating to climate change could result in increased capital expenditures to improve the energy efficiency of our branch locations and/or our customers’ properties.
Ongoing legislative or regulatory uncertainties and changes regarding climate risk management and practices may result in higher regulatory, compliance, credit and reputational risks and costs.
Variations in interest rates could adversely affect our results of operations and financial condition.
The Company’s earnings and financial condition, like that of most financial institutions, are largely dependent upon net interest income, which is the difference between interest and dividend income earned from loans and securities and interest expense paid on deposits and borrowings. The narrowing of interest rate spreads could adversely affect the Company’s earnings and financial condition. Interest rates remain elevated compared to recent years and may increase. The Company cannot predict with certainty, or control, changes in interest rates. Regional and local economic conditions and the policies of regulatory authorities, including monetary policies of the FRB, affect rates and, therefore, interest income and interest expense. High interest rates could also affect the amount of loans that the Company can originate because higher rates could cause customers to apply for fewer mortgages or cause depositors to shift funds from accounts that have a comparatively lower cost to accounts with a higher cost. The Company may also experience customer attrition due to competitor pricing on both deposits and loans. If the cost of interest-bearing deposits increases at a rate greater than the yields on interest-earning assets increase, net interest income will be negatively affected. Changes in the asset and liability mix may also affect net interest income. Similarly, lower interest rates cause higher yielding assets to prepay and floating or adjustable rate assets to reset to lower rates. If the Company is not to reduce its funding costs sufficiently, due to either competitive factors or the maturity schedule of existing liabilities, then the Company’s NIM will .
Any substantial or unexpected change in, or prolonged change in market interest rates could have a material adverse effect on the Company’s financial condition and results of operations. See the section captioned “Net Interest Income” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Item 7A. Quantitative and Qualitative Disclosure About Market Risk located elsewhere in this report for further discussion related to the Company’s management of interest rate risk.
Our lending, and particularly our emphasis on commercial lending, exposes us to the risk of losses upon borrower default.
As of December 31, 2025, approximately 56% of the Company’s loan portfolio consisted of commercial and industrial, agricultural, commercial construction and CRE loans. These types of loans generally expose a lender to greater risk of non-payment and loss than residential mortgage loans because repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers and, for construction loans, the accuracy of the estimate of the property’s value at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential mortgage loans. Because the Company’s loan portfolio contains a significant number of commercial and industrial, agricultural, construction and CRE loans with relatively large balances, the deterioration of one or a few of these loans could cause a significant increase in nonperforming loans. An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and/or an increase in loan charge-offs, all of which could have a material effect on the Company’s financial condition and results of operations. See the section captioned “Loans” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to our commercial and industrial, agricultural, construction and CRE loans.
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Our allowance for credit losses may not be sufficient to cover actual loan losses, which could have a material adverse effect on our business, financial condition and results of operations.
The Company maintains an allowance for credit losses, which is an allowance established through a provision for loan losses charged to expense, that represents management’s best estimate of expected credit losses within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, forecast economic conditions and future trends, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans and other factors, both within and outside of the Company’s control, may require an increase in the allowance for credit losses. Bank regulatory agencies periodically review the Company’s allowance for credit losses and may require an increase in the provision for credit or the recognition of further loan charge-offs, based on judgments different from those of management. In addition, if charge-offs in future periods exceed the allowance for credit , the Company may need additional provisions to increase the allowance for credit . These potential increases in the allowance for credit would result in a decrease in net income and, possibly, capital and may have a material effect on the Company’s financial condition and results of operations. See the section captioned “Risk Management – Credit Risk” in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations located elsewhere in this report for further discussion related to the Company’s process for determining the appropriate level of the allowance for loan . Management expects that the CECL model may create more in the level of our allowance for credit from quarter to quarter as changes in the level of allowance for credit will be dependent upon, among other things, macroeconomic forecasts and conditions, loan portfolio volumes and credit quality.
Strong competition within our industry and market area could adversely affect our performance and slow our growth.
The Company faces substantial competition in all areas of its operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors primarily include national, regional and community banks within the various markets in which the Company operates. Additionally, various banks continue to enter or have announced plans to enter the market areas in which the Company currently operates. The Company also faces competition from many other types of financial institutions, including, without limitation, savings and loans, credit unions, finance companies, brokerage firms, insurance companies and other financial intermediaries. The financial services industry could continue to become even more competitive as a result of legislative, regulatory and technological changes and continued consolidation. Technology has lowered barriers to entry and made it possible for non-banks to offer products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Company’s competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better pricing for those products and services than the Company can.
The Company’s ability to compete successfully depends on a number of factors, including, among other things:
the ability to develop, maintain and build upon long-term customer relationships based on top-quality service, high ethical standards and safe, sound assets;
the ability to expand the Company’s market position;
the scope, relevance and pricing of products and services offered to meet customer needs and demands;
the rate at which the Company introduces new products, services and technologies relative to its competitors;
customer satisfaction with the Company’s level of service;
industry and general economic trends; and
the ability to attract and retain talented employees.
Failure to perform in any of these areas could significantly weaken the Company’s competitive position, which could adversely affect the Company’s growth and profitability, which, in turn, could have a material adverse effect on the Company’s financial condition and results of operations.
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The Company is subject to liquidity risk, which could adversely affect net interest income and earnings.
The purpose of the Company’s liquidity management is to meet the cash flow obligations of its customers for both deposits and loans. Regulators are increasingly focused on liquidity risk after the bank failures of 2023. The primary liquidity measurement the Company utilizes is called basic surplus, which captures the adequacy of the Company’s access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary. However, competitive pressure on deposit pricing could result in a decrease in the Company’s deposit base or an increase in funding costs. In addition, liquidity will come under additional pressure if loan growth exceeds deposit growth. These scenarios could lead to a decrease in the Company’s basic surplus measure to an amount below the minimum policy level of 5%. To manage this risk, the Company has the ability to purchase brokered time deposits, borrow against established borrowing facilities with other banks (federal funds) and enter into repurchase agreements with investment companies. Depending on the level of interest rates applicable to these alternatives, the Company’s net interest income, and therefore earnings, could be adversely affected. See the section captioned “Liquidity Risk” in Item 7.
Our ability to service our debt, pay dividends and otherwise pay our obligations as they come due is substantially dependent on capital distributions from our subsidiaries.
The Company is a separate and distinct legal entity from its subsidiaries. It receives substantially all of its revenue from dividends from its subsidiaries. These dividends are the principal source of funds to pay dividends on the Company’s common stock and interest and principal on the Company’s debt. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company. In addition, the Company’s right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to the Company, the Company may not be able to service debt, pay obligations or pay dividends on the Company’s common stock. The inability to receive dividends from the Bank could have a material adverse effect on the Company’s business, financial condition and results of operations.
A reduction in the Company’s credit rating could adversely affect our business and/or the holders of our securities.
The credit rating agency rating our indebtedness regularly evaluates the Company and the Bank. Credit ratings are based on a number of factors, including our financial strength and ability to generate earnings, as well as factors not entirely within our control, including conditions affecting the financial services industry generally and the economy and changes in rating methodologies. There can be no assurance that the Company will maintain our current credit ratings. A downgrade of the credit ratings of the Company or the Bank could adversely affect our access to liquidity and capital, significantly increase our cost of funds, and decrease the number of investors and counterparties willing to lend to the Company or purchase our securities. This could affect our growth, profitability, and financial condition, including liquidity.
The Company relies on third parties to provide key components of its business infrastructure.
The Company relies on third parties to provide key components for its business operations, such as data processing and storage, recording and monitoring transactions, online banking interfaces and services, internet connections and network access. While the Company selects these third party vendors carefully, it does not control their actions. Any problems caused by these third parties, including those resulting from breakdowns or other disruptions in communication services provided by a vendor, failure of a vendor to handle current or higher volumes, cyber-attacks and security breaches at a vendor, failure of a vendor to provide services for any reason or poor performance of services by a vendor, could adversely affect the Company’s ability to deliver products and services to its customers and otherwise conduct its business. Financial or operational difficulties of a third party vendor could also hurt the Company’s operations if those difficulties with the vendor’s ability to serve the Company. Replacing these third party vendors also could create significant and expense that affect the Company’s business and performance.
There are substantial risks and uncertainties associated with the introduction or expansion of lines of business or new products and services within existing lines of business.
From time to time, the Company may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, the Company may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove attainable. External factors, such as compliance with regulations, competitive alternatives and shifting market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of the Company’s system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have a material adverse effect on the Company’s business, results of operations and financial condition.
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Risks Related to Legal, Governmental and Regulatory Changes
We are subject to extensive government regulation and supervision, which may interfere with our ability to conduct our business and may negatively impact our financial results.
We are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, the DIF and the safety and soundness of the banking system as a whole, not stockholders. These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. Furthermore, political and policy goals of elected officials may change over time, which could impact the rulemaking, supervision, examination and enforcement priorities of federal banking agencies. Changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect the Company in substantial and unpredictable ways. Such changes could subject the Company to additional costs, limit the types of financial services and products the Company may offer and/or limit the pricing the Company may charge on certain banking services, among other things. Compliance personnel and resources may increase our costs of operations and adversely impact our earnings.
Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. While the Company has policies and procedures designed to prevent any such violations, there can be no assurance that such violations will not occur. See the section captioned “Supervision and Regulation” in Item 1. Business of this report for further information.
We are subject to heightened regulatory requirements because we exceed $10 billion in total consolidated assets.
As of December 31, 2025, we had total assets of approximately $16.00 billion. The Dodd-Frank Act, including the Durbin Amendment, and its implementing regulations impose enhanced supervisory requirements on bank holding companies with more than $10 billion in total consolidated assets. For bank holding companies with more than $10 billion in total consolidated assets, such requirements include, among other things:
applicability of Volcker Rule requirements and restrictions;
increased capital, leverage, liquidity and risk management standards;
examinations by the CFPB for compliance with federal consumer financial protection laws and regulations; and
limits on interchange fees from debit card transactions.
The Economic Growth, Regulatory Reform and Consumer Protection Act (“EGRRCPA”), which was enacted in 2018, amended the Dodd-Frank Act to raise the $10 billion stress testing threshold to $250 billion, among other things. The federal financial regulators issued final rules in 2019 to increase the threshold for these stress testing requirements from $10 billion to $250 billion, consistent with the EGRRCPA.
Our regulators will consider our compliance with these regulatory requirements that apply to us (in addition to regulatory requirements that applied to us previously) when examining our operations or considering any request for regulatory approval. We may, therefore, incur associated compliance costs and may be required to maintain compliance procedures.
Failure to comply with these requirements may negatively impact the results of our operations and financial condition. To ensure compliance, we will be required to invest significant resources, which may necessitate hiring additional personnel and implementing additional internal controls. These additional compliance costs may have a material adverse effect on our business, results of operations and financial condition.
