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Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2025

or

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission File Number: 000-26481

img40783960_0.jpg

Financial Institutions, Inc.

(Exact name of registrant as specified in its charter)

New York

16-0816610

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

 

220 LIBERTY STREET, WARSAW, New York

14569

(Address of principal executive offices)

(Zip Code)

 

(585) 786-1100

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common stock, par value $0.01 per share

FISI

Nasdaq Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

☐

Accelerated filer

☑

 

 

 

 

Non-accelerated filer

☐

Smaller reporting company

☐

 

 

 

 

 

 

Emerging growth company

☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑

The registrant had 20,129,633 shares of Common Stock, $0.01 par value, outstanding as of July 31, 2025.

 

Table of Contents

 

FINANCIAL INSTITUTIONS, INC.

Form 10-Q

For the Quarterly Period Ended June 30, 2025

TABLE OF CONTENTS

 

 

PAGE

PART I.

 

FINANCIAL INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Financial Statements

 

 

 

 

 

 

 

 

 

Consolidated Statements of Financial Condition (Unaudited) – at June 30, 2025 and December 31, 2024

 

3

 

 

 

 

 

 

 

Consolidated Statements of Operations (Unaudited) – Three and six months ended June 30, 2025 and 2024

 

4

 

 

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Unaudited) – Three and six months ended June 30, 2025 and 2024

 

5

 

 

 

 

 

 

 

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) – Three and six months ended June 30, 2025 and 2024

 

6

 

 

 

 

 

 

 

Consolidated Statements of Cash Flows (Unaudited) – Six months ended June 30, 2025 and 2024

 

8

 

 

 

 

 

 

 

Notes to Consolidated Financial Statements (Unaudited)

 

9

 

 

 

 

 

ITEM 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

45

 

 

 

 

 

ITEM 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

69

 

 

 

 

 

ITEM 4.

 

Controls and Procedures

 

70

 

 

 

 

 

PART II.

 

OTHER INFORMATION

 

 

 

 

 

 

 

ITEM 1.

 

Legal Proceedings

 

71

ITEM 1A.

 

Risk Factors

 

71

 

 

 

 

 

ITEM 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

71

 

 

 

 

 

ITEM 5.

 

Other Information

 

71

 

 

 

 

 

ITEM 6.

 

Exhibits

 

72

 

 

 

 

 

 

 

Signatures

 

73

 

 

 

 

 

 

 

2

Table of Contents

 

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

 

(Dollars in thousands, except share and per share data)

 

June 30,
2025

 

 

December 31,
2024

 

ASSETS

 

 

 

 

 

 

Cash and due from banks

 

$

72,190

 

 

$

54,958

 

Interest-bearing deposits in bank

 

 

20,844

 

 

 

32,363

 

Total cash and cash equivalents

 

 

93,034

 

 

 

87,321

 

Securities available for sale, at fair value (amortized cost of $962,685 and $972,720, respectively)

 

 

916,149

 

 

 

911,105

 

Securities held to maturity, at amortized cost (net of allowance for credit losses of $2) (fair value of $81,555 and $104,556, respectively)

 

 

92,119

 

 

 

116,001

 

Loans held for sale

 

 

2,356

 

 

 

2,280

 

Loans (net of allowance for credit losses of $47,291 and $48,041, respectively)

 

 

4,488,711

 

 

 

4,431,163

 

Company owned life insurance

 

 

171,569

 

 

 

166,880

 

Premises and equipment, net

 

 

39,726

 

 

 

39,866

 

Goodwill and other intangible assets, net

 

 

60,546

 

 

 

60,758

 

Other assets

 

 

279,556

 

 

 

301,711

 

Total assets

 

$

6,143,766

 

 

$

6,117,085

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Deposits:

 

 

 

 

 

 

Noninterest-bearing demand

 

$

940,341

 

 

$

950,351

 

Interest-bearing demand

 

 

704,871

 

 

 

705,195

 

Savings and money market

 

 

1,898,302

 

 

 

1,904,013

 

Time deposits

 

 

1,612,500

 

 

 

1,545,172

 

Total deposits

 

 

5,156,014

 

 

 

5,104,731

 

Short-term borrowings

 

 

101,000

 

 

 

99,000

 

Long-term borrowings, net of issuance costs of $40 and $158, respectively

 

 

114,960

 

 

 

124,842

 

Other liabilities

 

 

170,124

 

 

 

219,528

 

Total liabilities

 

 

5,542,098

 

 

 

5,548,101

 

Shareholders’ equity:

 

 

 

 

 

 

Series A 3% preferred stock, $100 par value; 1,533 shares authorized; 1,435 shares issued

 

 

143

 

 

 

143

 

Series B-1 8.48% preferred stock, $100 par value; 200,000 shares authorized;
171,413 shares issued

 

 

17,142

 

 

 

17,142

 

Total preferred equity

 

 

17,285

 

 

 

17,285

 

Common stock, $0.01 par value; 50,000,000 shares authorized; 20,699,556 shares issued

 

 

207

 

 

 

207

 

Additional paid-in capital

 

 

232,968

 

 

 

233,421

 

Retained earnings

 

 

409,888

 

 

 

388,665

 

Accumulated other comprehensive loss

 

 

(42,214

)

 

 

(52,604

)

Treasury stock, at cost, 571,981 and 622,984 shares, respectively

 

 

(16,466

)

 

 

(17,990

)

Total shareholders’ equity

 

 

601,668

 

 

 

568,984

 

Total liabilities and shareholders’ equity

 

$

6,143,766

 

 

$

6,117,085

 

 

See accompanying notes to the consolidated financial statements.

3

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

 

(In thousands, except per share amounts)

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest and fees on loans

 

$

70,886

 

 

$

70,676

 

 

$

139,676

 

 

$

141,009

 

Interest and dividends on investment securities

 

 

11,571

 

 

 

6,401

 

 

 

23,058

 

 

 

12,496

 

Other interest income

 

 

410

 

 

 

1,711

 

 

 

1,184

 

 

 

3,696

 

Total interest income

 

 

82,867

 

 

 

78,788

 

 

 

163,918

 

 

 

157,201

 

Interest expense:

 

 

 

 

 

 

 

 

 

 

 

 

Deposits

 

 

31,803

 

 

 

35,073

 

 

 

63,939

 

 

 

70,311

 

Short-term borrowings

 

 

386

 

 

 

958

 

 

 

877

 

 

 

2,487

 

Long-term borrowings

 

 

1,556

 

 

 

1,564

 

 

 

3,116

 

 

 

3,128

 

Total interest expense

 

 

33,745

 

 

 

37,595

 

 

 

67,932

 

 

 

75,926

 

Net interest income

 

 

49,122

 

 

 

41,193

 

 

 

95,986

 

 

 

81,275

 

Provision (benefit) for credit losses

 

 

2,562

 

 

 

2,041

 

 

 

5,490

 

 

 

(3,415

)

Net interest income after provision for credit losses

 

 

46,560

 

 

 

39,152

 

 

 

90,496

 

 

 

84,690

 

Noninterest income:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Noninterest expense:

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Income before income taxes

 

 

21,495

 

 

 

30,146

 

 

 

42,119

 

 

 

32,572

 

Income tax expense

 

 

3,963

 

 

 

4,517

 

 

 

7,709

 

 

 

4,873

 

Net income

 

$

17,532

 

 

$

25,629

 

 

$

34,410

 

 

$

27,699

 

Preferred stock dividends

 

 

364

 

 

 

364

 

 

 

729

 

 

 

729

 

Net income available to common shareholders

 

$

17,168

 

 

$

25,265

 

 

$

33,681

 

 

$

26,970

 

Earnings per common share (Note 2):

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.85

 

 

$

1.64

 

 

$

1.68

 

 

$

1.75

 

Diluted

 

$

0.85

 

 

$

1.62

 

 

$

1.66

 

 

$

1.73

 

Cash dividends declared per common share

 

$

0.31

 

 

$

0.30

 

 

$

0.62

 

 

$

0.60

 

 

See accompanying notes to the consolidated financial statements.

4

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

 

(Dollars in thousands)

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Net income

 

$

17,532

 

 

$

25,629

 

 

$

34,410

 

 

$

27,699

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities

 

 

87

 

 

 

529

 

 

 

11,232

 

 

 

(6,635

)

Hedging derivative instruments

 

 

(409

)

 

 

(205

)

 

 

(1,049

)

 

 

470

 

Pension and post-retirement obligations

 

 

103

 

 

 

166

 

 

 

207

 

 

 

332

 

Total other comprehensive (loss) income, net of tax

 

 

(219

)

 

 

490

 

 

 

10,390

 

 

 

(5,833

)

Comprehensive income

 

$

17,313

 

 

$

26,119

 

 

$

44,800

 

 

$

21,866

 

 

See accompanying notes to the consolidated financial statements.

5

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Three and six months ended June 30, 2025 and 2024

 

(Dollars in thousands, except per share data)

 

Preferred
Equity

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Treasury
Stock

 

 

Total
Shareholders’
Equity

 

Balance at December 31, 2024

 

$

17,285

 

 

$

207

 

 

$

233,421

 

 

$

388,665

 

 

$

(52,604

)

 

$

(17,990

)

 

$

568,984

 

Comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

16,878

 

 

 

—

 

 

 

—

 

 

 

16,878

 

Other comprehensive income, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

10,609

 

 

 

—

 

 

 

10,609

 

Purchases of common stock for treasury

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(481

)

 

 

(481

)

Share-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

506

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

506

 

Restricted stock units released

 

 

—

 

 

 

—

 

 

 

(1,452

)

 

 

—

 

 

 

—

 

 

 

1,452

 

 

 

—

 

Restricted stock awards issued

 

 

—

 

 

 

—

 

 

 

(19

)

 

 

—

 

 

 

—

 

 

 

19

 

 

 

—

 

Stock awards

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

19

 

 

 

18

 

Cash dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A 3% Preferred–$0.75 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

(1

)

Series B-1 8.48% Preferred–$2.12 per
   share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(364

)

 

 

—

 

 

 

—

 

 

 

(364

)

Common–$0.31 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,221

)

 

 

—

 

 

 

—

 

 

 

(6,221

)

Balance at March 31, 2025

 

$

17,285

 

 

$

207

 

 

$

232,455

 

 

$

398,957

 

 

$

(41,995

)

 

$

(16,981

)

 

$

589,928

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

17,532

 

 

 

—

 

 

 

—

 

 

 

17,532

 

Other comprehensive loss, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(219

)

 

 

—

 

 

 

(219

)

Share-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

954

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

954

 

Restricted stock awards issued

 

 

—

 

 

 

—

 

 

 

(432

)

 

 

—

 

 

 

—

 

 

 

432

 

 

 

—

 

Stock awards

 

 

 

 

 

 

 

 

(9

)

 

 

 

 

 

 

 

 

83

 

 

 

74

 

Cash dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A 3% Preferred–$0.75 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

(1

)

Series B-1 8.48% Preferred–$2.12 per
   share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(363

)

 

 

—

 

 

 

—

 

 

 

(363

)

Common–$0.31 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,237

)

 

 

—

 

 

 

—

 

 

 

(6,237

)

Balance at June 30, 2025

 

$

17,285

 

 

$

207

 

 

$

232,968

 

 

$

409,888

 

 

$

(42,214

)

 

$

(16,466

)

 

$

601,668

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Continued on next page

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the consolidated financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited) (Continued)

Three and six months ended June 30, 2025 and 2024

 

(Dollars in thousands, except per share data)

 

Preferred
Equity

 

 

Common
Stock

 

 

Additional
Paid-in
Capital

 

 

Retained
Earnings

 

 

Accumulated
Other
Comprehensive
Loss

 

 

Treasury
Stock

 

 

Total
Shareholders’
Equity

 

Balance at December 31, 2023

 

$

17,292

 

 

$

161

 

 

$

125,841

 

 

$

451,687

 

 

$

(119,941

)

 

$

(20,244

)

 

$

454,796

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,070

 

 

 

—

 

 

 

—

 

 

 

2,070

 

Other comprehensive loss, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(6,323

)

 

 

—

 

 

 

(6,323

)

Purchases of common stock for treasury

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(393

)

 

 

(393

)

Share-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

569

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

569

 

Restricted stock units released

 

 

—

 

 

 

—

 

 

 

(1,783

)

 

 

—

 

 

 

—

 

 

 

1,783

 

 

 

—

 

Cash dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A 3% Preferred–$0.75 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

(1

)

Series B-1 8.48% Preferred–$2.12 per
   share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(364

)

 

 

—

 

 

 

—

 

 

 

(364

)

Common–$0.30 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,620

)

 

 

—

 

 

 

—

 

 

 

(4,620

)

Balance at March 31, 2024

 

$

17,292

 

 

$

161

 

 

$

124,627

 

 

$

448,772

 

 

$

(126,264

)

 

$

(18,854

)

 

$

445,734

 

Comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

25,629

 

 

 

—

 

 

 

—

 

 

 

25,629

 

Other comprehensive income, net of tax

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

490

 

 

 

—

 

 

 

490

 

Purchases of common stock for treasury

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3

)

 

 

(3

)

Share-based compensation plans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Share-based compensation

 

 

—

 

 

 

—

 

 

 

746

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

746

 

Restricted stock awards released

 

 

—

 

 

 

—

 

 

 

(15

)

 

 

—

 

 

 

—

 

 

 

15

 

 

 

—

 

Restricted stock awards issued

 

 

—

 

 

 

—

 

 

 

(607

)

 

 

—

 

 

 

—

 

 

 

607

 

 

 

—

 

Stock awards

 

 

—

 

 

 

—

 

 

 

(47

)

 

 

—

 

 

 

—

 

 

 

120

 

 

 

73

 

Cash dividends declared:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Series A 3% Preferred–$0.75 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1

)

 

 

—

 

 

 

—

 

 

 

(1

)

Series B-1 8.48% Preferred–$2.12 per
   share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(363

)

 

 

—

 

 

 

—

 

 

 

(363

)

Common–$0.30 per share

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(4,638

)

 

 

—

 

 

 

—

 

 

 

(4,638

)

Balance at June 30, 2024

 

$

17,292

 

 

$

161

 

 

$

124,704

 

 

$

469,399

 

 

$

(125,774

)

 

$

(18,115

)

 

$

467,667

 

 

See accompanying notes to the consolidated financial statements.

7

Table of Contents

 

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

 

(Dollars in thousands)

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

34,410

 

 

$

27,699

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

3,825

 

 

 

3,894

 

Net (accretion) amortization of (discounts) premiums on securities

 

 

(2,235

)

 

 

1,456

 

Provision (benefit) for credit losses

 

 

5,490

 

 

 

(3,415

)

Share-based compensation

 

 

1,460

 

 

 

1,315

 

Deferred income tax expense

 

 

843

 

 

 

2,384

 

Proceeds from sale of loans held for sale

 

 

16,049

 

 

 

19,920

 

Originations of loans held for sale

 

 

(15,868

)

 

 

(20,437

)

Income on company owned life insurance

 

 

(5,742

)

 

 

(2,658

)

Net gain on sale of loans held for sale

 

 

(257

)

 

 

(212

)

Net gain on sale or call of investment securities

 

 

(3

)

 

 

—

 

Net gain on sale of assets of subsidiary

 

 

—

 

 

 

(13,520

)

Net loss on sale of other assets

 

 

—

 

 

 

25

 

Decrease in other assets

 

 

15,854

 

 

 

10,134

 

(Decrease) increase in other liabilities

 

 

(49,546

)

 

 

21,379

 

Net cash provided by operating activities

 

 

4,280

 

 

 

47,964

 

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of investment securities:

 

 

 

 

 

 

Available for sale

 

 

(93,434

)

 

 

(124,748

)

Held to maturity

 

 

(2,045

)

 

 

(762

)

Proceeds from principal payments, maturities and calls on investment securities:

 

 

 

 

 

 

Available for sale securities

 

 

40,833

 

 

 

130,587

 

Held to maturity

 

 

25,868

 

 

 

20,527

 

Proceeds from sales of available for sale securities

 

 

64,955

 

 

 

—

 

Net increase in loans

 

 

(63,217

)

 

 

(3,572

)

Purchase of company owned life insurance, net

 

 

(72,905

)

 

 

(12

)

Proceeds received from surrender of company owned life insurance

 

 

73,958

 

 

 

—

 

Proceeds from sale of assets of subsidiary

 

 

—

 

 

 

27,000

 

Purchases of premises and equipment

 

 

(2,412

)

 

 

(2,125

)

Net cash (used in) provided by investing activities

 

 

(28,399

)

 

 

46,895

 

Cash flows from financing activities:

 

 

 

 

 

 

Net increase (decrease) in deposits

 

 

51,283

 

 

 

(79,591

)

Net increase in short-term borrowings

 

 

2,000

 

 

 

17,000

 

Repayment of long-term borrowings

 

 

(10,000

)

 

 

—

 

Purchases of common stock for treasury

 

 

(481

)

 

 

(396

)

Cash dividends paid to common and preferred shareholders

 

 

(12,970

)

 

 

(9,967

)

Net cash provided by (used in) financing activities

 

 

29,832

 

 

 

(72,954

)

Net increase in cash and cash equivalents

 

 

5,713

 

 

 

21,905

 

Cash and cash equivalents, beginning of period

 

 

87,321

 

 

 

124,442

 

Cash and cash equivalents, end of period

 

$

93,034

 

 

$

146,347

 

 

See accompanying notes to the consolidated financial statements.

