What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2024-03-13 compared with 2023-03-22 · 668 added, 400 removed, 1604 unchanged (40% of the section changed)

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/s/ Anders M.

Tomson Karl F.

Tomson Dale M.

President and Chief Executive Officer Chief Financial Officer and Treasurer

March 13, 2024 March 13, 2024

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

OTHER INFORMATION

During the fourth quarter of 2023 , none of our directors or officers adopted or terminated any contract, instruction or written plan for the purchase or sale of Corporation securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement,” as that term is used in SEC regulations.

DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

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(a) (1) The following consolidated financial statements of the Corporation appear on pages F-1 through F-65 of this report and are incorporated in Part II, Item 8:

Report of Independent Registered Public Accounting Firm-Crowe LLP

Report of Independent Registered Public Accounting Firm-Crowe LLP PCAOB #173

Consolidated Financial Statements :

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

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

Wirth, Executive Vice President (filed as Exhibit 10.4 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference).

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

Cosgrove, Executive Vice President and Chief Credit Officer, filed herewith.*

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

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Cole, Executive Vice President and Chief Information Officer, (as incorporated by reference to Exhibit 10.8 to Registrant's Form 10-K for the year ended December 31, 2019 and filed with the Commission on March 12, 2020).

10.7 Change of Control Agreement dated January 4, 2021 between Chemung Canal Trust Company and Jeffrey P.

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

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

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10.13 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).

10.14 Change of Control Agreement dated June 2, 2023 between Chemung Canal Trust Company and Dale M.

McKim, III, Executive Vice President, Chief Financial Officer and Treasurer, (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 2, 2023 and incorporated herein by reference).

10.15 Post-Employment Consulting Agreement between Chemung Canal Trust Company and Karl F.

Krebs, former Executive Vice President, Chief Financial Officer and Treasurer, (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 29, 2023 and incorporated herein by reference).

21 Subsidiaries of the Registrant.*

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32.2 Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C.

97 Policy Relating to Recovery of Erroneously Awarded Compensation, filed herewith.*

101.INS Instance Document

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Pages F-1 to F-65

Report of Independent Registered Public Accounting Firm-Crowe LLP F- 1

Report of Independent Registered Public Accounting Firm-Crowe LLP PCAOB # 173

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2022 and 2021 F- 3

Consolidated Statements of Income for the two years ended December 31, 2022 F- 4

Consolidated Statements of Comprehensive Income (Loss) for the two years ended December 31, 2022 F- 5

Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2022 F- 6

Consolidated Statements of Cash Flows for the two years ended December 31, 2022 F- 7

Consolidated Balance Sheets as of December 31, 2023 and 2022

Consolidated Statements of Income for the two years ended December 31, 2023

Consolidated Statements of Comprehensive Income (Loss) for the two years ended December 31, 2023

Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2023

Consolidated Statements of Cash Flows for the two years ended December 31, 2023

Notes to Consolidated Financial Statements F- 10

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Elmira, New York

Opinion on the Financial Statements

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation and Subsidiaries (the "Company") as of December 31, 2023 and 2022, 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.

We also have audited the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control – Integrated Framework:

(2013) issued by COSO.

Explanatory Paragraph – Change in Accounting Principle

As discussed in Note 1 to the consolidated financial statements, the Company changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of ASC 326.

Basis for Opinion

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audits.

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, as disclosed in Item 9A.

Our responsibility is to express an opinion on the Company’s financial statements and an opinion on the Company’s internal control over financial reporting based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk.

Our audits also included performing such other procedures as we considered necessary in the circumstances.

We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Critical Audit Matters

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

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

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

Allowance for Loan Losses – Loans Collectively Evaluated for Impairment.

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

The allowance for loan losses was $19.7 million at December 31, 2022, which includes $18.5 million related to loans collectively evaluated for impairment.

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

Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five-year history of net losses.

For all other unclassified loans, the historical loss experience is determined by portfolio class and is supplemented with other qualitative factors based on the risks present for each portfolio class.

These qualitative factors include considerations of the following:

(1) lending policies and procedures, including underwriting standards and collection, charge-off and recovery policies, (2) national and local economic business conditions and developments, including the condition of various market segments, (3) loan volume, (4) the experience, ability, and depth of lending management and staff, (5) the volume and severity

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

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

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

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

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

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

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

Allowance for Credit Losses –Loans Collectively Evaluated for Impairment

As described in Notes 1 and 4 and the explanatory paragraph above, the Company adopted ASC 326 Financial Instruments – Credit Losses as of January 1, 2023, using the modified retrospective method.

In doing so, the Company recorded a decrease to retained earnings of $1.1 million, net of tax, for the cumulative effect of adopting ASC 326, as noted in the Consolidated Statements of Shareholders’ Equity.

The 2023 provision for credit losses was $3.3 million.

As of December 31, 2023, the ACL on loans was $22.5 million.

ASC 326 requires the measurement of expected lifetime credit losses for financial assets measured at amortized cost at the reporting date.

The measurement is based on historical experience and trends, current economic information, forecasted data, and reasonable and supportable forecasts and requires enhanced disclosures related to the significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio.

Management employs a process and methodology to estimate the ACL on loans collectively evaluated for impairment for both the quantitative and qualitative components.

The quantitative component of the estimate relies on the statistical relationship between the projected value of an economic indicator and the implied historical loss experience among a curated group of peers.

Management utilizes a regression analysis to identify suitable economic variables, known as loss drivers, for each pool of loans.

Based on the results of this analysis, a probability of default (PD) and a loss given default(LGD) is assigned to each potential value of an economic indicator for each pool of loans, which is applied to derive the statistical loss implications thereof.

The DCF incorporates a hypothetical loss for each period of the calculation, as well as assumed recoveries of past losses, to reach a present value for each loan.

The reserve applied to a specific instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at the measurement date.

The ACL model incorporates qualitative loss factor adjustments in order to calibrate the model for risk in each portfolio segment that reflects management's expectation of loss conditions differing from those already captured in the quantitative component of the model.

We identified auditing the ACL on loans collectively evaluated for impairment as a critical audit matter because the methodology to determine the estimate for credit losses significantly changed upon adoption of ASC 326, including changes made to loss estimation models, the application of new accounting policies, and the use of significant judgments by management for both the quantitative and qualitative components.

Performing audit procedures to evaluate the implementation and subsequent application of ASC 326 for credit losses involved a high degree of auditor judgment and required significant effort, including the need to involve valuation specialists.

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

Testing the effectiveness of controls over the evaluation of the allowance related to loans collectively evaluated for impairment, including addressing:

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

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

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

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

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

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

Crowe LLP ( 173 )

Testing the design and operating effectiveness of controls over the evaluation of the ACL related to loans collectively evaluated for impairment, including controls addressing:

The selection and application of new accounting policies involved in the adoption of ASC 326.

Data inputs, judgments and calculations used to determine the qualitative loss factors.

Information technology and financial applications used in the ACL process.

Problem loan identification and delinquency monitoring.

Management’s evaluation of qualitative loss factors.

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

Evaluating the appropriateness of the Company’s accounting policies, judgments and elections involved in the adoption of ASC 326.

Testing the mathematical accuracy of the ACL calculation.

Utilizing internal specialists to perform procedures to assist in evaluating the relevance of macroeconomic loss drivers.

Testing the relevance and reliability of the internal and external data used in the qualitative allocation.

Evaluating the reasonableness of management’s judgments related to the qualitative loss factors to determine if the loss factors are calculated in accordance with management’s policies and were consistently applied from the point of adoption to year end.

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

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Equity investments, at fair value 3,046 2,830

Securities available for sale, at estimated fair value 632,589 792,026

Securities held to maturity, estimated fair value of $ 2,402 at

December 31, 2022 and $ 3,796 at December 31, 2021

Securities available for sale, at estimated fair value (amortized cost of $ 669,092 , net of allowance for credit losses on securities of $ 0 at December 31, 2023;

and amortized cost of $ 729,198 , net of allowance for credit losses on securities of $ 0 at December 31, 2022)

583,993 632,589

Securities held to maturity, (estimated fair value of $ 785 at December 31, 2023 and $ 2,402 at December 31, 2022 net allowance for credit losses of $ 0 at December 31, 2023 and December 31, 2022, respectively)

FHLBNY and FRBNY Stock, at cost 5,498 8,197

Loans, net of deferred loan fees 1,972,664 1,829,448

Allowance for loan losses ( 19,659 ) ( 21,025 )

Allowance for credit losses (1)

( 22,517 ) ( 19,659 )

Loans, net 1,950,147 1,809,789

Loans held for sale — 396

Premises and equipment, net 14,571 16,113

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Goodwill 21,824 21,824

Other intangible assets, net — 15

Bank owned life insurance 2,914 2,871

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( 16,502 ) ( 17,598 )

Accumulated other comprehensive (loss) income ( 75,257 ) ( 6,530 )

Accumulated other comprehensive (loss) ( 66,013 ) ( 75,257 )

Total shareholders' equity 195,241 166,388

Total liabilities and shareholders' equity $ 2,710,529 $ 2,645,553

(1) Effective January 1, 2023, the allowance calculation is based upon Current Expected Credit loss methodology.

Prior to January 1, 2023, the allowance calculation was based upon incurred loss methodology.

Refer to Note 1 for further discussion.

See accompanying notes to consolidated financial statements.

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Net interest income 74,457 74,179

Provision for loan losses ( 554 ) 17

Net interest income after provision for loan losses 74,733 65,572

Provision (credit) for credit losses (1)

3,262 ( 554 )

Net interest income after provision for credit losses 71,195 74,733

Non-Interest Income:

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Interchange revenue from debit card transactions 4,606 4,603

Net (losses) on securities transactions ( 39 ) —

Change in fair value of equity investments 103 ( 349 )

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Basic and diluted earnings per share $ 5.28 $ 6.13

(1) Effective January 1, 2023, the allowance calculation is based upon Current Expected Credit loss methodology.

Prior to January 1, 2023, the allowance calculation was based upon incurred loss methodology.

Refer to Note 1 for further discussion.

See accompanying notes to consolidated financial statements.

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Other comprehensive income (loss):

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

Reclassification adjustment gains realized in net income — —

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

Unrealized holding gain (loss) on securities available for sale 11,524 ( 93,224 )

Reclassification adjustment (losses) realized in net income ( 14 ) —

Net unrealized gain (loss) 11,510 ( 93,224 )

Tax effect ( 3,014 ) 24,423

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Net gain arising during the period 950 63

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

Reclassification adjustment for amortization of net actuarial losses 63 38

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Net of tax amount 748 74

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

Total other comprehensive income (loss) 9,244 ( 68,727 )

Comprehensive income (loss) $ 34,244 $ ( 39,944 )

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

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

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

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

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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

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

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

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

Cumulative effect of accounting change (b) — — ( 1,076 ) — — ( 1,076 )

Balances at January 1, 2023 53 47,331 210,783 ( 17,598 ) ( 75,257 ) 165,312

Net income — — 25,000 — — 25,000

Other comprehensive loss — — — ( 68,727 ) ( 68,727 )

Other comprehensive income — — — 9,244 9,244

Restricted stock awards — 1,139 — — — 1,139

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

(b) Implementation of ASC 326.

