Chemung Financial Corporation

05/07/2026 | Press release | Distributed by Public on 05/07/2026 09:58

Quarterly Report for Quarter Ending March 31, 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 months ended March 31, 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 I, 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 67-70 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 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 estimate of 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 March 31, 2026 and December 31, 2025, the allowance for credit losses totaled $24.9 million and $24.2 million, respectively. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, to both commercial real estate and commercial and industrial loans. As of March 31, 2026 and December 31, 2025, the allowance for credit losses allocated to the total commercial portfolio was $20.0 million and $18.9 million, respectively, or 80.3% and 78.0% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 77.3% and 76.4% of total loan balances as of March 31, 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 the commercial and industrial, consumer, and other loans loan 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 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 $1.5 million, or 5.9%, to $26.3 million as of March 31, 2026, assuming qualitative adjustments were kept at current levels.
While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management's assumptions or judgment of factors as of March 31, 2026, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.
Consolidated Financial Highlights
(in thousands, except per share data) As of or for the Three Months Ended
Mar. 31, Dec. 31, Sept. 30, Jun. 30, Mar. 31,
RESULTS OF OPERATIONS 2026 2025 2025 2025 2025
Interest and dividend income $ 33,585 $ 34,219 $ 33,884 $ 33,034 $ 31,698
Interest expense 10,001 10,375 11,196 12,226 11,881
Net interest income 23,584 23,844 22,688 20,808 19,817
Provision for credit losses 601 1,136 1,064 1,145 1,092
Net interest income after provision for credit losses 22,983 22,708 21,624 19,663 18,725
Non-interest income (loss) 6,320 6,673 6,088 (10,705) 5,889
Non-interest expense 17,462 18,388 17,645 17,769 16,927
Income (loss) before income tax expense 11,841 10,993 10,067 (8,811) 7,687
Income tax expense (benefit) 2,642 3,252 2,275 (2,359) 1,664
Net income (loss) $ 9,199 $ 7,741 $ 7,792 $ (6,452) $ 6,023
Basic and diluted earnings (loss) per share $ 1.91 $ 1.61 $ 1.62 $ (1.35) $ 1.26
Average basic and diluted shares outstanding 4,825 4,811 4,811 4,808 4,791
PERFORMANCE RATIOS - Annualized
Return (loss) on average assets 1.36 % 1.14 % 1.15 % (0.92) % 0.88 %
Return (loss) on average equity 14.25 % 12.17 % 12.89 % (11.29) % 10.96 %
Return (loss) on average tangible equity (a) 15.54 % 13.32 % 14.18 % (12.48) % 12.15 %
Efficiency ratio (unadjusted) (b) 58.39 % 60.25 % 61.32 % 175.88 % 65.85 %
Efficiency ratio (adjusted) (a) 58.27 % 60.12 % 61.18 % 65.69 % 65.64 %
Non-interest expense to average assets 2.59 % 2.71 % 2.61 % 2.54 % 2.47 %
Loans to deposits 99.91 % 99.95 % 93.38 % 86.37 % 86.20 %
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 5.59 % 5.69 % 5.68 % 5.61 % 5.49 %
Yield on investments 2.28 % 2.40 % 2.55 % 2.27 % 2.26 %
Yield on interest-earning assets 5.13 % 5.18 % 5.15 % 4.83 % 4.72 %
Cost of interest-bearing deposits 2.05 % 2.18 % 2.36 % 2.45 % 2.48 %
Cost of borrowings 5.74 % 7.42 % 7.33 % 4.90 % 4.54 %
Cost of interest-bearing liabilities 2.27 % 2.34 % 2.51 % 2.57 % 2.55 %
Cost of funds 1.67 % 1.72 % 1.85 % 1.94 % 1.92 %
Interest rate spread 2.86 % 2.84 % 2.64 % 2.26 % 2.17 %
Net interest margin, fully taxable equivalent (a) 3.60 % 3.61 % 3.45 % 3.05 % 2.96 %
CAPITAL
Total equity to total assets at end of period 9.57 % 9.40 % 9.10 % 8.24 % 8.16 %
Tangible equity to tangible assets at end of period (a) 8.84 % 8.66 % 8.36 % 7.53 % 7.44 %
Book value per share $ 54.36 $ 52.97 $ 50.98 $ 48.85 $ 47.49
Tangible book value per share (a) 49.85 48.43 46.44 44.31 42.95
Period-end market value per share 53.82 55.80 52.52 48.47 47.57
Dividends declared per share 0.34 0.34 0.34 0.32 0.32
AVERAGE BALANCES
Loans and loans held for sale (c) $ 2,292,239 $ 2,223,188 $ 2,171,673 $ 2,108,557 $ 2,077,739
Interest-earning assets 2,662,192 2,625,177 2,617,680 2,749,856 2,729,661
Total assets 2,733,232 2,691,963 2,684,273 2,802,226 2,784,414
Deposits 2,319,614 2,340,931 2,343,596 2,432,713 2,445,597
Total equity 261,823 252,325 239,836 229,161 222,802
Tangible equity (a) 239,999 230,501 218,012 207,337 200,978
ASSET QUALITY
Net charge-offs (recoveries) $ (94) $ 532 $ 86 $ 992 $ 262
Non-performing loans (d) 7,627 7,908 7,762 8,237 9,881
Non-performing assets (e) 9,758 8,165 7,972 8,447 10,282
Allowance for credit losses 24,890 24,209 23,645 22,665 22,522
Annualized net charge-offs (recoveries) to average loans (0.02) % 0.09 % 0.02 % 0.19 % 0.05 %
Non-performing loans to total loans 0.33 % 0.35 % 0.35 % 0.39 % 0.47 %
Non-performing assets to total assets 0.36 % 0.30 % 0.30 % 0.30 % 0.37 %
Allowance for credit losses to total loans 1.08 % 1.07 % 1.07 % 1.06 % 1.07 %
Allowance for credit losses to non-performing loans 326.34 % 306.13 % 304.63 % 275.16 % 227.93 %
(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 67-70 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 months ended March 31, 2026 and 2025. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 41-42 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
March 31,
2026 2025 Change % Change
Net interest income $ 23,584 $ 19,817 $ 3,767 19.0 %
Non-interest income 6,320 5,889 431 7.3 %
Non-interest expense 17,462 16,927 535 3.2 %
Pre-provision income 12,442 8,779 3,663 41.7 %
Provision for credit losses 601 1,092 (491) (45.0) %
Income tax expense 2,642 1,664 978 58.8 %
Net income $ 9,199 $ 6,023 $ 3,176 52.7 %
Basic and diluted earnings per share $ 1.91 $ 1.26 $ 0.65 51.6 %
Three Months Ended
March 31,
Selected financial ratios: 2026 2025
Return on average assets (unadjusted) (a)
1.36 % 0.88 %
Return on average equity (unadjusted) (a)
14.25 % 10.96 %
Net interest margin, fully taxable equivalent (a)(b)
3.60 % 2.96 %
Efficiency ratio (unadjusted) (b)
58.39 % 65.85 %
Efficiency ratio (adjusted) (b)
58.27 % 65.64 %
Non-interest expense to average assets 2.59 % 2.47 %
(a) Annualized.
(b) See the GAAP to Non-GAAP reconciliations.
