What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2023-03-22 compared with 2022-03-23 · 178 added, 214 removed, 1826 unchanged (18% of the section changed)

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March 22, 2023 March 22, 2023

This Annual Report does not include an attestation report of the independent required accounting firm because of an exception under SEC rules.

OTHER INFORMATION

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Consolidated Statements of Income for the two years ended December 31, 2022

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

Consolidated Statements of Comprehensive Income (Loss) for the two years ended December 31, 2022

Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2022

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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 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).

3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended August 17, 2022 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on August 17, 2022).

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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10.11 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*

10.12 Form of Restricted Stock Award Agreement (filed as Exhibit 10.4 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference).

10.13 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan, (as incorporated by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended December 31, 2021 and filed with the Commission on March 23, 2022).

10.14 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan-Amendment Number One, as amended on November 16, 2022 (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on November 21, 2022 and incorporated herein by reference).

21 Subsidiaries of the Registrant.*

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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, 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").

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income (loss), 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, 2022 and 2021, 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.

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

Livingston, New Jersey

Grand Rapids, Michigan

March 22, 2023

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Bank owned life insurance 2,871 2,825

Interest rate swap assets 27,141 9,270

Accrued interest and other assets 59,457 31,739

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Dividends payable 1,455 1,450

Interest rate swap liabilities 27,196 9,498

Accrued interest payable and other liabilities 17,530 15,097

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Interchange revenue from debit card transactions 4,603 4,844

Net gains on securities transactions — —

Change in fair value of equity investments ( 349 ) 246

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Professional services 2,171 1,932

Legal accruals and settlements — —

Amortization of intangible assets 15 243

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Net income $ 28,783 $ 26,425

Weighted average shares outstanding 4,683 4,802

Weighted average shares outstanding (in thousands) 4,693 4,683

Basic and diluted earnings per share $ 6.13 $ 5.64

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

YEARS ENDED DECEMBER 31,

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Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale ( 15,632 ) 10,415

Unrealized holding (losses) on securities available for sale ( 93,224 ) ( 15,632 )

Reclassification adjustment gains realized in net income — —

Net unrealized gains (losses) ( 15,632 ) 10,415

Net unrealized (losses) ( 93,224 ) ( 15,632 )

Tax effect 24,423 4,010

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Change in funded status of defined benefit pension plan and other benefit plans:

Net gain (loss) arising during the period 3,655 506

Net gain arising during the period 63 3,655

Reclassification adjustment for amortization of prior service benefit — ( 220 )

Prior service credit — —

Reclassification adjustment for partial pension settlement loss included in pension expense — —

Reclassification adjustment for amortization of net actuarial losses 38 212

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Net of tax amount 74 2,691

Total other comprehensive income (loss) ( 8,931 ) 8,200

Comprehensive income $ 17,494 $ 27,462

Total other comprehensive (loss) ( 68,727 ) ( 8,931 )

Comprehensive income (loss) $ ( 39,944 ) $ 17,494

See accompanying notes to consolidated financial statements.

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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

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Income (Loss) Total

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Restricted stock awards — 795 — — — 795

Distribution of 2,707 shares of treasury stock granted for directors’ deferred compensation plan

— ( 72 ) — 75 — 3

Distribution of 25,011 shares of treasury stock granted for employee restricted stock awards, net

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— 131 — 244 — 375

Distribution of 3,860 shares of treasury stock for employee compensation

— 27 — 105 — 132

Sale of 9,367 shares of treasury stock (a)

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— — — ( 933 ) — ( 933 )

Forfeiture of 895 shares of restricted stock awards

— 38 — ( 41 ) — ( 3 )

Balances at December 31, 2022 $ 53 $ 47,331 $ 211,859 $ ( 17,598 ) $ ( 75,257 ) $ 166,388

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Net (gains) losses on sale of other real estate owned ( 60 ) 16

Write-downs on OREO — 38

Net change in fair value of equity investments 349 ( 246 )

Net gains on securities transactions — —

Proceeds from sales of trading assets 142 161

Purchase of trading assets ( 337 ) ( 370 )

