CHEMUNG FINANCIAL CORP 10-K

Item 9A. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures The Corporation's management, with the participation of our Chief Executive Officer, who is the Corporation's principal executive officer, and our Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, evaluated the effectiveness of the Corporation's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2023. Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer and Treasurer have concluded that the Corporation's disclosure controls and procedures are effective as of December 31, 2023. (b) Management's Report on Internal Control over Financial Reporting We, as members of management of the Corporation, are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. The Corporation's internal control over financial reporting is a process designed to provide reasonable assurance to the Corporation's management and Board of Directors regarding the reliability of financial reporting and the preparation of the Corporation's financial statements for external purposes in accordance with U.S. generally accepted accounting principles. 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 Corporation, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation'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 and procedures may deteriorate. As of December 31, 2023 management assessed the effectiveness of the Corporation's internal control over financial reporting based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). The objective of this assessment was to determine whether the Corporation's internal control over financial reporting was effective as of December 31, 2023. Based on the assessment, we assert that the Corporation maintained effective internal control over financial reporting as of December 31, 2023 based on the specified criteria. (c) Changes in Internal Control over Financial Reporting During the fourth quarter of 2023, there have been no changes in the Corporation’s internal control over financial reporting that have materially affected, or that are reasonably likely to material affect, the Corporation’s internal control over financial reporting. /s/ Anders M. Tomson /s/ Dale M. McKim, III Anders M. Tomson Dale M. McKim, III President and Chief Executive Officer Chief Financial Officer and Treasurer March 13, 2024 March 13, 2024 Item 9B. 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. Item 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS None. 69 PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE Information responsive to this Item 10 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2024 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2023 fiscal year end. ITEM 11. EXECUTIVE COMPENSATION Information responsive to this Item 11 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2024 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2023 fiscal year end. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS Information responsive to this Item 12 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2024 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2023 fiscal year end. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE Information responsive to this Item 13 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2024 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2023 fiscal year end. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES Information responsive to this Item 14 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2024 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2023 fiscal year end. 70 PART IV ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES (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 PCAOB #173 Consolidated Financial Statements : 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 (2) Financial statement schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto under Item 8, "Financial Statements and Supplementary Data". (b) The following exhibits are either filed with this Form 10-K or are incorporated herein by reference. The Corporation's Securities Exchange Act file number is 000-13888. Exhibit The following exhibits are either filed with this Form 10-K or are incorporated herein by reference. The Corporation’s Securities Exchange Act file number is 000-13888. 3.1 Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 and filed with the Commission on March 13, 2008). 3.2 Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 and filed with the Commission on March 13, 2008). 3.3 Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006). 3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended August 17, 2022 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on August 17, 2022). 4.1 Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference). 4.2 Description of Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934, filed herewith (as incorporated by reference to Exhibit 4.2 to Registrant's Form 10-K for the year ended December 31, 2019 and filed with the Commission on March 12, 2020). 10.1 Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the Commssion on January 27, 2015 and incorporated herein by reference). 10.2 Change of Control Agreement dated December 19, 2018 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on December 19, 2018 and incorporated herein by reference). 10.3 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the 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.* 71 10.5 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Daniel D. Fariello, President of Capital Bank Division (filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference). 10.6 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Loren D. 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 Chemung Financial Corporation 2021 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 8, 2021 and incorporated herein by reference). 10.8 Consent Order between Chemung Canal Trust Company and the New York State Department of Financial Services dated June 24, 2021 (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 29, 2021 and incorporated herein by reference). 10.9 Form of Incentive Stock Option Award Agreement (filed as Exhibit 10.2 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.10 Form of Non-Qualified Stock Option Award Agreement (filed as Exhibit 10.3 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.11 Form of Restricted Stock Award Agreement (filed as Exhibit 10.4 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.12 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan, (as incorporated by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended December 31, 2021 and filed with the Commission on March 23, 2022). 10.13 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.* 23.0 Consent of Crowe LLP, Independent Registered Public Accounting Firm.* 31.1 Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* 31.2 Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* 32.1 Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.* 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. §1350.* 97 Policy Relating to Recovery of Erroneously Awarded Compensation, filed herewith.* 101.INS Instance Document 101.SCH XBRL Taxonomy Schema* 101.CAL XBRL Taxonomy Calculation Linkbase* 101.DEF XBRL Taxonomy Definition Linkbase* 101.LAB XBRL Taxonomy Label Linkbase* 101.PRE XBRL Taxonomy Presentation Linkbase* * Filed herewith. ITEM 16. 10-K SUMMARY None. 72 CHEMUNG FINANCIAL CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Pages F-1 to F-65 Page Report of Independent Registered Public Accounting Firm-Crowe LLP PCAOB # 173 F- 1 Consolidated Financial Statements Consolidated Balance Sheets as of December 31, 2023 and 2022 F- 4 Consolidated Statements of Income for the two years ended December 31, 2023 F- 5 Consolidated Statements of Comprehensive Income (Loss) for the two years ended December 31, 2023 F- 6 Consolidated Statements of Shareholders' Equity for the two years ended December 31, 2023 F- 7 Consolidated Statements of Cash Flows for the two years ended December 31, 2023 F- 8 Notes to Consolidated Financial Statements F- 10 73 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Shareholders Chemung Financial Corporation and Subsidiaries Elmira, New York 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"). 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 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. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. 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, 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. 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 F-1 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 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: F-2 a. Testing the design and operating effectiveness of controls over the evaluation of the ACL related to loans collectively evaluated for impairment, including controls addressing: i. The selection and application of new accounting policies involved in the adoption of ASC 326. ii. Data inputs, judgments and calculations used to determine the qualitative loss factors. iii. Information technology and financial applications used in the ACL process. iv. Problem loan identification and delinquency monitoring. v. Management’s evaluation of qualitative loss factors. b. Substantively testing management’s process, including evaluating their judgments and assumptions, for developing the ACL on loans collectively evaluated for impairment, which included: i. Evaluating the appropriateness of the Company’s accounting policies, judgments and elections involved in the adoption of ASC 326. ii. Testing the mathematical accuracy of the ACL calculation. iii. Utilizing internal specialists to perform procedures to assist in evaluating the relevance of macroeconomic loss drivers. iv. Testing the relevance and reliability of the internal and external data used in the qualitative allocation. v. 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. Crowe LLP We have served as the Company's auditor since 2006. Grand Rapids, Michigan March 13, 2024 F-3 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, (in thousands, except share and per share amounts) 2023 2022 ASSETS Cash and due from financial institutions $ 22,247 $ 29,309 Interest-earning deposits in other financial institutions 14,600 26,560 Total cash and cash equivalents 36,847 55,869 Equity investments, at fair value 3,046 2,830 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) 785 2,424 FHLBNY and FRBNY Stock, at cost 5,498 8,197 Loans, net of deferred loan fees 1,972,664 1,829,448 Allowance for credit losses (1) ( 22,517 ) ( 19,659 ) Loans, net 1,950,147 1,809,789 Premises and equipment, net 14,571 16,113 Operating lease right-of-use assets 5,648 6,449 Goodwill 21,824 21,824 Bank owned life insurance 2,914 2,871 Interest rate swap assets 23,942 26,706 Accrued interest and other assets 61,314 59,892 Total assets $ 2,710,529 $ 2,645,553 LIABILITIES AND SHAREHOLDERS' EQUITY Deposits: Non-interest-bearing $ 653,166 $ 733,329 Interest-bearing 1,776,261 1,593,898 Total deposits 2,429,427 2,327,227 FHLBNY overnight advances 31,920 95,810 Capital lease obligation 3,050 3,327 Operating lease liabilities 5,827 6,620 Dividends payable 1,469 1,455 Interest rate swap liabilities 23,981 26,761 Accrued interest payable and other liabilities 19,614 17,965 Total liabilities 2,515,288 2,479,165 Shareholders' equity: Common stock, $ 0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at December 31, 2023 and December 31, 2022 53 53 Additional-paid-in capital 47,773 47,331 Retained earnings 229,930 211,859 Treasury stock, at cost ( 572,663 shares at December 31, 2023; 615,448 shares at December 31, 2022) ( 16,502 ) ( 17,598 ) 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. F-4 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, (in thousands, except per share amounts) 2023 2022 Interest and Dividend Income: Loans, including fees $ 97,228 $ 68,051 Taxable securities 14,283 12,096 Tax exempt securities 1,035 1,068 Interest-earning deposits 528 260 Total interest and dividend income 113,074 81,475 Interest Expense: Deposits 35,926 6,655 Borrowed funds 2,691 641 Total interest expense 38,617 7,296 Net interest income 74,457 74,179 Provision (credit) for credit losses (1) 3,262 ( 554 ) Net interest income after provision for credit losses 71,195 74,733 Non-Interest Income: Wealth management group fee income 10,460 10,280 Service charges on deposit accounts 3,919 3,788 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 ) Net gain on sales of loans held for sale 144 107 Net gains (losses) on sales of other real estate owned 37 60 Income from bank owned life insurance 43 46 Other 5,276 2,901 Total non-interest income 24,549 21,436 Non-Interest Expenses: Salaries and wages 26,832 25,054 Pension and other employee benefits 7,368 7,668 Other components of net periodic pension cost (benefit) ( 676 ) ( 1,648 ) Net occupancy expenses 5,637 5,539 Furniture and equipment expenses 1,728 1,906 Data processing expense 9,840 8,919 Professional services 2,293 2,171 Amortization of intangible assets — 15 Marketing and advertising expense 923 941 Other real estate owned expenses ( 20 ) ( 5 ) FDIC insurance 2,128 1,356 Loan expense 1,047 1,001 Other 7,143 6,363 Total non-interest expenses 64,243 59,280 Income before income tax expense 31,501 36,889 Income tax expense 6,501 8,106 Net income $ 25,000 $ 28,783 Weighted average shares outstanding (in thousands) 4,732 4,693 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. F-5 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) YEARS ENDED DECEMBER 31, (in thousands) 2023 2022 Net income $ 25,000 $ 28,783 Other comprehensive income (loss): 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 Net of tax amount 8,496 ( 68,801 ) Change in funded status of defined benefit pension plan and other benefit plans: Net gain arising during the period 950 63 Reclassification adjustment for amortization of net actuarial losses 63 38 Total before tax effect 1,013 101 Tax effect ( 265 ) ( 27 ) Net of tax amount 748 74 Total other comprehensive income (loss) 9,244 ( 68,727 ) Comprehensive income (loss) $ 34,244 $ ( 39,944 ) See accompanying notes to consolidated financial statements. F-6 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY 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 Net income — — 28,783 — — 28,783 Other comprehensive income — — — ( 68,727 ) ( 68,727 ) Restricted stock awards — 795 — — — 795 Distribution of 25,011 shares of treasury stock granted for employee restricted stock awards, net — ( 712 ) — 712 — — Restricted stock units for directors' deferred compensation plan — 20 — — — 20 Cash dividends declared ($ 1.24 per share) — — ( 5,801 ) — — ( 5,801 ) Distribution of 8,575 shares of treasury stock for directors' compensation — 131 — 244 — 375 Sale of 9,367 shares of treasury stock (a) — 158 — 266 — 424 Repurchase of 20,786 shares of common stock — — — ( 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 (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 income — — — 9,244 9,244 Restricted stock awards — 1,139 — — — 1,139 Distribution of 26,166 shares of treasury stock granted for employee restricted stock awards, net — ( 752 ) — 752 — — Restricted stock units for directors' deferred compensation plan — 20 — — — 20 Cash dividends declared ($ 1.24 per share) — — ( 5,853 ) — ( 5,853 ) Distribution of 8,492 shares of treasury stock for directors' compensation — ( 147 ) — 243 — 96 Sale of 14,994 shares of treasury stock (a) — 171 — 430 — 601 Repurchase of 6,541 shares of common stock — — — ( 316 ) — ( 316 ) Forfeiture of 326 shares of restricted stock awards — 11 — ( 13 ) — ( 2 ) Balances at December 31, 2023 $ 53 $ 47,773 $ 229,930 $ ( 16,502 ) $ ( 66,013 ) $ 195,241 (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. F-7 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) YEARS ENDED DECEMBER 31, CASH FLOWS FROM OPERATING ACTIVITIES: 2023 2022 Net income $ 25,000 $ 28,783 Adjustments to reconcile net income to net cash provided by operating activities: Amortization of right-of-use assets 801 785 Amortization of intangible assets — 15 Deferred income tax (benefit) expense ( 1,609 ) 1,722 Provision for credit losses 3,425 ( 554 ) Loss on disposal of fixed assets 3 56 Depreciation and amortization of fixed assets 2,001 2,226 Amortization of premiums on securities, net 2,458 3,761 Gains on sales of loans held for sale, net ( 144 ) ( 107 ) Proceeds from sales of loans held for sale 6,569 5,819 Loans originated and held for sale ( 6,425 ) ( 5,316 ) 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 Net purchases of equity investments ( 113 ) ( 215 ) Net (gains) on interest rate swaps ( 16 ) ( 173 ) (Increase) in other assets ( 1,298 ) ( 28,071 ) 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 restricted stock awards 1,139 795 Payments on operating leases ( 1,594 ) ( 1,195 ) Increase (decrease) in other liabilities ( 1,271 ) 25,529 Income from bank owned life insurance ( 43 ) ( 46 ) Net cash provided by operating activities 30,881 35,047 CASH FLOWS FROM INVESTING ACTIVITIES: 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 ) Purchases of securities held to maturity — ( 980 ) Purchase of FHLBNY and FRBNY stock ( 99,926 ) ( 36,214 ) Redemption of FHLBNY and FRBNY stock 102,625 32,235 Purchases of premises and equipment ( 462 ) ( 426 ) Proceeds from sale of other real estate owned 288 326 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 (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 leases ( 277 ) ( 267 ) Purchase of treasury stock ( 316 ) ( 933 ) Sale of treasury stock 601 424 Cash dividends paid ( 5,840 ) ( 5,797 ) Net cash (used in) provided by financing activities 32,478 246,461 Net increase (decrease) in cash and cash equivalents ( 19,022 ) 28,888 Cash and cash equivalents, beginning of period 55,869 26,981 Cash and cash equivalents, end of period $ 36,847 $ 55,869 F-8 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Years Ended December 31, 2023 2022 Supplemental disclosure of cash flow information: Cash paid during the year for: Interest $ 36,502 $ 6,642 Income Taxes $ 7,863 $ 5,625 Supplemental disclosure of non-cash activity: Transfer of loans to other real estate owned $ 378 $ 348 Dividends declared, not yet paid $ 1,469 $ 1,455 See accompanying notes to consolidated financial statements. F-9 CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2023 and 2022 (1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION The Corporation, through its wholly-owned subsidiaries, the Bank and CFS Group, Inc., provides a wide range of banking, financing, fiduciary and other financial services to its clients. The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies. 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 The accompanying consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Corporation and its subsidiaries. All significant intercompany balances and transactions are eliminated in consolidation. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. 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 Securities that are held to fund a non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value and interest and dividend income included in earnings. SECURITIES Management determines the appropriate classification of securities at the time of purchase. If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost. 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. 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. 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 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. F-10 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. Government. 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 The Bank is a member of both the FHLBNY and the FRBNY. FHLBNY members are required to own a certain amount of stock based on the level of borrowings and other factors, while FRBNY members are required to own a certain amount of stock based on a percentage of the Bank’s capital stock and surplus. 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 and stock dividends are reported as income. LOANS 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. The Corporation’s loan portfolio is comprised of the following segments: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans. Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Corporation’s market area in a diverse range of industries. These loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business. Commercial mortgage loans are generally non-owner occupied commercial properties or owner occupied commercial real estate with larger balances. Repayment of these loans is often dependent upon the successful operation and management of the properties and the businesses occupying the properties, as well as on the collateral securing the loan. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from their employment and other income, but are secured by real property. 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, and are dependent on the borrower’s continuing financial stability. Interest on loans is accrued and credited to operations using the interest method. Past due status is based on the contractual terms of the loan. The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent. Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted. All payments received on non-accrual loans are applied to principal. Loans are returned to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest. 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. 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. F-11 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. F-12 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. F-13 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: (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 considerations including: secured vs. 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 Certain mortgage loans are originated with the intent to sell. The Bank typically retains the right to service the mortgages upon sale. 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 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. F-14 LEASES Leases are classified as operating or finance leases on the lease commencement date. At inception, the Corporation determines the lease term by considering the minimum lease term and all optional renewal periods that the Corporation is reasonably certain to renew. The discount rate used in determining lease liability is based upon incremental borrowing rates the Corporation could obtain for similar loans as of the date of commencement or renewal. The Corporation records operating leases on the balance sheet as a lease liability equal to the present value of future minimum payments under the lease terms, and a right-of-use asset equal to the lease liability. The lease term is also used to calculate straight-line rent expense. The Corporation's leases do not contain residual value guarantees or material variable lease payments that may impact the Corporation's ability to pay dividends or cause the Corporation to incur additional expenses. Rent expense and variable lease expense are included in net occupancy expenses on the Corporation's Consolidated Statements of Income. Finance leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term. Initially, a finance lease is recorded as a building asset, and is depreciated over the shorter of the term of the lease or the estimated life of the asset. A corresponding long term lease obligation 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. Amortization of the right-of-use assets arising from finance leases is expensed through net occupancy expense, and the interest on the related lease liability is expensed through interest expense on borrowings on the Corporation Consolidated Statements of Income. PREMISES AND EQUIPMENT 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 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. BANK OWNED LIFE INSURANCE BOLI is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Changes in the cash surrender value are recorded in other non-interest income. OTHER REAL ESTATE 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 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. INCOME TAXES The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for unused tax loss carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. F-15 WEALTH MANAGEMENT GROUP FEE INCOME Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. 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 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 Pension Plan: The Chemung Canal Trust Company Pension Plan is a non-contributory defined benefit pension plan. The Pension Plan is a “qualified plan” under the IRS Code and therefore must be funded. Contributions are deposited to the Plan and held in trust. The Plan assets may only be used to pay retirement benefits and eligible plan expenses. 