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Item 9A. Controls and Procedures

2022-03-23 compared with 2021-03-24 · 159 added, 433 removed, 1881 unchanged (24% of the section changed)

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OTHER INFORMATION

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Income for the three years ended December 31, 2020

Consolidated Statements of Comprehensive Income for the three years ended December 31, 2020

Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2020

Consolidated Statements of Cash Flows for the three years ended December 31, 2020

Consolidated Statements of Income for the two years ended December 31, 2021

Consolidated Statements of Comprehensive Income for the two years ended December 31, 2021

Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2021

Consolidated Statements of Cash Flows for the two years ended December 31, 2021

Notes to Consolidated Financial Statements

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3.3 Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).

3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended to January 20, 2021 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on January 25, 2021).

3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended November 17, 2021 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on November 19, 2021).

4.1 Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

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Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference).

10.4 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Louis C.

DiFabio, Executive Vice President, (as incorporated by reference to Exhibit 10.4 to Registrant’s Form 10-K for the year ended December 31, 2019 and filed with the Commission on March 12, 2020).

10.5 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karen R.

Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.3 to Registrant’s Form 8-K on December 23, 2019 and incorporated herein by reference).

10.4 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Thomas W.

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Kenefick, Regional President (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on January 5, 2021 and incorporated herein by reference).

10.8 Chemung Financial Corporation 2021 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 8, 2021 and incorporated herein by reference).

10.9 Consent Order between Chemung Canal Trust Company and the New York State Department of Financial Services dated June 24, 2021 (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 29, 2021 and incorporated herein by reference).

10.10 Form of Incentive Stock Option Award Agreement (filed as Exhibit 10.2 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference).

10.11 Form of Non-Qualified Stock Option Award Agreement (filed as Exhibit 10.3 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference).

10.12 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan*

21 Subsidiaries of the Registrant.*

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Consolidated Balance Sheets as of December 31, 2021 and 2020 F- 3

Consolidated Statements of Income for the three years ended December 31, 2020 F- 4

Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2020 F- 5

Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2020 F- 6

Consolidated Statements of Cash Flows for the three years ended December 31, 2020 F- 8

Consolidated Statements of Income for the two years ended December 31, 2021 F- 4

Consolidated Statements of Comprehensive Income (Loss) for the two years ended December 31, 2021 F- 5

Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2021 F- 6

Consolidated Statements of Cash Flows for the two years ended December 31, 2021 F- 8

Notes to Consolidated Financial Statements F- 10

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Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and Subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

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Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that:

(i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Loan Losses – Loans Collectively Evaluated for Impairment.

As described in Note 1 and Note 4 to the consolidated financial statements, the Company’s allowance for loan losses is the amount that management believes will be adequate to absorb probable incurred losses on existing loans.

The allowance for loan losses was $20.9 million at December 31, 2020, which consists of two components:

specific valuation allowances related to loans individually evaluated for impairment, representing $1.5 million and general valuation allowances related to loans collectively evaluated for impairment, representing $19.4 million.

The allowance for loan losses was $21.0 million at December 31, 2021, which includes $18.0 million related to loans collectively evaluated for impairment.

The general valuation covers non-impaired loans and is based on historical loss experience adjusted for current factors.

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These qualitative factors include considerations of the following:

(1) lending policies and procedures, including underwriting standards and collection, charge-off and recovery policies, (2) national and local economic business conditions and developments, including the condition of various market segments and more recently the expected impact of COVID-19 on various portfolio segments, (3) loan volume, (4) the experience, ability, and depth of lending management and staff, (5) the volume and severity of past due, classified and watch-list loans, non-accrual loans, troubled debt restructurings, and other modifications (6) the quality of the Bank’s loan review system and the degree of oversight by the Bank’s Board of Directors, (7) collateral related issues:

requirements, on the level of estimated credit losses in the Bank’s current portfolio and (10) the impact of the global economy, including the impact of COVID 19.

We identified the allowance for loan losses for loans collectively evaluated for impairment as a critical audit matter because of the necessary judgment applied by us to evaluate management’s significant estimates and subjective assumptions relating to:

1) the classification of loans subject to an adjusted loss history, and 2) the determination of the aggregate effect of the qualitative factors on the allowance for loan losses.

of past due, classified and watch-list loans, non-accrual loans, troubled debt restructurings, and other modifications (6) the quality of the Bank’s loan review system and the degree of oversight by the Bank’s Board of Directors, (7) collateral related issues:

unsecured, type, declining valuation environment and trend of other related factors (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations, (9) the effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank’s current portfolio and (10) the impact of the global economy.

We identified the allowance for loan losses for loans collectively evaluated for impairment as a critical audit matter because of the significant auditor judgment involved in evaluating management’s significant judgment applied in determining the subjective assumptions relating to:

1) the classification of loans subject to an adjusted loss history, and 2) the determination of the qualitative factors on the allowance for loan losses.

The primary procedures we performed to address this critical audit matter included:

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Grading of loans from independent loan review and management’s annual credit reviews.

◦ Management’s judgments related to the qualitative and quantitative assessment of the data used in the determination of qualitative factors and the resulting allocation to the allowance

Management’s judgments and assumptions related to the qualitative assessment and the resulting allocation to the allowance, including the data used in the determination of qualitative factors.

Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the allowance related to loans collectively evaluated for impairment, which included:

Evaluation of loan grades of the commercial portfolio to ensure proper inclusion in pass categories or criticized and classified categories.

◦ Evaluation of the data used as a basis for the adjustments relating to qualitative factors.

◦ Evaluation of the reasonableness of management’s judgments related to the qualitative and quantitative assessment of the data used in the determination of qualitative factors and the resulting allocation to the allowance

◦ Evaluation of the reasonableness of general allocation component, including its directional consistency from year to year.

Goodwill Impairment Evaluation

As described in Notes 1 and 7 to the consolidated financial statements, goodwill is the excess of the purchase price over the fair value of the net assets of the business acquired and is periodically evaluated for impairment.

The Company’s goodwill balance was $21.8 million at December 31, 2020, which is allocated to the Company’s core banking segment.

Goodwill is tested for impairment at the reporting unit level, defined by management as the segment level, at least annually in the fourth quarter or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred.

The quantitative impairment analysis requires a comparison of a reporting unit’s fair value to its’ carrying value to identify potential impairment.

Goodwill impairment exists when a reporting unit’s carrying value exceeds its fair value.

Management engaged a third-party valuation specialist and significant judgement is applied in determining the fair value of a reporting unit.

This judgment includes the selection of appropriate discount rates, the identification of relevant market comparable transactions and control premium, and the development of prospective financial information about the Company.

The selection and weighting of the various fair value methodologies may result in a higher or lower fair value.

Judgement is also applied in determining the weightings applied to the different methodologies that are most representative of fair value.

We identified the goodwill impairment assessment of the Company as a critical audit matter.

The principal considerations for this determination was the need for usage of a auditor employed specialist, combined with the degree of auditor judgment in performing procedures over the key assumptions, which include discounted cash flows, discount rate, prospective financial information, and weighting allocation to valuation methodologies.

The primary procedures we performed to address this critical audit matter included:

• Substantively testing management’s estimate, including evaluating their judgements and assumptions, for estimating fair value the Company which included:

◦ Testing of management’s methodology, including the reasonableness and accuracy of data supporting cash flow projections and the weighting of each valuation methodology.

◦ Utilization of an auditor employed valuation specialist to evaluate appropriateness of valuation methodologies, discount rate, control premium, and to conduct a shadow calculation.

Evaluation of the data used as a basis for the adjustments relating to the qualitative factors.

Evaluation of the reasonableness of management’s judgments and assumptions related to the qualitative assessment and the resulting allocation to the allowance

Crowe LLP ( 173 )

We have served as the Company's auditor since 2006.

