# Financial Institutions Inc: Form 10-Q for the period ended Jun 30, 2025

- Company: [Financial Institutions Inc](/companies/fisi.md) (CIK 862831)
- Form: 10-Q
- Filed: 2025-08-04
- Accepted by EDGAR: Aug 4, 2025, 16:05 ET
- Period: 2025-06-30
- Accession: 0000950170-25-101991
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/862831/000095017025101991/fisi-20250630.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/862831/000095017025101991/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2025-06-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Income tax | 3 months, 2025-04-01 to 2025-06-30 | $4.0m | us-gaap:IncomeTaxExpenseBenefit |
| Income tax | 6 months, 2025-01-01 to 2025-06-30 | $7.7m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2025-04-01 to 2025-06-30 | $17.5m | us-gaap:NetIncomeLoss |
| Net income | 6 months, 2025-01-01 to 2025-06-30 | $34.4m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.85 | us-gaap:EarningsPerShareDiluted |
| Diluted EPS | 6 months, 2025-01-01 to 2025-06-30 | $1.66 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2025-04-01 to 2025-06-30 | $0.85 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 6 months, 2025-01-01 to 2025-06-30 | $1.68 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2025-04-01 to 2025-06-30 | 20,294,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Diluted shares (weighted) | 6 months, 2025-01-01 to 2025-06-30 | 20,291,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 6 months, 2025-01-01 to 2025-06-30 | $4.3m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 6 months, 2025-01-01 to 2025-06-30 | $2.4m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 6 months, 2025-01-01 to 2025-06-30 | $13.0m | us-gaap:PaymentsOfDividends |
| Share repurchases | 6 months, 2025-01-01 to 2025-06-30 | $481.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2025-06-30 | $93.0m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2025-06-30 | $6.14bn | us-gaap:Assets |
| Total liabilities | at 2025-06-30 | $5.54bn | us-gaap:Liabilities |
| Long-term debt | at 2025-06-30 | $115.0m | us-gaap:LongTermDebt |
| Short-term borrowings | at 2025-06-30 | $101.0m | us-gaap:ShortTermBorrowings |
| Shareholders' equity | at 2025-06-30 | $601.7m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 107,349 characters.

*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, 2024. In addition, please read this section in conjunction with our Consolidated Financial Statements and Notes to Consolidated Financial Statements contained herein.*

### 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, 2024 (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, and Office of Foreign Asset Control sanction requirements, amount other laws and regulations, could subject us to fines, sanctions, or other negative 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 have implemented a program to provide financial products and services to customers that do business in the cannabis industry and the strict enforcement of federal laws and regulations regarding cannabis could result in our inability to continue to provide financial products and services to these customers and we could have legal action taken against us by the federal government and exposure to additional liabilities and regulatory compliance costs.

### 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.

### 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, and geopolitical risks associated with international conflict;
- 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, 2024. 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.

### 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.

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 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 the results of our operations and financial condition.

Our business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking and other financial needs of individuals, municipalities and businesses of the communities surrounding our primary service area. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from larger competitors, resulting in long-standing and broad-based banking relationships. Our core customers are primarily small- to medium-sized businesses, individuals and community organizations who prefer to build banking and wealth management relationships with a community bank that combines high quality, competitively priced products and services with personalized service. Because of our identity and origin as a locally operated bank, we believe that our level of personal service provides a competitive advantage over larger banks, which tend to consolidate decision-making authority outside local communities.

A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that we are well-positioned to be a strong competitor within our market area because of our focus on community banking needs and customer service, our comprehensive suite of deposit, loan, and wealth management products typically found at larger banks, our highly experienced management team and our strategically located banking centers.

We prioritize customer acquisition through cost-effective, high-demand digital, virtual and physical channels, while maintaining a community bank distinctiveness relative to larger banks and digital-only neobanks. We leverage the retail branch network and customer contact center to build trust and credibility, provide personal financial education and advice, offer convenience, and bridge digital and physical channels. Our enhanced digital capabilities complement a continued focus on a consistent customer experience and engagement across physical and virtual channels, including using branches to create deeper engagement and relationships with customers, balancing customer engagement with efficiency opportunities (e.g., framing outreach to the customer contact center to teach customers how to use digital channels, in addition to addressing the reason for the call), and maintaining and expanding our customer reach digitally, physically or virtually. By employing digital channels across our current products and services, we deepen existing relationships and enter new geographies or market segments that would otherwise be prohibitively expensive targets using traditional approaches. Deepening our existing digital capabilities allows us to capitalize on a shift in customer preferences away from physical branches. On September 16, 2024, we announced our intent to begin an orderly wind down of our BaaS offerings, following a careful review by the Company’s executive management and Board of Directors undertaken in conjunction with its annual strategic planning process. As expected, the majority of BaaS-related deposits were off the balance sheet by mid-2025. We expect the remaining balance to flow out during the third quarter of 2025.

We have evolved to meet changing customer needs by offering complementary physical, digital and virtual channels. We focus on technology to provide solutions that fit our customers’ preferences for transacting business with us. Branches are staffed by certified personal bankers who are trained to meet a broad array of customer needs. Our digital banking capabilities, interactive teller machine (“ITM”) functionality and Customer Contact Center provide additional self-serve and phone options through which customer needs are met effectively.

We will continue to explore market expansion opportunities that complement current market areas as opportunities arise. Our primary focus will be on increasing the Bank’s market share within existing markets, while taking advantage of potential growth opportunities within our noninterest income lines of business by acquiring businesses that can be incorporated into existing operations. We believe our capital position remains strong enough to support an active merger and acquisition strategy and the expansion of our core financial service businesses. Consequently, we continue to explore acquisition opportunities in these activities. 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.

Conversations with potential strategic partners occur on a regular basis. The evaluation of any potential opportunity will favor a transaction that complements our core competencies and strategic intent, with a lesser emphasis being placed on geographic location or size. Additionally, we remain committed to maintaining a diversified revenue stream. Our senior management team has experience in acquisitions and post-acquisition integration of operations and is prepared to act promptly should a potential opportunity arise but will remain disciplined with its approach. We believe this experience positions us to successfully acquire and integrate additional financial services and banking businesses.

### Cannabis Banking

The Marijuana Regulation and Taxation Act was signed into law on March 31, 2021, legalizing the possession and sale of recreational marijuana in New York State for adults aged 21 or older and the state has issued adult-use cannabis cultivation, processing and retail dispensary licenses. We have implemented a program to provide financial products and services to legal cannabis-related businesses and partner with other financial institutions who provide such services.

Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws, as marijuana remains illegal at the federal level. In January 2018, the U.S. Department of Justice (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, but in the future may result in increased enforcement actions against the regulated cannabis industry generally. Enforcement policies and practices may be highly variable between political administrations. In addition, federal prosecutors have significant discretion and there can be no assurance that the federal prosecutor for any district in which we operate will not choose to strictly enforce the federal laws governing cannabis. In the future, enforcement actions may be taken against cannabis-related businesses or financial services providers that are viewed as aiding and abetting such activities.

The Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state-legal cannabis businesses. These guidelines were issued for the explicit purpose so “that financial institutions can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity.” The Bank has and will continue to follow this and other FinCEN guidance in the areas of cannabis banking.

### EXECUTIVE OVERVIEW

### Summary of 2025 Second Quarter Results

Net income decreased $8.1 million to $17.5 million for the second quarter of 2025 compared to $25.6 million for the second quarter of 2024. Net income available to common shareholders for the second quarter of 2025 was $17.2 million, or $0.85 per diluted share, compared with $25.3 million, or $1.62 per diluted share, for the second quarter of 2024. Return on average common equity was 11.88% and return on average assets was 1.13% for the second quarter of 2025 compared to 23.51% and 1.68%, respectively, for the second quarter of 2024. Second quarter 2024 results benefited from a pre-tax gain of $13.5 million, after selling costs, associated with the sale of the assets of SDN on April 1, 2024.

Net interest income totaled $49.1 million in the second quarter of 2025, an increase of $7.9 million compared to $41.2 million in the second quarter of 2024. Average interest-earning assets for the second quarter of 2025 were $114.5 million lower than the second quarter of 2024 due to a $123.2 million decrease in average investment securities, and a $95.1 million decrease in the average balance of Federal Reserve interest-earning cash, partially offset by a $103.8 million increase in average loans. Average interest-bearing liabilities for the second quarter of 2025 were $29.8 million lower than the second quarter of 2024 due to an $83.4 million decrease in average savings and money market account deposits, a $62.2 million decrease in average borrowings, and a $10.0 million decrease in average interest-bearing demand deposits, partially offset by a $125.7 million increase in average time deposits.

Net interest margin was 3.49% for the second quarter of 2025 compared to 2.87% in the second quarter of 2024, primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, which supported an increase in the average yield on interest-earnings assets, while funding costs were reduced, in part reflecting deposit repricing.

The provision for credit losses was $2.6 million in the second quarter of 2025 compared to $2.0 million in the second quarter of 2024. The provision for credit losses for the second quarter of 2025 was driven by a combination of factors, including higher net charge-offs, partially offset by improvement in the forecasted loss rate for pooled loans, and a reduction in specific reserves. Net charge-offs during the recent quarter were $4.1 million, representing 0.36% of average loans on an annualized basis, compared to $1.1 million, or an annualized 0.10% of average loans, in the second quarter of 2024. See the “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 $10.6 million in the second quarter of 2025, compared to $24.0 million in the second quarter of 2024. Second quarter 2024 results benefited from a pre-tax gain of $13.5 million, after selling costs, associated with the sale of the assets of SDN on April 1, 2024. Other decreases in the second quarter of 2025 included $918 thousand in net loss on tax credit investments, and $496 thousand lower income from investments in limited partnerships. These decreases were offset by a $1.6 million increase in income from company owned life insurance as a result of a surrender and redeploy strategy executed in January 2025.

