# Chemung Financial Corp: Form 10-Q for the period ended Mar 31, 2024

- Company: [Chemung Financial Corp](/companies/chmg.md) (CIK 763563)
- Form: 10-Q
- Filed: 2024-05-08
- Accepted by EDGAR: May 8, 2024, 15:57 ET
- Period: 2024-03-31
- Accession: 0000763563-24-000060
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/763563/000076356324000060/chmg-20240331.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/763563/000076356324000060/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2024-03-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2024-01-01 to 2024-03-31 | $13.1m | us-gaap:InterestExpense |
| Income tax | 3 months, 2024-01-01 to 2024-03-31 | $2.0m | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2024-01-01 to 2024-03-31 | $7.0m | us-gaap:NetIncomeLoss |
| Diluted EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.48 | us-gaap:EarningsPerShareDiluted |
| Basic EPS | 3 months, 2024-01-01 to 2024-03-31 | $1.48 | us-gaap:EarningsPerShareBasic |
| Diluted shares (weighted) | 3 months, 2024-01-01 to 2024-03-31 | 4,764,000 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding |
| Operating cash flow | 3 months, 2024-01-01 to 2024-03-31 | $7.9m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 3 months, 2024-01-01 to 2024-03-31 | $81.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Dividends paid | 3 months, 2024-01-01 to 2024-03-31 | $1.5m | us-gaap:PaymentsOfDividendsCommonStock |
| Share repurchases | 3 months, 2024-01-01 to 2024-03-31 | $82.0k | us-gaap:PaymentsForRepurchaseOfCommonStock |
| Cash and equivalents | at 2024-03-31 | $94.9m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2024-03-31 | $2.78bn | us-gaap:Assets |
| Total liabilities | at 2024-03-31 | $2.59bn | us-gaap:Liabilities |
| Shareholders' equity | at 2024-03-31 | $197.1m | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 106,123 characters.

### Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three months ended March 31, 2024. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2023 Annual Report on Form 10-K, which was filed with the SEC on March 13, 2024, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3–6.

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

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

### Forward-looking Statements

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

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

### Critical Accounting Estimates

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

#### Allowance for Credit Losses

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

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

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

As of March 31, 2024 and December 31, 2023, the allowance for credit losses totaled $20.5 million and $22.5 million, respectively. Due to the nature and composition of the Bank's lending activities, a significant portion of the allowance for credit losses is allocated to the commercial portfolio, both commercial real estate and commercial and industrial loans. As of March 31, 2024 and December 31, 2023, the allowance for credit losses allocated to the total commercial portfolio was $14.9 million and $17.1 million respectively, or 72.8% and 75.9%, respectively.

Changes in the FOMC's median forecasted year over year U.S. civilian unemployment rate and the year over year change in U.S GDP could have a material impact on the model's estimation of the allowance. FOMC projections are sourced from a quarterly Summary of Projections, which accompanies select FOMC meetings. Each participant's projections represent the value to which selected variables would be expected to converge over time under appropriate monetary policy, and considers all currently available information. An immediate "shock" or increase of 100 bps in the FOMC's projected rate of U.S. civilian unemployment, and a decrease of 50 bps in the FOMC's projected rate of U.S. GDP growth would increase the model's total calculated allowance by $1.3 million, or 6.20%, to $21.7 million, assuming qualitative adjustment are kept at current levels, as of March 31, 2024.

While management has concluded that its current evaluation is reasonable under the circumstances, and that sensitivity analysis is based on a series of hypothetical scenarios not intended to represent management’s assumptions or judgement of factors as of March 31, 2024, it has also concluded that differing assumptions could materially impact allowance calculations, either positively or adversely.

| Consolidated Financial Highlights (in thousands, except per share data) RESULTS OF OPERATIONS | As of or for the Three Months Ended Mar. 31, Dec. 31, Sept. 30, June 30, Mar. 31 2024 2023 2023 2023 2023 |
| --- | ---: |
| Interest and divided income | $31,219 $30,033 $29,015 $27,796 $26,230 |
| Interest expense | 13,130 12,135 10,998 9,201 6,283 |
| Net interest income | 18,089 17,898 18,017 18,595 19,947 |
| Provision (credit) for credit losses (a) | (2,040) 2,300 449 236 277 |
| Net interest income after provision for credit losses | 20,129 15,598 17,568 18,359 19,670 |
| Non-interest income | 5,657 5,871 7,808 5,447 5,423 |
| Non-interest expense | 16,698 16,826 15,668 15,913 15,836 |
| Income before income tax expense | 9,088 4,643 9,708 7,893 9,257 |
| Income tax expense | 2,038 841 2,060 1,613 1,987 |
| Net income | $7,050 $3,802 $7,648 $6,280 $7,270 |
| Basic and diluted earnings per share | $1.48 $0.80 $1.61 $1.33 $1.54 |
| Average basic and diluted shares outstanding | 4,764 4,743 4,736 4,729 4,721 |
| **PERFORMANCE RATIOS - Annualized** |  |
| Return on average assets | 1.04% 0.56% 1.14% 0.95% 1.12% |
| Return on average equity | 14.48% 8.63% 16.89% 13.97% 16.97% |
| Return on average tangible equity (b) | 16.29% 9.86% 19.22% 15.89% 19.40% |
| Efficiency ratio (unadjusted) (c) | 70.32% 70.79% 60.67% 66.19% 62.42% |
| Efficiency ratio (adjusted) (b) | 70.07% 70.42% 66.55% 65.94% 62.18% |
| Non-interest expense to average assets | 2.47% 2.48% 2.33% 2.41% 2.44% |
| Loans to deposits | 80.77% 81.20% 78.05% 79.24% 80.33% |
| **AVERAGE YIELDS / RATES - Fully Taxable Equivalent** |  |
| Yield on loans | 5.51% 5.31% 5.21% 5.09% 4.90% |
| Yield on investments | 2.35% 2.24% 2.22% 2.22% 2.18% |
| Yield on interest-earning assets | 4.70% 4.50% 4.40% 4.29% 4.12% |
| Cost of interest-bearing deposits | 2.75% 2.59% 2.44% 2.01% 1.34% |
| Cost of borrowings | 5.15% 5.52% 5.25% 5.13% 4.91% |
| Cost of interest-bearing liabilities | 2.85% 2.68% 2.47% 2.11% 1.49% |
| Interest rate spread | 1.85% 1.82% 1.93% 2.18% 2.63% |
| Net interest margin, fully taxable equivalent (b) | 2.73% 2.69% 2.73% 2.87% 3.14% |
| **CAPITAL** |  |
| Total equity to total assets at end of period | 7.08% 7.20% 6.28% 6.63% 6.68% |
| Tangible equity to tangible assets at end of period (b) | 6.34% 6.45% 5.52% 5.87% 5.91% |
| Book value per share | $41.34 $41.07 $35.90 $37.49 $37.53 |
| Tangible book value per share (b) | 36.77 36.48 31.29 32.88 32.91 |
| Period-end market value per share | 42.48 49.80 39.61 38.41 41.50 |
| Dividends declared per share | 0.31 0.31 0.31 0.31 0.31 |
| **AVERAGE BALANCES** |  |
| Loans and loans held for sale (d) | $1,989,185 $1,956,022 $1,909,100 $1,880,224 $1,849,310 |
| Earning assets | 2,681,059 2,654,638 2,627,012 2,609,893 2,592,709 |
| Total assets | 2,724,391 2,688,536 2,664,570 2,649,399 2,627,088 |
| Deposits | 2,402,215 2,397,663 2,410,931 2,363,847 2,337,476 |
| Total equity | 195,860 174,868 179,700 180,357 173,786 |
| Tangible equity (b) | 174,036 153,044 157,876 158,533 151,962 |
| **ASSET QUALITY** |  |
| Net charge-offs | $182 $171 $356 $146 $269 |
| Non-performing loans (e) | 7,835 10,411 6,826 7,304 7,731 |
| Non-performing assets (f) | 8,394 10,738 7,055 7,471 7,927 |
| Allowance for credit losses (a) | 20,471 22,517 20,252 20,172 20,075 |
| Annualized net charge-offs to average loans | 0.04% 0.03% 0.07% 0.03% 0.06% |
| Non-performing loans to total loans | 0.39% 0.53% 0.35% 0.39% 0.41% |
| Non-performing assets to total assets | 0.30% 0.40% 0.26% 0.28% 0.30% |
| Allowance for credit losses to total loans (a) | 1.02% 1.14% 1.05% 1.07% 1.07% |
| Allowance for credit losses to non-performing loans (a) | 261.28% 216.28% 296.69% 276.17% 259.66% |
| (a) Corporation adopted CECL as of January 1, 2023. | (d) Does not reflect Allowance for Credit Losses. |
| (b) See the GAAP to Non-GAAP reconciliations. | (e) Includes nonaccrual loans only. |
| (e) Non-interest expense divided by total net interest income plus non-interest income. | (f) Includes non-performing loans plus other real estate owned. |

40

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of other companies. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 63-66 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

### Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2024 and 2023. For a discussion of the Critical Accounting Estimates that affect the Consolidated Results of Operations, see pages 38-39 of this Form 10-Q and page 37 of the Corporation’s 2023 Form 10-K.

