What changed in this filing

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Item 1. Business

2024-03-13 compared with 2023-03-22 · 49 added, 55 removed, 379 unchanged (22% of the section changed)

6 unchanged sentences

The Corporation established a financial services subsidiary, CFS, in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage services, insurance and tax preparation services.

The Corporation established a captive insurance subsidiary, CRM, based in the State of Nevada in May 2016, which insures gaps in commercial coverage and uninsured exposures in the Corporation's current insurance coverages and allows the Corporation to strengthen its overall risk management program.

CRM, a wholly-owned subsidiary of the Corporation, was formed and began operations on May 31, 2016 as a Nevada-based captive insurance company.

During the fourth quarter of 2023, CRM was dissolved by the Corporation effective December 6, 2023.

The dissolution of CRM did not have a significant impact to financial results for the year ended December 31, 2023.

The Corporation’s Board of Directors has concluded that the expansion of the franchise’s geographic footprint, an increase in the Bank’s interest earning assets, and the generation of new sources of non-interest income are important components of its strategic plan.

10 unchanged sentences

• As of April 2, 2021, the Corporation received all regulatory approvals to operate a branch office in a new market in the Buffalo Metropolitan Area.

• The Corporation intends to open a full-service branch in Williamsville, New York during 2024.

As a result of these transactions and organic growth, the Corporation had $2.711 billion in consolidated assets, $1.973 billion in loans, $2.429 billion in deposits, and $195.2 million in shareholders’ equity at December 31, 2023.

1 unchanged sentence

The Corporation’s growth strategy is to leverage its branch and digital network in current or new markets to build client relationships and grow loans and deposits.

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.

Consistent with the Corporation’s community-banking model, and subject to market conditions, 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 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.

3 unchanged sentences

The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans, and general operating expenses.

CRM, a wholly-owned subsidiary of the Corporation which was formed and began operations on May 31, 2016, is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace.

CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

CRM is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

In order to compete with other financial services companies, the Corporation relies upon personal relationships established with clients by its officers, employees, and directors.

2 unchanged sentences

For additional information, including information concerning the results of operations of the Corporation and its subsidiaries, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.

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.

Lending Activities

Other than as described above, there were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2023.

Lendin g Activities

Lending Strategy

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, direct consumer loans, and indirect automobile loans.

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

12 unchanged sentences

The Bank segments its loan portfolio into the following major lending categories:

(i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Bank's market area in a diverse range of industries.

(i) commercial and industrial, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and industrial loans primarily consist of loans to small to mid-sized businesses in the Bank's market area in a diverse range of industries.

These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.

5 unchanged sentences

The Bank offers interest rate swaps to certain larger commercial mortgage borrowers.

These swaps allow the Bank to originate a mortgage based on short-term LIBOR rates and allow the borrower to swap into a longer term fixed rate.

These swaps allow the Bank to originate a mortgage based on short-term SOFR rates and allow the borrower to swap into a longer term fixed rate.

The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk.

The swap agreements are free-standing derivatives and are recorded at fair value in the Bank's consolidated balance sheets.

In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S.

dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S.

dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023.

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 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.

Mortgages are generally underwritten according to U.S.

government sponsored enterprise guidelines designated as "A" or "A-" and referred to as "conforming loans".

The Bank also originates jumbo loans above conforming loan amounts which generally are consistent with secondary market guidelines for these loans;

government sponsored enterprise guidelines designated as "A" or "A-" and referred to as "conforming loans." The Bank also originates jumbo loans above conforming loan amounts which generally are consistent with secondary market guidelines for these loans;

however, these are typically held for investment.

The Bank does not offer a subprime mortgage lending program.

The Bank's secondary market lending is sold on a servicing-retained basis.

The Bank's secondary market lending is generally sold on a servicing-retained basis.

Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and are secured by real property whose value tends to be more easily ascertainable.

3 unchanged sentences

In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.

In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, illness, or personal bankruptcy.

Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Funding Activities

Fundin g Activities

Funding Strategy

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.

The Corporation’s deposit strategy is to fund the Bank, subject to market conditions, with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.

