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Item 7. Management’s Discussion and Analysis

2025-03-14 compared with 2024-03-13 · 353 added, 373 removed, 661 unchanged (52% of the section changed)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is the MD&A of the Corporation in this Form 10-K at December 31, 2023 and 2022, and for the years ended December 31, 2023, and 2022.

The following is the MD&A of the Corporation as of and for the years ended December 31, 2024 and 2023.

The purpose of this discussion is to focus on information about the financial condition and results of operations of the Corporation.

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These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." The Corporation cannot guarantee that its expectations in such forward-looking statements will turn out to be correct.

The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, inflation, cybersecurity risks, changes in FDIC assessments, bank failures, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends.

The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, inflation, tariffs, cybersecurity risks, changes in FDIC assessments, bank failures, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends.

Information concerning these and other factors can be found in the Corporation’s periodic filings with the SEC, including the discussion under the heading “Item 1A.

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The Corporation prepares its financial statements in conformity with GAAP.

As a result, the Corporation is required to make certain estimates, judgments, and assumptions that it believes are reasonable based upon the information available at that time.

These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the years presented.

Actual results could be different from these estimates.

As a result, the Corporation is required to make certain estimates, judgments, and assumptions that it believes to be reasonable based upon the information available at that time.

These estimates, judgments, and assumptions affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the years presented.

Actual results could differ from these estimates.

Allowance for Credit Losses

Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to its portfolios of assets exhibiting credit risk, particularly in its loan portfolio, and the material effect that such judgments can have on the Corporation's results of operations.

Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to its portfolios of assets exhibiting credit risk, particularly in its loan portfolio, and the material effect that such judgments may have on the Corporation's results of operations.

Determining the amount requires significant judgement on the part of management, is multi-faceted, and can be imprecise.

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Deteriorating conditions may lead to further required increases to the allowance;

conversely, improvements to conditions may warrant further reductions to the allowance.

In estimating the allowance for credit losses, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate, including as it relates to qualitative considerations.

As of December 31, 2023, the allowance for credit losses totaled $22.5 million, compared to an allowance for loan losses of $19.7 million as of December 31, 2022.

A significant portion of the allowance for credit losses is allocated to the commercial portfolio, both commercial real estate and commercial and industrial.

As of December 31, 2023 and December 31, 2022, the allowance for credit losses (allowance for loan losses for December 31, 2022), allocated to the total commercial portfolio was $17.1 million and $14.9 million respectively, or 75.9% and 76.0%.

Given the concentration of the allowance for credit losses allocated to the total commercial real estate and commercial and industrial portfolios, and the significant judgments made by management to derive qualitative factors, management closely analyzes the impact that changes in judgments relating to these portfolios could have on the allowance.

conversely, improvements to conditions may warrant reductions to the allowance.

In estimating the allowance for credit losses, management considers the sensitivity of the model to significant judgments and assumptions that could result in an amount that is materially different from management’s estimate, including as it relates to qualitative considerations.

As of December 31, 2024, the allowance for credit losses on loans totaled $21.4 million, compared to $22.5 million as of December 31, 2023.

A significant portion of the allowance for credit losses is allocated to the commercial portfolio, both commercial real estate and commercial and industrial loans.

As of December 31, 2024 and December 31, 2023, the allowance for credit losses allocated to the total commercial portfolio was $15.7 million and $17.1 million respectively, or 73.6% and 75.9%.

For comparison, total commercial loans represented 73.2% and 70.3% of total loan balances, respectively, as of December 31, 2024 and 2023.

Given the concentration of the allowance for credit losses allocated to the commercial portfolio, and the significant judgments made by management to derive its estimates, management analyzes risks distinctive to commercial lending with a high degree of scrutiny.

Changes in the FOMC's median forecasted year over year U.S.

civilian unemployment rate and year over year change in U.S GDP could have a material impact on the model's estimation of the allowance.

Currently, all pools, with the exception of the consumer loans pool, as defined in Note 1 to the Consolidated Financial Statements, utilize the FOMC's projections for unemployment as a loss driver, while the consumer pool utilizes the FOMC's projections for GDP growth.

FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings.

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civilian unemployment, and a decrease of 50 bps in the FOMC's projected rate of U.S.

GDP growth would increase the model's total calculated allowance by $1.5 million, or 6.8%, to $24.0 million, assuming qualitative adjustment are kept at current levels.

GDP growth, would increase the model's total calculated allowance by $1.3 million, or 6.2%, to $22.7 million, assuming qualitative adjustments are kept at current levels.

While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgement of factors as of December 31, 2024, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

Management’s methodology and policy in determining the allowance for credit losses can be found in Note 1 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.

The activity in the allowance for credit losses is depicted in supporting tables in Note 4 to the Consolidated Financial Statements included Part IV, Item 15 of this Annual Report on Form 10-K.

The activity in the allowance for credit losses can be found in supporting tables in Note 4 to the Consolidated Financial Statements included Part IV, Item 15 of this Annual Report on Form 10-K.

Consolidated Financial Highlights (in thousands, except per share data)

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Net interest income 74,059 74,457

Provision for credit losses (a) 3,262 (554)

Net interest income after provision for credit losses (a) 71,195 74,733

Provision (credit) for credit losses (46) 3,262

Net interest income after provision for credit losses 74,105 71,195

Non-interest income 23,230 24,549

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Return on average equity 11.53 % 14.11 %

Return on average tangible equity (b) 16.09 % 18.12 %

Efficiency ratio (unadjusted) (c) 64.89 % 62.00 %

Efficiency ratio (adjusted) (b) 66.20 % 61.71 %

Return on average tangible equity (a) 12.90 % 16.09 %

Efficiency ratio (unadjusted) (b) 69.12 % 64.89 %

Efficiency ratio (adjusted) (a) 68.89 % 66.20 %

Non-interest expense to average assets 2.45 % 2.41 %

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Interest rate spread 1.87 % 2.13 %

Net interest margin, fully taxable equivalent 2.85 % 3.05 %

Net interest margin, fully taxable equivalent (a) 2.76 % 2.85 %

Total equity to total assets at end of year 7.76 % 7.20 %

Tangible equity to tangible assets at end of year (b) 6.45 % 5.51 %

Tangible equity to tangible assets at end of year (a) 7.02 % 6.45 %

Book value per share $ 45.13 $ 41.07

Tangible book value per share (b) 36.48 30.69

Tangible book value per share (a) 40.55 36.48

Year-end market value per share 48.81 49.80

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AVERAGE BALANCES

Loans (d) $ 1,898,986 $ 1,646,576

Loans and loans held for sale (c) $ 2,016,481 $ 1,898,986

Interest-earning assets 2,698,148 2,621,251

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Total equity 205,280 177,187

Tangible equity (b) 155,363 158,857

Tangible equity (a) 183,456 155,363

ASSET QUALITY

Net charge-offs (recoveries) $ 1,160 $ 941

Non-performing loans (e) 10,411 8,178

Non-performing assets (f) 10,737 8,373

Allowance for credit losses (a) 22,517 19,659

Non-performing loans (d) 8,954 10,411

Non-performing assets (e) 9,606 10,737

Allowance for credit losses 21,388 22,517

Annualized net charge-offs (recoveries) to average loans 0.06 % 0.05 %

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Non-performing assets to total assets 0.35 % 0.40 %

Allowance for credit losses to total loans (a) 1.14 % 1.07 %

Allowance for credit losses to non-performing loans (a) 216.28 % 240.39 %

(a) Corporation adopted CECL January 1, 2023.

(d) Includes loans held for sale and does not reflect the ACL.

(b) See the GAAP to Non-GAAP reconciliations Pages 63-66.

(e) Includes non-accrual loans only.

(c) Non-interest expense divided by total of net interest income plus (f) Includes non-performing loans plus other real estate owned.

Allowance for credit losses to total loans 1.03 % 1.14 %

Allowance for credit losses to non-performing loans 238.87 % 216.28 %

(a) See the GAAP to Non-GAAP reconciliations on pages 65-68.

(d) Includes non-accrual loans only.

(b) Non-interest expense divided by total of net interest income plus (e) Includes non-performing loans plus other real estate owned and

non-interest income.

repossessions

Consolidated Results of Operations

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Pre-provision income 30,039 34,763 (4,724) (13.6) %

Provision for credit losses (a)

3,262 (554) 3,816 N/M

Provision for credit losses (46) 3,262 (3,308) (101.4) %

Income tax expense 6,414 6,501 (87) (1.3) %

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Net interest margin, fully taxable equivalent 2.76 % 2.85 %

Efficiency ratio (adjusted) (b) 66.20 % 61.71 %

Efficiency ratio (adjusted) (a) 68.89 % 66.20 %

Non-interest expense to average assets 2.45 % 2.41 %

(a) The Corporation adopted CECL on January 1, 2023.

(b) See the GAAP to Non-GAAP reconciliations on pages 63-66

(a) See the GAAP to Non-GAAP reconciliations on pages 65-68.

Net income for the year ended December 31, 2024 was $23.7 million, or $4.96 per share, compared with net income of $25.0 million, or $5.28 per share, for the prior year.

Return on average equity for the year ended December 31, 2024 was 11.53%, compared with 14.11% for the prior year.

The decrease in net income for the year ended December 31, 2023, compared to the prior year, was due to increases in the provision for credit losses and non-interest expenses, offset by increases in non-interest income and net interest income, and a decrease in income tax expense.

The decrease in net income for the year ended December 31, 2024, compared to the prior year, was due to an increase in non-interest expense, decreases in non-interest income and net interest income, offset by decreases in the provision for credit losses and income tax expense.

Net Interest Income

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Net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and securities, and the interest expense recognized on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation’s earnings.

Net interest income for the year ended December 31, 2023 totaled $74.5 million, an increase of $0.3 million, or 0.4%, compared with $74.2 million for the prior year.

Net interest income for the year ended December 31, 2024 totaled $74.1 million, a decrease of $0.4 million, or 0.5%, compared with $74.5 million for the prior year.

Fully taxable equivalent net interest margin was 2.76% for the year ended December 31, 2024 compared with 2.85% for the prior year.

The increase in net interest income was primarily due to increases of $29.2 million in interest income on loans, including fees, $2.2 million in interest and dividend income on taxable securities, and $0.3 million in interest income on interest-earning deposits, offset by increases of $29.3 million in interest expense on deposits, and $2.1 million in interest expense on borrowed funds.

The increase in interest income on loans, including fees was due primarily to a 99 basis points increase in the average yield on loans, primarily related to the commercial and consumer loan portfolios due to an increase in interest rates, and a $252.4 million increase in average loan balances.

The increases in the average loan balances were primarily concentrated in the commercial loan portfolio, as well as the indirect auto segment of the consumer loan portfolio.

The increase in interest and dividend income on taxable securities was due primarily to a 48 basis points increase in the average yield, due to an increase in interest rates on existing variable rate securities, despite a decrease in the average invested balances of $63.6 million, primarily due to paydowns on mortgage-backed and SBA pooled-loan securities.

The increase in interest income on interest-earning deposits was due primarily to the increase in interest rates on overnight deposits with the average yield on interest-earning deposits increasing from 1.24% in 2022 to 5.07% in 2023.

The increase in interest expense on deposits was due primarily to a 167 basis points increase in average rates paid on interest-bearing deposits which included brokered deposits, due to the higher interest rate environment, and a shift in the mix of deposits towards higher cost interest-bearing accounts such as time deposits, when compared to the prior year.

The increase in interest expense on borrowed funds was due primarily to a $29.1 million increase in the average balances and 266 basis points increase in interest rates of overnight FHLBNY borrowings, when compared to the prior year.

Average interest-earning assets increased $177.0 million in 2023 when compared to the prior year.

The average yield on average interest-earning assets increased 98 basis points, and the average cost of interest-bearing liabilities increased 173 basis points, when compared to the prior year, both due to the rising interest rate environment over the past two years.

The decrease in net interest income was primarily due to increases of $14.1 million in interest expense on deposits and $0.8 million in interest expense on borrowed funds, and a decrease of $1.3 million in interest and dividend income on taxable securities, offset by increases of $14.9 million in interest income on loans including fees, and $0.9 million in interest income on interest-earning deposits.