#### Net Income

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

|  | Three Months Ended March 31, 2024 | 2023 | Change | % Change |
| --- | ---: | ---: | ---: | ---: |
| Net interest income | $18,089 | $19,947 | $(1,858) | (9.3)% |
| Non-interest income | 5,657 | 5,423 | 234 | 4.3% |
| Non-interest expense | 16,698 | 15,836 | 862 | 5.4% |
| Pre-provision income | 7,048 | 9,534 | (2,486) | (26.1)% |
| Provision (credit) for credit losses(1) | (2,040) | 277 | (2,317) | (836.5)% |
| Income tax expense | 2,038 | 1,987 | 51 | 2.6% |
| Net income | $7,050 | $7,270 | $(220) | (3.0)% |
| Basic and diluted earnings per share | $1.48 | $1.54 | $(0.06) | (3.9)% |

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

| Selected financial ratios: | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Return on average assets | 1.04% | 1.12% |
| Return on average equity | 14.48% | 16.97% |
| Net interest margin, fully taxable equivalent (a) | 2.73% | 3.14% |
| Efficiency ratio (adjusted) (a) | 70.07% | 62.18% |
| Non-interest expenses to average assets | 2.47% | 2.44% |
| (a) See the GAAP to Non-GAAP reconciliations. |  |  |

Net income for the first quarter of 2024 was $7.1 million, or $1.48 per share, compared to $7.3 million, or $1.54 per share, for the same period in the prior year. Return on average equity for the current quarter was 14.48%, compared to 16.97% for the same period in the prior year. The decrease in net income was due primarily to a decrease in net interest income and an increase in non-interest expense, offset by a decrease in the provision for credit losses, and an increase in non-interest income.

#### Net Interest Income

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

|  | Three Months Ended March 31, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Interest and dividend income | $31,219 | $26,230 | $4,989 | 19.0% |
| Interest expense | 13,130 | 6,283 | 6,847 | 109.0% |
| Net interest income | $18,089 | $19,947 | $(1,858) | (9.3)% |

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

Net interest income for the first quarter ended March 31, 2024 decreased $1.9 million, or 9.3%, to $18.1 million compared to the same period in the prior year, due primarily to increases of $6.8 million in interest expense on deposits, and $0.1 million in interest expense on borrowed funds, offset by increases of $4.9 million in interest income on loans, including fees, and $0.1 million in interest-earning deposits. Interest income on taxable securities was comparable between the first quarters of 2023 and 2024.

The increase in interest expense on deposits was due primarily to a 141 basis points increase in the average rates paid on interest-bearing deposits which included brokered deposits, due to the higher interest rate environment and increased competition, and an increase of $134.2 million in the average balance of customer interest-bearing deposits as a result of the increase in average time deposits. The average balance of brokered deposits increased $8.3 million, and the average interest rate paid on brokered deposits increased 50 basis points, compared to the same period in the prior year.

The increase in interest expense on borrowed funds was primarily due to a 24 basis points increase in the average interest rate paid on borrowed funds, and a $2.4 million increase in the average balances of borrowed funds, compared to the same period in the prior year. The composition of borrowed funds reflected the Corporation's shift to the lower cost funding source of the Federal Reserve Bank Term Funding Program (BTFP), related to a $50.0 million advance in the first quarter of 2024, partially replacing relatively higher cost FHLBNY overnight advances. The average balance of FHLBNY overnight advances decreased $35.8 million compared to the same period in the prior year, and the average interest rate paid on FHLBNY overnight advances increased 55 basis points.

Interest income on loans, including fees, increased primarily due to a $145.9 million increase in average commercial loan balances, compared to the same period in the prior year, and an increase of 57 basis points in the average yield on commercial loans between these periods, due to the rising interest rate environment. Average consumer loan balances, supported by growth in the indirect auto portfolio, increased $1.9 million, and the average yield on consumer loans increased 90 basis points, primarily due to originations of higher rate indirect auto loans and interest rate increases on variable rate home equity loans. Average balances of residential mortgage loans decreased $7.9 million compared to the same period in the prior year, due to adverse conditions for borrowers in the residential real estate market, while the average yield on residential mortgage loans increased 23 basis points compared to the same period in the prior year.

Interest and dividend income on taxable securities was comparable between the first quarters of 2023 and 2024. The average yield on taxable securities increased 17 basis points, due to an increase in interest rates on variable rate securities. This increase was offset by $61.8 million decrease in the average balance of securities held in the portfolio between the first quarters of 2023 and 2024, primarily due to paydowns and maturities.

Fully taxable equivalent net interest margin was 2.73% in the first quarter of 2024, compared to 3.14% for the same period in the prior year. Average interest-earning assets increased $88.4 million for the three months ended March 31, 2024 compared to the same period in the prior year. The average yield on interest-earning assets increased 58 basis points to 4.70%, and the average cost of interest-bearing liabilities increased 136 basis points to 2.85%, for the three months ended March 31, 2024, compared to the same period in the prior year, due to the rising rate environment as well as a shift in the overall deposit mix to higher cost deposits.

#### Average Consolidated Balance Sheets 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 three months ended March 31, 2024 and 2023. For the purpose of the table below, nonaccruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans, and dividends on equity investments.

*AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS*

*($ in thousands)*

| Interest-earning assets: | Three Months Ended March 31, 2024 Average Balance | Interest | Yield/Rate (3) | Three Months Ended March 31, 2023 Average Balance | Interest | Yield/Rate (3) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial loans | $1,406,950 | $20,642 | 5.90% | $1,261,054 | $16,584 | 5.33% |
| Mortgage loans | 277,661 | 2,597 | 3.74% | 285,588 | 2,472 | 3.51% |
| Consumer loans | 304,574 | 4,016 | 5.30% | 302,668 | 3,285 | 4.40% |
| Taxable securities | 633,294 | 3,560 | 2.26% | 695,079 | 3,585 | 2.09% |
| Tax-exempt securities | 40,266 | 282 | 2.82% | 40,769 | 305 | 3.03% |
| Interest-earning deposits | 18,314 | 206 | 4.52% | 7,551 | 97 | 5.21% |
| Total interest-earning assets | 2,681,059 | 31,303 | 4.70% | 2,592,709 | 26,328 | 4.12% |
| Non-earning assets: |  |  |  |  |  |  |
| Cash and due from banks | 25,255 |  |  | 25,084 |  |  |
| Other assets | 40,665 |  |  | 29,393 |  |  |
| Allowance for credit losses (4) | (22,588) |  |  | (20,098) |  |  |
| Total assets | $2,724,391 |  |  | $2,627,088 |  |  |
| Interest-bearing liabilities: |  |  |  |  |  |  |
| Interest-bearing demand deposits | $307,895 | $1,335 | 1.74% | $291,090 | $274 | 0.38% |
| Savings and insured money market deposits | 865,113 | 4,266 | 1.98% | 906,947 | 1,648 | 0.74% |
| Time deposits | 481,965 | 4,904 | 4.09% | 322,710 | 2,092 | 2.63% |
| Brokered deposits | 121,405 | 1,640 | 5.43% | 113,074 | 1,374 | 4.93% |
| FHLBNY overnight advances | 34,875 | 487 | 5.52% | 70,699 | 866 | 4.97% |
| FRB advances and other debt | 41,465 | 498 | 4.83% | 3,281 | 29 | 3.58% |
| Total interest-bearing liabilities | 1,852,718 | 13,130 | 2.85% | 1,707,801 | 6,283 | 1.49% |
| Non-interest-bearing liabilities: |  |  |  |  |  |  |
| Demand deposits | 625,837 |  |  | 703,655 |  |  |
| Other liabilities | 49,976 |  |  | 41,846 |  |  |
| Total liabilities | 2,528,531 |  |  | 2,453,302 |  |  |
| Shareholders' equity | 195,860 |  |  | 173,786 |  |  |
| Total liabilities and shareholders’ equity | $2,724,391 |  |  | $2,627,088 |  |  |
| **Fully taxable equivalent net interest income** |  | 18,173 |  |  | 20,045 |  |
| **Net interest rate spread (1)** |  |  | 1.85% |  |  | 2.63% |
| **Net interest margin, fully taxable equivalent (2)** |  |  | 2.73% |  |  | 3.14% |
| **Taxable equivalent adjustment** |  | (84) |  |  | (98) |  |
| **Net interest income** |  | $18,089 |  |  | $19,947 |  |

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

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

#### (3) Annualized.

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

#### Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The table below illustrates the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three months ended March 31, 2024 and 2023. Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes. For purpose of this table, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate. Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates. In addition, average interest-earning assets include nonaccrual loans and taxable equivalent adjustments were made.

