FISI 10-K & 10-Q changes, risk factors and insider trading

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believesbelieve could affect us are described below. Before making an investment decision, you should carefully consider the risks and uncertainties described below, together with all of the other information included or incorporated by reference herein. This Annual Report on Form 10-K is qualified in its entirety by these risk factors. Further, to the extent that any of the information contained in this Annual Report on Form 10-K constitutes forward-looking statements, the risk factors set forth below also are cautionary statements identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. We are most subject to fraud and compliance risk in connection with the origination of loans, ACH transactions, wire transactions, ATM and ITM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals.

A portion of our lending involves the purchase of consumer automobile installment sales contracts from automobile dealers located in Western, Central and the Capital District of New York, and Northern and Central Pennsylvania.Pennsylvania Effectiveprior Januaryto 1,our 2024,planned weexit exitedfrom the Pennsylvania automobile market in order to align our focus more fully around our core Upstate New York market.2024. These loans are for the purchase of new or used automobiles. We serve customers that cover a range of creditworthiness, and the required terms and rates are reflective of those risk profiles. While these loans have higher yields than many of our other loans, such loans involve risk elements in addition to normal credit risk. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers. While indirect automobile loans are secured, such loans are secured by depreciating assets and characterized by loan-to-value ratios that could result in us not recovering the full value of an outstanding loan upon default by the borrower. State and federal laws may further limit our ability to recover outstanding principal balances on such loans. If the losses from our indirect loan portfolio are higher than anticipated, it could have a material adverse effect on our financial condition and results of operations.

Market conditions may impact the competitive landscape for deposits in the banking industry. TheNational and local economic conditions, the interest rate environment and future actions of the Federal Reserve may impact pricing and demand for deposits in the banking industry. The withdrawal of more deposits than we anticipate could have an adverse impact on our profitability as this source of funding, if not replaced by similar deposit funding, would need to be replaced with wholesale funding, the sale of interest-earning assets, or a combination of these two actions. The replacement of deposit funding with wholesale funding could cause our overall cost of funding to increase, which would reduce our net interest income. A loss of interest-earning assets could also reduce our net interest income.

Non-compliance with the USA PATRIOT ActAct, the BSA, OFAC sanction regulations, or other applicable state and thefederal Bank Secrecy Actlaws could subject us to fines, sanctionspenalties, or other negativeregulatory actions.

The policies of the Federal Reserve impact us significantly. The Federal Reserve regulates the supply of money and credit in the United States. Its policies directly and indirectly influence the rate of interest earned on loans and paid on borrowings and interest-bearing deposits and can also affect the value of financial instruments we hold. Those policies determine, to a significant extent, our cost of funds for lending and investing and impact our net interest income, our primary source of revenue. Changes in those policies are beyond our control and are difficult to predict. Federal Reserve policies can also affect our borrowers, potentially increasing the risk that they may fail to repay their loans. For example, a tightening of the money supply by the Federal Reserve could reduce the demand for a borrower’s products and services. This could adversely affect the borrower’s earnings and ability to repay itstheir loan, which could have a material adverse effect on our financial condition and results of operations.

Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws. While the possession and sale of recreational marijuana is legal for adults aged 21 and older in New York State, cannabis remains classified as a Schedule I controlled substance under the federal Controlled Substances Act. In January 2018, under the first Trump administration, the DOJ rescinded the “Cole Memo” and related memoranda which characterized the enforcement of the Controlled Substances Act against persons and entities complying with state regulatory systems permitting the use, manufacture and sale of medical marijuana as an inefficient use of their prosecutorial resources and discretion. The impact of the DOJ’s rescission of the Cole Memo and related memoranda is unclear,unclear. but in the future may result in increased enforcement actions against the regulated cannabis industry generally. Under the Biden administration, the United States Attorney General indicated that the DOJ did not intend to pursue cases against parties who comply with the laws in states which have legalized and are effectively regulating marijuana. However, the second Trump administration took office on January 20, 2025, and enforcementEnforcement policies and practices may be highly variable between political administrations. In addition, federal prosecutors have significant discretion and there can be no assurance that the federal prosecutor for any district in which we or our customers operate will not choose to strictly enforce the federal laws governing cannabis.

As indicated in Note 1, Summary of Significant Accounting Policies–Recent —Accounting Pronouncements,Standards Recently Adopted or Issued, to the consolidated financial statements included in Part II, Item 8, of this Annual Report on Form 10-K, the regulations, rules, standards, policies, and interpretations underlying GAAP are constantly evolving and may change significantly over time. If we fail to interpret any one or more of these GAAP provisions correctly, or if our methodology in applying them to our financial reporting or disclosures is at all flawed, our financial statements may contain inaccuracies that, if severe enough, could warrant a later restatement by us, which in turn could result in a material adverse event.

Identifiable intangible assets other than goodwill consist of core deposit intangibles and other intangible assets (primarily customer relationships). Adverse events or circumstances could impact the recoverability of these intangible assets including loss of core deposits, significant losses of customer accounts and/or balances, increased competition or adverse changes in the economy. To the extent these intangible assets are deemed unrecoverable, a non-cash impairment charge would be recorded which could have a material adverse effect on our results of operations.

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

Liquidity is essential to our businesses.business.

We must maintain sufficient cash flow and liquid assets to satisfy current and future financial obligations, including demand for loans and deposit withdrawals, funding operating costs, and for other corporate purposes, as well as meetmeeting regulatory requirements and supervisory expectations. We rely on customer deposits to be a reasonable cost and stable source of funding for the loans we make and the operations of our business. Customer deposits, which include noninterest-bearing deposits, interest-bearing transaction accounts, savings deposits and time deposits of $250,000 or less, have historically provided us with a sizeable source of stable and low-cost funds. In addition to customer deposits, sources of liquidity include brokered deposits and borrowings from securities dealers, the FHLBNY and the FRB of New York, as well as the debt and equity capital markets.

