FINANCIAL INSTITUTIONS INC (FISI)

CIK: 0000862831. SIC: 6021 National Commercial Banks. Latest 10-K as of: 2026-03-09.

SIC breadcrumb: Finance, Insurance, And Real Estate > Depository Institutions > SIC 6021 National Commercial Banks

SEC company page: https://www.sec.gov/edgar/browse/?CIK=862831. Latest filing source: 0001193125-26-098467.

Selected Fundamentals

Financials

Annual standardized facts from SEC companyfacts as of latest extracted filing date 2026-03-09. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000862831.json. Derived margins, ratios, and free cash flow are computed from the extracted annual SEC facts.

Flow metrics use full-year FY periods from 10-K/10-K/A filings; balance-sheet metrics use FY-end instants. Free cash flow = operating cash flow - capital expenditures. Missing metrics are omitted rather than fabricated.

Ratios

ROE and ROA use period-end equity/assets. Liabilities / equity uses total liabilities divided by stockholders' equity. Current ratio uses current assets divided by current liabilities when both are reported.

Financial Charts

Quarterly

Quarterly standardized facts from SEC companyfacts as of latest extracted filing date 2026-05-04. Source: https://data.sec.gov/api/xbrl/companyfacts/CIK0000862831.json.

Flow metrics use discrete quarter-length periods from 10-Q/10-Q/A filings. Q4 revenue and net income are derived only when annual FY and nine-month YTD facts exist for the same fiscal year; derived Q4 values are labeled. EPS Q4 is not derived.

Quarterly Charts

Macro Cross-References

• CPIAUCSL - Consumer Price Index for All Urban Consumers: All Items in U.S. City Average
• UNRATE - Unemployment Rate
• FEDFUNDS - Federal Funds Effective Rate
• CES0500000003 - Average Hourly Earnings of All Employees, Total Private
• DFEDTARU - Federal Funds Target Range - Upper Limit
• DFEDTARL - Federal Funds Target Range - Lower Limit
• DGS3MO - Market Yield on U.S. Treasury Securities at 3-Month Constant Maturity
• DGS2 - Market Yield on U.S. Treasury Securities at 2-Year Constant Maturity
• DGS10 - Market Yield on U.S. Treasury Securities at 10-Year Constant Maturity
• DGS30 - Market Yield on U.S. Treasury Securities at 30-Year Constant Maturity
• T10Y2Y - 10-Year Treasury Constant Maturity Minus 2-Year Treasury Constant Maturity
• CPILFESL - Consumer Price Index for All Urban Consumers: All Items Less Food and Energy
• CPIUFDSL - Consumer Price Index for All Urban Consumers: Food
• CPIENGSL - Consumer Price Index for All Urban Consumers: Energy
• CUSR0000SAH1 - Consumer Price Index for All Urban Consumers: Shelter
• PCEPI - Personal Consumption Expenditures: Chain-type Price Index
• PCEPILFE - Personal Consumption Expenditures Excluding Food and Energy: Chain-type Price Index
• PPIACO - Producer Price Index by Commodity: All Commodities
• T10YIE - 10-Year Breakeven Inflation Rate
• U6RATE - Total Unemployed, Plus All Marginally Attached Workers Plus Total Employed Part Time for Economic Reasons
• PAYEMS - All Employees, Total Nonfarm
• CIVPART - Labor Force Participation Rate
• EMRATIO - Employment-Population Ratio
• UNEMPLOY - Unemployed
• CE16OV - Employment Level
• ICSA - Initial Claims
• JTSJOL - Job Openings: Total Nonfarm
• JTSQUR - Quits: Total Nonfarm
• GDPC1 - Real Gross Domestic Product
• A191RL1Q225SBEA - Real Gross Domestic Product: Percent Change from Preceding Period
• INDPRO - Industrial Production: Total Index
• TCU - Capacity Utilization: Total Index
• HOUST - New Privately-Owned Housing Units Started: Total Units
• PERMIT - New Privately-Owned Housing Units Authorized in Permit-Issuing Places: Total Units
• RSAFS - Advance Retail Sales: Retail Trade
• PCE - Personal Consumption Expenditures
• DSPIC96 - Real Disposable Personal Income
• PSAVERT - Personal Saving Rate
• M2SL - M2
• BOPGSTB - U.S. International Trade in Goods and Services: Balance
• MSPUS - Median Sales Price of Houses Sold for the United States
• HSN1F - New One Family Houses Sold: United States
• RHORUSQ156N - Homeownership Rate in the United States
• TTLCONS - Total Construction Spending: Total Construction in the United States
• RRVRUSQ156N - Rental Vacancy Rate in the United States
• TOTALSL - Total Consumer Credit Owned and Securitized
• REVOLSL - Revolving Consumer Credit Owned and Securitized
• DRCCLACBS - Delinquency Rate on Credit Card Loans, All Commercial Banks
• GDP - Gross Domestic Product
• GPDI - Gross Private Domestic Investment
• GCE - Government Consumption Expenditures and Gross Investment
• PCEC - Personal Consumption Expenditures
• NETEXP - Net Exports of Goods and Services
• GFDEBTN - Federal Debt: Total Public Debt
• GFDEGDQ188S - Federal Debt: Total Public Debt as Percent of Gross Domestic Product
• FYFSD - Federal Surplus or Deficit
• FGRECPT - Federal Government Current Receipts
• FGEXPND - Federal Government: Current Expenditures
• MANEMP - All Employees, Manufacturing
• USCONS - All Employees, Construction
• USTRADE - All Employees, Retail Trade
• USFIRE - All Employees, Financial Activities
• USGOVT - All Employees, Government
• AWHAETP - Average Weekly Hours of All Employees, Total Private
• DGORDER - Manufacturers' New Orders: Durable Goods
• NEWORDER - Manufacturers' New Orders: Nondefense Capital Goods Excluding Aircraft
• BUSINV - Total Business Inventories
• EXPGS - Exports of Goods and Services
• IMPGS - Imports of Goods and Services
• IR - Import Price Index (End Use): All Commodities
• PPIFIS - Producer Price Index by Commodity: Final Demand

Latest quarter (10-Q)

Latest 10-Q source: 0001193125-26-203962.

Extracted structurally from real Item 2 body heading to real Item 3/4 boundary. Confidence: high. Filing date: 2026-05-04. Report date: 2026-03-31.

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

This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 2025. In addition, please read this section in conjunction with our Unaudited Interim Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein. When necessary, prior year information has been reclassified to conform to the current-year presentation.

FORWARD LOOKING INFORMATION

Statements and financial analysis contained in this Quarterly Report on Form 10-Q that are based on other than historical data are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements provide current expectations or forecasts of future events and include, among others:

•
statements with respect to the beliefs, plans, objectives, goals, guidelines, expectations, anticipations, and future financial condition, results of operations, and performance of Financial Institutions, Inc. (the “Parent” or “FII”) and its subsidiaries (collectively, the “Company,” “we,” “our” or “us”); and

•
statements preceded by, followed by or that include the words “may,” “could,” “should,” “would,” “believe,” “continue,” “anticipate,” “estimate,” “expect,” “intend,” “plan,” “target,” “projects” or similar expressions.

These forward-looking statements are not guarantees of future performance, nor should they be relied upon as representing management’s views as of any subsequent date. Forward-looking statements involve significant risks and uncertainties, and actual results may differ materially from those presented, either expressed or implied, in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the fiscal year ended December 31, 2025 (the “Form 10-K”), including, but not limited to, those presented in the Management’s Discussion and Analysis of Financial Condition and Results of Operations. Factors that might cause such material differences include, but are not limited to:

Credit Risks and Risks Related to Banking Activities

•
If we experience greater credit losses than anticipated, earnings may be adversely impacted;

•
We are subject to risks and losses resulting from fraudulent activities that could adversely impact our financial performance and results of operations;

•
Geographic concentration in our loan portfolio may unfavorably impact our operations;

•
Our commercial business and commercial mortgage loans increase our exposure to credit risks;

•
If our non-performing assets increase, our earnings will be adversely affected;

•
If our regulators impose limitations on our commercial real estate lending activities, earnings could be adversely affected;

•
Our indirect and consumer lending involves risk elements in addition to normal credit risk;

•
Lack of seasoning in portions of our loan portfolio could increase risk of credit defaults in the future;

•
We accept deposits that do not have a fixed term, and which may be withdrawn by the customer at any time for any reason;

•
Municipal deposits are price sensitive and could result in an increase in interest expense or funding fluctuations;

•
We are subject to environmental liability risk associated with our lending activities; and

•
We operate in a highly competitive industry and market area.

Legal and Regulatory Risks

•
Legal and regulatory proceedings and related matters could adversely affect us and the banking industry in general;

•
Any future Federal Deposit Insurance Corporation (“FDIC”) insurance premium increases may adversely affect our earnings;

•
We are highly regulated, and any adverse regulatory action may result in additional costs, loss of business opportunities, and reputational damage;

•
Non-compliance with the USA PATRIOT Act, the Bank Secrecy Act, Office of Foreign Asset Control sanction requirements, or other applicable state and federal laws could subject us to fines, penalties, or other regulatory actions;

•
We are subject to the Community Reinvestment Act (the “CRA”) and fair lending laws, and failure to comply with these laws could lead to material penalties;

•
We are subject to additional various state and federal laws and regulations, and failure to comply with these laws and regulations could subject us to fines, sanctions, or other negative actions;

•
The policies of the Federal Reserve Board have a significant impact on our earnings; and

•
We offer financial services to a limited number of New York State-licensed cannabis businesses under New York State’s regulatory framework, with supporting policy and procedures, enhanced due diligence, monitoring, and required regulatory reporting. While federal law continues to classify cannabis as illegal, the risk of strict federal enforcement remains uncertain. Any significant change in federal enforcement posture could affect our ability to continue services to these customers and could increase our legal, regulatory, or compliance-related obligations.

Risks Related to Non-Banking Activities

•
Our investment advisory and wealth management operations are subject to risk related to the regulation of the financial services industry and market volatility.

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Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS

Strategic and Operational Risks

•
We make certain assumptions and estimates in preparing our financial statements that may prove to be incorrect, which could significantly impact our results of operations, cash flows and financial condition, and we are subject to new or changing accounting rules and interpretations, and the failure by us to correctly interpret or apply these evolving rules and interpretations could have a material adverse effect;

•
The value of our goodwill and other intangible assets may decline in the future;

•
We may be unable to successfully implement our growth strategies, including the integration and successful management of newly-acquired businesses;

•
Acquisitions may disrupt our business and dilute shareholder value;

•
Our tax strategies and the value of our deferred tax assets and liabilities could adversely affect our operating results and regulatory capital ratios;

•
Liquidity is essential to our businesses;

•
We rely on dividends from our subsidiaries for most of our revenue; and

•
If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.

Market Risks

•
We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments;

•
The soundness of other financial institutions could adversely affect us; and

•
We may need to raise additional capital in the future and such capital may not be available on acceptable terms or at all.

Technology and Cybersecurity Risks

•
Emerging technology, including cloud computing and artificial intelligence (“AI”), introduces new risks while possibly being essential to support business strategy;

•
We rely on third parties to provide critical business services and protect the confidentiality, integrity, and availability of confidential data;

•
We, or our service providers, may experience a cyber-attack, system failure, natural disaster, or other uncontrollable event that may disrupt business operations; and

•
We are subject to evolving laws and regulations relating to cybersecurity protection and data privacy, and failure to comply could expose us to regulatory liability, reputational risk and financial risk.

Risks Related to our Common Stock

•
We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions;

•
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could dilute our current shareholders or negatively affect the value of our common stock;

•
Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect; and

•
The market price of our common stock may fluctuate significantly in response to a number of factors.