The Corporation reported net income for the first quarter of 2026 of $9.2 million, or $1.91 per share, compared to $6.0 million, or $1.26 per share, for the same period in the prior year. Return on average equity for the current quarter was 14.25%, compared to 10.96% for the same period in the prior year. The increase in net income for the three months ended March 31, 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 Interest Income
The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):
Three Months Ended
March 31,
2026 2025 Change % Change
Interest and dividend income $ 33,585 $ 31,698 $ 1,887 6.0 %
Interest expense 10,001 11,881 (1,880) (15.8) %
Net interest income $ 23,584 $ 19,817 $ 3,767 19.0 %
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 first quarter of 2026 increased $3.8 million, or 19.0%, to $23.6 million compared to the same period in the prior year, largely due to an increase of $3.4 million in interest income on loans and a decrease of $2.6 million in interest expense on deposits, partially offset by a decrease of $1.3 million on taxable securities and an increase of $0.7 million in interest expense of borrowed funds.
Interest income on loans, including fees, increased to $31.5 million for the three months ended March 31, 2026, from $28.1 million for the same period in the prior year. The increase was driven by a $214.5 million increase in average balances of total loans and a ten basis point increase in the average yield on total loans, each compared to the same period in the prior year. Growth in average loan balances was concentrated in commercial real estate loans, with additional increases in commercial and industrial loans and residential mortgage loans, partially offset by a decrease in consumer loans. Average balances of total commercial loans increased $233.0 million compared to the same period in the prior year, reflecting growth primarily in the Corporation's Capital Bank division in the Albany market, as well as growth in the Canal Bank division in the Western New York market. Average balances of residential mortgage loans increased $10.7 million compared to the same period in the prior year, largely due to increased origination activity compared to the same period in the prior year and the retention of a higher proportion of originated loans for investment. Average balances of consumer loans decreased $29.2 million compared to the same period in the prior year, primarily due to a reduction in indirect auto loan balances, as the Corporation continued to prioritize other types of lending during 2025 and year to date in 2026.
The increase in the average yield on total loans was primarily due to a 45 basis point increase in the average yield on residential mortgage loans and, to a lesser extent, a three basis point increase in the average yield on commercial loans, each compared to the same period in the prior year. The increase in the average yield on residential mortgage loans was largely due to yields on residential mortgage loans originated during 2025 and year to date in 2026 generally being higher than the portfolio's overall average yield. The increase in the average yield on commercial loans was mainly due to strong origination volume during 2025, partially offset by lower interest rates on variable rate commercial loans resulting from declines in benchmark indices between the first quarters of 2025 and 2026.
Interest expense on deposits decreased to $8.5 million for the three months ended March 31, 2026, from $11.2 million for the same period in the prior year. The decrease was primarily due to a 43 basis point decline in the average cost of total interest-bearing deposits and a $135.5 million decrease in average balances of total interest-bearing deposits, including brokered deposits. The decline in the average cost of interest-bearing deposits reflected decreases of 57 basis points in the average cost of customer time deposits and 19 basis points in the average cost of savings and money market deposits. In addition, the current period included lower average balances of higher-cost brokered deposits, which declined $81.1 million compared to the prior year period. The decrease in the average cost of customer time deposits was largely due to the discontinuation of longer-term, higher-rate promotional offerings during the second half of 2025, in favor of shorter-term offerings with rates that were reduced over time as market interest rates declined. This strategy also contributed to a $52.3 million decrease in average balances of customer time deposits compared to the same period in the prior year. Customer time deposits represented 19.9% of total average deposits during the first quarter of 2026, compared to 21.1% during the same period in the prior year. The decrease in the average cost of savings and money market deposits was mostly due to targeted reductions in tiered interest rates implemented during the fourth quarter of 2025 and the first quarter of 2026 in response to declining market interest rates.
Interest income on taxable securities decreased to $1.7 million for the three months ended March 31, 2026, from $3.0 million for the same period in the prior year. The decrease was largely due to a $257.5 million decrease in average balances of taxable securities, attributable to sales of available for sale securities during the second quarter of 2025 as part of the Corporation's balance sheet repositioning efforts, as well as normal paydowns and maturities totaling $35.9 million between the first quarters of 2025 and 2026. The average yield on taxable securities was comparable to the same period in the prior year, decreasing by one basis point.
Interest expense on borrowed funds increased to $1.5 million for the three months ended March 31, 2026, from $0.7 million for the same period in the prior year. The increase was mainly due to a $38.6 million increase in average balances of total borrowed funds and a 120 basis point increase in the average cost of borrowed funds. These changes were largely the result of the issuance of subordinated debt in the second quarter of 2025, which increased average balances of borrowed funds by $44.0 million. Average balances of other borrowed funds, including FHLBNY overnight and term advances, decreased $5.4 million compared to the same period in the prior year. Partially offsetting the increase in the average cost of total borrowings were decreases of 72 basis points and 68 basis points in the average cost of FHLBNY overnight advances and term advances and other debt, respectively, reflecting the declining interest rate environment during the second half of 2025.
Fully taxable equivalent net interest margin was 3.60% for the three months ended March 31, 2026, compared to 2.96% for the same period in the prior year. Average interest-earning assets decreased $67.5 million for the three months ended March 31, 2026, while average interest-bearing liabilities decreased $96.9 million, each compared to the same period in the prior year. The decreases of the average interest-earning assets and average interest-bearing liabilities was mostly due to the effects of the Corporation's balance sheet repositioning efforts during 2025. The average yield on interest-earning assets increased 41 basis points to 5.13%, while the average cost of interest-bearing liabilities decreased 28 basis points to 2.27%, for the three months ended March 31, 2026, compared to the same period in the prior year. Total cost of funds was 1.67% for the three months ended March 31, 2026, compared to 1.92% for the same period in the prior year, a decrease of 25 basis points.