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Total deposits 2,155,433 2,037,774

FHLBNY overnight advances 14,570 —

Capital lease obligation 3,594 3,849

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( 17,846 ) ( 17,525 )

Accumulated other comprehensive loss 2,401 ( 5,799 )

Accumulated other comprehensive (loss) income ( 6,530 ) 2,401

Total shareholders' equity 211,455 199,699

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Deposits 3,284 3,827

Securities sold under agreements to repurchase — — 137

Borrowed funds 135 161

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Balances at December 31, 2019 $ 53 $ 46,382 $ 153,701 $ ( 11,710 ) $ ( 5,799 ) $ 182,627

Cumulative effect of accounting change (b) — — 40 — ( 202 ) ( 162 )

Balances as of January 1, 2018, as adjusted 53 45,967 128,493 ( 14,320 ) ( 10,542 ) 149,651

Net income — — 19,262 — — 19,262

Other comprehensive loss — — — — ( 869 ) ( 869 )

Restricted stock awards — 405 — — — 405

Distribution of 36,681 shares of treasury stock granted for directors’ deferred compensation plan

— ( 722 ) — 940 — 218

Distribution of 14,425 shares of treasury stock granted for employee restricted stock awards, net

— ( 370 ) — 370 — —

Restricted stock units for directors' deferred compensation plan — 67 — — — 67

Cash dividends declared ($ 1.04 per share)

— — ( 4,990 ) — — ( 4,990 )

Distribution of 6,015 shares of treasury stock for directors' compensation

— 147 — 154 — 301

Distribution of 1,784 shares of treasury stock for employee compensation

— 44 — 45 — 89

Sale of 14,081 shares of treasury stock (b)

— 282 — 361 — 643

Repurchase of 2,736 shares of common stock

— — — ( 112 ) — ( 112 )

Balances at December 31, 2018 $ 53 $ 45,820 $ 143,129 $ ( 12,562 ) $ ( 11,411 ) $ 165,029

Net income — — 15,609 — — 15,609

Other comprehensive income — — — 8,200 8,200

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— — — ( 7,589 ) — ( 7,589 )

Forfeiture of 112 shares of restricted stock awards

— 5 — ( 5 ) — $ —

Balances at December 31, 2020 $ 53 $ 46,764 $ 168,006 $ ( 17,525 ) $ 2,401 $ 199,699

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Net income — — 26,425 — — 26,425

Other comprehensive income — — — 8,200 8,200

Other comprehensive loss — — — ( 8,931 ) ( 8,931 )

Restricted stock awards — 535 — — — 535

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— — — ( 1,616 ) — ( 1,616 )

Forfeiture of 112 shares of restricted stock awards

— 5 — ( 5 ) — —

Balances at December 31, 2021 $ 53 $ 46,901 $ 188,877 $ ( 17,846 ) $ ( 6,530 ) $ 211,455

(a) All treasury stock sales were completed at the prevailing market price with the Chemung Canal Trust Company Profit Sharing, Savings, and Investment Plan which is a defined contribution plan sponsored by the Bank.

(b) Due to implementation of ASC 2016-01.

See "Adoption of New Accounting Standards" discussion in Note 1.

See accompanying notes to consolidated financial statements.

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CASH FLOWS FROM OPERATING ACTIVITIES:

2020 2019 2018

Net income $ 26,425 $ 19,262

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Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts 207,033 341,081

Net increase in time deposits 124,555 10,951 31,864

Net decrease in securities sold under agreements to repurchase — — ( 10,000 )

Net increase (decrease) in time deposits ( 89,374 ) 124,555

Net change in FHLBNY overnight advances 14,570 —

Repayments of FHLBNY long term advances — — ( 2,000 )

Principal payments made on capital lease ( 255 ) ( 236 )

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CONSOLIDATED STATEMENTS OF CASH FLOWS

Years Ended December 31,

2020 2019 2018

Supplemental disclosure of cash flow information:

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EQUITY INVESTMENTS

On January 1, 2018, the Corporation adopted ASU 2016-01, an amendment to Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10) , which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income.

The adoption of this guidance resulted in a $ 40 thousand increase to beginning retained earnings and a $ 202 thousand decrease to beginning accumulated other comprehensive income (loss).

Securities that are held to fund a non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value and interest and dividend income included in earnings.

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Troubled Debt Restructurings by Creditors, in certain situations.

Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan.

Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan

modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan, until January 1, 2022.

All loan modifications made by the Corporation in response to the COVID-19 pandemic have been in accordance with Section 4013 of the CARES Act.

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Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely.

Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific

impaired loans.

While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

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The plan was amended such that new employees hired on or after July 1, 2010 would not be eligible to participate in the plan, however, existing participants at that time would continue to accrue benefits.

Under the Plan, pension benefits are based upon final average annual compensation where the annual compensation is total base earnings paid plus 401(k) salary deferrals.

Bonuses, overtime, commissions and dividends are excluded.

Under the Plan, pension benefits are based upon final average annual compensation where the annual compensation is total base earnings paid plus commissions.

Bonuses, overtime, and dividends are excluded.

The normal retirement benefit equals 1.2 % of final average compensation (highest consecutive five years of annual compensation in the prior ten years ) times years of service (up to a maximum of 25 years), plus 1 % of average monthly compensation for each additional year of service (up to a maximum of 10 years), plus 0.65 % of average monthly compensation in excess of covered compensation for each year of credited service up to 35 years.

Covered compensation is the average of the social security taxable wage base in effect for the 35 year period prior to normal social security retirement age.

Compensation for purposes of determining benefits under the Plan is reviewed annually.

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016.

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The Corporation contributes a non-discretionary 3 % of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50 % match up to 6 % of gross annual wages.

All contributions made on or after January 1, 2017 will vest immediately, while all previous contributions continue vesting on a five-year vesting schedule.

All contributions made on or after January 1, 2017 will vest immediately.

The plan's assets consist of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S.

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Excellus BlueCross BlueShield assumes full liability for the payment of health care benefits incurred after July 1, 2006.

Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self-insurance plan through December 31, 2009, contributing 50 % of the cost of coverage.

Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self-insured plan through December 31, 2009, contributing 50 % of the cost of coverage.

Effective January 1, 2010, these out of area retirees were eligible for coverage under a Medicare Supplement Plan C administered by Excellus BlueCross BlueShield, contributing 50 % of the premium.

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The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2019 and 2018.

See Note 13 for further details.

Executive Supplemental Pension Plan:

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STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.

Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.

Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.

Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.

The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.

Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.

Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Bank, or if the participant retires prior to attainment of age 65 , unless otherwise waived by the Compensation and Personnel Committee of the Board of Directors.

The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date.

See Note 15 for more information regarding this Plan.

Deferred Directors Fee Plan:

A Deferred Directors Fee Plan for non-employee directors provides that directors may elect to defer receipt of all or any part of their fees.

2021 Equity Incentive Plan

On June 8, 2021, the Corporation's shareholders approved the Corporation's 2021 Equity Incentive Plan (the "2021 Plan") which provides for the grant of stock-based awards to officers, employees and directors of the Corporation and the Bank.

A Form S-8 Registration Statement was filed with the SEC on June 18, 2021 registering shares to be awarded under the 2021 Plan.

The prior plan shall remain in existence solely for the purpose of administering outstanding grants.

The 2021 Plan is designed to align the interests of the Corporation’s executives, senior managers and directors with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees and directors.

Under the terms of the 2021 Plan, the Compensation and Personnel Committee may approve discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the 2021 Plan, the chief executive officer and members of the Board of Directors.

Awards are based on the performance, responsibility and contributions of the individual and are targeted at the median of the peer group.

The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares related to the 2021 Plan may not exceed 170,000 , upon which time the 2021 Plan will be amended, presented and approved by the Corporation's shareholders to include additional shares of the Corporation's common stock.