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

See accompanying notes to consolidated financial statements.

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Deferred income tax (benefit) expense ( 1,609 ) 1,722

Provision for loan losses ( 554 ) 17

Provision for credit losses 3,425 ( 554 )

Loss on disposal of fixed assets 3 56

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Loans originated and held for sale ( 6,425 ) ( 5,316 )

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

Net (gains) on sale of other real estate owned ( 37 ) ( 60 )

Write-downs on OREO 3 —

Net change in fair value of equity investments ( 103 ) 349

Proceeds from sales of trading assets 142 161

Purchase of equity investments ( 357 ) ( 337 )

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

Net purchases of equity investments ( 113 ) ( 215 )

Net (gains) on interest rate swaps ( 16 ) ( 173 )

(Increase) in other assets ( 1,298 ) ( 28,071 )

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

Increase in accrued interest payable 2,115 654

Expense related to restricted stock units for directors' deferred compensation plan 20 290

Expense related to employee stock compensation — 132

Expense related to employee restricted stock awards 1,139 795

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CASH FLOWS FROM INVESTING ACTIVITIES:

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

Proceeds from maturities and principal collected on securities held to maturity 2,335 937

Proceeds from sales, maturities, calls, and principal paydowns on securities available for sale 60,852 86,206

Proceeds from sales, maturities and principal collected on securities held to maturity 1,613 2,335

Purchases of securities available for sale ( 3,209 ) ( 23,743 )

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Proceeds from sale of other real estate owned 288 326

Proceeds from bank owned life insurance — 286

Net (increase) decrease in loans ( 312,359 ) 18,196

Net (increase) in loans ( 144,162 ) ( 312,359 )

Net cash (used by) provided by investing activities ( 82,381 ) ( 252,620 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts ( 34,233 ) 207,033

Net increase (decrease) in time deposits 206,027 ( 89,374 )

Net (decrease) in demand, interest-bearing demand, savings, and insured money market deposits ( 107,681 ) ( 34,233 )

Net increase in time deposits 209,881 206,027

Net change in FHLBNY overnight advances ( 63,890 ) 81,240

Principal payments made on capital lease ( 267 ) ( 255 )

Principal payments made on capital leases ( 277 ) ( 267 )

Purchase of treasury stock ( 316 ) ( 933 )

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The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies.

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.

Chemung Risk Management, Inc., (CRM), a wholly-owned subsidiary of the Corporation, was a Nevada-based captive insurance company which insured against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not have been currently available or economically feasible in today's insurance marketplace.

CRM was dissolved by the Corporation, effective December 6, 2023.

BASIS OF PRESENTATION

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CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and amounts due from banks and demand interest-bearing deposits with other financial institutions.

Time deposits with other financial institutions are classified as held-to-maturity securities and are not included in cash and cash equivalents.

Cash and cash equivalents include cash and amounts due from banks, demand interest-bearing deposits, and time deposits with other financial institutions.

EQUITY INVESTMENTS

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Securities to be held for indefinite periods of time or not intended to be held to maturity are classified as available for sale and carried at fair value.

Unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported as accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until realized.

Realized gains and losses are determined using the specific identification method.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.

For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.

Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.

For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows:

1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.

The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.

For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.

OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method.

Dividend and interest income is recognized when collected.

Realized gains and losses are determined using the specific identification method.

Management assesses available for sale securities in an unrealized loss position on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation, to determine whether it intends to sell, or it is more likely than not that it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as a write down through earnings.

Available for sale securities in a loss position that do not meet either of the aforementioned criteria, are reviewed by management to determine whether the unrealized loss is due to credit related circumstances, or other non-credit related factors.

In making this determination, management evaluates a range of factors including the extent to which fair value is less than amortized cost, existing conditions that may adversely impact the issuer, changes to the credit rating of either the issuer or the specific security, among other considerations.

An allowance for credit losses is established for securities, when upon evaluation, management has determined that the unrealized losses are due at least in part to credit conditions.

The allowance for credit losses is determined as the difference, if any, between the present value of expected cash flows and the amortized basis of the security, limited to the extent that amortized basis exceeds fair value.

The Corporation holds the majority of its available for sale securities in obligations that are issued by U.S.

Government entities or agencies and enterprises affiliated with the U.S.

Due to the explicit or implicit guarantee of the full faith and credit of the U.S.

Government, the Corporation considers these securities to carry a near zero credit loss implication.

Securities included under this implication include U.S.

Treasury securities, mortgage backed securities issued by government-sponsored agencies, and SBA pooled loan securities.

Securities that do not fall under this categorization primarily relate to corporate subordinated debt issues.

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

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FHLBNY and FRBNY stock are carried at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate recovery of par value.

Cash dividends are reported as income.

Loans are stated at the amount of unpaid principal balance net of deferred loan fees.

Additionally, recorded investment in loans includes interest receivable on loans.

Cash and stock dividends are reported as income.

Loans are stated at their amortized basis, which is the amount of unpaid principal balance net of deferred loan cost and fees.

An accounting policy election was made to exclude accrued interest receivable from the amortized cost basis of loans.

Accrued interest receivable is included in the "Accrued interest and other assets" line item in the Corporation's Consolidated Balance Sheets.

The Corporation has the ability and intent to hold its loans for the foreseeable future.

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Consumer loans include home equity lines of credit and home equity loans, which exhibit many of the same characteristics as residential mortgages.

Indirect and other consumer loans are typically secured by depreciable assets, such as automobiles or boats, and are dependent on the borrower’s continuing financial stability.

Indirect and other consumer loans are typically secured by depreciable assets, such as automobiles, and are dependent on the borrower’s continuing financial stability.

Interest on loans is accrued and credited to operations using the interest method.

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Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

TROUBLED DEBT RESTRUCTURINGS

A TDR is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise.

Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs.

Restructured loans can convert from non-accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms and when, in the opinion of management, the Bank expects to receive all of its contractual principal and interest due under the restructured terms.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures.

TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception.

If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

For TDRs that subsequently default, the Bank determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

The Bank incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio segment.

Section 4013 of the CARES Act, signed into law of March 27, 2020, gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40, Receivables:

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.

ALLOWANCE FOR LOAN LOSSES

The allowance is an amount that management believes will be adequate to absorb probable incurred credit losses on existing loans.

The allowance is established based on management’s evaluation of the probable incurred credit losses in our portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

A loan is classified as impaired when, based on current information and events, it is probable that the Bank will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.

Specific valuation allowances are established based on management’s analysis of individually impaired loans.

Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, and the probability of collecting scheduled principal and interest payments when due.

Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.

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 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.

Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five year history of net losses.

For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Bank over the most recent two years .

This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio class.

These qualitative factors include consideration of the following:

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

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

The allowance for loan losses is increased through a provision for loan losses charged to operations.

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

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

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

LOAN MODIFICATIONS TO BORROWERS EXPERIENCING FINANCIAL DIFFICULTY

Effective January 1, 2023, the Corporation adopted ASU 2022-02 Financial Instruments - Credit Losses (Topic 326) Troubled Debt Restructurings (TDR) and Vintage Disclosures, which superseded existing TDR measurement and disclosures, and added additional disclosure requirements related to modifications made on loans to borrowers experiencing financial difficulty.

Under prior guidance, a TDR was deemed to have occurred when the Corporation modified a loan to a borrower experiencing financial difficulty, and where a concession was made by the Corporation.

Consistent with ASU 2022-02, the Corporation now evaluates loan modifications to borrowers experiencing financial difficulty on the basis and extent of their direct impact on contractual cash flows.

Modifications under this guidance include principal forgiveness, interest rate reductions, more than insignificant payment delays, term extensions, or a combination thereof.

Payment delays are generally considered insignificant when the duration of the delay is less than or equal to three months.

Once a loan modification is determined to meet the aforementioned criteria, a determination is made as to whether the modification represents the continuation of an existing loan, or a new loan, in accordance with ASC-310-20-35-9 through 11.

The Corporation considers a loan modification to represent the establishment of a new loan if the resulting terms are at least as favorable to the Corporation as the terms made to other borrowers with similar risk profiles.

In the event that a modification is determined to represent a new loan, all unamortized deferred costs and fees are to be recognized through interest income at the point the modification is granted.

Modifications that do not meet this criteria shall be considered a continuation of an existing loan, and all unamortized deferred costs and fees are to be carried forward as part of the modified loan's basis.

ALLOWANCE FOR CREDIT LOSSES

The allowance is an amount that management believes will be adequate to absorb estimated lifetime credit losses inherent in its portfolios of assets exhibiting credit risk.

The Corporation adopted ASC 326 - Financial Instruments-Credit Losses effective January 1, 2023.

The allowance for credit losses is estimated using the Corporation's CECL methodology, and replaces the incurred loss methodology used to estimate its allowance for loan and lease losses under prior guidance.

CECL methodology utilizes historical information, current conditions, and reasonable and supportable economic forecasts to estimate the allowance for credit losses.

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

Measurement of Credit Losses on Financial Instruments.

The ASU supersedes prior 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 was eligible for and elected delayed adoption.

The Corporation adopted the standard, effective January 1, 2023, and recognized a one-time cumulative adjustment to retained earnings as of January 1, 2023 to reflect the change in methodology.

The cumulative-effect adjustment did not have an impact on prior year results.

Retained earnings was reduced by $ 1.5 million, or $ 1.1 million, net of tax, effective January 1.

The $ 1.5 million adjustment was reflective of the establishment of an allowance for credit losses on unfunded commitments, totaling $ 1.1 million, and a $ 0.4 million addition to the allowance for credit losses on loans, reflecting the change in methodology.

Under the Corporation's CECL methodology, loans are analyzed on either a pooled basis, or an individual basis, based on an assessment of risk factors.

Loans that exhibit similar risk characteristics and are pooled based on their assigned FFIEC call codes.

When it is determined that a loan no longer exhibits risk characteristics consistent with its assigned pool, it is designated for individual analysis.

Pooled loans utilize both a quantitative and qualitative component to determine the appropriate estimate of the allowance for credit losses.

The quantitative component is based on an estimated discounted cash flow (DCF) analysis, performed at the loan level.

The underlying assumptions on which the DCF calculation is based incorporate the relationship between a projected value of an economic indicator, and the implied historical loss experience amongst a group of peers established by management.

The Corporation utilizes a regression analysis to identify suitable economic variables, known as loss drivers, for each pool of loans.

Based on the results of this analysis, a probability of default (PD) and a loss given default (LGD) is assigned to each potential value of an economic indicator for each pool of loans, which is applied to derive the statistical loss implications thereof.

