Chemung Financial Corporation

11/05/2026 | Press release | Distributed by Public on 11/05/2026 12:37

Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations
Introduction
The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2026. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation's 2025 Annual Report on Form 10-K, which was filed with the SEC on March 13, 2026, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3-5.
The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation's actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below, in Part II, Item 1A, Risk Factors, and on pages 19-29 of the Corporation's 2025 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 68-70 of the Corporation's 2025 Form 10-K, and pages 82-85 of this Form 10-Q.
The Corporation has been a financial holding company since 2000, the Bank was established in 1833 and CFS in 2001. Through the Bank and CFS, the Corporation provides a wide range of financial services, including demand, savings, and time deposits, commercial, residential, and consumer loans, interest rate swaps, letters of credit, wealth management services, employee benefit plans, insurance products, mutual funds, and brokerage services. The Bank relies substantially on a foundation of locally generated deposits. The Corporation, on a stand-alone basis, has minimal results of operations. The Bank derives its income primarily from interest and fees on loans, interest income on investment securities, WMG fee income, and fees received in connection with deposit and other services. The Bank's operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans, and general operating expenses.
Forward-looking Statements
This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding the Corporation's expected financial position and operating results, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. 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, tariffs, cybersecurity risks, difficulties in managing the Corporation's growth, bank failures, changes in FDIC assessments, public health issues, geopolitical conflicts, competition, changes in law or the regulatory environment, and changes in general business and economic trends.
Information concerning these and other factors, including Risk Factors, can be found in the Corporation's periodic filings with the SEC, including the discussion under the heading "Item 1A. Risk Factors" in the Corporation's 2025 Annual Report on Form 10-K. These filings are available publicly on the SEC's web site at http://www.sec.gov, on the Corporation's web site at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise.
Critical Accounting Estimates
Critical accounting estimates include the areas where the Corporation has made what it considers to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect the Corporation's financial results under different assumptions and conditions. The Corporation prepares its financial statements in conformity with GAAP. As a result, the Corporation is required to make 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 as of the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Significant accounting policies followed by the Corporation are presented in Note 1 - Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2025, and in Note 1 - Summary of Significant Accounting Policies of this Form 10-Q.
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 may have on the Corporation's results of operations. Determining the amount requires significant judgment on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management's ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.
The allowance is established through a provision for credit losses in the Consolidated Statements of Income, and an evaluation of the adequacy of the allowance for credit losses is performed by management on a quarterly basis. While management uses available information to anticipate credit losses, future additions to the allowance may be necessary based on changes in economic conditions or the composition of its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses.
Because the Corporation's methodology for maintaining its allowance for credit losses is based on historical experience and trends, current economic information, forecasted data, and management's judgment, a range of estimates for the allowance for credit losses may be supportable. Deteriorating conditions may lead to further required increases to 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 September 30, 2026 and December 31, 2025, the allowance for credit losses totaled $25.2 million and $24.2 million, respectively. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, and as of September 30, 2026 and December 31, 2025, the allowance for credit losses allocated to the total commercial portfolio was $20.5 million and $18.9 million, respectively, or 81.3% and 78.0% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 78.5% and 76.4% of total loan balances as of September 30, 2026 and December 31, 2025, respectively. 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 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, most pools utilize the FOMC's projections for unemployment as a loss driver, while certain pools utilize the FOMC's projections for U.S. GDP growth as a loss driver. Segmentation and attributes of loan pools are defined in Note 1 - Summary of Significant Accounting Policies to the Audited Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025. FOMC projections are sourced from a quarterly Summary of Economic Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy and considering all currently available information. An immediate "shock" or increase of 100 basis points in the FOMC's projected rate of U.S. civilian unemployment and a decrease of 50 basis points in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $0.9 million, or 3.6%, to $26.1 million as of September 30, 2026, assuming qualitative adjustments were kept at current levels.
Future changes to the availability, frequency, or content of the FOMC's projections could require management to utilize alternative reasonable and supportable forecasts or modify certain forecasting assumptions used in the model. Any such changes could affect the comparability of model results between periods and may increase the judgment involved in estimating the allowance for credit losses. While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity and shock analyses are based on a series of hypothetical scenarios not intended to represent management's assumptions or judgment of factors as of September 30, 2026, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.
Consolidated Financial Highlights As of or for the
(in thousands, except per share data) As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, Mar 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
RESULTS OF OPERATIONS 2026 2026 2026 2025 2025 2026 2025
Interest and dividend income $ 36,119 $ 34,891 $ 33,585 $ 34,219 $ 33,884 $ 104,595 $ 98,616
Interest expense 10,445 10,221 10,001 10,375 11,196 30,667 35,303
Net interest income 25,674 24,670 23,584 23,844 22,688 73,928 63,313
Provision (credit) for credit losses (2,602) 561 601 1,136 1,064 (1,440) 3,301
Net interest income after provision for credit losses 28,276 24,109 22,983 22,708 21,624 75,368 60,012
Non-interest income 6,307 6,503 6,320 6,673 6,088 19,130 1,272
Non-interest expense 18,074 19,321 17,462 18,388 17,645 54,857 52,341
Income before income tax expense 16,509 11,291 11,841 10,993 10,067 39,641 8,943
Income tax expense 3,802 2,481 2,642 3,252 2,275 8,925 1,580
Net income $ 12,707 $ 8,810 $ 9,199 $ 7,741 $ 7,792 $ 30,716 $ 7,363
Basic and diluted earnings per share $ 2.63 $ 1.82 $ 1.91 $ 1.61 $ 1.62 $ 6.36 $ 1.53
Average basic and diluted shares outstanding 4,839 4,838 4,825 4,811 4,811 4,833 4,802
PERFORMANCE RATIOS - Annualized
Return on average assets 1.80 % 1.27 % 1.36 % 1.14 % 1.15 % 1.48 % 0.36 %
Return on average equity 18.36 % 13.19 % 14.25 % 12.17 % 12.89 % 15.32 % 4.27 %
Return on average tangible equity (a) 19.95 % 14.37 % 15.54 % 13.32 % 14.18 % 16.68 % 4.71 %
Efficiency ratio (unadjusted) (b) 56.51 % 61.98 % 58.39 % 60.25 % 61.32 % 58.95 % 81.04 %
Efficiency ratio (adjusted) (a) 56.39 % 61.85 % 58.27 % 60.12 % 61.18 % 58.83 % 64.08 %
Non-interest expense to average assets 2.56 % 2.79 % 2.59 % 2.71 % 2.61 % 2.65 % 2.54 %
Loans to deposits 100.66 % 100.14 % 99.91 % 99.95 % 93.38 % 100.66 % 93.38 %
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 5.70 % 5.64 % 5.59 % 5.69 % 5.68 % 5.64 % 5.60 %
Yield on investments 2.28 % 2.27 % 2.28 % 2.40 % 2.55 % 2.28 % 2.34 %
Yield on interest-earning assets 5.25 % 5.18 % 5.13 % 5.18 % 5.15 % 5.19 % 4.90 %
Cost of interest-bearing deposits 2.08 % 2.06 % 2.05 % 2.18 % 2.36 % 2.06 % 2.43 %
Cost of borrowings 5.52 % 5.67 % 5.74 % 7.42 % 7.33 % 5.64 % 5.43 %
Cost of interest-bearing liabilities 2.30 % 2.27 % 2.27 % 2.34 % 2.51 % 2.28 % 2.55 %
Cost of funds 1.67 % 1.67 % 1.67 % 1.72 % 1.85 % 1.67 % 1.90 %
Interest rate spread 2.95 % 2.91 % 2.86 % 2.84 % 2.64 % 2.91 % 2.35 %
Net interest margin, fully taxable equivalent (a) 3.74 % 3.67 % 3.60 % 3.61 % 3.45 % 3.67 % 3.15 %
CAPITAL
Total equity to total assets at end of period 9.59 % 9.59 % 9.57 % 9.40 % 9.10 % 9.59 % 9.10 %
Tangible equity to tangible assets at end of period (a) 8.90 % 8.88 % 8.84 % 8.66 % 8.36 % 8.90 % 8.36 %
Book value per share $ 56.51 $ 55.88 $ 54.36 $ 52.97 $ 50.98 $ 56.51 $ 50.98
Tangible book value per share (a) 52.00 51.37 49.85 48.43 46.44 52.00 46.44
Period-end market value per share 80.86 74.58 53.82 55.80 52.52 80.86 52.52
Dividends declared per share 0.36 0.34 0.34 0.34 0.34 1.04 0.98
AVERAGE BALANCES
Loans and loans held for sale (c) $ 2,376,225 $ 2,338,605 $ 2,292,239 $ 2,223,188 $ 2,171,673 $ 2,335,997 $ 2,119,666
Interest-earning assets 2,732,061 2,706,598 2,662,192 2,625,177 2,617,680 2,700,539 2,698,654
Total assets 2,799,952 2,774,578 2,733,232 2,691,963 2,684,273 2,769,381 2,756,604
Deposits 2,360,851 2,352,242 2,319,614 2,340,931 2,343,596 2,344,386 2,406,929
Total equity 274,534 267,809 261,823 252,325 239,836 268,102 230,662
Tangible equity (a) 252,710 245,985 239,999 230,501 218,012 246,278 208,838
ASSET QUALITY
Net charge-offs (recoveries) $ (2,563) $ 160 $ (94) $ 532 $ 86 $ (2,497) $ 1,340
Non-performing loans (d) 13,798 9,160 7,627 7,908 7,762 13,798 7,762
Non-performing assets (e) 16,078 11,211 9,758 8,165 7,972 16,078 7,972
Allowance for credit losses 25,213 25,232 24,890 24,209 23,645 25,213 23,645
Annualized net charge-offs (recoveries) to avg. loans (0.43) % 0.03 % (0.02) % 0.09 % 0.02 % (0.14) % 0.08 %
Non-performing loans to total loans 0.57 % 0.39 % 0.33 % 0.35 % 0.35 % 0.57 % 0.35 %
Non-performing assets to total assets 0.56 % 0.40 % 0.36 % 0.30 % 0.30 % 0.56 % 0.30 %
Allowance for credit losses to total loans 1.05 % 1.07 % 1.08 % 1.07 % 1.07 % 1.05 % 1.07 %
Allowance for credit losses to non-performing loans 182.73 % 275.46 % 326.34 % 306.13 % 304.63 % 182.73 % 304.63 %
(a) See the GAAP to Non-GAAP reconciliations. (d) Includes nonaccrual loans only.
(b) Non-interest expense divided by total net interest income plus non-interest income. (e) Includes non-performing loans, other real estate owned, and repossessions.
(c) Does not reflect allowance for credit losses.
In addition to analyzing the Corporation's results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation, and therefore facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 82-85 for further explanation and reconciliation of the Corporation's use of non-GAAP measures.
Consolidated Results of Operations
The following section of the MD&A provides a comparative discussion of the Corporation's Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2026 and 2025. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 48-49 of this Form 10-Q and page 39 of the Corporation's 2025 Form 10-K.
Net Income
The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data):
Three Months Ended
September 30, 		Nine Months Ended
September 30,
2026 2025 Change % Change 2026 2025 Change % Change
Net interest income $ 25,674 $ 22,688 $ 2,986 13.2 % $ 73,928 $ 63,313 $ 10,615 16.8 %
Non-interest income 6,307 6,088 219 3.6 % 19,130 1,272 17,858 N/M
Non-interest expense 18,074 17,645 429 2.4 % 54,857 52,341 2,516 4.8 %
Pre-provision net revenue 13,907 11,131 2,776 24.9 % 38,201 12,244 25,957 N/M
Provision (credit) for credit losses (2,602) 1,064 (3,666) N/M (1,440) 3,301 (4,741) (143.6) %
Income tax expense 3,802 2,275 1,527 67.1 % 8,925 1,580 7,345 N/M
Net income $ 12,707 $ 7,792 $ 4,915 63.1 % $ 30,716 $ 7,363 $ 23,353 N/M
Basic and diluted earnings per share $ 2.63 $ 1.62 $ 1.01 62.3 % $ 6.36 $ 1.53 $ 4.83 N/M
The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data) adjusted for nonrecurring items (refer to the GAAP to Non-GAAP reconciliations, pages 82-85, for further information):
Three Months Ended
September 30,
Nine Months Ended
September 30,
2026 2025 Change % Change 2026 2025 Change % Change
Net interest income $ 25,674 $ 22,688 $ 2,986 13.2 % $ 73,928 $ 63,313 $ 10,615 16.8 %
Non-interest income (1)
6,307 6,088 219 3.6 % 19,130 18,141 989 5.5 %
Non-interest expense 18,074 17,645 429 2.4 % 54,857 52,341 2,516 4.8 %
Pre-provision net revenue 13,907 11,131 2,776 24.9 % 38,201 29,113 9,088 31.2 %
Provision (credit) for credit losses (2,602) 1,064 (3,666) N/M (1,440) 3,301 (4,741) (143.6) %
Income tax expense (2)
3,802 2,275 1,527 67.1 % 8,925 5,675 3,250 57.3 %
Net income - adjusted $ 12,707 $ 7,792 $ 4,915 63.1 % $ 30,716 $ 20,137 $ 10,579 52.5 %
Basic and diluted earnings per share - adjusted $ 2.63 $ 1.62 $ 1.01 62.3 % $ 6.36 $ 4.19 $ 2.17 51.8 %
(1) Adjusted for $17.5 million loss on sale of securities available for sale and $0.6 million gain on sale of previous branch property during the nine months ended September 30, 2025.