(Increase) decrease in other assets ( 1,954 ) ( 9,883 )

Purchase of equity investments ( 357 ) ( 337 )

Net (gains) losses on interest rate swaps ( 173 ) ( 126 )

(Increase) in other assets ( 27,636 ) ( 7,386 )

Increase (decrease) in accrued interest payable 654 ( 53 )

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CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of securities available for sale — —

Proceeds from maturities, calls, and principal paydowns on securities available for sale 86,206 143,193

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Proceeds from sale of other real estate owned 326 210

Proceeds from sale of loans — 5,227

Proceeds from bank owned life insurance — 286

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Dividends declared, not yet paid $ 1,455 $ 1,450

Repurchase of common stock in lieu of employee payroll taxes $ ( 270 ) $ ( 238 )

Distribution of treasury stock for directors' deferred compensation plan $ 3 $ ( 14 )

Distribution of treasury stock for directors' compensation $ 317 $ 350

Forfeiture of shares of restricted stock awards $ — $ ( 5 )

See accompanying notes to consolidated financial statements.

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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, 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.

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.

ALLOWANCE FOR LOAN LOSSES

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Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

If a loan is determined to be impaired and is placed on nonaccrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

If a loan is determined to be impaired and is placed on non-accrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

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

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If necessary, a valuation allowance is established with a charge to income for unrealized losses attributable to a change in market rates.

CAPITAL LEASES

Capital leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term.

Initially, the capital lease is recorded as a building asset, which is depreciated over the shorter of the term of the lease or the estimated life of the asset, and a corresponding long term lease obligation, which amortizes as payments are made toward the lease.

Interest expense is also incurred using the discount rate determined at the beginning of the lease term.

Leases are classified as operating or finance leases on the lease commencement date.

At inception, the Corporation determines the lease term by considering the minimum lease term and all optional renewal periods that the Corporation is reasonably certain to renew.

The discount rate used in determining lease liability is based upon incremental borrowing rates the Corporation could obtain for similar loans as of the date of commencement or renewal.

The Corporation records operating leases on the balance sheet as a lease liability equal to the present value of future minimum payments under the lease terms, and a right-of-use asset equal to the lease liability.

The lease term is also used to calculate straight-line rent expense.

The Corporation's leases do not contain residual value guarantees or material variable lease payments that may impact the Corporation's ability to pay dividends or cause the Corporation to incur additional expenses.

Rent expense and variable lease expense are included in net occupancy expenses on the Corporation's Consolidated Statements of Income.

Finance leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term.

Initially, a finance lease is recorded as a building asset, and is depreciated over the shorter of the term of the lease or the estimated life of the asset.

A corresponding long term lease obligation, which amortizes as payments are made on the lease.

Interest expense is incurred using the discount rate determined at the beginning of the lease term.

Amortization of the right-of-use assets arising from finance leases is expensed through net occupancy expense, and the interest on the related lease liability is expensed through interest expense on borrowings on the Corporation Consolidated Statements of Income.

PREMISES AND EQUIPMENT

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BOLI is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.

Changes in the cash surrender value are recorded in other income.

Changes in the cash surrender value are recorded in other non-interest income.

OTHER REAL ESTATE

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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.

See Note 13 for further details.

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

The effects of these changes are reflected in the pension plan disclosures as of December 31, 2018.

See Note 13 for further details.

Defined Contribution Profit Sharing, Savings and Investment Plan:

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The cost of the plan is based on actuarial computations of current and future benefits for employees, and is charged to non-interest expenses in the consolidated statements of income.

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017.

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.

See Note 13 for further details.On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017.

Executive Supplemental Pension Plan:

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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.

The Corporation's 2021 Equity Incentive Plan (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.

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

See Note 14 for further details.

Please 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, 2022.

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 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.

The Corporation's intangible assets related to the purchase of the trust business of Partners Trust Bank in May of 2007, were fully amortized as of December 31, 2022.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2020, the Corporation adopted ASU 2018-14, Compensation – Retirement Benefits (Topic 715-20 ).