The DCF incorporates a hypothetical loss for each period of the calculation, as well as assumed recoveries of past losses, to reach a present value for each loan.

The modeled allowance for credit losses for each individual loan is the book balance of the loan as of the measurement date, less the present value of cash flows.

Forecasted economic variables are applied over a four quarter period, and revert to the historical mean of the economic variable over an eight quarter period, on a straight line basis.

Based on assigned FFIEC call codes, and the risk characteristics of lending activities and collateral among loans within call codes, the Corporation has disaggregated its loan portfolio into the following nine pools:

Construction - Commercial and retail loans secured by real estate and made for the purposes of on-site construction or land development.

This portfolio primarily consists of commercial construction loans, as well as a small number of residential single family construction to permanent loans.

Construction loans are commonly evaluated using an "as-stabilized" or "as completed" appraisal, and the Corporation seeks sponsors who can provide adequate equity in the project at inception, or who have a well-documented history of successfully completing similar projects.

Risks specific to construction lending include changes in market conditions prior to the completion of a construction phase, quality of work performed and cost overruns, and the realization of borrower assurances including but not limited to pre-sales, tenant contracts, and financial covenants.

Home Equity Lines of Credit and Junior Liens - Retail loans that are secured by secondary or inferior lien positions on 1-4 family residential real estate.

Repayment sources primarily rely on borrowers' primary source of income, and are determined based on a borrower's equity position in the collateralized property.

Default risk on secondary liens is greater than on primary liens, as a borrower is likely to prioritize payments on any outstanding indebtedness on the primary lien position.

Secondary lien positions are additionally exposed to greater market risk in the event of foreclosure, and therefore are more sensitive to changes in underlying collateral valuations than primary lien positions.

1-4 Family Residential First Liens - Retail and commercial loans secured by primary lien positions on 1-4 family residential real estate.

For retail loans secured by primary liens on residential property, repayment is primarily dependent on borrowers' primary source of income.

For commercial loans secured by primary liens on residential property, repayment sources may be more diverse.

Significant risk factors include localized economic conditions, that may impact both the collateralized property's value, as well as employment prospects for borrowers who rely on their primary source of income as means of repayment, and regulatory risks specific to housing that may inhibit a bank's ability to pursue means of repayment.

Multifamily - Commercial real estate secured by residential properties comprising of greater than four livable units.

Multifamily properties are commonly managed by the borrower and rented to tenants for residential purposes.

Repayment sources primarily consist of rental income from the property.

Risks associated with multifamily projects include the borrower's ability to attract and maintain a base of tenants at rental rates in excess of those required to finance, manage, and maintain the property, as well as risks relating to demographic considerations in the population of prospective tenants.

Owner Occupied Commercial Real Estate - Commercial real estate loans secured by property that is occupied and or operated by the primary borrower or a related entity.

Cash flow from the operation of the borrower's businesses are generally the primary source of repayment for owner occupied commercial real estate.

Borrower industry and the competence of business operators are generally the primary risks associated with this type of lending activity.

Non Owner Occupied Commercial Real Estate - Commercial real estate loans secured by properties that are maintained and managed by the borrowers, but rely on rental income from outside commercial organizations to provide cash flow for repayment.

Successful operations of tenant businesses significantly impacts borrowers' ability to finance these obligations.

A primary risk relating to real estate of this nature is the limited influence that a borrower can have on the successful operation of tenant businesses, and the possibility of not being able to find suitable or willing replacement tenants, should vacancies arise.

The Corporation seeks to lend in this segment to sponsors who have demonstrated the capability of aligning with strong and dependable tenants, considering both the current environment that tenants operate in, as well as future prospects for their industries, including their need for comparable space in the future.

Commercial and industrial loans - Commercial purpose loans that are primarily secured by the assets of borrowers businesses.

Loans within this segment are made to an array of industry types, and may also include loans that are for commercial real estate purposes, but are secured by assets other than real estate.

Management identifies the primary similarity amongst loans in this pool to be collateral risk exposure common to these loans.

Business assets may have significant variation in collateral value, and the value that may be realized by the Corporation, should the need to liquidate arise.

Normal usage and industry specificity can have a significant impact on collateral values.

The successful operation of borrower businesses provides the primary source of repayment for these loans.

Consumer - Retail loans primarily secured by vehicle or other personal collateral.

Indirect auto lending comprises the majority of lending activity in this pool.

Primarily, repayment is largely dependent on borrowers' primary income source, through employment or otherwise.

Broader economic conditions, as well as specific personal skill sets, can significantly influence a borrower's ability to maintain adequate employment necessary to finance these loans.

Relationships with auto dealer networks also impacts the quality of borrowers seeking financing for vehicles, subject to the Corporation's system of underwriting and loan review.

Collateral values in this pool typically depreciate relatively quickly, compared to other asset classes, and expose the Corporation to risk.

Other - Loans to borrowers whose organizations are primarily engaged in activities other than traditional business operations, such as non profit entities including medical groups, clubs and associations, religious organizations, museums, among others.

These loans are generally classified based on their organizational structure.

The qualitative component of the pooled allowance is supplemented by qualitative adjustments.

Qualitative adjustments represent the extent to which management determines that its expectation of risk differs from the results of the quantitative analysis, in large part capturing risk factors that may not be fully captured by the quantitative model.

Management uses the following nine qualitative factors when considering appropriate adjustment:

unsecured, type, and valuations, (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations, (9) the effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank’s current portfolio.

Loans deemed to require individual analysis are primarily valuated and measured for credit loss based on collateral.

A measurement is performed based on the most recently available appraisal performed on individually analyzed loans.

It is the Corporation's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to require individual analysis.

A specific allocation to the allowance is made on collateral dependent loans to the extent that the value of collateral, net of adjustments made to account for estimated selling costs and management applied discounting, is less than the book value of the loan on the measurement date.

Loans not considered to be collaterally dependent are analyzed using the cash flow approach.

A cash flow analysis is performed using a loan's effective interest rate, and discounted to determine appropriate fair value.

To the extent that a loan's book balance exceeds the present value of cash flows, a specific allocation to the allowance for credit losses is made.

The Corporation established an allowance for credit losses on unfunded commitments, effective January 1, 2023.

The Corporation records an allowance for credit losses on unfunded commitments utilizing a methodology congruent with its methodology for estimating lifetime credit losses on its portfolio of loans, as presented on the Corporation's consolidated balance sheet.

The Corporation disaggregates unfunded commitments into pools consistent with its methodology for pooling loans represented on the balance sheet.

A funding rate is determined to represent the amount of currently unfunded commitments that are estimated to become funded, based on historical experience.

The loss rate applied to the estimated funded balance is consistent with the overall loss rate applied to its equivalent pool of loans on the balance sheet.

The Corporation is not required to establish an allowance for credit losses on commitments that are deemed to be unconditionally cancellable at the sole discretion of the Corporation.

Debt securities are included under the guidance of ASC-326 - Financial Instruments-Credit Losses.

The Corporation evaluates the necessity to establish and maintain an allowance for credit losses on debt securities consistent with its policies in the aforementioned section of this Note labeled "Securities."

The allowance for credit losses is increased through a provision for credit losses charged to operations.

Instruments (loans and debt securities) are charged against their respective allowance for credit losses when management believes that the collectability of all or a portion of the principal is unlikely.

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

While management uses available information to recognize credit losses on loans and securities, future additions to the allowance may be necessary based on changes in economic conditions, regulatory requirements, or other new information.

LOANS HELD FOR SALE

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Loans held for sale are recorded at the lower of cost or fair value in the aggregate and are regularly evaluated for changes in fair value.

Commitments to sell the loans that are originated for sale are recorded at fair value.

Commitments to sell loans that are originated for sale are recorded at fair value.

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

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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.

A corresponding long term lease obligation is recorded, 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.

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Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less accumulated depreciation and amortization.

Depreciation is charged to current operations under the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture.

Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset.

Depreciation is charged to current operations using the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture.

Amortization of leasehold improvements and leased equipment is recognized using the straight-line method over the shorter of the lease term or the estimated life of the asset.

Leases of branch offices, which have been capitalized, are included within buildings and depreciated on the straight-line method over the shorter of the lease term or the estimated life of the asset.

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Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the property less estimated costs to dispose at the time of acquisition to establish a new carrying value.

Write downs from the carrying value of the loan to estimated fair value, which are required at the time of foreclosure, are charged to the allowance for loan losses.

Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur.

Write downs from the carrying value of the loan to estimated fair value, which are required at the time of foreclosure, are charged to the allowance for credit losses.

Subsequent adjustments to the carrying values of such properties resulting from declines in fair value result in the establishment of a valuation allowance and are charged to operations in the period in which the declines occur.

The Corporation files a consolidated tax return.

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Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.

The unaudited market value of trust assets under administration total $ 2.053 billion, including $ 346.5 million of assets held under management or administration for the Corporation, at December 31, 2022 and $ 2.325 billion, including $ 344.2 million of assets held under management or administration for the Corporation, at December 31, 2021.

The audited market value of trust assets under administration total $ 2.242 billion, including $ 381.3 million of assets held under management or administration for the Corporation, at December 31, 2023 and $ 2.053 billion, including $ 346.5 million of assets held under management or administration for the Corporation, at December 31, 2022.

POSTRETIREMENT BENEFITS

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

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

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

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

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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.

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

Defined Contribution Profit Sharing, Savings and Investment Plan:

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The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements.

This plan was amended effective July 1, 2006.

Prior to this amendment, all retirees age 55 or older were eligible for coverage under the Corporation's self-insured health care plan, contributing 40 % of the cost of the coverage.

Under the amended plan, coverage for Medicare eligible retirees who reside in the Central New York geographic area is provided under a group sponsored plan with Excellus BlueCross BlueShield called Medicare Blue PPO, with the retiree paying 100 % of the premium.

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

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

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

Current retirees between the ages of 55 and 65 , will continue to be eligible for coverage under the Corporation's self-insured plan, contributing 50 % of the cost of the coverage.

Employees who retired after July 1, 2006, and become Medicare eligible will only have access to the Medicare Blue PPO plan.

Additionally, effective July 1, 2006, dental benefits were eliminated for all retirees.

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.

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.

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

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

Compensation expense for shares granted will be recognized over the vesting period of the award based upon the fair value of shares granted as of the grant date.

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

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The Corporation has selected December 31 as the date to perform the annual impairment test.

Goodwill is the only intangible asset with an indefinite life on our balance sheet.

Goodwill is the only intangible asset with an indefinite life on the Corporation's balance sheet.

Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.

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The securities underlying the agreements are under the Corporation's control.

As of December 31, 2023, the Corporation had no securities sold under agreements to repurchase.

The Corporation utilizes interest rate swaps with commercial borrowers and third-party counterparties as well as agreements with lead banks in participation loan relationships wherein the Corporation guarantees a portion of the fair value of an interest rate swap entered into by the lead bank.