(2) Adjusted for tax impact of loss on sale of securities available for sale and gain on sale of previous branch property during the nine months ended September 30, 2025.
Three Months Ended
September 30, 		Nine Months Ended
September 30,
Selected financial ratios: 2026 2025 2026 2025
Return on average assets (unadjusted) (a)
1.80 % 1.15 % 1.48 % 0.36 %
Return on average assets (adjusted) (a)(b)
1.80 % 1.15 % 1.48 % 0.98 %
Return on average equity (unadjusted) (a)
18.36 % 12.89 % 15.32 % 4.27 %
Return on average equity (adjusted) (a)(b)
18.36 % 12.89 % 15.32 % 11.67 %
Net interest margin, fully taxable equivalent (a)(b)
3.74 % 3.45 % 3.67 % 3.15 %
Efficiency ratio (unadjusted) (b)
56.51 % 61.32 % 58.95 % 81.04 %
Efficiency ratio (adjusted) (b)
56.39 % 61.18 % 58.83 % 64.08 %
Non-interest expense to average assets 2.56 % 2.61 % 2.65 % 2.54 %
(a) Annualized.
(b) See the GAAP to Non-GAAP reconciliations.
The Corporation reported net income for the three months ended September 30, 2026 of $12.7 million, or $2.63 per share, compared to net income of $7.8 million, or $1.62 per share, for the same period in the prior year. Return on average equity for the three months ended September 30, 2026 was 18.36%, compared to 12.89% for the same period in the prior year. The increase in net income for the three months ended September 30, 2026 was attributable to increases in net interest income and non-interest income, as well as a decrease in the provision for credit losses, offset by increases in non-interest expense and income tax expense.
Net income for the nine months ended September 30, 2026 was $30.7 million, or $6.36 per share, compared to $7.4 million, or $1.53 per share, for the same period in the prior year. Return on average equity for the nine months ended September 30, 2026 was 15.32%, compared to 4.27% for the same period in the prior year. The increase in net income for the nine months ended September 30, 2026 was primarily attributable to an increase in non-interest income and net interest income, and a decrease in the provision for credit losses, offset by increases in non-interest expense and income tax expense.
During the three months ended June 30, 2025, the Corporation sold a significant portion of its available for sale securities portfolio, and recognized a $17.5 million loss on the sale. In addition, the Corporation recognized a gain of $0.6 million upon completing the sale of a previously held for sale branch property. As both occurred in the second quarter of the prior year, only the nine month period comparisons were impacted. Excluding these nonrecurring items, net income (as adjusted) for the nine months ended September 30, 2025 was $20.1 million, or $4.19 per share, and adjusted return on average equity was 11.67%, compared to 15.32% for the same period in the current year. Refer to the GAAP to Non-GAAP reconciliations, on pages 82-85, for further information.
Net Interest Income
The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):
Three Months Ended
September 30,
2026 2025 Change % Change
Interest and dividend income $ 36,119 $ 33,884 $ 2,235 6.6 %
Interest expense 10,445 11,196 (751) (6.7) %
Net interest income $ 25,674 $ 22,688 $ 2,986 13.2 %
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 paid on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation's earnings.
Net interest income for the three months ended September 30, 2026 increased $3.0 million to $25.7 million compared to the same period in the prior year, largely due to an increase of $3.1 million in interest income on loans and a decrease of $1.3 million in interest expense on deposits, partially offset by a decrease of $0.9 million in interest income on interest-earning deposits and an increase of $0.6 million in interest expense on borrowed funds.
Interest income on loans, including fees, increased to $34.1 million for the three months ended September 30, 2026, from $31.0 million for the same period in the prior year. The increase was mostly due to an increase of $204.6 million in average balances of total loans, as well as an increase of two basis points in the average yield on total loans. Growth in average balances was concentrated in commercial loans, which increased $221.1 million, largely comprised of growth in commercial real estate loans in the Corporation's Canal Bank and Capital Bank divisions. Average balances of residential mortgage loans increased $9.5 million, mainly due to origination activity in the fourth quarter of 2025 and the first nine months of 2026, and the retention of a higher proportion of originated loans for investment. Average balances of consumer loans decreased $26.1 million, primarily due to a decline in indirect auto loans, as the Corporation continued to prioritize other types of lending.
The increase in the average yield on total loans reflected increases of six and 12 basis points in the average yields on residential mortgage loans and consumer loans, respectively, mostly offset by a decrease of two basis points in the average yield on commercial loans. The increase in the average yield on residential mortgage loans was largely due to yields on loans originated since the prior year period exceeding the portfolio's average yield. The increase in the average yield on consumer loans was largely due to the repricing of prior promotional home equity lines of credit from below-market introductory rates, partially offset by a lower average Prime rate. The decrease in the average yield on commercial loans was mainly due to lower interest rates on variable rate loans, as cumulative decreases of 75 basis points in the Federal Funds Target Range Upper Limit between September and December 2025 were only partially offset by a 25 basis point increase in September 2026. Partially offsetting the decrease were new loans originated at interest rates above the portfolio's average rate and the recognition of $0.2 million in prepayment penalties, deferred fees, and other fees associated with the payoff of two commercial real estate loans in the current year period.
Interest expense on deposits decreased to $8.8 million for the three months ended September 30, 2026, from $10.2 million for the same period in the prior year. The decrease was primarily due to a decrease of 28 basis points in the average cost of total interest-bearing deposits and a decline of $28.4 million in average balances of total interest-bearing deposits. The decrease in the average cost of interest-bearing deposits was largely due to decreases of 37 and 18 basis points in the average cost of customer time deposits and savings and money market deposits, respectively. The decrease in the average cost of savings and money market deposits was mainly due to targeted reductions in tiered interest rates offered on money market deposits in the fourth quarter of 2025 and the first quarter of 2026, as market interest rates declined.
The decline in average balances of total interest-bearing deposits was largely attributable to a decrease of $75.2 million in average balances of customer time deposits. The decreases in the average cost and average balances of customer time deposits were largely the result of the discontinuation of longer-term, higher-cost promotional offerings in the second half of 2025 in favor of shorter-term offerings, resulting in many previous promotional certificates of deposit not being renewed at maturity. Customer time deposits represented 18.3% of total average deposits during the three months ended September 30, 2026, compared to 21.7% during the same period in the prior year. Partially offsetting the decline was an increase of $66.4 million in average balances of savings and money market deposits, more than half of which was concentrated in the Corporation's Canal Bank division.
Interest income on interest-earning deposits decreased to $0.2 million for the three months ended September 30, 2026, from $1.1 million for the same period in the prior year, primarily due to declines of $74.5 million in average balances and 69 basis points in the average yield on interest-earning deposits. Average balances decreased mostly as a result of the Corporation utilizing cash proceeds from the sale of available for sale securities and the issuance of subordinated debt in 2025 to fund loan growth and pay off wholesale funding liabilities in the second half of 2025. The decrease in the average yield was largely due to the net decrease in the Federal Funds Target Range Upper Limit between the periods.
Interest expense on borrowed funds increased to $1.6 million for the three months ended September 30, 2026, from $1.0 million for the same period in the prior year. The increase was mainly due to an increase of $61.1 million in average balances of total borrowed funds, partially offset by a decrease of 181 basis points in the average cost of total borrowed funds. The increase in average balances of borrowed funds was primarily due to an increase of $55.9 million in average balances of term advances and other debt, reflecting increased utilization of FHLBNY advances to fund loan growth following the deployment of excess cash in the second half of 2025. The decrease in the average cost of total borrowed funds was primarily due to subordinated debt comprising a smaller proportion of total borrowings in the current year period, as well as a decrease of 49 basis points in the average cost of term advances and other debt.
Fully taxable equivalent net interest margin was 3.74% for the three months ended September 30, 2026, compared to 3.45% for the same period in the prior year. Average interest-earning assets increased $114.4 million, while average interest-bearing liabilities increased $32.7 million, compared to the same period in the prior year. The average yield on interest-earning assets increased 10 basis points to 5.25%, while the average cost of interest-bearing liabilities decreased 21 basis points to 2.30%.
The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):
Nine Months Ended
September 30,
2026 2025 Change % Change
Interest and dividend income $ 104,595 $ 98,616 $ 5,979 6.1 %
Interest expense 30,667 35,303 (4,636) (13.1) %
Net interest income $ 73,928 $ 63,313 $ 10,615 16.8 %
Net interest income for the nine months ended September 30, 2026 totaled $73.9 million compared to $63.3 million for the same period in the prior year, an increase of $10.6 million, largely due to an increase of $9.9 million in interest income on loans and a decrease of $6.3 million in interest expense on deposits, partially offset by decreases of $2.2 million in interest income on taxable securities and $1.4 million in interest income on interest-earning deposits, and an increase of $1.7 million in interest expense on borrowed funds.
Interest income on loans increased to $98.4 million for the first nine months of 2026, from $88.6 million for the same period in the prior year. The increase was mostly attributable to an increase of $234.1 million in average balances of commercial loans, largely concentrated in commercial real estate loans, partially offset by a decline of $27.6 million in average balances of total consumer loans, largely concentrated in indirect auto loans. Demand for commercial real estate loans in the Corporation's Canal Bank and Capital Bank divisions has remained strong, while indirect auto balances declined due to the Corporation's prioritization of other types of lending. The average yield on total loans increased four basis points, primarily due to an increase of 28 basis points in the average yield on residential mortgage loans, largely due to yields of mortgages originated since the prior year period exceeding the average yield of the overall portfolio. Changes in the average yields on commercial and total consumer loans did not have a significant impact on the change in net interest income.
Interest expense on deposits decreased to $26.1 million for the first nine months of 2026, from $32.4 million for the same period in the prior year. The decrease was primarily due to a decrease of 37 basis points in the average cost of total interest-bearing deposits, as well as a decline of $93.8 million in average balances of total interest-bearing deposits. The decrease in the average cost of deposits was mainly due to a decrease of 45 basis points in the average cost of customer time deposits, a decrease of 19 basis points in the average cost of savings and money market deposits, and decreased utilization of higher-cost brokered deposits. The average cost of customer time deposits decreased primarily due to the discontinuation of higher-cost promotional offerings in favor of shorter-term lower-costing promotions, as well as reduced reliance on time deposits to fund asset growth following the Corporation's balance sheet repositioning. The decrease in the average cost of savings and money market deposits was mainly due to targeted and tiered reductions in interest rates offered on money market accounts as market interest rates declined in the second half of 2025. Average balances of customer time deposits and brokered deposits declined $65.0 million and $57.3 million, respectively, and were primarily responsible for the decline in average balances of total interest-bearing deposits, partially offset by an increase of $40.8 million in average balances of savings and money market deposits. Customer time deposits comprised 19.1% of total average deposits for the nine months ended September 30, 2026, compared to 21.3% for the same period in the prior year.
Interest and dividend income on taxable securities decreased to $5.1 million for the first nine months of 2026, from $7.2 million for the same period in the prior year, primarily due to a decline of $160.5 million in average balances of taxable securities, partially offset by an increase of ten basis points in the average yield on taxable securities. The decline in average balances of taxable securities was mostly due to the sale of $244.8 million of available for sale securities during the three months ended June 30, 2025 as part of the Corporation's balance sheet repositioning efforts, as well as normal paydown activity on residential mortgage-backed securities. Interest income on interest-earning deposits decreased to $0.9 million for the first nine months of 2026, from $2.3 million for the same period in the prior year, due to declines of $38.0 million in average balances and 70 basis points in the average yield on interest-earning deposits. Average balances declined as cash proceeds from the 2025 balance sheet repositioning were used to fund loan growth and pay off wholesale funding liabilities.
Interest expense on borrowed funds increased to $4.6 million for the first nine months of 2026, from $2.9 million for the same period in the prior year, largely as a result of the Corporation's issuance of $45.0 million in 7.75% fixed-to-floating rate subordinated notes in June 2025. Average balances of subordinated debt increased $25.8 million, as the notes were outstanding for the entire current year period. Average balances of FHLBNY overnight advances and term advances and other debt increased $3.2 million and $8.8 million, respectively, reflecting increased utilization of FHLBNY advances to fund loan growth, while their average costs decreased 68 and 59 basis points, respectively, reflecting the lower interest rate environment.
