UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON D.C. 20549

FORM 10-Q

~~[X]~~

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly period ended ~~September 30, 2017~~

CHEMUNG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

New York

16-1237038

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

One Chemung Canal Plaza, Elmira, NY

14901

(Address of principal executive offices)

(Zip Code)

(607) 737-3711 or (800) 836-3711

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:

Title of each class

Trading Symbol

Name of exchange on which registered

Common stock, par value $.01 per share

CHMG

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

~~YES: X NO:____~~Yes: ☒ No: ☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files).

~~YES: X NO:____~~Yes: ☒ No: ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

~~[ ]~~

☐

Non-accelerated filer

~~[ ]~~☒

Accelerated filer

~~[X]~~

☐

Smaller reporting company

~~[ ]~~☒

Emerging growth company

~~[ ]~~☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ~~[ ]~~☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):

~~YES: NO: X~~Yes: ☐ No: ☒

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

To assist the reader the Corporation has provided the following list of commonly used abbreviations and terms included in the Notes to the Unaudited Consolidated Financial Statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations.



Regulatory Relief Act			Economic Growth, Regulatory Relief, and Consumer Protection Act
ROA			Return on average assets
ROE			Return on average equity
RWA			Risk-weighted assets
SBA			Small Business Administration
SEC			Securities and Exchange Commission
Securities Act			Securities Act of 1933
Tax Act			Tax Cuts and Jobs Act of 2017
TDRs			Troubled debt restructurings
WMG			Wealth Management Group



Assets under administration	Represents assets that are beneficially owned by clients and all investment decisions pertaining to these assets are also made by clients.
Assets under management		Represents assets that are managed on behalf of clients.
Basel I		A set of international banking regulations, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. The main focus was mainly on credit risk by creating a bank asset classification system.
Basel III		A comprehensive set of reform measures designed to improve the regulation, supervision, and risk management within the banking sector. The reforms require banks to maintain proper leverage ratios and meet certain capital requirements.
Benefit obligation		Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Brokered deposits		Refers to deposits obtained from or through the mediation or assistance of a deposit broker.
Capital Bank		Division of Chemung Canal Trust Company located in the “Capital Region” of New York State and includes the counties of Albany, ~~and Saratoga.~~Saratoga ,and Schenectady.
~~CDARS~~Captive insurance company		A company that provides risk-mitigation services for its parent company.
CDARS		Product involving a network of financial institutions that exchange certificates of deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
~~Captive insurance company~~		~~A company that provides risk-mitigation services for its parent company.~~
Collateralized debt obligation	A structured financial product that pools together cash flow-generating assets, such as mortgages, bonds, and loans.
Collateralized mortgage obligations		A type of mortgage-backed security with principal repayments organized according to their maturities and into different classes based on risk. The mortgages serve as collateral and are organized into classes based on their risk profile.
Dodd-Frank Act		The Dodd-Frank Act was enacted on July 21, 2010 and significantly changed the bank regulatory landscape and has impacted and will continue to impact the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress.


OREO
~~OREO~~	Represents real property owned by the Corporation, which is not directly related to its business and is most frequently the result of a foreclosure on real property.
OTTI		Impairment charge taken on a security whose fair value has fallen below the carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.
~~PCI loans~~		~~Represents loans that were acquired in the Fort Orange Financial Corp. transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of FASB.~~
Political subdivision	A county, city, town, or other municipal corporation, a public authority, or a publicly-owned entity that is an instrumentality of a state or a municipal corporation.
Pre-provision profit/(loss)		Represents total net revenue less ~~noninterest~~non-interest expense, before income tax expense (benefit). The Corporation believes that this financial measure is useful in assessing the ability of a bank to generate income in excess of its provision for credit losses.
~~RWA~~Regulatory Relief Act		The Economic Growth, Regulatory Relief and Consumer Protection Act was enacted on May 24, 2018 provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis regulatory requirements. In addition, the legislation establishes new consumer protections and amends various securities- and investment company-related requirements.
RWA		Risk-weighted assets consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

Allowance for credit losses (1)

(1)Effective January 1, 2023, the allowance calculation is based upon Current Expected Credit loss methodology. Prior to January 1, 2023, the allowance calculation was based upon incurred loss methodology. Refer to Note 1 for further discussion.

See accompanying notes to unaudited consolidated financial statements.

(in thousands, except share and per share data) September 30,
2017 December 31,
2016
ASSETS
Cash and due from financial institutions $ 34,572
$ 28,205
Interest-bearing deposits in other financial institutions 21,806
45,957
Total cash and cash equivalents 56,378
74,162

Trading assets, at fair value 909
774

Securities available for sale, at estimated fair value 312,226
303,402
Securities held to maturity, estimated fair value of $3,861 at September 30, 2017
  and $4,912 at December 31, 2016
3,865
4,705
FHLBNY and FRBNY Stock, at cost 3,497
4,041

Loans, net of deferred loan fees 1,288,813
1,200,290
Allowance for loan losses (15,694 ) (14,253 )
Loans, net 1,273,119
1,186,037

Loans held for sale 1,246
412
Premises and equipment, net 27,366
28,923
Goodwill 21,824
21,824
Other intangible assets, net 2,292
2,945
Bank-owned life insurance 2,964
2,912
Accrued interest receivable and other assets 25,996
27,042

Total assets $ 1,731,682
$ 1,657,179

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing $ 449,841
$ 417,812
Interest-bearing 1,087,177
1,038,531
Total deposits 1,537,018
1,456,343

Securities sold under agreements to repurchase 10,000
27,606
FHLBNY term advances 9,009
9,093
Long term capital lease obligation 4,568
4,722
Dividends payable 1,232
1,225
Accrued interest payable and other liabilities 15,578
14,442
Total liabilities 1,577,405
1,513,431

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized;
  5,310,076 issued at September 30, 2017 and December 31, 2016
53
53
Additional paid-in capital 46,089
45,603
Retained earnings 130,006
124,111
Treasury stock, at cost; 571,115 shares at September 30, 2017 and 597,843
  shares at December 31, 2016
(14,596 ) (15,265 )
Accumulated other comprehensive loss (7,275 ) (10,754 )
Total shareholders' equity 154,277
143,748

Total liabilities and shareholders' equity $ 1,731,682
$ 1,657,179

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

Provision (credit) for credit losses (1)

See accompanying notes to unaudited consolidated financial statements.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2017 2016 2017 2016
Interest and dividend income:
Loans, including fees $ 13,709
$ 12,487
$ 39,025
$ 37,054
Taxable securities 1,369
1,225
4,189
3,943
Tax exempt securities 322
228
836
722
Interest-bearing deposits 97
85
445
180
Total interest and dividend income 15,497
14,025
44,495
41,899
Interest expense:

Deposits 545
561
1,632
1,607
Securities sold under agreements to repurchase 95
214
383
636
Borrowed funds 94
210
273
623
Total interest expense 734
985
2,288
2,866
Net interest income 14,763
13,040
42,207
39,033
Provision for loan losses 1,289
1,050
2,750
2,033
Net interest income after provision for loan losses 13,474
11,990
39,457
37,000

Non-interest income:

WMG fee income 2,147
2,027
6,525
6,240
Service charges on deposit accounts 1,269
1,361
3,678
3,781
Interchange revenue from debit card transactions 925
1,203
2,809
3,035
Net gains on securities transactions —
75
12
983
Net gains on sales of loans held for sale 71
115
193
273
Net gains (losses) on sales of other real estate owned 30
10
38
(6 )
Income from bank-owned life insurance 17
19
52
55
Other 707
625
1,728
1,891
Total non-interest income 5,166
5,435
15,035
16,252

Non-interest expenses:

Salaries and wages 5,480
5,355
16,177
15,720
Pension and other employee benefits 992
1,573
3,417
4,894
Net occupancy expenses 1,476
1,503
4,784
5,287
Furniture and equipment expenses 657
685
2,119
2,286
Data processing expense 1,667
1,624
4,858
5,058
Professional services 452
502
1,169
1,418
Legal accruals and settlements —
—
850
1,200
Amortization of intangible assets 214
245
653
748
Marketing and advertising expenses 213
101
580
648
Other real estate owned expenses 4
41
35
150
FDIC insurance 312
324
946
895
Loan expense 165
162
447
462
Other 1,644
1,356
4,618
4,283
Total non-interest expenses 13,276
13,471
40,653
43,049
Income before income tax expense 5,364
3,954
13,839
10,203
Income tax expense 1,710
1,209
4,250
3,130
Net income $ 3,654
$ 2,745
9,589
$ 7,073

Weighted average shares outstanding 4,802
4,765
4,796
4,758
Basic and diluted earnings per share $ 0.76
$ 0.58
$ 2.00
$ 1.49

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(in thousands, except share and per share data) Common Stock Additional Paid-in Capital Retained Earnings Treasury Stock Accumulated Other Comprehensive Loss Total
Balances at January 1, 2016 $ 53
$ 45,537
$ 118,973
$ (16,379 ) $ (10,942 ) $ 137,242
Net income —
—
7,073
—
—
7,073
Other comprehensive income —
—
—
—
3,137
3,137
Restricted stock awards —
145
—
—
—
145
Restricted stock units for directors' deferred compensation plan —
72
—
—
—
72
Cash dividends declared ($0.78 per share) —
—
(3,664 ) —
—
(3,664 )
Distribution of 9,532 shares of treasury stock for directors' compensation —
19
—
243
—
262
Distribution of 7,661 shares of treasury stock for employee compensation —
15
—
195
—
210
Distribution of 3,740 shares of treasury stock for deferred directors’ compensation —
(92 ) —
95
—
3
Sale of 11,857 shares of treasury stock (a) —
28
—
304
—
332
Balances at September 30, 2016 $ 53
$ 45,724
$ 122,382
$ (15,542 ) $ (7,805 ) $ 144,812

Balances at January 1, 2017 $ 53
$ 45,603
$ 124,111
$ (15,265 ) $ (10,754 ) $ 143,748
Net income —
—
9,589
—
—
9,589
Other comprehensive income —
—
—
—
3,479
3,479
Restricted stock awards —
162
—
—
—
162
Restricted stock units for directors' deferred compensation plan —
72
—
—
—
72
Cash dividends declared ($0.78 per share) —
—
(3,694 ) —
—
(3,694 )
Distribution of 7,880 shares of treasury stock for directors' compensation —
68
—
201
—
269
Distribution of 5,861 shares of treasury stock for employee compensation —
50
—
150
—
200
Distribution of 2,438 shares of treasury stock for deferred directors’ compensation —
(51 ) —
62
—
11
Sale of 11,688 shares of treasury stock (a) —
142
—
299
—
441
Forfeiture of 1,139 shares of restricted stock awards —
43
—
(43 ) —
—
Balances at September 30, 2017 $ 53
$ 46,089
$ 130,006
$ (14,596 ) $ (7,275 ) $ 154,277


(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Loss		Total
Balances at January 1, 2022	$	53	$	46,901	$	188,877	$	(17,846)	$	(6,530)	$	211,455
Net income	—		—		6,867		—		—		6,867
Other comprehensive loss	—		—		—		—		(31,075)		(31,075)
Restricted stock awards	—		179		—		—		—		179
Restricted stock units for directors' deferred compensation plan	—		5		—		—		—		5
Distribution of 3,985 shares of treasury stock grants for employee restricted stock awards	—		(112)		—		112		—		—
Cash dividends declared ($0.31 per share)	—		—		(1,449)		—		—		(1,449)
Distribution of 8,575 shares of treasury stock for directors' compensation	—		(139)		—		244		—		105


Repurchase of 15,388 shares of common stock	—		—		—		(695)		—		(695)
Sale of 2,545 shares of treasury stock (a)	—		46		—		72		—		118

Balances at March 31, 2022	$	53	$	46,880	$	194,295	$	(18,113)	$	(37,605)	$	185,510


Balances at January 1, 2023	$	53	$	47,331	$	211,859	$	(17,598)	$	(75,257)	$	166,388
Cumulative effect of accounting change (b)					(1,076)						(1,076)
Balances at January 1, 2023, as adjusted	53		47,331		210,783		(17,598)		(75,257)		165,312

Net income	—		—		7,270		—		—		7,270
Other comprehensive income									5,784		5,784
Restricted stock awards	—		263		—		—		—		263
Restricted stock units for directors' deferred compensation plan	—		5		—		—		—		5
Distribution of 4,577 shares of treasury stock grants for employee restricted stock awards	—		(131)		—		131		—		—
Cash dividends declared ($0.31 per share)	—		—		(1,460)		—		—		(1,460)
Distribution of 8,492 shares of treasury stock for directors' compensation	—		(147)		—		243		—		96


Repurchase of 2,148 shares of common stock	—		—		—		(98)		—		(98)
Sale of 3,554 shares of treasury stock (a)	—		66		—		103		—		169

Balances at March 31, 2023	$	53	$	47,387	$	216,593	$	(17,219)	$	(69,473)	$	177,341

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

(b) Due to implementation of ASC 326. See "Adoption of New Accounting Standards" discussion in Note 1.

~~CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

See accompanying notes to unaudited consolidated financial statements.

~~(UNAUDITED)~~

(in thousands) Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2017 2016
Net income $ 9,589
$ 7,073
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of intangible assets 653
748
Provision for loan losses 2,750
2,033
Net losses on disposal of fixed assets 15
—
Depreciation and amortization of fixed assets 2,820
3,285
Amortization of premiums on securities, net 1,098
1,365
Gains on sales of loans held for sale, net (193 ) (273 )
Proceeds from sales of loans held for sale 9,655
12,854
Loans originated and held for sale (10,296 ) (11,624 )
Net gains on trading assets (96 ) (53 )
Proceeds from sales of trading assets 20
99
Net gains on securities transactions (12 ) (983 )
Net (gains) losses on sales of other real estate owned (38 ) 6
Purchase of trading assets (59 ) (65 )
Expense related to restricted stock units for directors' deferred compensation plan 72
72
Expense related to employee stock compensation 200
210
Expense related to employee restricted stock awards 162
145
Income from bank-owned life insurance (52 ) (55 )
Decrease in other assets and accrued interest receivable 888
2,250
Decrease in accrued interest payable (26 ) (8 )
Increase (decrease) in other liabilities (565 ) 2,702
Net cash provided by operating activities 16,585
19,781

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales and calls of securities available for sale 1,620
36,130
Proceeds from maturities and principal collected on securities available for sale 35,262
56,661
Proceeds from maturities and principal collected on securities held to maturity 2,807
2,797
Purchases of securities available for sale (41,306 ) (47,696 )
Purchases of securities held to maturity (1,967 ) (2,735 )
Purchase of FHLBNY and FRBNY stock (1,708 ) (5,458 )
Redemption of FHLBNY and FRBNY stock 2,252
5,764
Proceeds from sale of equipment 16
—
Purchases of premises and equipment (1,294 ) (937 )
Proceeds from sales of other real estate owned 383
1,499
Net increase in loans (90,019 ) (49,243 )
Net cash (used in) provided by investing activities (93,954 ) (3,218 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Net increase in demand deposits, interest-bearing demand accounts,
savings accounts, and insured money market accounts
98,599
126,309
Net decrease in time deposits (17,924 ) (17,660 )
Net increase (decrease) in securities sold under agreements to repurchase (17,606 ) 1,549
Net change in FHLBNY overnight advances, net —
(13,900 )
Repayments of FHLBNY long term advances (84 ) (82 )
Payments made on capital leases (154 ) (136 )
Sale of treasury stock 441
332
Cash dividends paid (3,687 ) (3,656 )
Net cash provided by financing activities 59,585
92,756
Net increase (decrease) in cash and cash equivalents (17,784 ) 109,319
Cash and cash equivalents, beginning of period 74,162
26,185
Cash and cash equivalents, end of period $ 56,378
$ 135,504
(continued)


CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)	Three Months Ended March 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	2023		2022
Net income	$	7,270	$	6,867
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization (increase in) of right-of-use assets	199		199
Amortization of intangible assets	—		11

Provision for credit losses (1)	277		(1,145)
Loss on disposal of fixed assets	—		20
Depreciation and amortization of fixed assets	533		579
Amortization of premiums on securities, net	656		1,146
Gain on sales of loans held for sale, net	(5)		(74)
Proceeds from sales of loans held for sale	210		3,901
Loans originated and held for sale	(205)		(3,776)


Net change in fair value of equity investments	(72)		113



Purchase of equity investments	(47)		(98)
Increase in other assets and accrued interest receivable	(132)		(1,418)
Increase in accrued interest payable	636		17
Expense related to restricted stock units for directors' deferred compensation plan	5		5
Expense related to employee stock compensation	131		—
Expense related to employee restricted stock awards	263		179
Increases in (payments on) operating leases	(193)		(192)
Net (gain) loss on interest rate swaps	11		(138)
Increase (decrease) in other liabilities	1,159		(201)
Income from bank owned life insurance	(10)		(11)
Net cash provided by operating activities	10,686		5,984
CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from maturities, calls, and principal paydowns on securities available for sale	15,901		24,813
Proceeds from maturities and principal collected on securities held to maturity	492		211
Purchases of securities available for sale	(2,199)		(22,388)

Purchase of FHLBNY and FRBNY stock	(16,853)		(1,304)
Redemption of FHLBNY and FRBNY stock	17,137		1,946
Proceeds from sales of fixed assets	—		125
Purchases of premises and equipment	(287)		(15)


Net increase in loans	(44,114)		(48,365)
Net cash used in investing activities	(29,923)		(44,977)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	(44,507)		35,187
Increase in time deposits	49,709		58,972


Net change in FHLB overnight advances	(5,740)		(14,570)

Payments made on finance leases	(69)		(67)
Purchase of treasury stock	(98)		(695)
Sale of treasury stock	169		118
Cash dividends paid	(1,455)		(1,450)
Net cash (used in) provided by financing activities	(1,991)		77,495
Net (decrease) increase in cash and cash equivalents	(21,228)		38,502
Cash and cash equivalents, beginning of period	55,869		26,981
Cash and cash equivalents, end of period	$	34,641	$	65,483

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)


(in thousands)	Three Months Ended March 31,
Supplemental disclosure of cash flow information:	2023		2022
Cash paid for:
Interest	$	5,647	$	764
Income taxes	4,305		115

Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	—		137
Dividends declared, not yet paid	1,460		1,449

See accompanying notes to unaudited consolidated financial statements.

(in thousands) Nine Months Ended
September 30,
Supplemental disclosure of cash flow information: 2017 2016
Cash paid for:
Interest $ 2,314
$ 2,874
Income taxes $ 4,050
$ 2,680
Supplemental disclosure of non-cash activity:

Transfer of loans to other real estate owned
$ 187
$ 342
Dividends declared, not yet paid $ 1,232
$ 1,222
Distribution of treasury stock for directors' compensation $ 269
$ 262
Distribution of treasury stock for deferred directors' compensation $ 11
$ 3
Assets acquired through long term capital lease obligations $ —
$ 2,035

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

CRM, a wholly-owned subsidiary of the ~~Corporation,~~Corporation, which was formed and began operations on May 31, 2016, is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves. CRM is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in conformity with GAAP for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 108 of Regulation S-X of the Exchange Act. These financial statements include the accounts of the Corporation and its subsidiaries, and all significant intercompany balances and transactions are eliminated in consolidation. Amounts in the prior periods' consolidated financial statements are reclassified whenever necessary to conform to the current period's presentation.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The ~~unconsolidated~~unaudited consolidated financial statements should be read in conjunction with the Corporation's ~~2016~~2022 Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2022. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire ~~year.~~year or any other period.

Reclassifications

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

Recent Accounting Pronouncements

~~In May 2014, the FASB issued ASU 2014-09, an amendment to~~ ~~Revenue from Contracts with Customers (Topic 606)~~. The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of non-financial assets unless those contracts areAccounting Standards Adopted in the scope of other standards. In August 2015, the FASB issued ASU 2015-14 to defer for one year the effective date of the new revenue standard. The requirements are effective for annual periods and interim periods within fiscal years beginning after December 15, 2017. During 2016, the FASB issued further implementation guidance regarding revenue recognition. This additional guidance included clarification on certain principal versus agent considerations within the implementation of the guidance as well as clarification related to identifying performance obligations and licensing, assessing collectability, presenting sales taxes, measuring non-cash consideration, and certain transition matters. The Corporation intends to adopt the new revenue guidance as of January 1, 2018 and does not expect a significant change upon adoption of the standard, as the new standard will not materially change the way the Corporation currently records revenue for its WMG and fee income from mortgage servicing fees, financial guarantees, and deposit related fees.2023:

Financial Instruments - Credit Losses - Topic 326

~~In January 2016, the FASB issued ASU 2016-01, an amendment to~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)~~. The objectives of the ASU are to (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The amendments in this ASU are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. The Corporation intends to adopt the new guidance as of January 1, 2018 and believes the ASU will not have a material impact on its consolidated financial statements, as the Corporation's equity investment portfolio is less than $1.0 million as of September 30, 2017.

~~In February 2016, the FASB issued ASU 2016-02,~~ ~~Leases (Topic 842)~~. ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, though early adoption is permitted. The Corporation intends to adopt the new lease guidance as of January 1, 2019 and is currently evaluating the impact that adoption of these updates will have on its consolidated financial statements. Currently, the Corporation believes the implementation of this ASU will create a right of use asset of less than $8.0 million for the Corporation's 15 leased facilities and a related capital obligation of the same amount as of January 1, 2019.

~~In March 2016, the FASB issued ASU 2016-09,~~ ~~Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. The objectives of the ASU are to simplify accounting for a stock payment's tax consequences and amend how excess tax benefits and a business's payments to cover the tax bills for the shares' recipients should be classified. The amendments allow companies to estimate the number of stock awards they expect to vest, and they revise the withholding requirements for classifying stock awards as equity. The amendments in this ASU became effective for public companies for fiscal years beginning after December 15, 2016, though early adoption was permitted. The adoption of ASU 2016-09 did not have a significant impact on the Corporation's consolidated financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial ~~Instruments - Credit~~Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial ~~Instruments~~.Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting ~~date~~date. The ASU supersedes prior GAAP by replacing the incurred loss impairment ~~methodology in current GAAP~~method with a methodology that reflects lifetime expected credit losses and requires the consideration of a broader range of reasonable and supportable information to form ~~credit~~ loss estimates. ~~The amendments in this~~In November 2019, the FASB adopted an amendment to postpone the effective date of ASU ~~are effective~~2016-13 to January 2023, for ~~public companies~~some entities, including certain Securities and Exchange Commission filers. As a smaller reporting company, the Corporation was eligible for ~~fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal year beginning after December 15, 2018.~~ and elected delayed adoption.

The Corporation adopted the standard on January 1, 2023, and recognized a one-time cumulative-effect adjustment to retained earnings, of $1.5 million, or $1.1 million, net of tax effects, of which $1.1 million reflected the establishment of an allowance for credit losses on unfunded commitments, $0.4 million reflected additional allowance related to the loan portfolio, and no adjustment was recognized related to the securities portfolio.

The quantitative component of the estimate relies on the statistical relationship between the projected value of an economic indicator and the implied historical loss experience among a curated group of peers. The Corporation utilized regression analyses of peer data, in which the Corporation was included, and where observed credit losses and selected economic factors were used to determine suitable loss drivers for modeling the lifetime rates of probability of default (PD). A loss given default rate (LGD) is ~~currently evaluating~~assigned to each pool for each period based on these PD outcomes. The model fundamentally utilizes an expected discounted cash flow (DCF) analysis for all loan portfolio segments. The DCF analysis is run at the instrument-level and incorporates an array of loan-specific data points and segment-implied assumptions to determine the lifetime expected loss attributable to each instrument. An implicit "hypothetical loss" is derived for each period of the DCF, and helps establish the present value of future cash flows for each period. The reserve applied to a specific instrument is the difference between the sum of the present value of future cash flows and the book balance of the loan at the measurement date.

Portfolio segments are the level at which loss assumptions are applied to a pool of loans based on the similarity of risk characteristics inherent in the included instruments, relying on FFIEC Call Report codes. The loss driver for each loan portfolio segment is derived from a readily available and reasonable economic forecast, chiefly the FOMC of the Federal Reserve's projections of civilian unemployment and year-over-year U.S. GDP growth. Forecasts are applied over a four-quarter period and revert to the lookback period's historical mean for the economic indicator over an eight-quarter horizon, on a straight-line basis.

The model incorporates qualitative factor adjustments in order to calibrate the model for risk in each portfolio segment that may not be captured through quantitative analysis. Determinations regarding qualitative adjustments are reflective of management's expectation of loss conditions differing from those already captured in the quantitative component of the model. The Corporation evaluates all assets exhibiting potential credit risk, including off-balance sheet exposures on unfunded commitments, and debt securities. Allowances on unfunded commitments utilize a calculated funding rate to estimate the Corporation's future obligations, and applies the overall loss rate assigned to each concurrent pool. Securities backed by U.S. government-related agencies are determined to be zero-credit loss securities. Potential losses on obligations of states, political subdivisions, and corporate bonds and notes are analyzed by management to determine whether any of the losses may be attributable to credit-related factors on an individual basis.

The adoption of ASU 2016-13 had an initial impact on the allowance for credit losses on loans of $0.4 million, reflecting changes in the methodology when compared to the allowance for loan losses on loans at December 31, 2022. The increase represents an increase of $0.2 million in the allowance relating to commercial loans, the combined effect of changes to commercial & agricultural and commercial real estate, and an increase of $0.2 million in consumer loans, mostly in relation to indirect auto lending. The remainder of the adoption impact, or $1.1 million, related to the establishment of ~~this~~an allowance for unfunded commitments.

Troubled Debt Restructurings and Vintage Disclosures - Topic 326

In March 2022, the FASB issued ASU 2022-02, Financial Instruments-Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures. The ASU made certain targeted amendments specific to troubled debt restructurings (TDRs) by creditors and vintage disclosure related to gross write-offs. Upon adoption, the Corporation will be required to apply the loan and refinancing and restructuring guidance onto determine whether a modification results in a new loan or a continuation of an existing loan, rather than applying the recognition and measurement guidance for TDRs. The ASU also requires companies to disclose current-period gross write-offs by year of origination for financing receivables and net investment in leases within scope of Subtopic 326-20. The Corporation adopted the standard prospectively, beginning January 1, 2023, concurrently with the aforementioned ASU 2016-13, and its impact can be found within Note 4 to the consolidated financial statements. The Corporation ~~anticipates that~~established a methodology for identifying and reporting the ~~adoption~~financial impact of modifications made to borrowers who are deemed to be experiencing financial difficulty.

Reference Rate Reform - ASC 848

ASU No. 2022-06, Deferral of the ~~CECL model will result~~Sunset Date of Topic 848, was issued in ~~an increase~~December 2022 and defers the date for which accounting relief can be applied under Topic 848. ASU 2022-06 applies to ~~the Corporation's allowance for loan losses. The Corporation has established a committee~~entities that have contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to ~~oversee the implementation~~be discontinued because of CECL. This committee is currently assessing the data and system requirements necessary for adoption. The Corporation plans to run its current incurred loss model and a CECL model concurrently for 12 months prior to the adoption of this guidance on January 1, 2020.

~~In August 2016, the FASB issued ASU 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~.reference rate reform. The objective of the ~~ASU~~guidance in Topic 848 is to ~~reduce~~ease the ~~existing diversity~~burden in practice relating to eight specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relationaccounting related to the ~~effective interest rate~~recognition of the ~~borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from~~effects of reference rate reform on financial reporting. A sunset provision was included within Topic 848 based on expectations of when LIBOR would cease being published. The Corporation had adopted the ~~settlement~~accounting relief provisions of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principal.Topic 848 effective October 1, 2020. The amendments in ~~this~~ ASU ~~are~~2022-06 defer the sunset date of Topic 848 from December 31, 2022 to December 31, 2024, after which entities will no longer be able to apply the accounting relief in Topic 848. ASU 2022-06 was effective for ~~public companies for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, though early adoption is permitted.~~all entities upon its issuance. The adoption of the ~~ASU is~~provisions of Topic 848, as amended, did not ~~expected to~~ have a ~~significant~~material impact on the ~~Corporation's~~Corporation’s consolidated financial statements.

~~In January 2017,~~

Accounting Standards Pending Adoption

None.

Risks and Uncertainties

Current Banking Environment

Industry events transpiring prior to the ~~FASB issued ASU 2017-04,~~ ~~Intangibles - Goodwill~~Corporation’s filing date, continue to present challenges to the banking sector. Market conditions and ~~Other (Topic 350): Simplifying~~external factors may unpredictably impact the ~~Test~~competitive landscape for ~~Goodwill Impairment. The objective of~~deposits in the ~~ASU is to simplify the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test.~~banking industry. Additionally, the ~~ASU removes~~rising interest rate environment has increased competition for liquidity and the ~~requirement for any reporting unit with a zero or negative carrying amount~~premium at which liquidity is available to ~~perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2~~meet funding needs. The Corporation believes the sources of the goodwill impairment test. The amendments in this ASU are effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

~~In March 2017, the FASB issued ASU 2017-07,~~ ~~Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost~~. The objective of the ASU is to improve guidance related to the presentation of defined benefit costs in the income statement. Specifically, the ASU requires that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to beliquidity presented in the ~~income statement separately~~these Unaudited Consolidated Financial Statements and the Notes to the Unaudited Consolidated Financial Statements are sufficient to meet its needs on the balance sheet date.

An unexpected decrease in deposit balances due to heavy withdrawal activity could adversely impact the Corporation's ability to rely on organic deposits to primarily fund its operations, potentially requiring greater reliance on secondary sources of liquidity to meet withdrawal demands or to fund continuing operations. These sources may include proceeds from Federal Home Loan Bank advances, sales of investment securities and loans, federal funds lines of credit from correspondent banks, and out-of-market time deposits. Important Accounting Policy ramifications of such events are outlined in the ~~service cost component~~previous sections of Note 1, and ~~outside a subtotal of income from operations, if one is presented. Additionally,~~subsequently in the ~~ASU allows only~~relevant Notes to the ~~service cost component~~Consolidated Financial Statements.

In response to be eligible for capitalization, when applicable. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. The adoptionthese events, the Treasury Department, Federal Reserve, and FDIC jointly announced the Bank Term Funding Program (BTFP) on March 12, 2023. This program aims to enhance liquidity by allowing institutions to pledge certain securities at the par value of the ~~ASU~~securities, and at a borrowing rate of ten basis points over the one-year overnight index swap rate. The BTFP is available to eligible U.S. federally insured depository institutions, with advances having a term of up to one year and no prepayment penalties. As of the date of the release of the Unaudited Consolidated Financial Statements, the Corporation has not ~~expected to have a significant impact~~accessed the BTFP.