The increase in interest expense on deposits was due primarily to a 68 basis points increase in the average rate paid on interest-bearing deposits, which included brokered deposits, and deposit campaigns primarily related to time deposits.

The increase in interest expense on borrowed funds was due primarily to a $16.2 million increase in average balances of borrowed funds, compared to the prior year, partially offset by a 14 basis points decrease in the average interest paid on total borrowings, compared to the prior year.

Average balances of borrowed funds in the current year consisted of FHLBNY overnight and term advances and a Federal Reserve Bank Term Funding Program Advance (BTFP), while borrowed funds in the prior year consisted primarily of FHLBNY overnight advances.

The decrease in interest and dividend income on taxable securities was primarily due to a decrease of $58.0 million in average balances of taxable securities, primarily due to paydowns on mortgage-backed and SBA pooled loan securities.

The average yield on taxable securities was comparable between 2023 and 2024.

The increase in interest income on loans, including fees was due primarily to an increase of $117.5 million in average total loan balances and an increase of 44 basis points increase in the average yield on loans.

The increase in average balances was concentrated in the commercial loan portfolio, which increased $136.8 million compared to the prior year.

Average balances of consumer loans and residential mortgage loans decreased $11.0 million and $8.3 million respectively, compared to the prior year.

The average yield on commercial loans increased 37 basis points, while the average yields on consumer loans and residential mortgage loans increased 69 and 30 basis points respectively, compared to the prior year.

The increase in interest income on interest-earning deposits was mainly due to an increase of $18.8 million in average balances of interest-earning deposits, due to an increase in deposits at the FRBNY.

Average interest-earning assets increased $76.9 million while average interest-bearing liabilities increased $108.1 million during 2024, compared to the prior year.

The average yield on interest-earning assets increased 41 basis points to 4.74%, while the average cost of interest-bearing liabilities increased 67 basis points to 2.87% during 2024, compared to the prior year, both primarily due to the lagging effects of interest rate increases during 2022 and 2023.

Average Consolidated Balance Sheet and Interest Analysis

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It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2024, and 2023.

For the purpose of the table below, non-accruing loans are included in the daily average loan amounts outstanding.

For the purpose of the table below, nonaccrual loans are included in the daily average loan amounts outstanding.

Daily balances were used for average balance computations.

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FHLBNY overnight advances 21,907 1,151 5.17 % 48,851 2,577 5.28 %

Long-term capital leases 3,177 114 3.59 % 3,449 123 3.57 %

FRBNY advances and other debt 46,363 2,302 4.97 % 3,177 114 3.59 %

Total interest-bearing liabilities 1,862,645 53,505 2.87 % 1,754,511 38,617 2.20 %

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Net interest income $ 74,059 $ 74,457

(1) The Corporation adopted CECL January 1, 2023.

(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average cost of interest-bearing liabilities.

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Due to the numerous simultaneous volume and rate changes during the years analyzed, it is not possible to precisely allocate changes between volume and rates.

In addition, average interest-earning assets include non-accrual loans and taxable equivalent adjustments were made.

In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

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FHLBNY overnight advances (1,426) (1,374) (52)

Long-term capital leases (9) (8) (1)

FRBNY advances and other debt 2,188 2,128 60

Total interest expense 14,888 3,715 11,173

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Provision for credit losses

Management performs an ongoing assessment of the adequacy of the allowance for credit losses based on its current expected credit losses (CECL) methodology, which includes loans individually analyzed, as well as loans analyzed on a pooled basis.

The Corporation's methodology estimates the lifetime losses in its loan portfolio by utilizing an expected discounted cash flow approach.

Based on FOMC forecasted data points, the model is supplemented by qualitative considerations including relevant economic influences, portfolio concentrations, and other external factors.

The Corporation adopted the CECL accounting standard on January 1, 2023.

The provision for credit losses for the year ended December 31, 2023 was $3.3 million compared to a credit of $0.6 million for the prior year.

The increase was primarily due to a $0.9 million specific allocation on a commercial real estate relationship during 2023, and the impact on the allowance for credit losses methodology of the adoption of CECL as of January 1, 2023.

Increased loan volume, and changes to model inputs, including a decline in the prepayment rates of many of the model's loan pools, drove the increase.

Declining prepayments impact the application of discounted cash flows by increasing the principal subject to discounting in later periods.

Additionally, management increased the qualitative adjustment rate applied to the consumer loan portfolio, considering changes in economic conditions that may not be reflected in the FOMC's forecasted data points, but may adversely impact consumers' financial strength.

These increases were offset by relatively favorable changes in the FOMC's forecasted data points.

Between December 2022 and December 2023, the FOMC's unemployment projection for year-end 2024 decreased from 4.6% to 4.1%, while the FOMC's projection for year-end U.S.

GDP annual growth rate decreased from 1.6% to 1.4%.

However, the year-end 2023 projected GDP growth rate, which impacted the model throughout the year, improved from 0.5% to 2.6% between December 2022 and December 2023.

Net charge-offs for the years ended December 31, 2023 and 2022 were $0.9 million and $0.8 million, respectively.

Management's methodology for establishing and maintaining an allowance for credit losses conforms with ASU 2016-13, F inancial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments , which was adopted by the Corporation effective January 1, 2023.

Based on a combination of quantitative and qualitative analysis, changes to the allowance are recorded through income as a provision (credit).

The quantitative portion of the analysis is significantly influenced by changes in projected economic conditions and the composition of the numerous portfolio segments, while qualitative adjustments reflect the degree to which management anticipates actual credit risk may differ from the results projected by the quantitative analysis.

The provision for credit losses decreased $3.3 million, from a provision of $3.3 million for the year ended December 31, 2023 to a credit of $46 thousand for the year ended December 31, 2024.

The decrease was largely due to the annual review and update of the loss drivers used in the Bank's CECL model.

Updated loss drivers were applied to the CECL model in the first quarter of 2024, resulting in a credit (provision recapture) of $2.0 million for the three months ended March 31, 2024.

Additionally, provisioning during 2023 included a $0.9 million specific allocation on a nonaccrual commercial real estate relationship, and higher growth-related provisioning compared to 2024.

Partially offsetting these decreases were a decline in modeled prepayment speeds, which results in higher estimated credit losses, and an increase of $0.2 million in net charge-offs for the year ended December 31, 2024 compared to the year ended December 31, 2023.

Non-interest income

The following table presents non-interest income for the years indicated, and the dollar and percent change (in thousands):

Years Ended December 31, Percentage Change

2023 2022 Change

The following table presents non-interest income for the years ended December 31, 2024 and 2023, and the dollar and percent change (in thousands, except percentages):

NON-INTEREST INCOME

2024 2023 2024 v.

Amount % to Total Amount % to Total $ Change % Change

Wealth management group fee income $ 11,573 49.8 % $ 10,460 42.6 % $ 1,113 10.6 %

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Net (losses) on securities transactions — — % (39) (0.2) % 39 N/M

Change in fair value of equity investments 103 (349) 452 N/M

Change in fair value of equity investments 179 0.8 % 103 0.4 % 76 73.8 %

Net gains on sales of loans held for sale 214 0.9 % 144 0.6 % 70 48.6 %

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Total non-interest income $ 23,230 100.0 % $ 24,549 100.0 % $ (1,319) (5.4) %

Non-interest income for the year ended December 31, 2023 was $24.5 million compared with $21.4 million for the prior year, an increase of $3.1 million, or 14.5%.

The increase was due primarily to increases of $2.5 million in other non-interest income, $0.5 million in change in fair value of equity investments, $0.2 million in WMG fee income, and $0.1 million in service charges on deposit accounts.

Non-interest income for the year ended December 31, 2024 was $23.2 million compared with $24.5 million for the prior year, a decrease of $1.3 million, or 5.4%.

The decrease was due primarily to decreases of $2.5 million in other non-interest income and $0.2 million in interchange revenue from debit card transactions, offset by an increase of $1.1 million in wealth management group fee income.

Other non-interest income

Other non-interest income increased compared to the prior year primarily due to the $2.4 million recognition of an employee retention tax credit in the third quarter of 2023.

Change in Fair Value of Equity Investments

Change in fair value of equity investments increased in 2023 compared to the prior year primarily due to an improvement in the market value of assets held for the Corporation's deferred compensation plan.

Other non-interest income decreased compared to the prior year primarily due to the $2.4 million recognition of an employee retention tax credit in the third quarter of 2023.

Interchange Revenue from Debit Card Transactions

The decrease in interchange revenue from debit card transactions was primarily attributable to a decrease in consumer debit card usage when compared to the prior year.

Wealth Management Group Fee Income

The increase in wealth management group fee income was primarily attributed to an increase in the market value of total assets under management or administration, due to improved conditions in equity markets in 2023, when compared to the prior year.

Service Charges on Deposit Accounts

The increase in service charges on deposit accounts was primarily due to an increase in non-sufficient fund fees when compared to the prior year.

The increase in wealth management group fee income was primarily due to improved equity market conditions during 2024.

Non-interest expenses

The following table presents non-interest expenses for the years indicated, and the dollar and percent change (in thousands):

Years Ended December 31, Percentage Change

2023 2022 Change

The following table presents non-interest expenses for the years ended December 31, 2024 and 2023, and the dollar and percent change (in thousands, except percentages):

NON-INTEREST EXPENSE

2024 2023 2024 v.

Amount % to Total Amount % to Total $ Change % Change

Compensation expenses:

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Professional services 2,353 3.5 % 2,293 3.6 % 60 2.6 %

Amortization of intangible assets — 15 (15) (100.0) %

Marketing and advertising 1,182 1.8 % 923 1.4 % 259 28.1 %

Other real estate owned expense (20) (5) (15) 300.0 %

Other real estate owned expense 157 0.2 % (20) — % 177 N/M

FDIC insurance 2,120 3.2 % 2,128 3.3 % (8) (0.4) %

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Compensation expenses

Compensation expenses increased $2.5 million, or 7.9% when compared to the prior year, primarily due to increases of $1.8 million in salaries and wages and $1.0 million in other components of net periodic pension benefits, offset by a decrease of $0.3 million in pension and other employee benefits.

The increase in salaries and wages was primarily attributable to an increase in the market value of the Corporation's deferred compensation plans and base salary increases, while the increase in other components of net periodic pension benefits was primarily due to a change in factors used to prepare annual actuarial estimates.

The decrease in pension and other employee benefits was primarily due to a decrease in employee healthcare expenses when compared to the prior year.

Compensation expenses increased $2.1 million, or 6.3%, when compared to the prior year, primarily due to increases of $1.6 million in salaries and wages and $0.7 million in pension and other employee benefits, offset by a decrease of $0.2 million in other components of net periodic pension benefits.

The increase in salaries and wages was primarily attributable to additional staffing in the Bank's new Western New York market, merit-based wage increases, and promotions, which was partially offset by savings from the outsourcing of certain back office functions during 2024.

The increase in pension and other employee benefits was largely due to an increase in employee healthcare-related expenses, compared to the prior year.

The decrease in other components of net periodic pension benefits was primarily due to a change in annual actuarial estimates.

Non-compensation expenses

Non-compensation expenses increased $2.5 million, or 8.9%, primarily due to increases of $0.9 million in data processing expense, $0.8 million in FDIC insurance expense, and $0.8 million in other non-interest expense.

The increase in data processing expense was primarily due to ongoing enhancements to our cybersecurity capabilities, outsourced debit card processing to a third-party vendor, and an increase in wealth management software expenses.

FDIC insurance expense increased due to an increase in the assessment rate effective January 1, 2023.

The increase in other non-interest expense was primarily due to the recapture of $0.2 million in accrued telecommunication expenses during the prior year, and an increase in non-loan charge-offs in the current year.

Non-compensation expenses increased $0.9 million, or 2.9%, primarily due to increases of $0.3 million in marketing and advertising, $0.3 million in data processing expense, and $0.2 million in net occupancy expense.

The increase in marketing and advertising expense was primarily attributable to expenditures related to the Bank's 190th anniversary checking account promotion and ongoing certificate of deposit campaigns, the launch of the Bank's new Western New York "Canal Bank" brand, and a general increase in advertising efforts during the current year.

The increase in data processing expense was primarily due to the addition of new contracts, an increase in debit card procurement expenses, and an increase in cybersecurity software expense.

