CHEMUNG FINANCIAL CORP

Previous wording

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2025. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2024 Annual Report on Form 10-K, which was filed with the SEC on March 14, 2025, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3–5.

Current wording

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2025. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2024 Annual Report on Form 10-K, which was filed with the SEC on March 14, 2025, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3–5.

Previous wording

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncerta inties, see Forward-looking Statements below, in Part I, Item 1A, Risk Factors, and on pages 20–31 of the Corporation’s 2024 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 64-67 of the Corporation's 2024 Form 10-K, and pages 82-85 in this Form 10-Q.

Current wording

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncerta inties, see Forward-looking Statements below, in Part I, Item 1A, Risk Factors, and on pages 20–31 of the Corporation’s 2024 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 64-67 of the Corporation's 2024 Form 10-K, and pages 79-81 in this Form 10-Q.

Previous wording

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 judgement 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.

Current wording

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.

Previous wording

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

Current wording

Because the Corporation's methodology for maintaining its allowance for credit losses is based on historical experience and trends, current economic information, forecasted data, and management's judgment, a range of estimates for the 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.

Previous wording

As of June 30, 2025 and December 31, 2024, the allowance for credit losses totaled $22.7 million and $21.4 million, respectively. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, to both commercial real estate and commercial and industrial loans. As of June 30, 2025 and December 31, 2024, the allowance for credit losses allocated to the total commercial portfolio was $17.2 million and $15.7 million, respectively, or 76.1% and 73.6% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 74.7% and 73.2% of total loan balances as of June 30, 2025 and December 31, 2024, respectively. Given the concentration of the allowance for credit losses allocated to the commercial portfolio, and the significant judgments made by management to derive its estimates, management analyzes risks distinctive to commercial lending with a high degree of scrutiny.

Current wording

As of September 30, 2025 and December 31, 2024, the allowance for credit losses totaled $23.6 million and $21.4 million, respectively. A significant portion of the allowance for credit losses is allocated to the commercial portfolio, to both commercial real estate and commercial and industrial loans. As of September 30, 2025 and December 31, 2024, the allowance for credit losses allocated to the total commercial portfolio was $18.3 million and $15.7 million, respectively, or 77.5% and 73.6% of the total allowance for credit losses on loans. For comparison, total commercial loans represented 75.9% and 73.2% of total loan balances as of September 30, 2025 and December 31, 2024, respectively. Given the concentration of the allowance for credit losses allocated to the commercial portfolio, and the significant judgments made by management to derive its estimates, management analyzes risks distinctive to commercial lending with a high degree of scrutiny.

Previous wording

Changes in the FOMC's median forecasted U.S. civilian unemployment rate and year over year change in U.S GDP could have a material impact on the model's estimation of the allowance. Currently, most pools utilize the FOMC's projections for unemployment as a loss driver, while the commercial and industrial, consumer, and other loans loan pools utilize the FOMC's projections for U.S. GDP growth. Segmentation and attributes of loan pools are defined in Note 1 – Summary of Significant Accounting Policies to the Audited Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024. FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy, and considering all currently available information. An immediate "shock" or increase of 100 basis points in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 50 basis points in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $0.8 million, or 3.6%, to $23.5 million as of June 30, 2025, assuming qualitative adjustments were kept at current levels.

Current wording

Changes in the FOMC's median forecasted U.S. civilian unemployment rate and year over year change in U.S GDP could have a material impact on the model's estimation of the allowance. Currently, most pools utilize the FOMC's projections for unemployment as a loss driver, while the commercial and industrial, consumer, and other loans loan pools utilize the FOMC's projections for U.S. GDP growth as a loss driver. Segmentation and attributes of loan pools are defined in Note 1 – Summary of Significant Accounting Policies to the Audited Consolidated Financial Statements in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2024. FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy, and considering all currently available information. An immediate "shock" or increase of 100 basis points in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 50 basis points in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $1.5 million, or 6.2%, to $25.1 million as of September 30, 2025, assuming qualitative adjustments were kept at current levels.

Previous wording

While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgement of factors as of June 30, 2025, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

Current wording

While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgment of factors as of September 30, 2025, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

Previous wording

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation, and therefore facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 82-85 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Current wording

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation, and therefore facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 79-81 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Previous wording

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2025 and 2024. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 49-50 of this Form 10-Q and page 37 of the Corporation’s 2024 Form 10-K.

Current wording

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2025 and 2024. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 46-47 of this Form 10-Q and page 37 of the Corporation’s 2024 Form 10-K.

