Chemung Financial Corp: Form 10-Q for the period ended Jun 30, 2026

Introduction

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.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below, in Part II, Item 1A, Risk Factors, and on pages 19-29 of the Corporation’s 2025 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 68-70 of the Corporation's 2025 Form 10-K, and pages 81-83 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.

Recent Events

During July 2026, the OCC conditionally approved the Bank's application to convert its state charter in the State of New York to a national bank charter. The Bank expects to complete its charter conversion to a national bank prior to the end of 2026.

Critical Accounting Estimates

Critical accounting estimates include the areas where the Corporation has made what it considers to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect the Corporation's financial results under different assumptions and conditions. The Corporation prepares its financial statements in conformity with GAAP. As a result, the Corporation is required to make estimates, judgments, and assumptions that it believes are reasonable based upon the information available at that time. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Significant accounting policies followed by the Corporation are presented in Note 1 – Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2025, and in Note 1 – Summary of Significant Accounting Policies of this Form 10-Q.

Allowance for Credit Losses

Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to its portfolios of assets exhibiting credit risk, particularly in its loan portfolio, and the material effect that such judgments may have on the Corporation's results of operations. Determining the amount requires significant judgment on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.

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

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

As of 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.

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.

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.

(in thousands, except per share data)

49

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.

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and 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.

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):

The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data) adjusted for nonrecurring items (refer to the GAAP to Non-GAAP reconciliations, pages 81-83, for further information):

(1) Adjusted for $17.5 million loss on sale of securities available for sale and $0.6 million gain on sale of previous branch property during the three and six months ended June 30, 2025.

(2) Adjusted for tax impact of loss on sale of securities available for sale and gain on sale of previous branch property during the three and six months ended June 30, 2025.

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.

Net income for the six months ended June 30, 2026 was $18.0 million, or $3.73 per share, compared to a net loss of $0.4 million, or a net loss of $0.09 per share, for the same period in the prior year. Return on average equity for the six months ended June 30, 2026 was 13.71%, compared to (0.38)% for the same period in the prior year. The increase in net income for the six months ended June 30, 2026 was primarily attributable to an increase in non-interest income and net interest income, and a decrease in the provision for credit losses, offset by increases in non-interest expense and income tax expense.

During the three and six month periods ended June 30, 2025, the Corporation sold a significant portion of its available for sale securities portfolio, and recognized a $17.5 million loss on the sale. In addition, the Corporation recognized a gain of $0.6 million upon completing the sale of a previously held for sale branch property. Excluding these nonrecurring items, net income (as adjusted) for the three and six month periods ended June 30, 2025 was $6.3 million, or $1.31 per share, and $12.3 million, or $2.57 per share, respectively. Non-GAAP net income as presented in the MD&A has been adjusted for these two items. Refer to the GAAP to Non-GAAP reconciliations, on pages 81-83, for further information. Adjusted return on average equity for the three months ended June 30, 2025 was 11.07%, compared to 13.19% for the same period in the current year and adjusted return on average equity for the six months ended June 30, 2025 was 11.02%, compared to 13.71% for the same period in the current year.

Net Interest Income

The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):

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

Net interest income for the three months ended June 30, 2026 increased $3.9 million to $24.7 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 $2.4 million in interest expense on deposits, partially offset by decreases of $0.9 million in interest and dividend income on taxable securities and $0.5 million in interest income on interest-earning deposits, and an increase of $0.4 million in interest expense on borrowed funds.

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.

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.

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.

The decline in average balances of total interest-bearing deposits was largely attributable to a decline of $91.6 million in average balances of brokered deposits compared to the same period in the prior year. Reduced reliance on brokered deposits in the current year period was primarily the result of the Corporation's balance sheet repositioning efforts during 2025, which included the runoff of all outstanding brokered deposits during the three months ended September 30, 2025, as well as a shift in the Corporation's mix of wholesale funding sources toward FHLBNY short-term advances. Also contributing to the decline in average balances of total interest-bearing deposits was a decline of $67.2 million in average balances of customer time deposits compared to the same period in the prior year, 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. Customer time deposits represented 19.2% of total average deposits during the three months ended June 30, 2026, compared to 21.3% during the same period in the prior year. Partially offsetting these declines was a $53.7 million increase in average balances of savings and money market deposits, largely due to growth in the Corporation's Canal Bank division and the introduction of a new escrow product during the current year period.

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.

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.

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 of interest-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.

The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):

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.

Interest income on loans increased to $64.3 million for the first six months of 2026, from $57.5 million for the same period in the prior year. The increase was mostly attributable to an increase of $240.7 million in average balances of commercial loans, compared to the same period in the prior year, largely concentrated in commercial real estate loans, partially offset by a decline of $28.3 million in average balances of total consumer loans, largely concentrated in indirect auto loans. Demand for commercial real estate loans in the Corporation's Canal Bank division in the Western New York market and Capital Bank division in the Albany market has remained strong since the prior year period. Average balances of indirect auto loans declined mostly due to the Corporation's prioritization of other types of lending since the prior year period. Also contributing to the increase in interest income on loans was an increase of six basis points in the average yield on total loans, compared to the same period in the prior year. The increase in the average yield on total loans was primarily due to an increase of 38 basis points in the average yield on residential mortgage loans, compared to the same period in the prior year, and was largely due to yields of mortgages originated between the prior year period and current year period substantially exceeding the yield of the overall portfolio, due to interest rates in the current environment remaining elevated compared to certain historic periods. Changes in the average yields on commercial and total consumer loans did not have a meaningful impact on the change in net interest income between the six months ended June 30, 2026 and 2025.