The increase in net occupancy expense was primarily due to an increase in building maintenance expenses including cleaning, lawn care, utilities, and property insurance.

Income tax expense

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Effective tax rate 21.3 % 20.6 %

The effective tax rate decreased to 20.6% for the year ended December 31, 2023 compared with 22.0% for the prior year.

The effective tax rate increased to 21.3% for the year ended December 31, 2024 compared with 20.6% for the prior year.

The decrease in income tax expense can be primarily attributed to a decrease in pre-tax income.

Financial Condition

The following table presents selected financial information at December 31, 2023 and 2022, and the dollar and percent change (in thousands):

The following table presents selected financial information as of December 31, 2024 and 2023, and the dollar and percent change (in thousands):

December 31, 2024 December 31, 2023 Change Percentage Change

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Loans, net of deferred loan fees 2,071,419 1,972,664 98,755 5.0 %

Allowance for loan losses (22,517) (19,659) 2,858 14.5 %

Allowance for credit losses (21,388) (22,517) (1,129) (5.0) %

Loans, net 2,050,031 1,950,147 99,884 5.1 %

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Total deposits $ 2,396,883 $ 2,429,427 $ (32,544) (1.3) %

Capital lease obligations and FHLBNY advances 34,970 99,137 (64,167) (64.7) %

Finance lease obligations and FHLBNY advances 112,889 34,970 77,919 222.8 %

Other liabilities 51,066 50,891 175 0.3 %

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Cash and cash equivalents

The decrease in cash and cash equivalents can be mostly attributed to changes in securities, loans, deposits, and borrowings, offset by net income.

The increase in cash and cash equivalents can be mostly attributed to changes in securities, loans, deposits, borrowings, and net income.

Investment securities

The decrease in investment securities was primarily due to a decrease of $48.6 million in securities available for sale.

Net paydowns on securities available for sale during the year totaled $59.8 million, primarily attributable to paydowns on mortgage-backed securities and SBA pooled-loan securities, partially offset by an increase in the market value of $11.5 million, due to favorable changes in fixed income market valuation during the year.

Securities held to maturity decreased $1.6 million due to the sale of securities held by Chemung Risk Management, Inc.

relating to its dissolution.

In addition, FHLB stock decreased $2.7 million due to lower FHLBNY overnight advance borrowings as of the end of the current year, compared to the the prior year end.

The increase in total loans, net, was concentrated in the commercial loan portfolio, which increased $138.1 million, or 11.1%.

Commercial demand for financing continues to be strong across the Corporation's footprint, led by commercial real estate activity in the Albany, NY metro area.

Consumer loans increased $12.8 million, or 4.3%, primarily driven by strong origination activity in the indirect auto segment.

These increases were offset by a decrease of $7.7 million, or 2.7%, in the residential mortgage loan portfolio, due to a decrease in demand, as well as an increase in new originations being sold into the secondary market.

The decrease in investment securities was primarily due to a decrease of $52.6 million in securities available for sale, compared to the prior year.

Net paydowns and maturities of securities available for sale for the current year totaled $49.6 million, mainly due to paydowns on mortgage-backed securities and SBA pooled loan securities, and partially offset by purchases of $5.0 million.

The market value of securities available for sale decreased $0.7 million, due to unfavorable changes in market interest rates during the current year.

Partially offsetting the decrease in total investment securities was an increase of $3.6 million in FHLB and FRB stock, at cost, mainly due to an increase in FHLBNY overnight advances as of December 31, 2024, compared to the prior year end.

Loans, net of deferred origination fees and costs increased primarily due to growth concentrated in the commercial loan portfolio, which increased $129.2 million, or 9.3%, compared to the prior year end.

Growth in commercial loans during the current year consisted of $35.1 million in commercial and industrial balances and $94.1 million in commercial real estate balances.

Consumer loans decreased $27.4 million, or 8.9%, compared to the prior year end, largely due to lower indirect auto loan origination activity during the current year, and a relatively fast turnover rate in the portfolio.

Residential mortgages decreased $3.0 million, or 1.1%, compared to the prior year end, as the Corporation continued to elect to sell a portion of originations into the secondary market and demand remained weakened in the current elevated interest rate environment.

Allowance for credit losses

The allowance for credit losses on loans was $22.5 million as of December 31, 2023, and the allowance for loan losses was $19.7 million as of December 31, 2022.

The allowance for credit losses on unfunded commitments, a component of other liabilities, was $0.9 million as of December 31, 2023.

The increase in the allowance for credit losses, including unfunded commitments, was driven by a $1.5 million adjustment recognized upon adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), the specific allocation of $0.9 million on a commercial real estate relationship, provisioning related to loan growth, changes in model variables, and qualitative considerations.

The $1.5 million one-time implementation adjustment was comprised of $1.1 million reflecting the establishment of an allowance for credit losses on unfunded commitments, and a $0.4 million increase in the allowance for credit losses, reflecting the change in methodology.

During the fourth quarter of 2023, in addition to the $0.9 million specific allocation made in relation to a commercial real estate relationship, the Corporation allocated additional amounts to its allowance for credit losses in accordance with its CECL methodology.

One of the inputs utilized by the model is an assumed prepayment rate, calculated at the pool level, and based on a three-year rolling historical average of the Corporation's own prepayment experience.

During 2023, prepayment levels declined across most pools of loans, but was especially prevalent amongst residential mortgages.

Prepayment speeds had a meaningful impact on the allowance during the fourth quarter.

Prepayment assumptions and modeled present value of cash flows have a direct relationship.

As prepayment assumptions decline, the modeled present value of cash flows declines, increasing the assumed allowance requirements.

Additionally, loan growth, and to a lesser degree, changes in FOMC economic forecasted data points, increased reserve requirements during the fourth quarter.

The allowance for credit losses on loans decreased $1.1 million, or 5.0%, from $22.5 million as of December 31, 2023 to $21.4 million as of December 31, 2024.

The decrease was mainly due to the annual review and update of loss drivers used in the Bank's CECL model.

The results of the annual update were applied in the first quarter of 2024 and resulted in a decline in the baseline loss rates used for modeling.

Partially offsetting these declines were a decline in modeled prepayment speeds during 2024 and loan growth, concentrated in the commercial portfolio, during 2024.

Goodwill and other intangible assets, net

There were no impairments of goodwill or other intangible assets during the years ended December 31, 2024 and 2023.

The decrease in other assets can be mostly attributed to a decrease of $2.6 million in interest rate swap assets, primarily due to changes in interest rates.

The growth in deposits was attributable to an increase of $209.9 million in time deposits, or 52.2%, which includes customer time deposits and brokered deposits.

Customer time deposits increased $140.6 million, while brokered deposits increased $69.3 million.

Interest-bearing demand deposits increased $19.5 million.

These increases were offset by decreases of $80.2 million in non-interest bearing demand deposits, $29.9 million in savings deposits, and $17.1 million in insured money market deposits.

The increase in other assets can be mostly attributed to increases in prepaid expenses and interest receivable on interest rate swaps.

Total deposits decreased by $32.5 million or 1.3%, compared to the prior year end, primarily due to decreases of $50.6 million in brokered deposits, $28.6 million in money market deposits, and $27.4 million in non interest-bearing demand deposits.

These decreases were partially offset by increases of $62.3 million in customer time deposits and $15.4 million in interest-bearing demand deposits.

Additionally, savings deposits decreased $3.6 million.

Non interest-bearing deposits comprised 26.1% and 26.9% of total deposits as of December 31, 2024 and December 31, 2023, respectively.

Capital Lease Obligations and FHLBNY Advances

The decrease in capital lease obligations and FHLBNY advances can be mostly attributed to a decrease of $63.9 million in FHLBNY overnight advances.

Finance Lease Obligations and FHLBNY Advances

The increase in finance lease obligations and FHLBNY advances can be mostly attributed to an increase of $77.2 million in FHLBNY overnight advances and an increase of $0.7 million in finance lease obligations.

Other Liabilities

The decrease in other liabilities can be mostly attributed to a $2.6 million decrease in interest rate swap liabilities, primarily due to changes in interest rates.

The increase in other liabilities can be mostly attributed to an increase in interest payable on deposits of $0.6 million.

Shareholders’ equity

The increase in shareholders' equity was due primarily to an increase of $17.8 million in retained earnings and a decrease of $0.9 million in accumulated other comprehensive loss.

The increase in retained earnings was due primarily to net income of $25.0 million, offset by $5.9 million in dividends declared and a $1.1 million one-time adjustment due to the implementation of CECL.

The improvement in accumulated other comprehensive loss was primarily due to an improvement in the fair value of the available for sale securities portfolio, when compared to the prior year.

The increase in retained earnings was due primarily to net income of $23.7 million, offset by $5.9 million in dividends declared for the year ended December 31, 2024.

The improvement in accumulated other comprehensive loss was primarily due to revised actuarial assumptions related to the Corporation's pension plans, offset by the unfavorable impact of interest rates on available for sale securities during the current year.

Treasury stock decreased $0.3 million primarily due to the impact of the issuance of shares related to the Corporation's employee benefit plans.

Assets under management or administration

The market value of total assets under management or administration in WMG was $2.242 billion, including $381.3 million of assets held under management or administration for the Corporation, at December 31, 2023 compared to $2.053 billion, including $346.5 million of assets held under management or administration for the Corporation at December 31, 2022, an increase of $189.4 million, or 9.2%.

The increase in total assets under management or administration for the Corporation can be mostly attributed to broad improvements in the financial markets during the year.

The market value of total assets under management or administration in WMG was $2.212 billion, including $301.9 million of assets held under management or administration for the Corporation, as of December 31, 2024 compared to $2.242 billion, including $381.3 million of assets held under management or administration for the Corporation as of December 31, 2023, a decrease of $30.4 million, or 1.4%.

Excluding assets under management or administration for the Corporation, total Wealth Management Group assets increased $49.0 million, or 2.6%, primarily due to market improvements during the year.

Balance Sheet Comparisons

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Allowance for credit losses 21.4 22.5 (4.9) % 21.5 20.2 6.4 %

22.5 19.7 14.2 % 20.2 19.5 3.6 %

Shareholders’ equity 215.3 195.2 10.3 % 205.3 177.2 15.9 %

(1) Interest-earning assets include:

securities available for sale at estimated fair value, securities held to maturity at amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock, equity investments, and federal funds sold.

securities available for sale and securities held to maturity at amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock, equity investments, and federal funds sold.

(2) Loans and loans held for sale, net of deferred loan fees.

(3) Investments include securities available for sale at estimated fair value, securities held to maturity, at amortized cost, equity investments, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits.

(4) Borrowings include overnight advances and capitalized lease obligations.

(5) The Corporation adopted CECL on January 1, 2023.

(4) Borrowings include overnight advances, term advances, and finance lease obligations.

Cash and Cash Equivalents

Total cash and cash equivalents decreased $19.0 million when compared to December 31, 2022, due to decreases of $12.0 million in interest-earning deposits at other financial institutions, and $7.1 million in cash and due from financial institutions.

The Corporation’s Funds Management Policy includes an investment policy that in general, requires debt securities purchased for the bond portfolio to carry a minimum agency rating of "Baa." After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated.

Total cash and cash equivalents increased $10.2 million compared to December 31, 2023, due to increases of $6.2 million in interest-earning deposits at other financial institutions, and $4.0 million in cash and due from financial institutions.

The Corporation’s Funds Management Policy includes an investment policy that generally requires debt securities purchased for the bond portfolio to carry a minimum agency rating of "Baa." After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated.

The Corporation intends to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements, and other types of transactions.

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Marketable securities are generally classified as Available for Sale, while certain investments in local municipal obligations are classified as Held to Maturity.

The available for sale segment of the securities portfolio totaled $584.0 million at December 31, 2023, a decrease of $48.6 million, or 7.7%, from $632.6 million at December 31, 2022.

The decrease was primarily due to $59.6 million in paydowns, and sales of $1.2 million related to the dissolution of CRM, offset by an increase in the fair value of the portfolio of $11.5 million due to decreases in benchmark yields, and purchases of $3.2 million.

The available for sale segment of the securities portfolio totaled $531.4 million as of December 31, 2024, a decrease of $52.6 million, or 9.0%, from $584.0 million as of December 31, 2023.

