CBU

Overall Performance

• This was a consecutive record quarter, classified as solid, with expanding net interest income, strong fee performance across banking, employee benefits, and wealth management, and controlled recurring operating expenses
• Credit quality and liquidity remain top-tier, and the company continues to advance its diversification strategy, with wealth and employee benefits businesses now matching banking in total asset size

Market and Growth Activities

• De novo bank branches reached ~$140 million in total deposits at the end of Q2; combined with the acquired Santander Lehigh Valley branches, the company expects ~$700 million in total new additive deposits by end of 2026, in line with strategic plans
• Despite broader market weakness, the company's mortgage pipeline is at its highest level in seven years, and the firm ranks as the 2nd largest mortgage originator in its core footprint (up from 5th place four years prior)
• Core upstate New York and Pennsylvania markets are seeing strong housing price growth, with inventory down 50% from historical averages; housing permitting activity in Central New York increased from less than 400 new units annually to over 2,400 new units last year, with unmet demand exceeding 3,000 units
• Multifamily and hospitality deal activity in Central New York has increased significantly over the past six months, though it has not yet meaningfully contributed to overall growth; strong growth is currently driven by market share gains across all regions, with particularly strong performance in New England and Pennsylvania in Q2
• The company completed the acquisition of ClearPoint during the quarter, and holds a strong pipeline of M&A opportunities in the insurance segment that are expected to drive 2027 revenue growth
• The company has been investing in AI capabilities for over two years, with AI currently driving efficiency gains by augmenting existing worker productivity and accelerating product development timelines

Financial Position

• The company's overall cost of deposits continued to decline in Q2 despite higher pricing on new incremental deposits, addressing prior investor concerns
• Asset quality remains strong: the non-performing loan ratio increased only 2 basis points QoQ, net charge-offs increased only 1 basis point QoQ, and the allowance for credit losses equals 8x trailing 12-month net charge-offs
• Pending loans increased 7.3% YoY to $11.2 billion, driven by organic growth across consumer and business lending portfolios

• Full year 2026 net interest margin (NIM) is expected to land in the low to mid 3.5% range, with modest temporary pressure of -2 basis points to +1 basis point expected in Q3 due to seasonally higher overnight borrowing levels; NIM is expected to return to expansion in Q4 2026
• Full year 2026 total non-interest expenses are projected to be between $550 million and $555 million, representing a 7% to 8% increase from 2025; this range includes $8 million to $9 million in incremental expenses from Santander branches and $4 million to $5 million in incremental expenses from ClearPoint, and excludes costs from any pending or future acquisitions
• Full year 2026 loan growth is expected to be between 5% and 6%, with current performance tracking towards the higher end of this range
• The effective tax rate for full year 2026 is expected to remain between 23% and 24%
• NIM expansion benefits from loan repricing and securities cash flow redeployment are expected to extend through 2027 and beyond, with over $1 billion in securities cash flows expected to be realized over the next 18 months starting in Q4 2026
• The company expects acceleration in earnings across most business segments in the second half of 2026

Overall company: Record Q2 2026 performance, with operating pre-tax pre-provision earnings up 14.9% year-over-year (YoY). Banking: Pre-tax earnings up 13.2% YoY; net interest income hit a new quarterly high of $139.1 million, up 3.3% quarter-over-quarter (QoQ) and 11.5% YoY, marking the ninth consecutive quarter of net interest income expansion; total banking assets reached $17.4 billion, contributing roughly one-third of total operating revenue. Employee Benefits: Pre-tax earnings up 16.2% YoY; retirement assets under administration totaled $16.5 billion; contributed to growth in non-interest revenue, making up roughly 12% of total operating revenue. Wealth Management: Pre-tax earnings up 46.5% YoY; assets under management and administration reached $17.1 billion; contributed to growth in non-interest revenue, making up roughly 12% of total operating revenue. Insurance: Pre-tax earnings down 10.8% YoY; underperformed expectations due to lower contingent fees, soft premium markets, and organic challenges; the decrease in non-interest revenue from insurance partially offset gains in other segments, with non-interest revenue overall making up 36% of total operating revenue in Q2.

