What changed in this filing

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Item 1. Business

2023-03-22 compared with 2022-03-23 · 35 added, 44 removed, 399 unchanged (17% of the section changed)

9 unchanged sentences

Over the last 14 years, the Corporation and the Bank have completed the following transactions to grow the franchise:

• On March 14, 2008, the Bank acquired three branches from Manufacturers and Traders Trust Company in the New York counties of Broome and Tioga.

• On March 14, 2008, the Bank acquired three branches from Manufacturers and Traders Trust Company in Broome and Tioga counties in New York.

At the time of the acquisition, the Bank assumed $64.4 million in deposits and acquired $12.6 million in loans.

11 unchanged sentences

Consistent with the Corporation’s community-banking model, emphasis is placed on acquiring stable, low-cost deposits, such as checking account deposits and other low interest-bearing deposits to fund high-quality loans.

The Corporation evaluates acquisition targets based on the economic viability of their markets, the degree to which they can be effectively integrated into the Corporation’s current operations and the degree to which they are accretive to capital and earnings.

The Corporation evaluates potential acquisition targets based on the economic viability of their markets, the degree to which they can be effectively integrated into the Corporation’s current operations, and the degree to which they are accretive to capital and earnings.

Description of Business

10 unchanged sentences

There were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2022.

For additional information concerning the effect of COVID-19 on our business, please refer to pages 47-48.

Lending Activities

1 unchanged sentence

The Corporation’s objective is to channel deposits gathered locally into high-quality, market-yielding loans without taking unacceptable credit and/or interest rate risk.

The Corporation seeks to have a diversified loan portfolio consisting of commercial and agricultural loans, commercial mortgages, residential mortgages, home equity lines of credit and home equity term loans, consumer and indirect automobile loans.

The Bank operates with a traditional community bank model where the relationship manager possesses credit skills and has significant influence over credit decisions.

28 unchanged sentences

Guidance from the FRB and other regulatory agencies indicated that no new contracts should be entered into after December 31, 2021 that reference LIBOR.

The Corporation plans to begin using SOFR or other acceptable reference rates for new loans originated, beginning in 2022.

Additionally, management is reviewing existing contracts that reference LIBOR to determine if adjustments are needed to fallback language, prior to the June 30, 2023 end date.

The Corporation has transitioned to the use of SOFR or other acceptable reference rates for new loans originated.

Additionally, existing contracts that reference LIBOR are being systematically transitioned to SOFR or other acceptable reference rates in advance of the June 30, 2023 end date.

The Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments.

39 unchanged sentences

Derivative Financial Instruments

The Bank offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Bank matches these swaps with offsetting swaps with national bank counterparties.

These swaps are considered free standing derivatives and are carried at fair value on the consolidated balance sheet in other assets and other liabilities, with gains and losses recorded through other non-interest income.

The Bank offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Bank matches these swaps using offsetting swaps with national bank counterparties.

These swaps are considered free standing derivatives and are carried at fair value on the consolidated balance sheet, with gains and losses recorded through other non-interest income.

The swaps are not designated as hedging derivatives.

25 unchanged sentences

The region's largest employers are affiliated with the healthcare industry, primarily located in the medical corridor.

Within all these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from local, regional and national commercial banks and thrift institutions, credit unions and other providers of financial services, such as brokerage firms, investment companies, insurance companies, Fintech, and internet banking entities.

Within all these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from local, regional and national commercial banks and thrift institutions, credit unions, and other providers of financial services such as brokerage firms, investment companies, insurance companies, and Fintech, and internet banking entities.

The Bank also competes with non-financial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make loans to certain borrowers.

18 unchanged sentences

In addition to our insurance offerings and leave programs, we offer an employee assistance program, along with welfare programs, fitness reimbursement, and an on-site flu-shot clinic.

In response to the COVID-19 pandemic we made arrangements for many employees to work remotely, installed safety shields, provided on-going safety messaging, posted COVID-19 awareness literature in common areas, enhanced our cleaning protocol, set up screening stations in all locations, and worked closely with the Department of Health.

In addition, we followed all state, local and CDC guidelines.