Fully taxable equivalent net interest margin was 3.67% for the nine months ended September 30, 2026 compared to 3.15% for the same period in the prior year. Average interest-earning assets increased $1.9 million, as loan growth was largely offset by declines in average balances of securities and interest-earning deposits resulting from the Corporation's balance sheet repositioning efforts during 2025, while average interest-bearing liabilities declined $56.1 million. The average yield on interest-earning assets increased 29 basis points, to 5.19%, while the average cost of interest-bearing liabilities decreased 27 basis points, to 2.28%.
Average Consolidated Balance Sheets and Interest Analysis
The following tables present certain information related to the Corporation's average consolidated balance sheets and its consolidated statements of income for the three and nine months ended September 30, 2026 and 2025. For the purpose of the tables below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Three Months Ended
September 30, 2026 		Three Months Ended
September 30, 2025
($ in thousands) Average Balance Interest
Yield/Rate (3)
Average Balance Interest
Yield/Rate (3)
Interest-earning assets:
Commercial loans $ 1,857,875 $ 27,592 5.89 % $ 1,636,743 $ 24,383 5.91 %
Residential mortgage loans 287,209 3,215 4.44 % 277,682 3,063 4.38 %
Consumer loans 231,141 3,336 5.73 % 257,248 3,638 5.61 %
Taxable securities 318,954 1,702 2.12 % 334,290 1,656 1.97 %
Tax-exempt securities 11,574 103 3.53 % 11,864 93 3.11 %
Interest-earning deposits 25,308 239 3.75 % 99,853 1,118 4.44 %
Total interest-earning assets 2,732,061 36,187 5.25 % 2,617,680 33,951 5.15 %
Non interest-earning assets:
Cash and due from banks 26,874 26,580
Other assets 67,866 62,923
Allowance for credit losses (26,849) (22,910)
Total assets $ 2,799,952 $ 2,684,273
Interest-bearing liabilities:
Interest-bearing demand deposits $ 306,782 $ 1,112 1.44 % $ 326,464 $ 1,287 1.56 %
Savings and insured money market deposits 937,393 4,277 1.81 % 870,958 4,376 1.99 %
Time deposits 432,392 3,368 3.09 % 507,557 4,429 3.46 %
Brokered deposits 7,149 67 3.72 % 7,174 79 4.37 %
FHLBNY overnight advances 5,235 52 3.94 % 23 - - %
Term advances and other debt 67,248 671 3.96 % 11,331 127 4.45 %
Subordinated debt 44,090 898 8.08 % 44,105 898 8.08 %
Total interest-bearing liabilities 1,800,289 10,445 2.30 % 1,767,612 11,196 2.51 %
Non interest-bearing liabilities:
Demand deposits 677,135 631,443
Other liabilities 47,994 45,382
Total liabilities 2,525,418 2,444,437
Shareholders' equity 274,534 239,836
Total liabilities and shareholders' equity $ 2,799,952 $ 2,684,273
Fully taxable equivalent net interest income 25,742 22,755
Net interest rate spread (1)
2.95 % 2.64 %
Net interest margin, fully taxable equivalent (2)
3.74 % 3.45 %
Taxable equivalent adjustment (68) (67)
Net interest income $ 25,674 $ 22,688
(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.
(3) Annualized.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Nine Months Ended
September 30, 2026 		Nine Months Ended
September 30, 2025
($ in thousands) Average Balance Interest
Yield/ Rate (3)
Average Balance Interest
Yield/ Rate (3)
Interest-earning assets:
Commercial loans $ 1,812,473 $ 79,085 5.83 % $ 1,578,397 $ 68,988 5.84 %
Residential mortgage loans 286,384 9,500 4.44 % 276,540 8,611 4.16 %
Consumer loans 237,140 9,998 5.64 % 264,729 11,116 5.61 %
Taxable securities 322,735 5,061 2.10 % 483,242 7,215 2.00 %
Tax-exempt securities 11,152 277 3.32 % 27,101 611 3.01 %
Interest-earning deposits 30,655 867 3.78 % 68,645 2,298 4.48 %
Total interest-earning assets 2,700,539 104,788 5.19 % 2,698,654 98,839 4.90 %
Non interest-earning assets:
Cash and due from banks 26,200 25,882
Other assets 68,201 54,411
Allowance for credit losses (25,559) (22,343)
Total assets $ 2,769,381 $ 2,756,604
Interest-bearing liabilities:
Interest-bearing demand deposits $ 320,194 $ 3,444 1.44 % $ 332,492 $ 3,888 1.56 %
Savings and insured money market deposits 906,692 11,800 1.74 % 865,917 12,479 1.93 %
Time deposits 448,856 10,449 3.11 % 513,847 13,669 3.56 %
Brokered deposits 13,261 373 3.76 % 70,560 2,367 4.49 %
FHLBNY overnight advances 11,493 337 3.92 % 8,319 286 4.60 %
Term advances and other debt 53,570 1,571 3.92 % 44,778 1,509 4.51 %
Subordinated debt 44,064 2,693 8.17 % 18,281 1,105 8.08 %
Total interest-bearing liabilities 1,798,130 30,667 2.28 % 1,854,194 35,303 2.55 %
Non interest-bearing liabilities:
Demand deposits 655,383 624,113
Other liabilities 47,766 47,635
Total liabilities 2,501,279 2,525,942
Shareholders' equity 268,102 230,662
Total liabilities and shareholders' equity $ 2,769,381 $ 2,756,604
Fully taxable equivalent net interest income 74,121 63,536
Net interest rate spread (1)
2.91 % 2.35 %
Net interest margin, fully taxable equivalent (2)
3.67 % 3.15 %
Taxable equivalent adjustment (193) (223)
Net interest income $ 73,928 $ 63,313
(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.
(3) Annualized.
Changes Due to Rate and Volume
Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation's interest income and interest expense during the three and nine months ended September 30, 2026 and 2025. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
Three Months Ended
September 30, 2026 vs. 2025
Increase/(Decrease)
Total Change Due to Volume Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans $ 3,209 $ 3,284 $ (75)
Residential mortgage loans 152 106 46
Consumer loans (302) (376) 74
Taxable investment securities 46 (78) 124
Tax-exempt investment securities 10 (2) 12
Interest-earning deposits (879) (727) (152)
Total interest and dividend income, fully taxable equivalent 2,236 2,207 29
Interest expense on:
Interest-bearing demand deposits (175) (75) (100)
Savings and insured money market deposits (99) 320 (419)
Time deposits (1,061) (615) (446)
Brokered deposits (12) - (12)
FHLBNY overnight advances 52 52 -
Term advances and other debt 544 560 (16)
Subordinated debt - (1) 1
Total interest expense (751) 241 (992)
Net interest income, fully taxable equivalent $ 2,987 $ 1,966 $ 1,021
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
Nine Months Ended
September 30, 2026 vs. 2025
Increase/(Decrease)
Total Change Due to Volume Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans $ 10,097 $ 10,214 $ (117)
Residential mortgage loans 889 314 575
Consumer loans (1,118) (1,163) 45
Taxable investment securities (2,154) (2,501) 347
Tax-exempt investment securities (334) (391) 57
Interest-earning deposits (1,431) (1,117) (314)
Total interest and dividend income, fully taxable equivalent 5,949 5,356 593
Interest expense on:
Interest-bearing demand deposits (444) (140) (304)
Savings and insured money market deposits (679) 569 (1,248)
Time deposits (3,220) (1,620) (1,600)
Brokered deposits (1,994) (1,663) (331)
FHLBNY overnight advances 51 97 (46)
Term advances and other debt 62 273 (211)
Subordinated debt 1,588 1,576 12
Total interest expense (4,636) (908) (3,728)
Net interest income, fully taxable equivalent $ 10,585 $ 6,264 $ 4,321
Provision for credit losses
Management has established and maintains a methodology for determining and adjusting its allowance for credit losses based on a combination of quantitative and qualitative analysis, and changes in the required allowance are recorded through income as a provision. The quantitative portion of the model is significantly influenced by changes in projected economic conditions, as well as changes in the composition of the numerous loan portfolio segments. Qualitative adjustments reflect the degree to which management anticipates future outcomes may differ from those projected by the quantitative model.
The provision for credit losses was a credit of $2.6 million for the three months ended September 30, 2026, compared to provision expense of $1.1 million for the same period in the prior year. The decrease was largely due to a $2.9 million partial recovery of a commercial and industrial loan participation in the current year period, received in connection with a legal settlement. This recovery resulted in net recoveries for the three months ended September 30, 2026 totaling $2.6 million, compared to net charge-offs of $0.1 million for the same period in the prior year. Also contributing to the decrease were favorable changes in model inputs for the Corporation's CECL model, including improvements in FOMC economic forecasts and modeled prepayment speeds.
The provision for credit losses was a credit of $1.4 million for the nine months ended September 30, 2026, compared to provision expense of $3.3 million for the same period in the prior year, a decrease of $4.7 million. The decrease was primarily due to a $2.9 million partial recovery of a commercial and industrial loan participation, received in connection with the settlement of related litigation during the third quarter of 2026, as well as a $0.7 million recovery on a commercial and industrial loan that had been charged off during the prior year period. Also contributing to the decrease was the direction of the impact from the annual update to the Corporation's CECL model, which is performed each year during the first quarter. The current year update resulted in lower modeled baseline loss rates, while the prior year update had resulted in higher baseline loss rates, as well as favorable changes in FOMC forecasts and modeled prepayment speeds in the current year period, compared to deteriorations in the prior year period. Partially offsetting the decrease were specific allocations on individually analyzed loans totaling $1.4 million, including $1.2 million on one non-owner occupied commercial real estate loan, in the current year period, compared to $0.2 million in total specific allocations during the same period in the prior year.
Net recoveries for the nine months ended September 30, 2026 were $2.5 million, compared to net charge-offs of $1.3 million for the same period in the prior year. Besides the two recoveries mentioned in the preceding paragraph, which totaled $3.6 million, net charge-offs in the current year period largely consisted of normal activity in indirect consumer loan charge-offs and
$0.3 million in charge-offs concurrent with transferring commercial real estate balances to other real estate owned. Net charge-offs in the prior year period were largely due to a $0.7 million charge-off of a commercial and industrial loan which had carried a $0.7 million specific allocation in the allowance for credit losses, and normal indirect consumer loan charge-off activity.
Non-interest income
The following table presents non-interest income for the periods indicated, and the dollar and percent change (in thousands):
Three Months Ended
September 30,
2026 2025 Change % Change
WMG fee income $ 3,148 $ 2,967 $ 181 6.1 %
Service charges on deposit accounts 1,065 1,094 (29) (2.7) %
Interchange revenue from debit card transactions 1,094 1,073 21 2.0 %
Changes in fair value of equity investments (41) 136 (177) (130.1) %
Net gains on sales of loans held for sale 41 78 (37) (47.4) %
Income from bank owned life insurance 7 8 (1) (12.5) %
CFS fee and commission income 390 300 90 30.0 %
Other 603 432 171 39.6 %
Total non-interest income $ 6,307 $ 6,088 $ 219 3.6 %
Total non-interest income for the three months ended September 30, 2026 increased $0.2 million compared to the same period in the prior year, primarily due to increases of $0.2 million each in wealth management group fee income and other non-interest income. The increase was partially offset by a decrease of $0.2 million in changes in fair value of equity investments.
Wealth Management Group Fee Income
Wealth management group fee income increased mainly due to an increase in the market value of assets under management, excluding assets under management or administration for the Corporation, of 4.4%, compared to September 30, 2025, largely due to improvements in financial markets between the third quarters of 2025 and 2026.
Changes in Fair Value of Equity Investments
The decrease in the change in fair value of equity investments was mostly due to a decrease in the market value of the Corporation's deferred compensation plan in the current year period, compared to an increase in the same period in the prior year.
Other Non-Interest Income
The increase in other non-interest income was largely due to higher incentive income recognized under a debit card network agreement in the current year period, compared to the same period in the prior year.
The following table presents non-interest income for the periods indicated, and the dollar and percent change (in thousands):
Nine Months Ended
September 30,
2026 2025 Change % Change
WMG fee income $ 9,484 $ 8,827 $ 657 7.4 %
Service charges on deposit accounts 3,154 3,328 (174) (5.2) %
Interchange revenue from debit card transactions 3,215 3,220 (5) (0.2) %
Net (losses) on securities transactions - (17,498) 17,498 N/M
Changes in fair value of equity investments 160 197 (37) (18.8) %
Net gains on sales of loans held for sale 109 169 (60) (35.5) %
Net (losses) on sales of other real estate owned - (8) 8 N/M
Income from bank owned life insurance 21 24 (3) (12.5) %
CFS fee and commission income 1,261 793 468 59.0 %
Other 1,726 2,220 (494) (22.3) %
Total non-interest income $ 19,130 $ 1,272 $ 17,858 N/M
Total non-interest income for the nine months ended September 30, 2026 increased $17.9 million compared to the same period in the prior year. The increase was primarily due to a $17.5 million net loss on securities transactions in the prior year period, and increases of $0.7 million in wealth management group fee income and $0.5 million in CFS fee and commission income, partially offset by decreases of $0.5 million in other non-interest income and $0.2 million in service charges on deposit accounts.