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Premiums received when entering into derivative contracts are recognized as part of the fair value of the derivative asset or liability and are carried at fair value with any gain/loss at inception and any changes in fair value reflected in income.

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program.

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its back-to-back interest rate swap program.

The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions.

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The Corporation's policy is to record such instruments when funded.

ADVERTISING COSTS

Costs for advertising products and services or for promoting our corporate image are expensed as incurred.

EARNINGS PER COMMON SHARE

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

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

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

Restricted stock awards are grants of participating securities.

The impact of the participating securities on earnings per share is not material.

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

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

Restricted stock awards are grants of participating securities and are considered outstanding at grant date.

Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

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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.

The Corporation adopted the standard, effective January 1, 2023, and recognized a one-time cumulative adjustment to retained earnings as of January 1, 2023 to reflect the change in methodology.

The cumulative-effect adjustment did not have an impact on prior year results.

Retained earnings was reduced by $ 1.5 million, or $ 1.1 million, net of tax, effective January 1.

Further details regarding the Corporation's adoption of ASU 2013-16 and its methodology thereof can be found in the preceding sections of this Note 1, as well as in Note 4 - Loans and Allowance for Credit Losses, as well as throughout Management's Discussion and Analysis of Financial Condition and Results of Operations.

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.

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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.

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

In December 2022, the FASB issued ASU No.

2022-06, Deferral of the Sunset Date of Topic 848, and defers the date for which accounting relief can be applied under Topic 848.

ASU 2022-06 applies to entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The objective of the guidance in Topic 848 is to ease the burden in accounting related to the recognition of the effects of reference rate reform on financial reporting.

A sunset provision was included within Topic 848 based on expectations of when LIBOR would cease being published.

The Corporation had adopted the accounting relief provisions of Topic 848 effective October 1, 2020.

The amendments in ASU 2022-06 defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be able to apply the accounting relief in Topic 848.

ASU 2022-06 was effective for all entities upon its issuance.

The adoption of the provisions of Topic 848, as amended, did not have a material impact on the Corporation’s consolidated financial statements, and the Corporation has transitioned all financial instruments that previously referenced LIBOR benchmarks.

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements, which and modifies the disclosure or presentation requirements of a variety of Topics in the Accounting Standards Codification, in response to SEC Release No.

33-10532, Disclosure Update and Simplifications, issued on August 17, 2018.

The SEC identified several disclosure requirements that overlap with U.S.

GAAP, but require incremental information to comply with disclosure standards in Regulations S-X and Regulation S-K.

ASU 2023-06 codifies specific amendments to align the codification with SEC regulations.

The effective date for each amendment is that date on which each disclosure requirement is removed from Regulation S-K and Regulation S-X.

The Corporation anticipates that certain amendments will pertain to the Corporation's financial disclosures or presentation, but cannot determine with certainty which amendments are applicable until removal from Regulation S-K or Regulation S-X.

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, enhancing disclosure requirements for reportable segments, focusing on significant segment expenses, and the identification of a segment's chief decision making officer, and the metrics used by the chief decision making officer in evaluating segment-level operating performance.

The ASU is effective for fiscal years beginning after December 15, 2023.

The Corporation will begin providing enhanced segment reporting disclosures in accordance with ASU 2023-07 for the fiscal year ending December 31, 2024, and for interim periods thereafter.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvement to Income Tax Disclosures, which will require public business entities to disclose annually a tabular rate reconciliation, including specific items such as state and local income tax, tax credits, nontaxable or nondeductible items, among others, and a separate disclosure requiring disaggregation of reconciling items as described above which equal or exceed 5% percent of the product of multiplying income from continuing operations by the applicable statutory income tax rate.

The ASU is effective for all public business entities for annual periods beginning after December 31, 2024.

USE OF ANALOGOUS ACCOUNTING STANDARDS

GAAP, there is no specific guidance related to government assistance received by a for-profit entity that is not in the form of a loan, income tax credit, or revenue from a contract with a customer.

Therefore, the Corporation must rely upon analogous accounting standards to determine appropriate treatment when such circumstances arise.

The Corporation accounted for the recognition of the Employee Retention Tax Credit (ERTC) using ASC 958-605, Revenue Recognition for Not-for-Profit entities.

ASC 958-10-15-1 specifies that certain Subtopics within ASC 958-605 also apply to business entities.

The Corporation considers the recognition of the ERTC to be analogous to the stipulations for "conditional contributions" under ASC 958-605-20.

Conditional contributions have at least one barrier needing to be overcome before the recipient is entitled to the assets transferred or promised;

there must be a right-of-return to the contributor;

and barriers to the condition should be measurable.

The Corporation recognized the gross amount of the ERTC through non-interest income during the period in which the barrier was overcome, identified as the period during which amended tax returns were filed.

The Corporation incurred and recognized additional income tax expense during the period in relation to its amended tax returns.

(2) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

5 unchanged sentences

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

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.

No collateral was held at the financial institution as of December 31, 2023, and 2022.

(3) SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2023 and 2022 are as follows (in thousands):

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

December 31, 2023

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value

treasury notes and bonds $ 59,812 $ — $ 4,480 $ — $ 55,332

Mortgage-backed securities, residential 476,240 6 72,422 — 403,824

Collateralized mortgage obligations — — — — —

Obligations of states and political subdivisions 39,503 — 817 — 38,686

2 unchanged sentences

Total $ 669,092 $ 81 $ 85,180 $ — $ 583,993

Gross unrealized gains and losses on securities available for sale at December 31, 2022 and 2021, were as follows (in thousands):

Gains Unrealized

Losses Unrealized

Gains Unrealized

December 31, 2022

Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value

treasury notes and bonds $ 61,800 $ — $ 6,225 $ 55,574

Mortgage-backed securities, residential 518,838 — 83,707 435,131

Collateralized mortgage obligations — — — —

Obligations of states and political subdivisions 39,828 2 938 38,892

2 unchanged sentences

Total $ 729,198 $ 157 $ 96,766 $ 632,589

Proceeds from the sale of available for sale securities for the year ended December 31, 2023 were $ 1.2 million, and a gross loss of $ 14 thousand was realized on these sales.

The sales were executed by Chemung Risk Management, Inc., which served as a wholly owned captive insurance company based in the State of Nevada, until dissolution by the Corporation effective December 6, 2023.

There were no proceeds from sales and calls of securities resulting in gains or losses during the year ended December 31, 2022.

The tax benefit related to these net realized losses was $ 4 thousand for the year ended December 31, 2023.

The amortized cost and estimated fair value of debt securities available for sale are shown below by contractual maturity.

2 unchanged sentences

December 31, 2023

Amortized Cost Estimated Fair Value

Within one year $ 5,678 $ 5,594

2 unchanged sentences

After ten years 470 428

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

Mortgage-backed securities:

residential 476,240 403,824

SBA loan pools 67,787 65,482

Total $ 669,092 $ 583,993

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

There were no proceeds from sales and calls of securities resulting in gains or losses during the years ended December 31, 2022 and 2021.

Amortized cost and estimated fair value of securities held to maturity at December 31, 2023 and 2022 are as follows (in thousands):

Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value

December 31, 2023

Amortized Cost Unrecognized Gains Unrecognized Losses Estimated Fair Value Allowance for Credit Losses

Obligations of states and political subdivisions $ 785 $ — $ — $ 785 $ —

1 unchanged sentence

$ 785 $ — $ — $ 785 $ —

Gross unrealized gains and losses on securities held to maturity at December 31, 2022 and 2021, were as follows (in thousands):

Gains Unrealized

Losses Unrealized

Gains Unrealized

December 31, 2022

Amortized Cost Unrecognized Gains Unrecognized Losses Estimated Fair Value

Obligations of states and political subdivisions $ 952 $ — $ — $ 952

Time deposits with other financial institutions 1,472 — 22 1,450

Total $ — $ 22 $ 6 $ —

There were no sales of securities held to maturity in 2022 or 2021.

The contractual maturity of securities held to maturity is as follows at December 31, 2022 (in thousands):

$ 2,424 $ — $ 22 $ 2,402

Proceeds from the sale of held to maturity securities for the year ended December 31, 2023 were $ 1.0 million, and a gross loss of $ 25 thousand was realized on these sales.

There were no proceeds from sales of securities held to maturity during the year ended December 31, 2022.

The contractual maturity of securities held to maturity was as follows at December 31, 2023 (in thousands):

December 31, 2023

1 unchanged sentence

After one, but within five years 145 145

After five, but within ten years 640 640

After ten years — —

Total $ 785 $ 785

The following table summarizes the investment securities available for sale with unrealized losses at December 31, 2022 and December 31, 2021 by aggregated major security type and length of time in a continuous unrealized position (in thousands):

The following tables summarize the investment securities available for sale with unrealized losses, for which an allowance for credit losses has not been recorded as of December 31, 2023, and an other than temporary impairment (OTTI) has not been recorded as of December 31, 2022 aggregated by major security type and length of time in a continuous unrealized loss position (in thousands):

Less than 12 months 12 months or longer Total

3 unchanged sentences

treasury notes and bonds $ — $ — $ 55,332 $ 4,480 $ 55,332 $ 4,480

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

Mortgage-backed securities:

residential — — 402,986 72,422 402,986 72,422

Obligations of states and political subdivisions 17,891 241 20,686 576 38,577 817

8 unchanged sentences

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

1 unchanged sentence

Total temporarily impaired securities $ 137,597 $ 9,999 $ 468,381 $ 86,767 $ 605,978 $ 96,766

Pledged Securities

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $ 255.0 million at December 31, 2023 and $ 213.8 million at December 31, 2022.

Concentrations

There are no securities of a single issuer (other than securities of U.S.

Government sponsored enterprises) that exceeded 10% of shareholders' equity at December 31, 2023 or 2022.

Assessment of Available for Sale Debt Securities for Credit Risk

Management assesses the change in fair value of investment securities on a regular basis.

Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, structural changes in an investment, volatility in financial results of specific issuers, or deterioration in credit quality of issuers.

Management assesses both qualitative and quantitative factors to determine whether any credit-related allowance is required.

The following is a discussion of the credit quality characteristics of major portfolio segments carrying material unrealized losses as of December 31, 2023.

Obligations of U.S.

Governmental agencies and sponsored enterprises :

As of December 31, 2023, a significant portion of the Corporation’s unrealized losses in available for sale investment securities related to mortgage-backed securities, issued by government-sponsored entities and agencies.

Declines in fair value are attributable to changes in interest rates and market liquidity, not credit quality.

The Corporation does not have the intent, and it is not likely to be required, to sell these securities prior to their anticipated recovery.

All mortgage-backed securities in the available for sale securities portfolio as of December 31, 2023 were issued by FHLMC, FNMA, or GNMA.

Because the Corporation considers these obligations to carry zero credit loss estimates, no allowance for credit losses was recorded as of December 31, 2023.

