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What changed in CHEMUNG FINANCIAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of CHEMUNG FINANCIAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+410 added−388 removedSource: 10-K (2024-03-13) vs 10-K (2023-03-22)

Top changes in CHEMUNG FINANCIAL CORP's 2023 10-K

410 paragraphs added · 388 removed · 281 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

67 edited+17 added−19 removed115 unchanged
Biggest changeSarbanes-Oxley established laws affecting public companies’ corporate governance, accounting obligations, and corporate reporting by: (i) creating a federal accounting oversight body; (ii) revamping auditor independence rules; (iii) enacting corporate responsibility and governance measures; (iv) enhancing disclosures by public companies, their directors, and their executive officers; (v) strengthening the powers and resources of the SEC; and (vi) imposing criminal and civil penalties for securities fraud and related wrongful conduct. 12 The SEC has adopted regulations under Sarbanes-Oxley, including: (i) executive compensation disclosure rules; (ii) standards of independence for directors who serve on the Corporation’s audit committee; (iii) disclosure requirements as to whether at least one member of the Corporation’s audit committee qualifies as a “financial expert” as defined in SEC regulations; (iv) whether the Corporation has adopted a code of ethics applicable to its chief executive officer, chief financial officer, or those persons performing similar functions; (v) and disclosure requirements regarding the operations of Board of Directors' nominating committees and the means, if any, by which security holders may communicate with directors.
Biggest changeThe SEC has adopted regulations under Sarbanes-Oxley, including: (i) executive compensation disclosure rules; (ii) standards of independence for directors who serve on the Corporation’s audit committee; (iii) disclosure requirements as to whether at least one member of the Corporation’s audit committee qualifies as a “financial expert” as defined in SEC regulations; (iv) whether the Corporation has adopted a code of ethics applicable to its chief executive officer, chief financial officer, or those persons performing similar functions; (v) and disclosure requirements regarding the operations of Board of Directors' nominating committees and the means, if any, by which security holders may communicate with directors.
The Bank's secondary market lending is sold on a servicing-retained basis. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and are secured by real property whose value tends to be more easily ascertainable.
The Bank's secondary market lending is generally sold on a servicing-retained basis. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and are secured by real property whose value tends to be more easily ascertainable.
Within all these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from local, regional and national commercial banks and thrift institutions, credit unions, and other providers of financial services such as brokerage firms, investment companies, insurance companies, and Fintech, and internet banking entities.
Within all these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from local, regional and national commercial banks and thrift institutions, credit unions, and other providers of financial services such as brokerage firms, investment companies, insurance companies, fintech, and internet banking entities.
In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, illness, or personal bankruptcy.
In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, divorce, illness, or personal bankruptcy.
The Bank regularly evaluates the internal cost of funds, surveys rates offered by competitors, reviews cash flow requirements for lending and liquidity, and executes rate changes when necessary as part of its asset/liability management, profitability and growth strategies. The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates and competition.
The Bank regularly evaluates the internal cost of funds, surveys rates offered by competitors, reviews cash flow requirements for lending and liquidity, and executes rate changes when necessary as part of its asset/liability management, profitability and growth strategies. 8 The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates and competition.
This regulatory structure gives the regulatory authorities extensive discretion in the enforcement of laws and regulations and the supervision of the Bank. Loans to One Borrower The Bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.
This regulatory structure gives the regulatory authorities extensive discretion in the enforcement of laws and regulations and the supervision of the Bank. 13 Loans to One Borrower The Bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.
The standards also must be consistent with accompanying FRB guidelines, which include loan-to-value ratios for the different types of real estate loans. Transactions with Related Parties The Federal Reserve Act governs transactions between the Bank and its affiliates, specifically the Corporation, CFS, and CRM.
The standards also must be consistent with accompanying FRB guidelines, which include loan-to-value ratios for the different types of real estate loans. Transactions with Related Parties The Federal Reserve Act governs transactions between the Bank and its affiliates, specifically the Corporation, and CFS.
Over the last 14 years, the Corporation and the Bank have completed the following transactions to grow the franchise: • On March 14, 2008, the Bank acquired three branches from Manufacturers and Traders Trust Company in Broome and Tioga counties in New York.
Over the last 15 years, the Corporation and the Bank have completed the following transactions to grow the franchise: • On March 14, 2008, the Bank acquired three branches from Manufacturers and Traders Trust Company in Broome and Tioga counties in New York.
Loans to executive officers are subject to additional restrictions on the types and amounts of permissible loans. 14 Deposit Insurance The FDIC insures the deposits of the Bank up to regulatory limits and the deposits are subject to the deposit insurance premium assessments of the DIF.
Loans to executive officers are subject to additional restrictions on the types and amounts of permissible loans. Deposit Insurance The FDIC insures the deposits of the Bank up to regulatory limits and the deposits are subject to the deposit insurance premium assessments of the DIF.
These swaps are considered free standing derivatives and are carried at fair value on the consolidated balance sheet, with gains and losses recorded through other non-interest income. The swaps are not designated as hedging derivatives. Additionally, the Bank participates in risk participation agreements with dealer banks on commercial loans in which it participates.
These swaps are considered free standing derivatives and are carried at fair value on the consolidated balance sheets, with gains and losses recorded through other non-interest income. The swaps are not designated as hedging derivatives. Additionally, the Bank participates in risk participation agreements with dealer banks on commercial loans in which it participates.
The Corporation seeks to have a diversified loan portfolio consisting of commercial and agricultural loans, commercial mortgages, residential mortgages, home equity lines of credit and home equity term loans, direct consumer loans, and indirect automobile loans. The Bank operates with a traditional community bank model where the relationship manager possesses credit skills and has significant influence over credit decisions.
The Corporation seeks to have a diversified loan portfolio consisting of commercial and industrial loans, commercial mortgages, residential mortgages, home equity lines of credit and home equity term loans, direct consumer loans, and indirect automobile loans. The Bank operates with a traditional community bank model where the relationship manager possesses credit skills and has significant influence over credit decisions.
These swaps allow the Bank to originate a mortgage based on short-term LIBOR rates and allow the borrower to swap into a longer term fixed rate. The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk.
These swaps allow the Bank to originate a mortgage based on short-term SOFR rates and allow the borrower to swap into a longer term fixed rate. The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk.
Also included in Tier 2 capital is the allowance for loan and lease losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions like the Bank that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Also included in Tier 2 capital is the allowance for credit losses limited to a maximum of 1.25% of risk-weighted assets and, for institutions like the Bank that have exercised an opt-out election regarding the treatment of Accumulated Other Comprehensive Income (“AOCI”), up to 45% of net unrealized gains on available-for-sale equity securities with readily determinable fair market values.
Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Bank's market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.
Commercial and industrial loans primarily consist of loans to small to mid-sized businesses in the Bank's market area in a diverse range of industries. These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size will range from 3.5 to 32 basis points.
The FDIC has authority to increase insurance assessments and adopted a final rule in October 2022 to increase initial base deposit insurance assessment rates by 2 basis points beginning in the first quarterly assessment period of 2023. As a result, effective January 1, 2023, assessment rates for institutions of the Bank’s size ranged from 3.5 to 32 basis points.
Many of these competitors are not subject to regulation as extensive as that affecting the Bank and, as a result, may have a competitive advantage over the Bank in certain respects. This is particularly true of credit unions because their pricing structure is not encumbered by the payment of income taxes.
Many of these competitors are not subject to regulation as extensive as that affecting the Bank and, as a result, may have a competitive advantage over the Bank in certain respects. This is particularly true of credit unions because their pricing structure is not encumbered by the payment of income taxes and not subject to certain regulations such as CRA.
The Corporation has also implemented reporting systems to monitor loan originations, loan quality, concentration of credit, loan delinquencies, non-performing loans, and potential problem loans. 7 Lending Segments The Bank segments its loan portfolio into the following major lending categories: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.
The Corporation has also implemented reporting systems to monitor loan originations, loan quality, concentration of credit, loan delinquencies, non-performing loans, and potential problem loans. Lending Segments The Bank segments its loan portfolio into the following major lending categories: (i) commercial and industrial, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.
Supervision and Regulation The Corporation and the Bank are subject to comprehensive regulation, supervision and examination by regulatory authorities. Numerous statutes and regulations apply to the Corporation’s and, to a greater extent, the Bank’s operations, including required reserves, investments, loans, deposits, issuances of securities, payments of dividends, and establishment of branches.
Supervision and Re g ulation The Corporation and the Bank are subject to comprehensive regulation, supervision and examination by regulatory authorities. Numerous statutes and regulations apply to the Corporation’s and, to a greater extent, the Bank’s operations, including required reserves, investments, loans, deposits, issuances of securities, payments of dividends, and establishment of branches.
The Bank is subject to the rules and requirements of the FHLBNY, including the requirement to acquire and hold shares of capital stock in the FHLBNY. The Bank was in compliance with the rules and requirements of the FHLBNY at December 31, 2022.
The Bank is subject to the rules and requirements of the FHLBNY, including the requirement to acquire and hold shares of capital stock in the FHLBNY. The Bank was in compliance with the rules and requirements of the FHLBNY at December 31, 2023.
We offer an inclusive, safe and healthy work environment, maintain the highest standards of business ethics and provide opportunities for career development and advancement, along with a competitive benefits package. Employee Profile As of December 31, 2022 we employed 340 full time equivalent employees in 31 locations in New York and Pennsylvania.
We offer an inclusive, safe and healthy work environment, maintain the highest standards of business ethics and provide opportunities for career development and advancement, along with a competitive benefits package. Employee Profile As of December 31, 2023 we employed 339 full time equivalent employees in 31 locations in New York and Pennsylvania.
Community Reinvestment Act Under the federal CRA, the Bank, consistent with its safe and sound operation, must help meet the credit needs of its entire community, including low and moderate income neighborhoods. The FRB periodically assesses the Bank's compliance with CRA requirements.
Community Reinvestment Act Under the federal CRA, the Bank, consistent with its safe and sound operation, must help meet the credit needs of its entire community, including low and moderate income neighborhoods. The FRB and NYSDFS periodically assess the Bank's compliance with CRA requirements.
The FRB is required to monitor closely the condition of an undercapitalized institution and to restrict the growth of its assets. 16 An undercapitalized state member bank is required to file a capital restoration plan with the FRB within 45 days (or other timeframe prescribed by the FRB) of the date the bank receives notice that it is within any of the three undercapitalized categories, and the plan must be guaranteed by its parent holding company, subject to a cap on the guarantee that is the lesser of: (i) an amount equal to 5.0% of the bank’s total assets at the time it was notified that it became undercapitalized; and (ii) the amount that is necessary to restore the bank’s capital ratios to the levels required to be classified as “adequately classified,” as those ratios and levels are defined as of the time the bank failed to comply with the plan.
An undercapitalized state member bank is required to file a capital restoration plan with the FRB within 45 days (or other timeframe prescribed by the FRB) of the date the bank receives notice that it is within any of the three undercapitalized categories, and the plan must be guaranteed by its parent holding company, subject to a cap on the guarantee that is the lesser of: (i) an amount equal to 5.0% of the bank’s total assets at the time it was notified that it became undercapitalized; and (ii) the amount that is necessary to restore the bank’s capital ratios to the levels required to be classified as “adequately classified,” as those ratios and levels are defined as of the time the bank failed to comply with the plan.
None of our employees are represented by any collective bargaining unit or is a party to a collective bargaining agreement. We believe our relationship with our employees to be good. As of December 31, 2022 our workforce was 72% female and 28% male, and our average tenure was 8.1 years.
None of our employees are represented by any collective bargaining unit or is a party to a collective bargaining agreement. We believe our relationship with our employees to be good. As of December 31, 2023 our workforce was 72% female and 28% male, and our average tenure was 8.2 years.
As of December 31, 2022, the Bank exceeded all regulatory capital ratios necessary to be considered well capitalized.
As of December 31, 2023, the Bank exceeded all regulatory capital ratios necessary to be considered well capitalized.
Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Funding Activities Funding Strategy The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.
Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans. Fundin g Activities Funding Strategy The Corporation’s deposit strategy is to fund the Bank, subject to market conditions, with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.
As of December 31, 2022, approximately $49.3 million was available for the payment of dividends by the Bank to the Corporation without prior approval. The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. At December 31, 2022, the Bank was in compliance with these requirements.
As of December 31, 2023, approximately $59.4 million was available for the payment of dividends by the Bank to the Corporation without prior approval. The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements. At December 31, 2023, the Bank was in compliance with these requirements.
Under the policy, derivative financial instruments with counterparties, who are not customers, are limited to a national financial institution. Cash and/or certain qualified securities are required to serve as collateral when exposures exceed $100 thousand, with a minimum collateral coverage of $150 thousand. The credit worthiness of the customer is reviewed internally by the Bank's credit department.
Under the policy, derivative financial instruments with counterparties, who are not customers, are limited to a Domestic Systemically Important Bank (D-SIB). Cash and/or certain qualified securities are required to serve as collateral when exposures exceed $100 thousand, with a minimum collateral coverage of $150 thousand. The credit worthiness of the customer is reviewed internally by the Bank's credit department.
There were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2022. Lending Activities Lending Strategy The Corporation’s objective is to channel deposits gathered locally into high-quality, market-yielding loans without taking unacceptable credit and/or interest rate risk.
Other than as described above, there were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2023. Lendin g Activities Lending Strategy The Corporation’s objective is to channel deposits gathered locally into high-quality, market-yielding loans without taking unacceptable credit and/or interest rate risk.
However, market interest rates and rates offered by competing financial institutions affect the Bank’s ability to attract and retain deposits. The Bank utilizes a combination of traditional media, including print, television, and radio, as well as digital advertising, such as social media, display, OTT (over-the-top) streaming and eBlasts, when advertising its deposit products.
However, market interest rates and rates offered by competing financial institutions affect the Bank’s ability to attract and retain deposits. The Bank utilizes a combination of traditional media, including print, television, and radio, as well as digital when advertising its deposit products.
As part of the transaction, the Corporation acquired $177.7 million in deposits and $1.2 million in loans. • As of April 2, 2021, the Corporation received all regulatory approvals to operate a branch office in a new market in the Buffalo Metropolitan Area.
As part of the transaction, the Corporation acquired $177.7 million in deposits and $1.2 million in loans. • As of April 2, 2021, the Corporation received all regulatory approvals to operate a branch office in a new market in the Buffalo Metropolitan Area. • The Corporation intends to open a full-service branch in Williamsville, New York during 2024.