8

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Financial Institutions, Inc. (the “Company”) is a financial holding company organized in 1931 under the laws of New York State (“New York”). The Company provides diversified financial services through its 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, and indirect lending network relationships with franchised automobile dealers in the Capital District of New York. Effective January 1, 2024, the Company exited the Pennsylvania automobile market to align our focus more fully around its core Upstate New York market. Courier Capital provides customized investment management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans. The Company’s Banking-as-a-Service (“BaaS”) business has offered banking capabilities to non-bank financial service providers and other financial technology firms, or FinTechs, allowing them to provide banking services to their end users. On September 16, 2024, the Company issued a press release announcing its intent to begin an orderly wind down of its 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. The Company had approximately $7 million of BaaS-related deposits on the balance sheet at June 30, 2025. We expect the remaining balance to flow out during the third quarter of 2025.

On April 1, 2024, the Company announced and closed the sale of the assets of its former 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., 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 recorded to net gain (loss) on other assets in the Company’s statement of operations 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, the Company changed the name of the entity to Five Star Advisors LLC and expects to utilize it to serve as a conduit to refer insurance business to NFP.

Basis of Presentation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. The accounting and reporting policies conform to U.S. generally accepted accounting principles (“GAAP”). Certain information and footnote disclosures normally included in financial statements prepared in conformity with GAAP have been condensed or omitted pursuant to such rules and regulations. However, in the opinion of management, the accompanying consolidated financial statements reflect all adjustments of a normal and recurring nature necessary for a fair presentation of the consolidated statements of financial condition, income, comprehensive income, changes in shareholders’ equity and cash flows for the periods indicated and contain adequate disclosures to make the information presented not misleading. These consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Certain reclassifications of previously reported amounts have been made to conform to the current year’s presentation. Such reclassifications did not impact net income or shareholders’ equity as previously reported.

Use of Estimates

The preparation of these financial statements in conformity with United States Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on management’s best estimates and judgments and are evaluated on an ongoing basis using historical experience and other factors including the current economic environment. The Company adjusts these estimates and assumptions when facts and circumstances dictate. Actual results could differ from those estimates and assumptions.

9

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(1.) BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Cash Flow Reporting

Cash and cash equivalents include cash and due from banks, federal funds sold and interest-bearing deposits in other banks. Net cash flows are reported for loans, deposit transactions and short-term borrowings.

Supplemental cash flow information is summarized as follows for the six months ended June 30, 2025, and 2024 (in thousands):

 

 

 

2025

 

 

2024

 

Supplemental information:

 

 

 

 

 

 

Cash paid for interest

 

$

65,762

 

 

$

83,951

 

Cash paid for income taxes

 

 

—

 

 

 

3,107

 

Noncash investing and financing activities:

 

 

 

 

 

 

Real estate and other assets acquired in settlement of loans

 

 

142

 

 

 

63

 

Accrued and declared unpaid dividends

 

 

6,601

 

 

 

5,002

 

Recent Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments expand the disclosure requirements of segment expenses, as well as adding disclosure of the title and position of the chief operating decision maker (“CODM”) and an explanation of how the CODM uses the reported measures of segment profit or loss in assessing segment performance and deciding how to allocate resources is also required. The amendments became effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Refer to Note 15, Segment Reporting, for disclosures required by this update.

Standards Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, Income Tax (Topic 740): Improvements to Income Tax Disclosures. The amendments expand the disclosure requirements of income taxes, primarily related to the income tax rate reconciliation and income taxes paid. The guidance also eliminates certain existing disclosure requirements related to uncertain tax positions and unrecognized deferred income tax liabilities. The amendments are effective for fiscal years beginning after December 15, 2024, and interim periods within fiscal years beginning after December 15, 2025. Early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amendments require the disclosure of specified information about certain costs and expenses, in the notes to the financial statements. The amendments are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. Early adoption is permitted. The adoption of this guidance will not have a material impact on the Company’s consolidated financial statements.

10

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(2.) EARNINGS PER COMMON SHARE (“EPS”)

The following table presents a reconciliation of the earnings and shares used in calculating basic and diluted EPS (in thousands, except per share amounts). All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities. There were no participating securities outstanding for the three and six months ended June 30, 2025 and 2024. Therefore, the two-class method of calculating basic and diluted EPS was not applicable for the periods presented.

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Net income available to common shareholders

 

$

17,168

 

 

$

25,265

 

 

$

33,681

 

 

$

26,970

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

Total shares issued

 

 

20,700

 

 

 

16,100

 

 

 

20,700

 

 

 

16,100

 

Unvested restricted stock awards

 

 

(10

)

 

 

(10

)

 

 

(10

)

 

 

(10

)

Treasury shares

 

 

(583

)

 

 

(646

)

 

 

(600

)

 

 

(666

)

Total basic weighted average common shares outstanding

 

 

20,107

 

 

 

15,444

 

 

 

20,090

 

 

 

15,424

 

Incremental shares from assumed:

 

 

 

 

 

 

 

 

 

 

 

 

Vesting of restricted stock awards

 

 

187

 

 

 

112

 

 

 

201

 

 

 

127

 

Total diluted weighted average common shares outstanding

 

 

20,294

 

 

 

15,556

 

 

 

20,291

 

 

 

15,551

 

Basic earnings per common share

 

$

0.85

 

 

$

1.64

 

 

$

1.68

 

 

$

1.75

 

Diluted earnings per common share

 

$

0.85

 

 

$

1.62

 

 

$

1.66

 

 

$

1.73

 

 

On December 13, 2024, the Company completed an underwritten public offering of 4,600,000 common shares at $25.00 per share.

For the three and six months ended June 30, 2025 and 2024, no average shares were excluded from the computation of diluted EPS because the effect would be antidilutive.

 

 

 

11

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(3.) INVESTMENT SECURITIES

The amortized cost and fair value of investment securities are summarized below (in thousands):

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

$

275,474

 

 

$

1,922

 

 

$

5,238

 

 

$

272,158

 

Federal Home Loan Mortgage Corporation

 

 

294,771

 

 

 

1,113

 

 

 

19,381

 

 

 

276,503

 

Government National Mortgage Association

 

 

271,801

 

 

 

—

 

 

 

22,520

 

 

 

249,281

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

13,680

 

 

 

174

 

 

 

1,142

 

 

 

12,712

 

Federal Home Loan Mortgage Corporation

 

 

16,809

 

 

 

125

 

 

 

2,338

 

 

 

14,596

 

Government National Mortgage Association

 

 

71,497

 

 

 

580

 

 

 

87

 

 

 

71,990

 

Total mortgage-backed securities

 

 

944,032

 

 

 

3,914

 

 

 

50,706

 

 

 

897,240

 

Other debt securities

 

 

18,653

 

 

 

256

 

 

 

—

 

 

 

18,909

 

Total available for sale securities

 

$

962,685

 

 

$

4,170

 

 

$

50,706

 

 

$

916,149

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agency and government sponsored enterprises

 

$

6,738

 

 

$

—

 

 

$

187

 

 

$

6,551

 

State and political subdivisions

 

 

36,084

 

 

 

31

 

 

 

5,779

 

 

 

30,336

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

4,981

 

 

 

—

 

 

 

460

 

 

 

4,521

 

Federal Home Loan Mortgage Corporation

 

 

7,283

 

 

 

—

 

 

 

1,162

 

 

 

6,121

 

Government National Mortgage Association

 

 

17,192

 

 

 

—

 

 

 

1,863

 

 

 

15,329

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

7,089

 

 

 

—

 

 

 

473

 

 

 

6,616

 

Federal Home Loan Mortgage Corporation

 

 

10,003

 

 

 

—

 

 

 

501

 

 

 

9,502

 

Government National Mortgage Association

 

 

2,751

 

 

 

—

 

 

 

172

 

 

 

2,579

 

Total mortgage-backed securities

 

 

49,299

 

 

 

—

 

 

 

4,631

 

 

 

44,668

 

Total held to maturity securities

 

 

92,121

 

 

$

31

 

 

$

10,597

 

 

$

81,555

 

Allowance for credit losses–securities

 

 

(2

)

 

 

 

 

 

 

 

 

 

Total held to maturity securities, net

 

$

92,119

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

287,416

 

 

 

1

 

 

 

9,447

 

 

 

277,970

 

Federal Home Loan Mortgage Corporation

 

 

350,495

 

 

 

206

 

 

 

25,355

 

 

 

325,346

 

Government National Mortgage Association

 

 

216,392

 

 

 

84

 

 

 

23,210

 

 

 

193,266

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

14,720

 

 

 

—

 

 

 

1,320

 

 

 

13,400

 

Federal Home Loan Mortgage Corporation

 

 

20,357

 

 

 

136

 

 

 

2,732

 

 

 

17,761

 

Government National Mortgage Association

 

 

74,677

 

 

 

3

 

 

 

404

 

 

 

74,276

 

Privately issued

 

 

—

 

 

 

365

 

 

 

—

 

 

 

365

 

Total mortgage-backed securities

 

 

964,057

 

 

 

795

 

 

 

62,468

 

 

 

902,384

 

Other debt securities

 

 

8,663

 

 

 

69

 

 

 

11

 

 

 

8,721

 

Total available for sale securities

 

$

972,720

 

 

$

864

 

 

$

62,479

 

 

$

911,105

 

 

 

12

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(3.) INVESTMENT SECURITIES (Continued)

 

 

 

Amortized

 

 

Unrealized

 

 

Unrealized

 

 

Fair

 

 

 

Cost

 

 

Gains

 

 

Losses

 

 

Value

 

December 31, 2024 (continued)

 

 

 

 

 

 

 

 

 

 

 

 

Securities held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

U.S. Government agencies and government sponsored enterprises

 

$

16,663

 

 

$

—

 

 

$

512

 

 

$

16,151

 

State and political subdivisions

 

 

45,333

 

 

 

26

 

 

 

5,192

 

 

 

40,167

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

5,120

 

 

 

—

 

 

 

580

 

 

 

4,540

 

Federal Home Loan Mortgage Corporation

 

 

7,365

 

 

 

—

 

 

 

1,367

 

 

 

5,998

 

Government National Mortgage Association

 

 

18,410

 

 

 

—

 

 

 

2,217

 

 

 

16,193

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

8,777

 

 

 

—

 

 

 

658

 

 

 

8,119

 

Federal Home Loan Mortgage Corporation

 

 

11,309

 

 

 

—

 

 

 

727

 

 

 

10,582

 

Government National Mortgage Association

 

 

3,026

 

 

 

—

 

 

 

220

 

 

 

2,806

 

Total mortgage-backed securities

 

 

54,007

 

 

 

—

 

 

 

5,769

 

 

 

48,238

 

Total held to maturity securities

 

 

116,003

 

 

$

26

 

 

$

11,473

 

 

$

104,556

 

Allowance for credit losses–securities

 

 

(2

)

 

 

 

 

 

 

 

 

 

Total held to maturity securities, net

 

$

116,001

 

 

 

 

 

 

 

 

 

 

 

The Company elected to exclude accrued interest receivable (“AIR”) from the amortized cost basis of debt securities disclosed throughout this footnote. For available for sale (“AFS”) debt securities, AIR totaled $3.3 million and $3.4 million as of June 30, 2025 and December 31, 2024, respectively. For held to maturity (“HTM”) debt securities, AIR totaled $396 thousand and $456 thousand as of June 30, 2025 and December 31, 2024, respectively. AIR is included in other assets on the Company’s consolidated statements of financial condition.

For the three and six months ended June 30, 2025 and 2024, the provision for credit losses for HTM investment securities was less than $1 thousand in each period.

Investment securities with a total fair value of $860.8 million and $828.8 million at June 30, 2025 and December 31, 2024, respectively, were pledged as collateral to secure public deposits and for other purposes required or permitted by law.

The proceeds and related gain or loss on sales of securities available for sale for the three and six months ended June 30, 2025 and 2024 was as follows:

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Proceeds from sales

 

$

64,955

 

 

$

—

 

 

$

64,955

 

 

$

—

 

Gross realized gains

 

 

608

 

 

 

—

 

 

 

608

 

 

 

—

 

Gross realized losses

 

 

(605

)

 

 

—

 

 

 

(605

)

 

 

—

 

On December 13, 2024, the Company completed a public, underwritten common stock offering, further discussed in Note 9, Shareholders’ Equity. A portion of the proceeds from the stock offering was used to fund losses on the sale of $653.5 million of available for sale securities for a pre-tax loss of $100.2 million and the Company used the net proceeds from the sale of the securities to purchase higher-yielding agency wrapped investments with a face value of $642.6 million in December 2024.

13

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(3.) INVESTMENT SECURITIES (Continued)

The scheduled maturities of securities available for sale and securities held to maturity at June 30, 2025 are shown below (in thousands). Actual expected maturities may differ from contractual maturities because issuers may have the right to call or prepay obligations.

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

Debt securities available for sale:

 

 

 

 

 

 

Due in one year or less

 

$

—

 

 

$

—

 

Due from one to five years

 

 

11

 

 

 

11

 

Due after five years through ten years

 

 

42,452

 

 

 

42,910

 

Due after ten years

 

 

920,222

 

 

 

873,228

 

Total available for sale securities

 

$

962,685

 

 

$

916,149

 

Debt securities held to maturity:

 

 

 

 

 

 

Due in one year or less

 

$

8,335

 

 

$

8,335

 

Due from one to five years

 

 

9,783

 

 

 

9,219

 

Due after five years through ten years

 

 

25,202

 

 

 

22,770

 

Due after ten years

 

 

48,801

 

 

 

41,231

 

Total held to maturity securities

 

$

92,121

 

 

$

81,555

 

 

14

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(3.) INVESTMENT SECURITIES (Continued)

Unrealized losses on investment securities for which an allowance for credit losses has not been recorded and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, were as follows (in thousands):

 

 

 

Less than 12 months

 

 

12 months or longer

 

 

Total

 

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

Fair

 

 

Unrealized

 

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

 

Value

 

 

Losses

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

$

27,873

 

 

$

19

 

 

$

19,558

 

 

$

5,219

 

 

$

47,431

 

 

$

5,238

 

Federal Home Loan Mortgage Corporation

 

 

—

 

 

 

—

 

 

 

67,972

 

 

 

19,381

 

 

 

67,972

 

 

 

19,381

 

Government National Mortgage Association

 

 

178,974

 

 

 

3,279

 

 

 

70,295

 

 

 

19,241

 

 

 

249,269

 

 

 

22,520

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

—

 

 

 

—

 

 

 

3,622

 

 

 

1,142

 

 

 

3,622

 

 

 

1,142

 

Federal Home Loan Mortgage Corporation

 

 

—

 

 

 

—

 

 

 

7,512

 

 

 

2,338

 

 

 

7,512

 

 

 

2,338

 

Government National Mortgage Association

 

 

29,515

 

 

 

87

 

 

 

—

 

 

 

—

 

 

 

29,515

 

 

 

87

 

Total mortgage-backed securities

 

 

236,362

 

 

 

3,385

 

 

 

168,959

 

 

 

47,321

 

 

 

405,321

 

 

 

50,706

 

Total AFS debt securities with unrealized losses

 

$

236,362

 

 

$

3,385

 

 

$

168,959

 

 

$

47,321

 

 

$

405,321

 

 

$

50,706

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

258,197

 

 

 

3,525

 

 

 

19,732

 

 

 

5,922

 

 

 

277,929

 

 

 

9,447

 

Federal Home Loan Mortgage Corporation

 

 

228,956

 

 

 

2,941

 

 

 

75,647

 

 

 

22,414

 

 

 

304,603

 