Corporate bonds and notes :

The Corporation's corporate bonds and notes portfolio is comprised of subordinated debt issues of community and regional banks.

Management considers the credit quality of these investments on an individual basis.

Management reviews the collectability of these securities, taking into consideration such factors as the financial condition of issuers, reported regulatory capital ratios of the issuers, and credit ratings when available, among other pertinent factors.

All corporate bond debt securities continue to accrue interest and make payments as expected with no defaults or deferrals on the part of the issuers.

Therefore, the Corporation considers the potential credit risk of the issuers to be immaterial, and no allowance for credit losses was recorded as of December 31, 2023.

Other-Than-Temporary-Impairment

Prior to the adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326 ), the Corporation evaluated its portfolio of available for sale securities for Other than Temporary Impairment (OTTI).

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

2 unchanged sentences

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.

Pledged Securities

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.

Concentrations

There are no securities of a single issuer (other than securities of U.S.

Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2022 or 2021.

Equity Method Investments

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

The composition of the loan portfolio, net of deferred loan fees is summarized as follows (in thousands):

December 31, 2022 December 31, 2021

The Corporation holds a non-qualified deferred compensation plan to allow a select group of management and employees the opportunity to defer all or a portion of their annual compensation, and treats assets held under this plan as equity method investments.

As of December 31, 2023 and December 31, 2022, the fair value of investments held in relation to the deferred compensation plan was $ 2.4 million and $ 2.1 million, respectively.

The Corporation also held $ 0.6 million of marketable securities as equity method investments for each of the years ended December 31, 2023 and 2022.

(4) LOANS AND ALLOWANCE FOR CREDIT LOSSES

The composition of the loan portfolio, net of deferred loan fees at December 31, 2023 and 2022 is summarized as follows (in thousands):

Commercial and agricultural:

3 unchanged sentences

Construction 138,887 108,243

Commercial mortgages 888,670 720,358

Commercial mortgages, other 984,038 888,670

Residential mortgages 277,992 285,672

4 unchanged sentences

Total loans, net of deferred loan fees 1,972,664 1,829,448

Interest receivable on loans 6,548 4,133

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

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, 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.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2022 and 2021, respectively (in thousands):

Allowance for credit losses ( 22,517 ) ( 19,659 )

Loans, net of allowance for credit losses $ 1,950,147 $ 1,809,789

The Corporation's concentrations of credit risk by loan type are reflected in the preceding table.

The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications in the table above.

Accrued interest receivable on loans amounted to $ 7.8 million at December 31, 2023 and $ 6.5 million at December 31, 2022.

Accrued interest receivable on loans is included in the Accrued interest receivable and other assets line item on the Corporation's Consolidated Balance Sheets, and is excluded from the amortized cost basis of loans and estimate of the allowance for credit losses, as presented in this Note.

Recorded investment balances of loans as of December 31, 2022 included accrued interest receivable.

The Corporation had no residential mortgages held for sale as of December 31, 2023 and December 31, 2022.

When the Corporation has loans classified as held for sale, they are not included in the table above.

Residential mortgage and home equity loans totaling $ 254.6 million at December 31, 2023 and $ 254.4 million at December 31, 2022 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

The following tables present the activity in the allowance for credit losses by portfolio segment for the year ended December 31, 2023 and the allowance for loan losses for the year ended December 31, 2022 , respectively (in thousands):

December 31, 2023

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

Beginning balance:

$ 3,591 $ 13,556 $ 1,803 $ 2,075 $ 21,025

Allowance for credit losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total

Beginning balance, January 1, 2023 $ 3,373 $ 11,576 $ 1,845 $ 2,865 $ 19,659

Cumulative effect adjustment for the adoption of ASC-326 909 ( 695 ) ( 16 ) 176 374

Beginning balance after cumulative effect adjustment, January 1, 2023 4,282 10,881 1,829 3,041 20,033

( 281 ) — ( 32 ) ( 1,070 ) ( 1,383 )

2 unchanged sentences

Provision (1)

Ending balance $ 3,373 $ 11,576 $ 1,845 $ 2,865 $ 19,659

1,032 1,141 397 855 3,425

Ending balance, December 31, 2023 $ 5,055 $ 12,026 $ 2,194 $ 3,242 $ 22,517

(1) Additional provision related to off-balance sheet exposure was a credit of $ 163 thousand for the year ended December 31, 2023.

December 31, 2022

7 unchanged sentences

Ending balance $ 3,373 $ 11,576 $ 1,845 $ 2,865 $ 19,659

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2022 and December 31, 2021 (in thousands):

Unfunded Commitments

The allowance for credit losses on unfunded commitments represents the amount held against credit exposures that are not represented on the Consolidated Balance Sheets.

The allowance is recognized as a liability, a component of Other liabilities on the Consolidated Balance Sheets, with adjustments to the allowance recognized in the provision for credit losses line item on the Consolidated Statements of Income.

The Corporation established a reserve for unfunded commitments in conjunction with its adoption of ASC 326- Financial Instruments-Credit Losses .

The following table presents the activity in the allowance for credit losses on unfunded commitments for the years ended December 31, 2023 and 2022:

Allowance for credit losses on unfunded commitments For the Twelve Months Ended December 31,

Beginning balance $ — $ —

Impact of adoption of ASC-326 1,082 —

Provision for credit losses on unfunded commitments ( 163 ) —

Ending balance $ 919 $ —

The following table presents the provision for credit losses on loans and unfunded commitments for the year ended December 31, 2023 , based upon the current expected credit loss methodology, and the provision for loan losses on loans for the year ended December 31, 2022, based upon the incurred loss methodology:

For the Twelve Months Ended December 31,

Provision for credit losses 2023 2022

Provision for credit losses on loans $ 3,425 $ ( 554 )

Provision for credit losses on unfunded commitments ( 163 ) —

Total provision (credit) for credit losses $ 3,262 $ ( 554 )

The following tables present the balance in the Allowance for credit losses and the amortized cost basis in loans by portfolio segment and based on analysis status as of December 31, 2023 and the allowance for loan losses and the amortized cost basis in loans by portfolio as of December 31, 2022, respectively (in thousands):

December 31, 2023

Allowance for loan losses Commercial

Allowance for credit losses Commercial

Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total

Ending allowance balance attributable to loans:

Individually evaluated for impairment $ 1,078 $ 38 $ — $ 31 $ 1,147

Collectively evaluated for impairment 2,295 11,538 1,845 2,834 18,512

Individually analyzed $ 1,928 $ 27 $ — $ — $ 1,955

Collectively analyzed 3,127 11,999 2,194 3,242 20,562

Total ending allowance balance $ 5,055 $ 12,026 $ 2,194 $ 3,242 $ 22,517

7 unchanged sentences

December 31, 2023

Loans Commercial

Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total

Loans individually evaluated for impairment $ 2,113 $ 4,384 $ 760 $ 265 $ 7,522

Loans collectively evaluated for impairment 251,178 996,477 285,685 295,134 1,828,474

Loans individually analyzed $ 2,067 $ 5,968 $ — $ — $ 8,035

Loans collectively analyzed 262,329 1,116,957 277,992 307,351 1,964,629

Total ending loans balance $ 264,396 $ 1,122,925 $ 277,992 $ 307,351 $ 1,972,664

December 31, 2022

Loans Commercial

Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total

2 unchanged sentences

Total ending loans balance $ 252,293 $ 996,913 $ 285,672 $ 294,570 $ 1,829,448

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

Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated

Modifications to Loans Made to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Corporation adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326)-Troubled Debt Restructurings and Vintage Disclosures, on a prospective basis.

The Corporation may occasionally make modifications to loans where the borrower is considered to be experiencing financial difficulty.

Types of modifications considered under ASU 2022-02 include principal reductions, interest rate reductions, term extensions, significant payment delays, or a combination thereof.

T he following table summarizes the amortized cost basis of loans modified during the year ended December 31, 2023 (in thousands):

December 31, 2023

Loans modified under ASU 2022-02 Principal Reduction Interest Rate Reduction Term Extension Payment Delay Combination Total (%) of Loan Class (1)

Commercial and agricultural:

Commercial & industrial $ — $ — $ 1,011 $ — $ — $ 1,011 0.38 %

Agricultural — — — — — — — %

Commercial mortgages:

Construction — — — — — — — %

Commercial mortgages, other — — 272 1,878 — 2,150 0.22 %

Residential mortgages — — — — — — — %

Consumer loans:

Home equity lines and loans — — 116 — — 116 0.13 %

Indirect consumer loans — — — — — — — %

Direct consumer loans — — — — — — — %

Total $ — $ — $ 1,399 $ 1,878 $ — $ 3,277

(1) Represents the amortized cost basis of loans modified during the period as a percentage of the period-end loan balances by class.

The following table presents the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the year ended December 31, 2023:

Effect of loan modifications under ASU 2022-02 Principal reduction

(in thousands) Weighted average interest rate reduction (%) Weighted average term extension

(in months) Weighted-average payment delay

Commercial and agricultural:

Commercial & industrial $ — — % 12 months

Agricultural $ — — %

Commercial mortgages:

Construction $ — — %

Commercial mortgages, other $ — — % 60 months 4 months

Residential mortgages $ — — %

Consumer loans:

Home equity lines and loans $ — — % 180 months

Indirect consumer loans $ — — %

Direct consumer loans $ — — %

The Corporation closely monitors the performance of loans that have been modified in accordance with ASU 2022-02 in order to understand the effectiveness of its modification efforts.

There was one commercial and industrial loan modified to borrowers experiencing financial difficulty during the prior twelve months that sustained a payment default on the modified terms during the year ended December 31, 2023.

An allocation totaling $ 0.9 million was included for this modified loan in the allowance for credit losses as of December 31, 2023.

Individually Analyzed Loans

Effective January 1, 2023, the Corporation began analyzing loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designated pool of loans, under the Corporation's CECL methodology.

Loans individually analyzed include certain non-accrual commercial, as well as certain accruing loans previously identified under prior troubled debt restructuring (TDR) guidance.

As of December 31, 2023, the amortized cost basis of individually analyzed loans was $ 8.0 million, of which $ 6.3 million were considered collateral dependent.

For collateral dependent loans where the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan, at measurement date.

Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

The following table presents the amortized cost basis and related allowance for credit loss of individually analyzed loans considered to be collateral dependent as of December 31, 2023 (in thousands):

December 31, 2023

Amortized Cost Basis Related Allowance

Commercial and agricultural:

Commercial and industrial (1) (2)

Agricultural (2)

Commercial mortgages:

Construction (1)

Commercial mortgages, other (1) (2) (3)

Total $ 6,347 $ 267

(1) Secured by commercial real estate

(2) Secured by business assets

(3) Secured by residential real estate

Differing from the methodology for analyzing loans on an individual basis used as of December 31, 2023, as described above, prior to January 1, 2023, the Corporation considered a loan to be impaired for credit analysis purposes when, based on currently available information, it was deemed probable that the Corporation would not be able to collect on the loan's contractually determined principal and interest payments.