Previous wording

The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data) adjusted for nonrecurring items (refer to the GAAP to Non-GAAP reconciliations, pages 82-85, for further information):

Current wording

The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data) adjusted for nonrecurring items (refer to the GAAP to Non-GAAP reconciliations, pages 79-81, for further information):

Previous wording

(1)Adjusted for the $17.5 million loss on sale of securities available for sale and $0.6 million gain on sale of previous branch property.

Current wording

(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.

Previous wording

(2)Adjusted for tax impact of loss on sale of securities available for sale and gain on sale of previous branch property.

Current wording

(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.

Previous wording

The Corporation reported a net loss for the second quarter of 2025 of $6.5 million, or a net loss of $1.35 per share, compared to net income of $5.0 million, or $1.05 per share, for the same period in the prior year, anda net loss for the six months ended June 30, 2025 of $0.4 million, or a net loss of $0.09 per share, compared to net income of $12.0 million, or $2.53 per share, for the same period in the prior year. The decrease in net income for the three andsix month periods ended June 30, 2025 was attributable to a decrease in non-interest income and increases in non-interest expense and provision for credit losses, offset by an increase in net interest income and a decrease in income tax expense. Return on average equity for the current quarter was (11.29)%, compared to 10.27% for the same period in the prior year. Return on average equity for the six months ended June 30, 2025 was(0.38)%, compared to 12.37%for the same period in the prior year.

Current wording

Net income for thenine months ended September 30, 2025 was$7.4 million, or $1.53 per share, compared to$17.8 million, or$3.72 per share, for the same period in the prior year. Return on average equity for the nine months ended September 30, 2025 was 4.27%, compared to 11.82%for the same period in the prior year. The decrease in net income for the nine months ended September 30, 2025 was primarily attributable to a decrease in non-interest income, and increases in the provision for credit losses and non-interest expense, offset by an increase in net interest income and a decrease in income tax expense.

Previous wording

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 three andsix month periods ended June 30, 2025 was $6.3 million, or $1.31 per share, and $12.3 million, or $2.57 per share, respectively. Non-GAAP net income as presented in the MD&A has been adjusted for these two items. Refer to the GAAP to Non-GAAP reconciliations, on pages 82-85, for further information. Adjusted return on average equity for the current quarter was 11.07%, compared to 10.27% for the same period in the prior year. Adjusted return on average equity for the six months ended June 30, 2025 was 11.02%, compared to 12.37% for the same period in the prior year.

Current wording

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 thenine month period ended September 30, 2025 was $20.1 million, or $4.19 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 79-81, for further information. Adjusted return on average equity for the nine months ended September 30, 2025 was 11.67%, compared to 11.82% for the same period in the prior year.

Previous wording

Net interest income for the second quarter of 2025 increased $3.0 million, or 17.2%, to $20.8 million compared to the same period in the prior year, due primarily to increases of $1.9 million in interest income on loans and $0.5 million in interest income on interest-earning deposits, and a decrease of $1.6 million in interest expense on deposits, partially offset by a decrease of $0.7 million in interest and dividend income on taxable securities.

Current wording

Net interest income for the third quarter of 2025 increased $4.3 million, or 23.4%, to $22.7 million compared to the same period in the prior year, due primarily to increases of $2.4 million in interest income on loans and $0.7 million in interest income on interest-earning deposits, and a decrease of $2.8 million in interest expense on deposits, partially offset by a decrease of $1.4 million in interest and dividend income on taxable securities.

Previous wording

Interest income on loans, including fees, increased to $29.4 million for the three months ended June 30, 2025, from $27.5 million for the same period in the prior year. Interest income on loans increased largely due to an increase of $98.7 million in average balances of total loans compared to the same period in the prior year, as well as an increase of nine basis points in the average yield on total loans compared to the same period in the prior year. The increase in average balances of total loans was concentrated in the commercial loan portfolio, which grew by $129.2 million compared to the same period in the prior year, largely comprised of growth within the commercial real estate portfolio, particularly in the Bank's Capital region and Western New York markets. The average yield on commercial loans decreased one basis point compared to the same period in the prior year, largely due to declines in benchmark interest rates on existing loans and the lower market interest rate environment on new originations.

Current wording

Interest income on loans, including fees, increased to $31.0 million for the three months ended September 30, 2025, from $28.6 million for the same period in the prior year. Interest income on loans increased largely due to an increase of $151.4 million in average balances of total loans compared to the same period in the prior year, as well as an increase of three basis points in the average yield on total loans compared to the same period in the prior year. The increase in average balances of total loans was concentrated in commercial loans, which increased $183.3 million compared to the same period in the prior year, largely comprised of growth in commercial real estate loans, particularly in the Corporation's Capital region and Western New York markets. The average yield on commercial loans decreased seven basis points compared to the same period in the prior year, largely due to declines in benchmark interest rates on existing variable rate loans, the lower market interest rate environment for new originations, and $0.2 million in interest income recognized on the payoff of a nonaccrual commercial real estate loan in the third quarter of 2024.