General Risk Factors

•
We may not be able to attract and retain skilled people;

•
Loss of key employees may disrupt relationships with certain customers;

•
We use financial models for business planning purposes that may not adequately predict future results;

•
We depend on the accuracy and completeness of information about or from customers and counterparties;

•
Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, geopolitical risks associated with international conflict, and the impact of a prolonged U.S. government shutdown;

•
Severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could significantly impact our business;

•
Negative public opinion could damage our reputation and impact business operations and revenues; and

•
Environmental, social and governance matters, and any related reporting obligations may impact our business.

We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Item 1A, Risk Factors, in the Annual Report on Form 10-K for the year ended December 31, 2025. Except as required by law, we do not undertake and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

GENERAL

The Parent is a financial holding company headquartered in New York State, providing diversified financial services through its operating subsidiaries, Five Star Bank (the “Bank”) and Courier Capital, LLC (“Courier Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly owned New York-chartered banking subsidiary, the Bank. The Bank also has commercial loan production offices in Ellicott City (Baltimore), Maryland, and Syracuse, New York, serving the Mid-Atlantic and Central New York regions. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, and the Capital District of New York. Courier Capital provides customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.

Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest r

[Excerpt truncated for page length; source filing is linked above.]

Latest 10-K MD&A

Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high. Filing date: 2026-03-09. Report date: 2025-12-31.

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is a discussion and analysis of our financial position and results of operations and should be read in conjunction with the information set forth under Part I, Item 1A, Risk Factors, and our consolidated financial statements and notes thereto appearing under Part II, Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.

INTRODUCTION

Financial Institutions, Inc. (the “Parent” and together with all its subsidiaries, “we,” “our,” or “us”), is a financial holding company headquartered in New York State. We offer a broad array of deposit, lending, and other financial services to individuals, municipalities and businesses in Western and Central New York through our wholly-owned New York-chartered banking subsidiary, Five Star Bank (the “Bank”). We have loan production offices in Baltimore, Maryland, and Syracuse, New York, which expands our footprint into the Mid-Atlantic and Central New York regions. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, and the Capital District of New York. We offer customized investment advice, wealth management, investment consulting and retirement plan services through our wholly-owned subsidiary Courier Capital, LLC (“Courier Capital”) an SEC-registered investment advisory and wealth management firm.

On April 1, 2024, the Company announced and closed the sale of the assets of its wholly owned subsidiary, SDN Insurance Agency, LLC (“SDN”), which provided a broad range of insurance services to personal and business clients, to NFP Property & Casualty Services, Inc. (“NFP”), a subsidiary of NFP Corp. The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024. Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC to serve as a conduit for the Bank to refer insurance business to NFP.

Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on our results of operations and financial condition.

EXECUTIVE OVERVIEW

Private Placement of Subordinated Notes and Subsequent Repayment of Past Issuances

On December 11, 2025, we completed a private placement of $80.0 million in aggregate principal of fixed-to-floating rate subordinated notes to qualified institutional buyers and institutional accredited investors that will be subsequently exchanged for subordinated notes with substantially the same terms (the “2025 Notes”) registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to registration rights agreements with the purchasers of the 2025 Notes. The 2025 Notes have a maturity date of December 15, 2035, and bear interest, payable semi-annually, at the rate of 6.50% per annum until December 15, 2030. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financial Rate (“SOFR”) plus 312 basis points, payable quarterly until maturity. We are entitled to repay the 2025 Notes, in whole or in part, at any time on or after December 15, 2030, and to prepay the 2025 Notes in whole or in part at any time upon certain other specified events. We used the net proceeds to redeem the $65.0 million in outstanding debt issuances from 2015 and 2020, on January 15, 2026, as well as for general corporate purposes, including the repurchase of common shares under our Board authorized stock repurchase plan. The 2025 Notes qualify as Tier 2 capital for regulatory purposes.

2025 Share Repurchase Program

In September 2025, the Board approved a share repurchase program for up to 1,006,379 shares of its common stock, or approximately 5% of the Company’s then outstanding common shares (“2025 Share Repurchase Program”). The 2025 Share Repurchase Program replaced and terminated the prior share repurchase program authorized by the Board in June 2022. The 2025 Share Repurchase Program does not obligate us to purchase any shares, and it may be extended, modified, or discontinued at any time. As of December 31, 2025, 336,869 shares have been repurchased under the 2025 Share Repurchase Program at an average price of $31.98.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

2025 Financial Performance Review

We reported net income of $74.9 million for 2025, compared to a net loss of $41.6 million for 2024. This resulted in a 1.20% return on average assets and a 12.38% return on average equity. After preferred dividends, net income available to common shareholders was $73.4 million or $3.61 per diluted share for 2025, compared to net loss available to common shareholders of $43.1 million or $2.75 per diluted share for 2024. The net loss for 2024 was primarily the result of a strategic investment securities restructuring, in which a portion of the proceeds from our December 2024 common stock offering was used to fund losses on the sale of $653.5 million of available-for-sale securities (“AFS”) for a pre-tax loss of $100.2 million, or approximately $75 million after taxes. We declared cash dividends of $1.24 per common share during 2025, an increase of more than 3% compared with 2024.

Net interest income was $200.0 million for 2025, compared to $163.6 million for 2024, an increase of $36.4 million. Fully-taxable equivalent net interest income was $200.2 million in 2025, an increase of $36.3 million, compared to 2024. Average interest-earning assets were $47.7 million lower than 2024 due to a $100.3 million decrease in average investment securities, and a $68.1 million decrease in the average balance of Federal Reserve interest-earning cash, partially offset by a $120.8 million increase in average loans.

Net interest margin was 3.53% for 2025, compared to 2.86% for 2024, primarily due to an increase in the average yield on investment securities, following the restructuring of the AFS portfolio in December 2024, which supported an increase in the average yield on interest-earning assets, along with loan growth and lower interest-bearing liability costs.

The provision for credit losses was $11.6 million in 2025 compared to a provision of $6.2 million in 2024. Net charge-offs were $10.9 million in 2025, representing 0.24% of average loans, compared with $8.7 million, or 0.20% of average loans in 2024. Non-performing loans decreased $5.7 million to $35.8 million compared to a year ago and represented 0.77% of total loans at December 31, 2025, compared to 0.92% of total loans at December 31, 2024. The decrease in non-performing loans in the current year reflected a foreclosed participated loan and partial charge-off of a credit facility recognized in the second quarter of 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. We have remained strategically focused on the importance of credit discipline, allocating resources to credit and risk management functions as the loan portfolio has grown. The ratio of allowance for credit losses on loans to non-performing loans was 133% at December 31, 2025, compared to 116% at December 31, 2024, with the increase reflective of the lower level of nonperforming loans at December 31, 2025.

Noninterest income was $45.0 million for 2025, compared to a net loss in noninterest income of $46.7 million for 2024. The 2024 net loss was reflective of the strategic investment securities portfolio restructuring in late December 2024 described above. Income from company owned life insurance (“COLI”) increased $5.9 million in 2025 compared to 2024, due to our surrender and redeploy strategy initiated in January 2025. The decrease in insurance income was reflective of the sale of the assets of our insurance agency subsidiary, SDN, in April 2024. The gain from this sale of $13.7 million was included in net gain (loss) on other assets in 2024.

Noninterest expense for the full year 2025 totaled $142.0 million, a $36.9 million decrease compared to $178.9 million in the prior year. The decrease in noninterest expense was primarily attributable to higher expenses in 2024 related to the fraud matter in the first quarter of 2024, and the provision for a litigation settlement for a long-standing automobile lending litigation in the fourth quarter of 2024. Salaries and benefits expense of $72.8 million increased $6.7 million from 2024, primarily driven by an increase in health insurance benefit expense, reflecting continued elevated medial claims under our self-insured plan, annual merit increases, incentive compensation, and investments in personnel. Professional services expense of $6.5 million decreased $1.2 million from 2024 primarily due to legal expenses associated with the previously mentioned fraud event that incurred in 2024.

Income tax expense for full year 2025 was $16.5 million, representing an effective tax rate of 18.05%, while income tax benefit for 2024 was -$26.5 million, which was reflective of the net loss for the year, representing an effective tax rate of 38.9%. Effective tax rates are impacted by items of income and expense not subject to federal or state taxation. The Company’s effective tax rates differ from statutory rates primarily because of interest income from tax-exempt securities, earnings on COLI and tax credit investments placed in service.

Total assets were $6.27 billion at December 31, 2025, up $157.1 million from $6.12 billion at December 31, 2024.

Investment securities were $1.01 billion at December 31, 2025, down $19.9 million from December 31, 2024. The decrease from year-end 2024 was primarily due to repayment, sales, and maturities of investment securities, and the use of cash to fund loan originations.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Total loans were $4.66 billion at December 31, 2025, up $178.7 million, or 4.0%, from December 31, 2024. The increase in loans in 2025 was primarily driven by organic commercial loan growth. The following discusses significant changes within our loan portfolio for the current year:

•
Commercial business loans were $738.3 million, an increase of $73.0 million, or 11%.

•
Commercial mortgage–construction loans were $488.6 million, a decrease of $94.1 million, or 16%.

•
Commercial mortgage–multifamily loans were $588.7 million, an increase of $117.8 million, or 25%.

•
Commercial mortgage–non-owner occupied loans were $942.2 million, an increase of $84.2 million, or 10%.

•
Commercial mortgage–owner-occupied loans were $322.8 million, an increase of $34.7 million, or 12%.

•
Consumer indirect loans were $807.3 million, a decrease of $38.5 million, or 5%.

Total deposits were $5.21 billion at December 31, 2025, an increase of $101.6 million from December 31, 2024, which was attributable to growth in reciprocal and public deposits, in addition to a higher level of brokered deposits, partially offset by a reduction in non-public deposits. Brokered deposits were utilized to partially offset the anticipated reduction in BaaS-related deposits, which totaled approximately $7 million and $100 million at December 31, 2025, and 2024, respectively.

Short-term borrowings were $109.0 million at December 31, 2025, an increase of $10.0 million from December 31, 2024. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. Long-term borrowings, net, were $193.7 million at December 31, 2025, compared to $124.8 million at December 31, 2024, reflecting the December 2025 subordinated-debt offering.

Shareholders’ equity was $628.9 million at December 31, 2025, compared to $569.0 million at December 31, 2024. Common book value per share was $30.89 at December 31, 2025, an increase of $3.41, or 12.4%, from $27.48 at December 31, 2024. Tangible common book value per share(1) was $27.84 at December 31, 2025, an increase of $3.39, or 14%, from $24.45 at December 31, 2024. The increase in shareholders’ equity as compared to December 31, 2024, was reflective of net income retained, net of dividends, and a decrease in our accumulated other comprehensive loss associated with unrealized losses on AFS securities portfolio, partially offset by the impact of the shares repurchased under the 2025 Share Repurchase Program. Management believes the unrealized losses on the AFS securities portfolio are temporary in nature. The securities portfolio continues to generate cash flow and given the high quality of our agency mortgaged-backed securities portfolio, management expects the bonds to ultimately mature at a terminal value equivalent to par.

(1)
This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition. Refer to the “GAAP to Non-GAAP Reconciliation” section of this Item 7 for further information.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Our leverage ratio was 9.69% at December 31, 2025, compared to 9.15% at December 31, 2024. Our total risk-based capital ratio was 14.90% at December 31, 2025, compared to 13.25% at December 31, 2024. The increase in the total risk-based capital ratio was reflective of the additional $80.0 million of capital on the balance sheet at year-end related to the 2025 Notes, which impacted the ratio by approximately 150 basis points. The Bank’s leverage ratio and total risk-based capital ratio were 10.44% and 13.33%, respectively, at December 31, 2025, compared to 9.79% and 12.60%, respectively, at December 31, 2024.

