CHMG — Q2 2026 Financial Report Analysis

Chemung Financial earned $8.8 million, or $1.82 per share, in the second quarter of 2026, against a $6.5 million loss ($1.35 per share) a year earlier. That comparison mostly reflects last year's one-off: in Q2 2025 the bank sold a large slice of its low-yielding bond portfolio at a $17.5 million pre-tax loss, as part of what management calls its "balance sheet repositioning". Strip that out and the year-ago quarter earned $6.3 million ($1.31 per share), so the like-for-like gain is about 39%. Most of it came from the trade itself: the bank put the sale proceeds into loans and used them to pay off expensive wholesale funding, and net interest income rose 18.6%.

At a glance

• Net interest margin of 3.67%, up from 3.05%. This is what the bank earns on its loans and securities minus what it pays depositors and lenders, as a share of its interest-earning assets. A 62-basis-point gain (0.62 percentage points) is a large move for a community bank.
• Loans up 11.0% year on year to $2.37 billion, almost all of it commercial real estate and construction lending in Western New York and the Albany area. Loans now slightly exceed deposits (a 100.1% loan-to-deposit ratio, up from 86.4%).
• Problem loans ticked up but losses stayed tiny. Non-performing assets rose to 0.40% of total assets from 0.30% at year-end. Net charge-offs, the loans actually written off after recoveries, ran at an annualized 0.03% of loans.

The quarter in numbers

N/M = not meaningful. The efficiency ratio is non-interest expense divided by revenue: the share of each revenue dollar spent running the bank, so lower is better. Return on average tangible equity (profit as a share of shareholders' equity minus goodwill) is the company's own non-GAAP figure. Chemung has no preferred stock, so it is equivalent to return on tangible common equity (ROTCE). The CET1 ratio (core capital as a share of risk-weighted assets) is compared with December 31, 2025, the prior figure the 10-Q discloses. The bank-level CET1 ratio was 13.84%.

The +208.6% revenue figure is arithmetically correct but tells you little. Last year's revenue was cut by the $17.5 million securities loss booked as negative fee income. On an adjusted basis, revenue rose about 15.6%, from $27.0 million to $31.2 million.

Takeaway: The 2025 bond sale has done what management said it would: the margin is up 62 basis points and quarterly earnings are running about 39% above the year-ago underlying level. But Chemung has now lent out its whole deposit base, so further growth depends on winning deposits or paying up for borrowed money, and that funding cost is the number to watch from here.

Where the margin gain came from

Two levers moved in Chemung's favour at the same time:

• Asset yields rose. The yield on interest-earning assets climbed 35 basis points to 5.18%. Average taxable securities fell by $211.4 million, mostly the low-yielding bonds sold in Q2 2025. That money was redeployed into loans: average loans rose $230.0 million, and loans yield 5.64% against 2.27% on the remaining investment portfolio. The commercial loan yield actually slipped 3 basis points year on year, because variable-rate loans reset lower as benchmark rates fell. The gain is about mix, not pricing.
• Funding costs fell. The cost of interest-bearing deposits dropped from 2.45% to 2.06%. The bank ran off all its brokered deposits (wholesale deposits bought through intermediaries, usually at higher rates) in Q3 2025. It also stopped offering longer-term promotional CDs, so many matured without renewing. Average customer time deposits fell $67.2 million.

The offset is subordinated debt (long-term borrowing that ranks below depositors) issued in Q2 2025. It lifted the average cost of borrowings to 5.67% from 4.90%. Interest expense on borrowed funds rose $0.4 million year on year.

Against Q1 2026, the margin edged up from 3.60% to 3.67%. Part of the commercial loan yield gain came from interest collected when non-accrual loans (loans that had stopped paying interest) were paid off. The filing does not size that amount, but it will not repeat every quarter. Meanwhile, the average cost of customer savings and money market deposits rose 12 basis points from Q1 as municipal sweep deposits and a new escrow product, both higher-cost, flowed in.