This ASU amends ASC 715 to add, remove and clarify disclosure requirements related to defined benefit pension and other postretirement plans.

The ASU eliminates the requirement to disclose the amounts in accumulated other comprehensive income expected to be recognized as part of net periodic benefit cost over the next year, and also removes the disclosure requirements for the effects of a one-percentage-point change on the assumed health care costs and the effect of this change in rates on service cost, interest cost and the benefit obligation for postretirement health care benefits.

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

On January 1, 2020, the Corporation adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment .

The objective of the ASU is to simplify the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test.

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

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

Measurement of Credit Losses on Financial Instruments.

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.

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

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 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):

Simplifying the Test for Goodwill Impairment .

The update simplifies how all entities assess goodwill for impairment by eliminating Step 2 from the goodwill impairment test.

As amended, the goodwill impairment test will consist of one step comparing the fair value of a reporting unit with its carrying amount.

An entity should recognize a goodwill impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value.

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

The ASU supersedes current GAAP by replacing the incurred loss impairment method with a methodology that reflects lifetime expected credit losses and requires the consideration of a broader range of reasonable and supportable information to form credit loss estimates.

In November 2019, the FASB adopted an amendment to postpone 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 and elected delayed adoption.

The Corporation has since contracted a vendor and developed a methodology under the guidance of management and complying with the requirements of the ASU.

Updated policies and internal controls have been established accordingly.

Additionally the Corporation has contracted an independent third party to validate the finalized model.

The basis for the quantitative component of the estimation of expected credit losses is the historical loss experience amongst a curated group of peers.

The Corporation utilized regression analyses of peer data, of which the Corporation was included, and where observed credit losses and selected economic factors were utilized to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD).

A loss given default rate (LGD) was assigned to each pool for each period based on the outcome.

The chosen model utilizes a discounted cash flow (DCF) analysis for all loan portfolio segments as its foundation.

Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk characteristics inherent in the included instruments, relying on FFIEC Call Report codes.

The DCF analysis is run at the instrument-level and incorporates an array of loan-specific data points and segment-implied assumptions to determine the lifetime expected loss attributable to each instrument.

The loss driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, which is applied over a four-quarter period, and incorporates an eight-quarter straight-line reversion to the historical mean value of the forecast for all periods beyond the forecast period.

The selected model incorporates qualitative factors in order to appropriately adjust for risk in a given portfolio segment that may not be fully captured through quantitative analysis.

Determinations regarding qualitative adjustments are made established by management’s expectation of loss conditions differing from those already captured in the quantitative component of the model.

The Corporation expects to recognize a one-time cumulative-effect adjustment to retained earnings upon adoption of CECL, effective January 1, 2023, in order to bring our allowance for credit losses (ACL) into conformity with the ASU, consistent with regulatory expectations set forth in interagency guidance.

The Corporation estimates that under the ACL framework, the allowance for credit losses will remain flat or increase by up to $ 2.0 million, or $ 1.4 million, after tax, when compared to the amount being carried on the consolidated balance sheet at December 31, 2022.

The Corporation expects the impact of the creation of an allowance for unfunded commitments to be an increase of up to an additional $ 1.2 million, or $ 0.9 million, after tax, and no adjustment related to the securities portfolio.

The Corporation is in the finalizing the assumptions built into its model, as well as the related internal controls thereon.

This increase encompasses loans that the Corporation currently evaluates for impairment on an individual basis, loans evaluated collectively by pooled segment, and unfunded commitments made by the Corporation not currently carried on the balance sheet.

Based on the composition and quality of the Corporation’s debt securities portfolio, management has determined there to be a zero loss estimate on securities that are backed by U.S.

governmental agencies.

In March 2022, the FASB issued ASU 2022-02, which eliminates creditor accounting guidance for TDRs for entities that have adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and enhances Vintage Disclosures of Gross Writeoffs.

This ASU eliminates Subtopic 310-40 guidance for TDRs, and requires creditors to apply the loan refinancing and restructuring guidance in Subtopic 310-20 when evaluating modifications granted to borrowers experiencing financial difficulty to determine whether the modification is considered a continuation of an existing loan or a new loan.