Additional financial highlights are as follows:

At or For the Year Ended December 31,

2025

2024

2023

Performance ratios:

Net income (loss), returns on:

Average assets

1.20

%

-0.68

%

0.83

%

Average equity

12.38

%

-8.74

%

11.86

%

Net income (loss) available to common shareholders, returns on:

Average common equity

12.49

%

-9.39

%

12.01

%

Average tangible common equity (1)

13.93

%

-10.92

%

14.64

%

Average tangible assets (1)

1.19

%

-0.71

%

0.82

%

Common dividend payout ratio

33.97

%

-43.64

%

37.85

%

Net interest margin (fully tax-equivalent)

3.53

%

2.86

%

2.94

%

Effective tax rate

18.0

%

-38.9

%

20.3

%

Efficiency ratio (2)

58.13

%

82.35

%

62.96

%

Capital ratios:

Leverage ratio

9.69

%

9.15

%

8.33

%

Common equity Tier 1 capital ratio

11.11

%

10.54

%

9.42

%

Tier 1 capital ratio

11.43

%

10.87

%

9.78

%

Total risk-based capital ratio

14.90

%

13.25

%

12.13

%

Average equity to average assets

9.73

%

7.77

%

7.03

%

Common equity to assets

9.75

%

9.02

%

7.10

%

Tangible common equity to tangible assets (1)

8.87

%

8.11

%

6.00

%

(1)
This is a non-GAAP measure that we believe is useful in understanding our financial performance and condition. Refer to the “GAAP to Non-GAAP Reconciliation” section of this Item 7 for further information.

(2)
The efficiency ratio provides a ratio of operating expenses to operating income. Efficiency ratio is calculated by dividing noninterest expense by net revenue, which is defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. The efficiency ratio is not a financial measurement required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

GAAP to Non-GAAP Reconciliation

(In thousands, except per share data)

At or For the Year Ended December 31,

2025

2024

2023

Computation of ending tangible common equity:

Common shareholders’ equity

$

611,569

$

551,699

$

437,504

Less: goodwill and other intangible assets, net

60,343

60,758

72,504

Tangible common equity

$

551,226

$

490,941

$

365,000

Computation of ending tangible assets:

Total assets

$

6,274,140

$

6,117,085

$

6,160,881

Less: goodwill and other intangible assets, net

60,343

60,758

72,504

Tangible assets

$

6,213,797

$

6,056,327

$

6,088,377

Tangible common equity to tangible assets (1)

8.87

%

8.11

%

6.00

%

Common shares outstanding

19,797

20,077

15,407

Tangible common book value per share (2)

$

27.84

$

24.45

$

23.69

Computation of average tangible common equity:

Average common equity

$

587,650

$

459,092

$

406,394

Average goodwill and other intangible assets, net

60,558

64,247

72,965

Average tangible common equity

$

527,092

$

394,845

$

333,429

Computation of average tangible assets:

Average assets

$

6,214,610

$

6,129,430

$

6,025,383

Average goodwill and other intangible assets, net

60,558

64,247

72,965

Average tangible assets

$

6,154,052

$

6,065,183

$

5,952,418

Net income (loss) available to common shareholders

$

73,409

$

(43,105

)

$

48,805

Return on average tangible common equity (3)

13.93

%

-10.92

%

14.64

%

Return on average tangible assets (4)

1.19

%

-0.71

%

0.82

%

(1)
Tangible common equity divided by tangible assets.

(2)
Tangible common equity divided by common shares outstanding.

(3)
Net income available to common shareholders divided by average tangible common equity.

(4)
Net income available to common shareholders divided by average tangible assets.

This table contains disclosure that includes calculations for tangible common equity, tangible assets, tangible common equity to tangible assets, tangible common book value per share, average tangible common equity, average tangible assets, return on average tangible common equity and return on average tangible assets, which are determined by methods other than in accordance with GAAP. We believe that these non-GAAP measures are useful to our investors as measures of the strength of our capital and ability to generate earnings on tangible common equity invested by our shareholders. These non-GAAP measures provide supplemental information that may help investors to analyze our capital position without regard to the effects of intangible assets. Non-GAAP financial measures have inherent limitations and are not uniformly utilized by issuers. Therefore, these non-GAAP financial measures should not be considered in isolation, or as a substitute for comparable measures prepared in accordance with GAAP.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

RESULTS OF OPERATIONS FOR THE YEARS ENDED

December 31, 2025 AND December 31, 2024

Net Interest Income and Net Interest Margin

Net interest income was our primary source of revenue for the year ended December 31, 2025. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.

We use interest rate spread and net interest margin to measure and explain changes in net interest income. Interest rate spread is the difference between the yield on interest-earning assets and the rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest-earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds (“net free funds”), principally noninterest-bearing demand deposits and shareholders’ equity, also support interest-earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt investment securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis.

The Federal Reserve influences the general market rates of interest, which impacts the deposit and loan rates offered by many financial institutions. Throughout 2022 and 2023, the Federal Reserve increased the intended federal funds rate, which is the cost of immediately available overnight funds in an attempt by the Federal Reserve to curb inflation, resulting in a federal funds rate of 5.25% to 5.50% as of December 31, 2023. The federal funds rate remained at 5.50% until a 50-basis point reduction in September 2024. Amid cooling inflation, the rate decreased 25-basis points in both November and December 2024, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2024. This level was maintained until three consecutive 25-basis point rate cuts were made in September, October, and December 2025, in an attempt to allow inflation to resume its downward trend, decreasing the federal funds rate to 3.50% to 3.75% as of December 31, 2025.

Our loan portfolio is significantly affected by changes in the prime interest rate, which generally follows changes in the federal funds rate. The prime interest rate, which is the rate offered on loans to borrowers with strong credit, was 6.75% at December 31, 2025, compared to 7.50% and 8.50% at December 31, 2024, and 2023, respectively.

The following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis for the years ended December 31 (in thousands):

2025

2024

2023

Interest income per consolidated statements of operations

$

332,989

$

313,231

$

286,133

Adjustment to fully taxable equivalent basis (1)

207

294

418

Interest income adjusted to a fully taxable equivalent basis

333,196

313,525

286,551

Interest expense per consolidated statements of operations

133,003

149,642

120,418

Net interest income on a taxable equivalent basis

$

200,193

$

163,883

$

166,133

(1)
The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.

Analysis of Net Interest Income and Net Interest Margin

Net interest income on a taxable equivalent basis for 2025 was $200.2 million, an increase of $36.3 million compared to $163.9 million for 2024. Our net interest margin for 2025 was 3.53%, 67-basis points higher than 2.86% from the prior year. This increase was a function of a 76-basis points increase in the interest rate spread, partially offset by a 9-basis points lower contribution from net free funds. The increase in interest rate spread was comprised of a 39-basis points increase in the average yield on average interest-earning assets, and a 37-basis points decrease in the average cost of interest-bearing liabilities.

For the year ended December 31, 2025, the average yield on total average interest-earning assets of 5.87% was 39-basis points higher than 2024. The average yield on investment securities increased 218-basis points during 2025 to 4.38%, reflective of the December 2024 investment securities restructuring, resulting in a $23.7 million increase in interest income. The average yield on federal reserve interest-earning cash decreased 60-basis points to 4.25%, decreasing net interest income by $624 thousand, and the average loan yield decreased 12-basis points during 2025 to 6.24%, decreasing interest income by $6.0 million.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Average interest-earning assets were $5.68 billion for 2025 compared to $5.72 billion for 2024, a decrease of $47.7 million, or 1%. The $100.3 million decrease in average investment securities and the $68.1 million decrease in average federal reserve interest-earning cash in 2025 was partially offset by an increase in average loans of $120.8 million. Average investment securities represented 18.9% of average interest-earning assets during 2025 compared to 20.5% in 2024, and decreased interest income by $2.5 million. The decrease in average investment securities was primarily due to repayment and maturities of investment securities, and the use of cash to fund loan originations. Loans comprised 80.3% of average interest-earning assets during 2025 compared to 77.5% during 2024. The growth in average loans was primarily due to organic growth in commercial loans, partially offset by a planned reduction in our consumer indirect portfolio. An increase in the volume of average loans resulted in an $8.1 million increase in interest income.

For the year ended December 31, 2025, the average cost of total average interest-bearing liabilities of 2.95% was 37-basis points lower than 2024. The average cost of total average interest-bearing deposits of 2.90% was 39-basis points lower than 2024 primarily due to the continued repricing of deposits at lower rates, which decreased interest expense $18.6 million. The average cost of total borrowings increased 21-basis points to 4.05% in 2025, compared to 3.84% in 2024.

Average interest-bearing liabilities of $4.50 billion in 2025 were generally flat with 2024. On average, interest-bearing deposits grew $27.9 million from $4.26 billion for 2024 to $4.29 billion for 2025, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $11.8 million, or 1%, to $941.7 million for 2025. The increase in average deposits was primarily due to growth in public and brokered deposits, partially offset by a decrease in reciprocal deposits. Brokered deposits were utilized to offset the anticipated reduction in BaaS-related deposits, which totaled $7 million and $100 million at December 31, 2025, and 2024, respectively. Average short-term borrowings decreased $33.4 million from $126.2 million in 2024 to $92.8 million in 2025 as deposit growth enabled us to pay down short-term borrowings. For further discussion of our reciprocal and brokered deposits, refer to the “Funding Activities—Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing deposit volume changes resulted in an increase in interest expense of $2.9 million, as compared to 2024, and total borrowings volume contributed $897 thousand of lower interest expense during 2025.

The following table presents, for the years indicated, information regarding: (i) average balances, which were derived from daily balances; (ii) the amount of interest income from interest-earning assets and the resulting annualized yields (tax-exempt yields have been adjusted to a tax-equivalent basis using the applicable Federal tax rate in each year); (iii) the amount of interest expense on interest-bearing liabilities and the resulting annualized rates; (iv) net interest income; (v) net interest rate spread; (vi) net interest income as a percentage of average interest-earning assets (“net interest margin”); and (vii) the ratio of average interest-earning assets to average interest-bearing liabilities. Investment securities are at amortized cost for both held to maturity and available for sale securities. Loans include net unearned income, net deferred loan fees and costs and non-accruing loans. Dollar amounts are shown in thousands.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Years Ended December 31,

2025

2024

2023

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

Average

Balance

Interest

Average

Rate

Interest-earning assets:

Federal funds sold and other interest-earning deposits

$

47,560

$

2,021

4.25

%

$

115,635

$

5,609

4.85

%

$

80,415

$

3,927

4.88

%

Investment securities (1):

Taxable

1,042,232

45,914

4.41

1,124,116

24,314

2.16

1,177,615

22,048

1.87

Tax-exempt (2)

28,523

984

3.45

46,967

1,399

2.98

72,313

1,993

2.76

Total investment securities

1,070,755

46,898

4.38

1,171,083

25,713

2.20

1,249,928

24,041

1.92

Loans:

Commercial business

714,100

49,099

6.88

689,585

51,922

7.53

698,861

50,388

7.21

Commercial mortgage

2,244,938

142,971

6.37

2,082,846

139,765

6.71

1,908,355

124,240

6.51

Residential real estate loans

647,722

27,714

4.28

648,604

26,404

4.07

612,767

22,728

3.71

Residential real estate lines

75,198

5,323

7.08

75,951

5,904

7.77

76,350

5,608

7.34

Consumer indirect

837,215

55,956

6.68

894,720

55,119

6.16

997,538

53,435

5.36

Other consumer

39,075

3,214

8.23

45,790

3,089

6.75

28,741

2,184

7.60

Total loans (3)

4,558,248

284,277

6.24

4,437,496

282,203

6.36

4,322,612

258,583

5.98

Total interest-earning assets

5,676,563

333,196

5.87

5,724,214

313,525

5.48

5,652,955

286,551

5.07

Less: Allowance for credit losses

(48,567

)

(46,620

)