Previous wording

Average balances of residential mortgage loans increased $2.9 million and the average yield on residential mortgage loans increased 37 basis points, each compared to the same period in the prior year. Mortgage loan origination activity increased in the first half of 2025 compared to the same period in the prior year, however overall origination volumes continue to trail levels experienced in recent years. The increase in the average yield on residential mortgages was partially driven by a shift in portfolio composition toward variable rate and construction-to-permanent mortgages, which are currently higher-yielding than fixed rate mortgages. Average balances of consumer loans decreased $33.3 million while the average yield on consumer loans increased 25 basis points, each compared to the same period in the prior year. The decrease in average balances was mainly due to a decrease in indirect auto origination activity, and normal portfolio turnover, as the Bank prioritized funding other types of lending over the past twelve month period. The increase in the average yield on consumer loans was primarily due to portfolio turnover in the indirect auto portfolio as older, lower-yielding balances were replaced by higher-yielding balances.

Current wording

Average balances of residential mortgage loans increased $4.3 million and the average yield on residential mortgage loans increased 41 basis points, each compared to the same period in the prior year. The increase in average balances of residential mortgage loans was largely due to stronger origination activity year-to-date in 2025 compared to the same period in the prior year, however originations remain below typical historical levels. The increase in the average yield on residential mortgage loans was largely due to the higher interest rate environment resulting in origination yields which exceed the portfolio's average yield, as well as the recognition of interest income on the payoff of a previously nonaccrual loan and deferred fee income on early payoffs during the current period. Average balances of consumer loans decreased $36.2 million, while the average yield on consumer loans increased five basis points compared to the same period in the prior year. The decrease in average balances was largely due to normal portfolio turnover and lower origination activity in the indirect auto portfolio segment, as the Corporation has continued prioritizing funding other types of lending during the past year, and the increase in the average yield on consumer loans was primarily due to portfolio turnover in the indirect auto portfolio as older, lower-yielding balances were replaced by higher-yielding balances. The increase in average yield on consumer loans was 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, over the past year on variable rate home equity loans and lines.

Previous wording

Interest income on interest-earning deposits increased to $0.9 million for the three months ended June 30, 2025, from $0.4 million for the same period in the prior year. Interest income on interest-earning deposits increased mainly due to an increase of $45.9 million in average balances of interest-earning deposits, despite a decrease of 42 basis points in the average yield on interest-earning deposits, each compared to the same period in the prior year. The increase in average balances was largely due to proceeds from the Corporation's sale of available for sale securities in the second quarter of 2025 being held as deposits at the FRBNY in advance of $155.0 million in wholesale funding maturing early in the third quarter of 2025. The decrease in the average yield on interest-earning deposits was largely due to a decrease in the Federal Funds Target Range Upper Limit of 100 basis points between the second quarter of 2024 and second quarter of 2025. Deposits held at the FRBNY receive interest at a rate 10 basis points below the Federal Funds Target Range Upper Limit.

Current wording

Interest income on interest-earning deposits increased to $1.1 million for the three months ended September 30, 2025, from $0.4 million for the same period in the prior year. Interest income on interest-earning deposits increased largely due to an increase of $64.3 million in average balances of interest-earning deposits, despite a decrease of 50 basis points in the average yield on interest-earning deposits, each compared to the same period in the prior year. Average balances of interest-earning deposits increased primarily due to proceeds from the Corporation's sale of available for sale securities and issuance of subordinated debt in the second quarter of 2025, net of payoffs of wholesale funding sources in the third quarter of 2025 and funding of commercial loan growth. The decrease in the average yield on interest-earning deposits was largely due to a decrease in the Federal Funds Target Range Upper Limit of 125 basis points between the third quarter of 2024 and third quarter of 2025. Deposits held at the FRBNY receive interest at a rate of 10 basis points below the Federal Funds Target Range Upper Limit.