 

 

25,355

 

Government National Mortgage Association

 

 

113,772

 

 

 

2,120

 

 

 

69,935

 

 

 

21,090

 

 

 

183,707

 

 

 

23,210

 

Collateralized mortgage obligations:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Federal National Mortgage Association

 

 

9,742

 

 

 

16

 

 

 

3,658

 

 

 

1,304

 

 

 

13,400

 

 

 

1,320

 

Federal Home Loan Mortgage Corporation

 

 

2,411

 

 

 

29

 

 

 

7,655

 

 

 

2,703

 

 

 

10,066

 

 

 

2,732

 

Government National Mortgage Association

 

 

64,493

 

 

 

404

 

 

 

 

 

 

 

 

 

64,493

 

 

 

404

 

Total mortgage-backed securities

 

 

677,571

 

 

 

9,035

 

 

 

176,627

 

 

 

53,433

 

 

 

854,198

 

 

 

62,468

 

Other debt securities

 

 

3,652

 

 

 

11

 

 

 

—

 

 

 

—

 

 

 

3,652

 

 

 

11

 

Total available for sale securities

 

 

681,223

 

 

 

9,046

 

 

 

176,627

 

 

 

53,433

 

 

 

857,850

 

 

 

62,479

 

Total AFS debt securities with unrealized losses

 

$

681,223

 

 

$

9,046

 

 

$

176,627

 

 

$

53,433

 

 

$

857,850

 

 

$

62,479

 

 

15

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(3.) INVESTMENT SECURITIES (Continued)

The total number of AFS securities’ positions in the investment portfolio in an unrealized loss position, for which an allowance for credit losses had not been recorded, was 50 at June 30, 2025 and 76 at December 31, 2024. At June 30, 2025, the Company had a position in 35 investment securities with a fair value of $169.0 million and a total unrealized loss of $47.3 million that had been in a continuous unrealized loss position for more than 12 months, and a total of 15 securities’ positions in the Company’s investment portfolio with a fair value of $236.4 million and a total unrealized loss of $3.4 million that had been in a continuous unrealized loss position for less than 12 months. At December 31, 2024, the Company had a position in 37 investment securities with a fair value of $176.6 million and a total unrealized loss of $53.4 million that had been in a continuous unrealized loss position for more than 12 months, and a total of 39 securities’ positions in the Company’s investment portfolio with a fair value of $681.2 million and a total unrealized loss of $9.0 million that had been in a continuous unrealized loss position for less than 12 months. The unrealized loss on investment securities was predominantly caused by changes in market interest rates subsequent to purchase. The fair value of most of the Company’s portfolio fluctuates as market interest rates change.

Securities Available for Sale

As of June 30, 2025 and December 31, 2024, no allowance for credit losses had been recognized on AFS securities in an unrealized loss position as management does not believe any of the securities were impaired due to reasons of credit quality. This is based upon our analysis of the underlying risk characteristics, including credit ratings, and other qualitative factors related to our available for sale securities and in consideration of our historical credit loss experience and internal forecasts. The issuers of these securities continue to make timely principal and interest payments under the contractual terms of the securities. Furthermore, the Company expects to recover the amortized cost basis of its investments and more than likely will not need to sell before the recovery period for operating purposes, with no impairment identified. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors. The unrealized losses are due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the securities approach their maturity date or repricing date or if market yields for such investments decline.

Securities Held to Maturity

The Company’s HTM investment securities include debt securities that are issued by U.S. government agencies or U.S. government-sponsored enterprises. These securities carry the explicit and/or implicit guarantee of the U.S. government, are widely recognized as “risk free,” and have a long history of zero credit loss. In addition, the Company’s HTM investment securities include debt securities that are issued by state and local government agencies, or municipal bonds.

The Company monitors the credit quality of our municipal bonds through the use of a credit rating agency or by ratings that are derived by an internal scoring model. The scoring methodology for the internally derived ratings is based on a series of financial ratios for the municipality being reviewed as compared to typical industry figures. This information is used to determine the financial strengths and weaknesses of the municipality, which is indicated with a numeric rating. This number is then converted into a letter rating to better match the system used by the credit rating agencies. As of June 30, 2025, $31.1 million of our municipal bonds were rated as an equivalent to Standard & Poor’s A/AA/AAA, with $5.0 million internally rated to be the equivalent of Standard & Poor’s A/AA/AAA rating. Additionally, no municipal bonds were rated below investment grade. As of December 31, 2024, $41.9 million of our municipal bonds were rated as an equivalent to Standard & Poor’s A/AA/AAA, with $3.4 million internally rated to be the equivalent of Standard & Poor’s A/AA/AAA rating, and no municipal bonds were rated below investment grade.

As of June 30, 2025 and December 31, 2024, the Company had no past due or nonaccrual held to maturity investment securities.

16

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS

The Company’s loan portfolio consisted of the following as of the dates indicated (in thousands):

 

 

 

Principal
Amount
Outstanding

 

 

Net Deferred
Loan (Fees)
Costs

 

 

Loans,
Net

 

June 30, 2025

 

 

 

 

 

 

 

 

 

Commercial business

 

$

725,691

 

 

$

527

 

 

$

726,218

 

Commercial mortgage–construction

 

 

538,722

 

 

 

(2,170

)

 

 

536,552

 

Commercial mortgage–multifamily

 

 

496,832

 

 

 

(609

)

 

 

496,223

 

Commercial mortgage–non-owner occupied

 

 

874,304

 

 

 

(1,097

)

 

 

873,207

 

Commercial mortgage–owner occupied

 

 

309,184

 

 

 

(13

)

 

 

309,171

 

Residential real estate loans

 

 

637,342

 

 

 

9,863

 

 

 

647,205

 

Residential real estate lines

 

 

72,452

 

 

 

3,223

 

 

 

75,675

 

Consumer indirect

 

 

807,798

 

 

 

25,654

 

 

 

833,452

 

Other consumer

 

 

38,366

 

 

 

(67

)

 

 

38,299

 

Total

 

$

4,500,691

 

 

$

35,311

 

 

 

4,536,002

 

Allowance for credit losses–loans

 

 

 

 

 

 

 

 

(47,291

)

Total loans, net

 

 

 

 

 

 

 

$

4,488,711

 

December 31, 2024

 

 

 

 

 

 

 

 

 

Commercial business

 

$

664,846

 

 

$

475

 

 

$

665,321

 

Commercial mortgage–construction

 

 

584,296

 

 

 

(1,677

)

 

 

582,619

 

Commercial mortgage–multifamily

 

 

471,499

 

 

 

(545

)

 

 

470,954

 

Commercial mortgage–non-owner occupied

 

 

859,079

 

 

 

(1,092

)

 

 

857,987

 

Commercial mortgage–owner occupied

 

 

288,042

 

 

 

(6

)

 

 

288,036

 

Residential real estate loans

 

 

639,466

 

 

 

10,740

 

 

 

650,206

 

Residential real estate lines

 

 

72,308

 

 

 

3,244

 

 

 

75,552

 

Consumer indirect

 

 

819,116

 

 

 

26,656

 

 

 

845,772

 

Other consumer

 

 

42,827

 

 

 

(70

)

 

 

42,757

 

Total

 

$

4,441,479

 

 

$

37,725

 

 

 

4,479,204

 

Allowance for credit losses–loans

 

 

 

 

 

 

 

 

(48,041

)

Total loans, net

 

 

 

 

 

 

 

$

4,431,163

 

 

Loans held for sale (not included above) were comprised entirely of residential real estate mortgages and totaled $2.4 million and $2.3 million as of June 30, 2025 and December 31, 2024, respectively.

The Company sells 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.

The Company elected to exclude AIR from the amortized cost basis of loans disclosed throughout this footnote. As of June 30, 2025, and December 31, 2024, AIR for loans totaled $21.2 million and $19.9 million, respectively, and is included in other assets on the Company’s consolidated statements of financial condition.

17

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

Past Due Loans Aging

The Company’s recorded investment, by loan class, in current and nonaccrual loans, as well as an analysis of accruing delinquent loans is set forth as of the dates indicated (in thousands):

 

 

 

30-59 Days
Past Due

 

 

60-89 Days
Past Due

 

 

Greater
Than
90 Days

 

 

Total Past
Due

 

 

Nonaccrual

 

 

Current

 

 

Total
Loans

 

 

Nonaccrual
with no specific
allowance

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

$

267

 

 

$

5,495

 

 

$

—

 

 

$

5,762

 

 

$

3,671

 

 

$

716,258

 

 

$

725,691

 

 

$

324

 

Commercial mortgage–construction

 

 

—

 

 

 

2,377

 

 

 

—

 

 

 

2,377

 

 

 

19,621

 

 

 

516,724

 

 

 

538,722

 

 

 

19,460

 

Commercial mortgage–multifamily

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

496,832

 

 

 

496,832

 

 

 

—

 

Commercial mortgage–non-owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

164

 

 

 

874,140

 

 

 

874,304

 

 

 

164

 

Commercial mortgage–owner occupied

 

 

231

 

 

 

—

 

 

 

—

 

 

 

231

 

 

 

—

 

 

 

308,953

 

 

 

309,184

 

 

 

—

 

Residential real estate loans

 

 

2,261

 

 

 

—

 

 

 

—

 

 

 

2,261

 

 

 

5,885

 

 

 

629,196

 

 

 

637,342

 

 

 

5,885

 

Residential real estate lines

 

 

80

 

 

 

10

 

 

 

—

 

 

 

90

 

 

 

299

 

 

 

72,063

 

 

 

72,452

 

 

 

299

 

Consumer indirect

 

 

7,178

 

 

 

1,484

 

 

 

—

 

 

 

8,662

 

 

 

2,571

 

 

 

796,565

 

 

 

807,798

 

 

 

2,571

 

Other consumer

 

 

371

 

 

 

8

 

 

 

34

 

 

 

413

 

 

 

191

 

 

 

37,762

 

 

 

38,366

 

 

 

191

 

Total loans, gross

 

$

10,388

 

 

$

9,374

 

 

$

34

 

 

$

19,796

 

 

$

32,402

 

 

$

4,448,493

 

 

$

4,500,691

 

 

$

28,894

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

$

293

 

 

$

9

 

 

$

8

 

 

$

310

 

 

$

5,609

 

 

$

658,927

 

 

$

664,846

 

 

$

427

 

Commercial mortgage–construction

 

 

-

 

 

 

2,285

 

 

 

-

 

 

 

2,285

 

 

 

20,280

 

 

 

561,731

 

 

 

584,296

 

 

 

19,460

 

Commercial mortgage–multifamily

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

471,499

 

 

 

471,499

 

 

 

-

 

Commercial mortgage–non-owner occupied

 

 

256

 

 

 

-

 

 

 

-

 

 

 

256

 

 

 

4,773

 

 

 

854,050

 

 

 

859,079

 

 

 

4,773

 

Commercial mortgage–owner occupied

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

354

 

 

 

287,688

 

 

 

288,042

 

 

 

354

 

Residential real estate loans

 

 

3,435

 

 

 

95

 

 

 

-

 

 

 

3,530

 

 

 

6,918

 

 

 

629,018

 

 

 

639,466

 

 

 

6,918

 

Residential real estate lines

 

 

370

 

 

 

47

 

 

 

-

 

 

 

417

 

 

 

253

 

 

 

71,638

 

 

 

72,308

 

 

 

253

 

Consumer indirect

 

 

12,734

 

 

 

2,219

 

 

 

-

 

 

 

14,953

 

 

 

3,157

 

 

 

801,006

 

 

 

819,116

 

 

 

3,157

 

Other consumer

 

 

109

 

 

 

135

 

 

 

35

 

 

 

279

 

 

 

19

 

 

 

42,529

 

 

 

42,827

 

 

 

19

 

Total loans, gross

 

$

17,197

 

 

$

4,790

 

 

$

43

 

 

$

22,030

 

 

$

41,363

 

 

$

4,378,086

 

 

$

4,441,479

 

 

$

35,361

 

 

There were $36 thousand and $35 thousand in consumer overdrafts which were past due greater than 90 days as of June 30, 2025 and December 31, 2024, respectively. Consumer overdrafts are overdrawn deposit accounts which have been reclassified as loans but by their terms do not accrue interest.

Interest income on nonaccrual loans, if recognized, is recorded using the cash basis method of accounting. There was no interest income recognized on nonaccrual loans during the three and six months ended June 30, 2025 and 2024. Estimated interest income of $423 thousand and $495 thousand for the three months ended June 30, 2025 and 2024, respectively, and $627 thousand and $748 thousand for the six months ended June 30, 2025 and 2024, respectively, would have been recorded if all such loans had been accruing interest according to their original contractual terms.

18

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

Loan Modifications for Borrowers Experiencing Financial Difficulty

Loans may be modified when it is determined that a borrower is experiencing financial difficulty. Loan modifications may include principal forgiveness, interest rate reduction, an other-than-insignificant payment delay, and term extensions, or a combination of these concessions.

The following table presents the amortized cost basis of loans modified to borrowers experiencing financial difficulty, disaggregated by loan class and type of concession granted, for the following periods (in thousands):

 

 

 

Term Extension

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Loan Type

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

Commercial mortgage–construction

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–multifamily

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–non-owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

317

 

 

 

295

 

 

 

686

 

 

 

449

 

Residential real estate lines

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Consumer indirect

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Other consumer

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

317

 

 

$

295

 

 

$

686

 

 

$

449

 

The following table describes the financial effect of the modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2025 and 2024:

 

Term Extension

Loan Type

 

Financial Effect

Residential real estate loans

 

Added a weighted average 10.0 years to the life of the loan, which reduced the monthly payment amount for the borrower.

 

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table depicts the performance of loans that have been modified in the twelve months ended June 30, 2025 (in thousands):

 

 

 

Payment Status (Amortized Cost Basis)

 

 

 

Current

 

 

30-89 Days
Past Due

 

 

90+ Days
Past Due

 

Loan Type

 

 

 

 

 

 

 

 

 

Commercial business

 

$

—

 

 

$

—

 

 

$

—

 

Commercial mortgage–construction

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–multifamily

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–non-owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–owner occupied

 

 

—

 

 

 

—

 

 

 

—

 

Residential real estate loans

 

 

546

 

 

 

140

 

 

 

323

 

Residential real estate lines

 

 

—

 

 

 

—

 

 

 

—

 

Consumer indirect

 

 

—

 

 

 

—

 

 

 

—

 

Other consumer

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

546

 

 

$

140

 

 

$

323

 

 

19

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

Collateral Dependent Loans

Management has determined that specific commercial loans on nonaccrual status, all loans that have had their terms restructured when a borrower is experiencing financial difficulty, and other loans deemed appropriate by management where repayment is expected to be provided substantially through the operation or sale of the collateral to be collateral dependent loans. The following table presents the amortized cost basis of collateral dependent loans by collateral type as of June 30, 2025 and December 31, 2024 (in thousands):

 

 

Collateral type

 

 

 

 

 

 

 

 

 

Business assets

 

 

Real property

 

 

Total

 

 

Specific Reserve

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

$

5,777

 

 

$

3,230

 

 

$

9,007

 

 

$

3,039

 

Commercial mortgage–construction

 

 

—

 

 

 

19,621

 

 

 

19,621

 

 

 

161

 

Commercial mortgage–multifamily

 

 

—

 

 

 

4,452

 

 

 

4,452

 

 

 

—

 

Commercial mortgage–non-owner occupied

 

 

—

 

 

 

12,994

 

 

 

12,994

 

 

 

—

 

Commercial mortgage–owner occupied

 

 

—

 

 

 

512

 

 

 

512

 

 

 

—

 

Total

 

$

5,777

 

 

$

40,809

 

 

$

46,586

 

 

$

3,200

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business

 

$

5,860

 

 

$

5,000

 

 

$

10,860

 

 

$

2,073

 

Commercial mortgage–construction

 

 

—

 

 

 

29,792

 

 

 

29,792

 

 

 

820

 

Commercial mortgage–multifamily

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Commercial mortgage–non-owner occupied

 

 

—

 

 

 

17,767

 

 

 

17,767

 

 

 

—

 

Commercial mortgage–owner occupied

 

 

—

 

 

 

720

 

 

 

720

 

 

 

—

 

Total

 

$

5,860

 

 

$

53,279

 

 

$

59,139

 

 

$

2,893

 

Credit Quality Indicators

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors such as the fair value of collateral. The Company analyzes commercial business and commercial mortgage loans individually by classifying the loans as to credit risk. Risk ratings are updated any time the situation warrants. The Company uses the following definitions for risk ratings:

Special Mention: Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the Company’s credit position at some future date.