Awards under the 2021 Plans may be vested no earlier than the first anniversary of the date on which the award is granted.

Compensation expense for shares granted will be recognized over the vesting period of the award based upon average closing price of the Corporation's stock for each of the prior 30 trading days ending on the grant date.

A Directors Deferred Fee Plan, an addendum to the 2021 Plan, for non-employee directors of the Corporation or the Bank, provides that directors may elect to defer receipt of all or any part of their fees.

Deferrals are either credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments or converted to units, which appreciate or depreciate, as would an actual share of the Corporation’s common stock purchased on the deferral date.

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All directors’ fees are charged to non-interest expenses in the consolidated statements of income.

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.

The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.

The Plan was subsequently amended to provide:

(i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year;

and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.

The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.

The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31 st of the calendar year.

The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income.

In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $ 6,000 to $ 11,500 and $ 19,250 for the Chairman of the Board.

The retainer for the Chairman of the Audit Committee was also increased by an additional $ 2,875 to $ 14,375 .

The directors waived their right to stock compensation for the additional retainer fees paid.

Incentive Compensation Plan:

The purpose of the Incentive Compensation Plan is to attract and retain highly qualified officers and key employees, and to motivate such persons to serve the Corporation and the Bank and to expend maximum effort to improve the business results and earnings of the Corporation by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Corporation.

To this end, the Incentive Compensation Plan provides for the discretionary grant of cash and/or unrestricted stock, i.e., common stock of the Corporation that is free of any restrictions, such as restrictions on transferability, to select officers and key employees as designated by the Board of Directors in its sole discretion.

The maximum number of shares that can be awarded as unrestricted stock under the Incentive Compensation Plan to any individual is 10,000 per calendar year;

and the maximum amount that may be earned in cash as an Incentive Award in any calendar year by any individual is $ 300,000 .

The right of any eligible employee to receive a grant of an incentive award, whether in the form of cash or unrestricted stock, is subject to performance standards that are specified by either the Compensation Committee or the Board of Directors.

The cost of all cash and unrestricted stock compensation is charged to non-interest expenses in the consolidated statements of income.

See Note 14 for further details.

Non-qualified Deferred Compensation Plan:

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Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2021.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007 and the acquisition of FOFC in April 2011 with balances of $ 0.2 million and $ 12 thousand, respectively, at December 31, 2020.

The intangible assets related to the acquisition of Canton Bancorp, Inc.

in May 2009 were fully amortized at December 31, 2016.

The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007 with a remaining balance of $ 15 thousand.

The intangible assets related to the acquisition of six branches of Bank of America in November of 2013, were fully amortized at December 31, 2020.

The trust business intangible is being amortized to expense over the expected useful life of 15 years.

The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

The identifiable core deposit intangible related to the FOFC acquisition was being amortized using a 10 year accelerated method and was fully amortized at December 31, 2021.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation enters into sales of securities under agreements to repurchase.

The Corporation has the ability to enter into sales of securities under agreements to repurchase.

The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets.

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Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.

Issuable shares including those related to directors’ restricted stock units and directors’ stock compensation are considered outstanding and are included in the computation of basic earnings per share as they are earned.

Issuable shares including those related to directors' restricted stock units are considered outstanding and are included in the computation of basic earnings per share.

All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.

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The adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

On January 1, 2019, the Corporation adopted ASU 2016-02, Leases (Topic 842).

ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year.

The Corporation adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements.

Accordingly, prior period financial results and disclosures have not been adjusted.

In addition, the Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification.

Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $ 8.6 million as of January 1, 2019.

The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

On January 1, 2019, the Corporation adopted ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20):

Premium Amortization on Purchased Callable Debt Securities.

The objective of the ASU is to align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities.

The amendment requires that the premium be amortized to the earliest call date, but does not require an accounting change for securities held at a discount;

the discount continues to be amortized to maturity.

The adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

On January 1, 2018, the Corporation adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent amendments to the ASU (collectively, "ASU 606"), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO.

The majority of the Corporation's revenues come from interest income and other sources, including loans, securities, and derivatives that are outside the scope of ASC 606.

The Corporation's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Corporation satisfies its obligation to the customer.

Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, and the sale of OREO.

The amendments allow for one of two transition methods:

full retrospective or modified retrospective.

The full retrospective approach requires application to all periods presented.

The modified retrospective transition requires application to uncompleted contracts at the date of adoption.

Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts.

The Corporation adopted the new revenue guidance using the modified retrospective approach.

There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank;

as such, no cumulative effect adjustment was recorded.

Refer to Note 11 - Revenue from Contracts with Customers for further discussion on the Corporation's accounting policies for revenue sources within the scope of ASC 606.

In June, 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326):

1 unchanged sentence

The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates.

The amendments in this ASU are effective for public companies for fiscal years

beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal years beginning after December 15, 2018.

The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal years beginning after

December 15, 2018.

In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January, 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies.

As a smaller reporting company, the Corporation is eligible for the delay.

The Corporation anticipates that the adoption of the CECL model will result in an increase to the Corporation's allowance for loan losses.

The Corporation has established a committee to oversee the implementation of CECL and has selected a vendor to assist in the implementation process.

In 2018, the committee began establishing parameters which will be used in the CECL model with the selected vendor.

The model chosen utilizes a loss driver analysis which includes reasonable and supportable forecasts to estimate future losses.

This analysis includes different methods such as discounted cash flows, remaining life and vintage analysis, which are used depending on the nature of the portfolio segment.

The Corporation is running its current incurred loss model and a CECL model concurrently.

The Corporation will adopt CECL effective January 1, 2023.

The Corporation is in the process of updating its policies and internal controls accordingly.

The Corporation expects to recognize a one-time cumulative-effect adjustment to our allowance for loan losses upon adoption of CECL, effective of January 1, 2023, consistent with regulatory expectations set forth in interagency guidance.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

4 unchanged sentences

The adoption of this guidance, effective January 1, 2020, did not have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost .

The objective of the ASU was to improve guidance related to the presentation of defined benefit costs in the income statement.

Specifically, the ASU required that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period.

The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented.

Additionally, the ASU allows only the service cost component to be eligible for capitalization, when applicable.

Results for reporting periods beginning after January 1, 2018 are presented under ASC 715, while prior period amounts continue to be reported in accordance with legacy GAAP, with comparable periods presented retrospectively for the presentation of the service cost and net periodic postretirement benefit cost in the income statement.

The Corporation adopted ASU 2017-07 as of January 1, 2018 and elected the practical expedient, which permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation for applying retrospective presentation requirements.

(2) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Corporation was in compliance with the reserve requirement with the Federal Reserve Bank of New York as of December 31, 2020.

Generally, the Corporation is required to maintain balances with the Federal Reserve Bank of New York based upon outstanding balances of deposit transaction accounts.

However, as announced on March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effective March 26, 2020, due to the COVID-19 pandemic.

Therefore, at December 31, 2021 and 2020, there were no reserve requirements with the Federal Reserve Bank of New York.

The Corporation also maintains a pre-funded settlement account with a financial institution in the amount of $ 1.6 million for electronic funds transaction settlement purposes at December 31, 2021 and 2020.