Such reliance on secondary funding sources could increase the Corporation's ~~consolidated financial statements.~~overall cost of funding and thereby reduce net income. While the Corporation believes its current sources of liquidity are adequate to fund operations, there is no guarantee they will suffice to meet future liquidity demands. This may necessitate slowing or discontinuing loan growth, capital expenditures, or other investments, or liquidating assets.

~~In March 2017, the FASB issued ASU 2017-08,~~ ~~Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The objective~~For further discussion of the ~~ASU is to align the amortization period~~Corporation's liquidity practices, see pages 59-61 of premiums and discounts to expectations incorporated in market pricing on the underlying securities. The amendment requires that the premium be amortized to the earliest call date, but does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.Form 10-Q.

NOTE 2~~EARNING~~EARNINGS PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period. Issuable shares, including those related to directors’ restricted stock ~~units and directors’ stock compensation,~~shares, are considered outstanding and are included in the computation of basic earnings per share. All outstanding unvested ~~share based~~share-based payment awards that contain rights to ~~non-forfeitable~~nonforfeitable dividends are considered participating securities for this calculation. Restricted stock awards are grants of participating securities and are considered outstanding at grant date. Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur. Earnings per share were computed by dividing net income by ~~4,802~~4,721 and ~~4,765~~4,689 weighted average shares outstanding for the ~~three-month~~three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016, respectively. Earnings per share were computed by dividing net income by 4,796 and 4,758 weighted average shares outstanding for the nine-month periods ended September 30, 2017 and 2016,~~2022, respectively. There were no common stock equivalents during the three ~~and nine-month~~month periods ended ~~September 30, 2017~~March 31, 2023 or ~~2016.~~2022.

NOTE 3SECURITIES

Amortized cost and estimated fair value of securities available for sale are as follows (in thousands):


	March 31, 2023
	Amortized Cost		Unrealized Gains		Unrealized Losses		Allowance for credit losses		Estimated Fair Value
U.S. Treasury notes and bonds	$	61,619	$	—	$	5,291	$	—	$	56,328
Mortgage-backed securities, residential	508,906		—		76,252		—		432,654
Obligations of states and political subdivisions	39,795		19		400		—		39,414
Corporate bonds and notes	25,750		—		5,120		—		20,630
SBA loan pools	78,769		130		1,870		—		77,029

Total	$	714,839	$	149	$	88,933	$	—	$	626,055

September 30, 2017
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 15,494
$ 90
$ —
$ 15,584
Mortgage-backed securities, residential 239,074
480
2,893
236,661
Obligations of states and political subdivisions 54,144
612
28
54,728
Corporate bonds and notes 249
—
7
242
SBA loan pools 4,513
2
30
4,485
Corporate stocks 265
261
—
526
Total $ 313,739
$ 1,445
$ 2,958
$ 312,226


	December 31, 2022
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
U.S. Treasury notes and bonds	$	61,800	$	—	$	6,225	$	55,574
Mortgage-backed securities, residential	518,838		—		83,707		435,131

Obligations of states and political subdivisions	39,828		2		938		38,892
Corporate bonds and notes	25,750		—		3,780		21,970
SBA loan pools	82,982		155		2,116		81,022


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

December 31, 2016
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 17,300
$ 155
$ —
$ 17,455
Mortgage-backed securities, residential 253,156
202
7,492
245,866
Obligations of states and political subdivisions 38,843
209
312
38,740
Corporate bonds and notes 249
1
—
250
SBA loan pools 568
3
1
570
Corporate stocks 285
236
—
521
Total $ 310,401
$ 806
$ 7,805
$ 303,402

Amortized cost and estimated fair value of securities held to maturity are as follows (in thousands):


	March 31, 2023
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Allowance for credit losses		Estimated Fair Value
Obligations of states and political subdivisions	$	952	$	—	$	—	$	—	$	952
Time deposits with other financial institutions	980		—		27		—		953
Total	$	1,932	$	—	$	27	$	—	$	1,905

September 30, 2017
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of states and political subdivisions $ 2,030
$ —
$ —
$ 2,030
Time deposits with other financial institutions 1,835
1
5
1,831
Total $ 3,865
$ 1
$ 5
$ 3,861


	December 31, 2022
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	952	$	—	$	—	$	952
Time deposits with other financial institutions	1,472		—		22		1,450
Total	$	2,424	$	—	$	22	$	2,402

December 31, 2016
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of states and political subdivisions $ 3,725
$ 206
$ —
$ 3,931
Time deposits with other financial institutions 980
1
—
981
Total $ 4,705
$ 207
$ —
$ 4,912

The amortized cost and estimated fair value of debt securities are shown below by expected maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Securities not due at a single maturity date are shown separately (in thousands):


	March 31, 2023
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	3,141	$	3,102	$	1,004	$	1,003
After one, but within five years	104,669		98,309		928		902
After five, but within ten years	18,883		14,501		—		—
After ten years	471		460		—		—
	127,164		116,372		1,932		1,905
Mortgage-backed securities, residential	508,906		432,654		—		—

SBA loan pools	78,769		77,029		—		—
Total	$	714,839	$	626,055	$	1,932	$	1,905

September 30, 2017
Available for Sale Held to Maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Within one year $ 13,067
$ 13,135
$ 753
$ 751
After one, but within five years 26,063
26,328
2,841
2,839
After five, but within ten years 29,621
29,944
271
271
After ten years 1,136
1,147
—
—
69,887
70,554
3,865
3,861
Mortgage-backed securities, residential 239,074
236,661
—
—
SBA loan pools 4,513
4,485
—
—
Total $ 313,474
$ 311,700
$ 3,865
$ 3,861

~~The~~There were no proceeds from sales and calls of securities resulting in gains or losses for the three ~~months~~month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016 are listed below (in thousands):~~2022.

2017 2016
Proceeds $ 545
$ 20,709
Gross gains —
75
Tax expense —
28

~~The proceeds from sales and calls of securities resulting in gains or losses for the nine months ended September 30, 2017 and 2016 are listed below (in thousands):~~

2017 2016
Proceeds $ 1,620
$ 36,130
Gross gains 12
983
Tax expense 4
371

The following tables summarize the investment securities available for sale with unrealized losses at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):


	Less than 12 months				12 months or longer				Total
March 31, 2023	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury notes and bonds	$	1,107	$	16	$	55,221	$	5,275	$	56,328	$	5,291
Mortgage-backed securities, residential	7,594		477		425,060		75,775		432,654		76,252
Obligations of states and political subdivisions	20,209		176		12,962		224		33,171		400
Corporate bonds and notes	2,750		250		12,064		4,870		14,814		5,120
SBA loan pools	9,279		20		56,883		1,850		66,162		1,870

Total temporarily impaired securities	$	40,939	$	939	$	562,190	$	87,994	$	603,129	$	88,933


	Less than 12 months				12 months or longer				Total
December 31, 2022	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Treasury notes and bonds	$	1,011	$	30	$	54,563	$	6,195	$	55,574	$	6,225
Mortgage-backed securities, residential	79,891		7,621		355,240		76,086		435,131		83,707
Obligations of states and political subdivisions	37,847		938		—		—		38,785		938
Corporate bonds and notes	4,515		485		7,455		3,295		11,970		3,780
SBA loan pools	14,333		925		51,123		1,191		65,456		2,116
Total temporarily impaired securities	$	137,597	$	9,999	$	468,381	$	86,767	$	606,916	$	96,766

Assessment of Available for Sale Debt Securities for Impairment

Management assesses the decline in fair value of investment securities on a regular basis. Unrealized losses on debt securities may occur from current market conditions, increases in interest rates since the time of purchase, a structural change in an investment, volatility of earnings of a specific issuer, or deterioration in credit quality of the issuer. Management evaluates both qualitative and quantitative factors to assess whether an impairment exists. The following is a discussion of the credit quality characteristics of portfolio segments carrying material unrealized losses as of March 31, 2023.

Less than 12 months 12 months or longer Total
September 30, 2017 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Mortgage-backed securities, residential $ 121,345
$ 1,022
$ 57,638
$ 1,871
$ 178,983
$ 2,893
Obligations of states and political subdivisions 4,080
19
281
9
4,361
28
Corporate bonds and notes 242
7
—
—
242
7
SBA loan pools 3,970
30
—
—
3,970
30
Total temporarily impaired securities $ 129,637
$ 1,078
$ 57,919
$ 1,880
$ 187,556
$ 2,958
Obligations of U.S. Governmental agencies and sponsored enterprises:

Less than 12 months 12 months or longer Total
December 31, 2016 Fair Value Unrealized Losses Fair Value Unrealized Losses Fair Value Unrealized Losses
Mortgage-backed securities, residential $ 233,843
$ 7,492
$ —
$ —
$ 233,843
$ 7,492
Obligations of states and political subdivisions 25,724
312
—
—
25,724
312
SBA loan pools —
—
225
1
225
1
Total temporarily impaired securities $ 259,567
$ 7,804
$ 225
$ 1
$ 259,792
$ 7,805

~~Other-Than-Temporary Impairment~~

~~As of September 30, 2017,~~At March 31, 2023, the majority of the Corporation’s unrealized losses in ~~the~~available for sale investment securities ~~portfolio related to mortgage-backed securities. At September 30, 2017, all of the unrealized losses~~ related to mortgage-backed securities, ~~were~~ issued by ~~U.S. government sponsored~~government-sponsored entities ~~Fannie Mae~~ and ~~Freddie Mac. Because the decline~~agencies. Declines in fair value isare attributable to changes in interest rates and illiquidity, not credit ~~quality,~~quality. The Corporation does not have the intent, and ~~because~~ it is not likely ~~that the Corporation will~~to be required to, sell these securities ~~before~~prior to their anticipated ~~recovery,~~recovery. Because the Corporation ~~does not consider~~considers these obligations to carry zero loss estimates, no ACL has been recorded.

Corporate bonds and notes:

The Corporation's corporate bonds and notes portfolio is comprised of subordinated debt issues of community and regional banks. Management considers the credit quality of these investments on an individual basis. Management reviewed the collectability of these securities, taking into consideration such factors as the financial condition of the issuers, reported regulatory capital ratios of the issuers, and credit ratings when available, among other pertinent factors. All corporate bond debt securities continue to ~~be other-than-temporarily impaired at September 30, 2017.~~accrue interest and make payments as expected with no defaults or deferrals on the part of the issuers. Therefore, the Corporation has not recorded an ACL on its corporate bonds and notes portfolio as of March 31, 2023.

NOTE 4LOANS AND ALLOWANCE FOR ~~LOAN~~CREDIT LOSSES

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


	March 31, 2023		December 31, 2022
Commercial and agricultural:
Commercial and industrial	$	244,174	$	252,044
Agricultural	333		249
Commercial mortgages:
Construction	118,660		108,243
Commercial mortgages, other	917,637		888,670
Residential mortgages	285,944		285,672
Consumer loans:

Home equity lines and loans	84,537		81,401
Indirect consumer loans	211,270		202,124
Direct consumer loans	11,146		11,045
Total loans, net of deferred loan fees and costs	1,873,701		1,829,448
Allowance for credit losses	(20,075)		(19,659)
Loans, net	$	1,853,626	$	1,809,789

September 30,
2017 December 31,
2016
Commercial and agricultural:
Commercial and industrial $ 188,341
$ 176,201
Agricultural 448
360
Commercial mortgages:

Construction 57,704
46,387
Commercial mortgages, other 580,061
522,269
Residential mortgages 197,210
198,493
Consumer loans:

Credit cards 1,444
1,476
Home equity lines and loans 98,492
98,590
Indirect consumer loans 147,426
139,572
Direct consumer loans 17,687
16,942
Total loans, net of deferred origination fees and costs $ 1,288,813
$ 1,200,290
Interest receivable on loans 3,448
3,192
Total recorded investment in loans $ 1,292,261
$ 1,203,482

The Corporation's concentrations of credit risk by loan type are reflected in the preceding table. The concentrations of credit risk with standby letters of credit, committed lines of credit and commitments to originate new loans generally follow the loan classifications in the table above.

Accrued interest receivable on loans amounted to $6.3 million at March 31, 2023 and $6.5 million million at December 31, 2022. Accrued interest receivable on loans is included in the "accrued interest receivable and other assets" line item on the Corporation's Consolidated Balance Sheets, and is excluded from the estimate of credit losses.

The following ~~tables present~~table presents the activity in the allowance for credit losses by portfolio segment for the three month period ended March 31, 2023 (in thousands):


	Three Months Ended March 31, 2023
Allowance for credit losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Beginning balance	$	3,373	$	11,576	$	1,845	$	2,865	$	19,659
Cumulative effect adjustment for the adoption of ASC 326	909		(695)		(16)		176		374
Beginning balance after cumulative effect adjustment	4,282		10,881		1,829		3,041		20,033
Charge-offs	(190)		—		—		(193)		(383)
Recoveries	6		—		—		108		114
Net recoveries (charge-offs)	(184)		—		—		(85)		(269)
Provision (1)	(45)		102		63		191		311
Ending balance	$	4,053	$	10,983	$	1,892	$	3,147	$	20,075

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

Refer to Note 1-Summary of Significant Accounting Policies in our Annual report on Form 10-K for the fiscal year ended December 31, 2022, for the allowance for loan losses policy effective prior to the adoption of ASC 326-Financial Instruments-Credit Losses, as of December 31, 2022.

The following table presents the activity in the allowance for loan losses by portfolio segment for the three ~~and nine-month~~month period ended March 31, 2022.


	Three Months Ended March 31, 2022
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Beginning balance	$	3,591	$	13,556	$	1,803	$	2,075	$	21,025

Charge-offs	(4)		—		—		(194)		(198)
Recoveries	6		1		—		239		246
Net recoveries (charge-offs)	2		1		—		45		48
Provision	(110)		(593)		(197)		(245)		(1,145)
Ending balance	$	3,483	$	12,964	$	1,606	$	1,875	$	19,928

Unfunded Commitments

The allowance for credit losses on unfunded commitments is recognized as a liability (other liabilities in the Consolidated Balance Sheets), with adjustments to the reserve recognized in the provision for credit losses on the Consolidated Statements of Income. The Corporation established a reserve for unfunded commitments in conjunction with its adoption of ASC 326-Financial Instruments-Credit Losses.

The following table presents the activity in the allowance for credit losses on unfunded commitments for the three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016 (in thousands):~~2022:


	For the Three Months Ended
Allowance for credit losses on unfunded commitments	March 31, 2023		March 31, 2022
Beginning balance	$	—	$	—
Impact of ASC 326 adoption	1,082		—
Provision for unfunded commitments	(34)		—
Ending balance	$	1,048	$	—

Three Months Ended September 30, 2017
Allowance for loan losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Beginning balance $ 1,883
$ 7,778
$ 1,517
$ 3,926
$ 15,104
Charge-offs (89 ) (154 ) (133 ) (440 ) (816 )
Recoveries 34
1
—
82
117
Net recoveries (charge-offs) (55 ) (153 ) (133 ) (358 ) (699 )
Provision 99
758
12
420
1,289
Ending balance $ 1,927
$ 8,383
$ 1,396
$ 3,988
$ 15,694

Three Months Ended September 30, 2016
Allowance for loan losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Beginning balance $ 1,771
$ 7,754
$ 1,504
$ 3,639
$ 14,668
Charge-offs (104 ) (52 ) (7 ) (280 ) (443 )
Recoveries 15
1
—
34
50
Net recoveries (charge-offs) (89 ) (51 ) (7 ) (246 ) (393 )
Provision 101
520
50
379
1,050
Ending balance $ 1,783
$ 8,223
$ 1,547
$ 3,772
$ 15,325
The following table presents the provision for credit losses on loans and unfunded commitments for the three month period ended March 31, 2023, based upon the current expected credit loss methodology, and the provision for loan losses on loans for the three month period ended March 31, 2022, based upon the incurred loss methodology:


	For the Three Months Ended
Provision for credit losses	March 31, 2023		March 31, 2022
Provision for credit losses on loans	$	311	$	(1,145)
Provision for unfunded commitments	(34)		—
Total provision (credit) for credit losses	$	277	$	(1,145)

Nine Months Ended September 30, 2017
Allowance for loan losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Beginning balance: $ 1,589
$ 7,270
$ 1,523
$ 3,871
$ 14,253
Charge-offs: (96 ) (154 ) (193 ) (1,265 ) (1,708 )
Recoveries: 95
4
30
270
399
Net recoveries (charge-offs) (1 ) (150 ) (163 ) (995 ) (1,309 )
Provision 339
1,263
36
1,112
2,750
Ending balance $ 1,927
$ 8,383
$ 1,396
$ 3,988
$ 15,694

Nine Months Ended September 30, 2016
Allowance for loan losses Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Beginning balance: $ 1,831
$ 7,112
$ 1,464
$ 3,853
$ 14,260
Charge-offs: (121 ) (52 ) (65 ) (995 ) (1,233 )
Recoveries: 65
10
—
190
265
Net recoveries (charge-offs) (56 ) (42 ) (65 ) (805 ) (968 )
Provision 8
1,153
148
724
2,033
Ending balance $ 1,783
$ 8,223
$ 1,547
$ 3,772
$ 15,325

The following tables present the balance in the allowance for credit losses and allowance for loan losses, and the ~~recorded investment~~amortized cost basis in loans by portfolio segment, ~~and based on impairment method~~ as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):


	March 31, 2023
Allowance for credit losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually analyzed	$	1,040	$	36	$	—	$	—	$	1,076
Collectively analyzed	3,013		10,947		1,892		3,147		18,999

Total ending allowance balance	$	4,053	$	10,983	$	1,892	$	3,147	$	20,075


	December 31, 2022
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,078	$	38	$	—	$	31	$	1,147
Collectively evaluated for impairment	2,295		11,538		1,845		2,834		18,512

Total ending allowance balance	$	3,373	$	11,576	$	1,845	$	2,865	$	19,659

September 30, 2017
Allowance for loan losses: Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ 159
$ 1,009
$ —
$ —
$ 1,168
Collectively evaluated for impairment 1,768
7,345
1,396
3,988
14,497
Loans acquired with deteriorated credit quality —
29
—
—
29
Total ending allowance balance $ 1,927
$ 8,383
$ 1,396
$ 3,988
$ 15,694


	March 31, 2023
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually analyzed	$	1,779	$	4,089	$	715	$	254	$	6,837
Loans collectively analyzed	242,728		1,032,208		285,229		306,699		1,866,864

Total ending loans balance	$	244,507	$	1,036,297	$	285,944	$	306,953	$	1,873,701

December 31, 2016
Allowance for loan losses: Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment $ —
$ 735
$ —
$ 141
$ 876
Collectively evaluated for impairment 1,589
6,476
1,498
3,730
13,293
Loans acquired with deteriorated credit quality —
59
25
—
84
Total ending allowance balance $ 1,589
$ 7,270
$ 1,523
$ 3,871
$ 14,253


	December 31, 2022
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,112	$	4,383	$	723	$	264	$	7,482
Loans collectively evaluated for impairment	250,181		992,530		284,949		294,306		1,821,966

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

September 30, 2017
Loans: Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Loans individually evaluated for impairment $ 1,133
$ 9,458
$ 434
$ 67
$ 11,092
Loans collectively evaluated for impairment 188,170
629,211
197,267
265,689
1,280,337
Loans acquired with deteriorated credit quality —
832
—
—
832
Total ending loans balance $ 189,303
$ 639,501
$ 197,701
$ 265,756
$ 1,292,261

Modifications to Loans Made to Borrowers Experiencing Financial Difficulty

Effective January 1, 2023, the Corporation adopted ASU 2022-02, Financial Instruments-Credit Losses (Topic 326)-Troubled Debt Restructurings and Vintage Disclosures. The Corporation may occasionally make modifications to loans where the borrower is considered to be experiencing financial difficulty. Types of modifications considered under ASU 2022-02 include principal reductions, interest rate reductions, term extensions, or a combination thereof.

December 31, 2016
Loans: Commercial and Agricultural Commercial Mortgages Residential Mortgages Consumer Loans Total
Loans individually evaluated for impairment $ 693
$ 10,382
$ 396
$ 455
$ 11,926
Loans collectively evaluated for impairment 176,334
558,451
198,474
256,879
1,190,138
Loans acquired with deteriorated credit quality —
1,323
95
—
1,418
Total ending loans balance $ 177,027
$ 570,156
$ 198,965
$ 257,334
$ 1,203,482

The following table ~~presents loans individually evaluated for impairment recognized by class~~summarizes the amortized cost basis of loans modified as of ~~September 30, 2017 and December~~March 31, ~~2016 (in thousands):~~2023:


	March 31, 2023
Loans modified under ASU 2022-02:	Principal Reduction		Interest Rate Reduction		Term Extension		Combination		Total		(%) of Loan Class (1)



Commercial mortgages	$	—	$	—	$	277	$	—	$	277	0.03	%




Total	$	—	$	—	$	277	$	—	$	277

September 30, 2017 December 31, 2016
With no related allowance recorded: Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial $ 714
$ 719
$ —
$ 690
$ 693
$ —
Commercial mortgages:

Construction 395
396
—
277
278
—
Commercial mortgages, other 4,274
4,277
—
8,792
7,857
—
Residential mortgages 457
434
—
395
396
—
Consumer loans:

Home equity lines and loans 66
67
—
93
95
—
With an allowance recorded:

Commercial and agricultural:

Commercial and industrial 413
414
159
—
—
—
Commercial mortgages:

Commercial mortgages, other 5,875
4,785
1,009
2,245
2,247
735
Consumer loans:

Home equity lines and loans —
—
—
360
360
141
Total $ 12,194
$ 11,092
$ 1,168
$ 12,852
$ 11,926
$ 876
(1) Represents the amortized cost basis of loans modified during the period as a percentage of the period-end loan balances by class.

The following table presents the ~~average recorded investment~~financial effect of the loan modifications presented above to borrowers experiencing financial difficulty during the three month period ended March 31, 2023:

March 31, 2023

Effect of loan modifications under ASU 2022-02:

Principal Reduction (in thousands)

Weighted-average interest rate reduction (%)

Weighted-average term extension (in months)

Commercial mortgages

$—

—%

Individually Analyzed Loans

Effective January 1, 2023, the Corporation began analyzing loans on an individual basis when management determined that the loan no longer exhibited risk characteristics consistent with the risk characteristics existing in its designated pool of loans, under the Corporation's CECL methodology. Loans individually analyzed include certain non-accrual commercial and consumer loans, as well as certain loans previously identified under prior troubled debt restructuring (TDR) guidance.

As of March 31, 2023, the amortized cost basis of individually analyzed loans amounted to $6.8 million, of which $6.0 million were considered collateral dependent. For collateral dependent loans where the borrower is experiencing financial difficulty and repayment is likely to be substantially provided through the sale or operation of the collateral, the ACL is measured based on the difference between the fair value of the collateral and the amortized cost basis of the loan, at measurement date. Certain assets held as collateral may be exposed to future deterioration in fair value, particularly due to changes in real estate markets or usage.

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


	March 31, 2023
	Amortized Cost Basis		Related Allowance
Commercial and agricultural:
Commercial and industrial (1) (3)	$	573	$	168
Commercial mortgages:
Commercial mortgages, other (1)	4,413		36
Residential mortgages (2)	715		—
Consumer loans
Home equity lines and loans (2)	254		—
Total	$	5,955	$	204

(1) Secured by commercial real estate

(2) Secured by residential real estate

(3) Secured by business assets

Prior to January 1, 2023, the Corporation considered a loan to be impaired when, based on currently available information, it was deemed probable that the Corporation would not be able to collect on the loan's contractually determined principal and interest payments. Impaired loans included loans on non-accrual status and troubled debt restructurings (TDRs). The Corporation identified loss allocations for impaired loans on an individual basis, and in conformity with its methodology under the incurred loss framework.

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


	December 31, 2022
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	1,026	$	1,025	$	—
Commercial mortgages:
Construction	5		5		—
Commercial mortgages, other	4,346		4,341		—
Residential mortgages	767		760		—
Consumer loans:
Home equity lines and loans	154		138		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,086		1,088		1,078
Commercial mortgages:
Commercial mortgages, other	38		38		38
Consumer loans:
Home equity lines and loans	126		127		31
Total	$	7,548	$	7,522	$	1,147

The following table presents the amortized cost basis and interest income of loans individually evaluated ~~for impairment~~ recognized by class of loans ~~as of~~for the three ~~and nine-month~~month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (in thousands):


	Three Months Ended March 31, 2023				Three Months Ended March 31, 2022
With no related allowance recorded:	Amortized Cost Basis		Interest Income Recognized (1)		Amortized Cost Basis		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	729	$	—	$	926	$	3
Commercial mortgages:
Construction	—		—		113		1
Commercial mortgages, other	4,053		7		4,105		7
Residential mortgages	715		9		895		11
Consumer loans:
Home equity lines & loans	254		—		161		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,049		2		1,414		3
Commercial mortgages:
Commercial mortgages, other	36		—		2,601		21
Consumer loans:
Home equity lines and loans	—		—		141		—
Total	$	6,836	$	18	$	10,356	$	47

Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
With no related allowance recorded: Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1)
Commercial and agricultural:
Commercial and industrial $ 661
$ 8
$ 900
$ 10
$ 666
$ 24
$ 1,083
$ 33
Commercial mortgages:

Construction 974
3
310
4
946
9
329
11
Commercial mortgages, other 4,946
5
6,124
60
5,973
73
6,760
181
Residential mortgages 439
2
443
2
416
6
358
3
Consumer loans:

Home equity lines & loans 68
1
101
1
76
2
104
4
With an allowance recorded:

Commercial and agricultural:

Commercial and industrial 291
3
45
1
145
4
29
4
Commercial mortgages:

Commercial mortgages, other 4,721
4
5,151
1
3,989
10
4,998
4
Consumer loans:

Home equity lines and loans —
—
360
—
180
—
362
—
Total $ 12,100
$ 26
$ 13,434
$ 79
$ 12,391
$ 128
$ 14,023
$ 240

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

The following ~~tables present~~table presents the ~~recorded investment~~amortized cost basis in non-accrual and loans past due 90 days or more and still accruing by class of ~~loans~~loan as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):


	Non-accrual with no allowance for credit losses		Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	March 31, 2023		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Commercial and agricultural:
Commercial and industrial	$	730	$	1,623	$	1,946	$	6	$	1

Commercial mortgages:
Construction	—		—		5		—		—
Commercial mortgages, other	3,611		3,647		3,928		—		—
Residential mortgages	1,036		1,036		986		—		—
Consumer loans:

Home equity lines and loans	866		866		760		—		—
Indirect consumer loans	556		556		540		—		—
Direct consumer loans	3		3		13		—		—
Total	$	6,802	$	7,731	$	8,178	$	6	$	1

Non-accrual Loans Past Due 90 Days or More and Still Accruing
September 30, 2017 December 31, 2016 September 30, 2017 December 31, 2016
Commercial and agricultural:
Commercial and industrial $ 150
$ —
$ 2
$ 2
Commercial mortgages:
Construction 159
19
—
—
Commercial mortgages, other 8,473
5,454
—
—
Residential mortgages 3,210
4,201
—
—
Consumer loans:
Credit cards —
—
19
11
Home equity lines and loans 1,178
1,670
—
—
Indirect consumer loans 837
654
—
—
Direct consumer loans 21
45
—
—
Total $ 14,028
$ 12,043
$ 21
$ 13

The following tables present the aging of the ~~recorded investment in~~amortized cost basis of loans as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):


	March 31, 2023
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	67	$	8	$	16	$	91	$	244,083	$	244,174
Agricultural	—		—		—		—		333		333
Commercial mortgages:
Construction	2,284		—		—		2,284		116,376		118,660
Commercial mortgages, other	246		—		297		543		917,094		917,637
Residential mortgages	933		57		412		1,402		284,542		285,944
Consumer loans:

Home equity lines and loans	261		57		568		886		83,651		84,537
Indirect consumer loans	1,036		52		265		1,353		209,917		211,270
Direct consumer loans	10		—		—		10		11,136		11,146
Total	$	4,837	$	174	$	1,558	$	6,569	$	1,867,132	$	1,873,701


	September 30, 2017															December 31, 2022
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Acquired with Deteriorated Credit Quality		Loans Not Past Due		Total			30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:															Commercial and agricultural:
Commercial and industrial	$	217	$	17	$	2	$	236	$	—	$	188,617	$	188,853	Commercial and industrial	$	74	$	3	$	1	$	78	$	251,966	$	252,044
Agricultural	—		—		—		—		—		450		450		Agricultural	—		—		—		—		249		249
Commercial mortgages:															Commercial mortgages:
Construction	—		—		—		—		—		57,861		57,861		Construction	—		—		—		—		108,243		108,243
Commercial mortgages, other	4,218		—		2,572		6,790		832		574,018		581,640		Commercial mortgages, other	1,058		—		486		1,544		887,126		888,670
Residential mortgages	1,122		695		1,714		3,531		—		194,170		197,701		Residential mortgages	1,360		709		294		2,363		283,309		285,672
Consumer loans:															Consumer loans:
Credit cards	6		2		19		27		—		1,417		1,444

Home equity lines and loans	220		99		846		1,165		—		97,598		98,763		Home equity lines and loans	193		121		442		756		80,645		81,401
Indirect consumer loans	2,084		325		501		2,910		—		144,880		147,790		Indirect consumer loans	1,397		193		250		1,840		200,284		202,124
Direct consumer loans	112		21		8		141		—		17,618		17,759		Direct consumer loans	2		19		1		22		11,023		11,045
Total	$	7,979	$	1,159	$	5,662	$	14,800	$	832	$	1,276,629	$	1,292,261	Total	$	4,084	$	1,045	$	1,474	$	6,603	$	1,822,845	$	1,829,448

December 31, 2016
30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Acquired with Deteriorated Credit Quality Loans Not Past Due Total
Commercial and agricultural:
Commercial and industrial $ 160
$ 7
$ 2
$ 169
$ —
$ 176,497
$ 176,666
Agricultural —
—
—
—
—
361
361
Commercial mortgages:

Construction —
1,177
—
1,177
—
45,333
46,510
Commercial mortgages, other 652
4,460
2,412
7,524
1,323
514,799
523,646
Residential mortgages 2,100
436
2,383
4,919
95
193,951
198,965
Consumer loans:

Credit cards 3
9
11
23
—
1,453
1,476
Home equity lines and loans 227
—
1,149
1,376
—
97,477
98,853
Indirect consumer loans 1,773
287
542
2,602
—
137,391
139,993
Direct consumer loans 54
7
22
83
—
16,929
17,012
Total $ 4,969
$ 6,383
$ 6,521
$ 17,873
$ 1,418
$ 1,184,191
$ 1,203,482

~~Troubled Debt Restructurings:~~

A modification of a loan may result in classification as a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of modifications which may involve a change in the schedule of payments, a reduction in the interest rate, an extension of the maturity date, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, substituting or adding a new borrower or guarantor, a permanent reduction of the recorded investment in the loan or a permanent reduction of the interest on the loan.

