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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
Financial Institutions, Inc.
(Exact name of registrant as specified in its charter)
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NEW YORK |
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16-0816610 |
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(State or other jurisdiction of
incorporation or organization)
|
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(I.R.S. Employer
Identification No.)
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220 LIBERTY STREET, WARSAW, NEW YORK |
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14569 |
(Address of principal executive offices) |
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(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.
FINANCIAL INSTITUTIONS, INC.
Form 10-Q
For the Quarterly Period Ended June 30, 2025
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.
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.
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.
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. |
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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.
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.
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.
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.
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 |
|
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.
Table of Contents
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 |
|
Table of Contents
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 |
|
Table of Contents
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.
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.
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.
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 |
|
Table of Contents
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
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.
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 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
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 |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
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 |
|
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 |
|
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.
Table of Contents
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.
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):
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 |
|
Table of Contents
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% |
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.
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.
Table of Contents
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.
Table of Contents
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.
Table of Contents
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 |
) |
Table of Contents
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.
Table of Contents
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.
Table of Contents
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 |
) |
Table of Contents
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.
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.
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).
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Quoted
Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
|
|
Total |
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June 30, 2025 |
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|
|
|
|
|
|
|
|
|
|
|
Measured on a recurring basis: |
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|
|
|
|
|
|
|
|
|
|
|
Securities available for sale: |
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|
|
|
|
|
|
|
|
|
|
|
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: |
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|
|
|
|
|
|
|
|
|
|
|
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 |
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$ |
— |
|
|
$ |
58 |
|
|
$ |
— |
|
|
$ |
58 |
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Measured on a nonrecurring basis: |
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|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
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$ |
— |
|
|
$ |
2,356 |
|
|
$ |
— |
|
|
$ |
2,356 |
|
Collateral dependent loans |
|
|
— |
|
|
|
— |
|
|
|
46,586 |
|
|
|
46,586 |
|
Other assets: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in limited partnership |
|
|
— |
|
|
|
— |
|
|
|
3,676 |
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|
3,676 |
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Long-lived assets held for sale |
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|
— |
|
|
|
— |
|
|
|
528 |
|
|
|
528 |
|
Loan servicing rights |
|
|
— |
|
|
|
— |
|
|
|
1,575 |
|
|
|
1,575 |
|
Other real estate owned |
|
|
— |
|
|
|
— |
|
|
|
142 |
|
|
|
142 |
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Total |
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$ |
— |
|
|
$ |
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.
Table of Contents
FINANCIAL INSTITUTIONS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)
(14.) FAIR VALUE MEASUREMENTS (Continued)
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Quoted
Prices
in Active
Markets for
Identical
Assets or
Liabilities
(Level 1) |
|
|
Significant
Other
Observable
Inputs
(Level 2) |
|
|
Significant
Unobservable
Inputs
(Level 3) |
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Total |
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December 31, 2024 |
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|
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Measured on a recurring basis: |
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|
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|
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|
|
Securities available for sale: |
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|
|
|
|
|
|
|
|
|
|
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Mortgage-backed securities |
|
$ |
— |
|
|
$ |
902,384 |
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|
$ |
— |
|
|
$ |
902,384 |
|
Other debt securities |
|
|
— |
|
|
|
8,721 |
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|
|
— |
|
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|
8,721 |
|
Other assets: |
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|
|
|
|
|
|
|
|
|
|
|
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: |
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|
|
|
|
|
|
|
|
|
|
|
Loans: |
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|
|
|
|
|
|
|
|
|
|
|
Loans held for sale |
|
$ |
— |
|
|
$ |
2,280 |
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|
$ |
— |
|
|
$ |
2,280 |
|
Collateral dependent loans |
|
|
— |
|
|
|
— |
|
|
|
56,246 |
|
|
|
56,246 |
|
Other assets: |
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|
|
|
|
|
|
|
|
|
|
Long-lived assets held for sale |
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|
— |
|
|
|
— |
|
|
|
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).
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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 |
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$ |
3,676 |
|
|
Appraisal of collateral (1) |
|
Appraisal adjustments (2) |
|
0% |
Long-lived assets held for sale |
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$ |
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.
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.
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.
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Level in Fair Value Measurement Hierarchy |
|
June 30, 2025 |
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December 31, 2024 |
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Carrying Amount |
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Estimated Fair Value |
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Carrying Amount |
|
|
Estimated Fair Value |
|
Financial assets: |
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|
|
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|
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|
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 |
|
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|
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 |
|
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|
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.
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.
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.
Strategic and Operational Risks
•
We make certain assumptions and estimates in preparing our financial statements that may prove to be incorrect, which could significantly impact our results of operations, cash flows and financial condition, and we are subject to new or changing accounting rules and interpretations, and the failure by us to correctly interpret or apply these evolving rules and interpretations could have a material adverse effect;
•
The value of our goodwill and other intangible assets may decline in the future;
•
We may be unable to successfully implement our growth strategies, including the integration and successful management of newly-acquired businesses;
•
Acquisitions may disrupt our business and dilute shareholder value;
•
Our tax strategies and the value of our deferred tax assets and liabilities could adversely affect our operating results and regulatory capital ratios;
•
Liquidity is essential to our businesses;
•
We rely on dividends from our subsidiaries for most of our revenue; and
•
If our risk management framework does not effectively identify or mitigate our risks, we could suffer losses.
Market Risks
•
We are subject to interest rate risk, and fluctuations in market interest rates may affect our interest margins and income, demand for our products, defaults on loans, loan prepayments and the fair value of our financial instruments;
•
The soundness of other financial institutions could adversely affect us; and
•
We may need to raise additional capital in the future and such capital may not be available on acceptable terms or at all.
Technology and Cybersecurity Risks
•
Emerging technology, including cloud computing and artificial intelligence (“AI”), introduces new risks while possibly being essential to support business strategy;
•
We rely on third parties to provide critical business services and protect the confidentiality, integrity, and availability of confidential data;
•
We, or our service providers, may experience a cyber-attack, system failure, natural disaster, or other uncontrollable event that may disrupt business operations; and
•
We are subject to evolving laws and regulations relating to cybersecurity protection and data privacy, and failure to comply could expose us to regulatory liability, reputational risk and financial risk.
Risks Related to our Common Stock
•
We may not pay or may reduce the dividends on our common stock, and our ability to pay dividends is subject to certain restrictions;
•
We may issue debt and equity securities or securities convertible into equity securities, any of which may be senior to our common stock as to distributions and in liquidation, which could dilute our current shareholders or negatively affect the value of our common stock;
•
Our certificate of incorporation, our bylaws, and certain banking laws may have an anti-takeover effect; and
•
The market price of our common stock may fluctuate significantly in response to a number of factors.
General Risk Factors
•
We may not be able to attract and retain skilled people;
•
Loss of key employees may disrupt relationships with certain customers;
•
We use financial models for business planning purposes that may not adequately predict future results;
•
We depend on the accuracy and completeness of information about or from customers and counterparties;
•
Our business may be adversely affected by conditions in the financial markets and economic conditions generally, including macroeconomic pressures such as inflation, supply chain issues, and geopolitical risks associated with international conflict;
•
Severe weather, natural disasters, public health emergencies and pandemics, acts of war or terrorism, and other external events could significantly impact our business;
•
Negative public opinion could damage our reputation and impact business operations and revenues; and
•
Environmental, social and governance matters, and any related reporting obligations may impact our business.
We caution readers not to place undue reliance on any forward-looking statements, which speak only as of the date made, and advise readers that various factors, including those described above, could affect our financial performance and could cause our actual results or circumstances for future periods to differ materially from those anticipated or projected. See also Item 1A, Risk Factors, in the Annual Report on Form 10-K for the year ended December 31, 2024. Except as required by law, we do not undertake and specifically disclaim any obligation to publicly release any revisions to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
GENERAL
The Parent is a financial holding company headquartered in New York State, providing diversified financial services through its operating subsidiaries, Five Star Bank (the “Bank”) and Courier Capital, LLC (“Courier Capital”). The Company offers a broad array of deposit, lending and other financial services to individuals, municipalities and businesses in Western and Central New York through its wholly owned New York-chartered banking subsidiary, the Bank. The Bank also has commercial loan production offices in Ellicott City (Baltimore), Maryland, and Syracuse, New York, serving the Mid-Atlantic and Central New York regions. Our indirect lending network includes relationships with franchised automobile dealers in Western and Central New York, and the Capital District of New York. Courier Capital provides customized investment advice, wealth management, investment consulting and retirement plan services to individuals, businesses, institutions, foundations and retirement plans.
On April 1, 2024, the Company announced and closed the sale of the assets of its wholly owned subsidiary, SDN Insurance Agency, LLC (“SDN”), which provided a broad range of insurance services to personal and business clients, to NFP Property & Casualty Services, Inc. (“NFP”), a subsidiary of NFP Corp. The sale generated $27 million in proceeds, or a pre-tax gain of $13.7 million, after selling costs, of which $13.5 million was recognized in the second quarter of 2024. The all-cash transaction value represented approximately four times our 2023 insurance revenue. Following the sale of the assets of SDN, we changed the name of the entity to Five Star Advisors LLC and expect to utilize it to serve as a conduit to refer insurance business to NFP.
Our primary sources of revenue are net interest income (interest earned on our loans and securities, net of interest paid on deposits and other funding sources) and noninterest income, particularly investment advisory and financial services provided to customers or ancillary services tied to loans and deposits. Business volumes and pricing drive revenue potential, and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth, and competitive conditions within the marketplace. We are not able to predict market interest rate fluctuations with certainty and our asset/liability management strategy may not prevent interest rate changes from having a material adverse effect on the results of our operations and financial condition.
Our business strategy has been to maintain a community bank philosophy, which consists of focusing on and understanding the individualized banking and other financial needs of individuals, municipalities and businesses of the communities surrounding our primary service area. We believe this focus allows us to be more responsive to our customers’ needs and provide a high level of personal service that differentiates us from larger competitors, resulting in long-standing and broad-based banking relationships. Our core customers are primarily small- to medium-sized businesses, individuals and community organizations who prefer to build banking and wealth management relationships with a community bank that combines high quality, competitively priced products and services with personalized service. Because of our identity and origin as a locally operated bank, we believe that our level of personal service provides a competitive advantage over larger banks, which tend to consolidate decision-making authority outside local communities.
A key aspect of our current business strategy is to foster a community-oriented culture where our customers and employees establish long-standing and mutually beneficial relationships. We believe that we are well-positioned to be a strong competitor within our market area because of our focus on community banking needs and customer service, our comprehensive suite of deposit, loan, and wealth management products typically found at larger banks, our highly experienced management team and our strategically located banking centers.
We prioritize customer acquisition through cost-effective, high-demand digital, virtual and physical channels, while maintaining a community bank distinctiveness relative to larger banks and digital-only neobanks. We leverage the retail branch network and customer contact center to build trust and credibility, provide personal financial education and advice, offer convenience, and bridge digital and physical channels. Our enhanced digital capabilities complement a continued focus on a consistent customer experience and engagement across physical and virtual channels, including using branches to create deeper engagement and relationships with customers, balancing customer engagement with efficiency opportunities (e.g., framing outreach to the customer contact center to teach customers how to use digital channels, in addition to addressing the reason for the call), and maintaining and expanding our customer reach digitally, physically or virtually. By employing digital channels across our current products and services, we deepen existing relationships and enter new geographies or market segments that would otherwise be prohibitively expensive targets using traditional approaches. Deepening our existing digital capabilities allows us to capitalize on a shift in customer preferences away from physical branches. On September 16, 2024, we announced our intent to begin an orderly wind down of our BaaS offerings, following a careful review by the Company’s executive management and Board of Directors undertaken in conjunction with its annual strategic planning process. As expected, the majority of BaaS-related deposits were off the balance sheet by mid-2025. We expect the remaining balance to flow out during the third quarter of 2025.