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Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

treasury notes and bonds $ 61,084 $ 60,431 $ — $ —

Mortgage-backed securities, residential $ 582,060 $ 577,361 $ 458,245 $ 467,866

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Gains Unrealized

treasury notes and bonds $ 27 $ 680 $ — $ —

Mortgage-backed securities, residential $ 4,032 $ 8,731 $ 9,822 $ 201

12 unchanged sentences

Mortgage-backed securities, residential 582,060 577,361

treasury notes and bonds 59,676 59,024

SBA loan pools 89,216 89,083

1 unchanged sentence

Actual maturities may differ from contractual maturities above because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The proceeds from sales and calls of securities resulting in gains or losses are listed below (in thousands):

2020 2019 2018

Proceeds $ — $ 8,513 $ —

Gross gains $ — $ 159 $ —

Gross losses $ — $ ( 140 ) $ —

Tax expense $ — $ 5 $ —

There were no proceeds from sales and calls of securities resulting in gains or losses during the years ended December 31, 2021 and 2020.

Amortized cost and estimated fair value of securities held to maturity at December 31, 2021 and 2020 are as follows (in thousands):

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Gains Unrealized

Obligations of states and political subdivisions $ — $ — $ — $ —

Time deposits with other financial institutions $ 6 $ — $ 32 $ —

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After five, but within ten years 800 800

After ten years — —

Total $ 3,790 $ 3,796

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Losses Fair Value Unrealized

Obligations of U.S.

Government and U.S.

Government sponsored enterprises $ — $ — $ — $ — $ — $ —

treasury notes and bonds $ 49,084 $ 680 $ — $ — $ 49,084 $ 680

Mortgage-backed securities, residential 293,720 4,502 122,050 4,229 415,770 8,731

Obligations of states and political subdivisions — — — — — —

Corporate bonds and notes 4,928 72 1,989 10 6,917 82

5 unchanged sentences

Losses Fair Value Unrealized

Obligations of U.S.

Government and U.S.

Government sponsored enterprises $ — $ — $ — $ — $ — $ —

Mortgage-backed securities, residential $ 70,037 $ 200 $ 970 $ 1 $ 71,007 $ 201

Obligations of states and political subdivisions — — — — — —

Corporate bonds and notes 2,988 12 — — 2,988 12

3 unchanged sentences

As of December 31, 2021, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.

At December 31, 2020, all of the unrealized losses related to mortgage-backed securities were issued by U.S.

government sponsored entities, Fannie Mae and Freddie Mac.

At December 31, 2021, the unrealized losses related to mortgage-backed securities issued by U.S.

government sponsored entities, Fannie Mae and Freddie Mac as well as corporate bonds and notes.

Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2021.

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Ending balance $ 4,493 $ 11,496 $ 2,079 $ 2,856 $ 20,924

December 31, 2018

Allowance for loan losses Commercial, and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total

Beginning balance:

$ 6,976 $ 8,514 $ 1,316 $ 4,355 $ 21,161

( 3,644 ) ( 213 ) ( 226 ) ( 1,836 ) ( 5,919 )

47 3 5 494 549

Net recoveries (charge offs) ( 3,597 ) ( 210 ) ( 221 ) ( 1,342 ) ( 5,370 )

Provision 2,004 ( 120 ) 131 1,138 3,153

Ending balance $ 5,383 $ 8,184 $ 1,226 $ 4,151 $ 18,944

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2021 and December 31, 2020 (in thousands):

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Total $ 18,205 $ 11,647 $ 3,030 $ 16,546 $ 10,589 $ 1,527

December 31, 2020 December 31, 2019 December 31, 2018

Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1)

December 31, 2021 December 31, 2020

Average Recorded Investment Interest Income Recognized (1) Average Recorded Investment Interest Income Recognized (1)

With no related allowance recorded:

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Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 related modifications and therefore will not be treated as TDRs.

As of December 31, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 1,064 commercial and consumer loans represented by a total loan balance of $ 211.2 million.

As of December 31, 2020, 31 loans totaling $ 20.8 million remained in modified status, of which 18 loans totaling $ 20.1 million had been modified more than once.

As of December 31, 2020, 2019 and 2018, the Corporation has a recorded investment in TDRs of $ 6.7 million, $ 9.0 million, and $ 6.8 million, respectively.

There were specific reserves of $ 0.4 million allocated for TDRs at December 31, 2020, and $ 2.3 million and $ 0.9 million allocated for December 31, 2019 and 2018, respectively.

As of December 31, 2020, TDRs totaling $ 2.8 million were accruing interest under the modified terms and $ 3.9 million were on non-accrual status.

At its highest point as of May 31, 2020, in conformance with section 4013 of the CARES Act, total loan forbearances represented 15.77 % of the Corporation's total loan portfolio, or $ 242.5 million.

As of December 31, 2021, in conformance with Section 4013 of the CARES Act, no loans remained in modified status.

As of December 31, 2021 and 2020, the Corporation has a recorded investment in TDRs of $ 10.3 million and $ 6.7 million, respectively.

There were specific reserves of $ 1.9 million allocated for TDRs at December 31, 2021 and $ 0.4 million allocated for December 31, 2020.

As of December 31, 2021, TDRs totaling $ 5.6 million were accruing interest under the modified terms and $ 4.7 million were on non-accrual status.

As of December 31, 2020, TDRs totaling $ 2.8 million were accruing interest under the modified terms and $ 3.9 million were on non-accrual status.

The Corporation has committed no additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2020, $ 17 thousand to customers with outstanding loans that are classified as TDRs as of December 31, 2019 and no additional amounts as of December 31, 2018.

The Corporation has committed no additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2021 and 2020.

During the years ended December 31, 2021 and 2020, the terms of certain loans were modified as TDRs.

During the year ended December 31, 2021, the terms and conditions of two commercial and industrial and four commercial mortgage loans were modified as TDRs.

The modification of the terms of all of these loans included a postponement or reduction of the scheduled amortized payments for greater than a three month period.

During the year ended December 31, 2020, the modification of the terms of one residential mortgage loan included the postponement of scheduled amortized payments for a period of greater than three-months.

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The modifications of three home equity lines and loans included the deferral of payments while all three loans were risk rated Substandard and in non-accrual status prior to the modifications.

During the year ended December 31, 2019, the modification of the terms of one commercial real estate term loan included a reduction of the scheduled amortized payments for greater than a three month period, and modification of the terms of one home equity loan included a reduction in the stated interest rate for the remaining life of the loan, an extension of the maturity date for approximately three years and a reduction of the scheduled amortized payment of the loan for greater than a three month period.

Additionally, one residential mortgage loan modification included a reduction in the stated interest rate for the remaining life of the loan, a deferral of the principal balance decreasing the effective borrowing rate, an extension of the maturity date by thirteen years at a stated rate lower than the current market rate for new debt with similar risk and a postponement of the scheduled amortized payments of the loan for greater than a three month period

During the year ended December 31, 2018, the modification of the terms of two commercial and industrial term loans included extensions of the maturity dates at stated rates of interest lower than current market rates for new debt with similar risks.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2021 and 2020 (in thousands):

5 unchanged sentences

Commercial mortgages 4 6,094 6,094

Residential mortgages 4 997 997

Consumer loans:

Home equity lines and loans 3 738 738

Total 6 $ 6,596 $ 6,596

2 unchanged sentences

Troubled debt restructurings:

Commercial and agricultural:

Commercial and industrial 4 $ 2,068 $ 2,068

Commercial mortgages:

5 unchanged sentences

The TDRs described above increased the allowance for loan losses by $ 0.2 million and resulted in no charge offs during the year ended December 31, 2020.

December 31, 2018 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Troubled debt restructurings:

Commercial and agricultural:

Commercial and industrial 2 $ 491 $ 491

Total 2 $ 491 $ 491

The TDRs described above increased the allowance for loan losses by $ 0.4 million and resulted in no charge offs during the year ended December 31, 2018.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

There were no payment defaults on any loans previously modified as troubled debt restructurings during the year ended December 31, 2021, within twelve months following the modification.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2020:

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Total 1 $ 170

There were no payment defaults on any loans previously modified as troubled debt restructurings during the years ended December 31, 2019 and 2018, within twelve months following the modification.