*RATE/VOLUME ANALYSIS OF NET INTEREST INCOME*

*(in thousands)*

| Quarter to date: Interest and dividend income on: | Three Months Ended Mar. 31, 2024 vs. 2023 Increase/(Decrease) Total Change | Due to Volume | Due to Rate |
| --- | ---: | ---: | ---: |
| Commercial loans | $4,058 | $2,109 | $1,949 |
| Mortgage loans | 125 | (60) | 185 |
| Consumer loans | 731 | 22 | 709 |
| Taxable investment securities | (25) | (321) | 296 |
| Tax-exempt investment securities | (23) | (3) | (20) |
| Interest-earning deposits | 109 | 123 | (14) |
| **Total interest and dividend income, fully taxable equivalent** | 4,975 | 1,870 | 3,105 |
| **Interest expense on:** |  |  |  |
| Interest-bearing demand deposits | 1,061 | 17 | 1,044 |
| Savings and insured money market deposits | 2,618 | (80) | 2,698 |
| Time deposits | 2,812 | 1,323 | 1,489 |
| Brokered deposits | 266 | 112 | 154 |
| FHLBNY overnight advances | (379) | (470) | 91 |
| Long-term capital leases | 469 | 455 | 14 |
| **Total interest expense** | 6,847 | 1,357 | 5,490 |
| **Net interest income, fully taxable equivalent** | $(1,872) | $513 | $(2,385) |

44

### Provision for credit losses

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

The provision for credit losses decreased $2.3 million for the first quarter of 2024, compared to the first quarter of 2023. The decrease in provision was primarily attributable to the annual review and update of the loss drivers used in the Bank's CECL model, favorable changes in economic forecasts, and a comparatively smaller increase in loan volume during the current period. The Bank's updated loss drivers resulted in lower loss experience over the historical look back period, however the economic factors used did not change as a result of these updates. FOMC forecasts improved substantially between the first quarters of 2023 and 2024. Forecasted year-end 2023 U.S. unemployment was projected at 4.5% as of March 2023, and year-end 2024 unemployment was projected at 4.0% as of March 2024. U.S annual GDP growth was projected at 0.4% for year-end 2023 as of March 2023, and year-end 2024 U.S. annual GDP growth was projected at 2.1% as of March 2024. 2023 FOMC projections reflected uncertainty concerning the impact of interest rate increases in the wake of multiple regional banks being placed into receivership prior to the FOMC's March 2023 meeting. Loan growth in the first quarter of 2024 totaled $30.9 million, compared to $44.3 million in the first quarter of 2023, resulting in lower volume-related provisioning in the current period.

### Non-interest income

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

|  | Three Months Ended March 31, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| WMG fee income | $2,703 | $2,580 | $123 | 4.8% |
| Service charges on deposit accounts | 949 | 941 | 8 | 0.9% |
| Interchange revenue from debit card transactions | 1,063 | 1,133 | (70) | (6.2)% |
| Changes in fair value of equity investments | 101 | 72 | 29 | 40.3% |
| Net gains on sales of loans held for sale | 32 | 5 | 27 | N/M |
| Income from bank owned life insurance | 9 | 10 | (1) | (10.0)% |
| CFS fee and commission income | 228 | 241 | (13) | (5.4)% |
| Other | 572 | 441 | 131 | 29.7% |
| Total non-interest income | $5,657 | $5,423 | $234 | 4.3% |

Total non-interest income for the first quarter of 2024 increased $0.2 million compared to the same period in the prior year primarily due to increases in WMG fee income and other non-interest income. The remaining components of non-interest income in the first quarter of 2024 were relatively consistent compared to the same period in the prior year.

#### WMG Fee Income

The increase in WMG fee income can primarily be attributed to an increase in assets under management when compared to the same period in the prior year.

#### Other Non-Interest Income

The increase in other non-interest income was primarily due to gains on the transfer of two properties to OREO in the current period.

### Non-interest expense

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

| Compensation expense: | Three Months Ended March 31, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Salaries and wages | $7,016 | $6,783 | $233 | 3.4% |
| Pension and other employee benefits | 2,082 | 1,680 | 402 | 23.9% |
| Other components of net periodic pension and postretirement benefits | (232) | (174) | (58) | (33.3)% |
| Total compensation expense | 8,866 | 8,289 | 577 | 7.0% |
| **Non-compensation expense:** |  |  |  |  |
| Net occupancy | 1,493 | 1,465 | 28 | 1.9% |
| Furniture and equipment | 398 | 418 | (20) | (4.8)% |
| Data processing | 2,573 | 2,381 | 192 | 8.1% |
| Professional services | 559 | 440 | 119 | 27.0% |
| Marketing and advertising | 345 | 332 | 13 | 3.9% |
| Other real estate owned expenses | 49 | 38 | 11 | 28.9% |
| FDIC insurance | 577 | 497 | 80 | 16.1% |
| Loan expenses | 255 | 232 | 23 | 9.9% |
| Other | 1,583 | 1,744 | (161) | (9.2)% |
| Total non-compensation expense | 7,832 | 7,547 | 285 | 3.8% |
| Total non-interest expense | $16,698 | $15,836 | $862 | 5.4% |

Total non-interest expense for the first quarter of 2024 increased $0.9 million compared to the same period in the prior year. The increase was due to increases in total compensation expense and total non-compensation expense. For the three months ended March 31, 2024, non-interest expense to average assets was 2.47%, compared to 2.44% for the same period in the prior year.

#### Compensation expense

The increase in compensation expense for the current period, compared to the same period in the prior year, can be primarily attributed to increases in pension and other employee benefits, and salaries and wages. The increase in pension and other employee benefits for the current quarter was primarily attributable to an increase in employee healthcare expense, compared to the same period in the prior year. Salaries and wages increased in the current quarter, compared to the same period in the prior year, primarily due to increases in base wages, severance expense, and an increase in the market value of the Corporation's deferred compensation plan.

#### Non-compensation expense

The increase in non-compensation expense for the current period, compared to the same period in the prior year, can be primarily attributed to increases in data processing expense, and professional services, offset by a decrease in other non-interest expense. The increase in data processing expense in the current quarter was primarily attributable to increases in software related expenses, compared to the same period in the prior year. Professional services increased in the current quarter, compared to the same period in the prior year, primarily due to outsourced services related to the realignment of certain back office functions, new strategic consulting arrangements, and fee increases. The decrease in other non-interest expense was primarily attributable to decreases across a majority of other expense categories in the current quarter, compared to the same period in the prior year.

### Income tax expense

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

|  | Three Months Ended March 31, 2024 | 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Income before income tax expense | $9,088 | $9,257 | $(169) | (1.8)% |
| Income tax expense | $2,038 | $1,987 | $51 | 2.6% |
| Effective tax rate | 22.4% | 21.5% |  |  |

Income tax expense was $2.0 million for each of the three month periods ended March 31, 2024 and 2023. The effective income tax rate for the periods ended March 31, 2024 and 2023 was 22.4% and 21.5%, respectively.

### Financial Condition

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

| ASSETS | March 31, 2024 | December 31, 2023 | Change | Percentage Change |
| --- | ---: | ---: | ---: | ---: |
| Total cash and cash equivalents | $94,862 | $36,847 | $58,015 | 157.4% |
| Total investment securities, FHLB, and FRB stock | 573,977 | 593,322 | (19,345) | (3.3)% |
| Loans, net of deferred loan fees | 2,003,610 | 1,972,664 | 30,946 | 1.6% |
| Allowance for credit losses | (20,471) | (22,517) | (2,046) | 9.1% |
| Loans, net | 1,983,139 | 1,950,147 | 32,992 | 1.7% |
| Goodwill and other intangible assets, net | 21,824 | 21,824 | — | —% |
| Other assets | 111,088 | 108,389 | 2,699 | 2.5% |
| Total assets | $2,784,890 | $2,710,529 | $74,361 | 2.7% |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |  |
| Total deposits | $2,480,772 | $2,429,427 | $51,345 | 2.1% |
| Advances and other debt | 52,979 | 34,970 | 18,009 | 51.5% |
| Other liabilities | 54,011 | 50,891 | 3,120 | 6.1% |
| Total liabilities | 2,587,762 | 2,515,288 | 72,474 | 2.9% |
| Total shareholders’ equity | 197,128 | 195,241 | 1,887 | 1.0% |
| Total liabilities and shareholders’ equity | $2,784,890 | $2,710,529 | $74,361 | 2.7% |

#### Cash and Cash Equivalents

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

#### Investment securities

The decrease in investment securities can mostly be attributed to $11.9 million in paydowns and maturities in the securities available for sale portfolio, and a decrease in the fair value of the available for sale portfolio of $5.5 million. FHLB stock decreased $1.4 million due to lower FHLBNY overnight advance borrowing activity.

#### Loans, net

The increase in loans, net of deferred loan fees, can primarily be attributed to increases of $22.9 million in commercial mortgages, and $15.2 million in commercial and industrial loans, offset by decreases of $6.3 million in indirect consumer loans, and $0.7 million in residential mortgages.