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Our controls and procedures may fail or be circumvented, which may result in a material adverse effect on our business.
Management regularly reviews and updates our internal controls, disclosure controls and procedures and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations and financial condition.
We may be held responsible for environmental liabilities with respect to properties to which we obtain title, resulting in significant financial loss.
A significant portion of our loan portfolio at December 31, 2025 was secured by real estate. In the course of our business, we may foreclose and take title to real estate and could be subject to environmental liabilities with respect to these properties. We may be held liable to a government entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination or may be required to clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation and remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business, results of operations, financial condition and liquidity.
We may be adversely affected by the soundness of other financial institutions including the FHLB of New York.
Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies are interrelated as a result of trading, clearing, counterparty or other relationships. We have exposure to many different industries and counterparties and we routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds and other institutional clients. As a result, defaults by, or even rumors or questions about, one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems and could lead to losses or defaults by us or by other institutions. Many of these transactions expose us to credit risk in the event of default of our counterparty or client. In addition, our credit risk may be exacerbated if the collateral held by us cannot be realized or is liquidated at prices not sufficient to recover the full amount of the loan or derivative exposure due us. There is no assurance that any such would not materially and affect our business, financial condition or results of operations.
The Company owns common stock of FHLB of New York in order to qualify for membership in the FHLB system, which enables it to borrow funds under the FHLB of New York’s advance program. The carrying value and fair value of our FHLB of New York common stock was $13.6 million as of December 31, 2025. There are 11 branches of the FHLB, including New York, which are jointly liable for the consolidated obligations of the FHLB system. To the extent that one FHLB branch cannot meet its obligations to pay its share of the system’s debt, other FHLB branches can be called upon to make the payment. Any adverse effects on the FHLB of New York could adversely affect the value of our investment in its common stock and negatively impact our results of operations.
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Provisions of our certificate of incorporation and bylaws, as well as Delaware law and certain banking laws, could delay or prevent a takeover of us by a third party.
Provisions of the Company’s certificate of incorporation and bylaws, the corporate law of the State of Delaware and state and federal banking laws, including regulatory approval requirements, could delay, defer or prevent a third party from acquiring the Company, despite the possible benefit to the Company’s stockholders, or otherwise adversely affect the market price of the Company’s common stock. These provisions include supermajority voting requirements for certain business combinations and advance notice requirements for nominations for election to the Board and for proposing matters that stockholders may act on at stockholder meetings. In addition, the Company is subject to Delaware law, which among other things prohibits the Company from engaging in a business combination with any interested stockholder for a period of three years from the date the person became an interested stockholder unless certain conditions are met. These provisions may discourage potential takeover attempts, discourage bids for the Company’s common stock at a premium over market price or adversely affect the market price of and the voting and other rights of the holders of the Company’s common stock. These provisions could also proxy contests and make it more for you and other stockholders to elect directors other than candidates nominated by the Board.
The Company has risk related to legal proceedings.
The Company is involved in judicial, regulatory, and arbitration proceedings concerning matters arising from our business activities and fiduciary responsibilities. The Company establishes reserves for legal claims when payments associated with the claims become probable and the costs can be reasonably estimated. We may still incur legal costs for a matter even if a reserve is not established. In addition, the actual cost of resolving a legal claim may be substantially higher than any amounts reserved for that matter. The ultimate resolution of a pending or future legal proceeding, depending on the remedy sought and granted, could materially adversely affect our results of operations and financial condition.
Risks Related to Information Technology, Cybersecurity and Data Privacy
The Company faces operational risks and cybersecurity risks associated with incidents which have the potential to disrupt our operations, cause material harm to our financial condition, result in misappropriation of assets, compromise confidential information and/or damage our business relationships and cannot guarantee that the steps we and our service providers take in response to these risks will be effective.
We depend upon data processing, communication systems, and information exchange on a variety of platforms and networks and over the internet to conduct business operations. In addition, we rely on the services of a variety of vendors to meet our data processing and communication needs. Although we require third party providers to maintain certain levels of security, such providers remain vulnerable to breaches, security incidents, system unavailability or other malicious attacks that could compromise sensitive information. Further, new technologies such as AI may be more capable of evading safeguard measures. The risk of experiencing security incidents and disruptions, particularly through cyber-attacks or cyber intrusions, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions by organized crime, hackers, terrorists, nation-states, activists and other external parties has increased. These security incidents may result in disruption of our operations; material to our financial condition, cash flows and the market price of our common stock; of assets; compromise or of confidential information; liability for information or assets during the ; remediation costs; increased cybersecurity and insurance costs; regulatory enforcement; ; and to our stakeholder and customer relationships.
Moreover, in the normal course of business, we and our service providers collect and retain certain personal information provided by our customers, employees and vendors. If this information gets mishandled, misused, improperly accessed, lost or stolen, we could suffer significant financial, business, reputational, regulatory or other harm. These risks may increase as we continue to increase and expand our usage of web-based products and applications.
These risks require continuous and likely increasing attention and resources from us to, among other actions, identify and quantify potential cybersecurity risks, and upgrade and expand our technologies, systems and processes to adequately address the risk. We provide on-going training for our employees to assist them in detecting phishing, malware and other malicious schemes. Such attention diverts time and resources from other activities and, while we have implemented policies and procedures designed to maintain the security and integrity of the information we and our service providers collect on our and their computer systems, there can be no assurance that our efforts will be effective. Likewise, while we have implemented security measures to prevent unauthorized access to personal information and prevent or limit the effect of possible incidents, we can provide no assurance that a security breach or disruption will not be successful or damaging, or, if any such or does occur, that it can be sufficiently or timely remediated.
Even the most well protected information, networks, systems and facilities remain potentially vulnerable because the techniques used in such attempted security breaches evolve and generally are not recognized until launched against a target, and in some cases are designed not to be detected and, in fact, may not be detected. Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, and thus it is impossible for us to entirely mitigate this risk.
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The Company may be adversely affected by fraud.
As a financial institution, the Company is inherently exposed to operational risk in the form of theft and other fraudulent activity by employees, customers and other third parties targeting the Company and/or the Company’s customers or data. Such activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest acts. Although the Company devotes substantial resources to maintaining effective policies and internal controls to identify and prevent such incidents, given the increasing sophistication of possible perpetrators, the Company may experience financial losses or reputational harm as a result of fraud.
We continually encounter technological change and the failure to understand and adapt to these changes could have a material adverse impact on our business.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services (including those related to or involving AI, machine learning, blockchain and other technologies). The effective use of technology increases efficiency and enables financial institutions to serve customers better and to reduce costs. The Company’s future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in the Company’s operations. Many of the Company’s competitors have substantially greater resources to invest in technological improvements. The Company may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to its customers. to keep pace with technological changes affecting the financial services industry could have a material impact on the Company’s business and, in turn, the Company’s financial condition and results of operations.
The development and use of AI exposes us to risks that may adversely impact our business.
We or our third-party providers may develop or incorporate AI technology in certain business processes, services, or products. The development and use of AI poses a number of risks and challenges to our business. The legal and regulatory environment relating to AI is uncertain and rapidly evolving, and we may be subject to increasing regulations related to our use of these technologies, including regulations related to privacy, data security, and intellectual property rights, which could expose us to legal risks. AI models, particularly generative AI models, may produce incorrect, biased, or misleading results, expose confidential information, or infringe on intellectual property rights. Further, we may rely on AI models developed by third parties, and, to that extent, would be subject to additional risks, including limited oversight of how these models are developed and trained and potential exposure to unauthorized data usage. If our AI models, or those developed by third parties, produce inaccurate or controversial results, we could face legal liability, regulatory , reputational , or operational . These risks could impact our business, financial results, and the perception of our security measures. The Company’s use of AI currently varies across platforms, with certain third party systems incorporating AI capabilities into routine business operations. As our adoption and internal development of AI tools continues to evolve, we evaluate these technologies through our established Solutions Development Lifecycle (SDLC), which includes model validation and other risk management controls.
Risks Related to an Investment in the Company’s Securities
There may be future sales or other dilution of the Company’s equity, which may adversely affect the market price of the Company’s stock.
The Company is not restricted from issuing additional common stock, including any securities that are convertible into or exchangeable for, or that represent the right to receive, common stock. The Company also grants shares of common stock to employees and directors under the Company’s incentive plan each year. The issuance of any additional shares of the Company’s common stock or preferred stock or securities convertible into, exchangeable for or that represent the right to receive common stock or the exercise of such securities could be substantially dilutive to stockholders of the Company’s common stock. Holders of the Company’s common stock have no preemptive rights that entitle such holders to purchase their pro rata share of any offering of shares of any class or series. Because the Company’s decision to issue securities in any future offering will depend on market conditions, its acquisition activity and other factors, the Company cannot predict or estimate the amount, timing or nature of its future offerings. Thus, the Company’s stockholders bear the risk of the Company’s future offerings reducing the market price of the Company’s common stock and diluting their stock holdings in the Company.
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General Risks
The risks presented by acquisitions could adversely affect our financial condition and results of operations.
The business strategy of the Company has included and may continue to include growth through acquisition. Any acquisitions will be accompanied by the risks commonly encountered in acquisitions. These risks may include, among other things:
exposure to potential asset quality issues of the acquired business;
potential exposure to unknown or contingent liabilities of the acquired business;
our ability to realize anticipated cost savings;
the difficulty of integrating operations and personnel and the potential loss of key employees;
the potential disruption of our or the acquired company’s ongoing business in such a way that could result in decreased revenues or the inability of our management to maximize our financial and strategic position;
the inability to maintain uniform standards, controls, procedures and policies; and
the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.
We cannot provide any assurance that we will be successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome these risks could have an adverse effect on the achievement of our business strategy and results of operations.
We rely on our management and other key personnel, and the loss of any of them may adversely affect our operations.
We are and will continue to be dependent upon the services of our executive management team. In addition, we will continue to depend on our ability to retain and recruit key client relationship managers. The unexpectedloss of services of any key management personnel, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial condition.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
unemployment+5
arrears+2
recessionary+2
cut+2
easing+2
Positive rising
effective+2
improving+2
encouraging+2
positively+2
gains+1
MD&A (Item 7)
14,751 words
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The purpose of this discussion and analysis is to provide a concise description of the consolidated financial condition and results of operations of NBT Bancorp Inc. (“NBT”) and its wholly-owned subsidiaries, including NBT Bank, National Association (the “Bank”), NBT Financial Services, Inc. (“NBT Financial”) and NBT Holdings, Inc. (“NBT Holdings”) (collectively referred to herein as the “Company”). When references to “NBT,” “we,” “our,” “us,” and “the Company” are made in this report, we mean NBT Bancorp Inc. and our consolidated subsidiaries, unless the context indicates that we refer only to the parent company, NBT Bancorp Inc. When we refer to the “Bank” in this report, we mean our only bank subsidiary, NBT Bank, National Association, and its subsidiaries. This discussion will focus on results of operations for the fiscal years ended December 31, 2025, 2024 and 2023 and financial condition as of December 31, 2025 and 2024, including capital resources and asset/liability management. This discussion and analysis should be read in conjunction with the Company’s consolidated financial statements and related notes.