Previous wording

Interest expense on deposits decreased to $11.1 million for the three months ended June 30, 2025, from $12.7 million for the same period in the prior year. Interest expense on deposits decreased primarily due to a decrease of 79 basis points in the average cost of customer time deposits, as well as a decrease of 106 basis points in the average cost of brokered deposits, each compared to the same period in the prior year, resulting in a decrease of 83 basis points in the average cost of total time deposits. The decrease in the average cost of customer time deposits was largely due to changes in offered terms on CD campaigns, including a shift towards shorter duration products, while the decrease in the average cost of brokered deposits was largely due to the declining market interest rate environment, which the Corporation was able to take advantage of by primarily utilizing brokered deposits with original durations of three months or less. Average balances of customer time deposits comprised 21.3% of total average deposits for the second quarter of 2025, compared to 21.9% for the second quarter of 2024. Also contributing to the decrease in interest expense on deposits were decreases of 28 basis points and seven basis points in the average cost of interest-bearing demand deposits and savings and money market deposits, respectively, compared to the same period in the prior year. Combined, these decreases resulted in a decrease of 41 basis points in the total average cost of interest-bearing deposits compared to the same period in the prior year, from 2.86% in the second quarter of 2024 to 2.45% in the second quarter of 2025. The deposit beta on total deposits was 28% between these two periods.

Current wording

Interest expense on deposits decreased to $10.2 million for the three months ended September 30, 2025, from $13.0 million for the same period in the prior year. Interest expense on deposits decreased mainly due to decreases of $58.7 million in average balances of brokered deposits and $47.0 million in average balances of customer time deposits, as well as decreases of 104 and 88 basis points in the average cost of brokered deposits and customer time deposits, respectively, compared to the same period in the prior year. Average balances of brokered deposits decreased due to the Corporation's payoff of all outstanding balances of brokered deposits during July 2025 as part of its balance sheet repositioning efforts. The decrease in the average cost of brokered deposits compared to the same period in the prior year was largely due to the declining interest rate environment, which the Corporation benefited from by largely utilizing brokered deposits with terms of three months or less. Average balances and the average cost of customer time deposits each decreased largely due to changes in the Corporation's promotional CD campaign offerings over the past year, including a shift in strategic focus beginning in 2024 toward shorter-term offerings to take advantage of the declining interest rate environment. Average balances of customer time deposits decreased to 21.7% of total average deposits in the third quarter of 2025 from 23.0% in the third quarter of 2024.

Previous wording

Interest income of taxable securities decreased to $2.5 million for the three months ended June 30, 2025, from $3.3 million for the same period in the prior year. Interest income on taxable securities decreased largely due to a decrease of $86.6 million in average balances of taxable securities, as well as a decrease of 21 basis points in the average yield on taxable securities, both compared to the same period in the prior year. The decrease in average balances was mainly attributable to $57.2 million in paydowns and maturities of available for sale securities between the second quarters of 2024 and 2025, as well as $244.8 million in sales of available for sale securities during the second quarter of 2025 as part of the Corporation's balance sheet repositioning efforts. The decrease in the average yield on taxable securities was mainly attributable to decreases in interest rates earned on variable rate securities such as SBA pooled-loan securities between the second quarters of 2024 and 2025, as well as the average yield of securities sold in the second quarter 2025 being higher than the overall average yield on the portfolio at the time of the sale.

Current wording

Interest income on taxable securities decreased to $1.7 million for the three months ended September 30, 2025, from $3.1 million for the same period in the prior year. Interest income on taxable securities decreased largely due to a decrease of $271.3 million in average balances of taxable securities, as well as a decrease of four basis points in the average yield on taxable securities, both compared to the same period in the prior year. The decrease in average balances was mainly attributable to $244.8 million in sales of available for sale securities during the second quarter of 2025 as part of the Corporation's balance sheet repositioning efforts and normal paydown activity between the third quarters of 2024 and 2025. The decrease in the average yield on taxable securities was primarily due to the average yield of securities sold in the second quarter of 2025 being higher than the overall average yield on the portfolio at the time of the sale.

Previous wording

Fully taxable equivalent net interest margin was 3.05% for the second quarter of 2025, compared to 2.66% for the same period in the prior year. Average interest-earning assets increased $50.5 million for the three months ended June 30, 2025, while average interest-bearing liabilities increased $45.8 million, compared to the same period in the prior year. The average yield on interest-earning assets increased 14 basis points to 4.83%, while the average cost ofinterest-bearing liabilities decreased 37 basis points to 2.57%, for the three months ended June 30, 2025, compared to the same period in the prior year. Total cost of funds was 1.94%for the three months ended June 30, 2025, compared to 2.20% for the same period in the prior year, a decrease of 26 basis points.