Net Losses on Securities Transactions
The Corporation recognized a pre-tax loss of $17.5 million on the sale of a portion of its available for sale securities portfolio in the second quarter of 2025.
Wealth Management Group Fee Income
The increase in wealth management group fee income was primarily due to an increase in total assets under management in the current period, compared to the same period in the prior year, mainly due to cumulative improvements in financial markets since the third quarter of 2025.
CFS Fee and Commission Income
The increase in total CFS Group fee and commission income was largely due to recognition of additional income in the current year period following contractual changes with a broker-dealer, improvements in financial markets during the first nine months of 2026, and organic client growth across the Corporation's footprint.
Other Non-Interest Income
The decrease in other non-interest income was mostly due to a $0.6 million gain on the sale of a previous branch property during the second quarter of 2025.
Service Charges on Deposit Accounts
The decrease in service charges on deposit accounts was mainly due to a decrease in non-sufficient fund (NSF) fees in the current period, compared to the same period in the prior year.
Non-interest expense
The following table presents non-interest expense for the periods indicated, and the dollar and percent change (in thousands):
Three Months Ended
September 30,
2026 2025 Change % Change
Compensation expense:
Salaries and wages $ 8,203 $ 7,925 $ 278 3.5 %
Pension and other employee benefits 2,124 2,298 (174) (7.6) %
Other components of net periodic pension and postretirement benefits (127) (113) (14) (12.4) %
Total compensation expense 10,200 10,110 90 0.9 %
Non-compensation expense:
Net occupancy 1,441 1,371 70 5.1 %
Furniture and equipment 503 399 104 26.1 %
Data processing 2,576 2,534 42 1.7 %
Professional services 782 636 146 23.0 %
Marketing and advertising 150 203 (53) (26.1) %
Other real estate owned expenses 1 8 (7) N/M
FDIC insurance 302 352 (50) (14.2) %
Loan expenses 286 262 24 9.2 %
Other 1,833 1,770 63 3.6 %
Total non-compensation expense 7,874 7,535 339 4.5 %
Total non-interest expense $ 18,074 $ 17,645 $ 429 2.4 %
Total non-interest expense for the three months ended September 30, 2026 increased $0.4 million compared to the same period in the prior year. The increase was due to an increase in both total compensation expense and non-compensation expense compared to the same period in the prior year. For the three months ended September 30, 2026 and 2025, non-interest expense to average assets was 2.56% and 2.61%, respectively.
Compensation expense
The increase in compensation expense for the current period, compared to the same period in the prior year, was largely due to an increase in salaries and wages, offset by a decrease in pension and other employee benefits. Salaries and wages increased largely due to an increase in expenses relating to annual incentives as well as merit-based increases in salaries. Pension and other employee benefits decreased mostly due to lower healthcare-related expenses compared to the same period in the prior year.
Non-compensation expense
The increase in non-compensation expense was largely due to an increase of $0.1 million in professional services. The increase in professional services primarily related to an increase in consulting services in support of corporate initiatives compared to the same period in the prior year.
The following table presents non-interest expense for the periods indicated, and the dollar and percent change (in thousands):
Nine Months Ended
September 30,
2026 2025 Change % Change
Compensation expense:
Salaries and wages $ 23,840 $ 22,713 $ 1,127 5.0 %
Pension and other employee benefits 6,532 6,332 200 3.2 %
Other components of net periodic pension and postretirement benefits (411) (339) (72) (21.2) %
Total compensation expense 29,961 28,706 1,255 4.4 %
Non-compensation expense:
Net occupancy 4,515 4,335 180 4.2 %
Furniture and equipment 1,410 1,227 183 14.9 %
Data processing 7,727 7,631 96 1.3 %
Professional services 2,435 2,079 356 17.1 %
Marketing and advertising 888 893 (5) (0.6) %
Other real estate owned expenses 26 22 4 18.2 %
FDIC insurance 921 1,225 (304) (24.8) %
Loan expenses 1,078 836 242 28.9 %
Other 5,896 5,387 509 9.4 %
Total non-compensation expense 24,896 23,635 1,261 5.3 %
Total non-interest expense $ 54,857 $ 52,341 $ 2,516 4.8 %
Total non-interest expense for the nine months ended September 30, 2026 increased $2.5 million compared to the same period in the prior year. The increase was due to increases in both total compensation expense and total non-compensation expense. For the nine months ended September 30, 2026 and 2025, non-interest expense to average assets was 2.65% and 2.54%, respectively.
Compensation expense
The increase in compensation expense for the current period, compared to the same period in the prior year, was largely due to increases in salaries and wages, and pension and other employee benefits. Salaries and wages increased largely due to an increase in expenses relating to annual incentives as well as merit-based increases in salaries. Pension and other employee benefits increased primarily due to an increase in payroll taxes and employer contributions.
Non-compensation expense
The increase in non-compensation expense was primarily due to increases of $0.5 million in other non-interest expense, $0.4 million in professional services and $0.2 million in loan expenses, partially offset by a decrease of $0.3 million in FDIC insurance expense. Other non-interest expense increased largely due to a $0.3 million write-down of a legacy non-marketable equity investment following the Corporation's reassessment of the investment's carrying value, which included additional qualitative information regarding its expected recoverability. Loan expense and professional services each increased due to increases in legal fees compared to the same period in the prior year. A significant portion of the increase in legal fees in professional services related to the Bank's application to convert its charter to a national bank. Another portion of the increase in professional services related to recurring costs associated with the Corporation's subordinated debt. Professional services also increased due to an increase in consulting services in support of corporate initiatives in the current period compared to the same period in the prior year. FDIC insurance decreased primarily due to favorable changes in metrics used to determine assessment rates.
Income tax expense
The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (dollars in thousands):
Three Months Ended
September 30,
2026 2025 Change % Change
Income before income tax expense $ 16,509 $ 10,067 $ 6,442 64.0 %
Income tax expense $ 3,802 $ 2,275 $ 1,527 67.1 %
Effective tax rate 23.0 % 22.6 %
Income tax expense for the three month period ended September 30, 2026 was $3.8 million, compared to $2.3 million for the three month period ended September 30, 2025. The increase in income tax expense was primarily due to an increase of $6.4 million in income before income tax expense, compared to the same period in the prior year. This increase included the $0.8 million income tax impact from the recovery of credit losses following the litigation settlement in the current quarter. The effective income tax rate was 23.0% for the three months ended September 30, 2026 compared to 22.6% for the three months ended September 30, 2025.
The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (in thousands):
Nine Months Ended
September 30,
2026 2025 Change % Change
Income before income tax expense $ 39,641 $ 8,943 $ 30,698 N/M
Income tax expense $ 8,925 $ 1,580 $ 7,345 N/M
Effective tax rate 22.5 % 17.7 %
Income tax expense for the nine month period ended September 30, 2026 was $8.9 million, compared to $1.6 million for the nine month period ended September 30, 2025. The effective income tax rate was 22.5% for the nine months ended September 30, 2026 compared to 17.7% for the nine months ended September 30, 2025. The increase in income tax expense was primarily due to the $17.5 million net loss recognized on the Corporation's sale of available for sale securities in the second quarter of the prior year.
Financial Condition
The following table presents selected financial information as of the dates indicated, and the dollar and percent change (dollars in thousands):
ASSETS September 30, 2026 December 31, 2025 Change % Change
Total cash and cash equivalents $ 71,839 $ 50,097 $ 21,742 43.4 %
Total investment securities, FHLBNY and FRBNY stock 268,211 294,469 (26,258) (8.9) %
Loans, net of deferred loan fees 2,401,012 2,269,561 131,451 5.8 %
Allowance for credit losses (25,213) (24,209) 1,004 4.1 %
Loans, net 2,375,799 2,245,352 130,447 5.8 %
Goodwill and other intangible assets, net 21,824 21,824 - - %
Other assets 113,667 98,493 15,174 15.4 %
Total assets $ 2,851,340 $ 2,710,235 $ 141,105 5.2 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 2,385,249 $ 2,270,674 $ 114,575 5.0 %
Advances and other debt 88,173 90,554 (2,381) (2.6) %
Subordinated debt 44,105 44,028 77 0.2 %
Other liabilities 60,301 50,270 10,031 20.0 %
Total liabilities 2,577,828 2,455,526 122,302 5.0 %
Total shareholders' equity 273,512 254,709 18,803 7.4 %
Total liabilities and shareholders' equity $ 2,851,340 $ 2,710,235 $ 141,105 5.2 %
Cash and Cash Equivalents
The increase in cash and cash equivalents was largely due to an increase in total deposits, paydowns and maturities of investment securities, and cash flow provided by operating activities, primarily offset by an increase in total loans.
Investment Securities
The decrease in total investment securities was mostly due to year to date net paydowns and maturities on available for sale securities, totaling $20.5 million. Available for sale securities further decreased compared to the prior year-end due to a decrease in fair value of $11.2 million. Partially offsetting the decrease in total investment securities was the purchase of $4.9 million in collateralized mortgage obligations.
Loans, net
The increase in loans, net of deferred loan fees, was primarily due to an increase in non-owner occupied commercial real estate loans of $133.2 million, as well as increases of $10.1 million, $9.7 million and $8.2 million in owner occupied commercial real estate, construction loans and home equity lines and loans, respectively, partially offset by a decrease of $28.5 million in indirect consumer loans.
Allowance for Credit Losses
The increase in the allowance for credit losses was mainly due to specific reserve allocations of $1.4 million, including $1.2 million in allocations on one non-owner occupied commercial real estate loan, as well as year to date commercial real estate loan growth. Partially offsetting this increase was the impact of the annual review and update to loss drivers used in the CECL model, which is implemented in the first quarter of each year, and favorable changes in FOMC economic forecasts.
Other Assets
The increase in other assets was primarily due to an increase in interest rate swap assets resulting from the changes in market interest rates compared to December 31, 2025. Additionally contributing to the increase was an increase in other real estate owned, which totaled $1.9 million as of September 30, 2026, compared to no other real estate owned as of December 31, 2025, as well as an increase in operating lease right-of-use assets due to the commencement of a lease for a representative office in Buffalo, New York. The increase was partially offset by a decrease in premises and equipment, largely due to normal depreciation of fixed assets.
Deposits
The increase in deposits was due to increases in both non interest-bearing deposits and interest-bearing deposits. The increase in total deposits was partially due to increases in insured cash sweep deposits for municipalities and the introduction of new product offerings, including a new escrow platform. Non interest-bearing deposits also benefited from targeted promotional activity, including enhanced debit card reward program incentives at account opening, introduced during the first quarter of 2026.
Advances and Other Debt
Advances and other debt remained mostly in-line with the prior year-end with a net decrease of $2.4 million. Total FHLBNY overnight advances decreased $87.1 million while FHLBNY term advances increased $85.0 million, and consisted of two two-month advances. Also included in advances and other debt were finance lease liabilities, which decreased $0.3 million compared to the prior year-end.
Subordinated Debt
Subordinated debt, net of deferred issuance costs, was in-line with the prior year-end. In June of the prior year, the Corporation issued $45.0 million in 7.75% fixed-to-floating rate notes in a private offering, due June 2035, net of $1.0 million in deferred issuance costs associated with the offering.
Other Liabilities
The increase in other liabilities was primarily due to increases in interest rate swap liabilities and operating lease liabilities. Interest rate swap liabilities increased mainly due to an increase in the fair value of interest rate swaps. The increase in operating lease liabilities was largely due to the Corporation's lease of office space in Buffalo, New York to operate as a representative office for Canal Bank operations.
Shareholders' Equity
The increase in shareholders' equity was mainly due to an increase of $25.7 million in retained earnings offset by an increase of $8.2 million in accumulated other comprehensive loss. The increase in retained earnings was primarily due to net income of $30.7 million for the nine months ended September 30, 2026, partially offset by dividends declared of $5.0 million during the nine months ended September 30, 2026. The increase in accumulated other comprehensive loss was primarily due to an increase of $8.2 million in unrealized holding losses on securities available for sale, net of tax.