Our earnings and cash flowsflow depend largely upon our net interest income. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of governmental and regulatory agencies, particularly the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, which may affect our net interest margins. Such changes could also affect (i) demand for our products and services and price competition, in turn affecting our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities; (iii) the average duration of our mortgage-backed securities portfolio and other interest-earning assets; (iv) levels of defaults on loans; and (v) loan prepayments.

Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. In addition, in a falling or low rate environment, or the recent pandemic-related environment where the Federal Reserve held the federal reference rate near 0.00%, loans may be prepaid sooner than we expect, which could result in a delay between when we receive the prepayment and when we are able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income we are able to earn on those assets. If we are unable to manage these risks effectively, our financial condition and results of operations could be materially adversely affected.

The financial services market continues to see rapid changes with steady and frequent introductions of new technology-driven products and services. Our future success may depend, in part, on our ability to leverage emerging technology to provide feature-rich products and services that provide value to our customers and our operations. At the same time, emerging technologies present new risks directly associated with adoption or indirectly by third-party service provider adoption. The continued expansion of cloud computing services has drastically increased the adoption risk asof we dependdependency on our third-party service providers to implement effective controls to manage newthe risk.risk of cloud service reliability and security. While cloud computing services typically support improved availability, performance and elasticity, it also presents increased risk of system and data compromise. And, while improved availability is a goal of cloud computing, service outages can be more significantly impactful. Cloud computing services are rapidly evolving as are the technology solutions running in cloud services. Cloud and associated technology have influenced the opportunity for rapid change, which inherently increases change management risk. While the heightened pace of change is often desirable, it may lead to undesirable outcomes impacting operational risk, financial risk, reputations risk and sometimes, regulatory risk. As such, the adoption of cloud services must include comprehensive assessment and risk management.

The recent emergence of artificial intelligence (“AI”) is a recentan example of an emerging technology providing significant value to operations and service, although the mere existence of AI capabilities presents a myriad of risks for consideration. Regardless of direct AI adoption by the Company, we face the risk of associates utilizing unauthorized publicly sourced AI tools to complete business functions. Unauthorized use of AI tools could lead to the unintended exposure of confidential data, use of inaccurate results, and a number of other risks. Additionally, third-party service providers are quickly embedding AI capabilities in their technology to provide more robust and efficient services. Some embedded AI capabilities could risk the exposure of confidential Company data if being used in a multi-tenant environment or being used to train AI systems.

Third-party vendors provide key components of our business infrastructure, such as infrastructure service delivery, application delivery, and ana increasedgrowing volume of managed service functions. While we have selectedselect these third-party vendors carefully, we relinquish many aspects of control.control and rely on oversight processes to minimize risk. Issues induced by these third parties, including a service disruption or poor service performance, could adversely affect our ability to deliver products and services to our customers or otherwise conduct our business efficiently, effectively, and in accordance with the expectations of our customers and regulators. Replacing these third-party providers could also entail significant time and expense, further emphasizing the need for stringent vendor due diligence processes.

Each year, more third-party service providers perform significant operational services on our behalf. These third-party vendors are subject to similar risks as us relating to cybersecurity, technology infrastructure, processes and talent. One or more of our vendors may experience a cybersecurity event or operational disruption and, if any such event does occur, it may not be adequately addressed, either operationally or financially, by the third-party vendor causing direct impact to our business. And, with the increased volume of cloud computing, our business could be directly impacted if similar disruptions are experienced by fourth-party vendors.vendors, which has been a growing trend in recent years. Some of our vendors may have limited indemnification obligations or may not have the financial capacity to satisfy their indemnification obligations. Financial or operational difficulties of a vendor could also impair our operations if those difficulties interfere with the vendor’s ability to serve us. If a critical vendor is unable to meet our needs in a timely manner or if the services or products provided by such a vendor are terminated or otherwise delayed and if we are not able to develop alternative sources for these services and products quickly and cost-effectively, it could have a material adverse effect on our business. Due to significant levels of dependency, critical services may require redundant service providers to reduce vendor risk, although this inherently increases financial risk a third-party risk with the redundant vendor and cost.

We rely heavily on communications, information technology (both on-premises and via service providers) and internet service to conduct our business. Our business depends on our ability to process and monitor a large volume of daily transactions in compliance with legal, regulatory, and internal standards and specifications. In addition, a significant portion of our operations relies heavily on the secure processing, storageretention, disposal, and transmission of personal and confidential information of our customers and clients. These risks have increased as our customers have adopted digital banking solutions, and we have migrated many former on-premises services and technology to hosted third-party service providers. The dependency on these services, provided on-premises or in hosted environments, are threatened daily by ever-evolving cyber criminals, system failures, natural disasters, and other uncontrollable events such as a global pandemic. Uncontrollable events test the operational resiliency of companies across the world, every year. Whether it be hurricanes, tornados, or wildfires, companies risk the loss of facilities, technical infrastructure and even the lives of irreplaceable talent, and the lack of quality business continuity and disaster recovery plans heightens the impactrisk risk.impact. The risk of failing to train and test these plans could challenge the ability to recover. Similarly, cyber-attacks also challenge our preparedness to respond and recover. The volume and impact of cyber-attacks continuescontinue to grow and regardless of security controls, every company is susceptible to a compromise, making the existence of an incident response plan critical. Failure to train and test the plan periodically is a critical risk to any company. PotentialModern attackscyber-attacks have attemptedattempt to obtain unauthorized access to directly access financial assets or indirectly benefit by accessing confidential informationdata for future gains. Cyber-attacks may be executed in multiple stages but generally begin with social engineering attacks which pose a significant risk to obtain for sale or destroy, often through the introduction of computer viruses or malware (ransomware), cyber-attacksemployees and other means.customers. Such security attacks can originate from a wide variety of sources, including people who are involved with organized crime or rogue attackers taking advantage of modern tollsschemes and services that have become readily available. Those same parties mayinitiate alsosocial attemptengineering attacks to fraudulently induce employees, customers or other users of our systems to disclose sensitive information in order to gain access to our data or that of our customers or clients. We are also subject to the risk that our employees may intercept and transmit unauthorized confidential or proprietary information. An interception, misuse or mishandling of personal, confidential or proprietary information being sent to or received from a customer or third party could result in legal liability, remediation costs, regulatory action and reputational harm, any of which could adversely affect operations and financial condition. The failure to train and periodically test for possible threats, greatly increases the risk of compromise and impact.

