FINANCIAL INSTITUTIONS INC

Previous wording

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;

Current wording

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

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

Net income increased $7.0 million to $20.5 million for the third quarter of 2025 compared to $13.5 million for the third quarter of 2024. Net income available to common shareholders for the third quarter of 2025 was $20.1 million, or $0.99 per diluted share, compared with $13.1 million, or $0.84 per diluted share, for the third quarter of 2024. Return on average common equity was 13.45% and return on average assets was 1.32% for the third quarter of 2025 compared to 11.08% and 0.89%, respectively, for the third quarter of 2024.

Previous wording

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.

Current wording

Net interest income totaled $51.8 million in the third quarter of 2025, an increase of $11.1 million compared to $40.7 million in the third quarter of 2024. Average interest-earning assets for the third quarter of 2025 were $45.2 million higher than the third quarter of 2024 primarily due to a $151.0 million increase in average loans, partially offset by an $87.8 million decrease in average investment securities, and an $18.0 million decrease in the average balance of Federal Reserve interest-earning cash. Average interest-bearing liabilities for the third quarter of 2025 were $37.8 million higher than the third quarter of 2024 due to a $127.6 million increase in average time deposits, partially offset by a $57.5 million decrease in average savings and money market account deposits, a $19.1 million decrease in average short-term borrowings, and a $9.7 million decrease in average long-term borrowings. The wind-down of the BaaS platform that the Bank initiated in September 2024 was the primary driver of the reduction in average savings and money market deposits and also contributed to the increase in average time deposits, given the increase in brokered deposits as compared to the third quarter of 2024.

Previous wording

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.

Current wording

Net interest margin was 3.65% for the third quarter of 2025 compared to 2.89% in the third quarter of 2024, primarily driven by lower interest-bearing liability costs and 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-earning assets.

Previous wording

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.

Current wording

The provision for credit losses was $2.7 million in the third quarter of 2025 compared to $3.1 million in the third quarter of 2024. Net charge-offs during the recent quarter were $2.1 million, representing 0.18% of average loans on an annualized basis, compared to $1.7 million, or an annualized 0.15% of average loans, in the third 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.

Previous wording

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.

Current wording

Noninterest expense totaled $35.9 million in the third quarter of 2025, compared to $32.5 million in the third quarter of 2024. The increase in noninterest expense for the third quarter of 2025 was primarily attributable to a $2.6 million increase in salaries and employee benefits, reflecting an increase in health insurance benefit expense due to continued higher medical claims under our self-insured plan, and the impact of annual merit increases.

Previous wording

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.

Current wording

The regulatory Tier 1 Capital Ratio was 11.48% and 10.87%, respectively, and Total Risk-Based Capital Ratio was 13.60% and 13.25%, respectively, at September 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.

Previous wording

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.

Current wording

Net interest income is our primary source of revenue, comprising approximately 81% of revenue during the three months ended September 30, 2025 and 2024, and 82% and 73% for the nine months ended September 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.

Previous wording

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.

Current wording

Net interest income on a taxable equivalent basis for the three months ended September 30, 2025, was $51.8 million, an increase of $11.1 million versus the comparable quarter last year of $40.7 million. Net interest margin for the third quarter of 2025 was 3.65%, 76-basis points higher than 2.89% for the same period in 2024. The increase in net interest income and net interest margin was primarily driven by lower interest-bearing liability costs and 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.

Previous wording

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.

Current wording

For the third quarter of 2025, the average yield on average interest earning assets of 5.93% was 40-basis points higher than the third quarter of 2024 of 5.53% 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. Average yield on investment securities increased 231-basis points during the third quarter of 2025 to 4.45% from 2.14% for the third quarter of 2024, while average loan yield decreased 13-basis points during the third quarter of 2025 to 6.29% from 6.42% for the third quarter of 2024.

Previous wording

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.

Current wording

Average interest-earning assets were $5.66 billion for the third quarter of 2025 compared to $5.61 billion for the third quarter of 2024, an increase of $45.2 million, or 1%, from the comparable quarter last year. The increase was primarily due to an increase of average loans of $151.0 million from $4.42 billion for the third quarter of 2024 to $4.57 billion for the third quarter of 2025, partially offset by a decrease in average investment securities of $87.8 million from $1.15 billion for the third quarter of 2024 to $1.06 billion for the third quarter of 2025, and an $18.0 million decrease in average Federal Reserve interest-earning cash. Average loans comprised 81% of average interest-earning assets during the third quarter of 2025 compared to 79% during the third quarter of 2024. The increase in average loans was primarily due to organic growth in commercial mortgages. Average investment securities represented 19% of average interest-earning assets during the third quarter of 2025 compared to 20% during the third quarter of 2024. Overall, the increase in interest income of $6.5 million was primarily due to higher average interest rates on average investment securities, reflective of the previously disclosed restructuring of the available-for-sale securities portfolio in December 2024.