Forward-Looking Statements
Certain statements in this filing and future filings by the Company with the SEC, in the Company’s press releases or other public or stockholder communications or in oral statements made with the approval of an authorized executive officer, contain forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. These statements may be identified by the use of phrases such as “anticipate,” “believe,” “expect,” “forecasts,” “projects,” “will,” “can,” “would,” “should,” “could,” “may,” or other similar terms. There are a number of factors, many of which are beyond the Company’s control, that could cause actual results to differ materially from those contemplated by the forward-looking statements. The discussion in Item 1A. Risk Factors lists some of the factors that may cause actual results to differ materially from those contemplated by any forward-looking statements, and such discussion is incorporated into this discussion by reference.
The Company cautions readers not to place undue reliance on any forward-looking statements, which speak only as of the date on which they are made, and advises readers that various factors, including, but not limited to, those described above and other factors discussed in the Company’s annual and quarterly reports previously filed with the SEC, could affect the Company’s financial performance and could cause the Company’s actual results or circumstances for future periods to differ materially from those anticipated or projected.
Unless required by law, the Company does not undertake, and specifically disclaims any obligations to, publicly release any revisions that may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
General
NBT Bancorp Inc. is a registered financial holding company headquartered in Norwich, NY, with total assets of $16.00 billion at December 31, 2025. The Company’s business, primarily conducted through the Bank and its full-service retirement plan administration and recordkeeping subsidiary and full-service regional insurance agency subsidiary, consists of providing commercial banking, retail banking and wealth management services primarily to customers in its market area, which includes upstate New York, northeastern Pennsylvania, southern New Hampshire, western Massachusetts, Vermont, southern Maine and central and northwestern Connecticut. The Company has been, and intends to continue to be, a community-oriented financial institution offering a variety of financial services. The Company’s business philosophy is to operate as a community bank with local decision-making, providing a broad array of banking and financial services to retail, commercial and municipal customers. The financial review that follows focuses on the factors affecting the consolidated financial condition and results of operations of the Company and its wholly-owned subsidiaries, the Bank, NBT Financial and NBT Holdings during 2025 and, in summary form, the preceding two years. NIM is presented in this discussion on an FTE basis. Average balances discussed are daily averages unless otherwise described. The audited consolidated financial statements and related notes as of December 31, 2025 and 2024 and for each of the years in the three-year period ended December 31, 2025 should be read in conjunction with this review.
Critical Accounting Policies
The SEC defines critical accounting policies as accounting policies that are most important to a company’s financial results and condition. These policies are often subjective and require management to make estimates about uncertain matters. The accounting and reporting policies followed by the Company conform, in all material respects, to accounting principles in accordance with GAAP and to general practices within the financial services industry. In the course of normal business activity, management must select and apply many accounting policies and methodologies and make estimates and assumptions that lead to the financial results presented in the Company’s consolidated financial statements and accompanying notes. There are uncertainties inherent in making these estimates and assumptions, which could materially affect the Company’s results of operations and financial position.
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Management considers accounting estimates to be critical to reported financial results if (i) the accounting estimates require management to make assumptions about matters that are highly uncertain, and (ii) different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the Company’s financial statements. Management considers the accounting policies relating to the allowance for credit losses (“allowance”, or “ACL”) and the determination of fair values for acquired assets and assumed liabilities in a business combination, including intangible assets such as goodwill, to be critical accounting policies because of the uncertainty and subjectivity involved in these policies and the material effect that estimates related to these areas can have on the Company’s results of operations.
The Company’s methodology for estimating the allowance considers available relevant information about the collectability of cash flows, including information about past events, current conditions, and reasonable and supportable forecasts. Refer to Note 1 and Note 6 to the consolidated financial statements included elsewhere in this report.
Goodwill represents the cost of the acquired business in excess of the fair value of the related net assets acquired. Following a merger, the determination of fair values for acquired assets and assumed liabilities, including intangible assets such as goodwill, becomes critical. All acquired assets, including goodwill and other intangible assets, and assumed liabilities in purchase acquisitions are recorded at fair value as of the acquisition date. The Company expenses all acquisition-related costs as incurred as required by ASC Topic 805, “Business Combinations.”
The determination of fair values for acquired loans in a business combination is a significant aspect of our financial reporting process. The valuation of acquired loans relied on a discounted cash flow approach applied on a pooled basis, utilizing a forecast of principal and interest payments. This methodology segmented the acquired loan portfolio by loan type, term, interest rate, payment frequency and payment, and incorporated specific key valuation assumptions, encompassing prepayment speeds, PD, LGD, and the discount rate to ascertain the fair value of these assets. Given the inherent subjectivity and reliance on future cash flows and market conditions, this process involves considerable judgment and estimation uncertainty.
The Company conducts an annual review of goodwill impairment and conducts quarterly analyses to identify any events that may necessitate an interim assessment. The Company initially undertakes a qualitative evaluation of goodwill to ascertain whether certain events or circumstances indicate a likelihood that the fair value of a reporting unit is less than its carrying amount. This qualitative evaluation demands considerable managerial discretion, and if it suggests that the fair value of a reporting unit is unlikely to be less than the carrying value, no quantitative analysis is required. Inputs for this qualitative analysis requiring managerial judgment encompass macroeconomic conditions, industry and market conditions, the financial performance of the reporting unit, and other pertinent events influencing the fair value of the reporting unit.
For information on the Company’s significant accounting policies and to gain a greater understanding of how the Company’s financial performance is reported, refer to Note 1 to the consolidated financial statements included elsewhere in this report.
Critical Accounting Estimates
SEC guidance requires disclosure of “critical accounting estimates.” The SEC defines “critical accounting estimates” as those estimates made in accordance with GAAP that involve a significant level of estimation uncertainty and have had or are reasonably likely to have a material impact on the financial condition or results of operations of the registrant. The Company follows financial accounting and reporting policies that are in accordance with GAAP. Management has reviewed the application of these estimates with the Audit Committee of NBT’s Board of Directors. The allowance for credit losses and unfunded commitments policies are deemed to meet the SEC’s definition of a critical accounting estimate.
Allowance for Credit Losses and Unfunded Commitments
The allowance for credit losses consists of the allowance for credit losses and the allowance for losses on unfunded commitments. The measurement of CECL on financial instruments requires an estimate of the credit losses expected over the life of an exposure (or pool of exposures). The estimate of expected credit losses under the CECL methodology is based on relevant information about past events, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts. Historical loss experience is generally the starting point for estimating expected credit losses. The Company then considers whether the historical loss experience should be adjusted for asset-specific risk characteristics or current conditions at the reporting date that did not exist over the period from which historical experience was used. Finally, the Company considers forecasts about future economic conditions that are reasonable and supportable. The allowance for credit losses for loans, as reported in our consolidated statements of financial condition, is adjusted by an expense for credit losses, which is recognized in earnings, and reduced by the charge-off of loan amounts, net of recoveries. The allowance for losses on unfunded commitments 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 allowance for losses on unfunded commitments is determined by estimating future draws and applying the expected loss rates on those draws.
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Management of the Company considers the accounting policy relating to the allowance for credit losses to be a critical accounting estimate given the uncertainty in evaluating the level of the allowance required to cover management’s estimate of all expected credit losses over the expected contractual life of our loan portfolio. Determining the appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are inherently uncertain. Subsequent evaluations of the then-existing loan portfolio, in light of the factors then prevailing, may result in significant changes in the allowance for credit losses in those future periods. While management’s current evaluation of the allowance for credit losses indicates that the allowance is appropriate, the allowance may need to be increased under adversely different conditions or assumptions. The impact of utilizing the CECL methodology to calculate the reserve for credit losses will be significantly influenced by the composition, characteristics and quality of our loan portfolio, as well as the prevailing economic conditions and forecasts utilized. Material changes to these and other relevant factors may result in greatervolatility to the reserve for credit losses, and therefore, greatervolatility to our reported earnings.
One of the most significant judgments involved in estimating the Company’s allowance for credit losses relates to the macroeconomic forecasts used to estimate expected credit losses over the forecast period. As of December 31, 2025, the quantitative model incorporated a baseline economic outlook along with an alternative upside scenario and two equally weighted downside scenarios, recessionary conditions and stagflation, sourced from a reputable third-party to accommodate other potential economic conditions in the model. At December 31, 2025, the weightings were 65%, 5% and 30% for the baseline, upside and downside economic forecast scenarios, respectively. The baseline outlook reflected an economic environment where the northeast unemployment rate increases from 4.5% in the first quarter of 2026 to 4.8% by the end of the forecast period, with a peak northeast unemployment rate of 4.9% in the fourth quarter of 2026. National GDP annualized growth (on a quarterly basis) is expected to start the first quarter of 2026 at approximately 2.55% and decrease to 1.8% by the end of the forecast period. Key assumptions in the baseline economic outlook included the Federal Reserve cutting rates with one 25 basis point cut at the December meeting and the economy remaining at full employment. The alternative upside scenario assumes improved economic conditions from the baseline outlook. Under this scenario, northeast unemployment falls from 4.4% in the fourth quarter of 2025 to 4.0% in the second quarter of 2026 and eventually settles at 4.1% by the end of the forecast period. The alternative downside scenario with recessionary conditions assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.4% in the fourth quarter of 2025 to a peak of 7.8% in the first quarter of 2027. The alternative downside stagflation scenario assumes deteriorated economic conditions from the baseline outlook. Under this scenario, northeast unemployment rises from 4.4% in the fourth quarter of 2025 to 6% by the end of the forecast period in the second quarter of 2027, with a peak northeast unemployment rate of 8.2% in the first quarter of 2028. These scenarios and their respective weightings are evaluated at each measurement date and reflect management’s expectations as of December 31, 2025. Additional qualitative adjustments were made for factors not incorporated in the forecasts or the model, such as loss rate expectations for certain loan pools, reversion adjustments for the stagflation scenario and recent trends in asset value indices. Additional monitoring for industry concentrations, loan growth and policy exceptions was also conducted.
To demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2025, the Company changed the scenario weightings, with a 10% increase to the downside scenarios, equally weighted, and a 10% decrease to the baseline scenario causing a 4% increase in the overall estimated allowance for credit losses. If instead the upside scenario was increased 10% and the baseline scenario was decreased 10%, the overall estimated allowance for credit losses decreased 1%. To further demonstrate the sensitivity of the allowance for credit losses estimate to macroeconomic forecast weightings assumptions as of December 31, 2025, the Company increased the downside scenarios, equally weighted, to 100% which resulted in a 24% increase in the overall estimated allowance for credit losses.