The decrease was primarily due to net paydowns and maturities of $49.6 million, mainly due to paydowns on mortgage-backed securities and SBA pooled loan securities.

The market value of securities available for sale decreased $0.7 million, due to unfavorable changes in market interest rates during the current year.

Partially offsetting the decrease in total investment securities was an increase of $3.6 million in FHLB and FRB stock, at cost, primarily due to an increase in FHLBNY overnight advances as of December 31, 2024, compared to the prior year.

The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas.

These securities totaled $0.8 million at December 31, 2023, a decrease of $1.6 million or 67.6%, from $2.4 million at December 31, 2022, due primarily to maturities, and the dissolution of CRM in 2023.

Non-marketable equity securities at December 31, 2023 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.9 million and $3.6 million, respectively.

These securities totaled $0.8 million as of December 31, 2024, and December 31, 2023.

Non-marketable equity securities as of December 31, 2024 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.9 million and $7.2 million, respectively.

The fair value of these securities is assumed to approximate their cost.

The investment in these stocks is regulated by regulatory policies of the respective institutions.

The table below sets forth the carrying amounts and maturities of held to maturity debt securities at December 31, 2023 and the weighted average yields of such securities (all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security (in thousands):

The yield on the Corporation's investment portfolio, inclusive of interest-earnings deposits, as of December 31, 2024 and 2023 was 2.28% and 2.21% respectively, while the duration for the securities portfolio as of December 31, 2024 and 2023 was 4.0 years and 4.6 years, respectively.

The table below presents the composition of the Corporation's available for sale portfolio as of December 31, 2024 and 2023 (in thousands, except percentages):

Estimated Fair Value % to Total Portfolio Estimated Fair Value % to Total Portfolio

treasury notes and bonds $ 56,906 10.7 % $ 55,332 9.5 %

Mortgage-backed securities, residential 365,934 68.9 % 403,824 69.1 %

Obligations of states and political subdivisions 35,505 6.6 % 38,686 6.6 %

Other securities 73,097 13.8 % 86,151 14.8 %

Total securities available for sale $ 531,442 100.0 % $ 583,993 100.0 %

The table below sets forth the carrying amounts and maturities of held to maturity debt securities as of December 31, 2024 and the weighted average yields of such securities (all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security (in thousands, except percentages):

MATURITIES AND YIELDS OF HELD TO MATURITY SECURITIES

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Amount Yield Amount Yield Amount Yield Amount Yield

Obligations of states and political subdivisions $ — N/A $ 145 3.79 % $ 640 3.92 % $ — N/A

Obligations of states and political subdivisions $ 200 7.59 % $ 48 3.79 % $ 560 3.92 % $ — N/A

Total $ 200 7.59 % $ 48 3.79 % $ 560 3.92 % $ — N/A

The weighted-average yield on the Corporation's held to maturity debt securities at December 31, 2023 was 3.90%, related to obligations of states and political subdivisions.

The weighted-average yield on the Corporation's held to maturity debt securities as of December 31, 2024 was 4.83%, related to obligations of states and political subdivisions.

Management evaluates securities for credit loss exposure on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For the years ended December 31, 2023 and 2022, the Corporation had no credit loss charges relating to its investment securities.

The Corporation has reporting systems to monitor:

(i) loan origination and concentrations, (ii) delinquent loans, (iii) non-performing assets, including non-performing loans, certain loans made with modifications to borrowers experiencing financial difficulty, and other real estate owned, (iv) loans analyzed on an individual basis for credit risk, and (v) potential problem loans.

Management reviews the adequacy of these systems on a regular basis.

The table below presents the Corporation’s loan composition by type and percentage of total loans for the years ended December 31, 2023 and December 31, 2022 (in thousands, except percentages):

For the years ended December 31, 2024 and 2023, the Corporation had no provisions for credit losses relating to its investment securities.

The table below presents the Corporation’s loan composition by type and percentage of total loans for the years ended December 31, 2024 and December 31, 2023 (dollars in thousands):

LOAN COMPOSITION

December 31, % Change

2023 % of Total 2022 % of Total 2022 to 2023

Commercial and agricultural:

December 31, 2024 v.

2024 % of Total 2023 % of Total $ Change % Change

Commercial and industrial $ 299,521 14.5 % $ 264,396 13.4 % $ 35,125 13.3 %

Agricultural 256 — % 249 — % 2.8 %

Commercial mortgages:

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Total $ 2,071,419 100.0 % $ 1,972,664 100.0 % $ 98,755

Portfolio loans totaled $1.973 billion at December 31, 2023 and $1.829 billion at December 31, 2022, an increase of $143.2 million, or 7.8%.

The increase was driven by increases of $126.0 million in commercial real estate loans, or 12.6%, $12.1 million, or 4.8% in commercial and industrial loans, and $8.3 million, or 4.1% in indirect auto loans, offset primarily by a decrease in residential mortgages of $7.7 million, or 2.7%.

The increase in total commercial real estate was the result of a $95.4 million increase in commercial mortgages, other, primarily driven by increases in multi-family properties, and a $30.6 million increase in construction loans.

Commercial real estate lending continues to be the primary driver of asset growth for the Corporation, as demand for project financing remains robust across the Corporation's footprint, particularly in the Albany and Buffalo regions.

At December 31, 2023, commercial real estate loans in the Albany and Buffalo regions have grown $91.5 million and $30.3 million from December 31, 2022, respectively.

The increase in commercial and industrial loans was relatively evenly distributed across the Corporation's footprint.

The increase in indirect auto loans was attributable to a renewed focus in the program beginning in late 2021, following a pricing and dealer network restructuring, continuing through 2023, as well as continued robust demand for automobiles coupled with elevated auto pricing nationwide.

A decrease in residential mortgage loans was due to weak demand for new originations in the current higher interest rate environment, and lower market mobility due to many borrowers "locking in" lower rates secured in previous years, as well as the Corporation selling a larger proportion of its residential mortgage originations into the secondary market.

Mortgage originations held on the balance sheet totaled $20.8 million and mortgage loans originated and sold into the secondary market totaled $6.4 million for the year ended December 31, 2023.

Portfolio loans totaled $2.071 billion as of December 31, 2024 and $1.973 billion as of December 31, 2023, an increase of $98.8 million, or 5.0%.

The increase was driven by increases of $94.1 million in commercial real estate loans, or 8.4%, and $35.1 million, or 13.3%, in commercial and industrial loans, partially offset by decreases of $32.3 million in indirect consumer loans, or 15.4%, and $3.0 million, or 1.1%, in residential mortgages.

Commercial real estate lending continues to be a primary driver of asset growth for the Corporation, with persistent demand across the Corporation's footprint, particularly in the Capital and Western New York regions.

The increase in total commercial real estate loans was the result of a $138.0 million increase in commercial mortgages, other, primarily driven by increases in non-owner occupied and multifamily properties, partially offset by a $43.9 million decrease in construction loans, which reflect the conversion of a number of projects to permanent financing.

Commercial real estate growth in the Capital Bank division between December 31, 2023 and December 31, 2024 totaled $65.9 million, while growth in the Canal Bank division totaled $28.8 million, Commercial real estate balances in the legacy Chemung Canal Trust Company market decreased by $0.6 million.

Growth in commercial and industrial balances was also primarily concentrated in the Capital and Western New York regions.

The decrease in indirect consumer loans was primarily due to turnover in the Corporation's auto lending portfolio during the year, as runoff of existing loans exceeded originations.

The decrease in residential mortgage loans was primarily due to an increase in residential mortgage originated and sold into the secondary market.

Residential mortgage originations held for investment on the balance sheet totaled $25.1 million and $20.8 million, respectively, for the years ended December 31, 2024 and 2023, an increase of $4.2 million, while mortgage loans originated and sold into the secondary market totaled $11.5 million and $6.4 million, respectively, for the years ended December 31, 2024 and 2023, an increase of $5.1 million.

Additionally, residential mortgage origination activity remained weaker in 2024 due to the elevated interest rate environment and lower market mobility in the current environment.

The table below presents the Corporation’s outstanding loan balance by bank division (in thousands):

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2024 2023 2022 2021 2020

Chemung Canal Trust Company*^

Chemung Canal Trust Company (1)

$ 626,903 $ 665,701 $ 651,516 $ 592,172 $ 658,468

Capital Bank Division 1,302,593 1,206,561 1,098,104 879,105 877,995

Canal Bank Division 141,923 100,402 79,828 46,972 —

Total Loans $ 2,071,419 $ 1,972,664 $ 1,829,448 $ 1,518,249 $ 1,536,463

*All loans, excluding those originated by the Capital Bank Division.

Includes $100.4 million and $79.8 million in the Western New York Market as of December 31, 2023 and 2022, respectively.

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by changes in economic or other conditions.

The Bank’s concentration policy limits consider the volume of commercial loans to any one specific industry, sponsor, collateral type and location.

As of December 31, 2023 and 2022, total non-owner occupied commercial real estate loans divided by total Bank risk based capital was 403.6% and 397.7%, respectively.

The Corporation also monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.

At December 31, 2023 and 2022, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses were 49.5% and 48.3% of total loans, respectively.

No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of December 31, 2023 and 2022.

(1) All loans, excluding those originated by the Capital Bank and Canal Bank Divisions.

Commercial real estate lending represented the largest portion of the Corporation's loan portfolio as of December 31, 2024 and 2023.

Commercial real estate lending is comprised of the Construction and Commercial mortgage, other segments of the loan portfolio, as presented in Note 4-Loans and Allowance for Credit Losses.

Commercial real estate lending is comprised of the Construction and Commercial mortgage, other segments of the loan portfolio, as presented in Note 4 to the Corporation's Consolidated Financial Statements.

As of December 31, 2024 and 2023, total commercial real estate loans totaled $1.217 billion and $1.123 billion, respectively.

As the largest component of the Corporation's loan portfolio, quantitative and qualitative attributes of commercial real estate such as maturity and repricing schedules may have a significant impact on management's strategic initiatives, and understanding such attributes is critical in understanding the Corporation's anticipated future liquidity needs and sensitivity to changes in interest rates.

The following table presents commercial real estate loans by maturity and repricing date as of December 31, 2024 (dollars in thousands):

Commercial real estate loans:

2025 2026 2027 2028 2029 After 2029 (1)

$ 83,690 $ 63,091 $ 81,968 $ 83,130 $ 102,882 $ 802,243 $ 1,217,004

Percentage of total 6.9 % 5.2 % 6.7 % 6.8 % 8.5 % 65.9 % 100.0 %

Repricing in:

$ 419,049 $ 85,249 $ 96,990 $ 104,433 $ 116,248 $ 395,035 $ 1,217,004

Percentage of total 34.4 % 7.0 % 8.0 % 8.6 % 9.6 % 32.4 % 100.0 %

(1) Includes fixed rate loans

Management evaluates the risk inherent in its portfolio of commercial real estate loans using a variety of metrics, including but not limited to type, geography, collateral, and borrower or sponsor industry.

The table below presents commercial real estate loans by type and percentage at December 31, 2023 and 2022 (in thousands, except percentages):

The Corporation also monitors its level of non-owner occupied commercial real estate loans in relation to regulatory capital, as defined by the Bank's regulators.

As of December 31, 2024 and 2023, total non-owner occupied commercial real estate loans divided by total Bank risk-based capital was 399.4% and 403.6%, respectively.

The table below presents the amortized basis of commercial real estate loans by type and percentage as of December 31, 2024 and 2023 (dollars in thousands):

Commercial real estate loans by type:

2023 % of Total 2022 % of Total % Change 2022 to 2023

2024 % of Total 2023 % of Total %

Construction $ 94,943 7.8 % $ 138,887 12.4 % (31.6) %

5 unchanged sentences

Total $ 1,217,004 100.0 % $ 1,122,925 100.0 %

____________________________________________________________________________________________________________________________________________________________

(1) 1-4 Family residential loans included in the commercial real estate portfolio segment are comprised of properties whose primary purpose is to generate rental income for the borrower, but are not considered multifamily properties within the confines of the FFIEC's Call Report definition of a multifamily property.

(1) 1-4 Family Residential loans included in the commercial real estate segment are comprised of properties whose primary purpose is to generate rental income for the borrower, but are not considered multifamily properties within the FFIEC's Call Report definition of a multifamily property.