We have evolved to meet changing customer needs by offering complementary physical, digital and virtual channels. We focus on technology to provide solutions that fit our customers’ preferences for transacting business with us. Branches are staffed by certified personal bankers who are trained to meet a broad array of customer needs. Our digital banking capabilities, interactive teller machine (“ITM”) functionality and Customer Contact Center provide additional self-serve and phone options through which customer needs are met effectively.
We will continue to explore market expansion opportunities that complement current market areas as opportunities arise. Our primary focus will be on increasing the Bank’s market share within existing markets, while taking advantage of potential growth opportunities within our noninterest income lines of business by acquiring businesses that can be incorporated into existing operations. We believe our capital position remains strong enough to support an active merger and acquisition strategy and the expansion of our core financial service businesses. Consequently, we continue to explore acquisition opportunities in these activities. When evaluating acquisition opportunities, we will balance the potential for earnings accretion with maintaining adequate capital levels, which could result in our common stock being the predominant form of consideration and/or the need for us to raise capital.
Conversations with potential strategic partners occur on a regular basis. The evaluation of any potential opportunity will favor a transaction that complements our core competencies and strategic intent, with a lesser emphasis being placed on geographic location or size. Additionally, we remain committed to maintaining a diversified revenue stream. Our senior management team has experience in acquisitions and post-acquisition integration of operations and is prepared to act promptly should a potential opportunity arise but will remain disciplined with its approach. We believe this experience positions us to successfully acquire and integrate additional financial services and banking businesses.
Cannabis Banking
The Marijuana Regulation and Taxation Act was signed into law on March 31, 2021, legalizing the possession and sale of recreational marijuana in New York State for adults aged 21 or older and the state has issued adult-use cannabis cultivation, processing and retail dispensary licenses. We have implemented a program to provide financial products and services to legal cannabis-related businesses and partner with other financial institutions who provide such services.
Offering financial products and services to the cannabis industry presents a unique set of regulatory risks due to the conflict between state and federal laws, as marijuana remains illegal at the federal level. In January 2018, the U.S. Department of Justice (the “DOJ”) rescinded the “Cole Memo” and related memoranda which characterized the enforcement of the Controlled Substances Act against persons and entities complying with state regulatory systems permitting the use, manufacture and sale of medical marijuana as an inefficient use of their prosecutorial resources and discretion. The impact of the DOJ’s rescission of the Cole Memo and related memoranda is unclear, but in the future may result in increased enforcement actions against the regulated cannabis industry generally. Enforcement policies and practices may be highly variable between political administrations. In addition, federal prosecutors have significant discretion and there can be no assurance that the federal prosecutor for any district in which we operate will not choose to strictly enforce the federal laws governing cannabis. In the future, enforcement actions may be taken against cannabis-related businesses or financial services providers that are viewed as aiding and abetting such activities.
The Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state-legal cannabis businesses. These guidelines were issued for the explicit purpose so “that financial institutions can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity.” The Bank has and will continue to follow this and other FinCEN guidance in the areas of cannabis banking.
EXECUTIVE OVERVIEW
Summary of 2025 Second Quarter Results
Net income decreased $8.1 million to $17.5 million for the second quarter of 2025 compared to $25.6 million for the second quarter of 2024. Net income available to common shareholders for the second quarter of 2025 was $17.2 million, or $0.85 per diluted share, compared with $25.3 million, or $1.62 per diluted share, for the second quarter of 2024. Return on average common equity was 11.88% and return on average assets was 1.13% for the second quarter of 2025 compared to 23.51% and 1.68%, respectively, for the second quarter of 2024. Second quarter 2024 results benefited from a pre-tax gain of $13.5 million, after selling costs, associated with the sale of the assets of SDN on April 1, 2024.
Net interest income totaled $49.1 million in the second quarter of 2025, an increase of $7.9 million compared to $41.2 million in the second quarter of 2024. Average interest-earning assets for the second quarter of 2025 were $114.5 million lower than the second quarter of 2024 due to a $123.2 million decrease in average investment securities, and a $95.1 million decrease in the average balance of Federal Reserve interest-earning cash, partially offset by a $103.8 million increase in average loans. Average interest-bearing liabilities for the second quarter of 2025 were $29.8 million lower than the second quarter of 2024 due to an $83.4 million decrease in average savings and money market account deposits, a $62.2 million decrease in average borrowings, and a $10.0 million decrease in average interest-bearing demand deposits, partially offset by a $125.7 million increase in average time deposits.
Net interest margin was 3.49% for the second quarter of 2025 compared to 2.87% in the second quarter of 2024, primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, which supported an increase in the average yield on interest-earnings assets, while funding costs were reduced, in part reflecting deposit repricing.
The provision for credit losses was $2.6 million in the second quarter of 2025 compared to $2.0 million in the second quarter of 2024. The provision for credit losses for the second quarter of 2025 was driven by a combination of factors, including higher net charge-offs, partially offset by improvement in the forecasted loss rate for pooled loans, and a reduction in specific reserves. Net charge-offs during the recent quarter were $4.1 million, representing 0.36% of average loans on an annualized basis, compared to $1.1 million, or an annualized 0.10% of average loans, in the second quarter of 2024. See the “Allowance for Credit Losses–Loans” and “Non-Performing Assets and Potential Problem Loans” sections of this Management’s Discussion and Analysis for further discussion regarding the provision for credit losses and net charge-offs.
Noninterest income totaled $10.6 million in the second quarter of 2025, compared to $24.0 million in the second quarter of 2024. Second quarter 2024 results benefited from a pre-tax gain of $13.5 million, after selling costs, associated with the sale of the assets of SDN on April 1, 2024. Other decreases in the second quarter of 2025 included $918 thousand in net loss on tax credit investments, and $496 thousand lower income from investments in limited partnerships. These decreases were offset by a $1.6 million increase in income from company owned life insurance as a result of a surrender and redeploy strategy executed in January 2025.
Noninterest expense totaled $35.7 million in the second quarter of 2025, compared to $33.0 million in the second quarter of 2024. The increase in noninterest expense for the second quarter of 2025 was primarily attributable to a $2.3 million increase in salaries and employee benefits, reflecting an increase in health insurance benefits due to higher medical claims, and the impact of annual merit increases.
The regulatory Tier 1 Capital Ratio was 11.17% and 10.87%, respectively, and Total Risk-Based Capital Ratio was 13.27% and 13.25%, respectively, at June 30, 2025 and December 31, 2024. See the “Liquidity and Capital Management” section of this Management’s Discussion and Analysis for further discussion regarding regulatory capital and the Basel III capital rules.
RESULTS OF OPERATIONS
Net Interest Income and Net Interest Margin
Net interest income is our primary source of revenue, comprising approximately 82% and 63% of revenue during the three months ended June 30, 2025 and 2024, respectively, and 82% and 70% for the six months ended June 30, 2025 and 2024, respectively. Net interest income is the difference between interest income on interest-earning assets, such as loans and investment securities, and interest expense on interest-bearing deposits and other borrowings used to fund interest-earning and other assets or activities. Net interest income is affected by changes in interest rates and by the amount and composition of interest-earning assets and interest-bearing liabilities, as well as the sensitivity of the balance sheet to changes in interest rates, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities and repricing frequencies.
We use interest rate spread and net interest margin to measure and explain changes in net interest income. Interest rate spread is the difference between the average yield on interest-earning assets and the average rate paid for interest-bearing liabilities that fund those assets. The net interest margin is expressed as the percentage of net interest income to average interest earning assets. The net interest margin exceeds the interest rate spread because noninterest-bearing sources of funds (“net free funds”), principally noninterest-bearing demand deposits and shareholders’ equity, also support earning assets. To compare tax-exempt asset yields to taxable yields, the yield on tax-exempt investment securities is computed on a taxable equivalent basis. Net interest income, interest rate spread, and net interest margin are discussed on a taxable equivalent basis.
The following table reconciles interest income per the consolidated statements of operations to interest income adjusted to a fully taxable equivalent basis (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
June 30, |
|
|
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.
Average interest-earning assets were $5.65 billion for the second quarter of 2025 compared to $5.77 billion for the second quarter of 2024, a decrease of $114.5 million, or 2%, from the comparable quarter last year, with a decrease in average investment securities of $123.2 million from $1.19 billion for the second quarter of 2024 to $1.07 billion for the second quarter of 2025, and a $95.1 million decrease in average Federal Reserve interest-earning cash, partially offset by an increase in average loans of $103.8 million from $4.44 billion for the second quarter of 2024 to $4.54 billion for the second quarter of 2025. Average loans comprised 80% of average interest-earning assets during the second quarter of 2025 compared to 77% during the second quarter of 2024. The increase in average loans was primarily due to organic growth in commercial mortgages in the first quarter of 2025. Average investment securities represented 19% of average interest-earning assets during the second quarter of 2025 compared to 21% during the second quarter of 2024. Overall, the increase in interest income of $4.1 million was reflective of the higher average interest rates on average investment securities, partially offset by the decrease in average loan yields.
For the second quarter of 2025, the average cost of average interest-bearing liabilities of 3.00% was 32-basis points lower than the second quarter of 2024. The average cost of interest-bearing deposits of 2.96% was 33-basis points lower than the second quarter of 2024. The average cost of total borrowings decreased 3-basis points to 3.80% in the second quarter of 2025, compared to 3.83% in the second quarter of 2024. The reduction in the cost of interest-bearing liabilities was primarily driven by the repricing of deposits and borrowings at lower rates given the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.
Average interest-bearing liabilities were $4.52 billion for the second quarter of 2025, compared to $4.55 billion for the second quarter of 2024, a decrease of $29.8 million, or 1%, driven by a $62.2 million decrease in the average balance of borrowings, partially offset by a $32.4 million increase in average interest-bearing deposits. On average, interest-bearing deposits increased from $4.28 billion for the second quarter of 2024 to $4.32 billion for the current quarter while noninterest-bearing demand deposits (a principal component of net free funds) decreased $27.4 million to $923.4 million for the second quarter of 2025. The increase in average interest-bearing deposits was due to higher average brokered and public deposits, partially offset by lower average reciprocal and nonpublic deposits. For further discussion of deposits, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing liability rate changes resulted in a $4.2 million decrease in interest expense, while volume changes resulted in a $360 thousand increase in interest expense during the second quarter of 2025 as compared to the prior year quarter.
Analysis of Net Interest Income for the Six Months Ended June 30, 2025 and 2024
Net interest income on a taxable equivalent basis for the six months ended June 30, 2025, was $96.1 million, an increase of $14.7 million versus the comparable period in 2024 of $81.4 million. Our net interest margin for the six months ended June 30, 2025 was 3.42%, 59-basis points higher than 2.83% for the same period in 2024. The increase in net interest income and net interest margin was primarily due to an increase in the average yield on investment securities, following the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024, partially offset by a decrease in market interest rates due to the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.
For the six months ended June 30, 2025, the average yield on average interest earning assets of 5.84% was 37-basis points higher than the six months ended June 30, 2024 of 5.47%. The average yield on investment securities increased 217-basis points to 4.30% for the six months ended June 30, 2025 compared to 2.13% for the six months ended June 30, 2024, while the average yield on loans decreased 14-basis points during the six months ended June 30, 2025, to 6.23% from 6.37% for the comparable period last year.