Interest expense on deposits decreased to $17.2 million for the first six months of 2026, from $22.2 million for the same period in the prior year. The decrease was primarily due to a decrease of 41 basis points in the average cost of total interest-bearing deposits, as well as a decline of $127.0 million in average balances of total interest-bearing deposits, each compared to the same period in the prior year. The decrease in the average cost of total interest-bearing deposits was mainly due to a decrease of 48 basis points in the average cost of customer time deposits, a decrease of 19 basis points in the average cost of savings and money market deposits, and decreased utilization of higher-cost brokered deposits, each compared to the same period in the prior year. The average cost of customer time deposits decreased primarily due to the discontinuation of higher-cost promotional offerings during the current year period in favor of shorter-term lower-costing promotions, as well as a reduced reliance on costlier time deposits to fund asset growth following the Corporation's balance sheet repositioning in the prior year. The decrease in the average cost of savings and money market deposits was mainly due to targeted and tiered reductions in interest rates offered on money market accounts between the prior year period and current year period, partially as a result of the declining interest rate environment during the second half of 2025. Similarly to customer time deposits, the Corporation reduced its reliance on higher-cost brokered deposits following its balance sheet repositioning in the prior year. Average balances of brokered deposits and customer time deposits declined $86.4 million and $59.8 million, respectively, and were primarily responsible for the decline in average balances of total interest-bearing deposits. Customer time deposits comprised 19.6% of total average deposits for the six months ended June 30, 2026, compared to 21.2% for the same period in the prior year.

Interest and dividend income on taxable securities decreased to $3.4 million for the first six months of 2026, from $5.6 million for the same period in the prior year. The decrease in interest and dividend income on taxable securities was primarily due to a decline of $234.3 million in average balances of taxable securities compared to the same period in the prior year. The decline in average balances of taxable securities was mostly due to the sale of $244.8 million of available for sale securities during the three months ended June 30, 2025 as part of the Corporation's balance sheet repositioning efforts in the prior year. Also contributing to the decrease in average balances of taxable securities compared to the prior year period was normal paydown activity on residential mortgage-backed securities between the prior year and current year periods.

Interest expense on borrowed funds increased to $3.0 million for the first six months of 2026, from $1.9 million for the same period in the prior year, largely as a result of the Corporation's issuance of subordinated debt late in the prior year period. Average balances of total borrowed funds increased $25.9 million compared to the same period in the prior year and the average cost of total borrowed funds increased 94 basis points over the same period, each mostly due to the issuance of $45.0 million in 7.75% fixed-to-floating rate subordinated notes in June 2025. Average balances of other sources of borrowed funds declined $13.0 million compared to the same period in the prior year while the average cost of other sources of borrowed funds decreased 62 basis points compared to the same period in the prior year, mostly due to the declining interest rate environment since the prior year period.

Fully taxable equivalent net interest margin was 3.63% for the six months ended June 30, 2026 compared to 3.00% for the same period in the prior year. Average interest-earning assets declined $55.3 million, while average interest-bearing liabilities declined $101.2 million, for the six months ended June 30, 2026, 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 37 basis points, to 5.15%, while the average cost of interest-bearing liabilities decreased 29 basis points, to 2.27% for the six months ended June 30, 2026, each compared to the same period in the prior year.

Average Consolidated Balance Sheets and Interest Analysis

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and 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.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

($ in thousands)

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

(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.

(3) Annualized.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS

($ in thousands)

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

(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.

(3) Annualized.

Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and 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.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

(in thousands)

57

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

(in thousands)

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 June 30, 2026, from $1.1 million for the same period in the prior year. The decrease was primarily due to relatively stable model inputs during the current year period, including minimal changes in the FOMC's projections for U.S. civilian unemployment and U.S. GDP growth, compared to modest deteriorations in forecasts in the prior year period, partially reflecting the expected impacts of new import tariffs at the time. Additionally, increases in certain qualitative adjustment rates contributed to the higher provision expense in the prior year period. Partially offsetting the overall decrease in provision for credit losses compared to the same period in the prior year was stronger loan growth in the current year period, which totaled $55.4 million, compared to growth of $34.8 million for the same period in the prior year.

Net charge-offs totaled $0.2 million for the three months ended June 30, 2026, compared to $1.0 million for the same period in the prior year. However, $0.8 million in balances charged off in the prior year period had previously been specifically reserved against; excluding those loans noted above, net charge-offs were comparable between the two periods.

The provision for credit losses decreased to $1.2 million for the six months ended June 30, 2026, from $2.2 million for the same period in the prior year. The decrease was mainly due to the directionality of the impact from the annual loss driver update and recalibration applied to the Corporation's CECL model in the current year, compared to the update applied to the CECL model in the prior year period. The current year update resulted in lower modeled baseline loss rates, while the update in the prior year resulted in higher baseline loss rates. Partially offsetting the overall decrease in provision for credit losses compared to the same period in the prior year was an increase in specific allocations on individually analyzed loans, as well as stronger loan growth in the current year period, which totaled $97.6 million, compared to growth of $61.0 million for the same period in the prior year.