This may include single family residences, duplexes, triplexes, and quadplexes.

Commercial real estate loans are primarily made within the counties comprising the geographic footprint of the Corporation's physical branch network, as well as to borrowers whose business interests include projects that may be located in counties that are geographically contiguous with the Corporation's physical footprint.

Commercial real estate loans are primarily made within the counties comprising the geographic footprint of the Corporation's physical branch network, as well as to borrowers whose business interests include projects that may be located in counties geographically contiguous with the Corporation's physical footprint.

The location of collateral securing commercial real estate loans typically mirrors the location of the properties being financed.

However, certain commercial real estate loans are secured by property other than the property being financed, and therefore the geographic location of collateral may differ from that of the financed property.

The table below presents the amortized basis of commercial real estate loans by regional location of collateral and percentage at December 31, 2023 and 2022 (in thousands, except percentages):

Commercial real estate loans by re g ional location of collateral:

2023 % of Total 2022 % of Total % Change 2022 to 2023

Capital & Adirondacks (1)

$ 736,971 65.6 % $ 658,100 66.0 % 12.0 %

The table below presents the amortized basis of commercial real estate loans by regional location of collateral and percentage as of December 31, 2024 and 2023 (dollars in thousands):

Commercial real estate loans by regional location of collateral:

2024 % of Total 2023 % of Total %

Capital Region $ 783,342 64.3 % $ 736,971 65.6 % 6.3 %

Southern Tier & Finger Lakes 221,078 18.2 % 213,970 19.1 % 3.3 %

213,970 19.1 % 198,179 19.9 % 8.0 %

Western New York 155,527 12.8 % 123,202 11.0 % 26.2 %

123,202 11.0 % 94,311 9.5 % 30.6 %

Other 57,057 4.7 % 48,782 4.3 % 17.0 %

48,782 4.3 % 46,323 4.6 % 5.3 %

Total $ 1,217,004 100.0 % $ 1,122,925 100.0 %

______________________________________________________________________________________________________

(1) Albany, Franklin, Montgomery, Rensselaer, Saratoga, Schenectady, and Warren counties of New York.

(2) Broome, Cayuga, Chemung, Onondaga, Steuben, and Tompkins counties of New York.

(3) Erie and Monroe counties of New York

(4) Bradford County, Pennsylvania.

(5) Other region comprises all locations outside of New York State and Downstate New York, which includes the lower Hudson Valley, New York City, and Long Island.

(6) Counties included in the footnotes above represent those counties which have at least a $5.0 million amortized basis in commercial real estate loans as of December 31, 2023.

Counties with less than $5.0 million are also included in the table above.

The Corporation closely monitors economic and credit trends for the industries in which its commercial real estate borrowers are involved.

Property types are designated based on the purpose of the collateral securing commercial real estate loans.

The table below presents the amortized basis of commercial real estate loans by borrower industry and percentage at December 31, 2023 (in thousands, except percentages):

The table below presents the amortized basis of commercial real estate loans by borrower industry and percentage as of December 31, 2024 and 2023 (dollars in thousands):

Commercial real estate loans by borrower industry:

December 31, 2023 % of Total

2024 % of Total 2023 % of Total %

Construction & Land Development $ 94,943 7.8 % $ 138,887 12.4 % (31.6) %

10 unchanged sentences

Total $ 1,217,004 100.0 % $ 1,122,925 100.0 %

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities, which may cause them to be similarly impacted by changes in economic or other conditions.

Industries are identified using NAICS codes, and the Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.

As of December 31, 2024 and 2023, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses, were 50.9% and 49.5% of total loans, respectively.

No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of December 31, 2024 and 2023.

The table below shows the maturity of loans outstanding as of December 31, 2024.

1 unchanged sentence

Within One Year After One But Within Five Years After Five But Within 15 Years After 15 Years Total

Commercial and agricultural:

Commercial and industrial $ 103,116 $ 114,251 $ 79,602 $ 2,552 $ 299,521

Agricultural — 256 — — 256

Commercial mortgages:

Construction 13,644 25,895 55,404 — 94,943

Commercial mortgages 50,540 247,254 659,619 26,625 984,038

Commercial mortgages, other 70,046 303,031 719,443 29,541 1,122,061

Residential mortgages 7,841 11,002 95,840 160,296 274,979

7 unchanged sentences

After One But Within Five Years After Five But Within 15 Years After 15 Years Total

Commercial and agricultural:

Commercial and industrial $ 66,817 $ 32,740 $ 439 $ 99,996

Agricultural 193 — — 193

Commercial mortgages:

Construction 5,313 2,772 — 8,085

Commercial mortgages 142,681 152,998 2,716 298,395

Commercial mortgages, other 190,280 151,750 6,955 348,985

Residential mortgages 10,981 91,299 112,367 214,647

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Loans maturing with variable interest rates:

Commercial and agricultural:

Commercial and industrial $ 47,434 $ 46,862 $ 2,113 $ 96,409

Agricultural 63 — — 63

Commercial mortgages:

Construction 20,582 52,632 — 73,214

Commercial mortgages 104,584 506,372 24,147 635,103

Commercial mortgages, other 112,751 567,693 22,586 703,030

Residential mortgages 21 4,541 47,929 52,491

4 unchanged sentences

Total $ 181,992 $ 681,539 $ 100,157 $ 963,688

Non-Performing Assets

Non-performing assets consist of non-accrual loans and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure.

Effective January 1, 2023, the Corporation adopted ASU 2022-02, which eliminated troubled debt restructuring accounting guidance.

Prior to adoption, certain troubled debt restructurings were considered to be non-performing assets.

The Corporation monitors loan modifications made to borrowers deemed to be experiencing financial difficulty.

As of December 31, 2023, there were five loans being monitored under ASU 2022-02 guidance, three of which were accruing with a total amortized basis of $0.5 million, and two of which were non-accrual, with a total amortized basis of $2.8 million.

The non-accrual modifications are included in non-performing loans.

The Corporation has reporting systems to monitor:

(i) loan origination and concentrations, (ii) delinquent loans, (iii) non-performing assets, including non-performing loans, certain loans made with modifications to borrowers experiencing financial difficulty, other real estate owned, and repossessed vehicles (iv) loans analyzed on an individual basis for credit risk, and (v) potential problem loans.

Management reviews the adequacy of these systems on a regular basis.

Non-Performing Loans and Non-Performing Assets

Non-performing assets consist of non-performing loans, other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure, and vehicles that have been repossessed.

Non-performing loans is comprised of nonaccrual loans.

Past due status on all loans is based on the contractual terms of the loan.

It is generally the Corporation's policy that a loan 90 days past due be placed on non-accrual status unless factors exist that would eliminate the need to classify a loan as such.

A loan may also be designated as non-accrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower.

At the time loans are placed in non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed.

All payments received on non-accrual loans are applied to principal.

It is generally the Corporation's policy that a loan 90 days past due be placed on nonaccrual status unless factors exist that would eliminate the need to classify a loan as such.

A loan may also be designated as nonaccrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower.

At the time loans are placed into nonaccrual status, the accrual of interest is discontinued and previously accrued interest is reversed.

Payments received on nonaccrual loans are generally applied to principal using the cost recovery method.

Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest.

In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept in non-accrual status until the entire principal balance has been recovered.

In the case of nonaccrual loans where a portion of the loan has been charged off, the remaining balance is kept in nonaccrual status until the entire principal balance has been recovered.

The following table summarizes the Corporation's non-performing assets as of December 31, (in thousands):

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2024 2023 2022 2021 2020

Non-accrual loans $ 10,411 $ 4,143 $ 3,469 $ 6,011 $ 9,938

Non-accrual troubled debt restructurings — 4,035 4,645 3,941 8,070

Total non-performing loans 10,411 8,178 8,114 9,952 18,008

Other real estate owned 326 195 113 237 517

Non-performing loans $ 8,954 $ 10,411 $ 8,178 $ 8,114 $ 9,952

Other real estate owned and repossessions 652 326 195 113 237

Total non-performing assets $ 9,606 $ 10,737 $ 8,373 $ 8,227 $ 10,189

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$ 23 $ 10 $ 1 $ 4 $ 2

Accruing troubled debt restructurings (1)

$ — $ 1,405 $ 5,643 $ 2,790 $ 952

(1) These loans are not included in non-performing assets above.

Interest income recorded on non-accrual loans was $163 thousand and $56 thousand, as of December 31, 2023, and 2022, respectively.

Non-Performing Loans

Non-performing loans totaled $10.4 million at December 31, 2023, or 0.53% of total loans, compared with $8.2 million at December 31, 2022, or 0.45% of total loans.

The increase in non-performing loans at December 31, 2023 as compared to December 31, 2022 can primarily be attributed to the addition of one commercial real estate relationship, totaling $3.1 million, comprised of a $2.2 million participation in a construction project, and a $0.9 million credit secured by a negative pledge.

This increase was partially offset by the removal of a commercial and industrial loan from non-accrual status, and paydown activity on existing non-performing loans.

Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $10.7 million, or 0.40% of total assets, at December 31, 2023, compared with $8.4 million, or 0.32% of total assets, at December 31, 2022.

The amortized basis of accruing loans past due 90 days or more was less than $0.1 million at December 31, 2023 and December 31, 2022.

(1) Not included in non-performing assets above.

Non-performing loans totaled $9.0 million as of December 31, 2024, or 0.43% of total loans, compared with $10.4 million as of December 31, 2023, or 0.53% of total loans.

The decrease in non-performing loans as of December 31, 2024 compared to December 31, 2023 was primarily due to the payoff of two larger nonaccrual commercial real estate loans during 2024, comprised of a $2.2 million construction loan and a $1.9 million non-owner occupied loan.

There was $3.9 million in commercial loan balances added to non-performing loans during 2024, and $1.2 million in paydowns of existing non-performing commercial loans during 2024.

Non-performing assets, which are comprised of non-performing loans, other real estate owned, and repossessed vehicles, was $9.6 million, or 0.35% of total assets, as of December 31, 2024, compared with $10.7 million, or 0.40% of total assets, as of December 31, 2023.

The amortized basis of accruing loans past due 90 days or more was less than $0.1 million as of December 31, 2024 and December 31, 2023, respectively.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Corporation works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss.

Previously, the Corporation applied troubled debt restructuring (TDR) accounting guidance for loan modifications made to borrowers experiencing financial difficulty, where a concession was made by the Corporation.

Effective January 1, 2023, the Corporation adopted ASU 2022-02, which supersedes TDR guidance.

The Corporation monitors modifications made to borrowers experiencing financial difficulty in which the contractual cash flows were directly impacted.

Modifications that are included under this guidance include principal reductions, reductions in the effective interest rate, term extensions greater than insignificant payment delays, or a combination thereof.

ASU 2022-02 was implemented on a prospective basis, and as of December 31, 2023, the Corporation had five loans that were modified under the new accounting guidance, totaling $3.3 million.

The modifications were term extensions on two commercial and industrial loans, one commercial mortgage and one home equity loan, as well as a four month payment delay deemed to be greater than insignificant on a commercial mortgage.

As of December 31, 2023, all modifications with the exception of one term extension of six months on a commercial and industrial loan, were considered to be performing under their modified terms.

The commercial and industrial loan that was granted a six month extension was not performing under its modified terms, is non-accrual, and totaled $0.9 million.

Individually Analyzed Loans

Effective January 1, 2023, the Corporation began analyzing loans on an individual basis when management determined that the individual loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designated pool of loans, under the Corporation's CECL methodology.

This differs from the definition of loans considered to be impaired as of December 31, 2022.

The amortized cost basis of individually analyzed loans at December 31, 2023 totaled $8.0 million, compared to impaired loans of $7.5 million at December 31, 2022.

Included in this total were $2.0 million of loans for which specific allocations of $2.0 million were made to the allowance for credit losses.

As of December 31, 2022, the impaired loan total included $2.8 million of loans for which specific impairment allowances of $1.1 million were allocated to the allowance for loan losses.

A majority of the Corporation's individually analyzed loans are secured and measured for credit loss based on collateral evaluations.

The Corporation works closely with borrowers experiencing financial difficulties to identify viable solutions that minimize the potential for loss.

The Corporation monitors modifications made to borrowers experiencing financial difficulty in which contractual cash flows are directly impacted.

