Chemung Financial Corporation

03/13/2026 | Press release | Distributed by Public on 03/13/2026 09:15

Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
Overview
The following is the MD&A of the Corporation as of and for the years ended December 31, 2025 and 2024. The purpose of this discussion is to focus on information about the financial condition and results of operations of the Corporation. Reference should be made to the accompanying audited consolidated financial statements and footnotes for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 2-5.
The MD&A included in this Form 10-K 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.
The Corporation has been a financial holding company since 2000, the Bank was established in 1833 and CFS was established 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 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, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. 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, changes in FDIC assessments, public health issues, geopolitical conflicts, bank failures, difficulties in managing the Corporation's growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends. Information concerning these and other factors can be found in the Corporation's periodic filings with the SEC, including the discussion under the heading "Item 1A. Risk Factors" of this annual report on Form 10-K. The Corporation's quarterly filings are available publicly on the SEC's website at http://www.sec.gov, on the Corporation's website at http://www.chemungcanal.com or by written request to: Kathleen S. McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901. 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.
Summary of Strategic Actions
During the year ended December 31, 2025, the Corporation completed certain strategic transactions which had a material impact on the Corporation's results of operations and the Corporation's financial condition as of December 31, 2025. These included components of management's balance sheet repositioning efforts and the completion of the sale of a previous branch property as part of management's ongoing evaluation of its physical distribution network. The following section provides a summary of these transactions.
Issuance of Subordinated Debt
On June 10, 2025, the Corporation issued $45.0 million of ten-year 7.75% fixed-to-floating rate subordinated notes, due June 2035 (the "Notes"). The Notes bear interest at a fixed rate of 7.75% per year, payable semi-annually, for the first five years. Beginning on June 15, 2030 and until the maturity date, the Notes will adjust to a floating rate equal to the then current three- month term SOFR plus 415 basis points, payable quarterly. The Notes constitute unsecured and subordinated obligations of the Corporation and rank junior in right of payment to any senior indebtedness and obligations to general and secured creditors. Proceeds, net of debt issuance costs of $1.0 million, were $44.0 million. Subject to limited exceptions, the Corporation cannot redeem the Notes before the fifth anniversary of the issuance date. The Corporation intends to use the net proceeds from the issuance and sale of the Notes for general corporate purposes and to support regulatory capital ratios for growth initiatives. The Notes qualify as Tier 2 regulatory capital at the holding company, when applicable, subject to an annual phase-out of 20% of the Notes face amount each year during the last five years of the Note's maturity. From the proceeds of the Notes, the Corporation provided the Bank with a $37.0 million capital contribution, effectively downstreaming the regulatory capital impact of the Notes to the Bank as common equity Tier 1 capital, which is not subject to regulatory phase-out. The Corporation believes the issuance of subordinated debt strengthens its overall regulatory capital position and improves commercial real estate concentration ratios, allowing for flexibility in pursuing loan growth in its key expansion markets.
Sale of Available for Sale Securities
Subsequent to the Corporation's issuance of subordinated debt in June 2025, the Corporation sold available for sale securities with a book value of $244.8 million, or approximately 40% of its then total available for sale securities portfolio. These sales resulted in a realized pre-tax loss of $17.5 million, or approximately 7% of the total book value of securities sold, resulting in proceeds of $227.3 million. Securities sold as part of these sales included the Corporation's entire U.S. Treasury and SBA-pooled loan securities portfolios, as well as portions of its mortgage-backed securities and municipal bonds portfolios. A portion of proceeds from the sales were utilized to pay off $155.0 million in wholesale funding liabilities, including $100.0 million in brokered deposits and $55.0 million in FHLBNY term advances, in July 2025. All wholesale funding liabilities were paid off at maturity and the Corporation did not incur any prepayment penalties as a result of these payoffs.
Sale of Previous Branch Property
In April 2025, the Corporation completed the sale of its previous branch property at 806 Buffalo Street, Ithaca, New York. As previously disclosed, all operations of the branch, formerly known as the "Ithaca Station" branch were consolidated into the nearby branch at 304 Elmira Road, Ithaca, New York in the fourth quarter of 2024. The property had previously been classified as held for sale at its cost of $0.7 million, with proceeds from the sale totaling $1.3 million, resulting in the recognition of a $0.6 million gain during the year ended December 31, 2025.
Tax Implications - Deferred Tax Asset
The resulting net loss of $17.5 million from the sale of available for sale securities occurred at the Bank, as well as the Corporation's REIT entity. Under IRC Sec. 582(c)(1), in the case of banks, the sale or exchange of a bond, debenture, note or certificate or other evidence of indebtedness shall not be considered a sale or exchange of a capital asset. Therefore, the loss from the sale of securities at the Bank is considered ordinary in nature. However, the REIT is not considered a "bank" under IRC Sec. 582(c) and therefore a sale of securities at the REIT is considered capital in nature. The capital loss amounted to $11.5 million (gross) and represents a $2.7 million deferred tax asset as of December 31, 2025 subject to a five-year carryforward limitation. Pursuant to ASC 740-10-30-5(e), deferred tax assets must be reduced by a valuation allowance if it is more likely than not that all of the deferred tax assets will not be realized. The valuation allowance would serve to reduce the deferred tax assets to an amount that would be more likely than not to be realized. The more likely than not threshold is a likelihood of more than 50 percent.
The Corporation's current tax planning strategies include the planned sale of appreciated investment securities and loans from the REIT entity. These transactions are intended to generate future capital gains sufficient to utilize the capital loss carryforward prior to its expiration. Management has demonstrated both the ability and intent to execute these strategies in a timely and economically feasible manner.
After detailed review, including various scenarios of changes in market interest rates, while the Corporation's management has demonstrated the ability and intent to implement these prudent and reasonable actions, management determined that it is more likely than not that a portion of the deferred assets, including the capital loss carryforward, will not be realized. Further, management will continue to monitor all available positive and negative evidence on at least a quarterly basis, consistent with ASC 740, and will promptly adjust the valuation allowance assessment if facts and circumstances change materially.
Non-GAAP Presentation
The Corporation has identified both the sale of available for sale securities and the sale of the former Ithaca Station branch property as nonrecurring transactions and has made reference to non-GAAP figures within this MD&A where appropriate and useful to the reader of these financial statements. Please refer to the GAAP to Non-GAAP reconciliations, pages 68-70, for further information.
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 certain estimates, judgments, and assumptions that it believes to be reasonable based upon the information available at that time. These estimates, judgments, and assumptions affect reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the years presented. Actual results could differ from these estimates.
Allowance for Credit Losses
Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to its portfolios of assets exhibiting credit risk, particularly in its loan portfolio, and the material effect that such judgments may have on the Corporation's results of operations. Determining the amount requires significant judgment on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management's ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.
The allowance is established through a provision for credit losses in the Consolidated Statements of Income, and evaluation of the adequacy of the allowance for credit losses is performed by management on a quarterly basis. While management uses available information to anticipate credit losses, future additions to the allowance may be necessary based on changes in economic conditions or the composition of its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses.
Because the Corporation's methodology for maintaining its allowance for credit losses is based on historical experience and trends, current economic information, forecasted data, and management's judgment, a range of estimates for the estimate of the allowance for credit losses may be supportable. Deteriorating conditions may lead to further required increases to the allowance; conversely, improvements to conditions may warrant reductions to the allowance. In estimating the allowance for credit losses, management considers the sensitivity of the model to significant judgments and assumptions that could result in an amount that is materially different from management's estimate, including as it relates to qualitative considerations.
As of December 31, 2025, the allowance for credit losses on loans totaled $24.2 million, compared to $21.4 million as of December 31, 2024. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, both commercial real estate and commercial and industrial loans. As of December 31, 2025 and 2024, the allowance for credit losses allocated to the total commercial portfolio was $18.9 million and $15.7 million, respectively, or 78.0% and 73.6% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 76.4% and 73.2% of total loan balances, respectively, as of December 31, 2025 and 2024. 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 year over year 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, a majority of loan pools, as defined in Note 1 to the Consolidated Financial Statements, utilize the FOMC's projections for unemployment as a loss driver, while the commercial and industrial, consumer, and other loans pools utilizes the FOMC's projections for GDP growth. 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 bps in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 50 bps in the FOMC's projected rate of U.S. GDP growth, would increase the model's total calculated allowance by $1.0 million, or 4.0%, to $25.2 million, assuming qualitative adjustments were kept at current levels.
While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management's assumptions or judgment of factors as of December 31, 2025, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.
Management's methodology and policy in estimating the allowance for credit losses can be found in Note 1 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. The activity in the allowance for credit losses can be found in supporting tables in Note 4 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K.
Consolidated Financial Highlights (in thousands, except per share data)
As of or for the Years Ended
December 31, December 31,
RESULTS OF OPERATIONS 2025 2024
Interest and dividend income $ 132,835 $ 127,564
Interest expense 45,678 53,505
Net interest income 87,157 74,059
Provision (credit) for credit losses 4,437 (46)
Net interest income after provision for credit losses 82,720 74,105
Non-interest income 7,945 23,230
Non-interest expense 70,729 67,250
Income before income tax expense 19,936 30,085
Income tax expense 4,832 6,414
Net income $ 15,104 $ 23,671
Basic and diluted earnings per share $ 3.14 $ 4.96
Average basic and diluted shares outstanding 4,804 4,770
PERFORMANCE RATIOS
Return on average assets 0.55 % 0.86 %
Return on average equity 6.40 % 11.53 %
Return on average tangible equity (a) 7.05 % 12.90 %
Efficiency ratio (unadjusted) (b) 74.37 % 69.12 %
Efficiency ratio (adjusted) (a) 63.00 % 68.89 %
Non-interest expense to average assets 2.58 % 2.45 %
Loans to deposits 99.95 % 86.42 %
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 5.62 % 5.57 %
Yield on investments 2.35 % 2.28 %
Yield on interest-earning assets 4.97 % 4.74 %
Cost of interest-bearing deposits 2.37 % 2.79 %
Cost of borrowings 5.83 % 5.03 %
Cost of interest-bearing liabilities 2.50 % 2.87 %
Cost of funds 1.86 % 2.15 %
Interest rate spread 2.47 % 1.87 %
Net interest margin, fully taxable equivalent (a) 3.26 % 2.76 %
CAPITAL
Total equity to total assets at end of year 9.40 % 7.76 %
Tangible equity to tangible assets at end of year (a) 8.66 % 7.02 %
Book value per share $ 52.97 $ 45.13
Tangible book value per share (a) 48.43 40.55
Year-end market value per share 55.80 48.81
Dividends declared per share 1.32 1.24
AVERAGE BALANCES
Loans and loans held for sale (c) $ 2,145,759 $ 2,016,481
Interest-earning assets 2,680,133 2,698,148
Total assets 2,740,311 2,744,721
Deposits 2,390,295 2,419,744
Total equity 236,122 205,280
Tangible equity (a) 214,298 183,456
ASSET QUALITY
Net charge-offs (recoveries) $ 1,872 $ 1,160
Non-performing loans (d) 7,908 8,954
Non-performing assets (e) 8,165 9,606
Allowance for credit losses 24,209 21,388
Annualized net charge-offs (recoveries) to average loans 0.09 % 0.06 %
Non-performing loans to total loans 0.35 % 0.43 %
Non-performing assets to total assets 0.30 % 0.35 %
Allowance for credit losses to total loans 1.07 % 1.03 %
Allowance for credit losses to non-performing loans 306.13 % 238.87 %
(a) See the GAAP to Non-GAAP reconciliations on pages 68-70. (c) Does not reflect allowance for credit losses.