Credit Quality Indicators

71 unchanged sentences

Net book value $ 17,969 $ 20,119

Depreciation expense was $ 2.9 million, $ 3.1 million and $ 3.4 million for 2020, 2019, and 2018, respectively.

Depreciation expense was $ 2.5 million and $ 2.9 million for 2021 and 2020, respectively.

Capital Leases

9 unchanged sentences

As of December 31, 2021, the weighted average remaining lease term was 9.5 years with a weighted average discount rate of 3.33 %.

Rent expense was $ 1.0 million, $ 1.0 million, and $ 1.1 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Rent expense was 1.0 million for each of the years ended December 31, 2021 and 2020, respectively.

Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements.

1 unchanged sentence

The Corporation’s lease agreements do not contain any residual value guarantees.

As a result of branch consolidation in November, 2020, the Corporation terminated its lease at 1054 State Route 17C, Owego, New York, releasing $ 0.2 million in future lease obligation.

The Corporation's operating lease obligation increased $ 0.8 million as of December 31, 2021 due to modification agreements, the addition of a new location in Clarence, New York, and the relocation of an existing branch location in Bath, New York.

Leased branch properties at December 31, 2021 and December 31, 2020 consist of the following (in thousands):

3 unchanged sentences

lease termination ( 313 ) ( 151 )

new lease agreement and modifications $ 1,161 $ —

Operating lease right-of-use-assets, net $ 7,234 $ 7,145

5 unchanged sentences

As of December 31, 2021, the Corporation had no operating leases that were signed, but had not yet commenced.

As of January 28, 2021, the Corporation entered into a three year lease agreement related to its new Western New York location, for which a $ 0.1 million future obligation and lease asset was recorded, effective March 1, 2021.

Finance Leases

1 unchanged sentence

The lease arrangements require monthly payments through 2036.

As of December 31, 2020, the weighted average remaining lease term was 12.1 years with a weighted average discount rate of 3.36 %.

As of December 31, 2021, the weighted average remaining lease term was 11.1 years years with a weighted average discount rate of 3.37 %.

The Corporation has included these leases in premises and equipment as of December 31, 2021 and December 31, 2020.

16 unchanged sentences

Total $ 11,608 $ 11,593 $ 11,608 $ 11,350

Aggregate amortization expense was $ 0.5 million, $ 0.6 million, and $ 0.7 million for 2020, 2019 and 2018, respectively.

Aggregate amortization expense was $ 0.2 million and $ 0.5 million for 2021 and 2020, respectively.

The remaining estimated aggregate amortization expense at December 31, 2021 is listed below (in thousands):

12 unchanged sentences

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2021 and 2020 were $ 28.8 million and $ 31.2 million, respectively.

(9) SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Repurchase agreements are secured borrowings.

The Corporation pledges investment securities to secure these borrowings.

A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2020, 2019 and 2018 is as follows (in thousands):

2020 2019 2018

Balance at December 31 $ — $ — $ —

Maximum month-end balance $ — $ — $ 10,000

Average balance during year $ — $ — $ 3,644

Weighted-average interest rate at December 31 — % — % — %

Average interest rate paid during year — % — % 3.77 %

There were no securities sold under agreements to repurchase as of December 31, 2020, 2019 and 2018.

The Corporation enters into sales of securities under agreements to repurchase and the amounts received under these agreements represent borrowings and are reflected as a liability in the consolidated balance sheets.

The securities underlying these agreements are included in investment securities in the consolidated balance sheets.

See Note 3 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

The Corporation has no control over the market value of the securities which fluctuate due to market conditions, however, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price.

The Corporation manages this risk by utilizing highly marketable and easily priced securities, monitoring these securities for significant changes in market valuation routinely, and maintaining an unpledged securities portfolio believed to be sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

(9) FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

There were no FHLBNY fixed rate term advances and overnight advances as of December 31, 2020 and December 31, 2019.

The Corporation has pledged $ 101.9 million and $ 170.0 million of first mortgage loans under a blanket lien arrangement at December 31, 2020 and 2019, respectively, as collateral for future borrowings.

Based on this collateral and the Corporation’s holdings of FHLBNY stock, the Corporation is eligible to borrow up to a total of $ 86.3 million at December 31, 2020.

As of December 31, 2021, FHLBNY fixed rate term advances and overnight advances totaled $ 14.6 million.

There were no FHLBNY fixed rate term advances and overnight advances as of December 31, 2020.

The following is a summary of FHLBNY fixed rate term advances and overnight advances as of December 31, 2021.

The carrying amount includes the advance balance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

Amount Rate Maturity Date Call Date

$ 14,570 0.34 % January 3, 2022 -

$ 14,570 0.34 %

The Bank has pledged $ 204.2 million and $ 101.9 million of first mortgage loans under a blanket lien arrangement at December 31, 2021 and 2020, respectively, as collateral for future borrowings.

Based on this collateral and additional securities held, the Bank's unused borrowing capacity at the FHLBNY was $ 161.0 million at December 31, 2021.

(10) REVENUE FROM CONTRACTS WITH CUSTOMERS

17 unchanged sentences

Change in fair value of equity securities (a)

139 — ( 50 ) 89

Income from bank-owned life insurance (a)

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Net gains on sales of loans (a)

Loan servicing fees (a)

Net gains on sales of securities (a)

Change in fair value of equity securities (a)

1,730 — — 1,730

1,378 — ( 397 ) 981

Total non-interest income $ 10,356 $ 9,503 $ 214 $ 20,073

(a) Not within scope of ASC 606.

(b) The Holding Company, CFS, and CRM column above includes amounts to eliminate transactions between segments.

Year ended December 31, 2018

Revenue by Operating Segment:

Core Banking WMG Holding Company, CFS, and CRM (b)

Non-interest income

Service charges on deposit accounts

Overdraft fees $ 3,934 $ — $ — $ 3,934

Other 793 — — 793

Interchange revenue from debit card transactions 4,040 — — 4,040

WMG fee income — 9,317 — 9,317

CFS fee and commission income — — 510 510

Net gains (losses) on sales of OREO 90 — — 90

Net gains on sales of loans (a)

Loan servicing fees (a)

1 unchanged sentence

139 — ( 50 ) 89

Income from bank-owned life insurance (a)

1,708 — 43 1,751

55 unchanged sentences

56 $ 377,010 $ ( 357 )

2018 Number of Instruments Notional Amount Weighted Average Maturity

(in years) Weighted Average Interest Rate Received Weighted Average Contract Pay Rate Fair Value Other Assets/ (Other Liabilities)

Derivatives not designated as hedging instruments:

Interest rate swap agreements on loans with commercial loan customers 11 $ 76,395 7.1 4.69 % 4.61 % $ ( 3,255 )

Interest rate swap agreements with third-party counter-parties 11 76,395 7.1 4.61 % 4.69 % 3,142

Risk participation agreements 6 20,142 15.0 ( 27 )

28 $ 172,932 $ ( 140 )

Off-balance sheet exposure for the risk participation agreements was $ 0.4 million for December 31, 2020 and December 31, 2019.

Off-balance sheet exposure for the risk participation agreements was $ 0.5 million and $ 0.4 million for December 31, 2021 and December 31, 2020, respectively.

Amounts included in the Consolidated Statements of Income related to derivatives not designated as hedging were as follows:

Years Ended December 31,

2020 2019 2018

Derivatives not designated as hedging instruments:

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For the years ended December 31, 2021 and 2020, income tax expense attributable to income from operations consisted of the following (in thousands):

2020 2019 2018

Current expense:

4 unchanged sentences

Federal 527 ( 136 )

State 50 ( 438 ) 345

Remeasurement of deferred tax assets — — ( 445 )

Total deferred 570 ( 86 )

2 unchanged sentences

Federal statutory income tax rate to income before income tax expense as follows (in thousands):

2020 2019 2018

Statutory federal tax rate 21 % 21 %

6 unchanged sentences

Nondeductible interest expense 4 5

Remeasurement of deferred tax assets — — ( 445 )

Other items, net 117 167

2 unchanged sentences

The higher tax expense in 2021 when compared to 2020 can be attributed to an increase in pretax income.