Current wording

Fully taxable equivalent net interest margin was 3.45% for the third quarter of 2025, compared to 2.72% for the same period in the prior year. Average interest-earning assets decreased $82.3 million for the three months ended September 30, 2025, while average interest-bearing liabilities decreased $104.7 million, compared to the same period in the prior year. The average yield on interest-earning assets increased 37 basis points to 5.15%, while the average cost ofinterest-bearing liabilities decreased 46 basis points to 2.51%, for the three months ended September 30, 2025, compared to the same period in the prior year. Total cost of funds was 1.85%for the three months ended September 30, 2025, compared to 2.24% for the same period in the prior year, a decrease of 39 basis points.

Previous wording

Net interest income for the six months ended June 30, 2025 totaled $40.6 million compared to $35.9 million for the same period in the prior year, an increase of $4.8 million, or 13.3%, due to a decrease of $2.6 million in interest expense and an increase of $2.1 million in interest and dividend income. The decrease in interest expense for the first six months of 2025 was primarily attributed to a decrease of $2.6 million in interest expense on deposits. The increase in interest and dividend income for the first six months of 2025 was primarily attributed to increases of $2.8 million in interest income on loans, including fees and $0.6 million in interest income on interest-earning deposits, partially offset by a decrease of $1.3 million in interest and dividend income on taxable securities.

Current wording

Net interest income for the nine months ended September 30, 2025 totaled $63.3 million compared to $54.2 million for the same period in the prior year, an increase of $9.1 million, or 16.7%, due to a decrease of $5.4 million in interest expense and an increase of $3.6 million in interest and dividend income. The decrease in interest expense for the first nine months of 2025 was primarily attributed to a decrease of $5.5 million in interest expense on deposits. The increase in interest and dividend income for the first nine months of 2025 was primarily attributed to increases of $5.2 million in interest income on loans, including fees and $1.3 million in interest income on interest-earning deposits, partially offset by a decrease of $2.7 million in interest and dividend income on taxable securities.

Previous wording

Interest expense on deposits decreased to $22.2 million for the first six months of 2025, from $24.9 million for the same period in the prior year. The decrease was primarily due to a 60 basis points decrease in the average cost of customer time deposits for the first six months of 2025, and despite an increase of $11.5 million in average balances of customer time deposits, compared to the same period in the prior year. The decrease in the average cost of customer time deposits was largely due to changes in offered terms on CD campaigns, including a shift towards shorter duration products. The average cost of brokered deposits decreased 93 basis points and average balances of brokered deposits decreased $8.5 million for the first six months of 2025, compared to the same period in the prior year. The decrease in the average cost of brokered deposits was largely due to the declining market interest rate environment, which the Corporation was able to take advantage of by primarily utilizing brokered deposits with original durations of three months or less. Average balances of customer time deposits comprised 21.2% of total average deposits for the first six months of 2025, compared to 21.0% for the same period in the prior year.

Current wording

Interest expense on deposits decreased to $32.4 million for the first nine months of 2025, from $37.9 million for the same period in the prior year. The decrease was primarily due to a decrease in interest expense on customer time deposits compared to the same period in the prior year. The decrease in interest expense on customer time deposits was primarily due to a decrease of $8.2 million in average balances of customer time deposits and a 69 basis points decrease in the average cost of customer time deposits for the first nine months of 2025, compared to the same period in the prior year, largely due to changes in offered terms on CD campaigns. Average balances of customer time deposits comprised 21.3% of total average deposits for the first nine months of 2025, compared to 21.7% for the same period in the prior year. The average cost of brokered deposits decreased 93 basis points and average balances of brokered deposits decreased $25.5 million for the first nine months of 2025, compared to the same period in the prior year.

Previous wording

Also contributing to the decrease in interest expense on deposits was a decrease of $0.5 million in interest expense on savings and money market deposits. This decrease was primarily due to a 12 basis points decrease in the average cost of savings and money market accounts, and despite an increase of $3.6 million in average balances of savings and money market deposits, for the six months ended June 30, 2025, compared to the same period in the prior year. Combined, these changes resulted in a decrease of 33 basis points in the total average cost of interest-bearing deposits compared to the same period in the prior year, from 2.80% in the first half of 2024 to 2.47% in the first half of 2025. Interest expense on interest-bearing demand deposits decreased $0.1 million, primarily due to a 23 basis points decrease in the average cost of interest-bearing demand deposits, despite a $28.8 million increase in average balances of interest-bearing demand deposits for the six months ended June 30, 2025, compared to the same period in the prior year.