As the threat of cyber-attacks continue to evolve, we may be required to expendincrease significant additionalthe resources to continuededicated to modifyminimize orand enhance our systems, orrespond to investigatethese and remediate vulnerabilities in our systems.risks. Due to the complexity and interconnectedness of information technology systems, the process of enhancing our systems can itself create a risk of systems disruptions and security issues.

We are subject to cybersecurity regulations promulgated by agencies such as the FRB, NY DFS, and the SEC, as well as laws, such as those under the GLBA. Any failure by us to comply with laws and regulations could result in regulatory sanctions, public disclosure and reputational damage even if we do not experience a significant cybersecurity breach. Most regulatory agencies have enhanced cybersecurity requirements and oversight, requiring increased focus and investment in cybersecurity controls. The failure to keep up with regulatory cybersecurity requirements not only presents the risk of regulatory sanctions but also presents an ill-advised risk due to sub-standard cyber risk controls, thus increasing the risk of compromise. Insurance carriers have also enhanced their cybersecurity posture requirements and oversight. Failure to meet reasonable cybersecurity control requirements could risk the Company’s ability to obtain cyber liability insuranceinsurance, which poses financial and regulatory risks, or influence significantly higher rates. The lack of cyber liability insurance is not only a financial risk, but a regulatory risk.

Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict.

Our financial performance generally, and in particular the ability of borrowers to pay interest on and repay principal of outstanding loans and the value of collateral securing those loans, as well as demand for loans and other products and services we offer, is highly dependent on the business environment in the markets where we operate, in the State of New York and in the United States as a whole. Additionally, international conflict, such as the war in Ukraine and the impact of sanctions on Russia and Russian companies may impact global markets, whichconflict may create unfavorable or uncertain economic conditions. A favorable business environment is generally characterized by, among other factors, economic growth, efficient capital markets, low inflation, low unemployment, high business and investor confidence, and strong business earnings. Unfavorable or uncertain economic and market conditions can be caused by declines in economic growth, business activity or investor or business confidence; political instability; limitations on the availability or increases in the cost of credit and capital; increases in inflation or interest rates; tariffs and trade wars; high unemployment, natural disasters; or a combination of these or other factors. The occurrence of any of these conditions could have a material adverse effect on our financial condition and results of operations.

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. Effective January 1, 2024, we exited the Pennsylvania automobile market in order to align our focus more fully around our core Upstate New York market. 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. The all-cash transaction value represented approximately four times our 2023 insurance revenue. Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC and expect to utilize it to serve as a conduit for the Bank to refer insurance business to NFP.

Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits, and fees and other revenue from insurance, prior to the sale of the assets of SDN.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.

We reported net income of $74.9 million for 2025, compared to a net loss of $41.6 million for 2024, compared to net income of $50.3 million for 2023.2024. This resulted in a -0.68%1.20% return on average assets and a -8.74%12.38% return on average equity. After preferred dividends, net lossincome available to common shareholders was $43.1$73.4 million or ($2.75)$3.61 per diluted share for 2024,2025, compared to net incomeloss available to common shareholders of $48.8$43.1 million or $3.15$2.75 per diluted share for 2023.2024. 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”) with a weighted average book yield of 1.74% for a pre-tax loss of $100.2 million.million, The after-tax impact of the loss wasor approximately $75 million.million after taxes. We declared cash dividends of $1.20$1.24 per common share during 2024,2025, consistentan increase of more than 3% compared with 2023.2024.

Net interest income was $200.0 million for 2025, compared to $163.6 million for 2024, comparedan to $165.7 million for 2023, a decreaseincrease of $2.1$36.4 million. Fully-taxable equivalent net interest income was $163.9$200.2 million in 2024,2025, aan decreaseincrease of $2.3$36.3 million, compared to 2023.2024. Average interest-earning assets were $71.3$47.7 million higherlower than 20232024 due to a $114.9$100.3 million increasedecrease in average loansinvestment securities, and a $35.2$68.1 million increasedecrease in the average balance of Federal Reserve interest-earning cash, partially offset by a $78.8$120.8 million decreaseincrease in average investment securities.loans.

The provision for credit losses was $6.2$11.6 million in 20242025 compared to a provision of $13.7$6.2 million in 2023.2024. Net charge-offs were $8.7$10.9 million in 2024,2025, representing 0.20%0.24% of average loans, which were relatively flat compared with $8.5$8.7 million, or 0.20% of average loans in 2023.2024. Non-performing loans increaseddecreased $14.7$5.7 million to $41.4$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, compared to 0.60% of total loans at December 31, 2023.2024. The increasedecrease in non-performing loans in the current year wasreflected primarilya drivenforeclosed byparticipated oneloan $15.5and millionpartial charge-off of a credit facility recognized in the second quarter of 2025, both of which related to a commercial loanbusiness relationship that was placed on nonaccrual status duringin the third quarter of 2024.2023. 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, compared to 192% at December 31, 2023, with the decreaseincrease reflective of the higherlower level of nonperforming loans at December 31, 2024.2025.