Net charge-offs for the six months ended June 30, 2026 were $0.1 million, compared to $1.3 million for the same period in the prior year. $0.8 million in charge-offs in the prior year period had previously been specifically reserved against, while the current year period included a $0.7 million recovery on a commercial and industrial loan that had been charged off during the six months ended June 30, 2025. Remaining charge-offs for the six months ended June 30, 2026 and 2025 were largely concentrated in the indirect auto portfolio.

Non-interest income

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

Total non-interest income for the three months ended June 30, 2026 increased $17.2 million compared to the same period in the prior year, largely due to a $17.5 million net loss on securities transactions in the prior year, increases of $0.2 million each in wealth management group fee income and changes in fair value of equity investments, as well as an increase of $0.1 million in CFS fee and commission income. The increase was partially offset by a decrease of $0.7 million in other non-interest income.

Net Losses on Securities Transactions

The Corporation recognized a pre-tax loss of $17.5 million on the sale of a portion of its available for sale securities portfolio in the second quarter of 2025.

Wealth Management Group Fee Income

The increase in wealth management group fee income was primarily due to an increase in total assets under management in the current period, compared to the same period in the prior year, mainly due to improvements in financial markets between the second quarters of 2025 and 2026.

Changes in Fair Value of Equity Investments

The increase in changes in fair value of equity investments was primarily due to a larger increase in the fair value of the assets held for the Corporation's deferred compensation plan in the current year period, when compared to the same period in the prior year.

CFS Fee and Commission Income

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

Other Non-Interest Income

The decrease in other non-interest income was mostly due to a $0.6 million gain on the sale of a previous branch property during the second quarter of 2025.

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

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.

Net Losses on Securities Transactions

The Corporation recognized a pre-tax loss of $17.5 million on the sale of a portion of its available for sale securities portfolio in the second quarter of 2025.

Wealth Management Group Fee Income

The increase in wealth management group fee income was primarily due to an increase in total assets under management in the current period, compared to the same period in the prior year, mainly due to improvements in financial markets since the second quarter of 2025.

Changes in Fair Value of Equity Investments

The increase in changes in fair value of equity investments was primarily due to a larger increase in the fair value of the assets held for the Corporation's deferred compensation plan in the current year period, when compared to the same period in the prior year.

CFS Fee and Commission Income

The increase in total CFS Group fee and commission income was largely due to recognition of additional income in the current year period following contractual changes with a broker-dealer, improvements in financial markets during the first six months of 2026, and organic client growth across the Corporation's footprint.

Other Non-Interest Income

The decrease in other non-interest income was mostly due to a $0.6 million gain on the sale of a previous branch property during the second quarter of 2025.

Service Charges on Deposit Accounts

The decrease in service charges on deposit accounts was mainly due to a decrease in non-sufficient fund (NSF) fees in the current period, compared to the same period in the prior year.

Non-interest expense

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

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.

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

The increase in non-compensation expense was largely due to an increase of $0.4 million in other non-interest expense compared to the same period in the prior year, as well as $0.2 million increases in each of professional services and loan expenses, partially offset by a decrease of $0.1 million in FDIC insurance. Other non-interest expense increased largely due to a $0.3 million write-down of a legacy non-marketable equity investment following the Corporation's reassessment of the investment's carrying value, which included additional qualitative information regarding its expected recoverability. Loan expense and professional services each increased due to increases in legal fees compared to the same period in the prior year. A significant portion of the increase in legal fees in professional services related to the Corporation's application to convert its charter to a national bank. Another portion of the increase in professional services related to recurring costs associated with the Corporation's subordinated debt. FDIC insurance decreased primarily due to favorable changes in metrics used to determine assessment rates.

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

Total non-interest expense for the six months ended June 30, 2026 increased $2.1 million compared to the same period in the prior year. The increase was due to increases in both total compensation expense and total non-compensation expense. For the six months ended June 30, 2026 and 2025, non-interest expense to average assets was 2.69% and 2.50%, 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

The increase in non-compensation expense was primarily due to increases of $0.4 million in other non-interest expense, $0.2 million in professional services and $0.2 million in loan expenses, partially offset by a decrease of $0.3 million in FDIC insurance expense. Other non-interest expense increased largely due to a $0.3 million write-down of a legacy non-marketable equity investment following the Corporation's reassessment of the investment's carrying value, which included additional qualitative information regarding its expected recoverability. Loan expense and professional services each increased due to increases in legal fees compared to the same period in the prior year. A significant portion of the increase in legal fees in professional services related to the Corporation's application to convert its charter to a national bank. Another portion of the increase in professional services related to recurring costs associated with the Corporation's subordinated debt. FDIC insurance decreased primarily due to favorable changes in metrics used to determine assessment rates.

Income tax expense

The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (dollars in thousands):

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.

The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (in thousands):

Income tax expense for the six month period ended June 30, 2026 was $5.1 million, compared to an income tax benefit of $0.7 million for the six month period ended June 30, 2025. The effective income tax rate was 22.1% for the six months ended June 30, 2026. The increase in income tax expense was primarily due to the $17.5 million net loss recognized on the Corporation's sale of available for sale securities in the second quarter of 2025.