Current wording

Also contributing to the decrease in interest expense on deposits were decreases of $0.7 million in interest expense on savings and money market deposits and $0.3 million on interest-bearing demand deposits. The decrease in interest expense on savings and money market deposits was primarily due to a 12 basis points decrease in the average cost of savings and money market accounts, despite an increase of $4.5 million in average balances of savings and money market deposits, for the nine months ended September 30, 2025, compared to the same period in the prior year. The decrease in interest expense on interest-bearing demand deposits was primarily due to a 25 basis points decrease in the average cost of interest-bearing demand deposits, despite a $24.2 million increase in average balances of interest-bearing demand deposits for the nine months ended September 30, 2025, compared to the same period in the prior year. Combined with the decline in interest expense on time deposits, these changes resulted in a decrease of 40 basis points in the total average cost of interest-bearing deposits compared to the same period in the prior year, from 2.83% in the first nine months of 2024 to 2.43% in the first nine months of 2025.

Previous wording

Interest income on loans, including fees, increased to $57.5 million for the first six months of 2025, from $54.7 million for the same period in the prior year. The increase was mostly attributable to an increase of $125.7 million in average balances of commercial loans. The yield on total loans increased four basis points compared to the same period in the prior year, from 5.51% to 5.55%. Average yields on the residential mortgage and consumer loan portfolios also increased 30 basis points and 27 basis points, respectively, for the six months ended June 30, 2025, while the average yield on the commercial loan portfolio decreased eight basis points for the same period. The increase in the average yield on residential mortgage loans was primarily due to higher origination yields between the first six months of 2024 and 2025, while the increase in average yield on the consumer loan portfolio was primarily attributable to lower rate loans being replaced by higher-yield production.

Current wording

Interest income on loans, including fees, increased to $88.6 million for the first nine months of 2025, from $83.3 million for the same period in the prior year. The increase was mostly attributable to an increase of $145.2 million in average balances of commercial loans, compared to the same period in the prior year, largely concentrated in commercial real estate. The average yield on commercial loans decreased eight basis points compared to the same period in the prior year, primarily due to the impact of decreases in benchmark indices on variable rate loans. Average yields on the residential mortgage and consumer loan portfolios increased 34 basis points and 19 basis points, respectively, for the nine months ended September 30, 2025, compared to the same period in the prior year. The increase in the average yield on residential mortgage loans was primarily due to higher origination yields between the first nine months of 2024 and 2025, while the increase in average yield on the consumer loan portfolio was primarily attributable to lower rate loans being replaced by higher-yield production. The average yield on total loans increased four basis points compared to the same period in the prior year, from 5.56% to 5.60%.

Previous wording

Interest income on interest-earning deposits increased to $1.2 million for the first six months of 2025, from $0.6 million for the same period in the prior year. The increase was primarily due to a $28.7 million increase in average balances of interest-earning deposits, and despite a decrease of 28 basis points in the average yield on interest-earning deposits, each compared to the same period in the prior year. The increase in average balances was largely due to proceeds from the Corporation's sale of available for sale securities in the second quarter of 2025 being held as deposits at the FRBNY in advance of $155.0 million in wholesale funding maturing early in the third quarter of 2025. The decrease in the average yield on interest-earning deposits was largely due to a decrease in the Federal Funds Target Range Upper Limit of 100 basis points between the first half of 2024 and the first half of 2025.

Current wording

Interest income on interest-earning deposits increased to $2.3 million for the first nine months of 2025, from $1.0 million for the same period in the prior year. The increase was primarily due to a $40.7 million increase in average balances of interest-earning deposits, despite a decrease of 37 basis points in the average yield on interest-earning deposits, each compared to the same period in the prior year. The increase in average balances was largely due to remaining proceeds from the Corporation's sale of available for sale securities in the second quarter of 2025 being held as deposits at the FRBNY. The decrease in the average yield on interest-earning deposits was largely due to a decrease in the Federal Funds Target Range Upper Limit of 125 basis points between the first nine months of 2024 and 2025.

Previous wording

Interest and dividend income on taxable securities decreased to $5.6 million for the first six months of 2025, from $6.8 million for the same period in the prior year. The decrease in interest and dividend income on taxable securities was due to a $67.8 million decrease in the average balances and an 18 basis points decrease in the average yield on taxable securities for the six months ended June 30, 2025, compared to the same period in the prior year. The decrease in average balances was mainly attributable to $57.2 million in paydowns and maturities of available for sale securities between the first half of 2024 and 2025, as well as $244.8 million in sales of available for sale securities during the second quarter of 2025 as part of the Corporation's balance sheet repositioning efforts. The decrease in the average yield on taxable securities was mainly attributable to decreases in interest rates earned on variable rate securities such as SBA pooled-loan securities between the first half of 2024 and 2025, as well as the average yield of securities sold in the second quarter 2025 being higher than the overall average yield on the portfolio at the time of the sale.