WeNoninterest reportedincome was $45.0 million for 2025, compared to a net loss in noninterest income of $46.7 million for 2024, compared to noninterest income of $48.2 million for 2023.2024. The decrease in noninterest income was primarily attributable to an increase in2024 net loss on investment securities, a decrease in income from company owned life insurance, and a decrease in insurance income, partially offset by an increase in net gain (loss) on other assets. The net loss on investments securities of $100.1 million for 2024 was reflective of the strategic investment securities portfolio restructuring in late December 2024 described above. Net loss on investment securities of $3.6 million for 2023 reflected the loss on the sale of approximately $54 million of lower yielding AFS securities agency mortgage-backed securities, reinvesting the proceeds of such sale into higher yielding bonds. Income from company owned life insurance decreased(“COLI”) $6.6increased $5.9 million in 20242025 compared to 2023,2024, due to aour normalizedsurrender creditingand rateredeploy associatedstrategy with the separate account policies purchasedinitiated in theJanuary fourth quarter of 2023.2025. 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.assets in 2024.

Noninterest expense for the full year 20242025 totaled $178.9$142.0 million, a $41.7$36.9 million increasedecrease compared to $137.2$178.9 million in the prior year. The increasedecrease in noninterest expense was primarily attributable to higher expenses in 2024 related to the previously disclosed fraud matter in the first quarter of 2024, and the provision for thea litigation settlement.settlement Computerfor a long-standing automobile lending litigation in the fourth quarter of 2024. Salaries and data processingbenefits expense increasedof $2.6$72.8 million year-over-year,increased as$6.7 amillion resultfrom of2024, strategicprimarily 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 data efficiency and marketing technology.personnel. Professional services expense of $7.7$6.5 million increaseddecreased $2.4$1.2 million from 20232024 primarily due to legal expenses associated with the previously mentioned fraud event.event Otherthat expense of $15.3 million increased $1.0 million from 2023, dueincurred in part to New York State capital base tax. Salaries and benefits expense of $66.1 million decreased $5.8 million from 2023, primarily due to the decrease in headcount as a result of the sale of our SDN subsidiary and organizational changes made in the fourth quarter of 2023.2024.

Income tax benefitexpense for full year 20242025 was $26.5$16.5 million, representing an effective tax rate of (38.9%),18.05%, while income tax benefit for 2024 was -$26.5 million, which was reflective of the net loss for the year. Income tax expense for 2023 was $12.8 million,year, representing an effective tax rate of 20.3%. Income tax expense for 2023 included $5.4 million of incremental taxes associated with the COLI surrender and redeployment strategy executed in 2023.38.9%. 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.

Investment securities were $1.03$1.01 billion at December 31, 2024,2025, down $8.8$19.9 million from December 31, 2023.2024. The decrease from year-end 20232024 was primarily due to repayment, sales, and maturities of investment securities, and the use of cash to fund loan originations and reduce short-term borrowings.originations.

Total loans were $4.48$4.66 billion at December 31, 2024,2025, up $17.1$178.7 million, or 0.4%,4.0%, from December 31, 2023.2024. The increase in loans in 20242025 was primarily driven by strongorganic commercial mortgage loan growth. The following discusses significant changes within our loan portfolio for the current year:

Commercial business loans totaledwere $665.3$738.3 million, aan decreaseincrease of $70.4$73.0 million, or 10%.11%.

Commercial mortgage–construction loans totaledwere $582.6$488.6 million, ana increasedecrease of $89.6$94.1 million, or 18%.16%.

Commercial mortgage– non-owner occupiedmultifamily loans totaledwere $858.0$588.7 million, an increase of $69.5$117.8 million, or 9%.25%.

ConsumerCommercial indirectmortgage–non-owner occupied loans totaledwere $845.8$942.2 million, aan decreaseincrease of $103.1$84.2 million, or 19%.10%.

Total deposits were $5.10$5.21 billion at December 31, 2024,2025, aan decreaseincrease of $108.2$101.6 million from December 31, 2023,2024, which was attributable to reductionsgrowth 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 andwere lowerutilized reciprocalto balances.partially The Bank reducedoffset the outstandinganticipated balancereduction ofin theBaaS-related brokereddeposits, sweepwhich deposittotaled portfolioapproximately by $180.0$7 million inand March$100 2024million throughat theDecember utilization31, of2025, moreand cost2024, effecting funding sources.respectively.

Short-term borrowings were $99.0$109.0 million at December 31, 2024,2025, aan decreaseincrease of $86.0$10.0 million from December 31, 2023.2024. 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, compared to $454.8 million at December 31, 2023.2024. 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, a decrease of $0.92, or 3.2%, from $28.40 at December 31, 2023.2024. 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, an increase of $0.76, or 3%, from $23.69 at December 31, 2023.2024. The increase in shareholders’ equity as compared to December 31, 2023,2024, was reflective of thenet $108.6income millionretained, net proceedsof from the common stock offeringdividends, and a decrease in our accumulated other comprehensive loss associated with unrealized losses on AFS securities portfolio, due to the investment securities restructuring, partially offset by the netimpact loss forof the year.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.

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 4.25% to 4.50% as of December 31, 2022. The Federal Reserve further increased the federal funds rate by 25-basis points each in February, March, May, and July 2023 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,December 2024, resulting in a federal funds rate of 4.25% to 4.50% as of December 31, 2024. OurThis loanlevel portfoliowas ismaintained significantlyuntil affectedthree byconsecutive changes25-basis point rate cuts were made in theSeptember, primeOctober, interestand rate,December which generally follow changes2025, in an attempt to allow inflation to resume its downward trend, decreasing the federal funds rate. The prime interest rate, which is the rate offered on loans to borrowers3.50% withto strong3.75% credit,as was 7.50% atof December 31, 2024, compared to 8.50% and 7.50% at December 31, 2023 and 2022, respectively.2025.

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

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 20242025 was 2.86%,3.53%, 8-basis67-basis points lowerhigher than 2.94%2.86% from the prior year. This decreaseincrease was a function of a 16-basis76-basis points decreaseincrease in the interest rate spread, partially offset by ana 8-basis9-basis points higherlower contribution from net free funds. The changeincrease in interest rate spread was a net resultcomprised of a 57-basis points increase in the average cost of interest-bearing liabilities, partially offset by a 41-basis39-basis points increase in the average yield on average interest-earning assets.assets, and a 37-basis points decrease in the average cost of interest-bearing liabilities.