#### Allowance for Credit Losses

The decrease in the allowance for credit losses can primarily be attributed to the annual review and update of loss drivers used in the Bank's CECL model, paydown activity on individually analyzed loans for which specific reserve allocations had previously been made, and favorable changes in forecasted economic variables. The annual update to the loss drivers used in the Bank's CECL model resulted in baseline loss rates that were lower than previous iterations of the model, however the economic variables used to derive loss rates were unchanged. FOMC forecasted U.S. unemployment for year-end 2024 improved from 4.1% in December 2023 to 4.0% in March 2024, while the forecasted U.S. GDP growth rate for year-end 2024 improved from 1.4% in December 2023 to 2.1% in March 2024. Paydown activity on loans individually analyzed resulted in a decrease of $0.3 million in specific reserve allocations.

#### Other Assets

The increase in other assets can primarily be attributed to increases of $1.3 million in interest rate swap assets, due to an increase in the market value of swaps, and $1.2 million in accrued interest receivable, primarily on loans.

#### Deposits

The increase in deposits can primarily be attributed to increases of $24.0 million in interest-bearing demand deposit accounts, and $17.1 million in total time deposits, which include customer time deposits and brokered deposits. Customer time deposits increased $33.9 million, while brokered deposits decreased $16.8 million. Insured money market accounts increased $7.6 million, and and non-interest bearing demand deposits increased $3.2 million, respectively. Savings deposits decreased $0.6 million.

#### Advances and Other Debt

The increase in advances and other debt can primarily be attributed to a $50.0 million advance from the Federal Reserve, as the Corporation took advantage of lower interest rates offered by the Bank Term Funding Program (BTFP), offset by a decrease of $31.9 million in FHLBNY overnight borrowings.

#### Other liabilities

The increase in other liabilities can primarily be attributed to an increase of $1.2 million in interest rate swap liabilities, primarily due to an increase in the market value of swaps. and accrued interest payable of $1.9 million, primarily on deposits.

#### Shareholders’ equity

Shareholders’ equity was $197.1 million at March 31, 2024 compared to $195.2 million at December 31, 2023. The increase can primarily be attributed to an increase of $5.6 million in retained earnings, partially offset by an increase in accumulated other comprehensive loss of $4.1 million. The increase in retained earnings can primarily be attributed to net income of $7.1 million, offset by $1.5 million in dividends declared. The increase in accumulated other comprehensive loss can primarily be attributed to a decrease in the fair market value of the available for sale securities portfolio.

#### Assets under management or administration

The market value of total assets under management or administration in WMG was $2.350 billion at March 31, 2024, including $390.2 million of assets held under management or administration for the Corporation, compared to $2.242 billion at December 31, 2023, including $381.3 million of assets held under management or administration for the Corporation, an increase of $108.0 million, or 4.8%, due to an increase in assets under management, due primarily to improvements in financial markets.

### Securities

The Corporation’s Funds Management Policy includes an investment policy that in general, requires debt securities purchased for the bond portfolio to carry a minimum agency rating of "Baa." After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated. The Corporation intends to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements, and other types of transactions. Fluctuations in the fair value of the Corporation’s securities relate primarily to changes in interest rates. Marketable securities are 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 $566.0 million at March 31, 2024, a decrease of $18.0 million, or 3.1%, from $584.0 million at December 31, 2023. The decrease can mostly be attributed to $11.9 million in paydowns and maturities, and a decrease in the fair value of the portfolio of $5.5 million. The held to maturity securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas. These securities totaled $0.8 million each at March 31, 2024 and December 31, 2023, respectively.

Non-marketable equity securities at March 31, 2024 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.9 million and $2.2 million, respectively. At December 31, 2023, non-marketable equity securities include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.9 million and $3.6 million, respectively. The fair value of these securities is assumed to approximate their cost. The investment in these stocks is regulated by regulatory policies of the respective institutions.

### Loans

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

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

*LOAN COMPOSITION*

| Commercial and agricultural: | March 31, 2024 | % of Total Loans | December 31, 2023 | % of Total Loans | Dollar Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $279,414 | 13.9% | $264,140 | 13.4% | $15,274 | 5.8% |
| Agricultural | 221 | —% | 256 | —% | (35) | (13.7)% |
| Commercial mortgages: |  |  |  |  |  |  |
| Construction | 141,604 | 7.1% | 138,887 | 7.0% | 2,717 | 2.0% |
| Commercial mortgages, other | 1,004,198 | 50.1% | 984,038 | 49.9% | 20,160 | 2.0% |
| Residential mortgages | 277,246 | 13.8% | 277,992 | 14.1% | (746) | (0.3)% |
| Consumer loans: |  |  |  |  |  |  |
| Home equity lines and loans | 87,608 | 4.4% | 87,056 | 4.4% | 552 | 0.6% |
| Indirect consumer loans | 204,081 | 10.2% | 210,423 | 10.7% | (6,342) | (3.0)% |
| Direct consumer loans | 9,238 | 0.5% | 9,872 | 0.5% | (634) | (6.4)% |
| Total | $2,003,610 | 100.0% | $1,972,664 | 100.0% | $30,946 | 1.6% |

Portfolio loans totaled $2.004 billion as of March 31, 2024, an increase of $30.9 million, or 1.6%, from $1.973 billion as of December 31, 2023. The increase in loans can primarily be attributed to increases of $22.9 million in commercial mortgage loans and $15.2 million in commercial and industrial loans, and offset by a decrease of $6.3 million in indirect consumer loans.

Commercial real estate lending continues to be a primary driver of asset growth for the Corporation, as demand for project financing remains robust across the Corporation's footprint, particularly in the Albany and Buffalo regions. As of March 31, 2024, total commercial real estate loans, inclusive of construction loans, in the Albany and Buffalo regions have grown $20.9 million and $1.1 million from December 31, 2023, respectively. Growth in commercial and industrial loans between March 31, 2024 and December 31, 2023 was also concentrated in the Albany and Buffalo regions, which grew $8.5 million and $6.8 million, respectively.

Residential mortgage loans totaled $277.2 million as of March 31, 2024, a decrease of $0.7 million, or 0.3%, when compared to December 31, 2023. During the three months ended March 31, 2024, $7.1 million of residential mortgages were originated, of which $1.6 million were sold in the secondary market to Freddie Mac. Demand for residential mortgage originations continues to be weak as a result of the higher interest rate environment and low market mobility due to many borrowers securing lower interest rates in prior years. Indirect consumer loans totaled $204.1 million as of March 31, 2024, a decrease of $6.3 million, or 3.0%, from December 31, 2023 as consumer demand for automobiles weakened during the current period, as well as a shift in the composition of auto originations towards lower-cost used vehicles.

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

*LOANS BY DIVISION*

|  | March 31, 2024 | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Chemung Canal Trust Company\*^ | $764,932 | $766,103 | $731,344 | $658,468 | $576,399 |
| Capital Bank Division | 1,238,678 | 1,206,561 | 1,098,104 | 877,995 | 732,820 |
| Total loans | $2,003,610 | $1,972,664 | $1,829,448 | $1,536,463 | $1,309,219 |

#### \* All loans, excluding those originated by the Capital Bank division.

*^ Includes $108.2 million, $100.4 million, $79.8 million and $47.0 million as of March 31, 2024, December 31, 2023, December 31, 2022, and December 31, 2021, respectively, in the Western New York market.*

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities, which may cause them to be similarly impacted by economic or other conditions. Industries are identified using NAICS codes, and the Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations of greater than 10.0% of total loans. As of March 31, 2024 and December 31, 2023, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses were 50.4% and 49.5% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of March 31, 2024 and December 31, 2023.

Commercial real estate lending represented the largest portion of the Corporation's loan portfolio as of March 31, 2024 and December 31, 2023. Commercial real estate lending is comprised of the Construction and Commercial mortgage, other segments of the loan portfolio, as presented in Note 4 - Loans and Allowance for Credit Losses to the Consolidated Financial Statements. As of March 31, 2024 and December 31, 2023, total commercial real estate loans totaled $1.146 billion and $1.123 billion, respectively. Management evaluates the risk inherent in its portfolio of commercial real estate loans using a variety of metrics, including but not limited to type, geography, collateral, and borrower or sponsor industry.