Current wording

Interest and dividend income on taxable securities decreased to $7.2 million for the first nine months of 2025, from $9.9 million for the same period in the prior year. The decrease in interest and dividend income on taxable securities was primarily due to a $136.4 million decrease in the average balances of and a 13 basis points decrease in the average yield on taxable securities for the nine months ended September 30, 2025, compared to the same period in the prior year. The decrease in average balances was mainly attributable to $244.8 million in sales of available for sale securities during the second quarter of 2025 as part of the Corporation's balance sheet repositioning efforts. Additionally, there were $53.9 million in paydowns and maturities of available for sale securities between the first nine months of 2024 and 2025. The decrease in the average yield on taxable securities was mainly attributable to decreases in interest rates earned on variable rate securities such as SBA pooled-loan securities between the first nine months of 2024 and 2025, as well as the average yield of securities sold in the second quarter 2025 being higher than the overall average yield on the portfolio at the time of the sale.

Previous wording

Fully taxable equivalent net interest margin was 3.00% for the six months ended June 30, 2025 compared to 2.69% for the same period in the prior year. Average interest-earning assets increased $49.6 million, while average interest-bearing liabilities increased $40.4 million, for the six months ended June 30, 2025, compared to the same period in the prior year. The average yield on interest-earning assets increased nine basis points, to 4.78%, while the average cost of interest-bearing liabilities decreased 34 basis points, to 2.56% for the six months ended June 30, 2025, compared to the same period in the prior year.

Current wording

Fully taxable equivalent net interest margin was 3.15% for the nine months ended September 30, 2025 compared to 2.70% for the same period in the prior year. Average interest-earning assets increased $5.2 million, while average interest-bearing liabilities decreased $8.5 million, for the nine months ended September 30, 2025, compared to the same period in the prior year. The average yield on interest-earning assets increased 18 basis points, to 4.90%, while the average cost of interest-bearing liabilities decreased 37 basis points, to 2.55% for the nine months ended September 30, 2025, compared to the same period in the prior year.

Previous wording

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and six months ended June 30, 2025 and 2024. For the purpose of the tables below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.

Current wording

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and nine months ended September 30, 2025 and 2024. For the purpose of the tables below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.

Previous wording

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and six months ended June 30, 2025 and 2024. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

Current wording

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and nine months ended September 30, 2025 and 2024. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purposes of these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

Previous wording

The provision for credit losses increased $0.3 million for the second quarter of 2025, compared to the same period in the prior year. The increase was largely due to stronger loan growth in the second quarter of 2025, which totaled $34.8 million, compared to loan growth of $7.9 million during the same period in the prior year, and changes in the FOMC's projections for increased unemployment and a decline in GDP growth during the second quarter of 2025, compared to stable projections during the same period in the prior year. Net charge-offs for the three months ended June 30, 2025 were $1.0 million, compared to $0.3 million for the same period in the prior year. $0.8 million in net charge-offs during the three months ended June 30, 2025 related to two commercial and industrial loans which had specific allocations in the allowance for credit losses, and therefore did not impact provision expense for the second quarter of 2025.

Current wording

The provision for credit losses for the third quarter of 2025 was $1.1 million, compared to $0.6 million for the same period in the prior year. The $0.5 million increase in the provision for credit losses was largely due to stronger loan growth in the third quarter of 2025, which totaled $69.9 million, compared to loan growth of $17.5 million during the same period in the prior year, as well as changes in other model inputs such as a decrease in modeled prepayment speeds. Net charge-offs for both the three months ended September 30, 2025 and 2024 were $0.1 million.

Previous wording

The provision for credit losses for the six months ended June 30, 2025 was $2.2 million, compared to a credit of $1.2 million for the same period in the prior year. The $3.4 million increase in the provision for credit losses in the six months ended June 30, 2025, compared to the same period in the prior year was largely driven by the directionality of the impact from the annual loss driver update applied to the Bank's CECL model in the first quarter of the current year, compared to the loss driver update applied in the first quarter of the prior year. The current year update resulted in higher modeled baseline loss rates, while the update in the prior year resulted in lower baseline loss rates. Net charge-offs for the six months ended June 30, 2025 were $1.3 million, compared to $0.5 million for the same period in the prior year. $0.8 million in net charge-offs during the six months ended June 30, 2025 related to two commercial and industrial loans which had specific allocations in the allowance for credit losses, and therefore did not impact provision expense. Remaining charge-offs for the six months ended June 30, 2025 and 2024 were largely concentrated in the consumer indirect auto portfolio.