At December 31, 2022, the Bank’s legal lending limit on loans to one borrower was $34.9 million for loans not fully secured by readily marketable collateral and $38.4 million for loans secured by readily marketable collateral. The Bank’s internal limit on loans is set at $15.0 million.
At December 31, 2023, the Bank’s legal lending limit on loans to one borrower was $37.7 million for loans not fully secured by readily marketable collateral and $41.4 million for loans secured by readily marketable collateral. The Bank’s internal limit on loans is set at $15.0 million.
Available Information The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation. In addition, the Corporation maintains a corporate website at www.chemungcanal.com.
The success of our company depends on the success of our employees. Available Information The SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation. In addition, the Corporation maintains a corporate website at www.chemungcanal.com.
Total Rewards We offer a competitive total rewards package for all employees, including competitive base pay, incentive plans for all employees, a 401(k) match, a non-discretionary company 401(k) contribution, health, dental, and vision insurance, life insurance, company contributions to a health savings account, paid time off, family leave, flexible work schedules, tuition reimbursement, and the opportunity to volunteer in the community during work hours. 10 Health and Safety The health, safety and well-being of our employees is paramount to the success of our business.
We continue to focus on diversity and inclusion among our workforce. 10 Total Rewards We offer a competitive total rewards package for all employees, including competitive base pay, incentive plans for all employees, a 401(k) match, a non-discretionary company 401(k) contribution, health, dental, and vision insurance, life insurance, company contributions to a health savings account, paid time off, family leave, flexible work schedules, tuition reimbursement, and the opportunity to volunteer in the community during work hours.
Derivative Financial Instruments The Bank offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Bank matches these swaps using offsetting swaps with national bank counterparties.
Derivative Financial Instruments The Bank offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Bank matches these swaps using offsetting swaps with Domestic Systemically Important Banks (D-SIBs).
Department of Justice, the FTC, the CFPB and state Attorneys General, may take enforcement action against institutions that fail to comply with these laws. 17 Prohibitions against Tying Arrangements Subject to some exceptions, regulations under the BHCA and the Federal Reserve Act prohibits banks from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the bank or its affiliates or not obtain services of a competitor of the bank.
Prohibitions against Tying Arrangements Subject to some exceptions, regulations under the BHCA and the Federal Reserve Act prohibits banks from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the bank or its affiliates or not obtain services of a competitor of the bank.
As a result of these transactions and organic growth, the Corporation had $2.646 billion in consolidated assets, $1.829 billion in loans, $2.327 billion in deposits, and $166.4 million in shareholders’ equity at December 31, 2022.
As a result of these transactions and organic growth, the Corporation had $2.711 billion in consolidated assets, $1.973 billion in loans, $2.429 billion in deposits, and $195.2 million in shareholders’ equity at December 31, 2023.
In addition to our insurance offerings and leave programs, we offer an employee assistance program, along with welfare programs, fitness reimbursement, and an on-site flu-shot clinic.
Health and Safety The health, safety and well-being of our employees is paramount to the success of our business. In addition to our insurance offerings and leave programs, we offer an employee assistance program, along with welfare programs, fitness reimbursement, and an on-site flu-shot clinic.
The regulations limit a banking organization’s capital distributions and certain discretionary bonus payments to executives if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements. 15 The Corporation is not 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.
The regulations limit a banking organization’s capital distributions and certain discretionary bonus payments to executives if the banking organization does not hold a “capital conservation buffer” consisting of 2.5% of common equity Tier 1 capital to risk-weighted assets in addition to the amount necessary to meet its minimum risk-based capital requirements.
The Bank is currently not limited with respect to the rates that it may offer on deposit products. The Bank believes it is competitive in the types of accounts and interest rates it has offered on its deposit products.
The Bank believes it is competitive in the types of accounts and interest rates it has offered on its deposit products.
The amendments generally fall within the following five categories: (i) increased mandatory controls associated with common attack vectors, (ii) enhanced requirements for privileged accounts, (iii) enhanced notification obligations, (iv) expansion of cyber governance practices, and (v) additional cybersecurity requirements for larger companies. The proposed amended regulations were subject to a 60-day public comment period which expired on January 9, 2023.
The amendments generally fall within the following five categories: (i) increased mandatory controls associated with common attack vectors, (ii) enhanced requirements for privileged accounts, (iii) enhanced notification obligations, (iv) expansion of cyber governance practices, and (v) additional cybersecurity requirements for larger companies.
The prompt corrective action regulations place state member banks in one of the following five categories based on the bank’s capital: • well-capitalized (at least 5% leverage capital, 6.5% common equity Tier 1 risk-based capital, 8% Tier 1 risk-based capital and 10% total risk-based capital); • adequately capitalized (at least 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1 risk-based capital and 8% total risk-based capital); • undercapitalized (less than 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1 risk-based capital or 8% total risk-based capital); • significantly undercapitalized (less than 3% leverage capital, 3% common equity Tier 1 risk-based capital, 4% Tier 1 risk-based capital or 6% total risk-based capital); and • critically undercapitalized (less than 2% tangible capital).
The prompt corrective action regulations place state member banks in one of the following five categories based on the bank’s capital: • well-capitalized (at least 5% leverage capital, 6.5% common equity Tier 1 risk-based capital, 8% Tier 1 risk-based capital and 10% total risk-based capital); • adequately capitalized (at least 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1 risk-based capital and 8% total risk-based capital); • undercapitalized (less than 4% leverage capital, 4.5% common equity Tier 1 risk-based capital, 6% Tier 1 risk-based capital or 8% total risk-based capital); • significantly undercapitalized (less than 3% leverage capital, 3% common equity Tier 1 risk-based capital, 4% Tier 1 risk-based capital or 6% total risk-based capital); and • critically undercapitalized (less than 2% tangible capital). 16 As an institution’s capital decreases within the three undercapitalized categories listed above, the severity of the action that is authorized or required to be taken by the FRB for state member banks under the prompt corrective action regulations increases.
Wealth Management Strategy With $2.053 billion of assets under management or administration at December 31, 2022, including $346.5 million of assets held under management or administration for the Corporation, WMG is responsible for the largest component of the Corporation's non-interest income.
Wealth Mana g ement Strate g y With $2.242 billion of assets under management or administration at December 31, 2023, including $381.3 million of assets held under management or administration for the Corporation, WMG is responsible for the largest component of the Corporation's non-interest income.
At December 31, 2022, the Bank did not have any loans or agreements to extend credit to a single or related group of borrowers in excess of its legal lending limit. 13 Branching Subject to the approval of the NYSDFS and FRB, New York-chartered member commercial banks may establish branch offices anywhere within New York State, except in communities having populations of less than 50,000 inhabitants in which another New York-chartered commercial bank or a national bank has its principal office.
Branching Subject to the approval of the NYSDFS and FRB, New York-chartered member commercial banks may establish branch offices anywhere within New York State, except in communities having populations of less than 50,000 inhabitants in which another New York-chartered commercial bank or a national bank has its principal office.
On November 9, 2022, the NYSDFS released proposed amendments to its cybersecurity regulations that represent a significant update to the regulation of cybersecurity practices.
In November, 2023, the NYSDFS finalized amendments to its cybersecurity regulations that represent a significant update to the regulation of cybersecurity practices.
All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized.
All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized. The FRB is required to monitor closely the condition of an undercapitalized institution and to restrict the growth of its assets.
Community banks had until January 1, 2022, before the community bank leverage ratio requirement returned to 9%. The Bank has not elected to use the community bank leverage ratio. Prompt Corrective Action The FDIA requires the federal banking agencies to resolve the problems of insured banks at the least possible loss to the DIF.
The Final Rule took effect on January 1, 2020. As of December 31, 2023, the Bank has not elected to use the community bank leverage ratio. Prompt Corrective Action The FDIA requires the federal banking agencies to resolve the problems of insured banks at the least possible loss to the DIF.
The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using brokered deposits as a secondary source of funding to support growth.
The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue the use of brokered deposits as a secondary source of funding to support growth. Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.
Fair Lending and Consumer Protection Laws The Bank must also comply with the federal Equal Credit Opportunity Act and the New York Executive Law, which prohibit creditors from discrimination in their lending practices on bases specified in these statutes.
The applicability date for the majority of the provisions in the CRA regulations is January 1, 2026, and additional requirements will be applicable on January 1, 2027. 17 Fair Lending and Consumer Protection Laws The Bank must also comply with the federal Equal Credit Opportunity Act and the New York Executive Law 296-a, which prohibit creditors from discrimination in their lending practices on bases specified in these statutes.
The remaining New York counties have a combination of service, small manufacturing and tourism-related businesses, with colleges located in Broome, Chemung, and Cortland counties. Bradford County's largest employers are a combination of service and small manufacturing businesses, along with the natural gas industry. During 2021, the Corporation entered a new market in the Buffalo Metropolitan Area.
Bradford County's largest employers are a combination of service and small manufacturing businesses, along with the natural gas industry. During 2021, the Corporation entered a new market in the Buffalo Metropolitan Area. After New York City, this region is the second largest population center in New York State.
The Corporation established a financial services subsidiary, CFS, in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage services, insurance and tax preparation services.
The Corporation established a financial services subsidiary, CFS, in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage services, insurance and tax preparation services. CRM, a wholly-owned subsidiary of the Corporation, was formed and began operations on May 31, 2016 as a Nevada-based captive insurance company.
After New York City, this region is the second largest population center in New York State. Erie County has a diverse mix of industrial, light manufacturing, high technology and service-oriented private sector companies. The region also has reliance on higher education with the University of Buffalo, Buffalo State College as well as several private colleges.
Erie County has a diverse mix of industrial, light manufacturing, high technology and service-oriented private sector companies. The region also has reliance on higher education with the University at Buffalo, SUNY Buffalo as well as several private colleges. The region's largest employers are affiliated with the healthcare industry, primarily located in the medical corridor.
We encourage all employees to join career circles, find a mentor, apply for our leadership program, job shadow, attend diversity, equity and inclusion, and supervisor discussions, and other trainings offered. The success of our company depends on the success of our employees.
Talent We believe investing in our employees not only helps with retention, but also keeps employees engaged and focused. We encourage all employees to join career circles, find a mentor, apply for our leadership program, job shadow, attend diversity, equity and inclusion, and supervisor discussions, and other trainings offered.
Growth Strate g y The Corporation’s growth strategy is to leverage its branch and digital network in current or new markets to build client relationships and grow loans and deposits. Consistent with the Corporation’s community-banking model, emphasis is placed on acquiring stable, low-cost deposits, such as checking account deposits and other low interest-bearing deposits to fund high-quality loans.
Consistent with the Corporation’s community-banking model, and subject to market conditions, emphasis is placed on acquiring stable, low-cost deposits, such as checking account deposits and other low interest-bearing deposits to fund high-quality loans.
In assessing an institution’s capital adequacy, the federal regulators take into consideration not only these numeric factors but also qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary.
In assessing an institution’s capital adequacy, the federal regulators take into consideration not only these numeric factors but also qualitative factors as well and has the authority to establish higher capital requirements for individual associations where necessary. 15 In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor assigned by federal regulations based on the risks believed inherent in the type of asset.
Under federal law, the FRB possesses authority to bring enforcement actions against member banks and their ‘‘institution-affiliated parties,’’ including directors, officers, employees and, under certain circumstances, a stockholder, attorney, appraiser or accountant. Such enforcement action can occur for matters such as failure to comply with applicable law or regulations or engaging in unsafe or unsound banking practices.
The NYSDFS also has authority to appoint a conservator or receiver (which may be the FDIC) for a bank under certain circumstances. Under federal law, the FRB possesses authority to bring enforcement actions against member banks and their ‘‘institution-affiliated parties,’’ including directors, officers, employees and, under certain circumstances, a stockholder, attorney, appraiser or accountant.
Albany, Saratoga, and Schenectady counties rely heavily on business related to New York State government activities, the nanotechnology industry, and colleges located within these counties. Tompkins County is dominated by the presence of Cornell University and Ithaca College. The world headquarters of Corning Incorporated, the region’s largest employer, is located in Steuben County.
Albany, Saratoga, and Schenectady counties rely heavily on business related to New York State government activities, the nanotechnology industry, and colleges located within these counties.
The Bank received a “satisfactory” rating for CRA on its last performance evaluation conducted by the FRB as of October 7, 2019.
The Bank received a “satisfactory” rating for CRA on its last performance evaluations which were conducted by the NYSDFS as of June 30, 2019, and the FRB as of October 7, 2019. On October 24, 2023, the FRB issued a final rule to strengthen and modernize the federal CRA regulations.
Section 22(h) of the Federal Reserve Act and its implementing Regulation O restricts a bank's loans to its directors, executive officers, and principal stockholders ("Insiders"). Loans to Insiders (and their related entities) may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank's total capital and surplus.
Loans to Insiders (and their related entities) may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank's total capital and surplus. Loans to Insiders above specified amounts must receive the prior approval of the Bank's Board of Directors.
Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, and they, therefore, pose higher potential losses on an individual customer basis. Loan repayment is often dependent on the successful operation and management of the properties and/or the businesses occupying the properties, as well as on the collateral securing the loan.
The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. 7 Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, and they, therefore, pose higher potential losses on an individual customer basis.
Covered transactions include loans, asset purchases, the issuance of guarantees, and similar transactions. Certain transactions must be collateralized according to the requirements of the statute. In addition, all covered transactions and other transactions between the Bank and its affiliates must be on terms and conditions that are substantially the same as, or at least as favorable to, the Bank.
Covered transactions include loans, asset purchases, the issuance of guarantees, and similar transactions. Certain transactions must be collateralized according to the requirements of the statute.
The Bank also has access to advances from the FHLBNY, other financial institutions, and the FRBNY. Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions.
Contractual loan and securities payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions. The Corporation considers core deposits, consisting of non-interest-bearing and interest-bearing checking accounts, savings accounts, and insured money market deposits, to be a significant component of its deposits.
The Corporation considers core deposits, consisting of non-interest-bearing and interest-bearing checking accounts, savings accounts, and insured money market accounts, to be a significant component of its deposits. The Corporation monitors the activity on these core deposits and, based on historical experience and pricing strategy, believes it will continue to retain a large portion of such accounts.
The Corporation monitors the activity on these core deposits and, based on historical experience and pricing strategy, believes it will continue to retain a large portion of such accounts. The Bank is currently not limited with respect to the rates that it may offer on deposit products.
Our Executive Management Team has an average tenure of 13.5 years. We continue to focus on diversity and inclusion among our workforce.
Our Executive Management Team has an average tenure of 12.5 years.
Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth. 8 Funding Sources The Corporation’s primary sources of funds are deposits, principal and interest payments on loans and securities, borrowings and funds generated from operations of the Bank.
Funding Sources The Corporation’s primary sources of funds are deposits, principal and interest payments on loans and securities, borrowings and funds generated from operations of the Bank. The Bank also has access to advances from the FHLBNY, other financial institutions, and the FRBNY.
Additionally, existing contracts that reference LIBOR are being systematically transitioned to SOFR or other acceptable reference rates in advance of the June 30, 2023 end date. The Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments.
The swap agreements are free-standing derivatives and are recorded at fair value in the Bank's consolidated balance sheets. The Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments.
Further, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value. The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.
Further, the collateral securing the loans may depreciate over time, may be difficult to appraise, and may fluctuate in value.
In determining the amount of risk-weighted assets, all assets, including certain off-balance sheet assets, are multiplied by a risk-weight factor assigned by federal regulations based on the risks believed inherent in the type of asset. The capital requirements assign a higher risk weight to asset categories believe to present a great risk.
The capital requirements assign a higher risk weight to asset categories believed to present a great risk.
Removed
The Corporation established a captive insurance subsidiary, CRM, based in the State of Nevada in May 2016, which insures gaps in commercial coverage and uninsured exposures in the Corporation's current insurance coverages and allows the Corporation to strengthen its overall risk management program.
Added
During the fourth quarter of 2023, CRM was dissolved by the Corporation effective December 6, 2023. The dissolution of CRM did not have a significant impact to financial results for the year ended December 31, 2023.
Removed
CRM, a wholly-owned subsidiary of the Corporation which was formed and began operations on May 31, 2016, is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace.
Added
Growth Strate g y The Corporation’s growth strategy is to leverage its branch and digital network in current or new markets to build client relationships and grow loans and deposits.
Removed
CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. CRM is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.
Added
Loan repayment is often dependent on the successful operation and management of the properties and/or the businesses occupying the properties, as well as on the collateral securing the loan.
Removed
The swap agreements are free-standing derivatives and are recorded at fair value in the Bank's consolidated balance sheets.
Added
The Capital region of New York has become a hub for both private and public investment in semiconductor-related activity, recently highlighted by the announcement of a $10 billion partnership to establish the only publicly-owned EUV lithography research facility in North America.
Removed
In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023.
Added
Major partners in the initiative include Applied Materials, Micron, IBM, and Tokyo Electron, and the facility aims to compliment the existing semiconductor supply chain presence of companies such as ASML and GlobalFoundries, as well as enhance the research capabilities of local universities such as Rensselaer Polytechnic Institute and SUNY Polytechnic.
Removed
Guidance from the FRB and other regulatory agencies indicated that no new contracts should be entered into after December 31, 2021 that reference LIBOR. The Corporation has transitioned to the use of SOFR or other acceptable reference rates for new loans originated.
Added
Tompkins County is dominated by the presence of Cornell University and Ithaca College. The world headquarters of Corning Incorporated, the region’s largest employer, is located in Steuben County. The remaining New York counties have a combination of service, small manufacturing and tourism-related businesses, with colleges located in Broome, Chemung, and Cortland counties.
Removed
The region's largest employers are affiliated with the healthcare industry, primarily located in the medical corridor.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeLoan participations may have a higher risk of loss than loans the Bank originates because the Bank is not the lead lender and has limited control over credit monitoring. The Corporation occasionally purchases commercial real estate and commercial and industrial loan participations secured by properties outside its market area in which the Bank is not the lead lender.
Biggest changeChanges in occupancy trends resulting from shifts in macroeconomic conditions could adversely impact our commercial borrowers, particularly in relation to borrowers with substantial office or retail-specific exposures. Loan participations may have a higher risk of loss than loans the Bank originates because the Bank is not the lead lender and has limited control over credit monitoring.
The Bank continues to pursue recovery of the remaining $3.7 million and accumulated expenses as a result of purchasing the participation interest. While the Corporation believes this incident was an isolated occurrence, there can be no assurance that such losses will not occur again or that such acts will be detected in a timely manner.
The Bank continues to pursue recovery of the remaining $3.7 million, interest, and accumulated expenses as a result of purchasing the participation interest. While the Corporation believes this incident was an isolated occurrence, there can be no assurance that such losses will not occur again or that such acts will be detected in a timely manner.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations. 25 Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Corporation's business and, in turn, its financial condition and results of operations. 27 Systems failures or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Corporation's business and, in turn, its financial condition and results of operations. Systems failures or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.
Hence, the Corporation may experience significant loan losses, which could have a material adverse effect on the Corporation's operating results. Management makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans.
Hence, the Corporation may experience significant credit losses, which could have a material adverse effect on the Corporation's operating results. Management makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans.
Any increase in its allowance for loan losses or loan charge-offs could have a material adverse effect on the Corporation's financial condition and results of operations. In addition, the Corporation cannot guarantee that it will not be required to adjust accounting policies or restate prior financial statements.
Any increase in its allowance for credit losses or loan charge-offs could have a material adverse effect on the Corporation's financial condition and results of operations. In addition, the Corporation cannot guarantee that it will not be required to adjust accounting policies or restate prior financial statements.
Bank regulators periodically review the Corporation’s allowance for loan losses and may require the Corporation to increase its provision for loan losses or loan charge-offs. Any increase in the allowance for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on the Corporation's results of operations and/or financial condition.
Bank regulators periodically review the Corporation’s allowance for credit losses and may require the Corporation to increase its provision for credit losses or loan charge-offs. Any increase in the allowance for credit losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on the Corporation's results of operations and/or financial condition.
These reviews include the Corporation's estimates and assumptions regarding future taxable income, which incorporates various tax planning strategies. 26 Risks Related to Operational Matters The Corporation's controls and procedures may fail or be circumvented, which may result in a material adverse effect on its business.
These reviews include the Corporation's estimates and assumptions regarding future taxable income, which incorporates various tax planning strategies. Risks Related to Operational Matters The Corporation's controls and procedures may fail or be circumvented, which may result in a material adverse effect on its business.
The Corporation plans to continue to emphasize the origination of these types of loans, which generally expose the Corporation to a greater risk of nonpayment and loss than residential real estate or consumer loans because repayment of commercial real estate and business loans often depends on the successful operation and income stream of the borrower’s business.
The Corporation plans to continue to emphasize the origination of these types of loans, which generally expose the Corporation to a greater risk of nonpayment and loss than residential real estate or consumer loans because repayment of commercial real estate and commercial and industrial loans often depends on the successful operation and income stream of the borrower’s business.
Also, the Corporation’s interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on its balance sheet. 23 Risks Related to Competition Strong competition within the Corporation's industry and market area could limit its growth and profitability.
Also, the Corporation’s interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on its balance sheet. Risks Related to Competition Strong competition within the Corporation's industry and market area could limit its growth and profitability.
Such sources include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits which could cause the Corporation’s overall cost of funding to increase.
Such sources include proceeds from Federal Home Loan Bank and Federal Reserve advances, sales of investment securities and loans, and federal funds lines of credit from correspondent banks, as well as out-of-market time deposits which could cause the Corporation’s overall cost of funding to increase.
A significant decline in fees and commissions or trading losses suffered in the investment portfolio could adversely affect our income and potentially require the contribution of additional capital to support our operations. There may be claims and litigation pertaining to fiduciary responsibility.
A significant decline in fees and commissions or trading losses suffered in the investment portfolio could adversely affect our income and potentially require the contribution of additional capital to support our operations. 28 There may be claims and litigation pertaining to fiduciary responsibility.
The allowance for loan losses may prove to be insufficient to absorb losses in the loan portfolio. The Corporation’s customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
The allowance for credit losses may prove to be insufficient to absorb losses in the loan portfolio. The Corporation’s customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.
If the Bank’s regulators were to impose restrictions on the amount of such loans it can hold in its portfolio or require it to implement additional compliance measures, for reasons noted above or otherwise, the Corporation’s earnings would be adversely affected as would earnings per share. 20 Commercial real estate and business loans increase the Corporation’s exposure to credit risks.
If the Bank’s regulators were to impose restrictions on the amount of such loans it can hold in its portfolio or require it to implement additional compliance measures, for reasons noted above or otherwise, the Corporation’s earnings would be adversely affected as would earnings per share. 20 Commercial real estate and commercial and industrial loans increase the Corporation’s exposure to credit risks.
Because of the uncertainty surrounding its judgments and the estimates pertaining to these matters, actual outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, management cannot provide any assurance that the Bank will not significantly increase its allowance for loan losses if actual losses are more than the amount reserved.
Because of the uncertainty surrounding its judgments and the estimates pertaining to these matters, actual outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, management cannot provide any assurance that the Bank will not significantly increase its allowance for credit losses if actual losses are more than the amount reserved.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber-attacks or campaigns, military conflict such as the current conflict between Russia and Ukraine, terrorism, or other geopolitical events. Global market disruptions may affect our business liquidity.
Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, such as COVID-19, cyber-attacks or campaigns, military conflict such as the current conflict between Russia and Ukraine, terrorism, or other geopolitical events. Global market disruptions may affect our business liquidity.
In addition, any future credit deterioration, could require us to increase our allowance for loan losses in the future. The Corporation is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.
In addition, any future credit deterioration, may require us to increase our allowance for credit losses in the future. The Corporation is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.
In addition, in a falling rate environment or the recent pandemic-related environment where the FRB held the federal reference rate near 0.00%, loans may be prepaid sooner than the Corporation expects, which could result in a delay between when the Corporation receives the prepayment and when it is able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income the Corporation is able to earn on those assets.
In addition, in a falling rate environment or the recent pandemic-related environment where the FRB held the targeted federal funds rate near 0.00%, loans and certain investments may be prepaid sooner than the Corporation expects, which could result in a delay between when the Corporation receives the prepayment and when it is able to redeploy the funds into new interest-earning assets and in a decrease in the amount of interest income the Corporation is able to earn on those assets.
Consequently, an adverse development with respect to one loan or one credit relationship can expose the Corporation to a significantly greater risk of loss compared to an adverse development with respect to residential real estate and consumer loans. In some instances, the Corporation has originated unsecured commercial loans with certain high net worth individuals who have personally guaranteed such loans.
Consequently, an adverse development with respect to one loan or one credit relationship can expose the Corporation to a significantly greater risk of loss compared to an adverse development with respect to residential real estate and consumer loans. In some instances, the Corporation has originated unsecured commercial loans to certain high net worth individuals who are personally liable.
Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. In 2022, the FRB increased the federal funds rate by 425 basis points, which increased market rates dramatically.
Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. Throughout 2022 and 2023, the FRB increased the upper bound of the federal funds rate by 525 basis points, which increased market rates dramatically.
A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans.
We are subject to environmental liability risk associated with lending activities. A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans.
Commercial real estate loans represent 382.9% of our risk-based capital at December 31, 2022 and the outstanding balance of our commercial real estate loan portfolio has increased by greater than 50% during the 36 months preceding December 31, 2022. In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
Commercial real estate loans represent 403.6% of Bank risk-based capital at December 31, 2023 and the outstanding balance of our commercial real estate loan portfolio has increased by greater than 50% during the 36 months preceding December 31, 2023. In December 2015, the Agencies released a new statement on prudent risk management for commercial real estate lending (the “2015 Statement”).
These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.
These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits, as well as the value of the Corporation's investment securities.
These risks may include, among other things: its ability to realize anticipated cost savings, the difficulty of integrating operations and personnel, the loss of key employees, the potential disruption of its or the acquired company’s ongoing business in such a way that could result in decreased revenues, the inability of its management to maximize its financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management. 24 Risks Related to Laws and Regulations The Corporation operates in a highly regulated environment and may be adversely affected by changes in laws and regulations.
These risks may include, among other things: its ability to realize anticipated cost savings, the difficulty of integrating operations and personnel, the loss of key employees, the potential disruption of its or the acquired company’s ongoing business in such a way that could result in decreased revenues, the inability of its management to maximize its financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.
High inflation, if sustained, could have an adverse effect on our business. The recent increase in interest rates in response to elevated levels of inflation has decreased the fair value of our securities portfolio, resulting in an increase in unrealized losses recorded in accumulated other comprehensive income on the shareholders’ equity section of our balance sheet.
The recent increase in interest rates in response to elevated levels of inflation has decreased the fair value of our securities portfolio, resulting in an increase in unrealized losses recorded in accumulated other comprehensive income on the shareholders’ equity section of our balance sheet.
The longer timelines were the result of the economic crisis, the COVID-19 pandemic, additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.
The longer timelines have been the result of additional consumer protection initiatives related to the foreclosure process, increased documentary requirements and judicial scrutiny, and, both voluntary and mandatory programs under which lenders may consider loan modifications or other alternatives to foreclosure.
At December 31, 2022, $202.1 million, or 11.0% of our total loan portfolio, consisted of automobile loans, primarily originated through automobile dealers for the purchase of new or used automobiles. The Corporation serves customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles.
At December 31, 2023, $210.4 million, or 10.7% of our total loan portfolio, consisted of automobile loans, primarily originated through automobile dealers for the purchase of new or used automobiles. The Corporation serves customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles.
In some cases, the Corporation could be required to apply a new or revised standard retroactively, resulting in its restating prior period financial statements or otherwise adversely affecting its financial condition or results of operations.
In some cases, the Corporation could be required to apply a new or revised standard retroactively, resulting in its restating prior period financial statements or otherwise adversely affecting its financial condition or results of operations. The Corporation holds certain intangible assets that could be classified as impaired in the future.
Any financial liability or reputation damage could have a material adverse effect on the Corporation’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations. General Business Risk Factors The COVID-19 pandemic could adversely affect the Corporation’s financial condition and results of operations.
Any financial liability or reputation damage could have a material adverse effect on the Corporation’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations. General Business Risk Factors Severe weather and other natural disasters can affect the Corporation’s business.
These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses.
Such regulators govern the activities in which the Corporation and its subsidiaries may engage. These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank, and the adequacy of a bank’s allowance for credit losses.
In addition, the Corporation may acquire banks and related businesses that it believes provide a strategic fit with its business, such as the 2011 acquisition of FOFC and the 2013 acquisition of six branches from Bank of America. To the extent that the Corporation grows through acquisitions, it cannot provide assurance that such strategic decisions will be accretive to earnings.
In addition, the Corporation may acquire banks and related businesses that it believes provide a strategic fit with its business, such as the 2011 acquisition of FOFC and the 2013 acquisition of six branches from Bank of America.