Financial Condition

The following table presents selected financial information as of the dates indicated, and the dollar and percent change (dollars in thousands):

Cash and Cash Equivalents

The increase in cash and cash equivalents was largely due to an increase in total deposits, paydowns and maturities of investment securities, and cash flow provided by operating activities, primarily offset by an increase in total loans.

Investment Securities

The decrease in total investment securities was mostly due to year to date net paydowns and maturities on available for sale securities, totaling $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.

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 $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.

Allowance for Credit Losses

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.

Other Assets

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.

Deposits

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

Advances and Other Debt

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.

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 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.

Shareholders’ Equity

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.

Assets under management or administration

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.

As of June 30, 2026, CFS Group had total client assets of $319.4 million, including $114.6 million of advisory assets under management, compared to client assets of $299.4 million, including $104.1 million of advisory assets under management, as of December 31, 2025, an increase of $20.0 million in total client assets and $10.5 million in advisory assets.

Securities

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.

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.

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 June 30, 2026 (dollars in thousands):

LOAN PORTFOLIO COMPOSITION

Portfolio loans totaled $2.367 billion as of June 30, 2026, an increase of $97.6 million, or 4.3%, from $2.270 billion as of December 31, 2025. The increase in total loans was due to increases of $107.7 million in commercial real estate loans and $4.2 million in commercial and industrial loans, partially offset by a decrease of $14.2 million in total consumer loans. Residential loans were in line with the prior year-end.

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.

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.

Residential mortgage loans were relatively unchanged from December 31, 2025 as a result of origination activity remaining below typical historical levels in the current elevated interest rate environment. During the first six months of 2026, the Corporation originated $21.4 million in total residential mortgages, including $3.7 million originated for sale in the secondary market to Freddie Mac and FHLBNY. Total residential mortgage originations decreased $2.9 million, or 12.0%, 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

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.

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

The table below presents commercial real estate loans by maturity and repricing date as of June 30, 2026 (dollars in thousands):

(1) Includes fixed rate loans

The table below presents commercial real estate loans by type and percentage as of June 30, 2026 and December 31, 2025 (dollars in thousands):

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

Commercial real estate loans are primarily made within the counties comprising the Corporation's branch network, as well as to borrowers whose business interests include projects located in counties geographically contiguous to the Corporation's footprint. The location of collateral securing commercial real estate loans typically mirrors the location of the properties being financed. However, certain commercial real estate loans are secured by property other than the property being financed; therefore, the geographic location of collateral may differ from that of the financed property.

The table below presents commercial real estate loans by regional location of collateral and percentage as of June 30, 2026 and December 31, 2025 (dollars in thousands):

(1) Includes $80.5 million and $77.6 million in commercial real estate loans located outside of New York State as of June 30, 2026 and December 31, 2025, respectively.

The Corporation closely monitors economic and credit trends for the industries in which its commercial real estate borrowers are involved. Property types are designated based on the purpose of the collateral securing commercial real estate loans. The tables below present commercial real estate loans by borrower industry and percentage as well as the weighted average (WA) loan to value (LTV) ratio for each industry as of June 30, 2026 and December 31, 2025 (dollars in thousands):

68

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 June 30, 2026 and December 31, 2025, commercial loans to borrowers involved in the real estate and real estate rental and leasing businesses were 53.3% and 52.1% of the Corporation's total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of June 30, 2026 and December 31, 2025.

The table below presents the maturity of loans outstanding as of June 30, 2026 (in thousands):

69

The tables below present the amounts due after one year, classified according to fixed interest rates and variable interest rates as of June 30, 2026 (in thousands):

Non-Performing Loans and Non-Performing Assets

Non-performing assets consist of non-performing loans, other real estate owned, acquired in partial or full satisfaction of loan obligations or through foreclosure, and repossessed vehicles. Non-performing loans are comprised of nonaccrual loans. Past due status for all loans is based on the contractual terms of the loan. It is generally the Corporation's policy to place a loan 90 days past due on nonaccrual status unless factors exist that would eliminate the need for such classification. A loan may also be designated as nonaccrual at any time if full payment of principal or interest is not expected due to deterioration in the financial condition of the borrower. When loans are placed on nonaccrual status, the accrual of interest is discontinued and previously accrued interest is reversed. Payments received on nonaccrual loans are generally applied to principal using the cost recovery method. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all original principal and interest. In the case of nonaccrual loans for which a portion of the balance has been charged off, the remaining balance is maintained on nonaccrual status until the entire principal balance has been recovered.

The following table summarizes the Corporation's non-performing assets (dollars in thousands):

NON-PERFORMING ASSETS

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

Non-performing loans totaled $9.2 million, or 0.39% of total loans as of June 30, 2026, compared to $7.9 million, or 0.35% of total loans as of December 31, 2025. Non-performing assets, which are comprised of non-performing loans, other real estate owned, and repossessed vehicles, were $11.2 million, or 0.40% of total assets as of June 30, 2026, compared to $8.2 million, or 0.30% of total assets as of December 31, 2025. The increase in non-performing loans was largely due to the addition of commercial loans totaling $4.6 million during the first six months of 2026, including one commercial and industrial loan with a balance of $2.2 million and one commercial real estate loan with a balance of $2.0 million. Partially offsetting the increase was the transfer of $2.0 million in commercial real estate loan balances to other real estate owned during the first six months of 2026, net of $0.3 million in related charge-offs, as well as the payoff of two nonaccrual commercial real estate loans totaling $0.6 million and $0.2 million in net paydowns on other non-performing commercial loans during the first six months of 2026. Also offsetting the overall increase in non-performing loans was a decrease of $0.5 million in total non-performing residential mortgage and consumer loans.