The vintage disclosure component of the ASU requires entities to disclose current-period gross writeoffs by origination year for financing receivables and investment leases within the scope of Subtopic 326-20.

The Corporation will adopt ASU 2022-02 concurrently with the adoption of ASU 2016-13.

RISKS AND UNCERTAINTIES

Current Banking Environment

Industry events transpiring prior to the Corporation’s filing date, including the failures of Silicon Valley Bank (SVB) headquartered in Santa Clara, California and Signature Bank headquartered in New York, New York in March 2023, have led to uncertainty and concerns regarding the liquidity positions of the banking sector.

SVB was placed into receivership on March 10, 2023, marking the second largest bank failure in U.S.

Signature Bank was placed into receivership on March 12, 2023, marking the third largest bank failure in U.S.

Both banks appear to have had high ratios of uninsured deposits to total deposits, when compared to industry average.

These failures underscore the importance of maintaining access to diverse sources of funding.

Market conditions and external factors may unpredictably impact the competitive landscape for deposits in the banking industry.

Additionally, the rising interest rate environment has increased competition for liquidity and the premium at which liquidity is available to meet funding needs.

The Corporation believes the sources of liquidity presented in the Audited Consolidated Financial Statements and the Notes to the Audited Consolidated Financial Statements are sufficient to meet its needs on the balance sheet date.

An unexpected influx of withdrawals of deposits could adversely impact the Corporation's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations.

These sources may include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, federal funds lines of credit from correspondent banks, and out-of-market time deposits.

Important Accounting Policy ramifications of such events are outlined in the previous sections of Note 1, and subsequently in the relevant Notes to the Consolidated Financial Statements.

In response to these events, the Treasury Department, Federal Reserve, and FDIC jointly announced the Bank Term Funding Program (BTFP) on March 12, 2023.

This program aims to enhance liquidity by allowing institutions to pledge certain securities at the par value of the securities, and at a borrowing rate of ten basis points over the one-year overnight index swap rate.

The BTFP is available to eligible U.S.

federally insured depository institutions, with advances having a term of up to one year and no prepayment penalties.

As of the date of the release of the Audited Consolidated Financial Statements, the Corporation has not accessed the BTFP.

Such reliance on secondary funding sources could increase the Corporation's overall cost of funding and thereby reduce net income.

While the Corporation believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands.

This may necessitate slowing or discontinuing loan growth, capital expenditures, or other investments, or liquidating assets.

For further discussion of the Corporation's liquidity practices, see pages 60-62 of this Form 10-K.

(2) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

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.

However, as of March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effective March 26, 2020.

Therefore, at December 31, 2022 and 2021, 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.

The Corporation 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, 2022 and 2021.

The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program.

The account serves as collateral in the event of default on the interest rate swaps with the counterparties.

The collateral held at the financial institution was $ 7.6 million as of December 31, 2021, and $ 19.1 million collateral held at the financial institution as of December 31, 2020.

No collateral was held at the financial institution as of December 31, 2022, and $ 7.6 million collateral was held at the financial institution as of December 31, 2021.

(3) SECURITIES

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Mortgage-backed securities, residential 518,838 435,131

treasury notes and bonds 59,676 59,024

SBA loan pools 82,982 81,022

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After one, but within five years 928 909

After five, but within ten years 800 800

Total $ 2,424 $ 2,402

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Mortgage-backed securities, residential 79,891 7,621 355,240 76,086 435,131 83,707

Obligations of states and political subdivisions 37,847 938 — — 37,847 938

Corporate bonds and notes 4,515 485 7,455 3,295 11,970 3,780

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Losses Fair Value Unrealized

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

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As of December 31, 2022, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.

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.

At December 31, 2022, the unrealized losses related to mortgage-backed were securities issued by U.S.

government sponsored entities, Fannie Mae and Freddie Mac.

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, 2022.

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The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $ 213.8 million at December 31, 2022 and $ 242.9 million at December 31, 2021.