In response to the COVID-19 pandemic the Corporation made arrangements for many employees to work remotely, installed safety shields, provided on-going safety messaging, posted COVID-19 awareness literature in common areas, enhanced our cleaning protocol, set up screening stations in all locations, worked closely with the Department of Health, and followed all state, local and CDC guidelines.

At this time of this filing, some pandemic-related modified business practices remain in place, such as remote work and flexible work schedules.

We believe investing in our employees not only helps with retention, but also keeps employees engaged and focused.

We encourage all employees to join career circles, find a mentor, apply for our leadership program, job shadow, and attend our internal career fair.

We encourage all employees to join career circles, find a mentor, apply for our leadership program, job shadow, attend diversity, equity and inclusion, and supervisor discussions, and other trainings offered.

The success of our company depends on the success of our employees.

Available Information

The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation.

In addition, the Corporation maintains a corporate web site at www.chemungcanal.com.

The Corporation makes available free of charge through the Bank's web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation.

In addition, the Corporation maintains a corporate website at www.chemungcanal.com.

The Corporation makes available free of charge through the Bank's website its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.

These items are available as soon as reasonably practicable after we electronically file or furnish such material with the SEC.

The contents of the Bank's web site are not a part of this report.

The contents of the Bank's website are not a part of this report.

These materials are also available free of charge by written request to:

33 unchanged sentences

(ii) disclosure regarding any potential conflict of interest of any compensation consultants of the Corporation;

(iii) disclosure regarding compensation committee independence and experience, qualifications, skills and diversity of its directors and any director nominees;

(iii) disclosure regarding audit and compensation committee independence and experience, qualifications, skills and diversity of its directors and any director nominees;

(iv) “say-on-pay” disclosure;

and (v) information relating to the leadership structure of the Corporation’s Board of Directors and the Board of Directors' role in the risk management process.

performance disclosure;

and (vi) information relating to the leadership structure of the Corporation’s Board of Directors and the Board of Directors' role in the risk management process.

Sarbanes-Oxley

43 unchanged sentences

The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements.

The Bank is currently in compliance with these requirements.

At December 31, 2022, the Bank was in compliance with these requirements.

Standards for Safety and Soundness

24 unchanged sentences

Therefore, the assessment rate may change if any of these measurements change.

Assessments for institutions with less than $10 billion of assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years, with institutions deemed less risky paying lower assessments.

The assessment range (inclusive of possible adjustments) for institutions of less than $10 billion in total assets is 1.5 basis points to 30 basis points.

The FDIC has authority to increase insurance assessments.

Any material increases would likely have an adverse effect on the operating expenses and results of operations of the Bank and the Corporation.

Future insurance assessments cannot be predicted.

For institutions of the Bank’s asset size, the FDIC operates a risk-based premium system that determines assessment rates from financial modeling designed to estimate the probability of the bank’s failure over a three-year period.

Assessment rates for institutions of the Bank’s size ranged from 1.5 to 30 basis points effective through December 31, 2022.

The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023.

As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 3.5 to 32 basis points.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed in writing.

19 unchanged sentences

government securities, a risk weight of 50% is generally assigned to prudently underwritten first lien one to four family residential mortgages, a risk weight of 100% is assigned to commercial and consumer loans, a risk weight of 150% is assigned to certain past due loans and a risk weight of between 0% and 600% is assigned to permissible equity interests, depending on certain specified factors.

The regulations limit a banking organization’s capital distributions and certain discretionary bonus payments if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The regulations limit a banking organization’s capital distributions and certain discretionary bonus payments to executives if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.

The Corporation is not subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

11 unchanged sentences

Beginning in 2021, the community bank leverage ratio increased to 8.5% for the calendar year.

Community banks have until January 1, 2022, before the community bank leverage ratio requirement will return to 9%.

Community banks had until January 1, 2022, before the community bank leverage ratio requirement returned to 9%.

The Bank has not elected to use the community bank leverage ratio.

21 unchanged sentences

The NYSDFS also has authority to appoint a conservator or receiver (which may be the FDIC) for a bank under certain circumstances.

On June 24, 2021, the Bank and the NYSDFS agreed to the settlement provisions set forth in a Consent Order pertaining to alleged violations of New York’s Fair Lending Law and the federal Equal Credit Opportunity Act relating to the Bank’s indirect automobile lending program.