Average interest-earning assets were $5.65 billion for the six months ended June 30, 2025 compared to $5.79 billion for the six months ended June 30, 2024, a decrease of $134.1 million, or 2.3%, with a decrease in investment securities of $110.3 million from $1.19 billion for the six months ended June 30, 2024 to $1.08 billion for the six months ended June 30, 2025, and a $90.8 million decrease in average Federal Reserve interest-earning cash, while average loans were up $67.0 million from $4.45 billion for the six months ended June 30, 2024 to $4.45 billion for the six months ended June 30, 2025. Average investment securities represented 19.1% of average interest-earning assets during the six months ended June 30, 2025 compared to 20.6% during the six months ended June 30, 2024, and average loans comprised 79.9% of average interest-earning assets during the six months ended June 30, 2025 compared to 76.9% during the six months ended June 30, 2024. The increase in average loans was primarily due to organic growth in commercial mortgages during the first six months of 2025. Overall, the increase in interest income of $6.7 million was reflective of the higher average interest rates on average investment securities, partially offset by the decrease in average loan yields.
For the six months ended June 30, 2025, the average cost of average interest-bearing liabilities of 3.03% was 30-basis points lower than the average cost of 3.33% for the six months ended June 30, 2024, with the average cost of average interest-bearing deposits of 3.00% decreasing 29-basis points from 3.29% for the six months ended June 30, 2024, due to the repricing of deposits and borrowings at lower rates given the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.
Average interest-bearing liabilities of $4.51 billion in the six months ended June 30, 2025 were $68.9 million, or 1.5%, lower than the six months ended June 30, 2024. The decrease was driven by a decrease in average total borrowings of $73.2 million, partially offset by a $4.4 million increase in average interest-bearing deposits. Average short-term borrowings decreased to $90.6 million, down $69.3 million from the six months ended June 30, 2024, and average long-term borrowings decreased to $120.6 million, down $4.0 million, reflective of the previously disclosed $10 million call in April 2025 of the fixed-to-floating subordinated debt that was originally issued in April 2015. On average, interest-bearing deposits increased $4.4 million for the current period, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $31.6 million to $925.0 million for the six months ended June 30, 2025. The slight increase in average deposits reflected growth in non-public and public deposits, partially offset by decreases in reciprocal and brokered deposits.
For further discussion of the reciprocal deposit programs, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall, interest-bearing liability rate changes resulted in an $8.0 million decrease in interest expense during the six months ended June 30, 2025.
The following tables set forth certain information relating to the consolidated balance sheets and reflects the average yields earned on interest-earning assets, as well as the average rates paid on interest-bearing liabilities for the periods indicated (dollars in thousands). Average balances were derived from daily balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
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 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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):
|
|
|
|
|
|
|
|
|
|
|
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 |
|
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.
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.
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.
The unrealized losses are largely due to increases in market interest rates over the yields available at the time the underlying securities were purchased. The fair value is expected to recover as the bonds approach their maturity date, repricing date or if market yields for such investments decline. We do not believe any of the securities in a loss position are impaired due to reasons of credit quality. Accordingly, as of June 30, 2025, we concluded that unrealized losses on our AFS securities were not impaired due to reasons of credit quality and no allowance for credit losses has been recognized on AFS securities. As the portfolio is managed from a liquidity, earnings, and risk standpoint, sales from the AFS portfolio may be warranted based upon prevailing market factors.
Agency Mortgage-backed Securities
With the exception of the non-Agency mortgage-backed securities (“non-Agency MBS”) discussed below, all of the mortgage-backed securities held by us as of June 30, 2025, were issued by U.S. Government sponsored entities and agencies (“Agency MBS”), primarily FNMA and FHLMC. The contractual cash flows of our Agency MBS are guaranteed by FNMA, FHLMC or GNMA. The GNMA mortgage-backed securities are backed by the full faith and credit of the U.S. Government.
Our AFS portfolio as of June 30, 2025, reflected our strategic investment securities restructuring which occurred in December 2024 following the completion of the public common stock offering. As of June 30, 2025, there were 50 securities in the AFS Agency MBS portfolio with an aggregate fair value of $405.3 million that were in an unrealized loss position with unrealized losses totaling $50.7 million. Of these, 35 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $169.0 million and unrealized losses of $47.3 million, while 15 were in an unrealized loss position for less than 12 months and had an aggregate fair value of $236.4 million and unrealized losses of $3.4 million. The unrealized loss of these securities was driven by the timing of the purchases of fixed-rate securities during the extended low-interest rate environments experienced in prior years, which has been compounded with subsequent increases in benchmark interest rates. However, these fixed-rate securities were purchased with the expectation that they will continue to prepay principal, and the proceeds will be invested at current market rates.
Given the high credit quality inherent in Agency MBS, we do not consider any of the unrealized losses as of June 30, 2025 on such Agency MBS to be credit related.
Other Investments
As a member of the FHLB, the Bank is required to hold FHLB stock. The amount of required FHLB stock is based on the Bank’s asset size and the amount of borrowings from the FHLB. We have assessed the ultimate recoverability of our FHLB stock and believe that no impairment currently exists. As a member of the FRB system, we are required to maintain a specified investment in FRB stock based on a ratio relative to our capital. At June 30, 2025, our ownership of FHLB and FRB stock totaled $11.6 million and $9.2 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.
Security Yields and Maturities Schedule
The following table sets forth certain information regarding the amortized cost (“Cost”), weighted average yields (“Yield”) and contractual maturities of our debt securities portfolio as of June 30, 2025. In this table, Yield is defined as the book yield weighted against the ending book value. Mortgage-backed securities are included in maturity categories based on their stated maturity date. Actual maturities may differ from the contractual maturities presented because borrowers may have the right to call or prepay certain investments. No tax-equivalent adjustments were made to the weighted average yields (dollars in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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 |
% |
|
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.
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.
Contractual Loan Maturity Schedule
The following table summarizes the contractual maturities of our loan portfolio at June 30, 2025. Loans, net of deferred loan origination costs, include principal amortization and non-accruing loans. Demand loans having no stated schedule of repayment or maturity and overdrafts as reported as due in one year or less (in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due in less
than one
year |
|
|
Due from
one to
five years |
|
|
Due from
five to
fifteen years |
|
|
Due after
fifteen years |
|
|
Total |
|
Commercial business |
|
$ |
348,420 |
|
|
$ |
315,043 |
|
|
$ |
62,755 |
|
|
$ |
— |
|
|
$ |
726,218 |
|
Commercial mortgage–construction |
|
|
387,977 |
|
|
|
145,915 |
|
|
|
1,738 |
|
|
|
922 |
|
|
|
536,552 |
|
Commercial mortgage–multifamily |
|
|
98,211 |
|
|
|
138,108 |
|
|
|
240,988 |
|
|
|
18,916 |
|
|
|
496,223 |
|
Commercial mortgage–non-owner occupied |
|
|
88,814 |
|
|
|
364,545 |
|
|
|
403,155 |
|
|
|
16,693 |
|
|
|
873,207 |
|
Commercial mortgage–owner occupied |
|
|
11,947 |
|
|
|
86,522 |
|
|
|
195,957 |
|
|
|
14,745 |
|
|
|
309,171 |
|
Residential real estate loans |
|
|
15,158 |
|
|
|
13,040 |
|
|
|
145,754 |
|
|
|
473,253 |
|
|
|
647,205 |
|
Residential real estate lines |
|
|
2 |
|
|
|
227 |
|
|
|
7,484 |
|
|
|
67,962 |
|
|
|
75,675 |
|
Consumer indirect (1) |
|
|
10,827 |
|
|
|
488,718 |
|
|
|
333,907 |
|
|
|
— |
|
|
|
833,452 |
|
Other consumer |
|
|
3,210 |
|
|
|
8,101 |
|
|
|
12,686 |
|
|
|
14,302 |
|
|
|
38,299 |
|
Total loans |
|
$ |
964,566 |
|
|
$ |
1,560,219 |
|
|
$ |
1,404,424 |
|
|
$ |
606,793 |
|
|
$ |
4,536,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans maturing after one year: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With a predetermined interest rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
$ |
104,565 |
|
|
$ |
36,424 |
|
|
$ |
— |
|
|
$ |
140,989 |
|
Commercial mortgage–construction |
|
|
|
|
|
7,067 |
|
|
|
1,738 |
|
|
|
922 |
|
|
|
9,727 |
|
Commercial mortgage–multifamily |
|
|
|
|
|
63,423 |
|
|
|
51,929 |
|
|
|
238 |
|
|
|
115,590 |
|
Commercial mortgage–non-owner occupied |
|
|
|
|
|
178,536 |
|
|
|
217,714 |
|
|
|
3,339 |
|
|
|
399,589 |
|
Commercial mortgage–owner occupied |
|
|
|
|
|
55,623 |
|
|
|
58,879 |
|
|
|
— |
|
|
|
114,502 |
|
Residential real estate loans |
|
|
|
|
|
12,438 |
|
|
|
142,167 |
|
|
|
306,321 |
|
|
|
460,926 |
|
Residential real estate lines |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Consumer indirect (1) |
|
|
|
|
|
488,718 |
|
|
|
333,907 |
|
|
|
— |
|
|
|
822,625 |
|
Other consumer |
|
|
|
|
|
8,101 |
|
|
|
12,686 |
|
|
|
14,196 |
|
|
|
34,983 |
|
With a floating or adjustable rate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
|
|
|
210,478 |
|
|
|
26,331 |
|
|
|
— |
|
|
|
236,809 |
|
Commercial mortgage–construction |
|
|
|
|
|
138,848 |
|
|
|
— |
|
|
|
— |
|
|
|
138,848 |
|
Commercial mortgage–multifamily |
|
|
|
|
|
74,685 |
|
|
|
189,059 |
|
|
|
18,678 |
|
|
|
282,422 |
|
Commercial mortgage–non-owner occupied |
|
|
|
|
|
186,009 |
|
|
|
185,441 |
|
|
|
13,354 |
|
|
|
384,804 |
|
Commercial mortgage–owner occupied |
|
|
|
|
|
30,899 |
|
|
|
137,078 |
|
|
|
14,745 |
|
|
|
182,722 |
|
Residential real estate loans |
|
|
|
|
|
602 |
|
|
|
3,587 |
|
|
|
166,932 |
|
|
|
171,121 |
|
Residential real estate lines |
|
|
|
|
|
227 |
|
|
|
7,484 |
|
|
|
67,962 |
|
|
|
75,673 |
|
Consumer indirect (1) |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other consumer |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
106 |
|
|
|
106 |
|
Total loans maturing after one year |
|
|
|
|
$ |
1,560,219 |
|
|
$ |
1,404,424 |
|
|
$ |
606,793 |
|
|
$ |
3,571,436 |
|
_____________
(1) Amounts include prepayment assumptions based on actual historical experience.
FUNDING ACTIVITIES
Deposits
The following table summarizes the composition of our deposits at the dates indicated (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposit Composition |
|
|
|
June 30, 2025 |
|
|
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.
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.
The objective of maintaining adequate liquidity is to assure that we meet our financial obligations. These obligations include the withdrawal of deposits on demand or at their contractual maturity, the repayment of matured borrowings, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. We achieve liquidity by maintaining a strong base of both core customer funds and maturing short-term assets; we also rely on our ability to sell or pledge securities and lines-of-credit, and our overall ability to access the financial and capital markets.
Liquidity for the Bank is managed through the monitoring of anticipated changes in loans, the investment portfolio, core deposits and wholesale funds. The strength of the Bank’s liquidity position is a result of its base of core customer deposits. These core deposits are supplemented by wholesale funding sources that include credit lines with other banking institutions, the FHLB, the FRB, and brokered deposit relationships.