As of September 30, 2017 and December 31, 2016, the Corporation has a recorded investment in TDRs of $9.2 million and $10.2 million, respectively. There were specific reserves of $1.0 million and $0.9 million allocated for TDRs at September 30, 2017 and December 31, 2016, respectively. As of September 30, 2017, TDRs totaling $2.0 million were accruing interest under the modified terms and $7.2 million were on non-accrual status. As of December 31, 2016, TDRs totaling $5.8 million were accruing interest under the modified terms and $4.4 million were on non-accrual status. The Corporation had committed no additional amounts as of both September 30, 2017 and December 31, 2016, to customers with outstanding loans that are classified as TDRs.

During the three-month periods ended September 30, 2017 and 2016, the terms of certain loans were modified as TDRs. The modification of the terms of two commercial & industrial term loans during the three months ended September 30, 2017 included a reduction of the scheduled amortized payments for greater than a three month period, the release of collateral related to one of the loans and the extension of a maturity date. During the three months ended September 30, 2016, no loans were modified as TDRs.

During the nine months ended September 30, 2017 and 2016, the terms of certain loans were modified as TDRs. In addition to the modifications noted above, the modification of the terms of two commercial & industrial term loans and one line of credit during the nine months ended September 30, 2017 included consolidating the loans into one commercial & industrial loan, extending the maturity date by approximately two years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a commercial mortgage loan during the nine months ended September 30, 2017 included a reduction of the scheduled amortized payments of the loan for greater than a three month period. The modification of the terms of a residential mortgage loan during the nine months ended September 30, 2017 included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of the loan.

The modification of the terms of a residential mortgage loan during the nine months ended September 30, 2016 included an extension of the maturity date by thirteen years at a stated interest rate lower than the current market rate for new debt with similar risk and a corresponding reduction of the scheduled amortization payments of the loan due to the longer term. The modification of the terms of five commercial real estate loans and one residential home equity loan during the nine months ended September 30, 2016 included consolidating the loans into one commercial real estate loan and extending the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk. The modification of the terms of a residential mortgage loan performed during the nine months ended September 30, 2016 included a reduction in the stated interest rate for three years and a corresponding reduction of the scheduled amortized payments of the loan due to the lower interest rate. Additionally, $4 thousand of interest and past due escrow payments were capitalized on the restructured loan.

~~The following table presents loans by class modified as TDRs that occurred during the three months ended September 30, 2017 (dollars in thousands):~~

September 30, 2017 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial 2
$ 506
$ 506
Total 2
$ 506
$ 506

~~The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge-offs during the three month period ended September 30, 2017.~~

~~There were no loans modified as TDRs during the three months ended September 30, 2016.~~

~~The following tables presents loans by class modified as TDRs that occurred during the nine months ended September 30, 2017 and 2016 (dollars in thousands):~~

September 30, 2016 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:

Commercial mortgages 5
$ 312
$ 310
Residential mortgages 2
295
307
Consumer loans:
Home equity lines and loans 1
74
74
Total 8
$ 681
$ 691

The TDRs described above increased the allowance for loan losses by $0.2 million and resulted in no charge-offs during the nine months ended September 30, 2017. The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the nine months ended September 30, 2016.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three and nine month periods ended September 30, 2017.

There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three months ended September 30, 2016. The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the nine months ended September 30, 2016:

Number of Loans Recorded Investment
Commercial mortgages:
Commercial mortgages 2 $ 2,100
Total 2 $ 2,100

~~The TDRs that subsequently defaulted described above did not increase the allowance for loan losses and resulted in no charge offs during the nine months ended September 30, 2016.~~

Credit Quality Indicators

The Corporation establishes a risk rating at origination for all commercial loans. The main factors considered in assigning risk ratings include, but are not limited to: historic and future debt service coverage, collateral position, operating performance, liquidity, leverage, payment history, management ability, and the customer’s industry. Commercial relationship managers monitor all loans in their respective portfolios for any changes in the borrower’s ability to service its debt and affirm the risk ratings for the loans at least annually.

For ~~the~~ retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment. Retail loans are not rated until they become 90 days past due.

The Corporation uses the risk rating system to identify criticized and classified loans. Commercial relationships within the criticized and classified risk ratings are analyzed quarterly. The Corporation uses the following definitions for criticized and classified loans (which are consistent with regulatory guidelines):

Special Mention – Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.

Substandard – Loans classified as substandard are inadequately protected by the current net worth and paying capability of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.

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

Commercial loans not meeting the criteria above to be considered criticized or classified, are considered to be pass rated loans. Loans listed as not rated, are included in groups of homogeneous loans performing under terms of the loan notes.

Based on the analyses performed as of ~~September 30, 2017~~March 31, 2023, the risk category of the amortized cost basis of loans by class of loans and vintage, as well as the gross charge-offs by loan class and vintage for the period, are as follows (in thousands):

Prior to the adoption of ASC 326-Financial Instruments-Credit Losses, loans not meeting the criteria above that were analyzed individually as part of the above described process were considered pass rated loans as of December 31, ~~2016,~~2022. Based upon the analyses performed as of December 31, 2022, the risk category of the recorded investment of loans by class of loans iswas as follows (in thousands):


	December 31, 2022
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	235,900	$	13,349	$	2,899	$	893	$	253,041
Agricultural	—		250		—		—		—		250
Commercial mortgages:
Construction	—		108,488		178		5		—		108,671
Commercial mortgages	—		860,389		23,938		7,825		38		892,190
Residential mortgages	285,459		—		—		986		—		286,445
Consumer loans:

Home equity lines and loans	80,942		—		—		760		—		81,702
Indirect consumer loans	202,050		—		—		540		—		202,590
Direct consumer loans	11,094		—		—		13		—		11,107
Total	$	579,545	$	1,205,027	$	37,465	$	13,028	$	931	$	1,835,996

September 30, 2017
Not Rated Pass Special Mention Substandard Doubtful Loans acquired with deteriorated credit quality Total
Commercial and agricultural:
Commercial and industrial $ —
$ 181,457
$ 5,390
$ 2,006
$ —
$ —
$ 188,853
Agricultural —
450
—

—
—
450
Commercial mortgages:

Construction —
57,702
—
159
—
—
57,861
Commercial mortgages —
557,371
7,048
14,990
1,399
832
581,640
Residential mortgages 194,491
—
—
3,210
—
—
197,701
Consumer loans:

Credit cards 1,444
—
—
—
—
—
1,444
Home equity lines and loans 97,585
—
—
1,178
—
—
98,763
Indirect consumer loans 146,953
—
—
837
—
—
147,790
Direct consumer loans 17,738
—
—
21
—
—
17,759
Total $ 458,211
$ 796,980
$ 12,438
$ 22,401
$ 1,399
$ 832
$ 1,292,261

December 31, 2016
Not Rated Pass Special Mention Substandard Doubtful Loans acquired with deteriorated credit quality Total
Commercial and agricultural:
Commercial and industrial $ —
$ 172,873
$ 2,277
$ 1,516
$ —
$ —
$ 176,666
Agricultural —
361
—
—
—
—
361
Commercial mortgages:

Construction —
45,055
259
1,196
—
—
46,510
Commercial mortgages —
496,723
8,574
15,566
1,460
1,323
523,646
Residential mortgages 194,669
—
—
4,201
—
95
198,965
Consumer loans:

Credit cards 1,476
—
—
—
—
—
1,476
Home equity lines and loans 97,183
—
—
1,670
—
—
98,853
Indirect consumer loans 139,339
—
—
654
—
—
139,993
Direct consumer loans 16,967
—
—
45
—
—
17,012
Total $ 449,634
$ 715,012
$ 11,110
$ 24,848
$ 1,460
$ 1,418
$ 1,203,482

~~The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses.~~ For residential and consumer loan classes, the Corporation also ~~evaluates~~evaluated credit quality based on the aging status of the loan, which was previously presented, by payment activity. The following table presents the amortized cost basis in residential and consumer loans based on payment activity as of March 31, 2023 (in thousands):

Prior to the adoption of ASC 326-Financial Instruments-Credit Losses, the Corporation also evaluated credit quality based on the aging status of the loan, which was previously presented, by payment activity. The following table presents the recorded investment in residential and consumer loans based on payment activity as of ~~September 30, 2017 and~~ December 31, ~~2016~~2022 (in thousands):

September 30, 2017
Consumer Loans
Residential Mortgages Credit Card Home Equity Lines and Loans Indirect Consumer Loans Other Direct Consumer Loans
Performing $ 194,491
$ 1,444
$ 97,585
$ 146,953
$ 17,738
Non-Performing 3,210
—
1,178
837
21
$ 197,701
$ 1,444
$ 98,763
$ 147,790
$ 17,759

December 31, 2016
Consumer Loans
Residential Mortgages Credit Card Home Equity Lines and Loans Indirect Consumer Loans Other Direct Consumer Loans
Performing $ 194,764
$ 1,476
$ 97,183
$ 139,339
$ 16,967
Non-Performing 4,201
—
1,670
654
45
$ 198,965
$ 1,476
$ 98,853
$ 139,993
$ 17,012

At the time of the merger with Fort Orange Financial Corp., the Corporation identified certain loans with evidence of deteriorated credit quality, and the probability that the Corporation would be unable to collect all contractually required payments from the borrower. These loans are classified as PCI loans. The Corporation adjusted its estimates of future expected losses, cash flows, and renewal assumptions on the PCI loans during the current year. These adjustments were made for changes in expected cash flows due to loans refinanced beyond original maturity dates, impairments recognized subsequent to the acquisition, advances made for taxes or insurance to protect collateral held and payments received in excess of amounts originally expected.

The table below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the PCI loans from July 1, 2017 to September 30, 2017 and July 1, 2016 to September 30, 2016 (in thousands):

Three Months Ended September 30, 2017 Balance at June 30, 2017 Income Accretion All Other Adjustments Balance at September 30, 2017
Contractually required principal and interest $ 1,167
$ —
$ (165 ) $ 1,002
Contractual cash flows not expected to be collected (nonaccretable discount) (33 ) —
(33 ) (66 )
Cash flows expected to be collected 1,134
—
(198 ) 936
Interest component of expected cash flows (accretable yield) (128 ) 11
13
(104 )
Carrying amount of loans acquired with deteriorating credit quality $ 1,006
$ 11
$ (185 ) $ 832

Three Months Ended September 30, 2016 Balance at June 30, 2016 Income Accretion All Other Adjustments Balance at September 30, 2016
Contractually required principal and interest $ 2,492
$ —
$ (60 ) $ 2,432
Contractual cash flows not expected to be collected (nonaccretable discount) (374 ) —
(33 ) (407 )
Cash flows expected to be collected 2,118
—
(93 ) 2,025
Interest component of expected cash flows (accretable yield) (243 ) 26
30
(187 )
Carrying amount of loans acquired with deteriorating credit quality $ 1,875
$ 26
$ (63 ) $ 1,838

For those purchased credit impaired loans disclosed above, the Corporation decreased the allowance for loan losses by $1 thousand during the three months ended September 30, 2017 and did not increase or decrease the allowance for loan losses during the three months ended September 30, 2016. The Corporation reversed $1 thousand of the allowance for loan losses during the three months ended September 30, 2017. The Corporation did not reverse any allowance for loan losses during the three months ended September 30, 2016.

The tables below summarizes the changes in total contractually required principal and interest cash payments, management’s estimate of expected total cash payments and carrying value of the PCI loans from January 1, 2017 to September 30, 2017 and January 1, 2016 to September 30, 2016 (in thousands):

Nine Months Ended September 30, 2017 Balance at December 31, 2016 Income Accretion All Other Adjustments Balance at September 30, 2017
Contractually required principal and interest $ 1,940
$ —
$ (938 ) $ 1,002
Contractual cash flows not expected to be collected (nonaccretable discount) (352 ) —
286
(66 )
Cash flows expected to be collected 1,588
—
(652 ) 936
Interest component of expected cash flows (accretable yield) (170 ) 51
15
(104 )
Carrying amount of loans acquired with deteriorating credit quality $ 1,418
$ 51
$ (637 ) $ 832

Nine Months Ended September 30, 2016 Balance at December 31, 2015 Income Accretion All Other Adjustments Balance at September 30, 2016
Contractually required principal and interest $ 2,912
$ —
$ (480 ) $ 2,432
Contractual cash flows not expected to be collected (nonaccretable discount) (506 ) —
99
(407 )
Cash flows expected to be collected 2,406
—
(381 ) 2,025
Interest component of expected cash flows (accretable yield) (311 ) 96
28
(187 )
Carrying amount of loans acquired with deteriorating credit quality $ 2,095
$ 96
$ (353 ) $ 1,838

For those purchased credit impaired loans disclosed above, the Corporation decreased the allowance for loan losses by $55 thousand and $15 thousand during the nine months ended September 30, 2017 and 2016, respectively. The Corporation reversed $30 thousand of the allowance for losses during the nine months ended September 30, 2017. The Corporation did not reverse any allowance for loan losses during the nine months ended September 30, 2016.

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability.

The Corporation used the following methods and significant assumptions to estimate fair value on a recurring basis:

~~Investment~~Available for Sale Securities: The fair values of securities available for sale are usually determined by obtaining quoted prices on nationally recognized securities exchanges (Level 1 inputs), or matrix pricing, which is a mathematical technique widely used to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities' relationship to other benchmark quoted securities (Level 2 inputs). For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs).

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

Individually Analyzed Loans: At the time a loan is considered individually analyzed, it is valued at the lower of cost or fair value. Individually analyzed loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for credit loss accounting. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification. Impaired loans are analyzed on a quarterly basis for additional impairment and adjusted accordingly.

OREO: Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral dependent loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO. On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition.

Derivatives: The fair values of interest rate swaps are based on valuation models using observable market data as of the measurement date (Level 2 inputs). Derivatives are traded in an over-the-counter market where quoted market prices are not always available. Therefore, the fair values of derivatives are determined using quantitative models that utilize multiple market inputs. The inputs will vary based on the type of derivative, but could include interest rates, prices, and indices to generate continuous yield or pricing curves, prepayment rates, and volatility factors to value the position. The Corporation also incorporates credit valuation adjustments to appropriately reflect both its own nonperformance risk and the respective counter-party's nonperformance risk in the fair value measurements. In adjusting the fair value of its derivative contracts for the effect of nonperformance risk, the Corporation has considered the impact of any applicable credit enhancements, such as collateral postings. Although the Corporation has determined that the majority of the inputs used to value its derivatives fall within Level 2 of the fair value hierarchy, the credit valuation adjustments associated with its derivatives utilize credit default rate assumptions (Level 3 inputs).

~~The fair values of credit risk participations are based on credit default rate assumptions (Level 3 inputs).~~

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

Fair Value Measurement at September 30, 2017 Using
Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 15,584
$ —
$ 15,584
$ —
Mortgage-backed securities, residential 236,661
—
236,661
—
Obligations of states and political subdivisions 54,728
—
54,728
—
Corporate bonds and notes 242
—
242
—
SBA loan pools 4,485
—
4,485
—
Corporate stocks 526
194
332
—
Total available for sale securities $ 312,226
$ 194
$ 312,032
$ —

Trading assets $ 909
$ 909
$ —
$ —
Derivative assets 670
—
670
—

Financial Liabilities:
Derivative liabilities $ 741
$ —
$ 670
$ 71

During the three months ended September 30, 2017, the Corporation transferred corporate bonds with a fair market value of $242 thousand from Level 3 to Level 2 due to the availability of pricing in secondary markets.

Fair Value Measurement at December 31, 2016 Using
Financial Assets: Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 17,455
$ —
$ 17,455
$ —
Mortgage-backed securities, residential 245,866
—
245,866
—
Obligations of states and political subdivisions 38,740
—
38,740
—
Corporate bonds and notes 250
—
—
250
SBA loan pools 570
—
570
—
Corporate stocks 521
170
351
—
Total available for sale securities $ 303,402
$ 170
$ 302,982
$ 250

Trading assets $ 774
$ 774
$ —
$ —
Derivative assets 693
—
693
—

Financial Liabilities:
Derivative liabilities $ 761
$ —
$ 693
$ 68

There were no transfers between Level 1 and ~~nine-month periods~~Level 2 during the three month period ended ~~September 30, 2017. During~~March 31, 2022.

The Corporation transfers assets and liabilities between levels within the ~~year ended December 31, 2016,~~hierarchy when the methodology to obtain the fair value changes such that there are either more or fewer unobservable inputs as of the end of the reporting period. The Corporation transferred its investment in eight corporate ~~stocks with a fair market value of $158 thousand at the date of transfer (and $103 thousand at December 31, 2016)~~sub-debt issuances from Level 2 to Level ~~1 due~~3 in the three month period ended March 31, 2023. Illiquidity in new issuances of comparable bonds and the size of issuances led to pricing difficulties, and the ~~corporation's stock becoming publicly listed.~~transfer to Level 3 within the period. The Corporation utilizes a "beginning of reporting period" timing assumption when recognizing transfers between hierarchy levels, consistent with ASC 820-10-50-2.

The table below presents a reconciliation of all assets ~~and liabilities~~ measured at fair value on a recurring basis using ~~significant~~ unobservable inputs (Level 3) for the ~~three-month periods~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~September 30, 2016 (in thousands):~~March 31, 2022.


Corporate Bonds:	For the Three Months Ended
Level 3 Financial Assets	March 31, 2023		March 31, 2022
Balance of recurring Level 3 assets at January 1, 2023	$	—	$	—
Total gains and losses for the period:	—		—
Included in other comprehensive income	(1,289)		—
Transfer into Level 3	9,955		—
Balance of recurring Level 3 assets at March 31, 2023	$	8,666	$	—

Assets (Liabilities)
Corporate Bonds and Notes Derivative Liabilities
2017 2016 2017 2016
Balance of recurring Level 3 assets at July 1 $ 252
$ 256
$ (71 ) $ (120 )
Derivative instruments entered into —
—
—
—
Total gains or losses for the period:
Included in earnings - other non-interest income —
—
—
26
Included in other comprehensive income (10 ) (1 ) —
—
Transfers out of Level 3 (242 ) —
—
—
Balance of recurring Level 3 assets at September 30 $ —
$ 255
$ (71 ) $ (94 )

March 31, 2023

Fair Value

Valuation Techniques

Unobservable Input

Range (WA)

Corporate bonds and notes

8,666

Discounted cash flow

Market discount rate

12.00% -12.00% [12.00%]

~~The table below presents a reconciliation of all~~There were no financial assets ~~and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine month periods ended September 30, 2017 and September 30, 2016 (in thousands):~~

Assets (Liabilities)
Corporate Bonds and Notes Derivative Liabilities
2017 2016 2017 2016
Balance of recurring Level 3 assets at January 1 $ 250
$ 248
$ (68 ) $ (48 )
Derivative instruments entered into —
—
(1 ) (25 )
Total gains or losses for the period:
Included in earnings - other non-interest income —
—
(2 ) (21 )
Included in other comprehensive income (8 ) 7
—
—
Transfers out of Level 3 (242 ) —
—
—
Balance of recurring Level 3 assets at September 30 $ —
$ 255
$ (71 ) $ (94 )

~~The following table presents information related~~considered to ~~Level 3 recurring fair value measurements at September 30, 2017 and December 31, 2016 (in thousands):~~

Description Fair Value at
September 30,
2017 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at September 30, 2017
Derivative liabilities $ 71
Historical trend Credit default rate 5.15% - 5.15%
[5.15%]

Description Fair Value at
December 31,
2016 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at December 31, 2016
Corporate bonds and notes $ 250
Discounted cash flow Credit spread 1.73% - 1.73%
[1.73%]

Derivative liabilities $ 68
Historical trend Credit default rate 4.92% - 4.92%
[4.92%]

~~The Corporation used the following methods and significant assumptions to estimate fair value on a non-recurring basis:~~

~~Impaired Loans~~: At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting. For collateral dependent loans, fair value is commonly based on real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value ~~classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.~~

~~OREO~~: Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell. Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Assets in which the Corporation ~~has accepted a purchase offer are classified as Level 2.~~

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation. Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics. Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO. On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition.

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

Fair Value Measurement at September 30, 2017 Using
Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Impaired Loans:
Commercial and agricultural:
Commercial and industrial $ 85
$ —
$ —
$ 85
Commercial mortgages:
Commercial mortgages, other 3,157
—
—
3,157
Total impaired loans $ 3,242
$ —
$ —
$ 3,242
Other real estate owned:

Residential mortgages $ 179
$ —
$ —
$ 179
Total other real estate owned, net $ 179
$ —
$ —
$ 179

Fair Value Measurement at December 31, 2016 Using
Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3)
Impaired Loans:
Commercial mortgages:
Commercial mortgages, other $ 2,631
$ —
$ —
$ 2,631
Consumer loans:

Home equity lines and loans 219
—
—
219
Total impaired loans $ 2,850
$ —
$ —
$ 2,850
Other real estate owned:

Residential mortgages $ 344
$ —
$ —
$ 344
Total other real estate owned, net $ 344
$ —
$ —
$ 344

~~The following tables presents information related to Level 3 non-recurring fair value measurement at September 30, 2017 and~~ December 31, ~~2016 (in thousands):~~2022.

Description Fair Value at September 30, 2017 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at
September 30, 2017
Impaired loans:
Commercial and agricultural:
Commercial and industrial $ 85
Sales comparison Discount to appraised value 36.07%-36.07%
[36.07%]
Commercial mortgages:
Commercial mortgages, other 707
Sales comparison Discount to appraised value 10.00% - 44.52%
[20.34%]
2,450
Income approach Capitalization rate 9.00% - 10.00%
[9.52%]
$ 3,242

OREO:
Residential mortgages $ 179
Sales comparison Discount to appraised value 17.28% - 27.97%
[20.73%]
$ 179

Description Fair Value at December 31, 2016 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at
December 31, 2016
Impaired loans:
Commercial mortgages:
Commercial mortgages, other $ 2,631
Income approach Capitalization rate 9.00% - 10.00%
[9.52%]
Consumer loans:
Home equity lines and loans 219
Sales comparison Discount to appraised value 22.98% - 22.98%
[22.98%]
$ 2,850

OREO:
Residential mortgages $ 344
Sales comparison Discount to appraised value 20.80% - 48.17%
[30.50%]
$ 344

FAIR VALUE OF FINANCIAL INSTRUMENTS

~~The following methods and assumptions were used to estimate the fair value of each class of financial instruments not already discussed:~~

~~Cash and Due From Financial Institutions and Interest-Bearing Deposits in Other Financial Institutions~~

For those short-term instruments that generally mature in 90 days or less, the carrying value approximates fair value of which non-interest-bearing deposits are classified as Level 1 and interest-bearing deposits with the FHLBNY and FRBNY are classified as Level 1.

~~Securities Held to Maturity~~

~~For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3 inputs).~~

~~FHLBNY and FRBNY Stock~~

~~It is not practicable to determine the fair value of FHLBNY and FRBNY stock due to restrictions placed on its transferability.~~

~~Loans, Net~~

For variable-rate loans that reprice frequently, fair values approximate carrying values. The fair values for other loans are estimated through discounted cash flow analysis using interest rates currently being offered for loans with similar terms and credit quality. Loans are classified as Level 3. The methods utilized to estimate the fair value of loans do not necessarily represent an exit price.

~~Loans Held for Sale~~

~~Certain mortgage loans are originated with the intent to sell. Loans held for sale are recorded at the lower of cost or market and are classified as Level 2.~~

~~Deposits~~

The fair values disclosed for demand deposits, savings accounts and money market accounts are, by definition, equal to the amounts payable on demand at the reporting date (i.e., their carrying values) and classified as Level 1.

The fair value of certificates of deposits is estimated using a discounted cash flow approach that applies interest rates currently being offered on certificates to a schedule of the weighted-average expected monthly maturities and classified as Level 2.

~~Securities Sold Under Agreements to Repurchase~~

These instruments bear both variable and fixed rates of interest. Therefore, the carrying value approximates fair value for the variable rate instruments and the fair value of fixed rate instruments is based on discounted cash flows to maturity. These are classified as Level 2.

~~FHLBNY Overnight Advances and FHLBNY Term Advances~~

~~These instruments bear a stated rate of interest to maturity and, therefore, the fair value is based on discounted cash flows to maturity and classified as Level 2.~~

~~Accrued Interest Receivable and Payable~~

For these short-term instruments, the carrying value approximates fair value resulting in a classification of Level 1, Level 2 or Level 3 depending upon the classification of the asset/liability they are associated with.

The carrying amounts and estimated fair values of other financial instruments, at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, are as follows (in thousands):

September 30, 2017
Financial assets: Carrying Amount Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Estimated Fair Value
(1)
Cash and due from financial institutions $ 34,572
$ 34,572
$ —
$ —
$ 34,572
Interest-bearing deposits in other financial institutions 21,806
21,806
—
—
21,806
Trading assets 909
909
—
—
909
Securities available for sale 312,226
194
312,032
—
312,226
Securities held to maturity 3,865
—
1,831
2,030
3,861
FHLBNY and FRBNY stock 3,497
—
—
—
N/A
Loans, net 1,273,119
—
—
1,277,896
1,277,896
Loans held for sale 1,246
—
1,246
—
1,246
Accrued interest receivable 4,516
2
1,050
3,464
4,516
Derivative assets 670
—
670
—
670

Financial liabilities:

Deposits:

Demand, savings, and insured money market accounts $ 1,410,836
$ 1,410,836
$ —
$ —
$ 1,410,836
Time deposits 126,182
—
126,445
—
126,445
Securities sold under agreements to repurchase 10,000
—
10,117
—
10,117
FHLBNY term advances 9,009
—
9,030
—
9,030
Accrued interest payable 184
21
163
—
184
Derivative liabilities 741
—
670
71
741


	March 31, 2023
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	25,109	$	25,109	$	—	$	—	$	25,109
Interest-earning deposits in other financial institutions	9,532		9,532		—		—		9,532
Equity investments	2,949		2,949		—		—		2,949
Securities available for sale	626,055		56,328		561,061		8,666		626,055
Securities held to maturity	1,932		—		953		952		1,905
FHLBNY and FRBNY stock	7,913		—		—		—		N/A
Loans, net and loans held for sale	1,853,626		—		—		1,790,939		1,790,939
Accrued interest receivable	8,469		229		1,900		6,340		8,469
Derivative Assets	22,710		—		22,710		—		22,710
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,880,335	$	1,880,335	$	—	$	—	$	1,880,335
Time deposits	452,094		—		450,201		—		450,201



Accrued interest payable	1,500		73		1,427		—		1,500
Derivative Liabilities	22,776		—		22,776		—		22,776

(1) Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

December 31, 2016
Financial assets: Carrying Amount Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Estimated Fair Value
(1)
Cash and due from financial institutions $ 28,205
$ 28,205
$ —
$ —
$ 28,205
Interest-bearing deposits in other financial institutions 45,957
45,957
—
—
45,957
Trading assets 774
774
—
—
774
Securities available for sale 303,402
170
302,982
250
303,402
Securities held to maturity 4,705
—
981
3,931
4,912
FHLBNY and FRBNY stock 4,041
—
—
—
N/A
Loans, net 1,186,037
—
—
1,205,814
1,205,814
Loans held for sale 412
—
412
—
412
Accrued interest receivable 4,000
9
784
3,207
4,000
Derivative assets 693
—
693
—
693

Financial liabilities:

Deposits:

Demand, savings, and insured money market accounts $ 1,312,237
$ 1,312,237
$ —
$ —
$ 1,312,237
Time deposits 144,106
—
144,460
—
144,460
Securities sold under agreements to repurchase 27,606
—
27,880
—
27,880
FHLBNY term advances 9,093
—
9,189
—
9,189
Accrued interest payable 210
25
185
—
210
Derivative liabilities 761
—
693
68
761


	December 31, 2022
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	29,309	$	29,309	$	—	$	—	$	29,309
Interest-earning deposits in other financial institutions	26,560		26,560		—		—		26,560
Equity investments	2,830		2,830		—		—		2,830
Securities available for sale	632,589		55,574		577,015		—		632,589
Securities held to maturity	2,424		—		1,639		2,157		3,796
FHLBNY and FRBNY stock	8,197		—		—		—		N/A
Loans, net and loans held for sale	1,809,789		—		—		1,757,171		1,757,171

Accrued interest receivable	8,682		132		2,002		6,548		8,682
Derivative Asset	27,141		—		27,141		—		27,141
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,924,843	$	1,924,843	$	—	$	—	$	1,924,843
Time deposits	402,384		—		403,572		—		403,572



Accrued interest payable	864		64		800		—		864
Derivative Liabilities	27,196		—		27,196		—		27,196

NOTE 6 LEASES

Operating Leases

The Corporation leases certain branch properties under long-term, operating lease agreements. The leases expire at various dates through 2033 and generally include renewal options. As of March 31, 2023, the weighted average remaining lease term was 8.43 years with a weighted average discount rate of 3.36%. Rent expense was $0.2 million for the three months ended March 31, 2023. Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements. The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees.

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


	March 31, 2023		December 31, 2022
Operating lease right-of-use asset	$	6,449	$	7,234
Less: accumulated amortization	(199)		(785)
Less: lease termination	—		—
Add: new lease agreement and modifications	—		—
Operating lease right-of-use-assets, net	$	6,250	$	6,449

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of March 31, 2023 (in thousands):


Year	Amount
2023	$	747
2024	924
2025	841
2026	845
2027	854
2028 and thereafter	3,169
Total minimum lease payments	7,380
Less: amount representing interest	(953)
Present value of net minimum lease payments	$	6,427

As of March 31, 2023, the Corporation had no operating leases that were signed, but had not yet commenced.