The Bank agreed to pay restitution to impacted borrowers of $53,000 and a civil monetary penalty of $350,000 to NYSDFS.

The Bank has been informed by the NYSDFS that the Bank has satisfied all of its obligations under the 2021 Consent Order with the NYSDFS related to the Bank’s indirect automobile lending program.

Under federal law, the FRB possesses authority to bring enforcement actions against member banks and their ‘‘institution-affiliated parties,’’ including directors, officers, employees and, under certain circumstances, a stockholder, attorney, appraiser or accountant.

36 unchanged sentences

Additional Important Le g islation and Re g ulation

The Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”)

The CARES Act, which became law on March 27, 2020, provided over $2 trillion to combat the coronavirus (COVID-19) pandemic and stimulate the economy.

The legislation included direct financial aid to American families and economic stimulus to significantly impacted industry sectors through programs like the Paycheck Protection Program (“PPP”) and Main Street Lending Program (“MSLP”).

Certain provisions of the CARES Act, relevant to financial institutions, include:

• Allowing financial institutions to elect to suspend requirements under U.S.

Generally Accepted Accounting Principles for loan modifications relating to COVID-19 pandemic and suspend the corresponding impairment determination for accounting purposes.

This provision as extended by later legislation will last until the earlier of January 1, 2022 or no later than 60 days after the President declares that the coronavirus emergency is terminated;

• Temporarily reducing the CBLR to 8%.

The ratio increased to 8.5% for 2021 and reverts back to 9% thereafter;

• The ability of a borrower of a federally-backed mortgage loan (VA, FHA, USDA, Freddie Mac and Fannie Mae) experiencing financial hardship due, directly or indirectly, to the COVID-19 pandemic, to request forbearance from paying their mortgage by submitting a request to the borrower’s servicer affirming their financial hardship during the COVID-19 emergency.

Such a forbearance could be granted for up to 180 days, subject to extension for an additional 180-day period upon the request of the borrower.

During that time, no fees, penalties or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the mortgage contract could accrue on the borrower’s account.

Except for vacant or abandoned property, the servicer of a federally-backed mortgage was prohibited from taking any foreclosure action, including any eviction or sale action, for not less than the 60-day period beginning March 18, 2020, which period has subsequently been extended several times by federal mortgage-backing agencies.

New York State COVID-19 Emergency Eviction and Foreclosure Prevention Act of 2020

The Act prevents residential evictions, foreclosure proceedings, tax lien sales or foreclosures, credit discrimination and negative credit reporting related to the COVID-19 pandemic.

The Act places these moratoriums until January 15, 2022.

The Regulatory Relief Act

2 unchanged sentences

(i) exempting banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio;

(ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas;

(ii) allows usage of Uniform Standards of Professional Appraisal Practice (USPAP) compliant evaluations for certain transactions valued at less than $400,000 in rural areas instead of appraisals, providing specific criteria are met;

(iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from HMDA’s expanded data disclosures;

9 unchanged sentences

(iii) as discussed under “Regulatory Capital Requirements,” mandated the revision of regulatory capital requirements;

(iv) codified the FRB’s long-standing policy that a bankholding company must serve as a source of financial and managerial strength for its subsidiary banks;

(iv) codified the FRB’s long-standing policy that a bank holding company must serve as a source of financial and managerial strength for its subsidiary banks;

(v) required regulations requiring originators of certain securitized loans to retain a percentage of the risk for the transferred loans;

11 unchanged sentences

and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by Third Party Service Providers.

On November 9, 2022, the NYSDFS released proposed amendments to its cybersecurity regulations that represent a significant update to the regulation of cybersecurity practices.

The amendments generally fall within the following five categories:

(i) increased mandatory controls associated with common attack vectors, (ii) enhanced requirements for privileged accounts, (iii) enhanced notification obligations, (iv) expansion of cyber governance practices, and (v) additional cybersecurity requirements for larger companies.

The proposed amended regulations were subject to a 60-day public comment period which expired on January 9, 2023.

Once final regulations are adopted, financial institutions regulated by the NYSDFS, including the Bank, will have 180 days from the effective date, except as otherwise specified, to comply with the new requirements.

Gramm-Leach-Bliley Act

8 unchanged sentences

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 1. Business