Average Consolidated Balance Sheets and Interest Analysis
The following table presents certain information related to the Corporation's average consolidated balance sheets and its consolidated statements of income for the three months ended March 31, 2026 and 2025. For the purpose of the table below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Three Months Ended
March 31, 2026 		Three Months Ended
March 31, 2025
($ in thousands) Average Balance Interest
Yield/Rate (3)
Average Balance Interest
Yield/Rate (3)
Interest-earning assets:
Commercial loans $ 1,761,997 $ 25,110 5.78 % $ 1,529,028 $ 21,696 5.75 %
Residential mortgage loans 286,210 3,125 4.43 % 275,524 2,701 3.98 %
Consumer loans 244,032 3,334 5.54 % 273,187 3,751 5.57 %
Taxable securities 327,163 1,690 2.09 % 584,614 3,026 2.10 %
Tax-exempt securities 10,925 85 3.16 % 37,758 279 3.00 %
Interest-earning deposits 31,865 303 3.86 % 29,550 325 4.46 %
Total interest-earning assets 2,662,192 33,647 5.13 % 2,729,661 31,778 4.72 %
Non interest-earning assets:
Cash and due from banks 26,244 26,055
Other assets 69,391 50,256
Allowance for credit losses (24,595) (21,558)
Total assets $ 2,733,232 $ 2,784,414
Interest-bearing liabilities:
Interest-bearing demand deposits $ 332,718 $ 1,180 1.44 % $ 336,162 $ 1,303 1.57 %
Savings and insured money market deposits 860,382 3,487 1.64 % 858,937 3,866 1.83 %
Time deposits 462,536 3,577 3.14 % 514,884 4,704 3.71 %
Brokered deposits 31,725 295 3.77 % 112,840 1,283 4.61 %
FHLBNY overnight advances 26,244 252 3.89 % 20,781 236 4.61 %
Term advances and other debt 33,054 312 3.83 % 43,950 489 4.51 %
Subordinated debt 44,038 898 8.27 % - - N/A
Total interest-bearing liabilities 1,790,697 10,001 2.27 % 1,887,554 11,881 2.55 %
Non interest-bearing liabilities:
Demand deposits 632,253 622,774
Other liabilities 48,459 51,284
Total liabilities 2,471,409 2,561,612
Shareholders' equity 261,823 222,802
Total liabilities and shareholders' equity $ 2,733,232 $ 2,784,414
Fully taxable equivalent net interest income 23,646 19,897
Net interest rate spread (1)
2.86 % 2.17 %
Net interest margin, fully taxable equivalent (2)
3.60 % 2.96 %
Taxable equivalent adjustment (62) (80)
Net interest income $ 23,584 $ 19,817
(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 table below illustrates 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 months ended March 31, 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 this table, 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
March 31, 2026 vs. 2025
Increase/(Decrease)
Total Change Due to Volume Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans $ 3,414 $ 3,301 $ 113
Residential mortgage loans 424 108 316
Consumer loans (417) (397) (20)
Taxable investment securities (1,336) (1,322) (14)
Tax-exempt investment securities (194) (208) 14
Interest-earning deposits (22) 24 (46)
Total interest and dividend income, fully taxable equivalent 1,869 1,506 363
Interest expense on:
Interest-bearing demand deposits (123) (13) (110)
Savings and insured money market deposits (379) 7 (386)
Time deposits (1,127) (449) (678)
Brokered deposits (988) (788) (200)
FHLBNY overnight advances 16 56 (40)
Term advances and other debt (177) (110) (67)
Subordinated debt 898 898 -
Total interest expense (1,880) (399) (1,481)
Net interest income, fully taxable equivalent $ 3,749 $ 1,905 $ 1,844
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 decreased to $0.6 million for the three months ended March 31, 2026, from $1.1 million for the same period in the prior year. The decrease was primarily due to a $0.7 million recovery on a previously charged-off commercial loan during the current period, resulting in net recoveries of $0.1 million for the three months ended March 31, 2026, compared to net charge-offs of $0.3 million for the same period in the prior year, a decrease of $0.4 million. Also contributing to the decrease in the provision was the impact of the annual update and recalibration of loss drivers utilized in the Corporation's CECL model, which is performed during the first quarter of each year. The 2026 update resulted in lower modeled baseline loss rates compared to the prior year update, which had resulted in higher modeled baseline loss rates. Partially offsetting the overall decrease was $1.2 million in specific reserves established on two commercial loans, an increase in qualitative adjustments applied to the current period model, and higher loan growth relative to the same period in the prior year.
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
March 31,
2026 2025 Change % Change
WMG fee income $ 3,145 $ 2,867 $ 278 9.7 %
Service charges on deposit accounts 1,051 1,120 (69) (6.2) %
Interchange revenue from debit card transactions 1,014 1,037 (23) (2.2) %
Changes in fair value of equity investments (71) (47) (24) (51.1) %
Net gains on sales of loans held for sale 21 40 (19) (47.5) %
Net (losses) on sales of other real estate owned - (11) 11 N/M
Income from bank owned life insurance 7 8 (1) (12.5) %
CFS fee and commission income 477 223 254 113.9 %
Other 676 652 24 3.7 %
Total non-interest income $ 6,320 $ 5,889 $ 431 7.3 %
Total non-interest income for the three months ended March 31, 2026 increased $0.4 million compared to the same period in the prior year, largely due to increases of $0.3 million each in wealth management group fee income and CFS fee and commission income, partially offset by a decrease of $0.1 million in service charges on deposit accounts.
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 improvements in financial markets during the last three quarters of 2025.
CFS Fee and Commission Income
The increase in CFS fee and commission income was largely due to the recognition of additional income in the current period from a broker-dealer as a result of changes in contractual arrangements.
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
March 31,
2026 2025 Change % Change
Compensation expense:
Salaries and wages $ 7,600 $ 7,209 $ 391 5.4 %
Pension and other employee benefits 2,122 1,922 200 10.4 %
Other components of net periodic pension and postretirement benefits (142) (113) (29) (25.7) %
Total compensation expense 9,580 9,018 562 6.2 %
Non-compensation expense:
Net occupancy 1,528 1,533 (5) (0.3) %
Furniture and equipment 409 373 36 9.7 %
Data processing 2,536 2,534 2 0.1 %
Professional services 691 638 53 8.3 %
Marketing and advertising 241 339 (98) (28.9) %
Other real estate owned expenses 8 11 (3) N/M
FDIC insurance 315 439 (124) (28.2) %
Loan expenses 334 278 56 20.1 %
Other 1,820 1,764 56 3.2 %
Total non-compensation expense 7,882 7,909 (27) (0.3) %
Total non-interest expense $ 17,462 $ 16,927 $ 535 3.2 %
Total non-interest expense for the three months ended March 31, 2026 increased $0.5 million compared to the same period in the prior year. The increase was due to an increase in total compensation expense, while non-compensation expense was in-line with the same period in the prior year. For the three months ended March 31, 2026 and 2025, non-interest expense to average assets was 2.59% and 2.47%, 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 employee healthcare-based expenses.
Non-compensation expense
Non-compensation expense was comparable to the same period in the prior year. Most significant were the decreases in FDIC insurance and marketing and advertising, which were mostly offset by increases in other non-interest expense, loan expenses, and professional services. FDIC insurance decreased primarily due to favorable changes in metrics used to determine assessment rates. Marketing and advertising expense decreased largely due to higher digital and television advertising in the first quarter of 2025 due to promotional product offerings during that period, which did not occur in the current year period. Other non-interest expense increased due to increases across expense categories. Loan expense and professional services each increased due to increases in legal fees compared to the same period in the prior year.
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
March 31,
2026 2025 Change % Change
Income before income tax expense $ 11,841 $ 7,687 $ 4,154 54.0 %
Income tax expense $ 2,642 $ 1,664 $ 978 58.8 %
Effective tax rate 22.3 % 21.6 %
Income tax expense for the three month periods ended March 31, 2026 and 2025 was $2.6 million and $1.7 million, respectively. The increase in income tax expense was primarily due to an increase of $4.2 million in income before income tax expense, compared to the same period in the prior year. The effective income tax rate increased from 21.6% for the three months ended March 31, 2025 to 22.3% for the three months ended March 31, 2026.