There are no securities pledged to secure securities sold under agreements to repurchase at December 31, 2021 and 2020, respectively.

Concentrations

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Equity Method Investments

The Corporation has an equity investment in Cephas Capital Partners, L.P.

This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas.

As of December 31, 2021 and 2020, this investment totaled $ 0.1 million and $ 0.2 million, respectively, is included in other assets, and is accounted for under the equity method of accounting.

Prior to December 31, 2022, the Corporation had an equity investment in Cephas Capital Partners, L.P.

This small business investment company was established to provide financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas.

During 2022, the Corporation received its final distribution.

As of December 31, 2021, this investment totaled $ 0.1 million, was included in other assets, and was accounted for under the equity method of accounting.

(4) LOANS AND ALLOWANCE FOR LOAN LOSSES

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Total recorded investment in loans $ 1,835,996 $ 1,522,382

Residential mortgages held for sale as of December 31, 2021 and 2020 totaling $ 0.4 million and $ 0.2 million, respectively, are not included in the above table.

The Corporation had no residential mortgages held for sale as of December 31, 2022 and $ 0.4 million as of December 31, 2021, which are not included in the above table.

Residential mortgages totaling $ 228.4 million at December 31, 2022 and $ 204.2 million at December 31, 2021 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

As of December 31, 2021, the Corporation had outstanding loan balances of $ 43.2 million for PPP loans which are included in commercial and industrial loans in the table above.

As of December 31, 2022, the Corporation had outstanding PPP loan balances of $ 0.7 million, which are included in commercial and industrial loans in the table above.

These loans require no allowance for loan losses as of December 31, 2022 since they are government guaranteed loans.

43 unchanged sentences

Total ending loans balance $ 258,013 $ 804,825 $ 259,967 $ 199,577 $ 1,522,382

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2021 and December 31, 2020, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2021 and 2020 (in thousands):

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2022 and December 31, 2021, the average recorded investment and interest income recognized by class of loan as of the years ended December 31, 2022 and 2021 (in thousands):

December 31, 2022 December 31, 2021

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(1) Cash basis interest income approximates interest income recognized.

The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2021 and December 31, 2020 (in thousands):

The following table presents the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2022 and December 31, 2021 (in thousands):

Non-accrual Loans Past Due 90 Days or More and Still Accruing

43 unchanged sentences

The Corporation offers various types of modifications which may involve a change in the schedule of payments, a reduction in the interest rate, an extension of the maturity date, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, substituting or adding a new borrower or guarantor, a permanent reduction of the recorded investment in the loan or a permanent reduction of the interest on the loan.

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.

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, 2022 and 2021, the Corporation has a recorded investment in TDRs of $ 5.4 million and $ 10.3 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.

There were specific reserves of $ 0.2 million allocated for TDRs at December 31, 2022 and $ 1.9 million allocated at December 31, 2021.

As of December 31, 2022, TDRs totaling $ 1.4 million were accruing interest under the modified terms and $ 4.0 million were on non-accrual status.

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The Corporation has committed no additional amounts to customers with outstanding loans that are classified as TDRs as of December 31, 2022 and 2021.

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.

During the year ended December 31, 2022 there were no loans that were modified as TDRs.

During the year ended December 31, 2021, the terms and conditions of two commercial and industrial loans 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.

Additionally, two commercial and industrial loans were modified with the maturity date extended on both loans and one with an extension at a stated rate lower than the current market rate for new debt with similar risk.

Additionally, two commercial and industrial loans had payments deferred and both loans were risk rated Substandard while one loan was in non-accrual status prior to the modification.

The modifications of four commercial mortgage loans included the deferral of payments with three of the loans risk rated Substandard and in non-accrual status, three of the borrowers were over one year past due in real estate taxes and two of the loans were over 30 days past due in payments.

The modifications of three residential mortgages included the deferral of payments while all three were in non-accrual status prior to the modifications, two were risk rated Substandard and one was over 30 days past due in payments.

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.