The primary source of our non-deposit short-term borrowings is FHLB advances, of which $101.0 million were outstanding at June 30, 2025. In addition to this amount, we have additional collateralized wholesale borrowing capacity of approximately $1.25 billion as of June 30, 2025 from various funding sources which include the FHLB, the FRB and commercial banks that we can use to fund lending activities, liquidity needs, and/or to adjust and manage our asset and liability position.
The Parent’s funding requirements consist primarily of dividends to shareholders, debt service, income taxes, operating expenses, funding of non-bank subsidiaries, repurchases of our stock, and acquisitions. The Parent obtains funding to meet obligations from dividends received from the Bank, net taxes collected from subsidiaries included in the federal consolidated tax return, and the issuance of debt and equity securities. In addition, the Parent maintains a revolving line of credit with a commercial bank for an aggregate amount of up to $20.0 million, all of which was available at June 30, 2025. The line of credit has a one-year term and matures in May 2026. Funds drawn would be used for general corporate purposes and backup liquidity.
Cash and cash equivalents were $93.0 million as of June 30, 2025, up $5.7 million from $87.3 million as of December 31, 2024. During the six months ended June 30, 2025, net cash provided by operating activities totaled $4.3 million and the principal source of operating activity cash flow was net income adjusted for noncash income and expense items. Net cash used in investing activities totaled $28.4 million, which included outflows of $72.9 million for the purchase of company owned life insurance as result of the restructuring in the first quarter of 2025, $63.2 million from the net increase in loans, and $2.4 million of purchases of premises and equipment, partially offset by inflows of $74.0 million of proceeds from the surrender of company owned life insurance, which was surrendered and redeployed in January 2025, and net proceeds from investment securities of $36.2 million, which included proceeds of $65.0 million on a modest mortgage-backed securities restructuring in early June 2025. Net cash provided by financing activities of $29.8 million was primarily attributed to a $51.3 million net increase in deposits, and a $2.0 million net increase in short-term borrowings, partially offset by a $10.0 million repayment of long-term borrowings, and $13.0 million in dividend payments.
Capital Management
We actively manage capital, commensurate with our risk profile, to enhance shareholder value. We also seek to maintain capital levels for the Company and the Bank at amounts in excess of the regulatory “well-capitalized” thresholds. Periodically, we may respond to market conditions by implementing changes to our overall balance sheet positioning to manage our capital position.
Banks and financial holding companies are subject to various regulatory capital requirements administered by state and federal banking agencies. Failure to meet minimum capital requirements can result in certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material impact on our consolidated financial statements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators about components, risk weighting and other factors.
On December 13, 2024, we completed an underwritten public offering of 4,600,000 shares of common stock, including 600,000 shares as result of the underwriters exercising their overallotment option, at $25.00 per share. We received net proceeds of $108.6 million after deducting underwriting discounts and commissions and offering expenses from the sale of our common stock. As intended, a portion of the net proceeds was used to fund losses associated with a strategic investment securities restructuring, which was completed in late December 2024. The proceeds may also be used for general corporate purposes which may include the repayment of indebtedness.
Shareholders’ equity was $601.7 million at June 30, 2025, an increase of $32.7 million from $569.0 million at December 31, 2024, primarily due to net income, net of dividends, retained in the six months ended June 30, 2025, and a decrease in accumulated other comprehensive loss of $10.4 million during the six months ended June 30, 2025 due primarily to a decrease in net unrealized losses on available for sale securities.
The FRB and FDIC have adopted a system using risk-based capital guidelines to evaluate the capital adequacy of banks and bank holding companies on a consolidated basis. As of June 30, 2025, the Company’s capital levels remained characterized as “well-capitalized” under the Basel Committee on Banking Supervision’s (“BCBS”) capital guidelines for U.S. banks. See the “Basel III Capital Rules” section below for further discussion.
The following table reflects the ratios and their components (dollars in thousands):
|
|
|
|
|
|
|
|
|
|
|
June 30, |
|
|
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.
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.
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).
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):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
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:
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|
|
|
|
|
|
|
|
|
|
|
|
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.
ITEM 6. Exhibits
(a) The following is a list of all exhibits filed or incorporated by reference as part of this Report:
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) |
|
|
EX-10.1
2
fisi-ex10_1.htm
EX-10.1
EX-10.1
FINANCIAL INSTITUTIONS, INC.
SECOND AMENDED AND RESTATED
2015 LONG-TERM INCENTIVE PLAN
Financial Institutions, Inc. (the “Company”) hereby amends and restates the Financial Institutions, Inc. 2015 Long-Term Incentive Plan (the “Original Plan”), as amended and restated by the Financial Institutions, Inc. Amended and Restated 2015 Long-Term Incentive Plan (the “A&R Plan”) with this Financial Institutions, Inc. Second Amended and Restated 2015 Long-Term Incentive Plan (the “Plan”) for the benefit of eligible Employees and Directors.
ARTICLE I
PURPOSE AND EFFECTIVE DATE
1.1 Purpose. The purpose of the Plan is to advance the interests of the Company, its Subsidiaries, and its stockholders and to promote the growth and profitability of the Company and its Subsidiaries by (a) providing incentives to certain Employees and Directors of the Company and its Subsidiaries to stimulate their efforts toward the continued success of the Company and to operate and manage the business affairs of the Company in a manner that will provide for the long-term growth and profitability of the Company; (b) providing certain Employees and Directors with a means to acquire a proprietary interest in the Company, acquire shares of Common Stock, or to receive compensation which is based upon appreciation in the value of Common Stock; and (c) providing a means of obtaining, rewarding, and retaining Employees and Directors.
1.2 Effective & Expiration Date. The Original Plan became effective as of May 6, 2015 (the “Original Effective Date”), upon the approval of the Plan by the Company’s stockholders on that date. The Plan was amended and restated effective as of June 16, 2021, upon the approval of the A&R Plan by the Company’s stockholders on that date. This second amendment and restatement of the Plan shall become effective as of May 28, 2025 (the “Effective Date”), upon the approval of the Plan by the Company’s stockholders on that date. No Award will be granted under the Plan more than ten (10) years after the Effective Date, but all Awards granted on or prior to such date will continue in effect thereafter subject to the terms thereof and of the Plan.
1.3 Successor Plan. The Original Plan was established as a successor to the 2009 Management Incentive Plan and 2009 Directors’ Stock Incentive Plan (the “Prior Plans”). No additional awards shall be made under the Prior Plans after the Original Effective Date. As provided by Section 4.2, shares of Common Stock authorized under the Prior Plans as of the Original Effective Date became available for issuance or transfer under the Original Plan. Outstanding awards under the Prior Plans continued in effect according to their terms as in effect before the Original Effective Date (subject to such amendments as the Committee determines, consistent with the Prior Plans, as applicable).
ARTICLE II
DEFINITIONS
2.1 A&R Plan. A&R Plan shall have the meaning assigned to such term in the Preamble hereof.
2.2 Award. Award shall mean, collectively, the Options, Restricted Stock Awards, Restricted Stock Unit Awards, Stock Appreciation Rights, Director Awards, and other equity awards that may be granted under the Plan.
2.3 Award Agreement. Award Agreement shall mean a written or electronic agreement entered into between the Company and a Participant setting forth the terms and conditions of an Award made to such Participant under the Plan, such Award Agreement to be in such form as shall be prescribed by the Committee from time to time.
2.4 Board. Board shall mean the board of directors of the Company.
2.5 Cause. Cause as a reason for the termination of a Participant’s employment shall have the meaning assigned such term in the executive, employment, severance or similar agreement, if any, between the Participant and the Company or a Subsidiary. If the Participant is not a party to an executive, employment, severance, or similar agreement with the Company or a Subsidiary in which such term is defined, then unless otherwise defined in the applicable Award Agreement, Cause shall mean the commission by the Participant of, or the determination by the Board, based on reasonable evidence of misconduct as presented by a law enforcement agency, or as a result of an internal or external audit or investigation, that the Participant has committed: (a) a criminal offense involving the violation of state or federal law; (b) a breach of fiduciary duty; (c) an act of dishonesty, fraud, or material misrepresentation; or (d) any act of moral turpitude which the Board determines has or may be reasonably expected to have a detrimental impact on the Company’s business or operations, or which may prevent, because of its demonstrated or demonstrable effect on employees, regulatory agencies, or customers, the Participant from effectively performing his duties. Any reference to the Company in this definition includes each of its Subsidiaries.
2.6 Change in Control. Change in Control shall have the meaning specified in Section 7.2.
2.7 Code. Code shall mean the Internal Revenue Code of 1986, as amended from time to time, and the regulations and other guidance issued thereunder, as such law, regulations, and guidance may be amended from time to time.
2.8 Committee. Committee shall mean the Management Development & Compensation Committee of the Board, each member of which is a “non-employee director” within the meaning of Rule 16b-3 under the Exchange Act and meets the independence requirements of the Nasdaq Stock Market listing standards.
2.9 Common Stock. Common Stock shall mean the common stock of the Company, $0.01 par value per share.
2.10 Company. Company shall mean Financial Institutions, Inc., a New York corporation, and its successors and assigns.
2.11 Director. Director shall mean any non-employee member of the board of directors of the Company or a Subsidiary.
2.12 Director Awards. Director Awards shall mean the director awards that may be made to an eligible Director pursuant to Section 6.6.
2.13 Disability. Except as otherwise provided by this Section 2.13, Disability shall have the meaning assigned such term in the executive, employment, severance, or similar agreement, if any, between the Participant and the Company or a Subsidiary, and if the Participant is not a party to an executive, employment, severance, or similar agreement with the Company or a Subsidiary in which such term is defined, then unless otherwise defined in the applicable Award Agreement and except as otherwise provided by this Section 2.13, Disability shall have the meaning assigned such term in the long-term disability plan or policy maintained, or if applicable, most recently maintained, by the Company or any Subsidiary for the Participant. If no long-term disability plan or policy was ever maintained on behalf of the Participant, or if the determination of Disability relates to an Incentive Stock Option, Disability shall mean the condition described in Code Section 22(e)(3).
2.14 Effective Date. Effective Date shall have the meaning specified in Section 1.2.
2.15 Employee. Employee shall mean an employee of the Company or a Subsidiary.
2.16 Exchange Act. Exchange Act shall mean the Securities Exchange Act of 1934, as amended from time to time, and the rules and regulations thereunder, as such law, rules and regulations may be amended from time to time.
2.17 Exercise Price. Exercise Price shall mean the price at which a share of Common Stock may be purchased by a Participant pursuant to the exercise of an Option.
2.18 Fair Market Value. Fair Market Value of Common Stock shall mean the closing price of the Common Stock as reported on the Nasdaq Stock Market on the relevant valuation date or, if there were no Common Stock transactions on such day, on the next preceding date on which there were Common Stock transactions.
2.19 Good Reason. Good Reason as a reason for a Participant’s termination of employment shall have the meaning assigned such term in the executive, employment, severance, or similar agreement, if any, between the Participant and the Company or a Subsidiary. If the Participant is not a party to an executive, employment, severance, or similar agreement with the Company or a Subsidiary in which such term is defined, then unless otherwise defined in the applicable Award Agreement, “Good Reason” shall mean (a) a material diminution in the Participant’s base salary from the level immediately prior to the Change in Control; or (b) a material change in the geographic location at which the Participant must primarily perform the Participant’s services (which shall in no event include a relocation of the Participant’s current principal place of business to a location less than fifty (50) miles away) from the geographic location immediately prior to the Change in Control; provided, however, no termination shall be deemed to be for Good Reason unless (i) the Participant provides the Company with written notice setting forth the specific facts or circumstances constituting Good Reason within ninety (90) days after the initial existence of the occurrence of such facts or circumstances, (ii) to the extent curable, the Company has failed to cure such facts or circumstances within thirty (30) days of its receipt of such written notice, and (iii) the effective date of the termination for Good Reason occurs no later than one hundred eighty (180) days after the initial existence of the facts or circumstances constituting Good Reason.
