CHEMUNG FINANCIAL CORP

Previous wording

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.

Current wording

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2026. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2025 Annual Report on Form 10-K, which was filed with the SEC on March 13, 2026, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3-5.

Previous wording

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 uncerta inties, 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.

Current wording

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 uncerta inties, see Forward-looking Statements below, in Part II, Item 1A, Risk Factors, and on pages 19-29 of the Corporation’s 2025 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 68-70 of the Corporation's 2025 Form 10-K, and pages 81-83 of this Form 10-Q.

Previous wording

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.

Current wording

The allowance is established through a provision for credit losses in the Consolidated Statements of Income, and an evaluation of the adequacy of the allowance for credit losses is performed by management on a quarterly basis. While management uses available information to anticipate credit losses, future additions to the allowance may be necessary based on changes in economic conditions or the composition of its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses.

Previous wording

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.

Current wording

Because the Corporation's methodology for maintaining its allowance for credit losses is based on historical experience and trends, current economic information, forecasted data, and management's judgment, a range of estimates for the allowance for credit losses may be supportable. Deteriorating conditions may lead to further required increases to the allowance; conversely, improvements to conditions may warrant reductions to the allowance. In estimating the allowance for credit losses, management considers the sensitivity of the model to significant judgments and assumptions that could result in an amount that is materially different from management’s estimate, including as it relates to qualitative considerations.

Previous wording

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.

Current wording

As of June 30, 2026 and December 31, 2025, the allowance for credit losses totaled $25.2 million and $24.2 million, respectively. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, and as of June 30, 2026 and December 31, 2025, the allowance for credit losses allocated to the total commercial portfolio was $20.4 million and $18.9 million, respectively, or 80.9% and 78.0% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 78.1% and 76.4% of total loan balances as of June 30, 2026 and December 31, 2025, respectively. Given the concentration of the allowance for credit losses allocated to the commercial portfolio, and the significant judgments made by management to derive its estimates, management analyzes risks distinctive to commercial lending with a high degree of scrutiny.

Previous wording

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.

Current wording

Changes in the FOMC's median forecasted U.S. civilian unemployment rate and year over year change in U.S. GDP could have a material impact on the model's estimation of the allowance. Currently, most pools utilize the FOMC's projections for unemployment as a loss driver, while certain pools utilize the FOMC's projections for U.S. GDP growth as a loss driver. Segmentation and attributes of loan pools are defined in Note 1 – Summary of Significant Accounting Policies to the Audited Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025. FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy and considering all currently available information. An immediate "shock" or increase of 100 basis points in the FOMC's projected rate of U.S. civilian unemployment and a decrease of 50 basis points in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $0.9 million, or 3.6%, to $26.2 million as of June 30, 2026, assuming qualitative adjustments were kept at current levels.

Previous wording

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.

Current wording

Future changes to the availability, frequency, or content of the FOMC's projections could require management to utilize alternative reasonable and supportable forecasts or modify certain forecasting assumptions used in the model. Any such changes could affect the comparability of model results between periods and may increase the judgment involved in estimating the allowance for credit losses. While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity and shock analyses are based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgment of factors as of June 30, 2026, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

Previous wording

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.

Current wording

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 81-83 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Previous wording

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.

Current wording

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2026 and 2025. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 47-48 of this Form 10-Q and page 39 of the Corporation’s 2025 Form 10-K.

Previous wording

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.

Current wording

The Corporation reported net income for the three months ended June 30, 2026 of $8.8 million, or $1.82 per share, compared to a net loss of $6.5 million, or a net loss of $1.35 per share, for the same period in the prior year. Return on average equity for the three months ended June 30, 2026 was 13.19%, compared to (11.29)% for the same period in the prior year. The increase in net income for the three months ended June 30, 2026 was attributable to increases in net interest income and non-interest income, as well as a decrease in the provision for credit losses, offset by increases in non-interest expense and income tax expense.

Previous wording

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.