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

| Commercial real estate loans by type: | March 31, 2024 | % of Total | December 31, 2023 | % of Total | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Construction | $141,604 | 12.4% | $138,887 | 12.4% | 2.0% |
| 1-4 Family Residential(1) | 44,899 | 3.9% | 45,792 | 4.1% | (1.9)% |
| Multifamily | 359,857 | 31.4% | 349,327 | 31.1% | 3.0% |
| Owner-Occupied | 127,917 | 11.2% | 123,989 | 11.0% | 3.2% |
| Non-Owner Occupied | 471,525 | 41.1% | 464,930 | 41.4% | 1.4% |
| Total | $1,145,802 | 100.0% | $1,122,925 | 100.0% |  |

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

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

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

| Commercial real estate loans by regional location of collateral: | March 31, 2024 | % of Total | December 31, 2023 | % of Total | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Capital & Adirondacks | $752,014 | 65.6% | $736,971 | 65.6% | 2.0% |
| Southern Tier & Finger Lakes | 216,663 | 18.9% | 213,970 | 19.1% | 1.3% |
| Western New York | 126,880 | 11.1% | 123,202 | 11.0% | 3.0% |
| Other | 50,245 | 4.4% | 48,782 | 4.3% | 3.0% |
| Total | $1,145,802 | 100.0% | $1,122,925 | 100.0% |  |

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

| Commercial real estate loans by borrower industry: | March 31, 2024 | % of Total | December 31, 2023 | % of Total | % Change |
| --- | ---: | ---: | ---: | ---: | ---: |
| Construction & Land Development | $136,393 | 11.9% | $141,551 | 12.6% | (3.6)% |
| Industrial | 51,079 | 4.5% | 41,784 | 3.8% | 22.2% |
| Warehouse & Storage | 72,760 | 6.4% | 65,379 | 5.8% | 11.3% |
| Retail | 199,380 | 17.4% | 195,561 | 17.4% | 2.0% |
| Office | 118,978 | 10.4% | 118,344 | 10.5% | 0.5% |
| Hotel | 49,915 | 4.4% | 55,533 | 4.9% | (10.1)% |
| 1-4 Family Residential Rental | 44,899 | 3.9% | 45,792 | 4.1% | (2.0)% |
| Multifamily (5+) | 387,541 | 33.7% | 372,569 | 33.2% | 4.0% |
| Medical | 32,248 | 2.8% | 32,859 | 2.9% | (1.9)% |
| Educational | 25,423 | 2.2% | 25,738 | 2.3% | (1.2)% |
| Other | 27,186 | 2.4% | 27,815 | 2.5% | (2.3)% |
| Total | $1,145,802 | 100.0% | $1,122,925 | 100.0% |  |

51

The table below presents the maturity of loans outstanding as of March 31, 2024 (in thousands):

| Commercial and agricultural: | Within One Year | After One But Within Five Years | After Five But Within 15 Years | After 15 Years | Total |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial and industrial | $93,993 | $102,421 | $79,273 | $3,727 | $279,414 |
| Agricultural | — | 221 | — | — | 221 |
| Commercial mortgages: |  |  |  |  |  |
| Construction | 31,382 | 41,206 | 68,693 | 323 | 141,604 |
| Commercial mortgages | 59,876 | 254,103 | 662,798 | 27,421 | 1,004,198 |
| Residential mortgages | 3,839 | 10,307 | 108,725 | 154,375 | 277,246 |
| Consumer loans: |  |  |  |  |  |
| Home equity lines and loans | 73 | 6,286 | 58,264 | 22,985 | 87,608 |
| Indirect consumer loans | 1,539 | 122,085 | 80,452 | 5 | 204,081 |
| Direct consumer loans | 316 | 5,957 | 1,874 | 1,091 | 9,238 |
| Total | $191,018 | $542,586 | $1,060,079 | $209,927 | $2,003,610 |

The tables below present the amounts due after one year, classified according to fixed interest rates and variable interest rates as of March 31, 2024 (in thousands):

| Loans maturing with fixed interest rates: Commercial and agricultural: | After One But Within Five Years | After Five But Within 15 Years | After 15 Years | Total |
| --- | ---: | ---: | ---: | ---: |
| Commercial and industrial | $62,853 | $35,936 | $419 | $99,208 |
| Agricultural | 160 | — | — | 160 |
| Commercial mortgages: |  |  |  |  |
| Construction | 8,137 | 24,675 | — | 32,812 |
| Commercial mortgages | 159,324 | 155,295 | 2,557 | 317,176 |
| Residential mortgages | 9,703 | 104,185 | 107,579 | 221,467 |
| Consumer loans: |  |  |  |  |
| Home equity lines and loans | 5,121 | 48,019 | 517 | 53,657 |
| Indirect consumer loans | 122,085 | 80,452 | 5 | 202,542 |
| Direct consumer loans | 5,956 | 859 | 49 | 6,864 |
| Total | $373,339 | $449,421 | $111,126 | $933,886 |

52

| Loans maturing with variable interest rates: Commercial and agricultural: | After One But Within Five Years | After Five But Within 15 Years | After 15 Years | Total |
| --- | ---: | ---: | ---: | ---: |
| Commercial and industrial | $39,568 | $43,337 | $3,308 | $86,213 |
| Agricultural | 61 | — | — | 61 |
| Commercial mortgages: |  |  |  | — |
| Construction | 33,069 | 44,018 | 323 | 77,410 |
| Commercial mortgages | 94,779 | 507,503 | 24,864 | 627,146 |
| Residential mortgages | 604 | 4,540 | 46,796 | 51,940 |
| Consumer loans: |  |  |  | — |
| Home equity lines and loans | 1,165 | 10,245 | 22,468 | 33,878 |
| Indirect consumer loans | — | — | — | — |
| Direct consumer loans | 1 | 1,015 | 1,042 | 2,058 |
| Total | $169,247 | $610,658 | $98,801 | $878,706 |

#### Non-Performing Assets

Non-performing assets consist of nonaccrual loans and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure. Effective January 1, 2023, the Corporation adopted ASU 2022-02, which eliminated troubled debt restructuring accounting guidance. Prior to adoption, nonaccrual troubled debt restructurings were considered to be non-performing assets. The Corporation closely monitors loan modifications made to borrowers deemed to be experiencing financial difficulty, in accordance with ASU 2022-02. As of March 31, 2024, there were four loans being monitored under ASU 2022-02 guidance, three of which were accruing, and one of which was nonaccrual and therefore included in non-performing loans.

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

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

*NON-PERFORMING ASSETS*

|  | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Nonaccrual loans | $7,835 | $10,411 |
| Total non-performing loans | 7,835 | 10,411 |
| Other real estate owned | 559 | 326 |
| Total non-performing assets | $8,394 | $10,737 |
| Ratio of non-performing loans to total loans | 0.39% | 0.53% |
| Ratio of non-performing assets to total assets | 0.30% | 0.40% |
| Ratio of allowance for credit losses to non-performing loans | 261.28% | 216.28% |
| Accruing loans past due 90 days or more (1) | $8 | $10 |

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

#### Non-Performing Loans and Assets

Non-performing loans totaled $7.8 million, or 0.39% of total loans as of March 31, 2024, compared to $10.4 million, or 0.53% of total loans as of December 31, 2023. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $8.4 million, or 0.30% of total assets, as of March 31, 2024, compared to $10.7 million, or 0.40% of total assets, as of December 31, 2023. The decrease in non-performing loans was primarily attributable to the payoff of a nonaccrual commercial real estate loan totaling $1.9 million during the period, as well as $0.5 million in paydown activity on other nonaccrual commercial loans. The decrease in non-performing assets can be attributed to the decrease in non-performing loans.

#### Loan Modifications to Borrowers Experiencing Financial Difficulty

The Corporation works closely with borrowers experiencing financial difficulties to identify viable solutions that minimize the potential for loss. The Corporation monitors modifications made to borrowers experiencing financial difficulty in which contractual cash flows are directly impacted. Modifications included under this guidance include principal reductions, reductions in effective interest rates, term extensions, significant payment delays, or a combination thereof. ASU 2022-02 was implemented on a prospective basis, and as of March 31, 2024, the Corporation had four loans modified under this accounting guidance, which consisted of term extensions on two commercial and industrial loans, one commercial mortgage, and one home equity loan. As of March 31, 2024, one of the aforementioned commercial and industrial loans given an extension of six months was non-performing, while the remainder of the modified loans were considered to be performing. During the three month period ended March 31, 2024, a $1.9 million commercial mortgage previously modified under ASU 2022-02 was paid off.

#### Individually Analyzed Loans

The Corporation analyzes loans on an individual basis when management determined that a loan no longer exhibited risk characteristics consistent with those existing in its designated pool of loans, in accordance with the Corporation's CECL methodology. The amortized cost basis of individually analyzed loans as of March 31, 2024 totaled $5.7 million, compared to $8.0 million as of December 31, 2023. Included in the amortized cost basis of individually analyzed loans as of March 31, 2024 were loans totaling $1.7 million for which allowances of $1.7 million have been specifically allocated to the allowance for credit losses. As of December 31, 2023, the amortized cost basis of individually analyzed loans included $2.0 million of loans for which allowances of $2.0 million were allocated to the allowance for credit losses.

The majority of the Corporation's individually analyzed loans are secured and measured for credit loss based on collateral evaluations. It is the Corporation's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to require individual analysis. A measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation or charge-off. In determining the amount of any specific allocation or charge-off, the Corporation will make adjustments to reflect the estimated costs to sell the property. Upon receipt and review of updated appraisals, an additional measurement is performed to determine if any adjustments are necessary to reflect proper provisioning or charge-offs. Individually analyzed loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional allocation or recognition of additional charge-offs. 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. If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.