(b) Non-interest expense divided by total of net interest income plus (d) Includes nonaccrual loans only.
non-interest income. (e) Includes non-performing loans plus OREO and repossessions.
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 years ended December 31, 2025 and 2024. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see page 39.
Net Income
The following table presents selected financial information for the years indicated, and the dollar and percent change (in thousands, except per share and ratio data):
Years Ended December 31, Percentage Change
2025 2024 Change
Net interest income $ 87,157 $ 74,059 $ 13,098 17.7 %
Non-interest income 7,945 23,230 (15,285) (65.8) %
Non-interest expense 70,729 67,250 3,479 5.2 %
Pre-provision income 24,373 30,039 (5,666) (18.9) %
Provision (credit) for credit losses 4,437 (46) 4,483 N/M
Income tax expense 4,832 6,414 (1,582) (24.7) %
Net income $ 15,104 $ 23,671 $ (8,567) (36.2) %
Basic and diluted earnings per share $ 3.14 $ 4.96 $ (1.82) (36.7) %
The following table presents selected financial information for the years indicated, adjusted for nonrecurring items, and the dollar and percent change (in thousands, except per share and ratio data) (refer to the GAAP to Non-GAAP reconciliations, pages 68-70, for further information):
Years Ended December 31, Percentage Change
2025 2024 Change
Net interest income $ 87,157 $ 74,059 $ 13,098 17.7 %
Non-interest income (1)
24,814 23,230 1,584 6.8 %
Non-interest expense 70,729 67,250 3,479 5.2 %
Pre-provision income 41,242 30,039 11,203 37.3 %
Provision (credit) for credit losses 4,437 (46) 4,483 N/M
Income tax expense (2)
8,927 6,414 2,513 39.2 %
Net income $ 27,878 $ 23,671 $ 4,207 17.8 %
Basic and diluted earnings per share $ 5.80 $ 4.96 $ 0.84 16.9 %
(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 second quarter, 2025.
(2) Adjusted for tax impact of loss on sale of securities available for sale and gain on sale of previous branch property during second quarter, 2025.
Selected financial ratios 2025 2024
Return on average assets (unadjusted) 0.55 % 0.86 %
Return on average assets (adjusted) (a)
1.02 % 0.86 %
Return on average equity (unadjusted) 6.40 % 11.53 %
Return on average equity (adjusted) (a)
11.81 % 11.53 %
Net interest margin, fully taxable equivalent 3.26 % 2.76 %
Efficiency ratio (unadjusted) 74.37 % 69.12 %
Efficiency ratio (adjusted) (a) 63.00 % 68.89 %
Non-interest expense to average assets 2.58 % 2.45 %
(a) See the GAAP to Non-GAAP reconciliations on pages 68-70.
Net income for the year ended December 31, 2025 was $15.1 million, or $3.14 per share, compared with net income of $23.7 million, or $4.96 per share, for the prior year. Return on average equity for the year ended December 31, 2025 was 6.40%, compared with 11.53% for the prior year. The decrease in net income for the year ended December 31, 2025, compared to the prior year, was due to a decrease in non-interest income, and increases in non-interest expense and provision for credit losses, partially offset by an increase in net interest income and a decrease in income tax expense.
During the second quarter of 2025, the Corporation sold a 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 year ended December 31, 2025 was $27.9 million, or $5.80 per share. 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 68-70, for further information. Adjusted return on average equity for the year ended December 31, 2025was 11.81%, compared to 11.53%for the prior year.
Net Interest Income
The following table presents net interest income for the years indicated, and the dollar and percent change (in thousands):
Years Ended December 31, Percentage Change
2025 2024 Change
Interest and dividend income $ 132,835 $ 127,564 $ 5,271 4.1 %
Interest expense 45,678 53,505 (7,827) (14.6) %
Net interest income $ 87,157 $ 74,059 $ 13,098 17.7 %
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 recognized on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation's earnings.
Net interest income for the year ended December 31, 2025 totaled $87.2 million, an increase of $13.1 million, or 17.7%, compared with $74.1 million for the prior year. Fully taxable equivalent net interest margin was 3.26% for the year ended December 31, 2025 compared to 2.76% for the prior year. The increase in net interest income was driven by a decrease of $8.3 million in interest expense on deposits and increases of $8.2 million in interest income on loans and $1.6 million in interest income on interest-earning deposits, partially offset by a decrease of $4.2 million in interest and dividend income on taxable securities.
Interest expense on deposits decreased largely due to a decrease of 42 basis points in the average cost of total interest-bearing deposits, which included brokered deposits, and a decrease of $30.6 million in average balances of total interest-bearing deposits, each compared to the prior year. The decrease in average balances of total interest-bearing deposits was inclusive of a decrease of $38.0 million in average balances of brokered deposits, due to proceeds from the Corporation's sales of available for sale securities in the second quarter of 2025 being used to pay off wholesale funding liabilities, including brokered deposits. The average cost of customer time deposits decreased 73 basis points and average balances of customer time deposits decreased $25.2 million, each compared to the prior year. Both the decrease in average cost and average balances were primarily due to changes in promotional CD campaign offerings in the current year, compared to the prior year. Proceeds from the Corporation's sales of available for sale securities in 2025 also reduced reliance on customer time deposits to fund loan growth.
Interest income on loans, including fees, increased mainly due to an increase of $129.3 million in average balances of total loans and an increase of five basis points in the average yield on total loans, each compared to the prior year. The increase in average balances of total loans was largely driven by an increase of $159.3 million in average balances of commercial loans, partially offset by a decrease of $33.9 million in average balances of consumer loans, each compared to the prior year. The increase in average balances of commercial loans was largely concentrated in commercial real estate, particularly in the Corporation's Capital Bank and Canal Bank divisions in Albany and Buffalo, respectively. The decrease in average balances of consumer loans was primarily due to lower origination activity and normal portfolio turnover of indirect auto loans, as the Corporation prioritized funding other types of lending during 2025.
The increase in the average yield on total loans was mainly due to increases of 35 basis points and 15 basis points in the average yields on residential mortgages and consumer loans, respectively, partially offset by a decrease of six basis points in the average yield on total commercial loans, each compared to the prior year. The increase in the average yield on residential mortgages was primarily due to an increase in origination volume during 2025, most of which was originated at yields above the portfolio's average yield due to the elevated interest rate environment. The increase in the average yield on consumer loans was largely due to fast turnover in the indirect auto portfolio as older, lower-yielding balances were replaced by higher-yielding balances, partially offset by lower yields on originations of promotional home equity lines of credit, and the impact of declines in benchmark interest rates, such as the Prime rate, on variable rate home equity loans and lines. The decrease in the average yield on commercial loans was largely due to a decrease in interest rates on variable rate commercial and industrial loans, including lines of credit, due to the declining market interest rate environment compared to the prior year.
Interest income on interest-earning deposits increased largely due to an increase of $38.4 million in average balances of interest-earning deposits compared to the prior year, mainly consisting of proceeds from the Corporation's sales of available for sale securities and issuance of subordinated debt in the second quarter of 2025, and despite a decrease of 40 basis points in the average yield on interest-earning deposits compared to the prior year as a result of the decline in the fed funds rate.
Interest and dividend income on taxable securities decreased primarily due to the Corporation's sales of available for sale securities with a book value of $244.8 million in the second quarter of 2025. These sales, as well as normal paydown activity on mortgage-backed securities and SBA pooled-loan securities, resulted in a decrease of $169.7 million in average balances of taxable securities, compared to the prior year. Additionally, the average yield on taxable securities decreased 12 basis points compared to the prior year, largely due to optimization of securities sales proceeds, which reflects the sale of relatively higher-yielding securities in the second quarter of 2025, partially offset by a decrease in total amortization expense on available for sale securities compared to the prior year.
Average interest-earning assets decreased $18.0 million, while average interest-bearing liabilities decreased $32.2 million during 2025, each compared to the prior year, largely the result of the Corporation's balance sheet repositioning efforts in the current year. The average yield on interest-earning assets increased 23 basis points to 4.97%, while the average cost of interest-bearing liabilities decreased 37 basis points to 2.50%. The total cost of funds was 1.86% for the year ended December 31, 2025, compared to 2.15% in the prior year, a decrease of 29 basis points.
Average Consolidated Balance Sheet and Interest Analysis
The following table presents certain information related to the Corporation's average Consolidated Balance Sheets and its Consolidated Statements of Income for the years ended December 31, 2025, and 2024. It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2025, and 2024. For the purpose of the table below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.
AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
Year Ended December 31,
2025 2024
(in thousands) Average Balance Interest Yield/
Rate 		Average Balance Interest Yield/
Rate
Interest-earning assets:
Commercial loans $ 1,605,835 $ 94,144 5.86 % $ 1,446,493 $ 85,570 5.92 %
Mortgage loans 278,658 11,722 4.21 % 274,801 10,618 3.86 %
Consumer loans 261,266 14,707 5.63 % 295,187 16,165 5.48 %
Taxable securities 443,643 8,896 2.01 % 613,375 13,046 2.13 %
Tax-exempt securities 23,103 696 3.01 % 39,032 1,103 2.83 %
Interest-earning deposits 67,628 2,963 4.38 % 29,260 1,398 4.78 %
Total interest-earning assets 2,680,133 133,128 4.97 % 2,698,148 127,900 4.74 %
Non interest-earning assets:
Cash and due from banks 25,710 25,112
Premises and equipment, net 15,795 14,766
Other assets 106,180 114,540
Allowance for credit losses
(22,691) (21,489)
AFS valuation allowance (64,816) (86,356)
Total assets $ 2,740,311 $ 2,744,721
Interest-bearing liabilities:
Interest-bearing demand deposits $ 336,674 $ 5,228 1.55 % $ 313,070 $ 5,561 1.78 %
Savings and insured money market deposits 872,776 16,692 1.91 % 863,849 17,468 2.02 %
Time deposits 501,546 17,506 3.49 % 526,727 22,221 4.22 %
Brokered deposits 52,775 2,367 4.49 % 90,729 4,802 5.29 %
FHLBNY overnight advances 7,523 336 4.47 % 21,907 1,151 5.17 %
Term advances and other debt 34,368 1,546 4.50 % 46,363 2,302 4.97 %
Subordinated debt 24,775 2,003 8.08 % - - - %
Total interest-bearing liabilities 1,830,437 45,678 2.50 % 1,862,645 53,505 2.87 %
Non interest-bearing liabilities:
Demand deposits 626,524 625,369
Other liabilities 47,228 51,427
Total liabilities 2,504,189 2,539,441
Shareholders' equity 236,122 205,280
Total liabilities and shareholders' equity $ 2,740,311 $ 2,744,721
Fully taxable equivalent net interest income 87,450 74,395
Net interest rate spread (1)
2.47 % 1.87 %
Net interest margin, fully taxable equivalent (2)
3.26 % 2.76 %
Taxable equivalent adjustment (3)
(293) (336)
Net interest income $ 87,157 $ 74,059
(1) Net interest rate spread is the difference in the average yield on interest-earning assets less the average cost of interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.