Assets under management or administration
The market value of total assets under management or administration in the Wealth Management Group was $2.280 billion as of September 30, 2026, including $132.8 million of assets held under management or administration for the Corporation, a decrease from $2.338 billion as of December 31, 2025, including $301.8 million of assets held under management or administration for the Corporation. Excluding assets under management or administration for the Corporation, the total market value of Wealth Management Group assets increased $111.0 million, or 5.5%, largely due to improvements in financial markets during the first nine months of 2026, compared to conditions as of December 31, 2025.
As of September 30, 2026, CFS Group had total client assets of $303.4 million, including $115.5 million of advisory assets under management, compared to client assets of $299.4 million, including $104.1 million of advisory assets under management, as of December 31, 2025, an increase of $4.0 million in total client assets and $11.4 million in advisory assets.
Securities
The available for sale segment of the securities portfolio totaled $253.4 million as of September 30, 2026, a decrease of $27.2 million, or 9.7%, from $280.6 million as of December 31, 2025. Securities available for sale decreased primarily due to net paydowns and maturities. Year to date net paydowns and maturities on available for sale securities totaled $20.5 million, largely on mortgage-backed securities totaling $15.8 million, maturities of municipal bonds totaling $0.5 million, and calls of corporate bonds totaling $4.2 million. Additionally, the decrease in the available for sale securities portfolio was further caused by a decrease of $11.2 million in the fair value of securities compared to December 31, 2025. Partially offsetting the decrease was the purchase of $5.0 million in collateralized mortgage obligations. The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation's market areas. These securities totaled $1.6 million as of September 30, 2026 and $0.6 million as of December 31, 2025.
Non-marketable equity securities as of September 30, 2026 and December 31, 2025 include shares of FRBNY stock and FHLBNY stock, carried at their cost. FRBNY stock and FHLBNY stock were $3.1 million and $6.5 million, respectively, as of September 30, 2026, and $3.0 million and $6.4 million, respectively, as of December 31, 2025. 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 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. 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. Fluctuations in the fair value of the Corporation's securities relate primarily to changes in interest rates. Marketable securities are generally classified as available for sale, while certain investments in local municipal obligations are classified as held to maturity.
Loans
The table below presents the Corporation's loan composition by segment as of the dates indicated, and the dollar and percent change from December 31, 2025 to September 30, 2026 (dollars in thousands):
LOAN PORTFOLIO COMPOSITION
September 30, 2026 % of Total Loans December 31, 2025 % of Total Loans Change % Change
Commercial and industrial $ 322,830 13.4 % $ 324,185 14.3 % $ (1,355) (0.4) %
Commercial real estate:
Construction 130,095 5.4 % 120,418 5.3 % 9,677 8.0 %
Owner occupied commercial real estate 188,710 7.9 % 178,620 7.9 % 10,090 5.6 %
Non-owner occupied commercial real estate 1,243,868 51.8 % 1,110,689 48.9 % 133,179 12.0 %
Residential mortgages 287,300 12.0 % 286,885 12.6 % 415 0.1 %
Consumer loans:
Home equity lines and loans 117,901 4.9 % 109,723 4.9 % 8,178 7.5 %
Indirect consumer loans 104,214 4.3 % 132,699 5.8 % (28,485) (21.5) %
Direct consumer loans 6,094 0.3 % 6,342 0.3 % (248) (3.9) %
Total $ 2,401,012 100.0 % $ 2,269,561 100.0 % $ 131,451 5.8 %
Portfolio loans totaled $2.401 billion as of September 30, 2026, an increase of $131.5 million, or 5.8%, from $2.270 billion as of December 31, 2025. The increase in total loans was due to an increase of $152.9 million in commercial real estate loans, partially offset by decreases of $20.6 million in total consumer loans and $1.4 million in commercial and industrial loans. Residential loans were in line with the prior year-end.
Commercial lending has continued to be the primary source of asset growth for the Corporation, with demand remaining strong across the Corporation's footprint, particularly for commercial real estate loans within the Capital Bank division in the Albany market and the Canal Bank division in the Western New York market. Commercial real estate loans in the Capital Bank and Canal Bank divisions increased $87.0 million and $70.8 million, respectively, compared to December 31, 2025. While
commercial and industrial loans declined modestly compared to prior year-end, commercial and industrial loans in the Canal Bank division increased $19.3 million, but was more than offset by decreases in the Capital Bank and Chemung Canal divisions.
Consumer loans decreased primarily due to a decrease of $28.5 million in indirect consumer loans, partially offset by an increase of $8.2 million in home equity lines and loans. The decrease in indirect consumer loans, primarily auto loans, reflected the Corporation's continued prioritization of other types of lending, which contributed to paydowns exceeding originations during the first nine months of 2026. The increase in home equity lines and loans was mainly attributable to current year promotional activity and advances on home equity lines of credit originated through prior year promotional efforts, both of which included below-market introductory interest rates.
Residential mortgage loans were relatively unchanged from December 31, 2025 as a result of origination activity remaining below typical historical levels in the current elevated interest rate environment. During the first nine months of 2026, the Corporation originated $33.3 million in total residential mortgages, including $5.6 million originated for sale in the secondary market to Freddie Mac and FHLBNY. Total residential mortgage originations decreased $9.8 million, or 22.8%, compared to the same period in the prior year.
The table below presents the Corporation's outstanding loan balances by Bank division (in thousands):
LOANS BY DIVISION
September 30, 2026 December 31, 2025 December 31, 2024 December 31, 2023 December 31, 2022
Chemung Canal Trust Company $ 574,992 $ 616,621 $ 626,903 $ 665,701 $ 651,516
Capital Bank Division 1,493,710 1,417,834 1,302,593 1,206,561 1,098,104
Canal Bank Division 332,310 235,106 141,923 100,402 79,828
Total loans $ 2,401,012 $ 2,269,561 $ 2,071,419 $ 1,972,664 $ 1,829,448
Commercial real estate lending represented the largest component of the Corporation's loan portfolio as of September 30, 2026 and December 31, 2025. Commercial real estate lending is comprised of the construction, owner occupied commercial real estate, and non-owner occupied commercial real estate categories of the loan portfolio, as presented in Note 4 - Loans and Allowance for Credit Losses to the Consolidated Financial Statements. As of September 30, 2026 and December 31, 2025, total commercial real estate loans were $1.563 billion and $1.410 billion, respectively, representing 65.1% and 62.1% of total loan balances, respectively.
As the largest component of the Corporation's loan portfolio, quantitative and qualitative attributes of commercial real estate lending have a significant impact on management's strategic initiatives, and an understanding of these attributes is critical to assessing the Corporation's anticipated future liquidity needs and sensitivity to changes in interest rates. Management closely monitors maturity and repricing schedules as part of its broader risk management framework, enabling it to proactively manage economic volatility and promote longer-term portfolio stability. Management also evaluates the risk inherent in its commercial real estate portfolio using a variety of metrics, including, but not limited to, property type, geography, collateral, and borrower or sponsor industry.
The table below presents commercial real estate loans by maturity and repricing date as of September 30, 2026 (dollars in thousands):
Commercial real estate loans: 2026 2027 2028 2029 2030
After 2030 (1)
Total
Maturing in: $ 31,884 $ 105,907 $ 93,485 $ 122,677 $ 266,528 $ 942,192 $ 1,562,673
Percentage of total 2.0 % 6.8 % 6.0 % 7.9 % 17.1 % 60.2 % 100.0 %
Repricing in: $ 684,332 $ 88,588 $ 96,585 $ 97,400 $ 95,160 $ 500,608 $ 1,562,673
Percentage of total 43.8 % 5.7 % 6.2 % 6.2 % 6.1 % 32.0 % 100.0 %
(1) Includes fixed rate loans
The table below presents commercial real estate loans by type and percentage as of September 30, 2026 and December 31, 2025 (dollars in thousands):
Commercial real estate loans by type: September 30, 2026 % of Total December 31, 2025 % of Total
Construction $ 130,095 8.3 % $ 120,418 8.5 %
1-4 family residential (1)
51,691 3.4 % 53,982 3.9 %
Multifamily 499,043 31.9 % 424,797 30.1 %
Owner occupied 188,710 12.1 % 178,620 12.7 %
Non-owner occupied 693,134 44.3 % 631,910 44.8 %
Total $ 1,562,673 100.0 % $ 1,409,727 100.0 %
(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 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 Corporation's branch network, as well as to borrowers whose business interests include projects located in counties geographically contiguous to the Corporation's 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; therefore, the geographic location of collateral may differ from that of the financed property.
The table below presents commercial real estate loans by regional location of collateral and percentage as of September 30, 2026 and December 31, 2025 (dollars in thousands):
Commercial real estate loans by regional location of collateral: September 30, 2026 % of Total December 31, 2025 % of Total
Capital Region $ 914,184 58.5 % $ 843,763 59.8 %
Southern Tier & Finger Lakes 235,439 15.1 % 230,599 16.4 %
Western New York 327,069 20.9 % 252,370 17.9 %
Other (1)
85,981 5.5 % 82,995 5.9 %
Total $ 1,562,673 100.0 % $ 1,409,727 100.0 %
(1) Includes $80.7 million and $77.6 million in commercial real estate loans located outside of New York State as of September 30, 2026 and December 31, 2025, respectively.
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 tables below present commercial real estate loans by borrower industry and percentage as well as the weighted average (WA) loan to value (LTV) ratio for each industry as of September 30, 2026 and December 31, 2025 (dollars in thousands):
September 30, 2026 December 31, 2025
Commercial real estate loans by borrower industry: Balances % of Total Balances % of Total
Construction & land development $ 130,095 8.3 % $ 120,418 8.5 %
Industrial 72,977 4.7 % 70,402 5.0 %
Warehouse & storage 125,079 8.0 % 104,214 7.4 %
Retail 280,336 17.9 % 264,230 18.7 %
Office 147,568 9.4 % 145,585 10.3 %
Hotel 93,325 6.0 % 80,563 5.7 %
1-4 family residential rental 51,691 3.3 % 54,264 3.8 %
Multifamily (5+) 523,100 33.5 % 449,829 31.9 %
Medical 71,876 4.6 % 54,395 4.0 %
Educational 15,256 1.0 % 21,458 1.5 %
Other 51,370 3.3 % 44,369 3.2 %
Total $ 1,562,673 100.0 % $ 1,409,727 100.0 %
Weighted average loan to value ratio by industry: September 30, 2026 December 31, 2025
Industrial 51.0 % 52.2 %
Warehouse & storage 60.2 % 63.6 %
Retail 58.7 % 58.6 %
Office 59.1 % 61.1 %
Hotel 48.9 % 53.0 %
1-4 family residential rental 60.7 % 65.3 %
Multifamily (5+) 59.2 % 60.4 %
Medical 59.7 % 64.1 %
Educational 61.7 % 56.2 %
Other 54.4 % 48.3 %
Total 58.0 % 59.2 %
Loan concentrations are considered to exist when there are amounts loaned to multiple borrowers engaged in similar activities, which may cause them to be similarly impacted by economic or other conditions. Industries are identified using NAICS codes, and the Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations of greater than 10.0% of total loans. As of September 30, 2026 and December 31, 2025, commercial loans to borrowers involved in the real estate and real estate rental and leasing businesses were 53.6% and 52.1% of the Corporation's total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of September 30, 2026 and December 31, 2025.
The table below presents the maturity of loans outstanding as of September 30, 2026 (in thousands):
Within One Year After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 136,983 $ 128,914 $ 56,502 $ 431 $ 322,830
Commercial real estate:
Construction 12,640 46,535 70,920 - 130,095
Owner occupied commercial real estate 4,341 53,760 126,486 4,123 188,710
Non-owner occupied commercial real estate 91,048 520,009 619,049 13,762 1,243,868
Residential mortgages 11,651 13,716 72,013 189,920 287,300
Consumer loans:
Home equity lines and loans 337 5,491 54,696 57,377 117,901
Indirect consumer loans 2,118 77,206 24,890 - 104,214
Direct consumer loans 306 3,592 1,215 981 6,094
Total $ 259,424 $ 849,223 $ 1,025,771 $ 266,594 $ 2,401,012
The tables below present the amounts due after one year, classified according to fixed interest rates and variable interest rates as of September 30, 2026 (in thousands):
Loans maturing with fixed interest rates: After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 74,484 $ 25,927 $ - $ 100,411
Commercial real estate:
Construction 4,372 251 - 4,623
Owner occupied commercial real estate 21,452 26,716 - 48,168
Non-owner occupied commercial real estate 221,436 102,726 - 324,162
Residential mortgages 13,530 67,257 126,898 207,685
Consumer loans:
Home equity lines and loans 4,272 47,001 245 51,518
Indirect consumer loans 77,206 24,890 - 102,096
Direct consumer loans 3,592 283 58 3,933
Total $ 420,344 $ 295,051 $ 127,201 $ 842,596
Loans maturing with variable interest rates: After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 54,430 $ 30,575 $ 431 $ 85,436
Commercial real estate: -
Construction 42,163 70,669 - 112,832
Owner occupied commercial real estate 32,308 99,770 4,123 136,201
Non-owner occupied commercial real estate 298,573 516,323 13,762 828,658
Residential mortgages 186 4,756 63,022 67,964
Consumer loans: -
Home equity lines and loans 1,219 7,695 57,132 66,046
Indirect consumer loans - - - -
Direct consumer loans - 932 923 1,855
Total $ 428,879 $ 730,720 $ 139,393 $ 1,298,992
Non-Performing Loans and Non-Performing Assets
Non-performing assets consist of non-performing loans, other real estate owned, acquired in partial or full satisfaction of loan obligations or through foreclosure, and repossessed vehicles. Non-performing loans are comprised of nonaccrual loans. Past due status for all loans is based on the contractual terms of the loan. It is generally the Corporation's policy to place a loan 90 days past due on nonaccrual status unless factors exist that would eliminate the need for such classification. A loan may also be designated as nonaccrual at any time if full payment of principal or interest is not expected due to deterioration in the financial condition of the borrower. When loans are placed on 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 original principal and interest. In the case of nonaccrual loans for which a portion of the balance has been charged off, the remaining balance is maintained on nonaccrual status until the entire principal balance has been recovered.