• The insurance segment faces ongoing headwinds from lower contingent revenues, stalled premium growth, and organic challenges, and is expected to fall short of original full year 2026 performance targets
• Industry-wide deposit competition is intense, with some competitors offering deposit rates above wholesale unsecured funding rates; the company has chosen not to participate in these uneconomic pricing offerings, which may limit deposit growth
• Pricing competition for loans is intensifying, with some competitors compressing spreads to grow loan balances; the company's refusal to participate in these spread-compressed deals may constrain near-term loan growth relative to competitors
• Seasonal municipal deposit outflows in Q2 created temporary pressure on liquidity and funding costs, which is expected to partially reverse in the second half of the year
• The expected economic benefits from AI investment are still uncertain, with tangible margin or revenue benefits not expected to appear for at least 12 months
• New development activity in chip-impacted core markets, while growing, has not yet meaningfully contributed to company earnings and is not expected to move the needle on results over the next 12 months

Q: Steve Moss (Raymond James) asked about the intensity of competition across the company's upstate New York footprint, and where opportunities and pricing pressures lie. He also followed up on the 2026 second half loan mix and the outlook for insurance contingent fees heading into 2027. / A: Dimitar noted that competitive intensity is consistent across all of the company's footprints, not just upstate New York, and that pricing competition has intensified as competitors cut spreads to grow loan originations. The company is not participating in these compressed spread deals, but still expects to hit its 5-6% full year 2026 loan growth target, tracking toward the higher end of the range. He said that mortgage growth will drive second half consumer loan expansion, as the seven-year high pipeline will mostly close in Q3, while indirect auto lending is also expected to see modest improvement after pricing stabilized. For insurance, year-to-date performance is 6.5% below plan, with about $1 million of the shortfall coming from lower than expected contingent fees; while the second half will see improvement, full year growth will remain below trend. A strong insurance M&A pipeline, the strongest it has ever been, is expected to drive strong revenue growth for the segment in 2027 if deals close as expected.

Q: Grant Zerlin (Piper Sandler) asked about the outlook for deposit growth, performance of de novo deposit gathering, and the future pace of share repurchases. / A: Dimitar explained that the Q2 deposit decline was driven entirely by normal seasonal municipal deposit outflows, which will reverse as property tax revenues flow in during the second half of the year. De novo branches are exactly on plan with $140 million in deposits at end of Q2. The company will not participate in the current aggressive deposit pricing that sees rates above wholesale funding levels, as its 76% loan-to-deposit ratio gives it ample flexibility to fund loan growth, plus over $1 billion in securities cash flows coming over the next 18 months. For repurchases, the company maintains an opportunistic approach with no set pace, and will prioritize balancing repurchases against attractive M&A opportunities, particularly in insurance.

Q: Matthew Breeze (Stevens) asked about the timeline for NIM expansion benefits from loan repricing, the outlook for deposit costs, and the current impact of AI investments. / A: Marya and Dimitar explained that NIM expansion benefits will extend over multiple years, not just 2027, as variable rate loans reprice higher and cash flows from low-yield securities are redeployed into higher yielding loans; Q3 NIM pressure is only seasonal driven by higher overnight borrowings, with expansion resuming in Q4. Dimitar added that the company's strong balance sheet and existing cash flow from securities mean it does not need to chase high-cost deposits, so material increases in overall deposit costs are not expected. For AI, the company has a handful of fully dedicated AI staff and over 1,000 employees with augmented productivity from AI tools; the company is currently seeing efficiency gains that have offset incremental headcount from recent acquisitions, but tangible margin and revenue benefits are not expected for 12 months as larger transformational projects are completed.