Non-GAAP Measures
This Annual Report on Form 10-K contains financial information determined by methods other than in accordance with GAAP. Where non-GAAP disclosures are used in this Annual Report on Form 10-K, the comparable GAAP measure, as well as a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of the Company’s core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider the Company’s performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of the Company. Amounts previously reported in the consolidated financial statements are reclassified whenever necessary to conform to current period presentation.
Evans Bancorp, Inc. Merger
On May 2, 2025, the Company completed the acquisition of Evans, through the merger of Evans with and into the Company, with the Company surviving the merger. Total consideration for the acquisition was $221.8 million in common stock. Evans, with assets of $2.19 billion at December 31, 2024, was headquartered in Williamsville, New York. Its primary subsidiary, Evans Bank, was a federally-chartered national banking association operating 18 banking locations in Western New York. The acquisition enhances the Company’s presence in Western New York, including the Buffalo and Rochester communities. In connection with the acquisition, the Company issued 5.1 million shares of common stock and acquired approximately $131.2 million of identifiable net assets, including $1.67 billion of loans, $255.5 million in AFS investment securities, which were sold during the second quarter of 2025, $33.2 million of core deposit intangibles and $1.86 billion in deposits. As of the acquisition date, the fair value discount was $95.2 million for loans, net of the reclassification of the PCD allowance and $0.6 million net discount related to long-term debt.
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The Company incurred acquisition expenses related to the merger with Evans of $19.5 million and $1.5 million for the years ended December 31, 2025 and 2024, respectively.
Salisbury Bancorp, Inc. Merger
On August 11, 2023, NBT completed its acquisition of Salisbury. Salisbury Bank was a Connecticut-chartered commercial bank headquartered in Lakeville, Connecticut, operating 13 banking offices in northwestern Connecticut, the Hudson Valley region of New York, and southwestern Massachusetts. In connection with the acquisition, the Company issued 4.32 million shares of common stock and acquired approximately $1.46 billion of identifiable assets, including $1.18 billion of loans, $122.7 million in investment securities which were sold immediately after the merger, $31.2 million of core deposit intangibles and $4.7 million in a wealth management customer intangible, as well as $1.31 billion in deposits. As of the acquisition date, the fair value discount was $78.7 million for loans, net of the reclassification of the purchase credit deteriorated allowance, and was $3.0 million for subordinated debt. The Company established a $14.5 million allowance for acquired Salisbury loans which included both the $5.8 million allowance for PCD loans reclassified from loans and the $8.8 million allowance for non-PCD loans recognized through the provision for loan losses.
The Company incurred acquisition expenses related to the merger with Salisbury of $10.0 million for the year ended December 31, 2023.
Executive Summary
Significant factors management reviews to evaluate the Company’s operating results and financial condition include, but are not limited to, net income and EPS, return on average assets and equity, NIM, noninterest income, operating expenses, asset quality indicators, loan and deposit growth, capital management, liquidity and interest rate sensitivity, enhancements to customer products and services, technology advancements, market share and peer comparisons.
Net income for the year ended December 31, 2025 was $169.2 million, or $3.33 per diluted common share, up $28.6 million from $140.6 million, or $2.97 per diluted common share, for the year ended December 31, 2024.
Operating net income (1) , a non-GAAP measure, was $194.5 million, or $3.82 per diluted common share, for the year ended December 31, 2025, compared to $139.7 million, or $2.94 per diluted common share for the year ended December 31, 2024.
The following information should be considered in connection with the Company’s results as of and for the year ended December 31, 2025:
The acquisition of Evans was completed on May 2, 2025.
Net interest income for the year ended December 31, 2025 was $501.5 million, up $101.4 million, or 25.3%, from 2024.
The Company recorded a provision for loan losses of $32.3 million for the year ended December 31, 2025, compared to $19.6 million in 2024. Included in the provision expense for the year ended December 31, 2025 was $13.0 million of acquisition-related provision for loan losses.
Excluding securities gains (losses), noninterest income represented 28% of total revenues and was $195.3 million for the year ended December 31, 2025, up $21.3 million, or 12.2%, from the prior year.
Noninterest expense, excluding acquisition expenses, was $425.8 million for the year ended December 31, 2025, up $49.5 million, or 13.1%, from the prior year.
Period end total loans were $11.60 billion, up $1.63 billion, or 16.3% from December 31, 2024, including $1.67 billion of loans acquired from Evans.
Credit quality metrics including net charge-offs to average loans were 0.16% and allowance for loan losses to total loans was 1.19%.
Period end total deposits were $13.50 billion, up $1.95 billion, or 16.9%, from December 31, 2024, including $1.86 billion in deposits acquired from Evans. The loan to deposit ratio was 85.9% as of December 31, 2025 and 86.3% as of December 31, 2024.
In July of 2025, the Company redeemed $118 million of subordinated debt that had a weighted average rate of 5.45% using existing liquidity sources. The $118 million of subordinated debt would have converted to a weighted average floating rate above 9%.
Non-GAAP measure - Refer to non-GAAP reconciliation below.
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Results of Operations
The following table sets forth certain financial highlights:
Years Ended December 31,
Performance:
Diluted earnings per share
Return on average assets
Return on average equity
Return on average tangible common equity (1)
Net interest margin (FTE) (1)
Capital:
Equity to assets
Tangible equity ratio (1)
Book value per share
Tangible book value per share (1)
Leverage ratio
Common equity tier 1 capital ratio
Tier 1 capital ratio
Total risk-based capital ratio
The following tables provide non-GAAP reconciliations:
Years Ended December 31,
(In thousands, except per share data)
Return on average tangible common equity:
Net income
Amortization of intangible assets (net of tax)
Net income, excluding intangible amortization
Average stockholders’ equity
Less: average goodwill and other intangibles
Average tangible common equity
Return on average tangible common equity
Tangible equity ratio:
Stockholders’ equity
Intangibles
Assets
Tangible equity ratio
Tangible book value per share:
Stockholders’ equity
Intangibles
Tangible equity
Diluted common shares outstanding
Tangible book value per share
Operating net income:
Net income
Acquisition expenses
Acquisition-related provision for credit losses
Acquisition-related reserve for unfunded loan commitments
Impairment of a minority interest equity investment
Securities (gains) losses
Adjustment to net income
Adjustment to net income (net of tax)
Operating net income
Operating diluted earnings per share
FTE adjustment:
Net interest income
FTE adjustment
Net interest income (FTE)
Average earning assets
Net interest margin (FTE)
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2026 Outlook
The Company’s 2025 earnings reflected its continued ability to invest in the future while managing continued volatility in the current interest rate environment and overall economic conditions, which have presented challenges across the financial services industry. 2025 was marked by resilient economic growth and while improving modestly, persistent inflation.
In 2025, the FOMC continued the easing cycle, which commenced in 2024, cutting the federal funds rate three times (September, October and December) by 25 bps each. Bringing the target range down from 4.25%-4.50% towards a more neutral stance of 3.50%-3.75% as inflation pressures eased but growth softened. Actions included rate cuts, open market operations to manage liquidity and adjustments to reinvestment policies for Treasury and mortgage-backed securities. The FOMC remained committed to its 2% inflation target and maximum employment goals, adjusting policy as economic data evolved. The cuts responded to a softening labor market and slowing economic growth, with rising tariffs posing inflationary risks that the FOMC aimed to manage.
Deposit costs declined in 2025, but inversion in the midpoint of the yield curve continues to challenge interest rates for 2- to 5-year Treasuries and bank net interest margins. The good news is the long end of the Treasury maturities is currently higher than short-term rates. It is hoped that further monetary policy easing will cut short-term interest rates further. This is an encouraging sign that the interest rate environment may be finally returning to a “normal,” positively sloped yield curve.
The rate environment in 2026 is expected to improve but remain challenging. The monetary policy pivot has begun and should continue throughout the year. Interest rates continue to normalize, and the return to a positively sloped yield curve is an encouraging sign. Deposit competition will remain fierce. The risk of recession is low. Overall, the rate environment is improving and is expected to benefit the banking industry. Future decreases in rates by the Fed will be determined by labor market conditions and the levels of inflation.
The economic outlook for 2026 is generally positive with GDP growth in 2026 expected to be in the 2%-2.5% range driven by AI investment, strong consumer spending and potential tailwinds from loosened monetary policy. Continued heavy investment in AI and related infrastructure is expected to be a primary driver of business investment and overall growth. Despite previous headwinds, consumer spending remains strong, supported by a healthy labor market.
The Company continues to focus on long-term strategies including growth in its markets, diversification of revenue sources, improving operating efficiencies and investing in technology.
The Company’s 2026 outlook is subject to factors in addition to those identified above and those risks and uncertainties that could impact the Company’s future results are explained in Item 1A. Risk Factors.
Asset/Liability Management
The Company attempts to maximize net interest income and net income, while actively managing its liquidity and interest rate sensitivity through the mix of various core deposit products and other sources of funds, which in turn fund an appropriate mix of earning assets. The changes in the Company’s asset mix and sources of funds, and the resulting impact on net interest income, on an FTE basis, are discussed below. The following table includes the condensed consolidated average balance sheet, an analysis of interest income/expense and average yield/rate for each major category of earning assets and interest-bearing liabilities on a taxable equivalent basis.
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Average Balances and Net Interest Income
(Dollars in thousands)
Average
Balances
Net Interest
Income
Yield/
Rate
Average
Balances
Net Interest
Income
Yield/
Rate
Average
Balances
Net Interest
Income
Yield/
Rate
Assets:
Short-term interest-bearing accounts
Securities taxable (1)
Securities tax-exempt (1) (3)
FRB and FHLB stock
Loans (2) (3)
Total interest-earning assets
Other assets
Total assets
Liabilities and stockholders’ equity:
Money market deposits
Interest-bearing checking deposits
Savings deposits
Time deposits
Total interest-bearing deposits
Federal funds purchased
Repurchase agreements
Short-term borrowings
Long-term debt
Subordinated debt, net
Junior subordinated debt
Total interest-bearing liabilities
Demand deposits
Other liabilities
Stockholders’ equity
Total liabilities and stockholders’ equity
Net interest income (FTE)
Interest rate spread
Net interest margin (FTE)
Taxable equivalent adjustment
Net interest income
Securities are shown at average amortized cost.
For purposes of these computations, nonaccrual loans and loans held for sale are included in the average loan balances outstanding.
Interest income for tax-exempt securities and loans have been adjusted to an FTE basis using the statutory Federal income tax rate of 21%.