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. Bonuses, overtime, and dividends are excluded. The normal retirement benefit equals 1.2 % of final average compensation (highest consecutive five years of annual compensation in the prior ten years ) times years of service (up to a maximum of 25 years), plus 1 % of average monthly compensation for each additional year of service (up to a maximum of 10 years), plus 0.65 % of average monthly compensation in excess of covered compensation for each year of credited service up to 35 years. Covered compensation is the average of the social security taxable wage base in effect for the 35 year period prior to normal social security retirement age. See Note 13 for further details. Defined Contribution Profit Sharing, Savings and Investment Plan: The Corporation also sponsors a 401(K) defined contribution profit sharing, savings and investment plan which covers all eligible employees. The Corporation contributes a non-discretionary 3 % of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50 % match up to 6 % of gross annual wages. All contributions made on or after January 1, 2017 will vest immediately. The plan's assets consist of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds. The plan’s expense is the amount of non-discretionary and matching contributions and is charged to non-interest expenses in the consolidated statements of income. Defined Benefit Health Care Plan: The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements. 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. 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. F-16 Executive Supplemental Pension Plan: U.S. laws place limitations on compensation amounts that may be included under the Pension Plan. The Executive Supplemental Pension Plan was provided to executives in order to produce total retirement benefits, as a percentage of compensation that is comparable to employees whose compensation is not restricted by the annual compensation limit. Pension amounts, which exceed the applicable Internal Revenue Service code limitations, will be paid under the Executive Supplemental Pension Plan. The Executive Supplemental Pension Plan is a “non-qualified plan” under the Internal Revenue Service Code. Contributions to the Plan are not held in trust; therefore, they may be subject to the claims of creditors in the event of bankruptcy or insolvency. When payments come due under the Plan, cash is distributed from general assets. The cost of the plan is based on actuarial computations of current and future benefits for executives, and is charged to non-interest expense in the consolidated statements of income. Defined Contribution Supplemental Executive Retirement Plan: The Defined Contribution Supplemental Executive Retirement Plan is provided to certain executives to motivate and retain key management employees by providing a nonqualified retirement benefit that is payable at retirement, disability, death and certain other events. The Supplemental Executive Retirement Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974. The plan’s expense is the Corporation’s annual contribution plus interest credits. STOCK-BASED COMPENSATION 2021 Equity Incentive Plan The Corporation's 2021 Equity Incentive Plan (the "2021 Plan") is designed to align the interests of the Corporation’s executives, senior managers and directors with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees and directors. Under the terms of the 2021 Plan, the Compensation and Personnel Committee may approve discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the 2021 Plan, the chief executive officer and members of the Board of Directors. Awards are based on the performance, responsibility and contributions of the individual and are targeted at the median of the peer group. The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares related to the 2021 Plan may not exceed 170,000 , upon which time the 2021 Plan will be amended, presented and approved by the Corporation's shareholders to include additional shares of the Corporation's common stock. Awards under the 2021 Plans may be vested no earlier than the first anniversary of the date on which the award is granted. Compensation expense for shares granted will be recognized over the vesting period of the award based upon 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. Deferrals are either credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments or converted to units, which appreciate or depreciate, as would an actual share of the Corporation’s common stock purchased on the deferral date. Cash deferrals will be paid into an interest bearing account and paid in cash. Units will be paid in shares of common stock. All directors’ fees are charged to non-interest expenses in the consolidated statements of income. Please see Note 14 for further details. F-17 Non-qualified Deferred Compensation Plan: The Deferred Compensation Plan allows a select group of management and employees to defer all or a portion of their annual compensation to a future date. Eligible employees are generally highly compensated employees and are designated by the Board of Directors from time to time. Investments in the plan are recorded as equity investments and deferred amounts are an unfunded liability of the Corporation. The plan requires deferral elections be made before the beginning of the calendar year during which the participant will perform the services to which the compensation relates. Participants in the Plan are required to elect a form of distribution, either lump sum payment or annual installments not to exceed ten years , and a time of distribution, either a specified age or a specified date. The terms and conditions for the deferral of compensation are subject to the provisions of 409A of the IRS Code. The income from investments is recorded in dividend income and non-interest income in the consolidated statements of income. The cost of the plan is recorded in non-interest expenses in the consolidated statements of income. GOODWILL AND INTANGIBLE ASSETS Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired. Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually. 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 the Corporation's balance sheet. Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values. The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value. If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations. Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2023. The Corporation's intangible assets related to the purchase of the trust business of Partners Trust Bank in May of 2007, were fully amortized as of December 31, 2022. SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE The Corporation has the ability to enter into sales of securities under agreements to repurchase. The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's securities portfolio. The Corporation has agreed to repurchase securities identical to those sold. 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. DERIVATIVES 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. These transactions are accounted for as derivatives. The Company’s derivatives are entered into in connection with its asset and liability management activities and not for trading purposes. The Company does not have any derivatives that are designated as hedges and therefore all derivatives are considered free standing and are recorded at fair value as derivative assets or liabilities on the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of income as non-interest income. 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 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. F-18 OTHER FINANCIAL INSTRUMENTS The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused portions of lines of credit and commitments to fund new loans. The Corporation's policy is to record such instruments when funded. 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 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. COMPREHENSIVE INCOME (LOSS) Comprehensive income (loss) consists of net income and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in the funded status of the Corporation’s defined benefit pension plan and other benefit plans, net of the related tax effect, which are also recognized as separate components of equity. SEGMENT REPORTING The Corporation has identified separate operating segments and internal financial information is primarily reported and aggregated in two lines of business, banking and wealth management services. RECLASSIFICATION Amounts in the prior years' consolidated financial statements are reclassified whenever necessary to conform to the current year's presentation. Reclassification adjustments had no impact on prior year net income or shareholders' equity. RECENT ACCOUNTING PRONOUNCEMENTS In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date. The ASU supersedes current GAAP by replacing the incurred loss impairment method with a methodology that reflects lifetime expected credit losses and requires the consideration of a broader range of reasonable and supportable information to form credit loss estimates. In November 2019, the FASB adopted an amendment to postpone the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation is eligible for and elected delayed adoption. The Corporation 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. 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. F-19 In March 2022, the FASB issued ASU 2022-02, which eliminates creditor accounting guidance for TDRs for entities that have adopted ASU 2016-13, Financial Instruments-Credit Losses (Topic 326) and enhances Vintage Disclosures of Gross Writeoffs. This ASU eliminates Subtopic 310-40 guidance for TDRs, and requires creditors to apply the loan refinancing and restructuring guidance in Subtopic 310-20 when evaluating modifications granted to borrowers experiencing financial difficulty to determine whether the modification is considered a continuation of an existing loan or a new loan. The vintage disclosure component of the ASU requires entities to disclose current-period gross writeoffs by origination year for financing receivables and investment leases within the scope of Subtopic 326-20. The Corporation 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 Under U.S. 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. F-20 (2) RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS Generally, the Corporation is required to maintain balances with the Federal Reserve Bank of New York based upon outstanding balances of deposit transaction accounts. However, as of March 15, 2020, the Federal Reserve Board reduced reserve requirement ratios to zero percent, effective March 26, 2020. Therefore, at December 31, 2023 and 2022, there were no reserve requirements with the Federal Reserve Bank of New York. The Corporation maintains a pre-funded settlement account with a financial institution in the amount of $ 1.6 million for electronic funds transaction settlement purposes at December 31, 2023 and 2022. The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program. The account serves as collateral in the event of default on the interest rate swaps with the counterparties. 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): December 31, 2023 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Allowance for Credit Losses Estimated Fair Value U.S. 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 Corporate bonds and notes 25,750 — 5,081 — 20,669 SBA loan pools 67,787 75 2,380 — 65,482 Total $ 669,092 $ 81 $ 85,180 $ — $ 583,993 December 31, 2022 Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value U.S. 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 Corporate bonds and notes 25,750 — 3,780 21,970 SBA loan pools 82,982 155 2,116 81,022 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. F-21 The amortized cost and estimated fair value of debt securities available for sale are shown below by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately (in thousands): December 31, 2023 Amortized Cost Estimated Fair Value Within one year $ 5,678 $ 5,594 After one, but within five years 101,391 94,363 After five, but within ten years 17,526 14,302 After ten years 470 428 Mortgage-backed securities: residential 476,240 403,824 SBA loan pools 67,787 65,482 Total $ 669,092 $ 583,993 Amortized cost and estimated fair value of securities held to maturity at December 31, 2023 and 2022 are as follows (in thousands): December 31, 2023 Amortized Cost Unrecognized Gains Unrecognized Losses Estimated Fair Value Allowance for Credit Losses Obligations of states and political subdivisions $ 785 $ — $ — $ 785 $ — Time deposits with other financial institutions — — — — — $ 785 $ — $ — $ 785 $ — 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 $ 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. 