Current wording

Interest income on loans increased to $32.8 million for the three months ended June 30, 2026, from $29.4 million for the same period in the prior year. The increase was mostly due to an increase of $230.0 million in average balances of total loans, as well as an increase of three basis points in the average yield on total loans, each compared to the same period in the prior year. Growth in average balances of total loans was concentrated in commercial real estate loans, with additional increases in commercial and industrial loans and residential mortgage loans, partially offset by a decline in total consumer loans. Growth in average balances of total commercial loans totaled $248.3 million, and reflected relatively balanced growth in the Corporation's Capital Bank and Canal Bank divisions in the Albany and Western New York markets, respectively, as well as growth within the Corporation's legacy Chemung Canal division. Average balances of residential mortgage loans increased largely due to increased origination activity in the second half of 2025 and the retention of a higher proportion of originated loans for investment. The decline in the average balance of total consumer loans was primarily due to a decrease in average balances of indirect auto loans, as the Corporation continued to prioritize other types of lending throughout 2025 and in the first six months of 2026.

Previous wording

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.

Current wording

The increase in the average yield on total loans was primarily due to a 30 basis point increase in the average yield on residential mortgage loans, partially offset by a three basis point decrease 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 reflected higher interest rates on loans originated during 2025 and in the first six months of 2026 relative to the existing portfolio. The decrease in the average yield on commercial loans was mainly due to lower interest rates on variable rate loans resulting from declines in benchmark indices since the prior year period. A decrease of one basis point in the average yield on total consumer loans did not have a significant impact on net interest income compared to the same period in the prior year.

Previous wording

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.

Current wording

Interest expense on deposits decreased to $8.7 million for the three months ended June 30, 2026, from $11.1 million for the same period in the prior year. The decrease was primarily due to a decrease of 39 basis points in the average cost of total interest-bearing deposits and a decline of $118.7 million in average balances of total interest-bearing deposits, including brokered deposits. The decrease in the average cost of interest-bearing deposits largely reflected a decrease of 39 basis points in the average cost of customer time deposits and a decrease of 20 basis points in the average cost of savings and money market deposits, each compared to the same period in the prior year, as well as the current year period including lower average balances of higher-cost brokered deposits. The decrease in the average cost of customer time deposits was mainly due to the discontinuation of certain higher-cost promotional offerings in the second half of 2025, resulting in many previous promotional certificates of deposit not being renewed at maturity. The decrease in the average cost of savings and money market deposits was mainly due to targeted reductions in tiered interest rates offered on money market deposits which occurred in the fourth quarter of 2025 and first quarter of 2026, as market interest rates declined.

Previous wording

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.

Current wording

Interest income on taxable securities decreased to $1.7 million for the three months ended June 30, 2026, from $2.5 million for the same period in the prior year. The decrease was largely due to a $211.4 million decline in average balances of taxable securities, attributable to sales of available for sale securities during the three months ended June 30, 2025 as part of the Corporation’s balance sheet repositioning efforts, as well as normal paydowns and maturities totaling $26.9 million between June 30, 2025 and 2026. Interest income on interest-earning deposits decreased mostly due to a decline of $40.9 million in average balances, compared to the same period in the prior year. Average balances of interest-earning deposits declined mostly as a result of the Corporation utilizing cash proceeds from the sales of available for sale securities during the three months ended June 30, 2025 to fund loan growth and pay off wholesale funding liabilities in the second half of 2025.

Previous wording

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.

Current wording

Interest expense on borrowed funds increased to $1.5 million for the three months ended June 30, 2026, from $1.2 million for the same period in the prior year. The increase was mainly due to an increase of 77 basis points in the average cost of total borrowed funds, largely the result of the Corporation's issuance of subordinated debt late in the prior year period, which was part of the Corporation's balance sheet repositioning efforts during 2025.

Previous wording

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 ofinterest-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.

Current wording

Fully taxable equivalent net interest margin was 3.67% for the three months ended June 30, 2026, compared to 3.05% for the same period in the prior year. Average interest-earning assets declined $43.3 million for the three months ended June 30, 2026, while average interest-bearing liabilities declined $105.4 million, each compared to the same period in the prior year. The declines in the average balances of interest-earning assets and interest-bearing liabilities were mostly due to the effects of the Corporation's balance sheet repositioning efforts during 2025. The average yield on interest-earning assets increased 35 basis points to 5.18%, while the average cost ofinterest-bearing liabilities decreased 30 basis points to 2.27%, for the three months ended June 30, 2026, each compared to the same period in the prior year.

Previous wording

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.

Current wording

Net interest income for the six months ended June 30, 2026 totaled $48.3 million compared to $40.6 million for the same period in the prior year, an increase of $7.6 million, largely due to an increase of $6.8 million in interest income on loans and a decrease of $5.0 million in interest expense on deposits, partially offset by a decrease of $2.2 million in interest income on taxable securities and an increase of $1.1 million in interest expense on borrowed funds.