The following table summarizes the Corporation's non-performing assets (dollars in thousands):
NON-PERFORMING ASSETS
September 30, 2026 December 31, 2025
Total non-performing loans $ 13,798 $ 7,908
Other real estate owned and repossessed vehicles 2,280 257
Total non-performing assets $ 16,078 $ 8,165
Ratio of non-performing loans to total loans 0.57 % 0.35 %
Ratio of non-performing assets to total assets 0.56 % 0.30 %
Ratio of allowance for credit losses to non-performing loans 182.73 % 306.13 %
Accruing loans past due 90 days or more (1)
$ - $ 17
(1) Not included in non-performing assets above.
Non-performing loans totaled $13.8 million, or 0.57% of total loans as of September 30, 2026, compared to $7.9 million, or 0.35% of total loans as of December 31, 2025. Non-performing assets, which are comprised of non-performing loans, other real estate owned, and repossessed vehicles, were $16.1 million, or 0.56% of total assets as of September 30, 2026, compared to $8.2 million, or 0.30% of total assets as of December 31, 2025. The increase in non-performing loans was largely due to the addition of commercial loans totaling $7.9 million during the first nine months of 2026, including one commercial and industrial loan with a balance of $2.2 million and three non-owner occupied commercial real estate loans from two student housing relationships with balances totaling $5.3 million. Partially offsetting the increase was the transfer of $2.0 million in commercial real estate loan balances to other real estate owned, net of $0.3 million in related charge-offs, as well as the payoff of two nonaccrual commercial real estate loans totaling $0.6 million and a $1.1 million net decrease in other non-performing commercial loans during the first nine months of 2026. Also contributing to the overall increase in non-performing loans was an increase of $1.7 million in total non-performing residential mortgage and consumer loans, largely due to the addition of one residential mortgage with a balance of $0.8 million and one home equity loan with a balance of $0.5 million.
Loan Modifications to Borrowers Experiencing Financial Difficulty
The Corporation works closely with borrowers experiencing financial difficulties to identify viable solutions that minimize the potential for loss. The Corporation especially monitors modifications made to borrowers experiencing financial difficulty where contractual cash flows are directly impacted, including through principal reductions, reductions in effective interest rates, term extensions, significant payment delays, or a combination thereof. As of September 30, 2026, the Corporation had 13 active loans modified under such terms.
During the three month period ended September 30, 2026, the Corporation modified two loans to borrowers experiencing financial difficulty, each of which received a six month payment delay. Loans modified during the period totaled $2.5 million and included a $2.0 million non-owner occupied commercial real estate loan, which was modified as part of a forbearance agreement, and a $0.5 million home equity loan. In addition, during the nine month period ended September 30, 2026, the Corporation also modified two loans to a single borrower experiencing financial difficulty, both of which consisted of payment delays whereby six months of principal and interest payments were deferred to the contractual maturity dates of the loans. These modifications totaled $3.7 million and included a $3.5 million non-owner occupied commercial real estate loan and a $0.2 million commercial and industrial loan. The Corporation also modified a separate $0.1 million commercial and industrial loan, which was given a three-year term extension.
As of September 30, 2026, there was one previously modified home equity loan with a balance of $0.1 million that was not performing on its modified terms. All other active modified loans were performing in accordance with their modified terms as of September 30, 2026. During the nine month period ended September 30, 2026, the Corporation recognized a $0.7 million recovery on a commercial and industrial loan that had previously been modified through a term extension and subsequently charged off.
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 each measurement date. The allowance is in conformity with the requirements established by ASC 326 - Financial Instruments - Credit Losses and covers a range of assets including loans,
unfunded commitments, and debt securities; incorporating both quantitative and qualitative components. As of September 30, 2026 and December 31, 2025, 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 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 exhibits 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 September 30, 2026 totaled $8.9 million, compared to $4.2 million as of December 31, 2025. 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.
Certain 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 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 additional allocations to the allowance for credit losses or recognition of additional charge-offs. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower's financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management's knowledge of the client and client's business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral. 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 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. civilian unemployment and U.S. 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 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 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 changes 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 Consolidated Statements of Income. 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 on loans was $25.2 million as of September 30, 2026, compared to $24.2 million as of December 31, 2025, and was 182.73% of non-performing loans as of September 30, 2026, compared to 306.13% as of December 31, 2025. The decrease in the ratio of the allowance for credit losses to non-performing loans was mainly due to the addition of a $2.2 million commercial and industrial loan and two non-owner occupied commercial real estate loans to a single
borrower, totaling $3.2 million, during the first nine months of 2026, all of which did not require a specific allocation in the allowance for credit losses. Also contributing to the decrease was the transfer of $2.0 million in commercial real estate loan balances to other real estate owned during the first nine months of 2026, which had previously carried specific allocations in the allowance for credit losses. The ratio of the allowance for credit losses on loans to total loans was 1.05% as of September 30, 2026, compared to 1.07% as of December 31, 2025.
The increase in the allowance for credit losses was largely due to $1.4 million in specific allocations made on individually analyzed loans during the first nine months of 2026, including $1.2 million on one non-owner occupied commercial real estate loan. Also contributing to the increase was provisioning related to commercial real estate loan growth and changes in qualitative assumptions during the current year. Partially offsetting the overall increase was the impact of the annual review and update to loss drivers of the Corporation's CECL model, which is implemented in the first quarter each year and resulted in a net decrease in modeled loss rates in the current year, as well as improved economic forecasts, changes in modeled prepayment speeds, and lower consumer loan balances. The FOMC's forecast for 2026 year-end U.S. civilian unemployment was 4.1% as of September 30, 2026, compared to 4.4% as of December 31, 2025, while the forecast for U.S. GDP growth was 2.3% as of both September 30, 2026 and December 31, 2025.
The table below summarizes the Corporation's allowance for credit losses and non-performing loans outstanding by loan category as of September 30, 2026 and December 31, 2025 (dollars in thousands):
ALLOWANCE BY LOAN CATEGORY
Balance as of September 30, 2026
Allowance for credit losses
Allowance to loans(1)
Non-performing loans
Non-performing loans to loans(1)
Allowance to non-performing loans
Commercial and industrial $ 4,043 1.25 % $ 2,881 0.89 % 140.33 %
Commercial real estate 16,465 1.05 % 5,768 0.37 % 285.45 %
Residential mortgages 2,437 0.85 % 2,325 0.81 % 104.82 %
Consumer loans 2,268 0.99 % 2,824 1.24 % 80.31 %
Total $ 25,213 1.05 % $ 13,798 0.57 % 182.73 %
Balance as of December 31, 2025
Allowance for credit losses
Allowance to loans(1)
Non-performing loans
Non-performing loans to loans(1)
Allowance to non-performing loans
Commercial and industrial $ 4,524 1.40 % $ 779 0.24 % 580.74 %
Commercial real estate 14,363 1.02 % 3,167 0.22 % 453.52 %
Residential mortgages 2,788 0.97 % 1,753 0.61 % 159.04 %
Consumer loans 2,534 1.02 % 2,209 0.89 % 114.71 %
Total $ 24,209 1.07 % $ 7,908 0.35 % 306.13 %
(1) Ratio is a percentage of loan category.
The table below summarizes the Corporation's consolidated credit ratios as of September 30, 2026 and December 31, 2025:
Consolidated Ratios September 30, 2026 December 31, 2025
Non-performing loans to total loans 0.57 % 0.35 %
Allowance for credit losses to total loans 1.05 % 1.07 %
Allowance for credit losses, inclusive of unfunded commitments, to total loans 1.08 % 1.09 %
Allowance for credit losses to non-performing loans 182.73 % 306.13 %
The table below summarizes the Corporation's ratio of net charge-offs and recoveries to average loans outstanding by loan category for the nine months ended September 30, 2026 and 2025:
Net (Recovery) Charge-Off Ratio September 30, 2026 September 30, 2025
Commercial and industrial (1.43) % 0.33 %
Commercial real estate 0.03 % - %
Residential mortgages (0.01) % (0.01) %
Consumer loans 0.38 % 0.30 %
Total (0.14) % 0.08 %
The table below summarizes the Corporation's credit loss experience for the nine months ended September 30, 2026 and 2025 (in thousands):
SUMMARY OF CREDIT LOSS EXPERIENCE
Nine Months Ended
September 30,
2026 2025
Balance of allowance for credit losses at beginning of period $ 24,209 $ 21,388
Charge-offs:
Commercial and industrial 136 777
Commercial real estate 310 -
Residential mortgages 8 -
Consumer loans 1,179 1,030
Total charge-offs $ 1,633 $ 1,807
Recoveries:
Commercial and industrial $ 3,584 $ 9
Commercial real estate 1 3
Residential mortgages 33 16
Consumer loans 512 439
Total recoveries $ 4,130 $ 467
Net charge-offs (recoveries) (2,497) 1,340
Provision (credit) for credit losses on-balance sheet exposure (1)
(1,493) 3,597
Balance of allowance for credit losses at end of period $ 25,213 $ 23,645
(1) Additional provision related to off-balance sheet exposure was $53 thousand for the nine months ended September 30, 2026 and a credit of $296 thousand for the nine months ended September 30, 2025.
Net recoveries for the nine months ended September 30, 2026 were largely due to a $2.9 million partial recovery of a previous commercial and industrial participation loan charge-off as part of a legal settlement during the current year period, as well as a separate $0.7 million recovery on a commercial and industrial loan which had been charged off during the prior year. Partially offsetting overall net recoveries were normal charge-off activity in the Corporation's indirect consumer loan portfolio and $0.3 million in charge-offs relating to the transfer of four properties associated with multiple non-owner occupied commercial real estate loans to a single borrower to other real estate owned.
Net charge-offs for the nine months ended September 30, 2025 were mostly due to a $0.7 million charge-off of a commercial and industrial loan, which was subsequently recovered in the first nine months of 2026, and normal charge-off activity in the Corporation's indirect auto portfolio.
Other Real Estate Owned and Repossessed Vehicles
Other real estate owned totaled $1.9 million as of September 30, 2026. There was no other real estate owned as of December 31, 2025. There were five properties added to other real estate owned in the first nine months of 2026. Four of the properties added during the first nine months of 2026 were associated with one commercial borrower group, and included one multifamily property and three 1-4 family residential rental properties, with a transfer date fair value totaling $1.7 million. The transfer date fair value was inclusive of $0.3 million in charge-offs at the time of transfer. Additionally, there was one residential mortgage transferred to other real estate owned in the first nine months of 2026, totaling $0.2 million. There were no properties sold from other real estate owned in the first nine months of 2026. The Corporation had $0.4 million in repossessed vehicles as of September 30, 2026 and $0.3 million as of December 31, 2025, which is included in other assets on the Consolidated Balance Sheets, and is a component of non-performing assets.
Deposits
The table below summarizes the Corporation's deposit composition by segment as of September 30, 2026 and December 31, 2025, and the dollar and percent change from December 31, 2025 to September 30, 2026 (dollars in thousands):
DEPOSITS
September 30, 2026 v. December 31, 2025
September 30, 2026 December 31, 2025
Amount % of Total Amount % of Total $ Change % of Total Change
Non interest-bearing demand deposits $ 664,375 27.9 % $ 624,532 27.5 % $ 39,843 0.4 %
Interest-bearing demand deposits 335,562 14.1 % 326,645 14.4 % 8,917 (0.3) %
Money market deposits 703,094 29.5 % 601,391 26.5 % 101,703 3.0 %
Savings deposits 242,351 10.1 % 254,490 11.2 % (12,139) (1.1) %
Certificates of deposit $250,000 or less 315,766 13.2 % 339,320 14.9 % (23,554) (1.7) %
Certificates of deposit greater than $250,000 99,473 4.2 % 98,714 4.4 % 759 (0.2) %
Other time deposits 24,628 1.0 % 25,582 1.1 % (954) (0.1) %
Total $ 2,385,249 100.0 % $ 2,270,674 100.0 % $ 114,575
Deposits totaled $2.385 billion as of September 30, 2026 compared to $2.271 billion as of December 31, 2025, an increase of $114.6 million, or 5.0%. The increase was attributable to an increase of $114.6 million in total customer deposits. There were no brokered deposits as of either September 30, 2026 or December 31, 2025. The increase in total customer deposits was attributable to increases of $101.7 million in insured money market deposits, $39.8 million in non interest-bearing demand deposits, and $8.9 million in interest-bearing demand deposits. These increases were partially offset by decreases of $23.7 million in customer time deposits and $12.1 million in savings deposits.