2.20 Incentive Stock Option. Incentive Stock Option shall mean an Option to purchase Common Stock which is granted under the Plan with the intention that it qualify as an “incentive stock option” as that term is defined under Code Section 422.
2.21 Incumbent Board. Incumbent Board shall have the meaning specified in Section 7.2(d).
2.22 Indemnified Person. Indemnified Person shall have the meaning specified in Section 5.4(a).
2.23 Involuntary Termination. Involuntary Termination shall mean termination of a Participant’s employment or service by the Company or a Subsidiary without Cause or by the Participant for Good Reason. For avoidance of doubt, an Involuntary Termination shall not include a termination of the Participant’s employment or service by the Company or a Subsidiary for Cause or due to the Participant’s death, Disability, or voluntary resignation other than for Good Reason.
2.24 Non-Qualified Stock Option. Non-Qualified Stock Option shall mean an Option to purchase Common Stock which is granted under the Plan and that is not an Incentive Stock Option.
2.25 Option. Option shall mean a Non-Qualified Stock Option or an Incentive Stock Option granted pursuant to Section 6.2.
2.26 Original Effective Date. Original Effective Date shall have the meaning specified in Section 1.2.
2.27 Original Plan. Original Plan shall have the meaning assigned to such term in the Preamble hereof.
2.28 Over 10% Owner. Over 10% Owner shall mean an individual who, at the time an Incentive Stock Option is granted to such individual, owns Common Stock possessing more than ten percent (10%) of the total combined voting power of the Company or one of its Subsidiaries, determined by applying the attribution rules of Code Section 424(d).
2.29 Participant. Participant shall mean an Employee or Director who has been granted an Award.
2.30 Performance Stock Award. Performance Stock Award shall mean an Award as described in Section 6.4(c).
2.31 Performance Stock Unit Award. Performance Stock Unit Award shall mean an Award as described in Section 6.5(b).
2.32 Plan. Plan shall have the meaning assigned to such term in the Preamble hereof.
2.33 Plan Year. Plan Year shall mean the calendar year.
2.34 Prior Plans. Prior Plans shall have the meaning specified in Section 1.3.
2.35 Replaced Award. Replaced Award shall have the meaning specified in Section 7.1(a).
2.36 Replacement Award. Replacement Award shall have the meaning specified in Section 7.1(a).
2.37 Reporting Person. Reporting Person shall mean an officer or director of the Company or a Subsidiary subject to the reporting requirements of Section 16 of the Exchange Act.
2.38 Restricted Period. Restricted Period shall mean the period of time during which Restricted Stock Awards granted pursuant to Section 6.4 or Restricted Stock Unit Awards granted pursuant to Section 6.5 are subject to restrictions.
2.39 Restricted Stock Award. Restricted Stock Award shall mean an Award of Common Stock subject to restrictions determined by the Committee as described in Section 6.4.
2.40 Restricted Stock Unit Award. Restricted Stock Unit Award shall mean an Award as described in Section 6.5.
2.41 Stock Appreciation Right. Stock Appreciation Right shall mean an Award of a stock appreciation right as described in Section 6.3.
2.42 Strike Price. Strike Price shall mean the measuring price per share of Common Stock for a Stock Appreciation Right used to determine the payment of such Stock Appreciation Right.
2.43 Subsidiary. Subsidiary shall mean any corporation or other entity, whether domestic or foreign, in which the Company has or obtains, directly or indirectly, a proprietary interest of more than fifty percent (50%) by reason of stock ownership or otherwise.
2.44 Termination of Employment. Termination of Employment shall mean the termination of the employment or other service relationship between a Participant and the Company and its Subsidiaries, regardless of whether severance or similar payments are made to the Participant, for any reason, including, but not by way of limitation, a termination by resignation, discharge, death, Disability, or retirement, as determined by the Committee pursuant to Section 6.1(i)(3). For the avoidance of doubt, unless the Committee determines otherwise, the following would not constitute a Termination of Employment: (i) a Participant’s cessation of employee status at a time when the Participant continues the performance of services for the Company or a Subsidiary as a Director or consultant, or vice versa, (ii) a Participant’s transfer between the Company and any Subsidiary; and (iii) any leave of absence approved by the Company. If the Subsidiary to which a Participant is rendering services ceases to qualify as a Subsidiary, as determined by the Board, such Participant’s service will be considered to have terminated on the date such Subsidiary ceases to qualify as a Subsidiary.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
3.1 Eligibility. Subject to the limitation on eligibility for Awards of Incentive Stock Options set forth in Section 6.2(g), any Employee or Director of the Company or a Subsidiary, who is selected by the Committee is eligible to receive an Award under the Plan.
3.2 Participation. Unless otherwise determined by the Committee, as a condition precedent to participation in the Plan, each Employee or Director selected to receive an Award shall enter into an Award Agreement with the Company, agreeing to the terms and conditions of the Plan and the Award granted.
ARTICLE IV
STOCK SUBJECT TO PLAN
4.1 Types of Shares. The shares of Common Stock subject to the provisions of the Plan shall either be shares of authorized but unissued Common Stock, shares of Common Stock held as treasury stock or previously issued shares of Common Stock reacquired by the Company, including shares purchased on the open market.
4.2 Aggregate Limit. Subject to adjustment in accordance with Section 9.1, the maximum number of shares of Common Stock reserved exclusively for issuance upon an award of or exercise or payment pursuant to Awards under the Plan (including, but not limited to, Awards made under the Original Plan and the A&R Plan) shall be the sum of the following: (a) 1,134,000 shares of Common Stock; (b) the number of shares remaining available for issuance under the Prior Plans on the Original Effective Date; and (c) any shares of Common Stock that are subject to outstanding awards under the Prior Plans on the Original Effective Date that are subsequently canceled, expired, forfeited, or otherwise not issued or are settled in cash. All or any of this maximum number of shares of Common Stock reserved under the Plan may be issued pursuant to Awards of Incentive Stock Options or pursuant to any one or more other Awards.
4.3 Calculation of Shares.
(a) Share Counting. For purposes of calculating the total number of shares of Common Stock available for grants of Awards hereunder, the following shall apply:
(1) The number of shares of Common Stock available for grants of Awards hereunder shall be reduced by the number of shares for which Awards are actually granted under the Plan or the Original Plan; and
(2) The grant of a Performance Stock Award or Performance Stock Unit Award shall be deemed to be equal to the maximum number of shares of Common Stock which may be issued under such Award.
(b) Shares Added Back. If less than the maximum number of shares of Common Stock which may be issued under a Performance Stock Award or Performance Stock Unit Award are earned and issued, only the number of shares of Common Stock actually issued shall count against the above limit, and the excess of the maximum over the actual number of shares of Common Stock issued shall again become available for grants under the Plan. Further, if any Award under the Plan or the Original Plan shall expire, terminate, be canceled (including cancellation upon the Participant’s exercise of a related Award), or is unsettled for any reason without having been exercised in full, or if any Award shall be forfeited to the Company, the unexercised, unsettled, or forfeited Award, shall not count against the aggregate limitations under Section 4.2 and shall again become available for grants under the Plan.
(c) Shares NOT Added Back. Shares of Common Stock equal in number to the shares tendered or withheld in payment of an Option Exercise Price or in settlement of any other Award, and shares of Common Stock that are tendered or withheld in order to satisfy any federal, state, or local tax liability, shall count against the aggregate limitations in Section 4.2 and shall not become available again for grants under the Plan. Provided further, the full number of shares of Common Stock subject to a Stock Appreciation Right shall count against the above limit, and any shares that were estimated to be used for such purposes and were not in fact so used shall not become available again for grants under the Plan.
(d) Cash Settlement. Cash settlements of Awards will not count against the above limits.
(e) Shares under Plans of Acquired Companies. Shares of Common Stock issued or transferred pursuant to an Award granted in substitution for outstanding awards, or in connection with assumed awards, previously granted by a company or other entity acquired by the Company or with which the Company combines, shall not count against the aggregate limitations under Section 4.2.
4.4 Participant Limits.
(a) Employee Limits. Subject to adjustment in accordance with Section 9.1, the total number of shares of Common Stock for which Awards may be granted in any Plan Year to any Employee shall not exceed fifty thousand (50,000) shares of Common Stock.
(b) Director Limits. Notwithstanding any provision to the contrary in the Plan or in any non-employee director compensation policy adopted by the Company, the sum of the grant date fair value of equity-based Awards and the amount of any cash-based Awards or other fees granted to a non-employee Director during any calendar year shall not exceed three hundred thousand dollars ($300,000) in the case of an incumbent director, five hundred thousand dollars ($500,000) in the case of Chairman of the Board who is a non-employee Director, or five hundred thousand dollars ($500,000) in the case of a new non-employee Director during his or her first year of service.
ARTICLE V
ADMINISTRATION
5.1 Action of the Committee. The Plan shall be administered by the Committee. In administering the Plan, the Committee’s actions, determinations, and interpretations made in good faith shall not be subject to review and shall be final, binding, and conclusive on all interested parties.
5.2 Duties and Powers of the Committee. The Committee shall have the power to grant Awards in accordance with the provisions of the Plan and may grant Awards singly, in combination, or in tandem. Subject to the provisions of the Plan, including the prohibition against repricing set forth in Section 8.3, the Committee shall have the discretion and authority to determine: (a) the Employees and Directors to whom Awards will be granted; (b) the number of shares of Common Stock subject to each Award; (c) the terms and conditions of each Award, including, without limitation, the applicable vesting schedule and forfeiture provisions of the Award, Exercise Price, Strike Price, performance goals, performance periods; Restricted Periods and exercise periods; and (d) such other matters applicable to an Award as are permissible under the Plan. Except as otherwise required by the Plan, the Committee shall have the authority to interpret and construe the provisions of the Plan and the Award Agreements, and to make determinations pursuant to any Plan provision or Award Agreement which shall be final and binding on all persons.
5.3 Delegation. The Committee may designate and authorize individual officers or employees of the Company or a Subsidiary who are not members of the Committee to carry out its responsibilities hereunder under such conditions or limitations as the Committee may set, other than its authority and responsibility with regard to Awards granted to a Reporting Person. References in the Plan to Committee shall include the individuals to whom the Committee has delegated to the extent of the authority so delegated.
5.4 No Liability; Indemnification.
(a) No Director, member of the Committee, or officer or employee to whom any duty or power relating to the administration or interpretation of the Plan has been delegated (each, an “Indemnified Person”), shall be liable to any person for any act or determination made in good faith with respect to the Plan or any Award.
(b) Each Indemnified Person shall be indemnified and held harmless by the Company against and from any loss, cost, liability, or expense that may be imposed upon or reasonably incurred by such Indemnified Person in connection with or resulting from any claim, action, suit or proceeding to which the Indemnified Person may be a party or in which the Indemnified Person may be involved by reason of any action taken or failure to act under the Plan and against and from any and all amounts paid by the Indemnified Person in settlement thereof, with the Company’s approval, or paid by the Indemnified Person in satisfaction of any judgment in any such action, suit, or proceeding against him or her, provided the Indemnified Person shall give the Company an opportunity, at its own expense, to handle, and defend the same before the Indemnified Person undertakes to handle and defend it on his or her own behalf. The foregoing right of indemnification shall not be exclusive of any other rights of indemnification to which such Indemnified Persons may be entitled under the Company’s Certificate of Incorporation or policies, as a matter of law, or otherwise, or any power that the Company may have to indemnify them or hold them harmless.