Finance Leases

The Corporation leases certain buildings under finance leases. The lease arrangements require monthly payments through 2036. As of March 31, 2023, the weighted average remaining lease term was 9.99 years with a weighted average discount rate of 3.40%. The Corporation has included these leases in premises and equipment as of March 31, 2023 and December 31, 2022 as follows (in thousands):


	March 31, 2023		December 31, 2022
Buildings	$	5,572	$	5,572
Less: accumulated depreciation	(2,457)		(2,540)
Net book value	$	3,115	$	3,032

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of March 31, 2023 (in thousands):


Year	Amount
2023	$	293
2024	391
2025	409
2026	425
2027	428
2028 and thereafter	1,988
Total minimum lease payments	3,934
Less: amount representing interest	(676)
Present value of net minimum lease payments	$	3,258

As of March 31, 2023, the Corporation had no finance leases that were signed, but had not yet commenced.

Related Party Transactions

The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July, 2024 from a former member of the Corporation's Board of Directors with monthly rent and CAM related expenses totaling $4 thousand per month. This Board member retired from the Corporation's Board of Directors as of June 7, 2022. Rent and CAM paid to this Board member while serving on the Board totaled $13 thousand for the three month period ended March 31, 2022.

The Bank leases its branch located at 2 Rush Street, Schenectady, New York, under a lease agreement through February, 2033 from a member of the Corporation's Board of Directors with monthly rent and CAM related expenses totaling $9 thousand per month. Rent and CAM related expenses paid to this Board member totaled $26 thousand for each of the three month periods ended March 31, 2023 and 2022.

NOTE 67 GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 were as follows (in thousands):


	2023		2022
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance March 31,	$	21,824	$	21,824

2017 2016
Beginning of year $ 21,824
$ 21,824
Acquired goodwill —
—
Ending balance September 30, $ 21,824
$ 21,824

~~Acquired intangible assets were as follows at September 30, 2017 and December 31, 2016 (in thousands):~~

At September 30, 2017 At December 31, 2016
Balance Acquired Accumulated Amortization Balance Acquired Accumulated Amortization
Core deposit intangibles $ 5,975
$ 5,077
$ 5,975
$ 4,689
Other customer relationship intangibles 5,633
4,239
5,633
3,974
Total $ 11,608
$ 9,316
$ 11,608
$ 8,663

~~Aggregate~~The Corporation had no aggregate amortization expense ~~was $0.2 million~~ for ~~both of~~ the three month ~~periods~~period ended ~~September 30, 2017~~March 31, 2023, and ~~2016. Aggregate amortization expense was $0.7 million~~$11 thousand for ~~both~~the three month period ended March 31, 2022. As of ~~the nine month periods ended September 30, 2017 and 2016.~~

~~The~~March 31, 2023, there is no remaining estimated aggregate amortization ~~expense~~expense.

The amount of goodwill reflected in the Corporation's Unaudited Consolidated Financial statements is required to be tested by management for impairment on at ~~September 30, 2017~~least an annual basis. Goodwill impairment testing is ~~listed below (in thousands):~~

Year Estimated Expense
2017 $ 207
2018 734
2019 609
2020 484
2021 258
Total $ 2,292

~~NOTE 7 SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE~~

~~A summary of securities sold under agreements to repurchase~~performed annually as of ~~September 30, 2017 and~~ December 31 ~~2016 is as follows (in thousands):~~and no impairment charges were incurred.

September 30, 2017
Overnight and Continuous Up to 1 Year 1 - 3 Years 3+ Years Total
Mortgage-backed securities, residential $ —
$ 12,536
$ —
$ —
$ 12,536
Excess collateral held —
(2,536 ) —
—
(2,536 )
Gross amount of recognized liabilities for repurchase agreements $ —
$ 10,000
$ —
$ —
$ 10,000

December 31, 2016
Overnight and Continuous Up to 1 Year 1 - 3 Years 3+ Years Total
Obligations of U.S. Government and U.S. Government sponsored enterprises $ —
$ 1,276
$ —
$ —
$ 1,276
Mortgage-backed securities, residential 13,092
9,664
14,244
—
37,000
Total 13,092
10,940
14,244
—
38,276
Excess collateral held (5,486 ) (940 ) (4,244 ) —
(10,670 )
Gross amount of recognized liabilities for repurchase agreements $ 7,606
$ 10,000
$ 10,000
$ —
$ 27,606

The Corporation enters into sales of securities under agreements to repurchase and the amounts received under these agreements represent borrowings and are reflected as a liability in the consolidated balance sheets. The securities underlying these agreements are included in investment securities in the consolidated balance sheets.

The Corporation has no control over the market value of the securities which fluctuate due to market conditions, however, the Corporation is obligated to promptly transfer additional securities if the market value of the securities falls below the repurchase agreement price. The Corporation manages this risk by utilizing highly marketable and easily priced securities, monitoring these securities for significant changes in market valuation routinely, and maintaining an unpledged securities portfolio believed to be sufficient to cover a decline in the market value of the securities sold under agreements to repurchase.

~~NOTE 8 ACCUMULATED OTHER COMPREHENSIVE LOSS~~

Accumulated other comprehensive loss represents the net unrealized holding gains or losses on securities available for sale and the funded status of the Corporation's defined benefit pension plan and other benefit plans, as of the consolidated balance sheet dates, net of the related tax effect.

~~The following is a summary of the changes in accumulated other comprehensive loss by component, net of tax, for the periods indicated (in thousands):~~

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at July 1, 2017 $ (615 ) $ (6,357 ) $ (6,972 )
Other comprehensive income before reclassification (324 ) —
(324 )
Amounts reclassified from accumulated other comprehensive income —
21
21
Net current period other comprehensive income (loss) (324 ) 21
(303 )
Balance at September 30, 2017 $ (939 ) $ (6,336 ) $ (7,275 )

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at July 1, 2016 $ 3,152
$ (10,687 ) $ (7,535 )
Other comprehensive loss before reclassification (456 ) —
(456 )
Amounts reclassified from accumulated other comprehensive income (47 ) 233
186
Net current period other comprehensive income (loss) (503 ) 233
(270 )
Balance at September 30, 2016 $ 2,649
$ (10,454 ) $ (7,805 )

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at January 1, 2017 $ (4,356 ) $ (6,398 ) $ (10,754 )
Other comprehensive income before reclassification 3,425
—
3,425
Amounts reclassified from accumulated other comprehensive income (8 ) 62
54
Net current period other comprehensive gain 3,417
62
3,479
Balance at September 30, 2017 $ (939 ) $ (6,336 ) $ (7,275 )

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at January 1, 2016 $ 210
$ (11,152 ) $ (10,942 )
Other comprehensive income before reclassification 3,051
—
3,051
Amounts reclassified from accumulated other comprehensive income (612 ) 698
86
Net current period other comprehensive gain (loss) 2,439
698
3,137
Balance at September 30, 2016 $ 2,649
$ (10,454 ) $ (7,805 )

Details about Accumulated Other Comprehensive Income Components Three Months Ended
September 30, Affected Line Item
in the Statement Where
Net Income is Presented
2017 2016
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale $ —
$ (75 ) Net gains (losses) on securities transactions
Tax effect —
28
Income tax expense
Net of tax —
(47 )
Amortization of defined pension plan and other benefit plan items:

Prior service costs (a) (55 ) (22 ) Pension and other employee benefits
Actuarial losses (a) 88
396
Pension and other employee benefits
Tax effect (12 ) (141 ) Income tax expense
Net of tax 21
233

Total reclassification for the period, net of tax $ 21
$ 186

~~(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 10 for additional information).~~

Details about Accumulated Other Comprehensive Income Components Nine Months Ended
September 30, Affected Line Item
in the Statement Where
Net Income is Presented
2017 2016
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale $ (12 ) $ (983 ) Net gains (losses) on securities transactions
Tax effect 4
371
Income tax expense
Net of tax (8 ) (612 )
Amortization of defined pension plan and other benefit plan items:

Prior service costs (a) (165 ) (67 ) Pension and other employee benefits
Actuarial losses (a) 264
1,188
Pension and other employee benefits
Tax effect (37 ) (423 ) Income tax expense
Net of tax 62
698

Total reclassification for the period, net of tax $ 54
$ 86

~~(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 10 for additional information).~~

NOTE 98COMMITMENTS AND CONTINGENCIES

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

In conjunction with the Corporation's adoption of ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), an allowance for credit losses on unfunded commitments was established as of January 1, 2023, to comply with the accounting standard requirements. As of March 31, 2023, the allowance for credit losses on unfunded commitments was $1.0 million.

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 (in thousands):

On ~~March 23, 2016,~~February 4, 2020, the Corporation filed a lawsuit against Pioneer Bank, ~~received a summons and complaint for an action brought~~Albany, New York, in the Supreme Court of the State of New York ~~Supreme Court for~~in the County of ~~Tompkins, regarding its lease~~Albany. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, the Bank owns a participating interest totaling $4.2 million in an approximately $36.0 million commercial credit facility on which the borrower defaulted due to fraudulent activity. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Corporation received a recovery of ~~202 East State Street, Ithaca, NY. The owner~~$0.5 million in April, 2020, and continues to pursue recovery of the ~~leased premises has alleged that~~remaining $3.7 million and accumulated expenses as a result of purchasing the Bank has breached its contract and is requesting a judgment declaring that the term of the lease runs through December 31, 2025 or a judgment in his favor in the amount of $4.0 million. On July 25, 2016, the Corporation received Notice of Entry of the decision and order of the New York Supreme Court for the County of Tompkins, against the Bank. The Court granted, in part, partial summary judgment in favor of the plaintiff - on the issue of liability only- for anticipatory breach and breach of contract. The fraud claims were dismissed, and summary judgment was denied on the plaintiff’s trespass claims. The Court set the matter down for an inquest on damages at a later date, with the original claim by the plaintiff seeking $4.0 million in damages. The Corporation established a legal reserve of $1.2 million in connection with this case during the second quarter of 2016.participation interest.

Subsequent to an appeal of the lower court determination, which was perfected in the Appellate Division, Third Department of State Supreme Court, on June 29, 2017, the Bank received Notice of Entry of the decision and Order of that Court which affirmed the lower court’s decision in favor of the plaintiff with damages to be determined at a later proceeding. The Bank established an additional legal reserve in the amount of $850 thousand, in connection with this case, during the second quarter of 2017. The Bank’s total reserve with respect to this matter now stands at $2.3 million, including $0.2 million accrued for related expenses not yet paid. A motion to the Appellate Division for reargument or permission for leave to appeal to the Court of Appeals has been filed and a determination on that is pending.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries. ~~Except for the above matter,~~As of March 31, 2023, we believe that we are not a party to any additional pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

Accumulated other comprehensive income (loss) represents the net unrealized holding gains or losses on securities available for sale and the funded status of the Corporation's defined benefit pension plan and other benefit plans, as of the consolidated balance sheet dates, net of the related tax effect.

The following is a summary of the changes in accumulated other comprehensive income (loss) by component, net of tax, for the periods indicated (in thousands):


	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans		Total
Balance at January 1, 2022	$	(2,495)	$	(4,035)	$	(6,530)


Other comprehensive income before reclassification	(31,087)		—		(31,087)
Amounts reclassified from accumulated other comprehensive income	—		12		12
Net current period other comprehensive income (loss)	(31,087)		12		(31,075)
Balance at March 31, 2022	$	(33,582)	$	(4,023)	$	(37,605)

All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following tables present the Corporation's non-interest income by revenue stream and reportable segment for the three months ended March 31, 2023 and 2022 (in thousands). Items outside the scope of ASC 606 are noted as such.


	Three Months Ended March 31, 2023
Revenue by Operating Segment: Non-interest income	Core Banking		WMG		Holding Company, CFS, and CRM(b)		Total
Service charges on deposit accounts
Overdraft fees	$	714	$	—	$	—	$	714
Other	227		—		—		227
Interchange revenue from debit card transactions	1,133		—		—		1,133
WMG fee income	—		2,580		—		2,580
CFS fee and commission income	—		—		241		241
Net gains (losses) on sales of OREO	—		—		—		—
Net gains on sales of loans(a)	5		—		—		5
Loan servicing fees(a)	36		—		—		36

Changes in fair value of equity investments(a)	78		—		(6)		72
Income from bank-owned life insurance(a)	10		—		—		10
Other(a)	448		—		(43)		405
Total non-interest income (loss)	$	2,651	$	2,580	$	192	$	5,423

(a) Not within scope of ASC 606.

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


	Three Months Ended March 31, 2022
Revenue by Operating Segment: Non-interest income	Core Banking		WMG		Holding Company, CFS, and CRM(b)		Total
Service charges on deposit accounts
Overdraft fees	$	673	$	—	$	—	$	673
Other	191		—		—		191
Interchange revenue from debit card transactions	1,130		—		—		1,130
WMG fee income	—		2,757		—		2,757
CFS fee and commission income	—		—		253		253

Net gains on sales of loans(a)	74		—		—		74
Loan servicing fees(a)	39		—		—		39

Changes in fair value of equity investments(a)	(114)		—		1		(113)
Income from bank-owned life insurance(a)	11		—		—		11
Other(a)	689		—		(41)		648
Total non-interest income	$	2,693	$	2,757	$	213	$	5,663

(a) Not within scope of ASC 606.

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

A description of the Corporation's revenue streams accounted for under ASC 606 follows:

Service Charges on Deposit Accounts: The Corporation earns fees from its deposit customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees, which included services such as ATM use fees, stop payment charges, statement rendering, and ACH fees, are recognized at the time the transaction is executed as that is the point in time the Corporation fulfills the customer's request. Account maintenance fees, which relate primarily to monthly maintenance, are recognized at the time the maintenance occurs. Overdraft fees are recognized at the point in time that the overdraft occurs. Service charges on deposits are withdrawn from the customer's account balance.

Interchange Income from Debit Card Transactions: The Corporation earns interchange fees from debit cardholder transactions conducted through the MasterCard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with transaction processing services provided to the cardholder.

WMG Fee Income (Gross): The Corporation earns wealth management fees from its contracts with customers to manage assets for investment, and/or to conduct transactions on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at quarter-end.

CFS Fee and Commission Income (Net): The Corporation earns fees from investment brokerage services provided to its customers by a third-party service provider. The Corporation receives commissions from the third-party service provider on a monthly basis based upon customer activity for the month. The Corporation (i) acts as an agent in arranging the relationship between the customer and the third-party service provider and (ii) does not control the services rendered to the customers. Investment brokerage fees are presented net of related costs. The Corporation also earns fees from tax services provided to its customers.

Net Gains/Losses on Sales of OREO: The Corporation records a gain or loss from the sale of OREO when control of the property transfers to the buyer, which generally occurs at the time of an executed deed. When the Corporation finances the sale of OREO to the buyer, the Corporation assesses whether the buyer is committed to perform their obligations under the contract and whether collectability of the transaction price is probable. Once these criteria are met, the OREO asset is derecognized and the gain or loss on sale is recorded upon the transfer of control of the property to the buyer. In determining the gain or loss on the sale, the Corporation adjusts the transaction price and related gain (loss) on sale if a significant financing component is present.

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

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Qualified Pension Plan
Service cost, benefits earned during the period $ —
$ 298
$ —
$ 892
Interest cost on projected benefit obligation 403
470
1,209
1,410
Expected return on plan assets (785 ) (756 ) (2,355 ) (2,267 )
Amortization of unrecognized transition obligation —
—
—
—
Amortization of unrecognized prior service cost —
1
—
5
Amortization of unrecognized net loss 58
383
174
1,150
Net periodic pension cost (benefit) $ (324 ) $ 396
$ (972 ) $ 1,190

Supplemental Pension Plan

Service cost, benefits earned during the period $ —
$ 11
$ —
$ 32
Interest cost on projected benefit obligation 12
13
36
39
Expected return on plan assets —
—
—
—
Amortization of unrecognized prior service cost —
—
—
—
Amortization of unrecognized net loss 1
6
3
19
Net periodic supplemental pension cost $ 13
$ 30
$ 39
$ 90

Postretirement Plan, Medical and Life

Service cost, benefits earned during the period $ —
$ 11
$ —
$ 35
Interest cost on projected benefit obligation 3
18
11
53
Expected return on plan assets —
—
—
—
Amortization of unrecognized prior service cost (55 ) (23 ) (165 ) (72 )
Amortization of unrecognized net loss 29
7
87
19
Net periodic postretirement, medical and life cost (benefit) $ (23 ) $ 13
$ (67 ) $ 35

NOTE 1112 SEGMENT REPORTING

The Corporation manages its operations through two primary business segments: core banking and WMG. The core banking segment provides revenues by attracting deposits from the general public and using such funds to originate consumer, commercial, commercial real estate, and residential mortgage loans, primarily in the Corporation’s local markets, and to invest in securities. The WMG services segment provides revenues by providing trust and investment advisory services to clients.

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s ~~2016~~2022 Annual Report on Form 10-K, which was filed with the SEC on March ~~8, 2017.~~22, 2023. Summarized financial information concerning the Corporation’s reportable segments and the reconciliation to the Corporation’s consolidated results are shown in the following table. Income taxes are allocated based on the separate taxable income of each entity and indirect overhead expenses are allocated based on reasonable and equitable allocations applicable to the reportable segment. ~~CFS amounts are the primary differences between segment amounts and consolidated totals, and are reflected in the~~

The Holding Company, CFS, and CRM ~~column~~columns below ~~along with~~include amounts to eliminate transactions between ~~those~~ segments (in thousands).


	Three months ended March 31, 2023
	Core Banking		WMG		Holding Company, CFS, and CRM		Consolidated Totals
Interest and dividend income	$	26,203	$	—	$	27	$	26,230
Interest expense	6,283		—		—		6,283
Net interest income	19,920		—		27		19,947
Provision for credit losses	277		—		—		277
Net interest income after provision for credit losses	19,643		—		27		19,670
Other non-interest income	2,651		2,580		192		5,423

Other non-interest expenses	13,696		1,798		342		15,836
Income (loss) before income tax expense (benefit)	8,598		782		(123)		9,257
Income tax expense (benefit)	1,831		177		(21)		1,987
Segment net income (loss)	$	6,767	$	605	$	(102)	$	7,270

Segment assets	$	2,644,158	$	8,311	$	1,714	$	2,654,183


	Three months ended March 31, 2022
	Core Banking		WMG		Holding Company, CFS, and CRM		Consolidated Totals
Interest and dividend income	$	17,451	$	—	$	7	$	17,458
Interest expense	781		—		—		781
Net interest income	16,670		—		7		16,677
Provision for credit losses	(1,145)		—		—		(1,145)
Net interest income after provision for credit losses	17,815		—		7		17,822
Other non-interest income	2,693		2,757		213		5,663

Other non-interest expenses	12,531		1,815		322		14,668
Income (loss) before income tax expense (benefit)	7,977		942		(102)		8,817
Income tax expense (benefit)	1,766		209		(25)		1,950
Segment net income (loss)	$	6,211	$	733	$	(77)	$	6,867

Segment assets	$	2,463,194	$	8,620	$	3,081	$	2,474,895

Three months ended September 30, 2017
Core Banking WMG Holding Company, CFS, and CRM Consolidated Totals
Interest and dividend income $ 15,487
$ —
$ 10
$ 15,497
Interest expense 734
—
—
734
Net interest income 14,753
—
10
14,763
Provision for loan losses 1,289
—
—
1,289
Net interest income after provision for loan losses 13,464
—
10
13,474
Other non-interest income 2,989
2,147
30
5,166
Legal accruals and settlements —
—
—
—
Other non-interest expenses 11,651
1,370
255
13,276
Income (loss) before income tax expense (benefit) 4,802
777
(215 ) 5,364
Income tax expense (benefit) 1,457
295
(42 ) 1,710
Segment net income (loss) $ 3,345
$ 482
$ (173 ) $ 3,654

Three months ended September 30, 2016
Core Banking WMG Holding Company, CFS, and CRM Consolidated Totals
Interest and dividend income $ 14,022
$ —
$ 3
$ 14,025
Interest expense 985
—
—
985
Net interest income 13,037
—
3
13,040
Provision for loan losses 1,050
—
—
1,050
Net interest income after provision for loan losses 11,987
—
3
11,990
Other non-interest income 3,240
2,027
168
5,435
Legal accruals and settlements —
—
—
—
Other non-interest expenses 11,888
1,293
290
13,471
Income (loss) before income tax expense (benefit) 3,339
734
(119 ) 3,954
Income tax expense (benefit) 974
277
(42 ) 1,209
Segment net income (loss) $ 2,365
$ 457
$ (77 ) $ 2,745

Nine months ended September 30, 2017
Core Banking WMG Holding Company, CFS, and CRM Consolidated Totals
Interest and dividend income $ 44,478
$ —
$ 17
$ 44,495
Interest expense 2,288
—
—
2,288
Net interest income 42,190
—
17
42,207
Provision for loan losses 2,750
—
—
2,750
Net interest income after provision for loan losses 39,440
—
17
39,457
Other non-interest income 8,228
6,525
282
15,035
Legal settlements 850
—
—
850
Other non-interest expenses 34,795
4,142
866
39,803
Income (loss) before income tax expense (benefit) 12,023
2,383
(567 ) 13,839
Income tax expense (benefit) 3,523
904
(177 ) 4,250
Segment net income (loss) $ 8,500
$ 1,479
$ (390 ) $ 9,589

Segment assets $ 1,721,571
$ 4,112
$ 5,999
$ 1,731,682

Nine months ended September 30, 2016
Core Banking WMG Holding Company, CFS, and CRM Consolidated Totals
Interest and dividend income $ 41,893
$ —
$ 6
$ 41,899
Interest expense 2,866
—
—
2,866
Net interest income 39,027
—
6
39,033
Provision for loan losses 2,033
—
—
2,033
Net interest income after provision for loan losses 36,994
—
6
37,000
Other non-interest income 9,516
6,240
496
16,252
Legal accruals and settlements 1,200
—
—
1,200
Other non-interest expenses 36,605
4,251
993
41,849
Income (loss) before income tax expense (benefit) 8,705
1,989
(491 ) 10,203
Income tax expense (benefit) 2,591
751
(212 ) 3,130
Segment net income (loss) $ 6,114
$ 1,238
$ (279 ) $ 7,073

Segment assets $ 1,721,739
$ 4,398
$ 2,728
$ 1,728,865

NOTE 1213 STOCK COMPENSATION

~~Board~~Pursuant to the Corporation's 2021 Equity Incentive Plan (the "2021 Plan") the Corporation may make discretionary grants of ~~Directors' Stock Compensation~~

~~Members~~restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the 2021 Plan, the chief executive officer and members of the Board of ~~Directors receive common~~Directors. Awards are based on the performance, responsibility and contributions of the individual and are targeted at an average of the peer group. The maximum number of shares of the ~~Corporation equal in value~~Corporation’s common stock that may be awarded as restricted shares related to the ~~amount~~2021 Plan may not exceed 170,000, upon which time a new plan may be created. Compensation expense for shares granted will be recognized over the vesting period of ~~fees individually earned during~~ the ~~previous year for service as a director. The common shares are distributed to~~award based upon the average closing price of the Corporation's ~~individual board members from treasury shares~~stock for each of the ~~Corporation~~prior 30 trading days ending on ~~or about January 15 following~~ the ~~calendar year of service.~~grant date.

Additionally, the Chief Executive Officer of the Corporation, who does not receive cash compensation as a member of the Board of Directors, is awarded common shares equal in value to the average of those awarded to board members not employed by the Corporation who have served for 12 months during the prior year.

During ~~January 2017~~the three months ended March 31, 2023 and ~~2016, 7,880~~2022, 13,069 and ~~9,532~~12,560 shares, respectively, were re-issued from treasury to fund ~~the~~ stock ~~component of directors'~~ compensation. AnThe expense ~~of $68 thousand and $65 thousand~~ related to ~~this compensation~~the grants made in the first quarter of 2023 is recognized over a one year vesting period. Total expense related to the 2021 Plan of $0.4 million and $0.3 million was recognized during each of the ~~three-month periods ended September 30, 2017 and 2016, respectively. An expense of $222 thousand and $200 thousand related to this compensation was recognized during the nine~~three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. ~~This expense is accrued as shares are earned.~~

~~Restricted Stock Plan~~

Pursuant to the Corporation’s Restricted Stock Plan, the Corporation may make discretionary grants of restricted stock to officers other than the Corporation's Chief Executive Officer. Compensation expense is recognized over the vesting period of the awards based on the fair value of the stock at issue date.

A summary of restricted stock activity for the three ~~month period~~months ended ~~September 30, 2017~~March 31, 2023 is presented below:


	Shares	Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2023	55,402	$44.57
Granted	13,069	$45.89
Vested	(14,143)	$45.38
Forfeited or cancelled	—	$—
Nonvested at March 31, 2023	54,328	$43.77

Shares Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2017 22,240
$ 29.96
Granted —
—
Vested —
—
Forfeited or cancelled —
—
Nonvested at September 30, 2017 22,240
$ 29.96

~~A summary of restricted stock activity for the nine month period ended September 30, 2017 is presented below:~~

Shares Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2017 23,794
$ 29.90
Granted —
—
Vested (415 ) 26.59
Forfeited or cancelled (1,139 ) 29.97
Nonvested at September 30, 2017 22,240
$ 29.96

As of ~~September 30, 2017,~~March 31, 2023, there was ~~$504 thousand~~$1.9 million of total unrecognized compensation cost related to nonvested shares granted under the 2021 Plan. The cost is expected to be recognized over a weighted-average period of ~~3.21~~3.79 years. The total fair value of shares vested was ~~$16 thousand~~$0.6 million and ~~$17 thousand~~$0.1 million for the ~~nine~~three month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively. Due to the adoption of the 2021 Plan, certain grants were transitioned to a one-year vesting period.

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

Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s ~~2016~~2022 Annual Report on Form 10-K, which was filed with the SEC on March ~~8, 2017,~~22, 2023, for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 3–5.6.

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,~~uncertainties, see Forward-looking Statements below, ~~and~~in Part I, Item 1A, Risk ~~Factors,~~Factors and on pages ~~17–22~~20–31 of the Corporation’s ~~2016 Annual Report.~~2022 Form 10-K. For a discussion of the use of non-GAAP financial measures, see pages ~~60–63~~63-66 of the Corporation's ~~2016 Annual Report or~~2022 Form 10-K, and pages ~~70-73~~63-66 in this Form 10-Q.

The Corporation has been a financial holding company since 2000, the Bank was established in 1833, CFS in 2001, and CRM in 2016. 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. CRM is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

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 ~~promise~~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, cyber security risks, difficulties in managing the Corporation’s growth, recent bank failures, changes in FDIC assessments, competition, changes in law or the regulatory environment, ~~including the Dodd-Frank Act,~~ 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 ~~2016~~2022 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, 2022, and in Note 1-"Summary of Significant Accounting Policies" of this Form 10-Q.

Allowance for Credit Losses

The allowance for credit losses (ACL) is management’s estimate of expected lifetime credit losses on financial instruments identified as possessing potential credit risk. The ACL on loans is established through a provision for credit losses recognized in the Corporation’s Consolidated Statements of Income. Additionally, the ACL on loans is reduced by charge-offs and increased by recoveries of amounts previously charged-off. The level of the ACL 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.

Because the methodology is based upon historical experience and trends, current economic data, reasonable and supportable forecasts, as well as management’s judgment, factors may arise that result in different estimations. Deteriorating conditions or assumptions could lead to further required increases in the ACL; conversely, improving conditions or assumptions could lead to further reductions in the ACL. In estimating the ACL, 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. Given the concentration of ACL allocation to the total commercial real estate and commercial and industrial portfolios, and the significant judgments made by management in deriving the qualitative loss factors, management analyzed the impact that changes in judgments could have.

At March 31, 2023 the allowance for credit losses totaled $20.1 million, compared to an allowance for loan losses of $19.7 million at December 31, 2022. A significant portion of the ACL is allocated to the commercial portfolio (both CRE and C&I). As of March 31, 2023 and December 31, 2022, the ACL (ALLL for December 31, 2022), allocated to the total commercial portfolio was $15.0 million for each period, or 74.9%, and 76.0%, respectively.

The range of impact was an ACL allocated to the total commercial loan portfolio between $11.9 million and $19.7 million at March 31, 2023. The sensitivity and related range of impact is a hypothetical analysis based on a diverse set of potential scenarios, and is not intended to represent management’s judgments or assumptions of qualitative loss factors that were utilized at March 31, 2023 in the estimation of the ACL on loans recognized on the Consolidated Balance Sheets. Estimates nearing the higher end of the impact range imply adverse conditions where the underlying assumptions regarding anticipated default are significantly decoupled from changes in the economic indicators underlying the quantitative portion of the model. These conditions could arise from a variety of occurrences, including but not limited to bubbles in specific asset classes, changes in economic conditions that are highly localized or region specific, significant legislative or regulatory action, and systemic changes to the organization.