Previous wording

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.

Current wording

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and six months ended June 30, 2026 and 2025. For the purpose of the tables below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.

Previous wording

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.

Current wording

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and six months ended June 30, 2026 and 2025. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

Previous wording

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.

Current wording

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 between the second quarters of 2025 and 2026.

Previous wording

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.

Current wording

The increase in total CFS Group fee and commission income was largely due to recognition of additional income in the current year period following contractual changes with a broker-dealer, improvements in financial markets since the second quarter of 2025, and organic client growth across the Corporation's footprint.

Previous wording

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.

Current wording

Total non-interest income for the six months ended June 30, 2026 increased $17.6 million compared to the same period in the prior year. The increase was primarily due to a $17.5 million net loss on securities transactions in the prior year, and increases of $0.5 million in wealth management group fee income and $0.4 million in CFS fee and commission income, partially offset by decreases of $0.7 million in other non-interest income and $0.1 million in service charges on deposit accounts.

Previous wording

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.

Current wording

Total non-interest expense for the three months ended June 30, 2026 increased $1.6 million compared to the same period in the prior year. The increase was due to an increase in both total compensation expense and non-compensation expense compared to the same period in the prior year. For the three months ended June 30, 2026 and 2025, non-interest expense to average assets was 2.79% and 2.54%, respectively.

Previous wording

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.

Current wording

Income tax expense for the three month period ended June 30, 2026 was $2.5 million, compared to an income tax benefit of $2.4 million for the three month period ended June 30, 2025. The increase in income tax expense was primarily due to an increase of $20.1 million in income before income tax expense, compared to the same period in the prior year. This increase was primarily due to the $17.5 million net loss recognized on the Corporation's sale of available for sale securities in the second quarter of 2025. The effective income tax rate was 22.0% for the three months ended June 30, 2026.

Previous wording

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.

Current wording

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.

Previous wording

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.

Current wording

The decrease in total investment securities was mostly due to year to date net paydowns and maturities on available for sale securities, totaling $11.4 million. The market value of available for sale securities was relatively consistent compared to the prior year-end. Partially offsetting the decrease in total investment securities was an increase of $0.2 million in FHLBNY and FRBNY stock, at cost, primarily due to an increase in total borrowings through the FHLBNY as of June 30, 2026, compared to the prior year-end.

Previous wording

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.

Current wording

The increase in loans, net of deferred loan fees, was primarily due to an increase in non-owner occupied commercial real estate loans of $91.1 million, as well as increases of $11.5 million and $5.9 million in construction loans and home equity lines and loans, respectively, partially offset by a decrease of $19.9 million in indirect consumer loans.

Previous wording

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.

Current wording

The increase in the allowance for credit losses was mainly due to specific reserve allocations of $1.3 million, including $1.2 million in allocations on one non-owner occupied commercial real estate loan, 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.

Previous wording

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.

Current wording

The increase in other assets was primarily due to an increase in other real estate owned, which totaled $1.9 million as of June 30, 2026, compared to no other real estate owned as of December 31, 2025, as well as an increase in operating lease right-of-use assets due to the commencement of a lease for a representative office in Buffalo, New York, and 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. The increase was partially offset by a decrease in premises and equipment, largely due to normal depreciation of fixed assets.

Previous wording

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.

Current wording

The increase in deposits was due to increases in both non interest-bearing deposits and interest-bearing deposits. The increase in total deposits was partially due to increases in insured cash sweep deposits for municipalities and the introduction of new product offerings, including a new escrow platform. Non interest-bearing deposits also benefited from targeted promotional activity, including enhanced debit card reward program incentives at account opening, introduced during the first quarter of 2026.

Previous wording

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.

Current wording

The increase in advances and other debt was mostly due to funding the increase in total loans, partially offset by an increase in total deposits compared to the prior year-end. Total FHLBNY overnight advances decreased $44.5 million while FHLBNY term advances increased $47.0 million, and was comprised of a one-month advance. Also included in advances and other debt were finance lease liabilities, which decreased $0.2 million compared to the prior year-end.

Previous wording

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.

Current wording

The decrease in other liabilities was primarily due to a net decrease in total accrued expenses and accrued interest payable, partially offset by increases in interest rate swap liabilities and operating lease liabilities. Interest rate swap liabilities increased mainly due to an increase in the fair value of interest rate swaps. The increase in operating lease liabilities was largely due to the Corporation's lease of office space in Buffalo, New York to operate as a representative office for Canal Bank operations.