(3) Taxable equivalent adjustments have been made using a 19.6% blended rate equaling the 21.0% federal statutory rate less the impact of the Corporation's effective New York State income tax rate of 6.8%
Changes Due to Rate and Volume
Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The table below illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation's interest income and interest expense during the years indicated. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of this table, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the years 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
2025 vs. 2024
Increase/(Decrease)
(in thousands) Total
Change 		Due to
Volume 		Due to
Rate
Interest income
Commercial loans $ 8,574 $ 9,441 $ (867)
Mortgage loans 1,104 148 956
Consumer loans (1,458) (1,893) 435
Taxable securities (4,150) (3,448) (702)
Tax-exempt securities (407) (474) 67
Interest-earning deposits 1,565 1,691 (126)
Total interest income 5,228 5,465 (237)
Interest expense
Interest-bearing demand deposits (333) 408 (741)
Savings and insured money market deposits (776) 179 (955)
Time deposits (4,715) (1,021) (3,694)
Brokered deposits (2,435) (1,788) (647)
FHLBNY overnight advances (815) (676) (139)
Term advances and other debt (756) (554) (202)
Subordinated debt 2,003 2,003 -
Total interest expense (7,827) (1,449) (6,378)
Fully taxable equivalent net interest income $ 13,055 $ 6,914 $ 6,141
Provision for credit losses
Management has established and maintains a methodology for determining and adjusting its allowance for credit losses in conformity with ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The allowance is based on a combination of quantitative and qualitative analysis and changes in the required allowance are recorded through income as a provision (credit). 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 increased $4.5 million, from a credit of $46 thousand for the year ended December 31, 2024 to a provision of $4.4 million for the year ended December 31, 2025. The increase was largely due to the annual review and update to the loss drivers which the Bank's CECL model is based upon, resulting in an increase in baseline loss rates during the current year, compared to a decrease in baseline loss rates as a result of the prior year's update, which led to a credit (provision recapture) for the prior year. Additionally an increase in loan growth for the year ended December 31, 2025 compared to loan growth for the prior year, as well as unfavorable changes in model inputs during 2025, including a decline in modeled prepayment speeds and a higher modeled unemployment rate, also contributed to the increase. The increase in net charge-offs for the year ended December 31, 2025 compared to the prior year did not meaningfully contribute to the increase in provision for credit losses.
Non-interest income
The following table presents non-interest income for the years ended December 31, 2025 and 2024, and the dollar and percent change (in thousands, except percentages):
NON-INTEREST INCOME
2025 2024
2025 v. 2024
Amount % to Total Amount % to Total $ Change % Change
Wealth management group fee income $ 11,945 150.3 % $ 11,573 49.8 % $ 372 3.2 %
Service charges on deposit accounts 4,427 55.7 % 4,042 17.4 % 385 9.5 %
Interchange revenue from debit card transactions 4,302 54.1 % 4,426 19.1 % (124) (2.8) %
Net (losses) on securities transactions (17,498) (220.2) % - - % (17,498) N/M
Change in fair value of equity investments 211 2.7 % 179 0.8 % 32 17.9 %
Net gains on sales of loans held for sale 261 3.3 % 214 0.9 % 47 22.0 %
Net gains (losses) on sales of other real estate owned 2 - % (18) (0.1) % 20 N/M
Income from bank owned life insurance 32 0.4 % 38 0.2 % (6) (15.8) %
CFS fee and commission income 1,176 14.8 % 1,054 4.5 % 122 11.6 %
Other 3,087 38.9 % 1,722 7.4 % 1,365 79.3 %
Total non-interest income $ 7,945 100.0 % $ 23,230 100.0 % $ (15,285) (65.8) %
Non-interest income for the year ended December 31, 2025 was $7.9 million compared with $23.2 million for the prior year, a decrease of $15.3 million, or 65.8%. The decrease was due primarily to the loss on securities sales transactions of $17.5 million. This was partially offset by increases of $1.4 million in other non-interest income and $0.4 million in service charges on deposit accounts, as well as $0.4 million in wealth management group fee income.
Other non-interest income
Other non-interest income increased compared to the prior year primarily due to the gain of $0.6 million on the sale of the previous Ithaca "Station" branch property, interest received from the IRS in relation to the Corporation's receipt of proceeds from the Employee Retention Tax Credit (ERTC), an increase in commercial interest rate swap fee income, and recognition of incentives from a debit card service provider arrangement.
Wealth management group fee income and service charges on deposit accounts
The increases in wealth management group fee income and services charges on deposit accounts were primarily due to fee schedule increases, which were implemented in the second half of 2024.
Non-interest expense
The following table presents non-interest expense for the years ended December 31, 2025 and 2024, and the dollar and percent change (in thousands, except percentages):
NON-INTEREST EXPENSE
2025 2024
2025 v. 2024
Amount % to Total Amount % to Total $ Change % Change
Compensation expense:
Salaries and wages $ 30,569 43.2 % $ 28,457 42.3 % $ 2,112 7.4 %
Pension and other employee benefits 8,887 12.6 % 8,083 12.0 % 804 9.9 %
Other components of net periodic pension cost (benefits) (452) (0.6) % (909) (1.4) % 457 50.3 %
Total compensation expense 39,004 55.2 % 35,631 52.9 % 3,373 9.5 %
Non-compensation expense:
Net occupancy 5,812 8.2 % 5,832 8.7 % (20) (0.3) %
Furniture and equipment 1,702 2.4 % 1,659 2.5 % 43 2.6 %
Data processing 10,048 14.2 % 10,093 15.0 % (45) (0.4) %
Professional services 2,706 3.8 % 2,353 3.5 % 353 15.0 %
Marketing and advertising 1,248 1.8 % 1,182 1.8 % 66 5.6 %
Other real estate owned expense 23 0.1 % 157 0.2 % (134) N/M
FDIC insurance 1,518 2.1 % 2,120 3.2 % (602) (28.4) %
Loan expense 1,152 1.6 % 1,182 1.8 % (30) (2.5) %
Other 7,516 10.6 % 7,041 10.4 % 475 6.7 %
Total non-compensation expense 31,725 44.8 % 31,619 47.1 % 106 0.3 %
Total non-interest expense $ 70,729 100.0 % $ 67,250 100.0 % $ 3,479 5.2 %
Non-interest expense increased $3.5 million, or 5.2%, in 2025, compared to the prior year. The increase was primarily due to an increase of $3.4 million in total compensation expense, as well as a $0.1 million increase in total non-compensation expense.
Compensation expense
Compensation expense increased $3.4 million, or 9.5%, compared to the prior year, primarily due to increases of $2.1 million in salaries and wages as well as increases of $0.8 million in pension and other employee benefits and $0.5 million in other components of net periodic pension benefits.
The increase in salaries and wages was primarily attributable to additional staffing in the Corporation's Canal Bank division in the Western New York market, including commercial lenders, wealth management professionals, and branch personnel, as well as merit-based wage increases. The increase in pension and other employee benefits was largely due to an increase in employee healthcare-related expense and payroll tax expense, compared to the prior year. The increase in other components of net periodic pension benefits was primarily due to a change in annual actuarial estimates.
Non-compensation expense
Non-compensation expense increased $0.1 million, or 0.3%, mainly due to increases of $0.5 million in other non-compensation expense and $0.4 million in professional services, offset by decreases of $0.6 million in FDIC insurance and $0.1 million in other real estate owned expense.
The increase in other non-compensation expense was primarily due to increases in losses on sales of repossessions, charitable donations made during the current year, and expense related to recruitment. The increase in professional services was primarily due to an increase in consulting services. The decrease in FDIC insurance was mainly due to improved metrics used to calculate the current year assessment, as well as a smaller decrease associated with a decline in total assessed assets. The decrease in other real estate owned expense was largely due to a decrease in the quantity of properties owned during 2025 compared to the prior year.
Income tax expense
The following table presents income tax expense and the effective tax rate for the years indicated, and the dollar and percent change (in thousands):
Years Ended December 31, Percentage Change
2025 2024 Change
Income before income tax expense $ 19,936 $ 30,085 $ (10,149) (33.7) %
Income tax expense $ 4,832 $ 6,414 $ (1,582) (24.7) %
Effective tax rate 24.2 % 21.3 %
The effective tax rate increased to 24.2% for the year ended December 31, 2025 compared with 21.3% for the prior year. The increase in effective tax rate can be primarily attributed to an increase in the valuation allowance. The decrease in income tax expense can be primarily attributed to a decrease in pre-tax income, largely the result of losses realized on sales of available for sale securities.
Financial Condition
The following table presents selected financial information as of December 31, 2025 and 2024, and the dollar and percent change (in thousands):
December 31, 2025 December 31, 2024 Change Percentage Change
Assets
Total cash and cash equivalents $ 50,097 $ 47,035 $ 3,062 6.5 %
Total investment securities, FHLBNY, and FRBNY stock 294,469 544,602 (250,133) (45.9) %
Loans, net of deferred loan fees 2,269,561 2,071,419 198,142 9.6 %
Allowance for credit losses (24,209) (21,388) 2,821 13.2 %
Loans, net 2,245,352 2,050,031 195,321 9.5 %
Goodwill and other intangible assets, net 21,824 21,824 - - %
Other assets 98,493 112,655 (14,162) (12.6) %
Total assets $ 2,710,235 $ 2,776,147 $ (65,912) (2.4) %
Liabilities and Shareholders' Equity
Total deposits $ 2,270,674 $ 2,396,883 $ (126,209) (5.3) %
FHLBNY advances and finance lease obligations 90,554 112,889 (22,335) (19.8) %
Subordinated debt, net of deferred issuance costs 44,028 - 44,028 N/M
Other liabilities 50,270 51,066 (796) (1.6) %
Total liabilities 2,455,526 2,560,838 (105,312) (4.1) %
Total shareholders' equity 254,709 215,309 39,400 18.3 %
Total liabilities and shareholders' equity $ 2,710,235 $ 2,776,147 $ (65,912) (2.4) %
Cash and cash equivalents
The increase in cash and cash equivalents was largely due to proceeds from the Corporation's sales of available for sale securities and issuance of subordinated debt, both in the second quarter of 2025, and normal paydown activity and maturities of available for sale securities, largely offset by loan origination activity during 2025, a decrease in total brokered deposits, and a net decrease in total borrowed funds compared to prior year-end.
Investment securities
The decrease in investment securities was mainly due to sales of available for sale securities with a fair value of $227.3 million, as of the sale dates, in the second quarter of 2025. Also contributing to the decrease in total investment securities were paydowns and maturities of available for sale securities during 2025, totaling $37.5 million and $2.1 million, respectively. Partially offsetting the total decrease in investment securities were $4.0 million and $0.2 million in purchases of available for sale and held to maturity securities, respectively, during 2025, and an increase in the fair value of securities due to favorable changes in interest rates as of December 31, 2025 compared to prior year-end.