Consolidated Financial Highlights




	As of or for the Three Months Ended
	Mar. 31			Dec. 31			Sept. 30,			June 30,			Mar. 31
(in thousands, except per share data)	2023			2022			2022			2022			2022
RESULTS OF OPERATIONS
Interest income	$	26,230		$	18,538		$	20,999		$	18,538		$	17,458
Interest expense	6,283			897			2,009			897			781
Net interest income	19,947			17,641			18,990			17,641			16,677
Provision for credit losses	277			(1,744)			1,255			(1,744)			(1,145)
Net interest income after provision for credit losses	19,670			19,385			17,735			19,385			17,822
Non-interest income	5,423			5,319			5,036			5,319			5,663
Non-interest expense	15,836			14,342			14,577			14,342			14,668
Income before income tax expense	9,257			10,362			8,194			10,362			8,817
Income tax expense	1,987			2,338			1,741			2,338			1,950
Net income	$	7,270		$	8,024		$	6,453		$	8,024		$	6,867

Basic and diluted earnings per share	$	1.54		$	1.58		$	1.37		$	1.72		$	1.46
Average basic and diluted shares outstanding	4,721			4,698			4,692			4,690			4,689

PERFORMANCE RATIOS - Annualized
Return on average assets	1.12		%	1.15		%	1.02		%	1.32		%	1.14		%
Return on average equity	16.97		%	18.36		%	14.17		%	18.06		%	13.68		%
Return on average tangible equity (a)	19.40		%	21.25		%	16.12		%	20.58		%	15.32		%
Efficiency ratio (unadjusted) (a) (f)	62.42		%	59.69		%	60.67		%	62.47		%	65.66		%
Efficiency ratio (adjusted) (a) (b)	62.18		%	59.44		%	60.40		%	62.17		%	65.32		%
Non-interest expense to average assets	2.44		%	2.42		%	2.30		%	2.35		%	2.43		%
Loans to deposits	80.33		%	78.61		%	74.71		%	74.11		%	69.64		%





YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	4.90		%	4.57		%	4.19		%	3.90		%	3.84		%
Yield on investments	2.18		%	2.09		%	1.72		%	1.60		%	1.47		%
Yield on interest-earning assets	4.12		%	3.82		%	3.41		%	3.12		%	3.00		%
Cost of interest-bearing deposits	1.34		%	0.93		%	0.47		%	0.21		%	0.20		%
Cost of borrowings	4.91		%	4.30		%	2.56		%	1.70		%	3.77		%
Cost of interest-bearing liabilities	1.49		%	0.88		%	0.51		%	0.24		%	0.21		%
Interest rate spread	2.63		%	2.94		%	2.90		%	2.88		%	2.79		%
Net interest margin, fully taxable equivalent (a)	3.14		%	3.26		%	3.08		%	2.97		%	2.87		%

CAPITAL
Total equity to total assets at end of period	6.68		%	6.29		%	6.10		%	7.13		%	7.50		%
Tangible equity to tangible assets at end of period (a)	5.91		%	5.51		%	5.29		%	6.30		%	6.67		%


Book value per share	$	37.53		$	35.32		$	33.14		$	37.24		$	39.56
Tangible book value per share (a)	32.91			30.69			28.49			32.59			34.91
Period-end market value per share	41.50			45.87			41.87			47.00			46.69
Dividends declared per share	0.31			0.31			0.31			0.31			0.31

AVERAGE BALANCES
Loans and loans held for sale (c)	$	1,849,310		$	1,787,103		$	1,675,859		$	1,587,777		$	1,532,445
Earning assets	2,592,709			2,550,834			2,457,218			2,395,704			2,371,275
Total assets	2,627,088			2,574,639			2,511,301			2,446,763			2,451,944
Deposits	2,337,476			2,347,719			2,257,394			2,203,231			2,211,442
Total equity	173,786			160,740			180,644			178,207			203,613
Tangible equity (a)	151,962			138,916			158,820			156,382			181,778

As of or for the
As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share data) 2017 2017 2017 2016 2016 2017 2016
RESULTS OF OPERATIONS
Interest income $ 15,497
$ 14,684
$ 14,314
$ 14,269
$ 14,025
$ 44,495
$ 41,899
Interest expense 734
734
820
973
985
2,288
2,866
Net interest income 14,763
13,950
13,494
13,296
13,040
42,207
39,033
Provision for loan losses 1,289
421
1,040
404
1,050
2,750
2,033
Net interest income after provision for loan losses 13,474
13,529
12,454
12,892
11,990
39,457
37,000
Non-interest income 5,166
5,022
4,847
4,897
5,435
15,035
16,252
Non-interest expense 13,276
14,332
13,045
13,561
13,471
40,653
43,049
Income before income tax expense 5,364
4,219
4,256
4,228
3,954
13,839
10,203
Income tax expense 1,710
1,263
1,277
1,274
1,209
4,250
3,130
Net income $ 3,654
$ 2,956
$ 2,979
$ 2,954
$ 2,745
$ 9,589
$ 7,073

Basic and diluted earnings per share $ 0.76
$ 0.62
$ 0.62
$ 0.62
$ 0.58
$ 2.00
$ 1.49
Average basic and diluted shares outstanding 4,802
4,797
4,790
4,773
4,765
4,796
4,758

PERFORMANCE RATIOS
Return on average assets 0.85 % 0.69 % 0.71 % 0.69 % 0.65 % 0.75 % 0.57 %
Return on average equity 9.46 % 7.90 % 8.24 % 8.20 % 7.55 % 8.54 % 6.62 %
Return on average tangible equity (a) 11.24 % 9.43 % 9.90 % 9.92 % 9.14 % 10.21 % 8.05 %
Efficiency ratio (a) (b) 64.83 % 69.28 % 69.25 % 72.63 % 71.28 % 67.72 % 75.03 %
Non-interest expense to average assets 3.09 % 3.34 % 3.12 % 3.18 % 3.20 % 3.18 % 3.47 %
Loans to deposits 83.85 % 82.14 % 79.93 % 82.42 % 80.62 % 83.85 % 80.62 %

YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 4.34 % 4.18 % 4.19 % 4.16 % 4.16 % 4.24 % 4.18 %
Yield on investments 2.16 % 2.01 % 2.00 % 1.75 % 1.73 % 2.05 % 1.86 %
Yield on interest-earning assets 3.86 % 3.65 % 3.66 % 3.57 % 3.58 % 3.72 % 3.63 %
Cost of interest-bearing deposits 0.20 % 0.20 % 0.20 % 0.21 % 0.21 % 0.20 % 0.21 %
Cost of borrowings 2.95 % 2.82 % 3.04 % 3.13 % 3.15 % 2.95 % 2.97 %
Cost of interest-bearing liabilities 0.27 % 0.26 % 0.30 % 0.35 % 0.36 % 0.27 % 0.35 %
Interest rate spread 3.59 % 3.39 % 3.36 % 3.22 % 3.22 % 3.45 % 3.28 %
Net interest margin, fully taxable equivalent 3.68 % 3.47 % 3.45 % 3.33 % 3.33 % 3.53 % 3.38 %

CAPITAL
Total equity to total assets at end of period 8.91 % 8.84 % 8.54 % 8.67 % 8.38 % 8.91 % 8.38 %
Tangible equity to tangible assets at end of period (a) 7.62 % 7.53 % 7.23 % 7.29 % 7.03 % 7.62 % 7.03 %

Book value per share $ 32.11
$ 31.67
$ 30.93
$ 30.07
$ 30.37
$ 32.11
$ 30.37
Tangible book value per share 27.09
26.60
25.81
24.89
25.13
27.09
25.13
Period-end market value per share 47.10
40.88
39.50
36.35
28.99
47.10
28.99
Dividends declared per share 0.26
0.26
0.26
0.26
0.26
0.78
0.78

AVERAGE BALANCES
Loans and loans held for sale (c) $ 1,259,919
$ 1,237,189
$ 1,215,445
$ 1,210,922
$ 1,199,367
$ 1,237,681
$ 1,189,105
Earning assets 1,615,833
1,634,955
1,605,460
1,607,287
1,577,348
1,618,788
1,559,500
Total assets 1,707,111
1,723,664
1,694,199
1,699,059
1,674,492
1,708,360
1,656,313
Deposits 1,512,685
1,532,819
1,495,724
1,483,348
1,456,622
1,513,804
1,439,497
Total equity 153,244
150,155
146,642
143,388
144,631
150,038
142,745
Tangible equity (a) 129,024
125,720
121,988
118,502
119,504
125,603
117,372

ASSET QUALITY
Net charge-offs $ 699
$ 277
$ 333
$ 1,476
$ 393
$ 1,309
$ 968


	As of or for the Three Months Ended
	Mar. 31			Dec. 31			Sept. 30,			June 30,			Mar. 31
	2023			2022			2022			2022			2022
ASSET QUALITY
Net charge-offs	$	269		$	52		$	109		$	699		$	(48)
Non-performing loans (d)	7,731			8,178			8,310			7,374			7,703
Non-performing assets (e)	7,927			8,373			8,503			7,665			7,956
Allowance for credit losses (g)	20,075			19,659			18,631			17,485			19,928

Annualized net charge-offs to average loans	0.06		%	0.01		%	0.03		%	0.18		%	(0.01)		%
Non-performing loans to total loans	0.41		%	0.45		%	0.48		%	0.46		%	0.49		%
Non-performing assets to total assets	0.30		%	0.32		%	0.33		%	0.31		%	0.32		%
Allowance for credit losses to total loans	1.07		%	1.07		%	1.07		%	1.08		%	1.27		%
Allowance for credit losses to non-performing loans	259.66		%	240.39		%	224.21		%	237.12		%	258.72		%

(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio (adjusted) is non-interest expense less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less changes in fair value of equity investments less net gains on securities transactions.
(c) Loans and loans held for sale do not reflect the allowance for credit losses.
(d) Non-performing loans include non-accrual loans only.
(e) Non-performing assets include non-performing loans plus other real estate owned.
(f) Efficiency ratio (unadjusted) is non-interest expense divided by the total of net interest income plus non-interest income.
(g) Corporation adopted CECL as of January 1, 2023.

Non-performing loans (d) 14,028
15,208
12,914
12,043
12,903
14,028
12,903
Non-performing assets (e) 14,216
15,545
13,251
12,431
13,270
14,216
13,270
Allowance for loan losses 15,694
15,104
14,960
14,253
15,325
15,694
15,325

Annualized net charge-offs to average loans 0.22 % 0.09 % 0.11 % 0.48 % 0.13 % 0.14 % 0.11 %
Non-performing loans to total loans 1.09 % 1.21 % 1.05 % 1.00 % 1.06 % 1.09 % 1.06 %
Non-performing assets to total assets 0.82 % 0.90 % 0.76 % 0.75 % 0.77 % 0.82 % 0.77 %
Allowance for loan losses to total loans 1.22 % 1.21 % 1.21 % 1.19 % 1.26 % 1.22 % 1.26 %
Allowance for loan losses to non-performing loans 111.88 % 99.32 % 115.84 % 118.35 % 118.77 % 111.88 % 118.77 %

(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio is non-interest expense less merger and acquisition expenses less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions.
(c) Loans and loans held for sale do not reflect the allowance for loan losses.
(d) Non-performing loans include non-accrual loans only.
(e) Non-performing assets include non-performing loans plus other real estate owned.

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 its competitors. 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 ~~70-73~~63-66 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

~~Executive Summary~~

~~This executive summary~~Consolidated Results of Operations

The following section of the MD&A ~~includes selected information and may not contain all~~provides a comparative discussion of the ~~information~~Corporation’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2023 and 2022. For a discussion of the Critical Accounting Estimates and Risks and Uncertainties that ~~is important to readers~~affect the Consolidated Results of Operations, see page 41 of this Form ~~10-Q. For a complete description~~10-Q and page 37 of the ~~trends and uncertainties, as well as the risks and critical accounting estimates affecting the Corporation, this~~Corporation’s 2022 Form ~~10-Q should be read in its entirety.~~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,
	2023		2022		Change		% Change
Net interest income	$	19,947	$	16,677	$	3,270	19.6	%
Non-interest income	5,423		5,663		(240)		(4.2)	%
Non-interest expense	15,836		14,668		1,168		8.0	%
Pre-provision income	9,534		7,672		1,862		24.3	%
Provision (credit) for credit losses (1)	277		(1,145)		1,422		124.2	%
Income tax expense	1,987		1,950		37		1.9	%
Net income	$	7,270	$	6,867	$	403	5.9	%

Basic and diluted earnings per share	$	1.54	$	1.46	$	0.08	5.5	%

Three Months Ended
September 30,
2017 2016 Change Percentage Change
Net interest income $ 14,763
$ 13,040
$ 1,723
13.2 %
Non-interest income 5,166
5,435
(269 ) (4.9 )%
Non-interest expense 13,276
13,471
(195 ) (1.4 )%
Pre-provision income 6,653
5,004
1,649
33.0 %
Provision for loan losses 1,289
1,050
239
22.8 %
Income tax expense 1,710
1,209
501
41.4 %
Net income $ 3,654
$ 2,745
$ 909
33.1 %

Basic and diluted earnings per share $ 0.76
$ 0.58
$ 0.18
31.0 %

Selected financial ratios:

Return on average assets 0.85 % 0.65 %

Return on average equity 9.46 % 7.55 %

Net interest margin, fully taxable equivalent 3.68 % 3.33 %

Efficiency ratio 64.83 % 71.28 %

Non-interest expenses to average assets 3.09 % 3.20 %

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

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


	Three Months Ended March 31,
Selected financial ratios:	2023		2022
Return on average assets	1.12	%	1.14	%
Return on average equity	16.97	%	13.68	%
Net interest margin, fully taxable equivalent (a)	3.14	%	2.87	%
Efficiency ratio (adjusted) (a) (b)	62.18	%	65.32	%
Non-interest expenses to average assets	2.44	%	2.43	%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio (adjusted) is non-interest expense less amortization of intangible assets divided by the total of fully taxable equivalent net interest income plus non-interest income less changes in fair value of equity investments less net gains on securities transactions.

Net income for the ~~third~~first quarter of ~~2017~~2023 was ~~$3.7~~$7.3 million, or ~~$0.76~~$1.54 per share, compared ~~with a net income of $2.7~~to $6.9 million, or ~~$0.58~~$1.46 per share, for the same period in the prior year. Return on average equity for the current quarter was 9.46%, compared with 7.55% for the prior year quarter. The increase in net income was driven by an increase in net interest income and a reduction in non-interest expense, offset by a decrease in non-interest income and increases in the provision for loan losses and income tax expense.

~~Net interest income~~

Net interest income increased $1.7 million, or 13.2%, compared with the same period in the prior year. The increase was due primarily to interest income from the commercial loan portfolio, taxable and tax exempt securities, and interest-bearing deposits and decreases in interest expense on deposits, securities sold under agreements to repurchase, and borrowed funds.

~~Non-interest income~~

~~Non-interest income decreased $0.3 million, or 4.9%~~16.97%, compared to ~~the same period in the prior year. The decrease was due primarily to a decrease in interchange revenue from debit card transactions.~~

~~Non-interest expenses~~

Non-interest expenses decreased $0.2 million, or 1.4%, compared to the prior year quarter. The decrease was due primarily to a decrease in pension and other employee benefits, offset by increases in salaries and wages, marketing and advertising, and other non-interest expense. For the three months ended September 30, 2017, non-interest expense to average assets was 3.09%, compared with 3.20% for the same period in the prior year.

~~Provision for loan losses~~

The provision for loan losses increased $0.2 million, or 22.8%, compared to the same period in the prior year. The increase was due primarily to growth in the commercial mortgages and indirect consumer loan portfolios and additional reserves on problem assets previously identified during the three months ended September 30, 2017. Net charge-offs increased $0.3 million, compared with the same period in the prior year.

~~Income tax expense~~

Income tax expensed increased $0.5 million, or 41.4%, compared to the prior year quarter. The increase was due primarily to higher income before income tax expense, offset by an increase in the income generated by CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, and a tax exclusion for insurance premiums within CRM.

~~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):~~

Nine Months Ended
September 30,
2017 2016 Change Percentage Change
Net interest income $ 42,207
$ 39,033
$ 3,174
8.1 %
Non-interest income 15,035
16,252
(1,217 ) (7.5 )%
Non-interest expense 40,653
43,049
(2,396 ) (5.6 )%
Pre-provision income 16,589
12,236
4,353
35.6 %
Provision for loan losses 2,750
2,033
717
35.3 %
Income tax expense 4,250
3,130
1,120
35.8 %
Net income $ 9,589
$ 7,073
$ 2,516
35.6 %

Basic and diluted earnings per share $ 2.00
$ 1.49
$ 0.51
34.2 %

Selected financial ratios:

Return on average assets 0.75 % 0.57 %

Return on average equity 8.54 % 6.62 %

Net interest margin, fully taxable equivalent 3.53 % 3.38 %

Efficiency ratio 67.72 % 75.03 %

Non-interest expense to average assets 3.18 % 3.47 %

Net income for the nine months ended September 30, 2017 was $9.6 million, or $2.00 per share, compared with a net income of $7.1 million, or $1.49 per share, for the same period in the prior year. Return on average equity for the nine months ended September 30, 2017 was 8.54%, compared with 6.62%13.68% for the same period in the prior year. The increase in net income ~~from the prior year~~ was ~~driven by~~due primarily to an increase in net interest income, ~~and a reduction in non-interest expense,~~partially offset by ~~a decrease in non-interest income and~~ increases in the provision for ~~loan~~credit losses, non-interest expense, and income tax ~~expense.~~

~~Net interest income~~

~~Net interest income increased $3.2 million, or 8.1%, compared with the same period~~expense, and a decrease in the prior year. The increase was due primarily to interest income from the commercial loan portfolio, taxable and tax exempt securities, and interest-bearing deposits and decreases in interest expense on securities sold under agreements to repurchase and borrowed funds.

~~Non-interest income~~

Non-interest income decreased $1.2 million, or 7.5%, compared to the same period in the prior year. The decrease was due primarily to net gains on securities transactions during the first quarter of 2016 and decreases in service charges on deposit accounts, interchange revenue from debit card transactions, and other non-interest ~~income, offset by an increase in WMG fee~~ income.

~~Non-interest expenses~~

Non-interest expenses decreased $2.4 million, or 5.6%, compared to the same period in the prior year. The decrease was due primarily to decreases in pension and other employee benefits, net occupancy expense, furniture and equipment, data processing expense, professional services, legal accruals and settlements, marketing and advertising, and other real estate owned expense, offset by increases in salaries and wages and other non-interest expense. For the nine months ended September 30, 2017, non-interest expense to average assets was 3.18%, compared with 3.47% for the same period in the prior year.

~~Provision for loan losses~~

The provision for loan losses increased $0.7 million, or 35.3%, compared to the same period in the prior year. The increase was due primarily to growth in the commercial mortgages and indirect loan portfolios and additional reserves on problem assets previously identified during the nine months ended September 30, 2017. Net charge-offs increased $0.3 million, compared with the same period in the prior year.

~~Income tax expense~~

Income tax expensed increased $1.1 million, or 35.8%, compared to the same period in the prior year. The increase was due primarily to higher income before income tax expense, offset by an increase in the income generated by CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, and a tax exclusion for insurance premiums within CRM.

~~Consolidated Results of Operations~~

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and nine months ended September 30, 2017 and 2016. For a discussion of the Critical Accounting Policies, Estimates and Risks and Uncertainties that affect the Consolidated Results of Operations, see page 69 of this Form 10-Q and pages 60 of the Corporation’s 2016 Annual Report.

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,
	2023		2022		Change		Percentage Change
Interest and dividend income	$	26,230	$	17,458	$	8,772	50.2	%
Interest expense	6,283		781		5,502		704.5	%
Net interest income	$	19,947	$	16,677	$	3,270	19.6	%

Three Months Ended
September 30,
2017 2016 Change Percentage Change
Interest and dividend income $ 15,497
$ 14,025
$ 1,472
10.5 %
Interest expense 734
985
(251 ) (25.5 )%
Net interest income $ 14,763
$ 13,040
$ 1,723
13.2 %

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

Net interest income for the ~~three months~~first quarter ended ~~September 30, 2017 totaled $14.8~~March 31, 2023 increased $3.3 million, or 19.6%, to $19.9 million compared ~~with $13.0 million for~~to the same period in the prior year, due primarily to increases of $7.8 million in interest income on loans, including fees, and $0.9 million in interest and dividend income on taxable securities, offset by increases of $4.6 million in interest expense on deposits and $0.9 million in interest expense on borrowed funds.

The increase in interest income on loans, including fees was due primarily to a 106 basis points increase in the average yield on loans, reflecting increases across all loan categories due to an increase ~~of $1.7~~in interest rates, when compared to the same period in the prior year, and a $316.9 million ~~or 13.2%. Fully taxable equivalent net interest margin was 3.68% for the three months ended September 30, 2017~~increase in average loan balances, also representing increases across all loan categories, when compared ~~with 3.33% for~~to the same period in the prior year. Loan income for the first quarter of 2023 also included $0.2 million of prepayment penalty income. The increase in ~~net~~ interest and dividend income on taxable securities when compared to the same period in the prior year, was due primarily to a 65 basis points increase in the average yield on securities due to an increase in average interest rates. Interest income on interest-earning deposits increased primarily due to an increase of ~~$38.5 million~~501 basis points in ~~interest-earning assets. The~~the average yield on interest-earning ~~assets increased 28~~deposits in the first quarter of 2023 when compared to the same period in the prior year, as a result of the increases in the Federal Funds rate.

The increase in interest expense on deposits was due primarily to a 114 basis points ~~while~~increase in average rates paid on interest-bearing deposits, which included brokered deposits, and a deposit campaign in the ~~cost~~first quarter of ~~interest-bearing liabilities decreased nine basis points~~2023, when compared to the same period in the prior year. The increase in ~~the yield~~interest expense on ~~interest-earning assets can be mostly attributed~~borrowed funds was due primarily to a ~~43 basis point~~$69.2 million increase in the ~~yield on investments due to~~average balances of overnight FHLBNY borrowings in the ~~reinvestment of maturing securities into higher yielding mortgage-backed~~current quarter, and ~~municipal securities, along with an 18~~a 459 basis ~~point~~points increase in the ~~yield~~average rate on ~~loans due~~overnight borrowing, when compared to payoffs of nonaccrual loans and an increase in PRIME and LIBOR. The decline in the cost of interest-bearing liabilities can be attributed to a 20 basis point decline in the cost of borrowings due to the maturity of one $10.0 million FHLB term advance (4.60% rate) in December 2016 and one $10.0 million repurchase agreement (4.54% rate) in March 2017.

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

Nine Months Ended
September 30,
2017 2016 Change Percentage Change
Interest and dividend income $ 44,495
$ 41,899
$ 2,596
6.2 %
Interest expense 2,288
2,866
(578 ) (20.2 )%
Net interest income $ 42,207
$ 39,033
$ 3,174
8.1 %

~~Net interest income for the nine months ended September 30, 2017 totaled $42.2 million compared with $39.0 million for~~ the same period in the prior ~~year, an increase of $3.2 million, or 8.1%.~~ year.

Fully taxable equivalent net interest margin was ~~3.53% for~~3.14% in the ~~nine months ended September 30, 2017~~first quarter of 2023, compared ~~with 3.38%~~to 2.87% for the same period in the prior year. Average interest-earning assets increased $221.4 million for the three months ended March 31, 2023 compared to the same period in the prior year. The ~~increase in net interest income was due primarily to an increase of $59.3 million in~~ average ~~interest-earning assets. The~~ yield on interest-earning assets increased ~~nine~~112 basis points, ~~while~~and the average cost of interest-bearing liabilities ~~decreased eight~~increased 128 basis points in the first quarter of 2023, compared to the same period in the prior year. The increase in the yield on interest-earning assets can be mostly attributed to a 19 basis point increase in the yield on investments due to the reinvestment of maturing securities into higher yielding mortgage-backed and municipal securities, along with an six basis point increase in the yield on loans due to payoffs of nonaccrual loans and an increase in PRIME and LIBOR. The decline in the cost of interest-bearing liabilities can be attributed to a two basis point decline in the cost of borrowings due to the maturity of one $10.0 million FHLB term advance (4.60% rate) in December 2016 and one $10.0 million repurchase agreement (4.54% rate) in March 2017.

Average Consolidated Balance ~~Sheet~~Sheets and Interest Analysis

The following ~~tables present~~table presents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. For the purpose of the table below, non-accruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. 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. Loan fee income of $6 thousand and $1.0 million for the three month periods ended March 31, 2023, and 2022, respectively, related to the Paycheck Protection Program.


AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
	Three Months Ended March 31, 2023						Three Months Ended March 31, 2022
(in thousands)	Average Balance		Interest		Yield/Rate (3)		Average Balance		Interest		Yield/Rate (3)
Interest-earning assets:
Commercial loans	$	1,261,054	$	16,584	5.33	%	$	1,072,408	$	10,547	3.99	%
Mortgage loans	285,588		2,472		3.51	%	262,053		2,153		3.33	%
Consumer loans	302,668		3,285		4.40	%	197,984		1,816		3.72	%
Taxable securities	695,079		3,585		2.09	%	758,507		2,689		1.44	%
Tax-exempt securities	40,769		305		3.03	%	42,435		333		3.18	%
Interest-earning deposits	7,551		97		5.21	%	37,888		19		0.20	%
Total interest-earning assets	2,592,709		26,328		4.12	%	2,371,275		17,557		3.00	%

Non-earning assets:
Cash and due from banks	25,084						24,744
Other assets	29,393						77,153
Allowance for credit losses (4)	(20,098)						(21,228)
Total assets	$	2,627,088					$	2,451,944

Interest-bearing liabilities:
Interest-bearing demand deposits	$	291,090	$	274	0.38	%	$	293,429	$	55	0.08	%
Savings and insured money market deposits	906,947		1,648		0.74	%	955,296		212		0.09	%
Time deposits	322,710		2,092		2.63	%	241,501		481		0.81	%
Brokered deposits	113,074		1,374		4.93	%	—		—		—	%
FHLBNY overnight advances	70,699		866		4.97	%	1,491		1		0.38	%
Long-term capital leases	3,281		29		3.58	%	3,550		32		3.66	%
Total interest-bearing liabilities	1,707,801		6,283		1.49	%	1,495,267		781		0.21	%

Non-interest-bearing liabilities:
Demand deposits	703,655						721,216
Other liabilities	41,846						31,848
Total liabilities	2,453,302						2,248,331
Shareholders' equity	173,786						203,613
Total liabilities and shareholders’ equity	$	2,627,088					$	2,451,944
Fully taxable equivalent net interest income			20,045						16,776
Net interest rate spread (1)					2.63	%					2.79	%
Net interest margin, fully taxable equivalent (2)					3.14	%					2.87	%
Taxable equivalent adjustment			(98)						(99)
Net interest income			$	19,947					$	16,677

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands) Three Months Ended
September 30, 2017 Three Months Ended
September 30, 2016
Average Balance Interest Yield/Rate Average Balance Interest Yield/Rate
Interest-earning assets:
Commercial loans $ 799,505
$ 9,037
4.48 % $ 741,515
$ 7,967
4.27 %
Mortgage loans 199,396
1,963
3.91 % 197,292
1,950
3.93 %
Consumer loans 261,018
2,782
4.23 % 260,559
2,623
4.00 %
Taxable securities 271,529
1,371
2.00 % 268,388
1,225
1.82 %
Tax-exempt securities 57,127
467
3.24 % 43,692
329
3.00 %
Interest-bearing deposits 27,258
97
1.41 % 65,902
85
0.51 %
Total interest-earning assets 1,615,833
15,717
3.86 % 1,577,348
14,179
3.58 %

Non-earning assets:

Cash and due from banks 26,036

27,420

Premises and equipment, net 27,774

29,575

Other assets 53,944

50,397

Allowance for loan losses (15,179 )

(14,783 )

AFS valuation allowance (1,297 )

4,535

Total assets $ 1,707,111

$ 1,674,492

Interest-bearing liabilities:

Interest-bearing demand deposits $ 138,364
$ 32
0.09 % $ 122,030
$ 27
0.09 %
Savings and insured money market deposits 801,580
398
0.20 % 769,855
392
0.20 %
Time deposits 130,445
115
0.35 % 154,618
142
0.37 %
FHLBNY advances, securities sold under agreements to repurchase, and other debt 25,405
189
2.95 % 53,619
424
3.15 %
Total interest-bearing liabilities 1,095,794
734
0.27 % 1,100,122
985
0.36 %

Non-interest-bearing liabilities:

Demand deposits 442,296

410,119

Other liabilities 15,777

19,620

Total liabilities 1,553,867

1,529,861

Shareholders' equity 153,244

144,631

Total liabilities and shareholders’ equity $ 1,707,111

$ 1,674,492

Fully taxable equivalent net interest income
14,983

13,194

Net interest rate spread (1)

3.59 %

3.22 %
Net interest margin, fully taxable equivalent (2)

3.68 %

3.33 %
Taxable equivalent adjustment
(220 )

(154 )
Net interest income
$ 14,763

$ 13,040

(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.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands) Nine Months Ended
September 30, 2017 Nine Months Ended
September 30, 2016
Average Balance Interest Yield/ Rate Average Balance Interest Yield/ Rate
Interest-earning assets:
Commercial loans $ 780,120
$ 25,425
4.36 % $ 727,824
$ 23,617
4.33 %
Mortgage loans 199,625
5,716
3.83 % 196,799
5,806
3.94 %
Consumer loans 257,936
8,082
4.19 % 264,482
7,784
3.93 %
Taxable securities 273,124
4,194
2.05 % 277,346
3,947
1.90 %
Tax-exempt securities 51,016
1,214
3.18 % 45,824
1,042
3.04 %
Interest-bearing deposits 56,967
445
1.04 % 47,225
180
0.51 %
Total interest-earning assets 1,618,788
45,076
3.72 % 1,559,500
42,376
3.63 %

Non-earning assets:

Cash and due from banks 25,456

26,867

Premises and equipment, net 28,208

29,696

Other assets 53,965

51,564

Allowance for loan losses (14,866 )

(14,592 )

AFS valuation allowance (3,191 )

3,278

Total assets $ 1,708,360

$ 1,656,313

Interest-bearing liabilities:

Interest-bearing demand deposits $ 144,683
$ 98
0.09 % $ 132,988
$ 106
0.11 %
Savings and insured money market deposits 802,700
1,168
0.19 % 743,808
1,060
0.19 %
Time deposits 136,359
366
0.36 % 160,352
441
0.37 %
FHLBNY advances, securities sold under agreements to repurchase, and other debt 29,760
656
2.95 % 56,605
1,259
2.97 %
Total interest-bearing liabilities 1,113,502
2,288
0.27 % 1,093,753
2,866
0.35 %

Non-interest-bearing liabilities:

Demand deposits 430,062

402,349

Other liabilities 14,758

17,466

Total liabilities 1,558,322

1,513,568

Shareholders' equity 150,038

142,745

Total liabilities and shareholders’ equity $ 1,708,360

$ 1,656,313

Fully taxable equivalent net interest income
42,788

39,510

Net interest rate spread (1)

3.45 %

3.28 %
Net interest margin, fully taxable equivalent (2)

3.53 %

3.38 %
Taxable equivalent adjustment
(581 )

(477 )
Net interest income
$ 42,207

$ 39,033

~~(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.~~

Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes. The ~~tables~~table below ~~illustrate~~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 ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. 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 ~~purposes~~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 non-accrual loans and taxable equivalent adjustments were made.


RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	Three Months Ended March 31, 2023 vs. 2022
	Increase/(Decrease)
	Total Change		Due to Volume		Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans	$	6,037	$	2,076	$	3,961
Mortgage loans	319		199		120
Consumer loans	1,469		1,092		377
Taxable investment securities	896		(240)		1,136
Tax-exempt investment securities	(28)		(13)		(15)
Interest-earning deposits	78		(27)		105
Total interest and dividend income, fully taxable equivalent	8,771		3,087		5,684

Interest expense on:
Interest-bearing demand deposits	219		—		219
Savings and insured money market deposits	1,436		(11)		1,447
Time deposits	1,610		210		1,400
Brokered deposits	1,374		1,374		—
FHLBNY overnight advances	865		686		179
Long-term capital leases	(4)		(2)		(2)
Total interest expense	5,500		2,257		3,243
Net interest income, fully taxable equivalent	$	3,271	$	830	$	2,441

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
Three Months Ended
September 30, 2017 vs. 2016
Increase/(Decrease)
Total Change Due to Volume Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans $ 1,070
$ 657
$ 413
Mortgage loans 13
22
(9 )
Consumer loans 159
5
154
Taxable investment securities 146
15
131
Tax-exempt investment securities 138
110
28
Interest-earning deposits 12
(72 ) 84
Total interest and dividend income, fully taxable equivalent 1,538
737
801

Interest expense on:
Interest-bearing demand deposits 5
5
—
Savings and insured money market deposits 6
6
—
Time deposits (27 ) (20 ) (7 )
FHLBNY advances, securities sold under agreements to repurchase and other debt (235 ) (210 ) (25 )
Total interest expense (251 ) (219 ) (32 )
Net interest income, fully taxable equivalent $ 1,789
$ 956
$ 833

Nine Months Ended
September 30, 2017 vs. 2016
Increase/(Decrease)
Total Change Due to Volume Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans $ 1,808
$ 1,649
$ 159
Mortgage loans (90 ) 79
(169 )
Consumer loans 298
(199 ) 497
Taxable investment securities 247
(61 ) 308
Tax-exempt investment securities 172
95
77
Interest-earning deposits 265
44
221
Total interest and dividend income 2,700
1,607
1,093

Interest expense on:
Interest-bearing demand deposits (8 ) 11
(19 )
Savings and insured money market deposits 108
108
—
Time deposits (75 ) (63 ) (12 )
FHLBNY advances, securities sold under agreements to repurchase and other debt (603 ) (595 ) (8 )
Total interest expense (578 ) (539 ) (39 )
Net interest income, fully taxable equivalent $ 3,278
$ 2,146
$ 1,132

Provision for ~~loan~~credit losses

Management ~~performs an ongoing assessment~~has established and maintains a methodology for determining and adjusting its allowance for credit losses in conformity with the recently adopted accounting standard, commonly referred to as the “CECL methodology.” The allowance is based on a combination of quantitative and qualitative analysis and changes in the required allowance are provisioned through income. The quantitative portion of the ~~adequacy~~model is significantly influenced by changes in projected economic conditions, as well as changes in the composition of the numerous loan portfolio segments. Quantitative adjustments reflect the degree to which expected future outcomes are expected to differ from those projected by the quantitative model.

Upon adoption of ASU 2016-13, the Corporation’s provision for credit losses now includes components for on-balance sheet exposures and off-balance sheet exposures. As of January 1, 2023 the Corporation recognized a $1.5 million one-time implementation adjustment, of which $1.1 million reflected the addition of an allowance for credit losses on off-balance sheet exposure related to unfunded commitments.

For the quarter ended March 31, 2023, the provision for credit losses was $0.3 million due to additional qualitative provision as a result of increased loan ~~losses based upon~~volume, offset by a ~~number~~decrease in the quantitative reserve requirement as a result of ~~factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of~~more favorable economic projections, notably a decrease in the ~~loan portfolio, current economic conditions and loan growth. Based on this analysis,~~Federal Open Market Committee (FOMC) forecasted U.S. unemployment rate. For the quarter ended March 31, 2022, the provision for loan losses ~~for both the third quarter~~was a credit of ~~2017 and 2016 were $1.3 million and~~ $1.1 million, respectively. The provision for loan losses for the nine months ended September 30, 2017 and 2016 were $2.8 million and $2.0 million, respectively. Net charge-offs for the third quarter of 2017 were $0.7 million compared with $0.4 million for the same period in the prior year. Net charge-offs for both nine months ended September 30, 2017 and 2016 were $1.3 million and $1.0 million, respectively. The increase in the provision for loan losses for the three months ended September 30, 2017, comparedprimarily due to the ~~same period in~~$1.2 million release of the ~~prior year, was due~~pandemic-related portion of the allowance, offset by additional provision related to ~~increases in the commercial mortgage and indirect~~increased loan portfolios, an increase in loss factors in the indirect loan portfolio, and additional reserves on problem assets previously identified. The increase in the provision for loan losses for the nine months ended September 30, 2017, compared to the same period in the prior year, was due to increases in the commercial mortgage and indirect loan portfolios, an increase in loss factors in the indirect loan portfolio, and additional reserves on problem assets previously identified.volume.

Non-interest income

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


	Three Months Ended March 31,
	2023		2022		Change		Percentage Change
WMG fee income	$	2,580	$	2,757	$	(177)	(6.4)	%
Service charges on deposit accounts	941		864		77		8.9	%
Interchange revenue from debit card transactions	1,133		1,130		3		0.3	%

Changes in fair value of equity investments	72		(113)		185		163.7	%
Net gains on sales of loans held for sale	5		74		(69)		(93.2)	%

Income from bank owned life insurance	10		11		(1)		(9.1)	%
CFS fee and commission income	241		253		(12)		(4.7)	%
Other	441		687		(246)		(35.8)	%
Total non-interest income	$	5,423	$	5,663	$	(240)	(4.2)	%

Three Months Ended
September 30,

2017 2016 Change Percentage Change
WMG fee income $ 2,147
$ 2,027
$ 120
5.9 %
Service charges on deposit accounts 1,269
1,361
(92 ) (6.8 )%
Interchange revenue from debit card transactions 925
1,203
(278 ) (23.1 )%
Net gains on securities transactions —
75
(75 ) (100.0 )%
Net gains on sales of loans held for sale 71
115
(44 ) (38.3 )%
Net gains (losses) on sales of other real estate owned 30
10
20
200.0 %
Income from bank owned life insurance 17
19
(2 ) (10.5 )%
CFS fee and commission income 139
108
31
28.7 %
Other 568
517
51
9.9 %
Total non-interest income $ 5,166
$ 5,435
$ (269 ) (4.9 )%

Total non-interest income for the ~~third~~first quarter of ~~2017~~2023 decreased ~~$0.3~~$0.2 million compared with the same period in the prior year. The decrease was mostly due to decreases in service charges on deposit accounts, interchange revenue from debit card transactions, and net gains on securities transactions, offset by an increase in WMG fee income.

~~WMG fee income~~

~~WMG fee income increased~~ compared to the same period in the prior year primarily due to decreases in other non-interest income, and WMG fee income, offset by an increase in ~~assets under management or administration.~~changes in fair value of equity investments.

~~Service charges on deposit accounts~~Change in Other Non-Interest Income

~~Service charges on deposit accounts decreased~~The decrease in other non-interest income was primarily due to decreases in interest rate swap fees, CFS other fee income and Mastercard volume bonus, when compared to the same period in the prior ~~year~~year.

Change in WMG Fee Income

The decrease in WMG fee income was primarily due to a ~~decrease~~decline in ~~overdraft fees.~~

~~Interchange revenue from debit card transactions~~

~~Interchange revenue from debit card transactions decreased~~the market value of the total assets under management or administration when compared to the same period in the prior ~~year~~year.

Changes in Fair value of Equity Investments

The increase in changes in fair value of equity investments was primarily due to ~~a decline~~an increase in the ~~number~~market value of ~~transactions.~~

~~Net gains on securities transactions~~

~~Net gains on securities transactions decreased~~assets held related to the Corporation's deferred compensation plan, when compared to the same period in the prior ~~year due to a $0.1 million net gain on the sale of $15.0 million of U.S. Government sponsored enterprises during the third quarter of 2016.~~year.

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

Nine Months Ended
September 30,

2017 2016 Change Percentage Change
WMG fee income $ 6,525
$ 6,240
$ 285
4.6 %
Service charges on deposit accounts 3,678
3,781
(103 ) (2.7 )%
Interchange revenue from debit card transactions 2,809
3,035
(226 ) (7.4 )%
Net gains on securities transactions 12
983
(971 ) (98.8 )%
Net gains on sales of loans held for sale 193
273
(80 ) (29.3 )%
Net gains (losses) on sales of other real estate owned 38
(6 ) 44
N/M
Income from bank owned life insurance 52
55
(3 ) (5.5 )%
CFS fee and commission income 452
445
7
1.6 %
Other 1,276
1,446
(170 ) (11.8 )%
Total non-interest income $ 15,035
$ 16,252
$ (1,217 ) (7.5 )%

Total non-interest income for the nine months ended September 30, 2017 decreased $1.2 million compared with the same period in the prior year. The decrease was mostly due to decreases in service charges on deposit accounts, interchange revenue from debit card transactions, net gains on securities transactions and other non-interest income, offset by an increase in WMG fee income.

~~WMG fee income~~

~~WMG fee income increased compared to the same period in the prior year due to an increase in assets under management or administration.~~

~~Service charges on deposit accounts~~

~~Service charges on deposit accounts decreased compared to the same period in the prior year due to decreases in overdraft fees and other service charges.~~

~~Interchange revenue from debit card transactions~~

~~Interchange revenue from debit card transactions decreased compared to the same period in the prior year due to a decline in the number of transactions.~~

~~Net gains on securities transactions~~

Net gains on securities transactions decreased compared to the same period in the prior year due to a $1.0 million net gain on the sale of $14.5 million of U.S. Treasuries and $15.0 million in obligations of U.S. Government sponsored enterprises during the nine months ended September 30, 2016.

~~Other~~

~~Other non-interest income decreased due to a decrease in rental income from other real estate owned.~~

Non-interest expense

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


	Three Months Ended March 31,
	2023		2022		Change		Percentage Change
Compensation expense:
Salaries and wages	$	6,783	$	6,223	$	560	9.0	%
Pension and other employee benefits	1,680		1,718		(38)		(2.2)	%
Other components of net periodic pension and postretirement benefits	(174)		(408)		234		(57.4)	%
Total compensation expense	8,289		7,533		756		10.0	%

Non-compensation expense:
Net occupancy	1,465		1,427		38		2.7	%
Furniture and equipment	418		437		(19)		(4.3)	%
Data processing	2,381		2,187		194		8.9	%
Professional services	440		521		(81)		(15.5)	%

Amortization of intangible assets	—		11		(11)		(100.0)	%
Marketing and advertising	332		276		56		20.3	%
Other real estate owned expenses	38		(37)		75		202.7	%
FDIC insurance	497		314		183		58.3	%
Loan expenses	232		215		17		7.9	%
Other	1,744		1,784		(40)		(2.2)	%
Total non-compensation expense	7,547		7,135		412		5.8	%
Total non-interest expense	$	15,836	$	14,668	$	1,168	8.0	%

Three Months Ended
September 30,

2017 2016 Change Percentage Change
Compensation expense:
Salaries and wages $ 5,480
$ 5,355
$ 125
2.3 %
Pension and other employee benefits 992
1,573
(581 ) (36.9 )%
Total compensation expense 6,472
6,928
(456 ) (6.6 )%

Non-compensation expense:

Net occupancy expense 1,476
1,503
(27 ) (1.8 )%
Furniture and equipment expense 657
685
(28 ) (4.1 )%
Data processing expense 1,667
1,624
43
2.6 %
Professional services 452
502
(50 ) (10.0 )%
Amortization of intangible assets 214
245
(31 ) (12.7 )%
Marketing and advertising expense 213
101
112
110.9 %
Other real estate owned expense 4
41
(37 ) (90.2 )%
FDIC insurance 312
324
(12 ) (3.7 )%
Loan expense 165
162
3
1.9 %
Other 1,644
1,356
288
21.2 %
Total non-compensation expense 6,804
6,543
261
4.0 %
Total non-interest expense $ 13,276
$ 13,471
$ (195 ) (1.4 )%

Total non-interest expense for the ~~third~~first quarter of ~~2017 decreased $0.2~~2023 increased $1.2 million compared ~~with~~to the same period in the prior year. The ~~decrease~~increase was due to ~~a decrease~~increases in total compensation expense ~~offset by an increase in~~and total non-compensation expense. For the three months ended March 31, 2023, and 2022, non-interest expense to average assets was 2.44%.

Compensation expense

~~Compensation~~The increase in compensation expense, ~~decreased~~ compared to the same period in the prior year, ~~due~~can be primarily attributed to ~~a decrease in pension and other employee benefits, offset by an increase~~increases in salaries and ~~wages. The decrease in~~wages, and other components of net periodic pension and ~~other employee benefits can be mostly attributed to a $0.7 million decrease due to the freezing of accruals for the pension and post-retirement health care plans during the fourth quarter of 2016.~~postretirement benefits. The increase in salaries and wages can be primarily attributed to ~~annual merit~~base salary increases, ~~that occur throughout~~an increase in the ~~year.~~market value of the assets held related to the Corporation's deferred compensation plan, and an increase in restricted stock expense. The increase in other components of net periodic pension and postretirement benefits can be primarily attributed to revised actuarial adjustments to the Corporation's pension plans.

Non-compensation expense

~~Non-compensation~~The increase in non-compensation expense, ~~increased~~ compared to the same period in the prior year, ~~due~~can be primarily attributed to increases in ~~marketing~~data processing expenses and ~~advertising expense~~FDIC insurance. Data processing expenses increased primarily due to the timing of invoices, expenditures related to additional cyber security-related software, and ~~other non-interest expense. The increase in marketing and advertising expense can be mostly attributed to timing. The increase in other non-interest expense can be mostly attributed to~~ an increase in ~~non-loan charge-offs and other non-interest expense.~~

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

Nine Months Ended
September 30,

2017 2016 Change Percentage Change
Compensation expense:
Salaries and wages $ 16,177
$ 15,720
$ 457
2.9 %
Pension and other employee benefits 3,417
4,894
(1,477 ) (30.2 )%
Total compensation expense 19,594
20,614
(1,020 ) (4.9 )%

Non-compensation expense:

Net occupancy expense 4,784
5,287
(503 ) (9.5 )%
Furniture and equipment expense 2,119
2,286
(167 ) (7.3 )%
Data processing expense 4,858
5,058
(200 ) (4.0 )%
Professional services 1,169
1,418
(249 ) (17.6 )%
Legal accruals and settlements 850
1,200
(350 ) (29.2 )%
Amortization of intangible assets 653
748
(95 ) (12.7 )%
Marketing and advertising expense 580
648
(68 ) (10.5 )%
Other real estate owned expense 35
150
(115 ) (76.7 )%
FDIC insurance 946
895
51
5.7 %
Loan expense 447
462
(15 ) (3.2 )%
Other 4,618
4,283
335
7.8 %
Total non-compensation expense 21,059
22,435
(1,376 ) (6.1 )%
Total non-interest expense $ 40,653
$ 43,049
$ (2,396 ) (5.6 )%

~~Total non-interest expense for the nine months ended September 30, 2017 decreased $2.4 million~~debit card dispute processing, when compared ~~with~~to the same period in the prior year. The ~~decrease was due~~increase in FDIC insurance can be primarily attributed to ~~decreases in compensation expense and non-compensation expense.~~

~~Compensation expense~~

~~Compensation expense decreased compared to the same period in the prior year due to a decrease in pension and other employee benefits, offset by~~ an increase in ~~salaries and wages. The decrease in pension and other employee benefits can be mostly attributed to a $2.2 million decrease due to~~ the freezing of accruals for the pension and post-retirement health care plans during the fourth quarter of 2016, offset by increases of $0.5 million in health care costs and $0.4 million in 401(k) contributions. The increase in salaries and wages can be attributed to annual merit increases that occur throughout the year.assessment rate effective January 1, 2023.

~~Non-compensation expense~~

Non-compensation expense decreased compared to the same period in the prior year due primarily to decreases in net occupancy expense, furniture and equipment expense, data processing expense, professional services, legal accruals and settlements expense, and other real estate owned, offset by an increase in other non-interest expense. The decrease in net occupancy expense and furniture and equipment expense can be attributed to the closure of the branch office at 202 East State Street in Ithaca, NY at the end of May 2016, along with a net decrease in exit costs when comparing exit costs for the 120 Genesee Street branch in Auburn, NY in 2017 and exit costs associated with the closure of the 202 East State Street branch in 2016. The decrease in data processing expense can be attributed to the renegotiation of contracts and changing of vendors for certain data processing communication lines. The decrease in professional services can be mostly attributed to start-up costs associated with the establishment of CRM, which was completed in May 2016. The decrease in legal accruals and settlements expense can attributed to a decline in legal accruals and settlements expense for the Fane v. Chemung Canal Trust Company case from $1.2 million in 2016 to $0.9 million in 2017. The increase in other non-interest expense can be mostly attributed to increases in non-loan charge-offs and other various expense accounts.

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 (in thousands):


	Three Months Ended March 31,
	2023			2022			Change		Percentage Change
Income before income tax expense	$	9,257		$	8,817		$	440	5.0	%
Income tax expense	1,987			1,950			37		1.9	%
Effective tax rate	21.5		%	22.1		%

Three Months Ended
September 30,

2017 2016 Change Percentage Change
Income before income tax expense $ 5,364
$ 3,954
$ 1,410
35.7 %
Income tax expense 1,710
1,209
501
41.4 %
Effective tax rate 31.9 % 30.6 %

~~The increase~~Income tax expense was $2.0 million for the current quarter and the same period in the prior year. The effective income tax rate ~~can be attributed~~decreased from 22.1% for the first quarter of 2022 to ~~an improvement in income before income tax expense, offset by changes in~~21.5% for the ~~mix~~first quarter of income and expense subject to U.S. federal, state, and local income taxes. These changes include an increase in the income generated by CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, and a tax exclusion for insurance premiums within CRM.2023.

Financial Condition

The following table presents ~~income tax expense and~~selected financial information at the ~~effective tax rate for the periods~~dates indicated, and the dollar and percent change (in thousands):


	March 31, 2023		December 31, 2022		Change		Percentage Change
ASSETS
Total cash and cash equivalents	$	34,641	$	55,869	$	(21,228)	(38.0)	%
Total investment securities, FHLB, and FRB stock	638,849		646,040		(7,191)		(1.1)	%

Loans, net of deferred loan fees	1,873,701		1,829,448		44,253		2.4	%
Allowance for credit losses	(20,075)		(19,659)		(416)		2.1	%
Loans, net	1,853,626		1,809,789		43,837		2.4	%

Goodwill and other intangible assets, net	21,824		21,824		—		—	%
Other assets	105,243		112,031		(6,788)		(6.1)	%
Total assets	$	2,654,183	$	2,645,553	$	8,630	0.3	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	2,332,429	$	2,327,227	$	5,202	0.2	%
Advances and other debt	93,328		99,137		(5,809)		(5.9)	%
Other liabilities	51,085		52,801		(1,716)		(3.2)	%
Total liabilities	2,476,842		2,479,165		(2,323)		(0.1)	%

Total shareholders’ equity	177,341		166,388		10,953		6.6	%
Total liabilities and shareholders’ equity	$	2,654,183	$	2,645,553	$	8,630	0.3	%

Nine Months Ended
September 30,

2017 2016 Change Percentage Change
Income before income tax expense $ 13,839
$ 10,203
$ 3,636
35.6 %
Income tax expense 4,250
3,130
1,120
35.8 %
Effective tax rate 30.7 % 30.7 %

The effective tax rate for the nine months ended September 30, 2017 and 2016 remained flat, which can be attributed to changes in the mix of income and expense subject to U.S. federal, state, and local income taxes, offset by an improvement in income before income taxes. These changes include an increase in the income generated by CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, and a tax exclusion for insurance premiums within CRM.

~~Financial Condition~~

~~The following table presents selected financial information for the periods indicated, and the dollar and percent change (in thousands):~~

September 30,
2017
December 31, 2016 Change Percentage Change
ASSETS
Total cash and cash equivalents $ 56,378
$ 74,162
$ (17,784 ) (24.0 )%
Total investment securities 319,588
312,148
7,440
2.4 %

Loans, net of deferred loan fees 1,288,813
1,200,290
88,523
7.4 %
Allowance for loan losses (15,694 ) (14,253 ) (1,441 ) 10.1 %
Loans, net 1,273,119
1,186,037
87,082
7.3 %

Goodwill and other intangible assets, net 24,116
24,769
(653 ) (2.6 )%
Other assets 58,481
60,063
(1,582 ) (2.6 )%
Total assets $ 1,731,682
$ 1,657,179

$ 74,503
4.5 %

LIABILITIES AND SHAREHOLDERS' EQUITY

Total deposits $ 1,537,018
$ 1,456,343
$ 80,675
5.5 %
FHLBNY advances and other debt 23,577
41,421
(17,844 ) (43.1 )%
Other liabilities 16,810
15,667
1,143
7.3 %
Total liabilities 1,577,405
1,513,431
63,974
4.2 %

Total shareholders’ equity 154,277
143,748
10,529
7.3 %
Total liabilities and shareholders’ equity $ 1,731,682
$ 1,657,179
$ 74,503
4.5 %

Cash and ~~cash equivalents~~Cash Equivalents

The decrease in cash and cash equivalents can be ~~mostly~~ attributed to ~~increases~~changes in ~~investment~~ securities, loans, deposits and loans, along with the maturity of one $10.0 million repurchase agreement during the first quarter of 2017 and the discontinuation of the Bank's customer repurchase agreement product during 2017, offset by an increase in deposits.borrowings.

Investment securities

The ~~increase~~decrease in investment securities can be mostly attributed to ~~additional purchases and a decline~~$16.4 million in paydowns, offset by an increase in the ~~unrealized losses in~~fair value of the ~~securities available for sale~~ portfolio ~~offset by maturities and calls.~~of $7.9 million.

Loans, net

The increase in ~~total~~ loans, net of deferred loan fees, can be primarily attributed to increases of ~~$69.1~~$39.4 million in commercial mortgages, ~~$12.2~~$12.4 million in ~~commercial and agriculture loans, $7.9 million in indirect~~ consumer loans, and ~~$0.6~~$0.3 million in ~~other consumer loans,~~residential mortgages, offset by a decrease of ~~$1.3~~$7.8 million in ~~residential mortgages.~~ commercial and industrial loans.

Allowance for Credit Losses

The increase in the allowance for ~~loan~~credit losses can be ~~mostly attributed to an increase in the commercial loan and indirect loan portfolios and additional reserves on problem assets previously identified.~~

~~Goodwill and other intangible assets, net~~

~~The decrease in goodwill and other intangible assets, net can be~~primarily attributed to the ~~amortization~~$0.4 million adjustments made upon the adoption of ~~intangible assets.~~ASU 2016-13, Financial Instruments-Credit Losses (Topic 326), and additional provisioning related to increased loan volume. The increases were offset by decreased allowance requirements forecasted by the model due to more favorable economic projections, notably a decrease in the FOMC's forecasted U.S. unemployment rate. As of January 1, 2023, the Corporation recognized a $1.5 million one-time implementation adjustment, of which $1.1 million reflected the addition of an allowance for credit losses on unfunded commitments, which is included in other liabilities on the consolidated balance sheet.

Other ~~assets~~Assets

The decrease in other assets can be ~~mostly~~primarily attributed to a ~~decline~~decrease of $4.4 million in ~~premises and equipment, net.~~interest rate swap assets.

Deposits

The increase in deposits can be attributed to increases of ~~$32.0~~$53.3 million in brokered deposits, and $15.6 million in interest-bearing demand deposit accounts, offset by decreases of $42.7 million in non-interest bearing demand deposits, ~~$19.3~~$9.8 million in ~~interest-bearing demand deposits, $37.8 million in~~insured money market accounts, ~~and $9.5~~$7.6 million in savings ~~deposits. Partially offsetting the increases noted above was a decrease of $17.9~~deposits and $3.6 million in time deposits. ~~The changes in money market accounts~~

Advances and ~~demand deposits can be mostly attributed to new municipal clients, along with the seasonal inflow of deposits from existing municipal clients, and commercial clients.~~

~~FHLBNY advances and other debt~~Other Debt

The decrease in ~~FHLBNY~~ advances and other debt can be ~~mostly~~primarily attributed to ~~the maturity of one $10.0 million repurchase agreement during the first quarter of 2017 and discontinuation of the Bank's customer repurchase agreement product during 2017.~~a decrease in overnight FHLBNY borrowing.

Other liabilities

The ~~increase~~decrease in other liabilities can be ~~mostly~~primarily attributed to ~~the legal reserve for the Fane v. Chemung Canal Trust Company case.~~a decrease of $4.4 million in interest rate swap liabilities.

Shareholders’ equity

Shareholders’ equity was $177.3 million at March 31, 2023 compared to $166.4 million at December 31, 2022. The increase ~~in shareholders’ equity was~~can be primarily ~~due~~attributed to ~~earnings of $9.6 million, a $0.5 million increase in additional paid in capital, a reduction of $0.7 million in treasury stock, and~~ a decrease ~~of $3.5 million~~ in accumulated other comprehensive loss ~~mostly attributable~~of $5.8 million and an increase of $4.7 million in retained earnings. The decrease in accumulated other comprehensive loss can be primarily attributed to ~~the~~an increase in the fair market value of the securities ~~portfolio,~~portfolio. The increase in retained earnings can be primarily attributed to net income of $7.3 million, offset by ~~$3.7~~$1.5 million in dividendsdeclared, and a $1.5 million one-time adjustment due to the implementation of CECL, during the ~~year.~~three months ended March 31, 2023.

Assets under management or administration

The market value of total assets under management or administration in ~~our~~ WMG was ~~$1.890~~$2.142 billion at ~~September 30, 2017,~~March 31, 2023, including ~~$345.0~~$393.8 million of assets held under management or administration for the Corporation, compared ~~with $1.721~~to $2.053 billion at December 31, ~~2016,~~2022, including ~~$294.9~~$346.5 million of assets held under management or administration for the Corporation, an increase of ~~$169.3~~$89.0 million, or ~~9.8%.~~4.34%, due to an increase in assets under management, mostly attributable to new business relationships.

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 ~~"A"~~"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 composition of the available for sale segment of the securities portfolio is summarized in the table as follows (in thousands):~~

SECURITIES AVAILABLE FOR SALE
September 30, 2017 December 31, 2016
Amortized Cost Estimated Fair Value Percent of Total Estimated Fair Value Amortized Cost Estimated Fair Value Percent of Total Estimated Fair Value
Obligations of U.S. Government sponsored enterprises $ 15,494
$ 15,584
5.0 % $ 17,300
$ 17,455
5.8 %
Mortgage-backed securities, residential and collateralized mortgage obligations 239,074
236,661
75.8 % 253,156
245,866
81.0 %
Obligations of states and political subdivisions 54,144
54,728
17.5 % 38,843
38,740
12.8 %
Other securities 5,027
5,253
1.7 % 1,102
1,341
0.4 %
Total $ 313,739
$ 312,226
100.0 % $ 310,401
$ 303,402
100.0 %

The available for sale segment of the securities portfolio totaled ~~$312.2~~$626.1 million at ~~September 30, 2017, an increase~~March 31, 2023, a decrease of ~~$8.8~~$6.5 million, or ~~2.9%~~1.0%, from ~~$303.4~~$632.6 million at December 31, ~~2016.~~2022. The ~~increase~~decrease can be mostly attributed to ~~additional purchases of obligations of states and political subdivisions and a decline~~$15.9 million in ~~unrealized losses,~~paydowns, offset by ~~maturities and calls.~~

an increase in the fair value of the portfolio of $7.8 million. The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas and certificates of deposit. These securities totaled ~~$3.9~~$1.9 million at ~~September 30, 2017, a decrease of $0.8 million, or 17.9%, from $4.7~~March 31, 2023 and $2.4 million at December 31, ~~2016.~~2022.

Non-marketable equity securities at March 31, 2023 and December 31, 2022 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.8 million and $6.1 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, ~~troubled debt restructurings,~~modifications to borrowers experiencing financial difficulty, and other real estate owned, (iv) impaired loans, and (v) potential problem loans. Management reviews these systems on a regular basis.

The table below presents the Corporation’s loan composition by segment ~~for~~at the ~~periods~~dates indicated, and the dollar and percent change from December 31, ~~2016~~2022 to ~~September 30, 2017 (in~~March 31, 2023 ($ in thousands):


LOAN COMPOSITION
	March 31, 2023		% of Total Loans		December 31, 2022		% of Total Loans		Dollar Change		Percentage Change
Commercial and agricultural:
Commercial and industrial	$	244,174	13.0	%	$	252,044	13.8	%	$	(7,870)	(3.1)	%
Agricultural	333		—	%	249		—	%	84		33.7	%
Commercial mortgages:
Construction	118,660		6.3	%	108,243		5.9	%	10,417		9.6	%
Commercial mortgages	917,637		49.0	%	888,670		48.7	%	28,967		3.3	%
Residential mortgages	285,944		15.3	%	285,672		15.6	%	272		0.1	%
Consumer loans:

Home equity lines and loans	84,537		4.5	%	81,401		4.4	%	3,136		3.9	%
Indirect consumer loans	211,270		11.3	%	202,124		11.0	%	9,146		4.5	%
Direct consumer loans	11,146		0.6	%	11,045		0.6	%	101		0.9	%
Total	$	1,873,701	100.0	%	$	1,829,448	100.0	%	$	44,253	2.4	%

LOANS
September 30, 2017 December 31, 2016 Dollar Change Percentage Change
Commercial and agricultural $ 188,789
$ 176,561
$ 12,228
6.9 %
Commercial mortgages 637,765
568,656
69,109
12.2 %
Residential mortgages 197,210
198,493
(1,283 ) (0.6 )%
Indirect consumer loans 147,426
139,572
7,854
5.6 %
Other consumer loans 117,623
117,008
615
0.5 %
Total loans, net of deferred loan fees $ 1,288,813
$ 1,200,290
$ 88,523
7.4 %

Portfolio loans totaled ~~$1.289~~$1.874 billion at ~~September 30, 2017,~~March 31, 2023, an increase of ~~$88.5~~$44.3 million, or ~~7.4%~~2.4%, from ~~$1.200~~$1.829 billion at December 31, ~~2016.~~2022. The increase in loans can be attributed to increases of ~~$12.2~~$39.4 million in commercial ~~and agricultural~~mortgage loans, ~~$69.1 million in commercial mortgages, $7.9~~$9.1 million in indirect consumer loans, ~~and $0.6~~$3.2 million in other consumer loans, and $0.3 million in residential mortgages, offset by a decrease of ~~$1.3~~$7.8 million ~~in residential mortgages. The growth~~ in commercial and ~~agriculture and commercial mortgages was due primarily to an increase in the Capital Bank division in the Albany, New York region.~~ industrial loans.