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 June 30, 2026, the Corporation had 11 active loans modified under such terms.

During the three month period ended June 30, 2026, the Corporation modified two loans to a single borrower experiencing financial difficulty. Both modifications consisted of payment delays whereby six months of principal and interest payments were deferred to the contractual maturity dates of the loans. Loans modified during the period totaled $3.7 million and included a $3.5 million non-owner occupied commercial real estate loan and a $0.2 million commercial and industrial loan. In addition, during the six month period ended June 30, 2026, the Corporation also modified one $0.1 million commercial and industrial loan, which was given a three-year term extension.

As of June 30, 2026, there was one previously modified home equity loan with a balance of $0.1 million that was greater than 90 days past due. All other active modified loans were performing in accordance with their modified terms as of June 30, 2026. During the six month period ended June 30, 2026, the Corporation recognized a $0.7 million recovery on a commercial and industrial loan that had previously been modified through a term extension and subsequently charged off.

Allowance for Credit Losses

The allowance for credit losses is an amount that management believes will be adequate to absorb the estimated lifetime credit losses inherent in assets exhibiting credit risk as of each measurement date. The allowance is in conformity with the requirements established by ASC 326 - Financial Instruments - Credit Losses and covers a range of assets including loans, unfunded commitments, and debt securities; incorporating both quantitative and qualitative components. As of June 30, 2026 and December 31, 2025, the Corporation did not allocate any allowance for credit losses to its portfolios of available for sale or held to maturity debt securities, due to the explicit or implicit U.S. Government guarantee as to principal and interest payments on the majority of the portfolio, and the immateriality of credit risk on remaining unguaranteed securities.

Loans are analyzed for credit loss on either an individual basis or a pooled (collective) basis, determined by risk characteristics. The Corporation begins analyzing loans on an individual basis when management determines a loan no longer exhibits risk characteristics consistent with the risk characteristics in its designated pool under the Corporation's CECL methodology. The amortized cost basis of individually analyzed loans as of June 30, 2026 totaled $5.9 million, compared to $4.2 million as of December 31, 2025. Remaining loans are analyzed on a pooled basis and are segmented based on groups of assigned FFIEC Call Report codes. Management seeks to disaggregate its loan portfolio in a granular enough manner to capture the risk profile of each loan, yet broad enough to accurately allow for the application of certain pool-level assumptions.

Certain of the Corporation's individually analyzed loans are secured and measured for credit loss based on collateral evaluations, using the collateral-dependent practical expedient prescribed by ASC 326. It is the Corporation's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to require individual analysis. A measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation to the allowance for credit losses or charge-off. In determining the amount of any specific allocation or charge-off, the Corporation makes adjustments to reflect the estimated costs to sell the property. Upon receipt and review of updated appraisals, an additional measurement is performed to determine if any adjustments are necessary to reflect proper provisioning or charge-offs. Individually analyzed loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require additional allocations to the allowance for credit losses or recognition of additional charge-offs. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral. Certain individually analyzed loans determined not to be collateral-dependent are analyzed using a cash flow analysis.

For pooled loans, quantitative analysis is based on an estimated discounted cash flow analysis (DCF) performed at the loan level. The modeled reserve requirement equals the difference between the book balance of the loan as of the measurement date and the present value of assumed cash flows for the life of the loan. The underlying assumptions of the DCF are based on the relationship between a projected value of an economic indicator, and the implied historical loss experience amongst a group of curated peers. The Corporation utilizes a regression analysis to determine suitable loss drivers for each pool of loans. Based on these results, a probability of default (PD) and loss given default (LGD) is assigned to each potential value of a chosen economic indicator for each pool of loans, and is then applied to the portfolio to derive the statistical loss implications thereof. An estimated loss for each period of the DCF, as well as implied recovery of past losses, is incorporated into the DCF. The Corporation relies on FOMC data, including its projections for U.S. civilian unemployment and U.S. GDP growth, as the source for its readily available and reasonable economic forecast. The forecasted values are applied over a rolling four quarter period, and revert to the historic mean of the economic variable over an eight quarter period, on a straight-line basis.

Qualitative adjustments represent management's expectation of certain risks not being fully captured in the quantitative portion of the model. Qualitative adjustment rates are applied to each loan within a pool on a consistent basis. Factors considered as part of the qualitative adjustment analysis primarily include economic considerations not captured by the model, changes in conditions within the Bank such as lending standards, personnel, and concentrations of credit, among others, as well as external factors such as changes in the regulatory and competitive landscape.