Financial Condition
The following table presents selected financial information as of the dates indicated, and the dollar and percent change (dollars in thousands):
ASSETS March 31, 2026 December 31, 2025 Change % Change
Total cash and cash equivalents $ 53,370 $ 50,097 $ 3,273 6.5 %
Total investment securities, FHLBNY and FRBNY stock 288,698 294,469 (5,771) (2.0) %
Loans, net of deferred loan fees 2,311,705 2,269,561 42,144 1.9 %
Allowance for credit losses (24,890) (24,209) 681 2.8 %
Loans, net 2,286,815 2,245,352 41,463 1.8 %
Goodwill and other intangible assets, net 21,824 21,824 - - %
Other assets 98,015 98,493 (478) (0.5) %
Total assets $ 2,748,722 $ 2,710,235 $ 38,487 1.4 %
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits $ 2,313,896 $ 2,270,674 $ 43,222 1.9 %
Advances and other debt 79,066 90,554 (11,488) (12.7) %
Subordinated debt 44,054 44,028 26 0.1 %
Other liabilities 48,777 50,270 (1,493) (3.0) %
Total liabilities 2,485,793 2,455,526 30,267 1.2 %
Total shareholders' equity 262,929 254,709 8,220 3.2 %
Total liabilities and shareholders' equity $ 2,748,722 $ 2,710,235 $ 38,487 1.4 %
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 and a decrease in advances and other debt.
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 $5.6 million. The market value of available for sale securities was relatively consistent compared to the prior
year end. Also contributing to the decrease in total investment securities was a decrease of $0.5 million in FHLBNY and FRBNY stock, at cost, primarily due to a decrease in total borrowings through the FHLBNY as of March 31, 2026, compared to the prior year end.
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 $51.7 million, as well as increases of $2.8 million and $1.6 million in construction loans and home equity lines and loans, respectively, partially offset by a decrease of $10.9 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 $1.2 million made on two commercial loans in the current quarter, as well as an increase in qualitative adjustments applied to the Corporation's CECL model and year to date 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, resulting in a net decrease in baseline loss rates in the current quarter.
Other Assets
The decrease in other assets was mostly due to a decrease in interest rate swap assets resulting from a decrease in the fair value of interest rate swaps, and a decrease in premises and equipment, largely due to normal depreciation of fixed assets. The decrease was partially offset by an increase in loans held for sale, due to an increase in residential mortgages originated for sale but not yet sold to Freddie Mac or FHLBNY.
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 seasonal inflows of municipal deposits, which increased toward the end of the first quarter due to tax collections. Non interest-bearing deposits also benefited from targeted promotional activity, including enhanced debit card reward program incentives at account opening, introduced in the first quarter of 2026. Interest-bearing deposits also benefited from the introduction of new product offerings, including a new escrow platform.
Advances and Other Debt
The decrease in advances and other debt was mostly due to an increase in total deposits compared to the prior year end, partially due to seasonal inflows of municipal deposits. Total FHLBNY overnight advances decreased $71.4 million while FHLBNY term advances increased $60.0 million, and was comprised of multiple two-month advances which mature in the second quarter of 2026. Also included in advances and other debt were finance lease liabilities, which decreased $0.1 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 decrease in other liabilities was primarily due to a net decrease in total accrued expenses and interest rate swap liabilities, partially offset by increases in accrued interest payable and operating lease liabilities. Interest rate swap liabilities decreased mainly due to a decrease 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 $7.6 million in retained earnings and a decrease of $0.3 million in accumulated other comprehensive loss. The increase in retained earnings was primarily due to net income of $9.2 million for the three months ended March 31, 2026, partially offset by dividends declared of $1.6 million during the three months ended March 31, 2026. The decrease in accumulated other comprehensive loss was due to an increase in the fair value of available for sale securities.
Assets under management or administration
The market value of total assets under management or administration in the Wealth Management Group was $2.338 billion as of March 31, 2026, including $329.7 million of assets held under management or administration for the Corporation, consistent with $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 decreased $27.9 million, or 1.6%, primarily due to declines in financial markets during the first quarter of 2026.
Securities
The available for sale segment of the securities portfolio totaled $275.3 million as of March 31, 2026, a decrease of $5.3 million, or 1.9%, 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 $5.6 million, largely on mortgage-backed securities totaling $5.0 million and municipal securities maturities of $0.5 million. Partially offsetting the overall decrease in the available for sale securities portfolio was an increase of $0.4 million in the fair value of securities compared to December 31, 2025. The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation's market areas. These securities totaled $0.6 million as of both March 31, 2026 and December 31, 2025.
Non-marketable equity securities as of March 31, 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 $5.9 million respectively as of March 31, 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 March 31, 2026 (dollars in thousands):
LOAN PORTFOLIO COMPOSITION
March 31, 2026 % of Total Loans December 31, 2025 % of Total Loans Change % Change
Commercial and industrial $ 323,274 14.0 % $ 324,185 14.3 % $ (911) (0.3) %
Commercial real estate:
Construction 123,261 5.3 % 120,418 5.3 % 2,843 2.4 %
Owner occupied commercial real estate 177,648 7.7 % 178,620 7.9 % (972) (0.5) %
Non-owner occupied commercial real estate 1,162,358 50.3 % 1,110,689 48.9 % 51,669 4.7 %
Residential mortgages 285,990 12.4 % 286,885 12.6 % (895) (0.3) %
Consumer loans:
Home equity lines and loans 111,364 4.7 % 109,723 4.9 % 1,641 1.5 %
Indirect consumer loans 121,793 5.3 % 132,699 5.8 % (10,906) (8.2) %
Direct consumer loans 6,017 0.3 % 6,342 0.3 % (325) (5.1) %
Total $ 2,311,705 100.0 % $ 2,269,561 100.0 % $ 42,144 1.9 %
Portfolio loans totaled $2.312 billion as of March 31, 2026, an increase of $42.1 million, or 1.9%, from $2.270 billion as of December 31, 2025. The increase in loans was due to an increase of $53.5 million in commercial real estate loans, partially
offset by decreases of $9.6 million in consumer loans, $0.9 million in commercial and industrial loans and $0.9 million in residential mortgages.
Commercial lending continues to be a primary driver of asset growth for the Corporation, and demand remains strong across the Corporation's footprint, particularly for commercial real estate in the Canal Bank division in the Western New York market and Capital Bank division in the Albany market. Commercial real estate loans in the Canal Bank and Capital Bank divisions increased $33.3 million and $27.7 million, respectively, compared to December 31, 2025. Commercial and industrial loans were relatively stable as of March 31, 2026, compared to December 31, 2025, with modest increases in the Chemung Canal division being offset by modest declines in the Capital Bank and Canal Bank divisions.
Total consumer loans decreased largely due to a decrease of $10.9 million, or 8.2%, in indirect consumer loans and was partially offset by an increase of $1.6 million in home equity lines and loans. The decrease in indirect consumer loans was mainly due to continued prioritization of other types of lending, resulting in total paydowns exceeding originations year to date during 2026, as well as the relatively fast turnover rate in the portfolio. The increase in home equity lines and loans was mainly due to advances on home equity lines of credit originated as part of promotional efforts during the prior year, which included offering a below-market introductory interest rate. Residential mortgage loans decreased largely due to overall origination volumes remaining below typical historic levels, due to the elevated interest rate environment. During the three months ended March 31, 2026, the Corporation originated $11.1 million in residential mortgages, including $1.5 million originated to be sold in the secondary market to Freddie Mac and FHLBNY. Total balances of residential mortgage originations increased $1.7 million, or 15.2%, 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
March 31, 2026 December 31, 2025 December 31, 2024 December 31, 2023 December 31, 2022
Chemung Canal Trust Company $ 599,372 $ 616,621 $ 626,903 $ 665,701 $ 651,516
Capital Bank Division 1,442,635 1,417,834 1,302,593 1,206,561 1,098,104
Canal Bank Division 269,698 235,106 141,923 100,402 79,828
Total loans $ 2,311,705 $ 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 March 31, 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 March 31, 2026 and December 31, 2025, total commercial real estate loans were $1.463 billion and $1.410 billion, respectively, representing 63.3% 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 have a significant impact on management's strategic initiatives, and understanding such attributes are critical in understanding 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 measures to proactively manage economic volatility and promote longer-term portfolio stability. Management also evaluates the risk inherent in its portfolio of commercial real estate loans using a variety of metrics, including but not limited to type, geography, collateral, and borrower or sponsor industry.
