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REGULATORY MATTERS

12 Months Ended

Dec. 31, 2024

NOTE O: REGULATORY MATTERS

The Company’s ability to pay dividends to its shareholders is largely dependent on the Bank’s ability to pay dividends to the Company. In addition to the capital requirements discussed below, the circumstances under which the Bank may pay dividends are limited by federal statutes, regulations, and policies. For example, as a national bank, the Bank must obtain the approval of the OCC for payments of dividends if the total of all dividends declared in any calendar year would exceed the total of the Bank’s net profits, as defined by applicable regulations, for that year, combined with its retained net profits for the preceding two years. Furthermore, the Bank may not pay a dividend in an amount greater than its undivided profits then on hand after deducting its losses and bad debts, as defined by applicable regulations. At December 31, 2024, the Bank had approximately $195.7 million in undivided profits legally available for the payment of dividends.

In addition, the Board of Governors of the FRB and the OCC are authorized to determine under certain circumstances that the payment of dividends would be an unsafe or unsound practice and to prohibit payment of such dividends. The FRB has indicated that banking organizations should generally pay dividends only out of current operating earnings. The OCC may take enforcement actions for a variety of supervisory concerns, including violations of laws, rules or regulations and unsafe and unsound practices. As a result, the OCC could also establish individual minimum capital ratios (“IMCR”) for the Bank that are higher than the regulatory minimums. This would impair the Bank’s ability to pay dividends to the Company.

There are also statutory limits on the transfer of funds to the Company by its banking subsidiary, whether in the form of loans or other extensions of credit, investments or assets purchases. Such transfer by the Bank to the Company generally is limited in amount to 10% of the Bank’s capital and surplus, or 20% in the aggregate. Furthermore, such loans and extensions of credit are required to be collateralized in specific amounts.

The Company and the Bank are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of the Company’s and the Bank’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’s and the Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Management believes, as of December 31, 2024, that the Company and Bank meet all applicable capital adequacy requirements.

The Company and the Bank are required to maintain a “capital conservation buffer,” composed entirely of common equity Tier 1 capital, in addition to minimum risk-based capital ratios. The required capital conservation buffer is 2.50% for both 2024 and 2023. Therefore, to satisfy both the minimum risk-based capital ratios and the capital conservation buffer in 2024 and 2023, the Company and the Bank must maintain: (i) Common equity Tier 1 capital to total risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to total risk-weighted assets of at least 8.5%, and (iii) Total capital (Tier 1 capital plus Tier 2 capital) to total risk-weighted assets of at least 10.5%. As of December 31, 2024 and 2023, the amounts, ratios and requirements for the Company are presented below. As of December 31, 2024, the OCC categorized the Company and Bank as “well capitalized” under the regulatory framework for prompt corrective action.


									For capital adequacy				To be well-capitalized
					For capital adequacy				purposes plus Capital				under prompt
	Actual				purposes				Conservation Buffer				corrective action
(000’s omitted)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Community Financial System, Inc.:
2024
Tier 1 Leverage ratio	$	1,454,209	9.19	%	$	633,020	4.00	%					$	791,275	5.00	%
Common equity tier 1 capital		1,454,067	14.23	%		459,829	4.50	%	$	715,290	7.00	%		664,198	6.50	%
Tier 1 risk-based capital		1,454,209	14.23	%		613,106	6.00	%		868,566	8.50	%		817,474	8.00	%
Total risk-based capital		1,533,798	15.01	%		817,474	8.00	%		1,072,935	10.50	%		1,021,843	10.00	%
2023
Tier 1 Leverage ratio	$	1,402,188	9.34	%	$	600,442	4.00	%					$	750,553	5.00	%
Common equity tier 1 capital		1,402,042	14.75	%		427,618	4.50	%	$	665,184	7.00	%		617,671	6.50	%
Tier 1 risk-based capital		1,402,188	14.76	%		570,158	6.00	%		807,723	8.50	%		760,210	8.00	%
Total risk-based capital		1,468,920	15.46	%		760,210	8.00	%		997,776	10.50	%		950,263	10.00	%

Community Bank, N.A.:
2024
Tier 1 Leverage ratio	$	1,210,171	7.69	%	$	629,589	4.00	%					$	786,986	5.00	%
Common equity tier 1 capital		1,210,029	11.96	%		455,433	4.50	%	$	708,451	7.00	%		657,847	6.50	%
Tier 1 risk-based capital		1,210,171	11.96	%		607,244	6.00	%		860,262	8.50	%		809,658	8.00	%
Total risk-based capital		1,289,760	12.74	%		809,658	8.00	%		1,062,677	10.50	%		1,012,073	10.00	%
2023
Tier 1 Leverage ratio	$	1,139,569	7.70	%	$	591,877	4.00	%					$	739,846	5.00	%
Common equity tier 1 capital		1,139,423	12.11	%		423,442	4.50	%	$	658,688	7.00	%		611,639	6.50	%
Tier 1 risk-based capital		1,139,569	12.11	%		564,590	6.00	%		799,835	8.50	%		752,786	8.00	%
Total risk-based capital		1,206,301	12.82	%		752,786	8.00	%		988,032	10.50	%		940,983	10.00	%

- Definition

The entire disclosure for regulatory capital requirement for depository and lending institutions. Institutions include, but not are not limited to, finance company, insured depository institution, bank holding company, savings and loan association holding company, bank and savings institution not federally insured, mortgage company, foreign financial institution and credit union.

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