Substandard: Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.

Doubtful: Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Due to the high probability of loss, nonaccrual accounting is required for all assets listed as doubtful.

Loans that do not meet the criteria above that are analyzed individually as part of the process described above are considered “uncriticized” or pass-rated loans and are included in groups of homogeneous loans with similar risk and loss characteristics.

20

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

The following tables set forth the Company’s commercial loan portfolio, categorized by internally assigned asset classification, as of the dates indicated (in thousands):

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Revolving
Loans
Converted
to Term

 

 

Total

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

72,487

 

 

$

114,796

 

 

$

87,416

 

 

$

59,276

 

 

$

40,254

 

 

$

29,072

 

 

$

295,907

 

 

$

—

 

 

$

699,208

 

Special mention

 

 

40

 

 

 

2,323

 

 

 

3,660

 

 

 

—

 

 

 

16

 

 

 

2,585

 

 

 

7,364

 

 

 

—

 

 

 

15,988

 

Substandard

 

 

—

 

 

 

156

 

 

 

343

 

 

 

9

 

 

 

—

 

 

 

173

 

 

 

6,698

 

 

 

—

 

 

 

7,379

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

3,113

 

 

 

21

 

 

 

172

 

 

 

337

 

 

 

—

 

 

 

3,643

 

Total

 

$

72,527

 

 

$

117,275

 

 

$

91,419

 

 

$

62,398

 

 

$

40,291

 

 

$

32,002

 

 

$

310,306

 

 

$

—

 

 

$

726,218

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

1,932

 

 

$

14

 

 

$

129

 

 

$

—

 

 

$

—

 

 

$

2,075

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

11,301

 

 

$

82,325

 

 

$

172,695

 

 

$

232,896

 

 

$

—

 

 

$

5,829

 

 

$

—

 

 

$

—

 

 

$

505,046

 

Special mention

 

 

—

 

 

 

—

 

 

 

6,240

 

 

 

3,268

 

 

 

2,377

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

11,885

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Doubtful

 

 

—

 

 

 

—

 

 

 

173

 

 

 

—

 

 

 

19,448

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

19,621

 

Total

 

$

11,301

 

 

$

82,325

 

 

$

179,108

 

 

$

236,164

 

 

$

21,825

 

 

$

5,829

 

 

$

—

 

 

$

—

 

 

$

536,552

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

37,821

 

 

$

25,279

 

 

$

104,571

 

 

$

55,952

 

 

$

140,216

 

 

$

119,664

 

 

$

—

 

 

$

—

 

 

$

483,503

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

320

 

 

 

—

 

 

 

7,867

 

 

 

—

 

 

 

—

 

 

 

8,187

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,223

 

 

 

—

 

 

 

310

 

 

 

—

 

 

 

—

 

 

 

4,533

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

37,821

 

 

$

25,279

 

 

$

104,571

 

 

$

60,495

 

 

$

140,216

 

 

$

127,841

 

 

$

—

 

 

$

—

 

 

$

496,223

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–non-owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

67,477

 

 

$

80,600

 

 

$

67,159

 

 

$

238,774

 

 

$

91,416

 

 

$

304,025

 

 

$

—

 

 

$

—

 

 

$

849,451

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

4,619

 

 

 

5,738

 

 

 

—

 

 

 

—

 

 

 

10,357

 

Substandard

 

 

—

 

 

 

—

 

 

 

12,994

 

 

 

328

 

 

 

—

 

 

 

77

 

 

 

—

 

 

 

—

 

 

 

13,399

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Total

 

$

67,477

 

 

$

80,600

 

 

$

80,153

 

 

$

239,102

 

 

$

96,035

 

 

$

309,840

 

 

$

—

 

 

$

—

 

 

$

873,207

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

597

 

 

$

—

 

 

$

—

 

 

$

597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

11,015

 

 

$

68,195

 

 

$

24,027

 

 

$

64,368

 

 

$

39,076

 

 

$

98,987

 

 

$

—

 

 

$

—

 

 

$

305,668

 

Special mention

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,256

 

 

 

—

 

 

 

—

 

 

 

2,256

 

Substandard

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

205

 

 

 

878

 

 

 

—

 

 

 

—

 

 

 

1,083

 

Doubtful

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

164

 

 

 

—

 

 

 

—

 

 

 

164

 

Total

 

$

11,015

 

 

$

68,195

 

 

$

24,027

 

 

$

64,368

 

 

$

39,281

 

 

$

102,285

 

 

$

—

 

 

$

—

 

 

$

309,171

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

21

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

 

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Revolving
Loans
Converted
to Term

 

 

Total

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

121,094

 

 

$

90,618

 

 

$

69,669

 

 

$

43,566

 

 

$

20,745

 

 

$

19,409

 

 

$

267,186

 

 

$

-

 

 

$

632,287

 

Special mention

 

 

2,218

 

 

 

4,814

 

 

 

297

 

 

 

57

 

 

 

8

 

 

 

1,678

 

 

 

9,297

 

 

 

-

 

 

 

18,369

 

Substandard

 

 

169

 

 

 

937

 

 

 

20

 

 

 

19

 

 

 

22

 

 

 

184

 

 

 

7,789

 

 

 

-

 

 

 

9,140

 

Doubtful

 

 

-

 

 

 

-

 

 

 

5,039

 

 

 

21

 

 

 

-

 

 

 

172

 

 

 

293

 

 

 

-

 

 

 

5,525

 

Total

 

$

123,481

 

 

$

96,369

 

 

$

75,025

 

 

$

43,663

 

 

$

20,775

 

 

$

21,443

 

 

$

284,565

 

 

$

-

 

 

$

665,321

 

Current period gross write-offs

 

$

-

 

 

$

5

 

 

$

-

 

 

$

20

 

 

$

-

 

 

$

274

 

 

$

-

 

 

$

-

 

 

$

299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–construction

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

52,470

 

 

$

175,559

 

 

$

311,182

 

 

$

3,753

 

 

$

341

 

 

$

6,516

 

 

$

-

 

 

$

-

 

 

$

549,821

 

Special mention

 

 

-

 

 

 

-

 

 

 

722

 

 

 

2,284

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

3,006

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

9,512

 

 

 

-

 

 

 

-

 

 

 

9,512

 

Doubtful

 

 

-

 

 

 

820

 

 

 

-

 

 

 

19,460

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

20,280

 

Total

 

$

52,470

 

 

$

176,379

 

 

$

311,904

 

 

$

25,497

 

 

$

341

 

 

$

16,028

 

 

$

-

 

 

$

-

 

 

$

582,619

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–multifamily

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

26,339

 

 

$

105,838

 

 

$

43,924

 

 

$

143,994

 

 

$

65,206

 

 

$

67,715

 

 

$

-

 

 

$

-

 

 

$

453,016

 

Special mention

 

 

-

 

 

 

-

 

 

 

3,625

 

 

 

-

 

 

 

6,825

 

 

 

6,234

 

 

 

-

 

 

 

-

 

 

 

16,684

 

Substandard

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

463

 

 

 

791

 

 

 

-

 

 

 

-

 

 

 

1,254

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Total

 

$

26,339

 

 

$

105,838

 

 

$

47,549

 

 

$

143,994

 

 

$

72,494

 

 

$

74,740

 

 

$

-

 

 

$

-

 

 

$

470,954

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

13

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

13

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–non-owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

83,677

 

 

$

66,338

 

 

$

245,618

 

 

$

99,175

 

 

$

82,368

 

 

$

250,316

 

 

$

-

 

 

$

-

 

 

$

827,492

 

Special mention

 

 

-

 

 

 

-

 

 

 

-

 

 

 

4,691

 

 

 

-

 

 

 

7,829

 

 

 

-

 

 

 

-

 

 

 

12,520

 

Substandard

 

 

-

 

 

 

12,994

 

 

 

-

 

 

 

208

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

13,202

 

Doubtful

 

 

-

 

 

 

-

 

 

 

293

 

 

 

-

 

 

 

-

 

 

 

4,480

 

 

 

-

 

 

 

-

 

 

 

4,773

 

Total

 

$

83,677

 

 

$

79,332

 

 

$

245,911

 

 

$

104,074

 

 

$

82,368

 

 

$

262,625

 

 

$

-

 

 

$

-

 

 

$

857,987

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial mortgage–owner occupied

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Uncriticized

 

$

67,060

 

 

$

41,274

 

 

$

48,517

 

 

$

34,049

 

 

$

43,528

 

 

$

50,967

 

 

$

-

 

 

$

-

 

 

$

285,395

 

Special mention

 

 

-

 

 

 

-

 

 

 

451

 

 

 

-

 

 

 

126

 

 

 

1,110

 

 

 

-

 

 

 

-

 

 

 

1,687

 

Substandard

 

 

-

 

 

 

-

 

 

 

224

 

 

 

-

 

 

 

366

 

 

 

10

 

 

 

-

 

 

 

-

 

 

 

600

 

Doubtful

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

354

 

 

 

-

 

 

 

-

 

 

 

354

 

Total

 

$

67,060

 

 

$

41,274

 

 

$

49,192

 

 

$

34,049

 

 

$

44,020

 

 

$

52,441

 

 

$

-

 

 

$

-

 

 

$

288,036

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

22

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

The Company utilizes payment status as a means of identifying and reporting problem and potential problem retail loans. The Company considers nonaccrual loans and loans past due greater than 90 days and still accruing interest to be non-performing. The following tables set forth the Company’s retail loan portfolio, categorized by performance status, as of the dates indicated (in thousands):

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

2025

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Revolving
Loans
Converted
to Term

 

 

Total

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

22,680

 

 

$

57,367

 

 

$

106,461

 

 

$

73,081

 

 

$

70,826

 

 

$

310,905

 

 

$

—

 

 

$

—

 

 

$

641,320

 

Nonperforming

 

 

—

 

 

 

112

 

 

 

514

 

 

 

506

 

 

 

1,005

 

 

 

3,748

 

 

 

—

 

 

 

—

 

 

 

5,885

 

Total

 

$

22,680

 

 

$

57,479

 

 

$

106,975

 

 

$

73,587

 

 

$

71,831

 

 

$

314,653

 

 

$

—

 

 

$

—

 

 

$

647,205

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

17

 

 

$

—

 

 

$

129

 

 

$

16

 

 

$

—

 

 

$

—

 

 

$

162

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate lines:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

71,496

 

 

$

3,880

 

 

$

75,376

 

Nonperforming

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

141

 

 

 

158

 

 

 

299

 

Total

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

71,637

 

 

$

4,038

 

 

$

75,675

 

Current period gross write-offs

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

 

$

27

 

 

$

27

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer indirect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

158,095

 

 

$

187,733

 

 

$

151,811

 

 

$

185,473

 

 

$

111,617

 

 

$

36,152

 

 

$

—

 

 

$

—

 

 

$

830,881

 

Nonperforming

 

 

75

 

 

 

313

 

 

 

570

 

 

 

816

 

 

 

506

 

 

 

291

 

 

 

—

 

 

 

—

 

 

 

2,571

 

Total

 

$

158,170

 

 

$

188,046

 

 

$

152,381

 

 

$

186,289

 

 

$

112,123

 

 

$

36,443

 

 

$

—

 

 

$

—

 

 

$

833,452

 

Current period gross write-offs

 

$

17

 

 

$

1,095

 

 

$

1,915

 

 

$

3,163

 

 

$

1,918

 

 

$

869

 

 

$

—

 

 

$

—

 

 

$

8,977

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

3,095

 

 

$

5,689

 

 

$

24,572

 

 

$

1,713

 

 

$

455

 

 

$

300

 

 

$

2,250

 

 

$

—

 

 

$

38,074

 

Nonperforming

 

 

—

 

 

 

10

 

 

 

171

 

 

 

7

 

 

 

—

 

 

 

—

 

 

 

37

 

 

 

—

 

 

 

225

 

Total

 

$

3,095

 

 

$

5,699

 

 

$

24,743

 

 

$

1,720

 

 

$

455

 

 

$

300

 

 

$

2,287

 

 

$

—

 

 

$

38,299

 

Current period gross write-offs

 

$

175

 

 

$

87

 

 

$

414

 

 

$

29

 

 

$

11

 

 

$

11

 

 

$

26

 

 

$

—

 

 

$

753

 

 

 

23

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

 

 

Term Loans Amortized Cost Basis by Origination Year

 

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

2023

 

 

2022

 

 

2021

 

 

2020

 

 

Prior

 

 

Revolving
Loans
Amortized
Cost Basis

 

 

Revolving
Loans
Converted
to Term

 

 

Total

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

54,345

 

 

$

110,882

 

 

$

75,264

 

 

$

73,754

 

 

$

99,943

 

 

$

229,100

 

 

$

-

 

 

$

-

 

 

$

643,288

 

Nonperforming

 

 

-

 

 

 

658

 

 

 

625

 

 

 

1,410

 

 

 

1,436

 

 

 

2,789

 

 

 

-

 

 

 

-

 

 

 

6,918

 

Total

 

$

54,345

 

 

$

111,540

 

 

$

75,889

 

 

$

75,164

 

 

$

101,379

 

 

$

231,889

 

 

$

-

 

 

$

-

 

 

$

650,206

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

109

 

 

$

-

 

 

$

-

 

 

$

109

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Residential real estate lines:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

71,059

 

 

$

4,240

 

 

$

75,299

 

Nonperforming

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

74

 

 

 

179

 

 

 

253

 

Total

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

71,133

 

 

$

4,419

 

 

$

75,552

 

Current period gross write-offs

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer indirect:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

215,964

 

 

$

183,917

 

 

$

235,262

 

 

$

149,499

 

 

$

41,773

 

 

$

16,200

 

 

$

-

 

 

$

-

 

 

$

842,615

 

Nonperforming

 

 

262

 

 

 

482

 

 

 

1,130

 

 

 

694

 

 

 

351

 

 

 

238

 

 

 

-

 

 

 

-

 

 

 

3,157

 

Total

 

$

216,226

 

 

$

184,399

 

 

$

236,392

 

 

$

150,193

 

 

$

42,124

 

 

$

16,438

 

 

$

-

 

 

$

-

 

 

$

845,772

 

Current period gross write-offs

 

$

361

 

 

$

4,814

 

 

$

5,964

 

 

$

4,621

 

 

$

1,708

 

 

$

1,511

 

 

$

-

 

 

$

-

 

 

$

18,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other consumer:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Performing

 

$

7,482

 

 

$

28,777

 

 

$

2,316

 

 

$

729

 

 

$

281

 

 

$

242

 

 

$

2,876

 

 

$

-

 

 

$

42,703

 

Nonperforming

 

 

3

 

 

 

2

 

 

 

1

 

 

 

6

 

 

 

1

 

 

 

-

 

 

 

41

 

 

 

-

 

 

 

54

 

Total

 

$

7,485

 

 

$

28,779

 

 

$

2,317

 

 

$

735

 

 

$

282

 

 

$

242

 

 

$

2,917

 

 

$

-

 

 

$

42,757

 

Current period gross write-offs

 

$

527

 

 

$

129

 

 

$

124

 

 

$

33

 

 

$

27

 

 

$

11

 

 

$

92

 

 

$

-

 

 

$

943

 

 

24

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

Allowance for Credit Losses–Loans

The following table sets forth the changes in the allowance for credit losses – loans for the three and six months ended June 30, 2025 and 2024 (in thousands):

 

 

 

 

 

 

Commercial Mortgage

 

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial
Business

 

 

Construction

 

 

Multi-
family

 

 

Non-Owner
Occupied

 

 

Owner
Occupied

 

 

Loans

 

 

Lines

 

 

Consumer
Indirect

 

 

Other
Consumer

 

 

Total

 

Three months ended June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses–loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

7,621

 

 

$

5,312

 

 

$

4,110

 

 

$

9,709

 

 

$

4,013

 

 

$

4,862

 

 

$

949

 

 

$

11,798

 

 

$

590

 

 

$

48,964

 

Charge-offs

 

 

(1,936

)

 

 

—

 

 

 

—

 

 

 

(597

)

 

 

—

 

 

 

(97

)

 

 

(27

)

 

 

(4,149

)

 

 

(541

)

 

 

(7,347

)

Recoveries

 

 

33

 

 

 

—

 

 

 

—

 

 

 

1

 

 

 

1

 

 

 

5

 

 

 

—

 

 

 

3,207

 

 

 

50

 

 

 

3,297

 

(Benefit) provision

 

 

3,278

 

 