The table below presents commercial real estate loans by maturity and repricing date as of March 31, 2026 (dollars in thousands):
Commercial real estate loans: 2026 2027 2028 2029 2030
After 2030 (1)
Total
Maturing in: $ 77,230 $ 91,330 $ 93,108 $ 119,199 $ 232,176 $ 850,224 $ 1,463,267
Percentage of total 5.3 % 6.2 % 6.4 % 8.1 % 15.9 % 58.1 % 100.0 %
Repricing in: $ 649,933 $ 92,836 $ 97,167 $ 103,818 $ 97,073 $ 422,440 $ 1,463,267
Percentage of total 44.4 % 6.3 % 6.6 % 7.1 % 6.6 % 29.0 % 100.0 %
(1) Includes fixed rate loans
The table below presents commercial real estate loans by type and percentage as of March 31, 2026 and December 31, 2025 (dollars in thousands):
Commercial real estate loans by type: March 31, 2026 % of Total December 31, 2025 % of Total
Construction $ 123,261 8.4 % $ 120,418 8.5 %
1-4 family residential (1)
51,952 3.7 % 53,982 3.9 %
Multifamily 454,119 31.0 % 424,797 30.1 %
Owner occupied 177,648 12.1 % 178,620 12.7 %
Non-owner occupied 656,287 44.8 % 631,910 44.8 %
Total $ 1,463,267 100.0 % $ 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 geographic footprint of the Corporation's physical branch network, as well as to borrowers whose business interests include projects that may be located in counties that are geographically contiguous with the Corporation's physical footprint. The location of collateral securing commercial real estate loans typically mirrors the location of the properties being financed. However, certain commercial real estate loans are secured by property other than the property being financed, and therefore the geographic location of collateral may differ from that of the financed property.
The table below presents commercial real estate loans by regional location of collateral and percentage as of March 31, 2026 and December 31, 2025 (dollars in thousands):
Commercial real estate loans by regional location of collateral: March 31, 2026 % of Total December 31, 2025 % of Total
Capital Region $ 869,863 59.4 % $ 843,763 59.8 %
Southern Tier & Finger Lakes 229,387 15.8 % 230,599 16.4 %
Western New York 281,614 19.2 % 252,370 17.9 %
Other (1)
82,403 5.6 % 82,995 5.9 %
Total $ 1,463,267 100.0 % $ 1,409,727 100.0 %
(1) Includes $75.4 million and $77.6 million in commercial real estate loans located outside of New York State as of March 31, 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 March 31, 2026 and December 31, 2025 (dollars in thousands):
March 31, 2026 December 31, 2025
Commercial real estate loans by borrower industry: Balances % of Total Balances % of Total
Construction & land development $ 123,261 8.4 % $ 120,418 8.6 %
Industrial 70,367 4.8 % 70,402 5.0 %
Warehouse & storage 107,656 7.4 % 104,214 7.4 %
Retail 264,707 18.1 % 264,230 18.7 %
Office 144,591 9.9 % 145,585 10.3 %
Hotel 88,362 6.0 % 80,563 5.7 %
1-4 family residential rental 52,353 3.6 % 54,264 3.8 %
Multifamily (5+) 481,056 32.9 % 449,829 31.9 %
Medical 60,094 4.1 % 54,395 4.0 %
Educational 21,773 1.5 % 21,458 1.5 %
Other 49,047 3.3 % 44,369 3.1 %
Total $ 1,463,267 100.0 % $ 1,409,727 100.0 %
Weighted average loan to value ratio by industry: March 31, 2026 December 31, 2025
Industrial 51.3 % 52.2 %
Warehouse & storage 64.0 % 63.6 %
Retail 58.7 % 58.6 %
Office 60.2 % 61.1 %
Hotel 51.1 % 53.0 %
1-4 family residential rental 61.4 % 65.3 %
Multifamily (5+) 59.2 % 60.4 %
Medical 63.5 % 64.1 %
Educational 67.3 % 56.2 %
Other 50.8 % 48.3 %
Total 58.6 % 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 March 31, 2026 and December 31, 2025, commercial loans to borrowers involved in the real estate and real estate rental and leasing businesses were 53.1% and 52.1% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of March 31, 2026 and December 31, 2025.
The table below presents the maturity of loans outstanding as of March 31, 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 $ 125,942 $ 138,476 $ 57,634 $ 1,222 $ 323,274
Commercial real estate:
Construction 9,386 43,039 70,836 - 123,261
Owner occupied commercial real estate 10,046 46,588 116,015 4,999 177,648
Non-owner occupied commercial real estate 101,819 435,083 611,478 13,978 1,162,358
Residential mortgages 8,112 13,368 76,081 188,429 285,990
Consumer loans:
Home equity lines and loans 249 6,020 55,796 49,299 111,364
Indirect consumer loans 1,474 93,558 26,761 - 121,793
Direct consumer loans 351 3,717 1,293 656 6,017
Total $ 257,379 $ 779,849 $ 1,015,894 $ 258,583 $ 2,311,705
The tables below present the amounts due after one year, classified according to fixed interest rates and variable interest rates as of March 31, 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 $ 71,421 $ 28,326 $ - $ 99,747
Commercial real estate:
Construction 2,264 - - 2,264
Owner occupied commercial real estate 14,605 19,182 - 33,787
Non-owner occupied commercial real estate 191,539 99,121 - 290,660
Residential mortgages 13,189 72,359 126,202 211,750
Consumer loans:
Home equity lines and loans 4,511 47,822 382 52,715
Indirect consumer loans 93,558 26,761 - 120,319
Direct consumer loans 3,717 343 55 4,115
Total $ 394,804 $ 293,914 $ 126,639 $ 815,357
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 $ 67,055 $ 29,308 $ 1,222 $ 97,585
Commercial real estate: -
Construction 40,775 70,836 - 111,611
Owner occupied commercial real estate 31,983 96,833 4,999 133,815
Non-owner occupied commercial real estate 243,544 512,357 13,978 769,879
Residential mortgages 179 3,722 62,227 66,128
Consumer loans: -
Home equity lines and loans 1,509 7,974 48,917 58,400
Indirect consumer loans - - - -
Direct consumer loans - 950 601 1,551
Total $ 385,045 $ 721,980 $ 131,944 $ 1,238,969
Non-Performing Loans and Non-Performing Assets
Non-performing assets consist of non-performing loans, other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure, and vehicles that have been repossessed. Non-performing loans are comprised of nonaccrual loans. Past due status on all loans is based on the contractual terms of the loan. It is generally the Corporation's policy that a loan 90 days past due be placed on nonaccrual status unless factors exist that would eliminate the need to classify a loan as such. A loan may also be designated as nonaccrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed into nonaccrual status, the accrual of interest is discontinued and previously accrued interest is reversed. Payments received on nonaccrual loans are generally applied to principal using the cost recovery method. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest. In the case of nonaccrual loans where a portion of the loan has been charged off, the remaining balance is kept in nonaccrual status until the entire principal balance has been recovered.