Modifications included under this guidance include principal reductions, reductions in effective interest rates, term extensions, significant payment delays, or a combination thereof.

ASU 2022-02 was implemented on January 1, 2023 on a prospective basis.

As of December 31, 2024, the Corporation had nine total loans modified under this accounting guidance, totaling $2.1 million, including four loans which were modified during the current year, compared with five loans as of December 31, 2023, totaling $3.3 million, all of which were modified during the year of initial adoption.

The loans modified during the current year included two term extensions on commercial and industrial loans, one payment delay on a commercial real estate loan, and one payment delay on a residential mortgage.

During the year ended December 31, 2024 one commercial and industrial loan given a payment extension of six months during 2023 experienced a payment default, while the remaining modified loans were performing under their modified terms.

During the year ended December 31, 2024, two commercial mortgages previously modified under ASU 2022-02 were paid off, with a combined amortized basis at payoff of $2.2 million.

Allowance for Credit Losses

The allowance for credit losses is an amount that management believes will be adequate to absorb the estimated lifetime credit losses inherent in assets exhibiting credit risk as of the measurement date.

The allowance is in conformity with the requirements established by ASC 326 -Financial Instruments-Credit Losses, which was adopted effective January 1, 2023.

The allowance for credit losses covers a broad range of assets including loans, unfunded commitments, and debt securities, incorporating both quantitative and qualitative components.

As of December 31, 2024 and December 31, 2023, the Corporation did not allocate any allowance for credit losses to its portfolios of available for sale or held to maturity debt securities, due to either the explicit or implicit U.S.

Government guarantee as to principal and interest payments on the majority of the portfolio, and the immateriality of credit risk on remaining unguaranteed securities.

Loans are analyzed for credit loss on either an individual basis or a pooled (collective) basis, determined by risk characteristics.

The Corporation begins analyzing loans on an individual basis when management determines a loan no longer exhibited risk characteristics consistent with the risk characteristics in its designated pool under the Corporation's CECL methodology.

The amortized cost basis of individually analyzed loans as of December 31, 2024 totaled $6.5 million, compared to $8.0 million as of December 31, 2023.

Remaining loans are analyzed on a pooled basis and are segmented based on groups of assigned FFIEC Call Report codes.

Management seeks to disaggregate its loan portfolio in a granular enough manner to capture the risk profile of each loan, yet broad enough to accurately allow for the application of certain pool-level assumptions.

A majority of the Corporation's individually analyzed loans are secured and measured for credit loss based on collateral evaluations, using the collateral-dependent practical expedient prescribed by ASC 326.

It is the Corporation's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to require individual analysis.

A measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation or charge-off.

In determining the amount of any specific allocation or charge-off, the Corporation will make adjustments to reflect the estimated costs to sell the property.

A measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation to the allowance for credit losses or charge-off.

In determining the amount of any specific allocation or charge-off, the Corporation makes adjustments to reflect the estimated costs to sell the property.

Upon receipt and review of updated appraisals, an additional measurement is performed to determine if any adjustments are necessary to reflect proper provisioning or charge-offs.

Individually analyzed loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional allocation or recognition of additional charge-offs.

Individually analyzed loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require additional allocations to the allowance for credit losses or recognition of additional charge-offs.

Real estate values in each of the Corporation's market areas have remained stable.

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If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.

Allowance for Credit Losses

The allowance is in conformity with the requirements established by ASC 326 -Financial Instruments-Credit Losses .

The new guidance was adopted effective January 1, 2023, and is a departure from the allowance for loan losses (ALLL) that the Corporation previously estimated using an incurred loss methodology.

The allowance covers loans, unfunded commitments, and certain debt securities exhibiting credit risk potential, and incorporates both quantitative and qualitative components.

Loans are analyzed on either an individual basis or a pooled basis, determined by risk characteristics.

Loans that no longer exhibit risk characteristics substantially consistent with those of loans analyzed within a given pool may necessitate being analyzed individually, based on management discretion.

Individually analyzed loans are primarily valued based on the collateral method, however, select loans may be evaluated using a cash flow analysis.

Pooled loans are segmented based on groups of assigned FFIEC call codes, in order to provide enough granularity to meaningfully capture the risk profile of each instrument, yet broad enough to accurately allow for the application of certain pool-level assumptions.

Quantitative analysis is based on an estimated discounted cash flow analysis (DCF) performed at the loan level.

The modeled reserve requirement equals the difference between the book balance of the instrument at the measurement date and the present value of assumed cash flows for the life of the loan.

Certain individually analyzed loans determined not to be collateral-dependent are analyzed using a cash flow analysis.

For pooled loans, quantitative analysis is based on an estimated discounted cash flow analysis (DCF) performed at the loan level.

The modeled reserve requirement equals the difference between the book balance of the loan as of the measurement date and the present value of assumed cash flows for the life of the loan.

The underlying assumptions of the DCF are based on the relationship between a projected value of an economic indicator, and the implied historical loss experience amongst a group of curated peers.

The Corporation utilized a regression analysis to determine suitable loss drivers for each pool of loans.

Based on these results, a probability of default (PD) and loss given default (LGD), is assigned to each potential value of an economic indicator for each pool of loans, and is then applied to the portfolio to derive the statistical loss implications thereof.

A hypothetical loss for each period of the DCF, as well as implied recovery of past losses, is incorporated into the DCF.

The Corporation utilizes a regression analysis to determine suitable loss drivers for each pool of loans.

Based on these results, a probability of default (PD) and loss given default (LGD), is assigned to each potential value of a chosen economic indicator for each pool of loans, and is then applied to the portfolio to derive the statistical loss implications thereof.

An estimated loss for each period of the DCF, as well as implied recovery of past losses, is incorporated into the DCF.

The Corporation relies on FOMC data, including its projections for U.S.

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GDP growth, as the source for its readily available and reasonable economic forecast.

The forecasted values are applied over a rolling four quarter period, and revert to the historic mean of a look back period over an eight quarter period, on a straight-line basis.

The forecasted values are applied over a rolling four quarter period, and revert to the historic mean of the economic variable over an eight quarter period, on a straight-line basis.

Qualitative adjustments represent management's expectation of certain risks not being fully captured in the quantitative portion of the model.

Qualitative adjustment rates are applied to each instrument within a pool on a consistent basis.

Factors considered as part of the qualitative adjustment analysis include economic considerations not captured by the model, changes in conditions within the Bank such as lending standards, personnel, and concentrations of credit, among others, as well as external factors such as change in the regulatory and competitive landscape.

Qualitative adjustment rates are applied to each loan within a pool on a consistent basis.

Factors considered as part of the qualitative adjustment analysis primarily include economic considerations not captured by the model, changes in conditions within the Bank such as lending standards, personnel, and concentrations of credit, among others, as well as external factors such as change in the regulatory and competitive landscape.

The allowance for credit losses is increased through a provision for credit losses, which is charged to operations.

Separate provision accounts have been established for on-balance sheet credit exposures and off-balance sheet credit exposures, and are combined in the line item provision for credit losses on the Corporation's Consolidated Statements of Income.

Loans are charged against the allowance for credit losses when management believes that the collectability of all or a portion of the principal is unlikely.

Management's evaluation of the adequacy of the allowance for credit losses is performed on a periodic basis and takes into consideration such factors as the outcomes of the quantitative analysis, a review of specific individually analyzed loans, and determinations for qualitative adjustments.

While management uses available information to recognize losses on credits, future additions to the allowance may be necessary based on changing economic conditions or portfolio composition.

Loans are charged against the allowance for credit losses when management believes the collectability of all or a portion of the principal is unlikely.

Management's evaluation of the adequacy of the allowance for credit losses is performed on a periodic basis and takes into consideration such factors as the outcomes of the quantitative analysis, a review of individually analyzed loans, and determinations concerning qualitative adjustments.

While management uses available information to recognize estimated credit losses, future additions to the allowance may be necessary based on changing economic conditions or portfolio composition.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses.

Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The allowance for credit losses was $22.5 million as of December 31, 2023, compared to an allowance for loan losses of $19.7 million as December 31, 2022.

The allowance for credit losses was 216.28% of non-performing loans as of December 31, 2023 compared to 240.39% of the allowance for loan losses as of December 31, 2022.

The ratio of allowance for credit losses to total loans was 1.14% as of December 31, 2023 and the ratio of allowance for loan losses to total loans was 1.07% as of December 31, 2022, respectively.

Including the allowance allocated to unfunded commitments, the ratio of the allowances for credit losses was 1.19% as of December 31, 2023.

The increase in the allowance for credit losses was attributable to the impact of the implementation of ASU 2016-13, increased loan volume, the impact of changes in the modeled economic forecasts, and increased qualitative provisioning.

The quantitative portion of the ACL model was impacted by improvements in the FOMC forecasted unemployment rate and U.S.

GDP growth rate for both year-end 2023 and 2024, which offset additional provisioning relating to lower prepayment assumptions, loan growth, additional qualitative provisioning in the consumer portfolio segment, and specific allocations made on individually analyzed loans.

The allowance for credit losses was $21.4 million as of December 31, 2024, compared to $22.5 million as of December 31, 2023.

The allowance for credit losses was 238.87% of non-performing loans as of December 31, 2024, compared to 216.28% as of December 31, 2023.

The ratio of allowance for credit losses on loans to total loans was 1.03% as of December 31, 2024, compared to 1.14% as of December 31, 2023, respectively.

Including the allowance for credit losses allocated to unfunded commitments, the ratio of the allowance for credit losses to total loans was 1.07% as of December 31, 2024, compared to 1.19% as of December 31, 2023.

The allowance for credit losses on unfunded commitments is included in the line item accrued interest payable and other liabilities in the Consolidated Balance Sheets.

The decrease in the allowance for credit losses during the current year was primarily due to the annual review and update of loss drivers used in the CECL model.

Recalibration of loss drivers are applied in the first quarter of each year, and for 2024 resulted in a decline in baseline loss rates used in the model.

The loss drivers used in each of the Corporation's pools of loans, either U.S.

civilian unemployment or U.S.

GDP growth, did not change as a result of these updates.

Modeled economic conditions were relatively consistent between December 31, 2023 and December 31, 2024.

Net charge-offs for the year ended December 31, 2024 were $1.2 million compared with net charge-offs of $0.9 million for the year ended December 31, 2023.

The ratio of net charge-offs (recoveries) to average loans outstanding was 0.05% for 2023 and 2022.

Net charge-offs for the year ended December 31, 2023 can primarily be attributed to the $0.3 million charge-off of a commercial and industrial loan, as well as increased consumer charge-offs due to increased loan volume in the Corporation's indirect auto lending portfolio.

Net charge-offs for the year ended December 31, 2022 were primarily attributable to a $0.7 million charge off on a commercial real estate loan.

The table below summarizes the Corporation’s allowance for credit losses, non-accrual loans, and ratio of net charge-offs and recoveries to average loans outstanding by loan category at or for the year ended December 31, 2023, and the allowance for loan losses, non-accrual loans, and ratio of net charge-offs and recoveries to average loans outstanding by loan category at or for the year ended December 31, 2022, by category (in thousands):

The ratio of net charge-offs to average loans outstanding was 0.06% for 2024 and 0.05% for 2023.

Net charge-offs for the year ended December 31, 2024 were primarily due to $0.2 million in net charge-offs on commercial and industrial loans, comprised of $0.3 million in charge-offs on two loans in the fourth quarter of 2024 and $0.1 million in recoveries of previously charged-off loans throughout the year, and $1.0 million in net charge-offs of consumer loans, primarily relating to the indirect auto lending portfolio.

Similarly, net charge-offs for the year ended December 31, 2023 were primarily due to the $0.3 million charge-off of a commercial and industrial loan and consumer charge-offs related to the indirect auto lending portfolio.