Noninterest expense totaled $35.7 million in the second quarter of 2025, compared to $33.0 million in the second quarter of 2024. The increase in noninterest expense for the second quarter of 2025 was primarily attributable to a $2.3 million increase in salaries and employee benefits, reflecting an increase in health insurance benefits due to higher medical claims, and the impact of annual merit increases.

The regulatory Tier 1 Capital Ratio was 11.17% and 10.87%, respectively, and Total Risk-Based Capital Ratio was 13.27% and 13.25%, respectively, at June 30, 2025 and December 31, 2024. 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.

### RESULTS OF OPERATIONS

### Net Interest Income and Net Interest Margin

Net interest income is our primary source of revenue, comprising approximately 82% and 63% of revenue during the three months ended June 30, 2025 and 2024, respectively, and 82% and 70% for the six months ended June 30, 2025 and 2024, respectively. 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 average yield on interest-earning assets and the average 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 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 following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis (dollars in thousands):

|  | Three months ended June 30, 2025 | 2024 | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Interest income per consolidated statements of operations | $82,867 | $78,788 | $163,918 | $157,201 |
| Adjustment to fully taxable equivalent basis | 56 | 81 | 114 | 167 |
| Interest income adjusted to a fully taxable equivalent basis | 82,923 | 78,869 | 164,032 | 157,368 |
| Interest expense per consolidated statements of operations | 33,745 | 37,595 | 67,932 | 75,926 |
| Net interest income on a taxable equivalent basis | $49,178 | $41,274 | $96,100 | $81,442 |

### Analysis of Net Interest Income for the Three Months Ended June 30, 2025 and 2024

Net interest income on a taxable equivalent basis for the three months ended June 30, 2025, was $49.2 million, an increase of $7.9 million versus the comparable quarter last year of $41.3 million. Our net interest margin for the second quarter of 2025 was 3.49%, 62-basis points higher than 2.87% for the same period in 2024. The increase in net interest income and net interest margin was primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, which supported an increase in the average yield on interest-earnings assets, while funding costs were reduced, reflecting deposit repricing due in part to the federal funds interest rate cuts totaling 100-basis points that occurred in September 2024 through December 2024.

For the second quarter of 2025, the average yield on average interest earning assets of 5.88% was 38-basis points higher than the second quarter of 2024 of 5.50% primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, partially offset by a decrease in market interest rates due to the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned. Average yield on investment securities increased 217-basis points during the second quarter of 2025 to 4.34% from 2.17% for the second quarter of 2024, while average loan yields decreased 14-basis points during the second quarter of 2025 to 6.26% from 6.40% for the second quarter of 2024.

Average interest-earning assets were $5.65 billion for the second quarter of 2025 compared to $5.77 billion for the second quarter of 2024, a decrease of $114.5 million, or 2%, from the comparable quarter last year, with a decrease in average investment securities of $123.2 million from $1.19 billion for the second quarter of 2024 to $1.07 billion for the second quarter of 2025, and a $95.1 million decrease in average Federal Reserve interest-earning cash, partially offset by an increase in average loans of $103.8 million from $4.44 billion for the second quarter of 2024 to $4.54 billion for the second quarter of 2025. Average loans comprised 80% of average interest-earning assets during the second quarter of 2025 compared to 77% during the second quarter of 2024. The increase in average loans was primarily due to organic growth in commercial mortgages in the first quarter of 2025. Average investment securities represented 19% of average interest-earning assets during the second quarter of 2025 compared to 21% during the second quarter of 2024. Overall, the increase in interest income of $4.1 million was reflective of the higher average interest rates on average investment securities, partially offset by the decrease in average loan yields.

For the second quarter of 2025, the average cost of average interest-bearing liabilities of 3.00% was 32-basis points lower than the second quarter of 2024. The average cost of interest-bearing deposits of 2.96% was 33-basis points lower than the second quarter of 2024. The average cost of total borrowings decreased 3-basis points to 3.80% in the second quarter of 2025, compared to 3.83% in the second quarter of 2024. The reduction in the cost of interest-bearing liabilities was primarily driven by the repricing of deposits and borrowings at lower rates given the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.

Average interest-bearing liabilities were $4.52 billion for the second quarter of 2025, compared to $4.55 billion for the second quarter of 2024, a decrease of $29.8 million, or 1%, driven by a $62.2 million decrease in the average balance of borrowings, partially offset by a $32.4 million increase in average interest-bearing deposits. On average, interest-bearing deposits increased from $4.28 billion for the second quarter of 2024 to $4.32 billion for the current quarter while noninterest-bearing demand deposits (a principal component of net free funds) decreased $27.4 million to $923.4 million for the second quarter of 2025. The increase in average interest-bearing deposits was due to higher average brokered and public deposits, partially offset by lower average reciprocal and nonpublic deposits. For further discussion of deposits, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing liability rate changes resulted in a $4.2 million decrease in interest expense, while volume changes resulted in a $360 thousand increase in interest expense during the second quarter of 2025 as compared to the prior year quarter.

### Analysis of Net Interest Income for the Six Months Ended June 30, 2025 and 2024

Net interest income on a taxable equivalent basis for the six months ended June 30, 2025, was $96.1 million, an increase of $14.7 million versus the comparable period in 2024 of $81.4 million. Our net interest margin for the six months ended June 30, 2025 was 3.42%, 59-basis points higher than 2.83% for the same period in 2024. The increase in net interest income and net interest margin was primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, partially offset by a decrease in market interest rates due to the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.

For the six months ended June 30, 2025, the average yield on average interest earning assets of 5.84% was 37-basis points higher than the six months ended June 30, 2024 of 5.47%. The average yield on investment securities increased 217-basis points to 4.30% for the six months ended June 30, 2025 compared to 2.13% for the six months ended June 30, 2024, while the average yield on loans decreased 14-basis points during the six months ended June 30, 2025, to 6.23% from 6.37% for the comparable period last year.

Average interest-earning assets were $5.65 billion for the six months ended June 30, 2025 compared to $5.79 billion for the six months ended June 30, 2024, a decrease of $134.1 million, or 2.3%, with a decrease in investment securities of $110.3 million from $1.19 billion for the six months ended June 30, 2024 to $1.08 billion for the six months ended June 30, 2025, and a $90.8 million decrease in average Federal Reserve interest-earning cash, while average loans were up $67.0 million from $4.45 billion for the six months ended June 30, 2024 to $4.45 billion for the six months ended June 30, 2025. Average investment securities represented 19.1% of average interest-earning assets during the six months ended June 30, 2025 compared to 20.6% during the six months ended June 30, 2024, and average loans comprised 79.9% of average interest-earning assets during the six months ended June 30, 2025 compared to 76.9% during the six months ended June 30, 2024. The increase in average loans was primarily due to organic growth in commercial mortgages during the first six months of 2025. Overall, the increase in interest income of $6.7 million was reflective of the higher average interest rates on average investment securities, partially offset by the decrease in average loan yields.

For the six months ended June 30, 2025, the average cost of average interest-bearing liabilities of 3.03% was 30-basis points lower than the average cost of 3.33% for the six months ended June 30, 2024, with the average cost of average interest-bearing deposits of 3.00% decreasing 29-basis points from 3.29% for the six months ended June 30, 2024, due to the repricing of deposits and borrowings at lower rates given the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.

Average interest-bearing liabilities of $4.51 billion in the six months ended June 30, 2025 were $68.9 million, or 1.5%, lower than the six months ended June 30, 2024. The decrease was driven by a decrease in average total borrowings of $73.2 million, partially offset by a $4.4 million increase in average interest-bearing deposits. Average short-term borrowings decreased to $90.6 million, down $69.3 million from the six months ended June 30, 2024, and average long-term borrowings decreased to $120.6 million, down $4.0 million, reflective of the previously disclosed $10 million call in April 2025 of the fixed-to-floating subordinated debt that was originally issued in April 2015. On average, interest-bearing deposits increased $4.4 million for the current period, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $31.6 million to $925.0 million for the six months ended June 30, 2025. The slight increase in average deposits reflected growth in non-public and public deposits, partially offset by decreases in reciprocal and brokered deposits. For further discussion of the reciprocal deposit programs, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing liability rate changes resulted in an $8.0 million decrease in interest expense during the six months ended June 30, 2025.