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 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 Amortized Cost Fair Value Within one year $ — $ — After one, but within five years 145 145 After five, but within ten years 640 640 After ten years — — Total $ 785 $ 785 F-22 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 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 2023 U.S. treasury notes and bonds $ — $ — $ 55,332 $ 4,480 $ 55,332 $ 4,480 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 Corporate bonds and notes 7,492 2,508 13,177 2,573 20,669 5,081 SBA loan pools 3,914 13 54,468 2,367 58,382 2,380 Total temporarily impaired securities $ 29,297 $ 2,762 $ 546,649 $ 82,418 $ 575,946 $ 85,180 Less than 12 months 12 months or longer Total Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses 2022 U.S. treasury notes and bonds $ 1,011 $ 30 $ 54,563 $ 6,195 $ 55,574 $ 6,225 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 SBA loan pools 14,333 925 51,123 1,191 65,456 2,116 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. F-23 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. At December 31, 2022, the unrealized losses related to mortgage-backed were securities issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2022. Equity Method Investments 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. F-24 (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): 2023 2022 Commercial and agricultural: Commercial and industrial $ 264,140 $ 252,044 Agricultural 256 249 Commercial mortgages: Construction 138,887 108,243 Commercial mortgages, other 984,038 888,670 Residential mortgages 277,992 285,672 Consumer loans: Home equity lines and loans 87,056 81,401 Indirect consumer loans 210,423 202,124 Direct consumer loans 9,872 11,045 Total loans, net of deferred loan fees 1,972,664 1,829,448 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 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 Charge Offs: ( 281 ) — ( 32 ) ( 1,070 ) ( 1,383 ) Recoveries: 22 4 — 416 442 Net (charge offs) recoveries ( 259 ) 4 ( 32 ) ( 654 ) ( 941 ) Provision (1) 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. F-25 December 31, 2022 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 Charge Offs: ( 20 ) ( 687 ) ( 17 ) ( 770 ) ( 1,494 ) Recoveries: 42 3 40 597 682 Net recoveries (charge offs) 22 ( 684 ) 23 ( 173 ) ( 812 ) Provision ( 240 ) ( 1,296 ) 19 963 ( 554 ) Ending balance $ 3,373 $ 11,576 $ 1,845 $ 2,865 $ 19,659 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, 2023 2022 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 ) F-26 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 credit losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total Ending allowance balance attributable to loans: 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 December 31, 2022 Allowance for loan losses Commercial and 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 Total ending allowance balance $ 3,373 $ 11,576 $ 1,845 $ 2,865 $ 19,659 December 31, 2023 Loans Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total 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 and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total Loans individually evaluated for impairment $ 2,112 $ 4,383 $ 723 $ 264 $ 7,482 Loans collectively evaluated for impairment 250,181 992,530 284,949 294,306 1,821,966 Total ending loans balance $ 252,293 $ 996,913 $ 285,672 $ 294,570 $ 1,829,448 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. F-27 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 (in months) 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. F-28 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) $ 353 $ 214 Agricultural (2) 26 26 Commercial mortgages: Construction (1) 2,209 — Commercial mortgages, other (1) (2) (3) 3,759 27 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. F-29 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: Commercial and industrial $ 1,026 $ 1,025 $ — Commercial mortgages: Construction 5 5 — Commercial mortgages 4,346 4,341 — Residential mortgages 767 760 — Consumer loans: Home equity lines and loans 154 138 — With an allowance recorded: Commercial and agricultural: Commercial and industrial 1,086 1,088 1,078 Commercial mortgages: Commercial mortgages 38 38 38 Consumer loans: Home equity lines and loans 126 127 31 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 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: Construction 443 103 71 — Commercial mortgages 3,988 5 4,211 14 Residential mortgages 288 — 864 37 Consumer loans: Home equity lines & loans 99 — 153 — With an allowance recorded: Commercial and agricultural: 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. F-30 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 Commercial and agricultural: Commercial and industrial $ 76 $ 1,035 $ 1,904 $ 1,946 $ 10 $ 1 Agricultural — — 26 — — — Commercial mortgages: Construction 2,209 5 2,209 5 — — Commercial mortgages 3,732 3,890 3,760 3,928 — — Residential mortgages 1,315 986 1,315 986 — — Consumer loans: Credit cards — — — — — — Home equity lines and loans 508 729 508 760 — — Indirect consumer loans 687 540 687 540 — — Direct consumer loans 2 13 2 13 — — Total $ 8,529 $ 7,198 $ 10,411 $ 8,178 $ 10 $ 1 F-31 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 Greater Than 89 Days Past Due Total Past Due Loans Not Past Due Total Commercial and agricultural: Commercial and industrial $ 1,196 $ 31 $ 10 $ 1,237 $ 262,903 $ 264,140 Agricultural — — — — 256 256 Commercial mortgages: Construction 2,164 — 2,207 4,371 134,516 138,887 Commercial mortgages 1,022 103 261 1,386 982,652 984,038 Residential mortgages 2,244 201 585 3,030 274,962 277,992 Consumer loans: Credit cards — — — — — — Home equity lines and loans 461 87 366 914 86,142 87,056 Indirect consumer loans 2,473 501 426 3,400 207,023 210,423 Direct consumer loans 2 20 — 22 9,850 9,872 Total $ 9,562 $ 943 $ 3,855 $ 14,360 $ 1,958,304 $ 1,972,664 December 31, 2022 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: Commercial and industrial $ 74 $ 3 $ 1 $ 78 $ 251,966 $ 252,044 Agricultural — — — — 249 249 Commercial mortgages: Construction — — — — 108,243 108,243 Commercial mortgages 1,058 — 486 1,544 887,126 888,670 Residential mortgages 1,360 709 294 2,363 283,309 285,672 Consumer loans: Credit cards — — — — — — Home equity lines and loans 193 121 442 756 80,645 81,401 Indirect consumer loans 1,397 193 250 1,840 200,284 202,124 Direct consumer loans 2 19 1 22 11,023 11,045 Total $ 4,084 $ 1,045 $ 1,474 $ 6,603 $ 1,822,845 $ 1,829,448 F-32 Credit Quality Indicators The Corporation establishes a risk rating at origination for all commercial loans. The main factors considered in assigning risk ratings include, but are not limited to: 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 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 its risk rating system to identify criticized and classified loans. Commercial relationships within the criticized and classified risk ratings are analyzed quarterly. The Corporation uses the following definitions for criticized and classified loans (which are consistent with regulatory guidelines): 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 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. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. 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. 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. F-33 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 Agricultural Pass — 15 150 — — — 65 — 230 Special Mention — — — — — — — — — Substandard — — — — — — — 26 26 Doubtful — — — — — — — — — Total — 15 150 — — — 65 26 256 Gross charge offs — — — — — — — — — Construction 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 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 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 F-34 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 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 mortgages — 860,389 23,938 7,825 38 892,190 Residential mortgages 285,459 — — 986 — 286,445 Consumer loans Credit cards — — — — — — Home equity lines and loans 80,942 — — 760 — 81,702 Indirect consumer loans 202,050 — — 540 — 202,590 Direct consumer loans 11,094 — — 13 — 11,107 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 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. 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 Consumer Loans Residential Mortgages Home Equity Lines and Loans Indirect Consumer Loans Other Direct Consumer Loans Performing $ 276,677 $ 86,548 $ 209,736 $ 9,870 Non-Performing 1,315 508 687 2 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 Consumer Loans Residential Mortgages Home Equity Lines and Loans Indirect Consumer Loans Other Direct Consumer Loans Performing $ 285,459 $ 80,942 $ 202,050 $ 11,094 Non-Performing 986 760 540 13 Total $ 286,445 $ 81,702 $ 202,590 $ 11,107 F-35 (5) PREMISES AND EQUIPMENT Premises and equipment at December 31, 2023 and 2022 are as follows (in thousands): 2023 2022 Land $ 4,664 $ 4,674 Buildings 40,727 40,419 Projects in progress 11 82 Equipment and furniture 37,237 36,964 Leasehold improvements 4,874 4,874 87,513 87,013 Less accumulated depreciation and amortization 72,942 70,900 Net book value $ 14,571 $ 16,113 Depreciation expense was $ 2.0 million and $ 2.2 million for 2023 and 2022, respectively. Finance Leases The Corporation leases certain buildings under finance leases. The lease arrangements require monthly payments through 2036. The Corporation has included these finance leases in premises and equipment as follows: 2023 2022 Buildings $ 5,572 $ 5,572 Accumulated depreciation ( 2,872 ) ( 2,540 ) Net book value $ 2,700 $ 3,032 F-36 (6) LEASES Operating Leases The Corporation leases certain branch properties under long-term, operating lease agreements. The leases expire at various dates through 2033 and generally include renewal options. 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, 2023 and 2022. Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements. The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees. Leased branch properties at December 31, 2023 and December 31, 2022 consist of the following (in thousands): 2023 2022 Operating lease right-of-use asset $ 6,449 $ 7,234 Less: accumulated amortization ( 801 ) ( 785 ) Less: lease termination — — Add: new lease agreement and modifications — — Operating lease right-of-use-assets, net $ 5,648 $ 6,449 The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2023 (in thousands): Year Amount 2024 $ 924 2025 841 2026 845 2027 854 2028 721 2029 and thereafter 2,446 Total minimum lease payments 6,631 Less: amount representing interest ( 804 ) Present value of net minimum lease payments $ 5,827 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 The Corporation leases certain buildings under finance leases. The lease arrangements require monthly payments through 2036. 