The table below summarizes the Corporation’s allowance for credit losses, nonaccrual loans, and ratio of net charge-offs and recoveries to average loans outstanding by loan category at or for the years ended December 31, 2024 and 2023 (in thousands):

ALLOWANCE AND LOAN CREDIT RATIOS BY LOAN CATEGORY

Balance at December 31, 2023 Allowance for credit losses Allowance to loans 1

Balance as of December 31, 2024 Allowance for credit losses Allowance to loans 1

Non-performing loans Non-performing loans to loans 1

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charge-offs (recoveries) to average loans

Commercial and agricultural $ 5,055 1.91 % $ 1,930 0.73 % 261.92 % 0.10 %

Commercial and industrial $ 4,520 1.51 % $ 1,534 0.51 % 294.65 % 0.06 %

Commercial mortgages 11,214 0.92 % 4,959 0.41 % 226.13 % — %

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Total $ 21,388 1.03 % $ 8,954 0.43 % 238.87 % 0.06 %

(1) Ratio represents a percentage of loan category.

Balance at December 31, 2022 Allowance for loan losses Allowance to loans 1

(1) Ratio represents a percentage of year end loan balances.

Balance as of December 31, 2023 Allowance for credit losses Allowance to loans 1

Non-performing loans Non-performing loans to loans 1

1 unchanged sentence

charge-offs (recoveries) to average loans

Commercial and agricultural $ 3,373 1.34 % $ 1,946 0.77 % 173.33 % (0.01) %

Commercial and industrial $ 5,055 1.91 % $ 1,930 0.73 % 261.92 % 0.10 %

Commercial mortgages 12,026 1.07 % 5,969 0.53 % 201.47 % — %

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Total $ 22,517 1.14 % $ 10,411 0.53 % 216.28 % 0.05 %

(1) Ratio represents a percentage of loan category.

Consolidated Ratios at December 31, 2023 2022

(1) Ratio represents a percentage of year end loan balances.

Consolidated Ratios as of December 31, 2024 2023

Non-performing loans to total loans 0.43 % 0.53 %

Allowance for credit losses to total loans (1)

1.14 % 1.07 %

Allowance for credit losses including unfunded commitments to total loans (1)

1.19 % 1.07 %

Allowance for credit losses on loans to total loans 1.03 % 1.14 %

Allowance for credit losses on loans and unfunded commitments to total loans 1.07 % 1.19 %

Allowance for credit losses to non-performing loans 238.87 % 216.28 %

216.28 % 240.39 %

________________________________________________________________________________________________________________________________________

(1) December 31, 2022 ratios reflect the Corporations's allowance for loan losses.

The decrease in the allowance to non-accrual loans was primarily due to a $2.2 million increase in non-accrual loans from year end 2022 to year end 2023, without an equivalent increase in the allowance allocated to non-accrual loans.

This was primarily attributable to the addition of a $3.1 million commercial real estate relationship being placed on non-accrual, $2.2 million of which was well-collateralized, and required no specific allowance allocation.

The increase in the allowance for credit losses to outstanding loans can be attributed to the $0.9 million specific allocation made to the allowance in relation to the aforementioned non-accruing commercial real estate relationship, a change in methodology to reflect the adoption of CECL, and changes in the CECL model during the year.

Refer to Note 4 of the audited Consolidated Financial Statements appearing elsewhere in this report for components used in the credit ratios presented above.

The increase in the allowance to nonaccrual loans was primarily due to a 14.0% decrease in nonaccrual loans between December 31, 2023 and December 31, 2024, or $1.5 million, which was only partially offset by a 5.0% decrease in the allowance for credit losses, or $1.1 million.

The majority of loan balances removed from nonaccrual loan balances during 2024 either due to payoff or return to accrual status did not have an associated specific allocation in the allowance for credit losses, primarily due to being well collateralized by real estate.

Similarly, a majority of loan balances added to nonaccrual status during 2024 did not have an associated specific allocation in the allowance for credit losses as of December 31, 2024, due to being well collateralized by real estate.

Of the loans added to nonaccrual during 2024 only one loan, a $1.0 million commercial real estate loan secured by 1-4 family residential properties, had a specifc allocation in the allowance for credit losses as of December 31, 2024, which was $0.1 million.

The table below summarizes the Corporation's credit loss experience for the years ended December 31, 2024 and 2023 (in thousands, except ratio data):

SUMMARY OF CREDIT LOSS EXPERIENCE

2023 2022 (1)

Allowance for credit losses at beginning of year $ 22,517 $ 19,659

Impact of ASC 326 Adoption — 374

Commercial and agricultural 281 20

Commercial and industrial 302 281

Commercial mortgages — —

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Total Charge-Offs 1,873 1,383

Commercial and agricultural 22 42

Commercial and industrial 128 22

Commercial mortgages 4 4

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Allowance for credit losses at end of year $ 21,388 $ 22,517

(1) December 31, 2022 reflects the Corporations's allowance for loan losses.

(2) Additional provision related to off-balance sheet exposure was $163 thousand for the year ended December 31, 2023.

Other Real Estate Owned

At December 31, 2023, OREO totaled $0.3 million compared to $0.2 million at December 31, 2022.

There were three properties relating to residential mortgages and two properties relating to residential home equity loans added to OREO in 2023.

Three residential properties were sold from OREO during 2023.

The table below summarizes the Corporation’s deposit composition by segment at December 31, 2023, and 2022, and the dollar and percent change from December 31, 2022 to December 31, 2023 (in thousands, except percentages):

(1) Additional provision related to off-balance sheet exposure was a credit of $77 thousand for the year ended December 31, 2024 and a credit of $163 thousand for the year ended December 31, 2023.

Other Real Estate Owned and Repossessed Vehicles

As of December 31, 2024, OREO totaled $0.4 million compared to $0.3 million as of December 31, 2023.

There were four properties relating to residential mortgages and four properties relating to residential home equity loans added to OREO in 2024.

Three properties relating to residential mortgages and three properties relating to home equity loans were sold from OREO during 2024, resulting in a net loss on sale of OREO of $18 thousand for the year ended December 31, 2024.

The Corporation had $0.2 million in repossessed vehicles as of December 31, 2024, which is included in other assets on the Consolidated Balance Sheet, and is a component of non-performing assets.

The table below summarizes the Corporation’s deposit composition by segment as of December 31, 2024, and 2023, and the dollar and percent change from December 31, 2023 to December 31, 2024 (in thousands, except percentages):

2024 2023 2024 v.

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Total deposits $ 2,396,883 100.0 % $ 2,429,427 100.0 % $ (32,544) (1.3) %

Deposits totaled $2.429 billion at December 31, 2023, compared with $2.327 billion at December 31, 2022, an increase of $102.2 million, or 4.4%.

At December 31, 2023, demand deposit and insured money market deposits comprised 64.5% of total deposits compared with 70.7% at December 31, 2022.

The growth in deposits was attributable to an increase of $209.9 million in time deposits, or 52.2%, which includes customer time deposits and brokered deposits.

Customer time deposits increased $140.6 million, and brokered deposits increased $69.3 million.

Interest-bearing demand deposits increased $19.5 million.

These increases were offset by decreases of $80.2 million in non-interest bearing demand deposits, $29.9 million in savings deposits, and $17.1 million in insured money market deposits, primarily due to the higher interest rate environment, and a shift in the mix of deposits towards higher cost interest-bearing accounts such as time deposits, when compared to the prior year

At December 31, 2023, public funds deposits totaled $293.1 million compared to $298.9 million at December 31, 2022.

Deposits totaled $2.397 billion as of December 31, 2024, compared with $2.429 billion as of December 31, 2023, a decrease of $32.5 million, or 1.3%.

As of December 31, 2024, demand deposit and insured money market deposits comprised 63.7% of total deposits compared with 64.5% as of December 31, 2023.

The decrease in deposits was attributable to decreases of $50.6 million in brokered deposits, $28.6 million in insured money market deposits, $27.4 million in non interest-bearing demand deposits, and $3.6 million in savings deposits.

These decreases were partially offset by increases of $62.3 million in customer time deposits and $15.4 million in interest-bearing demand deposits, primarily due the higher interest rate environment and a a shift in the mix of deposits towards higher cost interest-bearing accounts such as time deposits, when compared to the prior year.

Excluding brokered deposits, total deposits increased $18.1 million compared to December 31, 2023.

The table below summarizes the Corporation’s deposit composition by customer as of December 31, 2024, and 2023 (in thousands, except percentages):

Amount % of Total Amount % of Total

Consumer $ 1,076,371 44.9 % $ 1,023,866 42.1 %

Commercial 695,505 29.0 % 684,057 28.2 %

Public 145,573 6.1 % 153,241 6.3 %

Brokered 92,159 3.8 % 142,776 5.9 %

ICS/CDARs 387,275 16.2 % 425,487 17.5 %

Total deposits $ 2,396,883 100.0 % $ 2,429,427 100.0 %

As of December 31, 2024, public funds deposits totaled $266.3 million, compared with $293.1 million as of December 31, 2023.

The Corporation has developed a program for the retention and management of public funds deposits.

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Capital Bank Division 399,411 380,962 435,207 415,607 351,404

Canal Bank Division 13,085 5,786 3,002 1,811 —

Total deposits $ 2,396,883 $ 2,429,427 $ 2,327,227 $ 2,155,433 $ 2,037,774

*All deposits, excluding those originated by the Capital Bank Division, and including brokered deposits.

*All deposits, excluding those originated by the Capital Bank and Canal Bank Divisions, and including brokered deposits.

In addition to consumer, commercial and public deposits, other sources of funds include brokered deposits.

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The CDARS and ICS programs involve a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.

Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.

The CDARS and ICS reciprocal program uses a sophisticated matching system, where funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.

Additionally, the CDARS and ICS One-Way Buy Program allows the Corporation to obtain wholesale brokered deposits through the system.

Deposits placed in the CDARS and ICS programs were $507.8 million and $424.6 million as of December 31, 2024 and 2023, respectively.

Brokered deposits, which include funds obtained through brokers or the CDARS and ICS one-way buy programs, were $92.2 million and $142.8 million as of December 31, 2024 and 2023.

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposit accounts.

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Strategies that have been developed and implemented to generate these deposits include:

(i) acquire deposits by entering new markets through denovo branching, (ii) training branch employees to identify and meet client financial needs with Bank products and services, (iii) link business and consumer loans to a primary checking account at the Bank, (iv) aggressively promote direct deposit of client’s payroll checks or benefit checks and (v) constantly monitor the Corporation’s pricing strategies to ensure competitive products and services.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates continued use of brokered deposits as a secondary source of funding to support asset growth.

Information regarding deposits is included in Note 8 to the consolidated financial statements appearing elsewhere in this report.

FHLBNY overnight advances were $31.9 million and $95.8 million at December 31, 2023 and 2022, respectively, decreasing $63.9 million at December 31, 2023 when compared to December 31, 2022.

(i) acquiring deposits by entering new markets through branch acquisitions or de novo branching, (ii) an annual checking account marketing campaign, (iii) training branch employees to identify and meet client financial needs with Bank products and services, (iv) linking business and consumer loans to the customer's primary checking account at the Bank, (v) aggressively promoting direct deposit of client’s payroll checks or benefit checks and (vi) constantly monitoring the Corporation’s pricing strategies to ensure competitive products and services.

The Corporation also considers brokered deposits to be an element of its deposit strategy and uses brokered deposits as a secondary source of funding to support growth.

Information regarding deposits is included in Note 8 to the audited Consolidated Financial Statements appearing elsewhere in this report.

FHLBNY overnight advances were $109.1 million and $31.9 million as of December 31, 2024 and 2023, respectively, an increase of $77.2 million as of December 31, 2024, compared to December 31, 2023.

For each year ended December 31, 2024, and 2023 respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity.

There were no FHLBNY or FRB term advances as of and for the years ended December 31, 2023, and 2022.

There were no FHLBNY or FRB term advances as of December 31, 2024, and 2023.

Information regarding FHLBNY advances is included in Note 9 of the audited Consolidated Financial Statements appearing elsewhere in this report.

There were no securities sold under agreements to repurchase as of and for the years ended December 31, 2024, or 2023.

The Corporation offers interest rate swap agreements to qualified commercial lending customers.

These agreements allow the Corporation’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement.

Simultaneous with the execution of such an agreement with a customer, the Corporation enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Corporation to continue to receive the variable rate under the loan agreement with the customer.

The agreement with the third party is not designated as a hedge contract, therefore changes in fair value are recorded through other non-interest income.

Assets and liabilities associated with the agreements are recorded in Interest rate swap assets and Interest rate swap liabilities on the Consolidated Balance Sheets.

Gains and losses are recorded as other non-interest income.