The following tables set 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.

| Interest-earning assets: | Three months ended June 30, 2025 Average Balance | Interest | Average Rate (3) | 2024 Average Balance | Interest | Average Rate (3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and interest-earning deposits | $39,027 | $410 | 4.21% | $134,123 | $1,711 | 5.13% |
| Investment securities (1): |  |  |  |  |  |  |
| Taxable | 1,039,611 | 11,360 | 4.37 | 1,141,604 | 6,100 | 2.14 |
| Tax-exempt (2) | 32,017 | 267 | 3.34 | 53,204 | 382 | 2.86 |
| Total investment securities | 1,071,628 | 11,627 | 4.34 | 1,194,808 | 6,482 | 2.17 |
| Loans: |  |  |  |  |  |  |
| Commercial business | 720,347 | 12,505 | 6.96 | 704,272 | 13,269 | 7.58 |
| Commercial mortgage | 2,221,576 | 35,539 | 6.42 | 2,059,382 | 34,949 | 6.83 |
| Residential real estate loans | 645,007 | 6,844 | 4.24 | 648,099 | 6,576 | 4.06 |
| Residential real estate lines | 75,010 | 1,342 | 7.15 | 75,575 | 1,466 | 7.80 |
| Consumer indirect | 839,294 | 13,846 | 6.62 | 905,056 | 13,675 | 6.08 |
| Other consumer | 39,485 | 810 | 8.23 | 44,552 | 741 | 6.69 |
| Total loans (4) | 4,540,719 | 70,886 | 6.26 | 4,436,936 | 70,676 | 6.40 |
| Total interest-earning assets | 5,651,374 | 82,923 | 5.88 | 5,765,867 | 78,869 | 5.50 |
| Less: Allowance for credit losses | (49,557) |  |  | (44,638) |  |  |
| Other noninterest-earning assets | 614,840 |  |  | 432,200 |  |  |
| Total assets | $6,216,657 |  |  | $6,153,429 |  |  |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing demand | $730,979 | $2,207 | 1.21% | $741,006 | $2,178 | 1.18% |
| Savings and money market | 1,953,412 | 12,981 | 2.67 | 2,036,772 | 15,232 | 3.01 |
| Time deposits | 1,631,407 | 16,615 | 4.08 | 1,505,665 | 17,663 | 4.72 |
| Total interest-bearing deposits | 4,315,798 | 31,803 | 2.96 | 4,283,443 | 35,073 | 3.29 |
| Short-term borrowings | 86,099 | 385 | 1.80 | 140,110 | 958 | 2.75 |
| Long-term borrowings | 116,473 | 1,557 | 5.35 | 124,640 | 1,564 | 5.02 |
| Total borrowings | 202,572 | 1,942 | 3.80 | 264,750 | 2,522 | 3.83 |
| Total interest-bearing liabilities | 4,518,370 | 33,745 | 3.00 | 4,548,193 | 37,595 | 3.32 |
| Noninterest-bearing demand deposits | 923,409 |  |  | 950,819 |  |  |
| Other noninterest-bearing liabilities | 178,055 |  |  | 204,917 |  |  |
| Shareholders’ equity | 596,823 |  |  | 449,500 |  |  |
| Total liabilities and shareholders’ equity | $6,216,657 |  |  | $6,153,429 |  |  |
| Net interest income (tax-equivalent) |  | $49,178 |  |  | $41,274 |  |
| Interest rate spread |  |  | 2.88% |  |  | 2.18% |
| Net interest-earning assets | $1,133,004 |  |  | $1,217,674 |  |  |
| Net interest margin (tax-equivalent) |  |  | 3.49% |  |  | 2.87% |
| Ratio of average interest-earning assets to average interest-bearing liabilities |  |  | 125.08% |  |  | 126.77% |

(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) Annualized.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

|  | Three months ended June 30, 2025 | 2024 |
| --- | ---: | ---: |
| Commercial business | $18 | $(9) |
| Commercial mortgage | 655 | 535 |
| Residential real estate loans | (412) | (384) |
| Residential real estate lines | (94) | (109) |
| Consumer indirect | (884) | (900) |
| Other consumer | 13 | 11 |
| Total | $(704) | $(856) |

52

MANAGEMENT'S DISCUSSION AND ANALYSIS

| Interest-earning assets: | Six months ended June 30, 2025 Average Balance | Interest | Average Rate (3) | 2024 Average Balance | Interest | Average Rate (3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and interest-earning deposits | $55,306 | $1,184 | 4.32% | $146,099 | $3,696 | 5.09% |
| Investment securities (1): |  |  |  |  |  |  |
| Taxable | 1,045,292 | 22,627 | 4.33 | 1,133,485 | 11,868 | 2.09 |
| Tax-exempt (2) | 33,308 | 545 | 3.28 | 55,416 | 794 | 2.86 |
| Total investment securities | 1,078,600 | 23,172 | 4.30 | 1,188,901 | 12,662 | 2.13 |
| Loans: |  |  |  |  |  |  |
| Commercial business | 699,141 | 24,082 | 6.95 | 713,496 | 26,868 | 7.57 |
| Commercial mortgage | 2,212,786 | 70,161 | 6.39 | 2,044,612 | 69,249 | 6.81 |
| Residential real estate loans | 646,001 | 13,620 | 4.22 | 648,510 | 13,052 | 4.03 |
| Residential real estate lines | 74,860 | 2,654 | 7.15 | 75,986 | 2,957 | 7.83 |
| Consumer indirect | 843,763 | 27,520 | 6.58 | 919,718 | 27,387 | 5.99 |
| Other consumer | 40,850 | 1,639 | 8.09 | 48,043 | 1,497 | 6.26 |
| Total loans (4) | 4,517,401 | 139,676 | 6.23 | 4,450,365 | 141,010 | 6.37 |
| Total interest-earning assets | 5,651,307 | 164,032 | 5.84 | 5,785,365 | 157,368 | 5.47 |
| Less: Allowance for credit losses | (49,200) |  |  | (48,086) |  |  |
| Other noninterest-earning assets | 616,305 |  |  | 452,315 |  |  |
| Total assets | $6,218,412 |  |  | $6,189,594 |  |  |
| **Interest-bearing liabilities:** |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing demand | $738,055 | $4,328 | 1.18% | $745,259 | $4,254 | 1.15% |
| Savings and money market | 1,964,884 | 26,368 | 2.71 | 2,059,294 | 31,180 | 3.04 |
| Time deposits | 1,598,381 | 33,243 | 4.19 | 1,492,399 | 34,877 | 4.70 |
| Total interest-bearing deposits | 4,301,320 | 63,939 | 3.00 | 4,296,952 | 70,311 | 3.29 |
| Short-term borrowings | 90,636 | 877 | 1.95 | 159,929 | 2,487 | 3.13 |
| Long-term borrowings | 120,648 | 3,116 | 5.17 | 124,601 | 3,128 | 5.02 |
| Total borrowings | 211,284 | 3,993 | 3.81 | 284,530 | 5,615 | 3.97 |
| Total interest-bearing liabilities | 4,512,604 | 67,932 | 3.03 | 4,581,482 | 75,926 | 3.33 |
| Noninterest-bearing demand deposits | 925,043 |  |  | 956,670 |  |  |
| Other noninterest-bearing liabilities | 192,702 |  |  | 199,175 |  |  |
| Shareholders’ equity | 588,063 |  |  | 452,267 |  |  |
| Total liabilities and shareholders’ equity | $6,218,412 |  |  | $6,189,594 |  |  |
| Net interest income (tax-equivalent) |  | $96,100 |  |  | $81,442 |  |
| Interest rate spread |  |  | 2.81% |  |  | 2.14% |
| Net earning assets | $1,138,703 |  |  | $1,203,883 |  |  |
| Net interest margin (tax-equivalent) |  |  | 3.42% |  |  | 2.83% |
| Ratio of average interest-earning assets to average interest-bearing liabilities |  |  | 125.23% |  |  | 126.28% |

(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) Annualized.

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

MANAGEMENT'S DISCUSSION AND ANALYSIS

|  | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: |
| Commercial business | $35 | $(5) |
| Commercial mortgage | 1,228 | 1,148 |
| Residential real estate loans | (791) | (742) |
| Residential real estate lines | (185) | (192) |
| Consumer indirect | (1,750) | (1,822) |
| Other consumer | 23 | 21 |
| Total | $(1,440) | $(1,592) |

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 periods 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.

| Increase (decrease) in: Interest income: | Three months ended June 30, 2025 vs. 2024 Volume | Rate | Total | Six months ended June 30, 2025 vs. 2024 Volume | Rate | Total |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Federal funds sold and interest-earning deposits | $(1,042) | $(259) | $(1,301) | $(2,014) | $(498) | $(2,512) |
| Investment securities: |  |  |  |  |  |  |
| Taxable | (590) | 5,850 | 5,260 | (990) | 11,749 | 10,759 |
| Tax-exempt | (170) | 55 | (115) | (350) | 101 | (249) |
| Total investment securities | (760) | 5,905 | 5,145 | (1,340) | 11,850 | 10,510 |
| Loans: |  |  |  |  |  |  |
| Commercial business | 298 | (1,062) | (764) | (532) | (2,254) | (2,786) |
| Commercial mortgage | 2,662 | (2,072) | 590 | 5,491 | (4,579) | 912 |
| Residential real estate loans | (31) | 299 | 268 | (50) | 618 | 568 |
| Residential real estate lines | (11) | (113) | (124) | (43) | (260) | (303) |
| Consumer indirect | (1,034) | 1,205 | 171 | (2,362) | 2,495 | 133 |
| Other consumer | (91) | 160 | 69 | (246) | 388 | 142 |
| Total loans | 1,793 | (1,583) | 210 | 2,258 | (3,592) | (1,334) |
| **Total interest income** | (9) | 4,063 | 4,054 | (1,096) | 7,760 | 6,664 |
| **Interest expense:** |  |  |  |  |  |  |
| Deposits: |  |  |  |  |  |  |
| Interest-bearing demand | (29) | 58 | 29 | (41) | 115 | 74 |
| Savings and money market | (604) | (1,647) | (2,251) | (1,382) | (3,430) | (4,812) |
| Time deposits | 1,400 | (2,448) | (1,048) | 2,370 | (4,004) | (1,634) |
| Total interest-bearing deposits | 767 | (4,037) | (3,270) | 947 | (7,319) | (6,372) |
| Short-term borrowings | (302) | (271) | (573) | (860) | (750) | (1,610) |
| Long-term borrowings | (105) | 98 | (7) | (101) | 89 | (12) |
| Total borrowings | (407) | (173) | (580) | (961) | (661) | (1,622) |
| **Total interest expense** | 360 | (4,210) | (3,850) | (14) | (7,980) | (7,994) |
| **Net interest income** | $(369) | $8,273 | $7,904 | $(1,082) | $15,740 | $14,658 |

54

### Provision (Benefit) for Credit Losses

The table below presents the composition of the provision (benefit) for credit losses for the periods indicated (dollars in thousands):

|  | Three months ended June 30, 2025 | 2024 | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Provision (benefit) for credit losses – loans | $2,377 | $1,999 | $5,669 | $(2,887) |
| Credit loss provision (benefit) for unfunded commitments | 185 | 42 | (179) | (527) |
| Credit loss benefit for debt securities | - | - | - | (1) |
| Provision (benefit) for credit losses | $2,562 | $2,041 | $5,490 | $(3,415) |

The provision for credit losses in the second quarter of 2025 was driven by a combination of factors, including higher net charge-offs, partially offset by improvement in the forecasted loss rate for pooled loans, and a reduction in specific reserves. The provision for credit losses for the six months ended June 30, 2025 was primarily driven by an improvement in forecasted losses, partly offset by an increase in specific reserves and higher net charge-offs.