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. F-37 The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2023 (in thousands): Year Amount 2024 $ 391 2025 409 2026 425 2027 428 2028 428 2029 and thereafter 1,560 Total minimum lease payments 3,641 Less: amount representing interest ( 591 ) Present value of net minimum lease payments $ 3,050 As of December 31, 2023, the Corporation had no finance leases that were signed, but had not yet commenced. (7) GOODWILL AND INTANGIBLE ASSETS The changes in goodwill included in the core banking segment during the years ended December 31, 2023 and 2022 were as follows (in thousands): 2023 2022 Beginning of year $ 21,824 $ 21,824 Acquired goodwill — — End of year $ 21,824 $ 21,824 Acquired intangible assets were as follows at December 31, 2023 and 2022 (in thousands): At December 31, 2023 At December 31, 2022 Balance Acquired Accumulated Amortization Balance Acquired Accumulated Amortization Core deposit intangibles $ 5,975 $ 5,975 $ 5,975 $ 5,975 Other customer relationship intangibles 5,633 5,633 5,633 5,633 Total $ 11,608 $ 11,608 $ 11,608 $ 11,608 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. F-38 (8) DEPOSITS A summary of deposits at December 31, 2023 and 2022 is as follows (in thousands): 2023 2022 Non-interest-bearing demand deposits $ 653,166 $ 733,329 Interest-bearing demand deposits 291,138 271,645 Insured money market deposits 623,714 640,840 Savings deposits 249,144 279,029 Certificates of deposits $250,000 or less 365,058 272,182 Certificates of deposits greater than $250,000 76,804 31,547 Brokered deposits 1 142,776 73,452 Other time deposits 2 27,627 25,203 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, 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. Scheduled maturities of time deposits at December 31, 2023, are summarized as follows (in thousands): Year Maturities 2024 1 $ 578,675 2025 13,244 2026 4,313 2027 2 11,688 2028 1,395 2029 2,950 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. F-39 (9) FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES FHLBNY overnight advances totaled $ 31.9 million and $ 95.8 million as of December 31, 2023 and 2022, respectively. The Corporation held no fixed rate term advances as of December 31, 2023 and 2022, respectively. The following is a summary of FHLBNY overnight advances as of December 31, 2023 and 2022. The carrying amount includes the advance balance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands): 2023 2022 Amount Rate Maturity Date Amount Rate Maturity Date $ 31,920 5.64 % January 2, 2024 $ 95,810 4.61 % January 3, 2023 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. (10) REVENUE FROM CONTRACTS WITH CUSTOMERS All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following tables present the Corporation's non-interest income by revenue stream and reportable segment for the years ended December 31, 2023 and 2022 (in thousands). Items outside the scope of ASC 606 are noted as such. Year ended December 31, 2023 Revenue by Operating Segment: Core Banking WMG Holding Company, CFS, and CRM (b)(c) Total Non-interest income Service charges on deposit accounts Overdraft fees $ 3,096 $ — $ — $ 3,096 Other 823 — — 823 Interchange revenue from debit card transactions 4,606 — — 4,606 WMG fee income — 10,460 — 10,460 CFS fee and commission income — — 995 995 Net gains (losses) on sales of OREO 37 — — 37 Net gains on sales of loans (a) 144 — — 144 Net gains on sales of securities (a) ( 39 ) — — ( 39 ) Loan servicing fees (a) 144 — — 144 Change in fair value of equity securities (a) 228 — ( 125 ) 103 Income from bank-owned life insurance (a) 43 — — 43 Other (a) 4,068 — 69 4,137 Total non-interest income $ 13,150 $ 10,460 $ 939 $ 24,549 (a) Not within scope of ASC 606. (b) The Holding Company, CFS, and CRM column above includes amounts to eliminate transactions between segments. (c) Chemung Risk Management, Inc. (CRM) was dissolved December 6, 2023. F-40 Year ended December 31, 2022 Revenue by Operating Segment: Core Banking WMG Holding Company, CFS, and CRM (b) Total Non-interest income Service charges on deposit accounts Overdraft fees $ 3,084 $ — $ — $ 3,084 Other 704 — — 704 Interchange revenue from debit card transactions 4,603 — — 4,603 WMG fee income — 10,280 — 10,280 CFS fee and commission income — — 1,079 1,079 Net gains (losses) on sales of OREO 60 — — 60 Net gains on sales of loans (a) 107 — — 107 Loan servicing fees (a) 153 — — 153 Change in fair value of equity securities (a) ( 353 ) — 4 ( 349 ) Income from bank-owned life insurance (a) 46 — — 46 Other (a) 1,821 — ( 152 ) 1,669 Total non-interest income $ 10,225 $ 10,280 $ 931 $ 21,436 (a) Not within scope of ASC 606. (b) The Holding Company, CFS, and CRM column above includes amounts to eliminate transactions between segments. A description of the Corporation's revenue streams accounted for under ASC 606 follows: Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which included services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are recognized at the time the maintenance occurs. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance. Interchange Income from Debit Card Transactions: 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 cardholders. WMG Fee Income (Gross): The Corporation earns wealth management fees from its contracts with trust customers to manage assets for investment, and/or to conduct transactions on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at quarter-end. CFS Fee and Commission Income (Net): The Corporation earns fees from investment brokerage services provided to its customers by a third-party service provider. The Corporation receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The Corporation (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers. Investment brokerage fees are presented net of related costs. The Corporation also earns fees from tax services provided to its customers. Net Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Corporation finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present. F-41 (11) DERIVATIVES As part of the Corporation's product offerings, the Corporation acts as an interest rate swap counterparty for certain commercial borrowers in the normal course of servicing our customers. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets. The Corporation manages its exposure to such interest rate swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the interest rate swaps it has with the commercial borrowers. These positions directly offset each other and the Corporation's exposure is the fair value of the derivatives due to potential changes in credit risk of our commercial borrowers and third parties. The Corporation also enters into risk participation agreements with dealer banks on commercial loans in which it participates. The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap associated with the commercial loan in which it is a participant and the fee received is recognized immediately in other non-interest income. The Corporation is exposed to its share of the credit loss equal to the fair value of the interest rate swap in the event of nonperformance by the counterparty of the interest rate swap. The Corporation determines the fair value of the credit loss exposure using an estimated credit default rate based on the historical performance of similar assets. The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At December 31, 2023, the Corporation held derivatives not designated as hedging instruments with a total notional amount of $ 647.5 million. Derivatives not designated as hedging instruments included back-to-back interest rate swaps of $ 631.1 million, consisting of $ 315.5 million of interest rate swaps with commercial borrowers and an additional $ 315.5 million of offsetting interest rate swaps with third-party counter-parties on substantially the same terms, and risk participation agreements with dealer banks of $ 16.4 million. 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. 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: 2023 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 Interest rate swap agreements on loans with commercial loan customers 47 $ 315,526 6.6 4.36 % 7.36 % $ ( 19,355 ) Interest rate swap agreements with third-party counter-parties 47 315,526 6.6 7.36 % 4.36 % 19,316 Risk participation agreements 4 16,432 7.8 — Total 98 $ 647,484 $ ( 39 ) 2022 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 Interest rate swap agreements on loans with commercial loan customers 42 $ 265,619 7.1 3.94 % 6.35 % $ ( 26,436 ) Interest rate swap agreements with third-party counter-parties 42 265,619 7.1 6.35 % 3.94 % 26,381 Risk participation agreements 3 13,764 9.6 — 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. F-42 Amounts included in the Consolidated Statements of Income related to derivatives not designated as hedging were as follows: Years Ended December 31, Derivatives not desi g nated as hed g in g instruments: 2023 2022 Interest rate swap agreements with commercial loan customers: Unrealized (loss) recognized in non-interest income $ 7,081 $ ( 17,430 ) Interest rate swap agreements with third-party counter-parties: Unrealized gain recognized in non-interest income ( 7,065 ) 17,698 Risk participation agreements: Unrealized gain (loss) recognized in non-interest income — 15 Unrealized gain (loss) recognized in non-interest income $ 16 $ 283 ( 12) INCOME TAXES For the years ended December 31, 2023 and 2022, income tax expense attributable to income from operations consisted of the following (in thousands): 2023 2022 Current expense : Federal $ 7,149 $ 5,501 State 961 883 Total current 8,110 6,384 Deferred expense/(benefit) : Federal ( 1,271 ) 1,365 State ( 338 ) 357 Total deferred ( 1,609 ) 1,722 Income tax expense $ 6,501 $ 8,106 Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands): 2023 2022 Statutory federal tax rate 21 % 21 % Tax computed at statutory rate $ 6,615 $ 7,747 Increase (reduction) resulting from: Tax-exempt income ( 509 ) ( 434 ) 831(b) premium adjustment ( 202 ) ( 309 ) Dividend exclusion ( 9 ) ( 7 ) State taxes, net of Federal impact 580 988 Nondeductible interest expense 38 8 Other items, net ( 12 ) 113 Income tax expense $ 6,501 $ 8,106 Effective tax rate 20.6 % 22.0 % The lower tax expense in 2023 when compared to 2022 can be attributed to a decrease in pretax income. F-43 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 : 2023 2022 Allowance for credit losses $ 5,775 $ 5,147 Depreciation 1,408 1,133 Deferred compensation and directors' fees 1,388 1,128 Operating lease liabilities 1,484 1,688 Purchase accounting adjustment – fixed assets 153 153 Net unrealized losses on securities available for sale 22,296 25,310 Defined benefit pension and other benefit plans 1,054 1,320 Nonaccrued interest 484 415 Accrued expense 96 117 Other items, net 133 112 Total gross deferred tax assets 34,271 36,523 Deferred tax liabilities : Deferred loan fees and costs 1,389 1,358 Prepaid pension 4,144 4,055 Discount accretion 121 108 Core deposit intangible 1,790 1,733 REIT dividend — 561 Operating lease right-of-use assets 1,484 1,688 Accrual for employee benefit plans 8 5 Other 210 219 Total gross deferred tax liabilities 9,146 9,727 Net deferred tax asset $ 25,125 $ 26,796 Realization of deferred tax assets is dependent upon the generation of future taxable income. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized. In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax assets, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible. Based on its assessment, management determined that no valuation allowance is necessary. As of December 31, 2023 and 2022, the Corporation did no t have any unrecognized tax benefits. The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes. As of December 31, 2023 and 2022, the Corporation did no t accrue any interest or penalties related to its uncertain tax positions. The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2020 and for New York State taxing authorities for the year prior to 2020. New York State taxing authorities recently completed audits of the Corporation for the years 2018, 2019, and 2020. There were no adjustments as a result of the New York State audits. F-44 (13) PENSION PLAN AND OTHER BENEFIT PLANS Pension Plan 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 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. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. The Corporation uses a December 31 measurement date for its pension plan. The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2023 and 2022 (in thousands): Change in projected benefit obligation: 2023 2022 Benefit obligation at beginning of year $ 30,506 $ 40,404 Service cost — — Interest cost 1,605 1,130 Actuarial (gain) loss 1,098 ( 8,856 ) Curtailments — — Settlements — — Benefits paid ( 2,186 ) ( 2,172 ) Benefit obligation at end of year $ 31,023 $ 30,506 Change in plan assets: 2023 2022 Fair value of plan assets at beginning of year $ 44,656 $ 52,987 Actual return on plan assets 4,480 ( 6,159 ) Employer contributions — — Settlements — — Benefits paid ( 2,186 ) ( 2,172 ) Fair value of plan assets at end of year $ 46,950 $ 44,656 Funded status $ 15,927 $ 14,150 Amount recognized in accumulated other comprehensive income (loss) at December 31, 2023 and 2022 consist of the following (in thousands): 2023 2022 Net actuarial loss $ 3,961 $ 4,988 Prior service cost — — Total before tax effects $ 3,961 $ 4,988 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 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. F-45 The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2023 and 2022 were as follows: 2023 2022 Discount rate 5.07 % 5.42 % Assumed rate of future compensation increase N/A N/A Weighted-average interest crediting rate N/A N/A Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2023 and 2022 consist of the following (in thousands): Net periodic benefit cost 2023 2022 Service cost, benefits earned during the year $ — $ — Interest cost on projected benefit obligation 1,605 1,130 Expected return on plan assets ( 2,391 ) ( 2,851 ) Amortization of net loss 36 — Amortization of prior service cost — — Recognized (gain) loss due to settlements — — Net periodic cost (benefit) $ ( 750 ) $ ( 1,721 ) Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): 2023 2022 Net actuarial (gain) loss $ ( 990 ) $ 154 Recognized loss ( 37 ) — Amortization of prior service cost — — Total recognized in other comprehensive income (loss) (before tax effect) $ ( 1,027 ) $ 154 Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect) $ ( 1,777 ) $ ( 1,567 ) 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. The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2023, 2022 were as follows: 2023 2022 Discount rate 5.42 % 2.87 % Expected return on assets 5.50 % 5.50 % Assumed rate of future compensation increase N/A N/A Weighted-average interest crediting rate N/A N/A The Corporation changes important assumptions whenever 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. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years , or as conditions warrant. F-46 The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types. The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds. Other investments may consist of mutual funds, money market funds and cash & cash equivalents. While no significant changes in the asset allocations are expected during 2024, the Corporation may make changes at any time. The expected return on plan assets was determined based on a CAPM using historical and expected future returns of the various asset classes, reflecting the target allocations described below. Asset Class Target Allocation 2023 Percentage of Plan Assets at December 31, Expected Long-Term Rate of Return 2023 2022 Large cap domestic equities 30 % - 60 % 41 % 39 % 11.8 % Mid-cap domestic equities 0 % - 8 % 2 % 2 % 11.5 % Small-cap domestic equities 0 % - 6 % 1 % 1 % 9.7 % International equities 0 % - 8 % 3 % 3 % 6.9 % Intermediate fixed income 33 % - 63 % 37 % 43 % 7.0 % Alternative assets 0 % - 15 % — % — % 2.9 % Cash 0 % - 20 % 16 % 12 % 1.2 % Total 100 % 100 % The investment policy of the plan is to provide for long-term growth of principal and income without undue exposure to risk. The focus is on long-term capital appreciation and income generation. The Corporation maintains an IPS that guides the investment allocation in the plan. The IPS describes the target asset allocation positions as shown in the table above. The Corporation has appointed an Employee Pension and Profit Sharing Committee to manage the general philosophy, objectives and process of the plan. The Employee Pension and Profit Sharing Committee meets with the Investment Manager periodically to review the plan's performance and to ensure that the current investment allocation is within the guidelines set forth in the IPS. Only the Employee Pension and Profit Sharing Committee, in consultation with the Investment Manager, can make adjustments to maintain target ranges and for any permanent changes to the IPS. Quarterly, the Board of Directors' Trust and Employee Benefits Committee reviews the performance of the plan with the Investment Manager. As of December 31, 2023 and 2022, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock. The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument held by the pension plan: Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. The fair value hierarchy described below requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The fair values for investment securities are determined by quoted market prices, if available (Level 1). For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3). Discounted cash flows are calculated using spread and optionality. During times when trading is more liquid, broker quotes are used (if available) to validate the model. Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations. F-47 The fair value of the plan assets at December 31, 2023 and 2022, by asset class are as follows (in thousands): Fair Value Measurement at December 31, 2023 Using Plan Assets Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash $ 7,503 $ 7,503 $ — $ — Equity securities: U.S. companies 19,374 19,374 — — Mutual funds 17,905 17,905 — — Debt securities: U.S. Treasuries/Government bonds 1,920 1,920 — — U.S. Corporate bonds 248 248 — — Total plan assets $ 46,950 $ 46,950 $ — $ — Fair Value Measurement at December 31, 2022 Using Plan Assets Carrying Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Cash $ 5,374 $ 5,374 $ — $ — Equity securities: U.S. companies 17,526 17,526 — — Mutual funds 19,619 19,619 — — Debt securities: U.S. Treasuries/Government bonds 1,891 1,891 — — U.S. Corporate bonds 246 246 — — Total plan assets $ 44,656 $ 44,656 $ — $ — 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 pension plan (in thousands): Calendar Year Future Expected Benefit Payments 2024 $ 2,390 2025 $ 2,369 2026 $ 2,372 2027 $ 2,353 2028 $ 2,324 2029-2032 $ 11,222 The Corporation does not expect to contribute to the plan during 2024. Funding requirements for subsequent years are uncertain and will significantly depend on 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. F-48 Defined Contribution Profit Sharing, Savings and Investment Plan On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1000 hours of service requirement to participate in employer contributions. Beginning on January 1, 2017, the Bank began contributing a non-discretionary 3 % of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010. Additionally, beginning January 1, 2017 the Bank began contributing a 50 % match up to 6 % of gross annual wages. 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. Government securities, corporate bonds and notes, and mutual funds. Defined Benefit Health Care Plan On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the defined benefit health care plan disclosures as of December 31, 2017. The Corporation uses a December 31 measurement date for its defined benefit health care plan. The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2023 and 2022 (in thousands): Changes in accumulated postretirement benefit obligation: 2023 2022 Accumulated postretirement benefit obligation - beginning of year $ 95 $ 194 Service cost — — Interest cost 5 3 Participant contributions 18 18 Amendments — — Actuarial (gain) loss 3 ( 71 ) Benefits paid ( 45 ) ( 49 ) Accumulated postretirement benefit obligation at end of year $ 76 $ 95 Change in plan assets: 2023 2022 Fair value of plan assets at beginning of year $ — $ — Employer contribution 27 31 Plan participants’ contributions 18 18 Benefits paid ( 45 ) ( 49 ) Fair value of plan assets at end of year $ — $ — Unfunded status $ ( 76 ) $ ( 95 ) F-49 Amount recognized in accumulated other comprehensive income (loss) at December 31, 2023 and 2022 consist of the following (in thousands): 2023 2022 Net actuarial loss $ 102 $ 118 Prior service credit — — Total before tax effects $ 102 $ 118 Weighted-average assumption for disclosure as of December 31: 2023 2022 Discount rate 5.07 % 5.42 % Assumed rate of future compensation increase N/A N/A Health care cost trend: Initial (Pre-65/Post 65) 8.00 % / 7.00 % 7.50 % / 6.50 % Health care cost trend: Ultimate (Pre-65/Post 65) 4.75 % / 4.75 % 4.75 % / 4.75 % Year ultimate cost trend reached 2033 / 2032 2032 / 2030 The components of net periodic postretirement benefit cost for the years ended December 31, 2023 and 2022 are as follows (in thousands): Net periodic cost (benefit) 2023 2022 Service cost $ — $ — Interest cost 5 3 Expected return on plan assets — — Amortization of prior service benefit — Recognized actuarial loss 19 18 Recognized prior service benefit due to curtailments — — Net periodic postretirement cost (benefit) $ 24 $ 21 Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): 2023 2022 Net actuarial (gain) loss $ 3 $ ( 71 ) Recognized actuarial loss ( 19 ) ( 18 ) Prior service credit — Amortization of prior service benefit — Total recognized in other comprehensive income (loss)(before tax effect) $ ( 16 ) $ ( 89 ) Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ 8 $ ( 68 ) 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. Because the total unrecognized net gain or loss in the plan exceeds 10 % of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants. As of January 1, 2023, the average future life expectancy of all plan participants was 6.0 years. Actual results for 2024 will depend on the 2024 actuarial valuation of the plan. The change in unrecognized gain/loss is one measure of the degree to which important assumptions have coincided with actual experience. During 2023, the unrecognized net loss decreased by 16 % of the December 31, 2022 accumulated postretirement benefit obligation. The Corporation changes important assumptions whenever changing conditions warrant. The discount rate and per capita costs are typically changed at least annually. Other material assumptions include rates of participant mortality and rates of increase in medical costs. F-50 Weighted-average assumptions for net periodic cost as of December 31: 2023 2022 Discount rate 5.42 % 2.87 % Expected return on plan assets N/A N/A Assumed rate of future compensation increase N/A N/A Health care cost trend: Initial 8.00 % / 7.00 % 7.50 % / 6.50 % Health care cost tread: Ultimate 4.75 % / 4.75 % 4.75 % / 4.75 % Year ultimate reached 2033 / 2032 2032 / 2030 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 (in thousands): Calendar Year Future Estimated Benefit Payments 2024 $ 12 2025 $ 11 2026 $ 11 2027 $ 10 2028 $ 9 2029-2032 $ 32 The Corporation’s policy is to contribute the amount required to fund postretirement benefits as they become due to retirees. The amount expected to be required in contributions to the plan during 2024 is $ 12 thousand. Executive Supplemental Pension Plan The Corporation also sponsors an Executive Supplemental Pension Plan for certain former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code. The benefits under this plan are unfunded as of December 31, 2023 and 2022. The Corporation uses a December 31 measurement date for its Executive Supplemental Pension Plan. The following table presents Executive Supplemental Pension plan status at December 31, 2023 and 2022 (in thousands): Change in projected benefit obligation: 2023 2022 Benefit obligation at beginning of year $ 948 $ 1,173 Service cost — — Interest cost 48 32 Actuarial (gain) loss 37 ( 148 ) Benefits paid ( 109 ) ( 109 ) Projected benefit obligation at end of year $ 924 $ 948 Changes in plan assets: 2023 2022 Fair value of plan assets at beginning of year $ — $ — Employer contributions 109 109 Benefits paid ( 109 ) ( 109 ) Fair value of plan assets at end of year $ — $ — Unfunded status $ ( 924 ) $ ( 948 ) F-51 Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2023 and 2022 consist of the following (in thousands): 2023 2022 Net actuarial loss $ 202 $ 172 Prior service cost — — Total before tax effects $ 202 $ 172 Accumulated benefit obligation at December 31, 2023 and 2022 was $ 0.9 million and $ 0.9 million, respectively. Weighted-average assumption for disclosure as of December 31: 2023 2022 Discount rate 5.07 % 5.42 % Assumed rate of future compensation increase N/A N/A Weighted-average interest crediting rate N/A N/A The components of net periodic benefit cost for the years ended December 31, 2023 and 2022 are as follows (in thousands): Net periodic benefit cost 2023 2022 Service cost $ — $ — Interest cost 48 32 Recognized actuarial loss 7 19 Net periodic postretirement benefit cost $ 55 $ 51 Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss): 2023 2022 Net actuarial (gain) loss $ 37 $ ( 148 ) Recognized actuarial loss ( 7 ) ( 20 ) Total recognized in other comprehensive income (loss) (before tax effect) $ 30 $ ( 168 ) Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect) $ 85 $ ( 117 ) 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 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. As of January 1, 2024, the average future life expectancy of plan participants was 10.17 years. Weighted-average assumptions for net periodic cost as of December 31: 2023 2022 Discount rate 5.42 % 2.87 % Expected asset return N/A N/A Assumed rate of future compensation increase N/A N/A Weighted-average interest crediting rate N/A N/A The discount rate was determined by projecting the plan's expected future benefit payments as defined for the projected benefit obligation, discounting those expected payments using a theoretical zero-coupon spot yield curve derived from a universe of high-quality bonds as of the measurement date, and solving for the single equivalent discount rate that resulted in the same projected benefit obligation. F-52 The change in unrecognized net gain or loss is one measure of the degree to which important assumptions have coincided with actual experience. 