(49,198

)

Other noninterest-earning assets

586,614

451,836

421,626

Total assets

$

6,214,610

$

6,129,430

$

6,025,383

Interest-bearing liabilities:

Deposits:

Interest-bearing demand

$

719,126

8,386

1.17

$

734,731

8,641

1.18

$

818,541

7,127

0.87

Savings and money market

1,933,787

50,711

2.62

2,012,139

60,898

3.03

1,781,776

41,424

2.32

Time deposits

1,633,345

65,198

3.99

1,511,507

70,469

4.66

1,477,596

58,810

3.98

Total interest-bearing deposits

4,286,258

124,295

2.90

4,258,377

140,008

3.29

4,077,913

107,361

2.63

Short-term borrowings

92,817

1,901

2.05

126,192

3,366

2.67

186,910

6,890

3.69

Long-term borrowings

122,393

6,807

5.56

124,679

6,268

5.03

121,903

6,167

5.06

Total borrowings

215,210

8,708

4.05

250,871

9,634

3.84

308,813

13,057

4.23

Total interest-bearing liabilities

4,501,468

133,003

2.95

4,509,248

149,642

3.32

4,386,726

120,418

2.75

Noninterest-bearing demand deposits

941,650

953,417

1,030,648

Other noninterest-bearing liabilities

166,557

190,381

184,323

Shareholders’ equity

604,935

476,384

423,686

Total liabilities and shareholders’ equity

$

6,214,610

$

6,129,430

$

6,025,383

Net interest income (tax-equivalent)

$

200,193

$

163,883

$

166,133

Interest rate spread

2.92

%

2.16

%

2.32

%

Net earning assets

$

1,175,095

$

1,214,966

$

1,266,229

Net interest margin (tax-equivalent)

3.53

%

2.86

%

2.94

%

Ratio of average interest-earning assets to average interest-bearing liabilities

126.10

%

126.94

%

128.87

%

(1)
Investment securities are shown at amortized cost.

(2)
The interest on tax-exempt securities is calculated on a tax-equivalent basis assuming a Federal income tax rate of 21%.

(3)
Loans include net unearned income, net of deferred loan fees and costs, and non-accruing loans. Net deferred loan fees (costs) included in interest income were as follows (in thousands):

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

2025

2024

2023

Commercial business

$

(1

)

$

155

$

(56

)

Commercial mortgage

2,850

2,192

2,324

Residential real estate loans

(1,557

)

(1,551

)

(1,672

)

Residential real estate lines

(371

)

(393

)

(373

)

Consumer indirect

(3,503

)

(3,534

)

(1,792

)

Other consumer

(27

)

44

19

Total

$

(2,609

)

$

(3,087

)

$

(1,550

)

The net interest spread, as well as the net interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as the impact from the competitive environment. A discussion of the effects of changing interest rates on net interest income is set forth in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” included elsewhere in this report.

Rate/Volume Analysis

The following table presents, on a tax-equivalent basis, the relative contribution of changes in volumes and changes in rates to changes in net interest income for the years indicated. The change in interest income or interest expense not solely due to changes in volume or rate has been allocated in proportion to the absolute dollar amounts of the change in each (in thousands). No out-of-period adjustments were included in the rate/volume analysis.

Change from 2024 to 2025

Change from 2023 to 2024

Increase (decrease) in:

Volume

Rate

Total

Volume

Rate

Total

Interest income:

Federal funds sold and interest-earning deposits

$

(2,964

)

$

(624

)

$

(3,588

)

$

1,708

$

(26

)

$

1,682

Investment securities:

Taxable

(1,892

)

23,492

21,600

(1,037

)

3,303

2,266

Tax-exempt

(611

)

196

(415

)

(745

)

151

(594

)

Total investment securities

(2,503

)

23,688

21,185

(1,782

)

3,454

1,672

Loans:

Commercial business

1,800

(4,623

)

(2,823

)

(676

)

2,210

1,534

Commercial mortgage

10,542

(7,336

)

3,206

11,621

3,904

15,525

Residential real estate loans

(36

)

1,346

1,310

1,378

2,298

3,676

Residential real estate lines

(58

)

(523

)

(581

)

(29

)

325

296

Consumer indirect

(3,672

)

4,509

837

(5,844

)

7,528

1,684

Other consumer

(493

)

618

125

1,173

(268

)

905

Total loans

8,083

(6,009

)

2,074

7,623

15,997

23,620

Total interest income

2,616

17,055

19,671

7,549

19,425

26,974

Interest expense:

Deposits:

Interest-bearing demand

(183

)

(72

)

(255

)

(788

)

2,302

1,514

Savings and money market

(2,300

)

(7,887

)

(10,187

)

5,841

13,633

19,474

Time deposits

5,387

(10,658

)

(5,271

)

1,377

10,282

11,659

Total interest-bearing deposits

2,904

(18,617

)

(15,713

)

6,430

26,217

32,647

Short-term borrowings

(780

)

(685

)

(1,465

)

(1,904

)

(1,620

)

(3,524

)

Long-term borrowings

(117

)

656

539

140

(39

)

101

Total borrowings

(897

)

(29

)

(926

)

(1,764

)

(1,659

)

(3,423

)

Total interest expense

2,007

(18,646

)

(16,639

)

4,666

24,558

29,224

Net interest income

$

609

$

35,701

$

36,310

$

2,883

$

(5,133

)

$

(2,250

)

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Provision for Credit Losses

The table below presents the composition of the provision for credit losses for the years ended December 31 (in thousands):

2025

2024

2023

Provision for credit losses–loans

$

10,236

$

5,645

$

14,213

Credit loss provision (benefit) for unfunded commitments

1,390

507

(531

)

Credit loss benefit for debt securities

-

(2

)

(1

)

Provision for credit losses

$

11,626

$

6,150

$

13,681

The provision for credit losses–loans normalized in 2025 compared to 2024, driven primarily by net charge-offs incurred and the level of allowance for credit losses required by our CECL model results. The 2024 provision reflected positive trends in qualitative factors which drove a lower allowance and provision in 2024.

See the “Allowance for Credit Losses” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion.

Noninterest Income (Loss)

The following table summarizes our noninterest income (loss) for the years ended December 31 (in thousands):

2025

2024

2023

Service charges on deposits

$

4,360

$

4,233

$

4,625

Insurance income

11

2,144

6,708

Card interchange income

7,794

7,855

8,220

Investment advisory

11,719

10,713

10,955

Company owned life insurance

11,379

5,487

12,106

Investments in limited partnerships

1,402

2,382

1,783

Loan servicing

692

716

479

Income from derivative instruments, net

2,546

726

1,350

Net gain on sale of loans held for sale

737

618

566

Net gain (loss) on investment securities

931

(100,055

)

(3,576

)

Net (loss) gain on other assets

(506

)

13,614

(6

)

Net loss on tax credit investments

(1,985

)

(775

)

(252

)

Other

5,875

5,661

5,286

Total noninterest income (loss)

$

44,955

$

(46,681

)

$

48,244

A net gain on investment securities of $931 thousand was recognized in 2025. The net loss in 2024 was due to the sale of $653.5 million of AFS securities as part of the strategic investment securities restructuring resulting from the common stock offering.

The sale of the assets of our insurance subsidiary in April 2024 resulted in a gain on other assets of $13.7 million. The $2.1 million decline in insurance income in 2025 was also attributed to this transaction.

Company owned life insurance (“COLI”) income increased $5.9 million to $11.4 million in 2025, compared to $5.5 million in 2024. The increase was reflective of the surrender and redeployment of a portion of our life insurance into a higher-yielding credit fund in January 2025.

The increase in income from derivative instruments, net, in 2025, reflects the number and value of interest rate swap transactions executed during each year, combined with the impact of changes in the fair value of borrower-facing trades.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Noninterest Expense

The following table summarizes our noninterest expense for the years ended December 31 (in thousands):

2025

2024

2023

Salaries and employee benefits

$

72,813

$

66,126

$

71,889

Occupancy and equipment

15,490

14,361

14,798

Professional services

6,516

7,702

5,259

Computer and data processing

23,089

22,689

20,110

Supplies and postage

2,098

1,935

1,873

FDIC assessments

5,070

5,284

4,902

Advertising and promotions

1,810

1,573

1,926

Amortization of intangibles

415

552

910

Provision for litigation settlement

-

23,022

-

Deposit-related charged-off items

160

20,341

1,201

Other

14,500

15,321

14,357

Total noninterest expense

$

141,961

$

178,906

$

137,225

Salaries and employee benefits expense increased $6.7 million, or 10%, to $72.8 million in 2025, compared to $66.1 million in 2024. The increase reflected a combination of factors, including annual merit increases, incentive compensation and investments in personnel.

Professional services expense decreased $1.2 million, or 15%, to $6.5 million in 2025, compared to $7.7 million in 2024. Professional services expense for 2024 included $1.4 million of legal and other professional expense associated with the deposit-related fraud event.

Provision for litigation settlement of $23.0 million in 2024 represented the pre-tax litigation accrual, which reflected the final resolution of the long-standing automobile lending litigation.

Deposit related charged-off items in 2024 included an $18.2 million loss associated with charge-offs related to the deposit-related fraud event we experienced in early March 2024.

The efficiency ratio for the year ended December 31, 2025 was 58.13% compared with 82.35% for 2024. The lower efficiency ratio was reflective of the increase in net interest income, as a result of the AFS restructuring in 2024, and our focus on effectively managing expenses in 2025 as described above. Our 2024 efficiency ratio reflected the increased expenses associated with the fraud event, as well as the automobile litigation settlement. The efficiency ratio is calculated by dividing total noninterest expense by net revenue, defined as the sum of tax-equivalent net interest income and noninterest income before net gains on investment securities. An increase in the efficiency ratio indicates that more resources are being utilized to generate the same volume of income, while a decrease indicates a more efficient allocation of resources. The efficiency ratio, a banking industry financial measure, is not required by GAAP. However, the efficiency ratio is used by management in its assessment of financial performance specifically as it relates to noninterest expense control. Management also believes such information is useful to investors in evaluating Company performance.

Income Taxes

Income tax expense was $16.5 million for 2025, compared to an income tax benefit of $26.5 million for 2024, which was reflective of the net loss reported for the year. In 2025 and 2024, we recognized tax credit investments resulting in a $4.5 million and $4.6 million, respectively, reduction in income tax expense, in each year, and a $2.0 million and $775 thousand net loss recorded in noninterest income, respectively.

Our effective tax rate was 18.1% for 2025, compared to (38.9%) for 2024. Effective tax rates are typically impacted by items of income and expense that are not subject to federal or state taxation. Our effective tax rates reflect the impact of these items, which include, but are not limited to, interest income from tax-exempt securities, earnings on company owned life insurance and the impact of tax credit investments. In addition, our effective tax rate for 2025 and 2024 reflects the New York State tax benefit generated by our real estate investment trust.

RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2024 AND DECEMBER 31, 2023

A discussion regarding our financial condition and results of operations at and for the year ended December 31, 2024 and year-to-year comparisons between 2024 and 2023, which are not included in this Form 10-K, can be found in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2024 and are incorporated by reference herein.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

ANALYSIS OF FINANCIAL CONDITION

OVERVIEW

At December 31, 2025, we had total assets of $6.27 billion, an increase of 3% from $6.12 billion as of December 31, 2024, primarily due to an increase in loans. Net loans were $4.61 billion as of December 31, 2025, up $179.3 million, or 4%, compared to $4.43 billion as of December 31, 2024. The increase in net loans was primarily due to organic growth in our commercial business and commercial mortgage loan portfolios, partially offset by a decrease in consumer indirect loans. Non-performing assets totaled $35.8 million as of December 31, 2025, down $5.6 million compared to December 31, 2024. The decrease in non-performing assets reflected a foreclosed participated loan and partial charge-off of a credit facility in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. Total deposits amounted to $5.21 billion as of December 31, 2025, up $101.6 million, or 2%, compared to December 31, 2024. As of December 31, 2025, borrowings totaled $302.7 million, compared to $223.8 million as of December 31, 2024, and included $80.0 million related to our December 2025 sub-debt offering, in addition to the $65.0 million balance of our 2025 and 2020 Notes, which were subsequently redeemed on January 15, 2026. Common book value per common share was $30.89 and $27.48 as of December 31, 2025 and 2024, respectively. As of December 31, 2025, our total shareholders’ equity was $628.9 million compared to $569.0 million as of December 31, 2024. The increase in shareholders’ equity as compared to December 31, 2024, was reflective of net income retained, net of dividends, and a reduction in accumulated other comprehensive loss associated with unrealized losses on the AFS securities portfolio, partially offset by the increase in treasury stock due to the impact of the common shares repurchased under our 2025 Share Repurchase Program.

INVESTING ACTIVITIES

The following table summarizes the composition of our available for sale and held to maturity securities portfolios (in thousands).

Investment Securities Portfolio Composition

At December 31,

2025

2024

Amortized

Cost

Fair

Value

Amortized

Cost

Fair

Value

Securities available for sale:

Mortgage-backed securities:

Agency mortgage-backed securities

$

913,534

$

877,631

$

964,057

$

902,019

Non-Agency mortgage-backed securities

-

-

-

365

Other debt securities

44,608

44,841

8,663

8,721

Total available for sale securities

958,142

922,472

972,720

911,105

Securities held to maturity:

U.S. Government agency and government-sponsored enterprise securities

6,813

6,689

16,663

16,151

State and political subdivisions

32,829

28,280

45,333

40,167

Mortgage-backed securities

45,068

41,287

54,007

48,238

Total held to maturity securities

84,710

76,256

116,003

104,556

Allowance for credit losses–securities

(2

)

(2

)

Total held to maturity securities, net

84,708

116,001

Total investment securities

$

1,042,850

$

998,728

$

1,088,721

$

1,015,661

Our investment policy is contained within our overall Asset-Liability Management and Investment Policy. This policy dictates that investment decisions will be made based on the safety of the investment, liquidity requirements, potential returns, cash flow targets, need for collateral, and desired risk parameters. In pursuing these objectives, we consider the ability of an investment to provide earnings consistent with factors of quality, maturity, marketability, pledgeable nature and risk diversification. Our Chief Financial Officer and Treasurer, guided by ALCO, is responsible for investment portfolio decisions within the established policies.

Our AFS investment securities portfolio increased $11.4 million from $911.1 million at December 31, 2024 to $922.5 million at December 31, 2025. The net unrealized loss on our AFS portfolio at December 31, 2025 was $35.7 million, and was comprised of an unrealized loss of $46.3 million, partially offset by an unrealized gain of $10.6 million. The net unrealized loss at December 31, 2024 was $61.6 million. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Impairment Assessment

For AFS securities in an unrealized loss position, we first assess whether (i) we intend to sell, or (ii) it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis. If either case is affirmative, any previously recognized allowances are charged-off and the security’s amortized cost is written down to fair value through income. If neither case is affirmative, the security is evaluated to determine whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, management considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency and any adverse conditions specifically related to the security, among other factors. If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, limited by the amount that the fair value is less than the amortized cost basis. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income. Adjustments to the allowance are reported in our income statement as a component of credit loss expense. AFS securities are charged-off against the allowance or, in the absence of any allowance, written down through income when deemed uncollectible by management or when either of the aforementioned criteria regarding intent or requirement to sell is met. For the years ended December 31, 2025 and 2024 no allowance for credit losses has been recognized on AFS securities in an unrealized loss position as management does not believe any of the securities are impaired due to reasons of credit quality.

The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of December 31, 2025, we concluded that unrealized losses on our AFS securities were not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The following discussion provides further details of our assessment of the AFS securities portfolio by investment category.

Agency Mortgage-backed Securities

All of the mortgage-backed securities held by us as of December 31, 2025, were issued by U.S. Government sponsored entities and agencies (“Agency MBS”), primarily FNMA and FHLMC. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA. The GNMA mortgage-backed securities are backed by the full faith and credit of the U.S. Government.

As of December 31, 2025, there were 46 securities in the AFS Agency MBS portfolio with an aggregate fair value of $355.8 million that were in an unrealized loss position with unrealized losses totaling $46.0 million. Of these, 36 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $219.0 million and unrealized losses of $43.7 million. The unrealized loss of these securities was driven by the timing of the purchases of fixed-rate securities during the extended low-interest rate environment experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates. However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal, and the proceeds will be invested at current market rates.

Given the high credit quality inherent in Agency MBS, we do not consider any of the unrealized losses as of December 31, 2025 on such Agency MBS to be credit related. As of December 31, 2025, we did not intend to sell any Agency MBS that were in an unrealized loss position, all of which were performing in accordance with their terms.

Other Debt Securities

In September 2025, we purchased subordinated debt of bank holding companies with a maturity of 10 years, with a call in 5 years. As of December 31, 2025, there were eight corporate bonds with an aggregate fair value of $19.1 million, in an unrealized loss position for less than 12 months of $237 thousand.

FHLB and FRB Stock

As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. At December 31, 2025, our ownership of FHLB and FRB stock totaled $12.4 million and $9.2 million, respectively, and is included in other assets on our statement of financial position, and recorded at cost, which approximates fair value.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

LENDING ACTIVITIES

Total loans were $4.66 billion at December 31, 2025, an increase of $178.7 million, or 4%, from December 31, 2024. The composition of our loan portfolio, excluding loans held for sale and including net unearned income and net deferred fees and costs, is summarized as follows (in thousands):

Loan Portfolio Composition

At December 31,

2025

2024

Amount

Percent

Amount

Percent

Commercial business

$

738,307

15.8

%

$

665,321

14.9

%

Commercial mortgage–construction

488,558

10.5

582,619

13.0

Commercial mortgage–multifamily

588,732

12.7

470,954

10.5

Commercial mortgage–non-owner occupied

942,219

20.2

857,987

19.2

Commercial mortgage–owner occupied

322,776

6.9

288,036

6.4

Total commercial mortgage

2,342,285

50.3

2,199,596

49.1

Total commercial

3,080,592

66.1

2,864,917

64.0

Residential real estate loans

657,001

14.1

650,206

14.5

Residential real estate lines

75,121

1.6

75,552

1.7

Consumer indirect

807,310

17.4

845,772

18.9

Other consumer

37,842

0.8

42,757

0.1

Total consumer

1,577,274

33.9

1,614,287

36.0

Total loans

4,657,866

100.0

%

4,479,204

100.0

%

Less: Allowance for credit losses

47,386

48,041

Total loans, net

$

4,610,480

$

4,431,163

Total commercial loans of $3.08 billion, represented 66% of total loans at December 31, 2025, compared to $2.86 billion, or 64% of total loans as of December 31, 2024. Commercial business loans of $738.3 million, or 16% of total loans, were up $73.0 million, or 11%, from December 31, 2024, and total commercial mortgage loans of $2.34 billion, or 50% of total loans, were up $142.7 million, or 6%, from December 31, 2024. The increase in commercial mortgage loans was attributable to increases in construction, multifamily, owner and non-owner occupied loans. As of December 31, 2025, commercial real estate (“CRE”) loans made up approximately 68% of total commercial loans, and 44% of total loans, commercial and industrial loans approximated 27% of total commercial loans, and 18% of total loans, and business banking unit loans were approximately 5% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at December 31, 2025 related to approximately 46% multi-family, 19% office, 9% retail, 8% hospitality, 6% industrial property, and 8% land. Approximately 74% of our office exposure at December 31, 2025, or 14% of our total CRE exposure, related to Class B or medical office space. More than 75% of our office and 90% of our multifamily CRE loans have full or limited personal or corporate recourse.

We typically originate commercial business loans of up to $25.0 million for small- to mid-sized businesses in our market area for working capital, equipment financing, inventory financing, accounts receivable financing, or other general business purposes. Loans of this type are in a diverse range of industries. We also offer commercial mortgage loans to finance the purchase of real property, which generally consists of real estate with completed structures. The majority of our commercial mortgage loans are secured by office buildings, manufacturing facilities, distribution/warehouse facilities, and retail centers, which are generally located in our local market area.

The credit risk related to commercial loans is largely influenced by general economic conditions, inflation, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early identification of potential problems, an appropriate allowance for credit losses, and sound nonaccrual and charge off policies. An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. Credit risk is controlled by detailed underwriting procedures, comprehensive loan administration, and periodic review of borrowers’ outstanding loans and commitments. Borrower relationships are formally reviewed and graded on an ongoing basis for early identification of potential problems. Further analyses by customer, industry, and geographic location are performed to monitor trends, financial performance, and concentrations.

We participate in various lending programs in which guarantees are supplied by U.S. government agencies, such as the SBA, U.S. Department of Agriculture, Rural Economic and Community Development and Farm Service Agency, among others. As of December 31, 2025, the principal balance of such loans (included in commercial loans) was $40.9 million, and the guaranteed portion amounted to $30.9 million.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

We determine our current lending standards for commercial real estate and real estate construction lending by property type and specifically address many criteria, including: maximum loan amounts, maximum loan-to-value (“LTV”), requirements for pre-leasing or pre-sales, minimum debt-service coverage ratios, minimum borrower equity, and maximum loan to cost. Currently, the maximum standard for LTV is 85%, with lower limits established for certain higher risk types, such as raw land which has a 65% LTV maximum.

Consumer loans totaled $1.58 billion at December 31, 2025, down $37.0 million compared to year end 2024, and represented 34% of the 2025 year-end loan portfolio versus 36% at December 31, 2024. Loans in this classification include residential real estate loans, residential real estate lines, indirect consumer and other consumer installment loans. Credit risk for these types of loans is generally influenced by general economic conditions, including inflation, the characteristics of individual borrowers, and the nature of the loan collateral. Risks of loss are generally on smaller average balances per loan spread over many borrowers. Once charged off, there is usually less opportunity for recovery on these smaller retail loans. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

Residential real estate portfolios include conventional first lien mortgages and home equity loans and lines of credit. For conventional first lien mortgages, we generally limit the maximum loan to 85% of collateral value without credit enhancement (e.g., personal mortgage insurance). A portion of our fixed-rate conventional mortgage loans are sold in the secondary market with servicing rights retained. Our conventional mortgage products continue to be underwritten using FHLMC secondary marketing guidelines. Our underwriting guidelines for home equity products include a combination of borrower FICO (credit score), the LTV of the property securing the loan and evidence of the borrower having sufficient income to repay the loan. Currently, for home equity products, the maximum acceptable LTV is 90%. The average FICO score for new home equity production was 746 and 742 during the years ended December 31, 2025 and 2024, respectively.

Residential real estate loans totaled $657.0 million at the end of 2025, up $6.8 million, from the end of the prior year and comprised 14% and 15% of total loans outstanding at December 31, 2025 and December 31, 2024, respectively. The residential real estate line portfolio amounted to $75.1 million at December 31, 2025, down $431 thousand, compared to year end 2024 and represented 2% of total loans at both December 31, 2025 and December 31, 2024. The residential real estate loans and lines portfolios had a weighted average LTV at origination of approximately 70% at December 31, 2025 and 2024. Approximately 92% of the loans and lines were first lien positions at December 31, 2025 and 2024.