Previous wording

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.

Current wording

For the third quarter of 2025, the average cost of average interest-bearing liabilities of 2.92% was 45-basis points lower than the third quarter of 2024. The average cost of interest-bearing deposits of 2.86% was 48-basis points lower than the third quarter of 2024, while the average cost of total borrowings increased 18-basis points to 3.98% in the third quarter of 2025, compared to 3.80% in the third quarter of 2024. The reduction in the average cost of interest-bearing liabilities was primarily driven by the repricing of deposits at lower rates given the federal funds interest rate cuts that occurred in the latter part of 2024 as previously mentioned.

Previous wording

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.

Current wording

Average interest-bearing liabilities were $4.44 billion for the third quarter of 2025, compared to $4.40 billion for the third quarter of 2024, an increase of $37.8 million, or 1%, driven by a $66.7 million increase in average interest-bearing deposits, partially offset by a $28.9 million decrease in the average balance of borrowings, including a decrease of $9.7 million in average long-term borrowings, 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 from $4.15 billion for the third quarter of 2024 to $4.21 billion for the current quarter, and noninterest-bearing demand deposits (a principal component of net free funds) increased $7.1 million to $960.1 million for the third quarter of 2025. The increase in average interest-bearing deposits was due to higher average brokered and public deposits, partially offset by lower average nonpublic and reciprocal deposits. For further discussion of deposits, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall the $4.6 million decrease in interest expense was primarily due to average deposit rate changes during the third quarter of 2025 as compared to the prior year quarter, reflective of the interest rate cuts as previously mentioned.

Previous wording

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.

Current wording

Net interest income on a taxable equivalent basis for the nine months ended September 30, 2025, was $147.9 million, an increase of $25.8 million versus the comparable period in 2024 of $122.2 million. Net interest margin for the nine months ended September 30, 2025 was 3.50%, 65-basis points higher than 2.85% 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.

Previous wording

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.

Current wording

For the nine months ended September 30, 2025, the average yield on average interest earning assets of 5.87% was 38-basis points higher than the nine months ended September 30, 2024 of 5.49%. The average yield on investment securities increased 221-basis points to 4.35% for the nine months ended September 30, 2025 compared to 2.14% for the nine months ended September 30, 2024, while the average yield on loans decreased 14-basis points during the nine months ended September 30, 2025, to 6.25% from 6.39% for the comparable period last year.

Previous wording

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.

Current wording

Average interest-earning assets were $5.65 billion for the nine months ended September 30, 2025 compared to $5.73 billion for the nine months ended September 30, 2024, a decrease of $73.9 million, or 1%, reflective of a decrease in investment securities of $102.8 million from $1.17 billion for the nine months ended September 30, 2024 to $1.07 billion for the nine months ended September 30, 2025, and a $66.3 million decrease in average Federal Reserve interest-earning cash, while average loans were up $95.3 million from $4.44 billion for the nine months ended September 30, 2024 to $4.44 billion for the nine months ended September 30, 2025. Average investment securities represented 19% of average interest-earning assets during the nine months ended September 30, 2025 compared to 21% during the nine months ended September 30, 2024, and average loans comprised 80% of average interest-earning assets during the nine months ended September 30, 2025 compared to 78% during the nine months ended September 30, 2024. The increase in average loans was primarily due to organic growth in commercial mortgages during the first nine months of 2025. Overall, the increase in interest income of $13.2 million was reflective of the higher average interest rates on average investment securities and the increase in average loans, partially offset by the decrease in average loan yields.

Previous wording

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.

Current wording

For the nine months ended September 30, 2025, the average cost of average interest-bearing liabilities of 3.00% was 34-basis points lower than the average cost of 3.34% for the nine months ended September 30, 2024, with the average cost of average interest-bearing deposits of 2.95% decreasing 36-basis points from 3.31% for the nine months ended September 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.

Previous wording

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.