 

(798

)

 

 

(180

)

 

 

(245

)

 

 

(927

)

 

 

(132

)

 

 

47

 

 

 

927

 

 

 

407

 

 

 

2,377

 

Ending balance

 

$

8,996

 

 

$

4,514

 

 

$

3,930

 

 

$

8,868

 

 

$

3,087

 

 

$

4,638

 

 

$

969

 

 

$

11,783

 

 

$

506

 

 

$

47,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

8,665

 

 

$

6,824

 

 

$

3,458

 

 

$

7,330

 

 

$

4,183

 

 

$

3,596

 

 

$

793

 

 

$

12,705

 

 

$

487

 

 

$

48,041

 

Charge-offs

 

 

(2,075

)

 

 

—

 

 

 

—

 

 

 

(597

)

 

 

—

 

 

 

(162

)

 

 

(27

)

 

 

(8,977

)

 

 

(753

)

 

 

(12,591

)

Recoveries

 

 

115

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

2

 

 

 

29

 

 

 

—

 

 

 

5,886

 

 

 

138

 

 

 

6,172

 

(Benefit) provision

 

 

2,291

 

 

 

(2,310

)

 

 

472

 

 

 

2,133

 

 

 

(1,098

)

 

 

1,175

 

 

 

203

 

 

 

2,169

 

 

 

634

 

 

 

5,669

 

Ending balance

 

$

8,996

 

 

$

4,514

 

 

$

3,930

 

 

$

8,868

 

 

$

3,087

 

 

$

4,638

 

 

$

969

 

 

$

11,783

 

 

$

506

 

 

$

47,291

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Commercial Mortgage

 

 

Residential Real Estate

 

 

 

 

 

 

 

 

 

 

 

 

Commercial
Business

 

 

Construction

 

 

Multi-
family

 

 

Non-Owner
Occupied

 

 

Owner
Occupied

 

 

Loans

 

 

Lines

 

 

Consumer
Indirect

 

 

Other
Consumer

 

 

Total

 

Three months ended June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allowance for credit losses–loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

12,991

 

 

$

3,593

 

 

$

3,159

 

 

$

5,546

 

 

$

1,815

 

 

$

4,630

 

 

$

794

 

 

$

9,854

 

 

$

693

 

 

$

43,075

 

Charge-offs

 

 

(53

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(99

)

 

 

—

 

 

 

(3,746

)

 

 

(311

)

 

 

(4,209

)

Recoveries

 

 

46

 

 

 

—

 

 

 

—

 

 

 

2

 

 

 

1

 

 

 

3

 

 

 

—

 

 

 

2,902

 

 

 

133

 

 

 

3,087

 

Provision

 

 

(738

)

 

 

117

 

 

 

850

 

 

 

532

 

 

 

(250

)

 

 

(323

)

 

 

(25

)

 

 

1,832

 

 

 

4

 

 

 

1,999

 

Ending balance

 

$

12,246

 

 

$

3,710

 

 

$

4,009

 

 

$

6,080

 

 

$

1,566

 

 

$

4,211

 

 

$

769

 

 

$

10,842

 

 

$

519

 

 

$

43,952

 

Six months ended June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Beginning balance

 

$

13,102

 

 

 

3,710

 

 

 

4,009

 

 

 

6,074

 

 

 

2,065

 

 

$

5,286

 

 

$

764

 

 

$

14,099

 

 

$

1,973

 

 

 

51,082

 

Charge-offs

 

 

(70

)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(107

)

 

 

—

 

 

 

(9,963

)

 

 

(580

)

 

 

(10,720

)

Recoveries

 

 

100

 

 

 

—

 

 

 

—

 

 

 

3

 

 

 

1

 

 

 

7

 

 

 

—

 

 

 

6,146

 

 

 

220

 

 

 

6,477

 

Provision (benefit)

 

 

(886

)

 

 

—

 

 

 

—

 

 

 

3

 

 

 

(500

)

 

 

(975

)

 

 

5

 

 

 

560

 

 

 

(1,094

)

 

 

(2,887

)

Ending balance

 

$

12,246

 

 

$

3,710

 

 

$

4,009

 

 

$

6,080

 

 

$

1,566

 

 

$

4,211

 

 

$

769

 

 

$

10,842

 

 

$

519

 

 

$

43,952

 

Risk Characteristics

Loans are pooled based on their homogeneous risk characteristics. The Company has divided its loan portfolio into segments, as the loans within each segment have similar characteristics related to loan purpose, tenor, amortization, repayment source, payment frequency, collateral and recourse.

25

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(4.) LOANS (Continued)

Commercial business loans primarily consist of loans to small to mid-sized businesses in our market area in a diverse range of industries. These loans are typically associated with higher credit risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions, including inflation, and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, potentially resulting in higher losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties, as well as on the collateral securing the loan. Economic events, inflation or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Company’s commercial real estate loans and on the value of such properties, influencing the ability of the tenants to pay rent on these properties. The Company further disaggregated the commercial mortgage loans into the following categories: construction, multifamily, non-owner occupied, and owner occupied based on the risk characteristics of the loans and the Company’s methodology for monitoring and assessing credit risk.

Residential real estate loans (comprised of conventional mortgages and home equity loans) and residential real estate lines of credit (comprised of home equity lines of credit) are generally made based on the borrower’s ability to make repayment from his or her employment and other income but are secured by real property whose value tends to be more easily ascertainable. Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers, and the nature of the loan collateral.

Consumer indirect and other consumer loans may entail greater credit risk than residential mortgage loans and home equities, particularly in the case of other consumer loans which are primarily unsecured or, in the case of some BaaS loans, secured by depreciable assets such as solar panels, and in the case of indirect consumer loans, secured by depreciable assets such as automobiles. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, and thus are more likely to be affected by inflation and adverse personal circumstances such as job loss, illness or personal bankruptcy, including the heightened risk that such circumstances may arise as a result of inflation. Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

(5.) LEASES

The Company is obligated under a number of non-cancellable operating lease agreements for land, buildings and equipment with terms, including renewal options reasonably certain to be exercised, extending through 2061. Two building leases were subleased with terms that extended through December 31, 2025.

The following table represents the consolidated statements of financial condition classification of the Company’s right of use assets and lease liabilities:

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

Balance Sheet Location

 

2025

 

 

2024

 

Operating Lease Right of Use Assets:

 

 

 

 

 

 

 

 

Gross carrying amount

 

Other assets

 

$

39,609

 

 

$

39,343

 

Accumulated amortization

 

Other assets

 

 

(9,873

)

 

 

(8,974

)

Net book value

 

 

 

$

29,736

 

 

$

30,369

 

 

 

 

 

 

 

 

 

 

Operating Lease Liabilities:

 

 

 

 

 

 

 

 

Right of use lease obligations

 

Other liabilities

 

$

32,193

 

 

$

32,763

 

 

The weighted average remaining lease term for operating leases was 19.5 years at June 30, 2025 and the weighted-average discount rate used in the measurement of operating lease liabilities was 3.93%. The Company utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term for the discount rate.

26

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(5.) LEASES (Continued)

The following table represents lease costs and other lease information:

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Lease costs:

 

 

 

 

 

 

 

 

 

 

 

 

Operating lease costs

 

$

782

 

 

$

778

 

 

$

1,559

 

 

$

1,552

 

Variable lease costs (1)

 

 

100

 

 

 

89

 

 

 

227

 

 

 

195

 

Sublease income

 

 

(35

)

 

 

(37

)

 

 

(69

)

 

 

(67

)

Net lease costs

 

$

847

 

 

$

830

 

 

$

1,717

 

 

$

1,680

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other information:

 

 

 

 

 

 

 

 

 

 

 

 

Cash paid for amounts included in the measurement of lease liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

756

 

 

$

754

 

 

$

1,512

 

 

$

1,508

 

Right of use assets obtained in exchange for new operating lease liabilities

 

$

—

 

 

$

350

 

 

$

311

 

 

$

678

 

 

(1)
Variable lease costs primarily represent variable payments such as common area maintenance, insurance, taxes and utilities.

Future minimum payments under non-cancellable operating leases with initial or remaining terms of one year or more, are as follows at June 30, 2025 (in thousands):

 

Twelve months ended June 30,

 

 

2025

$

1,481

 

2026

 

2,859

 

2027

 

2,832

 

2028

 

2,547

 

2029

 

2,246

 

Thereafter

 

35,113

 

Total future minimum operating lease payments

 

47,078

 

Amounts representing interest

 

(14,885

)

Present value of net future minimum operating lease payments

$

32,193

 

 

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill

Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis, and more frequently if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. The Company performs its annual goodwill impairment test as of October 1st. The Company did not identify an indication of goodwill impairment for any of its reporting units during the quarter ended June 30, 2025.

The carrying amount of goodwill totaled $58.1 million as of June 30, 2025 and December 31, 2024.

Other Intangible Assets

The Company has other intangible assets that are amortized, consisting of core deposit intangibles and other intangibles (primarily related to customer relationships). Gross carrying amount, accumulated amortization and net book value, were as follows (in thousands):

 

27

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(6.) GOODWILL AND OTHER INTANGIBLE ASSETS (Continued)

 

 

June 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

Core deposit intangibles:

 

 

 

 

 

 

Gross carrying amount

 

$

2,042

 

 

$

2,042

 

Accumulated amortization

 

 

(2,042

)

 

 

(2,042

)

Net book value

 

$

—

 

 

$

—

 

 

 

 

 

 

 

 

Other intangibles:

 

 

 

 

 

 

Gross carrying amount

 

$

7,243

 

 

$

7,243

 

Accumulated amortization

 

 

(4,818

)

 

 

(4,606

)

Net book value

 

$

2,425

 

 

$

2,637

 

 

Amortization expense for total other intangible assets was $105 thousand and $212 thousand for the three and six months ended June 30, 2025 and $114 thousand and $331 thousand for the three and six months ended June 30, 2024. The weighted average remaining amortization period for other intangibles was 11.8 years.

 

As of June 30, 2025, the estimated amortization expense of other intangible assets for the remainder of 2025 and each of the next five years is as follows (in thousands):

 

2025 (remainder of year)

$

203

 

2026

 

379

 

2027

 

343

 

2028

 

308

 

2029

 

272

 

2030

 

236

 

Thereafter

 

684

 

Total

$

2,425

 

 

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(7.) OTHER ASSETS AND OTHER LIABILITIES

A summary of other assets and other liabilities as of the dates indicated are as follows (in thousands):

 

 

 

June 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

Other Assets:

 

 

 

 

 

 

Tax credit investments

 

$

66,082

 

 

$

71,861

 

Net deferred tax asset

 

 

56,461

 

 

 

60,885

 

Derivative instruments

 

 

31,766

 

 

 

46,133

 

Operating lease right of use assets

 

 

29,736

 

 

 

30,369

 

Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock

 

 

20,798

 

 

 

18,261

 

Accrued interest receivable

 

 

24,928

 

 

 

23,748

 

Other

 

 

49,785

 

 

 

50,454

 

Total other assets

 

$

279,556

 

 

$

301,711

 

 

Other Liabilities:

 

 

 

 

 

 

Collateral on derivative instruments

 

$

27,900

 

 

$

45,960

 

Derivative instruments

 

 

28,490

 

 

 

41,410

 

Operating lease right of use obligations

 

 

32,193

 

 

 

32,763

 

Accrued interest expense

 

 

23,687

 

 

 

25,856

 

Other

 

 

57,854

 

 

 

73,539

 

Total other liabilities

 

$

170,124

 

 

$

219,528

 

 

Included in Other Liabilities–Other as of both June 30, 2025 and December 31, 2024 was a $23.0 million accrual for a contingent litigation liability. Refer to Note 13, Commitments and Contingencies, for more information related to this legal proceeding.

 

(8.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES

Risk Management Objective of Using Derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, liquidity and credit risk, primarily by managing the amount, sources, and duration of its assets and liabilities, and the use of derivative financial instruments. Specifically, the Company enters into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. The Company’s derivative financial instruments are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments.

Cash Flow Hedges of Interest Rate Risk

The Company’s objectives in using interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. To accomplish this objective, the Company uses interest rate caps and interest rate swaps as part of its interest rate risk management strategy. Interest rate caps designated as cash flow hedges involve the receipt of variable amounts from a counterparty if interest rates rise above the strike rate on the contract in exchange for an up-front premium. Such derivatives were used to hedge the variable cash flows associated with short-term borrowings or brokered CDs. Interest rate swaps designated as cash flow hedges involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The following table summarizes the terms of the Company’s outstanding interest rate swap agreements entered into to manage its exposure to the variability in future cash flows at June 30, 2025 (dollars in thousands):

Effective Date

 

Expiration Date

 

Notional Amount

 

 

Pay Fixed Rate

4/11/2022

 

4/11/2027

 

$

50,000

 

 

0.787%

1/24/2023

 

1/24/2026

 

$

30,000

 

 

3.669%

5/5/2023

 

5/5/2026

 

$

25,000

 

 

3.4615%

 

29

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(8.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES (Continued)

For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) and subsequently reclassified into interest expense in the same period(s) during which the hedged transaction affects earnings. Amounts reported in accumulated other comprehensive income (loss) related to derivatives will be reclassified to interest expense as interest payments are made on the Company’s borrowings. During the next twelve months, the Company estimates that $1.0 million in accumulated other comprehensive loss related to derivatives will be reclassified as an increase to interest expense.

Interest Rate Swaps

The Company executes interest rate swaps with commercial banking customers to facilitate their respective risk management strategies. These interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet hedge accounting requirements, changes in the fair value of both the customer swaps and the offsetting swaps are recognized directly in earnings.

Credit-risk-related Contingent Features

The Company has agreements with certain of its derivative counterparties that contain one or more of the following provisions: (a) if the Company defaults on any of its indebtedness, including a default where repayment of the indebtedness has not been accelerated by the lender, the Company could also be declared in default on its derivative obligations, and (b) if the Company fails to maintain its status as a well-capitalized institution, the counterparty could terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

Mortgage Banking Derivatives

The Company extends rate lock agreements to borrowers related to the origination of residential mortgage loans. To mitigate the interest rate risk inherent in these rate lock agreements when the Company intends to sell the related loan, once originated, as well as closed residential mortgage loans held for sale, the Company enters into forward commitments to sell individual residential mortgages. Rate lock agreements and forward commitments are considered derivatives and are recorded at fair value.

Fair Values of Derivative Instruments on the Balance Sheet

The table below presents the notional amounts, respective fair values of the Company’s derivative financial instruments, as well as their classification on the balance sheet as of June 30, 2025 and December 31, 2024 (in thousands):

 

 

 

 

 

 

 

 

Asset derivatives

 

 

Liability derivatives

 

 

 

Gross notional
amount

 

 

 

 

Fair value

 

 

 

 

Fair value

 

 

 

June 30, 2025

 

 

December 31, 2024

 

 

Balance Sheet Line Item

 

June 30, 2025

 

 

December 31, 2024

 

 

Balance Sheet Line Item

 

June 30, 2025

 

 

December 31, 2024

 

Derivatives designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flow hedges

 

$

105,000

 

 

$

105,000

 

 

Other assets

 

$

3,218

 

 

$

4,693

 

 

Other liabilities

 

$

—

 

 

$

—

 

Total derivatives

 

$

105,000

 

 

$

105,000

 

 

 

 

$

3,218

 

 

$

4,693

 

 

 

 

$

—

 

 

$

—

 

Derivatives not designated as hedging instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps (1)

 

$

1,131,396

 

 

$

1,123,909

 

 

Other assets

 

$

28,375

 

 

$

41,318

 

 

Other liabilities

 

$

28,376

 

 

$

41,319

 

Credit contracts

 

 

88,666

 

 

 

84,845

 

 

Other assets

 

 

—

 

 

 

—

 

 

Other liabilities

 

 

—

 

 

 

—

 

Mortgage banking

 

 

13,974

 

 

 

12,770

 

 

Other assets

 

 

173

 

 

 

122

 

 

Other liabilities

 

 

114

 

 

 

91

 

Total derivatives

 

$

1,234,036

 

 

$

1,221,524

 

 

 

 

$

28,548

 

 

$

41,440

 

 

 

 

$

28,490

 

 

$

41,410

 

 

(1)
The Company was holding collateral of $27.9 million and $46.0 million against its net obligations under these contracts at June 30, 2025 and December 31, 2024, respectively.