Impaired loans included loans on non-accrual status and troubled debt restructurings (TDRs).

The Corporation identified loss allocations for impaired loans on an individual basis, and in conformity with its methodology under the incurred loss framework.

The following is a summary of impaired loans as of December 31, 2022 (in thousands):

December 31, 2022

With no related allowance recorded:

Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated

Commercial and agricultural:

14 unchanged sentences

Total $ 7,548 $ 7,522 $ 1,147

The following table presents the average amortized basis and interest income recognized for loans individually analyzed, by class, as of December 31, 2023 and loans individually evaluated for impairment, by class, as of December 31, 2022, (in thousands):

December 31, 2023 December 31, 2022

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

With no related allowance recorded:

Average Amortized Cost Basis Interest Income Recognized (1) Average Amortized Cost Basis Interest Income Recognized (1)

Commercial and agricultural:

Commercial and industrial $ 431 $ — $ 814 $ —

Agricultural — — — —

Commercial mortgages:

7 unchanged sentences

Commercial and industrial 1,328 55 1,453 5

Agricultural 11 — — —

Commercial mortgages:

Construction — — — —

Commercial mortgages 33 — 1,258 —

Residential mortgages — — — —

Consumer loans:

Home equity lines and loans 25 — 137 —

Direct consumer loans — — — —

Total $ 6,646 $ 163 $ 8,961 $ 56

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

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

The following table presents the amortized cost basis of non-accrual loans with no related allowance for credit losses, total non-accrual loans, and loans pasts due for 90 days or greater which are still accruing, by class of loans, as of December 31, 2023 and December 31, 2022 (in thousands):

Non-accrual with no allowance for credit losses Non-accrual Loans Past Due 90 Days or More and Still Accruing

2023 2022 2023 2022 2023 2022

1 unchanged sentence

Commercial and industrial $ 76 $ 1,035 $ 1,904 $ 1,946 $ 10 $ 1

Agricultural — — 26 — — —

Commercial mortgages:

3 unchanged sentences

Consumer loans:

Credit cards — — — — — —

Home equity lines and loans 508 729 508 760 — —

2 unchanged sentences

Total $ 8,529 $ 7,198 $ 10,411 $ 8,178 $ 10 $ 1

The following tables present the aging of the recorded investment in loans as of December 31, 2022 and December 31, 2021 (in thousands):

The following tables present the aging of the amortized cost basis in loans as of December 31, 2023 and December 31, 2022 (in thousands):

December 31, 2023

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due Total

30 - 59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total

Commercial and agricultural:

6 unchanged sentences

Consumer loans:

Credit cards — — — — — —

Home equity lines and loans 461 87 366 914 86,142 87,056

3 unchanged sentences

December 31, 2022

30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due Total

30 - 59 Days Past Due 60-89 Days Past Due Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total

Commercial and agricultural:

6 unchanged sentences

Consumer loans:

Credit cards — — — — — —

Home equity lines and loans 193 121 442 756 80,645 81,401

2 unchanged sentences

Total $ 4,084 $ 1,045 $ 1,474 $ 6,603 $ 1,822,845 $ 1,829,448

Troubled Debt Restructurings:

A modification of a loan may result in classification as a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession.

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.

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 $ 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.

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

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 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.

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

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 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 years ended December 31, 2022 and December 31, 2021, within twelve months following the modification.

Credit Quality Indicators

2 unchanged sentences

historic and future debt service coverage, collateral position, operating performance, liquidity, leverage, payment history, management ability, and the customer’s industry.

Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower’s ability to service their debt and affirm the risk ratings for the loans at least annually.

For the retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment.

Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower’s ability to service its debt and affirm the risk ratings for the loans at least annually.

For retail loans, which include residential mortgages, indirect and direct consumer loans, and home equity lines and loans, once a loan is appropriately approved and closed, the Corporation evaluates credit quality based upon loan repayment.

Retail loans are not rated until they become 90 days past due.

The Corporation uses the risk rating system to identify criticized and classified loans.

The Corporation uses its risk rating system to identify criticized and classified loans.

Commercial relationships within the criticized and classified risk ratings are analyzed quarterly.

1 unchanged sentence

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position as some future date.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capability of the obligor or of the collateral pledged, if any.

2 unchanged sentences

Doubtful – Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

Loans listed as not rated are included in groups of homogeneous loans.

Based on the analyses performed as of December 31, 2022 and 2021, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

December 31, 2022

Not Rated Pass Special Mention Substandard Doubtful Total

Commercial and agricultural:

Commercial and industrial $ — $ 235,900 $ 13,349 $ 2,899 $ 893 $ 253,041

Agricultural — 250 — — — 250

Commercial mortgages:

Construction — 108,488 178 5 — 108,671

Commercial loans not meeting the criteria above to be considered criticized or classified, are considered to be pass rated loans.

Loans listed as not rated, are included in groups of homogeneous loans performing under terms of the loan notes.

Based on the analyses performed as of December 31, 2023, the risk category of the amortized cost basis of loans by class of loans and vintage, as well as the gross charge-offs by loan class and vintage for the period, are as follows (in thousands):

Term Loans - Amortized Cost by Origination Year Revolving Loans Amortized Cost Revolving Loans Converted to Term Total

2023 2022 2021 2020 2019 Prior

Commercial & Industrial

Pass $ 41,601 $ 35,768 $ 17,506 $ 10,195 $ 33,436 $ 7,746 $ 92,114 $ — $ 238,366

Special Mention 185 2,103 — — — 432 9,730 10,672 23,122

Substandard — 24 991 109 23 456 — 161 1,764

Doubtful — — — — — 790 75 23 888

Total 41,786 37,895 18,497 10,304 33,459 9,424 101,919 10,856 264,140

Gross charge offs — — — — 9 272 — — 281

Pass — 15 150 — — — 65 — 230

Special Mention — — — — — — — — —

Substandard — — — — — — — 26 26

Doubtful — — — — — — — — —

Total — 15 150 — — — 65 26 256

Gross charge offs — — — — — — — — —

Pass 11,275 1,445 — — 28 1,178 122,752 — 136,678

Special Mention — — — — — — — — —

Substandard — — — — 2,207 2 — — 2,209

Doubtful — — — — — — — — —

Total 11,275 1,445 — — 2,235 1,180 122,752 — 138,887

Gross charge offs — — — — — — — — —

Commercial mortgages

Pass 91,636 207,277 123,040 90,635 39,175 168,878 233,999 — 954,640

Special Mention — 2,533 8,189 2,609 — 3,216 — 5,426 21,973

Substandard 272 1,107 345 1,022 — 4,143 97 412 7,398

Doubtful — — — — — 27 — — 27

Total 91,908 210,917 131,574 94,266 39,175 176,264 234,096 5,838 984,038

Gross charge offs — — — — — — — — —

Residential mortgages

Consumer loans

Not rated 14,027 50,556 49,428 69,070 15,093 44,628 33,875 — 276,677

Substandard — 75 346 — 169 725 — — 1,315

Total 14,027 50,631 49,774 69,070 15,262 45,353 33,875 — 277,992

Gross charge offs — 32 — — — — — — 32

Home equity lines and loans

Indirect consumer loans 202,050 — — 540 — 202,590

Direct consumer loans 11,094 — — 13 — 11,107

Not rated 13,743 16,621 5,797 3,110 2,845 10,342 34,090 — 86,548

Substandard — 77 — — — (1) 293 25 113 508

Total 13,743 16,698 5,797 3,110 2,845 10,635 34,115 113 87,056

Gross charge offs — — — — — — 6 — 6

Indirect consumer

Not rated 72,264 98,008 23,015 9,192 3,870 3,387 — — 209,736

Substandard 119 246 135 48 36 103 — — 687

Total 72,383 98,254 23,150 9,240 3,906 3,490 — — 210,423

Gross charge offs 184 375 215 121 21 55 — — 971

Direct consumer

Not rated 3,005 2,745 785 256 53 357 2,669 — 9,870

Substandard — — — 2 — — — — 2

Total 3,005 2,745 785 258 53 357 2,669 — 9,872

Gross charge offs 4 15 8 6 — 54 6 — 93

Total loans $ 248,127 $ 418,600 $ 229,727 $ 186,248 $ 96,935 $ 246,703 $ 529,491 $ 16,833 $ 1,972,664

Total Gross charge-offs $ 188 $ 422 $ 223 $ 127 $ 30 $ 381 $ 12 $ — $ 1,383

Prior to the adoption of ASC 326- Financial Instruments-Credit Losses, loans not meeting the criteria above that were analyzed individually as part of the above described process were considered pass rated loans as of December 31, 2022.

Based upon the analyses performed as of December 31, 2022, the risk category of the recorded investment of loans by class of loans was as follows (in thousands):

December 31, 2022

8 unchanged sentences

Consumer loans

Credit cards — — — — — —

Home equity lines and loans 80,942 — — 760 — 81,702

2 unchanged sentences

Total $ 579,545 $ 1,205,027 $ 37,465 $ 13,028 $ 931 $ 1,835,996

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses.

The Corporation considers the performance of the loan portfolio and its impact on the allowance for credit losses.

For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.

Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2022 and 2021 (in thousands):

Non-performing loans include non-accrual loans.

For residential and consumer loan classes, the Corporation evaluated credit quality based on the aging status of the loan, which was presented by payment activity.

The following table presents the amortized cost basis in residential and consumer loans based on payment activity as of December 31, 2023 (in thousands):

December 31, 2023

4 unchanged sentences

Total $ 277,992 $ 87,056 $ 210,423 $ 9,872

Prior to the adoption of ASC 326- Financial Instruments-Credit Losses , the Corporation also evaluated credit quality based on the aging status of the loan, which was presented, by payment activity.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2022 (in thousands):

December 31, 2022

15 unchanged sentences

Depreciation expense was $ 2.0 million and $ 2.2 million for 2023 and 2022, respectively.

Capital Leases

The Corporation leases certain buildings under capital leases.

Finance Leases

The Corporation leases certain buildings under finance leases.

The lease arrangements require monthly payments through 2036.

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

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

Buildings $ 5,572 $ 5,572

5 unchanged sentences

As of December 31, 2023, the weighted average remaining lease term was 7.9 years with a weighted average discount rate of 3.40 %.

Rent expense was 1.0 million for each of the years ended December 31, 2022 and 2021, respectively.

Rent expense was $ 1.0 million for each of the years ended December 31, 2023 and 2022.

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

1 unchanged sentence

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

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

Leased branch properties at December 31, 2023 and December 31, 2022 consist of the following (in thousands):

December 31, 2022 December 31, 2021

Operating lease right-of-use asset $ 6,449 $ 7,234

8 unchanged sentences

Present value of net minimum lease payments $ 5,827

As of December 31, 2022, the Corporation had no operating leases that were signed, but had not yet commenced.