The lower tax expense in 2019 when compared to 2018 can be attributed to a decrease in pretax income.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2021 and 2020, are presented below (in thousands):

8 unchanged sentences

Gain on deemed sale of securities — 54

Net unrealized losses on securities available for sale 886 —

Accounting for defined benefit pension and other benefit plans 1,347 2,302

11 unchanged sentences

Operating lease right-of-use assets 1,976 1,831

Accrual for employee benefit plans 3 —

Other 344 168

9 unchanged sentences

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2018 and for New York State taxing authorities for the year prior to 2018.

New York State taxing authorities are currently auditing the Corporation with the years 2018, 2019, and 2020.

The Corporation does not anticipate material adjustments as a result of the New York State audits.

(13) PENSION PLAN AND OTHER BENEFIT PLANS

4 unchanged sentences

Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits.

During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments.

A payout to participants of $ 3.3 million during the year ended December 31, 2018 is reflected in the projected benefit obligation and fair value of assets tables presented below.

A settlement charge of $ 828 thousand has been recognized during the year ended December 31, 2018 in order to accelerate the recognition of a portion of the plan's unrecognized net loss.

The Corporation uses a December 31 measurement date for its pension plan.

22 unchanged sentences

The accumulated benefit obligation at December 31, 2021 and 2020 was $ 40.4 million and $ 42.8 million, respectively.

Actuarial losses in the Projected Benefit Obligation (PBO) in 2020 were primarily the result of the decrease in discount rate.

The decrease in discount rate caused the PBO to increase by $ 3.5 million.

Actuarial gains in the Projected Benefit Obligation (PBO) in 2021 were primarily the result of the increase in discount rate.

The increase in discount rate caused the PBO to decrease by $ 1.3 million.

Other sources of gain/loss such as plan experience, updated census data and minor adjustments to actuarial assumptions generated a combined loss of less than 1 % of expected year end obligations.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2021 and 2020 were as follows:

2020 2019 2018

Discount rate 2.87 % 2.61 %

Assumed rate of future compensation increase N/A N/A N/A

Weighted-average interest crediting rate N/A N/A N/A

Assumed rate of future compensation increase N/A N/A

Weighted-average interest crediting rate N/A N/A

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2021 and 2020 consist of the following (in thousands):

8 unchanged sentences

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):

2020 2019 2018

Net actuarial (gain) loss $ ( 3,618 ) $ ( 538 )

3 unchanged sentences

Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect) $ ( 5,230 ) $ ( 1,682 )

During 2020, the plan's total unrecognized net gain increased by $ 0.8 million.

During 2021, the plan's total unrecognized net loss decreased by $ 3.8 million.

The variance between the actual and expected return on plan assets during 2021 decreased the total unrecognized net loss by $ 2.3 million.

3 unchanged sentences

Actual results for 2022 will depend on the 2022 actuarial valuation of the plan.

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2020, 2019 and 2018 were as follows:

2020 2019 2018

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2021, 2020 were as follows:

Discount rate 2.61 % 3.33 %

Expected return on assets 5.50 % 5.50 %

Assumed rate of future compensation increase N/A N/A N/A

Weighted-average interest crediting rate N/A N/A N/A

Assumed rate of future compensation increase N/A N/A

Weighted-average interest crediting rate N/A N/A

The Corporation changes important assumptions whenever changing conditions warrant.

80 unchanged sentences

Additionally, beginning January 1, 2017 the Bank began contributing a 50 % match up to 6 % of gross annual wages.

Expense related to both plans totaled $ 1.3 million, $ 1.3 million, and $ 1.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Expense related to both plans totaled $ 1.3 million for the years ended December 31, 2021 and 2020.

The plan's assets at December 31, 2021 and 2020 include 118,081 and 137,698 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S.

26 unchanged sentences

Weighted-average assumption for disclosure as of December 31:

2020 2019 2018

Discount rate 2.87 %

Assumed rate of future compensation increase N/A N/A N/A

Assumed rate of future compensation increase N/A N/A

Health care cost trend:

1 unchanged sentence

6.95 % / 5.45 %

Health care cost trend:

1 unchanged sentence

4.75 % / 4.75 %

Year ultimate cost trend reached 2027 2026

10 unchanged sentences

recognized in other comprehensive income (loss):

2020 2019 2018

Net actuarial (gain) loss $ ( 37 ) $ ( 57 )

4 unchanged sentences

Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ ( 31 ) $ ( 48 )

Actuarial gain for 2020 is primarily the net impact of a decrease in discount rate, which raised the Accumulated Postretirement Benefit Obligation (APBO) by $ 10 thousand and claims and date experience, which (combined) decreased the APBO by $ 65 thousand.

Actuarial gain for 2021 is primarily the net impact of an increase in discount rate, which decreased the Accumulated Postretirement Benefit Obligation (APBO) by $ 4 thousand and claims and date experience, which (combined) decreased the APBO by $ 31 thousand.

During 2021 the plan's total unrecognized net loss decreased by $ 79 thousand.

9 unchanged sentences

Weighted-average assumptions for net periodic cost as of December 31:

2020 2019 2018

Discount rate 2.61 %

Expected return on plan assets N/A N/A N/A

Assumed rate of future compensation increase N/A N/A N/A

Expected return on plan assets N/A N/A

Assumed rate of future compensation increase N/A N/A

Health care cost trend:

34 unchanged sentences

Weighted-average assumption for disclosure as of December 31:

2020 2019 2018

Discount rate 2.87 % 2.61 %

Assumed rate of future compensation increase N/A N/A N/A

Weighted-average interest crediting rate N/A N/A N/A

Assumed rate of future compensation increase N/A N/A

Weighted-average interest crediting rate N/A N/A

The components of net periodic benefit cost for the years ended December 31, 2021 and 2020 are as follows (in thousands):

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Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):

2020 2019 2018

Net actuarial (gain) loss $ — $ 89

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Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ 31 $ 128

Actuarial losses in the projected benefit obligation in 2020 were primarily the result of the decrease in discount rate, $ 69 thousand, and mortality losses, $ 23 thousand.

During 2021, there was a $ 24 thousand gain in the projected benefit obligation as a result of the increase in discount rate.

Offsetting this was a mortality loss of $ 26 thousand.

Other sources of gains/losses, including the update in mortality table, generated losses of less than 1 % of expected year end obligations.

During 2020, the plan's total unrecognized net loss increased by $ 76 thousand.

During 2021, the plan's total unrecognized net loss decreased by $ 20 thousand.

Because the total unrecognized net gain or loss exceeds the greater of 10 % of the projected benefit obligation or 10 % of the plan assets, the excess will be amortized over the average future life expectancy of all participants.

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Weighted-average assumptions for net periodic cost as of December 31:

2020 2019 2018

Discount rate 2.61 % 3.33 %

Expected asset return N/A N/A N/A

Assumed rate of future compensation increase N/A N/A N/A

Weighted-average interest crediting rate N/A N/A N/A

Expected asset return N/A N/A

Assumed rate of future compensation increase N/A N/A

Weighted-average interest crediting rate N/A N/A

The discount rate was determined by projecting the plan's expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation.

The change in unrecognized net gain.loss is one measure of the degree to which important assumptions have coincided with actual experience.

During 2020 the unrecognized net loss increased by 6.2 % of the December 31, 2019 projected benefit obligation.

During 2021 the unrecognized net loss decreased by 1.6 % of the December 31, 2020 projected benefit obligation.