Loans, net
Loans, net of deferred origination fees and costs, increased primarily due to growth concentrated in the commercial loan portfolio, which increased $217.4 million, or 14.3%. Growth in total commercial loans was further concentrated in commercial real estate loans, which increased $192.7 million, or 15.8%. Total commercial real estate loans comprised 62.1% of total loans as of December 31, 2025 compared to 58.7% as of December 31, 2024. Additionally, commercial and industrial loan balances increased $24.7 million, or 8.2%. Total residential mortgage loans increased $11.9 million, or 4.3%, largely due to stronger origination activity during 2025 compared to the prior year. Total consumer loans decreased $31.2 million, or 11.1%, largely due to net runoff of the indirect auto segment as the Corporation prioritized other types of lending during 2025.
Allowance for credit losses
The allowance for credit losses on loans increased $2.8 million, or 13.2%, from $21.4 million as of December 31, 2024 to $24.2 million as of December 31, 2025. The increase was largely due to an increase in total loan volume, particularly concentrated in commercial real estate loans, as well as changes in model inputs between December 31, 2024 and 2025, which included an annual review and update to loss drivers used in the CECL model, which were applied in the first quarter of 2025 and resulted in an increase in baseline modeled loss rates. Additionally, a decrease in modeled prepayment speeds and an increase in forecasted unemployment contributed to the overall increase in the allowance. Partially offsetting the increase were improvements in forecasted GDP growth and a net decrease in specific allowance allocations on individually analyzed loans.
Goodwill and other intangible assets, net
There were no impairments of goodwill during the years ended December 31, 2025 and 2024, and there were no other intangible assets on the Corporation's Consolidated Balance Sheets as of December 31, 2025 and 2024.
Other assets
The decrease in other assets was largely due to a decrease in interest rate swap assets of $6.5 million, resulting from a decrease in market interest rates, and a decrease in deferred tax assets, due to an increase in the fair value of available for sale securities, which was also largely attributed to a decrease in market interest rates.
Deposits
Total deposits decreased largely due to the payoff of brokered deposits with a portion of the proceeds from the Corporation's sales of available for sale securities and issuance of subordinated debt. There were no brokered deposits outstanding as of December 31, 2025, compared to $92.2 million, or 3.8% of total deposits as of the prior year-end. Additionally, total customer time deposits decreased $68.1 million compared to prior year-end. Partially offsetting the decrease in total deposits were increases of $20.1 million, $8.9 million, and $6.3 million in interest-bearing demand deposits, savings deposits, and money market deposits, respectively.
FHLBNY advances and finance lease obligations
FHLBNY advances and finance lease obligations decreased primarily due to a decrease of $22.0 million in FHLBNY overnight advances as of December 31, 2025 compared to prior year-end.
Subordinated debt, net of deferred issuance costs
The Corporation issued $45.0 million in 7.75% fixed-to-floating rate subordinated notes during 2025, net of $1.0 million in total related issuance costs, the majority of which were unamortized as of December 31, 2025. The subordinated notes were issued as part of the Corporation's strategic balance sheet repositioning during 2025.
Other liabilities
The decrease in other liabilities was mainly due to decreases of $6.4 million in interest rate swap liabilities, resulting from a decrease in market interest rates, and a decrease of $1.6 million in accrued interest payable, largely offset by increases across other components of other liabilities.
Shareholders' equity
The increase in shareholders' equity was due primarily to a decrease of $29.0 million in accumulated other comprehensive loss, as well as an increase of $8.8 million in retained earnings. The decrease in accumulated other comprehensive loss was largely due to favorable changes in interest rates compared to prior year-end, while the increase in retained earnings was due to net income of $15.1 million, offset by $6.3 million in dividends declared for the year ended December 31, 2025. Treasury stock decreased $0.8 million, primarily due to the impact of the issuance of shares related to the Corporation's employee benefit plans.
Assets under management or administration
The market value of total assets under management or administration in the Wealth Management Group was $2.338 billion, including $301.8 million of assets held under management or administration for the Corporation, as of December 31, 2025 compared to $2.212 billion, including $301.9 million of assets held under management or administration for the Corporation as of December 31, 2024, an increase of $126.5 million, or 5.7%. Excluding assets under management or administration for the Corporation, the total market value of Wealth Management Group assets increased $126.6 million, or 6.6%, primarily due to improvements in financial markets during the current year.
Balance Sheet Comparisons
The table below contains selected year-end and average balance sheet information at and for the years ended December 31, 2025 and 2024 (in millions):
SELECTED BALANCE SHEET INFORMATION
YEAR-END BALANCE SHEET AVERAGE BALANCE SHEET
2025 2024 % Change 2025 2024 % Change
Total assets $ 2,710.2 $ 2,776.1 (2.4) % $ 2,740.3 $ 2,744.7 (0.2) %
Interest-earning assets (1)
2,593.5 2,636.8 (1.6) % 2,680.1 2,698.1 (0.7) %
Loans(2)
2,271.7 2,071.4 9.7 % 2,145.8 2,016.5 6.4 %
Investments (3)
321.8 565.4 (43.1) % 534.4 681.7 (21.6) %
Deposits 2,270.7 2,396.9 (5.3) % 2,390.3 2,419.7 (1.2) %
Borrowings (4)
134.6 112.9 19.2 % 66.7 68.3 (2.3) %
Allowance for credit losses 24.2 21.4 13.1 % 22.7 21.5 5.6 %
Shareholders' equity 254.7 215.3 18.3 % 236.1 205.3 15.0 %
(1) Interest-earning assets include: securities available for sale and securities held to maturity at amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock, and equity investments.
(2) Loans and loans held for sale, net of deferred loan fees.
(3) Investments include securities available for sale at estimated fair value, securities held to maturity, at amortized cost, equity investments, FHLBNY stock, FRBNY stock, and interest-earning deposits.
(4) Borrowings include overnight advances, term advances, subordinated debt, and finance lease obligations.
Cash and Cash Equivalents
Total cash and cash equivalents increased $3.1 million compared to December 31, 2024, due to an increase of $6.5 million in interest-earning deposits at other financial institutions, offset by a $3.4 million decrease in cash and due from financial institutions.
Securities
The Corporation's Funds Management Policy includes an investment policy that generally 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.
The available for sale segment of the securities portfolio totaled $280.6 million as of December 31, 2025, a decrease of $250.8 million, or 47.2%, from $531.4 million as of December 31, 2024. The decrease was primarily due to the sale of available for sale securities with a market value totaling $227.3 million in the second quarter of 2025. The sale of securities included the Corporation's entire portfolio of U.S. Treasury and SBA pooled-loan securities, as well as a portion of the mortgage-backed securities and municipal bonds portfolios. Also contributing to the decrease were net paydowns and maturities for the year totaling $43.1 million, mainly due to paydowns on mortgage-backed securities and SBA pooled loan securities. The market value of securities available for sale increased $21.0 million, due to favorable changes in market interest rates during the current year. Partially offsetting the decrease in total investment securities was an increase of $0.3 million in FHLBNY and FRBNY stock, at cost, primarily due to an increase in membership-based share requirements compared to the prior year-end. The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation's market areas. These securities totaled $0.6 million and $0.8 million as of December 31, 2025 and December 31, 2024, respectively. Non-marketable equity securities as of December 31, 2025 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $3.0 million and $6.4 million, respectively. 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 table below presents the composition of the Corporation's available for sale portfolio as of December 31, 2025 and 2024 (in thousands, except percentages):
2025 2024
Estimated Fair Value % to Total Portfolio Estimated Fair Value % to Total Portfolio
U.S. treasury notes and bonds $ - - % $ 56,906 10.7 %
Mortgage-backed securities, residential 250,375 89.2 % 365,934 68.9 %
Collateralized mortgage obligations 2,931 1.0 % - - %
Obligations of states and political subdivisions 10,310 3.7 % 35,505 6.6 %
Corporate bonds and notes 16,982 6.1 % 22,016 4.2 %
SBA loan pools - - % 51,081 9.6 %
Total securities available for sale $ 280,598 100.0 % $ 531,442 100.0 %
The table below sets forth the carrying amounts and maturities of available for sale and held to maturity debt securities as of December 31, 2025 and the weighted average yields of such securities, all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security. Mortgage-backed securities and collateralized mortgage obligations are presented based on final maturity dates. Tax equivalent adjustments have been made in calculating yields on tax-exempt obligations (in thousands, except percentages):
MATURITIES AND YIELDS OF DEBT SECURITIES
Within One Year After One, But Within Five Years After Five, But Within Ten Years After Ten Years
Amount Yield Amount Yield Amount Yield Amount Yield
Available for sale
Mortgage-backed securities, residential $ - N/A $ 9,399 1.19 % $ 43,470 2.26 % $ 242,726 1.73 %
Collateralized mortgage obligations - N/A - N/A - N/A 2,990 4.52 %
Obligations of states and political subdivisions 992 3.31 % 573 2.87 % 8,838 3.26 % 150 3.73 %
Corporate bonds and notes - N/A 2,000 4.25 % 16,750 3.68 % - N/A
Total $ 992 3.31 % $ 11,972 1.78 % $ 69,058 2.73 % $ 245,866 1.77 %
Held to maturity
Obligations of states and political subdivisions $ - N/A $ 160 7.46 % $ 480 3.85 % $ - N/A
Total $ - N/A $ 160 7.46 % $ 480 3.85 % $ - N/A
(1) Taxable equivalent adjustments have been made using a 19.6% blended rate equaling the 21.0% federal statutory rate less the impact of the Corporation's effective New York State income tax rate of 6.8%
The weighted-average yield on the Corporation's available for sale and held to maturity debt securities as of December 31, 2025 was 1.98% and 4.75%, respectively. Management evaluates securities for credit loss exposure on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For the years ended December 31, 2025 and 2024, the Corporation had no provisions for credit losses relating to its investment securities.
Loans
The table below presents the Corporation's loan composition by type and percentage of total loans as of December 31, 2025 and December 31, 2024 (dollars in thousands):
LOAN COMPOSITION
December 31,
2025 v. 2024
2025 % of Total 2024 % of Total $ Change % Change
Commercial and industrial $ 324,185 14.3 % $ 299,521 14.5 % $ 24,664 8.2 %
Commercial mortgages:
Construction 120,418 5.3 % 94,943 4.6 % 25,475 26.8 %
Owner occupied commercial real estate 178,620 7.9 % 142,279 6.8 % 36,341 25.5 %
Non-owner occupied commercial real estate 1,110,689 48.9 % 979,782 47.3 % 130,907 13.4 %
Residential mortgages 286,885 12.6 % 274,979 13.3 % 11,906 4.3 %
Consumer loans:
Home equity lines and loans 109,723 4.9 % 93,220 4.5 % 16,503 17.7 %
Indirect consumer loans 132,699 5.8 % 178,118 8.6 % (45,419) (25.5) %
Direct consumer loans 6,342 0.3 % 8,577 0.4 % (2,235) (26.1) %
Total $ 2,269,561 100.0 % $ 2,071,419 100.0 % $ 198,142 9.6 %
Portfolio loans totaled $2.270 billion as of December 31, 2025 and $2.071 billion as of December 31, 2024, an increase of $198.1 million, or 9.6%. The increase was driven by increases of $192.7 million in total commercial mortgages, or 15.8%, $24.7 million in commercial and industrial loans, or 8.2%, and $11.9 million, or 4.3%, in residential mortgages, partially offset by a decrease of $45.4 million in total consumer loans, or 25.5%.