Risks Related to Business Strategy The Corporation’s growth strategy may not prove to be successful and its market value and profitability may suffer. As part of the Corporation's strategy for continued growth, it may open additional branches. In 2021, the Corporation opened a new full-service branch in Clarence, New York.
Risks Related to Business Strategy The Corporation’s growth strategy may not prove to be successful and its market value and profitability may suffer. As part of the Corporation's strategy for continued growth, it may open additional branches.
At December 31, 2022, the Corporation’s portfolio of commercial real estate and business loans totaled $1.249 billion or 68.3% of total loans.
At December 31, 2023, the Corporation’s portfolio of commercial real estate and commercial and industrial loans totaled $1.387 billion or 70.3% of total loans.
The primary sources of funds of the Bank are customer deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans.
Risks Related to Liquidity Liquidity needs could adversely affect the Corporation’s financial condition and results of operation. The primary sources of funds of the Bank are customer deposits and loan repayments. While scheduled loan repayments are a relatively stable source of funds, they are subject to the ability of borrowers to repay the loans.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
The combination of these events may adversely affect the Corporation’s financial condition and results of operations. 23 Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.
Risks Relating to Ownership of Our Common Stock The Corporation’s common stock is not heavily traded, and the stock price may fluctuate significantly. The Corporation’s common stock is traded on the NASDAQ under the symbol “CHMG.” Certain brokers currently make a market in the common stock, but such transactions are infrequent and the volume of shares traded is relatively small.
The Corporation’s common stock is traded on the NASDAQ under the symbol “CHMG.” Certain brokers currently make a market in the common stock, but such transactions are infrequent and the volume of shares traded is relatively small. Management cannot predict whether these or other brokers will continue to make a market in our common stock.
The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
We are subject to the Community Reinvestment Act and fair lending laws, and alleged failure to comply with fair lending laws has led to material penalties. The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions.
If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, net interest income, and therefore earnings, could be adversely affected.
During 2022 and 2023, in response to accelerated inflation, the FRB implemented monetary tightening policies, resulting in significantly increased interest rates. If the interest rates paid on deposits and other borrowings increase at a faster rate than the interest rates received on loans and other investments, net interest income, and therefore earnings, could be adversely affected.
Moreover, our decisions regarding the classification of a loan participation and loan loss provisions associated with a loan participation are made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that the Bank originates.
Loan participations may have a higher risk of loss than loans the Bank originates because we rely on the lead lender to monitor the performance of the loan. Moreover, our decisions regarding the classification of a loan participation and credit loss provisions associated with a loan participation are made in part based upon information provided by the lead lender.
The risks presented by acquisitions could adversely affect the Corporation's financial condition and results of operations. The business strategy of the Corporation has included and may continue to include growth through acquisition from time to time. Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions.
To the extent that the Corporation grows through acquisitions, it cannot provide assurance that such strategic decisions will be accretive to earnings. 24 The risks presented by acquisitions could adversely affect the Corporation's financial condition and results of operations. The business strategy of the Corporation has included and may continue to include growth through acquisition from time to time.
Additionally, changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates. The combination of these events may adversely affect the Corporation’s financial condition and results of operations.
Additionally, changes in interest rates also affect the fair value of the securities portfolio. Generally, the value of securities moves inversely with changes in interest rates.
New branches do not initially contribute to operating profits due to the impact of overhead expenses and the start-up phase of generating loans and deposits.
In 2021, the Corporation opened a full-service branch in Clarence, New York, and plans to open a second full-service branch in Williamsville, New York in 2024. New branches do not initially contribute to operating profits due to the impact of overhead expenses and the start-up phase of generating loans and deposits.
If our internal controls fail to prevent or detect any such occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations. 22 Risks Related to Liquidity Liquidity needs could adversely affect the Corporation’s financial condition and results of operation.
If our internal controls fail to prevent or detect any such occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations. 22 Use of appraisals when underwriting loans secured by real property may not accurately represent the net value of collateral the Bank can realize at a future date.
If the Bank is unable to make dividend payments to the Corporation and sufficient capital is not otherwise available, the Corporation may not be able to make dividend payments to its common shareholders. 30 Provisions of the Corporation's certificate of incorporation, bylaws, as well as New York law and certain banking laws, could delay or prevent a takeover of the Corporation by a third party.
Provisions of the Corporation's certificate of incorporation, bylaws, as well as New York law and certain banking laws, could delay or prevent a takeover of the Corporation by a third party.
Technology has lowered barriers to entry and made it possible for "non-banks" to offer traditional bank products and services using innovative technological platforms such as Fintech and Blockchain. These "digital banks" may be able to achieve economies of scale and offer better pricing for banking products and services than the Corporation can.
The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services. Technology has lowered barriers to entry and made it possible for "non-banks" to offer traditional bank products and services using innovative technological platforms such as fintech and blockchain.
Risks Related to Accounting Matters The Corporation's accounting policies and estimates are critical to how the Corporation reports its financial condition and results of operations, and any changes to such accounting policies and estimates could materially affect how the Corporation reports its financial condition and results of operations.
As a result, the Corporation’s ability to conduct business may be adversely affected by any significant disruptions to third parties with whom the Corporation interacts or relies upon. 27 Risks Related to Accounting Matters The Corporation's accounting policies and estimates are critical to how the Corporation reports its financial condition and results of operations, and any changes to such accounting policies and estimates could materially affect how the Corporation reports its financial condition and results of operations.
Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer losses.
Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer losses. Operating systems and infrastructure, managed or supplied by third parties on whom we rely, could be interrupted, compromised, or otherwise breached.
Management cannot predict whether these or other brokers will continue to make a market in our common stock. Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock.
Prices on stock that is not heavily traded, such as our common stock, can be more volatile than heavily traded stock.
Currently, the Corporation and its subsidiaries are subject to extensive regulation, supervision, and examination by regulatory authorities. For example, the FRB regulates the Corporation, the FRB, the FDIC and the NYSDFS regulate the Bank, and CRM is regulated by the Nevada Division of Insurance. Such regulators govern the activities in which the Corporation and its subsidiaries may engage.
Risks Related to Laws and Regulations The Corporation operates in a highly regulated environment and may be adversely affected by changes in laws and regulations. Currently, the Corporation and its subsidiaries are subject to extensive regulation, supervision, and examination by regulatory authorities. For example, the FRB regulates the Corporation, and the FRB, the FDIC and the NYSDFS regulate the Bank.
The Corporation has purchased loan participations secured by various types of collateral such as real estate, equipment and other business assets located primarily in New York, and Pennsylvania. Loan participations may have a higher risk of loss than loans the Bank originates because we rely on the lead lender to monitor the performance of the loan.
The Corporation occasionally purchases commercial real estate and commercial and industrial loan participations secured by properties outside its market area in which the Bank is not the lead lender. The Corporation has purchased loan participations secured by various types of collateral such as real estate, equipment and other business assets located primarily in New York and Pennsylvania.
The national economy continues to experience elevated levels of inflation. As of December 31, 2022, the year over year consumer price index (“CPI”) increase was 6.5%, primarily driven by increases in food and energy prices. As a result, the FRB raised interest rates by 425 basis points in 2022 to combat rising inflation.
The national economy continues to experience elevated levels of inflation. As of December 31, 2023, the year over year consumer price index (“CPI”) increase was 3.4%, primarily driven by increases in food and energy prices. The FOMC of the FRB's preferred measure of inflation, the year over year personal consumption expenditures index ("PCE"), excluding food end energy, increased 2.9%.
Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks. We face significant operational risks because the financial services business involves a high volume of transactions. We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions.
We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions.
In determining the amount of the allowance for loan losses, management relies on loan quality reviews, past loss experience, and an evaluation of economic conditions, among other factors. If these assumptions prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the Corporation’s loan portfolio, resulting in additions to the allowance.
In determining the amount of the allowance for credit losses, management relies on its CECL methodology, loan quality reviews, past experience, and an evaluation of forward-looking economic forecasts, among other factors.
As the Corporation continues to increase the amount of these loans, additional or increased provisions for loan losses may be necessary, which could result in a decrease in earnings. The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Bank beginning on January 1, 2023.
The Corporation’s emphasis on the origination of commercial loans is one of the more significant factors in determining its allowance for credit losses. As the Corporation continues to increase the amount of these loans, additional or increased provisions for credit losses may be necessary, which may result in a decrease in earnings.
In the event of a breakdown in our internal control systems, improper operation of systems, or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation. Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, may have a material effect on the Corporation's operations.
In the event of a breakdown in our internal control systems, improper operation of systems, or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation. The Corporation continually encounters technological change and the failure to understand and adapt to these changes could adversely affect its business.
At December 31, 2022, loan participation balances where the Bank is not the lead lender totaled $150.2 million, or 8.21% of our loan portfolio.
A lead lender also may not monitor a participation loan in the same manner as we would for loans that the Bank originates. At December 31, 2023, loan participation balances where the Bank is not the lead lender totaled $177.6 million, or 9.00% of our loan portfolio.
At December 31, 2022, commercial and industrial loan participations outside our market area totaled $12.0 million, or 4.77% of the commercial and industrial loan portfolio and commercial real estate loan participations outside our market area totaled $0.2 million, or 0.02% of the commercial real estate loan portfolio.
At December 31, 2023, commercial and industrial loan participations outside our market area totaled $11.6 million, or 4.38% of the commercial and industrial loan portfolio. There were no commercial real estate loan participations outside our market area. If the Bank’s underwriting of these participation loans is not sufficient, our non-performing loans may increase and our earnings may decrease.
Removed
If the Bank’s underwriting of these participation loans is not sufficient, our non-performing loans may increase and our earnings may decrease. We are subject to environmental liability risk associated with lending activities.
Added
If these assumptions prove to be incorrect, the allowance for credit losses may not be sufficient to cover future losses in the Corporation’s loan portfolio, resulting in additions to the allowance. Material additions to the allowance would materially decrease earnings.
Removed
Material additions to the allowance would materially decrease net income. The Corporation’s emphasis on the origination of commercial loans is one of the more significant factors in evaluating its allowance for loan losses.
Added
Effective January 1, 2023, the Corporation adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which requires the Corporation to estimate the lifetime expected credit losses in the loan portfolio as of the measurement date.
Removed
This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses.
Added
This methodology is dependent on the relationship between economic variables and historic default, and there is no guarantee that these factors will be similarly correlated in the future.
Removed
This will change the current method of establishing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and increase the data we would need to collect and review to determine the appropriate level of our allowance for loan losses.
Added
A departure or decoupling in correlation may increase the risk that the allowance for credit losses is inadequate to absorb anticipated lifetime credit losses, and may require changes in the Corporation's methodology, which may result in increased provision requirements, materially adversely impacting the results of operations and financial condition.
Removed
During 2022, in response to accelerated inflation, the FRB implemented monetary tightening policies, resulting in significantly increased interest rates. The FRB has signaled that further tightening is anticipated.
Added
When evaluating decisions to extend credit that is to be secured by real property, it is generally the requirement of the Bank to require an appraisal on the property being collateralized.
Removed
Changes to LIBOR may adversely impact the interest rate paid on certain financial instruments . The Corporation holds assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR including but not limited to the one-month LIBOR, three-month LIBOR, one-year LIBOR, and the ten-year constant maturing swap rate. In 2017, the U.K.
Added
Appraisals are only an estimate of the value of the property as of the time of the appraisal, and real estate values may fluctuate over short periods of time, whether on a market basis, or in relation to a specific property. Therefore, appraised estimates may not accurately represent the net value of collateral in periods after loan closing.
Removed
Financial Conduct Authority, which regulates London Interbank Offered Rates (“LIBOR”), announced that the publication of LIBOR is not guaranteed beyond 2021.
Added
If an appraisal does not reflect the amount that may be realized on the sale of real property, we may not be able to realize an amount which is equal to the indebtedness secured by the property.
Removed
In December 2020, the administrator of LIBOR announced its intention to (i) cease the publication of the one-week and two-month U.S. dollar LIBOR after December 31, 2021, and (ii) cease the publication of all other tenors of U.S. dollar LIBOR (one, three, six and 12 month LIBOR) after June 30, 2023.
Added
Additionally, appraisals are relied upon to establish the fair value of other real estate owned, and to determine specific allocations to the allowance for credit losses on loans that are individually analyzed using the collateral method.
Removed
There are multiple alternative reference rates available as a viable replacement for LIBOR. The Secured Overnight Financing Rate (or “SOFR”) is considered the most likely alternative reference rate suitable for replacing LIBOR.
Added
Inaccuracies in these valuations due to appraisals may result in representation in the consolidated financial statements that is not reflective of current conditions existing as of or subsequent to the measurement date, and could materially adversely impact our results of operation and financial condition.
Removed
SOFR has been published by the Federal Reserve Bank of New York (FRBNY) since March 2018, and it is intended to be a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. The FRBNY currently publishes SOFR daily on its website.
Added
At December 31, 2023, the Bank had $1.8 billion of deposit liabilities, representing 74.8% of total deposits, that had no maturity and, therefore, may be withdrawn by the depositor at any time without penalty.
Removed
Uncertainty remains as to the adoption or market acceptance or continued availability of SOFR or other alternative reference rates. The Company has adhered to the International Swaps and Derivatives Association 2021 Fallbacks Protocol for its interest rate swap agreements.
Added
Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions.