The increase in money market deposits was mainly attributable to net inflows from commercial customers, partially due to the introduction of a new escrow product, as well as net inflows from municipal customers, including insured cash sweep accounts, partially due to seasonality. The increase in non-interest bearing demand deposits was due to net inflows from commercial clients compared to prior year-end, as well as smaller increases from individuals and municipal customers, partially due to a targeted checking account campaign during 2026. Non interest-bearing deposits comprised 27.9% and 27.5% of total deposits as of September 30, 2026 and December 31, 2025, respectively. The increase in interest-bearing demand deposits was largely due to seasonal inflows of municipal deposits. The decrease in customer time deposits was largely due to maturities of previous higher-cost CD campaigns which were not renewed. Savings deposits decreased mostly due to net outflows from both commercial and municipal customers.
The growth in customer deposits was due primarily to increases of $58.9 million in commercial deposits, $49.6 million in public deposits, $13.1 million in ICS deposits, and $0.4 million in consumer deposits, offset by a decrease of $7.4 million in CDARS deposits, compared to December 31, 2025. As of September 30, 2026, demand deposit and money market deposits comprised 71.4% of total deposits compared to 68.4% as of December 31, 2025. The aggregate amount of the Corporation's outstanding uninsured deposits was 33.4% and 30.1% of total deposits, as of September 30, 2026 and December 31, 2025, respectively.
The table below presents the Corporation's deposit balances by Bank division (in thousands):
DEPOSITS BY DIVISION
September 30, 2026 December 31, 2025 December 31, 2024 December 31, 2023 December 31, 2022
Chemung Canal Trust Company $ 1,889,065 $ 1,857,387 $ 1,892,228 $ 1,899,903 $ 1,815,566
Capital Bank Division 400,963 363,745 399,411 380,962 435,207
Canal Bank Division 95,221 49,542 13,085 5,786 3,002
Brokered Deposits - - 92,159 142,776 73,452
Total $ 2,385,249 $ 2,270,674 $ 2,396,883 $ 2,429,427 $ 2,327,227
In addition to consumer, commercial, and public deposits, other sources of funds include reciprocal deposits. The Regulatory Relief Act changed the definition of brokered deposits, such that subject to certain conditions, reciprocal deposits of another depository institution obtained through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC's brokered-deposit regulations. This applies to the Corporation's participation in the CDARS and ICS programs. 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. 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 programs allow the Corporation to obtain wholesale brokered deposits through the system. Deposits obtained through the CDARS and ICS reciprocal programs were $332.1 million and $326.5 million as of September 30, 2026, and December 31, 2025, respectively.
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. A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank. These customers will typically turn to their primary bank first when in need of other financial services. Strategies that have been developed and implemented to generate these deposits include: (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, (vi) constantly monitoring the Corporation's pricing strategies to ensure competitive products and services, and (vii) the introduction of new products and services to meet the changing needs of clients. The Corporation also considers brokered deposits to be an element of its deposit strategy and may use brokered deposits as a secondary source of funding to support growth.
Borrowings
Borrowings decreased $2.3 million to $132.3 million as of September 30, 2026 from December 31, 2025. The Corporation's borrowed funds as of September 30, 2026 were comprised of $85.0 million in FHLBNY term advances, $44.1 million in subordinated notes, and $3.2 million in long-term finance lease obligations. The Corporation's borrowed funds as of December 31, 2025 were comprised of an $87.1 million FHLBNY overnight advance, $44.0 million in subordinated notes, and $3.5 million in long-term finance lease obligations. There were no outstanding FHLBNY or FRBNY term advances as of December 31, 2025.
On June 10, 2025, the Corporation issued $45.0 million of 7.75% fixed-to-floating rate subordinated notes due June 15, 2035 in a private offering (the "Notes"). The Notes bear interest at a fixed rate of 7.75% per year, payable semi-annually, for the first five years. From June 15, 2030 to the June 15, 2035 maturity date, the interest rate will adjust to a floating rate equal to a benchmark rate which is expected to be the then-current three-month term SOFR plus 415 basis points, payable quarterly.
Shareholders' Equity
Total shareholders' equity increased $18.8 million from $254.7 million as of December 31, 2025 to $273.5 million as of September 30, 2026. The increase can primarily be attributed to an increase of $25.7 million in retained earnings, partially offset by an increase of $8.2 million in accumulated other comprehensive loss. The increase in retained earnings was mainly due to net income of $30.7 million for the nine months ended September 30, 2026, partially offset by dividends declared of $5.0 million during the nine months ended September 30, 2026. Accumulated other comprehensive loss increased due to an increase of $8.2 million in unrealized holding losses on securities available for sale, net of tax. The total shareholders' equity to total assets ratio was 9.59% as of September 30, 2026 compared to 9.40% as of December 31, 2025. The tangible equity to tangible assets ratio was 8.90% as of September 30, 2026 compared to 8.66% as of December 31, 2025. Book value per share increased to $56.51 as of September 30, 2026 from $52.97 as of December 31, 2025.
As of September 30, 2026, the Bank was subject to the capital adequacy guidelines of the Federal Reserve, which establish a framework for the classification of financial institutions into five categories: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized. As of September 30, 2026, the Bank's capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.
When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation's liquidity and capital positions. Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management. On January 8, 2021, the Corporation's Board of Directors approved a stock repurchase program. 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 Exchange Act of 1934. No shares were repurchased under the publicly announced repurchase program in the third quarter of 2026. As of September 30, 2026, 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. Remaining buyback authority under the share repurchase program was 200,816 shares as of September 30, 2026.
Liquidity
Liquidity management involves the ability to meet the cash flow requirements of deposit clients and borrowers, as well as 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, FHLBNY and FRB advances, and securities sold under agreements to repurchase.
The Corporation has a detailed Funds Management Policy that includes sections on liquidity measurement and management, and a Liquidity Contingency Plan that provides 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 upon this ongoing assessment of liquidity considerations, management believes the Corporation's sources of funding meet anticipated funding needs.
As of September 30, 2026, the Corporation's cash and cash equivalents balance was $71.8 million, increasing $21.7 million compared to December 31, 2025, largely due to an increase in deposits. The Corporation maintains an investment portfolio of securities available for sale, comprised of government sponsored entity mortgage-backed securities, collateralized mortgage obligations, municipal bonds, and corporate 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 September 30, 2026, the Corporation's investment in securities available for sale was $253.4 million, $60.1 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. As of September 30, 2026, the Bank had pledged a total of $255.9 million of residential mortgage loans and home equity loans under a blanket lien arrangement. Based on this available collateral, the Corporation was eligible to borrow up to a total of $178.6 million, and utilized $85.0 million as of September 30, 2026. As of December 31, 2025, the Bank had pledged a total of $255.1 million of residential mortgage loans and home equity loans under a blanket lien arrangement. Based upon this available collateral, the Corporation was eligible to borrow up to a total of $178.5 million, and utilized $87.1 million as of December 31, 2025. 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 $797.5 million as of September 30, 2026, and $682.5 million as of December 31, 2025, which included $211.0 million and $161.4 million of municipal deposits that were collateralized by pledged assets when balances exceeded FDIC insurance limits, respectively. The aggregate amount of the Corporation's outstanding uninsured deposits was 33.4% and 30.1% of total deposits, as of September 30, 2026 and December 31, 2025, respectively. The Corporation considers the level of uninsured deposits to be an important factor when considering liquidity management and strategic decisions, due to their fluidity.
The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it may continue utilizing brokered deposits as a secondary source of funding to support growth. Brokered deposits may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth. The Corporation had no brokered deposits as of September 30, 2026 and December 31, 2025. The Corporation also had a total of $65.0 million of unsecured lines of credit with four different financial institutions, all of which were available as of September 30, 2026 and December 31, 2025. Also available to the Corporation is the Discount Window Lending program provided by the FRB, at which $6.9 million in borrowing capacity was available as of September 30, 2026.
Consolidated Cash Flows Analysis
The table below summarizes the Corporation's cash flows for the periods indicated (in thousands):
CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands) Nine Months Ended
September 30,
2026 2025
Net cash provided by operating activities $ 29,685 $ 29,166
Net cash (used in) provided by investing activities (115,228) 139,533
Net cash (used in) provided by financing activities 107,285 (108,088)
Net increase in cash and cash equivalents $ 21,742 $ 60,611
Operating activities
The Corporation believes cash flows from operations, available cash balances, and its ability to generate cash through short-term and long-term borrowings are sufficient to fund the Corporation's operating liquidity needs. Cash provided by operating activities in the first nine months of 2026 and 2025 primarily resulted from net income after non-cash operating adjustments.
Investing activities
Cash used in investing activities during the first nine months of 2026 was primarily due to the increase in loans, partially offset by maturities and principal paydowns on securities available for sale. Cash provided by investing activities during the first nine months of 2025 primarily resulted from the sale of available for sale securities during the second quarter of 2025, partially offset by a net increase in loans.
Financing activities
Cash provided by financing activities during the first nine months of 2026 was primarily due to increases in total deposits. Cash used in financing activities during the first nine months of 2025 was primarily due to decreases in total deposits, including brokered deposits, and FHLBNY advances, partially offset by the issuance of subordinated debt in the second quarter of 2025.
Capital Resources
The Bank is subject to regulatory capital requirements administered by federal banking agencies. As a result of the Regulatory Relief Act, the FRB amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3.0 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities that contribute to an organization's complexity, are not subject to regulatory capital requirements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. Organizations that fail to maintain the minimum capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in calculating regulatory capital.
Pursuant to the Regulatory Relief Act, the federal banking agencies finalized a rule, effective January 1, 2020, that established a community bank leverage ratio (Tier 1 capital to average consolidated assets) of 9.00%, which institutions with less than $10.0 billion in assets may elect to use in lieu of the generally applicable risk-based capital requirements under Basel III. Qualifying institutions that meet the community bank leverage ratio will be deemed well capitalized. Effective July 1, 2026, the federal banking agencies lowered the community bank leverage ratio requirement to 8.00%. The Bank has not elected to use the community bank leverage ratio.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. Management believes that, as of September 30, 2026 and December 31, 2025, the Bank met all capital adequacy requirements to which it was subject. Since December 31, 2018, the Corporation has not been subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, and will not be subject to such requirements until it reaches $3.0 billion in assets.
As of September 30, 2026, 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. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank's capital category. Effective October 1, 2026, the Bank converted to a national bank charter and is now subject to the capital adequacy and prompt corrective action regulations of the OCC, which are substantially similar to those previously applicable under the FRB. The Corporation remains subject to supervision and regulation by the FRB as a bank holding company.
The regulatory capital ratios as of September 30, 2026 and December 31, 2025 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.
The Corporation and the Bank's capital ratios as of September 30, 2026 were as follows (in thousands, except ratio data):
Actual Minimum Capital Adequacy Minimum Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2026 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 365,895 15.46 % N/A N/A N/A N/A N/A N/A
Bank $ 356,499 15.07 % $ 189,263 8.00 % $ 248,407 10.50 % $ 236,578 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 295,937 12.50 % N/A N/A N/A N/A N/A N/A
Bank $ 330,647 13.98 % $ 141,947 6.00 % $ 201,091 8.50 % $ 189,263 8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 295,937 12.50 % N/A N/A N/A N/A N/A N/A
Bank $ 330,647 13.98 % $ 106,460 4.50 % $ 165,605 7.00 % $ 153,776 6.50 %
Tier 1 Capital (to Average Assets):
Consolidated $ 295,937 10.46 % N/A N/A N/A N/A N/A N/A
Bank $ 330,647 11.70 % $ 113,041 4.00 % N/A N/A $ 141,301 5.00 %
The Corporation and the Bank's capital ratios as of December 31, 2025 were as follows (in thousands, except ratio data):
Actual Minimum Capital Adequacy Minimum Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2025 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 337,760 15.30 % N/A N/A N/A N/A N/A N/A
Bank $ 326,594 14.80 % $ 176,571 8.00 % $ 231,749 10.50 % $ 220,714 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 268,938 12.18 % N/A N/A N/A N/A N/A N/A
Bank $ 301,800 13.67 % $ 132,428 6.00 % $ 187,607 8.50 % $ 176,571 8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 268,938 12.18 % N/A N/A N/A N/A N/A N/A
Bank $ 301,800 13.67 % $ 99,321 4.50 % $ 154,500 7.00 % $ 143,464 6.50 %
Tier 1 Capital (to Average Assets):
Consolidated $ 268,938 9.89 % N/A N/A N/A N/A N/A N/A
Bank $ 301,800 11.10 % $ 108,744 4.00 % N/A N/A $ 135,930 5.00 %
Dividend Restrictions
The Corporation's principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to current year's net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above. As of September 30, 2026, the Bank could, without prior approval, declare dividends of approximately $60.4 million.