#### Allowance for Credit Losses

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

Loans are analyzed on either an individual basis or a pooled basis, determined by risk characteristics. Loans that no longer exhibit risk characteristics substantially consistent with those of loans within a given pool, may necessitate being evaluated individually, based on management discretion. It is the Corporation's policy to analyze all nonaccrual commercial loans on an individual basis, unless specific circumstances warrant that the loan should continue to be analyzed on a pooled basis. Individually analyzed loans are primarily valued based on the collateral method, however, certain loans may be valued using a cash flow analysis. Pooled loans are segmented based on groups of assigned FFIEC call codes, in order to provide enough granularity to meaningfully capture the risk profile of each instrument, yet broad enough to accurately allow for the application of certain pool-level assumptions.

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

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

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

The allowance for credit losses was $20.5 million as of March 31, 2024, and $22.5 million as of December 31, 2023. The allowance for credit losses was 261.28% of non-performing loans as of March 31, 2024, compared to 216.28% as of December 31, 2023. The ratio of allowance for credit losses to total loans was 1.02% at March 31, 2024 and 1.14% as of December 31, 2023. Net charge-offs for the three months ended March 31, 2024 and March 31, 2023 were $0.2 million and $0.3 million, respectively. Net charge-off activity for the three months ended March 31, 2024 primarily reflected activity in the indirect auto segment of the consumer loan portfolio, while activity for the three months ended March 31, 2023 primarily reflected a partial charge off on a commercial and industrial loan, as well as charge-off activity in the indirect auto segment of the consumer loan portfolio.

The decrease in the allowance for credit losses was primarily attributable to the annual review and update performed on the loss drivers used as the basis for the Bank's CECL model. Loss drivers are the economic variables used to make forward looking credit loss projections. Recalibration of the loss drivers resulted in a decline in the baseline loss rates used in the CECL model, however, the composition of the economic variables selected as loss drivers did not change as a result of this update. In addition to the impact of the loss driver update, improvements in FOMC forecasted data and paydown activity on individually analyzed loans contributed to the decrease in the allowance for credit losses. The projected year-end 2024 U.S. unemployment rate improved from 4.1% as of December 2023 to 4.0% as of March 2024, while the projected year-end 2024 U.S. annual GDP growth improved from 1.4% as of December 2023 to 2.1% as of March 2024. Paydown activity on individually analyzed loans for which a specific allocation had been made during the three months ended March 31, 2024 was $0.3 million.

The table below summarizes the Corporation’s allowance for credit losses and nonaccrual loans outstanding by loan category as of March 31, 2024 and December 31, 2023 (in thousands, except percentages):

*ALLOWANCE BY LOAN CATEGORY*

| Balance at March 31, 2024 | Allowance for credit losses | Allowance to loans1 | Non-performing loans | Non-performing loans to loans(1) | Allowance to non-performing loans |
| --- | ---: | ---: | ---: | ---: | ---: |
| Commercial and agricultural | $4,516 | 1.61% | $1,617 | 0.58% | 279.28% |
| Commercial mortgages | 10,367 | 0.90% | 3,965 | 0.35% | 261.46% |
| Residential mortgages | 2,062 | 0.74% | 1,118 | 0.40% | 184.44% |
| Consumer loans | 3,526 | 1.17% | 1,135 | 0.38% | 310.66% |
| Total | $20,471 | 1.02% | $7,835 | 0.39% | 261.28% |
| **Balance at December 31, 2023** | **Allowance for credit losses** | **Allowance to loans1** | **Non-performing loans** | **Non-performing loans to loans1** | **Allowance to non-performing loans** |
| Commercial and agricultural | $5,055 | 1.91% | $1,930 | 0.73% | 261.92% |
| Commercial mortgages | 12,026 | 1.07% | 5,969 | 0.53% | 201.47% |
| Residential mortgages | 2,194 | 0.79% | 1,315 | 0.47% | 166.84% |
| Consumer loans | 3,242 | 1.05% | 1,197 | 0.39% | 270.84% |
| Total | $22,517 | 1.14% | $10,411 | 0.53% | 216.28% |
| (1) Ratio is a percentage of loan category. |  |  |  |  |  |

The table below summarizes the Corporation’s consolidated credit ratios at March 31, 2024 and December 31, 2023:

| Consolidated Ratios | March 31, 2024 | December 31, 2023 |
| --- | ---: | ---: |
| Non-performing loans to total loans | 0.39% | 0.53% |
| Allowance for credit losses to total loans | 1.02% | 1.14% |
| Allowance for credit losses to non-performing loans | 261.28% | 216.28% |

The table below summarizes the Corporation’s ratio of net charge-offs and recoveries to average loans outstanding by loan category for the three months ended March 31, 2024 and March 31, 2023:

| Credit Ratios1 | March 31, 2024 | March 31, 2023 |
| --- | ---: | ---: |
| Commercial and agricultural | (0.01)% | 0.07% |
| Commercial mortgages | —% | —% |
| Residential mortgages | —% | —% |
| Consumer loans | 0.30% | 0.04% |
| Total | 0.04% | 0.02% |
| 1 Current period annualized. |  |  |

56

The table below summarizes the Corporation’s credit loss experience for the three months ended March 31, 2024 and 2023 (in thousands):

*SUMMARY OF CREDIT LOSS EXPERIENCE*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Balance of allowance for credit losses at beginning of period | $22,517 | $19,659 |
| Impact of ASC 326 Adoption | — | 374 |
| Charge-offs: |  |  |
| Commercial and agricultural | — | 190 |
| Commercial mortgages | — | — |
| Residential mortgages | 16 | — |
| Consumer loans | 351 | 193 |
| Total charge-offs | $367 | $383 |
| Recoveries: |  |  |
| Commercial and agricultural | $37 | $6 |
| Commercial mortgages | 1 | — |
| Residential mortgages | 22 | — |
| Consumer loans | 125 | 108 |
| Total recoveries | $185 | $114 |
| Net charge-offs (recoveries) | 182 | 269 |
| Provision (credit) for credit losses on-balance sheet exposure(1) | (1,864) | 311 |
| Balance of allowance for credit losses at end of period | $20,471 | $20,075 |

(1) *Additional provision related to off-balance sheet exposure was a credit of $176 thousand for the three months ended March 31, 2024 and a credit of $34 thousand for the three months ended March 31, 2023.*

### Other Real Estate Owned

OREO totaled $0.6 million as of March 31, 2024, and $0.3 million as of December 31, 2023, respectively. There was one residential mortgage property and two home equity loan properties added to other real estate owned in the first three months of 2024.

### Deposits

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

*DEPOSITS*

|  | March 31, 2024 Amount | % of Total | December 31, 2023 Amount | % of Total | March 31, 2024 v. December 31, 2023 $ Change | % Change |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| Non-interest-bearing demand deposits | $656,330 | 26.5% | $653,166 | 26.9% | $3,164 | 0.5% |
| Interest-bearing demand deposits | 315,154 | 12.7% | 291,138 | 12.0% | 24,016 | 8.2% |
| Money market accounts | 631,350 | 25.4% | 623,714 | 25.7% | 7,636 | 1.2% |
| Savings deposits | 248,578 | 10.0% | 249,144 | 10.3% | (566) | (0.2)% |
| Certificates of deposit $250,000 or less | 384,722 | 15.5% | 365,058 | 15.0% | 19,664 | 5.4% |
| Certificates of deposit greater than $250,000 | 90,626 | 3.7% | 76,804 | 3.1% | 13,822 | 18.0% |
| Brokered deposits | 125,988 | 5.1% | 142,776 | 5.9% | (16,788) | (11.8)% |
| Other time deposits | 28,024 | 1.1% | 27,627 | 1.1% | 397 | 1.4% |
| Total | $2,480,772 | 100.0% | $2,429,427 | 100.0% | $51,345 | 2.1% |

57

Deposits totaled $2.481 billion at March 31, 2024 compared to $2.429 billion at December 31, 2023, an increase of $51.3 million, or 2.1%. The increase was primarily attributable to increases of $33.9 million in time deposits excluding brokered deposits, $24.0 million in interest-bearing demand deposits, $7.6 million in insured money market accounts, and $3.2 million in non-interest bearing demand deposits, offset by decreases of $16.8 million in brokered deposits and $0.6 million in savings deposits.

The growth in deposits was due primarily to increases of $37.5 million in public deposits, $18.2 million in ICS deposits, $10.8 million in consumer deposits, and $5.0 million in commercial deposits, offset by decreases of $16.8 million in brokered deposits, and $3.1 million in CDARS deposits. At March 31, 2024, demand deposit and money market accounts comprised 64.6% of total deposits compared to 64.5% at December 31, 2023. The aggregate amount of the Corporation's outstanding uninsured deposits, was 27.8% and 27.0% of total deposits, as of March 31, 2024 and December 31, 2023, respectively.