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

### Noninterest Income

The following table details the major categories of noninterest income for the periods presented (in thousands):

|  | Three months ended June 30, 2025 | 2024 | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Service charges on deposits | $1,089 | $979 | $2,141 | $2,056 |
| Insurance income | 3 | 4 | 6 | 2,138 |
| Card interchange income | 1,937 | 2,008 | 3,777 | 3,910 |
| Investment advisory | 2,885 | 2,779 | 5,622 | 5,361 |
| Company owned life insurance | 2,965 | 1,360 | 5,742 | 2,658 |
| Investments in limited partnerships | 307 | 803 | 722 | 1,145 |
| Loan servicing | 180 | 158 | 303 | 333 |
| Income from derivative instruments, net | 339 | 377 | 589 | 551 |
| Net gain on sale of loans held for sale | 140 | 124 | 257 | 212 |
| Net gain on sale or call of securities | 3 | — | 3 | — |
| Net gain on sale of other assets | — | 13,508 | — | 13,495 |
| Net (loss) gain on tax credit investments | (512) | 406 | (1,026) | 31 |
| Other | 1,281 | 1,508 | 2,854 | 3,025 |
| Total noninterest income | $10,617 | $24,014 | $20,990 | $34,915 |

The decrease in insurance income for the six months ended June 30, 2025, was reflective of the sale of our insurance subsidiary, SDN, on April 1, 2024.

Income from company owned life insurance increased $1.6 million, to $3.0 million for the second quarter of 2025, compared to $1.4 million for the second quarter of 2024. For the first six months of 2025, income from company owned life insurance increased $3.1 million, to $5.7 million. The increase in both periods was reflective of the surrender and redeployment of a portion of our life insurance into a higher-yielding credit fund in January 2025.

Income from investments in limited partnerships of $307 thousand for the second quarter of 2025, decreased $496 thousand, compared to $803 thousand for the second quarter of 2024. For the first six months of 2025, income from investments in limited partnerships decreased $423 thousand, to $722 thousand. Income from our investments in limited partnerships fluctuates based on the maturity and performance of the underlying investments.

Net gain on sale of other assets for the second quarter of 2024 and first six months of 2024, was comprised of the net gain generated from the sale of SDN.

### Noninterest Expense

The following table details the major categories of noninterest expense for the periods presented (in thousands):

|  | Three months ended June 30, 2025 | 2024 | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Salaries and employee benefits | $18,070 | $15,748 | $34,968 | $33,088 |
| Occupancy and equipment | 3,982 | 3,448 | 7,572 | 7,200 |
| Professional services | 1,451 | 1,794 | 3,142 | 4,166 |
| Computer and data processing | 5,879 | 5,342 | 11,366 | 10,728 |
| Supplies and postage | 503 | 437 | 1,081 | 912 |
| FDIC assessments | 1,392 | 1,346 | 2,859 | 2,641 |
| Advertising and promotions | 495 | 440 | 837 | 737 |
| Amortization of intangibles | 105 | 114 | 212 | 331 |
| Restructuring charges | — | — | 68 | — |
| Deposit-related charged-off items expense (recoveries) | 233 | 398 | (61) | 19,577 |
| Other | 3,572 | 3,953 | 7,323 | 7,653 |
| Total noninterest expense | $35,682 | $33,020 | $69,367 | $87,033 |

Salaries and employee benefits expense increased $2.3 million, or 15%, to $18.1 million for the second quarter of 2025, compared to $15.7 million for the second quarter of 2024, reflecting an increase in health insurance benefits due to higher medical claims, and annual merit increases. For the first six months of 2025, salaries and employee benefits expense increased $1.9 million, or 6%, to $35.0 million, compared to the first six months of 2024, due to higher health insurance benefits expense and the impact of annual merit increases, partially offset by lower salaries and wages as a result of the sale of SDN on April 1, 2024.

Occupancy and equipment expense increased $534 thousand, or 15%, to $4.0 million for the second quarter of 2025, compared to $3.4 million for the second quarter of 2024. For the first six months of 2025, occupancy and equipment expense increased $372 thousand, or 5%, to $7.6 million, compared to the first six months of 2024. The increases were due, in part, to timing associated with a change in facilities maintenance vendors, as well as costs associated with our ongoing ATM conversion and upgrade project.

Professional services expense decreased $343 thousand, or 19%, to $1.5 million for the second quarter of 2025 compared to $1.8 million for the second quarter of 2024. For the first six months of 2025, professional services expense decreased $1.0 million, or 25%, to $3.1 million, compared to $4.2 million for the first six months of 2024. The decrease in both periods was primarily due to higher legal expenses in 2024, attributed to the deposit-related fraud event we experienced in early March 2024.

Computer and data processing expense increased $537 thousand, or 10%, to $5.9 million for the second quarter of 2025, compared to $5.3 million for the second quarter of 2024. For the first six months of 2025, computer and data processing expense increased $638 thousand, or 6%, to $11.4 million compared to $10.7 million for the first six months of 2024. The increases in both periods were impacted by the timing of expenses for in-process technology enhancement and upgrade initiatives.

Deposit-related charged-off items expense of $19.6 million for the first six months of 2024 included an $18.4 million loss associated with the deposit-related fraud event.

Our efficiency ratio for the second quarter of 2025 was 59.68%, compared with 50.58% for the second quarter of 2024. The lower efficiency ratio for the second quarter of 2024 was primarily due to the $13.5 million pre-tax gain on the sale of SDN. Our efficiency ratio for the first six months of 2025 was 59.24%, compared with 74.80% for the first six months of 2024. The higher efficiency ratio for the first six months of 2024 was reflective of the $18.4 million pre-tax loss in deposit-related charged-off items and approximately $660 thousand of legal and consulting expenses, recorded in professional services expense, attributed to the deposit-related fraud event. 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

For the second quarter of 2025, we recorded income tax expense of $4.0 million, compared to $4.5 million for the second quarter of 2024, and $7.7 million for the first six months of 2025, compared to $4.9 million for the first six months of 2024. The lower level of income tax expense incurred during the first six months of 2024 was primarily due to a lower level of pre-tax income, reflecting the impact of the deposit-related fraud event. In the second quarter of 2025, 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 $1.1 million, compared to $1.3 million for the same period in the prior year. The first six months of 2025 and 2024 also included related benefits of $2.2 million and $2.1 million, respectively.

Our effective tax rate for the second quarter of 2025 was 18.4%, versus 15.0%, for the second quarter of 2024, and 18.3% for the first six months of 2025, compared to 15.0% for the first six months of 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 rates for 2025 and 2024 reflect the New York State tax benefit generated by our real estate investment trust.

### ANALYSIS OF FINANCIAL CONDITION

### INVESTING ACTIVITIES

### Investment Securities

The following table summarizes the composition of our investment securities portfolio as of the dates indicated (in thousands):

| Securities available for sale: Mortgage-backed securities: | Investment Securities Portfolio Composition June 30, 2025 Amortized Cost | Fair Value | December 31, 2024 Amortized Cost | Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Agency mortgage-backed securities | $944,032 | $897,240 | $964,057 | $902,019 |
| Non-Agency mortgage-backed securities | — | — | — | 365 |
| Other debt securities | 18,653 | 18,909 | 8,663 | 8,721 |
| Total available for sale securities | 962,685 | 916,149 | 972,720 | 911,105 |
| **Securities held to maturity:** |  |  |  |  |
| U.S. Government agency and government-sponsored enterprise securities | 6,738 | 6,551 | 16,663 | 16,151 |
| State and political subdivisions | 36,084 | 30,336 | 45,333 | 40,167 |
| Mortgage-backed securities | 49,299 | 44,668 | 54,007 | 48,238 |
| Total held to maturity securities | 92,121 | 81,555 | 116,003 | 104,556 |
| Allowance for credit losses–securities | (2) |  | (2) |  |
| Total held to maturity securities, net | 92,119 |  | 116,001 |  |
| Total investment securities | $1,054,804 | $997,704 | $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 available for sale (“AFS”) investment securities portfolio increased $5.0 million from December 31, 2024 to June 30, 2025. The AFS portfolio had a net unrealized loss of $46.5 million at June 30, 2025 and $61.6 million at December 31, 2024, respectively. The fair value of most of the investment securities in the AFS portfolio fluctuates as market interest rates change.