30

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(8.) DERIVATIVE INSTRUMENT AND HEDGING ACTIVITIES (Continued)

Effect of Derivative Instruments on the Income Statement

The table below presents the effect of the Company’s derivative financial instruments on the income statement for the three and six months ended June 30, 2025 and 2024 (in thousands):

 

 

 

 

Gain (loss) recognized in income

 

 

Gain (loss) recognized in income

 

 

 

Line item of gain (loss)

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

Undesignated derivatives

 

recognized in income

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Interest rate swaps

 

Income from derivative instruments, net

 

$

304

 

 

$

448

 

 

$

425

 

 

$

449

 

Credit contracts

 

Income from derivative instruments, net

 

 

22

 

 

 

—

 

 

 

137

 

 

 

5

 

Mortgage banking

 

Income from derivative instruments, net

 

 

13

 

 

 

(71

)

 

 

27

 

 

 

97

 

Total undesignated

 

 

 

$

339

 

 

$

377

 

 

$

589

 

 

$

551

 

 

(9.) SHAREHOLDERS’ EQUITY

Common Stock

The changes in shares of common stock were as follows for the three and six months ended June 30, 2025 and 2024:

 

 

 

Outstanding

 

 

Treasury

 

 

Issued

 

2025

 

 

 

 

 

 

 

 

 

Shares at December 31, 2024

 

 

20,076,572

 

 

 

622,984

 

 

 

20,699,556

 

Restricted stock awards issued

 

 

667

 

 

 

(667

)

 

 

—

 

Stock awards

 

 

654

 

 

 

(654

)

 

 

—

 

Restricted stock units released

 

 

50,270

 

 

 

(50,270

)

 

 

—

 

Treasury stock purchases

 

 

(18,451

)

 

 

18,451

 

 

 

—

 

Shares at March 31, 2025

 

 

20,109,712

 

 

 

589,844

 

 

 

20,699,556

 

Restricted stock awards issued

 

 

14,971

 

 

 

(14,971

)

 

 

—

 

Stock awards

 

 

2,892

 

 

 

(2,892

)

 

 

—

 

Shares at June 30, 2025

 

 

20,127,575

 

 

 

571,981

 

 

 

20,699,556

 

 

 

 

 

 

 

 

 

 

 

2024

 

 

 

 

 

 

 

 

 

Shares at December 31, 2023

 

 

15,407,406

 

 

 

692,150

 

 

 

16,099,556

 

Restricted stock units released

 

 

60,989

 

 

 

(60,989

)

 

 

—

 

Treasury stock purchases

 

 

(21,446

)

 

 

21,446

 

 

 

—

 

Shares at March 31, 2024

 

 

15,446,949

 

 

 

652,607

 

 

 

16,099,556

 

Restricted stock awards issued

 

 

22,011

 

 

 

(22,011

)

 

 

—

 

Restricted stock awards forfeited

 

 

(1,000

)

 

 

1,000

 

 

 

—

 

Stock awards

 

 

4,141

 

 

 

(4,141

)

 

 

—

 

Restricted stock units released

 

 

500

 

 

 

(500

)

 

 

—

 

Treasury stock purchases

 

 

(206

)

 

 

206

 

 

 

—

 

Shares at June 30, 2024

 

 

15,472,395

 

 

 

627,161

 

 

 

16,099,556

 

Common Stock Offering

On December 13, 2024, the Company completed a public, underwritten offering of 4,600,000 shares of common stock at $25.00 per share, which included 600,000 as a result of the underwriters’ exercise of their overallotment option. The Company received net proceeds of $108.6 million after deducting underwriting discounts and commissions and other offering expenses from the sale of its common stock.

(9.) SHAREHOLDERS’ EQUITY (CONTINUED)

Share Repurchase Programs

In June 2022, the Company’s Board of Directors (the “Board”) authorized a share repurchase program for up to 766,447 shares of common stock (the “2022 Share Repurchase Program”). Repurchased shares are recorded in treasury stock, at cost, which includes any applicable transaction costs. As of June 30, 2025, no shares have been repurchased under the 2022 Share Repurchase Program.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

 

(10.) ACCUMULATED OTHER COMPREHENSIVE LOSS

The following tables present the components of other comprehensive (loss) income for the three and six months ended June 30, 2025 and 2024 (in thousands):

 

 

 

Pre-tax
Amount

 

 

Tax
Effect

 

 

Net-of-tax
Amount

 

Three months ended June 30, 2025

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in unrealized loss during the period

 

$

109

 

 

$

28

 

 

$

81

 

Reclassification adjustment for net gains included in net income (1)

 

 

8

 

 

 

2

 

 

 

6

 

Total securities available for sale and transferred securities

 

 

117

 

 

 

30

 

 

 

87

 

Hedging derivative instruments:

 

 

 

 

 

 

 

 

 

Change in unrealized gain during the period

 

 

(550

)

 

 

(141

)

 

 

(409

)

Pension obligations:

 

 

 

 

 

 

 

 

 

Amortization of prior service credit included in income

 

 

(134

)

 

 

(34

)

 

 

(100

)

Amortization of net actuarial loss included in income

 

 

274

 

 

 

71

 

 

 

203

 

Total pension obligations

 

 

140

 

 

 

37

 

 

 

103

 

Other comprehensive (loss)

 

$

(293

)

 

$

(74

)

 

$

(219

)

Six months ended June 30, 2025

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in unrealized loss during the period

 

$

15,081

 

 

$

3,864

 

 

$

11,217

 

Reclassification adjustment for net gains included in net income (1)

 

 

20

 

 

 

5

 

 

 

15

 

Total securities available for sale and transferred securities

 

 

15,101

 

 

 

3,869

 

 

 

11,232

 

Hedging derivative instruments:

 

 

 

 

 

 

 

 

 

Change in unrealized gain during the period

 

 

(1,410

)

 

 

(361

)

 

 

(1,049

)

Pension obligations:

 

 

 

 

 

 

 

 

 

Amortization of prior service credit included in income

 

 

(268

)

 

 

(67

)

 

 

(201

)

Amortization of net actuarial loss included in income

 

 

548

 

 

 

140

 

 

 

408

 

Total pension obligations

 

 

280

 

 

 

73

 

 

 

207

 

Other comprehensive income

 

$

13,971

 

 

$

3,581

 

 

$

10,390

 

 

(1) Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

32

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(10.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

 

 

Pre-tax
Amount

 

 

Tax
Effect

 

 

Net-of-tax
Amount

 

Three months ended June 30, 2024

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in unrealized loss during the period

 

$

698

 

 

$

179

 

 

$

519

 

Reclassification adjustment for net gains included in net income (1)

 

 

13

 

 

 

3

 

 

 

10

 

Total securities available for sale and transferred securities

 

 

711

 

 

 

182

 

 

 

529

 

Hedging derivative instruments:

 

 

 

 

 

 

 

 

 

Change in unrealized gain during the period

 

 

(275

)

 

 

(70

)

 

 

(205

)

Pension obligations:

 

 

 

 

 

 

 

 

 

Amortization of prior service credit included in income

 

 

(134

)

 

 

(35

)

 

 

(99

)

Amortization of net actuarial loss included in income

 

 

357

 

 

 

92

 

 

 

265

 

Total pension obligations

 

 

223

 

 

 

57

 

 

 

166

 

Other comprehensive income

 

$

659

 

 

$

169

 

 

$

490

 

Six months ended June 30, 2024

 

 

 

 

 

 

 

 

 

Securities available for sale and transferred securities:

 

 

 

 

 

 

 

 

 

Change in unrealized loss during the period

 

$

(8,948

)

 

$

(2,293

)

 

$

(6,655

)

Reclassification adjustment for net gains included in net income (1)

 

 

27

 

 

 

7

 

 

 

20

 

Total securities available for sale and transferred securities

 

 

(8,921

)

 

 

(2,286

)

 

 

(6,635

)

Hedging derivative instruments:

 

 

 

 

 

 

 

 

 

Change in unrealized gain during the period

 

 

632

 

 

 

162

 

 

 

470

 

Pension obligations:

 

 

 

 

 

 

 

 

 

Amortization of prior service credit included in income

 

 

(268

)

 

 

(69

)

 

 

(199

)

Amortization of net actuarial loss included in income

 

 

715

 

 

 

184

 

 

 

531

 

Total pension obligations

 

 

447

 

 

 

115

 

 

 

332

 

Other comprehensive loss

 

$

(7,842

)

 

$

(2,009

)

 

$

(5,833

)

 

(1) Includes amounts related to the amortization/accretion of unrealized net gains and losses related to the Company’s reclassification of available for sale investment securities to the held to maturity category. The unrealized net gains/losses will be amortized/accreted over the remaining life of the investment securities as an adjustment of yield.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(10.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

Activity in accumulated other comprehensive income (loss), net of tax, for the three and six months ended June 30, 2025 and 2024 was as follows (in thousands):

 

 

 

Hedging
Derivative
Instruments

 

 

Securities
Available
for Sale and
Transferred
Securities

 

 

Pension and
Post-
retirement
Obligations

 

 

Accumulated
Other
Comprehensive
(Loss) Income

 

Three months ended June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

2,445

 

 

$

(34,790

)

 

$

(9,650

)

 

$

(41,995

)

Other comprehensive (loss) income before reclassifications

 

 

(409

)

 

 

81

 

 

 

—

 

 

 

(328

)

Amounts reclassified from accumulated other comprehensive income

 

 

—

 

 

 

6

 

 

 

103

 

 

 

109

 

Net current period other comprehensive (loss) income

 

 

(409

)

 

 

87

 

 

 

103

 

 

 

(219

)

Balance at end of period

 

$

2,036

 

 

$

(34,703

)

 

$

(9,547

)

 

$

(42,214

)

Six months ended June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,085

 

 

$

(45,935

)

 

$

(9,754

)

 

$

(52,604

)

Other comprehensive (loss) income before reclassifications

 

 

(1,049

)

 

 

11,217

 

 

 

—

 

 

 

10,168

 

Amounts reclassified from accumulated other comprehensive income

 

 

—

 

 

 

15

 

 

 

207

 

 

 

222

 

Net current period other comprehensive (loss) income

 

 

(1,049

)

 

 

11,232

 

 

 

207

 

 

 

10,390

 

Balance at end of period

 

$

2,036

 

 

$

(34,703

)

 

$

(9,547

)

 

$

(42,214

)

Three months ended June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

4,586

 

 

$

(119,070

)

 

$

(11,780

)

 

$

(126,264

)

Other comprehensive income (loss) before reclassifications

 

 

(205

)

 

 

519

 

 

 

—

 

 

 

314

 

Amounts reclassified from accumulated other comprehensive income

 

 

—

 

 

 

10

 

 

 

166

 

 

 

176

 

Net current period other comprehensive (loss) income

 

 

(205

)

 

 

529

 

 

 

166

 

 

 

490

 

Balance at end of period

 

$

4,381

 

 

$

(118,541

)

 

$

(11,614

)

 

$

(125,774

)

Six months ended June 30, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Balance at beginning of period

 

$

3,911

 

 

$

(111,906

)

 

$

(11,946

)

 

$

(119,941

)

Other comprehensive income (loss) before reclassifications

 

 

470

 

 

 

(6,655

)

 

 

—

 

 

 

(6,185

)

Amounts reclassified from accumulated other comprehensive income

 

 

—

 

 

 

20

 

 

 

332

 

 

 

352

 

Net current period other comprehensive income (loss)

 

 

470

 

 

 

(6,635

)

 

 

332

 

 

 

(5,833

)

Balance at end of period

 

$

4,381

 

 

$

(118,541

)

 

$

(11,614

)

 

$

(125,774

)

 

34

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(10.) ACCUMULATED OTHER COMPREHENSIVE LOSS (Continued)

The following table presents the amounts reclassified out of each component of accumulated other comprehensive (loss) income for the three and six months ended June 30, 2025 and 2024 (in thousands):

 

Details About Accumulated Other Comprehensive (Loss) Income Components

 

Amount Reclassified from
Accumulated Other
Comprehensive
(Loss) Income

 

 

Affected Line Item in the
Consolidated Statement of Operations

 

 

Three months ended
June 30,

 

 

 

 

 

2025

 

 

2024

 

 

 

 

 

 

 

 

 

 

 

Realized gain on sale of investment securities

 

$

3

 

 

$

—

 

 

Net gain on sale or call of securities

Amortization of unrealized holding gain on investment securities transferred from available for sale to held to maturity

 

 

(11

)

 

 

(13

)

 

Interest income

 

 

(8

)

 

 

(13

)

 

Total before tax

 

 

2

 

 

 

3

 

 

Income tax expense

 

 

(6

)

 

 

(10

)

 

Net of tax

Amortization of pension and post-retirement items:

 

 

 

 

 

 

 

 

Prior service credit (1)

 

 

134

 

 

 

134

 

 

Salaries and employee benefits

Net actuarial losses (1)

 

 

(274

)

 

 

(357

)

 

Salaries and employee benefits

 

 

(140

)

 

 

(223

)

 

Total before tax

 

 

37

 

 

 

57

 

 

Income tax benefit

 

 

(103

)

 

 

(166

)

 

Net of tax

Total reclassified for the period

 

$

(109

)

 

$

(176

)

 

 

 

 

Six months ended

 

 

 

 

 

June 30,

 

 

 

 

 

2025

 

 

2024

 

 

 

Realized loss on sale of investment securities

 

$

3

 

 

$

—

 

 

Net gain on sale or call of securities

Amortization of unrealized holding gains
   on investment securities transferred from
   available for sale to held to maturity

 

 

(23

)

 

 

(27

)

 

Interest income

 

 

(20

)

 

 

(27

)

 

Total before tax

 

 

5

 

 

 

7

 

 

Income tax expense

 

 

(15

)

 

 

(20

)

 

Net of tax

Amortization of pension and post-retirement items:

 

 

 

 

 

 

 

 

Prior service credit (1)

 

 

268

 

 

 

268

 

 

Salaries and employee benefits

Net actuarial losses (1)

 

 

(548

)

 

 

(715

)

 

Salaries and employee benefits

 

 

(280

)

 

 

(447

)

 

Total before tax

 

 

73

 

 

 

115

 

 

Income tax benefit

 

 

(207

)

 

 

(332

)

 

Net of tax

Total reclassified for the period

 

$

(222

)

 

$

(352

)

 

 

 

(1) These items are included in the computation of net periodic pension expense. See Note 12, Employee Benefit Plans, for additional information.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(11.) SHARE-BASED COMPENSATION PLANS

The Company maintains certain share-based compensation plans, approved by the Company’s shareholders, which are administered by the Management Development and Compensation Committee (the “MD&C Committee”) of the Board. The share-based compensation plans were established to allow for the granting of compensation awards to attract, motivate and retain employees, executive officers and non-employee directors who contribute to the long-term growth and profitability of the Company and to give such persons a proprietary interest in the Company, thereby enhancing their personal interest in the Company’s success.

The Company granted restricted stock awards (“RSAs”), restricted stock unit award (“RSUs”), and performance-based restricted stock units (“PSUs”) during the six months ended June 30, 2025 as follows:

 

 

Number of
   Underlying
Shares

 

 

Weighted Average Grant Date Fair Value

 

RSAs

 

 

15,638

 

 

$

25.35

 

RSUs

 

 

202,379

 

 

$

23.21

 

PSUs

 

 

42,232

 

 

$

23.26

 

The grant date for the RSAs granted during the six months ended June 30, 2025 was equal to the closing market price of our common stock on the day of the 2025 annual shareholder meeting. The grant-date fair value for the RSUs and PSUs granted during the six months ended June 30, 2025 was equal to the closing market price of our common stock on the date of grant reduced by the present value of the dividends expected to be paid on the underlying shares.

Fifty percent of the RSAs granted during the six months ended June 30, 2025 vested on the grant date. The remaining RSAs will vest the day before the Company’s next annual meeting. The RSUs and PSUs granted during the six months ended June 30, 2025 will generally vest on the third anniversary of the grant date assuming the recipient’s continuous service to the Company.

The Company amortizes the expense related to share-based compensation awards over the vesting period. Share-based compensation expense is recorded as a component of salaries and employee benefits in the consolidated statements of operations for awards granted to management and as a component of other noninterest expense for awards granted to directors. The share-based compensation expense included in the consolidated statements of operations, is as follows (in thousands):

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Salaries and employee benefits

 

$

713

 

 

$

505

 

 

$

1,166

 

 

$

1,033

 

Other noninterest expense

 

 

241

 

 

 

241

 

 

 

294

 

 

 

282

 

Total share-based compensation expense

 

$

954

 

 

$

746

 

 

$

1,460

 

 

$

1,315

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income tax benefit realized for compensation costs

 

$

118

 

 

$

94

 

 

$

456

 

 

$

383

 

 

At June 30, 2025, there was $6.8 million of unrecognized compensation expense related to unvested restricted stock awards and restricted stock units that is expected to be recognized over a weighted average period of 2.36 years.