Average interest-earning assets were $5.72$5.68 billion for 20242025 compared to $5.65 billion for 2023, an increase of $71.3 million, or 1%, with average loans up $114.9 million from $4.32 billion for 2023 to $4.44$5.72 billion for 2024, whilea decrease of $47.7 million, or 1%. The $100.3 million decrease in average investment securities wereand downthe $78.8$68.1 million fromdecrease $1.25in billionaverage forfederal 2023reserve tointerest-earning $1.17cash billionin for2025 2024.was partially offset by an increase in average loans of $120.8 million. Average investment securities represented 20.5%18.9% of average interest-earning assets during 20242025 compared to 22.1%20.5% in 2023.2024, and decreased interest income by $2.5 million. The decrease in the average balance of investment securities was primarily due to repayment and maturities of investment securities, and the use of cash to fund loan originations and reduce short-term borrowings.originations. Loans comprised 77.5%80.3% of average interest-earning assets during 20242025 compared to 76.5%77.5% during 2023.2024. The growth in average loans was primarily due to organic growth in commercial mortgage loans, as well as organic growth in residential and other consumer loans, partially offset by a planned reduction in our consumer indirect portfolio. Loans generally have significantly higher yields compared to other interest-earning assets and, as such, have a more positive effect on the net interest margin. An increase in the volume of average loans resulted in aan $7.6$8.1 million increase in interest income and higher interest rates increased interest income by $16.0 million.income.

For the year ended December 31, 2024,2025, the average cost of total average interest-bearing liabilities of 3.32%2.95% was 57-basis37-basis points higherlower than 2023.2024. The average cost of total average interest-bearing deposits of 3.29%2.90% was 66-basis39-basis points higherlower than 20232024 primarily due to the continued repricing of deposits at higherlower ratesrates, duewhich to the higherdecreased interest rateexpense environment$18.6 that began in 2023 and persisted for the majority of 2024.million. The average cost of total borrowings decreasedincreased 39-basis21-basis points to 4.05% in 2025, compared to 3.84% in 2024, compared to 4.23% in 2023.2024.

Average interest-bearing liabilities of $4.51$4.50 billion in 20242025 were $122.5generally million,flat orwith 3%, higher than 2023.2024. On average, interest-bearing deposits grew $180.5$27.9 million from $4.08 billion for 2023 to $4.26 billion for 2024,2024 to $4.29 billion for 2025, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $77.2$11.8 million, or 7%,1%, to $953.4$941.7 million.million for 2025. The increase in average deposits was primarily due to growth in non-public deposits, public deposits, and reciprocalbrokered deposits, partially offset by a decrease in brokeredreciprocal 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 $60.7$33.4 million from $186.9 million in 2023 to $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 interest rate changes and volume changes resulted in an increase in interest expense of $26.2 million and $6.4$2.9 million, respectively, as compared to 2023,2024, and total borrowings volume and interest rate changes contributed $1.8$897 million and $1.7 million, respectively,thousand of lower interest expense during 2024.2025.

(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 costscosts, and non-accruing loans. Net deferred loan fees (costs) included in interest income were as follows (in thousands):

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 periodsyears 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.

Noninterest Income (Loss) Income

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

During the quarter ended MarchJune 31,30, 2026, there have been no material changes to the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2025 as filed with the SEC. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations.

We will continue to explore market expansion opportunities that complement current market areas as opportunities arise. Our primary focus is on organic growth, as well as evaluating potential growth opportunities within our non-interest income line of business by acquiring business that can be incorporated into existing operations. While organic growth remains our primary focus, we beleivebelieve our capital position remains strong enough to support selective merger and acquisition activity in support of expansion of our core financial service businesses. Consequently, we will continecontinue to evaluate acquisition opportunities in these activities. When evaluating acquisition opportunities, we will balance the potential for earnings accretion with maintaining adequate capital levels, which could result in our common stock being the predominant form of consideration and/or the need for us to raise capital.

Summary of 2026 FirstSecond Quarter Results

Net income increased $4.1$3.7 million to $21.0$21.2 million for the firstsecond quarter of 2026 compared to $16.9$17.5 million for the firstsecond quarter of 2025. Net income available to common shareholders for the firstsecond quarter of 2026 was $20.6$20.8 million, or $1.04 per diluted share, compared with $16.5$17.2 million, or $0.81$0.85 per diluted share, for the firstsecond quarter of 2025. Return on average common equity was 13.57% and return on average assets was 1.37% for the first quarter of 2026 compared to 11.92% and 1.10%, respectively, for the first quarter of 2025.

Net interest income totaled $52.0$53.4 million in the firstsecond quarter of 2026, an increase of $5.1$4.2 million compared to $46.9$49.1 million in the firstsecond quarter of 2025. Average interest-earning assets for the firstsecond quarter of 2026 were $73.3$134.5 million higher than the firstsecond quarter of 2025 primarily due to a $145.1$139.2 million increase in the average balance of loans and a $6.0 million increase in average loans,investment securities, partially offset by a $41.5$10.7 million decrease in the average balance of Federal Reserve interest-earning cash and a $30.3 million decrease in average investment securities.cash. Average interest-bearing liabilities for the firstsecond quarter of 2026 were $6.7$41.1 million higher than the firstsecond quarter of 2025 primarily due to a $118.2$39.6 million increase in the average timebalance depositsof total deposits, and a $12.9$39.2 million increase in average short-term borrowings, partially offset by a $70.0 million decrease in average savings and money market account deposits, a $28.8 million decrease in average interest-bearing demand deposits, and a $25.6$37.8 million decrease in average long-term borrowings. The wind-down of the Banking-as-a-Service (“BaaS”) platform that the Bank initiated in September 2024 was the primary driver of the reduction in average savings and money market deposits.