Removed
At this time, it is not possible to predict what rate or rates may become accepted alternatives to LIBOR or the effect of any such changes on the interest rate received by the bank on its interest rate swap instruments. 25 We are subject to the Community Reinvestment Act and fair lending laws, and alleged failure to comply with fair lending laws has led to material penalties.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeBuffalo St., Ithaca, NY 14850 304 Elmira Rd., Ithaca, NY 14850 Erie County *909 Hanshaw Rd., Ithaca, NY 14850 *9159 Main Street, Clarence, NY 14031 Full-Service Branches - Pennsylvania (Bradford County) 5 West Main St., Canton, PA 17724 159 Canton St., Troy, PA 16947 CFS Group One Chemung Canal Plaza, Elmira, NY 14901 Available by appointment at all bank locations * Leased facilities and/or property 32 Leased Off-Site ATM Locations Albany Capital Center Albany, NY E-Z Food Mart Elmira, NY Ithaca College Ithaca, NY
Biggest changeBuffalo St., Ithaca, NY 14850 304 Elmira Rd., Ithaca, NY 14850 Erie County *909 Hanshaw Rd., Ithaca, NY 14850 *9159 Main Street, Clarence, NY 14031 *^5529 Main Street, Williamsville, NY 14221 Full-Service Branches - Pennsylvania (Bradford County) 5 West Main St., Canton, PA 17724 159 Canton St., Troy, PA 16947 CFS Group One Chemung Canal Plaza, Elmira, NY 14901 Available by appointment at all bank locations * Leased facilities and/or property ^ Leased, pending opening as full-service branch in 2024 32 Leased Off-Site ATM Locations Albany Capital Center Albany, NY E-Z Food Mart Elmira, NY Ithaca College Ithaca, NY

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

1 edited+0 added−0 removed3 unchanged
Biggest changeOther 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 its financial results or liquidity as of December 31, 2022. ITEM 4. MINE SAFETY DISCLOSURES None. 33 PART II
Biggest changeOther 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 its financial results or liquidity as of December 31, 2023. ITEM 4. MINE SAFETY DISCLOSURES None. 33 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeCommon Stock Market Prices and Dividends Paid During the Past Two Years December 31, 2022 High Low Dividends 4th Quarter $ 47.99 $ 41.21 $ 0.31 3rd Quarter 48.38 41.80 0.31 2nd Quarter 47.48 40.88 0.31 1st Quarter 47.14 45.25 0.31 December 31, 2021 High Low Dividends 4th Quarter $ 48.33 $ 44.29 $ 0.31 3rd Quarter 48.30 42.81 0.31 2nd Quarter 46.60 42.09 0.31 1st Quarter 44.73 33.46 0.26 Under New York law, the Corporation may pay dividends on its common stock either: (i) out of surplus, so that the Corporation’s net assets remaining after such payment equal the amount of its stated capital, or (ii) if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
Biggest changeMARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Corporation's common stock is traded on the Nasdaq Global Select Market under the symbol "CHMG." Under New York law, the Corporation may pay dividends on its common stock either: (i) out of surplus, so that the Corporation’s net assets remaining after such payment equal the amount of its stated capital, or (ii) if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.
The table below sets forth the information with respect to purchases made by the Corporation of our common stock during the quarter ended December 31, 2022: 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 10/01/22 - 10/31/22 — 200,816 11/01/22 - 11/30/22 — $ — — 200,816 12/01/22 - 12/31/22 — $ — — 200,816 Quarter ended 12/31/2022 — $ — — 200,816 On January 8, 2021 the Corporation announced that the Board of Directors approved a new stock repurchase program whereby the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its outstanding shares.
The table below sets forth the information with respect to purchases made by the Corporation of our common stock during the quarter ended December 31, 2023: 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 10/01/23 - 10/31/23 — $ — — 200,816 11/01/23 - 11/30/23 — $ — — 200,816 12/01/23 - 12/31/23 — $ — — 200,816 Quarter ended 12/31/2023 — $ — — 200,816 On January 8, 2021 the Corporation announced that the Board of Directors approved a new stock repurchase program whereby the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its outstanding shares.
As of March 10, 2023, a total of 49,184 shares were repurchased at an average cost of $40.42 per share. 34 STOCK PERFORMANCE GRAPH The following graph compares the yearly change in the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the NASDAQ Composite Index, KBW NASDAQ Bank Index, and S&P U.S.
As of March 1, 2024, a total of 49,184 shares were repurchased at an average cost of $40.42 per share. 34 STOCK PERFORMANCE GRAPH The following graph compares the yearly change in the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the NASDAQ Composite Index, KBW NASDAQ Bank Index, and S&P U.S.
See Item 1, “Business – Supervision and Regulation-The Bank-Payment of Dividends” for an explanation of legal limitations on the Bank’s ability to pay dividends. As of March 10, 2023, there were 454 registered holders of record of the Corporation's stock.
See Item 1, “Business – Supervision and Regulation-The Bank-Payment of Dividends” for an explanation of legal limitations on the Bank’s ability to pay dividends. As of March 1, 2024, there were 437 registered holders of record of the Corporation's stock.
SmallCap Banks Index 100.00 83.44 104.69 95.08 132.36 116.69 The cumulative total return includes (1) dividends paid and (2) changes in the share price of the Corporation’s common stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 2017.
SmallCap Banks Index 100.00 125.46 113.94 158.62 139.85 140.55 The cumulative total return includes (1) dividends paid and (2) changes in the share price of the Corporation’s common stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 2018.
SmallCap Banks Index for the period of five years commencing December 31, 2017. Period Ending Index 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 Chemung Financial Corporation 100.00 87.92 92.56 76.72 107.84 109.53 NASDAQ Composite Index 100.00 97.16 132.81 192.47 235.15 158.65 KBW NASDAQ Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 S&P U.S.
SmallCap Banks Index for the period of five years commencing December 31, 2018. Period Ending Index 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 12/31/2023 Chemung Financial Corporation 100.00 105.27 87.26 122.65 124.57 139.17 NASDAQ Composite Index 100.00 136.69 198.10 242.03 163.28 236.17 KBW NASDAQ Bank Index 100.00 136.13 122.09 168.88 132.75 131.57 S&P U.S.
Removed
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES The Corporation's common stock is traded on the Nasdaq Global Select Market under the symbol "CHMG." The table below shows the price ranges for the Corporation’s common stock during each of the indicated quarters.
Removed
The information is based upon the high and low closing sales prices reported by the Nasdaq Global Select Market.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

144 edited+88 added−62 removed50 unchanged
Biggest changeThe increase in net charge-offs can primarily be attributed to the $0.7 million charge off on a large commercial real estate loan. 55 The table below summarizes the Corporation’s allowance for loan losses, non-accrual loans, and ratio of net charge-offs and recoveries to average loans outstanding by loan category for the years ended December 31, 2022 and December 31, 2021, by category (in thousands): ALLOWANCE FOR LOAN LOSSES AND LOAN CREDIT RATIOS BY LOAN CATEGORY Balance at December 31, 2022 Allowance for loan losses Allowance to loans 1 Non-performing loans Non-performing loans to loans 1 Allowance to non-performing loans Net charge-offs (recoveries) to average loans Commercial and agricultural $ 3,373 1.34 % $ 1,946 0.77 % 173.33 % (0.01) % Commercial mortgages 11,576 1.16 % 3,933 0.39 % 294.33 % 0.08 % Residential mortgages 1,845 0.65 % 986 0.35 % 187.12 % (0.01) % Consumer loans 2,865 0.97 % 1,313 0.45 % 218.20 % 0.07 % Total $ 19,659 1.07 % $ 8,178 0.45 % 240.39 % 0.05 % Balance at December 31, 2021 Allowance for loan losses Allowance to loans 1 Non-performing loans Non-performing loans to loans 1 Allowance to non-performing loans Net charge-offs (recoveries) to average loans Commercial and agricultural $ 3,591 1.40 % $ 1,932 0.75 % 185.87 % (0.09) % Commercial mortgages 13,556 1.69 % 3,878 0.48 % 349.56 % 0.01 % Residential mortgages 1,803 0.70 % 1,039 0.40 % 173.53 % 0.03 % Consumer loans 2,075 1.04 % 1,265 0.64 % 164.03 % 0.05 % Total $ 21,025 1.38 % $ 8,114 0.54 % 259.17 % (0.01) % Consolidated Ratios at December 31, 2022 2021 Non-performing loans to total loans 0.45 % 0.54 % Allowance for loan losses to total loans 1.07 % 1.38 % Allowance for loan losses to total loans, net of PPP 1.08 % 1.43 % Allowance for loan losses to non-performing loans 240.39 % 259.17 % 1 Ratio is a percentage of loan category.
Biggest changeBalance at December 31, 2022 Allowance for loan losses Allowance to loans 1 Non-performing loans Non-performing loans to loans 1 Allowance to non-performing loans Net charge-offs (recoveries) to average loans Commercial and agricultural $ 3,373 1.34 % $ 1,946 0.77 % 173.33 % (0.01) % Commercial mortgages 11,576 1.16 % 3,933 0.39 % 294.33 % 0.08 % Residential mortgages 1,845 0.65 % 986 0.35 % 187.12 % (0.01) % Consumer loans 2,865 0.97 % 1,313 0.45 % 218.20 % 0.07 % Total $ 19,659 1.07 % $ 8,178 0.45 % 240.39 % 0.05 % (1) Ratio represents a percentage of loan category.
For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.” 62 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.
For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.” 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.
A loan may also be designated as non-accrual 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 on non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed.
A loan may also be designated as non-accrual 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 in non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed.
The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $50 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities.
The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $75 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities.
Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by changes in economic or other conditions. The Corporation’s concentration policy limits consider the volume of commercial loans to any one specific industry, sponsor, collateral type and location.
Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by changes in economic or other conditions. The Bank’s concentration policy limits consider the volume of commercial loans to any one specific industry, sponsor, collateral type and location.
It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2022, and 2021. For the purpose of the table below, non-accruing 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.
It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2023, and 2022. For the purpose of the table below, non-accruing 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.
All payments received on non-accrual 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 contractual principal and interest.
All payments received on non-accrual 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.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Overview The following is the MD&A of the Corporation in this Form 10-K at December 31, 2022 and 2021, and for the years ended December 31, 2022, and 2021.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Overview The following is the MD&A of the Corporation in this Form 10-K at December 31, 2023 and 2022, and for the years ended December 31, 2023, and 2022.
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 will apply to the Corporation's participation in the CDARS and ICS programs.
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.
Adoption of New Accounting Standards For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Corporation's audited Consolidated Financial Statements which begins on page F-9.
Adoption of New Accounting Standards For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Corporation's audited Consolidated Financial Statements which begins on page F-10.
Additionally, t he swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets, which typically involves a day one gain.
Additionally, the swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's Consolidated Balance Sheets, which typically involves a day one gain.
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. The Corporation has been a financial holding company since 2000, and the Bank was established in 1833, CFS in 2001, and CRM in 2016.
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. The Corporation has been a financial holding company since 2000, and the Bank was established in 1833, CFS in 2001, and Chemung Risk Management, Inc. (CRM) in 2016.
Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely.
Loans are charged against the allowance for credit losses when management believes that the collectability of all or a portion of the principal is unlikely.
Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and an allowance for credit loss exposure, in the event of nonperformance. The Corporation recognized $0.3 million and $0.4 million in swap income for the years ended December 31, 2022 and 2021 , respectively.
Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and an allowance for credit loss exposure, in the event of nonperformance. The Corporation recognized $0.3 million in swap income for each of the years ended December 31, 2023 and 2022, respectively.
The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it may use brokered deposits as a secondary source of funding to support asset growth. Information regarding deposits is included in Note 8 to the consolidated financial statements appearing elsewhere in this report.
The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates continued use of brokered deposits as a secondary source of funding to support asset growth. Information regarding deposits is included in Note 8 to the consolidated financial statements appearing elsewhere in this report.
As of March 10, 2023, 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. The remaining buyback authority under the share repurchase program was 200,816 shares as of the March 10, 2023.
As of December 31, 2023, 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. The remaining buyback authority under the share repurchase program was 200,816 shares as of December 31, 2023.
(2) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets. 42 Changes Due to Rate and Volume Net interest income can be analyzed in terms of the impact of changes in rates and volumes.
(3) Net interest margin is the ratio of fully taxable equivalent net interest income divided by average interest-earning assets. 41 Changes Due to Rate and Volume Net interest income can be analyzed in terms of the impact of changes in rates and volumes.
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.
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.
Deposits placed in the CDARS and ICS programs were $441.6 million and $288.1 million as of December 31, 2022 and 2021, 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.
Deposits placed in the CDARS and ICS programs were $424.6 million and $441.6 million as of December 31, 2023 and 2022, 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.
The agreement with the third party is not designated as a hedge contract, therefore changes in fair value are recorded through other non-interest income. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other non-interest income.
The agreement with the third party is not designated as a hedge contract, therefore changes in fair value are recorded through other non-interest income. Assets and liabilities associated with the agreements are recorded in Interest rate swap assets and Interest rate swap liabilities on the Consolidated Balance Sheets. Gains and losses are recorded as other non-interest income.
Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years. At December 31, 2022, the Bank could, without prior approval, declare dividends of approximately $49.3 million.
Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years. At December 31, 2023, the Bank could, without prior approval, declare dividends of approximately $59.4 million.
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 F-3 through F-8.
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 F-4 through F-9.
The increase was due primarily to increases of $2.2 million in total compensation expenses and $1.4 million in total non-compensation expenses.
The increase was due primarily to increases of $2.5 million in total compensation expenses and $2.5 million in total non-compensation expenses.
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 non-accrual status unless factors exist that would eliminate the need to place a loan in this status.
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 non-accrual status unless factors exist that would eliminate the need to classify a loan as such.
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, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends.
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, changes in FDIC assessments, bank failures, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, and changes in general business and economic trends.
As of or for the Years Ended December 31, December 31, (in thousands, except ratio data) 2022 2021 TANGIBLE EQUITY (AVERAGE) Total average shareholders' equity (GAAP) $ 180,684 $ 204,239 Less: average intangible assets (21,827) (21,925) Average tangible equity (non-GAAP) $ 158,857 $ 182,314 Return on average equity (GAAP) 15.93 % 12.94 % Return on average tangible equity (non-GAAP) 18.12 % 14.49 % 65 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 year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, including certain nonrecurring items.
(in thousands, except ratio data) As of or for the Years Ended December 31, TANGIBLE EQUITY (AVERAGE) 2023 2022 Total average shareholders' equity (GAAP) $ 177,187 $ 180,684 Less: average intangible assets (21,824) (21,827) Average tangible equity (non-GAAP) $ 155,363 $ 158,857 Return on average equity (GAAP) 14.11 % 15.93 % Return on average tangible equity (non-GAAP) 16.09 % 18.12 % 65 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 year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, including certain nonrecurring items.
For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.” Cash dividends declared during 2022 totaled $5.8 million, or $1.24 per share, compared to $5.6 million, or $1.19 per share in 2021. Dividends declared during 2022 amounted to 20.15% of net income compared to 21.02% of net income for 2021.
For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.” Cash dividends declared during 2023 totaled $5.9 million, or $1.24 per share, compared to $5.8 million, or $1.24 per share in 2022. Dividends declared during 2023 amounted to 23.41% of net income compared to 20.15% of net income for 2022.
Net charge-offs for the year ended December 31, 2022 were $0.8 million compared with net recoveries of $0.1 million for the year ended December 31, 2021. The ratio of net charge-offs (recoveries) to average loans outstanding was 0.05% for 2022 compared to (0.01)% for 2021.
Net charge-offs for the year ended December 31, 2023 were $0.9 million compared with net charge-offs of $0.8 million for the year ended December 31, 2022. The ratio of net charge-offs (recoveries) to average loans outstanding was 0.05% for 2023 and 2022.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses.