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(12.) EMPLOYEE BENEFIT PLANS

The Company participates in a non-contributory defined benefit pension plan for certain employees who meet participation requirements. The components of the Company’s net periodic benefit expense for its pension obligations were as follows (in thousands):

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Service cost

 

$

422

 

 

$

491

 

 

$

844

 

 

$

982

 

Interest cost on projected benefit obligation

 

 

888

 

 

 

861

 

 

 

1,776

 

 

 

1,722

 

Expected return on plan assets

 

 

(849

)

 

 

(1,005

)

 

 

(1,698

)

 

 

(2,009

)

Amortization of unrecognized prior service credit

 

 

(134

)

 

 

(134

)

 

 

(268

)

 

 

(268

)

Amortization of unrecognized net actuarial loss

 

 

274

 

 

 

357

 

 

 

548

 

 

 

715

 

Net periodic benefit expense

 

$

601

 

 

$

570

 

 

$

1,202

 

 

$

1,142

 

 

The net periodic benefit expense is recorded as a component of salaries and employee benefits in the consolidated statements of operations The Company’s funding policy is to contribute, at a minimum, an actuarially determined amount that will satisfy the minimum funding requirements determined under the appropriate sections of the Internal Revenue Code. The Company has no minimum required contribution for the 2025 fiscal year.

(13.) COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

The Company has financial instruments with off-balance sheet risk established in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk extending beyond the amounts recognized in the financial statements.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is essentially the same as that involved with extending loans to customers. The Company uses the same credit underwriting policies in making commitments and conditional obligations as for on-balance sheet instruments.

Off-balance sheet commitments consist of the following (in thousands):

 

 

 

June 30,
2025

 

 

December 31,
2024

 

Commitments to extend credit

 

$

1,368,130

 

 

$

1,273,646

 

Standby letters of credit

 

 

16,368

 

 

 

14,559

 

 

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the agreement. Commitments generally have fixed expiration dates or other termination clauses which may require payment of a fee. Commitments may expire without being drawn upon; therefore, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if any, is based on management’s credit evaluation of the borrower. Standby letters of credit are conditional lending commitments issued by the Company to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support private borrowing arrangements. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers.

Unfunded Commitments

At June 30, 2025 and December 31, 2024, the allowance for credit losses for unfunded commitments totaled $3.9 million and $4.1 million, respectively, and was included in other liabilities on the Company’s consolidated statements of financial condition. The credit loss (benefit) for unfunded commitments was as follows (in thousands):

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Credit loss (benefit) for unfunded commitments

 

$

185

 

 

$

42

 

 

$

(179

)

 

$

(527

)

 

37

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FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(13.) COMMITMENTS AND CONTINGENCIES (continued)

Contingent Liabilities and Litigation

On March 7, 2025, following a mediation held on February 28, 2025, the Company entered into a Settlement Agreement (“the Settlement Agreement”) with plaintiffs in the previously disclosed class action lawsuit to which the Company and the Bank are parties, brought by borrowers in New York and Pennsylvania in Pennsylvania state court regarding notices the Bank sent to defaulting borrowers after their vehicles were repossessed, which were alleged to have not fully complied with the relevant portions of the Uniform Commercial Code in both states. As part of the Settlement Agreement, which is subject to court approval, the Company agreed to make a cash payment in the amount of $29.5 million in full resolution of the matter. The Company does not anticipate that additional amounts will be accrued for this matter in 2025 or other future periods. The Company determined that the March 7, 2025 event met the definition of a recognized subsequent event in accordance with ASC Topic 855, Subsequent Events, at the December 31, 2024 balance sheet date, and recorded a $23.0 million pre-tax litigation accrual, which reflects the agreed upon settlement less approximately $6.5 million of available related insurance proceeds, in the Company’s December 31, 2024 consolidated financial statements. The settlement resulted in an after-tax loss of approximately $17.1 million in 2024. On March 20, 2025, Plaintiffs filed an uncontested motion seeking preliminary approval of the settlement which was approved by the court on July 29, 2025. The court set a final approval hearing date for November 4, 2025. Before August 29, 2025, the settlement administrator will mail the class notices to all class members. Plaintiffs are required to file a motion for final court approval by October 31, 2025.

(14.) FAIR VALUE MEASUREMENTS

Determination of Fair Value – Assets Measured at Fair Value on a Recurring and Nonrecurring Basis

Valuation Hierarchy

The fair value of an asset or liability is the price that would be received to sell that asset or paid to transfer that liability in an orderly transaction occurring in the principal market (or most advantageous market in the absence of a principal market) for such asset or liability. ASC Topic 820, “Fair Value Measurements and Disclosures,” establishes a fair value hierarchy for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. There have been no changes in the valuation techniques used during the current period. The fair value hierarchy is as follows:

•
Level 1 - Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
•
Level 2 - Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
•
Level 3 - Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own assumptions about the assumptions that market participants would use in pricing the assets or liabilities.

Transfers between levels of the fair value hierarchy are recorded as of the end of the reporting period.

In general, fair value is based upon quoted market prices, where available. If such quoted market prices are not available, fair value is based upon internally developed models that primarily use, as inputs, observable market-based parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value. These adjustments may include amounts to reflect counterparty credit quality and the Company’s creditworthiness, among other things, as well as unobservable parameters. Any such valuation adjustments are applied consistently over time. The Company’s valuation methodologies may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. While management believes the Company’s valuation methodologies are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. Furthermore, the reported fair value amounts have not been comprehensively revalued since the presentation dates, and therefore, estimates of fair value after the balance sheet date may differ significantly from the amounts presented herein. A more detailed description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy, is set forth below.

Securities available for sale: Securities classified as available for sale are reported at fair value utilizing Level 2 inputs. For these securities, the Company obtains fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Derivative instruments: The fair value of derivative instruments is determined using quoted secondary market prices for similar financial instruments and are classified as Level 2 in the fair value hierarchy.

38

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(14.) FAIR VALUE MEASUREMENTS (Continued)

Loans held for sale: The fair value of loans held for sale is determined using quoted secondary market prices and investor commitments. Loans held for sale are classified as Level 2 in the fair value hierarchy.

Collateral dependent loans: Fair value of collateral dependent loans with specific allocations of the allowance for credit losses – loans are measured based on the value of the collateral securing these loans and is classified as Level 3 in the fair value hierarchy. Collateral may be real estate and/or business assets including equipment, inventory and/or accounts receivable and collateral value is determined based on appraisals performed by qualified licensed appraisers hired by the Company. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Appraised and reported values may be discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and the client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. Collateral dependent loans are reviewed and evaluated on at least a quarterly basis for additional impairment and adjusted accordingly, based on the same factors identified above.

Long-lived assets held for sale: The fair value of the long-lived assets held for sale was based on estimated market prices from independently prepared current appraisals and are classified as Level 3 in the fair value hierarchy.

Loan servicing rights: Loan servicing rights do not trade in an active market with readily observable market data. As a result, the Company estimates the fair value of loan servicing rights by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions used in the discounted cash flow model are those that management believes market participants would use in estimating future net servicing income, including estimates of loan prepayment rates, servicing costs, ancillary income, impound account balances, and discount rates. The significant unobservable inputs used in the fair value measurement of the Company’s loan servicing rights are the constant prepayment rates and weighted average discount rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Although the constant prepayment rate and the discount rate are not directly interrelated, they will generally move in opposite directions. Loan servicing rights are classified as Level 3 measurements due to the use of significant unobservable inputs, as well as significant management judgment and estimation.

Other real estate owned (foreclosed assets): Nonrecurring adjustments to certain commercial and residential real estate properties classified as other real estate owned are measured at the lower of carrying amount or fair value, less costs to sell. Fair values are generally based on third party appraisals of the property, resulting in a Level 3 classification. The appraisals are sometimes further discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and/or management’s expertise and knowledge of the client and client’s business. Such discounts are typically significant and result in a Level 3 classification of the inputs for determining fair value. In cases where the carrying amount exceeds the fair value, less costs to sell, an impairment loss is recognized.

Investment in limited partnership: The fair value of the investment in limited partnership was based on estimated market prices from independently prepared current appraisals and are classified as Level 3 in the fair value hierarchy.

Commitments to extend credit and letters of credit: Commitments to extend credit and fund letters of credit are principally at current interest rates, and, therefore, the carrying amount approximates fair value. The fair value of commitments is not material.

39

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(14.) FAIR VALUE MEASUREMENTS (Continued)

Assets Measured at Fair Value

The following tables present for each of the fair-value hierarchy levels the Company’s assets that are measured at fair value on a recurring and nonrecurring basis as of the dates indicated (in thousands).

 

 

 

Quoted
Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

—

 

 

$

897,240

 

 

$

—

 

 

$

897,240

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Other debt securities

 

 

—

 

 

 

18,909

 

 

 

—

 

 

 

18,909

 

Hedging derivative instruments

 

 

—

 

 

 

3,218

 

 

 

—

 

 

 

3,218

 

Fair value adjusted through comprehensive income

 

$

—

 

 

$

919,367

 

 

$

—

 

 

$

919,367

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments – interest rate swaps

 

 

—

 

 

 

28,375

 

 

 

—

 

 

 

28,375

 

Derivative instruments – mortgage banking

 

 

—

 

 

 

173

 

 

 

—

 

 

 

173

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments – interest rate swaps

 

 

—

 

 

 

(28,376

)

 

 

—

 

 

 

(28,376

)

Derivative instruments – mortgage banking

 

 

—

 

 

 

(114

)

 

 

—

 

 

 

(114

)

Fair value adjusted through net income

 

$

—

 

 

$

58

 

 

$

—

 

 

$

58

 

Measured on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

—

 

 

$

2,356

 

 

$

—

 

 

$

2,356

 

Collateral dependent loans

 

 

—

 

 

 

—

 

 

 

46,586

 

 

 

46,586

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Investment in limited partnership

 

 

—

 

 

 

—

 

 

 

3,676

 

 

 

3,676

 

Long-lived assets held for sale

 

 

—

 

 

 

—

 

 

 

528

 

 

 

528

 

Loan servicing rights

 

 

—

 

 

 

—

 

 

 

1,575

 

 

 

1,575

 

Other real estate owned

 

 

—

 

 

 

—

 

 

 

142

 

 

 

142

 

Total

 

$

—

 

 

$

2,356

 

 

$

52,507

 

 

$

54,863

 

 

There were no transfers between Levels 1 and 2 during the six months ended June 30, 2025. There were no liabilities measured at fair value on a nonrecurring basis during the six months ended June 30, 2025.

 

40

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(14.) FAIR VALUE MEASUREMENTS (Continued)

 

 

 

Quoted
Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1)

 

 

Significant
Other
Observable
Inputs
(Level 2)

 

 

Significant
Unobservable
Inputs
(Level 3)

 

 

Total

 

December 31, 2024

 

 

 

 

 

 

 

 

 

 

 

 

Measured on a recurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

—

 

 

$

902,384

 

 

$

—

 

 

$

902,384

 

Other debt securities

 

 

—

 

 

 

8,721

 

 

 

—

 

 

 

8,721

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Hedging derivative instruments

 

 

—

 

 

 

4,693

 

 

 

—

 

 

 

4,693

 

Fair value adjusted through comprehensive income

 

$

—

 

 

$

915,798

 

 

$

—

 

 

$

915,798

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments–interest rate products

 

$

—

 

 

$

41,318

 

 

$

—

 

 

$

41,318

 

Derivative instruments–mortgage banking

 

 

—

 

 

 

122

 

 

 

—

 

 

 

122

 

Other liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

Derivative instruments–interest rate products

 

 

—

 

 

 

(41,319

)

 

 

—

 

 

 

(41,319

)

Derivative instruments–mortgage banking

 

 

—

 

 

 

(91

)

 

 

—

 

 

 

(91

)

Fair value adjusted through net income

 

$

—

 

 

$

30

 

 

$

—

 

 

$

30

 

Measured on a nonrecurring basis:

 

 

 

 

 

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

$

—

 

 

$

2,280

 

 

$

—

 

 

$

2,280

 

Collateral dependent loans

 

 

—

 

 

 

—

 

 

 

56,246

 

 

 

56,246

 

Other assets:

 

 

 

 

 

 

 

 

 

 

 

 

Long-lived assets held for sale

 

 

—

 

 

 

—

 

 

 

596

 

 

 

596

 

Loan servicing rights

 

 

—

 

 

 

—

 

 

 

1,597

 

 

 

1,597

 

Other real estate owned

 

 

—

 

 

 

—

 

 

 

60

 

 

 

60

 

Total

 

$

—

 

 

$

2,280

 

 

$

58,499

 

 

$

60,779

 

 

The following table presents additional quantitative information about assets measured at fair value on a recurring and nonrecurring basis for which the Company has utilized Level 3 inputs to determine fair value as of June 30, 2025 (dollars in thousands).

 

Asset

 

Fair
Value

 

 

Valuation Technique

 

Unobservable Input

 

Unobservable Input
Value or Range

Collateral dependent loans

 

$

46,586

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

37.1% (3) / 0 - 77.3%

Loan servicing rights

 

$

1,575

 

 

Discounted cash flow

 

Discount rate

 

10.2% (3)

 

 

 

 

 

 

 

Constant prepayment rate

 

12.7% (3)

Investment in limited partnership

 

$

3,676

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

0%

Long-lived assets held for sale

 

$

528

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

12.0%

Other real estate owned

 

$

142

 

 

Appraisal of collateral (1)

 

Appraisal adjustments (2)

 

40.0%

 

(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally include various Level 3 inputs which are not identifiable.

(2) Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

(3) Weighted averages.

 

41

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(14.) FAIR VALUE MEASUREMENTS (Continued)

Changes in Level 3 Fair Value Measurements

There were no assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of or during the six months ended June 30, 2025 and 2024.

Disclosures about Fair Value of Financial Instruments

The assumptions used below are expected to approximate those that market participants would use in valuing these financial instruments.

Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, including estimates of timing, amount of expected future cash flows and the credit standing of the issuer. Such estimates do not consider the tax impact of the realization of unrealized gains or losses. In some cases, the fair value estimates cannot be substantiated by comparison to independent markets. In addition, the disclosed fair value may not be realized in the immediate settlement of the financial instrument. Care should be exercised in deriving conclusions about our business, its value or financial position based on the fair value information of financial instruments presented below.

The estimated fair value approximates carrying value for cash and cash equivalents, Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) stock, accrued interest receivable, non-maturity deposits, short-term borrowings and accrued interest payable. Fair value estimates for other financial instruments not included elsewhere in this disclosure are discussed below.

Securities held to maturity: The fair value of the Company’s investment securities held to maturity is primarily measured using information from a third-party pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions, among other things.

Loans: The fair value of the Company’s loans was estimated by discounting the expected future cash flows using the current interest rates at which similar loans would be made for the same remaining maturities. Loans were first segregated by type, such as commercial, residential mortgage, and consumer, and were then further segmented into fixed and variable rate and loan quality categories. Expected future cash flows were projected based on contractual cash flows, adjusted for estimated prepayments.

Time deposits: The fair value of time deposits was estimated using a discounted cash flow approach that applies prevailing market interest rates for similar maturity instruments. The fair values of the Company’s time deposit liabilities do not take into consideration the value of the Company’s long-term relationships with depositors, which may have significant value.

Long-term borrowings: Long-term borrowings consist of $75 million of subordinated notes and $50 million of long-term borrowings from the FHLB. The subordinated notes are publicly traded and are valued based on market prices, which are characterized as Level 2 liabilities in the fair value hierarchy. The FHLB borrowings are valued using discounted cash flows based on current market rates for borrowings with similar remaining maturities and are characterized as Level 2 liabilities in the fair value hierarchy.

42

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(14.) FAIR VALUE MEASUREMENTS (Continued)

The following table presents (in thousands) the carrying amount, estimated fair value, and placement in the fair value measurement hierarchy of the Company’s financial instruments as of the dates indicated.