Residential mortgage loans totaled ~~$197.2~~$285.9 million at ~~September 30, 2017, a decrease~~March 31, 2023, an increase of ~~$1.3~~$0.3 million, or ~~0.6%~~0.1%, from December 31, ~~2016. In addition, during~~2022. During the ~~nine~~three months ended ~~September 30, 2017, $9.3~~March 31, 2023, $6.9 million of ~~newly~~residential mortgages were originated, ~~residential mortgages~~of which $0.2 million were sold in the secondary market to Freddie ~~Mac and $0.2~~Mac. Indirect consumer loans totaled $211.3 million at March 31, 2023, an increase of ~~residential mortgages were sold to the State of New York Mortgage Agency.~~

$9.1 million, or 4.5%, from December 31, 2022, as increased demand continues for automobiles. The Corporation anticipates that future growth in portfolio loans will continue to be concentrated in commercial mortgages and commercial and industrial loans, ~~especially~~particularly within the ~~Capital Bank division of the Bank.~~ Corporation's Western New York market.

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


LOANS BY DIVISION	LOANS BY DIVISION										LOANS BY DIVISION
	September 30, 2017		December 31, 2016		December 31, 2015		December 31, 2014		December 31, 2013			March 31, 2023		December 31, 2022		December 31, 2021		December 31, 2020		December 31, 2019
Chemung Canal Trust Company*	$	626,708	$	636,836	$	683,137	$	724,099	$	687,256
Chemung Canal Trust Company*^											Chemung Canal Trust Company*^	$	755,683	$	731,344	$	639,144	$	658,468	$	576,399
Capital Bank Division	662,105		563,454		485,496		397,475		308,610		Capital Bank Division	1,118,018		1,098,104		879,105		877,995		732,820
Total loans	$	1,288,813	$	1,200,290	$	1,168,633	$	1,121,574	$	995,866	Total loans	$	1,873,701	$	1,829,448	$	1,518,249	$	1,536,463	$	1,309,219

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

^ Includes $80.6 million and $79.8 million as of March 31, 2023 and December 31, 2022, 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 would cause them to be similarly impacted by economic or other conditions. Specific industries are identified using NAICS codes. The Corporation monitors specific NAICS industry ~~classifications~~classifications of commercial loans to identify concentrations greater than ~~10.0%~~10.0% of total loans. At ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, commercial loans to borrowers involved in the real estate, and real estate rental and lending businesses were ~~47.1%~~49.4% and ~~43.9%~~48.3% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016.~~2022.

The table below shows the maturity of loans outstanding as of March 31, 2023. Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):


	Within One Year		After One But Within Five Years		After Five But Within 15 Years		After 15 Years		Total
Commercial and agricultural:
Commercial and industrial	$	62,684	$	108,120	$	69,568	$	3,802	$	244,174
Agricultural	98		49		186		—		333
Commercial mortgages:
Construction	8,241		54,540		55,089		790		118,660
Commercial mortgages	31,715		203,181		647,798		34,943		917,637
Residential mortgages	6,653		9,492		125,458		144,341		285,944
Consumer loans:
Home equity lines and loans	293		5,161		56,198		22,885		84,537
Indirect consumer loans	1,775		86,599		122,896		—		211,270
Direct consumer loans	469		4,467		4,210		2,000		11,146
Total	$	111,928	$	471,609	$	1,081,403	$	208,761	$	1,873,701


Loans maturing with:	After One But Within Five Years		After Five But Within 15 Years		After 15 Years		Total
Fixed interest rates	$	280,644	$	520,944	$	104,081	$	905,669
Variable interest rates	190,965		560,459		104,680		856,104
Total	$	471,609	$	1,081,403	$	208,761	$	1,761,773

Non-Performing Assets

Non-performing assets consist of non-accrual loans ~~non-accrual troubled debt restructurings~~ 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. The Corporation monitors loan modifications made to borrowers deemed to be experiencing financial difficulty. As of March 31, 2023, there was one loan being monitored under ASU 2022-02 guidance, which was accruing.

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

The following table summarizes the Corporation's non-performing assets ~~excluding acquired PCI loans (in~~($ in thousands):


NON-PERFORMING ASSETS
	March 31, 2023			December 31, 2022
Non-accrual loans	$	7,731		$	4,143
Non-accrual troubled debt restructurings	—			4,035
Total non-performing loans	7,731			8,178
Other real estate owned	196			195
Total non-performing assets	$	7,927		$	8,373

Ratio of non-performing loans to total loans	0.41		%	0.45		%
Ratio of non-performing assets to total assets	0.30		%	0.32		%
Ratio of allowance for credit losses to non-performing loans	259.66		%	240.39		%

Accruing loans past due 90 days or more (1)	$	6		$	1
Accruing troubled debt restructurings (1)	$	—		$	1,405

NON-PERFORMING ASSETS

September 30,
2017
December 31, 2016
Non-accrual loans $ 6,867
$ 7,649
Non-accrual troubled debt restructurings 7,161
4,394
Total non-performing loans 14,028
12,043
Other real estate owned 188
388
Total non-performing assets $ 14,216
$ 12,431

Ratio of non-performing loans to total loans 1.09 % 1.00 %
Ratio of non-performing assets to total assets 0.82 % 0.75 %
Ratio of allowance for loan losses to non-performing loans 111.88 % 118.35 %

Accruing loans past due 90 days or more (1) $ 21
$ 13
Accruing troubled debt restructurings (1) 2,022
5,839
(1) These loans are not included in non-performing assets above.
(1) Not included in non-performing assets above.

Non-Performing Loans

Non-performing loans totaled ~~$14.0~~$7.7 million, ~~at September 30, 2017,~~ or ~~1.09%~~0.41% of total loans at March 31, 2023, compared ~~with $12.0~~to $8.2 million, or 0.45% of total loans at December 31, 2016, or 1.00% of total loans. The increase in non-performing loans at September 30, 2017 was primarily in commercial mortgage segment and related to one large commercial loan, offset by decreases in the residential mortgage and consumer segments.2022. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was ~~$14.2~~$7.9 million, or ~~0.82%~~0.30% of total assets, at ~~September 30, 2017,~~March 31, 2023, compared ~~with $12.4~~to $8.4 million, or ~~0.75%~~0.32% of total assets, at December 31, ~~2016. As noted above,~~2022. The decrease in non-performing loans can mostly be attributed to the ~~increase~~partial charge-off of a commercial and industrial loan, and a significant paydown on a commercial real estate property in the three month period ended March 31, 2023. The decrease in non-performing assets ~~was primarily due~~can be attributed to the ~~commercial mortgage segment of the loan portfolio.~~

~~Not included~~decrease in non-performing ~~loan totals are $0.8 million of acquired loans that the Corporation has identified as PCI~~ loans. The PCI loans are accounted for under separate accounting guidance, Accounting Standards Codification (“ASC”) Subtopic 310-30, “Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality” as disclosed in Note 4 of the financial statements.

Accruing Loans Past due 90 Days or More

~~The recorded investment~~There was an amortized basis in accruing loans past due 90 days ~~or more totaled $21.0~~of $6 thousand at ~~September 30, 2017, an increase of $8.0~~March 31, 2023, compared to $1 thousand ~~from~~at December 31, ~~2016.~~2022.

~~Troubled Debt Restructurings~~

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Corporation works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss. ~~In that regard,~~Previously, the Corporation ~~modified~~applied troubled debt restructuring (TDR) accounting guidance for loan modifications made to borrowers experiencing financial difficulty, where a concession was made by the ~~terms~~Corporation. Effective January 1, 2023, the Corporation adopted ASU 2022-02, which supersedes TDR guidance. The Corporation monitors modifications made to borrowers experiencing financial difficulty in which the contractual cash flows were directly impacted. Modifications that are included under this guidance include principal reductions, reductions in the effective interest rate, term extensions, or a combination thereof. ASU 2022-02 was implemented on a prospective basis, and as of select loans to maximize their collectability. The modified loans are considered TDRs under current accounting guidance. Modifications generally involve short-term deferrals of principal and/or interest payments, reductions of scheduled payment amounts, interest rates or principal of the loan, and forgiveness of accrued interest. As of September 30, 2017,March 31, 2023, the Corporation had ~~$7.2 million of non-accrual TDRs compared with $4.4 million as of December 31, 2016.~~one loan that was modified under the new accounting guidance, a term extension on a commercial mortgage. As of ~~September 30, 2017, the Corporation had $2.0 million of accruing TDRs compared with $5.8 million as of December~~March 31, ~~2016.~~2023, this loan was considered to be performing.

~~Impaired~~Individually Analyzed Loans

A loan is classified ~~as impaired~~for individually analyzed when based on current information and events, management has determined that it ~~is probable that~~no longer exhibits risk characteristics consistent with its corresponding pool. This differs from the ~~Corporation will~~definition of loans considered to be ~~unable to collect both the principal and interest due under the contractual terms~~impaired at December 31, 2022. The amortized cost basis of ~~the loan agreement. Impaired~~individually analyzed loans at ~~September 30, 2017~~March 31, 2023 totaled ~~$12.2 million, including TDRs of $9.2~~$6.8 million, compared to ~~$12.9~~impaired loans of $7.3 million at December 31, 2016, including TDRs of $10.2 million. Not included in the impaired loan totals are acquired loans which the Corporation has identified as PCI loans, as these loans are accounted for under ASC Subtopic 310-30 as noted under the above discussion of non-performing loans. The decrease in impaired loans was due primarily to a decrease in commercial mortgage loans.2022. Included in the ~~recorded investment~~amortized cost basis of ~~impaired~~individually analyzed loans at ~~September 30, 2017, are~~March 31, 2023, were loans totaling ~~$5.2~~$1.1 million for which impairment allowances of ~~$1.2~~$1.1 million have been specifically allocated to the allowance for ~~loan~~credit losses. As of December 31, ~~2016,~~2022, the impaired loan total included ~~$2.6~~$1.3 million of loans for which specific impairment allowances of ~~$0.9~~$1.1 million were allocated to the allowance for loan losses.

The majority of the Corporation's ~~impaired~~individually analyzed loans are secured and measured for impairment 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 ~~be impaired.~~require individual analysis. An impairment 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 the updated appraisal, an additional measurement is performed to determine if any adjustments are necessary to reflect the proper provisioning or charge-off. ~~Impaired~~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 the Corporation's market area have ~~been holding steady.~~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 ~~Loan~~Credit Losses

The allowance for credit losses is an amount that management believes will be adequate to absorb ~~probable incurred~~the estimated lifetime credit losses ~~on existing loans.~~inherent in the assets exhibiting credit risk as of the measurement date. The allowance is in conformity with the requirements established ~~based on management’s evaluation of the probable incurred losses inherent in our portfolio in accordance with GAAP,~~by ASC 326-Financial Instruments-Credit Losses. The new ACL guidance was adopted effective January 1, 2023, and is ~~comprised of both specific valuation allowances and general valuation allowances.~~

Aa departure from the allowance for loan ~~is classified as impaired when, based on current information and events, it is probable~~losses (ALLL) that the Corporation ~~will~~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 analyzed within a given pool, may necessitate being evaluated individually, based on management discretion. Individually analyzed loans are primarily valuated based on the collateral method, however, select loans may be ~~unable~~evaluated using a cash flow analysis. Pooled loans are segmented based on groups of assigned FFIEC call codes, in order to ~~collect both~~be granular enough to meaningfully capture the ~~principal and interest due under~~risk profile of each instrument, yet broad enough to accurately allow for the ~~contractual terms~~application of certain pool-level assumptions.

Quantitative analysis is based on an estimated discounted cash flow analysis (DCF) performed at the instrument level. The modeled reserve requirement equals the difference between the book balance of the loan agreement. Specific valuation allowances are established based on management’s analysis of individually impaired loans. Factors considered by management in determining impairment include payment status, evaluations ofinstrument at the ~~underlying collateral, expected cash flows, delinquent or unpaid property taxes,~~measurement date and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is determined to be impaired and is placed on non-accrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of ~~estimated future~~assumed cash flows ~~using~~for the ~~loan’s existing rate or at~~life of the ~~fair~~loan. The underlying assumptions of the DCF are based on the relationship a projected value of ~~collateral if repayment~~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 ~~expected solely from the collateral.~~

~~The general component covers non-impaired~~assigned to each potential value of an economic indicator for each pool of loans, and is ~~based~~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 ~~historical loss experience adjusted~~FOMC data as the source for ~~current qualitative factors. Loans not impaired but classified as substandard~~its readily available and ~~special mention use~~reasonable economic forecast. The forecasted values are applied over a ~~historical loss factor~~four quarter period, and revert back to the historic mean of a lookback period over an eight period horizon, on a ~~rolling five-year history~~straight-line basis.

Qualitative adjustments represent management's expectation of ~~net losses. For all other unclassified loans,~~certain risks not being captured entirely in the ~~historical loss experience is determined by portfolio class and is based~~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 ~~actual loss history experienced~~quantitative adjustment analysis include economic considerations potentially not captured by the ~~Corporation over~~model, changes in conditions within the most recent two years. This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio class. These qualitative factors include consideration of the following: (1)Bank such as lending ~~policies and procedures, including underwriting~~ standards, and collection, charge-off and recovery policies, (2) national and local economic and business conditions and developments, including the condition of various market segments, (3) loan profiles and volume of the portfolio, (4) the experience, ability, and depth of lending management and staff, (5) the volume and severity of past due, classified and watch-list loans, non-accrual loans, troubled debt restructurings, and other modifications (6) the quality of the Bank’s loan review system and the degree of oversight by the Bank’s Board of Directors, (7) collateral related issues: secured vs. unsecured, type, declining valuation environment and trend of other related factors, (8) the existence and effect of anypersonnel, concentrations of credit, ~~and changes in the level of such concentrations, (9) the effect of~~among others, as well as other external factors such as ~~competition and legal and regulatory requirements, on the level of estimated credit losses~~change in the ~~Bank’s current portfolio~~regulatory and ~~(10) the impact of the global economy.~~

competitive landscape.

The allowance for ~~loan~~credit losses is increased through a provision for ~~loan~~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 for credit losses" on the Corporation's Consolidated Statements of Income. Loans are charged against the allowance for ~~loan~~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 ~~loan~~credit losses is performed on a periodic basis and takes into consideration such factors as the ~~credit risk grade assigned to~~outcomes of the ~~loan, historical loan loss experience and~~quantitative analysis, a review of specific impaired ~~loans.~~loans, and considerations for qualitative adjustments. While management uses available information to recognize losses on ~~loans,~~credits, future additions to the allowance may be necessary based on ~~changes in~~changing economic ~~conditions.~~conditions or portfolio composition. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for ~~loan~~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 ~~loan~~credit losses was ~~$15.7~~$20.1 million at ~~September 30, 2017, up from $14.3~~March 31, 2023, and $19.7 million at December 31, ~~2016.~~2022. The allowance for credit losses was 259.66% of non-performing loans at March 31, 2023 compared to 240.39% at December 31, 2022. The ratio of allowance for ~~loan~~credit losses to total loans was ~~1.22%~~1.07% at ~~September 30, 2017, up from 1.19% at~~March 31, 2023, and December 31, ~~2016.~~2022. The increase in the allowance for credit losses was attributable to the impact of the implementation of ASU 2016-13, as well as increased loan volume. The quantitative portion of the ACL model was impacted by an improvement in the FOMC forecasted unemployment rate, which offset additional provisioning relating to loan growth and positive qualitative adjustments to certain pooled segments. Net charge-offs for ~~both~~ the ~~nine~~three months ended ~~September 30, 2017 and 2016~~March 31, 2023 were ~~$1.3~~$0.3 million, ~~and $1.0 million, respectively.~~compared to net recoveries for the three months ended March 31, 2022 of $48.0 thousand.

The table below summarizes the Corporation’s allowance for credit losses and non-accrual loans outstanding by loan category at March 31, 2023, and the allowance for loan losses and non-accrual loans outstanding by loan category at December 31, 2022 (in thousands):


ALLOWANCE BY LOAN CATEGORY

Balance at March 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	$	4,053	1.66	%	$	1,623	0.66	%	249.72	%
Commercial mortgages	10,983		1.06	%	3,647		0.35	%	301.15	%
Residential mortgages	1,892		0.66	%	1,036		0.36	%	182.63	%
Consumer loans	3,147		1.03	%	1,425		0.46	%	220.84	%
Total	$	20,075	1.07	%	$	7,731	0.41	%	259.66	%

Balance at December 31, 2022	Allowance for loan losses		Allowance to loans1		Non-performing loans		Non-performing loans to loans1		Allowance to non-performing loans
Commercial and agricultural	$	3,373	1.34	%	$	1,946	0.77	%	173.33	%
Commercial mortgages	11,576		1.16	%	3,933		0.39	%	294.33	%
Residential mortgages	1,845		0.65	%	986		0.35	%	187.12	%
Consumer loans	2,865		0.97	%	1,313		0.45	%	218.20	%
Total	$	19,659	1.07	%	$	8,178	0.45	%	240.39	%
1 Ratio is a percentage of loan category.

The table below summarizes the Corporation’s consolidated credit ratios at March 31, 2023 and December 31, 2022:


Consolidated Ratios	March 31, 2023		December 31, 2022
Non-performing loans to total loans	0.41	%	0.45	%
Allowance for credit losses to total loans	1.07	%	1.07	%
Allowance for credit losses to non-performing loans	259.66	%	240.39	%

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, 2023 and March 31, 2022:


Credit Ratios	March 31, 2023		March 31, 2022
Commercial and agricultural	0.07	%	—	%
Commercial mortgages	—	%	—	%
Residential mortgages	—	%	—	%
Consumer loans	0.04	%	(0.02)	%
Total	0.02	%	—	%

The table below summarizes the Corporation’s credit loss experience for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016~~2022 (in ~~thousands, except ratio data)~~thousands):


SUMMARY OF CREDIT LOSS EXPERIENCE
	Three Months Ended March 31,
	2023		2022
Balance of allowance for credit losses at beginning of period	$	19,659	$	21,025
Impact of ASC 326 Adoption	374		—
Charge-offs:
Commercial and agricultural	190		4
Commercial mortgages	—		—
Residential mortgages	—		—
Consumer loans	193		194
Total charge-offs	$	383	$	198

Recoveries:
Commercial and agricultural	6		6
Commercial mortgages	—		1
Residential mortgages	—		—
Consumer loans	108		239
Total recoveries	$	114	$	246

Net charge-offs (recoveries)	269		(48)
Provision (credit) for credit losses on-balance sheet exposure1	311		(1,145)

Balance of allowance for credit losses at end of period	$	20,075	$	19,928

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

Other Real Estate Owned

OREO totaled $0.2 million at March 31, 2023, and December 31, 2022, respectively. There were no changes to other real estate owned in the first three months of 2023.

SUMMARY OF LOAN LOSS EXPERIENCE
Nine Months Ended
September 30,
2017 2016
Balance at beginning of period $ 14,253
$ 14,260

Charge-offs:

Commercial and agricultural 96
121
Commercial mortgages 154
52
Residential mortgages 193
65
Consumer loans 1,265
995
Total charge-offs 1,708
1,233

Recoveries:

Commercial and agricultural 95
65
Commercial mortgages 4
10
Residential mortgages 30
—
Consumer loans 270
190
Total recoveries 399
265

Net charge-offs 1,309
968
Provision for loan losses 2,750
2,033
Balance at end of period $ 15,694
$ 15,325

Ratio of net charge-offs to average loans outstanding 0.14 % 0.11 %
Ratio of allowance for loan losses to total loans outstanding 1.22 % 1.26 %

Deposits

The table below summarizes the Corporation’s deposit composition by segment ~~for the periods indicated,~~at March 31, 2023, and December 31, 2022, and the dollar and percent change from December 31, ~~2016~~2022 to ~~September 30, 2017~~March 31, 2023 (in thousands):


DEPOSITS
									March 31, 2023 v. December 31, 2022
	March 31, 2023				December 31, 2022
	Amount		% of Total		Amount		% of Total		$ Change		% Change
Non-interest-bearing demand deposits	$	690,596	29.7	%	$	733,329	31.4	%	$	(42,733)	(5.8)	%
Interest-bearing demand deposits	287,242		12.3	%	271,645		11.7	%	15,597		5.7	%
Money market accounts	631,052		27.1	%	640,840		27.5	%	(9,788)		(1.5)	%
Savings deposits	271,445		11.6	%	279,029		12.0	%	(7,584)		(2.7)	%
Certificates of deposit $250,000 or less	263,274		11.3	%	272,182		11.7	%	(8,908)		(3.3)	%
Certificates of deposit greater than $250,000	35,349		1.5	%	31,547		1.4	%	3,802		12.1	%
Brokered deposits	126,777		5.4	%	73,452		3.2	%	53,325		72.6	%
Other time deposits	26,694		1.1	%	25,203		1.1	%	1,491		5.9	%
Total	$	2,332,429	100.0	%	$	2,327,227	100.0	%	$	5,202	0.2	%

DEPOSITS
September 30, 2017 December 31, 2016 Dollar Change Percentage Change
Non-interest-bearing demand deposits $ 449,841
$ 417,812
$ 32,029
7.7 %
Interest-bearing demand deposits 156,094
136,826
19,268
14.1 %
Insured money market accounts 586,795
548,963
37,832
6.9 %
Savings deposits 218,106
208,636
9,470
4.5 %
Time deposits 126,182
144,106
(17,924 ) (12.4 )%
Total $ 1,537,018
$ 1,456,343
$ 80,675
5.5 %

Deposits totaled ~~$1.537~~$2.332 billion at ~~September 30, 2017~~March 31, 2023 compared ~~with $1.456~~to $2.327 billion at December 31, ~~2016,~~2022, an increase of ~~$80.7~~$5.2 million, or ~~5.5%~~0.2%. The increase was primarily attributable to increases of ~~$32.0~~$49.7 million in time deposits, and $15.6 million in interest-bearing demand deposits, offset by decreases of $42.7 million in non-interest bearing demand deposits, ~~$19.3~~$9.8 million in ~~interest-bearing demand deposits, $37.8 million in~~insured money market accounts, and ~~$9.5~~$7.6 million in savings deposits. ~~These items were~~The growth in deposits was due primarily to increases of $0.4 million in consumer deposits, $4.6 million in public deposits, $16.4 million in ICS deposits, and $53.3 million in brokered deposits, offset by ~~a decrease~~decreases of ~~$17.9~~$40.5 million in ~~time~~commercial deposits, and $29.0 million in CDARS deposits. ~~The changes in money market accounts can be attributed to new municipal clients, along with the seasonal inflow of deposits from current municipal clients, and commercial clients~~ At ~~September 30, 2017,~~March 31, 2023, demand deposit and money market accounts comprised ~~77.6%~~69.0% of total deposits compared ~~with 75.8%~~to 70.7% at December 31, ~~2016.~~2022. The aggregate amount of the Corporation's outstanding uninsured deposits (net of deposits pledged to secure municipal deposits), was 21.2% and 23.5% of total deposits, as of March 31, 2023 and December 31, 2022, respectively.

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


DEPOSITS BY DIVISION	DEPOSITS BY DIVISION										DEPOSITS BY DIVISION
	September 30, 2017		December 31, 2016		December 31, 2015		December 31, 2014		December 31, 2013			March 31, 2023		December 31, 2022		December 31, 2021		December 31, 2020		December 31, 2019
Chemung Canal Trust Company*	$	1,323,713	$	1,249,870	$	1,219,282	$	1,119,377	$	1,097,920	Chemung Canal Trust Company*	$	1,927,258	$	1,892,020	$	1,739,826	$	1,686,370	$	1,317,225
Capital Bank Division	213,305		206,473		181,013		160,637		168,336		Capital Bank Division	405,171		435,207		415,607		351,404		254,913
Total loans	$	1,537,018	$	1,456,343	$	1,400,295	$	1,280,014	$	1,266,256

Total											Total	$	2,332,429	$	2,327,227	$	2,155,433	$	2,037,774	$	1,572,138

*All deposits, excluding those originated by the Capital Bank ~~Division.~~division.

In addition to consumer, commercial and public deposits, other sources of funds include reciprocal brokered deposits. ~~Brokered~~The Regulatory Relief Act changed the definition of brokered deposits, ~~include funds~~such that subject to certain conditions, reciprocal deposits of another depository institution obtained through ~~brokers, and~~a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the ~~Bank’s~~FDIC’s brokered-deposit regulations. This will apply to the Corporation's participation in the CDARS and ICS programs. ~~There were no~~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 as of September 30, 2017 and December 31, 2016.~~brokers. Deposits obtained through the CDARS and ICS programs were ~~$242.4 million and $203.7~~$355.0 million as of ~~September 30, 2017~~March 31, 2023, including $126.8 million of brokered deposits, and $368.2 million as of December 31, ~~2016, respectively. The increase in CDARS and ICS deposits was due to the Corporation offering the programs to new municipal clients, in addition to the seasonal inflow~~2022, which included $73.5 million of ~~current municipal client balances.~~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) acquire 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) link business and consumer loans to the customer's primary checking account at the Bank, (v) aggressively promote direct deposit of client’s payroll checks or benefit checks and (vi) constantly monitor 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 ~~anticipates that it will continue using~~uses brokered deposits as a secondary source of funding to support growth.

Borrowings

Borrowings decreased ~~$17.7~~$5.8 million to $93.3 million at March 31, 2023 from December 31, 2022, primarily attributable to a decrease in FHLBNY overnight advances when compared to December 31, 2022. There were no outstanding FHLBNY term advances as of and for the three months and year ended March 31, 2023, and December 31, 2022, respectively.

Shareholders’ Equity

Total shareholders' equity increased $10.9 million from ~~$36.7~~$166.4 million at December 31, ~~2016~~2022 to ~~$19.0~~$177.3 million at September 30, 2017, mostly attributed to a decline in securities sold under agreements to repurchase. Securities sold under agreements to repurchase decreased $17.6 million from $27.6 million at DecemberMarch 31, 2016 to $10.0 million at September 30, 2017. The decrease in securities sold under agreements to repurchase was related to the maturity of one $10.0 million repurchase agreement and the discontinuation of the Bank's customer repurchase agreement product during 2017.

~~Shareholders’ Equity~~

~~Shareholders’ equity was $154.3 million at September 30, 2017 compared with $143.7 million at December 31, 2016. The increase was~~2023, primarily due to ~~earnings of $9.6 million, a $0.5 million increase in additional paid in capital, a reduction of $0.7 million in treasury stock, and~~ a decrease ~~of $3.5 million~~ in accumulated other comprehensive loss, and an increase in retained earnings. The decrease in accumulated other comprehensive loss of $5.8 million can be mostly attributed to an increase in the fair market value of the available for sale securities portfolio. The increase in retained earnings of $4.7 million was due primarily to earnings of $7.3 million, offset by ~~$3.7~~$1.5 million in dividends declared, and a $1.5 million one-time adjustment due to the implementation of CECL, during the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2023. Treasury stock decreased $0.4 million, primarily due to the impact of 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 ~~8.91%~~6.68% at ~~September 30, 2017~~March 31, 2023 compared ~~with 8.67%~~to 6.29% at December 31, ~~2016.~~2022. The tangible equity to tangible assets ratio was ~~7.62%~~5.91% at ~~September 30, 2017~~March 31, 2023 compared ~~with 7.29%~~to 5.51% at December 31, ~~2016.~~2022. Book value per share increased to ~~$32.11~~$37.53 at ~~September 30, 2017~~March 31, 2023 from ~~$30.07~~$35.32 at December 31, ~~2016.~~2022.

The ~~Corporation and the~~ Bank ~~are~~is subject to capital adequacy guidelines of the Federal Reserve which establish a framework for the classification of financial ~~holding companies and financial~~ institutions into five categories: well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized. As of ~~September 30, 2017,~~March 31, 2023, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital ~~guidelines and~~guidelines.

When shares of the Corporation ~~met capital requirements under regulatory guidelines.~~

~~Off-balance Sheet Arrangements~~

~~See Note 9 – Commitments and Contingencies~~become available in the ~~Notes~~market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions. Purchases may be made from time to ~~Unaudited Consolidated Financial Statements for~~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 ~~discussion~~new stock repurchase program. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of ~~off-balance sheet arrangements.~~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 2023. As of March 31, 2023, the Corporation repurchased a total of 49,184 shares of common stock at a total cost of $2.0 million under the repurchase program, at the weighted average cost of $40.42 per share. Remaining buyback authority under the share repurchase program was 200,816 shares at March 31, 2023.

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 $100,000 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 provide 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.

At March 31, 2023, the Corporation's cash and cash equivalents balance was $34.6 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of mortgage-backed securities 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, 2023, the Corporation's investment in securities available for sale was $626.1 million, $368.4 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 $235.0 million and $228.4 million of first mortgage loans under a blanket lien arrangement at March 31, 2023 and December 31, 2022, respectively, as collateral for future borrowings. Based on this available collateral and current advances outstanding, the Corporation was eligible to borrow up to a total of ~~$126.2~~$201.1 million and ~~$131.6~~$195.6 million at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, respectively. The Corporation borrowed $90.1 million and $95.8 million with FHLBNY overnight advances as of March 31, 2023 and December 31, 2022, respectively. The Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $111.0 million as of March 31, 2023.

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 $126.8 million and $73.5 million, as of March 31, 2023 and December 31, 2022, respectively.

The Corporation also had a total of ~~$38.0~~$60.0 million of unsecured lines of credit with five different financial institutions, all of which was available at ~~September 30, 2017. The Corporation had a total of $28.0~~March 31, 2023, and $68.0 million of unsecured lines of credit with ~~four~~six different financial institutions, all of which was available at December 31, ~~2016.~~2022.