A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank.

These customers will typically turn to their primary bank first when in need of other financial services.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using brokered deposits as a secondary source of funding to support growth.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue the use of brokered deposits as a secondary source of funding to support growth.

Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

2 unchanged sentences

The Bank also has access to advances from the FHLBNY, other financial institutions, and the FRBNY.

Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions.

The Corporation considers core deposits, consisting of non-interest-bearing and interest-bearing checking accounts, savings accounts, and insured money market accounts, to be a significant component of its deposits.

Contractual loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions.

The Corporation considers core deposits, consisting of non-interest-bearing and interest-bearing checking accounts, savings accounts, and insured money market deposits, to be a significant component of its deposits.

The Corporation monitors the activity on these core deposits and, based on historical experience and pricing strategy, believes it will continue to retain a large portion of such accounts.

6 unchanged sentences

However, market interest rates and rates offered by competing financial institutions affect the Bank’s ability to attract and retain deposits.

The Bank utilizes a combination of traditional media, including print, television, and radio, as well as digital advertising, such as social media, display, OTT (over-the-top) streaming and eBlasts, when advertising its deposit products.

The Bank utilizes a combination of traditional media, including print, television, and radio, as well as digital when advertising its deposit products.

Investment Activities

4 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 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 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 Domestic Systemically Important Banks (D-SIBs).

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

The swaps are not designated as hedging derivatives.

3 unchanged sentences

The Bank has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by the ALCO.

Under the policy, derivative financial instruments with counterparties, who are not customers, are limited to a national financial institution.

Under the policy, derivative financial instruments with counterparties, who are not customers, are limited to a Domestic Systemically Important Bank (D-SIB).

Cash and/or certain qualified securities are required to serve as collateral when exposures exceed $100 thousand, with a minimum collateral coverage of $150 thousand.

The credit worthiness of the customer is reviewed internally by the Bank's credit department.

Wealth Management Strategy

Wealth Mana g ement Strate g y

With $2.242 billion of assets under management or administration at December 31, 2023, including $381.3 million of assets held under management or administration for the Corporation, WMG is responsible for the largest component of the Corporation's non-interest income.

7 unchanged sentences

Albany, Saratoga, and Schenectady counties rely heavily on business related to New York State government activities, the nanotechnology industry, and colleges located within these counties.

The Capital region of New York has become a hub for both private and public investment in semiconductor-related activity, recently highlighted by the announcement of a $10 billion partnership to establish the only publicly-owned EUV lithography research facility in North America.

Major partners in the initiative include Applied Materials, Micron, IBM, and Tokyo Electron, and the facility aims to compliment the existing semiconductor supply chain presence of companies such as ASML and GlobalFoundries, as well as enhance the research capabilities of local universities such as Rensselaer Polytechnic Institute and SUNY Polytechnic.

Tompkins County is dominated by the presence of Cornell University and Ithaca College.

5 unchanged sentences

Erie County has a diverse mix of industrial, light manufacturing, high technology and service-oriented private sector companies.

The region also has reliance on higher education with the University of Buffalo, Buffalo State College as well as several private colleges.

The region also has reliance on higher education with the University at Buffalo, SUNY Buffalo as well as several private colleges.

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, 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.

Many of these competitors are not subject to regulation as extensive as that affecting the Bank and, as a result, may have a competitive advantage over the Bank in certain respects.

This is particularly true of credit unions because their pricing structure is not encumbered by the payment of income taxes.

This is particularly true of credit unions because their pricing structure is not encumbered by the payment of income taxes and not subject to certain regulations such as CRA.

Similarly, the competition for the Bank's wealth management services is primarily from local offices of national brokerage firms, independent investment advisors, national and regional banks, as well as internet based brokerage and advisory firms.

15 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 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.

9 unchanged sentences

McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901.

Supervision and Regulation

Supervision and Re g ulation

The Corporation and the Bank are subject to comprehensive regulation, supervision and examination by regulatory authorities.

34 unchanged sentences

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.

In October 2022, the SEC adopted a final rule implementing the incentive-based compensation recovery (“clawback”) provisions of the Dodd-Frank Act.