Current wording

Average interest-bearing liabilities of $4.49 billion in the nine months ended September 30, 2025 were $33.1 million, or 1%, lower than the nine months ended September 30, 2024. The decrease was driven by a decrease in average total borrowings of $58.3 million, partially offset by a $25.2 million increase in average interest-bearing deposits. Average short-term borrowings decreased to $97.2 million, down $52.4 million from the nine months ended September 30, 2024, and average long-term borrowings decreased to $118.7 million, down $5.9 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 $25.2 million for the current period, while noninterest-bearing demand deposits (a principal component of net free funds) decreased $18.6 million to $936.9 million for the nine months ended September 30, 2025. The increase in average interest bearing deposits reflected growth in public, reciprocal and non-public deposits, partially offset by decreases in reciprocal deposits. For further discussion of the reciprocal deposit programs, refer to the “Funding Activities–Deposits” section of this Management’s Discussion and Analysis. Overall, the $12.6 million decrease in interest expense during the nine months ended September 30, 2025 was primarily due to average deposit rate changes, reflective of the interest rate cuts previously mentioned.

Previous wording

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.

Current wording

The provision for credit losses in the third quarter of 2025 and the nine months ended September 30, 2025 was driven by a combination of factors, including the impact of loan growth and net charge-off activity, coupled with a decrease in the forecasted loss rate for pooled loans, partially offset by an increase in qualitative factors.

Previous wording

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.

Current wording

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

Previous wording

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.

Current wording

Income from company owned life insurance increased $1.4 million, to $2.8 million for the third quarter of 2025, compared to $1.4 million for the third quarter of 2024. For the first nine months of 2025, income from company owned life insurance increased $4.5 million, to $8.6 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.

Previous wording

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.

Current wording

Income from investments in limited partnerships of $223 thousand for the third quarter of 2025, decreased $177 thousand, compared to $400 thousand for the third quarter of 2024. For the first nine months of 2025, income from investments in limited partnerships decreased $600 thousand, to $945 thousand. Income from our investments in limited partnerships fluctuates based on the maturity and performance of the underlying investments.

Previous wording

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.

Current wording

Net gain on sale and disposal of other assets for the first nine months of 2024 was comprised of the net gain generated from the sale of SDN.

Previous wording

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.

Current wording

Salaries and employee benefits expense increased $2.6 million, or 17%, to $18.5 million for the third quarter of 2025, compared to $15.9 million for the third quarter of 2024, reflecting an increase in health insurance benefits due to elevated medical claims under the Company’s self-insured plan. For the first nine months of 2025, salaries and employee benefits expense increased $4.5 million, or 9%, to $53.5 million, compared to the first nine months of 2024, due to the aforementioned higher health insurance benefit expense, as well as 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.

Previous wording

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.

Current wording

Occupancy and equipment expense increased $444 thousand, or 13%, to $3.8 million for the third quarter of 2025, compared to $3.4 million for the third quarter of 2024. For the first nine months of 2025, occupancy and equipment expense increased $816 thousand, or 8%, to $11.4 million, compared to the first nine months of 2024. The increases were due, in part, to costs associated with our ongoing ATM conversion and upgrade project.

Previous wording

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.

Current wording

Professional services expense decreased $277 thousand, or 14%, to $1.7 million for the third quarter of 2025 compared to $2.0 million for the third quarter of 2024. For the first nine months of 2025, professional services expense decreased $1.3 million, or 21%, to $4.8 million, compared to $6.1 million for the first nine months of 2024. The decreases for both periods were primarily due to higher legal expenses in 2024.

Previous wording

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.

Current wording

Computer and data processing expense increased $436 thousand, or 8%, to $5.8 million for the third quarter of 2025, compared to $5.4 million for the third quarter of 2024. For the first nine months of 2025, computer and data processing expense increased $1.1 million, or 7%, to $17.2 million compared to $16.1 million for the first nine months of 2024. The increases in both periods were impacted by the timing of expenses for in-process technology enhancement and upgrade initiatives.

Previous wording

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.

Current wording

Deposit-related charged-off items expense of $20.0 million for the first nine months of 2024 included an $18.4 million loss associated with the previously disclosed deposit-related fraud event.

Previous wording

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.

Current wording

Our efficiency ratio for the third quarter of 2025 was 56.78%, compared with 64.70% for the third quarter of 2024. The lower efficiency ratio for the third quarter of 2025 was primarily due to the increase in interest income on our investment securities portfolio as a result of the investment securities restructuring in the fourth quarter of 2024. Our efficiency ratio for the first nine months of 2025 was 58.38%, compared with 71.75% for the first nine months of 2024. The lower efficiency ratio in 2025 was primarily due to higher interest income as a result of the investment securities restructuring. Further, the elevated efficiency ratio for the first nine months of 2024 was reflective of higher noninterest expenses, which included an $18.4 million pre-tax loss in deposit-related charged-off items. 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.