Commercial real estate lending continues to be the primary driver of asset growth for the Corporation, with persistent demand across the Corporation's footprint, particularly in the Capital and Western regions of New York, under the Corporation's Capital Bank and Canal Bank divisions, respectively. The increase in total commercial real estate loans was largely due to an increase of $130.9 million in non-owner occupied properties, along with smaller increases in both owner occupied properties and construction loans.
Total commercial real estate loans were concentrated in the Capital Bank division in the Corporation's Albany market, comprising $1.044 billion, or 74.0%, and $949.8 million, or 78.0%, of total commercial real estate as of December 31, 2025 and December 31, 2024, respectively, an increase of $93.8 million, or 9.9%. The decrease in the concentration of total commercial real estate loans in the Capital Bank division was largely due to origination activity in the recently established Canal Bank division in the Corporation's Buffalo market, particularly after the hiring of additional commercial lenders and opening of a regional banking center in Williamsville, NY in the later part of 2024. Commercial real estate loans in the Corporation's Canal Bank division totaled $188.9 million, or 13.4% of total commercial real estate loans as of December 31, 2025, compared to $112.1 million, or 9.2% of total commercial real estate loans as of December 31, 2024, an increase of $76.8 million, or 68.5%. Remaining commercial real estate balances were attributable to the Corporation's Chemung Canal Trust Company division in the Southern Tier and Finger Lakes regions of New York, and totaled $177.2 million as of December 31, 2025, or 12.6% of total commercial real estate loans, compared to $155.1 million, or 12.7% of total commercial real estate loans as of December 31, 2024, an increase of $22.1 million, or 14.2%. The increase in commercial and industrial loans was relatively evenly distributed across the Corporation's three bank divisions, led by increases of $9.5 million and $9.3 million in commercial and industrial loan balances in the Chemung Canal and Canal Bank divisions, respectively, compared to December 31, 2024.
Residential mortgage loans increased largely due to stronger origination volumes of mortgages held for investment during 2025, compared to origination volumes in recent years. Originations of residential mortgages held for investment for the year ended December 31, 2025 totaled $45.2 million, compared to $25.1 million for the prior year, an increase of $20.1 million, or 80.3%. The increase in origination volumes was largely due to improvements in market conditions for homebuyers during 2025, as well as the mix of originations in 2025 favoring larger jumbo mortgages compared to the prior year. Additionally, loans originated for sale and sold into the secondary market to Freddie Mac and the FHLBNY totaled $13.6 million for the year ended December 31, 2025, compared to $11.5 million for the prior year, an increase of $2.1 million, or 18.4%.
Total consumer loans decreased largely due to a decrease in originations of indirect auto loans during 2025, due to the Corporation prioritizing other types of lending during the year, as well as the relatively fast turnover in the portfolio, which exceeded originations during the year. Indirect consumer loans decreased $45.4 million, or 25.5%, compared to prior year-end. Partially offsetting the decrease in total consumer loans was an increase of $16.5 million, or 17.7%, in balances of home equity lines and loans compared to prior-year end. Home equity lines and loans increased largely due to an increase in home equity lines of credit, the result of promotional efforts during 2025, which included offering a below-market introductory interest rate.
The table below presents the Corporation's outstanding loan balances by bank division (in thousands):
LOANS BY DIVISION
December 31,
2025 2024 2023 2022 2021
Chemung Canal Trust Company(1)
$ 616,621 $ 626,903 $ 665,701 $ 651,516 $ 592,172
Capital Bank Division 1,417,834 1,302,593 1,206,561 1,098,104 879,105
Canal Bank Division 235,106 141,923 100,402 79,828 46,972
Total Loans $ 2,269,561 $ 2,071,419 $ 1,972,664 $ 1,829,448 $ 1,518,249
(1) All loans, excluding those originated by the Capital Bank and Canal Bank Divisions.
Commercial real estate lending represented the largest component of the Corporation's loan portfolio as of December 31, 2025 and 2024. 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 December 31, 2025 and 2024, total commercial real estate loans were $1.410 billion and $1.217 billion, respectively, representing 62.1% and 58.7% of total loan balances, respectively.
As the largest component of the Corporation's loan portfolio, quantitative and qualitative attributes of commercial real estate have a significant impact on management's strategic initiatives, and understanding such attributes are critical in understanding the Corporation's anticipated future liquidity needs and sensitivity to changes in interest rates. Management closely monitors maturity and repricing schedules as part of its broader risk management framework, enabling measures to proactively manage economic volatility and promote longer-term portfolio stability. Management also evaluates the risk inherent in its portfolio of commercial real estate loans using a variety of metrics, including but not limited to type, geography, collateral, and borrower or sponsor industry.
The Corporation also monitors its level of non-owner occupied commercial real estate loans in relation to regulatory capital, as defined by the Bank's regulators. As of December 31, 2025 and 2024, total non-owner occupied commercial real estate loans divided by total Bank risk-based capital was 384.9% and 399.4%, respectively.
The following table presents commercial real estate loans by maturity and repricing date as of December 31, 2025 (dollars in thousands):
Commercial real estate loans: 2026 2027 2028 2029 2030
After 2030 (1)
Total
Maturing in: $ 98,048 $ 90,442 $ 90,988 $ 118,712 $ 231,987 $ 779,550 $ 1,409,727
Percentage of total 7.0 % 6.4 % 6.5 % 8.4 % 16.5 % 55.2 % 100.0 %
Repricing in: $ 593,753 $ 93,636 $ 100,112 $ 104,640 $ 96,426 $ 421,160 $ 1,409,727
Percentage of total 42.1 % 6.6 % 7.1 % 7.4 % 6.8 % 30.0 % 100.0 %
(1) Includes fixed rate loans
The table below presents the amortized basis of commercial real estate loans by type and percentage as of December 31, 2025 and 2024 (dollars in thousands):
Commercial real estate loans by type: 2025 % of Total 2024 % of Total %
Change
Construction $ 120,418 8.5 % $ 94,943 7.8 % 26.8 %
1-4 Family Residential (1)
53,982 3.9 % 44,374 3.6 % 21.7 %
Multifamily 424,797 30.1 % 398,728 32.8 % 6.5 %
Owner Occupied 178,620 12.7 % 142,279 11.7 % 25.5 %
Non-Owner Occupied 631,910 44.8 % 536,680 44.1 % 17.7 %
Total $ 1,409,727 100.0 % $ 1,217,004 100.0 % 15.8 %
(1) 1-4 Family Residential loans included in the commercial real estate segment are comprised of properties whose primary purpose is to generate rental income for the borrower, but are not considered multifamily properties within the FFIEC's Call Report definition of a multifamily property. This may include single family residences, duplexes, triplexes, and quadplexes.
Commercial real estate loans are primarily made within the counties comprising the geographic footprint of the Corporation's physical branch network, as well as to borrowers whose business interests include projects that may be located in counties geographically contiguous with the Corporation's physical footprint. The location of collateral securing commercial real estate loans typically mirrors the location of the properties being financed. However, certain commercial real estate loans are secured by property other than the property being financed, and therefore the geographic location of collateral may differ from that of the financed property.
The table below presents the amortized basis of commercial real estate loans by regional location of collateral and percentage as of December 31, 2025 and 2024 (dollars in thousands):
Commercial real estate loans by regional location of collateral: 2025 % of Total 2024 % of Total %
Change
Capital Region $ 843,763 59.8 % $ 783,342 64.3 % 7.7 %
Southern Tier & Finger Lakes 230,599 16.4 % 221,078 18.2 % 4.3 %
Western New York 252,370 17.9 % 155,527 12.8 % 62.3 %
Other (1)
82,995 5.9 % 57,057 4.7 % 45.5 %
Total $ 1,409,727 100.0 % $ 1,217,004 100.0 % 15.8 %
(1) Includes $77.6 million in commercial real estate loans located outside of New York State as of December 31, 2025.
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 table below presents the amortized basis of commercial real estate loans by borrower industry and percentage as of December 31, 2025 and 2024, as well as the weighted average (WA) loan to value (LTV) ratio for each industry as of December 31, 2025 (dollars in thousands):
Commercial real estate loans by borrower industry:
2025
2024
Balances % of Total WA LTV % Balances % of Total %
Change
Construction & Land Development $ 120,418 8.6 % N/M $ 94,943 7.8 % 26.8 %
Industrial 70,402 5.0 % 52.2 % 62,817 5.3 % 12.1 %
Warehouse & Storage 104,214 7.4 % 63.6 % 91,357 7.5 % 14.1 %
Retail 264,230 18.7 % 58.6 % 212,938 17.5 % 24.1 %
Office 145,585 10.3 % 61.1 % 122,248 10.0 % 19.1 %
Hotel 80,563 5.7 % 53.0 % 53,960 4.4 % 49.3 %
1-4 Family Residential Rental 54,264 3.8 % 65.3 % 44,374 3.6 % 22.3 %
Multifamily (5+) 449,829 31.9 % 60.4 % 427,257 35.1 % 5.3 %
Medical 54,395 4.0 % 64.1 % 45,480 3.7 % 19.6 %
Educational 21,458 1.5 % 56.2 % 22,129 1.8 % (3.0) %
Other 44,369 3.1 % 48.3 % 39,501 3.3 % 12.3 %
Total $ 1,409,727 100.0 % 59.2 % $ 1,217,004 100.0 % 15.8 %
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 changes in 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 December 31, 2025 and 2024, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses, were 52.1% and 50.9% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of December 31, 2025 and 2024.
The table below shows the maturity of loans outstanding as of December 31, 2025. Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):
Within One Year After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 127,123 $ 126,774 $ 69,070 $ 1,218 $ 324,185
Commercial mortgages:
Construction 13,168 44,848 62,402 - 120,418
Owner occupied commercial real estate 6,127 47,038 119,828 5,627 178,620
Non-owner occupied commercial real estate 78,750 429,516 583,236 19,187 1,110,689
Residential mortgages 8,746 12,659 81,030 184,450 286,885
Consumer loans:
Home equity lines and loans 227 6,361 57,394 45,741 109,723
Indirect consumer loans 1,325 102,200 29,174 - 132,699
Direct consumer loans 347 3,955 1,340 700 6,342
Total $ 235,813 $ 773,351 $ 1,003,474 $ 256,923 $ 2,269,561
LOAN AMOUNTS CONTRACTUALLY DUE AFTER DECEMBER 31, 2026
Loans maturing with fixed interest rates: After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 64,416 $ 37,003 $ - $ 101,419
Commercial mortgages:
Construction 4,118 - - 4,118
Owner occupied commercial real estate 17,707 20,576 - 38,283
Non-owner occupied commercial real estate 213,317 90,015 3,254 306,586
Residential mortgages 12,659 77,171 123,233 213,063
Consumer loans:
Home equity lines and loans 4,958 49,191 388 54,537
Indirect consumer loans 102,200 29,174 - 131,374
Direct consumer loans 3,955 322 59 4,336
Total $ 423,330 $ 303,452 $ 126,934 $ 853,716
Loans maturing with variable interest rates: After One But Within Five Years After Five But Within 15 Years After 15 Years Total
Commercial and industrial $ 62,358 $ 32,067 $ 1,218 $ 95,643
Commercial mortgages:
Construction 40,730 62,402 - 103,132
Owner occupied commercial real estate 29,331 99,252 5,627 134,210
Non-owner occupied commercial real estate 216,198 493,221 15,932 725,351
Residential mortgages - 3,859 61,216 65,075
Consumer loans:
Home equity lines and loans 1,404 8,203 45,355 54,962
Indirect consumer loans - - - -
Direct consumer loans - 1018 641 1,659
Total $ 350,021 $ 700,022 $ 129,989 $ 1,180,032
Non-Performing Loans and Non-Performing Assets
Non-performing assets consist of non-performing loans, other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure, and vehicles that have been repossessed. Non-performing loans are comprised of nonaccrual loans. Past due status on all loans is based on the contractual terms of the loan. It is generally the Corporation's policy that a loan 90 days past due be placed on nonaccrual status unless factors exist that would eliminate the need to classify a loan as such. A loan may also be designated as nonaccrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed into nonaccrual status, the accrual of interest is discontinued and previously accrued interest is reversed. Payments received on nonaccrual loans are generally applied to principal using the cost recovery method. Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest. In the case of nonaccrual loans where a portion of the loan has been charged off, the remaining balance is kept in nonaccrual status until the entire principal balance has been recovered.