### 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 three and six months ended June 30, 2025 and 2024, 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 June 30, 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.

### Agency Mortgage-backed Securities

With the exception of the non-Agency mortgage-backed securities (“non-Agency MBS”) discussed below, all of the mortgage-backed securities held by us as of June 30, 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.

Our AFS portfolio as of June 30, 2025, reflected our strategic investment securities restructuring which occurred in December 2024 following the completion of the public common stock offering. As of June 30, 2025, there were 50 securities in the AFS Agency MBS portfolio with an aggregate fair value of $405.3 million that were in an unrealized loss position with unrealized losses totaling $50.7 million. Of these, 35 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $169.0 million and unrealized losses of $47.3 million, while 15 were in an unrealized loss position for less than 12 months and had an aggregate fair value of $236.4 million and unrealized losses of $3.4 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 June 30, 2025 on such Agency MBS to be credit related.

### Other Investments

As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. 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 June 30, 2025, our ownership of FHLB and FRB stock totaled $11.6 million and $9.2 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.

### Security Yields and Maturities Schedule

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 June 30, 2025. 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).

| Available for sale debt securities: | Due in one year or less Cost | Yield | Due from one to five years Cost | Yield | Due after five years through ten years Cost | Yield | Due after ten years Cost | Yield | Total Cost | Yield |
| --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Mortgage-backed securities | $— | — | $11 | 6.89% | $23,799 | 4.72% | $920,222 | 4.65% | $944,032 | 4.66% |
| Other debt securities | — | — | — | — | 18,653 | 7.23% | — | — | 18,653 | 7.23% |
|  | — | — | 11 | 6.89% | 42,452 | 5.82% | 920,222 | 4.65% | 962,685 | 4.71% |
| **Held to maturity debt securities:** |  |  |  |  |  |  |  |  |  |  |
| U.S. Government agencies and government-sponsored enterprises | $— | — | $— | — | $6,738 | 3.45% | $— | — | $6,738 | 3.45% |
| State and political subdivisions | 8,335 | 3.37% | 6,279 | 2.35% | 5,149 | 1.93% | 16,321 | 2.62% | 36,084 | 2.55% |
| Mortgage-backed securities | — | — | 3,504 | 2.69% | 13,315 | 2.20% | 32,480 | 2.78% | 49,299 | 2.62% |
|  | 8,335 | 3.37% | 9,783 | 2.10% | 25,202 | 2.48% | 48,801 | 2.73% | 92,121 | 2.65% |
| **Total investment securities** | $8,335 | 3.37% | $9,794 | 2.10% | $67,654 | 4.58% | $969,023 | 4.56% | $1,054,806 | 4.53% |

### LENDING ACTIVITIES

Total loans were $4.54 billion at June 30, 2025, an increase of $56.8 million from $4.48 billion at 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 (dollars in thousands):

|  | Loan Portfolio Composition June 30, 2025 Amount | % of Total | December 31, 2024 Amount | % of Total |
| --- | ---: | ---: | ---: | ---: |
| Commercial business | $726,218 | 16.0% | $665,321 | 14.9% |
| Commercial mortgage–construction | 536,552 | 11.8 | 582,619 | 13.0 |
| Commercial mortgage–multifamily | 496,223 | 10.9 | 470,954 | 10.5 |
| Commercial mortgage–non-owner occupied | 873,207 | 19.3 | 857,987 | 19.2 |
| Commercial mortgage–owner occupied | 309,171 | 6.8 | 288,036 | 6.4 |
| Total commercial mortgage | 2,215,153 | 48.8 | 2,199,596 | 49.1 |
| Total commercial | 2,941,371 | 64.8 | 2,864,917 | 64.0 |
| Residential real estate loans | 647,205 | 14.3 | 650,206 | 14.5 |
| Residential real estate lines | 75,675 | 1.7 | 75,552 | 1.7 |
| Consumer indirect | 833,452 | 18.4 | 845,772 | 18.9 |
| Other consumer | 38,299 | 0.8 | 42,757 | 0.9 |
| Total consumer | 1,594,631 | 35.2 | 1,614,287 | 36.0 |
| Total loans | 4,536,002 | 100.0% | 4,479,204 | 100.0% |
| Less: Allowance for credit losses–loans | 47,291 |  | 48,041 |  |
| Total loans, net | $4,488,711 |  | $4,431,163 |  |

Total commercial loans of $2.94 billion represented 65% of total loans as of June 30, 2025, compared to $2.86 billion, or 64% of total loans as of December 31, 2024. Commercial business loans of $726.2 million, or 16% of total loans, were up $60.9 million, or 9%, from December 31, 2024, and total commercial mortgage loans of $2.22 billion, or 49% of total loans, were up $15.6 million, or 1% from $2.20 billion as of December 31, 2024. The increase in total commercial mortgage loans was attributable to increases in multifamily, owner occupied and non-owner occupied loans, partially offset by decreases in construction loans. As of June 30, 2025, commercial real estate (“CRE”) loans made up approximately 67% of total commercial loans, and 43% of total loans, commercial and industrial loans approximated 29% of total commercial loans, and 19% of total loans, and business banking unit loans were approximately 4% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at June 30, 2025 related to approximately 45% multi-family, 16% office, 8% retail, 8% hospitality, 6% industrial property, and 4% home builder properties. Approximately 72% of our office exposure at June 30, 2025, or 12% of our total CRE exposure, related to Class B or medical office space. More than 70% of our office and 90% of our multifamily CRE loans have full or limited personal or corporate recourse.

Total consumer loans of $1.59 billion, or 35% of total loans at June 30, 2025, decreased $19.7 million from December 31, 2024. Consumer loans at June 30, 2025 were comprised of residential real estate loans and lines of credit of $722.9 million, or 16% of total loans, consumer indirect loans of $833.5 million, or 18% of total loans, and other consumer loans of $38.3 million, or 1% of total loans. During the second quarter of 2025, we originated $165.1 million in indirect automobile loans with a mix of approximately 27% new automobile and 73% used automobile loans. This compares with the $114.7 million originated of indirect automobile loans with a mix of approximately 22% new automobile and 78% used automobile loans for the second quarter of 2024. Origination volumes and the mix of new and used vehicles financed fluctuate depending on general market conditions.

### Loans Held for Sale and Loans Serviced for Others

Loans held for sale (not included in the loan portfolio composition table) were entirely comprised of residential real estate loans and totaled $2.4 million and $2.3 million as of June 30, 2025 and December 31, 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 $281.6 million and $280.8 million as of June 30, 2025 and December 31, 2024, respectively.

### Allowance for Credit Losses–Loans

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

|  | Credit Loss – Loans Analysis Three months ended June 30, 2025 | 2024 | Six months ended June 30, 2025 | 2024 |
| --- | ---: | ---: | ---: | ---: |
| Allowance for credit losses – loans, beginning of period | $48,964 | $43,075 | $48,041 | $51,082 |
| Net charge-offs (recoveries): |  |  |  |  |
| Commercial business | 1,903 | 7 | 1,960 | (30) |
| Commercial mortgage–construction | — | — | — | — |
| Commercial mortgage–multifamily | — | — | — | — |
| Commercial mortgage–non-owner occupied | 596 | (1) | 595 | (2) |
| Commercial mortgage–owner occupied | (1) | (2) | (2) | (2) |
| Residential real estate loans | 92 | 96 | 133 | 100 |
| Residential real estate lines | 27 | — | 27 | — |
| Consumer indirect | 942 | 844 | 3,091 | 3,817 |
| Other consumer | 491 | 178 | 615 | 360 |
| Total net charge-offs | 4,050 | 1,122 | 6,419 | 4,243 |
| Provision (benefit) for credit losses–loans | 2,377 | 1,999 | 5,669 | (2,887) |
| Allowance for credit losses–loans, end of period | $47,291 | $43,952 | $47,291 | $43,952 |
| Net loan charge-offs (recoveries) to average loans: |  |  |  |  |
| Commercial business | 1.06% | 0.00% | 0.57% | -0.01% |
| Commercial mortgage–construction | 0.00% | 0.00% | 0.00% | 0.00% |
| Commercial mortgage–multifamily | 0.00% | 0.00% | 0.00% | 0.00% |
| Commercial mortgage–non-owner occupied | 0.27% | 0.00% | 0.14% | 0.00% |
| Commercial mortgage–owner occupied | 0.00% | 0.00% | 0.00% | 0.00% |
| Residential real estate loans | 0.06% | 0.06% | 0.04% | 0.03% |
| Residential real estate lines | 0.14% | 0.00% | 0.07% | 0.00% |
| Consumer indirect | 0.45% | 0.38% | 0.74% | 0.83% |
| Other consumer | 4.99% | 1.62% | 3.04% | 1.51% |
| Total loans | 0.36% | 0.10% | 0.29% | 0.19% |
| Allowance for credit losses–loans to total loans | 1.04% | 0.99% | 1.04% | 0.99% |
| Allowance for credit losses–loans to nonaccrual loans | 146% | 175% | 146% | 175% |
| Allowance for credit losses–loans to non-performing loans | 146% | 174% | 146% | 174% |

60

Net charge-offs of $4.1 million for the second quarter of 2025 represented 0.36% of average loans on an annualized basis compared to net charge-offs of $1.1 million, or 0.10%, of average loans for the second quarter of 2024. For the first six months of 2025, net charge-offs were $6.4 million, compared to $4.2 million for the first six months of 2024. The allowance for credit losses–loans was $47.3 million at June 30, 2025, compared with $44.0 million at June 30, 2024. The increase in allowance for credit losses–loans was primarily attributed to an increase in loan balances and specific reserves. The ratio of the allowance for credit losses–loans to total loans was 1.04% at June 30, 2025 and 0.99% at June 30, 2024. Non-performing loans decreased $9.0 million to $32.4 million at June 30, 2025, compared to $41.4 million at June 30, 2024. The decrease in non-performing loans reflects a reduction of approximately $3.7 million associated with the foreclosure of a participated loan secured by real estate, as well as a $1.9 million partial charge-off of a credit facility for which a specific reserve was in place. Both the aforementioned foreclosed participated loan and the partially charged-off credit facility related to a previously disclosed commercial business relationship that was placed on nonaccrual status in the fourth quarter of 2023. The ratio of allowance for credit losses–loans to non-performing loans was 146% at June 30, 2025, compared with 174% at June 30, 2024.