The provision for credit losses was $2.2$3.1 million in the firstsecond quarter of 2026 compared to $2.9$2.6 million in the firstsecond quarter of 2025. Net charge-offs during the recent quarter were $5.1$1.3 million, representing 0.44%0.11% of average loans on an annualized basis, compared to $2.4$4.1 million, or an annualized 0.21%0.36% of average loans, in the firstsecond quarter of 2025. See the “Provision for Credit Losses,” “Allowance for Credit Losses–Loans” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion regarding the provision for credit losses and net charge-offs.

Noninterest income totaled $10.7$11.0 million in the firstsecond quarter of 2026, compared to $10.4$10.6 million in the firstsecond quarter of 2025. The 3.2% increase was primarily consisteddue of a $328 thousand net gain on sale of securities, andto an increase of $324 thousand fromin investment advisory fee income, partially offset by a $481 thousand net loss onas the saleassets under management of otherCourier assets,Capital andsurpassed a$4.0 $191billion thousandas decreaseof inJune investment30, in limited partnership income.2026. Refer to the “Noninterest Income” section of this Management’s Discussion and Analysis for further discussion regarding these variances.

Noninterest expense totaledremained relatively flat at $35.6 million in the firstsecond quarter of 2026, compared to $33.7$35.7 million in the firstsecond quarter of 2025. The increase in noninterest expense for the first quarter of 2026 was primarily attributable to a $1.7 million increase in salaries and employee benefits, a $724 thousand increase in computer and data processing expenses, and a $403 thousand increase in deposit-related charged-off items, partially offset by a $546 thousand decrease in other noninterest expense, and a $341 thousand decrease in professional services expense. Refer to the “Noninterest Expense” section of this Management’s Discussion and Analysis for further discussion regarding these variances.

The regulatory Tier 1 Capital Ratio of the Company was 11.70%11.76% and 11.43%, respectively, and Total Risk-Based Capital Ratio was 14.16%14.20% and 14.90%, respectively, at MarchJune 31,30, 2026 and December 31, 2025. See the “Liquidity and Capital Management” section of this Management’s Discussion and Analysis for further discussion regarding regulatory capital and the Basel III capital rules.

Net interest income is our primary source of revenue, comprising approximately 83% of revenue during the firstsecond quarter of 2026 and 82% of revenue during the firstsecond quarter of 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.

Analysis of Net Interest Income and Net Interest Margin for the Three Months Ended June 30, 2026 and 2025

Net interest income on a taxable equivalent basis for the firstsecond quarter of 2026, was $52.0$53.4 million, an increase of $5.1$4.2 million versus the comparable quarter last year of $46.9$49.2 million. Net interest margin for the firstsecond quarter of 2026 was 3.67%,3.70%, 32-basis21-basis points higher than 3.35%3.49% for the same period in 2025. This increase was a function of a 38-basis27-basis points increase in the net interest spread, partially offset by a 6-basis point lower contribution from net free funds. The increase in interest rate spread was comprised of a 4-basis points decrease in the average yield of average interest-earning assets, and a 42-basis39-basis points decrease in the average cost of interest-bearing liabilities.liabilities, partially offset by a 12-basis points decrease in the average yield of interest-earning assets.

For the firstsecond quarter of 2026, the average yield on average interest earning assets of 5.76% was 4-basis12-basis points lower than the firstsecond quarter of 2025 of 5.80%.5.88%. The average yield on federalFederal reserveReserve interest-earning cash decreased 58-basis51-basis points during the firstsecond quarter of 2026 to 3.79%,3.70%, decreasing interest income by $92$47 thousand, and average loan yield decreased 13-basis19-basis points during the firstsecond quarter of 2026 to 6.07% from 6.20%6.26% for the firstsecond quarter of 2025, decreasing net interest income $1.4$2.1 million, while the average yield on investment securities increased 23-basis12-basis points during the firstsecond quarter of 2026 to 4.48%,4.46%, resulting in a $586$296 thousand increase in interest income.

Average interest-earning assets were $5.72$5.79 billion for the firstsecond quarter of 2026 compared to $5.65 billion for the firstsecond quarter of 2025, an increase of $73.3$134.5 million from the comparable quarter last year. The increase was primarily due to an increase of average loans of $145.1$139.2 million from $4.49$4.54 billion for the firstsecond quarter of 2025 to $4.64$4.68 billion for the firstsecond quarter of 2026, and an increase in average investment securities of $6.0 million from $1.07 billion for the second quarter of 2025 to $1.08 billion for the second quarter of 2026, partially offset by a decrease in average investment securities of $30.3 million from $1.09 billion for the first quarter of 2025 to $1.06 billion for the first quarter of 2026, and a $41.5$10.7 million decrease in average Federal Reserve interest-earning cash. Average loans comprised 81% of average interest-earning assets during the firstsecond quarter of 2026 compared to 80% during the firstsecond quarter of 2025. The increase in average loans was primarily due to organic growth in commercial mortgages and resulted in a $2.1$2.0 million increase in interest income.

For the firstsecond quarter of 2026, the average cost of average interest-bearing liabilities of 2.65%2.61% was 42-basis39-basis points lower than the firstsecond quarter of 2025 of 3.07%.3.00%. The average cost of interest-bearing deposits of 2.56%2.53% was 48-basis43-basis points lower than the firstsecond quarter of 2025, primarily due to the continued repricing of deposits at lower rates, which decreased interest expense by $5.6$4.8 million. The average cost of total borrowings increased 76-basis51-basis points to 4.47%4.31% in the firstsecond quarter of 2026, compared to 3.71%3.80% in the firstsecond quarter of 2025, which decreasedincreased interest expense $577$620 thousand.