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.
Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $8.4 million, or 0.32% of total assets, at December 31, 2022, compared with $8.2 million, or 0.34% of total assets, at December 31, 2021.
Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $10.7 million, or 0.40% of total assets, at December 31, 2023, compared with $8.4 million, or 0.32% of total assets, at December 31, 2022.
(2) Average loans and loans held for sale, net of deferred loan fees. (3) Average balances for investments include securities available for sale at estimated fair value and securities held to maturity, based on amortized cost, equity investments, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits. (4) Average borrowings include overnight advances, and capitalized lease obligations.
(2) Loans and loans held for sale, net of deferred loan fees. (3) Investments include securities available for sale at estimated fair value, securities held to maturity, at amortized cost, equity investments, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits. (4) Borrowings include overnight advances and capitalized lease obligations. (5) The Corporation adopted CECL on January 1, 2023.
Consolidated Cash Flows Analysis The table below summarizes the Corporation's cash flows on a direct basis, for the years indicated (in thousands): CONSOLIDATED SUMMARY OF CASH FLOWS Years Ended December 31, (in thousands) 2022 2021 Net cash provided by operating activities $ 35,047 $ 35,461 Net cash provided (used) by investing activities (252,620) (242,484) Net cash provided (used) by financing activities 246,461 125,466 Net increase (decrease) in cash and cash equivalents $ 28,888 $ (81,557) Operating activities The Corporation believes cash flows from operations, available cash balances and its ability to generate cash through borrowings are sufficient to fund the Corporation’s operating liquidity needs.
Consolidated Cash Flows Analysis The table below summarizes the Corporation's cash flows on a direct basis, for the years indicated (in thousands): CONSOLIDATED SUMMARY OF CASH FLOWS Years Ended December 31, (in thousands) 2023 2022 Net cash provided by operating activities $ 30,881 $ 35,047 Net cash provided (used) by investing activities (82,381) (252,620) Net cash provided (used) by financing activities 32,478 246,461 Net increase (decrease) in cash and cash equivalents $ (19,022) $ 28,888 Operating activities The Corporation believes cash flows from operations, available cash balances and its ability to generate cash through borrowings are sufficient to fund the Corporation’s operating liquidity needs.
The increase in interest income on interest-earning deposits was due primarily to the increase in interest rates on overnight deposits with the average yield on interest-earning deposits increasing from 0.17% in 2021 to 1.24% in 2022.
The increase in interest income on interest-earning deposits was due primarily to the increase in interest rates on overnight deposits with the average yield on interest-earning deposits increasing from 1.24% in 2022 to 5.07% in 2023.
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 loan losses was $19.7 million at December 31, 2022, compared to $21.0 million at December 31, 2021.
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 $22.5 million as of December 31, 2023, compared to an allowance for loan losses of $19.7 million as December 31, 2022.
There were no FHLBNY term advances as of and for the years ended December 31, 2022, and 2021. Information regarding FHLBNY advances is included in Note 9 of the audited Consolidated Financial Statements appearing elsewhere in this report. There were no securities sold under agreements to repurchase as of and for the years ended December 31, 2022, or 2021.
There were no FHLBNY or FRB term advances as of and for the years ended December 31, 2023, and 2022. Information regarding FHLBNY advances is included in Note 9 of the audited Consolidated Financial Statements appearing elsewhere in this report.
The increase in net income for the year ended December 31, 2022, compared to the prior year, was driven by an increase in net interest income and a decrease in the provision for loan losses, offset by a decrease in non-interest income and increases in non-interest expenses and income tax expense.
The decrease in net income for the year ended December 31, 2023, compared to the prior year, was due to increases in the provision for credit losses and non-interest expenses, offset by increases in non-interest income and net interest income, and a decrease in income tax expense.
Marketable securities are classified as Available for Sale, while investments in local municipal obligations are generally classified as Held to Maturity. The available for sale segment of the securities portfolio totaled $632.6 million at December 31, 2022, a decrease of $159.4 million, or 20.1%, from $792.0 million at December 31, 2021.
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 $584.0 million at December 31, 2023, a decrease of $48.6 million, or 7.7%, from $632.6 million at December 31, 2022.
Borrowings FHLBNY overnight advances increased $81.2 million at December 31, 2022 when compared to 2021. For each year ended December 31, 2022, and 2021 respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity.
Borrowings FHLBNY overnight advances were $31.9 million and $95.8 million at December 31, 2023 and 2022, respectively, decreasing $63.9 million at December 31, 2023 when compared to December 31, 2022. For each year ended December 31, 2023, and 2022 respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity.
Public funds deposits generally increase at the end of the first and third quarters. Public funds deposit accounts above the FDIC insured limit are collateralized by municipal bonds and eligible government and government agency securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.
Public funds deposit accounts above the FDIC insured limit are collateralized by municipal bonds and eligible government and government agency securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.
Commitments to outside parties under these lines of credit were $59.3 million, $5.0 million and $8.0 million, respectively, at December 31, 2022. Capital Resources The Bank is subject to regulatory capital requirements administered by federal banking agencies.
Commitments to outside parties under these lines of credit were $62.9 million, $13.7 million and $7.5 million, respectively, at December 31, 2023. Capital Resources The Bank is subject to regulatory capital requirements administered by federal banking agencies.
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.
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. 63 Fully Taxable Equivalent Net Interest Income and Net Interest Margin Net interest income is commonly presented on a tax-equivalent basis.
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.
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.
A comparison of the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized at December 31, 2022 and 2021, is included in Footnote 20 of the audited Consolidated Financial Statements.
As of December 31, 2023, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines. A comparison of the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized at December 31, 2023 and 2022, is included in Footnote 20 of the audited Consolidated Financial Statements.
The decrease in the allowance to non-accrual loans was primarily due to a $0.1 million increase in non-accrual loans from 2021 to 2022, without an equivalent increase in the allowance allocated to non-accrual loans.
The decrease in the allowance to non-accrual loans was primarily due to a $2.2 million increase in non-accrual loans from year end 2022 to year end 2023, without an equivalent increase in the allowance allocated to non-accrual loans.
On April 27, 2020, the Corporation filed with the SEC a Form S-3 Registration Statement under the Securities Act of 1933.
On June 22, 2023, the Corporation filed with the SEC a Form S-3 Registration Statement under the Securities Act of 1933.
Return on average equity for the year ended December 31, 2022 was 15.93%, compared with 12.94% for the prior year.
Return on average equity for the year ended December 31, 2023 was 14.11%, compared with 15.93% for the prior year.
The average yield on average interest-earning assets increased 36 basis points, and the average cost of interest-bearing liabilities increased 24 basis points, when compared to the prior year. 41 Average Consolidated Balance Sheet and Interest Analysis The following table presents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the years ended December 31, 2022, and 2021.
The average yield on average interest-earning assets increased 98 basis points, and the average cost of interest-bearing liabilities increased 173 basis points, when compared to the prior year, both due to the rising interest rate environment over the past two years. 40 Average Consolidated Balance Sheet and Interest Analysis The following table presents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the years ended December 31, 2023, and 2022.
The table below presents the Corporation's scheduled maturity of those certificates as of December 31, 2022 (in thousands): December 31, 2022 3 months or less $ 2,877 Over 3 through 6 months — Over 6 through 12 months 9,660 Over 12 months 19,010 $ 31,547 The table below presents the Corporation's deposits balance by bank division (in thousands): DEPOSITS BY DIVISION December 31, 2022 2021 2020 2019 2018 Chemung Canal Trust Company* 1,892,020 1,739,826 $ 1,686,370 $ 1,317,225 $ 1,328,658 Capital Bank Division 435,207 415,607 351,404 254,913 240,579 Total deposits $ 2,327,227 $ 2,155,433 $ 2,037,774 $ 1,572,138 $ 1,569,237 *All deposits, excluding those originated by the Capital Bank Division, and including one-way brokered deposits. 58 In addition to consumer, commercial and public deposits, other sources of funds include brokered deposits.
The table below presents the Corporation's scheduled maturity of those certificates as of December 31, 2023 (in thousands): Maturities 3 months or less $ 28,603 Over 3 through 6 months 36,017 Over 6 through 12 months 11,056 Over 12 months 1,128 Total $ 76,804 The table below presents the Corporation's deposits balance by bank division (in thousands): DEPOSITS BY DIVISION December 31, 2023 2022 2021 2020 2019 Chemung Canal Trust Company* $ 2,048,465 $ 1,892,020 $ 1,739,826 $ 1,686,370 $ 1,317,225 Capital Bank Division 380,962 435,207 415,607 351,404 254,913 Total deposits $ 2,429,427 $ 2,327,227 $ 2,155,433 $ 2,037,774 $ 1,572,138 *All deposits, excluding those originated by the Capital Bank Division, and including brokered deposits. 58 In addition to consumer, commercial and public deposits, other sources of funds include brokered deposits.
Interest income recorded on non-accrual and troubled debt restructured loans was $56.0 thousand and $146.0 thousand, as of December 31, 2022, and 2021, respectively. Non-Performing Loans Non-performing loans totaled $8.2 million at December 31, 2022, or 0.45% of total loans, compared with $8.1 million at December 31, 2021, or 0.54% of total loans.
Interest income recorded on non-accrual loans was $163 thousand and $56 thousand, as of December 31, 2023, and 2022, respectively. Non-Performing Loans Non-performing loans totaled $10.4 million at December 31, 2023, or 0.53% of total loans, compared with $8.2 million at December 31, 2022, or 0.45% of total loans.
As of or for the Years Ended (in thousands, except ratio data) December 31, December 31, 2022 2021 EFFICIENCY RATIO Net interest income (GAAP) $ 74,179 $ 65,589 Fully taxable equivalent adjustment 425 382 Fully taxable equivalent net interest income (non-GAAP) $ 74,604 $ 65,971 Non-interest income (GAAP) $ 21,436 $ 23,870 Less: net (gains) losses on security transactions — — Adjusted non-interest income (non-GAAP) $ 21,436 $ 23,870 Non-interest expense (GAAP) $ 59,280 $ 55,682 Less: amortization of intangible assets (15) (243) Adjusted non-interest expense (non-GAAP) $ 59,265 $ 55,439 Efficiency ratio (unadjusted) 62.00 % 62.24 % Efficiency ratio (adjusted) 61.71 % 61.71 % 64 Tangible Equity and Tangible Assets (Year-End) Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures.
(in thousands, except ratio data) As of or for the Years Ended December 31, Efficiency Ratio 2023 2022 Net interest income (GAAP) $ 74,457 $ 74,179 Fully taxable equivalent adjustment 366 425 Fully taxable equivalent net interest income (non-GAAP) $ 74,823 $ 74,604 Non-interest income (GAAP) $ 24,549 $ 21,436 Less: net (gains) losses on security transactions 39 — Less: recognition of employee retention tax credit (2,370) — Adjusted non-interest income (non-GAAP) $ 22,218 $ 21,436 Non-interest expense (GAAP) $ 64,243 $ 59,280 Less: amortization of intangible assets — (15) Adjusted non-interest expense (non-GAAP) $ 64,243 $ 59,265 Efficiency ratio (unadjusted) 64.89 % 62.00 % Efficiency ratio (adjusted) 66.20 % 61.71 % 64 Tangible Equity and Tangible Assets (Year-End) Tangible equity, tangible assets, and tangible book value per share are each non-GAAP financial measures.
As of December 31, 2022, the aggregate amount of the Corporation's outstanding certificates of deposit in amounts greater than or equal to $250,000 was $31.5 million.
As of December 31, 2023, the aggregate amount of the Corporation's outstanding certificates of deposit in amounts greater than $250,000 was $76.8 million.
Compensation expenses Compensation expenses increased $2.2 million, or 7.5% when compared to the prior year, primarily due to increases of $1.6 million in pension and other employee benefit expense and $0.6 million in salaries and wages, partially offset by a $0.1 million increase in the credit related to the net periodic pension and post-retirement benefits.
Compensation expenses Compensation expenses increased $2.5 million, or 7.9% when compared to the prior year, primarily due to increases of $1.8 million in salaries and wages and $1.0 million in other components of net periodic pension benefits, offset by a decrease of $0.3 million in pension and other employee benefits.
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 the client’s business. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.
Real estate values in each of the Corporation's market areas have remained stable. 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.
In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept in non-accrual status until the entire principal balance has been recovered. 52 The following table summarizes the Corporation's non-performing assets, (in thousands): NON-PERFORMING ASSETS December 31, 2022 2021 2020 2019 2018 Non-accrual loans $ 4,143 $ 3,469 $ 6,011 $ 9,938 $ 6,305 Non-accrual troubled debt restructurings 4,035 4,645 3,941 8,070 5,949 Total non-performing loans 8,178 8,114 9,952 18,008 12,254 Other real estate owned 195 113 237 517 574 Total non-performing assets $ 8,373 $ 8,227 $ 10,189 $ 18,525 $ 12,828 Ratio of non-performing loans to total loans 0.45 % 0.54 % 0.65 % 1.38 % 0.93 % Ratio of non-performing assets to total assets 0.32 % 0.34 % 0.45 % 1.04 % 0.73 % Ratio of allowance for loan losses to non-performing loans 240.39 % 259.17 % 210.25 % 130.38 % 154.59 % Accruing loans past due 90 days or more (1) $ 1 $ 4 $ 2 $ 7 $ 19 Accruing troubled debt restructurings (1) $ 1,405 $ 5,643 $ 2,790 $ 952 $ 816 (1) These loans are not included in non-performing assets above.
The following table summarizes the Corporation's non-performing assets as of December 31, (in thousands): NON-PERFORMING ASSETS 2023 2022 2021 2020 2019 Non-accrual loans $ 10,411 $ 4,143 $ 3,469 $ 6,011 $ 9,938 Non-accrual troubled debt restructurings — 4,035 4,645 3,941 8,070 Total non-performing loans 10,411 8,178 8,114 9,952 18,008 Other real estate owned 326 195 113 237 517 Total non-performing assets $ 10,737 $ 8,373 $ 8,227 $ 10,189 $ 18,525 Ratio of non-performing loans to total loans 0.53 % 0.45 % 0.54 % 0.65 % 1.38 % Ratio of non-performing assets to total assets 0.40 % 0.32 % 0.34 % 0.45 % 1.04 % Ratio of allowance for credit losses to non-performing loans 216.28 % 240.39 % 259.17 % 210.25 % 130.38 % Accruing loans past due 90 days or more (1) $ 9 $ 1 $ 4 $ 2 $ 7 Accruing troubled debt restructurings (1) $ — $ 1,405 $ 5,643 $ 2,790 $ 952 (1) These loans are not included in non-performing assets above.