ARTICLE VI
AWARDS UNDER THE PLAN
6.1 Terms and Conditions of All Awards.
(a) Shares Subject to Grant. The number of shares of Common Stock as to which an Award may be granted will be determined by the Committee in its sole discretion, subject to the Participant limits in Section 4.4.
(b) Award Agreement. Each Award Agreement is subject to the terms of the Plan and any provisions contained in the Award Agreement that are inconsistent with the Plan shall be superseded by the terms of the Plan.
(c) Date of Grant. The date as of which an Award is granted will be the date on which the Committee has approved the terms and conditions of the Award and has determined the recipient of the Award and the number of shares of Common Stock or amount of cash covered by the Award, and has taken all such other actions necessary to complete the grant of the Award.
(d) Transfer and Exercise. Awards are not transferable or assignable except by will or by the laws of descent and distribution and are exercisable, during a Participant’s lifetime, only by the Participant, or in the event of the Disability of the Participant, by the Participant or the legal representative of the Participant, or in the event of the death of the Participant, by the legal representative of the Participant’s estate, or if no legal representative has been appointed, by the successor in interest determined under the Participant’s will. Any transfer or attempted transfer of an Award by a Participant not made in accordance with the Plan and the applicable Award Agreement will be void and of no effect, and the Company will not recognize, or have the duty to recognize, any transfer not made in accordance with the Plan and the applicable Award Agreement, and an Award attempted to be transferred will continue to be bound by the Plan and the applicable Award Agreement.
(e) Payment. Awards for which any payment is due from a Participant including, without limitation, the Exercise Price of an Option or the tax withholding required with respect to an Award pursuant to Section 6.1(g), may be made in any form or manner authorized by the Committee in the Award Agreement or by amendment thereto, including, but not limited to:
(i) U.S. dollars by personal check, bank draft, or money order payable to the Company, by money transfer or direct account debits;
(ii) Delivery to the Company of a number of shares of Common Stock having an aggregate fair market value of not less than the aggregate Exercise Price or minimum tax withholding required for the Award; (iii) Involvement of a stockbroker in accordance with the federal margin rules set forth in Regulation T;
(iv) A cashless exercise if and to the extent permissible by applicable law; or
(v) Any combination of the above forms and methods.
(f) Dividend Equivalents. If the Committee so determines and provides in an Award Agreement, Participants may be credited with any dividends paid with respect to the shares of Common Stock underlying an Award (other than an Option or Stock Appreciation Right) in a manner determined by the Committee in its sole discretion; provided, however, any dividend equivalents on an Award shall accrue and be paid only if and to the extent the shares of Common Stock underlying the Award become vested or payable. The Committee may apply any other restrictions to such dividend equivalents that the Committee deems appropriate. The Committee, in its sole discretion, may determine the form of payment of dividend equivalents, including cash or shares of Common Stock.
(g) Withholding. The Company shall deduct from all cash payments under the Plan the amount of any federal, state, or local taxes required to be withheld. Whenever the Company proposes or is required to issue or transfer shares of Common Stock under the Plan, or upon the vesting of any Restricted Stock Award, the Company has the right to require the recipient to remit to the Company an amount sufficient to satisfy the amount of any federal, state, or local taxes required to be withheld as a condition of and prior to the delivery or release of such shares.
(h) Deferred Compensation. Notwithstanding the Committee’s discretion to determine the terms and conditions of Awards under the Plan, the Committee may require or permit the deferral of the receipt of Awards (other than an Option or Stock Appreciation Right) upon such terms as the Committee deems appropriate and in accordance with the requirements of Code Section 409A.
(i) Treatment of Awards upon Termination of Employment.
(1) All Awards granted under the Plan, including all unexercised Options whether vested or non-vested, shall immediately be forfeited and may not thereafter vest or be exercised in the event a Participant incurs a Termination of Employment for Cause.
(2) Except as otherwise provided by Section 6.1(i)(1), any Award under the Plan to a Participant who has experienced a Termination of Employment or termination of some other service relationship with the Company and its Subsidiaries may be cancelled, accelerated, paid or continued, as provided in the applicable Award Agreement or as the Committee may otherwise determine to the extent not prohibited by or inconsistent with the provisions of the Plan (including Section 6.1(j)), taking into consideration such other factors as the Committee determines are relevant to its decision whether to continue an Award.
(3) Subject to Section 6.1(i)(1), the Committee will, in its absolute discretion, determine the effect of all matters and questions relating to a Termination of Employment as it affects an Award, including, but not by way of limitation, the question of whether a leave of absence constitutes a Termination of Employment.
(j) Exclusion from Minimum Vesting Requirements. Awards granted under Section 6.2, Section 6.3, Section 6.4, Section 6.5 and Section 6.7 shall be subject to the minimum vesting period and continued employment or provision of service requirement specified for the Award by such Section, as applicable, except that:
(1) Up to a maximum of five percent (5%) of the maximum number of shares of Common Stock that may be issued under the Plan pursuant to Section 4.2 may be issued pursuant to Awards granted under Section 6.2, Section 6.3, Section 6.4, Section 6.5 and Section 6.7 without regard for any minimum vesting period or continued employment or provision of service requirements set forth in such Sections; (2) Continued employment or provision of service for exercisability or vesting shall not be required (i) as the Committee may determine or permit otherwise in connection with the occurrence of a retirement, death, or Disability of a Participant, or in the event of a Change in Control subject to the limitations set forth in Section 7.1; and
(3) Awards granted to Directors pursuant to Section 6.6 in lieu of cash-based director fees that the Director elects to receive in the form of shares of Common Stock equal in value to the cash-based director fees that the Director would otherwise have received shall not be subject to any minimum vesting period or continued provision of service requirement.
6.2 Options. At the time any Option is granted, the Committee will determine whether the Option is to be an Incentive Stock Option or a Non-Qualified Stock Option. Each Incentive Stock Option granted under the Plan shall be clearly identified as to its status as an Incentive Stock Option and the applicable Award Agreement shall reflect such status. Subject to the special conditions applicable to Incentive Stock Options set forth in Section 6.2(g) and the special conditions applicable to substitute Options set forth in Section 6.2(f), Options awarded under the Plan shall be subject to the following terms and conditions:
(a) Exercise Price. Subject to adjustment in accordance with Section 9.1, the Exercise Price per share of Common Stock purchasable under any Option shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement; provided, however, the Exercise Price may not be less than the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted.
(b) Option Term. The exercise period for each Option granted under the Plan shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
(c) Conditions to Exercise. Each Option granted under the Plan shall vest over a period based upon the passage of time or upon the achievement of performance goals (or a combination of both), as determined by the Committee; provided, however, except as otherwise permitted by Section 6.1(j), Options shall not vest for at least one year after the date of grant. The Committee may impose such conditions and restrictions on the exercise of an Option as it may deem appropriate. Each Option granted under the Plan shall be exercisable at such time or times, or upon the occurrence of such event or events, and for such number of shares of Common Stock as determined by the Committee in its sole discretion and set forth in the applicable Award Agreement.
(d) Exercise of Option. An Option shall be exercised by (i) delivery to the Company of a written notice of exercise (on the form or in the manner specified by the Company for such notice) with respect to all or a specified number of shares of Common Stock subject to the Option, and (ii) payment to the Company of the full amount of the Exercise Price in a manner permissible under Section 6.1(e) and the applicable Award Agreement.
(e) No Rights as a Stockholder. The holder of an Option, as such, shall have none of the rights of a stockholder of the Company with respect to the shares of Common Stock underlying such Option until such time as the Option vests, is exercised and the shares of Common Stock are issued to the holder of the Option.
(f) Special Provisions for Substitute Options. Notwithstanding anything to the contrary in this Section 6.2, any Option issued in substitution for an option previously issued by another entity, which substitution occurs in connection with a corporate transaction, may provide for an Exercise Price and may contain such other terms and conditions as the Committee may prescribe to cause such substitute Option to contain as nearly as possible the same terms and conditions (including the applicable vesting and termination provisions) as those contained in the previously issued option being replaced thereby; provided, however, the number of shares of Common Stock and the Exercise Price of any Option issued in substitution for an option previously issued by another entity shall be determined in accordance with the requirements of Code Section 409A.
(g) Special Conditions for Incentive Stock Options. Notwithstanding anything to the contrary in Section 6.1 or this Section 6.2, Incentive Stock Options shall be subject to the following terms and conditions:
(i) Incentive Stock Options may only be granted to Employees of the Company or of a Subsidiary that qualifies as a “subsidiary corporation” within the meaning given such term by Code Section 424.
(ii) The aggregate Fair Market Value (determined as of the date an Incentive Stock Option is granted) of the shares of Common Stock with respect to which Options intended to meet the requirements of Code Section 422 become exercisable for the first time by an Employee during any calendar year (under all plans of the Company and its Subsidiaries) may not exceed one hundred thousand dollars ($100,000); provided, however, if such limitation is exceeded, the portion of such Incentive Stock Option(s) which cause the limitation to be exceeded will be treated as Non-Qualified Stock Option(s).
(iii) No Incentive Stock Option may be granted after ten (10) years from the date that the Plan is approved by the Company’s stockholders.
(iv) With respect to each grant of an Incentive Stock Option to a Participant who is an Over 10% Owner, the Exercise Price may not be less than one hundred ten percent (110%) of the Fair Market Value of the Common Stock subject to the Incentive Stock Option on the date the Incentive Stock Option is granted.
(v) The exercise period for an Incentive Stock Option must be no longer than ten (10) years from the date that the Incentive Stock Option is granted, or in the case of an Incentive Stock Option granted to an Over 10% Owner, the exercise period may be no longer than five (5) years after the date that the Incentive Stock Option is granted.
(vi) For an Incentive Stock Option issued in substitution for an incentive stock option previously issued by another entity, which substitution occurs in connection with a transaction to which Code Section 424(a) is applicable, both the number of shares of Common Stock and the Exercise Price of the substitute Incentive Stock Option shall be computed in accordance with Code Section 424.
(vii) Incentive Stock Options granted under the Plan are intended to comply with Code Section 422, and the provisions of the Plan and the Award Agreements for any Incentive Stock Options granted under the Plan shall be construed in such manner as to effectuate that intent.
6.3 Stock Appreciation Rights. A Stock Appreciation Right shall entitle the Participant to receive at the time of payment or exercise, for a specified or determinable number of shares of the Common Stock, an amount equal to a percentage (not to exceed 100%) of the excess of Fair Market Value of a share of Common Stock over the applicable Strike Price per share of Common Stock. Each Stock Appreciation Right shall be subject to the following terms and conditions:
(a) Strike Price. Subject to adjustment in accordance with Section 9.1, the Strike Price per share of Common Stock under any Stock Appreciation Right shall be determined by the Committee in its sole discretion and set forth in the applicable Award Agreement; provided, however, the Strike Price may not be less than the Fair Market Value of the Common Stock subject to the Stock Appreciation Right on the date the Stock Appreciation Right is granted.