Average interest-bearing liabilities of $4.51$4.56 billion for the firstsecond quarter of 2026 were generally flat with the firstsecond quarter of 2025. On average, interest-bearing deposits increased $19.3$39.6 million from $4.29$4.32 billion for the firstsecond quarter of 2025 to $4.31$4.36 billion for the current quarter, and noninterest-bearing demand deposits (a principal component of net free funds) increased $23.9$20.6 million to $950.6$944.0 million for the firstsecond quarter of 2026. The modest increase in average interest-bearing deposits was primarily due to an increase in average time deposits. Compared to the year-ago period, the BaaS platform wind-down that the Bank initiated in September 2024 was the primary driver of the reduction in average savings and money market deposits. For further discussion of deposits, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis.

The following tabletables setsset forth certain information relating to the consolidated balance sheets and reflects the average yields earned on interest-earning assets, as well as the average rates paid on interest-bearing liabilities for the periods indicated (dollars in thousands). Average balances were derived from daily balances.

The provision for credit losses infor the firstthree quarterand ofsix months ended June 30, 2026 was driven by a combination of factors, including the impact of an increase in loan mixoutstandings and changehigher inqualitative outstandings,factors, coupledpartially withoffset theby overalla decrease in the both the forecasted loss rate for pooled loans and qualitativefluctuations factorsin thatunfunded are primarily qualitatively informed by historical rates.commitments.

Investment advisory income of $3.1$3.3 million for the firstsecond quarter of 2026 increased $324$402 thousand, or 12%,14%, compared to $2.7$2.9 million for the firstsecond quarter of 2025,2025. reflectingInvestment advisory income for the six months ended June 30, 2026 increased $726 thousand to $6.3 million, compared to $5.6 million for the six months ended June 30, 2025. The increase for both periods reflected new business and market-driven gains.gains, as Courier Capital’s assets under management increased to $4.02 billion as of June 30, 2026.

IncomeA fromloss on investments in limited partnerships of $224$140 thousand was recognized for the second quarter of 2026, compared to income of $307 thousand for the first quarter of 2026, decreased $191 thousand, compared to $415 thousand for the firstsecond quarter of 2025. Income from our investments in limited partnerships fluctuates based on the maturity and performance of the underlying investments.

NetThe net loss on sale of other assets of $481$454 thousand for the firstsix quartermonths ofended June 30, 2026 comprised ofincluded the net loss on the write-down of two branch locations that were moved to held for sale asin the first quarter of March 31, 2026.

Salaries and employee benefits expense increased $1.7$1.1 million, or 10%,6%, to $18.6$19.2 million for the firstsecond quarter of 2026, compared to $16.9$18.1 million for the firstsecond quarter of 2025,2025. reflectingFor the first six months of 2026, salaries and employee benefit expense increased $2.8 million, or 8%, to $37.8 million, compared to $35.0 million for the six months ended June 30, 2025. The increases in both periods reflected a combination of factors, including annual merit increases, increased incentive compensation and investments in personnel.personnel, partially offset by lower medical claims incurred in the current periods compared to the prior year.

Our efficiency ratio for the firstsecond quarter of 2026 was 57.06%,55.33%, compared with 58.79%59.68% for the firstsecond quarter of 2025, and our efficiency ratio for the six months ended June 30, 2026 was 56.18%, compared with 59.24% for the comparable period in 2025. 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.

For the firstsecond quarter of 2026, we recorded income tax expense of $3.8$4.4 million, compared to $3.7$4.0 million for the firstsecond quarter of 2025, and $8.3 million for the six months ended June 30, 2026, compared to $7.7 million for the six months ended June 30, 2025. In the firstsecond quarter of 2026, we recognized federal and state tax benefits related to tax credit investments placed in service and/or amortized during the period resulting in a reduction in income tax expense of $1.0 million, compared to $1.1 million for the same period in the prior year. The first six months of 2026 and 2025 also included related tax credit benefits of $2.1 million and $2.2 million, respectively.

Our effective tax rate for the firstsecond quarter of 2026 was 15.5%,17.3%, versus 18.2%,18.4%, for the firstsecond quarter of 2025, and 16.4% for the six months ended June 30, 2026, compared to 18.3% for the six months ended June 30, 2025. The effective tax rate typically fluctuates on a quarterly basis primarily due to the level of pre-tax earnings, and may differ from statutory rates due to the impact of 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 rates for 2026 and 2025 reflect the New York State tax benefit generated by our real estate investment trust.

Our available for sale (“AFS”) investment securities portfolio increaseddecreased $81.2$12.0 million from December 31, 2025 to MarchJune 31,30, 2026. The AFS portfolio had a net unrealized loss of $44.0$49.2 million at MarchJune 31,30, 20262026, which consisted of a $52.5 million unrealized loss and a $3.3 million unrealized gain, and a net unrealized loss of $35.7 million at December 31, 2025, respectively.which consisted of a $46.3 million unrealized loss and a $10.6 million unrealized gain. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

All of the mortgage-backed securities held by us as of MarchJune 31,30, 2026, 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 MarchJune 31,30, 2026, there were 6659 Agency MBS securities in the AFS portfolio with an aggregate fair value of $404.4$510.2 million that were in an unrealized loss position with unrealized losses totaling $48.8$52.0 million. Of these, 3540 were Agency MBS in an unrealized loss position for 12 months or longer and had an aggregate fair value of $200.0$272.1 million and unrealized losses of $44.4$49.2 million, while 3119 were in an unrealized loss position for less than 12 months and had an aggregate fair value of $204.3$238.1 million and unrealized losses of $4.4$2.8 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 environments 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 MarchJune 31,30, 2026 on such Agency MBS to be credit related.

We also hold subordinated debt of bank holding companies with a maturity of 10 years, with a call in 5 years. As of MarchJune 31,30, 2026, there were 1415 corporate bonds with an aggregate fair value of $31.5$34.5 million, in an unrealized loss position for less than 12 months of $459$424 thousand.

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 MarchJune 31,30, 2026, our ownership of FHLB and FRB stock totaled $10.6$14.0 million and $9.2 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.