As of December 31, 2023, the Corporation had one operating lease that was signed on October 19, 2023, but had not yet commenced.

Finance Leases

1 unchanged sentence

The lease arrangements require monthly payments through 2036.

As of December 31, 2022, the weighted average remaining lease term was 10.2 years years with a weighted average discount rate of 3.39 %.

As of December 31, 2023, the weighted average remaining lease term was 9.3 years with a weighted average discount rate of 3.42 %.

The Corporation has included these leases in premises and equipment as of December 31, 2023 and December 31, 2022.

16 unchanged sentences

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

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

There is no aggregate amortization expense for 2023, and $ 15 thousand for 2022.

There is no remaining estimated aggregate amortization expense at December 31, 2023.

2 unchanged sentences

Interest-bearing demand deposits 291,138 271,645

Money market accounts 640,840 654,553

Insured money market deposits 623,714 640,840

Savings deposits 249,144 279,029

1 unchanged sentence

Certificates of deposits greater than $250,000 76,804 31,547

One-way brokered deposits 1

Brokered deposits 1

142,776 73,452

Other time deposits 2

1 unchanged sentence

Total $ 2,429,427 $ 2,327,227

__________________________________________________________

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.

Total customer deposits include reciprocal balances from checking, insured 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.

2 unchanged sentences

Total $ 612,265

__________________________________________________

1 $ 133.3 million of 2024 maturities represent brokered deposits.

2 $ 9.5 million of 2027 maturities represent brokered deposits which are

callable by the Corporation on February 28, 2024 and monthly thereafter.

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2023 and 2022 were $ 81.0 million and $ 36.4 million, respectively.

6 unchanged sentences

$ 31,920 5.64 % January 2, 2024 $ 95,810 4.61 % January 3, 2023

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.

The Bank has pledged $ 254.6 million and $ 254.4 million of residential mortgage and home equity loans under a blanket lien arrangement at December 31, 2023 and 2022, respectively, as collateral for future borrowings.

Based on this collateral and additional securities held, the Bank's unused borrowing capacity at the FHLBNY was $ 193.4 million at December 31, 2023.

5 unchanged sentences

Revenue by Operating Segment:

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

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

Non-interest income

7 unchanged sentences

Net gains on sales of loans (a)

Net gains on sales of securities (a)

( 39 ) — — ( 39 )

Loan servicing fees (a)

6 unchanged sentences

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

(CRM) was dissolved December 6, 2023.

Year ended December 31, 2022

10 unchanged sentences

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)

12 unchanged sentences

The Corporation earns interchange fees from debit cardholder transactions conducted through the Mastercard payment network.

Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing services provided to cardholder.

WMG Fee Income (Gross):

26 unchanged sentences

Free-standing derivatives are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded in other non-interest income.

The following table presents information regarding our derivative financial instruments, at December 31:

Accrued interest receivable and payable related to these swaps of $ 665 thousand and $ 447 thousand, as of December 31, 2023 and 2022, respectively, was included in other assets and liabilities.

The following table presents information regarding derivative financial instruments, at December 31:

Derivatives not designated as hedging instruments:

Number of Instruments Notional Amount Weighted Average Maturity

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

Derivatives not designated as hedging instruments:

Interest rate swap agreements on loans with commercial loan customers 47 $ 315,526 6.6 4.36 % 7.36 % $ ( 19,355 )

2 unchanged sentences

Total 98 $ 647,484 $ ( 39 )

Derivatives not designated as hedging instruments:

Number of Instruments Notional Amount Weighted Average Maturity

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

Derivatives not designated as hedging instruments:

Interest rate swap agreements on loans with commercial loan customers 42 $ 265,619 7.1 3.94 % 6.35 % $ ( 26,436 )

1 unchanged sentence

Risk participation agreements 3 13,764 9.6 —

74 $ 490,012 $ ( 228 )

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.

Total 87 $ 545,002 $ ( 55 )

There was an immaterial off-balance sheet exposure for the risk participation agreements as of December 31, 2023, and December 31, 2022.

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

Years Ended December 31,

Derivatives not designated as hedging instruments:

Derivatives not desi g nated as hed g in g instruments:

Interest rate swap agreements with commercial loan customers:

13 unchanged sentences

Federal ( 1,271 ) 1,365

State ( 338 ) 357

Total deferred ( 1,609 ) 1,722

13 unchanged sentences

Effective tax rate 20.6 % 22.0 %

The higher tax expense in 2022 when compared to 2021 can be attributed to an increase in pretax income.

The lower tax expense in 2023 when compared to 2022 can be attributed to a decrease in pretax income.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2023 and 2022, are presented below (in thousands):

Deferred tax assets :

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

Allowance for credit losses $ 5,775 $ 5,147

Depreciation 1,408 1,133

30 unchanged sentences

(13) PENSION PLAN AND OTHER BENEFIT PLANS

The Corporation has a noncontributory defined benefit pension plan covering a majority of employees.

The Corporation has a noncontributory defined benefit pension plan covering certain employees.

The plan's defined benefit formula generally based payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment.

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.

New employees hired on or after July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.

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

24 unchanged sentences

The accumulated benefit obligation at December 31, 2023 and 2022 was $ 31.0 million and $ 30.5 million, respectively.

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.

Actuarial losses in the Projected Benefit Obligation (PBO) in 2023 were primarily the result of the decrease in discount rate.

The decrease in discount rate caused the PBO to increase by $ 1.0 million.

The update in mortality table caused the PBO to decrease 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) $ ( 1,777 ) $ ( 1,567 )

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.

During 2023, the plan's total unrecognized net loss decreased by $ 1.0 million.

The variance between the actual and expected return on plan assets during 2023 decreased the total unrecognized net loss by $ 2.1 million.

Because the total unrecognized net gain or loss is less than the greater of 10 % of the projected benefit obligation or 10 % of the plan assets, no amortization is necessary.

As of January 1, 2023, the average expected future life expectancy of plan participants was 10.2 years.

Actual results for 2024 will depend on the 2024 actuarial valuation of the plan.

4 unchanged sentences

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

The Corporation changes important assumptions whenever changing conditions warrant.

At December 31, 2022 the Corporation used IRS Static 2023 Mortality Table with Mortality Improvement Scale MP-2021 as a basis for the Plan's valuation.

The Corporation changes important assumptions whenever conditions warrant changes.

At December 31, 2023 the Corporation used the Society of Actuaries PRI-2012 Private Retirement Plans Mortality Table with Mortality Improvement Scale MP-2021 as a basis for the Plan's valuation.

At December 31, 2022, the Corporation used IRS Static 2023 Mortality Table with Mortality Improvement Scale MP-2021 as a basis for the Plan's valuation.

22 unchanged sentences

Alternative assets 0 % - 15 %

— % — % 2.9 %

Cash 0 % - 20 %

20 unchanged sentences

The fair value of the plan assets at December 31, 2023 and 2022, by asset class are as follows (in thousands):

Fair Value Measurement atDecember 31, 2022 Using

Fair Value Measurement at December 31, 2023 Using

Plan Assets Carrying Value Quoted Prices in Active Markets for Identical Assets

9 unchanged sentences

Total plan assets $ 46,950 $ 46,950 $ — $ —

Fair Value Measurement atDecember 31, 2021 Using

Fair Value Measurement at December 31, 2022 Using

Plan Assets Carrying Value Quoted Prices in Active Markets for Identical Assets

19 unchanged sentences

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

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

Expense related to these plans totaled $ 1.4 million for each of the years ended December 31, 2023 and 2022.

The plan's assets at December 31, 2023 and 2022 include 124,214 and 121,847 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S.

52 unchanged sentences

Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ 8 $ ( 68 )

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.

Actuarial loss for 2023 is primarily the net impact of a decrease in discount rate, which increased the Accumulated Postretirement Benefit Obligation (APBO) by $ 1 thousand, the updating of mortality tables, which decreased the APBO by $ 4 thousand, and the reflection of updated data, claims experience and health care trend rates (HCTR), which (combined) increased the APBO by $ 6 thousand.

All other sources of gain or loss had a combined net impact of less than $ 1 thousand.

During 2023 the plan's total unrecognized net loss decreased by $ 16 thousand.

1 unchanged sentence

As of January 1, 2023, the average future life expectancy of all plan participants was 6.0 years.

Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees.

Actual results for 2024 will depend on the 2024 actuarial valuation of the plan.

58 unchanged sentences

Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ 85 $ ( 117 )

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.

During 2023, there was a $ 20 thousand increase in the projected benefit obligation as a result of the decrease in discount rate.

Offsetting this was a mortality decrease of $ 8 thousand, due to the update in the mortality assumption.

There was also a $ 25 thousand increase in PBO due to participant mortality (longevity) experience.

There were no other significant sources of gain or loss during 2023.

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

During 2023, the plan's total unrecognized net loss increased by $ 30 thousand.

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

Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants.

As of January 1, 2024, the average future life expectancy of plan participants was 10.17 years.

6 unchanged sentences

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.

During 2023 the unrecognized net loss increased 3.2 % of the December 31, 2022 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):

1 unchanged sentence

2029-2032 $ 368

Contributions for an unfunded pension plan are equal to the benefit payments being made during the year.

The Corporation expects to contribute $ 110 thousand to the plan during 2024.

Corporation contributions are equal to the benefit payments to plan participants.

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 increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Defined Contribution Supplemental Executive Retirement Plan

3 unchanged sentences

A total of $ 0.6 million and $ 0.5 million was expensed during the years ended December 31, 2023 and 2022, 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.

In addition to each participant's 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.

4 unchanged sentences

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

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

Under the terms of the Corporation's 2021 Equity Incentive Plan (the "2021 Plan"), the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the 2021 Plan, the Chief Executive Officer and members of the Board of Directors.

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

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

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

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

Shares fully vest on the fifth anniversary of the grant date for employees, and on the first anniversary of the grant date for the Chief Executive Officer and members of the Board of Directors.

Compensation expense for shares granted is recognized based on the fair value of the stock at the issue date.

Total compensation expense related to this plan was $ 1.2 million in both 2023 and 2022.

During 2023 and 2022, a total of 34,658 and 33,586 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.

A summary of restricted stock activity as of December 31, 2023, and changes during the year ended is presented below:

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The cost is expected to be recognized over a weighted-average period of 3.32 years.

The total fair value of shares vested during the years ended December 31, 2022 and 2021 were $ 672 thousand and $ 620 thousand, respectively.

The total fair value of shares vested during the years ended December 31, 2023 and 2022 were $ 0.6 million and $ 0.7 million, respectively.

(15) RELATED PARTY TRANSACTIONS

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Deposits from principal officers, directors, and their affiliates at December 31, 2023 and 2022 were $ 36.0 million and $ 28.4 million, 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.

The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July 2029 from a former member of the Corporation's Board of Directors who 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 for the year ended December 31, 2022.