The following table summarizes the Corporation's non-performing assets (dollars in thousands):
NON-PERFORMING ASSETS
March 31, 2026 December 31, 2025
Total non-performing loans $ 7,627 $ 7,908
Other real estate owned and repossessed vehicles 2,131 257
Total non-performing assets $ 9,758 $ 8,165
Ratio of non-performing loans to total loans 0.33 % 0.35 %
Ratio of non-performing assets to total assets 0.36 % 0.30 %
Ratio of allowance for credit losses to non-performing loans 326.34 % 306.13 %
Accruing loans past due 90 days or more (1)
$ 4 $ 17
(1) Not included in non-performing assets above.
Non-performing loans totaled $7.6 million, or 0.33% of total loans as of March 31, 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 $9.8 million, or 0.36% of total assets as of March 31, 2026, compared to $8.2 million, or 0.30% of total assets as of December 31, 2025. The decrease in non-performing loans was largely driven by the transfer of $2.0 million in commercial real estate loan balances to other real estate owned during the first quarter of 2026, net of $0.3 million in related charge-offs, comprised of two loans to a single borrower. Also contributing to the decrease in total non-performing loans was the payoff of a $0.5 million commercial real estate loan during the first quarter of 2026. Partially offsetting the overall decrease in non-performing loans was the addition of two commercial loans into non-performing status during the first quarter of 2026, totaling $2.2 million. The increase in non-performing assets was primarily due to the transfer of four commercial real estate properties into other real estate owned during the first quarter of 2026, relating to two loans to a single borrower, with a fair value of $1.7 million. The transfer date fair value of $1.7 million was net of $0.3 million in charge-offs at the time of transfer.
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 March 31, 2026, the Corporation had ten active loans modified under such terms. There was one loan modification made to a borrower experiencing financial difficulty during the three month period ended March 31, 2026; a term extension of three years on a $0.1 million commercial and industrial loan. All active loans previously modified were performing on their modified terms as of March 31, 2026. During the three month period ended March 31, 2026, there was a $0.7 million recovery on a commercial and industrial loan which had previously been given a term extension and had subsequently been 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 the measurement date. The allowance is in conformity with the requirements established by ASC 326 - Financial Instruments - Credit Losses. The allowance for credit losses covers a range of assets including loans, unfunded commitments, and debt securities, incorporating both quantitative and qualitative components. As of March 31, 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 March 31, 2026 totaled $3.8 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 Corporation's 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 $24.9 million as of March 31, 2026, and $24.2 million as of December 31, 2025. The allowance for credit losses on loans was 326.34% of non-performing loans as of March 31, 2026, compared to 306.13% as of December 31, 2025. The ratio of allowance for credit losses on loans to total loans was 1.08% as of March 31, 2026 and 1.07% as of December 31, 2025. Net recoveries for the three months ended March 31, 2026 were $0.1 million and net charge-offs for the three months ended March 31, 2025 were $0.3 million.
The increase in the allowance for credit losses was largely due to $1.2 million in specific allocations made on individually analyzed loans, including $1.0 million on a non-owner occupied commercial real estate loan, an increase in qualitative adjustment rates, partially due to the effect of ongoing geopolitical events on certain borrower groups, and provisioning relating to loan growth, concentrated in commercial real estate. Partially offsetting the increase in the allowance were the impact of the annual review and update to loss drivers of the Corporation's CECL model, which are implemented in the first quarter each year and resulted in a net decrease in baseline loss rates in the current year. FOMC forecasts for both U.S. civilian unemployment and year-over-year U.S. GDP growth were stable as of March 31, 2026, compared to December 31, 2025. The FOMC's forecast for year-end U.S. civilian unemployment was 4.4% as of March 31, 2026, unchanged from December 31, 2025, while the forecast for U.S. GDP growth improved 10 basis points, from 2.3% as of December 31, 2025 to 2.4% as of March 31, 2026. Changes in FOMC forecasts did not have a material effect on the Corporation's CECL model as of March 31, 2026 compared to December 31, 2025.
The table below summarizes the Corporation's allowance for credit losses and non-performing loans outstanding by loan category as of March 31, 2026 and December 31, 2025 (dollars in thousands):
ALLOWANCE BY LOAN CATEGORY
Balance as of March 31, 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 $ 4,339 1.34 % $ 879 0.27 % 493.63 %
Commercial real estate 15,643 1.07 % 2,713 0.19 % 576.59 %
Residential mortgages 2,397 0.84 % 1,647 0.58 % 145.54 %
Consumer loans 2,511 1.05 % 2,388 1.00 % 105.15 %
Total $ 24,890 1.08 % $ 7,627 0.33 % 326.34 %
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 March 31, 2026 and December 31, 2025:
Consolidated Ratios March 31, 2026 December 31, 2025
Non-performing loans to total loans 0.33 % 0.35 %
Allowance for credit losses to total loans 1.08 % 1.07 %
Allowance for credit losses, inclusive of unfunded commitments, to total loans 1.10 % 1.09 %
Allowance for credit losses to non-performing loans 326.34 % 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 three months ended March 31, 2026 and 2025:
Net (Recovery) Charge-Off Ratio March 31, 2026 March 31, 2025
Commercial and industrial (0.85) % - %
Commercial real estate 0.09 % - %
Residential mortgages (0.04) % (0.01) %
Consumer loans 0.50 % 0.40 %
Total (0.02) % 0.05 %
The table below summarizes the Corporation's credit loss experience for the three months ended March 31, 2026 and 2025 (in thousands):
SUMMARY OF CREDIT LOSS EXPERIENCE
Three Months Ended
March 31,
2026 2025
Balance of allowance for credit losses at beginning of period $ 24,209 $ 21,388
Charge-offs:
Commercial and industrial 1 5
Commercial real estate 310 -
Residential mortgages - -
Consumer loans 427 393
Total charge-offs $ 738 $ 398
Recoveries:
Commercial and industrial $ 677 $ 4
Commercial real estate 1 1
Residential mortgages 29 5
Consumer loans 125 126
Total recoveries $ 832 $ 136
Net charge-offs (recoveries) (94) 262
Provision for credit losses on-balance sheet exposure (1)
587 1,396
Balance of allowance for credit losses at end of period $ 24,890 $ 22,522
(1) Additional provision related to off-balance sheet exposure was $14 thousand for the three months ended March 31, 2026 and a credit of $304 thousand for the three months ended March 31, 2025.