(b) Conditions to Exercise. Each Stock Appreciation Right granted under the Plan shall vest over a period based upon the passage of time or upon the achievement of performance goals (or a combination of both), as determined by the Committee; provided, however, except as otherwise permitted by Section 6.1(j), Stock Appreciation Rights shall not vest for at least one year after the date of grant. The Committee may impose such conditions and restrictions on the exercise of a Stock Appreciation Right as it may deem appropriate. Each Stock Appreciation Right granted under the Plan shall be exercisable or payable at such time or times, or upon the occurrence of such event or events, and in such amounts as determined by the Committee in its sole discretion, and set forth in the applicable Award Agreement.
(c) No Rights as a Stockholder. The holder of a Stock Appreciation Right, as such, shall have none of the rights of a stockholder of the Company with respect to the shares of Common Stock underlying such Stock Appreciation Right until such time as the Stock Appreciation Right vests, is exercised, or paid and the shares of Common Stock are issued to the holder of the Stock Appreciation Right.
(d) Settlement. Upon settlement of a Stock Appreciation Right, the Company shall pay to the Participant the appreciation in cash, shares of Common Stock (valued at the aggregate fair market value), or a combination thereof, as provided in the Award Agreement or, in the absence of such provision, as the Committee may determine.
6.4 Restricted Stock Awards. Each Restricted Stock Award shall be made in such number of shares of Common Stock, upon such terms and conditions on such shares, for such Restricted Period and with such dividend or voting rights during the Restricted Period as determined by the Committee in its sole discretion and set forth in the applicable Award Agreement. Restricted Stock Awards shall be subject to the following terms and conditions:
(a) Consideration. The Committee may require a payment from the Participant in exchange for the grant of a Restricted Stock Award or may grant a Restricted Stock Award without any consideration from the Participant other than his service to or on behalf of the Company or its Subsidiaries.
(b) Shares. A Restricted Stock Award granted pursuant to the Plan may be evidenced by book entry or in such manner as the Committee shall determine, and the Committee may take any action it deems necessary or advisable to reflect that the shares of Common Stock that are part of the Restricted Stock Award are subject to its applicable terms, conditions, and restrictions applicable, until the restrictions thereon shall have lapsed.
(c) Vesting. Each Restricted Stock Award shall vest over a Restricted Period based upon the passage of time or upon the achievement of performance goals (or a combination of both), as determined by the Committee; provided, however, except as otherwise permitted by Section 6.1(j), Restricted Stock Awards shall not vest for at least one year after the date of grant. Restricted Stock Awards subject to performance goals may be designated as Performance Stock Awards. A Restricted Stock Award may also, in the Committee’s discretion, provide for earlier termination of the Restricted Period in the event of the retirement, death, or Disability of the Participant, or in the event of a Change in Control.
(d) Rights as Stockholder. Unless otherwise determined by the Committee and set forth in the applicable Award Agreement, a grant of a Restricted Stock Award shall immediately entitle the Participant to voting and dividend rights with respect to the shares of Common Stock subject to the Award; provided, however, the dividends and other distributions on the shares of Common Stock subject to the Award shall in all cases either (i) be deferred and payment thereof contingent on the vesting of the shares of Common Stock with respect to which such dividends and other distributions are paid, or (ii) be credited with additional number of shares of Restricted Stock determined using the amount of dividends that would have been paid on the number of shares of Common Stock underlying the Award and the fair market value of a share of Common Stock on the applicable dividend payment date, in each case subject to the same vesting and forfeiture restrictions that apply to the shares of Common Stock subject to the Award with respect to which such dividends and other distributions are paid.
6.5 Restricted Stock Unit Awards. Restricted Stock Unit Awards shall entitle the Participant to receive, at a specified future date or event, payment of a specified number of shares of Common Stock or an amount equal to all or a portion of the fair market value of a specified number of shares of Common Stock at the end of the applicable Restricted Period. Each Restricted Stock Unit Award shall be made in such number of shares of Common Stock, upon such terms and conditions, for such Restricted Period and with such dividend equivalent rights during the Restricted Period as determined by the Committee in its sole discretion and set forth in the applicable Award Agreement. Restricted Stock Unit Awards shall be subject to the following terms and conditions:
(a) Consideration. The Committee may require a payment from the Participant in consideration of a payment of a Restricted Stock Unit Award or may grant a Restricted Stock Unit Award without any consideration from the Participant other than his service to or on behalf of the Company or its Subsidiaries.
(b) Vesting. Each Restricted Stock Unit Award shall vest over a Restricted Period based upon the passage of time or upon the achievement of performance goals (or a combination of both), as determined by the Committee provided, however, except as otherwise permitted by Section 6.1(j), Restricted Stock Units shall not vest for at least one year after the date of grant. Restricted Stock Unit Awards subject to performance goals may be designated as Performance Stock Unit Awards. A Restricted Stock Unit Award may also, in the Committee’s discretion, provide for earlier termination of the Restricted Period in the event of the retirement, death, or Disability of the Participant, or in the event of a Change in Control.
(c) No Rights as a Stockholder. The holder of a Restricted Stock Unit Award, as such, shall have none of the rights of a stockholder of the Company with respect to the shares of Common Stock underlying such Restricted Stock Unit Award until such time as the Restricted Stock Unit Award vests, is paid and the shares of Common Stock are issued to the holder of the Restricted Stock Unit Award.
(d) Settlement. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent fair market value, any combination thereof or in any other form of consideration, as determined by the Committee and set forth in the applicable Award Agreement.
6.6 Director Awards. Subject to the limitations in Section 4.4(b), in addition to the ability of Directors to receive Options, Stock Appreciation Rights, Restricted Stock Awards, Restricted Stock Unit Awards, or other Awards under this Article VI, Directors may also (a) receive Awards of outright shares of Common Stock, subject to the limitations set forth in Section 6.1(j), and (b) be permitted to elect to receive, pursuant to procedures established by the Committee, Awards of outright shares of Common Stock in lieu of cash-based director fees that the Director elects to receive in the form of shares of Common Stock with a fair market value equal to the cash-based director fees that the Director would otherwise have received.
6.7 Other Awards. Subject to applicable law and the limits set forth in Article IV, the Committee may grant to any Participant such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, shares of Common Stock or factors that may influence the value of such shares, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into shares of Common Stock, purchase rights for shares of Common Stock, Awards with value and payment contingent upon performance of the Company or specified Subsidiaries, affiliates or other business units thereof or any other factors designated by the Committee, and Awards valued by reference to the book value of shares of Common Stock or the value of securities of, or the performance of specified Subsidiaries or affiliates or other business units of the Company. The Committee will determine the terms and conditions of such Awards. Except as otherwise permitted by Section 6.1(j), such Awards shall not vest for at least one year after the date of grant. Shares of Common Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section will be purchased for such consideration, paid for at such time, by such methods, and in such forms, including, without limitation shares of Common Stock, notes or other property, as the Committee determines.
ARTICLE VII
CHANGE IN CONTROL
7.1 Effect of a Change in Control. In the event of a Change in Control, the following acceleration, exercisability, and valuation provisions will apply:
(a) Upon a Change in Control, each then-outstanding Option and Stock Appreciation Right will become fully vested and exercisable, and the restrictions applicable to each outstanding Restricted Stock Award, Restricted Stock Unit Award or other Award will lapse, and each Award will be fully vested (with any applicable performance goals deemed to have been achieved at a target level as of the date of such vesting), except to the extent that an Award meeting the requirements of Section 7.1(b) (a “Replacement Award”) is provided to the Participant holding such Award in accordance with Section 7.1(b) to replace or adjust such outstanding Award (a “Replaced Award”);
(b) An Award meets the conditions of this Section 7.1(b) (and hence qualifies as a Replacement Award) if (i) it is of the same type (e.g., stock option for Option, restricted stock award for Restricted Stock Award, restricted stock unit award for Restricted Stock Unit Award, etc.) as the Replaced Award, (ii) it has a value at least equal to the value of the Replaced Award, (iii) it relates to publicly traded equity securities of the Company or its successor in the Change in Control or another entity that is affiliated with the Company or its successor following the Change in Control, (iv) the federal tax consequences to the Participant holding the Replaced Award of the Replacement Award are not less favorable to such Participant than the federal tax consequences of the Replaced Award, and (v) its other terms and conditions are not less favorable to the Participant holding the Replaced Award than the terms and conditions of the Replaced Award (including, but not limited to, the provisions that would apply in the event of a subsequent Change in Control). Without limiting the generality of the foregoing, the Replacement Award may take the form of a continuation of the Replaced Award if the requirements of the preceding sentence are satisfied; and
(c) Except as otherwise provided in an executive, employment, severance, or similar agreement, if any, between the Participant and the Company or a Subsidiary, upon the Involuntary Termination, during the period of two (2) years immediately following a Change in Control, of a Participant holding Replacement Awards, (i) all Replacement Awards held by the Participant will become fully vested and, if applicable, exercisable and free of restrictions (with any applicable performance goals deemed to have been achieved at a target level as of the date of such vesting), and (ii) all Options and Stock Appreciation Rights held by the Participant immediately before such Involuntary Termination that the Participant also held as of the date of the Change in Control and all stock options and stock appreciation rights that constitute Replacement Awards will remain exercisable for a period of ninety (90) days following such Involuntary Termination or until the expiration of the stated term of such stock option or stock appreciation right, whichever period is shorter (provided, however, if the applicable Award Agreement provides for a longer period of exercisability, that provision will control).
7.2 Definition. For purposes of the Plan, a “Change in Control” of the Company shall be deemed to have occurred upon the happening of any of the following events:
(a) The consummation of a transaction as a result of which any person becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing more than fifty percent (50%) the total voting power represented by the Company’s then outstanding voting securities.
The term “person” shall have the same meaning as when used in Sections 13(d) and 14(d) of the Exchange Act but shall exclude: (i) a trustee or other fiduciary holding securities under an employee benefit plan of the Company or an affiliate of the Company; (ii) a corporation or other entity owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of common stock of the Company; (iii) the Company; and (iv) a corporation or other entity of which at least a majority of its combined voting power is owned directly by the Company; (b) The consummation of (i) a merger or consolidation of the Company with or into any other entity or any other corporate reorganization, other than a merger, consolidation or other corporate reorganization that would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger, consolidation or other corporate reorganization, provided that the consolidation or merger is not with a corporation which was a wholly owned subsidiary of the Company immediately before the consolidation or merger, or (ii) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all, or substantially all, of the assets of the Company other than (A) the sale or disposition of all or substantially all of the assets of the Company to a person or persons who beneficially own, directly or indirectly, at least fifty percent (50%) or more of the combined voting power of the outstanding voting securities of the Company at the time of the sale or (B) to a corporation or other entity owned directly or indirectly by the shareholders of the Company in substantially the same proportions as their ownership of the common stock of the consolidation or corporate reorganization which does not result in a Change in Control as defined herein;
(c) For Awards granted prior to June 16, 2021, the stockholders of the Company approve any plan or proposal for the liquidation or dissolution of the Company, and for Awards granted on or after June 16, 2021, the liquidation or dissolution of the Company;
(d) Any person (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) shall acquire, directly or indirectly, twenty percent (20%) or more of the Company’s then-outstanding common stock within any twelve (12) month period, provided that such person shall not be a wholly-owned subsidiary of the Company immediately before it becomes such twenty percent (20%) beneficial owner; or
(e) Individuals who constitute the Board on any specified date (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof within any twelve (12) month period, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least a majority of the Directors comprising the Board immediately prior to the date of such election (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee for director, without objection to such nomination) shall be, for purposes of this clause (e), considered as though such person were a member of the Incumbent Board.