Current wording

The provision for credit losses for the nine months ended September 30, 2025 was $3.3 million, compared to a credit of $0.6 million for the same period in the prior year. The $3.9 million increase in the provision for credit losses in the nine months ended September 30, 2025, compared to the same period in the prior year was largely driven by the directionality of the impact from the annual loss driver update applied to the Bank's CECL model in the first quarter of the current year, compared to the loss driver update applied in the first quarter of the prior year. The current year update resulted in higher modeled baseline loss rates, while the update in the prior year resulted in lower baseline loss rates. Net charge-offs for the nine months ended September 30, 2025 were $1.3 million, compared to $0.6 million for the same period in the prior year. $0.8 million in net charge-offs during the nine months ended September 30, 2025 related to two commercial and industrial loans which had specific allocations in the allowance for credit losses, and therefore did not impact provision expense. Remaining charge-offs for the nine months ended September 30, 2025 and 2024 were largely concentrated in the consumer indirect auto portfolio.

Previous wording

The increase in service charges on deposit accounts can primarily be attributed to fee rate increases which were implemented in the second half of 2024.

Current wording

The increase in service charges on deposit accounts can primarily be attributed to fee schedule increases which were phased in during the fourth quarter of 2024.

Previous wording

The following table summarizes the changes in the Corporation's and the Bank's regulatory capital and certain regulatory capital ratios as of June 30, 2025 compared to the prior quarter (dollars in thousands):

Current wording

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

Previous wording

Total non-interest income for the six months ended June 30, 2025 decreased $16.1 million compared to the same period in the prior year. The decrease was primarily due to a $17.5 million net loss on securities transactions, partially offset by increases of $0.9 million in other non-interest income and $0.3 million each in services charges on deposit accounts and Wealth Management Group fee income.

Current wording

Total non-interest income for the nine months ended September 30, 2025 decreased $15.9 million compared to the same period in the prior year. The decrease was primarily due to a $17.5 million net loss on securities transactions, partially offset by increases of $1.0 million in other non-interest income, $0.4 million in services charges on deposit accounts, and $0.3 million in WMG fee income.

Previous wording

The increase in other non-interest income can primarily be attributed to a $0.6 million gain on the sale of a previous branch property during the second quarter of 2025, when compared to the same period in the prior year.

Current wording

The increase in other non-interest income can primarily be attributed to a $0.6 million gain on the sale of a previous branch property during the second quarter of 2025 and an increase of $0.3 million in swap fee income compared to the same period in the prior year.

Previous wording

The increase in service charges on deposit accounts can primarily be attributed to fee rate increases which were implemented in the second half of 2024.

Current wording

The increase in service charges on deposit accounts can primarily be attributed to fee rate increases which were phased in during the fourth quarter of 2024.

Previous wording

The increase in WMG fee income can primarily be attributed to fee rate increases which were implemented in the second half of 2024 as well as positive changes in financial markets during the first half of 2025.

Current wording

The increase in WMG fee income can primarily be attributed to fee rate increases which were implemented in the second half of 2024 as well as improved market conditions during the first nine months of 2025.

Previous wording

Total non-interest expense for the second quarter of 2025 increased $1.6 million compared to the same period in the prior year. The increase was due to increases in total compensation expense and non-compensation expense. For the three months ended June 30, 2025 and 2024, non-interest expense to average assets was 2.54% and 2.38%, respectively.

Current wording

Total non-interest expense for the third quarter of 2025 increased $1.1 million compared to the same period in the prior year. The increase was due to an increase in total compensation expense partially offset by a decrease in non-compensation expense. For the three months ended September 30, 2025 and 2024, non-interest expense to average assets was 2.61% and 2.39%, respectively.

Previous wording

The increase in salaries and wages can be primarily attributed to an increase in base salaries, including merit-based increases and additional staffing for the Corporation's Western New York regional banking center. The increase in other components of net periodic pension and postretirement benefits was primarily due to actuarial adjustments related to the Corporation's pension plans.

Current wording

The increase in compensation expense for the current period, compared to the same period in the prior year, was primarily due to increases in all compensation expense components. The increase in salaries and wages can be primarily attributed to an increase in base salaries, which included staffing for the Corporation's Western New York Canal Bank division, consisting of additional lending, branch, and wealth management personnel. Also contributing to the increase were merit-based salary increases for existing employees. Pension and employee benefits increased largely due to an increase in employee healthcare-related expenses compared to the same period in the prior year. The increase in other components of net periodic pension and postretirement benefits was primarily due to actuarial adjustments related to the Corporation's pension plans.