The allowance for credit losses is increased through a provision for credit losses, which is charged to operations. Separate provision accounts have been established for on-balance sheet credit exposures and off-balance sheet credit exposures, and are combined in the line item provision for credit losses on the Consolidated Statements of Income. Loans are charged against the allowance for credit losses when management believes the collectability of all or a portion of the principal is unlikely. Management's evaluation of the adequacy of the allowance for credit losses is performed on a periodic basis and takes into consideration such factors as the outcomes of the quantitative analysis, a review of individually analyzed loans, and determinations concerning qualitative adjustments. While management uses available information to recognize estimated credit losses, future additions to the allowance may be necessary based on changing economic conditions or portfolio composition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The allowance for credit losses on loans was $25.2 million as of June 30, 2026, and $24.2 million as of December 31, 2025 and was 275.46% of non-performing loans as of June 30, 2026, compared to 306.13% as of December 31, 2025. The decrease in the ratio of the allowance for credit losses to non-performing loans was mainly due to the addition of a $2.2 million commercial and industrial loan to non-performing loans during the first six months of 2026 that, following analysis by management, did not require a specific allocation in the allowance for credit losses. Also contributing to the decrease was the transfer of $2.0 million in commercial real estate loan balances to other real estate owned during the first six months of 2026, which had previously carried specific allocations in the allowance for credit losses. The ratio of allowance for credit losses on loans to total loans was 1.07% as of both June 30, 2026 and December 31, 2025. Net charge-offs for the six months ended June 30, 2026 were $0.1 million and net charge-offs for the six months ended June 30, 2025 were $1.3 million.

The increase in the allowance for credit losses was largely due to $1.3 million in specific allocations made on individually analyzed loans during the first six months of 2026, including $1.2 million on one non-owner occupied commercial real estate loan. Also contributing to the increase was provisioning related to commercial real estate loan growth and additional qualitative adjustments made during the first six months of 2026. Partially offsetting the overall increase were charge-offs associated with specific allocations on loans transferred to other real estate owned during the first six months of 2026, as well as 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 modeled 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 June 30, 2026, compared to December 31, 2025. The FOMC's forecast for 2026 year-end U.S. civilian unemployment was 4.3% as of June 30, 2026, a decrease of ten basis points from December 31, 2025, while the forecast for U.S. GDP growth deteriorated ten basis points, from 2.3% as of December 31, 2025 to 2.2% as of June 30, 2026. Changes in FOMC forecasts did not have a significant effect on the Corporation's CECL model as of June 30, 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 June 30, 2026 and December 31, 2025 (dollars in thousands):

ALLOWANCE BY LOAN CATEGORY

73

The table below summarizes the Corporation’s consolidated credit ratios as of June 30, 2026 and December 31, 2025:

The table below summarizes the Corporation’s ratio of net charge-offs and recoveries to average loans outstanding by loan category for the six months ended June 30, 2026 and 2025:

The table below summarizes the Corporation’s credit loss experience for the six months ended June 30, 2026 and 2025 (in thousands):

SUMMARY OF CREDIT LOSS EXPERIENCE

(1) Additional provision related to off-balance sheet exposure was $73 thousand for the six months ended June 30, 2026 and a credit of $294 thousand for the six months ended June 30, 2025.

Net charge-offs for the six months ended June 30, 2026 were largely due to normal charge-off activity in the Corporation's indirect auto portfolio, as well as $0.3 million in charge-offs relating to the transfer of four properties associated with multiple non-owner occupied commercial real estate loans to a single borrower to other real estate owned, partially offset by a $0.7 million recovery on a commercial and industrial loan which had been charged off during the six months ended June 30, 2025.

Net charge-offs for the six months ended June 30, 2025 were mostly due to a $0.7 million charge-off of a commercial and industrial loan, all of which was subsequently recovered in the first six months of 2026, and normal charge-off activity in the Corporation's indirect auto portfolio.

Other Real Estate Owned and Repossessed Vehicles

Other real estate owned totaled $1.9 million as of June 30, 2026. There was no other real estate owned as of December 31, 2025. There were five properties added to other real estate owned in the first six months of 2026. Four of the properties added during the first six months of 2026 were associated with one commercial borrower group, and included one multifamily property and three 1-4 family residential rental properties, with a transfer date fair value totaling $1.7 million. The transfer date fair value was inclusive of $0.3 million in charge-offs at the time of transfer. Additionally, there was one residential mortgage transferred to other real estate owned in the first six months of 2026, totaling $0.2 million. There were no properties sold from other real estate owned in the first six months of 2026. The Corporation had $0.2 million in repossessed vehicles as of June 30, 2026 and $0.3 million as of December 31, 2025, which is included in other assets on the Consolidated Balance Sheets, and is a component of non-performing assets.

Deposits

The table below summarizes the Corporation’s deposit composition by segment as of June 30, 2026 and December 31, 2025, and the dollar and percent change from December 31, 2025 to June 30, 2026 (in thousands):

DEPOSITS

Deposits totaled $2.364 billion as of June 30, 2026 compared to $2.271 billion as of December 31, 2025, an increase of $93.3 million, or 4.1%. The increase was attributable to an increase of $93.3 million in total customer deposits, and there were no brokered deposits as of either June 30, 2026 or December 31, 2025. The increase in total customer deposits was attributable to increases of $79.4 million in insured money market deposits, $57.4 million in non interest-bearing demand deposits, and $1.9 million in savings deposits. These increases were partially offset by decreases of $31.2 million in customer time deposits and $14.1 million in interest-bearing demand deposits.

The increases in money market deposits was mainly attributable to an increase in municipal insured cash sweep deposits, as well as an increase in deposits from commercial clients, partially due to the introduction of a new escrow product. The increase in non-interest bearing demand deposits was due to net inflows from individuals and commercial clients compared to prior year-end, partially due to a targeted checking account campaign during 2026. Non interest-bearing deposits comprised 28.8% and 27.5% of total deposits as of June 30, 2026 and December 31, 2025, respectively. Savings deposits increased mostly due to net inflows from individuals. The decrease in customer time deposits was largely due to maturities of previous higher-cost CD campaigns which were not renewed. The decrease in interest-bearing demand deposits reflected outflows for both commercial and consumer customers.