2025 OPERATING RESULTS AS COMPARED TO 2024 OPERATING RESULTS
Net Interest Income
Net interest income for the year ended December 31, 2025 was $501.5 million, up $101.4 million, or 25.3%, from 2024. The FTE NIM was 3.59% for the year ended December 31, 2025, an increase of 36 bps from 2024. Interest income increased $99.3 million, or 16.2%, as the yield on average interest-earning assets increased 16 bps from 2024 to 5.09%. Average interest-earning assets of $14.03 billion increased $1.58 billion primarily due to the addition of $1.95 billion in interest-earning assets in May 2025 from the Evans acquisition and organic earning asset growth. Interest expense decreased $2.1 million, or 1.0%, for the year ended December 31, 2025 as compared to the year ended December 31, 2024 driven by interest-bearing deposit costs decreasing 27 bps, lower average balances of short-term borrowings and lower average balances of subordinated debt. The decrease in interest expense was partially offset by the addition of $1.62 billion in interest-bearing liabilities in May 2025 from the Evans acquisition and organic growth. Included in net interest income was $21.0 million and $10.4 million for the years ended December 31, 2025 and 2024, respectively, of acquisition-related net accretion.
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Analysis of Changes in FTE Net Interest Income
Increase (Decrease)
2025 over 2024
Increase (Decrease)
2024 over 2023
(In thousands)
Volume
Rate
Total
Volume
Rate
Total
Short-term interest-bearing accounts
Securities taxable
Securities tax-exempt
FRB and FHLB stock
Loans
Total FTE interest income
Money market deposits
Interest-bearing checking deposits
Savings deposits
Time deposits
Federal funds purchased
Repurchase agreements
Short-term borrowings
Long-term debt
Subordinated debt, net
Junior subordinated debt
Total FTE interest expense
Change in FTE net interest income
Loans and Corresponding Interest and Fees on Loans
The average balance of loans increased by approximately $1.24 billion, or 12.6%, from 2024 to 2025 driven by the Evans acquisition. Excluding the loans acquired from Evans, the increases in C&I and indirect auto were offset by a reduction in the average balance of residential solar and other consumer loans. The yield on average loans increased from 5.64% in 2024 to 5.73% in 2025, as loans re-priced upward due to the interest rate environment in 2025. FTE interest income from loans increased 14.3%, from $553.8 million in 2024 to $633.2 million in 2025. This increase was due to the improvement in asset yields and an increase in the average balance of earning assets.
Composition of Loan Portfolio
A summary of the loan portfolio by major categories (1) , net of deferred fees and origination costs, for the periods indicated is as follows:
December 31,
(In thousands)
Commercial & industrial
Commercial real estate
Paycheck protection program
Residential mortgage
Home equity
Indirect auto
Residential solar
Other consumer
Total loans
Loans are summarized by business line which do not align to how the Company assesses credit risk in the allowance for credit losses under CECL.
Total loans were $11.60 billion and $9.97 billion at December 31, 2025 and 2024, respectively. Period end loans increased by $1.63 billion from December 31, 2024 to December 31, 2025, which included $1.67 billion of loans acquired from Evans. Excluding the other consumer and residential solar portfolios, which are in a planned run-off status and the loans acquired from Evans, period end loans increased $68.1 million, or 0.7%, from December 31, 2024. From December 31, 2024 to December 31, 2025 C&I loans increased $245.5 million to $1.67 billion; CRE loans increased $922.3 million to $4.80 billion; and total consumer loans increased $460.5 million to $5.13 billion. Total loans represent approximately 72.5% of assets as of December 31, 2025, as compared to 72.3% as of December 31, 2024.
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Loans in the C&I and CRE portfolios consist primarily of loans extended to small and medium-sized entities. The Company offers a variety of loan products tailored to meet the needs of commercial customers including term loans, time notes and lines of credit. Such loans are made available to businesses for working capital needs such as inventory and receivables, business expansion, equipment purchases, livestock purchases and seasonal crop expenses. These loans are typically collateralized by business assets such as equipment, accounts receivable and perishable agricultural products, which are inherently subject to industry price volatility. The Company extends CRE loans to support real estate transactions, including acquisitions, refinancings, expansions and property improvements to both commercial and agricultural properties. These loans are secured by liens on real estate assets, covering a spectrum of properties including apartments, commercial structures, healthcare facilities and others, whether occupied by owners or non-owners. Risks associated with the CRE portfolio pertain to the borrowers’ ability to meet interest and principal payments over the life of the loan, as well as their ability to secure financing upon the loan’s maturity. The Company has a risk management framework that includes rigorous underwriting standards, targeted portfolio stress testing, interest rate sensitivities on commercial borrowers and comprehensive credit risk monitoring mechanisms. The Company remains vigilant in monitoring market trends, economic indicators and regulatory developments to promptly adapt our risk management strategies as needed.
Within the CRE portfolio, approximately 78% are comprised of Non-Owner Occupied CRE, with the remaining 22% being Owner-Occupied CRE. Non-Owner Occupied CRE includes diverse sectors across the Company’s markets such as residential rental properties (45%) and office spaces (13%), along with retail, manufacturing, mixed use, hotels and others. As of December 31, 2025 and December 31, 2024, the total CRE construction and development loans amounted to $405.3 million and $314.8 million, respectively.
Residential mortgage loans consist primarily of loans secured by a first or second mortgage on primary residences. The Company originates both adjustable-rate and fixed-rate, one-to-four-family residential loans for the construction or purchase of a residential property or refinancing of a mortgage. These loans are collateralized by properties located in the Company’s market area. The Company has never actively participated in subprime mortgage lending, which has historically been one of the riskiest sectors in the residential housing market. Given the absence of a universally accepted definition of what constitutes “subprime” lending, the Company follows guidance from the Office of Thrift Supervision and other federal bank regulators (the “Agencies”), as outlined in the “Expanded Guidance for Subprime Lending Programs,” or the Expanded Guidance, issued by the Agencies by press release dated January 31, 2001. As of December 31, 2025, there were $34.1 million in residential construction and development loans included in total loans.
The Company participated in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”), a guaranteed, forgivable loan program created under the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”) and the Consolidated Appropriation Act targeted to provide small businesses with support to cover payroll and certain other expenses. Loans made under the PPP are fully guaranteed by the SBA, the guarantee is backed by the full faith and credit of the United States government. PPP covered loans also afford borrowers forgiveness up to the principal amount of the PPP covered loan, plus accrued interest, if the loan proceeds are used to retain workers and maintain payroll or to make certain mortgage interest, lease and utility payments, and certain other criteria are satisfied. The SBA will reimburse PPP lenders for any amount of a PPP covered loan that is forgiven, and PPP lenders will not be held liable for any representations made by PPP borrowers in connection with their requests for loan forgiveness. Lenders receive pre-determined fees for processing and servicing PPP loans. In addition, PPP loans are risk-weighted at zero percent under the generally applicable Standardized Approach used to calculate risk-weighted assets for regulatory capital purposes.
In 2017, the Company partnered with Sungage Financial, LLC. to offer financing to consumers for solar ownership with the program tailored for delivery through solar installers. Advances of credit through this business line are to prime borrowers and are subject to the Company’s underwriting standards. Typically, the Company collects fees at origination that are deferred and recognized into interest income over the estimated life of the loan. Residential solar loans are in a planned-run off status.
The Company offers a variety of consumer loan products including indirect auto, home equity and other consumer loans. Indirect auto loans include indirect installment loans to individuals, which are primarily secured by automobiles. Although automobile loans have generally been originated through dealers, all applications submitted through dealers are subject to the Company’s normal underwriting and loan approval procedures. Other consumer loans consist of direct installment loans to individuals most secured by automobiles and other personal property and unsecured consumer loans across a national footprint originated through our relationship with national technology-driven consumer lending companies that began over 10 years ago beginning with our investment in Springstone Financial LLC (“Springstone”) which was subsequently acquired by LendingClub in 2014. Springstone and LendingClub loans are in a planned run-off status. In addition to installment loans, the Company also offers personal lines of credit, overdraft protection, home equity lines of credit and second mortgage loans (loans secured by a lien position on one-to-four family residential mortgage) to finance home improvements, debt consolidation, education and other uses. For home equity loans, consumers are able to borrow up to 85% of the equity in their homes, and are generally tied to Prime with a ten year draw followed by a fifteen year amortization.
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Loans by Maturity and Interest Rate Sensitivity
The following table presents the maturity distribution and an analysis of loans that have predetermined and floating interest rates. Scheduled repayments are reported in the maturity category in which the contractual maturity is due. For loans without contractual maturities, classification of maturity is consistent with the policy elections to measure the allowance for credit losses. Specifically, C&I and CRE lines of credit assume one year maturity for relationships over $1.0 million and five year maturity for relationships under $1.0 million, while home equity line of credits maturities are classified based on their fixed rate conversion date plus five years. C&I includes PPP and other consumer includes home equity and other consumer loans.
Remaining Maturity at December 31, 2025
(In thousands)
CRE
Indirect
Auto
Residential
Solar
Other
Consumer
Residential
Total
Within one year
From one to five years
From five to fifteen years
After fifteen years
Total
Interest rate terms on amounts due after one year:
Fixed
Variable
Securities and Corresponding Interest and Dividend Income
The average balance of taxable securities AFS and HTM increased $181.3 million, or 7.9%, from 2024 to 2025. The yield on average taxable securities was 2.43% for 2025 compared to 1.99% in 2024. The average balance of tax-exempt securities AFS and HTM decreased from $221.3 million in 2024 to $208.1 million in 2025. The FTE yield on tax-exempt securities increased from 3.52% in 2024 to 3.56% in 2025.
The average balance of FRB and FHLB stock increased to $40.1 million in 2025 from $37.8 million in 2024. The yield on investments in FRB and FHLB stock decreased from 7.07% in 2024 to 5.27% in 2025.
Securities Portfolio
As of December 31,
(In thousands)
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
Amortized
Cost
Fair
Value
AFS securities:
U.S. treasury
Federal agency
State & municipal
Mortgage-backed
Collateralized mortgage obligations
Corporate
Total AFS securities
HTM securities:
Federal agency
Mortgage-backed
Collateralized mortgage obligations
State & municipal
Total HTM securities
The Company’s mortgage-backed securities, U.S. agency notes and collateralized mortgage obligations are all guaranteed by Fannie Mae, Freddie Mac, FHLB, Federal Farm Credit Banks or Ginnie Mae (“GNMA”). GNMA securities are considered similar in credit quality to U.S. Treasury securities, as they are backed by the full faith and credit of the U.S. government. Currently, there are no subprime mortgages in the investment portfolio.
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The following table sets forth information with regard to contractual maturities of debt securities shown in amortized cost ($) and weighted average yield (%) at December 31, 2025. Weighted-average yields are an arithmetic computation of income (not FTE adjusted) divided by amortized cost. Maturities of mortgage-backed, collateralized mortgage obligations and asset-backed securities are stated based on their estimated average lives. Actual maturities may differ from estimated average lives or contractual maturities because, in certain cases, borrowers have the right to call or prepay obligations with or without call or prepayment penalties.