Adoption of New Accounting Standards
Please refer to Note 1, Summary of Significant Accounting Policies - Accounting Standards Pending Adoption, for a discussion of new accounting standards.
Explanation and Reconciliation of the Corporation's Use of Non-GAAP Measures
The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 6-12. That presentation provides the reader with an understanding of the Corporation's results that can be tracked consistently from year-to-year and enables a comparison of the Corporation's performance with other companies' GAAP financial statements.
In addition to analyzing the Corporation's results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.
The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain "non-GAAP financial measures." Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation's reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of "non-GAAP financial measures" certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules, although we are unable to state with certainty that the SEC would so regard them.
Fully Taxable Equivalent Net Interest Income and Net Interest Margin
Net interest income is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of other institutions or in analyzing any institution's net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt obligations, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution's performance over time. The Corporation follows these practices.
As of or for the
(in thousands, except ratio data) As of or for the Three Months Ended Nine Months Ended
Net Interest Margin - Fully Taxable Equivalent Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
2026 2026 2026 2025 2025 2026 2025
Net interest income (GAAP) $ 25,674 $ 24,670 $ 23,584 $ 23,844 $ 22,688 $ 73,928 $ 63,313
Fully taxable equivalent adjustment 68 63 62 70 67 193 223
Fully taxable equivalent net interest income (non-GAAP) $ 25,742 $ 24,733 $ 23,646 $ 23,914 $ 22,755 $ 74,121 $ 63,536
Average interest-earning assets (GAAP) $ 2,732,061 $ 2,706,598 $ 2,662,192 $ 2,625,177 $ 2,617,680 $ 2,700,539 $ 2,698,654
Net interest margin - fully taxable equivalent (non-GAAP) 3.74 % 3.67 % 3.60 % 3.61 % 3.45 % 3.67 % 3.15 %
Pre-Provision Net Revenue
Pre-provision net revenue ("PPNR"), adjusted PPNR, and the ratios of each to average assets and average equity are non-GAAP financial measures. PPNR represents the Corporation's income before income tax expense, excluding the provision for credit losses. Adjusted PPNR further excludes the impact of certain transactions or other material items of income or expense that may have had a disproportionate positive or negative impact on the Corporation's financial results during a particular period. These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation's ability to generate earnings sufficient to absorb credit losses and support capital, independent of the volatility and timing of provision expense.
As of or for the
As of or for the Three Months Ended Nine Months Ended
Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
(in thousands, except ratio data) 2026 2026 2026 2025 2025 2026 2025
PRE-PROVISION NET REVENUE
Income before income tax expense (GAAP) $ 16,509 $ 11,291 $ 11,841 $ 10,993 $ 10,067 $ 39,641 $ 8,943
Add: Provision (credit) for credit losses (2,602) 561 601 1,136 1,064 (1,440) 3,301
Pre-provision net revenue (PPNR) (non-GAAP) $ 13,907 $ 11,852 $ 12,442 $ 12,129 $ 11,131 $ 38,201 $ 12,244
Less: net (gains) losses on securities transactions - - - - - - 17,498
Less: (gain) loss on sale of branch property - - - - - - (629)
Adjusted pre-provision net revenue (PPNR) (non-GAAP) $ 13,907 $ 11,852 $ 12,442 $ 12,129 $ 11,131 $ 38,201 $ 29,113
Total average assets (GAAP) $ 2,799,952 $ 2,774,578 $ 2,733,232 $ 2,691,963 $ 2,684,273 $ 2,769,381 $ 2,756,604
Total average shareholders' equity (GAAP) $ 274,534 $ 267,809 $ 261,823 $ 252,325 $ 239,836 $ 268,102 $ 230,662
PPNR to total average assets (non-GAAP) 1.97 % 1.71 % 1.85 % 1.79 % 1.65 % 1.84 % 0.59 %
PPNR to total average equity (non-GAAP) 20.10 % 17.75 % 19.27 % 19.07 % 18.41 % 19.05 % 7.10 %
Adjusted PPNR to total average assets (non-GAAP) 1.97 % 1.71 % 1.85 % 1.79 % 1.65 % 1.84 % 1.41 %
Adjusted PPNR to total average equity (non-GAAP) 20.10 % 17.75 % 19.27 % 19.07 % 18.41 % 19.05 % 16.87 %
Efficiency Ratio
The unadjusted efficiency ratio is calculated as non-interest expense divided by total revenue (net interest income and non-interest income). The adjusted efficiency ratio is a non-GAAP financial measure which represents the Corporation's ability to turn resources into revenue and is calculated as non-interest expense divided by total revenue (fully taxable equivalent net interest income and non-interest income), adjusted for one-time occurrences and amortization of intangible assets. This measure is meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation's productivity measured by the amount of revenue generated for each dollar spent.
As of or for the
As of or for the Three Months Ended Nine Months Ended
(in thousands, except ratio data) Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
Efficiency Ratio 2026 2026 2026 2025 2025 2026 2025
Net interest income (GAAP) $ 25,674 $ 24,670 $ 23,584 $ 23,844 $ 22,688 $ 73,928 $ 63,313
Fully taxable equivalent adjustment 68 63 62 70 67 193 223
Fully taxable equivalent net interest income (non-GAAP) $ 25,742 $ 24,733 $ 23,646 $ 23,914 $ 22,755 $ 74,121 $ 63,536
Non-interest income (GAAP) $ 6,307 $ 6,503 $ 6,320 $ 6,673 $ 6,088 $ 19,130 $ 1,272
Less: net (gains) losses on securities transactions - - - - - - 17,498
Less: (gain) loss on sale of branch property - - - - - - (629)
Adjusted non-interest income (non-GAAP) $ 6,307 $ 6,503 $ 6,320 $ 6,673 $ 6,088 $ 19,130 $ 18,141
Non-interest expense (GAAP) $ 18,074 $ 19,321 $ 17,462 $ 18,388 $ 17,645 $ 54,857 $ 52,341
Efficiency ratio (unadjusted) 56.51 % 61.98 % 58.39 % 60.25 % 61.32 % 58.95 % 81.04 %
Efficiency ratio (adjusted) 56.39 % 61.85 % 58.27 % 60.12 % 61.18 % 58.83 % 64.08 %
Tangible Equity and Tangible Assets (Period-End)
Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures. Tangible equity represents the Corporation's stockholders' equity, less goodwill and other intangible assets. Tangible assets represent the Corporation's total assets, less goodwill and other intangible assets. Tangible book value per share represents the Corporation's tangible equity divided by common shares at period-end. These measures are meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation's use of equity.
As of or for the
(in thousands, except per share and ratio data) As of or for the Three Months Ended Nine Months Ended
Tangible Equity and Tangible Assets (Period End) Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
2026 2026 2026 2025 2025 2026 2025
Total shareholders' equity (GAAP) $ 273,512 $ 270,361 $ 262,929 $ 254,709 $ 245,308 $ 273,512 $ 245,308
Less: intangible assets (21,824) (21,824) (21,824) (21,824) (21,824) (21,824) (21,824)
Tangible equity (non-GAAP) $ 251,688 $ 248,537 $ 241,105 $ 232,885 $ 223,484 $ 251,688 $ 223,484
Total assets (GAAP) $ 2,851,340 $ 2,820,202 $ 2,748,722 $ 2,710,235 $ 2,696,634 $ 2,851,340 $ 2,696,634
Less: intangible assets (21,824) (21,824) (21,824) (21,824) (21,824) (21,824) (21,824)
Tangible assets (non-GAAP) $ 2,829,516 $ 2,798,378 $ 2,726,898 $ 2,688,411 $ 2,674,810 $ 2,829,516 $ 2,674,810
Total equity to total assets at end of period (GAAP) 9.59 % 9.59 % 9.57 % 9.40 % 9.10 % 9.59 % 9.10 %
Book value per share (GAAP) $ 56.51 $ 55.88 $ 54.36 $ 52.97 $ 50.98 $ 56.51 $ 50.98
Tangible equity to tangible assets at end of period (non-GAAP) 8.90 % 8.88 % 8.84 % 8.66 % 8.36 % 8.90 % 8.36 %
Tangible book value per share (non-GAAP) $ 52.00 $ 51.37 $ 49.85 $ 48.43 $ 46.44 $ 52.00 $ 46.44
Tangible Equity (Average)
Average tangible equity and return on average tangible equity are each non-GAAP financial measures. Average tangible equity represents the Corporation's average stockholders' equity, less average goodwill and other intangible assets for the period. Return on average tangible equity measures the Corporation's earnings as a percentage of average tangible equity. These measures are meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation's use of equity.
As of or for the
As of or for the Three Months Ended Nine Months Ended
(in thousands, except ratio data) Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
Tangible Equity (Average) 2026 2026 2026 2025 2025 2026 2025
Total average shareholders' equity (GAAP) $ 274,534 $ 267,809 $ 261,823 $ 252,325 $ 239,836 $ 268,102 $ 230,662
Less: average intangible assets (21,824) (21,824) (21,824) (21,824) (21,824) (21,824) (21,824)
Average tangible equity (non-GAAP) $ 252,710 $ 245,985 $ 239,999 $ 230,501 $ 218,012 $ 246,278 $ 208,838
Net income (GAAP) $ 12,707 $ 8,810 $ 9,199 $ 7,741 $ 7,792 $ 30,716 $ 7,363
Return on average equity (GAAP) 18.36 % 13.19 % 14.25 % 12.17 % 12.89 % 15.32 % 4.27 %
Return on average tangible equity (non-GAAP) 19.95 % 14.37 % 15.54 % 13.32 % 14.18 % 16.68 % 4.71 %
Adjustments for Certain Items of Income or Expense
In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROAA, and ROAE, the Corporation may also provide comparative disclosures that adjust these GAAP financial measures for a particular period by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the period, 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 period in question. In the Corporation's presentation of any such non-GAAP (adjusted) financial measures not specifically discussed in the preceding paragraphs, the Corporation supplies the supplemental financial information and explanations required under Regulation G.
As of or for the
As of or for the Three Months Ended Nine Months Ended
(in thousands, except per share and ratio data) Sep 30, June 30, March 31, Dec. 31, Sept. 30, Sep 30, Sep 30,
Non-GAAP Net Income 2026 2026 2026 2025 2025 2026 2025
Reported net income (GAAP) $ 12,707 $ 8,810 $ 9,199 $ 7,741 $ 7,792 $ 30,716 $ 7,363
Net (gains) losses on securities transactions (net of tax) - - - - - - 13,237
Net (gain) loss on sale of branch property (net of tax) - - - - - - (463)
Non-GAAP net income $ 12,707 $ 8,810 $ 9,199 $ 7,741 $ 7,792 $ 30,716 $ 20,137
Average basic and diluted shares outstanding 4,839 4,838 4,825 4,811 4,811 4,833 4,802
Average total assets (GAAP) $ 2,799,952 $ 2,774,578 $ 2,733,232 $ 2,691,963 $ 2,684,273 $ 2,769,381 $ 2,756,604
Average total shareholders' equity (GAAP) 274,534 267,809 261,823 252,325 239,836 268,102 230,662
Reported basic and diluted earnings per share (GAAP) $ 2.63 $ 1.82 $ 1.91 $ 1.61 $ 1.62 $ 6.36 $ 1.53
Reported return on average assets (GAAP) 1.80 % 1.27 % 1.36 % 1.14 % 1.15 % 1.48 % 0.36 %
Reported return on average equity (GAAP) 18.36 % 13.19 % 14.25 % 12.17 % 12.89 % 15.32 % 4.27 %
Non-GAAP basic and diluted earnings per share $ 2.63 $ 1.82 $ 1.91 $ 1.61 $ 1.62 $ 6.36 $ 4.19
Non-GAAP return on average assets 1.80 % 1.27 % 1.36 % 1.14 % 1.15 % 1.48 % 0.98 %
Non-GAAP return on average equity 18.36 % 13.19 % 14.25 % 12.17 % 12.89 % 15.32 % 11.67 %
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