Notwithstanding the foregoing, if a Change in Control constitutes a payment event with respect to any Award (or any portion of an Award) that provides for the deferral of compensation that is subject to Section 409A of the Code, to the extent required to avoid the imposition of additional taxes under Code 409A, such transaction or event with respect to any Award (or portion thereof) will not be deemed a Change in Control unless the transaction qualifies as a “change in control event” within the meaning of Section 409A.
The Committee shall have full and final authority, which shall be exercised in its sole discretion, to determine conclusively whether a Change in Control has occurred pursuant to the above definition, the date of the occurrence of such Change in Control and any incidental matters relating thereto; provided that any exercise of authority in conjunction with a determination of whether a Change in Control is a “change in control event” as defined in Treasury Regulation Section 1.409A-3(i)(5) shall be consistent with such regulation.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination and Amendment of Plan.
(a) Subject to the limitations of Section 8.3, the Board may amend or terminate the Plan at any time; provided, however, the Board shall obtain stockholder approval for any amendment to the Plan that increases the number of shares of Common Stock available under the Plan, materially expands the classes of individuals eligible to receive Awards, materially expands the type of awards available for issuance under the Plan, or would otherwise require stockholder approval under the Code or other applicable laws, or the Nasdaq Stock Market listing standards.
(b) Notwithstanding Section 8.1(a), without the consent of the holder of an Award, no such termination or amendment of the Plan may adversely affect the then value of the Award or the rights of the holder of such Award, and with respect to any Award which provides for the deferral of compensation subject to the provisions of Code Section 409A, no termination or amendment of the Plan shall have the effect of accelerating the payment of such Award if and to the extent that such accelerated payment would violate Code Section 409A.
8.2 Amendment of Award Agreements. Subject to the limitations of Section 8.3, the Board or the Committee may amend an Award Agreement at any time, in their sole discretion; provided, however, without the consent of the holder of an Award, no such amendment of an Award Agreement may adversely affect the then value of the Award or the rights of the holder of such Award, and with respect to any Award which provides for the deferral of compensation subject to the provisions of Code Section 409A, no amendment of the Award Agreement shall have the effect of accelerating the payment of such Award if and to the extent that such accelerated payment would violate Code Section 409A.
8.3 No Repricing. Except as provided by Section 9.1, without the approval of the Company’s stockholders, the Exercise Price of an Option or the Strike Price of a Stock Appreciation Right may not be amended or modified after the grant of the Option or Stock Appreciation Right, and an Option or Stock Appreciation Right may not be surrendered or cancelled in consideration of, or in exchange for, cash, other Awards, or the grant of a new Option or Stock Appreciation Right having an Exercise Price or Strike Price below that of the Option or Stock Appreciation Right that was surrendered or cancelled, and without the approval of the Company’s stockholders, neither the Board nor the Committee may take any other action with respect to an Option or Stock Appreciation Right that would be treated as a repricing under the rules and regulations of the principal securities exchange on which the shares of Common Stock are traded.
ARTICLE IX
GENERAL PROVISIONS
9.1 Changes in Capitalization; Merger; Liquidation.
(a) The aggregate number of shares of Common Stock reserved for the grant of Awards, for issuance upon the exercise or payment, as applicable, of each outstanding Award and upon vesting of an Award; the annual limit per Participant; the Exercise Price of each outstanding Option; the Strike Price of each outstanding Stock Appreciation Right and the specified number of shares of Common Stock to which each outstanding Award pertains shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, stock dividend, combination or exchange of shares, exchange for other securities, reclassification, reorganization, recapitalization, or any other increase or decrease in the number of outstanding shares of Common Stock effected without consideration to the Company.
(b) In the event of a merger, consolidation, reorganization, extraordinary dividend, spin-off, sale of substantially all of the Company’s assets, other change in capital structure of the Company, or tender offer for shares of Common Stock, the Committee may make such adjustments with respect to awards and take such other action as it deems necessary or appropriate, including, without limitation, the substitution of new Awards, or the adjustment of outstanding Awards, the acceleration of Awards, the removal of restrictions on outstanding Awards, or the termination of outstanding Awards in exchange for the cash value determined in good faith by the Committee of the vested or unvested portion of the Award, all as may be provided in the applicable Award Agreement or, if not expressly addressed therein, as the Committee subsequently may determine in its sole discretion. Any adjustment pursuant to this Section may provide, in the Committee’s discretion, for the elimination without payment therefor of any fractional shares that might otherwise become subject to any Award, but, except as set forth in this Section, may not otherwise diminish the then value of the Award.
(c) The existence of the Plan and the Awards granted pursuant to the Plan shall not affect in any way the right or power of the Company or a Subsidiary to make or authorize any adjustment, reclassification, reorganization or other change in its capital or business structure, any merger or consolidation of the Company or a Subsidiary, any issue of debt or equity securities having preferences or priorities as to the Common Stock or the rights thereof, the dissolution or liquidation of the Company or a Subsidiary, any sale or transfer of all or any part of its business or assets, or any other corporate act or proceeding.
9.2 Code Section 409A. Options, Stock Appreciation Rights, Restricted Stock Awards, and Director Awards granted under the Plan are intended to be exempt from Code Section 409A, and Restricted Stock Unit Awards, dividend equivalents, and all other Awards awarded under the Plan are intended to be exempt from or comply with Code Section 409A, and the Plan, Award Agreements and the terms of Awards shall be administered and interpreted consistent with such intention. In the event any provisions of the Plan or any Award Agreement are determined by the Committee potentially to violate Code Section 409A, such provisions shall be amended, as necessary, to be exempt from or comply with Section 409A; and until adoption of any such amendment, the provisions shall be construed and interpreted, to the extent possible, to be exempt from or comply with Section 409A. Notwithstanding the foregoing, the Company makes no representations that the payments and benefits provided under the Plan are exempt from or comply with Section 409A, and in no event will the Company be liable for all or any portion of any taxes, penalties, interest, or other expenses that may be incurred by a Participant on account of non-compliance with Section 409A. Without limiting the scope of the foregoing, changes to the A&R Plan made by this Plan which, if applied to Award outstanding on the Effective Date, would have the effect of modifying the timing or form of payment of any Award which is subject to Section 409A shall only apply to Awards made on or after the Effective Date.
9.3 Right to Terminate Employment or Service. Nothing in the Plan or in any Award Agreement confers upon any Participant the right to continue as an officer, employee, director, consultant or other service provider of the Company or any of its Subsidiaries or affects the right of the Company or any of its Subsidiaries to terminate a Participant’s employment or services at any time.
9.4 Non-Alienation of Benefits. Except as otherwise expressly provided by the Plan, no Award or benefit under the Plan may be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, attachment, encumbrance, or charge; and any attempt to do so shall be void. No such Award or benefit may, prior to receipt by the Participant, be in any manner liable for or subject to the debts, contracts, liabilities, engagements, or torts of the Participant.
9.5 Restrictions on Delivery and Sale of Shares; Legends. Each Award is subject to the condition that if at any time the Committee, in its discretion, shall determine that the listing, registration, or qualification of the shares of Common Stock covered by such Award upon any securities exchange or under any federal or state law is necessary or desirable as a condition of or in connection with the granting of such Award or the purchase or delivery of shares thereunder, the delivery of any or all shares of Common Stock pursuant to such Award may be withheld unless and until such listing, registration, or qualification shall have been effected. If a registration statement is not in effect under the Securities Act of 1933 or any applicable state securities laws with respect to the shares of Common Stock purchasable or otherwise deliverable under Awards then outstanding, the Committee may require, as a condition of exercise of any Option or as a condition to any other delivery of Common Stock pursuant to an Award, that the Participant or other recipient of an Award represent, in writing, that the shares received pursuant to the Award are being acquired for investment and not with a view to distribution and agree that the shares will not be disposed of except pursuant to an effective registration statement, unless the Company shall have received an opinion of counsel that such disposition is exempt from such requirement under the Securities Act of 1933 and any applicable state securities laws. The Company may include on certificates representing shares delivered pursuant to an Award such legends referring to the foregoing representations or restrictions or any other applicable restrictions on resale as the Company, in its discretion, shall deem appropriate.
9.6 FDIA Limitations. Any actions by the Company under the Plan or any Award Agreement must comply with the law, including regulations and other interpretive action, of the Federal Deposit Insurance Act, Federal Deposit Insurance Corporation, or other entities that supervise any of the activities of the Company. Specifically, any payments to the Participant by the Company, whether pursuant to the Plan, an Award Agreement, or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act, 12. U.S.C. Section 1828(k), and the regulations promulgated thereunder in 12 C.F.R. Part 359.
9.7 Compensation Recovery Policy. Notwithstanding any provision of the Plan or an Award Agreement, the amount of any cash paid under an Award, any shares of Common Stock granted or issued under an Award, and any amount received with respect to any sale of any such shares of Common Stock, shall be subject to potential cancellation, recoupment, rescission, payback, or other action in accordance with the terms of the Company’s compensation recovery policy, if any, or any similar policy that the Company may adopt from time to time, and the Committee shall include a provision in Award Agreements to give effect to such policy.
9.8 Listing and Legal Compliance. The Committee may suspend the exercise or payment of any Award so long as it determines that securities exchange listing or registration or qualification under any securities laws is required in connection therewith and has not been completed on terms acceptable to the Committee.
9.9 Choice of Law. The laws of the State of New York shall govern the Plan, to the extent not preempted by federal law, without reference to the principles of conflict of laws.
9.10 Plan Binding on Successors. The Plan shall be binding upon the successors and assigns of the Company.
9.11 Interpretation. Whenever used in the Plan, nouns in the singular shall include the plural and the plural shall include the singular, and the masculine pronoun shall include the feminine gender. Headings of Articles and Sections in the Plan are inserted for convenience and reference only, and they do not constitute part of the Plan.
* * * * * I, Martin K. Birmingham, certify that:
EX-31.1
3
fisi-ex31_1.htm
EX-31.1
EX-31.1
Exhibit 31.1
Certification of Principal Executive Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
1. I have reviewed this quarterly report on Form 10-Q of Financial Institutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, which involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 4, 2025 |
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/s/ Martin K. Birmingham |
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Martin K. Birmingham |
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President and Chief Executive Officer |
EX-31.2
4
fisi-ex31_2.htm
EX-31.2
EX-31.2
Exhibit 31.2
Certification of Principal Financial Officer
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
I, W. Jack Plants II, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Financial Institutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, which involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Date: August 4, 2025 |
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/s/ W. Jack Plants II |
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W. Jack Plants II |
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Chief Financial Officer |
EX-32
5
fisi-ex32.htm
EX-32
EX-32
Exhibit 32
Certification pursuant to
18 U.S.C. Section 1350,
as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
Martin K. Birmingham, President and Chief Executive Officer, and W. Jack Plants II, Chief Financial Officer of Financial Institutions, Inc. (the “Company”), each certify in his capacity as an officer of the Company that he has reviewed the Quarterly Report of the Company on Form 10-Q for the period ended June 30, 2025 and that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date: August 4, 2025 |
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/s/ Martin K. Birmingham |
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Martin K. Birmingham |
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President and Chief Executive Officer |
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(Principal Executive Officer) |
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Date: August 4, 2025 |
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/s/ W. Jack Plants II |
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W. Jack Plants |
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Chief Financial Officer |
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(Principal Financial Officer) |
The purpose of this statement is solely to comply with Title 18, Chapter 63, Section 1350 of the United States Code, as amended by Section 906 of the Sarbanes-Oxley Act of 2002. A signed original of this written statement required by Section 906 has been provided to Financial Institutions, Inc. and will be retained by Financial Institutions, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