Less than 1 Year
1 Year to 5 Years
5 Years to 10 Years
Over 10 Years
Total
(Dollars in thousands)
AFS securities:
U.S. treasury
Federal agency
State & municipal
Mortgage-backed
Collateralized mortgage obligations
Corporate
Total AFS securities
HTM securities:
Federal agency
Mortgage-backed
Collateralized mortgage obligations
State & municipal
Total HTM securities
Funding Sources and Corresponding Interest Expense
The Company utilizes traditional deposit products such as time, savings, interest-bearing checking, money market and demand deposits as its primary source for funding. Other sources, such as short-term FHLB advances, federal funds purchased, securities sold under agreements to repurchase, brokered time deposits and long-term FHLB borrowings are utilized as necessary to support the Company’s growth in assets and to achieve interest rate sensitivity objectives. The average balance of interest-bearing liabilities totaled $9.57 billion in 2025 and increased $1.19 billion from 2024. The increase was primarily driven by the interest-bearing deposits acquired from Evans partially offset by a decrease in short-term borrowings and subordinated debt. The rate paid on interest-bearing liabilities decreased from 2.52% in 2024 to 2.19% in 2025. This decrease in rates caused a decrease in interest expense of $2.1 million, or 1.0%, from $211.5 million in 2024 to $209.4 million in 2025.
Deposits
Average interest-bearing deposits increased $1.30 billion, or 16.5%, from 2024 to 2025. Average money market deposits increased $595.2 million, or 18.0%, during 2025 compared to 2024. Average interest-bearing checking deposits increased $318.5 million, or 19.7%, during 2025 as compared to 2024. The average balance of savings accounts increased $243.4 million, or 15.4%, during 2025 compared to 2024. The average balance of time deposits increased $146.6 million, or 10.4%, from 2024 to 2025. The average balance of demand deposits increased $303.8 million, or 9.0%, during 2025 compared to 2024. The increase in average balances was primarily due to the $1.86 billion in deposits acquired from Evans in the second quarter of 2025. The Company’s composition of total deposits is diverse and granular with over 613,000 accounts with an average per account balance of $22,014 as of December 31, 2025.
The rate paid on average interest-bearing deposits was down 27 bps to 2.09% for 2025. The rate paid for MMDA decreased 59 bps to 2.95% from 2024 to 2025. The rate paid for interest-bearing checking deposits increased from 0.83% in 2024 to 1.02% in 2025. The rate paid for savings deposits increased from 0.05% in 2024 to 0.33% in 2025. The rate paid for time deposits decreased from 3.96% during 2024 to 3.30% during 2025.
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Years Ended December 31,
(In thousands)
Average
Balance
Yield/Rate
Average
Balance
Yield/Rate
Average
Balance
Yield/Rate
Demand deposits
Money market deposits
Interest-bearing checking deposits
Savings deposits
Time deposits
Total interest-bearing deposits
The following table presents the estimated amounts of uninsured deposits based on the same methodologies and assumptions used for the bank regulatory reporting:
As of December 31,
(In thousands)
Estimated amount of uninsured deposits
The following table presents the maturity distribution of time deposits of $250,000 or more:
(In thousands)
December 31, 2025
Portion of time deposits in excess of insurance limit
Time deposits otherwise uninsured with a maturity of:
Within three months
After three but within six months
After six but within twelve months
Over twelve months
Borrowings
Average federal funds purchased decreased to $4.1 million in 2025. The rate paid on federal funds purchased was 4.50% in 2025. Average repurchase agreements increased to $114.8 million in 2025 from $95.9 million in 2024. The average rate paid on repurchase agreements increased from 2.35% in 2024 to 2.66% in 2025. Average short-term borrowings decreased to $8.7 million in 2025 from $104.0 million in 2024. The average rate paid on short-term borrowings decreased from 5.48% in 2024 to 4.62% in 2025. Average long-term debt increased from $29.7 million in 2024 to $36.9 million in 2025. The average balance of junior subordinated debt increased from $101.2 million in 2024 to $108.1 million in 2025. The average rate paid for junior subordinated debt in 2025 was 6.59%, down from 7.44% in 2024.
Total short-term borrowings consist of federal funds purchased, securities sold under repurchase agreements, which generally represent overnight borrowing transactions and other short-term borrowings, primarily FHLB advances, with original maturities of one year or less. The Company has unused lines of credit with the FHLB and access to brokered deposits available for short-term financing. Those sources totaled approximately $4.38 billion and $3.46 billion at December 31, 2025 and 2024, respectively. Securities collateralizing repurchase agreements are held in safekeeping by nonaffiliated financial institutions and are under the Company’s control. Long-term debt, which is comprised primarily of FHLB advances, are collateralized by the FHLB stock owned by the Company, certain of its mortgage-backed securities and a blanket lien on its residential mortgage loans.
On June 23, 2020, the Company issued $100.0 million of 5.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualified as Tier 2 capital, bore interest at an annual rate of 5.00%, payable semi-annually in arrears commencing on January 1, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 4.85%, payable quarterly in arrears commencing on October 1, 2025. The subordinated notes issuance costs of $2.2 million were amortized on a straight-line basis into interest expense over five years. The Company repurchased $2.0 million of the subordinated notes in 2022 at a discount of $0.1 million. On July 1, 2025, the Company redeemed these subordinated notes in full using existing liquidity sources.
The subordinated notes assumed in connection with the Salisbury acquisition included $25.0 million of 3.50% fixed-to-floating rate subordinated notes due 2031. The subordinated notes, which qualified as Tier 2 capital, bore interest at an annual rate of 3.50%, payable quarterly in arrears commencing on June 30, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 2.80%, payable quarterly in arrears commencing on June 30, 2026. As of the acquisition date, the fair value discount was $3.0 million, which will be amortized into interest expense over the expected call or maturity date.
Subordinated notes assumed in connection with the Evans acquisition included $20.0 million of 6.00% fixed-to-floating rate subordinated notes due 2030. The subordinated notes, which qualified as Tier 2 capital, bore interest at an annual rate of 6.00%, payable semi-annually in arrears commencing on January 15, 2021, and a floating rate of interest equivalent to the three-month SOFR plus a spread of 5.90%, payable quarterly in arrears commencing on July 15, 2025. On July 15, 2025, the Company redeemed these subordinated notes in full using existing liquidity sources.
As of December 31, 2025 and December 31, 2024 the subordinated debt net of unamortized issuance costs and fair value discount was $24.5 million and $121.2 million, respectively.
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Noninterest Income
Noninterest income is a significant source of revenue for the Company and an important factor in the Company’s results of operations. The following table sets forth information by category of noninterest income for the years indicated:
Years Ended December 31,
(In thousands)
Service charges on deposit account
Card services income
Retirement plan administration fees
Wealth management
Insurance services
Bank owned life insurance income
Net securities gains (losses)
Other
Total noninterest income
Noninterest income for the year ended December 31, 2025 was $195.5 million, up $18.7 million, or 10.6%, from the year ended December 31, 2024. Excluding net securities gains (losses), noninterest income for the year ended December 31, 2025 was $195.3 million, up $21.3 million, or 12.2%, from the year ended December 31, 2024. The increase from the prior year was primarily due to an increase in retirement plan administration fees, wealth management fees and bank owned life insurance income. The increase in retirement plan administration fees was driven by higher market values of assets under administration, organic growth and the acquisition of a small TPA business in the fourth quarter of 2024. The increase in wealth management fees was driven by market performance and growth in new customer accounts. Bank owned life insurance income increased due to $2.7 million in additional gains recognized in 2025. Service charges on deposit accounts, card services income and other noninterest income increased from 2024 primarily due to the Evans acquisition. Included in other noninterest income for the year ended December 31, 2025 was a $0.6 million gain related to the finalization of a third-party contractual arrangement.
In the first quarter of 2023, the Company incurred a $5.0 million securities loss on the write-off of an AFS subordinated debt investment of a failed financial institution. In the first quarter of 2024, the Company sold the previously written-off subordinated debt security and recognized a gain of $2.3 million. In the second quarter of 2023, the Company incurred a $4.5 million securities loss on the sale of two subordinated debt securities held in the AFS portfolio. In the fourth quarter of 2023 the Company recorded a full $4.8 million impairment of its minority interest equity investment in a provider of financial and technology services to residential solar equipment installers due to the uncertainty in the realizability of the investment in other noninterest expense in the consolidated statements of income.
Noninterest Expense
Noninterest expenses are also an important factor in the Company’s results of operations. The following table sets forth the major components of noninterest expense for the years indicated:
Years Ended December 31,
(In thousands)
Salaries and employee benefits
Technology and data services
Occupancy
Professional fees and outside services
Office supplies and postage
FDIC assessment
Marketing
Amortization of intangible assets
Loan collection and other real estate owned, net
Acquisition expenses
Other
Total noninterest expense
Noninterest expense for the year ended December 31, 2025 was $445.3 million, up $67.5 million, or 17.9%, from the year ended December 31, 2024. Excluding acquisition expenses, noninterest expense for the year ended December 31, 2025 was $425.8 million, up $49.5 million, or 13.1%, from the year ended December 31, 2024. The increase from the prior year was driven by higher salaries and employee benefits due to the Evans acquisition, merit pay increases, higher incentive compensation expenses and higher medical expenses and other benefit costs. The increase in technology and data services was driven by the Evans acquisition and ongoing investment in enterprise technology initiatives. Occupancy expense was impacted by additional expenses from the Evans acquisition, higher utilities and higher facilities costs related to new branch banking locations. Professional fees and outside services increased from the prior year primarily due to the Evans acquisition. In addition, the increase in amortization of intangible assets was due to the amortization of the core deposit intangible asset related to the Evans acquisition.
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Income Taxes
We calculate our current and deferred tax provision based on estimates and assumptions that could differ from the actual results reflected in income tax returns filed during the subsequent year. Adjustments based on filed returns are recorded when identified, which is generally in the fourth quarter of the subsequent year for U.S. federal and state provisions.
The amount of income taxes the Company pays is subject at times to ongoing audits by U.S. federal and state tax authorities, which may result in proposed assessments. Future results may include favorable or unfavorable adjustments to the estimated tax liabilities in the period the assessments are proposed or resolved or when statutes of limitations on potential assessments expire. As a result, the Company’s effective tax rate may fluctuate significantly on a quarterly or annual basis.
Income tax expense for the year ended December 31, 2025 was $50.2 million, up $11.4 million, or 29.3%, from the year ended December 31, 2024. The effective tax rate was 22.9% in 2025 and was 21.6% in 2024. The increase in the effective tax rate from 2024 was primarily due to t he higher level of pretax income and the impact of certain nondeductible acquisition expenses related to the Evans acquisition.
On July 4, 2025, the One Big Beautiful Bill Act (the “Bill”) was enacted into law. The significant provisions of the Bill include the permanent extension and modification of certain provisions of the Tax Cuts and Jobs Act, including international tax provisions. The Bill also imposes a floor on tax deductions taken on charitable contributions. The legislation has multiple effective dates, with certain provisions effective in 2025 and others implemented in later years. The provisions of the Bill are not expected to have a material impact on our consolidated financial statements.