The growth in customer deposits was due primarily to increases of $41.3 million in ICS deposits, $34.0 million in commercial deposits, $26.5 million in consumer deposits, and $12.8 million in public deposits, offset by a decrease of $21.3 million in CDARS deposits, compared to December 31, 2025. As of June 30, 2026, demand deposit and money market deposits comprised 70.9% of total deposits compared to 68.4% as of December 31, 2025. The aggregate amount of the Corporation's outstanding uninsured deposits was 31.5% and 30.1% of total deposits, as of June 30, 2026 and December 31, 2025, respectively.

The table below presents the Corporation's deposits balances by Bank division (in thousands):

DEPOSITS BY DIVISION

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 $346.5 million and $326.5 million as of June 30, 2026, and December 31, 2025, respectively.

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposit accounts. A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank. These customers will typically turn to their primary bank first when in need of other financial services. Strategies that have been developed and implemented to generate these deposits include: (i) acquiring deposits by entering new markets through branch acquisitions or de novo branching, (ii) an annual checking account marketing campaign, (iii) training branch employees to identify and meet client financial needs with Bank products and services, (iv) linking business and consumer loans to the customer's primary checking account at the Bank, (v) aggressively promoting direct deposit of client’s payroll checks or benefit checks 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 increased $2.4 million to $136.9 million as of June 30, 2026 from December 31, 2025. The Corporation's borrowed funds as of June 30, 2026 were comprised of a $42.6 million FHLBNY overnight advance, $47.0 million in FHLBNY term advances, $44.1 million in subordinated notes, and $3.2 million in long-term finance lease obligations. The Corporation’s borrowed funds as of December 31, 2025 were comprised of 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 $15.7 million from $254.7 million as of December 31, 2025 to $270.4 million as of June 30, 2026. The increase can primarily be attributed to an increase of $14.7 million in retained earnings, partially offset by a decrease of $0.7 million in treasury stock. The increase in retained earnings was mainly 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. Treasury stock decreased 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 9.59% as of June 30, 2026 compared to 9.40% as of December 31, 2025. The tangible equity to tangible assets ratio was 8.88% as of June 30, 2026 compared to 8.66% as of December 31, 2025. Book value per share increased to $55.88 as of June 30, 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 June 30, 2026, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions. Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management. On January 8, 2021, the Corporation's Board of Directors approved a stock repurchase program. Under the repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares. The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. No shares were repurchased under the publicly announced repurchase program in the second quarter of 2026. As of June 30, 2026, the Corporation repurchased a total of 49,184 shares of common stock at a total cost of $2.0 million under the repurchase program, at the weighted average cost of $40.42 per share. Remaining buyback authority under the share repurchase program was 200,816 shares as of June 30, 2026.

Liquidity

Liquidity management involves the ability to meet the cash flow requirements of deposit clients and borrowers, as well as the operating, investing, and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs. These include short-term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $250,000 or more, brokered deposits, FHLBNY and FRB advances, and securities sold under agreements to repurchase.

The Corporation has a detailed Funds Management Policy that includes sections on liquidity measurement and management, and a Liquidity Contingency Plan that provides for the prompt and comprehensive response to unexpected demands for liquidity. This policy and plan are established and revised as needed by the management and Board ALCO committees. The ALCO is responsible for measuring liquidity, establishing liquidity targets and implementing strategies to achieve selected targets. The ALCO is responsible for coordinating activities across the Corporation to ensure that prudent levels of contingent or standby liquidity are available at all times. Based upon this ongoing assessment of liquidity considerations, management believes the Corporation’s sources of funding meet anticipated funding needs.

As of June 30, 2026, the Corporation's cash and cash equivalents balance was $73.1 million, increasing $23.0 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 June 30, 2026, the Corporation's investment in securities available for sale was $269.0 million, $67.0 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 June 30, 2026, the Bank had pledged a total of $256.8 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 $180.9 million, and utilized $89.6 million as of June 30, 2026. As of December 31, 2025, the Bank had pledged a total of $255.1 million of residential mortgage loans and home equity loans under a blanket lien arrangement. Based upon this available collateral, the Corporation was eligible to borrow up to a total of $178.5 million, and utilized $87.1 million as of December 31, 2025. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

Uninsured deposits totaled $744.4 million as of June 30, 2026, and $682.5 million as of December 31, 2025, which included $174.2 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 31.5% and 30.1% of total deposits, as of June 30, 2026 and December 31, 2025, respectively. The Corporation considers the level of uninsured deposits to be an important factor when considering liquidity management and strategic decisions, due to their fluidity.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it may continue utilizing brokered deposits as a secondary source of funding to support growth. Brokered deposits may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth. The Corporation had no brokered deposits as of June 30, 2026 and December 31, 2025. The Corporation also had a total of $65.0 million of unsecured lines of credit with four different financial institutions, all of which were available as of June 30, 2026 and December 31, 2025. Also available to the Corporation is the Discount Window Lending program provided by the FRB, at which $7.5 million in borrowing capacity was available as of June 30, 2026.