Other Real Estate Owned and Repossessed Vehicles
Other real estate owned totaled $1.9 million as of March 31, 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 three months of 2026. Four of the properties added during the first three 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 is 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 three months of 2026, totaling $0.2 million. There were no properties sold from other real estate owned in the first three months of 2026. The Corporation had $0.2 million in repossessed vehicles as of March 31, 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 March 31, 2026 and December 31, 2025, and the dollar and percent change from December 31, 2025 to March 31, 2026 (in thousands):
DEPOSITS
March 31, 2026 v. December 31, 2025
March 31, 2026 December 31, 2025
Amount % of Total Amount % of Total $ Change % of Total Change
Non interest-bearing demand deposits $ 641,039 27.7 % $ 624,532 27.5 % $ 16,507 0.2 %
Interest-bearing demand deposits 331,114 14.3 % 326,645 14.4 % 4,469 (0.1) %
Money market deposits 632,729 27.3 % 601,391 26.5 % 31,338 0.8 %
Savings deposits 251,073 10.9 % 254,490 11.2 % (3,417) (0.3) %
Certificates of deposit $250,000 or less 326,445 14.1 % 339,320 14.9 % (12,875) (0.8) %
Certificates of deposit greater than $250,000 106,065 4.6 % 98,714 4.4 % 7,351 0.2 %
Other time deposits 25,431 1.1 % 25,582 1.1 % (151) - %
Total $ 2,313,896 100.0 % $ 2,270,674 100.0 % $ 43,222
Deposits totaled $2.314 billion as of March 31, 2026 compared to $2.271 billion as of December 31, 2025, an increase of $43.2 million, or 1.9%. The increase was attributable to an increase of $43.2 million in total customer deposits, and there were no brokered deposits as of either March 31, 2026 or December 31, 2025. The increase in total customer deposits was attributable to increases of $31.3 million in insured money market deposits, $16.5 million in non interest-bearing demand deposits, and $4.5 million in interest-bearing demand deposits. These increases were partially offset by decreases of $5.7 million in customer time deposits and $3.4 million in savings deposits.
Both the increases in money market deposits and interest-bearing demand deposits were mainly attributable to seasonal inflows of municipal deposits compared to prior year-end. The increase in non-interest bearing demand deposits was due to net inflows from individuals, commercial clients, and municipal clients compared to prior year-end. Non interest-bearing deposits comprised 27.7% and 27.5% of total deposits as of March 31, 2026 and December 31, 2025, respectively. The decrease in customer time deposits was largely due to maturities of previous CD campaigns which were not renewed.
The growth in customer deposits was due primarily to increases of $26.1 million in public deposits, $17.2 million in ICS deposits and $10.8 million in consumer deposits, offset by decreases of $8.1 million in CDARS deposits and $2.7 million in commercial deposits, compared to December 31, 2025. As of March 31, 2026, demand deposit and money market deposits comprised 69.3% of total deposits compared to 68.4% as of December 31, 2025. The aggregate amount of the Corporation's outstanding uninsured deposits was 30.5% and 30.1% of total deposits, as of March 31, 2026 and December 31, 2025, respectively.
The table below presents the Corporation's deposits balances by Bank division (in thousands):
DEPOSITS BY DIVISION
March 31, 2026 December 31, 2025 December 31, 2024 December 31, 2023 December 31, 2022
Chemung Canal Trust Company $ 1,878,716 $ 1,857,387 $ 1,892,228 $ 1,899,903 $ 1,815,566
Capital Bank Division 364,351 363,745 399,411 380,962 435,207
Canal Bank Division 70,829 49,542 13,085 5,786 3,002
Brokered Deposits - - 92,159 142,776 73,452
Total $ 2,313,896 $ 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 $335.6 million and $326.5 million as of March 31, 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 and (vi) constantly monitoring the Corporation's pricing strategies to ensure competitive products and services. The Corporation also considers brokered deposits to be an element of its deposit strategy and may use brokered deposits as a secondary source of funding to support growth.
Borrowings
Borrowings decreased $11.5 million to $123.1 million as of March 31, 2026 from December 31, 2025, primarily due to the increase in deposits during the quarter ended March 31, 2026. The Corporation's borrowed funds as of March 31, 2026 were comprised of a $15.7 million FHLBNY overnight advance, $60.0 million in FHLBNY term advances, $44.1 million in subordinated notes, and $3.3 million in long term finance lease obligations. The Corporation's borrowed funds as of December 31, 2025 were comprised of a $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 $8.2 million from $254.7 million as of December 31, 2025 to $262.9 million as of March 31, 2026. The increase can primarily be attributed to an increase of $7.6 million in retained earnings and a decrease of $0.3 million in accumulated other comprehensive loss. The decrease in accumulated other comprehensive loss was largely due to an increase in the fair value of securities available for sale compared to December 31, 2025. The increase in retained earnings was mainly due to net income of $9.2 million for the three months ended March 31, 2026, partially offset by dividends declared of $1.6 million during the three months ended March 31, 2026. Treasury stock decreased by $0.7 million, primarily due to the issuance of shares related to the Corporation's employee benefit plans and grants issued under the Corporation's stock compensation plan. The total shareholders' equity to total assets ratio was 9.57% as of March 31, 2026 compared to 9.40% as of December 31, 2025. The tangible equity to tangible assets ratio was 8.84% as of March 31, 2026 compared to 8.66% as of December 31, 2025. Book value per share increased to $54.36 as of March 31, 2026 from $52.97 as of December 31, 2025.
The Bank is subject to the capital adequacy guidelines of the Federal Reserve, which establishes 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 March 31, 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 in the first quarter of 2026. As of March 31, 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 March 31, 2026.
Subsequent Events
Proposed Charter Conversion
On April 3, 2026, the Bank filed an application with the Office of the Comptroller of the Currency (the "OCC") to convert from a New York chartered trust company to a national bank (the "Application"). If the Application is approved, the Bank will no longer be a New York trust company, subject to the regulation and examination of the NYSDFS, and will become a national bank subject to the regulation and examination of the OCC. In addition, the FRBNY would no longer be the Bank's primary federal regulator. We cannot provide assurance as to whether the Application will be approved or the timing of any approval.
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 March 31, 2026, the Corporation's cash and cash equivalents balance was $53.4 million, increasing $3.3 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 March 31, 2026, the Corporation's investment in securities available for sale was $275.3 million, $66.3 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 March 31, 2026, the Bank had pledged a total of $258.8 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 $182.7 million, and utilized $75.7 million as of March 31, 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 $704.6 million as of March 31, 2026, and $682.5 million as of December 31, 2025, which included $187.5 million and $161.4 million of municipal deposits that were collateralized by pledged assets when appropriate, respectively. The aggregate amount of the Corporation's outstanding uninsured deposits was 30.5% and 30.1% of total deposits, as of March 31, 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 March 31, 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 March 31, 2026 and December 31, 2025. Also available to the Corporation is the Discount Window Lending provided by the FRB, at which $7.7 million in borrowing capacity was available as of March 31, 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) Three Months Ended
March 31,
2026 2025
Net cash provided by operating activities $ 9,038 $ 7,180
Net cash used in investing activities (35,845) (11,633)
Net cash provided by financing activities 30,080 10,853
Net increase in cash and cash equivalents $ 3,273 $ 6,400
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 three 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 three months of 2026 was primarily due to the increase of loans, partially offset by maturities and principal paydowns on securities available for sale. Cash used in investing activities during the first three months of 2025 similarly resulted from a net increase in loans, partially offset by maturities and principal paydowns on securities available for sale.