The following table sets forth the allocation of the allowance for credit losses–loans by loan category as of the dates indicated (dollars in thousands). 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.

|  | Allowance for Credit Losses–Loans by Loan Category June 30, 2025 Credit Loss Allowance | Percentage of Loans By Category to Total Loans | December 31, 2024 Credit Loss Allowance | Percentage of Loans By Category to Total Loans |
| --- | ---: | ---: | ---: | ---: |
| Commercial business | $8,996 | 16.0% | $8,665 | 14.9% |
| Commercial mortgage–construction | 4,514 | 11.8 | 6,824 | 13.0 |
| Commercial mortgage–multifamily | 3,930 | 10.9 | 3,458 | 10.5 |
| Commercial mortgage–non-owner occupied | 8,868 | 19.3 | 7,330 | 19.2 |
| Commercial mortgage–owner occupied | 3,087 | 6.8 | 4,183 | 6.4 |
| Residential real estate loans | 4,638 | 14.3 | 3,596 | 14.5 |
| Residential real estate lines | 969 | 1.7 | 793 | 1.7 |
| Consumer indirect | 11,783 | 18.4 | 12,705 | 18.9 |
| Other consumer | 506 | 0.8 | 487 | 0.9 |
| Total | $47,291 | 100.0% | $48,041 | 100.0% |

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 June 30, 2025.

Assessing the adequacy of the allowance for credit losses–loans 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.

The adequacy of the allowance for credit losses–loans 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 a financial institution’s allowance for credit losses–loans. Such agencies may require the financial institution to increase the allowance based on their judgments about information available to them at the time of their examination.

### Non-Performing Assets and Potential Problem Loans

The table below summarizes our non-performing assets at the dates indicated (dollars in thousands).

| Nonaccrual loans: | Non-Performing Assets June 30, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Commercial business | $3,671 | $5,609 |
| Commercial mortgage–construction | 19,621 | 20,280 |
| Commercial mortgage–multifamily | — | — |
| Commercial mortgage–non-owner occupied | 164 | 4,773 |
| Commercial mortgage–owner occupied | — | 354 |
| Residential real estate loans | 5,885 | 6,918 |
| Residential real estate lines | 299 | 253 |
| Consumer indirect | 2,571 | 3,157 |
| Other consumer | 191 | 19 |
| Total nonaccrual loans | 32,402 | 41,363 |
| Accruing loans 90 days or more delinquent | 34 | 43 |
| Total non-performing loans | 32,436 | 41,406 |
| Foreclosed assets | 142 | 60 |
| Total non-performing assets | $32,578 | $41,466 |
| Nonaccrual loans to total loans | 0.71% | 0.92% |
| Non-performing loans to total loans | 0.72% | 0.92% |
| Non-performing assets to total assets | 0.53% | 0.68% |

Non-performing assets include non-performing loans and foreclosed assets. Non-performing assets at June 30, 2025 were $32.6 million, a decrease of $8.9 million from the $41.5 million balance at December 31, 2024. The primary component of non-performing assets is non-performing loans, which were $32.4 million or 0.72% of total loans at June 30, 2025 and $41.4 million or 0.92% of total loans at December 31, 2024. The decrease in non-performing loans reflects the aforementioned foreclosed participated loan and the partially charged-off credit facility related to a previously disclosed commercial business relationship that was placed on nonaccrual status in the fourth quarter of 2023.

Approximately $1.4 million, or 4%, of the $32.4 million in non-performing loans as of June 30, 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 $142 thousand and $60 thousand of properties representing foreclosed asset holdings at June 30, 2025 and December 31, 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 non-performing 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 $26.4 million and $33.7 million in loans that continued to accrue interest which were classified as substandard as of June 30, 2025 and December 31, 2024, respectively.

### Contractual Loan Maturity Schedule

The following table summarizes the contractual maturities of our loan portfolio at June 30, 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 as 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 | $348,420 | $315,043 | $62,755 | $— | $726,218 |
| Commercial mortgage–construction | 387,977 | 145,915 | 1,738 | 922 | 536,552 |
| Commercial mortgage–multifamily | 98,211 | 138,108 | 240,988 | 18,916 | 496,223 |
| Commercial mortgage–non-owner occupied | 88,814 | 364,545 | 403,155 | 16,693 | 873,207 |
| Commercial mortgage–owner occupied | 11,947 | 86,522 | 195,957 | 14,745 | 309,171 |
| Residential real estate loans | 15,158 | 13,040 | 145,754 | 473,253 | 647,205 |
| Residential real estate lines | 2 | 227 | 7,484 | 67,962 | 75,675 |
| Consumer indirect (1) | 10,827 | 488,718 | 333,907 | — | 833,452 |
| Other consumer | 3,210 | 8,101 | 12,686 | 14,302 | 38,299 |
| Total loans | $964,566 | $1,560,219 | $1,404,424 | $606,793 | $4,536,002 |
| Loans maturing after one year: |  |  |  |  |  |
| With a predetermined interest rate |  |  |  |  |  |
| Commercial business |  | $104,565 | $36,424 | $— | $140,989 |
| Commercial mortgage–construction |  | 7,067 | 1,738 | 922 | 9,727 |
| Commercial mortgage–multifamily |  | 63,423 | 51,929 | 238 | 115,590 |
| Commercial mortgage–non-owner occupied |  | 178,536 | 217,714 | 3,339 | 399,589 |
| Commercial mortgage–owner occupied |  | 55,623 | 58,879 | — | 114,502 |
| Residential real estate loans |  | 12,438 | 142,167 | 306,321 | 460,926 |
| Residential real estate lines |  | — | — | — | — |
| Consumer indirect (1) |  | 488,718 | 333,907 | — | 822,625 |
| Other consumer |  | 8,101 | 12,686 | 14,196 | 34,983 |
| With a floating or adjustable rate |  |  |  |  |  |
| Commercial business |  | 210,478 | 26,331 | — | 236,809 |
| Commercial mortgage–construction |  | 138,848 | — | — | 138,848 |
| Commercial mortgage–multifamily |  | 74,685 | 189,059 | 18,678 | 282,422 |
| Commercial mortgage–non-owner occupied |  | 186,009 | 185,441 | 13,354 | 384,804 |
| Commercial mortgage–owner occupied |  | 30,899 | 137,078 | 14,745 | 182,722 |
| Residential real estate loans |  | 602 | 3,587 | 166,932 | 171,121 |
| Residential real estate lines |  | 227 | 7,484 | 67,962 | 75,673 |
| Consumer indirect (1) |  | — | — | — | — |
| Other consumer |  | — | — | 106 | 106 |
| Total loans maturing after one year |  | $1,560,219 | $1,404,424 | $606,793 | $3,571,436 |

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

### FUNDING ACTIVITIES

### Deposits

The following table summarizes the composition of our deposits at the dates indicated (dollars in thousands):

|  | Deposit Composition June 30, 2025 Amount | % of Total | December 31, 2024 Amount | % of Total |
| --- | ---: | ---: | ---: | ---: |
| Noninterest-bearing demand | $940,341 | 18.2% | $950,351 | 18.6% |
| Interest-bearing demand | 704,871 | 13.7 | 705,195 | 13.8 |
| Savings and money market | 1,898,302 | 36.8 | 1,904,013 | 37.3 |
| Time deposits | 1,612,500 | 31.3 | 1,545,172 | 30.3 |
| Total deposits | $5,156,014 | 100.0% | $5,104,731 | 100.0% |

As of June 30, 2025 and December 31, 2024, the aggregate amount of estimated uninsured deposits (deposits in amounts greater than $250 thousand, which is the maximum amount for federal deposit insurance) was $2.07 billion, or 40% 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 $310.3 million and $328.4 million at June 30, 2025 and December 31, 2024, respectively. The maturities of our uninsured time deposits at June 30, 2025 were as follows: $132.5 million in three months or less; $50.8 million between three months and six months; $73.9 million between six months and one year; and $53.1 million over one year. Approximately $1.23 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 June 30, 2025 and December 31, 2024, respectively. As of June 30, 2025 and December 31, 2024, estimated uninsured nonpublic deposits were approximately 19% and 18% of total deposits, respectively.

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 June 30, 2025, total deposits were $5.16 billion, representing an increase of $51.3 million, or 1%, from December 31, 2024. The increase was primarily due to increases in public, brokered and reciprocal deposits, partially offset by a decrease in non-public deposits primarily associated with exiting BaaS. While seasonality in our public deposit portfolio was a contributor, public deposits accounts maintained higher balances during typical outflow cycles while growing deposits with new and existing municipalities. Time deposits were approximately 31% of total deposits at both June 30, 2025 and December 31, 2024.