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the Supplemental Pension Plan (in thousands):

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The accrued obligation for the plan as of December 31, 2021 and 2020 was $ 2.4 million and $ 2.0 million, respectively.

A total of $ 0.4 million, $ 0.4 million, and $ 0.3 million was expensed during the years ended December 31, 2020, 2019, and 2018, respectively.

A total of $ 0.4 million was expensed during the years ended December 31, 2021 and 2020.

In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will equal the average yield on five year U.S.

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(14) STOCK COMPENSATION

Board of Directors' Stock Compensation

Members of the Board of Directors receive common shares of the Corporation equal in value to the amount of fees individually earned during the previous year for service as a director.

The common shares are distributed to the Corporation's individual Board of Directors members from treasury shares of the Corporation on or about January15 following the calendar year of service.

In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $ 6,000 to $ 11,500 and $ 19,250 for the Chairman of the Board.

The retainer for the Chairman of the Audit Committee was also increased by an additional $ 2,875 to $ 14,375 .

The directors waived their right to stock compensation for the additional retainer fees paid.

Additionally, the Chief Executive Officer of the Corporation, who does not receive cash compensation as a member of the Board of Directors, is awarded common shares equal in value to the average of those awarded to Board of Directors members not employed by the Corporation who have served for 12 months during the prior year.

During January 2021, 2020, and 2019, 9,291 , 7,923 and 8,465 shares, respectively, were re-issued from treasury to fund the stock component of the directors' and the Chief Executive Officer’s compensation.

An expense of $ 318 thousand, $ 350 thousand and $ 357 thousand related to this compensation was recognized during the years ended December 31, 2020, 2019 and 2018, respectively.

This expense is accrued as shares are earned.

Restricted Stock Plan

Pursuant to the Corporation’s Restricted Stock Plan (the “Plan”), the Corporation may make discretionary grants of restricted stock to officers other than the Corporation's Chief Executive Officer.

Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date.

A Form S-8 Registration Statement was filed with the SEC on June 18, 2021 registering shares to be awarded under the 2021 Plan.

The 2021 Plan provides officers, employees and directors of the Corporation and the Bank with additional incentives to promote the growth and performance of the Corporation.

The prior plan shall remain in existence solely for the purpose of administering outstanding grants.

Under the terms of the 2021 Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the 2021 Plan, the chief executive officer and members of the Board of Directors.

Awards are based on the performance, responsibility and contributions of the individual and are targeted at an average of the peer group.

The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares related to the 2021 Plan may not exceed 170,000 , upon which time a new plan will be filed.

Awards under the 2021 Plans may be vested no earlier than the first anniversary of the date on which the award is granted.

During January 2022 and 2021, 9,190 and 9,291 shares, respectively, were granted and re-issued from treasury to fund the stock component of the Directors' and the Chief Executive Officer’s compensation.

For 2022 grants, the expense related to this compensation will be recognized over the one year vesting period.

An expense of $ 318 thousand related to this compensation was recognized during the year ended December 31, 2020 as this expense was accrued as shares were earned.

A summary of restricted stock activity as of December 31, 2021, and changes during the year ended is presented below:

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Nonvested at December 31, 2021 37,837 $ 42.99

As of December 31, 2020, there was $ 1.1 million of total unrecognized compensation cost related to nonvested shares granted under the Plan.

As of December 31, 2021, there was $ 1.5 million of total unrecognized compensation cost related to nonvested shares granted under the prior Plan and the 2021 Plan.

The cost is expected to be recognized over a weighted-average period of 4.23 years.

The total fair value of shares vested during the years ended December 31, 2020, 2019 and 2018 were $ 556 thousand, $ 438 thousand and $ 432 thousand, respectively.

The total fair value of shares vested during the years ended December 31, 2021 and 2020 were $ 620 thousand and $ 556 thousand, respectively.

(15) RELATED PARTY TRANSACTIONS

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The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July 2022 from a member of the Corporation's Board of Directors with monthly rent expense totaling $ 4 thousand per month.

Annual rent paid to this Board of Directors member totaled $ 51 thousand, $ 52 thousand, and $ 45 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.

The Bank utilized legal services from a local law firm in 2019 and 2018 which a former member of the Board of Directors is a principal owner.

Services totaled $ 10 thousand, and $ 28 thousand for the years ended December 31, 2019 and 2018, respectively.

The Bank did no t utilize legal services from the same local law firm for the year ended December 31, 2020.

Annual rent paid to this Board of Directors member totaled $ 50 thousand and $ 51 thousand for the years ended December 31, 2021 and 2020, respectively.

The Bank entered into a lease agreement in 2018 related to its branch located at 2 Rush Street, Schenectady, New York, under a lease agreement through February 2033 from a member of the Corporation's Board of Directors with monthly rent expense totaling $ 8 thousand per month.

Rent paid to this Board of Directors member totaled $ 106 thousand, $ 93 thousand and $ 84 thousand for the years ended December 2020, 2019 and 2018, respectively.

The Bank leases its branch located at 127 Court Street, Binghamton, New York under a lease agreement through June 2030 with monthly lease payments of $ 5 thousand.

The lease originated with an entity in whom the employer of a Director of the Corporation had a twenty percent interest.

In July 2017, the employer of the Director sold its interest in the property to an unrelated third party from which the Bank continues to lease the property.

CFS offered insurance products to its customers through the same employer of a Director of the Corporation during the year ended December 31, 2018.

CFS earned income of less than $ 1 thousand related to these insurance products during the year ended December 31, 2018.

The Bank purchased insurance products from the same employer of a Director of the Corporation in the amount of $ 34 thousand during the year ended December 31, 2018.

Rent paid to this Board of Directors member totaled $ 101 thousand and $ 106 thousand for the years ended December 2021 and 2020, respectively.

WMG provided trust services to members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners or board members.

WMG fee income for the trust services provided totaled $ 614 thousand, $ 580 thousand, and $ 593 thousand for the years ended December 31, 2020, 2019, and 2018, respectively.

WMG fee income for the trust services provided totaled $ 726 thousand and $ 614 thousand for the years ended December 31, 2021 and 2020, respectively.

(16) COMMITMENTS AND CONTINGENCIES

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The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2021 was not significant.

On March 23, 2016, the Bank received a summons and complaint for an action brought in the State of New York Supreme Court for the County of Tompkins, regarding its lease of 202 East State Street, Ithaca, NY, a branch location which the Bank had vacated.

The owner of the leased premises has alleged that the Bank has breached its contract and is requesting a judgment declaring that the term of the lease runs through December 31, 2025 or a judgment in his favor in the amount of $ 4.0 million.

The Bank has denied that it breached the contract.

On July 25, 2016, the Corporation received Notice of Entry of the decision and order of the New York Supreme Court for the County of Tompkins, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York against the Bank.

The Court granted, in part, partial summary judgment in favor of the plaintiff - on the issue of liability only - for anticipatory breach and breach of contract.

The fraud claims were dismissed, and summary judgment was denied on the plaintiff’s trespass claims.

The Court set the matter down for an inquest on damages at a later date, with the original claim by the plaintiff seeking $ 4.0 million in damages.

The Corporation established a legal reserve of $ 1.2 million in connection with this case during the second quarter of 2016.

Subsequent to an appeal of the lower court determination, which was perfected in the Appellate Division, Third Department of State Supreme Court, on June 29, 2017, the Bank received Notice of Entry of the decision and Order of that Court which affirmed the lower court’s decision in favor of the plaintiff with damages to be determined at a later proceeding.

The Bank established an additional legal reserve in the amount of $ 850 thousand, in connection with this case, during the second quarter of 2017.

The Bank’s total reserve with respect to this matter stood at $ 2.3 million, including $ 0.2 million accrued for related expenses not yet paid as of June 30, 2017.