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): Calendar Year Future Estimated Benefit Payments 2024 $ 108 2025 $ 105 2026 $ 100 2027 $ 96 2028 $ 90 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. Defined Contribution Supplemental Executive Retirement Plan The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012. The plan is unfunded as of December 31, 2023 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events. The accrued obligation for the plan as of December 31, 2023 and 2022 was $ 3.4 million and $ 2.9 million, respectively. 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 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. (14) STOCK COMPENSATION On June 8, 2021, the Corporation's shareholders approved the Corporation's 2021 Equity Incentive Plan (the "2021 Plan") which provides for the grant of stock-based awards to officers, employees and directors of the Corporation and the Bank. A Form S-8 Registration Statement was filed with the SEC on June 18, 2021 registering shares to be awarded under the 2021 Plan. The 2021 Plan provides officers, employees and directors of the Corporation and the Bank with additional incentives to promote the growth and performance of the Corporation. The prior plan shall remain in existence solely for the purpose of administering outstanding grants. Under the terms of the 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 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. F-53 A summary of restricted stock activity as of December 31, 2023, and changes during the year ended is presented below: Shares Weighted–Average Grant Date Fair Value Nonvested at December 31, 2022 55,402 $ 44.57 Granted 34,658 $ 46.96 Vested ( 26,750 ) $ 44.60 Forfeited or Cancelled ( 326 ) $ 43.73 Nonvested at December 31, 2023 62,984 $ 45.87 As of December 31, 2023, there was $ 1.4 million of total unrecognized compensation cost related to nonvested shares granted under the prior Plan and the 2021 Plan. The cost is expected to be recognized over a weighted-average period of 3.32 years. 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 Members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners (more than 10 % interest) or board members, were customers of, and had loans and other transactions with the Corporation. These loans are summarized as follows for the years ended December 31, 2023 and 2022 (in thousands): 2023 2022 Balance at beginning of year $ 28,062 $ 51,192 New loans or additional advances 77 990 Effect of changes in composition of related parties ( 4 ) ( 22,607 ) Repayments ( 2,077 ) ( 1,513 ) Balance at end of year $ 26,058 $ 28,062 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 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. 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 $ 9 thousand and $ 8 thousand per month for the years ended December 31, 2023 and 2022, respectively. 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 for each of the years ended December 31, 2023 and 2022, respectively. F-54 (16) COMMITMENTS AND CONTINGENCIES Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment. The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows (in thousands): 2023 2022 Fixed Rate Variable Rate Fixed Rate Variable Rate Commitments to make loans $ 23,809 $ 78,790 $ 44,481 $ 75,028 Unused lines of credit $ 3,387 $ 332,439 $ 2,887 $ 326,188 Standby letters of credit $ — $ 11,317 $ — $ 17,211 Commitments to make real estate and home equity loans are generally made for periods of sixty days or less. 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 . As of December 31, 2023, the fixed rate commercial draw commitments have interest rates ranging from 2.79 % to 8.17 %. Because many commitments and almost all standby letters of credit expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows. Loan commitments and unused lines of credit have off-balance sheet credit risk because only origination fees are recognized on the consolidated balance sheet until commitments are fulfilled or expire. The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and collateral or other security is of no value. The Corporation does not anticipate losses as a result of these transactions. 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. Standby letters of credit generally arise in connection with lending relationships. The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers. Contingent obligations under standby letters of credit totaled $ 11.3 million at December 31, 2023 and represent the maximum potential future payments the Corporation could be required to make. Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements. Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments. Corporation policies governing loan collateral apply to standby letters of credit at the time of credit extension. The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2023 was not significant. In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries. The Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity. F-55 (17) PARENT COMPANY FINANCIAL INFORMATION Condensed parent company only financial statement information of Chemung Financial Corporation is as follows (investment in subsidiaries is recorded using the equity method of accounting) (in thousands): BALANCE SHEETS - DECEMBER 31 2023 2022 Assets: Cash and cash equivalents $ 6,635 $ 2,708 Investment in subsidiary - Chemung Canal Trust Company 185,159 157,493 Investment in subsidiary - CFS Group, Inc. 1,418 1,294 Investment in subsidiary - Chemung Risk Management, Inc. 1 — 2,887 Dividends receivable from subsidiary bank 1,469 1,455 Equity investments, at fair value 204 329 Other assets 1,850 1,728 Total assets $ 196,735 $ 167,894 Liabilities and shareholders' equity: Dividends payable $ 1,469 $ 1,455 Other liabilities 25 51 Total liabilities 1,494 1,506 Shareholders' equity: Total shareholders' equity 195,241 166,388 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 Dividends from subsidiary bank and non-bank $ 7,204 $ 7,051 Interest and dividend income 11 7 Non-interest income ( 125 ) 10 Non-interest expenses 345 586 Income before impact of subsidiaries' undistributed earnings 6,745 6,482 Equity in undistributed earnings of Chemung Canal Trust Company 18,267 21,638 Equity in undistributed earnings of CFS Group, Inc. 124 220 Distributed earnings of Chemung Risk Management, Inc. 1 ( 301 ) 250 Income before income tax 24,835 28,590 Income tax benefit ( 165 ) ( 193 ) Net income $ 25,000 $ 28,783 1 Chemung Risk Management, Inc. was dissolved effective December 6, 2023. F-56 STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31 2023 2022 Cash flows from operating activities: Net Income $ 25,000 $ 28,783 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of Chemung Canal Trust Company ( 18,267 ) ( 21,638 ) Equity in undistributed earnings of CFS Group, Inc. ( 124 ) ( 220 ) Distributed earnings of Chemung Risk Management, Inc. 1 301 ( 250 ) Change in dividend receivable ( 14 ) ( 5 ) Change in other assets ( 122 ) ( 211 ) Change in other liabilities ( 1,085 ) ( 733 ) Expense related to restricted stock units directors' deferred compensation plan 20 20 Expense to employee restricted stock awards 1,139 795 Net cash provided by operating activities 6,848 6,541 Cash flow from investing activities: Proceeds from dissolution of Chemung Risk Management, Inc. 1 2,634 — Net cash provided by investing activities 2,634 — Cash flow from financing activities: Cash dividends paid ( 5,840 ) ( 5,797 ) Purchase of treasury stock ( 316 ) ( 933 ) Sale of treasury stock 601 424 Net cash used in financing activities ( 5,555 ) ( 6,306 ) Increase (decrease) in cash and cash equivalents 3,927 235 Cash and cash equivalents at beginning of year 2,708 2,473 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 Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value: Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date. Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability. The Corporation used the following methods and significant assumptions to estimate fair value: Available for Sale Securities: The fair values of securities available for sale are usually determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely used to value debt securities without relying exclusively on quoted prices for the specific securities, but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs). F-57 Equity Investments: Securities that are held to fund a non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded with changes in fair value included in earnings. The fair values of equity investments are determined by quoted market prices (Level 1 inputs). 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. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification. These loans are analyzed on a quarterly basis for additional valuation changes and adjusted accordingly. OREO : 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. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO. On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition. Derivatives : The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2 inputs). Derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counter-party's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation has considered the impact of any applicable credit enhancements, such as collateral postings. Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with credit risk participation are based on credit default rate assumptions (Level 3 inputs). F-58 Assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands): Fair Value Measurement at December 31, 2023 Using Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. treasury notes and bonds $ 55,332 $ 55,332 $ — $ — Mortgage-backed securities, residential 403,824 — 403,824 — Obligations of states and political subdivisions 38,686 — 38,686 — Corporate bonds and notes 20,669 — 13,139 7,530 SBA loan pools 65,482 — 65,482 — Total available for sale securities $ 583,993 $ 55,332 $ 521,131 $ 7,530 Equity Investments $ 2,552 $ 2,552 $ — $ — Derivative assets $ 23,942 $ — $ 23,942 $ — Financial Liabilities: Derivative liabilities $ 23,981 $ — $ 23,981 $ — Fair Value Measurement at December 31, 2022 Using Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) U.S. treasury notes and bonds $ 55,574 $ 55,574 $ — $ — Mortgage-backed securities, residential 435,131 — 435,131 — Obligations of states and political subdivisions 38,892 — 38,892 — Corporate bonds and notes 21,970 — 21,970 — SBA loan pools 81,022 — 81,022 — Total available for sale securities $ 632,589 $ 55,574 $ 577,015 $ — Equity investments $ 2,246 $ 2,246 $ — $ — Derivative assets $ 26,706 $ — $ 26,706 $ — Financial Liabilities: Derivative liabilities $ 26,761 $ — $ 26,761 $ — There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2023 and 2022. F-59 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. F-60 FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amounts and estimated fair values of other financial instruments, at December 31, 2023 and December 31, 2022, are as follows (in thousands): Fair Value Measurements at December 31, 2023 Using Financial assets: Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Estimated Fair Value 1 Cash and due from financial institutions $ 22,247 $ 22,247 $ — $ — $ 22,247 Interest-bearing deposits in other financial institutions 14,600 14,600 — — 14,600 Equity investments 3,046 3,046 — — 3,046 Securities available for sale 583,993 55,332 521,131 7,530 583,993 Securities held to maturity 785 — — 785 785 FHLBNY and FRBNY stock 5,498 — — — N/A Loans, net and loans held for sale 1,972,664 — — 1,875,390 1,875,390 Derivative assets 23,942 — 23,942 — 23,942 Financial liabilities: Deposits: Demand, savings, and insured money market deposits $ 1,817,162 $ 1,817,162 $ — $ — $ 1,817,162 Time deposits 612,265 — 609,863 — 609,863 FHLBNY overnight advances 31,920 — 31,925 — 31,925 Derivative liabilities 23,981 — 23,981 — 23,981 1 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. F-61 Fair Value Measurements at December 31, 2022 Using Financial Assets: Carrying Amount Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Estimated Fair Value 1 Cash and due from financial institutions $ 29,309 $ 29,309 $ — $ — $ 29,309 Interest-bearing deposits in other financial institutions 26,560 26,560 — — 26,560 Equity investments 2,830 2,830 — — 2,830 Securities available for sale 632,589 55,574 577,015 — 632,589 Securities held to maturity 2,424 — 1,450 952 2,402 FHLBNY and FRBNY stock 8,197 — — — N/A Loans, net and loans held for sale 1,829,448 — — 1,757,171 1,757,171 Derivative assets 26,706 — 26,706 — 26,706 Financial liabilities: Deposits: Demand, savings, and insured money market deposits $ 1,924,843 $ 1,924,843 $ — $ — $ 1,924,843 Time deposits 402,384 — 403,572 — 403,572 FHLBNY overnight advances 95,810 — — — — Derivative liabilities 26,761 — 26,761 — 26,761 1 Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. (19) REGULATORY CAPITAL REQUIREMENTS The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. 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. Management believes as of December 31, 2023, the Bank met all capital adequacy requirements to which they are subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2023, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. The Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets. As of December 31, 2023, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank's or the Corporation's capital category. F-62 The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years , subject to the capital requirements in the table below. During 2024, the Bank could, without prior approval, declare dividends of approximately $ 59.4 million plus any 2024 net income retained to the date of the dividend declaration. The actual capital amounts and ratios of the Corporation and the Bank are presented in the following tables (in thousands): Actual Minimal Capital Adequacy Minimal Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions As of December 31, 2023 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Total Capital (to Risk Weighted Assets): Consolidated $ 262,864 13.26 % N/A N/A N/A N/A N/A N/A Bank $ 252,783 12.76 % $ 158,438 8.00 % $ 207,950 10.50 % $ 198,048 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 239,429 12.08 % N/A N/A N/A N/A N/A N/A Bank $ 229,348 11.58 % $ 118,829 6.00 % $ 168,341 8.50 % $ 158,438 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 239,429 12.08 % N/A N/A N/A N/A N/A N/A Bank $ 229,348 11.58 % $ 89,122 4.50 % $ 138,634 7.00 % $ 128,731 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 239,429 8.62 % N/A N/A N/A N/A N/A N/A Bank $ 229,348 8.26 % $ 111,034 4.00 % N/A N/A $ 138,792 5.00 % Actual Minimum Capital Adequacy Minimal Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions As of December 31, 2022 Amount Ratio Amount Ratio Amount Ratio Amount Ratio Total Capital (to Risk Weighted Assets): Consolidated $ 239,478 12.57 % N/A N/A N/A N/A N/A N/A Bank $ 230,560 12.10 % $ 152,414 8.00 % $ 200,044 10.50 % $ 190,518 10.00 % Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 219,820 11.54 % N/A N/A N/A N/A N/A N/A Bank $ 210,901 11.07 % $ 114,311 6.00 % $ 161,940 8.50 % $ 152,414 8.00 % Common Equity Tier 1 Capital (to Risk Weighted Assets): Consolidated $ 219,820 11.54 % N/A N/A N/A N/A N/A N/A Bank $ 210,901 11.07 % $ 85,733 4.50 % $ 133,363 7.00 % $ 123,837 6.50 % Tier 1 Capital (to Average Assets): Consolidated $ 219,820 8.23 % N/A N/A N/A N/A N/A N/A Bank $ 210,901 7.91 % $ 106,616 4.00 % N/A N/A $ 133,270 5.00 % F-63 (20) ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS Accumulated other comprehensive income or loss represents the net unrealized holding gains or losses on securities available for sale and the funded status of the Corporation's defined benefit pension plan and other benefit plans, as of the consolidated balance sheet dates, net of the related tax effect. The following is a summary of the changes in accumulated other comprehensive income or loss by component, net of tax, for the periods indicated (in thousands): Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total Balance at January 1, 2023 $ ( 71,296 ) $ ( 3,961 ) $ ( 75,257 ) Other comprehensive income (loss) before reclassification 8,506 702 9,208 Amounts reclassified from accumulated other comprehensive income (loss) ( 10 ) 46 36 Net current period other comprehensive income (loss) 8,496 748 9,244 Balance at December 31, 2023 $ ( 62,800 ) $ ( 3,213 ) $ ( 66,013 ) Balance at January 1, 2022 $ ( 2,495 ) $ ( 4,035 ) $ ( 6,530 ) Other comprehensive income (loss) before reclassification ( 68,801 ) 47 ( 68,754 ) Amounts reclassified from accumulated other comprehensive income (loss) — 27 27 Net current period other comprehensive income (loss) ( 68,801 ) 74 ( 68,727 ) Balance at December 31, 2022 $ ( 71,296 ) $ ( 3,961 ) $ ( 75,257 ) The following is the reclassification out of accumulated other comprehensive income (loss) for the periods indicated (in thousands): Details about Accumulated Other Comprehensive Income (Loss) Components Year Ended December 31, Affected Line Item in the Statement Where Net Income is Presented 2023 2022 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: 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 (a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 13 for additional information). F-64 (21) SEGMENT REPORTING The Corporation manages its operations through two primary business segments: core banking and WMG. The core banking segment provides revenues by attracting deposits from the general public and using such funds to originate consumer, commercial, commercial real estate, and residential mortgage loans, primarily in the Corporation’s local markets, and to invest in securities. The WMG services segment provides revenues by providing trust and investment advisory services to clients. Accounting policies for the segments are the same as those described in Note 1. Summarized financial information concerning the Corporation’s reportable segments and the reconciliation to the Corporation’s consolidated results are shown in the following table. Income taxes are allocated based on the separate taxable income of each entity and indirect overhead expenses are allocated based on reasonable and equitable allocations applicable to the reportable segment. 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, 2023 Core Banking WMG Holding Company, CFS and CRM 1 Consolidated Totals Interest and dividend income $ 112,947 $ — $ 127 $ 113,074 Interest expense 38,617 — — 38,617 Net interest income 74,330 — 127 74,457 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 Income (loss) before income tax expense 28,236 3,399 ( 134 ) 31,501 Income tax expense (benefit) 5,869 730 ( 98 ) 6,501 Segment net income (loss) $ 22,367 $ 2,669 $ ( 36 ) $ 25,000 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 Interest and dividend income $ 81,425 $ — $ 50 $ 81,475 Interest expense 7,296 — — 7,296 Net interest income 74,129 — 50 74,179 Provision for loan losses ( 554 ) — — ( 554 ) Net interest income after provision for loan losses 74,683 — 50 74,733 Non-interest income 10,225 10,280 931 21,436 Legal settlements — — — 0 — Non-interest expenses 51,301 6,582 1,397 59,280 Income (loss) before income tax expense 33,607 3,698 ( 416 ) 36,889 Income tax expense (benefit) 7,361 851 ( 106 ) 8,106 Segment net income (loss) $ 26,246 $ 2,847 $ ( 310 ) $ 28,783 Segment assets $ 2,635,043 $ 2,559 $ 7,951 $ 2,645,553 F-65 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. CHEMUNG FINANCIAL CORPORATION DATED: MARCH 13, 2024 By: /s/ Anders M. Tomson Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer) DATED: MARCH 13, 2024 By: /s/ Dale M. McKim, III Dale M. McKim, III Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. Signature Title Date /s/ Raimundo C. Archibold, Jr. Director March 13, 2024 Raimundo C. Archibold, Jr. /s/ Ronald M. Bentley Director March 13, 2024 Ronald M. Bentley /s/ David M. Buicko Director March 13, 2024 David M. Buicko /s/ David J. Dalrymple Director and Chairman of the Board of Directors March 13, 2024 David J. Dalrymple /s/ Robert H. Dalrymple Director March 13, 2024 Robert H. Dalrymple /s/ Richard E. Forrestel, Jr. Director March 13, 2024 Richard E. Forrestel, Jr. /s/ Denise V. Gonick Director March 13, 2024 Denise V. Gonick /s/ Stephen M. Lounsberry, III Director March 13, 2024 Stephen M. Lounsberry, III /s/ Joseph F. Meade, IV Director March 13, 2024 Joseph F. Meade, IV /s/ Jeffrey B. Streeter Director March 13, 2024 Jeffrey B. Streeter (Signatures, continued) F-59 Signature Title Date /s/ G. Thomas Tranter, Jr. Director March 13, 2024 G. Thomas Tranter, Jr. /s/ Thomas R. Tyrrell Director March 13, 2024 Thomas R. Tyrrell /s/ Anders M. Tomson Chief Executive Officer and President March 13, 2024 Anders M. Tomson /s/ Dale M. McKim, III Chief Financial Officer and Treasurer March 13, 2024 Dale M. McKim, III F-60 EXHIBIT INDEX Exhibit The following exhibits are either filed with this Form 10-K or are incorporated herein by reference. The Corporation’s Securities Exchange Act file number is 000-13888. 3.1 Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 and filed with the Commission on March 13, 2008). 3.2 Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 and filed with the Commission on March 13, 2008). 3.3 Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006). 3.4 Amended and Restated Bylaws of Chemung Financial Corporation, as amended August 17, 2022 (as incorporated by reference to Exhibit 3.2 to Registrant’s Form 8-K and filed with the Commission on August 17, 2022). 4.1 Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference). 4.2 Description of Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934, filed herewith (as incorporated by reference to Exhibit 4.2 to Registrant's Form 10-K for the year ended December 31, 2019 and filed with the Commission on March 12, 2020). 10.1 Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the Commssion on January 27, 2015 and incorporated herein by reference). 10.2 Change of Control Agreement dated December 19, 2018 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the Commission on December 19, 2018 and incorporated herein by reference). 10.3 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the 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. Fariello, President of Capital Bank Division (filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the Commission on December 23, 2019 and incorporated herein by reference). 10.6 Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Loren D. 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 Chemung Financial Corporation 2021 Equity Incentive Plan (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 8, 2021 and incorporated herein by reference). 10.8 Consent Order between Chemung Canal Trust Company and the New York State Department of Financial Services dated June 24, 2021 (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the Commission on June 29, 2021 and incorporated herein by reference). 10.9 Form of Incentive Stock Option Award Agreement (filed as Exhibit 10.2 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.10 Form of Non-Qualified Stock Option Award Agreement (filed as Exhibit 10.3 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.11 Form of Restricted Stock Award Agreement (filed as Exhibit 10.4 to Registrant's Registration Statement on Form S-8 (333-257227) filed with the Commission on June 21, 2021 and incorporated herein by reference). 10.12 Chemung Canal Trust Company Defined Contribution Supplemental Executive Retirement Plan, (as incorporated by reference to Exhibit 10.12 to Registrant's Form 10-K for the year ended December 31, 2021 and filed with the Commission on March 23, 2022). 10.13 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.* 23 Consent of Crowe LLP, Independent Registered Public Accounting Firm.* 31.1 Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* 31.2 Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.* 32.1 Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.* 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. §1350.* 97 Policy Relating to Recovery of Erroneously Awarded Compensation , filed herewith. * 101.INS Instance Document 101.SCH XBRL Taxonomy Schema* 101.CAL XBRL Taxonomy Calculation Linkbase* 101.DEF XBRL Taxonomy Definition Linkbase* 101.LAB XBRL Taxonomy Label Linkbase* 101.PRE XBRL Taxonomy Presentation Linkbase* * Filed herewith.