Risk Management – Credit Risk
Credit risk is managed through a network of loan officers, credit committees, loan policies and oversight from senior credit officers and the Board. Management follows a policy of continually identifying, analyzing and grading credit risk inherent in each loan portfolio. An ongoing independent review of individual credits in the commercial loan portfolio is performed by the independent loan review function. These components of the Company’s underwriting and monitoring functions are critical to the timely identification, classification and resolution of problem credits.
Allowance for Credit Losses
Management considers the accounting policy relating to the allowance for credit losses to be a critical estimate given the degree of judgment exercised in evaluating the level of the allowance required to estimate expected credit losses over the expected contractual life of our loan portfolio and the material effect that such judgments can have on the consolidated results of operations.
The CECL methodology requires an estimate of the credit losses expected over the life of a loan (or pool of loans). The allowance for credit losses is a valuation account that is deducted from, or added to, the loans’ amortized cost basis to present the net, lifetime amount expected to be collected on the loans. Loan losses are charged off against the allowance when management believes a loan balance is confirmed to be uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.
Required additions or reductions to the allowance for credit losses are made periodically by charges or credits to the provision for loan losses. These are necessary to maintain the allowance at a level which management believes is reasonably reflective of the overall loss expected over the contractual life of the loan portfolio, adjusted for expected prepayments and curtailments. While management uses available information to recognize losses on loans, additions or reductions to the allowance may fluctuate from one reporting period to another. These fluctuations are reflective of changes in risk associated with portfolio content and/or changes in management’s assessment of any or all of the determining factors discussed above. Management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.
Management estimates the allowance for credit losses using relevant available information, from internal and external sources, related to past events, current conditions, and reasonable and supportable forecasts. Historical credit loss experience provides the basis for the estimation of expected credit losses. Company historical loss experience was supplemented with peer information when there was insufficientloss data for the Company. Significant management judgment is required at each point in the measurement process.
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The allowance for credit losses is measured on a collective (pool) basis, with both a quantitative and qualitative analysis that is applied on a quarterly basis, when similar risk characteristics exist. The respective quantitative allowance for each segment is measured using an econometric, discounted PD and LGD modeling methodology in which distinct, segment-specific multi-variate regression models are applied to multiple, probabilistically weighted external economic forecasts. Under the discounted cash flows methodology, expected credit losses are estimated over the effective life of the loans by measuring the difference between the net present value of modeled cash flows and amortized cost basis. After quantitative considerations, management applies additional qualitative adjustments so that the allowance for credit loss is reflective of the estimate of lifetime losses that exist in the loan portfolio as of the balance sheet date.
Portfolio segment is defined as the level at which an entity develops and documents a systematic methodology to determine its allowance for credit losses. Consistent with CECL guidance, management has pooled loans with similar risk characteristics and identified segments for estimating loss based on type of borrower and collateral which is generally based upon federal call report segmentation and have been combined or subsegmented as needed to ensure loans of similar risk profiles are appropriately pooled.
During the first quarter of 2025, the Company performed an annual update to its econometric, PD/LGD models. Segment specific, multi-variate regression model inputs and assumptions were updated and recent period observed losses and behavior were incorporated into the models (“model refreshment”). The incorporation of recent observations did not have a material impact on most loan class segments except for the Auto class segment which resulted in an improvement in PD/LGD outcomes. The total allowance decreased by approximately 3% as of March 31, 2025 due to the model refreshment. Starting in the second quarter of 2025, the Company included an additional downside scenario with stagflation conditions, which is characterized as an economic environment where inflation rises alongside unemployment. Stagflation was identified as an emerging risk as tariff policies impacted the economy.
Additional information about our Allowance for Credit Losses is included in Notes 1 and 6 to the consolidated financial statements as well as in the “Critical Accounting Estimates” section of the Management’s Discussion and Analysis of Financial Condition and Results of Operations. The Company’s management considers the allowance for credit losses to be appropriate based on evaluation and analysis of the loan portfolio.
Beginning January 1, 2023, the Company adopted ASU 2022-02 Financial Instruments - CECL Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures (“ASU 2022-02”), which resulted in an insignificant change to the Company’s methodology for estimating the allowance for credit losses on TDRs since December 31, 2022. The January 1, 2023 decrease in allowance for credit loss on TDR loans relating to adoption of ASU 2022-02 was $0.6 million, which increased retained earnings by $0.5 million and decreased the deferred tax asset by $0.1 million.
The allowance for credit losses totaled $138.0 million at December 31, 2025, compared to $116.0 million at December 31, 2024. The allowance for credit losses as a percentage of loans was 1.19% at December 31, 2025, compared to 1.16% at December 31, 2024. The increase in the allowance for credit losses from December 31, 2024 to December 31, 2025 was primarily due to the recording of $20.7 million of allowance for acquired Evans loans as of the acquisition date, which included both $13.0 million of non-PCD allowance recognized through the provision for loan losses and the $7.7 million of PCD allowance reclassified from loans. In addition, the allowance for credit losses increased due to deterioration in the economic forecast including the change in the forecast scenarios and weightings, partially offset by the shift in loan composition driven by other consumer and residential solar portfolios that are in a planned run-off status.
The allowance for credit losses as of December 31, 2023 incorporates the recording of $14.5 million of allowance for acquired Salisbury loans as of the acquisition date, which included both the $8.8 million of non-PCD allowance recognized through the provision for loan losses and the $5.8 million of PCD allowance reclassified from loans.
The allowance for credit losses was 266.81% of nonperforming loans at December 31, 2025 as compared to 224.73% at December 31, 2024.
The provision for loan losses was $32.3 million for the year ended December 31, 2025, compared to $19.6 million for the year ended December 31, 2024. Provision expense increased from the prior year primarily due to the $13.0 million of acquisition-related provision for loan losses for non-PCD loans acquired from Evans and a deterioration in economic forecasts. Net charge-offs totaled $18.0 million for 2025 and 2024. Net charge-offs to average loans was 16 bps for 2025 compared to 18 bps for 2024.
(Dollars in thousands)
Balance at January 1 (1)
Loans charged-off:
Commercial
Residential
Consumer (2)
Total loans charged-off
Recoveries:
Commercial
Residential
Consumer (2)
Total recoveries
Net loans charged-off
Allowance for credit loss on PCD acquired loans
Provision for loan losses
Balance at December 31
Allowance for loan losses to loans outstanding at end of year
Net charge-offs to average loans outstanding
Commercial net charge-offs to average loans outstanding
Residential net charge-offs to average loans outstanding
Consumer net charge-offs to average loans outstanding
2023 includes an adjustment of $0.6 million as a result of the January 1, 2023, adoption of ASU 2022-02.
Consumer charge-off and recoveries include consumer and home equity.
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Nonperforming Assets
Nonperforming assets consist of nonaccrual loans, loans over 90 days past due and still accruing, troubled loans modifications, OREO and nonperforming securities. Loans are generally placed on nonaccrual when principal or interest payments become 90 days past due, unless the loan is well secured and in the process of collection. Loans may also be placed on nonaccrual when circumstances indicate that the borrower may be unable to meet the contractual principal or interest payments. The threshold for evaluating commercial loans risk graded substandard or doubtful, and nonperforming loans specifically evaluated for individual credit loss is $1.0 million. OREO represents property acquired through foreclosure and is valued at the lower of the carrying amount or fair value, less any estimated disposal costs.
As of December 31,
(Dollars in thousands)
Nonaccrual loans:
Commercial
Residential
Consumer
Troubled loan modifications (1)
Total nonaccrual loans
Loans over 90 days past due and still accruing:
Commercial
Residential
Consumer
Total loans over 90 days past due and still accruing
Total nonperforming loans
OREO
Total nonperforming assets
Total nonaccrual loans to total loans
Total nonperforming loans to total loans
Total nonperforming assets to total assets
Total allowance for loan losses to nonperforming loans
Total allowance for loan losses to nonaccrual loans
TDRs prior to adoption of ASU 2022-02.
Total nonperforming assets were $52.1 million at December 31, 2025, compared to $51.8 million at December 31, 2024. Nonperforming loans at December 31, 2025 were $51.7 million or 0.45% of total loans, compared with $51.6 million or 0.52% of total loans at December 31, 2024. The increase in nonperforming assets from the prior year was primarily attributable to the addition of nonperforming loans acquired from the Evans acquisition, an increase in loans 90 days or more past due and an increase in OREO, partially offset by a decrease in nonaccrual loans. Total nonaccrual loans were $44.6 million or 0.38% of total loans at December 31, 2025, compared to $45.8 million or 0.46% of total loans at December 31, 2024. Past due loans as a percentage of total loans was 0.38% at December 31, 2025, up from 0.34% of total loans at December 31, 2024.
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In addition to nonperforming loans discussed above, the Company has also identified approximately $271.8 million in potential problem loans at December 31, 2025, as compared to $116.1 million at December 31, 2024. Potential problem loans are loans that are currently performing, with a possibility of loss if weaknesses are not corrected. Such loans may need to be disclosed as nonperforming at some time in the future. Potential problem loans are classified by the Company’s loan rating system as “substandard.” The increase in potential problem loans at December 31, 2025, compared to December 31, 2024 is primarily due to the addition of $60.5 million in acquired commercial loans from Evans during the second quarter of 2025 and the net migration of commercial loan balances to substandard, the majority of which are adequately secured by the underlying real estate collateral. The increase in potential problem loans is due to a convergence of macroeconomic pressures, post-pandemic credit normalization, higher interest rate repricing, and structural shifts in key industries. Management cannot predict the extent to which economic conditions may worsen or other factors, which may impact borrowers and the potential problem loans. Accordingly, there can be no assurance that other loans will not become over 90 days past due, be placed on nonaccrual, become troubled loans modifications or require increased allowance coverage and provision for loan losses. To mitigate this risk the Company maintains a diversified loan portfolio, has no significant concentration in any particular industry and originates loans primarily within its footprint.
Allocation of the Allowance for Loan Losses
December 31,
(Dollars in thousands)
Allowance
Category
Percent of
Loans
Allowance
Category
Percent of
Loans
Allowance
Category
Percent of
Loans
Allowance
Category
Percent of
Loans
Allowance
Category
Percent of
Loans
Commercial
Residential
Consumer
Total
Allowance for Credit Losses on Off-Balance Sheet Credit Exposures
The Company estimates expected credit losses over the contractual period in which the Company has exposure to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Company. The allowance for losses on off-balance sheet credit exposures is adjusted as an expense in other noninterest expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over their estimated lives. The allowance for credit losses on unfunded commitments totaled $5.8 million as of December 31, 2025, compared to $4.4 million as of December 31, 2024. December 31, 2025 included $0.5 million of acquisition-related provision for unfunded loan commitments. The increase from prior year was primarily related to increases in pipeline exposure and the Evans acquisition.