Financing activities
Cash provided by financing activities during the first three months of 2026 was primarily due to increases in total deposits offset by a net decrease in total FHLBNY advances. Cash provided by financing activities during the first three months of 2025 was similarly primarily due to a net increase in deposits offset by a net decrease in total FHLBNY advances.
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, other than trust preferred 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 FRB finalized a rule that established a community bank leverage ratio (Tier 1 capital to average consolidated assets) at 9.00% for institutions under $10.0 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. The rule took effect on January 1, 2020. Effective July 1, 2026, the FRB revised the minimum capital for the community bank leverage ratio 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 March 31, 2026 and December 31, 2025, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2018, the Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.
As of March 31, 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.
The regulatory capital ratios as of March 31, 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 March 31, 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 March 31, 2026 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 346,373 15.44 % N/A N/A N/A N/A N/A N/A
Bank $ 335,812 14.97 % $ 179,461 8.00 % $ 235,543 10.50 % $ 224,327 10.00 %
Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 276,830 12.34 % N/A N/A N/A N/A N/A N/A
Bank $ 310,323 13.83 % $ 134,596 6.00 % $ 190,678 8.50 % $ 179,461 8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated $ 276,830 12.34 % N/A N/A N/A N/A N/A N/A
Bank $ 310,323 13.83 % $ 100,947 4.50 % $ 157,029 7.00 % $ 145,812 6.50 %
Tier 1 Capital (to Average Assets):
Consolidated $ 276,830 10.04 % N/A N/A N/A N/A N/A N/A
Bank $ 310,323 11.26 % $ 110,239 4.00 % N/A N/A $ 137,799 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 March 31, 2026, the Bank could, without prior approval, declare dividends of approximately $40.9 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 6-11. 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 securities, 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.
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(in thousands, except ratio data) As of or for the Three Months Ended
Net Interest Margin - Fully Taxable Equivalent March 31, Dec. 31, Sept. 30, June 30, March 31,
2026 2025 2025 2025 2025
Net interest income (GAAP) $ 23,584 $ 23,844 $ 22,688 $ 20,808 $ 19,817
Fully taxable equivalent adjustment 62 70 67 76 80
Fully taxable equivalent net interest income (non-GAAP) $ 23,646 $ 23,914 $ 22,755 $ 20,884 $ 19,897
Average interest-earning assets (GAAP) $ 2,662,192 $ 2,625,177 $ 2,617,680 $ 2,749,856 $ 2,729,661
Net interest margin - fully taxable equivalent (non-GAAP) 3.60 % 3.61 % 3.45 % 3.05 % 2.96 %
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.
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As of or for the Three Months Ended
(in thousands, except ratio data) March 31, Dec. 31, Sept. 30, June 30, March 31,
Efficiency Ratio 2026 2025 2025 2025 2025
Net interest income (GAAP) $ 23,584 $ 23,844 $ 22,688 $ 20,808 $ 19,817
Fully taxable equivalent adjustment 62 70 67 76 80
Fully taxable equivalent net interest income (non-GAAP) $ 23,646 $ 23,914 $ 22,755 $ 20,884 $ 19,897
Non-interest income (GAAP) $ 6,320 $ 6,673 $ 6,088 $ (10,705) $ 5,889
Less: net (gains) losses on securities transactions - - - 17,498 -
Less: (gain) loss on sale of branch property - - - (629) -
Adjusted non-interest income (non-GAAP) $ 6,320 $ 6,673 $ 6,088 $ 6,164 $ 5,889
Non-interest expense (GAAP) $ 17,462 $ 18,388 $ 17,645 $ 17,769 $ 16,927
Efficiency ratio (unadjusted) 58.39 % 60.25 % 61.32 % 175.88 % 65.85 %
Efficiency ratio (adjusted) 58.27 % 60.12 % 61.18 % 65.69 % 65.64 %
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 represents 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.
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(in thousands, except per share and ratio data) As of or for the Three Months Ended
Tangible Equity and Tangible Assets (Period End) March 31, Dec. 31, Sept. 30, June 30, March 31,
2026 2025 2025 2025 2025
Total shareholders' equity (GAAP) $ 262,929 $ 254,709 $ 245,308 $ 234,966 $ 228,306
Less: intangible assets (21,824) (21,824) (21,824) (21,824) (21,824)
Tangible equity (non-GAAP) $ 241,105 $ 232,885 $ 223,484 $ 213,142 $ 206,482
Total assets (GAAP) $ 2,748,722 $ 2,710,235 $ 2,696,634 $ 2,852,488 $ 2,796,725
Less: intangible assets (21,824) (21,824) (21,824) (21,824) (21,824)
Tangible assets (non-GAAP) $ 2,726,898 $ 2,688,411 $ 2,674,810 $ 2,830,664 $ 2,774,901
Total equity to total assets at end of period (GAAP) 9.57 % 9.40 % 9.10 % 8.24 % 8.16 %
Book value per share (GAAP) $ 54.36 $ 52.97 $ 50.98 $ 48.85 $ 47.49
Tangible equity to tangible assets at end of period (non-GAAP) 8.84 % 8.66 % 8.36 % 7.53 % 7.44 %
Tangible book value per share (non-GAAP) $ 49.85 $ 48.43 $ 46.44 $ 44.31 $ 42.95
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.
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As of or for the Three Months Ended
(in thousands, except ratio data) March 31, Dec. 31, Sept. 30, June 30, March 31,
Tangible Equity (Average) 2026 2025 2025 2025 2025
Total average shareholders' equity (GAAP) $ 261,823 $ 252,325 $ 239,836 $ 229,161 $ 222,802
Less: average intangible assets (21,824) (21,824) (21,824) (21,824) (21,824)
Average tangible equity (non-GAAP) $ 239,999 $ 230,501 $ 218,012 $ 207,337 $ 200,978
Return on average equity (GAAP) 14.25 % 12.17 % 12.89 % (11.29) % 10.96 %
Return on average tangible equity (non-GAAP) 15.54 % 13.32 % 14.18 % (12.48) % 12.15 %
Adjustments for Certain Items of Income or Expense
In addition to disclosures of certain GAAP financial measures, including net income (loss), 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.
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As of or for the Three Months Ended
(in thousands, except per share and ratio data) March 31, Dec. 31, Sept. 30, June 30, March 31,
Non-GAAP Net Income (Loss) 2026 2025 2025 2025 2025
Reported net income (loss) (GAAP) $ 9,199 $ 7,741 $ 7,792 $ (6,452) $ 6,023
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 $ 9,199 $ 7,741 $ 7,792 $ 6,322 $ 6,023
Average basic and diluted shares outstanding 4,825 4,811 4,811 4,808 4,791
Reported basic and diluted earnings (loss) per share (GAAP) $ 1.91 $ 1.61 $ 1.62 $ (1.35) $ 1.26
Reported return on average assets (GAAP) 1.36 % 1.14 % 1.15 % (0.92) % 0.88 %
Reported return on average equity (GAAP) 14.25 % 12.17 % 12.89 % (11.29) % 10.96 %
Non-GAAP basic and diluted earnings per share $ 1.91 $ 1.61 $ 1.62 $ 1.31 $ 1.26
Non-GAAP return on average assets 1.36 % 1.14 % 1.15 % 0.90 % 0.88 %
Non-GAAP return on average equity 14.25 % 12.17 % 12.89 % 11.07 % 10.96 %
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