The following table summarizes the Corporation's non-performing assets as of December 31, (in thousands):
NON-PERFORMING ASSETS
2025 2024 2023 2022 2021
Non-performing loans $ 7,908 $ 8,954 $ 10,411 $ 8,178 $ 8,114
Other real estate owned and repossessions 257 652 326 195 113
Total non-performing assets $ 8,165 $ 9,606 $ 10,737 $ 8,373 $ 8,227
Ratio of non-performing loans to total loans 0.35 % 0.43 % 0.53 % 0.45 % 0.54 %
Ratio of non-performing assets to total assets 0.30 % 0.35 % 0.40 % 0.32 % 0.34 %
Ratio of allowance for credit losses to non-performing loans 306.13 % 238.87 % 216.28 % 240.39 % 259.17 %
Accruing loans past due 90 days or more (1)
$ 17 $ 23 $ 10 $ 1 $ 4
(1) Not included in non-performing assets above.
Non-performing loans totaled $7.9 million, or 0.35% of total loans, as of December 31, 2025, compared to $9.0 million, or 0.43% of total loans, as of December 31, 2024. Non-performing assets were $8.2 million, or 0.30% of total assets as of December 31, 2025, compared to $9.6 million, or 0.35% of total assets as of December 31, 2024. The decrease in non-performing loans was largely due to the payoff of six nonaccrual commercial real estate loans totaling $1.7 million during the year ended December 31, 2025 and the charge-off of three commercial and industrial loans during the year ended December 31, 2025, mostly in the second quarter, totaling $0.8 million. Additionally, there were $0.8 million in paydowns on other non-performing commercial loans, partially offset by $0.8 million in additions to nonaccrual commercial loans during the year ended December 31, 2025. Non-performing retail loans increased $1.4 million compared to December 31, 2024, driven by $3.9 million in additions to nonaccrual retail loans, partially offset by $1.2 million in net charge-offs and $1.5 million in paydowns during the year ended December 31, 2025.
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 December 31, 2025, the Corporation had ten active loans modified under such terms, totaling $6.3 million, compared to seven loans as of December 31, 2024, totaling $2.1 million. There were four loan modification made to borrowers experiencing financial difficulty during the year ended December 31, 2025; a payment delay on a $3.4 million non-owner occupied commercial real estate loan, a term extension on a $1.0 million non-owner occupied commercial real estate loan, a combination of a payment delay and term extension on a $0.4 million non-owner occupied commercial real estate loan, and a payment delay on a $0.2 million residential mortgage. During the year ended December 31, 2025, a $0.7 million unsecured commercial and industrial loan which had previously been given a six month term extension was fully charged-off. All other modified loans made to borrowers experiencing financial difficulty were performing according to their modified terms as of December 31, 2025.
Allowance for Credit Losses
The allowance for credit losses is an amount that management believes will be adequate to absorb the estimated lifetime credit losses inherent in assets exhibiting credit risk as of the measurement date. The allowance is in conformity with the requirements established by ASC 326 - Financial Instruments - Credit Losses. The allowance for credit losses covers a range of assets including loans, unfunded commitments, and debt securities, incorporating both quantitative and qualitative components. As of December 31, 2025 and 2024, 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 December 31, 2025 totaled $4.2 million, compared to $6.5 million as
of December 31, 2024. 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.
A majority 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 is equal to 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 reasonable, supportable, and readily available economic forecast. The forecasted values are applied over a rolling four quarter period, and revert to the historic mean of the economic variable over an eight quarter period, on a straight-line basis.
Qualitative adjustments represent management's expectation of certain risks not being fully captured in the quantitative portion of the model. Qualitative adjustment rates are applied to each loan within a pool on a consistent basis. Factors considered as part of the qualitative adjustment analysis primarily include economic considerations not captured by the model, changes in conditions within the Bank such as lending standards, personnel, and concentrations of credit, among others, as well as external factors, such as changes in the regulatory and competitive landscape.
The allowance for credit losses is increased through a provision for credit losses, which is charged to operations. Separate provision accounts have been established for on-balance sheet credit exposures and off-balance sheet credit exposures, and are combined in the line item provision for credit losses on the Corporation's Consolidated Statements of Income. Loans are charged against the allowance for credit losses when management believes the collectability of all or a portion of the principal is unlikely. Management's evaluation of the adequacy of the allowance for credit losses is performed on a periodic basis and takes into consideration such factors as the outcomes of the quantitative analysis, a review of individually analyzed loans, and determinations concerning qualitative adjustments. While management uses available information to recognize estimated credit losses, future additions to the allowance may be necessary based on changing economic conditions or portfolio composition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.
The allowance for credit losses was $24.2 million as of December 31, 2025, compared to $21.4 million as of December 31, 2024. The allowance for credit losses was 306.13% of non-performing loans as of December 31, 2025, compared to 238.87% as of December 31, 2024. The ratio of allowance for credit losses on loans to total loans was 1.07% as of December 31, 2025, compared to 1.03% as of December 31, 2024, respectively. Including the allowance for credit losses allocated to unfunded commitments, the ratio of the allowance for credit losses to total loans was 1.09% as of December 31, 2025, compared to 1.07% as of December 31, 2024. The allowance for credit losses on unfunded commitments is included in the line item accrued interest payable and other liabilities in the Consolidated Balance Sheets. The increase in the allowance for credit losses was largely due to the annual review and an update performed on the loss drivers used as the basis for the Bank's CECL model, commercial loan growth, and changes in model inputs such as economic forecasts and prepayment speeds. The overall increase in the allowance for credit losses was partially offset by a decrease in the allowance for credit losses on individually analyzed loans, due to charge-offs on loans which carried specific reserve allocations, as well as a net decrease in qualitative adjustments applied to the Bank's CECL model as of December 31, 2025 compared to December 31, 2024.
Net charge-offs for the year ended December 31, 2025 were $1.9 million compared with net charge-offs of $1.2 million for the year ended December 31, 2024. The ratio of net charge-offs to average loans outstanding was 0.09% for 2025 and 0.06% for 2024. Net charge-offs for the year ended December 31, 2025 were primarily due to $1.1 million in net charge-offs of total consumer loans, which were largely concentrated in indirect auto loans, and $0.8 million in net charge-offs of commercial and industrial loans, which included a $0.7 million charge-off in the second quarter of 2025 on a loan which had previously carried a $0.7 million specific allocation in the allowance for credit losses. Net charge-offs for the year ended December 31, 2024 were primarily due to $1.0 million in net charge-offs of total consumer loans, largely concentrated in indirect auto loans, and $0.2 million in net charge-offs on commercial and industrial loans, comprised of $0.3 million in charge-offs on two loans in the fourth quarter of 2024 and $0.1 million in recoveries of previously charged-off loans throughout the year.
The table below summarizes the Corporation's allowance for credit losses, non-performing loans, and ratio of net charge-offs and recoveries to average loans outstanding by loan category at or for the years ended December 31, 2025 and 2024 (in thousands):
ALLOWANCE AND LOAN CREDIT RATIOS BY LOAN CATEGORY
Balance as of December 31, 2025
Allowance for credit losses
Allowance to loans1
Non-performing loans
Non-performing loans to loans1
Allowance to non-performing loans Net
charge-offs (recoveries) to average loans
Commercial and industrial $ 4,524 1.40 % $ 779 0.24 % 580.74 % 0.26 %
Commercial mortgages 14,363 1.17 % 3,167 0.26 % 453.52 % - %
Residential mortgages 2,788 0.97 % 1,753 0.61 % 159.04 % (0.01) %
Consumer loans 2,534 1.02 % 2,209 0.89 % 114.71 % 0.42 %
Total $ 24,209 1.07 % $ 7,908 0.35 % 306.13 % 0.09 %
(1)Ratio represents a percentage of year end loan balances.
Balance as of December 31, 2024
Allowance for credit losses
Allowance to loans1
Non-performing loans
Non-performing loans to loans1
Allowance to non-performing loans Net
charge-offs (recoveries) to average loans
Commercial and industrial $ 4,520 1.51 % $ 1,534 0.51 % 294.65 % 0.06 %
Commercial mortgages 11,214 0.92 % 4,959 0.41 % 226.13 % - %
Residential mortgages 2,259 0.82 % 1,372 0.50 % 164.65 % (0.01) %
Consumer loans 3,395 1.21 % 1,089 0.39 % 311.75 % 0.35 %
Total $ 21,388 1.03 % $ 8,954 0.43 % 238.87 % 0.06 %
(1)Ratio represents a percentage of year end loan balances.
Consolidated Ratios as of December 31, 2025 2024
Non-performing loans to total loans 0.35 % 0.43 %
Allowance for credit losses on loans to total loans 1.07 % 1.03 %
Allowance for credit losses on loans and unfunded commitments to total loans 1.09 % 1.07 %
Allowance for credit losses to non-performing loans 306.13 % 238.87 %
The increase in the allowance to non-performing loans ratio was primarily due to an increase of 13.2% in the allowance for credit losses, or $2.8 million, between December 31, 2024 and December 31, 2025, as well as a decrease of 11.7% in non-performing loans or $1.0 million. The increase in the allowance for credit losses primarily reflected higher baseline loss rates following the annual review and update of the model's loss drivers, along with additional reserves attributable to growth in the commercial loan portfolio. Under the Corporation's CECL methodology, commercial loan pools generally received higher allocation rates within the allowance for credit losses during 2025. A majority of balances removed from non-performing loans during 2025 due to payoffs or return to accrual status did not have associated specific allocations in the allowance for credit losses. There were $0.8 million in non-performing commercial loan balances which were charged-off during 2025, which had specific allocation of $0.8 million in the allowance for credit losses at the time of charge-off.