What the headline numbers hide

• The year-on-year comparison is a one-off distortion. All of the swing from loss to profit beyond the 39% underlying gain comes from the Q2 2025 securities loss ($13.2 million after tax) and a small 2025 branch-property gain ($0.5 million after tax). There were no comparable adjustments this quarter.
• No help from buybacks or reserve releases. The average share count rose to 4.84 million from 4.81 million, so all of the per-share growth came from operations. The provision for credit losses was $0.6 million, an addition to reserves, not a release. The allowance stayed at 1.07% of loans.
• Cash backs up the earnings. Operating cash flow for the first half was $18.3 million against net income of $18.0 million.
• Costs grew faster than the bank, but partly for offsetting reasons. Expenses rose 8.7% year on year and 10.3% from Q1, which is why profit dipped from Q1's $9.2 million. Drivers included higher incentive pay, more marketing and a $0.3 million write-down of a legacy non-marketable equity investment. Some of the salary increase is the deferred compensation plan marking up with stock markets, and that same market rally added to fee income.
• Credit is softening at the edges. Non-performing loans rose to $9.2 million (0.39% of loans) from $7.9 million (0.35%) at year-end. Four commercial loans worth $4.6 million moved to non-accrual, including a $2.2 million business loan and a $2.0 million commercial real estate loan. Foreclosed property rose to $1.9 million, most of it from one commercial relationship. Reserves now cover non-performing loans 2.75 times, down from 3.06 times. The year-to-date charge-off rate looks unusually low (0.01%) because of a $0.7 million recovery in Q1 on a loan written off in Q2 2025.
• Taxes are normal. The effective tax rate was 22.0%. A $0.8 million valuation allowance on deferred tax benefits from last year's securities loss remains.

Balance sheet and funding

Commercial lending is driving the growth. Since year-end, commercial loans rose $111.8 million, led by non-owner-occupied commercial real estate (investor-owned property) and construction loans. Indirect auto loans, made through car dealers, continued to run off by design. Commercial real estate now makes up 64.2% of total loans ($1.517 billion), up from 62.1% at year-end. That concentration deserves attention: the specific reserves this year, including $1.2 million on one non-owner-occupied CRE loan, sit in that category.

Deposits grew $93.3 million in the first half, an 8.3% annualized rate for customer deposits. Non-interest-bearing deposits rose to 28.8% of the total. The 4.3% year-on-year decline in total deposits mostly reflects the brokered deposits and promotional CDs the bank chose to let go. With loans now at 100.1% of deposits, Chemung also had $89.6 million in Federal Home Loan Bank advances at quarter-end. Uninsured deposits were 31.5% of the total, including $174.2 million of municipal deposits backed by pledged collateral.

Capital is building. Shareholders' equity rose to $270.4 million, and tangible book value per share reached $51.37, up 15.9% from $44.31 a year earlier. The quarterly dividend was raised to $0.34 from $0.32.

Outlook

Management gave no numeric guidance. The 10-Q's rate sensitivity table gives the best read on where the margin goes next. Management estimates that an immediate 100-basis-point cut in rates would reduce next-12-month net interest income by 1.15%, while a 100-basis-point rise would add 5.48%. So the bank is asset-sensitive: further Fed easing would be a mild headwind. It also has a near-term repricing tailwind, because 43.5% of its $1.52 billion CRE book reprices before the end of 2026. Older, cheaper loans resetting higher is one reason management cites for rising loan yields.

On October 1, 2026, the bank completed its conversion from a New York state-chartered trust company to a national bank, Chemung Canal Trust Company, N.A., now supervised by the OCC. The company says its structure is unchanged.

Our read: the repositioning benefit is now largely in the run-rate. Q2's 3.67% margin compares with 3.60–3.61% in the prior two quarters, so the big step-change is done. Further earnings growth now depends on loan volume, and that will be harder to fund cheaply with loans already exceeding deposits. In the Q3 report, due in late October, watch three things: whether the cost of savings and money market deposits keeps rising, whether non-performing loans stabilise around $9 million, and whether expense growth slows from Q2's 10% sequential jump.

Source: Chemung Financial Corporation Form 10-Q for the quarter ended June 30, 2026, with figures cross-checked against the company's July 22, 2026 earnings release (Form 8-K, Exhibit 99.1).