Previous wording

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.

Current wording

The increase in shareholders' equity was mainly due to an increase of $14.7 million in retained earnings and a decrease of $0.1 million in accumulated other comprehensive loss. The increase in retained earnings was primarily due to net income of $18.0 million for the six months ended June 30, 2026, partially offset by dividends declared of $3.3 million during the six months ended June 30, 2026.

Previous wording

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.

Current wording

The market value of total assets under management or administration in the Wealth Management Group was $2.494 billion as of June 30, 2026, including $328.2 million of assets held under management or administration for the Corporation, an increase from $2.338 billion as of December 31, 2025, including $301.8 million of assets held under management or administration for the Corporation. Excluding assets under management or administration for the Corporation, the total market value of Wealth Management Group assets increased $128.6 million, or 6.3%, largely due to improvements in financial markets during the first six months of 2026, compared to conditions as of December 31, 2025.

Previous wording

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.

Current wording

The available for sale segment of the securities portfolio totaled $269.0 million as of June 30, 2026, a decrease of $11.6 million, or 4.1%, 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 $11.4 million, largely on mortgage-backed securities totaling $10.3 million, maturities of municipal bonds totaling $0.5 million, and calls of corporate bonds totaling $0.5 million. Partially offsetting the overall decrease in the available for sale securities portfolio was an increase of $0.1 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 $1.6 million as of June 30, 2026 and $0.6 million as of December 31, 2025.

Previous wording

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.

Current wording

Non-marketable equity securities as of June 30, 2026 and December 31, 2025 include shares of FRBNY stock and FHLBNY stock, carried at their cost. FRBNY stock and FHLBNY stock were $3.1 million and $6.6 million respectively as of June 30, 2026, and $3.0 million and $6.4 million respectively as of December 31, 2025. The fair value of these securities is assumed to approximate their cost. The investment in these stocks is regulated by regulatory policies of the respective institutions.

Previous wording

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.

Current wording

Commercial lending continued to be the primary source of asset growth for the Corporation, with demand remaining strong across the Corporation’s footprint, particularly for commercial real estate loans within the Capital Bank division in the Albany market and the Canal Bank division in the Western New York market. Commercial real estate loans in the Capital Bank and Canal Bank divisions increased $57.5 million and $52.9 million, respectively, compared to December 31, 2025. Growth in commercial and industrial loans was concentrated in the Canal Bank division, increasing $8.7 million compared to December 31, 2025, partially offset by modest declines in the Capital Bank and Chemung Canal divisions.

Previous wording

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

Current wording

Consumer loans decreased primarily due to a decrease of $19.9 million in indirect consumer loans, partially offset by an increase of $5.9 million in home equity lines and loans. The decrease in indirect consumer loans reflected the Corporation’s continued prioritization of other types of lending, which contributed to paydowns exceeding originations during the first six months of 2026. The increase in home equity lines and loans was mainly attributable to current year promotional activity and advances on home equity lines of credit originated through prior year promotional efforts, both of which included below-market introductory interest rates.

Previous wording

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.

Current wording

Commercial real estate lending represented the largest component of the Corporation's loan portfolio as of June 30, 2026 and December 31, 2025. Commercial real estate lending is comprised of the construction, owner occupied commercial real estate, and non-owner occupied commercial real estate categories of the loan portfolio, as presented in Note 4 - Loans and Allowance for Credit Losses to the Consolidated Financial Statements. As of June 30, 2026 and December 31, 2025, total commercial real estate loans were $1.517 billion and $1.410 billion, respectively, representing 64.2% and 62.1% of total loan balances, respectively.

Previous wording

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.

Current wording

As the largest component of the Corporation's loan portfolio, quantitative and qualitative attributes of commercial real estate lending have a significant impact on management's strategic initiatives, and an understanding of these attributes is critical to assessing the Corporation's anticipated future liquidity needs and sensitivity to changes in interest rates. Management closely monitors maturity and repricing schedules as part of its broader risk management framework, enabling it to proactively manage economic volatility and promote longer-term portfolio stability. Management also evaluates the risk inherent in its commercial real estate portfolio using a variety of metrics, including, but not limited to, property type, geography, collateral, and borrower or sponsor industry.