The final rule directed national securities exchanges, including Nasdaq, to require listed companies to develop and implement clawback policies to recover erroneously awarded incentive-based compensation from current or former executive officers in the event of a required accounting restatement due to material noncompliance with any financial reporting requirement under the securities laws, and to disclose their clawback policies and any actions taken under these policies.

Nasdaq amended its proposed listing standards relating to clawbacks to provide that listed companies had until December 1, 2023 to adopt a compliant clawback policy.

The Corporation met such requirement.

Sarbanes-Oxley

55 unchanged sentences

Transactions with Related Parties

The Federal Reserve Act governs transactions between the Bank and its affiliates, specifically the Corporation, CFS, and CRM.

The Federal Reserve Act governs transactions between the Bank and its affiliates, specifically the Corporation, and CFS.

In general, an affiliate of the Bank is any company that controls, is controlled by, or is under common control with the Bank.

15 unchanged sentences

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.

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

The FDIC may also issue special assessments.

In 2023, the FDIC issued a special assessment for banks with total consolidated assets of $5 billion or more in order to recover losses sustained by the DIF as a result of the March 2023 failures of Silicon Valley Bank and Signature Bank.

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.

12 unchanged sentences

Tier 2 capital is comprised of capital instruments and related surplus meeting specific requirements, and may include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities, subordinated debt and intermediate preferred stock.

Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions like the Bank that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.

Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions like the Bank that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.

Additionally, a bank that retains credit risk in connection with an asset sale may be required to maintain additional regulatory capital because of the recourse back to the bank.

1 unchanged sentence

In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor assigned by federal regulations based on the risks believed inherent in the type of asset.

The capital requirements assign a higher risk weight to asset categories believe to present a great risk.

The capital requirements assign a higher risk weight to asset categories believed to present a great risk.

For example, a risk weight of 0% is assigned to cash and U.S.

12 unchanged sentences

The Final Rule took effect on January 1, 2020.

Pursuant to the CARES Act, the federal banking regulators issued final rules to set the community bank leverage ratio at 8% beginning in the second quarter of 2020 through the end of 2020.

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

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.

As of December 31, 2023, the Bank has not elected to use the community bank leverage ratio.

Prompt Corrective Action

20 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.

8 unchanged sentences

Under the federal CRA, the Bank, consistent with its safe and sound operation, must help meet the credit needs of its entire community, including low and moderate income neighborhoods.

The FRB periodically assesses the Bank's compliance with CRA requirements.

The Bank received a “satisfactory” rating for CRA on its last performance evaluation conducted by the FRB as of October 7, 2019.

The FRB and NYSDFS periodically assess the Bank's compliance with CRA requirements.

The Bank received a “satisfactory” rating for CRA on its last performance evaluations which were conducted by the NYSDFS as of June 30, 2019, and the FRB as of October 7, 2019.

On October 24, 2023, the FRB issued a final rule to strengthen and modernize the federal CRA regulations.

Under the final rule, banks with assets of at least $2 billion as of December 31 in both of the prior two calendar years will be a “large bank.” The FRB will evaluate large banks under four performance tests:

the Retail Lending Test, the Retail Services and Products Test, the Community Development Financing Test, and the Community Development Services Test.

The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027.

Fair Lending and Consumer Protection Laws

The Bank must also comply with the federal Equal Credit Opportunity Act and the New York Executive Law, which prohibit creditors from discrimination in their lending practices on bases specified in these statutes.

The Bank must also comply with the federal Equal Credit Opportunity Act and the New York Executive Law 296-a, which prohibit creditors from discrimination in their lending practices on bases specified in these statutes.

In addition, the Bank is subject to a number of federal statutes and regulations implementing them, which are designed to protect the general public, borrowers, depositors, and other customers of depository institutions.

20 unchanged sentences

Insurance activities are supervised by the NYSDFS, and brokerage activities are subject to supervision by the SEC and FINRA.

CRM is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

Additional Important Le g islation and Re g ulation

29 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.

In November, 2023, the NYSDFS finalized 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