The Corporation follows these practices. 63 As of or for the Years Ended (in thousands, except ratio data) December 31, December 31, 2022 2021 NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT Net interest income (GAAP) $ 74,179 $ 65,589 Fully taxable equivalent adjustment 425 382 Fully taxable equivalent net interest income (non-GAAP) $ 74,604 $ 65,971 Average interest-earning assets (GAAP) $ 2,444,287 $ 2,324,498 Net interest margin - fully taxable equivalent (non-GAAP) 3.05 % 2.84 % Efficiency Ratio The unadjusted efficiency ratio is calculated as non-interest expense divided by total revenue (net interest income and non-interest income).
(in thousands, except ratio data) As of or for the Years Ended December 31, Net Interest Mar g in - Fully Taxable Equivalent 2023 2022 Net interest income (GAAP) $ 74,457 $ 74,179 Fully taxable equivalent adjustment 366 425 Fully taxable equivalent net interest income (non-GAAP) $ 74,823 $ 74,604 Average interest-earning assets (GAAP) $ 2,621,251 $ 2,444,287 Net interest margin - fully taxable equivalent (non-GAAP) 2.85 % 3.05 % Efficiency Ratio The unadjusted efficiency ratio is calculated as non-interest expense divided by total revenue (net interest income and non-interest income).
The SEC declared the registration statement effective on May 7, 2020. Liquidity Liquidity management involves the ability to meet the cash flow requirements of deposit clients, borrowers, and the operating, investing and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs.
The SEC declared the registration statement effective on July 13, 2023. 1 See the GAAP to Non-GAAP reconciliation on pages 63-65. 60 Liquidity Liquidity management involves the ability to meet the cash flow requirements of deposit clients, borrowers, and the operating, investing, and financing activities of the Corporation. The Corporation uses a variety of resources to meet its liquidity needs.
Information regarding derivatives is included in Note 11 to the consolidated financial statements appearing elsewhere in this report. 59 Shareholders’ Equity Total shareholders’ equity was $166.4 million at December 31, 2022, compared with $211.5 million at December 31, 2021, a decrease of $45.1 million, or 21.3%.
Information regarding derivatives is included in Note 11 to the consolidated financial statements appearing elsewhere in this report. 59 Shareholders’ Equity Total shareholders’ equity was $195.2 million at December 31, 2023, compared with $166.4 million at December 31, 2022, an increase of $28.9 million, or 17.3%.
At December 31, 2022, public funds deposits totaled $349.0 million compared to $378.9 million at December 31, 2021. The Corporation has developed a program for the retention and management of public funds deposits. These deposits are from public entities, such as school districts and municipalities. There is a seasonal component to public deposit levels associated with annual tax collections.
The Corporation has developed a program for the retention and management of public funds deposits. These deposits are from public entities, such as school districts and municipalities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds deposits generally increase at the end of the first and third quarters.
The activity in the allowance for loan losses is depicted in supporting tables in Note 4 to the Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K. 37 Consolidated Financial Highlights As of or for the Years Ended December 31, December 31, (in thousands, except per share data) 2022 2021 RESULTS OF OPERATIONS Interest and dividend income $ 81,475 $ 69,008 Interest expense 7,296 3,419 Net interest income 74,179 65,589 Provision for loan losses (554) 17 Net interest income after provision for loan losses 74,733 65,572 Non-interest income 21,436 23,870 Non-interest expenses 59,280 55,682 Income before income tax expense 36,889 33,760 Income tax expense 8,106 7,335 Net income $ 28,783 $ 26,425 Basic and diluted earnings per share $ 6.13 $ 5.64 Average basic and diluted shares outstanding 4,693 4,683 PERFORMANCE RATIOS Return on average assets 1.15 % 1.09 % Return on average equity 15.93 % 12.94 % Return on average tangible equity (a) 18.12 % 14.49 % Efficiency ratio (unadjusted) (f) 62.00 % 62.24 % Efficiency ratio (adjusted) (a) (b) 61.71 % 61.71 % Non-interest expense to average assets 2.37 % 2.30 % Loans to deposits 78.61 % 70.44 % AVERAGE YIELDS / RATES - Fully Taxable Equivalent Yield on loans 4.14 % 3.82 % Yield on investments 1.71 % 1.34 % Yield on interest-earning assets 3.35 % 2.99 % Cost of interest-bearing deposits 0.44 % 0.22 % Cost of borrowings 2.76 % 3.05 % Cost of interest-bearing liabilities 0.47 % 0.23 % Interest rate spread 2.88 % 2.76 % Net interest margin, fully taxable equivalent 3.05 % 2.84 % CAPITAL Total equity to total assets at end of year 6.29 % 8.74 % Tangible equity to tangible assets at end of year (a) 5.51 % 7.91 % Book value per share $ 35.32 $ 45.09 Tangible book value per share (a) 30.69 40.44 Year-end market value per share 45.87 46.45 Dividends declared per share 1.24 1.19 38 As of or for the Years Ended December 31, December 31, (in thousands, except per share data) 2022 2021 AVERAGE BALANCES Loans (c) $ 1,646,576 $ 1,545,579 Interest-earning assets 2,444,287 2,324,498 Total assets 2,496,099 2,421,801 Deposits 2,255,326 2,179,128 Total equity 180,684 204,239 Tangible equity (a) 158,857 182,314 ASSET QUALITY Net charge-offs (recoveries) $ 812 $ (84) Non-performing loans (d) 8,178 8,114 Non-performing assets (e) 8,373 8,227 Allowance for loan losses 19,659 21,025 Annualized net charge-offs (recoveries) to average loans 0.05 % (0.01) % Non-performing loans to total loans 0.45 % 0.54 % Non-performing assets to total assets 0.32 % 0.34 % Allowance for loan losses to total loans 1.07 % 1.38 % Allowance for loan losses to non-performing loans 240.39 % 259.17 % (a) See the GAAP to Non-GAAP reconciliations on pages 63-66.
The activity in the allowance for credit losses is depicted in supporting tables in Note 4 to the Consolidated Financial Statements included Part IV, Item 15 of this Annual Report on Form 10-K. 37 Consolidated Financial Highlights (in thousands, except per share data) As of or for the Years Ended December 31, December 31, RESULTS OF OPERATIONS 2023 2022 Interest and dividend income $ 113,074 $ 81,475 Interest expense 38,617 7,296 Net interest income 74,457 74,179 Provision for credit losses (a) 3,262 (554) Net interest income after provision for credit losses (a) 71,195 74,733 Non-interest income 24,549 21,436 Non-interest expenses 64,243 59,280 Income before income tax expense 31,501 36,889 Income tax expense 6,501 8,106 Net income $ 25,000 $ 28,783 Basic and diluted earnings per share $ 5.28 $ 6.13 Average basic and diluted shares outstanding 4,732 4,693 PERFORMANCE RATIOS Return on average assets 0.94 % 1.15 % Return on average equity 14.11 % 15.93 % Return on average tangible equity (b) 16.09 % 18.12 % Efficiency ratio (unadjusted) (c) 64.89 % 62.00 % Efficiency ratio (adjusted) (b) 66.20 % 61.71 % Non-interest expense to average assets 2.41 % 2.37 % Loans to deposits 81.20 % 78.61 % AVERAGE YIELDS / RATES - Fully Taxable Equivalent Yield on loans 5.13 % 4.14 % Yield on investments 2.21 % 1.71 % Yield on interest-earning assets 4.33 % 3.35 % Cost of interest-bearing deposits 2.11 % 0.44 % Cost of borrowings 5.17 % 2.76 % Cost of interest-bearing liabilities 2.20 % 0.47 % Interest rate spread 2.13 % 2.88 % Net interest margin, fully taxable equivalent 2.85 % 3.05 % CAPITAL Total equity to total assets at end of year 7.20 % 6.29 % Tangible equity to tangible assets at end of year (b) 6.45 % 5.51 % Book value per share $ 41.07 $ 35.32 Tangible book value per share (b) 36.48 30.69 Year-end market value per share 49.80 45.87 Dividends declared per share 1.24 1.24 AVERAGE BALANCES Loans (d) $ 1,898,986 $ 1,646,576 Interest-earning assets 2,621,251 2,444,287 Total assets 2,660,329 2,496,099 Deposits 2,377,736 2,255,326 Total equity 177,187 180,684 Tangible equity (b) 155,363 158,857 ASSET QUALITY Net charge-offs (recoveries) $ 941 $ 812 Non-performing loans (e) 10,411 8,178 Non-performing assets (f) 10,737 8,373 Allowance for credit losses (a) 22,517 19,659 Annualized net charge-offs (recoveries) to average loans 0.05 % 0.05 % Non-performing loans to total loans 0.53 % 0.45 % Non-performing assets to total assets 0.40 % 0.32 % Allowance for credit losses to total loans (a) 1.14 % 1.07 % Allowance for credit losses to non-performing loans (a) 216.28 % 240.39 % (a) Corporation adopted CECL January 1, 2023.
As of or for the Years Ended (in thousands, except per share and ratio data) December 31, December 31, 2022 2021 TANGIBLE EQUITY AND TANGIBLE ASSETS (YEAR END) Total shareholders' equity (GAAP) $ 166,388 $ 211,455 Less: intangible assets (21,824) (21,839) Tangible equity (non-GAAP) $ 144,564 $ 189,616 Total assets (GAAP) $ 2,645,553 $ 2,418,475 Less: intangible assets (21,824) (21,839) Tangible assets (non-GAAP) $ 2,623,729 $ 2,396,636 Total equity to total assets at end of year (GAAP) 6.29 % 8.74 % Book value per share (GAAP) $ 35.32 $ 45.09 Tangible equity to tangible assets at end of year (non-GAAP) 5.51 % 7.91 % Tangible book value per share (non-GAAP) $ 30.69 $ 40.44 Tangible Equity (Average) Average tangible equity and return on average tangible equity are each non-GAAP financial measures.
(in thousands, except per share and ratio data) As of or for the Years Ended December 31, TANGIBLE EQUITY AND TANGIBLE ASSETS (YEAR END) 2023 2022 Total shareholders' equity (GAAP) $ 195,241 $ 166,388 Less: intangible assets (21,824) (21,824) Tangible equity (non-GAAP) $ 173,417 $ 144,564 Total assets (GAAP) $ 2,710,529 $ 2,645,553 Less: intangible assets (21,824) (21,824) Tangible assets (non-GAAP) $ 2,688,705 $ 2,623,729 Total equity to total assets at end of year (GAAP) 7.20 % 6.29 % Book value per share (GAAP) $ 41.07 $ 35.32 Tangible equity to tangible assets at end of year (non-GAAP) 6.45 % 5.51 % Tangible book value per share (non-GAAP) $ 36.48 $ 30.69 Tangible Equity (Average) Average tangible equity and return on average tangible equity are each non-GAAP financial measures.
The table below presents the Corporation’s outstanding loan balance by bank division (in thousands): LOANS BY DIVISION December 31, 2022 2021 2020 2019 2018 Chemung Canal Trust Company*^ $ 731,344 639,144 $ 658,468 $ 576,399 $ 603,133 Capital Bank Division 1,098,104 879,105 877,995 732,820 708,773 Total loans $ 1,829,448 $ 1,518,249 $ 1,536,463 $ 1,309,219 $ 1,311,906 *All loans, excluding those originated by the Capital Bank Division. ^ Includes $79.8 million and $47.0 million in the Western New York Market as of December 31, 2022 and 2021, respectively.
Mortgage originations held on the balance sheet totaled $20.8 million and mortgage loans originated and sold into the secondary market totaled $6.4 million for the year ended December 31, 2023. 49 The table below presents the Corporation’s outstanding loan balance by bank division (in thousands): LOANS BY DIVISION December 31, 2023 2022 2021 2020 2019 Chemung Canal Trust Company*^ $ 766,103 $ 731,344 $ 658,468 $ 576,399 $ 603,133 Capital Bank Division 1,206,561 1,098,104 877,995 732,820 708,773 Total loans $ 1,972,664 $ 1,829,448 $ 1,536,463 $ 1,309,219 $ 1,311,906 *All loans, excluding those originated by the Capital Bank Division. ^ Includes $100.4 million and $79.8 million in the Western New York Market as of December 31, 2023 and 2022, respectively.
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.
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.
Allowance for Loan Losses Management considers the allowance for loan losses to be a critical accounting estimate given the uncertainty in evaluating the level of allowance required to cover probable incurred credit losses inherent in the loan portfolio, and the material effect that such judgments can have on the Corporation's results of operations.
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.
The increase in interest expense on borrowed funds was due primarily to an increase in the average balances and interest rates of overnight FHLBNY borrowings, when compared to the prior year. Average interest-earning assets increased $119.8 million in 2022 when compared to the prior year. Average interest-bearing liabilities increased $70.0 million when compared to the prior year.
The increase in interest expense on borrowed funds was due primarily to a $29.1 million increase in the average balances and 266 basis points increase in interest rates of overnight FHLBNY borrowings, when compared to the prior year. Average interest-earning assets increased $177.0 million in 2023 when compared to the prior year.
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, one-way brokered deposits, securities sold under agreements to repurchase and other borrowings.
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, securities sold under agreements to repurchase and other borrowings. The Corporation is a member of the FHLBNY, which allows it to access borrowings which enhance management's ability to satisfy future liquidity needs.
Total shareholders’ equity to total assets ratio was 6.29% at December 31, 2022 compared with 8.74% at December 31, 2021. Tangible equity to tangible assets ratio was 5.51% at December 31, 2022, compared with 7.91% at December 31, 2021.
Total shareholders’ equity to total assets ratio was 7.20% at December 31, 2023 compared with 6.29% at December 31, 2022.
Refer to Note 4 of the audited Consolidated Financial Statements appearing elsewhere in this report for components used in credit ratios presented above. 56 The table below summarizes the Corporation's loan loss experience for the years ended December 31, 2022 and 2021 (in thousands, except ratio data): SUMMARY OF LOAN LOSS EXPERIENCE Years Ended December 31, 2022 2021 Allowance for loan losses at beginning of year $ 21,025 $ 20,924 Charge-offs: Commercial and agricultural 20 28 Commercial mortgages 687 43 Residential mortgages 17 75 Consumer loans 770 593 Total 1,494 739 Recoveries: Commercial and agricultural 42 312 Commercial mortgages 3 3 Residential mortgages 40 10 Consumer loans 597 498 Total 682 823 Net charge-offs (recoveries) 812 (84) Provision charged to operations (554) 17 Allowance for loan losses at end of year $ 19,659 $ 21,025 Other Real Estate Owned At December 31, 2022, OREO totaled $0.2 million compared to $0.1 million at December 31, 2021.