Consolidated Cash Flows Analysis

The table below summarizes the Corporation's cash flows for the periods indicated (in thousands):

CONSOLIDATED SUMMARY OF CASH FLOWS

(in thousands)

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 six 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 six months of 2026 was primarily due to the increase in loans, partially offset by maturities and principal paydowns on securities available for sale. Cash provided by investing activities during the first six months of 2025 primarily resulted from the sale of available for sale securities during the second quarter of 2025, partially offset by a net increase in loans.

Financing activities

Cash provided by financing activities during the first six months of 2026 was primarily due to increases in total deposits. Cash provided by financing activities during the first six months of 2025 was primarily due to the issuance of $45.0 million in subordinated debt notes and a net increase in deposits, offset by a decrease in 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 June 30, 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 June 30, 2026, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank's capital category.

The regulatory capital ratios as of June 30, 2026 and December 31, 2025 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

The Corporation and the Bank’s capital ratios as of June 30, 2026 were as follows (in thousands, except ratio data):

The Corporation and the Bank’s capital ratios as of December 31, 2025 were as follows (in thousands, except ratio data):

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 June 30, 2026, the Bank could, without prior approval, declare dividends of approximately $48.8 million.

Adoption of New Accounting Standards

Please refer to Note 1, Summary of Significant Accounting Policies - Accounting Standards Pending Adoption, for a discussion of new accounting standards.

Explanation and Reconciliation of the Corporation’s Use of Non-GAAP Measures

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 6–12. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules, although we are unable to state with certainty that the SEC would so regard them.

Fully Taxable Equivalent Net Interest Income and Net Interest Margin

Net interest income is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of other institutions or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt obligations, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time. The Corporation follows these practices.

(in thousands, except ratio data)

81

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.

(in thousands, except ratio data)

Tangible Equity and Tangible Assets (Period-End)

Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures. Tangible equity represents the Corporation’s stockholders’ equity, less goodwill and other intangible assets. Tangible assets represent the Corporation’s total assets, less goodwill and other intangible assets. Tangible book value per share represents the Corporation’s tangible equity divided by common shares at period-end. These measures are meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation’s use of equity.

(in thousands, except per share and ratio data)

82

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.

(in thousands, except ratio data)

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.

(in thousands, except per share and ratio data)

83

Interest Rate Risk

Management considers interest rate risk to be the most significant market risk for the Corporation. Market risk is the risk of loss from adverse changes in market prices and rates. Interest rate risk is the exposure to adverse changes in the net income of the Corporation as a result of changes in interest rates.

The Corporation’s primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and liabilities, and credit quality of interest-earning assets.

The Corporation’s objectives in its asset and liability management are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of its operations to changes in interest rates. The Corporation's ALCO has the strategic responsibility for setting the policy guidelines on acceptable exposure to interest rate risk. These guidelines contain specific measures and limits regarding the risks, which are monitored on a regular basis. The ALCO is made up of the President and Chief Executive Officer, the Chief Financial Officer and Treasurer, the Asset Liability Management Officer, and other officers representing key functions.

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon various basis point changes in interest rates, with appropriate floors set for interest-bearing liabilities. As of June 30, 2026, it is estimated that immediate decreases of 100 basis points and 200 basis points in interest rates would negatively impact the next 12 months net interest income by 1.15% and 2.76%, respectively. Immediate increases of 100 basis points and 200 basis points would positively impact the next 12 months net interest income by 5.48% and 10.92%, respectively. All scenarios are within the Corporation's policy guidelines.

A related component of interest rate risk is the expectation that the market value of the Corporation’s equity account will fluctuate with changes in interest rates. This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to a decline in market value. As of June 30, 2026, it is estimated that immediate decreases of 100 basis points and 200 basis points in interest rates would negatively impact the market value of the Corporation’s capital account by 0.61% and 2.49%, respectively. Immediate increases in interest rates of 100 basis points and 200 basis points would positively impact the market value of the Corporation’s capital account by 3.48% and 6.50%, respectively. All scenarios are within the Corporation's policy guidelines.

Management does recognize the need for certain hedging strategies during periods of anticipated higher fluctuations in interest rates and the Funds Management Policy provides for limited use of certain derivatives in asset liability management.

Credit Risk

The Corporation manages credit risk consistent with state and federal laws governing the making of loans through written policies and procedures; loan review to identify loan problems at the earliest possible time; collection procedures (continued even after a loan is charged off); an adequate allowance for credit losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans.

The Corporation monitors its loan portfolio carefully. The Loan Committee of the Corporation's Board of Directors is designated to receive required loan reports, oversee loan policy, and approve loans above authorized individual and Senior Loan Committee lending limits. The Senior Loan Committee, consisting of the President and Chief Executive Officer, Chief Financial Officer and Treasurer (non-voting), Chief Credit Officer, and other lending and risk related personnel, implements the Board-approved loan policy.

Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial and accounting officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of June 30, 2026 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial and accounting officer have concluded that the Corporation's disclosure controls and procedures are effective as of June 30, 2026. In addition, there have been no changes in the Corporation's internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation's internal control over financial reporting.

Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Corporation under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

There have been no material changes in the risk factors set forth in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2025, as filed with the Securities and Exchange Commission on March 13, 2026. Additional risks not presently known to us, or that we currently deem immaterial, may adversely affect our business, financial condition, or results of operations.