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

*DEPOSITS BY DIVISION*

|  | March 31, 2024 | December 31, 2023 | December 31, 2022 | December 31, 2021 | December 31, 2020 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Chemung Canal Trust Company\* | $2,109,000 | $2,048,465 | $1,892,020 | $1,739,826 | $1,686,370 |
| Capital Bank Division | 371,772 | 380,962 | 435,207 | 415,607 | 351,404 |
| Total | $2,480,772 | $2,429,427 | $2,327,227 | $2,155,433 | $2,037,774 |

#### \*All deposits, excluding those originated by the Capital Bank division.

In addition to consumer, commercial, and public deposits, other sources of funds include reciprocal deposits. The Regulatory Relief Act changed the definition of brokered deposits, such that subject to certain conditions, reciprocal deposits of another depository institution obtained through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations. This applies to the Corporation's participation in the CDARS and ICS programs. The CDARS and ICS programs involve a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution. Brokered deposits include funds obtained through brokers. Deposits obtained through the CDARS, ICS, and brokered relationship programs were $439.7 million as of March 31, 2024, including $126.0 million of brokered deposits, and $424.6 million as of December 31, 2023, which included $142.8 million of brokered deposits.

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

### Borrowings

Borrowings increased $18.0 million to $53.0 million at March 31, 2024 from December 31, 2023, primarily attributable to a $50.0 million advance from the Federal Reserve, as the Corporation took advantage of lower interest rates offered by the Bank Term Funding Program (BTFP), offset by a decrease of $31.9 million in FHLBNY overnight advances when compared to December 31, 2023. There were no outstanding FHLBNY term advances as of and for the three months ended March 31, 2024, and as of and for the year ended December 31, 2023.

### Shareholders’ Equity

Total shareholders' equity increased $1.9 million from $195.2 million at December 31, 2023 to $197.1 million at March 31, 2024, primarily due to an increase in retained earnings, offset by an increase in accumulated other comprehensive loss. The increase in retained earnings of $5.6 million was due primarily to earnings of $7.1 million, offset by $1.5 million in dividends declared during the three months ended March 31, 2024. The increase in accumulated other comprehensive loss of $4.1 million can be mostly attributed to a decrease in the fair market value of the available for sale securities portfolio, due to rising interest rates. Treasury stock decreased $0.4 million, primarily due to the issuance of shares related to the Corporation's employee benefit plans and grants issued under the Corporation's stock compensation plan. The total shareholders’ equity to total assets ratio was 7.08% at March 31, 2024 compared to 7.20% at December 31, 2023. The tangible equity to tangible assets ratio was 6.34% at March 31, 2024 compared to 6.45% at December 31, 2023. Book value per share increased to $41.34 at March 31, 2024 from $41.07 at December 31, 2023.

The Bank is subject to capital adequacy guidelines of the Federal Reserve which establish a framework for the classification of financial institutions into five categories: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized. As of March 31, 2024, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions. Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management. On January 8, 2021, the Corporation's Board of Directors approved a new stock repurchase program. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares. The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities Exchange Act of 1934. No shares were repurchased in the first quarter of 2024. As of March 31, 2024, the Corporation repurchased a total of 49,184 shares of common stock at a total cost of $2.0 million under the repurchase program, at the weighted average cost of $40.42 per share. Remaining buyback authority under the share repurchase program was 200,816 shares at March 31, 2024.

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

As of March 31, 2024, the Corporation's cash and cash equivalents balance was $94.9 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of mortgage-backed securities, U.S. Gov't Treasury securities, Small Business Administration loan pools, and municipal bonds. Although this portfolio generates interest income for the Corporation, it also serves as an available source of liquidity and capital if the need should arise. As of March 31, 2024, the Corporation's investment in securities available for sale was $566.0 million, $240.3 million of which was not pledged as collateral.

The Corporation is a member of the FHLBNY which allows it to access borrowings which enhance management's ability to satisfy future liquidity needs. The Bank has pledged $254.0 million and $254.6 million of residential mortgage loans and home equity loans under a blanket lien arrangement at March 31, 2024 and December 31, 2023, respectively, as collateral for future borrowings. Based on this available collateral, securities held and current advances outstanding, the Corporation was eligible to borrow up to a total of $231.0 million and $193.4 million at March 31, 2024 and December 31, 2023, respectively. The Corporation did not borrow with the FHLBNY as of March 31, 2024, and borrowed FHLBNY overnight advances of $31.9 million as of December 31, 2023. The Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $231.0 million as of March 31, 2024. Borrowings may be used on a short-terms basis for liquidity purposes or on a long-term basis to fund asset growth.

Uninsured deposits totaled $689.4 million as of March 31, 2024, and $655.7 million as of December 31, 2023, which included $190.7 million and $153.2 million of municipal deposits that were collateralized by pledged assets, respectively. The Corporation considers the level of uninsured deposits to be an important factor when considering liquidity management and strategic decisions due to their fluidity.

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using 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. Brokered deposits were $126.0 million and $142.8 million, as of March 31, 2024 and December 31, 2023, respectively. As of March 31, 2024, brokered deposits carried terms between two and 48 months with staggered maturities. The Corporation also had a total of $60.0 million of unsecured lines of credit with five different financial institutions, all of which was available at March 31, 2024 and December 31, 2023.

On March 12, 2023, the Treasury Department, Federal Reserve, and FDIC jointly announced a new liquidity program, the Bank Term Funding Program (BTFP), in response to the failure of two banks earlier that week. Under the BTFP, institutions could pledge certain securities (i.e., securities eligible for purchase by the Federal Reserve Banks in open market operations) for the par value of the securities at a borrowing rate of ten basis points over the one-year overnight index swap rate. Certain U.S. federally insured depository institutions were eligible to participate in the BTFP. No new borrowings may be made under the BTFP after March 11, 2024. In January 2024, the Corporation utilized the BTFP, with an advance of $50.0 million, at an interest rate of 4.91%, which matures in January 2025, and may be repaid at any time without prepayment penalty. Also available to the Corporation is the Discount Window Lending provided by the Federal Reserve Bank.

#### Consolidated Cash Flows Analysis

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

*CONSOLIDATED SUMMARY OF CASH FLOWS*

*(in thousands)*

|  | Three Months Ended March 31, 2024 | 2023 |
| --- | ---: | ---: |
| Net cash provided by operating activities | $7,934 | $10,686 |
| Net cash used in investing activities | (17,866) | (29,923) |
| Net cash provided (used) by financing activities | 67,947 | (1,991) |
| Net increase (decrease) in cash and cash equivalents | $58,015 | $(21,228) |

#### Operating activities

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

#### Investing activities

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

#### Financing activities

Cash provided by financing activities during the first three months of 2024 predominantly resulted from an increase in deposits, including brokered deposits, and an advance from the Federal Reserve BTFP, offset by a net repayment of overnight advances held at the end of the prior quarter. Cash used by financing activities during the first three months of 2023 predominantly resulted from the net repayment of overnight advances held at the end of the prior quarter, offset by a net increase in deposits.

### Capital Resources

The Bank is subject to regulatory capital requirements administered by federal banking agencies. As a result of the Regulatory Relief Act, the FRB amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are not subject to regulatory capital requirements. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is 2.50%. Organizations that fail to maintain the minimum capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital.

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

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. Management believes that, as of March 31, 2024 and December 31, 2023, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2018, the Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

As of March 31, 2024, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank's capital category.

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

The Corporation and the Bank’s capital ratios as of March 31, 2024 were as follows (in thousands, except ratio data):

| As of March 31, 2024 Total Capital (to Risk Weighted Assets): | Actual Amount | Ratio | Minimum Capital Adequacy Amount | Ratio | Minimum Capital Adequacy with Capital Buffer Amount | Ratio | To Be Well Capitalized Under Prompt Corrective Action Provisions Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | --- | --- | ---: | ---: |
| Consolidated | $266,595 | 13.18% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $257,952 | 12.76% | $161,762 | 8.00% | $212,313 | 10.50% | $202,203 | 10.00% |
| Tier 1 Capital (to Risk Weighted Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $245,382 | 12.13% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $236,739 | 11.71% | $121,322 | 6.00% | $171,872 | 8.50% | $161,762 | 8.00% |
| Common Equity Tier 1 Capital (to Risk Weighted Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $245,382 | 12.13% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $236,739 | 11.71% | $90,991 | 4.50% | $141,542 | 7.00% | $131,432 | 6.50% |
| Tier 1 Capital (to Average Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $245,382 | 8.79% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $236,739 | 8.49% | $111,572 | 4.00% | N/A | N/A | $139,466 | 5.00% |

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

| As of December 31, 2023 Total Capital (to Risk Weighted Assets): | Actual Amount | Ratio | Minimum Capital Adequacy Amount | Ratio | Minimum Capital Adequacy with Capital Buffer Amount | Ratio | To Be Well Capitalized Under Prompt Corrective Action Provisions Amount | Ratio |
| --- | ---: | ---: | ---: | ---: | --- | --- | ---: | ---: |
| Consolidated | $262,864 | 13.26% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $252,783 | 12.76% | $158,438 | 8.00% | $207,950 | 10.50% | $198,048 | 10.00% |
| Tier 1 Capital (to Risk Weighted Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $239,429 | 12.08% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $229,348 | 11.58% | $118,829 | 6.00% | $168,341 | 8.50% | $158,438 | 8.00% |
| Common Equity Tier 1 Capital (to Risk Weighted Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $239,429 | 12.08% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $229,348 | 11.58% | $89,122 | 4.50% | $138,634 | 7.00% | $128,731 | 6.50% |
| Tier 1 Capital (to Average Assets): |  |  |  |  |  |  |  |  |
| Consolidated | $239,429 | 8.62% | N/A | N/A | N/A | N/A | N/A | N/A |
| Bank | $229,348 | 8.26% | $111,034 | 4.00% | N/A | N/A | $138,792 | 5.00% |

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. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above. At March 31, 2024, the Bank could, without prior approval, declare dividends of approximately $47.0 million.