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):

December 31, 2021 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

Troubled debt restructurings:

Commercial and agricultural:

Commercial and industrial 2 $ 502 $ 502

Commercial mortgages:

Commercial mortgages 4 6,094 6,094

Total 6 $ 6,596 $ 6,596

The TDRs described above increased the allowance for loan losses by $ 1.7 million and resulted in no charge offs during the year ended December 31, 2021.

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

December 31, 2021 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment

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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

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.

The TDRs described above increased the allowance for loan losses by $ 1.7 million and resulted in no in charge offs during the year ended December 31, 2021.

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:

December 31, 2020 Number of Loans Recorded Investment

Consumer loans:

Home equity lines and loans 1 $ 170

Total 1 $ 170

There were no payment defaults on any loans previously modified as troubled debt restructurings during the years ended December 31, 2022 and December 31, 2021, within twelve months following the modification.

Credit Quality Indicators

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The lease arrangements require monthly payments through 2036.

The Corporation has included these leases in premises and equipment as follows:

The Corporation has included these capital leases in premises and equipment as follows:

Buildings $ 5,572 $ 5,572

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

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):

Year Estimated Expense

Aggregate amortization expense was $ 15 thousand and $ 0.2 million for 2022 and 2021, respectively.

There is no remaining estimated aggregate amortization expense at December 31, 2022.

A summary of deposits at December 31, 2022 and 2021 is as follows (in thousands):

1 unchanged sentence

Interest-bearing demand deposits 271,645 284,721

Insured money market accounts 654,553 603,583

Money market accounts 640,840 654,553

Savings deposits 279,029 280,195

Time deposits 196,357 285,731

Certificates of deposits $250,000 or less 272,182 141,990

Certificates of deposits greater than $250,000 31,547 27,974

One-way brokered deposits 1

Other time deposits 2

25,203 26,393

Total $ 2,327,227 $ 2,155,433

__________________________________________________________

1 Brokered deposits which are individually $250,000 and under.

2 Includes Individual Retirement Accounts and Christmas Club Accounts.

Total customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Corporate offered ICS/CDARS programs allowing enhanced FDIC insurance protection.

In general, the equivalent of the customers' original deposited funds comes back to the Corporation and are carried within the time deposits category.

Scheduled maturities of time deposits at December 31, 2022, are summarized as follows (in thousands):

Year Maturities

2022 $ 165,290

Total $ 402,384

__________________________________________________

1 $ 73.5 million of 2023 maturities represent brokered deposits.

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2022 and 2021 were $ 36.4 million and $ 28.8 million, respectively.

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

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.

FHLBNY overnight advances totaled $ 95.8 million and $ 14.6 million as of December 31, 2022 and 2021, respectively.

The Corporation held no fixed rate term advances as of December 31, 2022 and 2021, respectively.

The following is a summary of FHLBNY overnight advances as of December 31, 2022 and 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 %

Amount Rate Maturity Date Amount Rate Maturity Date

$ 95,810 4.61 % January 3, 2023 $ 14,570 0.34 % January 3, 2022

The Bank has pledged $ 228.4 million and $ 204.2 million of first mortgage loans under a blanket lien arrangement at December 31, 2022 and 2021, respectively, as collateral for future borrowings.

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Net gains on sales of loans (a)

1,073 — — 1,073

Loan servicing fees (a)

Change in fair value of equity securities (a)

( 353 ) — 4 ( 349 )

Income from bank-owned life insurance (a)

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Change in fair value of equity securities (a)

139 — ( 50 ) 89

Income from bank-owned life insurance (a)

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2022 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)

(in years) Weighted Average Interest Rate Received Weighted Average Contract Pay Rate Fair Value

Derivatives not designated as hedging instruments:

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2021 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)

(in years) Weighted Average Interest Rate Received Weighted Average Contract Pay Rate Fair Value

Derivatives not designated as hedging instruments:

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74 $ 490,012 $ ( 228 )

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.

There was no off-balance sheet exposure for the risk participation agreements as of December 31, 2022, and $ 0.5 million for December 31, 2021.