Rent and CAM paid to this Board member totaled $ 118 thousand and $ 102 thousand for the years ended December 2023 and 2022, 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 $ 0.6 million and $ 0.7 million for the years ended December 31, 2022 and 2021, respectively.

WMG fee income for the trust services provided totaled $ 0.6 million for each of the years ended December 31, 2023 and 2022, respectively.

(16) COMMITMENTS AND CONTINGENCIES

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Commitments to make real estate and home equity loans are generally made for periods of sixty days or less.

As of December 31, 2022, the fixed rate real estate and home equity commitments to make loans have interest rates ranging from 5.00 % to 7.25 % and maturities ranging from three years to thirty years .

As of December 31, 2023, the fixed rate real estate and home equity commitments to make loans have interest rates ranging from 5.75 % to 8.13 % and maturities ranging from seven years to thirty years .

Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months .

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These commitments also have off-balance sheet interest rate risk in that the interest rate at which these commitments were made may not be at market rates on the date the commitments are fulfilled.

In conjunction with the Corporation's adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326 ), an allowance for credit losses on unfunded commitments was established as of January 1, 2023.

The allowance is based on the same methodology as the allowance for credit losses on loans.

As of December 31, 2023, the allowance for credit losses on unfunded commitments was $ 0.9 million.

The Corporation has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.

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BALANCE SHEETS - DECEMBER 31 2023 2022

Cash on deposit with subsidiary bank $ 2,708 $ 2,473

Cash and cash equivalents $ 6,635 $ 2,708

Investment in subsidiary - Chemung Canal Trust Company 185,159 157,493

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Dividends receivable from subsidiary bank 1,469 1,455

Securities available for sale, at estimated fair value 329 391

Equity investments, at fair value 204 329

Other assets 1,850 1,728

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Total liabilities and shareholders' equity $ 196,735 $ 167,894

1 Chemung Risk Management, Inc.

was dissolved effective December 6, 2023.

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31 2023 2022

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Equity in undistributed earnings of CFS Group, Inc.

Equity in undistributed earnings of Chemung Risk Management, Inc.

Distributed earnings of Chemung Risk Management, Inc.

Income before income tax 24,835 28,590

1 unchanged sentence

Net income $ 25,000 $ 28,783

1 Chemung Risk Management, Inc.

was dissolved effective December 6, 2023.

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31 2023 2022

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( 124 ) ( 220 )

Equity in undistributed earnings of Chemung Risk Management, Inc.

( 250 ) ( 98 )

Distributed earnings of Chemung Risk Management, Inc.

Change in dividend receivable ( 14 ) ( 5 )

1 unchanged sentence

Change in other liabilities ( 1,085 ) ( 733 )

Expense related to employee stock compensation — 132

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

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Net cash provided by operating activities 6,848 6,541

Cash flow from investing activities:

Proceeds from dissolution of Chemung Risk Management, Inc.

Net cash provided by investing activities 2,634 —

Cash flow from financing activities:

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Cash and cash equivalents at end of year $ 6,635 $ 2,708

1 Chemung Risk Management, Inc.

was dissolved effective December 6, 2023.

(18) FAIR VALUES

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The fair values of equity investments are determined by quoted market prices (Level 1 inputs).

Impaired Loans :

At the time a loan is considered impaired, it is valued at the lower of cost or fair value.

Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting.

Individually Analyzed Loans:

At the time a loan is considered for individual analysis, it is valued at the lower of cost or fair value.

Individually analyzed loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for credit loss accounting treatment.

For collateral dependent loans, fair value is commonly based on real estate appraisals.

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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 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.

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.

These loans are analyzed on a quarterly basis for additional valuation changes and adjusted accordingly.

Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.

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There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2023 and 2022.

The Corporation transfers assets and liabilities between levels within the hierarchy when the methodology to obtain the fair value changes such that there are either more or fewer unobservable inputs as of the end of the reporting period.

The Corporation transferred its investment in six corporate sub-debt issuances from Level 2 to Level 3 in the twelve month period ended December 31, 2023.

Illiquidity in new issuances of comparable bonds and the size of issuances led to pricing difficulties, and the transfer to Level 3 within the period.

The Corporation utilizes a "beginning of reporting period" timing assumption when recognizing transfers between hierarchy levels, consistent with ASC 820-10-50-2.

The table below presents a reconciliation of all assets measured at fair value on a recurring basis using unobservable inputs (Level 3) for the years ended December 31, 2023 and 2022.

Corporate Bonds:

Level 3 Financial Assets 2023 2022

Balance of recurring Level 3 assets at January 1 $ — $ —

Total gains and losses for the period:

Included in other comprehensive income ( 1,096 ) —

Transfers into Level 3 9,955 —

Transfers out of Level 3 ( 1,329 ) —

Balance of recurring Level 3 assets at December 31 $ 7,530 $ —

December 31, 2023 Fair Value Valuation Techniques Unobservable Input Range [Weighted Average] at

Corporate bonds and notes $ 7,530 Discounted cash flow Market discount rate 12.50 % - 12.50 % [ 12.50 %]

There were two corporate bonds with a fair value of $ 1.3 million which were transferred out of Level 3 and into Level 2 during the year ended December 31, 2023 based on the availability of observable market data for these investments.

There were no financial assets measured on a recurring basis that were considered to be Level 3 fair value by the Corporation at December 31, 2022.

Assets and liabilities measured at fair value on a non-recurring basis at December 31, 2023 and 2022 were

considered to be immaterial to the presentation of the consolidated financial statements.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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(Level 2) Significant Unobservable Inputs

(Level 3) Estimated

(Level 3) Estimated Fair Value 1

Cash and due from financial institutions $ 22,247 $ 22,247 $ — $ — $ 22,247

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Loans, net and loans held for sale 1,972,664 — — 1,875,390 1,875,390

Accrued interest receivable 8,682 132 2,002 6,548 8,682

Derivative assets 23,942 — 23,942 — 23,942

Financial liabilities:

Demand, savings, and insured money market accounts

$ 1,924,843 $ 1,924,843 $ — $ — $ 1,924,843

Demand, savings, and insured money market deposits $ 1,817,162 $ 1,817,162 $ — $ — $ 1,817,162

Time deposits 612,265 — 609,863 — 609,863

Accrued interest payable 864 66 798 — 864

FHLBNY overnight advances 31,920 — 31,925 — 31,925

Derivative liabilities 23,981 — 23,981 — 23,981

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(Level 2) Significant Unobservable Inputs

(Level 3) Estimated

(Level 3) Estimated Fair Value 1

Cash and due from financial institutions $ 29,309 $ 29,309 $ — $ — $ 29,309

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Loans, net and loans held for sale 1,829,448 — — 1,757,171 1,757,171

Accrued interest receivable 5,985 106 1,746 4,133 5,985

Derivative assets 26,706 — 26,706 — 26,706

Financial liabilities:

Demand, savings, and insured money market accounts

$ 1,959,076 $ 1,959,076 $ — $ — $ 1,959,076

Demand, savings, and insured money market deposits $ 1,924,843 $ 1,924,843 $ — $ — $ 1,924,843

Time deposits 402,384 — 403,572 — 403,572

Accrued interest payable 210 10 200 — 210

FHLBNY overnight advances 95,810 — — — —

Derivative liabilities 26,761 — 26,761 — 26,761

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

Organizations that fail to maintain the minimum capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers.

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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Balance at January 1, 2023 $ ( 71,296 ) $ ( 3,961 ) $ ( 75,257 )

Other comprehensive income before reclassification ( 68,801 ) 47 ( 68,754 )

Other comprehensive income (loss) before reclassification 8,506 702 9,208

Amounts reclassified from accumulated other comprehensive income (loss) ( 10 ) 46 36

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Balance at December 31, 2023 $ ( 62,800 ) $ ( 3,213 ) $ ( 66,013 )

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

Balance at January 1, 2022 $ ( 2,495 ) $ ( 4,035 ) $ ( 6,530 )

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Net Income is Presented

Unrealized gains and losses on securities available for sale:

Realized gains (losses) on securities available for sale $ ( 14 ) $ — Net gains (losses) on securities transactions

Tax effect 4 — Income tax expense

Net of tax ( 10 ) —

Amortization of defined pension plan and other benefit plan items:

Prior service costs (a) — ( 220 ) Other components of net periodic pension and postretirement benefits

Actuarial losses (a) 63 38 Other components of net periodic pension and postretirement benefits

Tax effect ( 16 ) ( 11 ) Income tax expense

Net of tax 47 27

Total reclassification for the period, net of tax $ 37 $ 27

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The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments as well as income and expenses related to insurance products, mutual funds, brokerage services, and captive insurance (in thousands).

Year ended December 31, 2022 Core Banking WMG Holding Company, CFS and CRM Consolidated Totals

Year ended December 31, 2023 Core Banking WMG Holding Company, CFS and CRM 1

Consolidated Totals

Interest and dividend income $ 112,947 $ — $ 127 $ 113,074

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Net interest income 74,330 — 127 74,457

Provision for loan losses ( 554 ) — — ( 554 )

Net interest income after provision for loan losses 74,683 — 50 74,733

Provision for credit losses 3,262 — — 3,262

Net interest income after provision for credit losses 71,068 — 127 71,195

Non-interest income 13,150 10,460 939 24,549

Legal settlements — — — —

Non-interest expenses 55,982 7,061 1,200 64,243

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Segment assets $ 2,706,373 $ 2,627 $ 1,529 $ 2,710,529

1 Chemung Risk Management, Inc.

(CRM) was dissolved December 6, 2023.

Year ended December 31, 2022 Core Banking WMG Holding Company, CFS and CRM Consolidated Totals

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Non-interest income 10,225 10,280 931 21,436

Legal settlements — — — 0 —

Non-interest expenses 51,301 6,582 1,397 59,280

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/s/ Anders M.

Tomson, President and Chief Executive Officer

President and Chief Executive Officer

(Principal Executive Officer)

MARCH 13, 2024 By:

Krebs, Chief Financial Officer and Treasurer

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

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Tomson Chief Executive Officer and President March 13, 2024

Krebs Chief Financial Officer and Treasurer March 22, 2023

McKim, III Chief Financial Officer and Treasurer March 13, 2024

EXHIBIT INDEX

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

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

Wirth, Executive Vice President (filed as Exhibit 10.4 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference).

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

Cosgrove, Executive Vice President and Chief Credit Officer, filed herewith.*

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

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10.7 Change of Control Agreement dated January 4, 2021 between Chemung Canal Trust Company and Jeffrey P.

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

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

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10.14 Change of Control Agreement dated June 2, 2023 between Chemung Canal Trust Company and Dale M.

10.15 Post-Employment Consulting Agreement between Chemung Canal Trust Company and Karl F.

21 Subsidiaries of the Registrant.*

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32.2 Ce rtification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C.

97 Policy Relating to Recovery of Erroneously Awarded Compensation , filed herewith.

101.INS Instance Document

6 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