### Adoption of New Accounting Standards

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

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

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 7–12. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

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

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

#### Fully Taxable Equivalent Net Interest Income and Net Interest Margin

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

*(in thousands, except ratio data)*

| NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT | As of the Three Months Ended March 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net interest income (GAAP) | $18,089 | $17,898 | $18,017 | $18,595 | $19,947 |
| Fully taxable equivalent adjustment | 84 | 87 | 87 | 92 | 98 |
| Fully taxable equivalent net interest income (non-GAAP) | $18,173 | $17,985 | $18,104 | $18,687 | $20,045 |
| Average interest-earning assets (GAAP) | $2,681,059 | $2,654,638 | $2,627,012 | $2,609,893 | $2,592,709 |
| Net interest margin - fully taxable equivalent (non-GAAP) | 2.73% | 2.69% | 2.73% | 2.87% | 3.14% |

#### Efficiency Ratio

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

*(in thousands, except ratio data)*

| EFFICIENCY RATIO | As of the Three Months Ended March 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Net interest income (GAAP) | $18,089 | $17,898 | $18,017 | $18,595 | $19,947 |
| Fully taxable equivalent adjustment | 84 | 87 | 87 | 92 | 98 |
| Fully taxable equivalent net interest income (non-GAAP) | $18,173 | $17,985 | $18,104 | $18,687 | $20,045 |
| Non-interest income (GAAP) | $5,657 | $5,871 | $7,808 | $5,447 | $5,423 |
| Less: changes in fair value of equity investments | — | 39 | — | — | — |
| Less: recognition of employee retention tax credit | — | — | (2,370) | — | — |
| Adjusted non-interest income (non-GAAP) | $5,657 | $5,910 | $5,438 | $5,447 | $5,423 |
| Non-interest expense (GAAP) | $16,698 | $16,826 | $15,668 | $15,913 | $15,836 |
| Less: amortization of intangible assets | — | — | — | — | — |
| Adjusted non-interest expense (non-GAAP) | $16,698 | $16,826 | $15,668 | $15,913 | $15,836 |
| Efficiency ratio (unadjusted) | 70.32% | 70.79% | 60.67% | 66.19% | 62.42% |
| Efficiency ratio (adjusted) | 70.07% | 70.42% | 66.55% | 65.94% | 62.18% |

64

#### Tangible Equity and Tangible Assets (Period-End)

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

*(in thousands, except per share and ratio data)*

| TANGIBLE EQUITY AND TANGIBLE ASSETS (PERIOD END) | As of or for the Three Months Ended March 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total shareholders' equity (GAAP) | $197,128 | $195,241 | $170,064 | $177,426 | $177,341 |
| Less: intangible assets | (21,824) | (21,824) | (21,824) | (21,824) | (21,824) |
| Tangible equity (non-GAAP) | $175,304 | $173,417 | $148,240 | $155,602 | $155,517 |
| Total assets (GAAP) | $2,784,890 | $2,710,529 | $2,707,834 | $2,674,673 | $2,654,183 |
| Less: intangible assets | (21,824) | (21,824) | (21,824) | (21,824) | (21,824) |
| Tangible assets (non-GAAP) | $2,763,066 | $2,688,705 | $2,686,010 | $2,652,849 | $2,632,359 |
| Total equity to total assets at end of period (GAAP) | 7.08% | 7.20% | 6.28% | 6.63% | 6.68% |
| Book value per share (GAAP) | $41.34 | $41.07 | $35.90 | $37.49 | $37.53 |
| Tangible equity to tangible assets at end of period (non-GAAP) | 6.34% | 6.45% | 5.52% | 5.87% | 5.91% |
| Tangible book value per share (non-GAAP) | $36.77 | $36.48 | $31.29 | $32.88 | $32.91 |

#### Tangible Equity (Average)

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

*(in thousands, except ratio data)*

| TANGIBLE EQUITY (AVERAGE) | As of or for the Three Months Ended March 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Total average shareholders' equity (GAAP) | $195,860 | $174,868 | $179,700 | $180,357 | $173,786 |
| Less: average intangible assets | (21,824) | (21,824) | (21,824) | (21,824) | (21,824) |
| Average tangible equity (non-GAAP) | $174,036 | $153,044 | $157,876 | $158,533 | $151,962 |
| Return on average equity (GAAP) | 14.48% | 8.63% | 16.89% | 13.97% | 16.97% |
| Return on average tangible equity (non-GAAP) | 16.29% | 9.86% | 19.22% | 15.89% | 19.40% |

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

*(in thousands, except per share and ratio data)*

| NON-GAAP NET INCOME | As of or for the Three Months Ended March 31, 2024 | Dec. 31, 2023 | Sept. 30, 2023 | June 30, 2023 | March 31, 2023 |
| --- | ---: | ---: | ---: | ---: | ---: |
| Reported net income (GAAP) | $7,050 | $3,802 | $7,648 | $6,280 | $7,270 |
| Net (gains) losses on security transactions (net of tax) | — | 29 | — | — | — |
| Recognition of employee retention tax credit | — | — | (1,873) | — | — |
| Non- GAAP net income | $7,050 | $3,831 | $5,775 | $6,280 | $7,270 |
| Average basic and diluted shares outstanding | 4,764 | 4,743 | 4,736 | 4,729 | 4,721 |
| Reported basic and diluted earnings per share (GAAP) | $1.48 | $0.80 | $1.61 | $1.33 | $1.54 |
| Reported return on average assets (GAAP) | 1.04% | 0.56% | 1.14% | 0.95% | 1.12% |
| Reported return on average equity (GAAP) | 14.48% | 8.63% | 16.89% | 13.97% | 16.97% |
| Non-GAAP basic and diluted earnings per share | $1.48 | $0.81 | $1.21 | $1.33 | $1.54 |
| Non-GAAP return on average assets | 1.04% | 0.57% | 0.86% | 0.95% | 1.12% |
| Non-GAAP return on average equity | 14.48% | 8.69% | 12.75% | 13.97% | 16.97% |

66

## Market risk

As filed, 5,011 characters.

### Interest Rate Risk

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

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

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

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon various basis point changes in interest rates, with appropriate floors set for interest-bearing liabilities. At March 31, 2024, it is estimated that immediate decreases in interest rates of 100-basis points and 200-basis points would positively impact the next 12 months net interest income by 2.98% and 4.62%, respectively. Immediate increases in interest rates of 100-basis points and 200-basis points would positively impact the next 12 months net interest income by 2.18% and 4.34%, respectively. All scenarios are within the Corporation's policy guidelines.

| Change in interest rates | Percentage Increase (Decrease) in Net Interest Income over 12 Months |
| --- | ---: |
| 200 basis points decrease | 4.62% |
| 100 basis points decrease | 2.98% |
| 100 basis points increase | 2.18% |
| 200 basis points increase | 4.34% |

A related component of interest rate risk is the expectation that the market value of the Corporation’s equity account will fluctuate with changes in interest rates. This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to a decline in market value. At March 31, 2024, it is estimated that immediate decreases in interest rates of 100-basis points and 200-basis points would positively impact the market value of the Corporation’s capital account by 4.34% and 6.41% respectively. Immediate increases in interest rates of 100-basis points and 200-basis points would positively impact the market value by 0.47% and 0.83% respectively. All scenarios are within the Corporation's policy guidelines.

| Change in interest rates | Percentage Increase (Decrease) in Present Value of Corporation's Equity |
| --- | ---: |
| 200 basis points decrease | 6.41% |
| 100 basis points decrease | 4.34% |
| 100 basis points increase | 0.47% |
| 200 basis points increase | 0.83% |

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.

### Credit Risk

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

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

## Controls and procedures

As filed, 1,593 characters.

### Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial and accounting officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of March 31, 2024 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial and accounting officer have concluded that the Corporation's disclosure controls and procedures are effective as of March 31, 2024. In addition, there have been no changes in the Corporation's internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation's internal control over financial reporting.

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

## Risk factors

As filed, 386 characters.

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

Filed May 8, 2024.
Source: SEC EDGAR, the filing index for accession 0000763563-24-000060. Last ingested by Listed: Oct 24, 2026, 14:54 ET. No prices; not investment advice.