Non-public deposits, the largest component of our funding sources, totaled $3.11 billion and $3.21 billion at June 30, 2025 and December 31, 2024, respectively, and represented 60% and 63% of total deposits as of each date, 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 area. 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 liquidity to accommodate the seasonality associated with public deposits. Total public deposits were $1.06 billion and $1.07 billion at June 30, 2025 and December 31, 2024, respectively, and represented 21% of total deposits as of each date, respectively.

We also 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 $806.3 million at June 30, 2025, compared to $746.7 million at December 31, 2024, as this product has been an attractive option for customers with more than $250 thousand on deposit, desiring FDIC insurance. Reciprocal deposits represented 16% of total deposits as of each date.

Brokered deposits totaled $175.2 million and $80.9 million at June 30, 2025 and December 31, 2024, respectively, and represented 3% and 2% of total deposits as of each date, respectively. As of June 30, 2025 and December 31, 2024, $75.2 million and $28.1 million of interest-bearing demand deposits and $100.0 million and $52.8 million of time deposits were brokered deposit accounts, respectively.

### Borrowings

The Company classifies borrowings as short-term or long-term in accordance with the original terms of the applicable agreement. Outstanding borrowings consisted of the following as of the dates indicated (in thousands):

| Short-term borrowings: | June 30, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| FHLB | $101,000 | $99,000 |
| Long-term borrowings: |  |  |
| FHLB | 50,000 | 50,000 |
| Subordinated notes, net | 64,960 | 74,842 |
| Total long-term borrowings | 114,960 | 124,842 |
| Total borrowings | $215,960 | $223,842 |

### Short-term Borrowings

Short-term Federal Home Loan Bank (“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 FHLB borrowings at June 30, 2025 and December 31, 2024 totaled $101.0 million and $99.0 million, respectively. The FHLB borrowings are collateralized by securities from the Company’s investment portfolio and certain qualifying loans. We continue to be proactive in managing funding costs and reduced short-term borrowings.

As of June 30, 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 $240.2 million of immediate credit capacity with the FHLB, and approximately $857.0 million in secured borrowing capacity at the FRB discount window as of June 30, 2025. The FHLB and FRB credit capacity is 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 as of June 30, 2025, with no amounts outstanding. Additionally, we had approximately $132.9 million of unencumbered liquid securities available for pledging at June 30, 2025.

### Long-term Borrowings

As of June 30, 2025 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 October 7, 2020, we completed a private placement of $35.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes 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 bear interest, payable semi-annually, at the rate of 4.375% per annum, until October 15, 2025. Commencing on that date, the interest rate will reset quarterly to an interest rate per annum equal to the then current three-month SOFR plus 4.265%, payable quarterly until maturity. The 2020 Notes are redeemable by us, in whole or in part, on any interest payment date on or after October 15, 2025, and we may redeem the Notes in whole at any time upon certain other specified events. We used the net proceeds for general corporate purposes, organic growth and to support regulatory capital ratios at Five Star Bank. The 2020 Notes qualify 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. The 2015 Notes qualify as Tier 2 capital for regulatory purposes. In April 2025, we called $10.0 million of the 2015 Notes, and we will continue to evaluate options relative to the subordinated debt, which may include redemption in part or in full, as well as replacing or refinancing the facilities.

### LIQUIDITY AND CAPITAL MANAGEMENT

### Liquidity

We continue to actively monitor our liquidity profile and funding concentrations in accordance with our Board approved Liquidity Policy. Management is actively monitoring customer activity by way of commercial and consumer line of credit utilization, as well as deposit flows. As of June 30, 2025, all structural liquidity ratios and early warning indicators remain in compliance with what we believe are ample funding sources available in the event of a stress scenario.

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 other banking institutions, the FHLB, the FRB, and brokered deposit relationships.

The primary source of our non-deposit short-term borrowings is FHLB advances, of which $101.0 million were outstanding at June 30, 2025. In addition to this amount, we have additional collateralized wholesale borrowing capacity of approximately $1.25 billion as of June 30, 2025 from various funding sources which include the FHLB, the FRB and commercial banks that we can use to fund lending activities, liquidity needs, and/or to adjust and manage our asset and liability position.

The Parent’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, repurchases of our stock, and acquisitions. The Parent obtains funding to meet obligations from dividends received from the Bank, net taxes collected from subsidiaries included in the federal consolidated tax return, and the issuance of debt and equity securities. In addition, the Parent maintains a revolving line of credit with a commercial bank for an aggregate amount of up to $20.0 million, all of which was available at June 30, 2025. The line of credit has a one-year term and matures in May 2026. Funds drawn would be used for general corporate purposes and backup liquidity.

Cash and cash equivalents were $93.0 million as of June 30, 2025, up $5.7 million from $87.3 million as of December 31, 2024. During the six months ended June 30, 2025, net cash provided by operating activities totaled $4.3 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 $28.4 million, which included outflows of $72.9 million for the purchase of company owned life insurance as result of the restructuring in the first quarter of 2025, $63.2 million from the net increase in loans, and $2.4 million of purchases of premises and equipment, partially offset by inflows of $74.0 million of proceeds from the surrender of company owned life insurance, which was surrendered and redeployed in January 2025, and net proceeds from investment securities of $36.2 million, which included proceeds of $65.0 million on a modest mortgage-backed securities restructuring in early June 2025. Net cash provided by financing activities of $29.8 million was primarily attributed to a $51.3 million net increase in deposits, and a $2.0 million net increase in short-term borrowings, partially offset by a $10.0 million repayment of long-term borrowings, and $13.0 million in dividend payments.

### Capital Management

We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.

Banks and financial holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on our consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.

On December 13, 2024, we completed an underwritten public offering of 4,600,000 shares of common stock, including 600,000 shares as result of the underwriters exercising their overallotment option, at $25.00 per share. We received net proceeds of $108.6 million after deducting underwriting discounts and commissions and offering expenses from the sale of our common stock. As intended, a portion of the net proceeds was used to fund losses associated with a strategic investment securities restructuring, which was completed in late December 2024. The proceeds may also be used for general corporate purposes which may include the repayment of indebtedness.

Shareholders’ equity was $601.7 million at June 30, 2025, an increase of $32.7 million from $569.0 million at December 31, 2024, primarily due to net income, net of dividends, retained in the six months ended June 30, 2025, and a decrease in accumulated other comprehensive loss of $10.4 million during the six months ended June 30, 2025 due primarily to a decrease in net unrealized losses on available for sale securities.

The FRB and FDIC have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banks and bank holding companies on a consolidated basis. As of June 30, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks. See the “Basel III Capital Rules” section below for further discussion.

The following table reflects the ratios and their components (dollars in thousands):

|  | June 30, 2025 | December 31, 2024 |
| --- | ---: | ---: |
| Common shareholders’ equity | $584,383 | $553,833 |
| Less: Goodwill and other intangible assets | 57,803 | 58,127 |
| Net unrealized loss on investment securities (1) | (34,614) | (45,829) |
| Hedging derivative instruments | 2,036 | 3,085 |
| Net periodic pension and postretirement benefits plan adjustments | (9,547) | (9,754) |
| Other | (89) | (106) |
| Common Equity Tier 1 (“CET1”) Capital | 568,794 | 548,310 |
| Plus: Preferred stock | 17,285 | 17,285 |
| Tier 1 Capital | 586,079 | 565,595 |
| Plus: Qualifying allowance for credit losses | 51,221 | 49,266 |
| Subordinated Notes | 58,960 | 74,842 |
| Total regulatory capital | $696,260 | $689,703 |
| Adjusted average total assets (for leverage capital purposes) | $6,204,771 | $6,180,275 |
| Total risk-weighted assets | $5,239,660 | $5,203,418 |
| **Regulatory Capital Ratios** |  |  |
| Tier 1 Leverage (Tier 1 capital to adjusted average assets) | 9.45% | 9.15% |
| CET1 Capital (CET1 capital to total risk-weighted assets) | 10.84% | 10.54% |
| Tier 1 Capital (Tier 1 capital to total risk-weighted assets) | 11.17% | 10.87% |
| Total Risk-Based Capital (Total regulatory capital to total risk-weighted assets) | 13.27% | 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 (“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 has begun to phase into 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, also began to phase into regulatory capital at 25% per year commencing January 1, 2022.

### Basel III Capital Rules

Under the Basel III Capital Rules, the current minimum capital ratios, including an additional capital conservation buffer 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.

Banking institutions with a capital conservation buffer below the minimum level will face constraints on dividends, equity repurchases, and compensation based on the amount of the shortfall. The Basel III Capital Rules also provide for a “countercyclical capital buffer” that is applicable to only certain covered institutions and does not have any current applicability to the Company or the Bank. Strict eligibility criteria for regulatory capital instruments were also implemented under the Basel III Capital Rules. As of June 30, 2025, the Company and Bank’s capital levels remained characterized as “well capitalized” under the Basel III rules, including the additional capital conversion buffer.