Consumer indirect loans amounted to $807.3 million at December 31, 2025 down $38.5 million, or 5%, compared to year end 2024 and represented 17% of the 2025 year-end loan portfolio versus 19% at year-end 2024. The loans are primarily for the purchase of automobiles (both new and used) and light duty trucks primarily by individuals, but also by corporations and other organizations. The loans are originated through our network of approximately 370 new automobile dealers in our core Upstate New York market, and assigned to us with terms that typically range from 36 to 84 months. During the year ended December 31, 2025, we originated $319.4 million in indirect loans with a mix of approximately 30% new vehicles and 70% used vehicles. This compares with originations of $239.5 million in indirect loans with a mix of approximately 26% new vehicles and 74% used vehicles for 2024. The average FICO score for indirect loan production was approximately 729 and 724 during the years ended December 31, 2025 and 2024, respectively.

Other consumer loans totaled $37.8 million at December 31, 2025, down $4.9 million, compared to year end 2024, and represented approximately 1% of the 2025 and 2024 year-end loan portfolio. Other consumer loans consist of personal loans (collateralized and uncollateralized) and deposit account collateralized loans.

Our loan portfolio is widely diversified by types of borrowers, industry groups, and market areas within our operating footprint. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to numerous borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2025, no significant concentrations, as defined above, existed in our portfolio. Our largest loan portfolios are CRE and indirect automobile lending. Our CRE loan portfolio is geographically diversified through multiple property types, as well as cities and markets in New York State, and the Mid-Atlantic region (Maryland, Virginia, Washington, DC) with various sources of borrower repayment. The indirect automobile loan portfolio consists of geographically diverse small loans with an average loan size of approximately $30,000. Approximately, 78% of the portfolio is to Tier 1 and Tier 2 borrowers with a FICO score greater than 670. Credit concentration limits are defined and established in our policies, and compliance with limits is monitored and reported to management and board-level committees, with defined actions to be taken in instances of a limit breach.

Loans Held for Sale and Loan Servicing Portfolio

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $3.4 million and $2.3 million as of December 31, 2025 and 2024, respectively.

We sell certain qualifying newly originated or refinanced residential real estate loans on the secondary market. Residential real estate loans serviced for others, which are not included in the consolidated statements of financial condition, amounted to $293.3 million and $280.8 million as of December 31, 2025 and 2024, respectively.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Allowance for Credit Losses

The following table summarizes the activity in the allowance for credit losses–loans (in thousands) for the years indicated.

Credit Loss–Loans Analysis

Year Ended December 31,

2025

2024

2023

Allowance for credit losses–loans, beginning of period

$

48,041

$

51,082

$

45,413

Net charge-offs (recoveries):

Commercial business

2,129

98

(109

)

Commercial mortgage–construction

(367

)

-

980

Commercial mortgage–multifamily

-

12

-

Commercial mortgage–non-owner occupied

594

(8

)

(875

)

Commercial mortgage–owner occupied

(3

)

(4

)

(70

)

Residential real estate loans

104

95

89

Residential real estate lines

27

-

41

Consumer indirect

7,256

7,927

7,595

Other consumer

1,151

566

893

Total net charge-offs

10,891

8,686

8,544

Provision for credit losses–loans

10,236

5,645

14,213

Allowance for credit losses–loans, end of year

$

47,386

$

48,041

$

51,082

Net loan charge-offs (recoveries) to average loans:

Commercial business

0.30

%

0.01

%

-0.02

%

Commercial mortgage–construction

-0.07

%

0.00

%

0.27

%

Commercial mortgage–multifamily

0.00

%

0.00

%

0.00

%

Commercial mortgage–non-owner occupied

0.07

%

0.00

%

-0.10

%

Commercial mortgage–owner occupied

0.00

%

0.00

%

0.30

%

Residential real estate loans

0.02

%

0.01

%

0.01

%

Residential real estate lines

0.04

%

0.00

%

0.05

%

Consumer indirect

0.87

%

0.89

%

0.76

%

Other consumer

2.95

%

1.23

%

3.11

%

Total loans

0.24

%

0.20

%

0.20

%

Allowance for credit losses–loans to total loans

1.02

%

1.07

%

1.14

%

Allowance for credit losses–loans to nonaccrual loans

135

%

116

%

192

%

Allowance for credit losses–loans to non-performing loans

133

%

116

%

192

%

Net charge-offs of $10.9 million in 2025 represented 0.24% of average loans compared to $8.7 million, or 0.20%, in 2024. The allowance for credit losses–loans decreased to $47.4 million at December 31, 2025, compared with $48.0 million at December 31, 2024, reflective of higher net charge-offs in 2025. The provision for credit losses–loans normalized in 2025 compared to 2024, as the 2024 provision reflected positive trends in qualitative factors which drove a lower provision for 2024. Non-performing loans decreased $5.7 million to $35.8 million at December 31, 2025 from prior year end, reflective of a foreclosed participated loan and partial charge-off of a credit facility in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023. The ratio of the allowance for credit losses–loans to total loans was 1.02% and 1.07% at December 31, 2025 and 2024, respectively, reflective of the lower allowance for credit losses–loans. The ratio of allowance for credit losses–loans to non-performing loans was 133% at December 31, 2025, compared with 116% at December 31, 2024, with the increase reflective of the lower level of nonperforming loans at December 31, 2025.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

The following table sets forth the allocation of the allowance for credit losses–loans by loan category as of the dates indicated. The allocation is made for analytical purposes and is not necessarily indicative of the categories in which actual losses may occur. The total allowance is available to absorb losses from any segment of the loan portfolio (in thousands).

Allowance for Credit Losses–Loans by Loan Category

At December 31,

2025

2024

Credit Loss Allowance

Percentage of Loans By Category to Total Loans

Credit Loss Allowance

Percentage of Loans By Category to Total Loans

Commercial business

$

9,568

15.8

%

$

8,665

14.9

%

Commercial mortgage–construction

4,425

10.5

6,824

13.0

Commercial mortgage–multifamily

3,316

12.7

3,458

10.5

Commercial mortgage–non-owner occupied

10,494

20.2

7,330

19.2

Commercial mortgage–owner occupied

3,380

6.9

4,183

6.4

Residential real estate loans

3,511

14.1

3,596

14.5

Residential real estate lines

778

1.6

793

1.7

Consumer indirect

11,554

17.4

12,705

18.9

Other consumer

360

0.8

487

0.1

Total

$

47,386

100.0

%

$

48,041

100.0

%

Loans not analyzed for a specific reserve are segmented into “pools” of loans based upon similar risk characteristics. This is referred to as the “pooled loan” component of the allowance for credit losses estimate. The allowance for credit losses for pooled loans estimate is based upon periodic review of the collectability of the loans quantitatively correlating historical loan experience with reasonable and supportable forecasts using forward looking information. Adjustments to the quantitative evaluation may be made for differences in current or expected qualitative risk characteristics such as changes in: underwriting standards, delinquency level, regulatory environment, economic condition, Company management and the status of portfolio administration including the Company’s credit risk review function. The Company establishes a specific reserve for individually evaluated loans which do not share similar risk characteristics with the loans included in the forecasted allowance for credit losses. These individually evaluated loans are removed from the pooling approach discussed above for the forecasted allowance for credit losses, and include nonaccrual loans, and other loans deemed appropriate by management. The process we use to determine the overall allowance for credit losses is based on this analysis. Based on this analysis, we believe the allowance for credit losses is adequate as of December 31, 2025.

Assessing the adequacy of the allowance for credit losses involves substantial uncertainties and is based upon management’s evaluation of the amounts required to meet estimated charge-offs in the loan portfolio after weighing a variety of factors, including the risk profile of our loan products and customers.

Factors beyond our control, however, such as general national and local economic conditions, can adversely impact the adequacy of the allowance for credit losses. As a result, no assurance can be given that adverse economic conditions or other circumstances will not result in increased losses in the portfolio or that the allowance for credit losses will be sufficient to meet actual loan losses. See Part I, Item 1A “Risk Factors” for the risks impacting this estimate. Management presents a quarterly review of the adequacy of the allowance for credit losses to the Audit Committee of our Board of Directors based on the methodology that is described in further detail in Part I, Item I “Business” under the section titled “Lending Activities.” See also “Critical Accounting Estimates” for additional information on the allowance for credit losses.

The adequacy of the allowance for credit losses is subject to ongoing management review. While management evaluates currently available information in establishing the allowance for credit losses–loans, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations. In addition, various regulatory agencies, as an integral part of their examination process, periodically review our allowance for credit losses–loans. Such agencies may require us to increase the allowance based on their judgments about information available to them at the time of their examination.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

Non-performing Assets and Potential Problem Loans

The following table summarizes our non-performing assets (in thousands) as of the dates indicated:

Non-Performing Assets

At December 31,

2025

2024

Nonaccrual loans:

Commercial business

$

4,039

$

5,609

Commercial mortgage–construction

20,321

20,280

Commercial mortgage–multifamily

540

-

Commercial mortgage–non-owner occupied

-

4,773

Commercial mortgage–owner occupied

1,095

354

Residential real estate loans

6,443

6,918

Residential real estate lines

374

253

Consumer indirect

2,155

3,157

Other consumer

118

19

Total nonaccrual loans

35,085

41,363

Accruing loans 90 days or more delinquent

670

43

Total non-performing loans

35,755

41,406

Foreclosed assets

94

60

Total non-performing assets

$

35,849

$

41,466

Nonaccrual loans to total loans

0.75

%

0.92

%

Non-performing loans to total loans

0.77

%

0.92

%

Non-performing assets to total assets

0.57

%

0.68

%

Non-performing assets include non-performing loans and foreclosed assets. Non-performing assets at December 31, 2025 were $35.8 million, a decrease of $5.6 million from $41.5 million at December 31, 2024. The primary component of non-performing assets is non-performing loans, which were $35.8 million or 0.77% of total loans at December 31, 2025, compared with $41.4 million or 0.92% of total loans at December 31, 2024. The decrease in nonperforming loans reflected the foreclosure of a participated loan and partial charge-off of a credit facility reported in 2025, both of which related to a commercial business relationship placed on nonaccrual status in 2023.

Approximately $1.3 million, or 4%, of the $35.1 million of nonaccrual loans, a component of non-performing loans, as of December 31, 2025 were current with respect to payment of principal and interest but were classified as non-accruing because repayment in full of principal and/or interest was uncertain.

Foreclosed assets consist of real property formerly pledged as collateral for loans, which we have acquired through foreclosure proceedings or acceptance of a deed in lieu of foreclosure. We had $94 thousand and $60 thousand of properties representing foreclosed asset holdings at December 31, 2025 and 2024, respectively.

Potential problem loans are loans that are currently performing, but information known about possible credit problems of the borrowers causes us to have concern as to the ability of such borrowers to comply with the present loan payment terms and may result in disclosure of such loans as nonperforming at some time in the future. These loans remain in a performing status due to a variety of factors, including payment history, the value of collateral supporting the credits, and/or personal or government guarantees. We consider loans classified as substandard, which continue to accrue interest, to be potential problem loans. We identified $27.6 million and $33.7 million in loans that continued to accrue interest which were classified as substandard as of December 31, 2025 and 2024, respectively.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

FUNDING ACTIVITIES

Deposits

The following table summarizes the composition of our deposits (in thousands) as of the dates indicated.

At December 31,

2025

2024

Amount

Percent

Amount

Percent

Noninterest-bearing demand

$

962,724

18.5

%

$

950,351

18.6

%

Interest-bearing demand

672,323

12.9

705,195

13.8

Savings and money market

1,884,801

36.2

1,904,013

37.3

Time deposits

1,686,500

32.4

1,545,172

30.3

Total deposits

$

5,206,348

100.0

%

$

5,104,731

100.0

%

We offer a variety of deposit products designed to attract and retain customers, with the primary focus on building and expanding long-term relationships. At December 31, 2025, total deposits were $5.21 billion, representing an increase of $101.6 million, or 2%, which was primarily the result of an increase in brokered, reciprocal, and public deposits, partially offset by a decrease in non-public deposits. Time deposits were approximately 32% and 30% of total deposits at December 31, 2025 and 2024, respectively.