The table below summarizes the Corporation's credit loss experience for the years ended December 31, 2025 and 2024 (in thousands, except ratio data):
SUMMARY OF CREDIT LOSS EXPERIENCE
2025 2024
Allowance for credit losses at beginning of year $ 21,388 $ 22,517
Charge-offs:
Commercial and industrial 797 302
Commercial mortgages 6 -
Residential mortgages - 21
Consumer loans 1,653 1,550
Total Charge-Offs 2,456 1,873
Recoveries:
Commercial and industrial 10 128
Commercial mortgages 4 4
Residential mortgages 19 62
Consumer loans 551 519
Total Recoveries 584 713
Net charge-offs 1,872 1,160
Provision for credit losses on-balance sheet exposure(1)
4,693 31
Allowance for credit losses at end of year $ 24,209 $ 21,388
Ratio of net charge-offs during year to average loans outstanding 0.09% 0.06%
Ratio of allowance for credit losses to total loans outstanding 1.07% 1.03%
(1) Additional provision related to off-balance sheet exposure was a credit of $256 thousand for the year ended December 31, 2025 and a credit of $77 thousand for the year ended December 31, 2024.
Other Real Estate Owned and Repossessed Vehicles
As of December 31, 2025, there was no other real estate owned (OREO), compared to $0.4 million as of December 31, 2024. There were no properties added to OREO during 2025, while five properties were sold from OREO during 2025, two relating to residential mortgage loans and three relating to home equity loans, resulting in net gains on sales of OREO of $2 thousand for the year ended December 31, 2025, compared to net losses on sales of OREO of $18 thousand for the year ended December 31, 2024. The Corporation had $0.3 million in repossessed vehicles as of December 31, 2025, which is included in other assets on the Consolidated Balance Sheets, and is a component of non-performing assets, compared to $0.2 million as of December 31, 2024.
Deposits
The table below summarizes the Corporation's deposit composition by segment as of December 31, 2025, and 2024, and the dollar and percent change from December 31, 2024 to December 31, 2025 (in thousands, except percentages):
DEPOSITS
2025 2024
2025 v. 2024
Amount % of Total Amount % of Total $ Change % Change
Non interest-bearing demand deposits $ 624,532 27.5 % $ 625,762 26.1 % $ (1,230) (0.2) %
Interest-bearing demand deposits 326,645 14.4 % 306,536 12.8 % 20,109 6.6 %
Insured money market deposits 601,391 26.5 % 595,123 24.8 % 6,268 1.1 %
Savings deposits 254,490 11.2 % 245,550 10.2 % 8,940 3.6 %
Certificates of deposit $250,000 or less 339,320 14.9 % 401,563 16.8 % (62,243) (15.5) %
Certificates of deposit greater than $250,000 98,714 4.4 % 101,125 4.3 % (2,411) (2.4) %
Brokered deposits - - % 92,159 3.8 % (92,159) (100.0) %
Other time deposits 25,582 1.1 % 29,065 1.2 % (3,483) (12.0) %
Total deposits $ 2,270,674 100.0 % $ 2,396,883 100.0 % $ (126,209) (5.3) %
Deposits totaled $2.271 billion as of December 31, 2025, compared with $2.397 billion as of December 31, 2024, a decrease of $126.2 million, or 5.3%. As of December 31, 2025, demand deposit and insured money market deposits comprised 68.4% of total deposits compared with 63.7% as of December 31, 2024.
The decrease in deposits was attributable to decreases of $92.2 million in brokered deposits, $68.1 million in customer time deposits, and $1.2 million in non interest-bearing demand deposits, primarily due to maturities of previous certificates of deposit campaign offerings, which were not renewed. These decreases were partially offset by increases of $20.1 million in interest-bearing demand deposits, $8.9 million in savings deposits, and $6.3 million in insured money market deposits.
The table below summarizes the Corporation's deposit composition by customer as of December 31, 2025, and 2024 (in thousands, except percentages):
2025 2024
Amount % of Total Amount % of Total
Consumer $ 1,074,704 47.3 % $ 1,076,371 44.9 %
Commercial 708,092 31.2 % 695,505 29.0 %
Public 161,384 7.1 % 145,573 6.1 %
Brokered - - % 92,159 3.8 %
ICS/CDARs 326,494 14.4 % 387,275 16.2 %
Total deposits $ 2,270,674 100.0 % $ 2,396,883 100.0 %
As of December 31, 2025, public funds deposits, excluding public deposits from ICS/CDARs, totaled $161.4 million, compared with $145.6 million as of December 31, 2024. The Corporation has developed a program for the retention and management of public funds deposits. These deposits are from public entities, such as school districts and municipalities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds deposits generally increase at the end of the first and third quarters. Public funds deposit accounts above the FDIC insured limit are collateralized by municipal bonds and eligible government and government agency securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.
The table below summarizes the Corporation's public funds deposit composition, excluding public deposits from ICS/CDARs, by segment (in thousands, except percentages) as of December 31, 2025 and 2024:
Public Funds:
2025 2024
Non interest-bearing demand deposits $ 7,924 $ 14,673
Interest-bearing demand deposits 69,621 58,187
Insured money market deposits 55,683 54,319
Savings deposits 19,346 11,263
Time deposits 8,810 7,131
Total public funds $ 161,384 $ 145,573
Total deposits $ 2,270,674 $ 2,396,883
Percentage of public funds to total deposits 7.1 % 6.1 %
The aggregate amount of the Corporation's outstanding uninsured deposits was $682.5 million, or 30.1% of total deposits, and $652.3 million, or 27.2% of total deposits, as of December 31, 2025 and 2024, respectively. As of December 31, 2025, the aggregate amount of the Corporation's outstanding certificates of deposit in amounts greater than $250,000 was $98.7 million. The table below presents the Corporation's scheduled maturity of those certificates as of December 31, 2025 (in thousands):
Maturities
3 months or less $ 49,855
Over 3 through 6 months 42,543
Over 6 through 12 months 5,427
Over 12 months 889
Total $ 98,714
The table below presents the Corporation's deposits balance by bank division (in thousands):
DEPOSITS BY DIVISION
December 31,
2025 2024 2023 2022 2021
Chemung Canal Trust Company* $ 1,857,387 $ 1,984,387 $ 2,042,679 $ 1,889,018 $ 1,738,015
Capital Bank Division 363,745 399,411 380,962 435,207 415,607
Canal Bank Division 49,542 13,085 5,786 3,002 1,811
Total deposits $ 2,270,674 $ 2,396,883 $ 2,429,427 $ 2,327,227 $ 2,155,433
*All deposits, excluding those originated by the Capital Bank and Canal Bank Divisions, and including brokered deposits.
In addition to consumer, commercial and public deposits, other sources of funds include brokered 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 Program allows the Corporation to obtain wholesale brokered deposits through the system. Deposits placed in the CDARS and ICS programs were $326.5 million and $387.3 million as of December 31, 2025 and 2024, respectively. Brokered deposits, which include funds obtained through brokers or the CDARS and ICS one-way buy programs, were $92.2 million as of December 31, 2024. The Corporation had no brokered deposits as of December 31, 2025.
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 novobranching, (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 uses brokered deposits as a secondary source of funding to support growth.
Information regarding deposits is included in Note 8 to the audited Consolidated Financial Statements appearing elsewhere in this report.
Borrowings
FHLBNY overnight advances were $87.1 million and $109.1 million as of December 31, 2025 and 2024, respectively, a decrease of $22.0 million as of December 31, 2025, compared to December 31, 2024. For each year ended December 31, 2025, and 2024 respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity. There were no FHLBNY or FRB term advances as of December 31, 2025, and 2024.
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. The subordinated notes were $44.0 million as of December 31, 2025.
Information regarding FHLBNY advances and the Corporation's subordinated notes are included in Note 9 of the audited Consolidated Financial Statements appearing elsewhere in this report. There were no securities sold under agreements to repurchase as of and for the years ended December 31, 2025, or 2024.
Derivatives
The Corporation offers interest rate swap agreements to qualified commercial lending customers, which allow customers to effectively fix the interest rate on variable rate loans by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Corporation enters into a mirroring agreement with an unrelated counterparty, a Domestic Systemically Important Bank (D-SIB), which allows the Corporation to continue receiving the variable rate under its loan agreement with the customer. Agreements with the unrelated counterparty are not designated as hedge contracts. Additionally, the agreements, as free-standing derivatives, are recorded at fair value in the Corporation's Consolidated Balance Sheets, which typically involves a day one gain. Since the terms of mirroring interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and a valuation allowance for potential credit loss exposure, in the event of nonperformance. The Corporation recognized $0.5 million and $0.3 million in swap income for the years ended December 31, 2025 and 2024, respectively.
The Corporation also participates in the credit exposure of certain interest rate swaps of lead banks in which it is a participant in the related commercial loan. The Corporation receives an upfront fee for participating in the credit exposure of these interest rate swaps and immediately recognizes the fee as other non-interest income. The Corporation is exposed to its share of the credit loss equal to the fair value of the derivatives in the event of nonperformance by the counterparty to the lead bank's interest rate swap. The Corporation determines the fair value of the credit loss exposure using historical loss experience for the loan category associated with the exposure.
Information regarding derivatives is included in Note 11 to the audited Consolidated Financial Statements appearing elsewhere in this report.
Shareholders' Equity
Total shareholders' equity was $254.7 million as of December 31, 2025, compared with $215.3 million as of December 31, 2024, an increase of $39.4 million, or 18.3%. The increase in shareholders' equity was due primarily to a decrease of $29.0 million in accumulated other comprehensive loss and an increase of $8.8 million in retained earnings. The decrease in accumulated other comprehensive loss was mainly due to an increase in the fair value of available for sale securities due to favorable changes in market interest rates, as well as a portion of accumulated other comprehensive loss being reclassified into current period earnings as a result of the Corporation's sales of available for sale securities in the second quarter of 2025. The increase in retained earnings was largely due to net income of $15.1 million, inclusive of a $13.2 million net loss on sales of available for sale securities in the second quarter of 2025, offset by $6.3 million in dividends declared during the year ended December 31, 2025. Total shareholders' equity to total assets ratio was 9.40% as of December 31, 2025 compared with 7.76% as of December 31, 2024. Tangible equity to tangible assets ratio was 8.66% as of December 31, 2025, compared with 7.02% as of December 31, 2024. See the GAAP to Non-GAAP reconciliation on pages 68-70.
The Bank is subject to the capital adequacy guidelines of the Federal Reserve, which establish a framework for the classification of financial institutions into five categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. As of December 31, 2025, the Bank's capital ratios were in excess of those required to be considered well capitalized under regulatory capital guidelines. A comparison of the Bank's actual capital ratios to the ratios required to be adequately or well capitalized as of December 31, 2025 and 2024, is included in Footnote 19 to the Consolidated Financial Statements included in Part IV, Item 15 of this Annual Report on Form 10-K. For more information regarding current capital regulations see Part I-"Business-Supervision and Regulation-Regulatory Capital Requirements."
Cash dividends declared during 2025 totaled $6.3 million, or $1.32 per share, while cash dividends declared during 2024 totaled $5.9 million, or $1.24 per share. Dividends declared during 2025 amounted to 41.88% of net income compared to 24.91% of net income for 2024. The increase in the dividend payout ratio for the year ended December 31, 2025 compared to the prior year was largely due to the loss recognized on the Corporation's sales of available for sale securities in the second quarter of 2025. Management seeks to continue generating sufficient capital internally, while continuing to pay dividends to the Corporation's shareholders.