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

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Allowance for loan losses $ 5,147 $ 5,546

Accrual for employee benefit plans — 47

Depreciation 1,133 979

1 unchanged sentence

Operating lease liabilities 1,688 1,976

Purchase accounting adjustment – loans — 1

Purchase accounting adjustment – fixed assets 153 153

Gain on deemed sale of securities — 54

Net unrealized losses on securities available for sale 25,310 886

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

Defined benefit pension and other benefit plans 1,320 1,347

Nonaccrued interest 415 473

5 unchanged sentences

Prepaid pension 4,055 3,715

Net unrealized gains on securities available for sale — 3,124

Discount accretion 108 78

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The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2019 and for New York State taxing authorities for the year prior to 2019.

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.

New York State taxing authorities recently completed audits of the Corporation for the years 2018, 2019, and 2020.

There were no adjustments as a result of the New York State audits.

(13) PENSION PLAN AND OTHER BENEFIT PLANS

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The accumulated benefit obligation at December 31, 2022 and 2021 was $ 30.5 million and $ 40.4 million, respectively.

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

Actuarial losses in the Projected Benefit Obligation (PBO) in 2022 were primarily the result of the increase in discount rate.

The increase in discount rate caused the PBO to decrease by $ 9.2 million.

The update in mortality table caused the PBO to increase by $ 0.2 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.

18 unchanged sentences

Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect) $ ( 1,567 ) $ ( 5,230 )

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.

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

Prior to the plan freeze on December 31, 2016, the excess had been amortized over the average future working lifetime of all plan participants.

As of January 1, 2021, the average expected future life expectancy of all participants which was 23.07 years.

During 2022, the plan's total unrecognized net loss increased by $ 0.2 million.

The variance between the actual and expected return on plan assets during 2022 increased the total unrecognized net loss by $ 9.0 million.

Because the total unrecognized net gain or loss in the plan exceeds 10 % of the projected benefit obligation or 10 % of the plan assets, the excess will be amortized over the average future working lifetime of the plan participants.

As of January 1, 2022, the average expected future working lifetime active plan participants was 22.55 years.

Actual results for 2023 will depend on the 2023 actuarial valuation of the plan.

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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 for the years ended December 31, 2021 and 2020.

Expense related to both plans totaled $ 1.4 million and $ 1.3 million for the years ended December 31, 2022 and 2021, respectively.

The plan's assets at December 31, 2022 and 2021 include 121,847 and 118,081 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S.

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Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ ( 68 ) $ ( 31 )

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.

Actuarial gain for 2022 is primarily the net impact of an increase in discount rate, which decreased the Accumulated Postretirement Benefit Obligation (APBO) by $ 12 thousand, the updating of health care trend rates (HCTR), which increased the APBO by $ 4 thousand, and claims and data experience, which (combined) decreased the APBO by $ 64 thousand.

During 2022 the plan's total unrecognized net loss decreased by $ 90 thousand.

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Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ ( 117 ) $ 31

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 2022, there was a $ 182 thousand decrease in the projected benefit obligation as a result of the increase in discount rate.

Offsetting this was a mortality increase of $ 7 thousand, due to the update in the mortality assumption.

There was also a $ 27 thousand increase in PBO due to participant mortality (longevity) experience.

There were no other significant sources of gain or loss during 2022.

During 2022, the plan's total unrecognized net loss decreased by $ 167 thousand.

8 unchanged sentences

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

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

During 2022 the unrecognized net loss decreased 14.3 % of the December 31, 2021 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):

4 unchanged sentences

Funding requirements for subsequent years are uncertain and will significantly depend upon changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes, the Corporation may increases, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

For tax planning, financial planning, cash flow management or cost reduction purposes, the Corporation may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Defined Contribution Supplemental Executive Retirement Plan

2 unchanged sentences

The accrued obligation for the plan as of December 31, 2022 and 2021 was $ 2.9 million and $ 2.4 million, 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.

A total of $ 0.5 million and $ 0.4 million was expensed during the years ended December 31, 2022 and 2021, respectively.

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

Treasury Notes.