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 three and six months ended MarchJune 31,30, 2026 and 2025, no allowance for credit losses was 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 MarchJune 31,30, 2026, 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 table sets forth certain information regarding the amortized cost (“Cost”), weighted average yields (“Yield”) and contractual maturities of our debt securities portfolio as of MarchJune 31,30, 2026. In this table, Yield is defined as the book yield weighted against the ending book value. 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 (dollars in thousands).

Total loans were $4.63$4.75 billion at MarchJune 31,30, 2026, aan decreaseincrease of $30.3$95.1 million from $4.66 billion at December 31, 2025. 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 (dollars in thousands):

Total commercial loans of $3.08$3.21 billion represented 67%68% of total loans as of MarchJune 31,30, 2026, compared to $3.08 billion, or 66% of total loans as of December 31, 2025. Commercial business loans of $746.4$768.5 million, or 16% of total loans, were up $8.1$30.2 million, or 1%,4%, from December 31, 2025, primarily due to organic growth, and total commercial mortgage loans of $2.33$2.44 billion, or 50%51% of total loans, were downup $10.5$99.6 million, from $2.34 billion as of December 31, 2025. The decreaseincrease in total commercial mortgage loans was attributable to decreasesincreases in construction, non-owner occupied, multifamily, and owner occupied loans, partially offset by increasesa decrease in constructionmultifamily loans. As of MarchJune 31,30, 2026, commercial real estate (“CRE”) loans made up approximately 67% of total commercial loans, and 45% of total loans, commercial and industrial loans approximated 28% of total commercial loans, and 18%19% 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 MarchJune 31,30, 2026 primarily related to approximately 45%44% multi-family, 20%22% office, 9%10% retail, 8% land, 8% hospitality, 5% industrial property, 2% other and 2%1% home builder properties. Approximately 72%70% of our office exposure at MarchJune 31,30, 2026, or 18%15% of our total CRE exposureexposure, related to Class B or medical office space. MoreApproximately than 70%75% of our office and more than 90% of our multifamily CRE loans have full or limited personal or corporate recourse.

Total consumer loans of $1.55$1.54 billion, or 34%33% of total loans at MarchJune 31,30, 2026, decreased $27.9$34.7 million from December 31, 2025. Consumer loans at MarchJune 31,30, 2026 were comprised of residential real estate loans and lines of credit of $727.6$738.7 million, or 16% of total loans, consumer indirect loans of $787.9$771.1 million, or 17%16% of total loans, and other consumer loans of $33.9$32.8 million, or 1% of total loans. During the firstsecond quarter of 2026, we originated $68.1$141.6 million in indirect automobile loans with a mix of approximately 27%29% new automobile and 73%71% used automobile loans. This compares with the $89.1$165.1 million originated of indirect automobile loans with a mix of approximately 27% new automobile and 73% used automobile loans for the firstsecond quarter of 2025. Origination volumes and the mix of new and used vehicles financed fluctuate depending on general market conditions.

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $1.0$2.5 million and $3.4 million as of MarchJune 31,30, 2026 and December 31, 2025, 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 $297.8$302.1 million and $293.3 million as of MarchJune 31,30, 2026 and December 31, 2025, respectively.

Net charge-offs of $5.1$1.3 million for the firstsecond quarter of 2026 represented 0.44%0.11% of average loans on an annualized basis compared to net charge-offs of $2.4$4.1 million, or 0.21%,0.36%, of average loans for the firstsecond quarter of 2025. The increase inIncreased net charge-offs in the firstsecond quarter of 2025 iswere primarily driven by the partial charge-off of a previously disclosed commercial business relationship placeplaced on nonaccrual status in 2023 for which a specific reserve was in place. The allowance for credit losses–loans was $44.7$47.5 million at MarchJune 31,30, 2026, compared with $49.0$47.3 million at MarchJune 31,30, 2025. The decreaseincrease in allowance for credit losses–loans was due to a combination of factors, including the impact of an increase in loan outstandings and higher qualitative factors, partially offset by a decrease in consumer indirect loan balances, lower loss ratesrate duefor topooled a higher prepayment assumptions and lower qualitative factors that are primarily quantitatively informed by historical data.loans. The ratio of the allowance for credit losses–loans to total loans was 0.97%1.00% at MarchJune 31,30, 2026 and 1.08%1.04% at MarchJune 31,30, 2025. The ratio of allowance for credit losses–loans to non-performing loans was 116%122% at MarchJune 31,30, 2026, compared with 122%146% at MarchJune 31,30, 2025. Non-performing loans increased $2.7$3.3 million to $38.5$39.0 million at MarchJune 31,30, 2026, compared to $35.8 million at MarchJune 31,30, 2025. The increase in non-performing loans primarily reflects a well-collateralized commercial business loan that moved to nonaccrual status in the first quarter of 2026, offset in part by the partial charge-off of the previously disclosed commercial business relationship.

Loans not analyzed for a specific reserve are segmented into “pools” of loans based on their homogeneous risk characteristics, including purpose, tenor, amortization, repayment source, payment frequency, collateral and recourse. Once loans have been segmented into pools, a loss rate is applied to the amortized cost basis. This is referred to as the “pooled loan” component of the allowance for credit losses estimate. Loans are divided into nine portfolio segments of loans including Commercial Business, Commercial Mortgage–Construction, Commercial Mortgage–Multifamily, Commercial Mortgage–Non-Owner Occupied, Commercial Mortgage–Owner Occupied, Residential Real Estate Loans, Residential Real Estate Lines of Credit, Consumer Indirect Loans, and Other Consumer Loans. 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 our Loan Review function. We establish 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, collectively referred to as collateral dependent loans. See Note 4, Loans, of the notes to the consolidated financial statements for further details on collateral dependent loans. Based on this analysis, we believe the allowance for credit losses is adequate as of MarchJune 31,30, 2026.