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 announced that the 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. As of December 31, 2025, 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. The remaining buyback authority under the share repurchase program was 200,816 shares as of December 31, 2025.
On June 22, 2023, the Corporation filed with the SEC a Form S-3 Registration Statement under the Securities Act of 1933. The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $75 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities. The SEC declared the registration statement effective on July 13, 2023.
Liquidity
Liquidity management involves the ability to meet the cash flow requirements of deposit clients, borrowers, and the operating, investing, and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs. These may include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits greater than $250,000, brokered deposits, FHLBNY overnight and term advances, FRB advances, and securities sold under agreements to repurchase. 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 $682.5 million as of December 31, 2025, or 30.1% of total deposits, including $161.4 million of municipal deposits collateralized by pledged assets, when required. As of December 31, 2024, uninsured deposits totaled $652.3 million, or 27.2% of total deposits, including $145.6 million of municipal deposits collateralized by pledged assets when required. 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 increase in the ratio of uninsured deposits to total deposits as of December 31, 2025 compared to December 31, 2024 was largely due to a decrease in total brokered deposits as of December 31, 2025 compared to December 31, 2024.
As of December 31, 2025, the Corporation's cash and cash equivalents balance was $50.1 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of agency mortgage-backed securities, collateralized mortgage obligations, corporate bonds, and municipal 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 December 31, 2025, the Corporation's investment in securities available for sale was $280.6 million, $102.4 million of which was not pledged as collateral.
The Bank is a member of the FHLBNY, which allows it to access borrowings to enhance management's ability to satisfy future liquidity needs. The Bank has pledged $255.1 million and $244.6 million of residential mortgage loans and home equity loans under a blanket lien arrangement as collateral for future borrowings, as of December 31, 2025 and 2024, respectively.
The below table summarizes the Corporation's total sources of liquidity as of December 31, 2025 and 2024 (in millions):
2025 2024
Total Available Outstanding Remaining Available Total Available Outstanding Remaining Available
FHLB advances $ 178.5 $ 87.1 $ 91.4 $ 221.1 $ 109.1 $ 112.0
Correspondent bank line of credit 65.0 - 65.0 75.0 - 75.0
Brokered deposits (1)
271.0 - 271.0 277.6 92.2 185.4
Unencumbered securities 102.4 - 102.4 349.9 - 349.9
Total sources of liquidity $ 616.9 $ 87.1 $ 529.8 $ 923.6 $ 201.3 $ 722.3
(1) Total available based on the Corporation's internal limit.
Consolidated Cash Flows Analysis
The table below summarizes the Corporation's cash flows on a direct basis, for the years indicated (in thousands):
CONSOLIDATED SUMMARY OF CASH FLOWS
Years Ended December 31,
(in thousands) 2025 2024
Net cash provided by operating activities $ 45,499 $ 29,815
Net cash provided (used in) by investing activities 68,320 (57,723)
Net cash provided (used in) by financing activities (110,757) 38,096
Net increase (decrease) in cash and cash equivalents $ 3,062 $ 10,188
Operating activities
The Corporation believes cash flows from operations, available cash balances, and its ability to generate cash through borrowings are sufficient to fund the Corporation's operating liquidity needs. Cash provided by operating activities in the years ended December 31, 2025 and 2024 predominantly resulted from net income after non-cash operating adjustments.
Investing activities
Cash provided by investing activities during the year ended December 31, 2025 largely resulted from proceeds from the Corporation's sales of available for sale securities, totaling $227.3 million, as well as proceeds from normal paydown activity and maturities of available for sale securities, partially offset by a net increase in loans. Cash used in investing activities during the year ended December 31, 2024 was largely due to a net increase in loans, partially offset by proceeds from paydown activity and maturities of available for sale securities.
Financing activities
Cash used in financing activities during the year ended December 31, 2025 primarily resulted from a net decrease in total deposits, due to decreases in brokered deposits and customer time deposits, as well as a net decrease in total FHLBNY advances, partially offset by the issuance of $45.0 million in subordinated debt during the second quarter of 2025. Cash provided by financing activities during the year ended December 31, 2024 was largely due to a net increase in total FHLBNY advances, partially offset by a net decrease in deposits other than time deposits.
Off-balance Sheet Arrangements
In the normal course of operations, the Corporation engages in a variety of financial transactions that, in accordance with GAAP, are not recorded in the financial statements. The Corporation is also a party to certain financial instruments with off balance sheet risk such as commitments under standby letters of credit, unused portions of lines of credit, commitments to fund new loans, interest rate swaps, and risk participation agreements. The Corporation's policy is to record such instruments when funded. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk. Such transactions are generally used by the Corporation to manage clients' requests for funding and other client needs.
The table below shows the Corporation's off-balance sheet arrangements as of December 31, 2025 (in thousands):
COMMITMENT MATURITY BY PERIOD
Total 2026 2027-2028 2029-2030 2031 and thereafter
Standby letters of credit $ 18,952 $ 13,960 $ 3,518 $ 1,454 $ 20
Unused portions of lines of credit (1)
292,376 292,376 - - -
Commitments to fund new loans (2)
76,064 76,064 - - -
Total $ 387,392 $ 382,400 $ 3,518 $ 1,454 $ 20
(1) Not included in this total are unused portions of home equity lines of credit, credit card lines, and consumer overdraft protection lines of credit, since no contractual maturity dates exist for these types of loans. Commitments to outside parties under these lines of credit were $92.4 million, $16.3 million, and $9.0 million, respectively, as of December 31, 2025.
(2)Includes commercial construction draw notes which may include draw periods scheduled to extend beyond December 31, 2026.
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 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 computing 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% for institutions under $10 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. As of December 31, 2025 the Bank has not elected to use the community bank leverage ratio.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, under capitalized, significantly under capitalized, and critically under capitalized, 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 December 31, 2025 and December 31, 2024, the Corporation and Bank met all capital adequacy requirements to which they were subject. As of December 31, 2025, the Corporation is not 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 December 31, 2025, 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. There have been no conditions or events since that notification that management believes have changed the Bank's capital category. Additionally, the Bank exceeded the capital conservation buffer above the adequately capitalized risk-based capital ratios, as of December 31, 2025.
The regulatory capital ratios as of December 31, 2025 and 2024 were calculated under Basel III rules. There is no threshold for well capitalized status for bank holding companies. Refer to Note 19 of the audited Consolidated Financial Statements appearing elsewhere in this report for a table summarizing the Corporation's and the Bank's actual and required regulatory capital ratios. For more information regarding current capital regulations see Part I-"Business-Supervision and Regulation-Regulatory Capital Requirements."
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 the current year's net income, combined with the retained net income of the preceding two years. As of December 31, 2025, the Bank could, without prior approval, declare dividends of approximately $51.0 million.
Adoption of New Accounting Standards
For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Corporation's audited Consolidated Financial Statements which begins on page F-10.
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 F-4 through F-9. That presentation provides the reader with an understanding of the Corporation's results that can be tracked consistently from year-to-year and enables a comparison of the Corporation's performance with other companies' GAAP financial statements.
In addition to analyzing the Corporation's results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.
The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain "non-GAAP financial measures." Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation's reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of "non-GAAP financial measures" certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required. The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules, although we are unable to state with certainty that the SEC would so regard them.
Fully Taxable Equivalent Net Interest Income and Net Interest Margin
Net interest income is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of other institutions or in analyzing any institution's net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution's performance over time. The Corporation follows these practices.
(in thousands, except ratio data) As of or for the Years Ended December 31,
Net Interest Margin - Fully Taxable Equivalent
2025 2024
Net interest income (GAAP) $ 87,157 $ 74,059
Fully taxable equivalent adjustment 293 336
Fully taxable equivalent net interest income (non-GAAP) $ 87,450 $ 74,395
Average interest-earning assets (GAAP) $ 2,680,133 $ 2,698,148
Net interest margin - fully taxable equivalent (non-GAAP) 3.26 % 2.76 %
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. This measure is meaningful to the Corporation, as well as 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) As of or for the Years Ended December 31,
Efficiency Ratio 2025 2024
Net interest income (GAAP) $ 87,157 $ 74,059
Fully taxable equivalent adjustment 293 336
Fully taxable equivalent net interest income (non-GAAP) $ 87,450 $ 74,395
Non-interest income (GAAP) $ 7,945 $ 23,230
Less: net (gains) losses on securities transactions 17,498 -
Less: (gain) loss on sale of branch property (629) -
Adjusted non-interest income (non-GAAP) $ 24,814 $ 23,230
Non-interest expense (GAAP) $ 70,729 $ 67,250
Efficiency ratio (unadjusted) 74.37 % 69.12 %
Efficiency ratio (adjusted) 63.00 % 68.89 %
Tangible Equity and Tangible Assets (Year-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 intangible assets. Tangible assets represents the Corporation's total assets, less goodwill and other intangible assets. Tangible book value per share represents the Corporation's tangible equity divided by common shares at year-end. These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation's use of equity.
(in thousands, except per share and ratio data) As of or for the Years Ended December 31,
Tangible Equity and Tangible Assets (Year End) 2025 2024
Total shareholders' equity (GAAP) $ 254,709 $ 215,309
Less: intangible assets (21,824) (21,824)
Tangible equity (non-GAAP) $ 232,885 $ 193,485
Total assets (GAAP) $ 2,710,235 $ 2,776,147
Less: intangible assets (21,824) (21,824)
Tangible assets (non-GAAP) $ 2,688,411 $ 2,754,323
Total equity to total assets at end of year (GAAP) 9.40 % 7.76 %
Book value per share (GAAP) $ 52.97 $ 45.13
Tangible equity to tangible assets at end of year (non-GAAP) 8.66 % 7.02 %
Tangible book value per share (non-GAAP) $ 48.43 $ 40.55
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 intangible assets for the year. 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 investors and analysts, in assessing the Corporation's use of equity.
(in thousands, except ratio data) As of or for the Years Ended December 31,
Tangible Equity (Average) 2025 2024
Total average shareholders' equity (GAAP) $ 236,122 $ 205,280
Less: average intangible assets (21,824) (21,824)
Average tangible equity (non-GAAP) $ 214,298 $ 183,456
Return on average equity (GAAP) 6.40 % 11.53 %
Return on average tangible equity (non-GAAP) 7.05 % 12.90 %
Adjustments for Certain Items of Income or Expense
In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROAA, and ROAE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, 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 year 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) As of or for the Years Ended December 31,
Non-GAAP Net Income 2025 2024
Reported net income (GAAP) $ 15,104 $ 23,671
Net (gains) losses on securities transactions (net of tax) 13,237 -
Net (gain) loss on sale of branch property (net of tax) (463) -
Net income (non-GAAP) $ 27,878 $ 23,671
Average basic and diluted shares outstanding 4,804 4,770
Reported basic and diluted earnings per share (GAAP) $ 3.14 $ 4.96
Reported return on average assets (GAAP) 0.55 % 0.86 %
Reported return on average equity (GAAP) 6.40 % 11.53 %
Basic and diluted earnings per share (non-GAAP) $ 5.80 $ 4.96
Return on average assets (non-GAAP) 1.02 % 0.86 %
Return on average equity (non-GAAP) 11.81 % 11.53 %
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