Non-public deposits, the largest component of our funding sources, totaled $3.16 billion and $3.21 billion at December 31, 2025 and 2024, respectively, and represented 61% and 63% of total deposits as of the end of each year, respectively. We have managed this segment of funding through a strategy of competitive pricing that minimizes the number of customer relationships that have only a single service high-cost deposit account.

As an additional source of funding, we offer a variety of public (municipal) deposit products to the towns, villages, counties and school districts within our market. Public deposits generally range from 20% to 30% of our total deposits. There is a high degree of seasonality in this component of funding, because the level of deposits varies with the seasonal cash flows for these public customers. We maintain the necessary levels of short-term liquid assets to accommodate the seasonality associated with public deposits. Total public deposits were $1.09 billion and $1.07 billion at December 31, 2025 and December 31, 2024, respectively, and represented 21% of total deposits as of the end of each year.

We participate in reciprocal deposit programs, which enable depositors to receive FDIC insurance coverage for deposits otherwise exceeding the maximum insurable amount. Through these programs, deposits in excess of the maximum insurable amount are placed with multiple participating financial institutions. Reciprocal deposits totaled $829.2 million at December 31, 2025, compared to $746.7 million at December 31, 2024, and represented 16% and 15% of total deposits as of the end of each year, respectively.

Brokered deposits totaled $125.2 million and $80.9 million, at December 31, 2025 and 2024, respectively, or 2% of total deposits at the end of each year. As of December 31, 2025 and December 31, 2024, respectively, $75.2 million and $28.1 million of interest-bearing demand deposits and $50.0 million and $52.8 million of time deposits were brokered deposit accounts.

As of December 31, 2025 and 2024, the aggregate amount of uninsured deposits (deposits in amounts greater than $250 thousand, which is the maximum amount for federal deposit insurance) was $2.26 billion, or 43% of total deposits, and $1.93 billion, or 38% of total deposits, respectively. The portion of our time deposits by account that were in excess of the FDIC insurance limit was $394.2 million and $328.4 million at December 31, 2025 and 2024, respectively. The maturities of our uninsured time deposits at December 31, 2025 were as follows: $110.7 million in three months or less; $92.4 million between three months and six months; $89.4 million between six months and one year; and $101.7 million over one year. Approximately $1.03 billion and $1.00 billion of reciprocal and public deposits, characterized as preferred deposits for FDIC call report purposes, were collateralized by government-backed securities as of December 31, 2025 and 2024, respectively. As of December 31, 2025, estimated uninsured nonpublic deposits were approximately 24% of total deposits.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Borrowings

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the agreement. Outstanding borrowings are summarized as follows as of December 31 (in thousands):

2025

2024

Short-term borrowings:

FHLB

$

109,000

$

99,000

Long-term borrowings:

FHLB

50,000

50,000

Subordinated notes, net

143,653

74,842

Total long-term borrowings

193,653

124,842

Total borrowings

$

302,653

$

223,842

Short-term Borrowings

Short-term borrowings at December 31, 2025 and 2024 were $109.0 million and $99.0 million, respectively, which was comprised of short-term FHLB borrowings. The FHLB borrowings are collateralized by securities from the Company’s investment portfolio and certain qualifying loans. Short-term FHLB borrowings have original maturities of less than one year and include overnight borrowings which we typically utilize to address short-term funding needs as they arise. Short-term borrowings and brokered deposits have historically been utilized to manage the seasonality of public deposits. As of December 31, 2025, loans pledged also served as collateral for letters of credit issued through the FHLB for the benefit of uninsured public funds deposits totaling $270.3 million. At December 31, 2025 and 2024, our short-term borrowings had a weighted average rate of 3.96% and 4.68%, respectively.

As of December 31, 2025, $50.0 million of the short-term borrowings balance was designated as a cash-flow hedge, which became effective in April 2022, at a fixed rate of 0.787%, $30.0 million was designated as a cash-flow hedge, which became effective in January 2023, at a fixed rate of 3.669%, and $25.0 million was designated as a cash-flow hedge, which became effective in May 2023, at a fixed rate of 3.4615%.

We have credit capacity with the FHLB and can borrow through facilities that include amortizing and term advances or repurchase agreements. We had approximately $240.1 million of immediate credit capacity with the FHLB and $942.2 million in secured borrowing capacity at the FRB discount window, none of which was outstanding at December 31, 2025. The FHLB and FRB credit capacity are collateralized by securities from our investment portfolio and certain qualifying loans. We had $155.0 million of credit available under unsecured federal funds purchased lines with various banks, with no amounts outstanding at December 31, 2025. Additionally, we had approximately $134.4 million of unencumbered liquid securities available for pledging.

The Parent has a revolving line of credit with a commercial bank allowing borrowings up to $20.0 million in total as an additional source of working capital. No amounts have been drawn on the line of credit at December 31, 2025 and 2024.

Long-term Borrowings

As of December 31, 2025 and 2024 and we had a long-term advance payable to FHLB of $50.0 million. The advance matures on January 20, 2026 and bears interest at a fixed rate of 4.05%. FHLB advances are collateralized by securities from our investment portfolio and certain qualifying loans.

On December 11, 2025, we completed a private placement of $80.0 million in aggregate principal of fixed-to-floating rate subordinated notes to qualified institutional buyers and institutional accredited investors that will be subsequently exchanged for subordinated notes with substantially the same terms (the “2025 Notes”) registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to registration rights agreements with the purchasers of the 2025 Notes. The 2025 Notes have a maturity date of December 15, 2035, and bear interest, payable semi-annually, at the rate of 6.50% per annum until December 15, 2030. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month Secured Overnight Financial Rate (“SOFR”) plus 312 basis points, payable quarterly until maturity. We are entitled to repay the 2025 Notes, in whole or in part, at any time on or after December 15, 2030, and to prepay the 2025 Notes in whole or in part at any time upon certain other specified events. The 2025 Notes qualify as Tier 2 capital for regulatory purposes. We used the net proceeds to redeem the $65.0 million of outstanding debt issuances from 2015 and 2020, at the first call date of 2026, as well as for general corporate purposes including repurchasing shares of the Company’s common stock under our 2025 Share Repurchase Program.

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MANAGEMENT’S DISCUSSION AND ANALYSIS

On October 7, 2020, we completed a private placement of $35.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes due 2030 to qualified institutional buyers and accredited institutional investors that were subsequently exchanged for subordinated notes with substantially the same terms (the “2020 Notes”) registered under the Securities Act of 1933, as amended. The 2020 Notes have a maturity date of October 15, 2030 and bore interest, payable semi-annually, at the rate of 4.375% per annum, until October 15, 2025, at which date the interest rate began repricing quarterly to an interest rate per annum equal to the then current three-month SOFR plus 4.265%, payable quarterly until maturity. The 2020 Notes became redeemable by us, in whole or in part, on any interest payment date on or after October 15, 2025. As expected, on January 15, 2026, we utilized a portion of the net proceeds of the 2025 issuance to redeem the $35.0 million outstanding principal balance. The 2020 Notes qualified as Tier 2 capital for regulatory purposes.

On April 15, 2015, we issued $40.0 million of subordinated notes (the “2015 Notes”) in a registered public offering. The 2015 Notes bore interest at a fixed rate of 6.0% per year, payable semi-annually, for the first 10 years. From April 15, 2025 to the April 15, 2030 maturity date, the interest rate will reset quarterly to an annual interest rate equal to the then current three-month CME Term SOFR plus 4.20561%. The 2015 Notes are redeemable by us at any quarterly interest payment date beginning on April 15, 2025 to maturity at par, plus accrued and unpaid interest. As expected, on January 15, 2026, we utilized a portion of the net proceeds of the 2025 issuance to redeem the $30.0 million outstanding principal balance. The 2015 Notes qualified as Tier 2 capital for regulatory purposes.

Shareholders’ Equity

Total shareholders’ equity was $628.9 million at December 31, 2025, an increase of $59.9 million from $569.0 million at December 31, 2024. The increase in shareholders’ equity was reflective of current year net income of $74.9 million, partially offset by common and preferred stock dividends of $26.4 million. A decrease in accumulated other comprehensive loss increased shareholders’ equity $19.6 million during the year primarily due to lower net unrealized losses on securities available for sale, while the increase in treasury stock primarily due to the repurchase of shares of common stock under the 2025 Share Repurchase Program decreased shareholders’ equity by $9.2 million. For detailed information on shareholders’ equity, see Note 14, Shareholders’ Equity, of the notes to the consolidated financial statements. FII and the Bank are subject to various regulatory capital requirements. At December 31, 2025, both FII and the Bank exceeded all regulatory requirements. For detailed information on regulatory capital requirements, see Note 13, Regulatory Matters, of the notes to the consolidated financial statements.

LIQUIDITY AND CAPITAL MANAGEMENT

The objective of maintaining adequate liquidity is to assure that we meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of matured borrowings, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. We achieve liquidity by maintaining a strong base of both core customer funds and maturing short-term assets; we also rely on our ability to sell or pledge securities and lines-of-credit and our overall ability to access the financial and capital markets.

Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits and wholesale funds. The strength of the Bank’s liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources that include credit lines with the other banking institutions such as the FHLB and the FRB.

The primary sources of liquidity for FII are dividends from the Bank and access to financial and capital markets. Dividends from the Bank are limited by various regulatory requirements related to capital adequacy and earnings trends. The Bank relies on cash flows from operations, core deposits, borrowings and short-term liquid assets.

In September 2025, the Board approved a share repurchase program for up to 1,006,379 shares of the Company’s common stock, or approximately 5% of our then outstanding common shares. The new share repurchase program replaced and terminated the prior share repurchase program authorized by the Board in June 2022. The repurchase program does not obligate us to purchase any shares and it may be extended, modified, or discontinued at any time. As of December 31, 2025, 336,869 shares have been repurchased under this program.

Cash and cash equivalents were $108.8 million as of December 31, 2025, an increase of approximately $21.4 million from $87.3 million as of December 31, 2024. During 2025, net cash provided by operating activities totaled $18.8 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled $140.0 million, which included outflows of $189.6 million for net loan originations, $5.5 million for purchases of premises and equipment, partially offset by $53.3 million of net cash used for the purchase of investment securities. Net cash provided by financing activities of $142.7 million was primarily attributed to a $101.6 million net increase in deposits, and $78.6 million of net proceeds from the issuance of the 2025 Notes, partially offset by $26.2 million in dividend payments, and $11.4 million in stock repurchases under the 2025 Repurchase Plan.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Planned Uses of Capital Resources

The Company has various long-term contractual obligations as of December 31, 2025, which include:

•
Time deposits for $1.69 billion;

•
Supplemental executive retirement plans for $101 thousand;

•
Subordinated notes for $145.0 million

•
FHLB long-term advances for $50.0 million; and

•
Operating leases for $50.6 million.

For additional information on the Company’s long-term contractual obligations above, see Note 9, Deposits, Note 19, Employee Benefit Plans, Note 10, Borrowings, and Note 7, Leases, in the accompanying consolidated financial statements.

We have financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of customers. These financial instruments include commitments to extend credit for $1.40 billion and standby letters of credit for $20.5 million as of December 31, 2025. We do not expect all of the commitments to extend credit and standby letters of credit to be funded. Thus, the total commitment amounts do not necessarily represent our future cash requirements.

We have committed to investments in limited partnerships, primarily related to small business investment companies, tax credit investments and FinTech and ESG-related investment funds. As of December 31, 2025, the off-balance sheet commitments related to these investments totaled $9.9 million. We have also recorded a $2.1 million liability primarily related to committed contributions for tax credit investments in property placed in service on or before December 31, 2025.