The Corporation is exposed to credit loss equal to the fair value of the interest rate swaps, not the notional amount of the derivatives, in the event of nonperformance by the counterparty to the interest rate swap agreements.

Additionally, the swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's Consolidated Balance Sheets, which typically involves a day one gain.

Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and an allowance for credit loss exposure, in the event of nonperformance.

The Corporation offers interest rate swap agreements to qualified commercial lending customers, which allow customers to effectively fix the interest rate on variable rate loans by entering into a separate agreement.

Simultaneous with the execution of such an agreement with a customer, the Corporation enters into a mirroring agreement with an unrelated counterparty, a Domestic Systemically Important Bank (D-SIB), which allows the Corporation to continue receiving the variable rate under its loan agreement with the customer.

Agreements with the unrelated counterparty are not designated as hedge contracts.

Additionally, the agreements, as free-standing derivatives, are recorded at fair value in the Corporation's Consolidated Balance Sheets, which typically involves a day one gain.

Since the terms of mirroring interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and a valuation allowance for potential credit loss exposure, in the event of nonperformance.

The Corporation recognized $0.3 million in swap income for each of the years ended December 31, 2024 and 2023, respectively.

The Corporation also participates in the credit exposure of certain interest rate swaps in which it participates in the related commercial loan.

The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap and recognizes the fee to other non-interest income immediately.

The Corporation is exposed to its share of the credit loss equal to the fair value of the derivatives in the event of nonperformance by the counter-party of the interest rate swap.

The Corporation determines the fair value of the credit loss exposure using historical losses of the loan category associated with the credit exposure.

Information regarding derivatives is included in Note 11 to the consolidated financial statements appearing elsewhere in this report.

The Corporation also participates in the credit exposure of certain interest rate swaps of lead banks in which it is a participant in the related commercial loan.

The Corporation receives an upfront fee for participating in the credit exposure of these interest rate swaps and immediately recognizes the fee as other non-interest income.

The Corporation is exposed to its share of the credit loss equal to the fair value of the derivatives in the event of nonperformance by the counterparty to the lead bank's interest rate swap.

The Corporation determines the fair value of the credit loss exposure using historical loss experience for the loan category associated with the exposure.

Information regarding derivatives is included in Note 11 to the audited Consolidated Financial Statements appearing elsewhere in this report.

Shareholders’ Equity

Total shareholders’ equity was $195.2 million at December 31, 2023, compared with $166.4 million at December 31, 2022, an increase of $28.9 million, or 17.3%.

Total shareholders’ equity was $215.3 million as of December 31, 2024, compared with $195.2 million as of December 31, 2023, an increase of $20.1 million, or 10.3%.

The increase in shareholders' equity was due primarily to an increase of $17.8 million in retained earnings and a decrease of $0.9 million in accumulated other comprehensive loss.

The improvement in accumulated other comprehensive loss was primarily due to improvements to the fair value of the available for sale securities portfolio, when compared to the prior year.

The increase in retained earnings was due primarily to net income of $23.7 million, offset by $5.9 million in dividends declared during the year ended December 31, 2024.

The decrease in accumulated other comprehensive loss was primarily due to revised actuarial assumptions related to the Corporation's pension plans, offset by the unfavorable impact of interest rates on available for sale securities during the current year.

Treasury stock decreased $0.3 million primarily due to the Corporation's issuance of shares related to the Corporation's employee benefit plans.

Total shareholders’ equity to total assets ratio was 7.20% at December 31, 2023 compared with 6.29% at December 31, 2022.

Tangible equity to tangible assets ratio was 6.45% at December 31, 2023, compared with 5.51% at December 31, 2022.

Total shareholders’ equity to total assets ratio was 7.76% as of December 31, 2024 compared with 7.20% as of December 31, 2023.

Tangible equity to tangible assets ratio was 7.02% as of December 31, 2024, compared with 6.45% as of December 31, 2023.

See the GAAP to Non-GAAP reconciliation on pages 65-68.

The Bank is subject to the capital adequacy guidelines of the Federal Reserve, which establish a framework for the classification of financial institutions into five categories:

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As of December 31, 2024, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

A comparison of the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized at December 31, 2023 and 2022, is included in Footnote 20 of the audited Consolidated Financial Statements.

A comparison of the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized as of December 31, 2024 and 2023, is included in Footnote 19 of the audited Consolidated Financial Statements.

For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.”

Cash dividends declared during 2023 totaled $5.9 million, or $1.24 per share, compared to $5.8 million, or $1.24 per share in 2022.

Cash dividends declared during 2024 and 2023 each totaled $5.9 million, or $1.24 per share.

Dividends declared during 2024 amounted to 24.91% of net income compared to 23.41% of net income for 2023.

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Under the repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares.

The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Act of 1934.

As of December 31, 2024, the Corporation repurchased a total of 49,184 shares of common stock at a total cost of $2.0 million under the repurchase program at the weighted average cost of $40.42 per share.

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The SEC declared the registration statement effective on July 13, 2023.

1 See the GAAP to Non-GAAP reconciliation on pages 63-65.

Liquidity management involves the ability to meet the cash flow requirements of deposit clients, borrowers, and the operating, investing, and financing activities of the Corporation.

The Corporation uses a variety of resources to meet its liquidity needs.

These include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $250,000 or more, brokered deposits, securities sold under agreements to repurchase and other borrowings.

The Corporation is a member of the FHLBNY, which allows it to access borrowings which enhance management's ability to satisfy future liquidity needs.

The Bank has pledged $254.6 million and $254.4 million of residential mortgage and home equity loans under a blanket lien arrangement at December 31, 2023 and 2022, respectively, as collateral for future borrowings.

Based on this available collateral and current advances outstanding, the Corporation was eligible to borrow up to a total of $225.3 million, and $195.6 million at December 31, 2023 and 2022, respectively.

FHLBNY overnight borrowing was $31.9 million and $95.8 million at December 31, 2023 and 2022, respectively.

In addition, the Corporation had a total of $60.0 million of unsecured lines of credit with five different financial institutions, all of which were available at December 31, 2023.

On March 12, 2023, the Treasury Department, Federal Reserve, and FDIC jointly announced a new liquidity program, the Bank Term Funding Program (BTFP), in response to the failure of two banks earlier that week.

Under the BTFP, institutions can pledge certain securities (i.e., securities eligible for purchase by the Federal Reserve Banks in open market operations) for the par value of the securities at a borrowing rate of ten basis points over the one-year overnight index swap rate.

There will be no fees with the advance.

federally insured depository institutions are eligible to participate in the BTFP.

The Bank is eligible to participate.

Subsequent to December 31, 2023, the Corporation received approval for, and has pledged collateral at the Federal Reserve for the purpose of utilizing the BTFP.

The BTFP expired on March 11, 2024.

Also available to the Corporation is the Discount Window Lending provided by the Federal Reserve Bank.

The Corporation has a detailed Funds Management Policy that includes sections on liquidity measurement and management, and a Liquidity Contingency Plan that provide for the prompt and comprehensive response to unexpected demands for liquidity.

This policy and plan are established and revised as needed by the management and Board ALCO committees.

The ALCO is responsible for measuring liquidity, establishing liquidity targets and implementing strategies to achieve selected targets.

The ALCO is responsible for coordinating activities across the Corporation to ensure that prudent levels of contingent or standby liquidity are available at all times.

Based on the ongoing assessment of the liquidity considerations, management believes the Corporation’s sources of funding meet anticipated funding needs.

These include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $250,000 or more, brokered deposits, FHLBNY overnight and term advances, FRB advances, and securities sold under agreements to repurchase.

Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

Uninsured deposits totaled $652.3 million as of December 31, 2024, or 27.2% of total deposits, including $145.6 million of municipal deposits collateralized by pledged assets, when required.

As of December 31, 2023, uninsured deposits totaled $655.7 million, or 27.0% of total deposits, including $153.2 million of municipal deposits collateralized by pledged assets when required.

The Corporation considers the level of uninsured deposits to be an important factor when considering liquidity management and strategic decisions due to their fluidity.

As of December 31, 2024, the Corporation's cash and cash equivalents balance was $47.0 million.

The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of mortgage-backed securities, U.S.

Government Treasury securities, Small Business Administration loan pools, and municipal bonds.

Although this portfolio generates interest income for the Corporation, it also serves as an available source of liquidity and capital if the need should arise.

As of December 31, 2024, the Corporation's investment in securities available for sale was $531.4 million, $349.9 million of which was not pledged as collateral.

The Corporation is a member of the FHLBNY, which allows it to access borrowings to enhance management's ability to satisfy future liquidity needs.

The Bank has pledged $244.6 million and $254.6 million of residential mortgage loans and home equity loans under a blanket lien arrangement as collateral for future borrowings, as of December 31, 2024 and 2023, respectively.

Borrowings may be used on a short-term basis for liquidity or on a long-term basis to fund asset growth.

The below table summarizes the Corporation's total sources of liquidity as of December 31, 2024 and 2023 (in millions):

Total Available Outstanding Remaining Available Total Available Outstanding Remaining Available

FHLB advances $ 221.1 $ 109.1 $ 112.0 $ 225.3 $ 31.9 $ 193.4

Correspondent bank line of credit 75.0 — 75.0 60.0 — 60.0

Brokered deposits (1)

277.6 92.1 185.5 271.1 142.8 128.3

Unencumbered securities 349.9 — 349.9 329.0 — 329.0

Total sources of liquidity $ 923.6 $ 201.2 $ 722.4 $ 885.4 $ 174.7 $ 710.7

(1) Total available based on the Corporation's internal limit.

Consolidated Cash Flows Analysis

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Net cash provided by operating activities $ 29,815 $ 30,881

Net cash provided (used) by investing activities (82,381) (252,620)

Net cash provided (used) by financing activities 32,478 246,461

Net cash used by investing activities (57,723) (82,381)

Net cash provided by financing activities 38,096 32,478

Net increase (decrease) in cash and cash equivalents $ 10,188 $ (19,022)

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Commitments to fund new loans (2)

79,526 79,526 — — —

Total $ 368,616 $ 364,698 $ 777 $ 3,121 $ 20

(1) Not included in this total are unused portions of home equity lines of credit, credit card lines, and consumer overdraft protection lines of credit, since no contractual maturity dates exist for these types of loans.

Commitments to outside parties under these lines of credit were $62.9 million, $13.7 million and $7.5 million, respectively, at December 31, 2023.

Commitments to outside parties under these lines of credit were $69.4 million, $13.7 million and $7.3 million, respectively, as of December 31, 2024.

(2) Includes commercial construction draw notes which may include draw periods scheduled to extend beyond December 31, 2025.

Capital Resources

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Management believes that, as of December 31, 2024 and December 31, 2023 the Corporation and Bank met all capital adequacy requirements to which they were subject.

As of December 31, 2018, the Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

As of December 31, 2024, the Corporation is not subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

As of December 31, 2024, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

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Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years.

At December 31, 2023, the Bank could, without prior approval, declare dividends of approximately $59.4 million.

As of December 31, 2024, the Bank could, without prior approval, declare dividends of approximately $62.2 million.

Adoption of New Accounting Standards

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Non-interest expense (GAAP) $ 67,250 $ 64,243

amortization of intangible assets — (15)

Adjusted non-interest expense (non-GAAP) $ 64,243 $ 59,265

Efficiency ratio (unadjusted) 69.12 % 64.89 %

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Tangible assets represents the Corporation’s total assets, less goodwill and other intangible assets.

Tangible book value per share represents the Corporation’s equity divided by common shares at year-end.

Tangible book value per share represents the Corporation’s tangible equity divided by common shares at year-end.

These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s use of equity.

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Adjustments for Certain Items of Income or Expense

In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROA, and ROE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, including certain nonrecurring items.

In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROAA, and ROAE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, including certain nonrecurring items.

The Corporation believes that the resulting non-GAAP financial measures may improve an understanding of its results of operations by separating out any such transactions or items that may have had a disproportionate positive or negative impact on the Corporation’s financial results during the particular year in question.

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Non-GAAP Net Income 2024 2023

Reported net income (loss) (GAAP) $ 25,000 $ 28,783

Reported net income (GAAP) $ 23,671 $ 25,000

Net (gains) losses on security transactions (net of tax) — 29

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis