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美國證券交易所(SEC) 華盛頓特區20549   表格 10-Q

☒

根據1934年證券交易法第13或15(d)節的季度報告

截至季度結束 2024年9月30日

或者

☐

根據1934年證券交易法第13或15(d)節的轉型報告書

委員會文件號。 001-35741

CHEMUNG金融公司CORATION

(根據其章程規定的註冊人準確名稱)

紐約

16-1237038

（設立或組織的其他管轄區域）

（納稅人識別號碼）

Chemung運河廣場一號, 艾爾邁拉, NY。

14901

，（主要行政辦公地址）

(郵政編碼)

(607) 737-3711 或致電(800) 836-3711

（註冊人的電話號碼，包括區號）

本2.02條款和附件99.1中含有的信息，除非在此類申報文件中通過具體引用註明，否則將不被視爲根據《證券交易法》或修正件（以下簡稱「交易所法」的章程18條的目的出於遞交該等申報文件或遞交《證券法》或修正件的申報文件中的任何一份而被歸入參考文件之列。

每一類的名稱

交易代碼

登記的交易所名稱

每股普通股，面值爲0.01元

CHMG

納斯達克證券交易所 LLC

請用勾號勾選以下內容：（1）在過去的12個月內（或者c註冊人所需要提交此類報告的更短期限內），c註冊人已經提交了根據1934年證券交易法第13或第15（d）條規定需要提交的全部報告；和（2）c註冊人在過去的90天內一直需要遵守此類提交要求。Yes根據交易所法規12b-2中「大型加速文件報告人」，「加速文件報告人」，「小型報告公司」和「新興增長公司」的定義，請勾選發行人是否爲大型加速文件報告人。

請勾選一個框，表示在過去的12個月內（或註冊者要求遞交此類文件的較短期間內），是否已經遞交了根據S-T規則405條和本章232.405條所要求遞交的每個交互式數據文件。Yes根據交易所法規12b-2中「大型加速文件報告人」，「加速文件報告人」，「小型報告公司」和「新興增長公司」的定義，請勾選發行人是否爲大型加速文件報告人。

請通過勾叉符號指示註冊人是大型快速拼盤商、加速拼盤商、非加速拼盤商、較小報告公司還是新興增長型公司。請參閱《交易所法》第120億.2條中"大型快速拼盤商"、"加速拼盤商"、"較小報告公司"和"新興增長型公司"的定義。

大型加速報告人

☐

非加速文件提交人

☐

加速文件提交人

☒

較小的報告公司

☒

新興成長公司

☐

如果是新興成長型公司，請在複選框中標記，以示註冊公司已選擇不使用《交易所法》第13(a)條所提供的財務會計準則的延長過渡期遵守任何新的或修訂的標準。

通過複選框標記是否註冊公司是外殼公司（根據《交易所法》第120億.2條定義）。是 ☐ No ☒

截至2024年11月1日，有 4,758,567 股普通股，面值$0.01，尚未發行。

---

Chemung Financial公司及其子公司

指數

						頁碼
			縮寫詞和術語詞彙表			3
第I部分			財務信息
項目1:			基本報表-未經審計
			合併資產負債表			7
			綜合收益表			8
			綜合收益（損失）合併報表			9
			股東權益合併報表			10
			合併現金流量表			12
			未經審計的綜合財務報表註釋			14
項目 2:			管理層對財務狀況和經營結果的討論和分析			47
條款 3：			有關市場風險的定量和定性披露			82
項目4:			控制和程序			84
第二部分			其他信息
項目1:			法律訴訟			85
項目1A:			風險因素			85
項目 2:			未註冊股權證券銷售、款項使用及發行人購買股權證券			85
條款 3：			對優先證券的違約			85
項目4:			礦山安全披露			85
條款 5：			其他信息			85
條款 6：			展示資料			86
簽名						87
附件描述

2

---

縮略語和術語詞彙表

爲了幫助讀者，公司提供了以下常用縮寫詞和術語列表，包括未經審計的綜合財務報表附註和管理層討論及分析財務狀況和運營業績。

縮略語

ACL			信用減值準備
可供出售金融資產			可供出售證券
資產負債管理委員會			資產負債管理委員會
未實現其他綜合收益			累計其他綜合損益
ASC			會計準則編碼
會計準則更新			會計準則更新
銀行			Chemung Canal trust銀行
巴塞爾協議三			巴塞爾銀行監管委員會的第三個巴塞爾協議
董事會			Board of Directors of Chemung Financial Corporation
銀行長期融資計劃			銀行期限資金計劃
CAM			Common Area Maintenance Charges
存單帳戶登記服務			存單帳戶登記服務
CECL（Current expected credit losses，預期信貸損失）			當前預期信用損失
現金流量表			CFS集團公司
公司			Chemung Financial Corporation
賽富時			Chemung風險管理公司
《多德-弗蘭克法》			《多德-弗蘭克華爾街改革和消費者保護法案》
每股收益			每股收益
使擁有公司註冊證券類別10%以上股權的官員、董事或實際股東代表簽署人遞交表格3、4和5（包括修正版及有關聯合遞交協議）,符合證券交易法案第16(a)條及其下屬規則規定的要求；			1934年證券交易法
FASB			財務會計準則委員會
聯邦存款保險公司			聯邦存款保險公司
聯邦金融機構檢查委員會			聯邦金融機構審查委員會
FHLBNY			紐約聯邦住房貸款銀行
聯邦公開市場委員會			聯儲局公開市場委員會
聯邦儲備委員會			聯儲局系統理事會
FRBNY			聯邦儲備銀行紐約分行
房利美公司			聯邦住房抵押貸款公司
通用會計準則			美國通用會計原則
保留至到期			持有至到期投資
IAS			國際會計準則
ICS			保險儲蓄掃描服務
LGD			違約損失率
MD&A			分銷計劃
NAICS			北美行業分類系統
N/M			不具有意義
其他離崗福利			其他離職福利待遇
OREO			其他房地產業擁有
PD。			違約概率

3

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ROA			平均資產回報率
毛利潤 (以十億計)			平均淨資產回報率
風險加權資產			風險加權資產
SBA			美國小型企業管理局
SEC			證券交易委員會
證券法			北至超級資源公司是一家專注於魁北克省Chibougamau地區黃金勘探的公司，公司目前擁有該地區最大的土地包裹，土地總面積超過62000公頃，其中的主要資產包括Philibert、Lac Surprise、Chevrier和Croteau等。同時北至超級資源公司還擁有一些在北安大略省的重要勘探資產，如區域性TPK項目。
WMG			财富管理集團

Cash Settlement Amount Closing Level Determination Date Face Amount Final Underlier Level Initial Underlier Level Original Issue Price Stated Maturity Date Threshold Level Trade Date Underlier Underlier Return

信貸損失撥備			替代貸款和租賃損失準備，作爲資產中使用的對立資產帳戶，表示公司預計從其資產中無法收回的終身金額。 ACL符合ASU 2016-13中概述的CECL要求，並於2023年1月1日由公司實施。
信貸損失準備金佔貸款總額			代表期末信貸損失準備金額除以留存貸款。
託管資產			代表由客戶所有並且涉及這些資產的所有投資決策也是由客戶做出的資產。
資產管理			代表代表客戶管理的資產。
巴塞爾Ⅰ			一系列國際銀行監管法規，旨在設定金融機構的最低資本要求，以最大程度地降低信貸風險。其主要重點是通過創建銀行資產分類系統來關注信貸風險。
巴塞爾協議三			一套旨在改善銀行業監管、監督和風險管理的綜合性改革措施。這些改革要求銀行維持適當的槓桿率，並滿足一定的資本要求。
利益義務			指養老金計劃的預期受益義務和僱後福利計劃的累積離職後福利義務。
經紀存款			指從或通過存款經紀人獲得的存款。
運河銀行			位於紐約州「西部地區」的Chemung Canal Trust Company分部，包括伊利縣。
資本銀行			位於紐約州「首府地區」的Chemung Canal Trust Company分部，包括奧爾巴尼、薩拉託加和舍內克塔迪等縣。
自保保險公司			提供風險緩解服務給其母公司的公司。
存單帳戶登記服務			產品涉及一個金融機構網絡，這些機構交換存款單據，以確保FDIC保險覆蓋超過單一機構限額的客戶存款。通過使用複雜的匹配系統，資金以一比一的基礎進行交換，因此等同於原始存款的金額返回給發起機構。
抵押債務證券			一種結構化金融產品，彙集了產生現金流的資產，如抵押貸款、債券和貸款。
抵押貸款證券化債務			一種按優先償還本金有組織地根據到期日和風險分成不同類別的抵押貸款支持證券。抵押貸款作爲抵押品，根據其風險特徵分爲不同類別。
共用區域維護(CAM)			與租用場所的共用空間維護相關的費用。
《多德-弗蘭克法》			多德-弗蘭克法案於2010年7月21日生效，顯著改變了銀行監管格局，並對金融機構及其控股公司的貸款、存款、投資、交易和運營活動產生影響，並將繼續影響。多德-弗蘭克法案要求各聯邦機構制定廣泛的新規則和法規，併爲國會準備各種研究和報告。
員工留任稅收抵免			僱員留職稅收抵免是根據2020年《 CARES法案》，由2021年《整合撥款法》和2021年《美國搶救計劃法》所定義的合格僱主可獲得的可退還的工資稅抵免。
完全應稅的等效基礎			來自免稅貸款和投資證券的收入已增加相當於如果該收入按法定稅率應稅，應繳納的稅款；與免稅項目有關的相應所得稅影響記錄在所得稅支出內。

4

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GAAP			Accounting principles generally accepted in the United States of America.
Holding company			Consists of the operations for Chemung Financial Corporation (parent only).
ICS			Product involving a network of financial institutions that exchange interest-bearing money market deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Loans held for sale			Residential real estate loans originated for sale on the secondary market with maturities from 15-30 years.
Long term lease obligation			An obligation extending beyond the current year, which is related to a long term finance lease that is considered to have the economic characteristics of asset ownership.
MasterCard			Payment card services vendor.
Mortgage-backed securities			A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients			A political unit, such as a city, town, or village, incorporated for local self-government.
N/A			Data is not applicable or available for the period presented.
N/M			Not meaningful.
Non-GAAP			A calculation not made according to GAAP.
Obligations of state and political subdivisions			An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.
Obligations of U.S. Government			A federally guaranteed obligation backed by the full power of the U.S. government, including Treasury bills, Treasury notes and Treasury bonds.
Obligations of U.S. Government sponsored enterprises			Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
OREO			Represents real property owned by the Corporation, which is not directly related to its business and is most frequently the result of a foreclosure on real property.
Political subdivision			A county, city, town, or other municipal corporation, a public authority, or a publicly-owned entity that is an instrumentality of a state or a municipal corporation.
Pre-provision profit/(loss)			Represents total net revenue less non-interest expense, before income tax expense (benefit). The Corporation believes that this financial measure is useful in assessing the ability of a bank to generate income in excess of its provision for credit losses.
Regulatory Relief Act			The Economic Growth, Regulatory Relief and Consumer Protection Act was enacted on May 24, 2018 and provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis regulatory requirements. In addition, the legislation establishes new consumer protections and amends various securities and investment company-related requirements.
Risk-Weighted Assets (RWA)			Risk-weighted assets consist of on and off balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
SBA loan pools			Business loans partially guaranteed by the SBA.
Securities sold under agreements to repurchase			Sale of securities together with an agreement for the seller to buy back the securities at a later date.
Trust preferred securities			A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.

5

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Unaudited			Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
WMG			Provides services as executor and trustee under wills and agreements, and guardian, custodian, trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, financial planning, pension, estate planning and employee benefit administration services.

6

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)						September 30, 2024						December 31, 2023
ASSETS
Cash and due from financial institutions						$	36,247					$	22,247
Interest-earning deposits in other financial institutions						44,193						14,600
Total cash and cash equivalents						80,440						36,847
Equity investments, at estimated fair value						3,244						3,046
Securities available for sale, at estimated fair value (amortized cost of $624,955, at September 30, 2024 and $669,092 at December 31, 2023, net of allowance for credit losses of $0 at September 30, 2024 and December 31, 2023, respectively)						554,575						583,993
Securities held to maturity, (estimated fair value of $657 at September 30, 2024 and $785 at December 31, 2023, net of allowance for credit losses of $0 at September 30, 2024 and December 31, 2023, respectively)						657						785
FHLBNY and FRBNY stock, at cost						4,189						5,498
Loans, net of deferred loan fees						2,028,954						1,972,664
Allowance for credit losses						(21,441)						(22,517)
Loans, net						2,007,513						1,950,147
Premises and equipment, net						14,915						14,571
Operating lease right-of-use assets						5,637						5,648
Goodwill						21,824						21,824
Bank-owned life insurance						2,943						2,914
Interest rate swap assets						19,715						23,942
Accrued interest receivable and other assets						58,563						61,314
Total assets						$	2,774,215					$	2,710,529
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non interest-bearing						$	616,126					$	653,166
Interest-bearing						1,834,995						1,776,261
Total deposits						2,451,121						2,429,427
Overnight and short-term advances						50,000						31,920
Long term finance lease obligation						3,757						3,050
Operating lease liabilities						5,820						5,827
Dividends payable						—						1,469
Interest rate swap liabilities						19,742						23,981
Accrued interest payable and other liabilities						23,121						19,614
Total liabilities						2,553,561						2,515,288
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at September 30, 2024 and December 31, 2023						53						53
Additional paid-in capital						48,457						47,773
Retained earnings						243,266						229,930
Treasury stock, at cost; 553,499 shares at September 30, 2024 and 572,663 shares at December 31, 2023						(15,987)						(16,502)
Accumulated other comprehensive loss						(55,135)						(66,013)
Total shareholders' equity						220,654						195,241
Total liabilities and shareholders' equity						$	2,774,215					$	2,710,529

See accompanying notes to unaudited consolidated financial statements.

7

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

						Three Months Ended   September 30,												Nine Months Ended   September 30,
(in thousands, except per share data)						2024						2023						2024						2023
Interest and dividend income:
Loans, including fees						$	28,611					$	25,033					$	83,323					$	71,113
Taxable securities						3,060						3,537						9,868						10,750
Tax exempt securities						250						258						762						778
Interest-earning deposits						441						187						1,014						400
Total interest and dividend income						32,362						29,015						94,967						83,041
Interest expense:
Deposits						13,005						10,721						37,861						24,577
Borrowed funds						969						277						2,868						1,905
Total interest expense						13,974						10,998						40,729						26,482
Net interest income						18,388						18,017						54,238						56,559
Provision (credit) for credit losses						564						449						(597)						962
Net interest income after provision for credit losses						17,824						17,568						54,835						55,597
Non-interest income:
WMG fee income						2,991						2,533						8,554						7,716
Service charges on deposit accounts						1,016						1,018						2,929						2,918
Interchange revenue from debit card transactions						1,123						1,141						3,327						3,468
Changes in fair value of equity investments						118						(68)						233						(99)
Net gains on sales of loans held for sale						91						67						162						90
Net gains (losses) on sales of other real estate owned						(19)						—						(22)						14
Income from bank-owned life insurance						10						11						29						32
Other						589						3,106						1,962						4,539
Total non-interest income						5,919						7,808						17,174						18,678
Non-interest expense:
Salaries and wages						7,168						6,542						21,007						20,029
Pension and other employee benefits						1,627						1,979						5,787						5,467
Other components of net periodic pension and postretirement benefits						(227)						(174)						(691)						(522)
Net occupancy						1,422						1,337						4,360						4,242
Furniture and equipment						402						353						1,197						1,232
Data processing						2,567						2,480						7,437						7,334
Professional services						522						554						1,639						1,596
Marketing and advertising						210						218						943						720
Other real estate owned						55						10						116						49
FDIC insurance						524						525						1,617						1,608
Loan expense						353						249						808						789
Other						1,887						1,595						5,207						4,873
Total non-interest expense						16,510						15,668						49,427						47,417
Income before income tax expense						7,233						9,708						22,582						26,858
Income tax expense						1,513						2,060						4,825						5,660
Net income						$	5,720					$	7,648					$	17,757					$	21,198
Weighted average shares outstanding						4,773						4,736						4,769						4,729
Basic and diluted earnings per share						$	1.19					$	1.61					$	3.72					$	4.48

See accompanying notes to unaudited consolidated financial statements.

8

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

						Three Months Ended   September 30,												Nine Months Ended   September 30,
(in thousands)						2024						2023						2024						2023
Net income						$	5,720					$	7,648					$	17,757					$	21,198
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale						20,014						(18,893)						14,719						(18,224)
Tax effect						5,243						(4,952)						3,856						(4,776)
Net of tax amount						14,771						(13,941)						10,863						(13,448)
Change in funded status of defined benefit pension plan and other benefit plans:
Reclassification adjustment for amortization of net actuarial loss						7						12						21						36
Total before tax effect						7						12						21						36
Tax effect						2						4						6						10
Net of tax amount						5						8						15						26
Total other comprehensive income (loss)						14,776						(13,933)						10,878						(13,422)
Comprehensive income (loss)						$	20,496					$	(6,285)					$	28,635					$	7,776

See accompanying notes to unaudited consolidated financial statements.

9

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share and per share data)			Common Stock						Additional Paid-in Capital						Retained Earnings						Treasury Stock						Accumulated Other Comprehensive Income (Loss)						Total
Balances at June 30, 2023			$	53					$	47,740					$	221,412					$	(17,033)					$	(74,746)					$	177,426
Net income			—						—						7,648						—						—						7,648
Other comprehensive loss			—						—						—						—						(13,933)						(13,933)
Restricted stock awards			—						289						—						—						—						289
Restricted stock units for directors' deferred compensation plan			—						5						—						—						—						5
Distribution of 2,981 shares of treasury stock grants for employee restricted stock awards			—						(86)						—						86						—						—
Cash dividends declared ($0.31 per share)			—						—						(1,464)						—						—						(1,464)
Sale of 2,359 shares of treasury stock (a)			—						26						—						67						—						93
Balances at September 30, 2023			$	53					$	47,974					$	227,596					$	(16,880)					$	(88,679)					$	170,064
Balances at June 30, 2024			$	53					$	48,102					$	239,021					$	(16,043)					$	(69,911)					$	201,222
Net income			—						—						5,720						—						—						5,720
Other comprehensive income			—						—						—						—						14,776						14,776
Restricted stock awards			—						309						—						—						—						309
Restricted stock units for directors' deferred compensation plan			—						5						—						—						—						5
Cash dividends declared ($0.31 per share)			—						—						(1,475)						—						—						(1,475)
Repurchase of 215 shares of common stock			—						—						—						(10)						—						(10)
Sale of 2,274 shares of treasury stock (a)			—						41						—						66						—						107
Balances at September 30, 2024			$	53					$	48,457					$	243,266					$	(15,987)					$	(55,135)					$	220,654

(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.

See accompanying notes to unaudited consolidated financial statements.

10

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share and per share data)			Common Stock						Additional Paid-in Capital						Retained Earnings						Treasury Stock						Accumulated Other Comprehensive Income (Loss)						Total
Balances at January 1, 2023			$	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, as adjusted			53						47,331						210,783						(17,598)						(75,257)						165,312
Net income			—						—						21,198						—						—						21,198
Other comprehensive loss			—						—						—						—						(13,422)						(13,422)
Restricted stock awards			—						837						—						—						—						837
Restricted stock units for directors' deferred compensation plan			—						15						—						—						—						15
Distribution of 7,558 shares of treasury stock grants for employee restricted stock awards			—						(217)						—						217						—						—
Cash dividends declared ($0.93 per share)			—						—						(4,385)						—						—						(4,385)
Distribution of 8,492 shares of treasury stock for directors' compensation			—						(147)						—						243						—						96
Repurchase of 2,148 shares of common stock			—						—						—						(98)						—						(98)
Sale of 12,868 shares of treasury stock (a)			—						144						—						368						—						512
Forfeiture of 326 shares of restricted stock awards			—						11						—						(12)						—						(1)
Balances at September 30, 2023			$	53					$	47,974					$	227,596					$	(16,880)					$	(88,679)					$	170,064
Balances at January 1, 2024			$	53					$	47,773					$	229,930					$	(16,502)					$	(66,013)					$	195,241
Net income			—						—						17,757						—						—						17,757
Other comprehensive income			—						—						—						—						10,878						10,878
Restricted stock awards			—						922						—						—						—						922
Restricted stock units for directors' deferred compensation plan			—						15						—						—						—						15
Distribution of 5,942 shares of treasury stock grants for employee restricted stock awards			—						(171)						—						171						—						—
Cash dividends declared ($0.93 per share)			—						—						(4,421)						—						—						(4,421)
Distribution of 7,515 shares of treasury stock for directors' compensation			—						(217)						—						217						—						—
Repurchase of 1,922 shares of common stock			—						—						—						(92)						—						(92)
Sale of 7,744 shares of treasury stock (a)			—						130						—						224						—						354
Forfeiture of 115 shares of restricted stock awards			—						5						—						(5)						—						—
Balances at September 30, 2024			$	53					$	48,457					$	243,266					$	(15,987)					$	(55,135)					$	220,654

(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) Due to implementation of ASC 326.

See accompanying notes to unaudited consolidated financial statements.

11

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)			Nine Months Ended   September 30,
CASH FLOWS FROM OPERATING ACTIVITIES:			2024						2023
Net income			$	17,757					$	21,198
Adjustments to reconcile net income to net cash provided by operating activities:
(Increases in) amortization of right-of-use assets			11						599
Provision (credit) for credit losses			(597)						962
(Gains) loss on disposal of fixed assets			(40)						3
Depreciation and amortization of fixed assets			1,359						1,533
Amortization of premiums on securities, net			1,789						1,880
Gain on sales of loans held for sale, net			(162)						(90)
Proceeds from sales of loans held for sale			3,957						3,064
Loans originated and held for sale			(3,795)						(2,974)
Net losses (gains) on sale of other real estate owned			22						(14)
Fair value adjustment on other real estate owned			13						(3)
Net change in fair value of equity investments			(233)						99
Proceeds from sales of equity investments			134						39
Purchase of equity investments			(99)						(119)
Increase in other assets and accrued interest receivable			(952)						(1,350)
Increase in accrued interest payable			3,429						3,225
Expense related to restricted stock units for directors' deferred compensation plan			15						15
Expense related to employee restricted stock awards			922						837
Increases in (payments on) operating lease liabilities			(7)						(592)
Net (gain) loss on interest rate swaps			(13)						(55)
Increase (decrease) in other liabilities			99						(964)
Income from bank owned life insurance			(29)						(32)
Net cash provided by operating activities			23,580						27,261
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls, and principal paydowns on securities available for sale			42,348						46,687
Proceeds from maturities and principal collected on securities held to maturity			128						619
Purchases of securities available for sale			—						(3,207)
Purchase of FHLBNY and FRBNY stock			(16,848)						(42,878)
Redemption of FHLBNY and FRBNY stock			18,157						47,022
Proceeds from sales of fixed assets			44						—
Purchases of premises and equipment			(1,707)						(459)
Proceeds from sale of other real estate owned			359						154
Net increase in loans			(57,321)						(101,780)
Net cash used in investing activities			(14,840)						(53,842)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, interest-bearing demand, savings, and insured money market deposits			22,128						(42,532)
Net (decrease) increase in time deposits			(434)						188,804
Net change in FHLBNY and FRBNY advances			18,080						(95,810)
Increases in (payments on) finance leases			707						(207)
Purchase of treasury stock			(92)						(98)
Sale of treasury stock			354						512
Cash dividends paid			(5,890)						(4,377)
Net cash provided by financing activities			34,853						46,292
Net increase in cash and cash equivalents			43,593						19,711
Cash and cash equivalents, beginning of period			36,847						55,869
Cash and cash equivalents, end of period			$	80,440					$	75,580

See accompanying notes to unaudited consolidated financial statements.

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)

(in thousands)			Nine Months Ended   September 30,
Supplemental disclosure of cash flow information:			2024						2023
Cash paid for:
Interest			$	37,300					$	23,257
Income taxes			4,659						6,038
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned			552						171
Dividends declared, not yet paid			—						1,463
Right-of-use assets obtained through finance lease liabilities			935						—

See accompanying notes to unaudited consolidated financial statements.

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CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1        SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The Corporation, through its wholly-owned subsidiaries, the Bank and CFS, provides a wide range of banking, financing, fiduciary, and other financial services to its clients.  The Corporation and the Bank are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory authorities.

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 unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 8 of Regulation S-X of the Exchange Act. These financial statements include the accounts of the Corporation and its subsidiaries, and 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. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unaudited consolidated financial statements should be read in conjunction with the Corporation's 2023 Annual Report on Form 10-K for the year ended December 31, 2023. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Amounts in the prior year financial statements are reclassified whenever necessary to conform to the current year's presentation.

Recent Accounting Pronouncements

In March 2024, the U.S. Securities and Exchange Commission ("SEC") issued SEC Release No. 33-11275, adopting its final rule “The Enhancement and Standardization of Climate-Related Disclosures for Investors.” This rule will require registrants to disclose limited climate-related information in registration statements and annual reports. In April 2024, the SEC voluntarily stayed the implementation of its final rule, and was pending judicial review as of September 30, 2024. As a smaller reporting company, these disclosure requirements, once issued in the final rule, would apply to the Corporation's filings for the fiscal year beginning January 1, 2027.

Accounting Standards Pending Adoption

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, 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): Improvements 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.

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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. During 2023, 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. In November 2023, the FASB added a project relating to receipt of government grants by business entities to its technical agenda, and in April 2024 announced that it will pursue an approach modeled on International Accounting Standards (IAS) 20 - Accounting for Government Grants and Disclosure of Government Assistance. The ERTC is within the scope of this project.

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 2023 in relation to its amended tax returns.

NOTE 2        EARNINGS PER COMMON SHARE (shares in thousands)

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.

Earnings per share were computed by dividing net income by 4,773 and 4,736 weighted average shares outstanding for the three month periods ended September 30, 2024 and 2023, respectively. Earnings per share were computed by dividing net income by 4,769 and 4,729 weighted average shares outstanding for the nine month periods ended September 30, 2024 and 2023, respectively. There were no common stock equivalents during the three and nine month periods ended September 30, 2024 or 2023.

NOTE 3        SECURITIES

The following tables present amortized cost and estimated fair value of securities available for sale as of September 30, 2024 and December 31, 2023 (in thousands):

						September 30, 2024
						Amortized Cost						Gross Unrealized Gains						Gross Unrealized Losses						Allowance for Credit Losses						Estimated Fair Value
U.S. Treasury notes and bonds						$	59,863					$	—					$	2,839					$	—					$	57,024
Mortgage-backed securities, residential						445,965						23						60,595						—						385,393
Obligations of states and political subdivisions						37,668						—						759						—						36,909
Corporate bonds and notes						25,750						—						4,285						—						21,465
SBA loan pools						55,709						54						1,979						—						53,784
Total						$	624,955					$	77					$	70,457					$	—					$	554,575

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						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
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

The following tables present amortized cost and estimated fair value of securities held to maturity as of September 30, 2024 and December 31, 2023 (in thousands):

						September 30, 2024
						Amortized Cost						Unrecognized Gains						Unrecognized Losses						Estimated Fair Value						Allowance for Credit Losses
Obligations of states and political subdivisions						$	657					$	—					$	—					$	657					$	—

						December 31, 2023
						Amortized Cost						Unrecognized Gains						Unrecognized Losses						Estimated Fair Value						Allowance for Credit Losses
Obligations of states and political subdivisions						$	785					$	—					$	—					$	785					$	—

The amortized cost and estimated fair value of debt securities are shown below by expected maturity (in thousands). 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.

						September 30, 2024
						Available for Sale												Held to Maturity
						Amortized Cost						Fair Value						Amortized Cost						Fair Value
Within one year						$	22,027					$	21,732					$	—					$	—
After one, but within five years						83,325						78,647						97						97
After five, but within ten years						17,779						14,875						560						560
After ten years						150						144						—						—
						123,281						115,398						657						657
Mortgage-backed securities, residential						445,965						385,393						—						—
SBA loan pools						55,709						53,784						—						—
Total						$	624,955					$	554,575					$	657					$	657

There were no proceeds from sales and calls of securities resulting in gains or losses for the nine month periods ended September 30, 2024 and 2023.

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The following tables summarize the investment securities available for sale with unrealized losses as of September 30, 2024 and December 31, 2023 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

						Less than 12 months												12 months or longer												Total
September 30, 2024						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
U.S. Treasury notes and bonds						$	—					$	—					$	57,024					$	2,839					$	57,024					$	2,839
Mortgage-backed securities, residential						—						—						383,865						60,595						383,865						60,595
Obligations of states and political subdivisions						—						—						36,474						759						36,474						759
Corporate bonds and notes						1,921						79						19,544						4,206						21,465						4,285
SBA loan pools						—						—						48,507						1,979						48,507						1,979
Total						$	1,921					$	79					$	545,414					$	70,378					$	547,335					$	70,457

						Less than 12 months												12 months or longer												Total
December 31, 2023						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses						Fair Value						Unrealized Losses
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						$	29,297					$	2,762					$	546,649					$	82,418					$	575,946					$	85,180

Assessment of Available for Sale Debt Securities for Credit Risk

Management assesses the decline 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, a structural change in an investment, volatility in earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether potential credit losses exist. The following is a discussion of the credit quality characteristics of portfolio segments carrying material unrealized losses as of September 30, 2024.

Obligations of U.S. Governmental agencies and sponsored enterprises:

As of September 30, 2024, the majority 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 were attributable to changes in interest rates and illiquidity, not credit quality. The Corporation does not have the intent, and it is not likely to be required to, sell these securities prior to anticipated recovery. Due to affiliations with U.S. governmental agencies and or enterprises, the Corporation considers these obligations to carry zero loss estimates, and has not recorded an allowance for credit losses as of September 30, 2024.

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 reviewed the collectability of these securities, taking into consideration such factors as the financial condition of issuers, reported regulatory capital ratios of 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. The decrease in market value is attributable to changes in interest rates. Therefore, the Corporation considers the potential credit risk of these issuers to be immaterial, and has not recorded an allowance for credit losses as of September 30, 2024.

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 September 30, 2024 and December 31, 2023, the fair value of investments held in relation to the deferred compensation plan was $2.6 million and $2.4 million, respectively. The Corporation also held $0.6 million of marketable securities as equity method investments as of both September 30, 2024 and December 31, 2023.

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NOTE 4        LOANS AND ALLOWANCE FOR CREDIT LOSSES

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

						September 30, 2024						December 31, 2023
Commercial and industrial						$	289,266					$	264,396
Commercial mortgages:
Construction						138,710						138,887
Commercial mortgages, other						1,036,229						984,038
Residential mortgages						274,099						277,992
Consumer loans:
Home equity lines and loans						92,449						87,056
Indirect consumer loans						189,504						210,423
Direct consumer loans						8,697						9,872
Total loans, net of deferred loan fees and costs						2,028,954						1,972,664
Allowance for credit losses						(21,441)						(22,517)
Loans, net						$	2,007,513					$	1,950,147

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 totaled $7.8 million as of September 30, 2024 and December 31, 2023. 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.

Commercial and industrial loans includes agricultural loans which totaled $0.2 million and $0.3 million as of September 30, 2024 and December 31, 2023. Agricultural loans were previously presented as a standalone loan category. Prior period information included in this Note reflects agricultural loans as a component of commercial and industrial loans.

The following tables present the activity in the allowance for credit losses by portfolio segment for the three month periods ended September 30, 2024 and 2023 (in thousands):

			Three Months Ended September 30, 2024
Allowance for credit losses			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance, July 1, 2024			$	4,894					$	10,530					$	2,106					$	3,501					$	21,031
Charge-offs			(18)						—						(1)						(286)						(305)
Recoveries			68						1						8						150						227
Net recoveries (charge-offs)			50						1						7						(136)						(78)
Provision (1)			(48)						231						105						200						488
Ending balance, September 30, 2024			$	4,896					$	10,762					$	2,218					$	3,565					$	21,441

(1)Additional provision related to off-balance sheet exposure was $76 thousand for the three months ended September 30, 2024.

			Three Months Ended September 30, 2023
Allowance for credit losses			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance, July 1, 2023			$	4,121					$	10,994					$	1,905					$	3,152					$	20,172
Charge-offs			(81)						—						—						(350)						(431)
Recoveries			4						1						—						70						75
Net recoveries (charge-offs)			(77)						1						—						(280)						(356)
Provision (1)			102						30						(37)						341						436
Ending balance, September 30, 2023			$	4,146					$	11,025					$	1,868					$	3,213					$	20,252

(1)Additional provision related to off-balance sheet exposure was $13 thousand for the three months ended September 30, 2023.

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The following tables present the activity in the allowance for credit losses by portfolio segment for the nine month periods ended September 30, 2024 and 2023 (in thousands):

			Nine Months Ended September 30, 2024
Allowance for credit losses			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Beginning balance, January 1, 2024			$	5,055					$	12,026					$	2,194					$	3,242					$	22,517
Charge-offs			(18)						—						(21)						(1,083)						(1,122)
Recoveries			118						3						57						378						556
Net recoveries (charge-offs)			100						3						36						(705)						(566)
Provision (credit) (1)			(259)						(1,267)						(12)						1,028						(510)
Ending balance, September 30, 2024			$	4,896					$	10,762					$	2,218					$	3,565					$	21,441

(1)Additional provision related to off-balance sheet exposure was a $87 thousand credit for the nine months ended September 30, 2024.

The Corporation performs an annual update to the loss drivers used in modeling its estimate of the allowance for credit losses. Annual updates for the model in 2024 were completed during the three month period ended March 31, 2024.

			Nine Months Ended September 30, 2023
Allowance for credit losses			Commercial and Industrial						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)						—						—						(785)						(1,066)
Recoveries			13						1						—						281						295
Net recoveries (charge-offs)			(268)						1						—						(504)						(771)
Provision (1)			132						143						39						676						990
Ending balance, September 30, 2023			$	4,146					$	11,025					$	1,868					$	3,213					$	20,252

(1)Additional provision related to off-balance sheet exposure was a $28 thousand credit for the nine months ended September 30, 2023.

Unfunded Commitments

The allowance for credit losses on unfunded commitments is recognized as a liability, and included in the accrued interest payable and other liabilities line item on the Corporation's Consolidated Balance Sheets, with adjustments to the allowance recognized in the provision for credit losses on the Consolidated Statements of Income. The Corporation established an allowance for credit losses on unfunded commitments in conjunction with its adoption of ASC 326-Financial Instruments-Credit Losses.

The following tables present the activity in the allowance for credit losses on unfunded commitments for the three and nine month periods ended September 30, 2024 and 2023 (in thousands):

			For the Three Months Ended
Allowance for credit losses on unfunded commitments			September 30, 2024						September 30, 2023
Beginning balance			$	756					$	1,041
Provision for credit losses on unfunded commitments			76						13
Ending balance			$	832					$	1,054

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			For the Nine Months Ended
Allowance for credit losses on unfunded commitments			September 30, 2024						September 30, 2023
Beginning balance			$	919					$	—
Impact of ASC 326 adoption			—						1,082
Provision (credit) for credit losses on unfunded commitments			(87)						(28)
Ending balance			$	832					$	1,054

The following tables present the provision for credit losses on loans and unfunded commitments for the three and nine month periods ended September 30, 2024 and 2023 (in thousands):

						For the Three Months Ended
			Provision for credit losses			September 30, 2024						September 30, 2023
			Provision for credit losses on loans			$	488					$	436
			Provision for credit losses on unfunded commitments			76						13
			Total provision for credit losses			$	564					$	449

						For the Nine Months Ended
			Provision (credit) for credit losses			September 30, 2024						September 30, 2023
			Provision (credit) for credit losses on loans			$	(510)					$	990
			Provision (credit) for credit losses on unfunded commitments			(87)						(28)
			Total provision (credit) for credit losses			$	(597)					$	962

The following tables present the balance in the allowance for credit losses by portfolio segment, as of September 30, 2024 and December 31, 2023 (in thousands):

			September 30, 2024
Allowance for credit losses			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Ending allowance balance attributable to loans:
Individually analyzed			$	1,786					$	47					$	—					$	—					$	1,833
Collectively analyzed			3,110						10,715						2,218						3,565						19,608
Total ending allowance balance			$	4,896					$	10,762					$	2,218					$	3,565					$	21,441

			December 31, 2023
Allowance for credit losses			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Totals
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

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The following tables present the amortized cost basis of loans by portfolio segment, as of September 30, 2024 and December 31, 2023 (in thousands):

			September 30, 2024
Amortized cost basis of loans:			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Individually analyzed			$	1,848					$	6,325					$	—					$	—					$	8,173
Collectively analyzed			287,418						1,168,614						274,099						290,650						2,020,781
Total ending loans balance			$	289,266					$	1,174,939					$	274,099					$	290,650					$	2,028,954

			December 31, 2023
Amortized cost basis of loans:			Commercial and Industrial						Commercial Mortgages						Residential Mortgages						Consumer Loans						Total
Individually analyzed			$	2,067					$	5,968					$	—					$	—					$	8,035
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

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. 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.

The following tables summarize the amortized cost basis of loans modified during the three and nine month periods ended September 30, 2024 and 2023 (in thousands):

There were no loan modifications made to borrowers experiencing financial difficulty in the three month period ended September 30, 2024.

			Three Months Ended September 30, 2023
Loans modified under ASU 2022-02:			Principal Reduction						Interest Rate Reduction						Term Extension						Payment Delay						Combination						Total						(%) of Loan Class (1)
Commercial mortgages, other			$	—					$	—					$	875					$	—					$	—					$	875					0.09		%
Home equity lines and loans			—						—						117						—						—						117						0.13		%
Total			$	—					$	—					$	992					$	—					$	—					$	992

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

			Nine Months Ended September 30, 2024
Loans modified under ASU 2022-02:			Principal Reduction						Interest Rate Reduction						Term Extension						Payment Delay						Combination						Total						(%) of Loan Class (1)
Residential mortgages			$	—					$	—					$	—					$	440					$	—					$	440					0.16		%
Total			$	—					$	—					$	—					$	440					$	—					$	440

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

			Nine Months Ended September 30, 2023
Loans modified under ASU 2022-02:			Principal Reduction						Interest Rate Reduction						Term Extension						Payment Delay						Combination						Total						(%) of Loan Class (1)
Commercial mortgages, other			$	—					$	—					$	1,150					$	1,920					$	—					$	3,070					0.32		%
Home equity lines and loans			—						—						117						—						—						117						0.13		%
Total			$	—					$	—					$	1,267					$	1,920					$	—					$	3,187

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

21

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The following tables present the financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the nine month period ended September 30, 2024 and three and nine month periods ended September 30, 2023 (in thousands):

			Three Months Ended September 30, 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 mortgages, other			$—						—%						6						0
Home equity lines and loans			$—						—%						180						0

Nine Months Ended September 30, 2024

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)

Residential mortgages

$—

—%

0

6

			Nine Months Ended September 30, 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 mortgages, other			$—						—%						19						4
Home equity lines and loans			$—						—%						180						0

The Corporation had no outstanding commitments to lend additional amounts to borrowers for which modifications subject to ASU 2022-02 were made during the three and nine month periods ended September 30, 2024 and September 30, 2023.

There were no loans that experienced a payment default within twelve months of modification during the three month period ended September 30, 2024. During the nine month period ended September 30, 2024, the Corporation had one loan, a commercial and industrial loan which was given a six month term extension which experienced a payment default within twelve months of modification. There were no loans that defaulted during the three or nine month periods ended September 30, 2023 for which modifications were made subsequent to the adoption of ASU 2022-02 on January 1, 2023.

The Corporation monitors the performance of loans that have previously been modified under the guidance of ASU 2022-02 in order to gauge the effectiveness of modifications, and to determine the degree to which borrowers continue to demonstrate financial weakness following modification. The following tables present the performance of such loans that have been modified in the twelve month period preceding September 30, 2024 and the nine month period preceding September 30, 2023 (in thousands):

			Twelve Months Ended September 30, 2024
Past Due Status of Modifications under ASU 2022-02:			30-59 Days Past Due						60-89 Days Past Due						Greater Than 89 Days Past Due						Loans Not Past Due						Total
Commercial and industrial			$	—					$	—					$	—					$	121					$	121
Residential mortgages			—						—						440						—						440
Total			$	—					$	—					$	440					$	121					$	561

During the three month period ended September 30, 2024 a commercial mortgage which was granted a term extension during the three months ended March 31, 2023 executed an early payoff. The amortized basis of the loan prior to the payoff was $0.3 million. Additionally, during the nine month period ended September 30, 2024, a commercial mortgage that was granted a payment delay during the three months ended June 30, 2023 executed an early payoff. The amortized basis of the loan prior to the payoff was $1.9 million.

22

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			Nine Months Ended September 30, 2023 (1)
Past Due Status of Modifications under ASU 2022-02:			30-59 Days Past Due						60-89 Days Past Due						Greater Than 89 Days Past Due						Loans Not Past Due						Total
Commercial and industrial			$	—					$	—					$	—					$	875					$	875
Commercial mortgages, other			—						—						—						2,167						2,167
Home equity lines and loans			—						—						—						117						117
Total			$	—					$	—					$	—					$	3,159					$	3,159

(1) Represents loans modified during the nine month period subsequent to the adoption of ASU 2022-02 on January 1, 2023.

Collateral Dependent Individually Analyzed Loans

As of September 30, 2024, the amortized cost basis of individually analyzed loans totaled $8.2 million, of which $6.6 million were considered collateral dependent. As of December 31, 2023 the amortized cost basis of individually analyzed loans totaled $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 allowance for credit losses is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan as of the 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 Corporation closely monitors trends in real estate values throughout its market area to determine whether collateral values, after appropriate discounting, are likely to be sufficient to extinguish existing borrower indebtedness.

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 September 30, 2024 and December 31, 2023 (in thousands):

						September 30, 2024												December 31, 2023
						Amortized Cost Basis						Related Allowance						Amortized Cost Basis						Related Allowance
Commercial and industrial (3)						$	244					$	183					$	379					$	240
Commercial mortgages:
Construction (1)						1,432						—						2,209						—
Commercial mortgages, other (1) (2) (3)						4,893						47						3,759						27
Total						$	6,569					$	230					$	6,347					$	267

(1) Secured by commercial real estate

(2) Secured by residential real estate

(3) Secured by business assets

23

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The following table presents the average amortized cost basis and interest income recognized on loans individually analyzed, by class of loans, for the three and nine month periods ended September 30, 2024 and 2023 (in thousands):

			Three Months Ended   September 30, 2024												Three Months Ended   September 30, 2023												Nine Months Ended September 30, 2024												Nine Months Ended September 30, 2023
With no related allowance recorded:			Average Amortized Basis						Interest Income Recognized (1)						Average Amortized Basis						Interest Income Recognized (1)						Average Amortized Basis						Interest Income Recognized (1)						Average Amortized Basis						Interest Income Recognized (1)
Commercial and industrial			$	139					$	—					$	163					$	—					$	119					$	4					$	520					$	—
Commercial mortgages:
Construction			1,845						—						—						—						2,098						—						2						—
Commercial mortgages, other			2,796						—						3,863						3						2,517						—						4,052						12
Residential mortgages			—						—						—						—						—						—						359						—
Consumer loans:
Home equity lines & loans			—						—						51						—						—						—						123						—
With an allowance recorded:
Commercial and industrial			1,836						3						1,282						4						1,854						8						1,175						13
Commercial mortgages:
Commercial mortgages, other			495						—						31						—						181						—						34						—
Consumer loans:
Home equity lines & loans			—						—						78						—						—						—						42						—
Total			$	7,111					$	3					$	5,468					$	7					$	6,769					$	12					$	6,307					$	25

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

The following table presents the amortized cost basis in nonaccrual loans without an associated allocation in the allowance for credit losses, total nonaccrual loans, and loans past due greater than 90 days and still accruing, by class of loan as of September 30, 2024 and December 31, 2023 (in thousands):

			Nonaccrual with No Allowance for Credit Losses												Nonaccrual												Loans Past Due 90 Days or More and Still Accruing
			September 30, 2024						December 31, 2023						September 30, 2024						December 31, 2023						September 30, 2024						December 31, 2023
Commercial and industrial			$	72					$	76					$	1,757					$	1,930					$	—					$	10
Commercial mortgages:
Construction			1,432						2,209						1,432						2,209						—						—
Commercial mortgages, other			3,925						3,732						4,893						3,760						—						—
Residential mortgages			1,387						1,315						1,387						1,315						—						—
Consumer loans:
Home equity lines and loans			517						508						517						508						—						—
Indirect consumer loans			559						687						559						687						—						—
Direct consumer loans			—						2						—						2						—						—
Total			$	7,892					$	8,529					$	10,545					$	10,411					$	—					$	10

24

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The following tables present the aging of the amortized cost basis of loans as of September 30, 2024 and December 31, 2023 (in thousands):

			September 30, 2024
			30 - 59 Days Past Due						60 - 89 Days Past Due						90 Days or More Past Due						Total Past Due												Loans Not Past Due						Total
Commercial and industrial			$	144					$	232					$	873					$	1,249											$	288,017					$	289,266
Commercial mortgages:
Construction			—						—						1,432						1,432												137,278						138,710
Commercial mortgages, other			—						1,014						2,136						3,150												1,033,079						1,036,229
Residential mortgages			2,293						341						774						3,408												270,691						274,099
Consumer loans:
Home equity lines and loans			437						192						223						852												91,597						92,449
Indirect consumer loans			1,806						439						330						2,575												186,929						189,504
Direct consumer loans			12						13						—						25												8,672						8,697
Total			$	4,692					$	2,231					$	5,768					$	12,691											$	2,016,263					$	2,028,954

			December 31, 2023
			30 - 59 Days Past Due						60 - 89 Days Past Due						90 Days or More Past Due						Total Past Due												Loans Not Past Due						Total
Commercial and industrial			$	1,196					$	31					$	10					$	1,237											$	263,159					$	264,396
Commercial mortgages:
Construction			2,164						—						2,207						4,371												134,516						138,887
Commercial mortgages, other			1,022						103						261						1,386												982,652						984,038
Residential mortgages			2,244						201						585						3,030												274,962						277,992
Consumer loans:
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

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Credit Quality Indicators

The Corporation establishes a risk rating at origination for all commercial loans. The primary 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 properly approved and closed, the Corporation evaluates credit quality based upon loan repayment. Retail loans that have been modified subject to ASU 2022-02, but are otherwise performing, are assigned a risk rating of Special Mention, as defined below. Retail loans are not rated until they become 90 days past due, or are modified under ASU 2022-02.

The Corporation uses the 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.

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Based on the analyses performed as of September 30, 2024, the risk category of the amortized cost basis of loans by class and vintage, as well as gross charge-offs by class and vintage for the period, were as follows (in thousands):

			Term Loans Amortized Cost by Origination Year																																				Revolving Loans Amortized Cost						Revolving Loans Converted to Term						Total
			2024						2023						2022						2021						2020						Prior
Commercial & industrial
Pass			$	26,506					$	34,806					$	34,631					$	19,514					$	9,487					$	36,500					$	101,260					$	1,344					$	264,048
Special mention			94						272						5,947						—						4,505						4,089						7,292						20						22,219
Substandard			—						84						207						737						57						—						465						715						2,265
Doubtful			22						—						—						—						—						712						—						—						734
Total			26,622						35,162						40,785						20,251						14,049						41,301						109,017						2,079						289,266
Gross charge-offs			—						—						—						6						—						—						12						—						18
Construction
Pass			8,970						54,534						62,146						9,565						—						1,580						483						—						137,278
Special mention			—						—						—						—						—						—						—						—						—
Substandard			—						—						—						—						—						1,432						—						—						1,432
Doubtful			—						—						—						—						—						—						—						—						—
Total			8,970						54,534						62,146						9,565						—						3,012						483						—						138,710
Gross charge-offs			—						—						—						—						—						—						—						—						—
Commercial mortgages
Pass			65,328						126,368						261,667						165,105						105,890						273,587						6,141						711						1,004,797
Special mention			—						—						2,497						8,005						2,546						9,783						2,000						—						24,831
Substandard			—						2,136						1,028						327						1,014						2,078						—						—						6,583
Doubtful			—						—						—						—						—						18						—						—						18
Total			65,328						128,504						265,192						173,437						109,450						285,466						8,141						711						1,036,229
Gross charge-offs			—						—						—						—						—						—						—						—						—
Residential mortgages
Not rated			14,088						20,166						55,745						56,397						66,740						59,447						—						—						272,583
Substandard			—						—						—						774						232						510						—						—						1,516
Total			14,088						20,166						55,745						57,171						66,972						59,957						—						—						274,099
Gross charge-offs			—						—						—						—						—						21						—						—						21
Home equity lines and loans
Not rated			10,703						11,234						14,490						5,002						2,707						10,951						35,546						1,183						91,816
Special mention			—						—						116						—						—						—						—						—						116
Substandard			—						25						65						—						—						204						—						223						517
Total			10,703						11,259						14,671						5,002						2,707						11,155						35,546						1,406						92,449
Gross charge-offs			—						—						1						—						—						11						1						—						13
Indirect consumer
Not rated			32,903						57,540						74,567						15,404						5,213						3,422						—						—						189,049
Substandard			—						152						178						52						22						51						—						—						455
Total			32,903						57,692						74,745						15,456						5,235						3,473						—						—						189,504
Gross charge-offs			—						308						383						145						82						106						—						—						1,024
Direct consumer
Not rated			1,871						1,960						1,741						362						65						249						2,432						6						8,686
Substandard			—						—						—						—						1						—						10						—						11
Total			1,871						1,960						1,741						362						66						249						2,442						6						8,697
Gross charge-offs			—						9						14						14						—						1						8						—						46
Total loans			$	160,485					$	309,277					$	515,025					$	281,244					$	198,479					$	404,613					$	155,629					$	4,202					$	2,028,954
Total gross charge-offs			$	—					$	317					$	398					$	165					$	82					$	139					$	21					$	—					$	1,122

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Based on the analyses performed as of December 31, 2023, the risk category of the amortized cost basis of loans by class and vintage, as well as gross charge-offs by class and vintage for the period, were 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			$	41,925					$	40,579					$	21,892					$	13,541					$	31,233					$	10,523					$	77,241					$	1,662					$	238,596
Special mention			185						4,608						—						4,020						—						4,690						9,137						482						23,122
Substandard			—						24						991						109						23						456						—						161						1,764
Doubtful			—						—						—						—						—						790						75						49						914
Total			42,110						45,211						22,883						17,670						31,256						16,459						86,453						2,354						264,396
Gross charge-offs			—						—						—						—						9						272						—						—						281
Construction
Pass			46,951						68,483						19,066						—						28						1,669						481						—						136,678
Special mention			—						—						—						—						—						—						—						—						—
Substandard			—						—						—						—						2,207						2						—						—						2,209
Doubtful			—						—						—						—						—						—						—						—						—
Total			46,951						68,483						19,066						—						2,235						1,671						481						—						138,887
Gross charge-offs			—						—						—						—						—						—						—						—						—
Commercial mortgages
Pass			110,864						260,763						161,858						113,198						57,782						244,211						5,197						767						954,640
Special mention			—						2,533						8,189						2,609						—						8,642						—						—						21,973
Substandard			272						1,107						345						1,022						—						4,555						97						—						7,398
Doubtful			—						—						—						—						—						27						—						—						27
Total			111,136						264,403						170,392						116,829						57,782						257,435						5,294						767						984,038
Gross charge-offs			—						—						—						—						—						—						—						—						—
Residential mortgages
Not rated			18,653						58,098						60,024						71,369						15,948						52,585						—						—						276,677
Substandard			—						75						346						—						169						725						—						—						1,315
Total			18,653						58,173						60,370						71,369						16,117						53,310						—						—						277,992
Gross charge-offs			—						32						—						—						—						—						—						—						32
Home equity lines and loans
Not rated			13,552						16,384						5,821						3,134						2,867						10,400						33,275						1,115						86,548
Substandard			—						77						—						—						—						293						25						113						508
Total			13,552						16,461						5,821						3,134						2,867						10,693						33,300						1,228						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						324						2,697						5						9,870
Substandard			—						—						—						2						—						—						—						—						2
Total			3,005						2,745						785						258						53						324						2,697						5						9,872
Gross charge-offs			4						15						8						6						—						54						6						—						93
Total loans			$	307,790					$	553,730					$	302,467					$	218,500					$	114,216					$	343,382					$	128,225					$	4,354					$	1,972,664
Total gross charge-offs			$	188					$	422					$	223					$	127					$	30					$	381					$	12					$	—					$	1,383

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NOTE 5        FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability 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 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 value 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 value is calculated using discounted cash flows or other market indicators (Level 3 inputs).

Equity Investments: Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value are recorded at fair value with changes in fair value included in earnings. The fair value of equity investments are determined by quoted market prices (Level 1 inputs).

Individually Analyzed Loans: At the time a loan is considered individually analyzed, it is valued at the lower of amortized 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. 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 Level 3 fair value inputs. Individually analyzed loans are evaluated on a quarterly basis for additional credit loss and adjusted accordingly.

OREO: Assets acquired through or in lieu of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. 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 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 twelve month period prior to a property being placed into OREO. For individually analyzed 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.

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Derivatives: The fair value 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 value 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 the majority of inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize credit default rate assumptions (Level 3 inputs).

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

									Fair Value Measurement at September 30, 2024 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			$	57,024					$	57,024					$	—					$	—
Mortgage-backed securities, residential			385,393						—						385,393						—
Obligations of states and political subdivisions			36,909						—						36,909						—
Corporate bonds and notes			21,465						—						15,254						6,211
SBA loan pools			53,784						—						53,784						—
Total available for sale securities			$	554,575					$	57,024					$	491,340					$	6,211
Equity investments, at fair value			$	2,750					$	2,750					$	—					$	—
Derivative assets			$	19,715					$	—					$	19,715					$	—
Financial Liabilities:
Derivative liabilities			$	19,742					$	—					$	19,742					$	—

There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2024.

									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, at fair value			$	2,552					$	2,552					$	—					$	—
Derivative assets			$	23,942					$	—					$	23,942					$	—
Financial Liabilities:
Derivative liabilities			$	23,981					$	—					$	23,981					$	—

There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2023.

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The Corporation transfers assets and liabilities between Level 2 and Level 3 of the fair value hierarchy when the methodology to obtain fair value changes such that there are either more or fewer unobservable inputs as of the end of the measurement date, compared to the prior measurement date. Illiquidity in new issuances of comparable bonds and the size of issuances may lead to pricing difficulties, particularly for smaller corporate bond issuances, and may warrant transfer into Level 3 of assets previously measured using Level 2 inputs. The Corporation utilizes a "beginning of reporting period" timing assumption when recognizing transfers between hierarchy levels, consistent with ASC 820-10-50-2.

There were no subordinated debt issuances transferred between Level 2 and Level 3 during the three month period ended September 30, 2024. One corporate subordinated debt issuance was transferred from Level 3 to Level 2 during the nine month period ended September 30, 2024, due to availability of market data. There were two corporate subordinated debt issuances transferred from Level 3 to Level 2 during the three month period ended September 30, 2023. The Corporation transferred its investment in eight corporate subordinated debt issuances from Level 2 to Level 3 during the nine month period ended September 30, 2023, due to a lack of observable market data relative to the issuance of similarly sized corporate debenture insurances.

The following tables present a reconciliation of assets and liabilities measured at fair value on a recurring basis using unobservable inputs (Level 3) for the three and nine month periods ended September 30, 2024 and September 30, 2023 (in thousands):

Level 3 Financial Assets:						For the Three Months Ended
Corporate bonds and notes						September 30, 2024						September 30, 2023
Balance of recurring Level 3 assets as of July 1,						$	6,175					$	8,593
Total gains or losses for the period:
Included in Other Comprehensive Income						36						190
Transfers into Level 3						—						—
Transfers out of Level 3						—						(1,323)
Balance of recurring Level 3 assets as of September 30,						$	6,211					$	7,460

Level 3 Financial Assets:						For the Nine Months Ended
Corporate bonds and notes						September 30, 2024						September 30, 2023
Balance of recurring Level 3 assets as of January 1,						$	7,530					$	—
Total gains and losses for the period:
Included in other comprehensive income						430						(1,172)
Transfers into Level 3						—						9,955
Transfers out of Level 3						(1,749)						(1,323)
Balance of recurring Level 3 assets as of September 30,						$	6,211					$	7,460

The following tables present quantitative information regarding Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):

September 30, 2024

Fair Value

Valuation Techniques

Unobservable Input

Range [Weighted Average] at September 30, 2024

Corporate bonds and notes

$

6,211

Discounted cash flow

Market discount rate

12.00% -12.00% [12.00%]

December 31, 2023

Fair Value

Valuation Techniques

Unobservable Input

Range [Weighted Average] at December 31, 2023

Corporate bonds and notes

$

7,530

Discounted cash flow

Market discount rate

12.50% - 12.50% [12.50%]

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Assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2024 and December 31, 2023 are summarized below (in thousands):

									Fair Value Measurement at September 30, 2024 Using
Financial Assets:			Fair Value						Quoted Prices in Active Markets for Identical Assets (Level 1)						Significant Other Observable Inputs (Level 2)						Significant Unobservable Inputs (Level 3)						Total Gains (Losses)
Individually analyzed loans:
Commercial and industrial			$	11					$	—					$	—					$	11					$	—
Commercial mortgages, other			923						—						—						923						—
Total individually analyzed loans			$	934					$	—					$	—					$	934					$	—
Other real estate owned:
Residential mortgages			$	317					$	—					$	—					$	317					$	—
Consumer loans:
Home equity lines and loans			166						—						—						166						—
Total other real estate owned, net			$	483					$	—					$	—					$	483					$	—

									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)						Total Gains (Losses)
Individually analyzed loans:
Commercial and industrial			$	64					$	—					$	—					$	64					$	—
Total individually analyzed loans			$	64					$	—					$	—					$	64					$	—
Other real estate owned:
Residential mortgages			$	116					$	—					$	—					$	116					$	—
Consumer loans:
Home equity lines and loans			211						—						—						211						—
Total other real estate owned, net			$	327					$	—					$	—					$	327					$	—

The following tables present quantitative information regarding Level 3 significant unobservable inputs for assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2024 and December 31, 2023 (in thousands):

Description

Fair Value at September 30, 2024

Valuation Technique

Unobservable Inputs

Range [Weighted Average] at September 30, 2024

Individually analyzed loans:

Commercial and industrial

$

11

Net present value

Present value of cash flows

42.73% - 42.73% [42.73%]

Commercial mortgages, other

923

Income approach

Discount to appraised value

12.10% - 12.10% [12.10%]

Total individually analyzed loans

$

934

Other real estate owned:

Residential mortgages

$

317

Sales comparison

Discount to appraised value

20.80% - 20.80% [20.80%]

Consumer loans:

Home equity lines and loans

166

Sales comparison

Discount to appraised value

20.80% - 20.80% [20.80%]

Total other real estate owned, net

$

483

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Description

Fair Value at December 31, 2023

Valuation Technique

Unobservable Inputs

Range [Weighted Average] at December 31, 2023

Individually analyzed loans:

Commercial and industrial

$

64

Net present value

Present value of cash flows

47.30% - 56.80% [54.80%]

Total individually analyzed loans

$

64

Other real estate owned:

Residential mortgages

$

116

Sales comparison

Discount to appraised value

20.80% - 20.80% [20.80%]

Consumer loans:

Home equity lines and loans

211

Sales comparison

Discount to appraised value

20.80% - 20.80% [20.80%]

Total other real estate owned, net

$

327

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of financial instruments, as of September 30, 2024 and December 31, 2023, are as follows (in thousands):

			September 30, 2024
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			$	36,247					$	36,247					$	—					$	—					$	36,247
Interest-earning deposits in other financial institutions			44,193						44,193						—						—						44,193
Equity investments			3,244						3,244						—						—						3,244
Securities available for sale			554,575						57,024						491,340						6,211						554,575
Securities held to maturity			657						—						—						657						657
FHLBNY and FRBNY stock			4,189						—						—						—						N/A
Loans, net and loans held for sale			2,028,954						—						—						1,949,576						1,949,576
Derivative assets			19,715						—						19,715						—						19,715
Financial liabilities:
Deposits:
Demand, savings, and insured money market deposits			$	1,839,290					$	1,839,290					$	—					$	—					$	1,839,290
Time deposits			611,831						—						611,575						—						611,575
FHLBNY and FRB advances			50,000						—						50,047						—						50,047
Derivative liabilities			19,742						—						19,742						—						19,742

(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.

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			December 31, 2023
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-earning 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.

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NOTE 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 September 30, 2024, the weighted average remaining lease term was 7.10 years with a weighted average discount rate of 3.51%. Rent expense was $0.2 million for the three months ended September 30, 2024. Rent expense was $0.8 million for the nine months ended September 30, 2024. 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 as of September 30, 2024 and December 31, 2023 consist of the following (in thousands):

						September 30, 2024						December 31, 2023
Operating lease right-of-use assets						$	5,648					$	6,449
Less: accumulated amortization						(581)						(801)
Less: lease termination						—						—
Add: lease modifications						570						—
Operating lease right-of-use-assets, net						$	5,637					$	5,648

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of September 30, 2024 (in thousands):

Year						Amount
2024						$	239
2025						959
2026						965
2027						977
2028						845
2029 and thereafter						2,591
Total minimum lease payments						6,576
Less: amount representing interest						(756)
Present value of net minimum lease payments						$	5,820

As of September 30, 2024, the Corporation had no operating leases that were signed but had not yet commenced.

Finance Leases

The Corporation leases certain buildings under finance leases. In May, 2024, the Corporation added $0.9 million in right-of-use assets and finance lease liabilities. The lease arrangements require monthly payments through 2044. As of September 30, 2024, the weighted average remaining lease term of finance leases was 11.34 years with a weighted average discount rate of 3.95%. The Corporation has included these leases in premises and equipment as of September 30, 2024 and December 31, 2023 as follows (in thousands):

						September 30, 2024						December 31, 2023
Buildings						$	6,507					$	5,572
Less: accumulated depreciation						(3,141)						(2,872)
Net book value						$	3,366					$	2,700

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The following is a schedule by year of future minimum lease payments under finance leases, together with the present value of net minimum lease payments as of September 30, 2024 (in thousands):

Year						Amount
2024						$	17
2025						486
2026						502
2027						505
2028						505
2029 and thereafter						2,948
Total minimum lease payments						4,963
Less: amount representing interest						(1,206)
Present value of net minimum lease payments						$	3,757

As of September 30, 2024, the Corporation had no finance leases that were signed, but had not yet commenced.

Related Party Transactions

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 related expenses totaling $9 thousand per month. Rent and CAM related expenses paid to this Board member totaled $28 thousand for each of the three month periods ended September 30, 2024 and 2023. Rent and CAM related expenses paid to this Board member totaled $82 thousand and $81 thousand for the nine month periods ended September 30, 2024 and 2023, respectively.

NOTE 7        GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the nine month periods ended September 30, 2024 and 2023 were as follows (in thousands):

						2024						2023
Beginning of year						$	21,824					$	21,824
Acquired goodwill						—						—
Ending balance September 30,						$	21,824					$	21,824

The Corporation had no aggregate amortization expense for the three and nine month periods ended September 30, 2024 and 2023.

The amount of goodwill reflected in the Corporation's Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis. Goodwill impairment testing is performed annually as of December 31 and no impairment charges were incurred as of the last test on December 31, 2023.

NOTE 8        COMMITMENTS AND CONTINGENCIES

The Corporation is a party to certain financial instruments with off-balance sheet risk such as commitments under standby letters of credit, unused portions of lines of credit, overdraft protection and commitments to fund new loans. In accordance with GAAP, these financial instruments are not recorded in the financial statements. The Corporation's policy is to record such instruments when funded. These transactions involve, to varying degrees, elements of credit, interest rate, and liquidity risk.  Such transactions are generally used by the Corporation to manage clients' requests for funding and other client needs.

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The following table presents the contractual amounts of financial instruments with off-balance sheet risk as of September 30, 2024 and December 31, 2023 (in thousands):

			September 30, 2024												December 31, 2023
			Fixed Rate						Variable Rate						Fixed Rate						Variable Rate
Commitments to make loans			$	9,885					$	53,971					$	23,809					$	78,790
Unused lines of credit			$	6,139					$	356,708					$	3,387					$	332,439
Standby letters of credit			$	—					$	19,674					$	—					$	11,317

Commitments to make real estate and home equity loans are generally made for periods of sixty days or less. As of September 30, 2024, the fixed rate real estate and home equity commitments to make loans have interest rates ranging from 5.50% to 7.38% and maturities ranging from four years to thirty years. Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months. As of September 30, 2024, the fixed rate commercial draw commitments have interest rates ranging from 2.79% to 7.88%.

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. As of September 30, 2024 and December 31, 2023, the allowance for credit losses on unfunded commitments was $0.8 million and $0.9 million, respectively.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries. At September 30, 2024, 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.

NOTE 9        BORROWED FUNDS

The following table summarizes the Corporation's borrowed funds outstanding as of September 30, 2024 and December 31, 2023 (in thousands):

			September 30, 2024												December 31, 2023
			Balance						Rate						Balance						Rate
FHLBNY overnight advances			$	—					—%						$	31,920					5.64%
FHLBNY term advances			—						—%						—						—%
FRB BTFP advances			50,000						4.91%						—						—%
Total borrowed funds			$	50,000					4.91%						$	31,920					5.64%

The Corporation’s borrowed funds as of September 30, 2024 were comprised of a $50.0 million FRB Bank Term Funding Program (BTFP) one year advance, maturing in January 2025. The Corporation’s borrowed funds as of December 31, 2023 were comprised of a $31.9 million FHLBNY overnight advance. Borrowed funds do not include amounts related to finance lease obligations, which include an interest expense component in accordance with ASC 842.

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NOTE 10        ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Accumulated other comprehensive income (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 (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 July 1, 2024						$	(66,708)					$	(3,203)					$	(69,911)
Other comprehensive income before reclassification						14,771						—						14,771
Amounts reclassified from accumulated other comprehensive income						—						5						5
Net current period other comprehensive income						14,771						5						14,776
Balance at September 30, 2024						$	(51,937)					$	(3,198)					$	(55,135)

						Unrealized Gains and Losses on Securities Available for Sale						Defined Benefit and Other Benefit Plans						Total
Balance at July 1, 2023						$	(70,803)					$	(3,943)					$	(74,746)
Other comprehensive income before reclassification						(13,941)						—						(13,941)
Amounts reclassified from accumulated other comprehensive income						—						8						8
Net current period other comprehensive income (loss)						(13,941)						8						(13,933)
Balance at September 30, 2023						$	(84,744)					$	(3,935)					$	(88,679)

						Unrealized Gains and Losses on Securities Available for Sale						Defined Benefit and Other Benefit Plans						Total
Balance at January 1, 2024						$	(62,800)					$	(3,213)					$	(66,013)
Other comprehensive income before reclassification						10,863						—						10,863
Amounts reclassified from accumulated other comprehensive income						—						15						15
Net current period other comprehensive income						10,863						15						10,878
Balance at September 30, 2024						$	(51,937)					$	(3,198)					$	(55,135)

						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 before reclassification						(13,448)						—						(13,448)
Amounts reclassified from accumulated other comprehensive income						—						26						26
Net current period other comprehensive income (loss)						(13,448)						26						(13,422)
Balance at September 30, 2023						$	(84,744)					$	(3,935)					$	(88,679)

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The following is the reclassification out of accumulated other comprehensive income for the periods indicated (in thousands):

Details about Accumulated Other Comprehensive Income (Loss) Components						Three Months Ended   September 30,												Affected Line Item in the Statement Where Net Income is Presented
						2024						2023
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)						$	—					$	—					Other components of net periodic pension and postretirement benefits
Actuarial losses (a)						7						12						Other components of net periodic pension and postretirement benefits
Tax effect						(2)						(4)						Income tax expense
Net of tax						5						8
Total reclassification for the period, net of tax						$	5					$	8

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 12 for additional information).

Details about Accumulated Other Comprehensive Income (Loss) Components						Nine Months Ended   September 30,												Affected Line Item in the Statement Where Net Income is Presented
						2024						2023
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)						$	—					$	—					Other components of net periodic pension and postretirement benefits
Actuarial losses (a)						20						36						Other components of net periodic pension and postretirement benefits
Tax effect						(5)						10						Income tax expense
Net of tax						15						26
Total reclassification for the period, net of tax						$	15					$	26

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 12 for additional information).

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NOTE 11    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 three and nine month periods ended September 30, 2024 and 2023 (in thousands). Items outside the scope of ASC 606 are noted as such.

						Three Months Ended September 30, 2024
Revenue by Operating Segment: Non-interest income						Core Banking						WMG						Holding Company and CFS(b)						Total
Service charges on deposit accounts
Overdraft fees						$	768					$	—					$	—					$	768
Other						248						—						—						248
Interchange revenue from debit card transactions						1,123						—						—						1,123
WMG fee income						—						2,991						—						2,991
CFS fee and commission income						—						—						306						306
Net gains (losses) on sales of OREO						(19)						—						—						(19)
Net gains on sales of loans(a)						91						—						—						91
Loan servicing fees(a)						36						—						—						36
Changes in fair value of equity investments(a)						119						—						(1)						118
Income from bank-owned life insurance(a)						10						—						—						10
Other(a)						247						—						—						247
Total non-interest income (loss)						$	2,623					$	2,991					$	305					$	5,919

(a) Not within scope of ASC 606.

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

						Three Months Ended September 30, 2023
Revenue by Operating Segment: Non-interest income						Core Banking						WMG						Holding Company, CFS, and CRM(b)(c)						Total
Service charges on deposit accounts
Overdraft fees						$	817					$	—					$	—					$	817
Other						201						—						—						201
Interchange revenue from debit card transactions						1,141						—						—						1,141
WMG fee income						—						2,533						—						2,533
CFS fee and commission income						—						—						243						243
Net gains on sales of loans(a)						67						—						—						67
Loan servicing fees(a)						35						—						—						35
Changes in fair value of equity investments(a)						(82)						—						14						(68)
Income from bank-owned life insurance(a)						11						—						—						11
Other(a)						2,812						—						16						2,828
Total non-interest income						$	5,002					$	2,533					$	273					$	7,808

(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.

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						Nine Months Ended September 30, 2024
Revenue by Operating Segment:						Core Banking						WMG						Holding Company and CFS(b)						Total
Non-interest income
Service charges on deposit accounts
Overdraft fees						$	2,196					$	—					$	—					$	2,196
Other						733						—						—						733
Interchange revenue from debit card transactions						3,327						—						—						3,327
WMG fee income						—						8,554						—						8,554
CFS fee and commission income						—						—						787						787
Net gains (losses) on sales of OREO						(22)						—						—						(22)
Net gains on sales of loans(a)						162						—						—						162
Loan servicing fees(a)						108						—						—						108
Changes in fair value of equity investments(a)						259						—						(26)						233
Income from bank-owned life insurance(a)						29						—						—						29
Other(a)						1,067						—						—						1,067
Total non-interest income						$	7,859					$	8,554					$	761					$	17,174

(a) Not within scope of ASC 606.

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

						Nine Months Ended September 30, 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						$	2,308					$	—					$	—					$	2,308
Other						610						—						—						610
Interchange revenue from debit card transactions						3,468						—						—						3,468
WMG fee income						—						7,716						—						7,716
CFS fee and commission income						—						—						749						749
Net gains on sales of OREO						14						—						—						14
Net gains on sales of loans(a)						90						—						—						90
Loan servicing fees(a)						107						—						—						107
Change in fair value of equity securities(a)						67						—						(166)						(99)
Income from bank-owned life insurance(a)						32						—						—						32
Other(a)						3,658						—						25						3,683
Total non-interest income						$	10,354					$	7,716					$	608					$	18,678

(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.

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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 transaction processing services provided to the cardholder.

WMG Fee Income (Gross): The Corporation earns wealth management fees from its contracts with 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.

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NOTE 12    COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

The components of net periodic expense for the Corporation’s pension and other benefit plans for the periods indicated are as follows (in thousands):

						Three Months Ended   September 30,												Nine Months Ended   September 30,
						2024						2023						2024						2023
Qualified Pension Plan
Service cost, benefits earned during the period						$	—					$	—					$	—					$	—
Interest cost on projected benefit obligation						383						396						1,139						1,189
Expected return on plan assets						(629)						(596)						(1,887)						(1,786)
Amortization of unrecognized transition obligation						—						—						—						—
Amortization of unrecognized prior service cost						—						—						—						—
Amortization of unrecognized net loss						—						6						—						17
Net periodic pension benefit						$	(246)					$	(194)					$	(748)					$	(580)
Supplemental Pension Plan
Service cost, benefits earned during the period						$	—					$	—					$	—					$	—
Interest cost on projected benefit obligation						11						12						33						35
Expected return on plan assets						—						—						—						—
Amortization of unrecognized prior service cost						—						—						—						—
Amortization of unrecognized net loss						3						2						9						6
Net periodic supplemental pension cost						$	14					$	14					$	42					$	41
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period						$	—					$	—					$	—					$	—
Interest cost on projected benefit obligation						1						1						3						3
Expected return on plan assets						—						—						—						—
Amortization of unrecognized prior service cost						—						—						—						—
Amortization of unrecognized net loss						4						5						12						14
Net periodic postretirement, medical and life cost						$	5					$	6					$	15					$	17

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NOTE 13    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 of the Corporation’s 2023 Annual Report on Form 10-K, which was filed with the SEC on March 13, 2024. 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 and CFS columns below include amounts to eliminate transactions between segments (in thousands).

						Three months ended September 30, 2024
						Core Banking						WMG						Holding Company and CFS						Consolidated Totals
Interest and dividend income						$	32,353					$	—					$	9					$	32,362
Interest expense						13,974						—						—						13,974
Net interest income						18,379						—						9						18,388
Provision for credit losses						564						—						—						564
Net interest income after provision for credit losses						17,815						—						9						17,824
Other non-interest income						2,623						2,991						305						5,919
Other non-interest expense						14,304						1,897						309						16,510
Income (loss) before income tax expense (benefit)						6,134						1,094						5						7,233
Income tax expense (benefit)						1,277						227						9						1,513
Segment net income (loss)						$	4,857					$	867					$	(4)					$	5,720

						Three months ended September 30, 2023
						Core Banking						WMG						Holding Company, CFS, and CRM(1)						Consolidated Totals
Interest and dividend income						$	28,979					$	—					$	36					$	29,015
Interest expense						10,998						—						—						10,998
Net interest income						17,981						—						36						18,017
Provision for credit losses						449						—						—						449
Net interest income after provision for credit losses						17,532						—						36						17,568
Other non-interest income						5,002						2,533						273						7,808
Other non-interest expense						13,597						1,796						275						15,668
Income (loss) before income tax expense (benefit)						8,937						737						34						9,708
Income tax expense (benefit)						1,908						161						(9)						2,060
Segment net income (loss)						$	7,029					$	576					$	43					$	7,648

(1)Chemung Risk Management, Inc. (CRM) was dissolved December 6, 2023.

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						Nine months ended September 30, 2024
						Core Banking						WMG						Holding Company, and CFS						Consolidated Totals
Interest and dividend income						$	94,941					$	—					$	26					$	94,967
Interest expense						40,729						—						—						40,729
Net interest income						54,212						—						26						54,238
Provision for credit losses						(597)						—						—						(597)
Net interest income after provision for credit losses						54,809						—						26						54,835
Other non-interest income						7,859						8,554						761						17,174
Other non-interest expense						42,953						5,529						945						49,427
Income (loss) before income tax expense (benefit)						19,715						3,025						(158)						22,582
Income tax expense (benefit)						4,224						647						(46)						4,825
Segment net income (loss)						$	15,491					$	2,378					$	(112)					$	17,757
Segment assets						$	2,769,437					$	2,961					$	1,817					$	2,774,215

						Nine months ended September 30, 2023
						Core Banking						WMG						Holding Company, CFS, and CRM(1)						Consolidated Totals
Interest and dividend income						$	82,939					$	—					$	102					$	83,041
Interest expense						26,482						—						—						26,482
Net interest income						56,457						—						102						56,559
Provision for credit losses						962						—						—						962
Net interest income after provision for credit losses						55,495						—						102						55,597
Other non-interest income						10,354						7,716						608						18,678
Other non-interest expense						41,187						5,293						937						47,417
Income (loss) before income tax expense (benefit)						24,662						2,423						(227)						26,858
Income tax expense (benefit)						5,215						536						(91)						5,660
Segment net income (loss)						$	19,447					$	1,887					$	(136)					$	21,198
Segment assets						$	2,701,959					$	2,596					$	3,279					$	2,707,834

(1)Chemung Risk Management, Inc. (CRM) was dissolved December 6, 2023.

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NOTE 14    STOCK COMPENSATION

Pursuant to 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 may be created. Compensation expense for shares granted will be recognized over the vesting period of the award based upon the closing price of the Corporation's stock on the grant date.

During the nine months ended September 30, 2024 and 2023, 13,457 and 16,050 shares, respectively, were re-issued from treasury to fund stock compensation. The expense related to these grants is recognized over a one year or a five year vesting period. Total expense related to the 2021 Plan of $0.3 million was recognized during each of the three month periods ended September 30, 2024 and 2023, respectively. Total expense related to the 2021 Plan of $0.9 million was recognized during each of the nine month periods ended September 30, 2024 and 2023, respectively.

A summary of restricted stock activity for the three and nine months ended September 30, 2024 is presented below:

						Shares						Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2024						63,118						$46.26
Granted						—
Vested						(595)						$38.59
Forfeited or cancelled						—
Nonvested at September 30, 2024						62,523						$46.33

						Shares						Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2024						62,984						$45.87
Granted						13,457						$47.67
Vested						(13,803)						$45.55
Forfeited or cancelled						(115)						$47.71
Nonvested at September 30, 2024						62,523						$46.33

As of September 30, 2024, there was $2.0 million of total unrecognized compensation cost related to nonvested shares granted under the 2021 Plan. The cost is expected to be recognized over a weighted-average period of 3.44 years. The total fair value of shares vested was $0.7 million for each of the nine month periods ended September 30, 2024 and 2023, respectively. Due to the adoption of the 2021 Plan, certain grants were transitioned to a one-year vesting period.

NOTE 15    SUBSEQUENT EVENTS

On October 11, 2024, the Corporation opened a full-service branch and regional banking center at 5529 Main Street in Williamsville, New York, under the Canal Bank, a division of Chemung Canal Trust Company, name. The Bank has received regulatory approval to convert its previous branch location in Clarence, New York into an administrative office in support of the Bank's Western New York operations.

In addition, the Corporation will consolidate its office located at 806 West Buffalo Street, Ithaca, New York into its 304 Elmira Road office, Ithaca, New York, effective November 15, 2024.

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Item 2:        Management's Discussion and Analysis of Financial Condition and Results of Operations

Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2024. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2023 Annual Report on Form 10-K, which was filed with the SEC on March 13, 2024, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3–6.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below, in Part I, Item 1A, Risk Factors, and on pages 20–31 of the Corporation’s 2023 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages 63-66 of the Corporation's 2023 Form 10-K, and pages 78-81 in this Form 10-Q.

The Corporation has been a financial holding company since 2000, the Bank was established in 1833 and CFS in 2001. Through the Bank and CFS, the Corporation provides a wide range of financial services, including demand, savings and time deposits, commercial, residential and consumer loans, interest rate swaps, letters of credit, wealth management services, employee benefit plans, insurance products, mutual funds, and brokerage services. The Bank relies substantially on a foundation of locally generated deposits. The Corporation, on a stand-alone basis, has minimal results of operations. The Bank derives its income primarily from interest and fees on loans, interest income on investment securities, WMG fee income, and fees received in connection with deposit and other services. The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans, and general operating expenses.

Forward-looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding the Corporation's expected financial position and operating results, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." The Corporation cannot guarantee that its expectations in such forward-looking statements will turn out to be correct. The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, inflation, cybersecurity risks, difficulties in managing the Corporation’s growth, recent bank failures, changes in FDIC assessments, public health issues, geopolitical conflicts, competition, changes in law or the regulatory environment, and changes in general business and economic trends.

Information concerning these and other factors, including Risk Factors, can be found in the Corporation’s periodic filings with the SEC, including the discussion under the heading “Item 1A. Risk Factors” in the Corporation’s 2023 Annual Report on Form 10-K. These filings are available publicly on the SEC’s web site at http://www.sec.gov, on the Corporation's web site at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events, or otherwise.

Critical Accounting Estimates

Critical accounting estimates include the areas where the Corporation has made what it considers to be particularly difficult, subjective, or complex judgments concerning estimates, and where these estimates can significantly affect the Corporation's financial results under different assumptions and conditions. The Corporation prepares its financial statements in conformity with GAAP. As a result, the Corporation is required to make certain estimates, judgments, and assumptions that it believes are reasonable based upon the information available at that time. These estimates, judgments, and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented. Actual results could be different from these estimates. Significant accounting policies followed by the Corporation are presented in Note 1 – Summary of Significant Accounting Policies, to the Audited Consolidated Financial Statements included in its Annual Report on Form 10-K for the year ended December 31, 2023, and in Note 1 – Summary of Significant Accounting Policies of this Form 10-Q.

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Allowance for Credit Losses

Management considers the allowance for credit losses to be a critical accounting estimate, given the uncertainty in estimating lifetime credit losses attributable to its portfolios of assets exhibiting credit risk, particularly in its loan portfolio, and the material effect that such judgments can have on the Corporation's results of operations. Determining the amount requires significant judgement on the part of management, is multi-faceted, and can be imprecise. The level of the allowance for credit losses on loans is based on management’s ongoing review of all relevant information, from internal and external sources, relating to past events, current conditions, and expectations of the future based on reasonable and supportable forecasts.

The allowance is established through a provision for credit losses in the Consolidated Statements of Income, and evaluation of the adequacy of the allowance for credit losses is performed by management on a quarterly basis. While management uses available information to anticipate credit losses, future additions to the allowance may be necessary based on changes in economic conditions or the composition of its portfolios. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses.

Because the Corporation's methodology for maintaining its allowance for credit losses is based on historical experience and trends, current economic information, forecasted data, and management's judgement, a range of estimates for the estimate of the allowance for credit losses may be supportable. Deteriorating economic conditions may lead to further required increases to the allowance; conversely, improvements to economic conditions may warrant further reductions to the allowance. In estimating the allowance for credit losses, management considers the sensitivity of the model and significant judgments and assumptions that could result in an amount that is materially different from management’s estimate, including as it relates to qualitative considerations.

As of September 30, 2024 and December 31, 2023, the allowance for credit losses totaled $21.4 million and $22.5 million, respectively. Due to the nature and composition of the Bank's lending activities, a significant portion of the allowance for credit losses is allocated to the commercial portfolio, both commercial real estate and commercial and industrial loans. As of September 30, 2024 and December 31, 2023, the allowance for credit losses allocated to the total commercial portfolio was $15.7 million and $17.1 million respectively, or 73.2% and 75.9%, respectively.

Changes in the FOMC's median forecasted year over year U.S. civilian unemployment rate and the year over year change in U.S. GDP could have a material impact on the model's estimation of the allowance. FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy, and considers all currently available information. An immediate "shock" or increase of 100 basis points in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 50 basis points in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $1.3 million, or 6.2%, to $22.8 million as of September 30, 2024, assuming qualitative adjustments are kept at current levels.

While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgement of factors as of September 30, 2024, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

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Consolidated Financial Highlights																																	As of or for the
(in thousands, except per share data)			As of or for the Three Months Ended																														Nine Months Ended
			Sept. 30,						June 30,						Mar. 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
RESULTS OF OPERATIONS			2024						2024						2024						2023						2023						2024						2023
Interest and dividend income			$	32,362					$	31,386					$	31,219					$	30,033					$	29,015					$	94,967					$	83,041
Interest expense			13,974						13,625						13,130						12,135						10,998						40,729						26,482
Net interest income			18,388						17,761						18,089						17,898						18,017						54,238						56,559
Provision (credit) for credit losses (a)			564						879						(2,040)						2,300						449						(597)						962
Net interest income after provision for credit losses			17,824						16,882						20,129						15,598						17,568						54,835						55,597
Non-interest income			5,919						5,598						5,657						5,871						7,808						17,174						18,678
Non-interest expense			16,510						16,219						16,698						16,826						15,668						49,427						47,417
Income before income tax expense			7,233						6,261						9,088						4,643						9,708						22,582						26,858
Income tax expense			1,513						1,274						2,038						841						2,060						4,825						5,660
Net income			$	5,720					$	4,987					$	7,050					$	3,802					$	7,648					$	17,757					$	21,198
Basic and diluted earnings per share			$	1.19					$	1.05					$	1.48					$	0.80					$	1.61					$	3.72					$	4.48
Average basic and diluted shares outstanding			4,773						4,770						4,764						4,743						4,736						4,769						4,729
PERFORMANCE RATIOS - Annualized
Return on average assets			0.83		%				0.73		%				1.04		%				0.56		%				1.14		%				0.87		%				1.07		%
Return on average equity			10.81		%				10.27		%				14.48		%				8.63		%				16.89		%				11.82		%				15.93		%
Return on average tangible equity (b)			12.07		%				11.56		%				16.29		%				9.86		%				19.22		%				13.27		%				18.15		%
Efficiency ratio (unadjusted) (c)			67.92		%				69.43		%				70.32		%				70.79		%				60.67		%				69.21		%				63.02		%
Efficiency ratio (adjusted) (b)			67.69		%				69.19		%				70.07		%				70.42		%				66.55		%				68.97		%				64.83		%
Non-interest expense to average assets			2.39		%				2.38		%				2.47		%				2.48		%				2.33		%				2.41		%				2.39		%
Loans to deposits			82.78		%				83.26		%				80.77		%				81.20		%				78.05		%				82.78		%				78.05		%
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans			5.65		%				5.52		%				5.51		%				5.31		%				5.21		%				5.56		%				5.07		%
Yield on investments			2.21		%				2.27		%				2.35		%				2.24		%				2.22		%				2.28		%				2.21		%
Yield on interest-earning assets			4.78		%				4.69		%				4.70		%				4.50		%				4.40		%				4.72		%				4.27		%
Cost of interest-bearing deposits			2.88		%				2.86		%				2.75		%				2.59		%				2.44		%				2.83		%				1.94		%
Cost of borrowings			5.08		%				5.04		%				5.15		%				5.52		%				5.25		%				5.09		%				5.04		%
Cost of interest-bearing liabilities			2.97		%				2.94		%				2.85		%				2.68		%				2.47		%				2.92		%				2.03		%
Interest rate spread			1.81		%				1.75		%				1.85		%				1.82		%				1.93		%				1.80		%				2.24		%
Net interest margin, fully taxable equivalent (b)			2.72		%				2.66		%				2.73		%				2.69		%				2.73		%				2.70		%				2.91		%
CAPITAL
Total equity to total assets at end of period			7.95		%				7.30		%				7.08		%				7.20		%				6.28		%				7.95		%				6.28		%
Tangible equity to tangible assets at end of period (b)			7.22		%				6.56		%				6.34		%				6.45		%				5.52		%				7.22		%				5.52		%
Book value per share			$	46.22					$	42.17					$	41.34					$	41.07					$	35.90					$	46.22					$	35.90
Tangible book value per share (b)			41.65						37.59						36.77						36.48						31.29						41.65						31.29
Period-end market value per share			48.02						48.00						42.48						49.80						39.61						48.02						39.61
Dividends declared per share			0.31						0.31						0.31						0.31						0.31						0.93						0.93
AVERAGE BALANCES
Loans and loans held for sale (d)			$	2,020,280					$	2,009,823					$	1,989,185					$	1,956,022					$	1,909,100					$	2,006,479					$	1,879,765
Earning assets			2,699,968						2,699,402						2,681,059						2,654,638						2,627,012						2,693,499						2,609,999
Total assets			2,751,392						2,740,967						2,724,391						2,688,536						2,664,570						2,738,962						2,650,908
Deposits			2,410,735						2,419,169						2,402,215						2,397,663						2,410,931						2,410,706						2,371,021
Total equity			210,421						195,375						195,860						174,868						179,700						200,588						177,969
Tangible equity (b)			188,597						173,551						174,036						153,044						157,876						178,764						156,145
ASSET QUALITY
Net charge-offs			$	78					$	306					$	182					$	171					$	356					$	566					$	771
Non-performing loans (e)			10,545						8,195						7,835						10,411						6,826						10,545						6,826
Non-performing assets (f)			11,134						8,872						8,394						10,737						7,055						11,134						7,055
Allowance for credit losses (a)			21,441						21,031						20,471						22,517						20,252						21,441						20,252
Annualized net charge-offs to average loans			0.02		%				0.06		%				0.04		%				0.03		%				0.07		%				0.04		%				0.05		%
Non-performing loans to total loans			0.52		%				0.41		%				0.39		%				0.53		%				0.35		%				0.52		%				0.35		%
Non-performing assets to total assets			0.40		%				0.32		%				0.30		%				0.40		%				0.26		%				0.40		%				0.26		%
Allowance for credit losses to total loans (a)			1.06		%				1.05		%				1.02		%				1.14		%				1.05		%				1.06		%				1.05		%
Allowance for credit losses to non-performing loans (a)			203.33		%				256.63		%				261.28		%				216.28		%				296.69		%				203.33		%				296.69		%
(a) Corporation adopted CECL as of January 1, 2023.															(d) Does not reflect Allowance for Credit Losses.
(b) See the GAAP to Non-GAAP reconciliations.															(e) Includes nonaccrual loans only.
(c) Non-interest expense divided by total net interest income plus non-interest income.															(f) Includes non-performing loans, other real estate owned, and repossessions.

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In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation, and therefore facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 78-81 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2024 and 2023. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 47-48 of this Form 10-Q and page 37 of the Corporation’s 2023 Form 10-K.

Net Income

The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands, except per share and ratio data):

						Three Months Ended   September 30,																								Nine Months Ended   September 30,
						2024						2023						Change						% Change						2024						2023						Change						% Change
Net interest income						$	18,388					$	18,017					$	371					2.1		%				$	54,238					$	56,559					$	(2,321)					(4.1)		%
Non-interest income						5,919						7,808						(1,889)						(24.2)		%				17,174						18,678						(1,504)						(8.1)		%
Non-interest expense						16,510						15,668						842						5.4		%				49,427						47,417						2,010						4.2		%
Pre-provision income						7,797						10,157						(2,360)						(23.2)		%				21,985						27,820						(5,835)						(21.0)		%
Provision (credit) for credit losses(1)						564						449						115						25.6		%				(597)						962						(1,559)						(162.1)		%
Income tax expense						1,513						2,060						(547)						(26.6)		%				4,825						5,660						(835)						(14.8)		%
Net income						$	5,720					$	7,648					$	(1,928)					(25.2)		%				$	17,757					$	21,198					$	(3,441)					(16.2)		%
Basic and diluted earnings per share						$	1.19					$	1.61					$	(0.42)					(26.1)		%				$	3.72					$	4.48					$	(0.76)					(17.0)		%

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

						Three Months Ended   September 30,												Nine Months Ended   September 30,
Selected financial ratios:						2024						2023						2024						2023
Return on average assets (a)						0.83		%				1.14		%				0.87		%				1.07		%
Return on average equity (a)						10.81		%				16.89		%				11.82		%				15.93		%
Net interest margin, fully taxable equivalent (b)						2.72		%				2.73		%				2.70		%				2.91		%
Efficiency ratio (adjusted) (b)						67.69		%				66.55		%				68.97		%				64.83		%
Non-interest expense to average assets						2.39		%				2.33		%				2.41		%				2.39		%
(a) Annualized.
(b) See the GAAP to Non-GAAP reconciliations.

Net income for the third quarter of 2024 was $5.7 million, or $1.19 per share, compared to $7.6 million, or $1.61 per share, for the same period in the prior year. Return on average equity for the current quarter was 10.81%, compared to 16.89% for the same period in the prior year. The decrease in net income was attributable to a decrease in non-interest income, an increase in non-interest expense, and an increase in the provision for credit losses, offset by an increase in net interest income and a decrease in income tax expense.

Net income for the nine months ended September 30, 2024 was $17.8 million, or $3.72 per share, compared to $21.2 million, or $4.48 per share, for the same period in the prior year. Return on average equity for the nine months ended September 30, 2024 was 11.82%, compared to 15.93% for the same period in the prior year. The decrease in net income was attributable to decreases in net interest income and non-interest income, and an increase in non-interest expense, offset by decreases in the provision for credit losses and income tax expense.

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Net Interest Income

The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):

			Three Months Ended   September 30,
			2024						2023						Change						% Change
Interest and dividend income			$	32,362					$	29,015					$	3,347					11.5		%
Interest expense			13,974						10,998						2,976						27.1		%
Net interest income			$	18,388					$	18,017					$	371					2.1		%

Net interest income, which is the difference between the interest income earned on interest-earning assets such as loans and securities, and the interest expense paid on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation’s earnings.

Net interest income for the third quarter of 2024 increased $0.4 million, or 2.1%, to $18.4 million compared to the same period in the prior year, due primarily to increases of $3.6 million in interest income on loans, including fees and $0.3 million in interest income on interest-earning deposits, partially offset by increases of $2.3 million in interest expense on deposits and $0.7 million in interest expense on borrowed funds, and a decrease of $0.5 million in interest and dividend income on taxable securities.

Interest income on loans, including fees, increased to $28.6 million for the three months ended September 30, 2024 from $25.0 million for the same period in the prior year. Interest income on loans, including fees, increased primarily due to a $134.3 million increase in average commercial loan balances, compared to the same period in the prior year, and an increase of 36 basis points in the average yield on commercial loans between these periods. The increase in the average balances of commercial loans was primarily due to year over year growth in both commercial and industrial and commercial real estate loan balances, while the increase in the average yield was primarily due to higher origination yields in 2024. Average balances of residential mortgage loans decreased $9.2 million for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to an increase in sales of new originations into the secondary market, while the average yield on residential mortgage loans increased 36 basis points for the three months ended September 30, 2024, compared to the same period in the prior year due to the higher interest rate environment. Average consumer loan balances decreased $13.9 million for the three months ended September 30, 2024, compared to the same period in the prior year, primarily due to lower indirect auto loan origination activity during 2024, while the average yield on consumer loans increased 60 basis points, primarily due to runoff of older vintage indirect auto loans, replaced by higher yielding new originations. Interest income on interest-earning deposits increased primarily due to a $21.2 million increase in the average balances of interest-earning deposits for the three months ended September 30, 2024 compared to the same period in the prior year.

Interest expense on deposits increased to $13.0 million for the three months ended September 30, 2024 from $10.7 million for the same period in the prior year. The increase in interest expense on deposits was due primarily to a 44 basis points increase in the average interest rate paid on total interest-bearing deposits, which included brokered deposits, due to the higher interest rate environment and increased competition, and an increase of $175.6 million in the average balance of customer interest-bearing deposits, primarily due to an increase in average balances of customer time deposits. Both the increase in the average interest rate paid and the average balances of customer interest-bearing deposits were primarily attributable to CD campaigns throughout 2024, as well as a general shift in the deposit mix towards higher cost accounts. The average balances of brokered deposits decreased $123.7 million, while the average interest rate paid on brokered deposits increased nine basis points, compared to the same period in the prior year. The average balances of brokered deposits decreased primarily due to the utilization of the Bank Term Funding Program (BTFP) and FHLBNY term advances in the current quarter, which were not utilized in the same period in the prior year, as well as lower loan growth during the current quarter, compared to the same period in the prior year.

Interest expense on borrowed funds increased to $1.0 million for the three months ended September 30, 2024 from $0.3 million for the same period in the prior year. The increase in interest expense on borrowed funds was primarily due to a $54.8 million increase in the average balances of borrowed funds, partially offset by a decrease of 17 basis points in the average interest rate paid on borrowed funds for the three months ended September 30, 2024, compared to the same period in the prior year. The composition of borrowed funds reflected the Corporation's shift to the lower cost, short-term funding sources of the BTFP and FHLBNY term advances, partially replacing relatively higher cost FHLBNY overnight advances in the current period. The average balance of FHLBNY overnight advances decreased $17.3 million, and the average interest rate paid on FHLBNY overnight advances decreased 47 basis points for the three months ended September 30, 2024, compared to the same period in the prior year.

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Interest and dividend income on taxable securities decreased to $3.1 million for the three months ended September 30, 2024 from $3.5 million for the same period in the prior year. Interest and dividend income on taxable securities decreased primarily due to a $57.6 million decrease in the average balances of taxable securities for the three months ended September 30, 2024, primarily due to paydowns and maturities, compared to the same period in the prior year.

Fully taxable equivalent net interest margin was 2.72% for the third quarter of 2024, compared to 2.73% for the same period in the prior year. Average interest-earning assets increased $73.0 million for the three months ended September 30, 2024 compared to the same period in the prior year. The average yield on interest-earning assets increased 38 basis points to 4.78%, and the average cost of interest-bearing liabilities increased 50 basis points to 2.97%, for the three months ended September 30, 2024, compared to the same period in the prior year, due to the higher rate environment as well as a shift in the overall deposit mix to higher cost deposits.

The following table presents net interest income for the periods indicated, and the dollar and percent change (in thousands):

			Nine Months Ended   September 30,
			2024						2023						Change						% Change
Interest and dividend income			$	94,967					$	83,041					$	11,926					14.4		%
Interest expense			40,729						26,482						14,247						53.8		%
Net interest income			$	54,238					$	56,559					$	(2,321)					(4.1)		%

Net interest income for the nine months ended September 30, 2024 totaled $54.2 million compared to $56.6 million for the same period in the prior year, a decrease of $2.3 million, or 4.1% due primarily to an increase of $14.2 million in interest expense, partially offset by an increase of $11.9 million in interest and dividend income. The increase in interest expense for the first nine months of 2024 was primarily attributed to increases of $13.3 million in interest expense on deposits and $1.0 million in interest expense on borrowed funds. The increase in interest and dividend income for the first nine months of 2024 was primarily attributed to increases of $12.2 million in interest income on loans, including fees, and $0.6 million in interest income on interest-earning deposits, offset by a decrease of $0.9 million in interest and dividend income on taxable securities.

Interest expense on deposits increased to $37.9 million for the first nine months of 2024 from $24.6 million for the same period in the prior year. The increase in interest expense on deposits was primarily due to an increase in the average balances of $171.2 million in customer time deposits, and a 119 basis points increase in the average interest rates paid on customer time deposits for the first nine months of 2024, compared to the same period in the prior year. The increase in average balances of customer time deposits was primarily attributable to CD campaigns throughout 2024, as well as a shift in deposit demand towards higher cost account types. The increase in the average interest rates paid on customer time deposits was due primarily to the higher interest rate environment, as well as competitive pressures to attract and retain customer time deposits. The average balances of brokered deposits decreased $57.7 million, while the average interest rates paid on brokered deposits increased 26 basis points, for the first nine months of 2024, compared to the same period in the prior year.

Also contributing to the increase in interest expense on deposits was an increase of $4.5 million in interest expense on savings and money market accounts, due to an increase of 77 basis points in the average interest rates paid, despite a decrease of $38.5 million in the average balances of savings and money market accounts, for the nine months ended September 30, 2024, compared to the same period in the prior year. Interest expense paid on interest-bearing demand deposits increased $2.2 million, primarily due to an 89 basis points increase in the average interest rates paid, for the nine months ended September 30, 2024, compared to the same period in the prior year. Interest expense on borrowed funds increased to $2.9 million for the first nine months of 2024 from $1.9 million for the same period in the prior year. The increase in interest expense on borrowed funds was due primarily to a five basis points increase in the average interest rate paid on borrowed funds, and a $24.4 million increase in the average balances of borrowed funds for the current nine months, when compared to the same period in the prior year, to fund loan growth.

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Interest income on loans, including fees, increased to $83.3 million for the first nine months of 2024 from $71.1 million for the same period in the prior year. The increase in interest income on loans, including fees, was mostly attributable to an increase of $143.6 million in the average balances of commercial loans, and a 42 basis points increase in the average yield of the commercial loan portfolio, primarily due to increases in average interest rates on new loan originations. Average yields on the residential mortgage and consumer loan portfolios also increased by 27 basis points and 75 basis points, respectively, for the nine months ended September 30, 2024, The increase in average yield on the residential mortgage loan portfolio was primarily due to higher origination yields during 2024, while the increase in average yield on the consumer loan portfolio was primarily attributable to rate increases on variable rate home equity products, and the relatively fast turnover rate within the indirect auto portfolio and higher originations yields during 2024. The increase in interest income on interest-earning deposits was primarily attributed to a $17.6 million increase in the average balances of interest-earning deposits.

Interest and dividend income on taxable securities decreased to $9.9 million for the first nine months of 2024 from $10.8 million for the same period in the prior year. The decrease in interest and dividend income on taxable securities was mostly attributable to a $59.7 million decrease in the average balances of taxable securities for the nine months ended September 30, 2024, compared to the same period in the prior year. The decrease in the average balances of taxable securities was mostly attributable to paydowns on securities within the available for sale portfolio.

Fully taxable equivalent net interest margin was 2.70% for the nine months ended September 30, 2024 compared to 2.91% for the same period in the prior year. Average interest-earning assets increased $83.5 million for the nine months ended September 30, 2024 compared to the same period in the prior year. The average yield on interest-earning assets increased 45 basis points, to 4.72%, while the average cost of interest-bearing liabilities increased 89 basis points, to 2.92% for the nine months ended September 30, 2024 compared to the same period in the prior year.

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Average Consolidated Balance Sheets and Interest Analysis

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and nine months ended September 30, 2024 and 2023. For the purpose of the tables below, nonaccrual loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
			Three Months Ended   September 30, 2024																		Three Months Ended   September 30, 2023
($ in thousands)			Average Balance						Interest						Yield/Rate (3)						Average Balance						Interest						Yield/Rate (3)
Interest-earning assets:
Commercial loans			$	1,453,418					$	21,854					5.98		%				$	1,319,110					$	18,672					5.62		%
Mortgage loans			273,374						2,713						3.97		%				282,578						2,572						3.61		%
Consumer loans			293,488						4,102						5.56		%				307,412						3,843						4.96		%
Taxable securities			605,631						3,063						2.01		%				663,240						3,540						2.12		%
Tax-exempt securities			38,537						272						2.81		%				40,380						288						2.83		%
Interest-earning deposits			35,520						441						4.94		%				14,292						187						5.19		%
Total interest-earning assets			2,699,968						32,445						4.78		%				2,627,012						29,102						4.40		%
Non interest-earning assets:
Cash and due from banks			25,086																		26,272
Other assets			47,571																		31,496
Allowance for credit losses (4)			(21,233)																		(20,210)
Total assets			$	2,751,392																	$	2,664,570
Interest-bearing liabilities:
Interest-bearing demand deposits			$	311,406					$	1,445					1.85		%				$	281,106					$	963					1.36		%
Savings and insured money market deposits			864,541						4,607						2.12		%				890,109						3,945						1.76		%
Time deposits			554,605						6,056						4.34		%				383,786						3,269						3.38		%
Brokered deposits			65,913						897						5.41		%				189,628						2,543						5.32		%
FHLBNY overnight advances			541						7						5.06		%				17,879						249						5.53		%
FRB advances and other debt			75,305						962						5.08		%				3,144						29						3.66		%
Total interest-bearing liabilities			1,872,311						13,974						2.97		%				1,765,652						10,998						2.47		%
Non interest-bearing liabilities:
Demand deposits			614,270																		666,302
Other liabilities			54,390																		52,916
Total liabilities			2,540,971																		2,484,870
Shareholders' equity			210,421																		179,700
Total liabilities and shareholders’ equity			$	2,751,392																	$	2,664,570
Fully taxable equivalent net interest income									18,471																		18,104
Net interest rate spread (1)															1.81		%																1.93		%
Net interest margin, fully taxable equivalent (2)															2.72		%																2.73		%
Taxable equivalent adjustment									(83)																		(87)
Net interest income									$	18,388																	$	18,017

(1)  Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.

(2)  Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.

(3) Annualized.

(4) Corporation adopted CECL as of January 1, 2023.

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AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
			Nine Months Ended   September 30, 2024																		Nine Months Ended   September 30, 2023
($ in thousands)			Average Balance						Interest						Yield/ Rate (3)						Average Balance						Interest						Yield/ Rate (3)
Interest-earning assets:
Commercial loans			$	1,433,224					$	63,501					5.92		%				$	1,289,638					$	53,047					5.50		%
Mortgage loans			274,834						7,879						3.82		%				284,351						7,553						3.55		%
Consumer loans			298,421						12,114						5.42		%				305,776						10,673						4.67		%
Taxable securities			619,657						9,877						2.13		%				679,330						10,758						2.12		%
Tax-exempt securities			39,453						830						2.81		%				40,562						887						2.92		%
Interest-earning deposits			27,910						1,014						4.85		%				10,342						400						5.17		%
Total interest-earning assets			2,693,499						95,215						4.72		%				2,609,999						83,318						4.27		%
Non interest-earning assets:
Cash and due from banks			25,131																		25,512
Other assets			41,807																		35,547
Allowance for credit losses (4)			(21,475)																		(20,150)
Total assets			$	2,738,962																	$	2,650,908
Interest-bearing liabilities:
Interest-bearing demand deposits			$	308,318					$	4,170					1.81		%				$	286,220					$	1,959					0.92		%
Savings and insured money market deposits			861,382						13,190						2.05		%				899,871						8,645						1.28		%
Time deposits			521,997						16,603						4.25		%				350,846						8,041						3.06		%
Brokered deposits			96,056						3,898						5.42		%				153,774						5,932						5.16		%
FHLBNY overnight advances			15,359						646						5.53		%				47,321						1,819						5.14		%
FRB advances and other debt			59,584						2,222						4.98		%				3,212						86						3.58		%
Total interest-bearing liabilities			1,862,696						40,729						2.92		%				1,741,244						26,482						2.03		%
Non interest-bearing liabilities:
Demand deposits			622,953																		680,310
Other liabilities			52,725																		51,385
Total liabilities			2,538,374																		2,472,939
Shareholders' equity			200,588																		177,969
Total liabilities and shareholders’ equity			$	2,738,962																	$	2,650,908
Fully taxable equivalent net interest income									54,486																		56,836
Net interest rate spread (1)															1.80		%																2.24		%
Net interest margin, fully taxable equivalent (2)															2.70		%																2.91		%
Taxable equivalent adjustment									(248)																		(277)
Net interest income									$	54,238																	$	56,559

(1)  Net interest rate spread is the difference in the average yield on interest-earning assets less the average rate on interest-bearing liabilities.

(2)  Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets.

(3) Annualized.

(4) Corporation adopted CECL as of January 1, 2023.

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Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and nine months ended September 30, 2024 and 2023. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purpose of these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
						Three Months Ended September 30, 2024 vs. 2023
						Increase/(Decrease)
						Total Change						Due to Volume						Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans						$	3,182					$	1,953					$	1,229
Mortgage loans						141						(92)						233
Consumer loans						259						(183)						442
Taxable investment securities						(477)						(299)						(178)
Tax-exempt investment securities						(16)						(14)						(2)
Interest-earning deposits						254						263						(9)
Total interest and dividend income, fully taxable equivalent						3,343						1,628						1,715
Interest expense on:
Interest-bearing demand deposits						482						111						371
Savings and insured money market deposits						662						(117)						779
Time deposits						2,787						1,701						1,086
Brokered deposits						(1,646)						(1,688)						42
FHLBNY overnight advances						(242)						(223)						(19)
FRB advances and other debt						933						918						15
Total interest expense						2,976						702						2,274
Net interest income, fully taxable equivalent						$	367					$	926					$	(559)

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RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
						Nine Months Ended September 30, 2024 vs. 2023
						Increase/(Decrease)
						Total Change						Due to Volume						Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans						$	10,454					$	6,201					$	4,253
Mortgage loans						326						(253)						579
Consumer loans						1,441						(261)						1,702
Taxable investment securities						(881)						(933)						52
Tax-exempt investment securities						(57)						(24)						(33)
Interest-earning deposits						614						641						(27)
Total interest and dividend income, fully taxable equivalent						11,897						5,371						6,526
Interest expense on:
Interest-bearing demand deposits						2,211						164						2,047
Savings and insured money market deposits						4,545						(389)						4,934
Time deposits						8,562						4,764						3,798
Brokered deposits						(2,034)						(2,322)						288
FHLBNY overnight advances						(1,173)						(1,304)						131
FRB advances and other debt						2,136						2,089						47
Total interest expense						14,247						3,002						11,245
Net interest income, fully taxable equivalent						$	(2,350)					$	2,369					$	(4,719)

Provision for credit losses

Management has established and maintains a methodology for determining and adjusting its allowance for credit losses in conformity with ASU 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, adopted by the Corporation on January 1, 2023. The allowance is based on a combination of quantitative and qualitative analysis and changes in the required allowance are recorded through income as a provision (credit). The quantitative portion of the model is significantly influenced by changes in projected economic conditions, as well as changes in the composition of the numerous loan portfolio segments. Qualitative adjustments reflect the degree to which management anticipates future outcomes may differ from those projected by the quantitative model.

The provision for credit losses increased $0.1 million for the third quarter of 2024, compared to the same period in the prior year. The increase was primarily attributable to unfavorable changes in FOMC forecasted variables in the third quarter of 2024, compared to favorable changes to forecasts in the third quarter of 2023, as well as a decline in modeled prepayment speeds. This increase was partially offset by a decrease of $0.3 million in net charge offs in the third quarter of 2024, compared to the third quarter of 2023.

The provision for credit losses for the nine months ended September 30, 2024 was a credit of $0.6 million, compared to a provision of $1.0 million for the same period in the prior year. The $1.6 million decrease in the provision for credit losses in the nine months ended September 30, 2024, compared to the same period in the prior year, was primarily due to the annual review and update to the loss drivers used in the Bank's CECL model, which was reflected in the Corporation's allowance for credit losses in the first quarter of 2024, partially offset by unfavorable changes in economic forecasts and declines in modeled prepayment speeds. Loss drivers are the economic variables used when making forward looking projections to determine correlations between changes in economic variables and changes in historical loss experience. Recalibration of the loss drivers resulted in a decline in baseline loss rates utilized by the model, however the economic variables used were unchanged.

Net charge-offs for the three months ended September 30, 2024 were $0.1 million, compared to $0.4 million for the same period in the prior year. Net charge-offs for each of the three months ended September 30, 2024 and 2023 were primarily concentrated in the consumer indirect auto portfolio.

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Net charge-offs for the nine months ended September 30, 2024 were $0.6 million, compared to $0.8 million for the same period in the prior year. Net charge-offs for the nine months ended September 30, 2024 were concentrated in the consumer indirect auto portfolio. Net charge-offs for the nine months ended September 30, 2023 were primarily attributable to charge-offs in the consumer indirect auto portfolio, and a $0.2 million charge-off of a commercial and industrial loan.

Non-interest income

The following table presents non-interest income for the periods indicated, and the dollar and percent change (dollars in thousands):

						Three Months Ended   September 30,
						2024						2023						Change						% Change
WMG fee income						$	2,991					$	2,533					$	458					18.1		%
Service charges on deposit accounts						1,016						1,018						(2)						(0.2)		%
Interchange revenue from debit card transactions						1,123						1,141						(18)						(1.6)		%
Changes in fair value of equity investments						118						(68)						186						273.5		%
Net gains on sales of loans held for sale						91						67						24						35.8		%
Net gains (losses) on sales of other real estate owned						(19)						—						(19)						N/M
Income from bank owned life insurance						10						11						(1)						(9.1)		%
CFS fee and commission income						306						243						63						25.9		%
Other						283						2,863						(2,580)						(90.1)		%
Total non-interest income						$	5,919					$	7,808					$	(1,889)					(24.2)		%

Total non-interest income for the third quarter of 2024 decreased $1.9 million compared to the same period in the prior year, primarily due to a decrease in other non-interest income, partially offset by increases in WMG fee income and changes in fair value of equity investments.

Other Non-Interest Income

The decrease in other non-interest income can primarily be attributed to the recognition of the employee retention tax credit (ERTC) in the third quarter of 2023.

WMG Fee Income

The increase in WMG fee income can primarily be attributed to an increase in the market value of total assets under management or administration and fee rate increases effective in the third quarter of 2024.

Changes in Fair Value Equity Investments

The increase in changes in fair value of equity investments can primarily be attributed to an increase in the market value of assets held for the Corporation's deferred compensation plan.

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The following table presents non-interest income for the periods indicated, and the dollar and percent change (in thousands):

						Nine Months Ended   September 30,
						2024						2023						Change						% Change
WMG fee income						$	8,554					$	7,716					$	838					10.9		%
Service charges on deposit accounts						2,929						2,918						11						0.4		%
Interchange revenue from debit card transactions						3,327						3,468						(141)						(4.1)		%
Changes in fair value of equity investments						233						(99)						332						335.4		%
Net gains on sales of loans held for sale						162						90						72						80.0		%
Net gains (losses) on sales of other real estate owned						(22)						14						(36)						(257.1)		%
Income from bank owned life insurance						29						32						(3)						(9.4)		%
CFS fee and commission income						787						749						38						5.1		%
Other						1,175						3,790						(2,615)						(69.0)		%
Total non-interest income						$	17,174					$	18,678					$	(1,504)					(8.1)		%

Total non-interest income for the nine months ended September 30, 2024 decreased $1.5 million compared to the same period in the prior year. The decrease was primarily due to decreases in other non-interest income and interchange revenue from debit card transactions, partially offset by increases in WMG fee income and changes in fair value of equity investments.

Other Non-Interest Income

The decrease in other non-interest income can primarily be attributed to the recognition of the employee retention tax credit (ERTC) in the third quarter of 2023.

Interchange Revenue from Debit Card Transactions

The decrease in interchange revenue from debit card transactions was primarily due to a decrease in client transaction volume during the nine months ended September 30, 2024, compared to the same period in the prior year.

WMG Fee Income

The increase in WMG fee income can primarily be attributed to an increase in the market value of total assets under management or administration and fee rate increases effective in the third quarter of 2024.

Changes in Fair Value of Equity Investments

The increase in the changes in fair value of equity investments was primarily due to an increase in the market value of assets held related to the Corporation's deferred compensation plan, related to improvements in the financial markets during the nine months ended September 30, 2024, compared to the same period in the prior year. The increase was also partially due to a decline in the fair value of a particular equity investment held by the Corporation during the same period in the prior year.

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Non-interest expense

The following table presents non-interest expense for the periods indicated, and the dollar and percent change (dollars in thousands):

						Three Months Ended   September 30,
						2024						2023						Change						% Change
Compensation expense:
Salaries and wages						$	7,168					$	6,542					$	626					9.6		%
Pension and other employee benefits						1,627						1,979						(352)						(17.8)		%
Other components of net periodic pension and postretirement benefits						(227)						(174)						(53)						(30.5)		%
Total compensation expense						8,568						8,347						221						2.6		%
Non-compensation expense:
Net occupancy						1,422						1,337						85						6.4		%
Furniture and equipment						402						353						49						13.9		%
Data processing						2,567						2,480						87						3.5		%
Professional services						522						554						(32)						(5.8)		%
Marketing and advertising						210						218						(8)						(3.7)		%
Other real estate owned expenses						55						10						45						N/M
FDIC insurance						524						525						(1)						(0.2)		%
Loan expenses						353						249						104						41.8		%
Other						1,887						1,595						292						18.3		%
Total non-compensation expense						7,942						7,321						621						8.5		%
Total non-interest expense						$	16,510					$	15,668					$	842					5.4		%

Total non-interest expense for the third quarter of 2024 increased $0.8 million compared to the same period in the prior year. The increase was due to increases in total compensation expense and non-compensation expense. For the three months ended September 30, 2024, non-interest expense to average assets was 2.39%, compared to 2.33% for the same period in the prior year.

Compensation expense

The increase in compensation expense for the current period, compared to the same period in the prior year, was primarily due to an increase in salaries and wages, partially offset by a decrease in pension and other employee benefits. The increase in salaries and wages can be primarily attributed to an increase in base salaries, including additional staffing for the Corporation's newly opened Western New York regional banking center, as well as an increase in the market value of the assets held for the Corporation's deferred compensation plan. The decrease in pension and other employee benefits can be primarily attributed to a decrease in employee healthcare expenses in the current quarter.

Non-compensation expense

The increase in non-compensation expense for the current period, compared to the same period in the prior year, was primarily due to increases in other non-interest expense and loan expenses. The increase in other non-interest expense was primarily due to an increase in supplies and postage expenses, and losses recognized on the sale of repossessed vehicles in the current quarter. The increase in loan expenses can be primarily attributed to legal expenses related to various loan transactions.

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The following table presents non-interest expense for the periods indicated, and the dollar and percent change (in thousands):

						Nine Months Ended   September 30,
						2024						2023						Change						% Change
Compensation expense:
Salaries and wages						$	21,007					$	20,029					$	978					4.9		%
Pension and other employee benefits						5,787						5,467						320						5.9		%
Other components of net periodic pension and postretirement benefits						(691)						(522)						(169)						(32.4)		%
Total compensation expense						26,103						24,974						1,129						4.5		%
Non-compensation expense:
Net occupancy						4,360						4,242						118						2.8		%
Furniture and equipment						1,197						1,232						(35)						(2.8)		%
Data processing						7,437						7,334						103						1.4		%
Professional services						1,639						1,596						43						2.7		%
Marketing and advertising						943						720						223						31.0		%
Other real estate owned expenses						116						49						67						136.7		%
FDIC insurance						1,617						1,608						9						0.6		%
Loan expenses						808						789						19						2.4		%
Other						5,207						4,873						334						6.9		%
Total non-compensation expense						23,324						22,443						881						3.9		%
Total non-interest expense						$	49,427					$	47,417					$	2,010					4.2		%

Total non-interest expense for the nine months ended September 30, 2024 increased $2.0 million compared to the same period in the prior year. The increase was due to increases in total compensation expense and total non-compensation expense. For the nine months ended September 30, 2024 and 2023, non-interest expense to average assets was 2.41% and 2.39%, respectively.

Compensation expense

The increase in compensation expense for the current period, compared to the same period in the prior year, was primarily due to increases in salaries and wages and pension and other employee benefits, offset by a decrease in other components of net periodic pension and postretirement benefits. The increase in salaries and wages included additional staffing for the Corporation's newly opened Western New York regional banking center, as well as an increase in the market value of the assets held for the Corporation's deferred compensation plan, which offset savings realized due to outsourcing, compared to the same period in the prior year. The increase in pension and other employee benefits was primarily attributable to an increase in employee healthcare expenses for the current period, compared to the same period in the prior year. The decrease in other components of net periodic pension and postretirement benefits was primarily due to actuarial adjustments related to the Corporation's pension plans.

Non-compensation expense

The increase in non-compensation expense was primarily due to increases in other non-interest expense, marketing and advertising, net occupancy expense, and data processing expense. The increase in other non-interest expense was due to modest increases amongst most expense categories, including supplies and postage expense, charitable donations and corporate travel, when compared to the same period in the prior year. Marketing and advertising expenses increased during the current period compared to the same period in the prior year primarily due to expenditures related to a deposit account promotion related to the Bank's 190th anniversary, CD campaigns, and an increase in advertising activity in the current period. The increase in net occupancy expense was primarily due to an increase in building maintenance and property insurance expenses, when compared to the same period in the prior year. The increase in data processing expenses was primarily due to the addition of various new contracts and an increase in cybersecurity software expense, offset by a decrease in certain software maintenance and processing expenses, when compared to the same period in the prior year.

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Income tax expense

The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (dollars in thousands):

						Three Months Ended   September 30,
						2024						2023						Change						% Change
Income before income tax expense						$	7,233					$	9,708					$	(2,475)					(25.5)		%
Income tax expense						$	1,513					$	2,060					$	(547)					(26.6)		%
Effective tax rate						20.9		%				21.2		%

Income tax expense for the three month periods ended September 30, 2024 and 2023 were $1.5 million and $2.1 million, respectively. The decrease in income tax expense was due primarily to a decrease of $2.5 million in income before income tax expense. The effective income tax rate decreased from 21.2% for the three months ended September 30, 2023 to 20.9% for the three months ended September 30, 2024.

The following table presents income tax expense and the effective tax rate for the periods indicated, and the dollar and percent change (in thousands):

						Nine Months Ended   September 30,
						2024						2023						Change						% Change
Income before income tax expense						$	22,582					$	26,858					$	(4,276)					(15.9)		%
Income tax expense						$	4,825					$	5,660					$	(835)					(14.8)		%
Effective tax rate						21.4		%				21.1		%

Income tax expense for the nine month periods ended September 30, 2024 and 2023 were $4.8 million and $5.7 million, respectively. The decrease in income tax expense was due primarily to a decrease of $4.3 million in income before income tax expense. The effective income tax rate increased from 21.1% for the nine months ended September 30, 2023 to 21.4% for the nine months ended September 30, 2024.

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Financial Condition

The following table presents selected financial information as of the dates indicated, and the dollar and percent change (dollars in thousands):

ASSETS						September 30, 2024						December 31, 2023						Change						% Change
Total cash and cash equivalents						$	80,440					$	36,847					$	43,593					118.3		%
Total investment securities, FHLB and FRB stock						562,665						593,322						(30,657)						(5.2)		%
Loans, net of deferred loan fees						2,028,954						1,972,664						56,290						2.9		%
Allowance for credit losses						(21,441)						(22,517)						(1,076)						(4.8)		%
Loans, net						2,007,513						1,950,147						57,366						2.9		%
Goodwill and other intangible assets, net						21,824						21,824						—						—		%
Other assets						101,773						108,389						(6,616)						(6.1)		%
Total assets						$	2,774,215					$	2,710,529					$	63,686					2.3		%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits						$	2,451,121					$	2,429,427					$	21,694					0.9		%
Advances and other debt						53,757						34,970						18,787						53.7		%
Other liabilities						48,683						50,891						(2,208)						(4.3)		%
Total liabilities						2,553,561						2,515,288						38,273						1.5		%
Total shareholders’ equity						220,654						195,241						25,413						13.0		%
Total liabilities and shareholders’ equity						$	2,774,215					$	2,710,529					$	63,686					2.3		%

Cash and Cash Equivalents

The increase in cash and cash equivalents can be attributed to changes in loans, deposits, borrowings, and securities.

Investment securities

The decrease in investment securities can mostly be attributed to $42.3 million in paydowns and maturities in the securities available for sale portfolio, primarily attributable to paydowns on mortgage-backed securities and SBA pooled-loan securities, and an increase in the fair value of the available for sale securities portfolio of $14.7 million, due to favorable changes in interest rates.

Loans, net

The increase in loans, net of deferred loan fees, can primarily be attributed to increases of $52.0 million in commercial mortgages and $24.9 million in commercial and industrial loans, offset by decreases of $20.9 million in indirect consumer loans and $3.9 million in residential mortgages.

Allowance for Credit Losses

The decrease in the allowance for credit losses can primarily be attributed to the annual review and update of loss drivers used in the Bank's CECL model. The annual update to the loss drivers, which were applied beginning in the first quarter of 2024, resulted in a decline in baseline loss rates. Partially offsetting these declines were comparatively weaker FOMC projections for economic variables used in the Bank's CECL model as of September 30, 2024 compared to December 31, 2023, declines in prepayment speeds between December 31, 2023 and September 30, 2024, and loan growth during 2024.

Other Assets

The decrease in other assets can primarily be attributed to decreases of $4.2 million in interest rate swap assets, due to a decrease in the market value of swaps, and $3.8 million in deferred tax assets, due to improvements in the market value of the available for sale securities portfolio.

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Deposits

The increase in deposits can primarily be attributed to increases of $102.8 million in customer time deposits and $58.2 million in interest-bearing demand deposits, offset by decreases of $103.3 million in brokered deposits and $37.0 million in non interest-bearing demand deposits. In addition, insured money market deposits increased $7.2 million and savings deposits decreased $6.2 million.

Advances and Other Debt

The increase in advances and other debt can primarily be attributed to a $50.0 million advance from the Federal Reserve Bank Term Funding Program (BTFP), and an increase of $0.7 million in finance lease obligations, offset by a decrease of $31.9 million in FHLBNY overnight advances.

Other liabilities

The decrease in other liabilities can primarily be attributed to a decrease of $4.2 million in interest rate swap liabilities, primarily due to a decrease in the market value of swaps, partially offset by increases in interest payable on borrowed funds of $1.7 million and interest payable on deposits of $1.2 million.

Shareholders’ equity

Shareholders’ equity was $220.7 million at September 30, 2024 compared to $195.2 million at December 31, 2023. The increase can primarily be attributed to an increase of $13.3 million in retained earnings, and a decrease of $10.9 million in accumulated other comprehensive loss. The increase in retained earnings can primarily be attributed to net income of $17.8 million, offset by $4.4 million in dividends declared, during the nine months ended September 30, 2024. The decrease in accumulated other comprehensive loss can primarily be attributed to an increase in the fair market value of the available for sale securities portfolio due to favorable changes in market interest rates.

Assets under management or administration

The market value of total assets under management or administration in WMG was $2.316 billion as of September 30, 2024, including $367.8 million of assets held under management or administration for the Corporation, compared to $2.242 billion as of December 31, 2023, including $381.3 million of assets held under management or administration for the Corporation, an increase of $73.2 million, or 3.3%, primarily attributable to market improvements during 2024.

Securities

The Corporation’s Funds Management Policy includes an investment policy that in general, requires debt securities purchased for the bond portfolio to carry a minimum agency rating of "Baa." After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated. The Corporation intends to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements, and other types of transactions. Fluctuations in the fair value of the Corporation’s securities relate primarily to changes in interest rates. Marketable securities are generally classified as Available for Sale, while certain investments in local municipal obligations are classified as Held to Maturity. 

The available for sale segment of the securities portfolio totaled $554.6 million as of September 30, 2024, a decrease of $29.4 million, or 5.0%, from $584.0 million as of December 31, 2023. The decrease can mostly be attributed to $42.3 million in paydowns and maturities. The fair value of the portfolio increased $14.7 million, due to favorable changes in interest rates during the current period. The held to maturity securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas. These securities totaled $0.7 million and $0.8 million as of September 30, 2024 and December 31, 2023, respectively.

Non-marketable equity securities as of September 30, 2024 and December 31, 2023 include shares of FRBNY stock and FHLBNY stock, carried at their cost. FRBNY stock and FHLBNY stock were $1.9 million and $2.3 million respectively as of September 30, 2024, and $1.9 million and $3.6 million respectively as of December 31, 2023. The fair value of these securities is assumed to approximate their cost. The investment in these stocks is regulated by regulatory policies of the respective institutions.

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Loans

The table below presents the Corporation’s loan composition by segment as of the dates indicated, and the dollar and percent change from December 31, 2023 to September 30, 2024 (dollars in thousands):

LOAN PORTFOLIO COMPOSITION
			September 30, 2024						% of Total Loans						December 31, 2023						% of Total Loans						Dollar Change						% Change
Commercial and industrial			$	289,266					14.3		%				$	264,396					13.4		%				$	24,870					9.4		%
Commercial mortgages:
Construction			138,710						6.8		%				138,887						7.0		%				(177)						(0.1)		%
Commercial mortgages, other			1,036,229						51.1		%				984,038						49.9		%				52,191						5.3		%
Residential mortgages			274,099						13.5		%				277,992						14.1		%				(3,893)						(1.4)		%
Consumer loans:
Home equity lines and loans			92,449						4.6		%				87,056						4.4		%				5,393						6.2		%
Indirect consumer loans			189,504						9.3		%				210,423						10.7		%				(20,919)						(9.9)		%
Direct consumer loans			8,697						0.4		%				9,872						0.5		%				(1,175)						(11.9)		%
Total			$	2,028,954					100.0		%				$	1,972,664					100.0		%				$	56,290					2.9		%

Portfolio loans totaled $2.029 billion as of September 30, 2024, an increase of $56.3 million, or 2.9%, from $1.973 billion as of December 31, 2023. The increase in loans can primarily be attributed to increases of $52.0 million in commercial mortgage loans and $24.9 million in commercial and industrial loans, offset by decreases of $20.9 million in indirect consumer loans and $3.9 million in residential mortgages.

Commercial lending continues to be a primary driver of asset growth for the Corporation, as demand for project financing remains robust, particularly in the Capital Bank division. As of September 30, 2024, total commercial real estate loans, inclusive of construction loans, in the Capital Bank division grew by $46.7 million. Commercial real estate loan growth in the Canal Bank division was $6.8 million, while commercial real estate balances contracted by $1.4 million in the Chemung Canal division. Growth in commercial and industrial loans between December 31, 2023 and September 30, 2024 was also concentrated in the Capital Bank division, increasing by $19.6 million. Commercial and industrial loan growth in the Canal Bank and Chemung Canal divisions were $5.2 million and $0.1 million, respectively.

Residential mortgage loans totaled $274.1 million as of September 30, 2024, a decrease of $3.9 million, or 1.4%, compared to December 31, 2023. During the nine months ended September 30, 2024, $26.3 million in residential mortgages were originated, of which $8.5 million were sold in the secondary market to Freddie Mac and FHLBNY. Demand for residential mortgage originations continues to be weaker as a result of the higher interest rate environment and lower market mobility due to many borrowers securing lower interest rates in prior years. Indirect consumer loans totaled $189.5 million as of September 30, 2024, a decrease of $20.9 million, or 9.9%, from December 31, 2023 as portfolio turnover exceeded total origination activity.

The table below presents the Corporation’s outstanding loan balances by Bank division (in thousands):

LOANS BY DIVISION
			September 30, 2024						December 31, 2023						December 31, 2022						December 31, 2021						December 31, 2020
Chemung Canal Trust Company*			$	638,407					$	665,701					$	651,516					$	592,172					$	658,468
Capital Bank Division			1,278,107						1,206,561						1,098,104						879,105						877,995
Canal Bank Division			112,440						100,402						79,828						46,972						—
Total loans			$	2,028,954					$	1,972,664					$	1,829,448					$	1,518,249					$	1,536,463

* All loans, excluding those originated by the Capital Bank and Canal Bank divisions.

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Commercial real estate lending represented the largest portion of the Corporation's loan portfolio as of September 30, 2024 and December 31, 2023. Commercial real estate lending is comprised of the "Construction" and "Commercial mortgage, other" segments of the loan portfolio, as presented in Note 4 - Loans and Allowance for Credit Losses to the Consolidated Financial Statements. As of September 30, 2024 and December 31, 2023, total commercial real estate loans totaled $1.175 billion and $1.123 billion, respectively. Management evaluates the risk inherent in its portfolio of commercial real estate loans using a variety of metrics, including but not limited to type, geography, collateral, and borrower or sponsor industry.

The table below presents commercial real estate loans by type and percentage as of September 30, 2024 and December 31, 2023 (dollars in thousands):

Commercial real estate loans by type:						September 30, 2024						% of Total						December 31, 2023						% of Total						% Change
Construction						$	138,710					11.8		%				$	138,887					12.4		%				(0.1)		%
1-4 Family Residential(1)						45,209						3.8		%				45,792						4.1		%				(1.3)		%
Multifamily						357,211						30.4		%				349,327						31.1		%				2.3		%
Owner-Occupied						128,890						11.0		%				123,989						11.0		%				4.0		%
Non-Owner Occupied						504,919						43.0		%				464,930						41.4		%				8.6		%
Total						$	1,174,939					100.0		%				$	1,122,925					100.0		%

(1) 1-4 Family residential loans included in the commercial real estate portfolio segment are comprised of properties whose primary purpose is to generate rental income for the borrower, but are not considered multifamily properties within the FFIEC's Call Report definition of a multifamily property. This may include single family residences, duplexes, triplexes, and quadplexes.

Commercial real estate loans are primarily made within the counties comprising the geographic footprint of the Corporation's physical branch network, as well as to borrowers whose business interests include projects that may be located in counties that are geographically contiguous with the Corporation's physical footprint. The location of collateral securing commercial real estate loans typically mirrors the location of the properties being financed. However, certain commercial real estate loans are secured by property other than the property being financed, and therefore the geographic location of collateral may differ from that of the financed property.

The table below presents commercial real estate loans by regional location of collateral and percentage as of September 30, 2024 and December 31, 2023 (dollars in thousands):

Commercial real estate loans by regional location of collateral:						September 30, 2024						% of Total						December 31, 2023						% of Total						% Change
Capital Region						$	758,576					64.6		%				$	736,971					65.6		%				2.9		%
Southern Tier & Finger Lakes						230,922						19.7		%				213,970						19.1		%				7.9		%
Western New York						130,907						11.1		%				123,202						11.0		%				6.3		%
Other						54,534						4.6		%				48,782						4.3		%				11.8		%
Total						$	1,174,939					100.0		%				$	1,122,925					100.0		%

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The Corporation closely monitors economic and credit trends for the industries in which its commercial real estate borrowers are involved. Property types are designated based on the purpose of the collateral securing commercial real estate loans. The table below presents commercial real estate loans by borrower industry and percentage as of September 30, 2024 and December 31, 2023 (dollars in thousands):

Commercial real estate loans by borrower industry:			September 30, 2024						% of Total						December 31, 2023						% of Total						% Change
Construction & Land Development			$	138,710					11.8		%				$	141,551					12.6		%				(2.0)		%
Industrial			54,348						4.6		%				41,784						3.8		%				30.1		%
Warehouse & Storage			85,885						7.3		%				65,379						5.8		%				31.4		%
Retail			196,850						16.8		%				195,561						17.4		%				0.7		%
Office			116,576						9.9		%				118,344						10.5		%				(1.5)		%
Hotel			49,127						4.2		%				55,533						4.9		%				(11.5)		%
1-4 Family Residential Rental			46,984						4.0		%				45,792						4.1		%				2.6		%
Multifamily (5+)			384,489						32.7		%				372,569						33.2		%				3.2		%
Medical			45,930						3.9		%				32,859						2.9		%				39.8		%
Educational			22,393						1.9		%				25,738						2.3		%				(13.0)		%
Other			33,647						2.9		%				27,815						2.5		%				21.0		%
Total			$	1,174,939					100.0		%				$	1,122,925					100.0		%

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities, which may cause them to be similarly impacted by economic or other conditions. Industries are identified using NAICS codes, and the Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations of greater than 10.0% of total loans. As of September 30, 2024 and December 31, 2023, commercial loans to borrowers involved in the real estate and real estate rental and leasing businesses were 51.0% and 49.5% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of September 30, 2024 and December 31, 2023.

The table below presents the maturity of loans outstanding as of September 30, 2024 (in thousands):

						Within One Year						After One But Within Five Years						After Five But Within 15 Years						After 15 Years						Total
Commercial and industrial						$	95,922					$	110,802					$	79,204					$	3,338					$	289,266
Commercial mortgages:
Construction						24,568						38,783						75,359						—						138,710
Commercial mortgages, other						60,354						266,644						679,671						29,560						1,036,229
Residential mortgages						6,153						10,831						101,291						155,824						274,099
Consumer loans:
Home equity lines and loans						99						6,543						59,153						26,654						92,449
Indirect consumer loans						1,583						124,474						63,447						—						189,504
Direct consumer loans						304						5,704						1,562						1,127						8,697
Total						$	188,983					$	563,781					$	1,059,687					$	216,503					$	2,028,954

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The tables below present the amounts due after one year, classified according to fixed interest rates and variable interest rates as of September 30, 2024 (in thousands):

Loans maturing with fixed interest rates:												After One But Within Five Years						After Five But Within 15 Years						After 15 Years						Total
Commercial and industrial												$	68,439					$	32,574					$	468					$	101,481
Commercial mortgages:
Construction												5,083						30,544						—						35,627
Commercial mortgages, other												175,420						140,597						6,074						322,091
Residential mortgages												10,809						96,645						110,034						217,488
Consumer loans:
Home equity lines and loans												5,199						50,123						431						55,753
Indirect consumer loans												124,474						63,447						—						187,921
Direct consumer loans												5,704						533						50						6,287
Total												$	395,128					$	414,463					$	117,057					$	926,648

Loans maturing with variable interest rates:												After One But Within Five Years						After Five But Within 15 Years						After 15 Years						Total
Commercial and industrial												$	42,363					$	46,630					$	2,870					$	91,863
Commercial mortgages:																														—
Construction												33,700						44,815						—						78,515
Commercial mortgages, other												91,224						539,074						23,486						653,784
Residential mortgages												22						4,646						45,790						50,458
Consumer loans:																														—
Home equity lines and loans												1,344						9,030						26,223						36,597
Indirect consumer loans												—						—						—						—
Direct consumer loans												—						1,029						1,077						2,106
Total												$	168,653					$	645,224					$	99,446					$	913,323

The Corporation has reporting systems to monitor: (i) loan origination and concentrations, (ii) delinquent loans, (iii) non-performing assets, including non-performing loans, certain loans made with modifications to borrowers experiencing financial difficulty, other real estate owned, and repossessed vehicles (iv) loans analyzed on an individual basis for credit risk, and (v) potential problem loans. Management reviews these systems on a regular basis.

Non-Performing Assets

Non-performing assets consist of nonaccrual loans, other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure, and repossessed vehicles. Effective January 1, 2023, the Corporation adopted ASU 2022-02, which eliminated troubled debt restructuring accounting guidance. Prior to adoption, nonaccrual troubled debt restructurings were considered to be non-performing assets. The Corporation closely monitors loan modifications made to borrowers deemed to be experiencing financial difficulty in accordance with ASU 2022-02. As of September 30, 2024, there were four loans being monitored under ASU 2022-02 guidance, two of which were accruing, and two of which were nonaccrual.

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Past due status on all loans is based on the contractual terms of the loan. It is generally the Corporation's policy that a loan 90 days past due be placed on nonaccrual status unless factors exist that would eliminate the need to classify a loan as such. A loan may also be designated as nonaccrual at any time if payment of principal or interest in full is not expected due to deterioration in the financial condition of the borrower. At the time loans are placed into nonaccrual status, the accrual of interest is discontinued and previously accrued interest is reversed. All payments received on nonaccrual loans are applied to principal. Loans are considered for return 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. In the case of nonaccrual loans where a portion of the loan has been charged off, the remaining balance is kept in nonaccrual status until the entire principal balance has been recovered.

The following table summarizes the Corporation's non-performing assets (dollars in thousands):

NON-PERFORMING ASSETS
						September 30, 2024						December 31, 2023
Total non-performing loans						$	10,545					$	10,411
Other real estate owned and repossessed vehicles						589						326
Total non-performing assets						$	11,134					$	10,737
Ratio of non-performing loans to total loans						0.52		%				0.53		%
Ratio of non-performing assets to total assets						0.40		%				0.40		%
Ratio of allowance for credit losses to non-performing loans						203.33		%				216.28		%
Accruing loans past due 90 days or more (1)						$	—					$	10

(1) Not included in non-performing assets above.

Non-Performing Loans and Assets

Non-performing loans totaled $10.5 million, or 0.52% of total loans as of September 30, 2024, compared to $10.4 million, or 0.53% of total loans as of December 31, 2023. Non-performing assets, which are comprised of non-performing loans, other real estate owned, and repossessed vehicles were $11.1 million, or 0.40% of total assets as of September 30, 2024, compared to $10.7 million, or 0.40% of total assets as of December 31, 2023. The increase in non-performing loans was primarily attributable to the addition of four commercial real estate loans added to nonaccrual during the nine month period ended September 30, 2024, totaling $3.4 million, primarily offset by the payoff of a nonaccrual commercial real estate loan totaling $1.9 million during the nine month period ended September 30, 2024, as well as net paydown activity on other nonaccrual loans. The increase in non-performing assets can primarily be attributed to the increases in non-performing loans and other real estate owned.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Corporation works closely with borrowers experiencing financial difficulties to identify viable solutions that minimize the potential for loss. The Corporation monitors modifications made to borrowers experiencing financial difficulty in which contractual cash flows are directly impacted. Modifications included under this guidance include principal reductions, reductions in effective interest rates, term extensions, significant payment delays, or a combination thereof. ASU 2022-02 was implemented on January 1, 2023 on a prospective basis, and as of September 30, 2024, the Corporation had four loans modified under this accounting guidance, which consisted of term extensions on two commercial and industrial loans and one home equity loan, and a payment delay on one residential mortgage. As of September 30, 2024, one of the aforementioned commercial and industrial loans given an extension of six months experienced a payment default, while the remainder of the modified loans were performing under their modified terms. During the nine month period ended September 30, 2024, two commercial mortgages previously modified under ASU 2022-02, with total balances of $2.2 million, were paid off.

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Individually Analyzed Loans

The Corporation analyzes loans on an individual basis when management determines that a loan no longer exhibits risk characteristics consistent with those in its designated pool of loans, in accordance with the Corporation's CECL methodology. The amortized cost basis of individually analyzed loans as of September 30, 2024 totaled $8.2 million, compared to $8.0 million as of December 31, 2023.

The majority of the Corporation's individually analyzed loans are secured and measured for credit loss based on collateral evaluations.  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 measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation or charge-off. In determining the amount of any specific allocation or charge-off, the Corporation will make adjustments to reflect the estimated costs to sell the property. Upon receipt and review of updated appraisals, an additional measurement is performed to determine if any adjustments are necessary to reflect proper provisioning or charge-offs. Individually analyzed loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require additional specific allocations or recognition of additional charge-offs. Real estate values in each of the Corporation's market areas have remained stable in recent periods. Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business.

Allowance for Credit Losses

The allowance for credit losses is an amount management believes will be adequate to absorb the estimated lifetime credit losses inherent in assets exhibiting credit risk as of the measurement date. The allowance is in conformity with the requirements established by ASC 326-Financial Instruments-Credit Losses, and is a departure from the allowance for loan losses (ALLL) that the Corporation previously estimated using an incurred loss methodology. The allowance covers loans, unfunded commitments, and certain debt securities exhibiting credit risk potential, and incorporates both quantitative and qualitative components.

Loans are analyzed on either an individual basis or a pooled basis, determined by risk characteristics. It is the Corporation's policy to analyze all nonaccrual commercial loans on an individual basis, unless specific circumstances warrant that the loan should continue to be analyzed on a pooled basis. Management may also individually analyze accruing loans based on specific risk characteristics or fact patterns. Individually analyzed loans are primarily valued based on the collateral method, however, certain loans may be valued using a cash flow analysis. Pooled loans are segmented based on groups of assigned FFIEC call codes, in order to provide enough granularity to meaningfully capture the risk profile of each instrument, yet broad enough to accurately allow for the application of certain pool-level assumptions.

Quantitative analysis is based on an estimated discounted cash flow analysis (DCF) performed at the loan level. The modeled reserve requirement equals the difference between the book balance of the instrument at the measurement date and the present value of assumed cash flows for the life of the loan. The underlying assumptions of the DCF are based on the relationship between a projected value of an economic indicator, and the implied historical loss experience amongst a group of curated peers. The Corporation utilized a regression analysis to determine suitable loss drivers for each pool of loans. Based on these results, a probability of default (PD) and loss given default (LGD), is assigned to each potential value of an economic indicator for each pool of loans, and is then applied to the portfolio to derive the statistical loss implications thereof. A hypothetical loss for each period of the DCF, as well as implied recovery of past losses, is incorporated into the DCF. The Corporation relies on FOMC data as the source for its readily available and reasonable economic forecast. The forecasted values are applied over a four-quarter period, and revert back to the historic mean of a lookback period over an eight-quarter period, on a straight-line basis.

Qualitative adjustments represent management's expectation of certain risks not being captured entirely in the quantitative portion of the model. Qualitative adjustment rates are applied to each instrument within a pool on a consistent basis. Factors considered as part of the qualitative adjustment analysis include economic considerations not captured by the model, changes in conditions within the Bank such as lending standards, personnel, and concentrations of credit, among others, as well as other external factors such as changes in the regulatory and competitive landscape.

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The allowance for credit losses is adjusted though a provision (credit) for credit losses, which is charged to operations. Separate provision accounts have been established for on-balance sheet credit exposures and off-balance sheet credit exposures, and are combined in the line item provision (credit) for credit losses on the Corporation's Consolidated Statements of Income. Loans are charged against the allowance for credit losses when management believes 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 outcomes of quantitative analysis, a review of specific individually analyzed loans, and relevant qualitative adjustments. While management uses available information to recognize losses on credits, future additions to the allowance may be necessary based on changing economic conditions or portfolio composition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for credit losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The allowance for credit losses was $21.4 million as of September 30, 2024, and $22.5 million as of December 31, 2023. The allowance for credit losses was 203.33% of non-performing loans as of September 30, 2024, compared to 216.28% as of December 31, 2023. The ratio of allowance for credit losses to total loans was 1.06% as of September 30, 2024 and 1.14% as of December 31, 2023. Net charge-offs for the nine months ended September 30, 2024 and September 30, 2023 were $0.6 million and $0.8 million, respectively. Net charge-off activity for the nine months ended September 30, 2024 primarily reflected activity in the indirect auto segment of the consumer loan portfolio, while activity for the nine months ended September 30, 2023 primarily reflected a partial charge off on a commercial and industrial loan, as well as charge-off activity in the indirect auto segment of the consumer loan portfolio.

The decrease in the allowance for credit losses was primarily attributable to the annual review and update performed on the loss drivers used as the basis for the Bank's CECL model. Loss drivers are the economic variables used to make forward looking credit loss projections. Recalibration of the loss drivers resulted in a decline in the baseline loss rates used in the CECL model, however, the composition of economic variables selected as loss drivers did not change as a result of this update. Partially offsetting decreases related to the annual update were comparatively weaker FOMC economic forecasts in the current year period, a decline in modeled prepayment speeds, and loan growth during 2024.

The table below summarizes the Corporation’s allowance for credit losses and non-performing loans outstanding by loan category as of September 30, 2024 and December 31, 2023 (dollars in thousands):

ALLOWANCE BY LOAN CATEGORY
Balance as of September 30, 2024			Allowance for credit losses						Allowance to loans(1)						Non-performing loans						Non-performing loans to loans(1)						Allowance to non-performing loans
Commercial and industrial			$	4,896					1.69		%				$	1,757					0.61		%				278.66		%
Commercial mortgages			10,762						0.92		%				6,325						0.54		%				170.15		%
Residential mortgages			2,218						0.81		%				1,387						0.51		%				159.91		%
Consumer loans			3,565						1.23		%				1,076						0.37		%				331.32		%
Total			$	21,441					1.06		%				$	10,545					0.52		%				203.33		%
Balance as of December 31, 2023			Allowance for credit losses						Allowance to loans(1)						Non-performing loans						Non-performing loans to loans(1)						Allowance to non-performing loans
Commercial and industrial			$	5,055					1.91		%				$	1,930					0.73		%				261.92		%
Commercial mortgages			12,026						1.07		%				5,969						0.53		%				201.47		%
Residential mortgages			2,194						0.79		%				1,315						0.47		%				166.84		%
Consumer loans			3,242						1.05		%				1,197						0.39		%				270.84		%
Total			$	22,517					1.14		%				$	10,411					0.53		%				216.28		%
(1) Ratio is a percentage of loan category.

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The table below summarizes the Corporation’s consolidated credit ratios as of September 30, 2024 and December 31, 2023:

Consolidated Ratios						September 30, 2024						December 31, 2023
Non-performing loans to total loans						0.52		%				0.53		%
Allowance for credit losses to total loans						1.06		%				1.14		%
Allowance for credit losses to non-performing loans						203.33		%				216.28		%

The table below summarizes the Corporation’s ratio of net charge-offs and recoveries to average loans outstanding by loan category for the nine months ended September 30, 2024 and September 30, 2023:

Credit Ratios (1)						September 30, 2024						September 30, 2023
Commercial and industrial						(0.05)		%				0.11		%
Commercial mortgages						—		%				—		%
Residential mortgages						(0.02)		%				—		%
Consumer loans						0.31		%				0.16		%
Total						0.04		%				0.04		%
(1) Current period annualized.

The table below summarizes the Corporation’s credit loss experience for the nine months ended September 30, 2024 and 2023 (in thousands):

SUMMARY OF CREDIT LOSS EXPERIENCE
			Nine Months Ended   September 30,
			2024						2023
Balance of allowance for credit losses at beginning of period			$	22,517					$	19,659
Impact of ASC 326 Adoption			—						374
Charge-offs:
Commercial and industrial			18						281
Commercial mortgages			—						—
Residential mortgages			21						—
Consumer loans			1,083						785
Total charge-offs			$	1,122					$	1,066
Recoveries:
Commercial and industrial			$	118					$	13
Commercial mortgages			3						1
Residential mortgages			57						—
Consumer loans			378						281
Total recoveries			$	556					$	295
Net charge-offs (recoveries)			566						771
Provision (credit) for credit losses on-balance sheet exposure (1)			(510)						990
Balance of allowance for credit losses at end of period			$	21,441					$	20,252

(1) Additional provision related to off-balance sheet exposure was a credit of $87 thousand for the nine months ended September 30, 2024 and a credit of $28 thousand for the nine months ended September 30, 2023.

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Other Real Estate Owned and Repossessed Vehicles

OREO totaled $0.5 million as of September 30, 2024, and $0.3 million as of December 31, 2023, respectively. There were three residential mortgage properties and four home equity loan properties added to other real estate owned in the first nine months of 2024. There were two residential mortgage properties and three home equity properties sold from other real estate owned in the first nine months of 2024, resulting in a net loss on sales of $23 thousand. The Corporation had $0.1 million in repossessed vehicles as of September 30, 2024, which is included in other assets on the Consolidated Balance Sheets, and is a component of non-performing assets.

Deposits

The table below summarizes the Corporation’s deposit composition by segment as of September 30, 2024, and December 31, 2023, and the dollar and percent change from December 31, 2023 to September 30, 2024 (in thousands):

DEPOSITS
																					September 30, 2024 v. December 31, 2023
			September 30, 2024									December 31, 2023
			Amount			% of Total						Amount			% of Total						$ Change						% Change
Non interest-bearing demand deposits			$	616,126		25.1		%				$	653,166		26.9		%				$	(37,040)					(5.7)		%
Interest-bearing demand deposits			349,383			14.3		%				291,138			12.0		%				58,245						20.0		%
Money market deposits			630,870			25.7		%				623,714			25.7		%				7,156						1.1		%
Savings deposits			242,911			9.9		%				249,144			10.3		%				(6,233)						(2.5)		%
Certificates of deposit $250,000 or less			444,861			18.1		%				365,058			15.0		%				79,803						21.9		%
Certificates of deposit greater than $250,000			96,481			4.0		%				76,804			3.1		%				19,677						25.6		%
Brokered deposits			39,500			1.6		%				142,776			5.9		%				(103,276)						(72.3)		%
Other time deposits			30,989			1.3		%				27,627			1.1		%				3,362						12.2		%
Total			$	2,451,121		100.0		%				$	2,429,427		100.0		%				$	21,694					0.9		%

Deposits totaled $2.451 billion as of September 30, 2024 compared to $2.429 billion as of December 31, 2023, an increase of $21.7 million, or 0.9%. The increase was primarily attributable to increases of $102.8 million in customer time deposits and $58.2 million in interest-bearing demand deposits, partially offset by decreases of $103.3 million in brokered deposits and $37.0 million in non interest-bearing demand deposits. Additionally, insured money market deposits increased $7.2 million, and savings deposits decreased $6.2 million.

The growth in customer deposits was due primarily to increases of $56.1 million in public deposits, $40.6 million in consumer deposits, $10.3 million in ICS deposits, $12.8 million in CDARS deposits, and $5.2 million in commercial deposits. As of September 30, 2024, demand deposit and money market deposits comprised 65.1% of total deposits compared to 64.5% as of December 31, 2023. The aggregate amount of the Corporation's outstanding uninsured deposits was 28.9% and 27.0% of total deposits, as of September 30, 2024 and December 31, 2023, respectively.

The table below presents the Corporation's deposits balances by Bank division (in thousands):

DEPOSITS BY DIVISION
			September 30, 2024						December 31, 2023						December 31, 2022						December 31, 2021						December 31, 2020
Chemung Canal Trust Company*			$	2,055,761					$	2,042,679					$	1,889,018					$	1,738,015					$	1,686,370
Capital Bank Division			385,834						380,962						435,207						415,607						351,404
Canal Bank Division			9,526						5,786						3,002						1,811						—
Total			$	2,451,121					$	2,429,427					$	2,327,227					$	2,155,433					$	2,037,774

*All deposits, excluding those originated by the Capital Bank and Canal Bank divisions.

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In addition to consumer, commercial, and public deposits, other sources of funds include reciprocal deposits. The Regulatory Relief Act changed the definition of brokered deposits, such that subject to certain conditions, reciprocal deposits of another depository institution obtained through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations. This applies to the Corporation's participation in the CDARS and ICS programs. The CDARS and ICS programs involve a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. The CDARS and ICS reciprocal program uses a sophisticated matching system, where funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution. Additionally, the CDARS and ICS One-Way Buy programs allow the Corporation to obtain wholesale brokered deposits through the system. Deposits obtained through the CDARS and ICS reciprocal programs were $448.5 million and $425.5 million as of September 30, 2024, and December 31, 2023, respectively. Brokered deposits, which include funds obtained through brokers or the CDARS and ICS One-Way Buy program, were $39.5 million and $142.8 million as of September 30, 2024, and December 31, 2023, respectively.

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposit accounts. A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank. These customers will typically turn to their primary bank first when in need of other financial services. Strategies that have been developed and implemented to generate these deposits include: (i) acquiring deposits by entering new markets through branch acquisitions or de novo branching, (ii) an annual checking account marketing campaign, (iii) training branch employees to identify and meet client financial needs with Bank products and services, (iv) linking business and consumer loans to the customer's primary checking account at the Bank, (v) aggressively promoting direct deposit of client’s payroll checks or benefit checks and (vi) constantly monitoring the Corporation’s pricing strategies to ensure competitive products and services. The Corporation also considers brokered deposits to be an element of its deposit strategy and uses brokered deposits as a secondary source of funding to support growth.

Borrowings

Borrowings increased $18.8 million to $53.8 million as of September 30, 2024 from December 31, 2023, primarily attributable to a $50.0 million advance from the Federal Reserve, as the Corporation took advantage of lower interest rates offered by the Bank Term Funding Program (BTFP), offset by a decrease of $31.9 million in FHLBNY overnight advances compared to December 31, 2023. A $30.0 million FHLBNY short-term advance matured in September 2024. There were no outstanding FHLBNY or FRBNY term advances as of December 31, 2023.

Shareholders’ Equity

Total shareholders' equity increased by $25.4 million from $195.2 million as of December 31, 2023 to $220.7 million as of September 30, 2024, primarily due to an increase in retained earnings and a decrease in accumulated other comprehensive loss. The increase in retained earnings of $13.3 million was due primarily to earnings of $17.8 million, offset by $4.4 million in dividends declared during the nine months ended September 30, 2024. The decrease in accumulated other comprehensive loss of $10.9 million can be mostly attributed to an increase in the fair market value of the available for sale securities portfolio, primarily due to favorable changes in interest rates. Treasury stock decreased by $0.5 million, primarily due to the issuance of shares related to the Corporation's employee benefit plans and grants issued under the Corporation's stock compensation plan. The total shareholders’ equity to total assets ratio was 7.95% as of September 30, 2024 compared to 7.20% as of December 31, 2023. The tangible equity to tangible assets ratio was 7.22% as of September 30, 2024 compared to 6.45% as of December 31, 2023. Book value per share increased to $46.22 as of September 30, 2024 from $41.07 as of December 31, 2023.

The Bank is subject to the capital adequacy guidelines of the Federal Reserve, which establishes a framework for the classification of financial institutions into five categories: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized. As of September 30, 2024, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions. Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management. On January 8, 2021, the Corporation's Board of Directors approved a new stock repurchase program. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares. The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. No shares were repurchased in the third quarter of 2024. As of September 30, 2024, the Corporation repurchased a total of 49,184 shares of common stock at a total cost of $2.0 million under the repurchase program, at the weighted average cost of $40.42 per share. Remaining buyback authority under the share repurchase program was 200,816 shares as of September 30, 2024.

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Liquidity

Liquidity management involves the ability to meet the cash flow requirements of deposit clients and borrowers, as well as the operating, investing, and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs. These include short term investments, cash flow from lending and investing activities, core-deposit growth and non-core funding sources, such as time deposits of $250,000 or more, brokered deposits, FHLBNY and FRB advances, and securities sold under agreements to repurchase.

The Corporation has a detailed Funds Management Policy that includes sections on liquidity measurement and management, and a Liquidity Contingency Plan that provides for the prompt and comprehensive response to unexpected demands for liquidity. This policy and plan are established and revised as needed by the management and Board ALCO committees. The ALCO is responsible for measuring liquidity, establishing liquidity targets and implementing strategies to achieve selected targets. The ALCO is responsible for coordinating activities across the Corporation to ensure that prudent levels of contingent or standby liquidity are available at all times. Based upon this ongoing assessment of liquidity considerations, management believes the Corporation’s sources of funding meet anticipated funding needs.

As of September 30, 2024, the Corporation's cash and cash equivalents balance was $80.4 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of mortgage-backed securities, U.S. Gov't Treasury securities, Small Business Administration loan pools, and municipal bonds. Although this portfolio generates interest income for the Corporation, it also serves as an available source of liquidity and capital if the need should arise. As of September 30, 2024, the Corporation's investment in securities available for sale was $554.6 million, $256.1 million of which was not pledged as collateral.

The Corporation is a member of the FHLBNY, which allows it to access borrowings to enhance management's ability to satisfy future liquidity needs. The Bank had pledged a total of $248.3 million and $254.6 million of residential mortgage loans and home equity loans under a blanket lien arrangement, as of September 30, 2024 and December 31, 2023, respectively, as collateral for future borrowings. Based on this available collateral and securities also held as collateral, the Corporation was eligible to borrow up to a total of $224.2 million and $225.3 million as of September 30, 2024 and December 31, 2023, respectively. The Bank had no outstanding FHLBNY borrowings as of September 30, 2024, and $31.9 million as of December 31, 2023. The Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $224.2 million as of September 30, 2024. Borrowings may be used on a short-terms basis for liquidity purposes or on a long-term basis to fund asset growth.

Uninsured deposits totaled $708.9 million as of September 30, 2024, and $655.7 million as of December 31, 2023, which included $216.2 million and $153.2 million of municipal deposits that were collateralized by pledged assets when appropriate, respectively. The Corporation considers the level of uninsured deposits to be an important factor when considering liquidity management and strategic decisions due to their fluidity.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it may continue utilizing brokered deposits as a secondary source of funding to support growth. Brokered deposits may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth. Brokered deposits were $39.5 million and $142.8 million, as of September 30, 2024 and December 31, 2023, respectively. As of September 30, 2024, brokered deposits carried terms between 2 and 48 months. The Corporation also had a total of $75.0 million of unsecured lines of credit with five different financial institutions, all of which were available as of September 30, 2024 and December 31, 2023. Also available to the Corporation is the Discount Window Lending provided by the Federal Reserve Bank.

On March 12, 2023, the Treasury Department, Federal Reserve, and FDIC jointly announced a new liquidity program, the Bank Term Funding Program (BTFP), in response to the failure of two banks earlier that week. Under the BTFP, institutions could pledge certain securities (i.e., securities eligible for purchase by the Federal Reserve Banks in open market operations) for the par value of the securities at a borrowing rate of ten basis points over the one-year overnight index swap rate. Certain U.S. federally insured depository institutions were eligible to participate in the BTFP. In January 2024, the Corporation utilized the BTFP, with an advance of $50.0 million, at an interest rate of 4.91%. No new borrowings could be made under the BTFP after March 11, 2024. This advance was repaid by the Corporation in the fourth quarter of 2024 without prepayment penalty.

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Consolidated Cash Flows Analysis

The table below summarizes the Corporation's cash flows for the periods indicated (in thousands):

CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands)						Nine Months Ended   September 30,
						2024						2023
Net cash provided by operating activities						$	23,580					$	27,261
Net cash used in investing activities						(14,840)						(53,842)
Net cash provided by financing activities						34,853						46,292
Net increase in cash and cash equivalents						$	43,593					$	19,711

Operating activities

The Corporation believes cash flows from operations, available cash balances, and its ability to generate cash through short-term and long-term borrowings are sufficient to fund the Corporation’s operating liquidity needs. Cash provided by operating activities in the first nine months of 2024 and 2023 primarily resulted from net income after non-cash operating adjustments.

Investing activities

Cash used in investing activities during the first nine months of 2024 and 2023 primarily resulted from a net increase in loans, offset by maturities and principal paydowns on securities available for sale.

Financing activities

Cash provided by financing activities during the first nine months of 2024 primarily resulted from a term advance from the Federal Reserve BTFP and a net increase in deposits. Cash provided by financing activities during the first nine months of 2023 primarily resulted from a net increase in deposits, including brokered deposits, offset by net payments of overnight advances held at the end of the period.

Capital Resources

The Bank is subject to regulatory capital requirements administered by federal banking agencies. As a result of the Regulatory Relief Act, the FRB amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3.0 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are not subject to regulatory capital requirements. Capital adequacy guidelines and, additionally for banks, 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 above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. 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 calculating regulatory capital.

Pursuant to the Regulatory Relief Act, the FRB finalized a rule that established a community bank leverage ratio (tier 1 capital to average consolidated assets) at 9% for institutions under $10 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. The new rule took effect on January 1, 2020. The Bank has not elected to use the community bank leverage ratio.

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. Management believes that, as of September 30, 2024 and December 31, 2023, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2018, 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.

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As of September 30, 2024, 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 capital category.

The regulatory capital ratios as of September 30, 2024 and December 31, 2023 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

The Corporation and the Bank’s capital ratios as of September 30, 2024 were as follows (in thousands, except ratio data):

			Actual												Minimum Capital Adequacy												Minimum Capital Adequacy with Capital Buffer												To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2024			Amount						Ratio						Amount						Ratio						Amount						Ratio						Amount						Ratio
Total Capital (to Risk Weighted Assets):
Consolidated			$	276,237					13.31		%				N/A						N/A						N/A						N/A						N/A						N/A
Bank			$	270,426					13.04		%				$	165,906					8.00		%				$	217,752					10.50		%				$	207,383					10.00		%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated			$	253,964					12.24		%				N/A						N/A						N/A						N/A						N/A						N/A
Bank			$	248,153					11.97		%				$	124,430					6.00		%				$	176,275					8.50		%				$	165,906					8.00		%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated			$	253,964					12.24		%				N/A						N/A						N/A						N/A						N/A						N/A
Bank			$	248,153					11.97		%				$	93,322					4.50		%				$	145,168					7.00		%				$	134,799					6.50		%
Tier 1 Capital (to Average Assets):
Consolidated			$	253,964					9.03		%				N/A						N/A						N/A						N/A						N/A						N/A
Bank			$	248,153					8.83		%				$	112,413					4.00		%				N/A						N/A						$	140,516					5.00		%

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The Corporation and the Bank’s capital ratios as of December 31, 2023 were as follows (in thousands, except ratio data):

			Actual												Minimum Capital Adequacy												Minimum 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		%

Dividend Restrictions

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 current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above. As of September 30, 2024, the Bank could, without prior approval, declare dividends of approximately $54.8 million.

Adoption of New Accounting Standards

Please refer to Note 1, Summary of Significant Accounting Policies - Recent Accounting Pronouncements for a discussion of new accounting standards.

Explanation and Reconciliation of the Corporation’s Use of Non-GAAP Measures

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 7–13. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures, because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies.

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The SEC has adopted Regulation G, which applies to all public disclosures, including earnings releases, made by registered companies that contain “non-GAAP financial measures.” Under Regulation G, companies making public disclosures containing non-GAAP financial measures must also disclose, along with each non-GAAP financial measure, certain additional information, including a reconciliation of the non-GAAP financial measure to the closest comparable GAAP financial measure and a statement of the Corporation’s reasons for utilizing the non-GAAP financial measure as part of its financial disclosures. The SEC has exempted from the definition of “non-GAAP financial measures” certain commonly used financial measures that are not based on GAAP. When these exempted measures are included in public disclosures, supplemental information is not required.  The following measures used in this Report, which are commonly utilized by financial institutions, have not been specifically exempted by the SEC and may constitute "non-GAAP financial measures" within the meaning of the SEC's rules, although we are unable to state with certainty that the SEC would so regard them.

Fully Taxable Equivalent Net Interest Income and Net Interest Margin

Net interest income is commonly presented on a tax-equivalent basis. That is, to the extent that some component of the institution's net interest income, which is presented on a before-tax basis, is exempt from taxation (e.g., is received by the institution as a result of its holdings of state or municipal obligations), an amount equal to the tax benefit derived from that component is added to the actual before-tax net interest income total. This adjustment is considered helpful in comparing one financial institution's net interest income to that of other institutions or in analyzing any institution’s net interest income trend line over time, to correct any analytical distortion that might otherwise arise from the fact that financial institutions vary widely in the proportions of their portfolios that are invested in tax-exempt securities, and that even a single institution may significantly alter over time the proportion of its own portfolio that is invested in tax-exempt obligations. Moreover, net interest income is itself a component of a second financial measure commonly used by financial institutions, net interest margin, which is the ratio of net interest income to average interest-earning assets. For purposes of this measure as well, fully taxable equivalent net interest income is generally used by financial institutions, as opposed to actual net interest income, again to provide a better basis of comparison from institution to institution and to better demonstrate a single institution’s performance over time.  The Corporation follows these practices.

																																	As of or for the
(in thousands, except ratio data)			As of or for the Three Months Ended																														Nine Months Ended
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT			Sept. 30,						June 30,						March 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
			2024						2024						2024						2023						2023						2024						2023
Net interest income (GAAP)			$	18,388					$	17,761					$	18,089					$	17,898					$	18,017					$	54,238					$	56,559
Fully taxable equivalent adjustment			83						81						84						87						87						248						277
Fully taxable equivalent net interest income (non-GAAP)			$	18,471					$	17,842					$	18,173					$	17,985					$	18,104					$	54,486					$	56,836
Average interest-earning assets (GAAP)			$	2,699,968					$	2,699,402					$	2,681,059					$	2,654,638					$	2,627,012					$	2,693,499					$	2,609,999
Net interest margin - fully taxable equivalent (non-GAAP)			2.72		%				2.66		%				2.73		%				2.69		%				2.73		%				2.70		%				2.91		%

Efficiency Ratio

The unadjusted efficiency ratio is calculated as non-interest expense divided by total revenue (net interest income and non-interest income). The adjusted efficiency ratio is a non-GAAP financial measure which represents the Corporation’s ability to turn resources into revenue and is calculated as non-interest expense divided by total revenue (fully taxable equivalent net interest income and non-interest income), adjusted for one-time occurrences and amortization of intangible assets. This measure is meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation’s productivity measured by the amount of revenue generated for each dollar spent.

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																																	As of or for the
			As of or for the Three Months Ended																														Nine Months Ended
(in thousands, except ratio data)			Sept. 30,						June 30,						March 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
EFFICIENCY RATIO			2024						2024						2024						2023						2023						2024						2023
Net interest income (GAAP)			$	18,388					$	17,761					$	18,089					$	17,898					$	18,017					$	54,238					$	56,559
Fully taxable equivalent adjustment			83						81						84						87						87						248						277
Fully taxable equivalent net interest income (non-GAAP)			$	18,471					$	17,842					$	18,173					$	17,985					$	18,104					$	54,486					$	56,836
Non-interest income (GAAP)			$	5,919					$	5,598					$	5,657					$	5,871					$	7,808					$	17,174					$	18,678
Less:  recognition of employee retention tax credit			—						—						—						—						(2,370)						—						(2,370)
Less:  net (gains) losses on security transactions			—						—						—						39						—						—						—
Adjusted non-interest income (non-GAAP)			$	5,919					$	5,598					$	5,657					$	5,910					$	5,438					$	17,174					$	16,308
Non-interest expense (GAAP)			$	16,510					$	16,219					$	16,698					$	16,826					$	15,668					$	49,427					$	47,417
Efficiency ratio (unadjusted)			67.92		%				69.43		%				70.32		%				70.79		%				60.67		%				69.21		%				63.02		%
Efficiency ratio (adjusted)			67.69		%				69.19		%				70.07		%				70.42		%				66.55		%				68.97		%				64.83		%

Tangible Equity and Tangible Assets (Period-End)

Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures. Tangible equity represents the Corporation’s stockholders’ equity, less goodwill and intangible assets. Tangible assets represents the Corporation’s total assets, less goodwill and other intangible assets. Tangible book value per share represents the Corporation’s tangible equity divided by common shares at period-end. These measures are meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation’s use of equity.

																																	As of or for the
(in thousands, except per share and ratio data)			As of or for the Three Months Ended																														Nine Months Ended
TANGIBLE EQUITY AND TANGIBLE ASSETS (PERIOD END)			Sept. 30,						June 30,						March 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
			2024						2024						2024						2023						2023						2024						2023
Total shareholders' equity (GAAP)			$	220,654					$	201,222					$	197,128					$	195,241					$	170,064					$	220,654					$	170,064
Less: intangible assets			(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)
Tangible equity (non-GAAP)			$	198,830					$	179,398					$	175,304					$	173,417					$	148,240					$	198,830					$	148,240
Total assets (GAAP)			$	2,774,215					$	2,755,813					$	2,784,890					$	2,710,529					$	2,707,834					$	2,774,215					$	2,707,834
Less: intangible assets			(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)
Tangible assets (non-GAAP)			$	2,752,391					$	2,733,989					$	2,763,066					$	2,688,705					$	2,686,010					$	2,752,391					$	2,686,010
Total equity to total assets at end of period (GAAP)			7.95		%				7.30		%				7.08		%				7.20		%				6.28		%				7.95		%				6.28		%
Book value per share (GAAP)			$	46.22					$	42.17					$	41.34					$	41.07					$	35.90					$	46.22					$	35.90
Tangible equity to tangible assets at end of period (non-GAAP)			7.22		%				6.56		%				6.34		%				6.45		%				5.52		%				7.22		%				5.52		%
Tangible book value per share (non-GAAP)			$	41.65					$	37.59					$	36.77					$	36.48					$	31.29					$	41.65					$	31.29

 

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Tangible Equity (Average)

Average tangible equity and return on average tangible equity are each non-GAAP financial measures. Average tangible equity represents the Corporation’s average stockholders’ equity, less average goodwill and intangible assets for the period. Return on average tangible equity measures the Corporation’s earnings as a percentage of average tangible equity. These measures are meaningful to the Corporation, as well as to investors and analysts, in assessing the Corporation’s use of equity.

																																	As of or for the
			As of or for the Three Months Ended																														Nine Months Ended
(in thousands, except ratio data)			Sept. 30,						June 30,						March 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
TANGIBLE EQUITY (AVERAGE)			2024						2024						2024						2023						2023						2024						2023
Total average shareholders' equity (GAAP)			$	210,421					$	195,375					$	195,860					$	174,868					$	179,700					$	200,588					$	177,969
Less: average intangible assets			(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)						(21,824)
Average tangible equity (non-GAAP)			$	188,597					$	173,551					$	174,036					$	153,044					$	157,876					$	178,764					$	156,145
Return on average equity (GAAP)			10.81		%				10.27		%				14.48		%				8.63		%				16.89		%				11.82		%				15.93		%
Return on average tangible equity (non-GAAP)			12.07		%				11.56		%				16.29		%				9.86		%				19.22		%				13.27		%				18.15		%

Adjustments for Certain Items of Income or Expense

In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROA, and ROE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular period by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the period, including certain nonrecurring items. The Corporation believes that the resulting non-GAAP financial measures may improve an understanding of its results of operations by separating out any such transactions or items that may have had a disproportionate positive or negative impact on the Corporation’s financial results during the particular period in question. In the Corporation’s presentation of any such non-GAAP (adjusted) financial measures not specifically discussed in the preceding paragraphs, the Corporation supplies the supplemental financial information and explanations required under Regulation G.

																																	As of or for the
(in thousands, except per share and ratio data)			As of or for the Three Months Ended																														Nine Months Ended
NON-GAAP NET INCOME			Sept. 30,						June 30,						March 31,						Dec. 31,						Sept. 30,						Sept. 30,						Sept. 30,
			2024						2024						2024						2023						2023						2024						2023
Reported net income (GAAP)			$	5,720					$	4,987					$	7,050					$	3,802					$	7,648					$	17,757					$	21,198
Net (gains) losses on security transactions (net of tax)			—						—						—						29						—						—						—
Recognition of employee retention tax credit (net of tax)			—						—						—						—						(1,873)						—						(1,873)
Non-GAAP net income			$	5,720					$	4,987					$	7,050					$	3,831					$	5,775					$	17,757					$	19,325
Average basic and diluted shares outstanding			4,773						4,770						4,764						4,743						4,736						4,769						4,729
Reported basic and diluted earnings per share (GAAP)			$	1.19					$	1.05					$	1.48					$	0.80					$	1.61					$	3.72					$	4.48
Reported return on average assets (GAAP)			0.83		%				0.73		%				1.04		%				0.56		%				1.14		%				0.87		%				1.07		%
Reported return on average equity (GAAP)			10.81		%				10.27		%				14.48		%				8.63		%				16.89		%				11.82		%				15.93		%
Non-GAAP basic and diluted earnings per share			$	1.19					$	1.05					$	1.48					$	0.81					$	1.21					$	3.72					$	4.08
Non-GAAP return on average assets			0.83		%				0.73		%				1.04		%				0.57		%				0.86		%				0.87		%				0.97		%
Non-GAAP return on average equity			10.81		%				10.27		%				14.48		%				8.69		%				12.75		%				11.82		%				14.52		%

 

 

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ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

Management considers interest rate risk to be the most significant market risk for the Corporation. Market risk is the risk of loss from adverse changes in market prices and rates.  Interest rate risk is the exposure to adverse changes in the net income of the Corporation as a result of changes in interest rates.

The Corporation’s primary earnings source is net interest income, which is affected by changes in the level of interest rates, the relationship between rates, the impact of interest rate fluctuations on asset prepayments, the level and composition of deposits and liabilities, and credit quality of earning assets.

The Corporation’s objectives in its asset and liability management are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of its operations to changes in interest rates. The Corporation's ALCO has the strategic responsibility for setting the policy guidelines on acceptable exposure to interest rate risk. These guidelines contain specific measures and limits regarding the risks, which are monitored on a regular basis. The ALCO is made up of the President and Chief Executive Officer, the Chief Financial Officer and Treasurer, the Asset Liability Management Officer, and other officers representing key functions.

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon various basis point changes in interest rates, with appropriate floors set for interest-bearing liabilities. As of September 30, 2024, it is estimated that immediate decreases in interest rates of 100 basis points and 200 basis points would positively impact the next 12 months net interest income by 2.75% and 4.55%, respectively. Immediate increases in interest rates of 100 basis points and 200 basis points would positively impact the next 12 months net interest income by 2.16% and 4.22%, respectively. All scenarios are within the Corporation's policy guidelines.

Change in interest rates			Percentage Increase (Decrease) in Net Interest Income over 12 Months
200 basis points decrease			4.55%
100 basis points decrease			2.75%
100 basis points increase			2.16%
200 basis points increase			4.22%

A related component of interest rate risk is the expectation that the market value of the Corporation’s equity account will fluctuate with changes in interest rates. This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to a decline in market value. As of September 30, 2024, it is estimated that immediate decreases in interest rates of 100 basis points and 200 basis points would positively impact the market value of the Corporation’s capital account by 3.10% and 4.31% respectively. Immediate increases in interest rates of 100 basis points and 200 basis points would positively impact the market value by 0.92% and 1.37% respectively. All scenarios are within the Corporation's policy guidelines.

Change in interest rates			Percentage Increase (Decrease) in Present Value of Corporation's Equity
200 basis points decrease			4.31%
100 basis points decrease			3.10%
100 basis points increase			0.92%
200 basis points increase			1.37%

Management does recognize the need for certain hedging strategies during periods of anticipated higher fluctuations in interest rates and the Funds Management Policy provides for limited use of certain derivatives in asset liability management.

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Credit Risk

The Corporation manages credit risk consistent with state and federal laws governing the making of loans through written policies and procedures; loan review to identify loan problems at the earliest possible time; collection procedures (continued even after a loan is charged off); an adequate allowance for credit losses; and continuing education and training to ensure lending expertise. Diversification by loan product is maintained through offering commercial loans, 1-4 family mortgages, and a full range of consumer loans.

The Corporation monitors its loan portfolio carefully. The Loan Committee of the Corporation's Board of Directors is designated to receive required loan reports, oversee loan policy, and approve loans above authorized individual and Senior Loan Committee lending limits. The Senior Loan Committee, consisting of the President and Chief Executive Officer, Chief Financial Officer and Treasurer (non-voting), Chief Credit and Risk Officer, Business Client Division Manager, Retail Client Division Manager, Retail Loan Manager, Senior Commercial Real Estate Lender, and Commercial Loan Managers, implements the Board-approved loan policy.

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ITEM 4:    CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial and accounting officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of September 30, 2024 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial and accounting officer have concluded that the Corporation's disclosure controls and procedures are effective as of September 30, 2024. In addition, there have been no changes in the Corporation's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in reports filed by the Corporation under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

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PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

On February 4, 2020, the Corporation filed a lawsuit against Pioneer Bank, Albany, New York, in the Supreme Court of the State of New York in the County of Albany. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, the Bank owns a participating interest totaling $4.2 million in an approximately $36.0 million commercial credit facility on which the borrower defaulted due to fraudulent activity. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Corporation received a recovery of $0.5 million in April, 2020, and continues to pursue recovery of the remaining $3.7 million and accumulated expenses as a result of purchasing the participation interest.

Other than as noted above, 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 our financial results or liquidity as of September 30, 2024.

ITEM 1A.    RISK FACTORS

There have been no material changes in the risk factors set forth in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on March 13, 2024. Additional risks not presently known to us, or that we currently deem immaterial, may adversely affect our business, financial condition or results of operations.

ITEM 2.    Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities

    (c)    Issuer Purchases of Equity Securities (1)

Period						Total number of shares purchased						Average price paid per share						Total number of shares purchased as part of publicly announced plans or programs						Maximum number of shares that may yet be purchased under the plans or programs
July 1 - July 31, 2024						—						$	—					—						200,816
August 1 - August 31, 2024						—						$	—					—						200,816
September 1 -September 30, 2024						—						$	—					—						200,816
Quarter ended September 30, 2024						—						$	—					—						200,816
(1) On January 8, 2021, the Corporation’s Board of Directors approved a new stock repurchase plan. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its outstanding shares. Purchases may be made from time to time on the open market or in private negotiated transactions and will be at the discretion of management. As of September 30, 2024 the Corporation has repurchased a total of 49,184 shares at the weighted average cost of $40.42 per share.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

        Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

        Not applicable.

ITEM 5.    OTHER INFORMATION

During the third quarter of 2024, 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.

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ITEM 6.    EXHIBITS

    The following exhibits are either filed with this Form 10-Q 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 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 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 3.1 to Registrant’s Form 8-K filed with the Commission on August 19, 2022).
31.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
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.

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SIGNATURES

Pursuant to the requirements 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: November 7, 2024			By:  /s/ Anders M. Tomson
			Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer)

DATED: November 7, 2024			By:  /s/ Dale M. McKim, III
			Dale M. McKim, III Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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EXHIBIT INDEX

The following exhibits are either filed with this Form 10-Q 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 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 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 3.1 to Registrant’s Form 8-K filed with the Commission on August 19, 2022).
31.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
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.