 

 

 

Level in Fair Value Measurement Hierarchy

 

June 30, 2025

 

 

December 31, 2024

 

 

 

 

 

Carrying Amount

 

 

Estimated Fair Value

 

 

Carrying Amount

 

 

Estimated Fair Value

 

Financial assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

Level 1

 

$

93,034

 

 

$

93,034

 

 

$

87,321

 

 

$

87,321

 

Securities available for sale

 

Level 2

 

 

916,149

 

 

 

916,149

 

 

 

911,105

 

 

 

911,105

 

Securities held to maturity, net

 

Level 2

 

 

92,119

 

 

 

81,555

 

 

 

116,001

 

 

 

104,556

 

Loans held for sale

 

Level 2

 

 

2,356

 

 

 

2,356

 

 

 

2,280

 

 

 

2,280

 

Loans

 

Level 2

 

 

4,442,125

 

 

 

4,334,122

 

 

 

4,374,917

 

 

 

4,277,167

 

Loans (1)

 

Level 3

 

 

46,586

 

 

 

46,586

 

 

 

56,246

 

 

 

56,246

 

Long-lived assets held for sale

 

Level 3

 

 

528

 

 

 

528

 

 

 

596

 

 

 

596

 

Accrued interest receivable

 

Level 1

 

 

24,928

 

 

 

24,928

 

 

 

23,748

 

 

 

23,748

 

Derivative instruments–cash flow hedges

 

Level 2

 

 

3,218

 

 

 

3,218

 

 

 

4,693

 

 

 

4,693

 

Derivative instruments–interest rate products

 

Level 2

 

 

28,375

 

 

 

28,375

 

 

 

41,318

 

 

 

41,318

 

Derivative instruments–mortgage banking

 

Level 2

 

 

173

 

 

 

173

 

 

 

122

 

 

 

122

 

FHLB and FRB stock

 

Level 2

 

 

20,798

 

 

 

20,798

 

 

 

18,261

 

 

 

18,261

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-maturity deposits

 

Level 1

 

 

3,543,514

 

 

 

3,543,514

 

 

 

3,559,559

 

 

 

3,559,559

 

Time deposits

 

Level 2

 

 

1,612,500

 

 

 

1,607,647

 

 

 

1,545,172

 

 

 

1,541,013

 

Short-term borrowings

 

Level 1

 

 

101,000

 

 

 

101,000

 

 

 

99,000

 

 

 

99,000

 

Long-term borrowings

 

Level 2

 

 

114,960

 

 

 

121,187

 

 

 

124,842

 

 

 

127,402

 

Accrued interest payable

 

Level 1

 

 

23,687

 

 

 

23,687

 

 

 

25,856

 

 

 

25,856

 

Derivative instruments–cash flow hedges

 

Level 2

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Derivative instruments–interest rate products

 

Level 2

 

 

28,376

 

 

 

28,376

 

 

 

41,319

 

 

 

41,319

 

Derivative instruments–mortgage banking

 

Level 2

 

 

114

 

 

 

114

 

 

 

91

 

 

 

91

 

 

(1) Comprised of collateral dependent loans.

(15.) SEGMENT REPORTING

The Company’s Executive Management Team, which consists of the Chief Executive Officer, Chief Financial Officer, Chief Legal Officer, Chief Commercial Banking Officer, Chief Consumer Banking Officer, Chief Risk Officer, Chief Human Resource Officer, and Chief Marketing Officer, has been designated as its Chief Operating Decision Maker (“CODM”). The CODM determined the Company has one reportable segment, Banking, based upon information provided about the Company’s products and services offered. The segment is also distinguished by the level of information provided to the CODM, who uses such information to review performance of various components of the business, which are then aggregated if operating performance, products and services, and customers are similar. The CODM evaluates the financial performance of the Company’s business components by evaluating revenue streams, significant expenses, and budget to actual results when assessing the Company’s segment and in the determination of allocating resources. The CODM has determined that net income is the reportable measure of segment profit or loss that is regularly reviewed and used to allocate resources and assess performance. Loans and investments provide the interest income in the banking operation, while deposits and borrowings account for the interest expense. The CODM also considers provisions for credit losses a significant expense in the banking operation. All operations are domestic.

Segment performance is evaluated using net income. Information reported internally for performance assessment by the CODM follows, inclusive of reconciliations of significant segment totals to the consolidated financial statements.

43

Table of Contents

FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

 

(15.) SEGMENT REPORTING (Continued)

The following table presents balance sheet information of the Company’s segment as of periods indicated (in thousands).

 

 

June 30, 2025

 

 

December 31, 2024

 

Segment assets

 

 

 

 

 

 

Goodwill

 

$

48,536

 

 

$

48,536

 

Total segment assets

 

$

6,105,894

 

 

$

6,080,731

 

Reconciliation of consolidated total assets

 

 

 

 

 

 

Goodwill - Courier Capital

 

 

9,585

 

 

 

9,585

 

Intangible assets, net - Courier Capital

 

 

2,425

 

 

 

2,637

 

Other assets

 

 

25,862

 

 

 

24,735

 

Elimination of intercompany receivables

 

 

—

 

 

 

(603

)

Consolidated total assets

 

$

6,143,766

 

 

$

6,117,085

 

 

The following table presents information regarding the Company’s segment for the periods indicated (in thousands).

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

2025

 

 

2024

 

Interest income

 

$

82,867

 

 

$

78,788

 

 

$

163,918

 

 

$

157,201

 

Interest expense

 

 

32,694

 

 

 

36,534

 

 

 

65,820

 

 

 

73,805

 

Segment net interest income

 

 

50,173

 

 

 

42,254

 

 

 

98,098

 

 

 

83,396

 

Noninterest income

 

 

7,868

 

 

 

7,989

 

 

 

15,638

 

 

 

14,485

 

Segment noninterest expense

 

 

32,505

 

 

 

30,418

 

 

 

62,980

 

 

 

80,135

 

Income (loss) before provision for credit losses and income taxes

 

 

25,536

 

 

 

19,825

 

 

 

50,756

 

 

 

17,746

 

(Provision) benefit for credit losses

 

 

(2,562

)

 

 

(2,041

)

 

 

(5,490

)

 

 

3,415

 

Income before income taxes

 

 

22,974

 

 

 

17,784

 

 

 

45,266

 

 

 

21,161

 

Income tax expense

 

 

(4,289

)

 

 

(1,288

)

 

 

(8,329

)

 

 

(1,744

)

Segment net income

 

$

18,685

 

 

$

16,496

 

 

$

36,937

 

 

$

19,417

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of consolidated net interest income:

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense (1)

 

 

1,051

 

 

 

1,061

 

 

 

2,112

 

 

 

2,121

 

Consolidated net interest income

 

 

49,122

 

 

 

41,193

 

 

 

95,986

 

 

 

81,275

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reconciliation of consolidated net income:

 

 

 

 

 

 

 

 

 

 

 

 

Insurance income (2)

 

 

—

 

 

 

—

 

 

 

—

 

 

 

2,130

 

Investment advisory income (3)

 

 

2,844

 

 

 

2,644

 

 

 

5,549

 

 

 

5,118

 

Other fees and income

 

 

(95

)

 

 

13,381

 

 

 

(197

)

 

 

13,182

 

Other noninterest expense

 

 

(3,177

)

 

 

(2,602

)

 

 

(6,387

)

 

 

(6,898

)

Income before income tax benefit

 

 

17,206

 

 

 

28,858

 

 

 

33,790

 

 

 

30,828

 

Income tax benefit

 

 

326

 

 

 

(3,229

)

 

 

620

 

 

 

(3,129

)

Consolidated net income

 

$

17,532

 

 

$

25,629

 

 

$

34,410

 

 

$

27,699

 

(1) Interest expense represents interest on the subordinated notes, held at the Parent.

(2) Insurance income represents income from our former subsidiary, SDN, which was sold on April 1, 2024.

(3) Investment advisory income represents income from our subsidiary Courier Capital.

 

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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

This Quarterly Report on Form 10-Q should be read in conjunction with the more detailed and comprehensive disclosures included in our Annual Report on Form 10-K for the year ended December 31, 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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

Strategic and Operational Risks

•
We make certain assumptions and estimates in preparing our financial statements that may prove to be incorrect, which could significantly impact our results of operations, cash flows and financial condition, and we are subject to new or changing accounting rules and interpretations, and the failure by us to correctly interpret or apply these evolving rules and interpretations could have a material adverse effect;
•
The value of our goodwill and other intangible assets may decline in the future;
•
We may be unable to successfully implement our growth strategies, including the integration and successful management of newly-acquired businesses;
•
Acquisitions may disrupt our business and dilute shareholder value;
•
Our tax strategies and the value of our deferred tax assets and liabilities could adversely affect our operating results and regulatory capital ratios;
•
Liquidity is essential to our businesses;
•
We rely on dividends from our subsidiaries for most of our revenue; and
•
If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.

Market Risks

•
We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments;
•
The soundness of other financial institutions could adversely affect us; and
•
We may need to raise additional capital in the future and such capital may not be available on acceptable terms or at all.

Technology and Cybersecurity Risks

•
Emerging technology, including cloud computing and artificial intelligence (“AI”), introduces new risks while possibly being essential to support business strategy;
•
We rely on third parties to provide critical business services and protect the confidentiality, integrity, and availability of confidential data;
•
We, or our service providers, may experience a cyber-attack, system failure, natural disaster, or other uncontrollable event that may disrupt business operations; and
•
We are subject to evolving laws and regulations relating to cybersecurity protection and data privacy, and failure to comply could expose us to regulatory liability, reputational risk and financial risk.

Risks Related to our Common Stock

•
We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions;
•
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could dilute our current shareholders or negatively affect the value of our common stock;
•
Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect; and
•
The market price of our common stock may fluctuate significantly in response to a number of factors.

General Risk Factors

•
We may not be able to attract and retain skilled people;
•
Loss of key employees may disrupt relationships with certain customers;
•
We use financial models for business planning purposes that may not adequately predict future results;
•
We depend on the accuracy and completeness of information about or from customers and counterparties;
•
Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, 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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

GENERAL

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

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.

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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.

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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,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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

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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.

 

 

 

Three months ended June 30,

 

 

 

2025

 

 

2024

 

 

 

Average
Balance

 

 

Interest

 

 

Average
Rate (3)

 

 

Average
Balance

 

 

Interest

 

 

Average
Rate (3)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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):

51

Table of Contents

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

Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

 

Average
Balance

 

 

Interest

 

 

Average
Rate (3)

 

 

Average
Balance

 

 

Interest

 

 

Average
Rate (3)

 

Interest-earning assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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):

53

Table of Contents

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.

 

 

 

Three months ended
June 30, 2025 vs. 2024

 

 

Six months ended
June 30, 2025 vs. 2024

 

Increase (decrease) in:

 

Volume

 

 

Rate

 

 

Total

 

 

Volume

 

 

Rate

 

 

Total

 

Interest income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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,

 

 

Six months ended
June 30,

 

 

 

 

2025

 

 

2024

 

 

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,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

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.

 

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Noninterest Expense

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

 

 

 

Three months ended
June 30,

 

 

Six months ended
June 30,

 

 

 

2025

 

 

2024

 

 

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.

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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):

 

 

 

Investment Securities Portfolio Composition

 

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

Amortized

 

 

Fair

 

 

Amortized

 

 

Fair

 

 

 

Cost

 

 

Value

 

 

Cost

 

 

Value

 

Securities available for sale:

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities:

 

 

 

 

 

 

 

 

 

 

 

 

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.

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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.

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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).

 

 

 

Due in one year or less

 

 

Due from one to five years

 

 

Due after five years through ten years

 

 

Due after
ten years

 

 

Total

 

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

 

Cost

 

 

Yield

 

Available for sale debt securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Mortgage-backed securities

 

$

—

 

 

 

—

 

 

$

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

 

 

December 31, 2024

 

 

 

Amount

 

 

% of
Total

 

 

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.

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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,

 

 

Six months ended
June 30,

 

 

 

 

2025

 

 

2024

 

 

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

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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

 

 

December 31, 2024

 

 

 

Credit Loss Allowance

 

 

Percentage of Loans By Category to Total Loans

 

 

Credit Loss Allowance

 

 

Percentage of Loans By Category to Total Loans

 

Commercial business

 

$

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.

61

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

Non-Performing Assets and Potential Problem Loans

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

 

 

 

Non-Performing Assets

 

 

 

June 30,
2025

 

 

December 31,
2024

 

Nonaccrual loans:

 

 

 

 

 

 

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.

62

Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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.

63

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

FUNDING ACTIVITIES

Deposits

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

 

 

 

Deposit Composition

 

 

 

June 30, 2025

 

 

December 31, 2024

 

 

 

Amount

 

 

% of
Total

 

 

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.

64

Table of Contents

MANAGEMENT'S DISCUSSION AND ANALYSIS

 

Borrowings

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2025

 

 

2024

 

Short-term borrowings:

 

 

 

 

 

 

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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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

 

 

 

June 30,

 

 

December 31,

 

 

 

2025

 

 

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.

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MANAGEMENT'S DISCUSSION AND ANALYSIS

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

Required to be

 

 

 

 

 

 

 

 

 

Minimum Capital

 

 

Considered Well

 

 

 

Actual

 

 

Required – Basel III

 

 

Capitalized

 

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

 

Amount

 

 

Ratio

 

June 30, 2025

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tier 1 leverage:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

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ITEM 3. Quantitative and Qualitative Disclosures About Market Risk

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).

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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):

 

 

June 30, 2025

 

 

December 31, 2024

 

Rate Shock Scenario:

 

EVE

 

 

Change

 

 

Percentage
Change

 

 

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.

ITEM 4. Controls and Procedures

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.

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PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

From time to time, we are a party to or otherwise involved in legal proceedings arising out of the normal course of business. Regardless of the outcome, litigation can have an adverse impact on us because of prosecution, defense and settlement costs, unfavorable awards, diversion of management resources and other factors. For more information with respect to our recent legal proceedings please refer to Note 13, Commitments and Contingencies, of the notes to the to the consolidated financial statements included in Part I, Item 1, of this Current Report on Form 10-Q. Except as described in Note 13, as of June 30, 2025, management believes that the aggregate liability, if any, arising from such litigation would not have a material adverse effect on the Company’s consolidated financial statements.

ITEM 1A. Risk Factors

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.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

In June 2022, the Company’s Board of Directors authorized a share repurchase program for up to 766,447 shares of common stock. The program will expire at the earlier of the completion of all share repurchases or a Board vote to retire the program.

The Company’s repurchases of its common stock during the second quarter of 2025 were as follows:

Issuer Purchases of Equity Securities

 

Period

 

Total Number of Shares Purchased

 

 

Average Price Paid Per Share

 

 

Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs

 

 

Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs

 

April 1, 2025 – April 30, 2025

 

 

—

 

 

$

—

 

 

 

—

 

 

 

766,447

 

May 1, 2025 – May 31, 2025

 

 

—

 

 

 

—

 

 

 

—

 

 

 

766,447

 

June 1, 2025 – June 30, 2025

 

 

—

 

 

 

—

 

 

 

—

 

 

 

766,447

 

Total

 

 

—

 

 

$

—

 

 

 

—

 

 

 

766,447

 

ITEM 5. Other Information

During the second quarter of 2025, none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.

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ITEM 6. Exhibits

(a) The following is a list of all exhibits filed or incorporated by reference as part of this Report:

 

Exhibit

Number

Description

Location

3.1

 

Amended and Restated Certificate of Incorporation of the Company

 

Incorporated by reference to Exhibits 3.1, 3.2 and 3.3 of the Form 10-K for the year ended December 31, 2008, dated March 12, 2009

3.2

 

Amended and Restated Bylaws of Financial Institutions, Inc.

 

Incorporated by reference to Exhibit 3.1 of the Form 8-K, dated June 25, 2019

10.1

 

Financial Institutions, Inc. Second Amended and Restated 2015 Long-Term Incentive Plan

 

Filed Herewith

31.1

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Executive Officer

Filed Herewith

31.2

Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – Principal Financial Officer

Filed Herewith

32

Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Filed Herewith

101.INS

 

Inline XBRL Instance Document

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema With Embedded Linkbases Document

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

FINANCIAL INSTITUTIONS, INC.

 

 

/s/ Martin K. Birmingham

 

August 4, 2025

Martin K. Birmingham

 

 

President and Chief Executive Officer

 

 

(Principal Executive Officer)

 

 

 

 

/s/ W. Jack Plants II

 

August 4, 2025

W. Jack Plants II

 

 

Executive Vice President and Chief Financial Officer and Treasurer

 

 

(Principal Financial Officer)

 

 

 

 

/s/ Sandra L. Byers

 

August 4, 2025

Sandra L. Byers

 

 

Senior Vice President and Controller

 

 

(Principal Accounting Officer)

 

 

 

73