Previous wording

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.

Current wording

For the third quarter of 2025, we recorded income tax expense of $4.8 million, compared to $1.1 million for the third quarter of 2024, and $12.5 million for the first nine months of 2025, compared to $6.0 million for the first nine months of 2024. The lower level of income tax expense incurred in 2024 was primarily due to a lower level of pre-tax income, reflecting the impact of the previously disclosed deposit-related fraud event. In the third 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 nine months of 2025 and 2024 also included related benefits of $3.3 million and $3.4 million, respectively.

Previous wording

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.

Current wording

Our effective tax rate for the third quarter of 2025 was 18.9%, versus 7.4%, for the third quarter of 2024, and 18.5% for the first nine months of 2025, compared to 12.6% for the first nine 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.

Previous wording

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.

Current wording

Our available for sale (“AFS”) investment securities portfolio increased $12.5 million from December 31, 2024 to September 30, 2025. The AFS portfolio had a net unrealized loss of $38.9 million at September 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.

Previous wording

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.

Current wording

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 nine months ended September 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.

Previous wording

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.

Current wording

All of the mortgage-backed securities held by us as of September 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.

Previous wording

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.

Current wording

Our AFS portfolio as of September 30, 2025, reflected our strategic investment securities restructuring which occurred in December 2024 following the completion of the public common stock offering, as well as the sale of $22.3 million of 30-year fixed rate mortgage-backed securities with higher expected pre-payment speeds in September 2025, the proceeds of which were reinvested into investment grade corporate bonds. As of September 30, 2025, there were 45 securities in the AFS Agency MBS portfolio with an aggregate fair value of $337.9 million that were in an unrealized loss position with unrealized losses totaling $48.2 million. Of these, 37 were in an unrealized loss position for 12 months or longer and had an aggregate fair value of $206.2 million and unrealized losses of $45.8 million, while 8 were in an unrealized loss position for less than 12 months and had an aggregate fair value of $131.7 million and unrealized losses of $2.5 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.

Previous wording

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.

Current wording

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 September 30, 2025, our ownership of FHLB and FRB stock totaled $9.7 million and $9.2 million, respectively, and is included in other assets and recorded at cost, which approximates fair value.

Previous wording

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):

Current wording

Total loans were $4.59 billion at September 30, 2025, an increase of $111.2 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):

Previous wording

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.

Current wording

Total commercial loans of $2.99 billion represented 65% of total loans as of September 30, 2025, compared to $2.86 billion, or 64% of total loans as of December 31, 2024. Commercial business loans of $740.6 million, or 16% of total loans, were up $75.3 million, or 11%, from December 31, 2024, and total commercial mortgage loans of $2.25 billion, or 49% of total loans, were up $49.5 million, or 2% from $2.20 billion as of December 31, 2024. The increase in total commercial mortgage loans was attributable to increases in multifamily, non-owner occupied and owner occupied loans, partially offset by decreases in construction loans. As of September 30, 2025, commercial real estate (“CRE”) loans made up approximately 67% of total commercial loans, and 44% of total loans, commercial and industrial loans approximated 28% of total commercial loans, and 19% of total loans, and business banking unit loans were approximately 5% of total commercial loans and 3% of total loans. Our CRE committed credit exposure at September 30, 2025 primarily related to approximately 45% multi-family, 18% office, 9% retail, 9% land, 8% hospitality, 6% industrial property, and 2% home builder properties. Approximately 70% of our office exposure at September 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.

Previous wording

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.

Current wording

Total consumer loans of $1.60 billion, or 35% of total loans at September 30, 2025, decreased $13.6 million from December 31, 2024. Consumer loans at September 30, 2025 were comprised of residential real estate loans and lines of credit of $724.5 million, or 16% of total loans, consumer indirect loans of $838.7 million, or 18% of total loans, and other consumer loans of $37.5 million, or 1% of total loans. During the third quarter of 2025, we originated $259.5 million in indirect automobile loans with a mix of approximately 30% new automobile and 70% used automobile loans. This compares with the $170.5 million originated of indirect automobile loans with a mix of approximately 25% new automobile and 75% used automobile loans for the third quarter of 2024. Origination volumes and the mix of new and used vehicles financed fluctuate depending on general market conditions.