The following table presents actual and required capital ratios as of June 30, 2025 and December 31, 2024, for the Company and the Bank under the Basel III Capital Rules. Capital levels required to be considered well capitalized are based upon prompt corrective action regulations, under the Basel III Capital Rules (dollars in thousands):

| June 30, 2025 Tier 1 leverage: | Actual Amount | Ratio | Minimum Capital Required – Basel III Amount | Ratio | Required to be Considered Well Capitalized Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Company | $586,079 | 9.45% | $248,191 | 4.00% | $310,239 | 5.00% |
| Bank | 622,859 | 10.07 | 247,430 | 4.00 | 309,287 | 5.00 |
| CET1 capital: |  |  |  |  |  |  |
| Company | 568,794 | 10.84 | 267,162 | 7.00 | 340,936 | 6.50 |
| Bank | 622,859 | 11.91 | 365,695 | 7.00 | 339,574 | 6.50 |
| Tier 1 capital: |  |  |  |  |  |  |
| Company | 586,079 | 11.17 | 445,840 | 8.50 | 419,614 | 8.00 |
| Bank | 622,859 | 11.91 | 444,058 | 8.50 | 417,937 | 8.00 |
| Total capital: |  |  |  |  |  |  |
| Company | 696,260 | 13.27 | 550,743 | 10.50 | 524,517 | 10.00 |
| Bank | 674,080 | 12.89 | 548,542 | 10.50 | 522,421 | 10.00 |
| **December 31, 2024** |  |  |  |  |  |  |
| Tier 1 leverage: |  |  |  |  |  |  |
| Company | $565,595 | 9.15% | $247,211 | 4.00% | $309,014 | 5.00% |
| Bank | 603,964 | 9.79 | 246,712 | 4.00 | 308,391 | 5.00 |
| CET1 capital: |  |  |  |  |  |  |
| Company | 548,310 | 10.54 | 364,239 | 7.00 | 338,222 | 6.50 |
| Bank | 603,964 | 11.65 | 362,882 | 7.00 | 336,962 | 6.50 |
| Tier 1 capital: |  |  |  |  |  |  |
| Company | 565,595 | 10.87 | 442,291 | 8.50 | 416,273 | 8.00 |
| Bank | 603,964 | 11.65 | 440,643 | 8.50 | 414,723 | 8.00 |
| Total capital: |  |  |  |  |  |  |
| Company | 689,703 | 13.25 | 546,359 | 10.50 | 520,342 | 10.00 |
| Bank | 653,230 | 12.60 | 544,324 | 10.50 | 518,403 | 10.00 |

### Dividend Restrictions

In the ordinary course of business, the Company is dependent upon dividends from the Bank to provide funds for the payment of dividends to shareholders and to provide for other cash requirements. Banking regulations may limit the amount of dividends that may be paid. Approval by regulatory authorities is required if the effect of dividends declared would cause the regulatory capital of the Bank to fall below specified minimum levels. Approval is also required if dividends declared exceed the net profits for that year combined with the retained net profits for the preceding two years.

## Market risk

As filed, 7,929 characters.

Market risk refers to the potential impact on earnings or capital arising from movements in interest rates. The Bank’s market risk management framework has been developed to control both short-term and long-term exposure within the Board approved policy limits and is monitored by the Asset-Liability Management Committee and the Board of Directors. Quantitative and qualitative disclosures about market risk were presented at December 31, 2024 in Item 7A of the Company’s Annual Report on Form 10-K for the year ended December 31, 2024, as filed with the Securities and Exchange Commission on March 13, 2025. The following is an update of the discussion provided therein.

### Portfolio Composition

There was no material change in the composition of assets, deposit liabilities or borrowings from December 31, 2024 to June 30, 2025. See the section titled “Analysis of Financial Condition” in Part I, Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of asset, deposit and borrowing activity during the period.

### Net Interest Income at Risk

A primary tool used to manage interest rate risk is “rate shock” simulation to measure the rate sensitivity. Rate shock simulation is a modeling technique used to estimate the impact of changes in rates on net interest income as well as economic value of equity.

Net interest income at risk is measured by estimating the changes in net interest income resulting from instantaneous and sustained parallel shifts in interest rates of different magnitudes over a period of 12 months. The following table sets forth the estimated changes to net interest income over the 12-month period ending June 30, 2026, assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

|  | Changes in Interest Rate -300 bp | -200 bp | -100 bp | +100 bp |
| --- | ---: | ---: | ---: | ---: |
| Estimated change in net interest income | $(11,522) | $(6,841) | $(2,585) | $1,401 |
| % Change | -5.68% | -3.37% | -1.28% | 0.69% |

In the rising rate scenarios, the static model results indicate that net interest income is modeled to increase compared to the flat rate scenario over a one-year time frame. This is a combination of an increase across the entire deposit portfolio, which has decreased wholesale borrowings, and the higher cost associated with the borrowings. This simulation does not consider balance sheet growth or a change in the balance sheet mix. As intermediate and longer-term assets continue to mature and are replaced at higher yields, net interest income should improve over the longer-term time frame. Model results in the declining rate scenario show a decrease in net interest income due to a combination of increases in the yield curve, as well as increases in higher paying public and nonpublic deposits, which will reprice downward slower due to market deposit competition.

In addition to the changes in interest rate scenarios listed above, other scenarios are typically modeled to measure interest rate risk. These scenarios vary depending on the economic and interest rate environment. Furthermore, given the static balance sheet approach, retained earnings are considered to be reinvested in a noninterest earning asset.

The simulation referenced above is based on our assumption as to the effect of interest rate changes on assets and liabilities and assumes a parallel shift of the yield curve. It also includes certain assumptions about the future pricing of loans and deposits in response to changes in interest rates. Further, it assumes that delinquency rates would not change as a result of changes in interest rates, although there can be no assurance that this will be the case. While this simulation is a useful measure as to net interest income at risk due to a change in interest rates, it is not a forecast of future results, does not measure the effect of changing interest rates on noninterest income and is based on many assumptions that, if changed, could cause a different outcome.

### Economic Value of Equity at Risk

The economic (or “fair”) value of financial instruments on our balance sheet will also vary under the interest rate scenarios previously discussed. This variance is measured by simulating changes in our economic value of equity (“EVE”), which is calculated by subtracting the estimated fair value of liabilities from the estimated fair value of assets. Fair values for financial instruments are estimated by discounting projected cash flows (principal and interest) at current replacement rates for each account type, while fair values of non-financial assets and liabilities are assumed to equal book value and do not vary with interest rate fluctuations. An economic value simulation is a static measure for balance sheet accounts at a given point in time, but this measurement can change substantially over time as the characteristics of our balance sheet evolve and as interest rate and yield curve assumptions are updated.

The amount of change in economic value under different interest rate scenarios depends on the characteristics of each class of financial instrument, including the stated interest rate or spread relative to current market rates or spreads, the likelihood of prepayment, whether the rate is fixed or floating, and the maturity date of the instrument. As a rule, fixed-rate financial assets become more valuable in declining rate scenarios and less valuable in rising rate scenarios, while fixed-rate financial liabilities gain in value as interest rates rise and lose value as interest rates decline. The longer the duration of the financial instrument, the greater the impact a rate change will have on its value. In our economic value simulations, estimated prepayments are factored in for financial instruments with stated maturity dates, and decay rates for non-maturity deposits are projected based on historical data (back-testing).

The analysis that follows presents the estimated EVE resulting from market interest rates prevailing at a given quarter-end (“Pre-Shock Scenario”), and under other interest rate scenarios (each a “Rate Shock Scenario”) represented by immediate, permanent, parallel shifts in interest rates from those observed at June 30, 2025 and December 31, 2024 (dollars in thousands). The analysis additionally presents a measurement of the interest rate sensitivity at June 30, 2025 and December 31, 2024. EVE amounts are computed under each respective Pre-Shock Scenario and Rate Shock Scenario. An increase in the EVE amount is considered favorable, while a decline is considered unfavorable. The following table sets forth the estimated changes to EVE, assuming instantaneous changes in interest rates for the given rate shock scenarios (dollars in thousands):

| Rate Shock Scenario: | June 30, 2025 EVE | Change | Percentage Change | December 31, 2024 EVE | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Pre-Shock Scenario | $819,135 |  |  | $903,789 |  |  |
| - 300 Basis Points | 876,398 | $57,263 | 6.99% | 906,208 | $2,419 | 0.27% |
| - 200 Basis Points | 858,861 | 39,726 | 4.85 | 908,905 | 5,116 | 0.57 |
| - 100 Basis Points | 838,470 | 19,335 | 2.36 | 908,459 | 4,670 | 0.52 |
| + 100 Basis Points | 796,637 | (22,498) | -2.75 | 894,135 | (9,654) | -1.07 |

The decrease in the Pre-Shock Scenario EVE at June 30, 2025 compared to December 31, 2024 was driven by the combination of increased borrowings and the continued deposit mix shift from non-maturity, non-public, to time and reciprocal, which offset the positive commercial loan growth during this period. The sensitivity in the down Rate Shock Scenarios to EVE become more positive at June 30, 2025 compared to December 31, 2024. This is a result from the increased valuation on fixed, long-term, loan and investment assets, combined with cyclical deposit runoff.

## Controls and procedures

As filed, 1,786 characters.

### Evaluation of Disclosure Controls and Procedures

As of June 30, 2025, the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15(b), as adopted by the SEC under the Securities Exchange Act of 1934, as amended (“Exchange Act”). Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

Disclosure controls and procedures are the controls and other procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to management, including the Company’s Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

### Changes in Internal Control over Financial Reporting

There were no changes in the Company’s internal control over financial reporting that occurred during the quarter ended June 30, 2025 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

## Risk factors

As filed, 381 characters.

During the quarter ended June 30, 2025, 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, 2024 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.

Filed Aug 4, 2025.
Source: SEC EDGAR, the filing index for accession 0000950170-25-101991. Last ingested by Listed: Oct 29, 2026, 16:09 ET. No prices; not investment advice.