Refer to Note 4 of the audited Consolidated Financial Statements appearing elsewhere in this report for components used in the credit ratios presented above. 56 The table below summarizes the Corporation's credit loss experience for the years ended December 31, 2023 and 2022 (in thousands, except ratio data): SUMMARY OF CREDIT LOSS EXPERIENCE 2023 2022 (1) Allowance for credit losses at beginning of year $ 19,659 $ 21,025 Impact of ASC 326 Adoption 374 — Charge-offs: Commercial and agricultural 281 20 Commercial mortgages — 687 Residential mortgages 32 17 Consumer loans 1,070 770 Total Charge-Offs 1,383 1,494 Recoveries: Commercial and agricultural 22 42 Commercial mortgages 4 3 Residential mortgages — 40 Consumer loans 416 597 Total Recoveries 442 682 Net charge-offs 941 812 Provision (credit) for credit losses on-balance sheet exposure (2) 3,425 (554) Allowance for credit losses at end of year $ 22,517 $ 19,659 (1) December 31, 2022 reflects the Corporations's allowance for loan losses.
Assets under management or administration The market value of total assets under management or administration in WMG was $2.053 billion, including $346.5 million of assets held under management or administration for the Corporation, at December 31, 2022 compared with $2.325 billion, including $344.2 million of assets held under management or administration for the Corporation, at December 31, 2021, a decrease of $271.9 million, or 11.7%.
Assets under management or administration The market value of total assets under management or administration in WMG was $2.242 billion, including $381.3 million of assets held under management or administration for the Corporation, at December 31, 2023 compared to $2.053 billion, including $346.5 million of assets held under management or administration for the Corporation at December 31, 2022, an increase of $189.4 million, or 9.2%.
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.
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. 62 As of December 31, 2023, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.
The increase was driven by increases of $194.4 million in commercial real estate loans, or 24.2%, $83.6 million, or 70.5% in indirect automobile loans, and $26.3 million in residential mortgages, or 10.2%, offset by a decrease of $5.0 million, or 1.9% in commercial & agricultural loans.
The increase was driven by increases of $126.0 million in commercial real estate loans, or 12.6%, $12.1 million, or 4.8% in commercial and industrial loans, and $8.3 million, or 4.1% in indirect auto loans, offset primarily by a decrease in residential mortgages of $7.7 million, or 2.7%.
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 an updated appraisal, an additional measurement is performed to determine if any adjustments are necessary to reflect the proper provisioning or charge-off.
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.
The increase in total commercial real estate loans was a result of a $26.0 million increase in construction loans and a $168.3 million increase in commercial real estate loans, primarily driven by increases in loans secured by non-owner occupied and multi-family properties.
The increase in total commercial real estate was the result of a $95.4 million increase in commercial mortgages, other, primarily driven by increases in multi-family properties, and a $30.6 million increase in construction loans.
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.
Cash and Cash Equivalents Total cash and cash equivalents decreased $19.0 million when compared to December 31, 2022, due to decreases of $12.0 million in interest-earning deposits at other financial institutions, and $7.1 million in cash and due from financial institutions. 47 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 decrease in total assets under management or administration for the Corporation can be mostly attributed to a general decline in the market value of the assets under management. 48 Balance Sheet Comparisons The table below contains selected year-end and average balance sheet information at and for the years December 31, 2022 and 2021 (in millions): SELECTED BALANCE SHEET INFORMATION YEAR-END BALANCE SHEET AVERAGE BALANCE SHEET % Change % Change 2021 to 2021 to 2022 2021 2022 2022 2021 2022 Total assets $ 2,645.6 $ 2,418.5 9.4 % $ 2,496.1 $ 2,421.8 3.1 % Interest-earning assets (1) 2,502.0 2,331.3 7.3 % 2,444.3 2,324.5 5.2 % Loans (2) 1,829.4 1,518.6 20.5 % 1,646.6 1,545.6 6.5 % Investments (3) 672.6 812.6 (17.2) % 797.7 778.9 2.4 % Deposits 2,327.2 2,155.4 8.0 % 2,255.3 2,179.1 3.5 % Borrowings (4) 99.1 18.2 444.5 % 23.2 4.4 427.3 % Allowance for loan losses 19.7 21.0 (6.2) % 19.5 21.1 (7.6) % Shareholders’ equity 166.4 211.5 (21.3) % 180.7 204.2 (11.5) % (1) Average interest-earning assets include securities available for sale at estimated fair value and securities held to maturity based on amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock, equity investments, and federal funds sold.
Balance Sheet Comparisons The table below contains selected year-end and average balance sheet information at and for the years ended December 31, 2023 and 2022 (in millions): SELECTED BALANCE SHEET INFORMATION YEAR-END BALANCE SHEET AVERAGE BALANCE SHEET 2023 2022 % Change 2023 2022 % Change Total assets $ 2,710.5 $ 2,645.6 2.5 % $ 2,660.3 $ 2,496.1 6.6 % Interest-earning assets (1) 2,580.6 2,502.0 3.1 % 2,621.3 2,444.3 7.2 % Loans (2) 1,972.7 1,829.4 7.8 % 1,899.0 1,646.6 15.3 % Investments (3) 607.9 672.6 (9.6) % 722.3 797.7 (9.5) % Deposits 2,429.4 2,327.2 4.4 % 2,377.7 2,255.3 5.4 % Borrowings (4) 35.0 99.1 (64.7) % 52.0 23.2 124.1 % Allowance for credit losses (5) 22.5 19.7 14.2 % 20.2 19.5 3.6 % Shareholders’ equity 195.2 166.4 17.3 % 177.2 180.7 (1.9) % (1) Interest-earning assets include: securities available for sale at estimated fair value, securities held to maturity at amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock, equity investments, and federal funds sold.
Derivatives The Corporation offers interest rate swap agreements to qualified commercial lending customers. These agreements allow the Corporation’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement.
There were no securities sold under agreements to repurchase as of and for the years ended December 31, 2023, or 2022. Derivatives The Corporation offers interest rate swap agreements to qualified commercial lending customers. These agreements allow the Corporation’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement.
Financing activities Cash provided by financing activities during the year ended December 31, 2022 resulted primarily from an increase in certificate of deposits, one-way brokered deposits, and FHLBNY overnight advances, offset by the payment of dividends to shareholders.
Investing activities Cash used in investing activities during the years ended December 31, 2023 and 2022 predominantly resulted from a net increase in loans, offset by maturities, and principal collected on securities available for sale. 61 Financing activities Cash provided by financing activities during the years ended December 31, 2023 and 2022 resulted primarily from an increase in certificate of deposits, brokered deposits, and FHLBNY overnight advances, offset by the payment of dividends to shareholders.
The increase in interest and dividend income on taxable securities was due primarily to a 28 basis points increase in the average yield, due to an increase in interest rates, and an increase in the average invested balances of $83.9 million.
The increase in interest and dividend income on taxable securities was due primarily to a 48 basis points increase in the average yield, due to an increase in interest rates on existing variable rate securities, despite a decrease in the average invested balances of $63.6 million, primarily due to paydowns on mortgage-backed and SBA pooled-loan securities.
As of or for the Years Ended (in thousands, except per share and ratio data) December 31, December 31, 2022 2021 NON-GAAP NET INCOME Reported net income (loss) (GAAP) $ 28,783 $ 26,425 Net changes in fair value of investments (net of tax) — — Net (gains) losses on security transactions (net of tax) — — Legal accruals and settlements (net of tax) — — Remeasurement of net deferred tax asset — — Net income (non-GAAP) $ 28,783 $ 26,425 Average basic and diluted shares outstanding 4,693 4,683 Reported basic and diluted earnings per share (GAAP) $ 6.13 $ 5.64 Reported return on average assets (GAAP) 1.15 % 1.09 % Reported return on average equity (GAAP) 15.93 % 12.94 % Basic and diluted earnings per share (non-GAAP) $ 6.13 $ 5.64 Return on average assets (non-GAAP) 1.15 % 1.09 % Return on average equity (non-GAAP) 15.93 % 12.94 % 66
(in thousands, except per share and ratio data) As of or for the Years Ended December 31, NON-GAAP NET INCOME 2023 2022 Reported net income (loss) (GAAP) $ 25,000 $ 28,783 Net (gains) losses on security transactions (net of tax) 29 — Recognition of employee retention tax credit (1,873) — Net income (non-GAAP) $ 23,156 $ 28,783 Average basic and diluted shares outstanding 4,732 4,693 Reported basic and diluted earnings per share (GAAP) $ 5.28 $ 6.13 Reported return on average assets (GAAP) 0.94 % 1.15 % Reported return on average equity (GAAP) 14.11 % 15.93 % Basic and diluted earnings per share (non-GAAP) $ 4.89 $ 6.13 Return on average assets (non-GAAP) 0.87 % 1.15 % Return on average equity (non-GAAP) 13.07 % 15.93 % 66
Net Interest Income The following table presents net interest income for the years indicated, and the dollar and percent change (in thousands): Years Ended December 31, 2022 2021 Change Percentage Change Interest and dividend income $ 81,475 $ 69,008 $ 12,467 18.1 % Interest expense 7,296 3,419 3,877 113.4 % Net interest income $ 74,179 $ 65,589 $ 8,590 13.1 % 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 accrued on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation’s earnings.
Net Interest Income The following table presents net interest income for the years indicated, and the dollar and percent change (in thousands): Years Ended December 31, Percentage Change 2023 2022 Change Interest and dividend income $ 113,074 $ 81,475 $ 31,599 38.8 % Interest expense 38,617 7,296 31,321 429.3 % Net interest income $ 74,457 $ 74,179 $ 278 0.4 % 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 recognized on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation’s earnings. 39 Net interest income for the year ended December 31, 2023 totaled $74.5 million, an increase of $0.3 million, or 0.4%, compared with $74.2 million for the prior year.
Net recoveries for the year ended December 31, 2021 were $0.1 million. 43 Non-interest income The following table presents non-interest income for the years indicated, and the dollar and percent change (in thousands): Years Ended December 31, 2022 2021 Change Percentage Change WMG fee income $ 10,280 $ 11,072 $ (792) (7.2) % Service charges on deposit accounts 3,788 3,214 574 17.9 % Interchange revenue from debit card transactions 4,603 4,844 (241) (5.0) % Change in fair value of equity investments (349) 246 (595) (241.9) % Net gains on sales of loans held for sale 107 1,073 (966) (90.0) % Net gains (losses) on sales of other real estate owned 60 (16) 76 475.0 % Income from bank owned life insurance 46 52 (6) (11.5) % CFS fee and commission income 1,079 1,044 35 3.4 % Other 1,822 2,341 (519) (22.2) % Total non-interest income $ 21,436 $ 23,870 $ (2,434) (10.2) % Non-interest income for the year ended December 31, 2022 was $21.4 million compared with $23.9 million for the prior year, a decrease of $2.4 million, or 10.2%.
Non-interest income The following table presents non-interest income for the years indicated, and the dollar and percent change (in thousands): Years Ended December 31, Percentage Change 2023 2022 Change Wealth management group fee income $ 10,460 $ 10,280 $ 180 1.8 % Service charges on deposit accounts 3,919 3,788 131 3.5 % Interchange revenue from debit card transactions 4,606 4,603 3 0.1 % Net (losses) on securities transactions (39) — (39) N/M Change in fair value of equity investments 103 (349) 452 N/M Net gains on sales of loans held for sale 144 107 37 34.6 % Net gains (losses) on sales of other real estate owned 37 60 (23) (38.3) % Income from bank owned life insurance 43 46 (3) (6.5) % CFS fee and commission income 994 1,079 (85) (7.9) % Other 4,282 1,822 2,460 135.0 % Total non-interest income $ 24,549 $ 21,436 $ 3,113 14.5 % Non-interest income for the year ended December 31, 2023 was $24.5 million compared with $21.4 million for the prior year, an increase of $3.1 million, or 14.5%.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−1 removed8 unchanged
Biggest changeCredit 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 loan losses; and continuing education and training to ensure lending expertise.
Biggest changeChan g e in interest rates Percentage Increase (Decrease) in Present Value of Corporation's Equity 200 basis points decrease 8.32% 100 basis points decrease 4.99% 100 basis points increase 0.09% 200 basis points increase 0.36% 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. 67 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.
The ALCO is made up of the Chief Executive Officer, the Chief Financial Officer, 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.
The ALCO is made up of the President and Chief Executive Officer, the Chief Financial Officer, 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.
A related component of interest rate risk is the expectation that the market value of the Corporation’s capital 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 shrinkage in market value.
This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to shrinkage in market value. At December 31, 2023, it is estimated that immediate decreases of 100-basis points and 200-basis points in interest rates would positively impact the market value of the Corporation’s capital account by 4.99% and 8.32%, respectively.
At December 31, 2022, it is estimated that an immediate 100-basis point decrease in interest rates would positively impact the next 12 months net interest income by 0.34% and an immediate 200-basis point increase would positively impact the next 12 months net interest income by 3.33%. Both are within the Corporation's policy guidelines.
At December 31, 2023, it is estimated that immediate decreases of 100-basis points and 200-basis points in interest rates would positively impact the next 12 months net interest income by 4.07% and 7.27%, respectively, while immediate increases of 100-basis points and 200-basis points would positively impact the next 12 months net interest income by 1.28% and 2.53%, respectively.
At December 31, 2022, it is estimated that an immediate 100-basis point decrease in interest rates would positively impact the market value of the Corporation’s capital account by 2.12%. An immediate 200-basis point increase in interest rates would negatively impact the market value by 1.37%, which is within the Corporation’s policy guidelines.
Immediate increases of 100-basis points and 200-basis points in interest rates would positively impact the market value by 0.09% and 0.36%, respectively, which are within the Corporation’s policy guidelines.
Removed
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.
Added
All scenarios are within the Corporation's policy guidelines.
Added
Chan g e in interest rates Percentage Increase (Decrease) in Net Interest Income over 12 Months 200 basis points decrease 7.27% 100 basis points decrease 4.07% 100 basis points increase 1.28% 200 basis points increase 2.53% A related component of interest rate risk is the expectation that the market value of the Corporation’s capital account will fluctuate with changes in interest rates.

Other CHMG 10-K year-over-year comparisons