Liquidity Risk
Liquidity risk arises from the possibility that the Company may not be able to satisfy current or future financial commitments or may become unduly reliant on alternate funding sources. The objective of liquidity management is to ensure the Company can fund balance sheet growth, meet the cash flow requirements of depositors wanting to withdraw funds or borrowers needing assurance that sufficient funds will be available to meet their credit needs. ALCO is responsible for liquidity management and has developed guidelines, which cover all assets and liabilities, as well as off-balance sheet items that are potential sources or uses of liquidity. Liquidity policies must also provide the flexibility to implement appropriate strategies, along with regular monitoring of liquidity and testing of the contingent liquidity plan. Requirements change as loans grow, deposits and securities mature and payments on borrowings are made. Liquidity management includes a focus on interest rate sensitivity management with a goal of avoiding widely fluctuating net interest margins through periods of changing economic conditions. Loan repayments and maturing investment securities are a relatively predictable source of funds. However, deposit flows, calls of investment securities and prepayments of loans and mortgage-related securities are strongly influenced by interest rates, the housing market, general and local economic conditions, and competition in the marketplace. Management continually monitors marketplace trends to identify patterns that might improve the predictability of the timing of deposit flows or asset prepayments.
The primary liquidity measurement the Company utilizes is called “Basic Surplus,” which captures the adequacy of its access to reliable sources of cash relative to the stability of its funding mix of average liabilities. This approach recognizes the importance of balancing levels of cash flow liquidity from short and long-term securities with the availability of dependable borrowing sources, which can be accessed when necessary. At December 31, 2025, the Company’s Basic Surplus measurement was 18.7% of total assets, or $2.98 billion, as compared to the December 31, 2024 Basic Surplus of 17.0%, or $2.34 billion, and was above the Company’s minimum of 5% (calculated at $799.8 million and $689.3 million of period end total assets as of December 31, 2025 and December 31, 2024, respectively) set forth in its liquidity policies.
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At December 31, 2025 and 2024, FHLB advances outstanding totaled $43.0 million and $45.6 million, respectively. At December 31, 2025 and 2024, the Bank had $353.0 million and $199.0 million, respectively, of collateral encumbered by municipal letters of credit. The Bank is a member of the FHLB system and had additional borrowing capacity from the FHLB of approximately $2.10 billion at December 31, 2025 and $1.71 billion at December 31, 2024. In addition, unpledged securities could have been used to increase borrowing capacity at the FHLB by an additional $1.11 billion and $957.3 million at December 31, 2025 and 2024, respectively, or used to collateralize other borrowings, such as repurchase agreements. The Company also has the ability to issue brokered time deposits and to borrow against established borrowing facilities with other banks (federal funds), which could provide additional liquidity of $2.53 billion and $2.01 billion at December 31, 2025 and December 31, 2024, respectively. In addition, the Bank has a “Borrower-in-Custody” program with the FRB with the addition of the ability to pledge automobile and residential solar loans as collateral. At December 31, 2025 and 2024, the Bank had the capacity to borrow $1.18 billion and $1.13 billion, respectively, from this program. The Company’s internal policies authorize borrowing up to 25% of assets. Under this policy, remaining available borrowing capacity totaled $3.94 billion at December 31, 2025 and $3.38 billion at December 31, 2024.
This Basic Surplus approach enables the Company to appropriately manage liquidity from both operational and contingency perspectives. By tempering the need for cash flow liquidity with reliable borrowing facilities, the Company is able to operate with a more fully invested and, therefore, higher interest income generating securities portfolio. The makeup and term structure of the securities portfolio is, in part, impacted by the overall interest rate sensitivity of the balance sheet. Investment decisions and deposit pricing strategies are impacted by the liquidity position. The Company considers its Basic Surplus position to be strong. However, certain events may adversely impact the Company’s liquidity position in 2026. While short-term interest rates have declined, they remain elevated relative to recent history, which could result in deposit declines as depositors have alternative opportunities for yield on their excess funds. In the current economic environment, draws against lines of credit could drive asset growth higher. Disruptions in wholesale funding markets could spark increased competition for deposits. These scenarios could lead to a decrease in the Company’s Basic Surplus measure below the minimum policy level of 5%. Note, enhanced liquidity monitoring was put in place to quickly respond to the changing environment during the pandemic including increasing the frequency of monitoring and adding additional sources of liquidity. While the pandemic has come to an end, this enhanced monitoring continues as elevated interest rates and the bank failures of 2023 have led to a deposit decline in the banking system and increased volatility to liquidity risk.
At December 31, 2025, a portion of the Company’s loans and securities were pledged as collateral on borrowings. Therefore, once on-balance sheet liquidity is reduced, future growth of earning assets will depend upon the Company’s ability to obtain additional funding, through growth of core deposits and collateral management and may require further use of brokered time deposits or other higher cost borrowing arrangements.
Net cash flows provided by operating activities totaled $235.2 million and $188.6 million in 2025 and 2024, respectively. The critical elements of net operating cash flows include net income, adjusted for non-cash income and expense items such as the provision for loan losses, deferred income tax expense, depreciation and amortization and cash flows generated through changes in other assets and liabilities.
Net cash flows provided by investing activities totaled $169.1 million in 2025 and net cash flows used in investing activities totaled $399.2 million in 2024. Critical elements of investing activities are loan and investment securities transactions.
Net cash flows used in financing activities totaled $201.2 million in 2025 and net cash flows provided by financing activities totaled $289.5 million in 2024. The critical elements of financing activities are proceeds from deposits, borrowings and stock issuance. In addition, financing activities are impacted by dividends and treasury stock transactions.
Commitments to Extend Credit
The Company makes contractual commitments to extend credit, which include unused lines of credit, which are subject to the Company’s credit approval and monitoring procedures. At December 31, 2025 and 2024, commitments to extend credit in the form of loans, including unused lines of credit, amounted to $3.40 billion and $2.84 billion, respectively. In the opinion of management, there are no material commitments to extend credit, including unused lines of credit that represent unusual risks. All commitments to extend credit in the form of loans, including unused lines of credit, expire within one year.
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Standby Letters of Credit
The Company does not issue any guarantees that would require liability-recognition or disclosure, other than its standby letters of credit. The Company guarantees the obligations or performance of customers by issuing standby letters of credit to third-parties. These standby letters of credit are generally issued in support of third-party debt, such as corporate debt issuances, industrial revenue bonds and municipal securities. The risk involved in issuing standby letters of credit is essentially the same as the credit risk involved in extending loan facilities to customers and letters of credit are subject to the same credit origination, portfolio maintenance and management procedures in effect to monitor other credit and off-balance sheet products. Typically, these instruments have one year expirations with an option to renew upon annual review; therefore, the total amounts do not necessarily represent future cash requirements. At December 31, 2025 and 2024, standby letters of credit were $58.5 million and $50.8 million, respectively. As of December 31, 2025 and 2024, the fair value of the Company’s standby letters of credit was not significant. The following table sets forth the commitment expiration period for standby letters of credit at:
(In thousands)
December 31, 2025
Within one year
After one but within three years
After three but within five years
After five years
Total
Interest Rate Swaps
The Company records all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.
When the Company purchases or sells a portion of a commercial loan that has an existing interest rate swap, it may enter into a risk participation agreement to provide credit protection to the financial institution that originated the swap transaction should the borrower fail to perform on its obligation. The Company enters into both risk participation agreements in which it purchases credit protection from other financial institutions and those in which it provides credit protection to other financial institutions. Any fee paid to the Company under a risk participation agreement is in consideration of the credit risk of the counterparties and is recognized in the income statement. Credit risk on the risk participation agreements is determined after considering the risk rating, PD and LGD of the counterparties.
Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. The Company may enter into derivative contracts that are intended to economically hedge certain of its risks, even though hedge accounting does not apply or if the Company elects not to apply hedge accounting.
For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings.
Loans Serviced for Others and Loans Sold with Recourse
The total amount of loans serviced by the Company for unrelated third parties was $1.28 billion and $982.5 million at December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, the Company had $2.1 million and $0.9 million, respectively, of mortgage servicing rights.
At December 31, 2025 and 2024, the Company serviced $23.2 million and $24.7 million, respectively, of agricultural loans sold with recourse. Due to sufficient collateral on these loans and government guarantees, no reserve is considered necessary at December 31, 2025 and 2024.
Capital Resources
Consistent with its goal to operate a sound and profitable financial institution, the Company actively seeks to maintain a “well capitalized” institution in accordance with regulatory standards. The principal source of capital to the Company is earnings retention. Capital measurements are well in excess of regulatory minimum guidelines and meet the requirements to be considered well capitalized.
The Company’s primary source of funds is dividends from its subsidiaries. Various laws and regulations restrict the ability of banks to pay dividends to their stockholders. Generally, the payment of dividends by the Company in the future as well as the payment of interest on the capital securities will require the generation of sufficient future earnings by its subsidiaries.
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Certain restrictions exist regarding the ability of the Bank to transfer funds to the Company in the form of cash dividends. The approval of the OCC is required to pay dividends when a bank fails to meet certain minimum regulatory capital standards or when such dividends are in excess of a subsidiary bank’s earnings retained in the current year plus retained net profits for the preceding two years as specified in applicable OCC regulations. At December 31, 2025 and 2024, approximately $115.9 million and $107.6 million, respectively, of the total stockholders’ equity of the Bank was available for payment of dividends to the Company without approval by the OCC. The Bank’s ability to pay dividends is also subject to the Bank being in compliance with regulatory capital requirements. The Bank is currently in compliance with these requirements. Under the State of Delaware General Corporation Law, the Company may declare and pay dividends either out of accumulated net retained earnings or capital surplus.
Stock Repurchase Plan
On October 27, 2025, the Company’s Board of Directors authorized and approved an amendment to the Company’s stock repurchase program. Pursuant to the amended stock repurchase program, the Company may repurchase up to 2,000,000 shares of the Company’s common stock with all repurchases under the stock repurchase program to be made by December 31, 2027. The Company may repurchase shares of its common stock from time to time to mitigate the potential dilutive effects of stock-based incentive plans and other potential uses of common stock for corporate purposes.
The Company purchased 250,000 shares of its common stock during the year ended December 31, 2025, for a total of $10.2 million at an average price of $40.74 per share under its previously announced share repurchase program. As of December 31, 2025, there were 1,750,000 shares available for repurchase under this plan authorized on October 27, 2025 which is set to expire on December 31, 2027.
Recent Accounting Updates
See Note 2 to the consolidated financial statements for a detailed discussion of new accounting pronouncements.
2024 OPERATING RESULTS AS COMPARED TO 2023 OPERATING RESULTS
For similar operating and financial data and discussion of our results for the year ended December 31, 2024 compared to our results for the year ended December 31, 2023 , refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” under Part II of our annual report on Form 10-K for the year ended December 31, 2024, which was filed with the SEC on February 28, 2025 and is incorporated herein by reference.