9 unchanged sentences

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.

During 2022 and 2021, a total of 33,586 and 20,763 shares, respectively, were re-issued from treasury to fund stock compensation.

The expense related to the grants was $ 1.2 million and $ 0.5 million for 2022 and 2021, respectively.

During January 2023 and 2022, 13,069 and 12,560 shares, respectively, were granted and re-issued from treasury to fund the stock component of the Directors' and the Chief Executive Officer’s compensation.

The Corporation recognized $ 0.5 million of expense related to these grants in 2022.

Due to the transition to the new Plan, there was no expenses recognized for these grants in 2021.

For 2023 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, 2022, and changes during the year ended is presented below:

17 unchanged sentences

Deposits from principal officers, directors, and their affiliates at December 31, 2022 and 2021 were $ 28.4 million and $ 46.7 million, respectively.

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 $ 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 $ 101 thousand and $ 106 thousand for the years ended December 2021 and 2020, respectively.

The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July 2024 from a former member of the Corporation's Board of Directors with monthly rent and CAM expenses totaling $ 4 thousand per month.

This Board member retired from the Corporation's Board of Directors as of June 7, 2022.

Rent and CAM paid to this Board member while serving on the Board totaled $ 25 thousand and $ 50 thousand for the years ended December 31, 2022 and 2021, respectively.

The Bank leases 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 and CAM expense totaling $ 8 thousand per month.

Rent and CAM paid to this Board member totaled $ 102 thousand and $ 101 thousand for the years ended December 2022 and 2021, 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 $ 726 thousand and $ 614 thousand for the years ended December 31, 2021 and 2020, respectively.

WMG fee income for the trust services provided totaled $ 0.6 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively.

(16) COMMITMENTS AND CONTINGENCIES

72 unchanged sentences

Expense related to employee stock compensation — 132

Expense related to restricted stock units for directors' deferred compensation plan 19 29

Expense related to restricted stock units directors' deferred compensation plan 20 19

Expense to employee restricted stock awards 795 535

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Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification.

Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification.

Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

16 unchanged sentences

In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation has considered the impact of any applicable credit enhancements, such as collateral postings.

Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with credit risk participations are based on credit default rate assumptions (Level 3 inputs).

Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with credit risk participation are based on credit default rate assumptions (Level 3 inputs).

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

22 unchanged sentences

(Level 2) Significant Unobservable Inputs

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

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

8 unchanged sentences

There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2022 and 2021.

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

Fair Value Measurement at December 31, 2021 Using

Financial Assets:

Fair Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total Gains (Losses)

Other real estate owned:

Residential mortgages 143 — — 143 —

Total other real estate owned, net $ 143 $ — $ — $ 143 $ —

Fair Value Measurement at December 31, 2020 Using

Financial Assets:

Fair Value Quoted Prices in Active Markets for Identical Assets

(Level 1) Significant Other Observable Inputs

(Level 2) Significant Unobservable Inputs

(Level 3) Total Gains (Losses)

Other real estate owned:

Commercial mortgages:

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

Residential mortgages 126 — — 126 —

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

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2021 and 2020 (in thousands):

Asset Fair Value at December 31, 2021 Valuation Technique Unobservable Inputs Range

[Weighted Average]

at December 31, 2021

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

Asset Fair Value at December 31, 2020 Valuation Technique Unobservable Inputs Range

[Weighted Average]

at December 31, 2020

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 %

FAIR VALUE OF FINANCIAL INSTRUMENTS

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Failure to meet capital requirements can initiate regulatory action.

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

Under Basel III rules, the Bank must hold a capital conservation buffer of 2.5 % above the adequately capitalized risk-based capital ratios.

The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital.

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Archibold, Jr.

Becker Director March 23, 2022

/s/ Ronald M.

13 unchanged sentences

Lounsberry, III

/s/ Joseph F.

Meade, IV Director March 24, 2023

/s/ Jeffrey B.

16 unchanged sentences

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).

17 unchanged sentences

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

21 Subsidiaries of the Registrant.*

12 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 9A. Controls and Procedures