With the exception of obligations in connection with our irrevocable loan commitments, limited partnership investments and tax credit investments as of December 31, 2025, we had no other off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors. For additional information on off-balance sheet arrangements, see Note 1, Summary of Significant Accounting Policies and Note 12, Commitments and Contingencies, in the notes to the accompanying consolidated financial statements.

Shelf Registration

We have an effective shelf registration statement on file with the SEC for an indeterminate number of securities that is effective for three years (expires December 4, 2027), around which time we expect to file a replacement shelf registration statement. Under this universal shelf registration statement, we have the capacity to offer and sell from time to time securities, including common stock, debt securities, preferred stock, warrants and units. Under this shelf registration, we completed an underwritten public offering of 4,600,000 shares of common stock at $25.00 per share on December 13, 2024.

Security Yields and Maturities Schedule

The following table sets forth certain information regarding the amortized cost (“Cost”), cost-weighted average yields (“Yield”), which is defined as the book yield weighted against the ending book value, and contractual maturities of our debt securities portfolio as of December 31, 2025 (dollars in thousands). Mortgage-backed securities are included in maturity categories based on their stated maturity date. Actual maturities may differ from the contractual maturities presented because borrowers may have the right to call or prepay certain investments. No tax-equivalent adjustments were made to the weighted average yields.

Due in less

than one

year

Due from one

to five years

Due after five

years through

ten years

Due after ten

years

Total

Cost

Yield

Cost

Yield

Cost

Yield

Cost

Yield

Cost

Yield

Available for sale debt securities:

Mortgage-backed securities

$

-

-

%

$

8

6.89

%

$

27

6.24

%

$

913,499

4.60

%

$

913,534

4.60

%

Other debt securities

-

-

3,978

6.59

40,630

6.68

-

-

44,608

6.67

-

-

3,986

6.57

40,657

6.68

913,499

4.60

958,142

4.70

Held to maturity debt securities:

U.S. Government agencies and government-sponsored enterprises

-

-

%

6,813

3.43

%

-

-

%

-

-

%

6,813

3.43

%

State and political subdivisions

6,116

3.51

5,280

1.78

5,139

1.93

16,294

2.62

32,829

2.55

Mortgage-backed securities

-

-

2,610

3

12,698

2.21

29,760

2.81

45,068

2.64

6,116

3.51

14,703

2.74

17,837

2.14

46,054

2.74

84,710

2.67

Total investment securities

$

6,116

3.51

%

$

18,689

3.55

%

$

58,494

5.29

%

$

959,553

4.51

%

$

1,042,852

4.53

%

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Contractual Loan Maturity Schedule

The following table summarizes the contractual maturities of our loan portfolio at December 31, 2025. Loans, net of deferred loan origination costs, include principal amortization and non-accruing loans. Demand loans having no stated schedule of repayment or maturity and overdrafts are reported as due in one year or less (in thousands).

Due in less

than one

year

Due from

one to

five years

Due from

five to

fifteen years

Due after

fifteen years

Total

Commercial business

$

348,895

$

308,983

$

64,867

$

15,562

$

738,307

Commercial mortgage–construction

264,868

222,509

101

1,080

488,558

Commercial mortgage–multifamily

126,649

191,591

257,646

12,846

588,732

Commercial mortgage–non-owner occupied

92,833

414,230

415,400

19,756

942,219

Commercial mortgage–owner occupied

3,189

104,039

200,202

15,346

322,776

Residential real estate loans

12,392

12,750

145,108

486,751

657,001

Residential real estate lines

13

191

7,659

67,258

75,121

Consumer indirect (1)

6,497

452,671

345,509

2,633

807,310

Other consumer

2,648

8,595

11,028

15,571

37,842

Total loans

$

857,984

$

1,715,559

$

1,447,520

$

636,803

$

4,657,866

Loans maturing after one year:

With a predetermined interest rate

Commercial business

$

107,369

$

39,751

$

13,768

$

160,888

Commercial mortgage–construction

17,055

101

915

18,071

Commercial mortgage–multifamily

81,136

76,467

485

158,088

Commercial mortgage–non-owner occupied

175,295

218,173

5,563

399,031

Commercial mortgage–owner occupied

62,951

69,508

-

132,459

Residential real estate loans

12,426

142,069

301,440

455,935

Residential real estate lines

-

-

-

-

Consumer indirect (1)

452,671

345,509

2,633

800,813

Other consumer

8,595

11,028

15,458

35,081

With a floating or adjustable rate

Commercial business

201,614

25,116

1,794

228,524

Commercial mortgage–construction

205,454

-

165

205,619

Commercial mortgage–multifamily

110,455

181,179

12,361

303,995

Commercial mortgage–non-owner occupied

238,935

197,227

14,193

450,355

Commercial mortgage–owner occupied

41,088

130,694

15,346

187,128

Residential real estate loans

324

3,039

185,311

188,674

Residential real estate lines

191

7,659

67,258

75,108

Consumer indirect (1)

-

-

-

-

Other consumer

-

-

113

113

Total loans maturing after one year

$

1,715,559

$

1,447,520

$

636,803

$

3,799,882

(1) Amounts include prepayment assumptions based on actual historical experience.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

Capital Resources

The FRB has adopted a system using risk-based capital guidelines to evaluate the capital adequacy of bank holding companies on a consolidated basis. The final rules implementing the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks were fully phased-in on January 1, 2019. As of December 31, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the BCBS rules. See Note 13, Regulatory Matters of the notes to consolidated financial statements and the “Basel III Capital Rules” section below for further discussion. The following table reflects the Company’s ratios and their components as of December 31 (in thousands):

2025

2024

Common shareholders’ equity

$

611,569

$

553,833

Less:

Goodwill and other intangible assets

57,002

58,127

Net unrealized loss on investment securities (1)

(26,531

)

(45,829

)

Hedging derivative instruments

1,329

3,085

Net periodic pension and postretirement benefits plan adjustments

(7,754

)

(9,754

)

Other

(74

)

(106

)

Common Equity Tier 1 (“CET1”) capital

587,597

548,310

Plus:

Preferred stock

17,285

17,285

Tier 1 Capital

604,882

565,595

Plus:

Qualifying allowance for credit losses

52,886

49,266

Subordinated Notes

130,653

74,842

Total regulatory capital

$

788,421

$

689,703

Adjusted average total assets (for leverage capital purposes)

$

6,240,934

$

6,180,275

Total risk-weighted assets

$

5,290,738

$

5,203,418

Regulatory Capital Ratios

Tier 1 Leverage (Tier 1 capital to adjusted average assets)

9.69

%

9.15

%

CET1 Capital (CET1 capital to total risk-weighted assets)

11.11

10.54

Tier 1 Capital (Tier 1 capital to total risk-weighted assets)

11.43

10.87

Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets)

14.90

13.25

(1)
Includes unrealized gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category.

We have elected to apply the 2020 Current Expected Credit Losses methodology (“CECL”) transition provision related to the impact of the CECL accounting standard on regulatory capital, as provided by the US banking agencies’ March 2020 interim final rule. Under the 2020 CECL transition provision, the regulatory capital impact of the Day 1 adjustment to the allowance for credit losses (after-tax) upon the January 1, 2020, CECL adoption date has been deferred and will phase in to regulatory capital at 25% per year commencing January 1, 2022. For the ongoing impact of CECL, we were allowed to defer the regulatory capital impact of the allowance for credit losses in an amount equal to 25% of the change in the allowance for credit losses (pre-tax) recognized through earnings for each period between January 1, 2020, and December 31, 2021. The cumulative adjustment to the allowance for credit losses between January 1, 2020, and December 31, 2021, was also phased in to regulatory capital at 25% per year commencing January 1, 2022.

Basel III Capital Rules

Under the Basel III Rules, the current minimum capital ratios, including an additional capital conservation buffer (2.5%) applicable to the Company and the Bank, are:

•
7.0% CET1 to risk-weighted assets;

•
8.5% Tier 1 capital (that is, CET1 plus Additional Tier 1 capital) to risk-weighted assets; and

•
10.5% Total capital (that is, Tier 1 capital plus Tier 2 capital) to risk-weighted assets.

As of December 31, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the Basel III rules, including the additional capital conservation buffer.

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Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS

CRITICAL ACCOUNTING ESTIMATES

Our consolidated financial statements are prepared in accordance with GAAP and are consistent with predominant practices in the financial services industry. Application of critical accounting policies, which are those policies that management believes are the most important to our financial position and results, requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes and are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions and judgments, which, in turn, may affect amounts reported in the financial statements.

We have numerous accounting policies, of which the most significant are presented in Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements. These policies, along with the disclosures presented in the other financial statement notes and, in this discussion, provide information on how significant assets, liabilities, revenues and expenses are reported in the consolidated financial statements and how those reported amounts are determined. Based on the sensitivity of financial statement amounts to the methods, assumptions, and estimates underlying those amounts, management has determined that the accounting policy with respect to the allowance for credit losses requires particularly subjective or complex judgments important to our financial position and results of operations, and, as such, is considered to be a critical accounting estimate as discussed below.

Adequacy of the Allowance for Credit Losses

The allowance for credit losses represents management’s estimate of probable credit losses inherent in the loan portfolio, and consists of an allowance for credit losses for pooled loans and a specific reserve for individually evaluated loans. Management estimates the allowance for credit losses for pooled loans utilizing a Discounted Cash Flow (“DCF”) method. The DCF method implements a probability of default with loss given default and exposure at default estimation. The probability of default and loss given default are applied to future cash flows that are adjusted to present value and these discounted expected losses become the allowance for credit losses. In the analysis at the portfolio level, we found that the best model for predicting defaults considers the national unemployment rate. With the large number of observations afforded by using peer data, the default curve is less sensitive to unusual loss events and has a much smoother shape. The national unemployment rate is an extremely strong predictor of defaults and explains almost all variation in the default rate. Excluded from the pooled analysis are loans to be individually evaluated due to the assets not maintaining similar risk characteristics to those included in pooled loans. These loans are generally considered to be collateral dependent and, therefore, an analysis of the collateral position versus the pooled loan discounted cash flow approach better reflects the potential loss. Individually evaluated accounts include: loans over 90 days past due, loans placed on non-accrual status and classified assets with exposure greater than $2.0 million.

Determining the amount of the allowance for credit losses is considered a critical accounting estimate because it requires significant judgment and the use of subjective measurements including, but not limited to, management’s assessment of the internal risk classifications of loans, estimating future losses utilizing current forecasts, forward-looking estimates of qualitative factors including national and local economic trends and conditions (excluding national unemployment), levels and trends in delinquencies, non-accrual loans and classified assets, trends in volume, terms and concentrations of loans, changes in lending policies and procedures, quality of credit review function and administration and changes in the regulatory environment, management, markets and product offerings. Because current economic conditions and borrower strength can change, and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the appropriateness of the allowance for credit losses, could change significantly. Management will periodically assess what adjustments are necessary to qualitatively adjust the allowance for credit losses based on their assessment of current expected credit losses. Various regulatory agencies also review the allowance for credit losses as an integral part of their examination process. Such agencies may require additions to the allowance for credit losses or may require that certain loan balances be charged off or downgraded into criticized loan categories when their credit evaluations differ from those of management, based on their judgments about information available to them at the time of their examination. We believe the level of the allowance for credit losses is appropriate as recorded in the consolidated financial statements. As future events cannot be determined with precision, actual results could differ significantly from our estimates.

For additional discussion related to our accounting policies for the allowance for credit losses, see the sections titled “Allowance for Credit Losses” in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, Summary of Significant Accounting Policies, of the notes to consolidated financial statements.

ACCOUNTING STANDARDS RECENTLY ADOPTED OR ISSUED

For a discussion of recent accounting pronouncements see the section titled “Accounting Standards Recently Adopted or Issued” in Note 1, Summary of Significant Accounting Policies in the notes to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K,

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