A motion to the Appellate Division for reargument or permission for leave to appeal to the Court of Appeals was filed and denied during the fourth quarter of 2017.

On June 15, 2018, the Bank, through mediation, reached a resolution by way of a settlement agreement in the matter of Fane v.

Chemung Canal Trust Company (the “Action”).

The parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $ 3.3 million in connection with the settlement of the Action.

As of March 31, 2018, the Corporation had a legal reserve of $ 2.3 million for the Action and therefore recognized an additional $ 1.0 million of legal expense during the second quarter of 2018.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.

Except for the above matter, the Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity.

The Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity.

(17) PARENT COMPANY FINANCIAL INFORMATION

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Equity in undistributed earnings of CFS Group, Inc.

8 ( 4 ) ( 32 )

Equity in undistributed earnings of Chemung Risk Management, Inc.

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Equity in undistributed earnings of CFS Group, Inc.

( 198 ) ( 8 )

Equity in undistributed earnings of Chemung Risk Management, Inc.

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(Level 2) Significant Unobservable Inputs

treasury notes and bonds $ 60,431 $ 60,431 $ — $ —

Mortgage-backed securities, residential $ 577,361 $ — $ 577,361 $ —

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There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2021 and 2020.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:

Assets (Liabilities)

Derivative Liabilities

(in thousands) 2020 2019

Balance of recurring Level 3 assets at January 1 $ ( 365 ) $ ( 140 )

Derivative instruments entered into ( 52 ) ( 43 )

Total gains or losses for the period:

Included in earnings - other non-interest income 60 ( 182 )

Balance of recurring Level 3 assets at December 31 $ ( 357 ) $ ( 365 )

The following table presents information related to Level 3 recurring fair value measurement at December 31, 2020 and December 31, 2019 (in thousands):

Description Fair Value at December 31,

2020 Valuation Technique Unobservable Inputs Range

[Weighted Average]

at December 31, 2020

Derivative liabilities $ 357 Historical trend Credit default rate 0.93 % - 27.78 %

Description Fair Value at December 31,

2019 Valuation Technique Unobservable Inputs Range

[Weighted Average]

at December 31, 2019

Derivative liabilities $ 365 Historical trend Credit default rate 7.30 % - 7.30 %

Assets and liabilities measured at fair value on a non-recurring basis are summarized below (in thousands):

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(Level 3) Total Gains (Losses)

Impaired Loans:

Commercial mortgages:

Commercial mortgages $ — $ — $ — $ — $ —

Total impaired loans $ — $ — $ — $ — $ —

Other real estate owned:

Commercial mortgages:

Commercial mortgages $ 111 $ — $ — $ 111 $ —

Residential mortgages 143 — — 143 —

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(Level 3) Total Gains (Losses)

Impaired Loans:

Commercial mortgages:

Commercial mortgages $ 1,554 $ — $ — $ 1,554 $ ( 1,597 )

Total impaired loans $ 1,554 $ — $ — $ 1,554 $ ( 1,597 )

Other real estate owned:

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Residential mortgages 126 — — 126 —

Consumer loans:

Home equity lines and loans 122 — — 122 —

Total other real estate owned, net $ 237 $ — $ — $ 237 $ —

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at December 31, 2021

Commercial mortgages:

Commercial mortgages $ 111 Sales comparison Discount to appraised value 20.80 % - 20.80 %

Residential mortgages 143 Sales comparison Discount to appraised value 20.80 % - 20.80 %

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at December 31, 2020

Impaired loans:

Commercial mortgages:

Commercial mortgages $ 111 Sales comparison Discount to appraised value 20.80 % - 20.80 %

Commercial mortgages:

Commercial mortgages $ 111 Sales comparison Discount to appraised value 20.80 % - 20.80 %

Residential mortgages 126 Sales comparison Discount to appraised value 20.80 % - 20.80 %

Consumer loans:

Home equity lines and loans 122 Sales comparison Discount to appraised value 20.80 % - 20.80 %

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Failure to meet capital requirements can initiate regulatory action.

The final rules implementing Basel III rules became effective for the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019.

Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios.

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At December 31, 2020, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.

At December 31, 2019, the most recent regulatory notifications categorized the Corporation and the Bank as well capitalized under the regulatory framework for prompt corrective action.

The Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

There are no conditions or events since that notification that management believes have changed the institution's category.

As of December 31, 2021, 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.

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Balance at December 31, 2020 $ 9,127 $ ( 6,726 ) $ 2,401

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total

Balance at Balance at December 31, 2017 $ ( 3,415 ) $ ( 6,925 ) $ ( 10,340 )

Cumulative effect of accounting change ( 202 ) — ( 202 )

Balance at January 1, 2018 ( 3,617 ) ( 6,925 ) ( 10,542 )

Other comprehensive income (loss) before reclassification ( 1,029 ) ( 530 ) ( 1,559 )

Amounts reclassified from accumulated other comprehensive income (loss) — 690 690

Net current period other comprehensive loss ( 1,029 ) 160 ( 869 )

Balance at December 31, 2018 $ ( 4,646 ) $ ( 6,765 ) $ ( 11,411 )

The following is the reclassification out of accumulated other comprehensive income (loss) for the periods indicated (in thousands):

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Net Income is Presented

2020 2019 2018

Unrealized gains and losses on securities available for sale:

Realized gains on securities available for sale $ — $ ( 19 ) $ — Net gains on securities transactions

Tax effect — 5 — Income tax expense

Net of tax — ( 14 ) —

Amortization of defined pension plan and other benefit plan items:

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Tax effect 1 ( 15 ) Income tax expense

Net of tax 65 65 690

Total reclassification for the period, net of tax $ ( 7 ) $ 65

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Segment assets $ 2,271,923 $ 3,231 $ 4,297 $ 2,279,451

Year ended December 31, 2018 Core Banking WMG Holding Company and CFS Consolidated Totals

Interest and dividend income $ 64,511 $ — $ 42 $ 64,553

Interest expense 4,073 — — 4,073

Net interest income 60,438 — 42 60,480

Provision for loan losses 3,153 — — 3,153

Net interest income after provision for loan losses 57,285 — 42 57,327

Non-interest income 13,597 9,317 160 23,074

Non-interest expenses 49,650 5,997 1,119 56,766

Income (loss) before income tax expense 21,232 3,320 ( 917 ) 23,635

Income tax expense (benefit) 3,329 847 ( 167 ) 4,009

Segment net income (loss) $ 17,903 $ 2,473 $ ( 750 ) $ 19,626

Segment assets $ 1,747,208 $ 3,606 $ 4,529 $ 1,755,343

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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Signature Title Date

/s/ Richard W.

Swan Director March 24, 2021

Thomas Tranter, Jr.

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3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended to January 20, 20 21 (as incorporated by reference to Exhibit 3.

2 to Registrant’s Form 8-K and filed with the Commission on J anuary 25, 2021 ).

3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended November 17 , 2021 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on November 19 , 2021).

4.1 Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).

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10.3 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karl F.

Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commissio n on December 23, 2019 and incorporated herein by reference).

10.4 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Louis C.

DiFabio, Executive Vice President, (as incorporated by reference to Exhibit 10.4 to Registrant's Form 10-K for the year ended December 31, 2019 and filed with the Commission on March 12, 2020).

10.5 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karen R.

Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.3 to Registrant’s Form 8 -K on December 23, 2019 and incorporated herein by reference).

Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference).

10.4 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Thomas W.

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Kenefick, Regional President (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on January 5, 2021 and incorporated herein by reference).

10.8 Chemung Financial Corporation 2021 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 8, 2021 and incorporated herein by reference).

10.12 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan *

21 Subsidiaries of the Registrant.*

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 9A. Controls and Procedures