The table below summarizes the Corporation’s unused funding capacity by source as of the dates indicated (in thousands):


ADDITIONAL FUNDING CAPACITY
	March 31, 2023		December 31, 2022
Federal Home Loan Bank of New York	$	111,049	$	99,761
Correspondent bank lines	60,000		68,000
Brokered deposits available per policy limit	138,642		174,465
Unpledged investment securities, at fair value	368,370		420,671
Less: Uninsured deposits	(493,659)		(548,013)
Total Additional Funding Capacity	$	184,402	$	214,884

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 can 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. There will be no fees with the advance. Certain U.S. federally insured depository institutions are eligible to participate in the BTFP. The Bank is eligible to to participate but as of March 31, 2023, the Bank has not participated in the BTFP. The advances, which may have a term of up to one year, may be prepaid by the borrowing institution at any time (including for purposes of refinancing) without penalty. Also available to the Corporation is the Discount Window Lending provided by the Federal Reserve Bank. As of March 31, 2023, the Bank had no collateral held at the Federal Reserve Bank. The Corporation is reviewing the options to utilize these sources.

With respect to the Corporation's credit risk and lending activities, management has taken actions to identify and assess additional possible credit exposure due to the changing environment caused by the COVID-19 crisis based upon the industry types within our current loan portfolio. Lending risks, as mentioned, are being monitored by industry, based upon NAICS code, with specific attention being paid to those industries that may experience greater stress during this time.

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,
	2023		2022
Net cash provided by operating activities	$	10,687	$	5,984
Net cash used in investing activities	(29,923)		(44,977)
Net cash (used) provided by financing activities	(1,991)		77,495
Net increase (decrease) in cash and cash equivalents	$	(21,227)	$	38,502

CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands)
Nine Months Ended
September 30,
2017 2016
Net cash provided by operating activities $ 16,585
$ 19,781
Net cash (used in) provided by investing activities (93,954 ) (3,218 )
Net cash provided by financing activities 59,585
92,756
Net increase (decrease) in cash and cash equivalents $ (17,784 ) $ 109,319

Operating activities

The Corporation believes cash flows from operations, available cash balances and its ability to generate cash through short-term and long-term borrowings are sufficient to fund the Corporation’s operating liquidity needs.

Cash provided by operating activities in the first ~~nine~~three months of ~~2017~~2023 and ~~2016~~2022 predominantly resulted from net income after non-cash operating adjustments.

Investing activities

Cash used in investing activities during the first ~~nine~~three months of ~~2017~~2023 predominantly resulted from a net increase in loans, offset by maturities and principal paydowns on securities available for sale. Cash used in investing activities during the first three months of 2022 predominantly resulted from a net increase in loans and purchases of securities available for sale, offset by ~~sales, calls,~~ maturities and principal ~~collected in~~paydowns on securities available for sale.

Financing activities

Cash used ~~in investing~~by financing activities during the first ~~nine~~three months of ~~2016~~2023 predominantly resulted from ~~purchases~~a net the repayment of ~~securities available for sale and~~overnight advances held at the end of the prior quarter, offset by a net increase in ~~loans, offset by sales, calls, maturities, and principal collected on securities available for sale.~~

~~Financing activities~~

deposits. Cash provided by financing activities during the first ~~nine~~three months of ~~2017 and 2016~~2022 predominantly resulted from a net increase in deposits, offset by the ~~decrease in repurchase agreements and the redemption~~repayment of ~~FHLBNY~~ overnight advances ~~that were no longer needed with~~held at the ~~inflow~~end of ~~municipal deposits in 2016.~~the prior quarter.

Capital Resources

The ~~Corporation and the~~ Bank ~~are~~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. The final rules implementing Basel III rules became effective for the Corporation on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under Basel III rules, the

~~Corporation~~ Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is ~~being phased in from 0.0% for 2015~~2.50%. Organizations that fail to ~~2.50% by 2019. The~~maintain the minimum capital conservation buffer ~~for 2017 is 1.25%.~~could face restrictions on capital distributions or discretionary bonus payments to executive officers. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital. ~~Management believes as~~

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 ~~September 30, 2017,~~ the ~~Corporation~~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 ~~Bank meet all capital adequacy requirements to which they are subject.~~community bank leverage ratio.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. Management believes that, as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016, the Corporation and~~2022, the Bank met all capital adequacy requirements to which ~~they were~~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 ~~September 30, 2017,~~March 31, 2023, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below. There have been no conditions or events since that notification that management believes have changed the Bank's ~~or the Corporation's~~ capital category.

The regulatory capital ratios as of ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

The ~~Corporation’s~~Corporation and the Bank’s ~~actual and required regulatory~~ capital ratios ~~for the periods indicated,~~as of March 31, 2023 were as follows (in thousands, except ratio data):


	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2023	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	246,113	12.81	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	236,731	12.34	%	$	153,475	8.00	%	$	201,435	10.50	%	$	191,843	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	224,990	11.71	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	215,608	11.24	%	$	115,106	6.00	%	$	163,067	8.50	%	$	153,475	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	224,990	11.71	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	215,608	11.24	%	$	86,329	4.50	%	$	134,290	7.00	%	$	124,698	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	224,990	8.31	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	215,608	7.98	%	$	108,123	4.00	%	N/A		N/A		$	135,154	5.00	%

Actual Minimum Capital Adequacy Minimum Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2017 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 153,705
12.08 % $ 101,810
8.00 % $ 117,718
9.250 % N/A
N/A
Bank $ 147,032
11.57 % $ 101,685
8.00 % $ 117,573
9.250 % $ 127,106
10.00 %
Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 137,894
10.84 % $ 76,358
6.00 % $ 92,265
7.250 % N/A
N/A
Bank $ 131,306
10.33 % $ 76,264
6.00 % $ 92,152
7.250 % $ 101,685
8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 137,894
10.84 % $ 57,268
4.50 % $ 73,176
5.750 % N/A
N/A
Bank $ 131,306
10.33 % $ 57,198
4.50 % $ 73,086
5.750 % $ 82,619
6.50 %
Tier 1 Capital (to Average Assets):

Consolidated $ 137,894
8.18 % $ 67,432
4.00 % N/A
N/A
N/A
N/A
Bank $ 131,306
7.81 % $ 67,270
4.00 % N/A
N/A
$ 84,088
5.00 %
The Corporation and the Bank’s capital ratios as of December 31, 2022 were as follows (in thousands, except ratio data):


	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2022	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	239,478	12.57	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	230,560	12.10	%	$	152,414	8.00	%	$	200,044	10.50	%	$	190,518	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	219,820	11.54	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	210,901	11.07	%	$	114,311	6.00	%	$	161,940	8.50	%	$	152,414	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	219,820	11.54	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	210,901	11.07	%	$	85,733	4.50	%	$	133,363	7.00	%	$	123,837	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	219,820	8.23	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	210,901	7.91	%	$	106,616	4.00	%	N/A		N/A		$	133,270	5.00	%

Actual Required To Be Adequately Capitalized Minimum Capital Adequacy with Capital Buffer Required To Be Well Capitalized
As of December 31, 2016 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 145,269
12.14 % $ 95,748
8.00 % $ 103,229
8.625 % N/A
N/A
Bank $ 140,020
11.71 % $ 95,640
8.00 % $ 103,112
8.625 % $ 119,550
10.00 %
Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 130,911
10.94 % $ 71,811
6.00 % $ 79,292
6.625 % N/A
N/A
Bank $ 125,736
10.52 % $ 71,730
6.00 % $ 79,202
6.625 % $ 95,640
8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 130,911
10.94 % $ 53,858
4.50 % $ 61,339
5.125 % N/A
N/A
Bank $ 125,736
10.52 % $ 53,798
4.50 % $ 61,270
5.125 % $ 77,708
6.50 %
Tier 1 Capital (to Average Assets):

Consolidated $ 130,911
7.81 % $ 67,031
4.00 % N/A
N/A
N/A
N/A
Bank $ 125,736
7.52 % $ 66,919
4.00 % N/A
N/A
$ 83,649
5.00 %

Dividend Restrictions

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table ~~below.~~above. At ~~September 30, 2017,~~March 31, 2023, the Bank could, without prior approval, declare dividends of approximately ~~$17.3~~$46.6 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.

~~Critical Accounting Policies, Estimates and Risks and Uncertainties~~

Critical accounting policies 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.

Management considers the accounting policy relating to the allowance for loan losses to be a critical accounting policy given the uncertainty in evaluating the level of the allowance required to cover probable incurred credit losses inherent in the loan portfolio, and the material effect that such judgments can have on the Corporation's results of operations. While management's current evaluation of the allowance for loan losses indicates that the allowance is adequate, under adversely different conditions or assumptions the allowance would need to be increased. For example, if historical loan loss experience significantly worsened or if current economic conditions significantly deteriorated, additional provisions for loan losses would be required to increase the allowance. In addition, the assumptions and estimates used in the internal reviews of the Corporation's non-performing loans and potential problem loans, and the associated evaluation of the related collateral coverage for these loans, has a significant impact on the overall analysis of the adequacy of the allowance for loan losses. Real estate values in the Corporation’s market area did not increase dramatically in the prior several years, and, as a result, any declines in real estate values have been modest. While management has concluded that the current evaluation of collateral values is reasonable under the circumstances, if collateral evaluations were significantly lowered, the Corporation's allowance for loan losses policy would also require additional provisions for loan losses.

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 ~~6–11.~~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 its competitors. 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 ~~new~~ 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 ~~and Efficiency Ratio~~

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



	As of the Three Months Ended
(in thousands, except ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT	2023			2022			2022			2022			2022
Net interest income (GAAP)	$	19,947		$	20,871		$	18,990		$	17,641		$	16,677
Fully taxable equivalent adjustment	98			112			112			103			99
Fully taxable equivalent net interest income (non-GAAP)	$	20,045		$	20,983		$	19,102		$	17,744		$	16,776

Average interest-earning assets (GAAP)	$	2,592,709		$	2,550,834		$	2,457,218		$	2,395,704		$	2,371,275

Net interest margin - fully taxable equivalent (non-GAAP)	3.14		%	3.26		%	3.08		%	2.97		%	2.87		%

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 ~~measures~~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.


																As of the
	As of the Three Months Ended															Nine Months Ended							As of the Three Months Ended
(in thousands, except ratio data)	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,			Sept. 30,			Sept. 30,			(in thousands, except ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2017			2017			2017			2016			2016			2017			2016
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT AND EFFICIENCY RATIO
EFFICIENCY RATIO																						EFFICIENCY RATIO	2023			2022			2022			2022			2022
Net interest income (GAAP)	$	14,763		$	13,950		$	13,494		$	13,296		$	13,040		$	42,207		$	39,033		Net interest income (GAAP)	$	19,947		$	20,871		$	18,990		$	17,641		$	16,677
Fully taxable equivalent adjustment	220			192			169			154			154			581			477			Fully taxable equivalent adjustment	98			112			112			103			99
Fully taxable equivalent net interest income (non-GAAP)	$	14,983		$	14,142		$	13,663		$	13,450		$	13,194		$	42,788		$	39,510		Fully taxable equivalent net interest income (non-GAAP)	$	20,045		$	20,983		$	19,102		$	17,744		$	16,776

Non-interest income (GAAP)	$	5,166		$	5,022		$	4,847		$	4,897		$	5,435		$	15,035		$	16,252		Non-interest income (GAAP)	$	5,423		$	5,418		$	5,036		$	5,319		$	5,663

Less: net (gains) losses on security transactions	—			(12		)	—			(4		)	(75		)	(12		)	(983		)	Less: net (gains) losses on security transactions	—			—			—			—			—
Adjusted non-interest income (non-GAAP)	$	5,166		$	5,010		$	4,847		$	4,893		$	5,360		$	15,023		$	15,269		Adjusted non-interest income (non-GAAP)	$	5,423		$	5,418		$	5,036		$	5,319		$	5,663

Non-interest expense (GAAP)	$	13,276		$	14,332		$	13,045		$	13,561		$	13,471		$	40,653		$	43,049		Non-interest expense (GAAP)	$	15,836		$	15,693		$	14,577		$	14,342		$	14,668
Less: amortization of intangible assets	(214		)	(213		)	(226		)	(238		)	(245		)	(653		)	(748		)	Less: amortization of intangible assets	—			—			—			(4)			(11)
Less: legal reserve	—			(850		)	—			—			—			(850		)	(1,200		)

Adjusted non-interest expense (non-GAAP)	$	13,062		$	13,269		$	12,819		$	13,323		$	13,226		$	39,150		$	41,101		Adjusted non-interest expense (non-GAAP)	$	15,836		$	15,693		$	14,577		$	14,338		$	14,657

Average interest-earning assets (GAAP)	$	1,615,833		$	1,634,955		$	1,605,460		$	1,607,287		$	1,577,348		$	1,618,788		$	1,559,500

Net interest margin - fully taxable equivalent (non-GAAP)	3.68		%	3.47		%	3.45		%	3.33		%	3.33		%	3.53		%	3.38		%
Efficiency ratio (non-GAAP)	64.83		%	69.28		%	69.25		%	72.63		%	71.28		%	67.72		%	75.03		%
Efficiency ratio (unadjusted)																						Efficiency ratio (unadjusted)	62.42		%	59.69		%	60.67		%	62.47		%	65.66		%
Efficiency ratio (adjusted)																						Efficiency ratio (adjusted)	62.18		%	59.44		%	60.40		%	62.17		%	65.32		%

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.



	As of or for the Three Months Ended
(in thousands, except per share and ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
TANGIBLE EQUITY AND TANGIBLE ASSETS (PERIOD END)	2023			2022			2022			2022			2022
Total shareholders' equity (GAAP)	$	177,341		$	166,388		$	155,518		$	174,690		$	185,510
Less: intangible assets	(21,824)			(21,824)			(21,824)			(21,824)			(21,828)
Tangible equity (non-GAAP)	$	155,517		$	144,564		$	133,694		$	152,866		$	163,682

Total assets (GAAP)	$	2,654,183		$	2,645,553		$	2,551,418		$	2,449,911		$	2,474,895
Less: intangible assets	(21,824)			(21,824)			(21,824)			(21,824)			(21,828)
Tangible assets (non-GAAP)	$	2,632,359		$	2,623,729		$	2,529,594		$	2,428,087		$	2,453,067

Total equity to total assets at end of period (GAAP)	6.68		%	6.29		%	6.10		%	7.13		%	7.49		%
Book value per share (GAAP)	$	37.53		$	35.32		$	33.14		$	37.24		$	39.56

Tangible equity to tangible assets at end of period (non-GAAP)	5.91		%	5.51		%	5.29		%	6.30		%	6.67		%
Tangible book value per share (non-GAAP)	$	32.91		$	30.69		$	28.49		$	32.59		$	34.91

As of or for the
As of or for the Three Months Ended Nine Months Ended
(in thousands, except per share and ratio data) Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
2017 2017 2017 2016 2016 2017 2016
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP) $ 154,277
$ 151,962
$ 148,257
$ 143,748
$ 144,812
$ 154,277
$ 144,812
Less: intangible assets (24,116 ) (24,330 ) (24,543 ) (24,769 ) (25,007 ) (24,116 ) (25,007 )
Tangible equity (non-GAAP) $ 130,161
$ 127,632
$ 123,714
$ 118,979
$ 119,805
$ 130,161
$ 119,805

Total assets (GAAP) $ 1,731,682
$ 1,718,572
$ 1,736,100
$ 1,657,179
$ 1,728,865
$ 1,731,682
$ 1,728,865
Less: intangible assets (24,116 ) (24,330 ) (24,543 ) (24,769 ) (25,007 ) (24,116 ) (25,007 )
Tangible assets (non-GAAP) $ 1,707,566
$ 1,694,242
$ 1,711,557
$ 1,632,410
$ 1,703,858
$ 1,707,566
$ 1,703,858

Total equity to total assets at end of period (GAAP) 8.91 % 8.84 % 8.54 % 8.67 % 8.38 % 8.91 % 8.38 %
Book value per share (GAAP) $ 32.11
$ 31.67
$ 30.93
$ 30.07
$ 30.37
$ 32.11
$ 30.37

Tangible equity to tangible assets at end of period (non-GAAP) 7.62 % 7.53 % 7.23 % 7.29 % 7.03 % 7.62 % 7.03 %
Tangible book value per share (non-GAAP) $ 27.09
$ 26.60
$ 25.81
$ 24.89
$ 25.13
$ 27.09
$ 25.13

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.



	As of or for the Three Months Ended
(in thousands, except ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
TANGIBLE EQUITY (AVERAGE)	2023			2022			2022			2022			2022
Total average shareholders' equity (GAAP)	$	173,786		$	160,740		$	180,644		$	178,207		$	203,613
Less: average intangible assets	(21,824)			(21,824)			(21,824)			(21,825)			(21,835)
Average tangible equity (non-GAAP)	$	151,962		$	138,916		$	158,820		$	156,382		$	181,778

Return on average equity (GAAP)	16.97		%	18.36		%	14.17		%	18.06		%	13.68		%
Return on average tangible equity (non-GAAP)	19.40		%	21.25		%	16.12		%	20.58		%	15.32		%

As of or for the
As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except ratio data) 2017 2017 2017 2016 2016 2017 2016
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP) $ 153,244
$ 150,155
$ 146,642
$ 143,388
$ 144,631
$ 150,038
$ 142,745
Less: average intangible assets (24,220 ) (24,435 ) (24,654 ) (24,886 ) (25,127 ) (24,435 ) (25,373 )
Average tangible equity (non-GAAP) $ 129,024
$ 125,720
$ 121,988
$ 118,502
$ 119,504
$ 125,603
$ 117,372

Return on average equity (GAAP) 9.46 % 7.90 % 8.24 % 8.20 % 7.55 % 8.54 % 6.62 %
Return on average tangible equity (non-GAAP) 11.24 % 9.43 % 9.90 % 9.92 % 9.14 % 10.21 % 8.05 %

Adjustments for Certain Items of Income or Expense

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


																As of or for the
	As of or for the Three Months Ended															Nine Months Ended							As of or for the Three Months Ended
(in thousands, except per share and ratio data)	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,			Sept. 30,			Sept. 30,			(in thousands, except per share and ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2017			2017			2017			2016			2016			2017			2016
NON-GAAP NET INCOME																						NON-GAAP NET INCOME	2023			2022			2022			2022			2022
Reported net income (GAAP)	$	3,654		$	2,956		$	2,979		$	2,954		$	2,745		$	9,589		$	7,073		Reported net income (GAAP)	$	7,270		$	7,439		$	6,453		$	8,024		$	6,867

Net (gains) losses on security transactions (net of tax)	—			(8		)	—			(2		)	(47		)	(8		)	(612		)	Net (gains) losses on security transactions (net of tax)	—			—			—			—			—
Legal reserve (net of tax)	—			528			—			—			—			528			747

Non- GAAP net income	$	3,654		$	3,476		$	2,979		$	2,952		$	2,698		$	10,109		$	7,208		Non- GAAP net income	$	7,270		$	7,439		$	6,453		$	8,024		$	6,867

Average basic and diluted shares outstanding	4,802			4,797			4,790			4,773			4,765			4,796			4,758			Average basic and diluted shares outstanding	4,721			4,698			4,692			4,690			4,689

Reported basic and diluted earnings per share (GAAP)	$	0.76		$	0.62		$	0.62		$	0.62		$	0.58		$	2.00		$	1.49		Reported basic and diluted earnings per share (GAAP)	$	1.54		$	1.58		$	1.37		$	1.72		$	1.46
Reported return on average assets (GAAP)	0.85		%	0.69		%	0.71		%	0.69		%	0.65		%	0.75		%	0.57		%	Reported return on average assets (GAAP)	1.12		%	1.15		%	1.02		%	1.32		%	1.14		%
Reported return on average equity (GAAP)	9.46		%	7.90		%	8.24		%	8.20		%	7.55		%	8.54		%	6.62		%	Reported return on average equity (GAAP)	16.97		%	18.36		%	14.17		%	18.06		%	13.68		%

Non-GAAP basic and diluted earnings per share	$	0.76		$	0.72		$	0.62		$	0.62		$	0.57		$	2.10		$	1.51		Non-GAAP basic and diluted earnings per share	$	1.54		$	1.58		$	1.37		$	1.72		$	1.46
Non-GAAP return on average assets	0.85		%	0.81		%	0.71		%	0.69		%	0.64		%	0.79		%	0.58		%	Non-GAAP return on average assets	1.12		%	1.15		%	1.02		%	1.32		%	1.14		%
Non-GAAP return on average equity	9.46		%	9.29		%	8.24		%	8.19		%	7.42		%	9.01		%	6.75		%	Non-GAAP return on average equity	16.97		%	18.36		%	14.17		%	18.06		%	13.68		%

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

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

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

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates. It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon ~~a 200-basis~~various basis point ~~change~~changes in interest rates, with appropriate floors set for interest-bearing liabilities. At ~~September 30, 2017,~~March 31, 2023, it is estimated that an immediate ~~200-basis~~100-basis point decrease in interest rates would ~~negatively~~positively impact the next 12 months net interest income by ~~10.43%~~3.27% and an immediate 200-basis point increase would ~~negatively~~positively impact the next 12 months net interest income by ~~8.37%~~2.32%. Both are within the Corporation's policy guideline of 15%. Given the overall low level of current interest rates and the unlikely event of a 200-basis point decline from this point, management additionally modeled an immediate 100-basis point decline and an immediate 300-basis point increase in interest rates. When applied, it is estimated these scenarios would result in negative impacts to net interest income of 5.65% and 12.69%, respectively.guidelines.

A related component of interest rate risk is the expectation that the market value of the Corporation’s ~~capital~~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 ~~shrinkage~~a decline in market value. At ~~September 30, 2017,~~March 31, 2023, it is estimated that an immediate ~~200-basis~~100-basis point decrease in interest rates would ~~negatively~~positively impact the market value of the Corporation’s capital account by ~~13.30% and an~~4.18%. An immediate 200-basis point increase in interest rates would negatively impact the market value by ~~4.15%~~1.56%. Both are within the ~~Corporation’s~~Corporation's policy guideline of 15%. Management also modeled the impact to the market value of the Corporation’s capital with an immediate 100-basis point decline and an immediate 300-basis point increase in interest rates, based on the current interest rate environment. When applied, it is estimated these scenarios would result in negative impacts to the market value of the Corporation’s capital of 6.13% and 6.38%, respectively.guidelines.

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 ~~loan~~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 member)~~(non-voting), Chief Credit and Risk Officer, ~~(non-voting member),~~ 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.

ITEM 4:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of ~~September 30, 2017~~March 31, 2023 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Corporation's disclosure controls and procedures are effective as of ~~September 30, 2017. In addition,~~March 31, 2023.

Effective January 1, 2023, the Corporation adopted ASU 2016-13, Topic 326, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The Corporation designed new controls and modified existing controls as part of its adoption. These additional controls over financial reporting included controls over model creation and design, model governance, assumptions, and expanded controls over loan level data. Other than as described above, 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.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~For information related~~On February 4, 2020, the Corporation filed a lawsuit against Pioneer Bank, Albany, New York, in the Supreme Court of the State of New York in the County of Albany. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, the Bank owns a participating interest totaling $4.2 million in an approximately $36.0 million commercial credit facility on which the borrower defaulted due to ~~this item, please see Note 9~~fraudulent activity. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Corporation received a recovery of $0.5 million in April, 2020, and continues to pursue recovery of the remaining $3.7 million and accumulated expenses as a result of purchasing the participation interest.

Other than as noted above, the Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity as of March 31, 2023.

ITEM 1A. RISK FACTORS

In addition to the ~~Corporation’s financial statements included herein.~~

~~ITEM 1A. RISK FACTORS~~

~~There have been no~~other information contained in this Quarterly Report on Form 10-Q, the following risk factor represent a material ~~changes in~~update and addition to the risk factors ~~set forth~~previously disclosed in ~~the Corporation's~~our Annual Report on Form 10-K for the year ended December 31, ~~2016, filed with~~2022. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the ~~Securities~~extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

Recent events involving the failure of financial institutions may adversely affect our business, and ~~Exchange Commission~~the market price of our common stock.

Recent developments and events in the financial services industry, including the large-scale deposit withdrawals over a short period of time at Silicon Valley Bank, Signature Bank and First Republic Bank that resulted in the failure of those institutions have resulted in decreased confidence in banks among depositors, other counterparties and investors, as well as significant disruption, volatility and reduced valuations of equity and other securities of banks in the capital markets. These events have occurred against the backdrop of a rapidly rising interest rate environment which, among other things, has resulted in unrealized losses in longer duration securities and loans held by banks, more competition for bank deposits and may increase the risk of a potential recession. These events and developments could materially and adversely impact our business or financial condition, including through potential liquidity pressures, reduced net interest margins, and potential increased credit losses. These recent events and developments have, and could continue to, adversely impact the market price and volatility of our common stock. These recent events may also result in changes to laws or regulations governing banks and bank holding companies or result in the impositions of restrictions through supervisory or enforcement activities, including higher capital requirements, which could have a material impact on ~~March 8, 2017.~~our businesses. The cost of resolving the recent failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue additional special assessments.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds



Period		Total number of shares purchased		Average price paid per share			Total number of shares purchased as part of publicly announced plans or programs		Maximum number of shares that may yet be purchased under the plans or programs
~~7/1/17-7/31/17~~January 1 - January 31, 2023	—	—	$	—			—		~~121,906~~200,816
~~8/1/17-8/31/17~~February 1 - February 28, 2023	—	—	—	—		—	—	~~121,906~~	200,816
~~9/1/17-9/30/17~~March 1 - March 31, 2023	—	—	—	—		—	—	~~121,906~~	200,816
Quarter ended ~~9/30/17~~March 31, 2023	—	—	$	—$	—	—	—	~~121,906~~	200,816
(1) On ~~December 19, 2012,~~January 8, 2021, the Corporation’s Board of Directors approved a new stock repurchase ~~plan authorizing~~plan. Under the ~~purchase of~~new repurchase program, the Corporation may repurchase up to ~~125,000~~250,000 shares of ~~the Corporation's~~its common stock, or approximately 5% of its outstanding ~~common stock.~~shares. Purchases may be made from time to time on the open market or in private negotiated transactions and will be at the discretion of management. ~~For~~As of March 31, 2023 the ~~three months ended September 30, 2017, no shares had been purchased under this plan. Since inception of the plan,~~Corporation has repurchased a total of ~~3,094~~49,184 shares ~~have been purchased under~~at the ~~plan.~~weighted average cost of $40.42 per share.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS

The following exhibits are either filed with this Form 10-Q or are incorporated herein by reference. The Corporation’s Securities Exchange Act File number is 000-13888.



3.1			Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).

3.2			Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).

3.3			Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).

3.4			Amended and Restated Bylaws of Chemung Financial Corporation, as amended ~~to December 21, 2016~~August 17, 2022 (as incorporated by reference to Exhibit ~~3.1~~3.2 to Registrant’s Form 8-K filed with the Commission on ~~December 23, 2016)~~August 19, 2022).

31.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*

31.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*

32.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*

32.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*

101.INS			Instance Document*

101.SCH			XBRL Taxonomy Schema*

101.CAL			XBRL Taxonomy Calculation Linkbase*

101.DEF			XBRL Taxonomy Definition Linkbase*

101.LAB			XBRL Taxonomy Label Linkbase*

101.PRE			XBRL Taxonomy Presentation Linkbase*

*			Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHEMUNG FINANCIAL CORPORATION



DATED: ~~November 1, 2017~~May 12, 2023			By: /s/ Anders M. Tomson
			Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer)



DATED: ~~November 1, 2017~~May 12, 2023			By: /s/ Karl F. Krebs
			Karl F. Krebs Chief Financial Officer and Treasurer (Principal Financial Officer)

EXHIBIT INDEX

The following exhibits are either filed with this Form 10-Q or are incorporated herein by reference. The Corporation’s Securities Exchange Act File number is 000-13888



3.1			Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).

3.2			Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).

3.3			Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).

3.4			Amended and Restated Bylaws of Chemung Financial Corporation, as amended ~~to December 21, 2016~~August 17, 2022 (as incorporated by reference to Exhibit ~~3.1~~3.2 to Registrant’s Form 8-K filed with the Commission on ~~December 23, 2016)~~August 19, 2022).

31.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*

31.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*

32.1			Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*

32.2			Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*

101.INS			Instance Document*

101.SCH			XBRL Taxonomy Schema*

101.CAL			XBRL Taxonomy Calculation Linkbase*

101.DEF			XBRL Taxonomy Definition Linkbase*

101.LAB			XBRL Taxonomy Label Linkbase*

101.PRE			XBRL Taxonomy Presentation Linkbase*

*			Filed herewith.



		PAGES
	Glossary of Abbreviations and Terms	3

PART I.	FINANCIAL INFORMATION

Item 1:	Financial Statements – Unaudited

	Consolidated Balance Sheets	67
	Consolidated Statements of Income	78
	Consolidated Statements of Comprehensive Income (Loss)	89
	Consolidated Statements of Shareholders’ Equity	910
	Consolidated Statements of Cash Flows	1011

	Notes to Unaudited Consolidated Financial Statements	1213

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	4439

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	7467

Item 4:	Controls and Procedures	7568

PART II.	OTHER INFORMATION

Item 1:	Legal Proceedings	7669

Item 1A:	Risk Factors	7669

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	7669

Item 3:	Defaults Upon Senior Securities	7670

Item 4:	Mine Safety Disclosures	7670

Item 5:	Other Information	7670

Item 6:	Exhibits	7771

SIGNATURES		7872

EXHIBIT INDEX


OREO		Other real estate owned
~~OTTI~~PD		~~Other-than-temporary impairment~~Probability of default
~~PCI~~		~~Purchased credit impaired~~
~~ROA~~	~~Return on average assets~~
~~ROE~~	~~Return on average equity~~
~~RWA~~	~~Risk-weighted assets~~
~~SBA~~	~~Small Business Administration~~
~~SEC~~	~~Securities and Exchange Commission~~
~~Securities Act~~	~~Securities Act of 1933~~
~~TDRs~~	~~Troubled debt restructurings~~
~~WMG~~	~~Wealth Management Group~~


Allowance for ~~loan~~Credit Losses			Replaces the Allowance for Loan and Lease Losses as the contra asset account used to represent the lifetime amount the Corporation anticipates will be unrecoverable from its assets. The ACL conforms to the CECL requirements as outlined in ASU 2016-13, and was implemented by the Corporation on January 1, 2023.
Allowance for credit losses to total loans			Represents period-end allowance for ~~loan~~credit losses divided by retained loans.


Fully taxable equivalent basis			Income from tax-exempt loans and investment securities that have been increased by an amount equivalent to the taxes that would have been paid if this income were taxable at statutory rates; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
GAAP			Accounting principles generally accepted in the United States of America.
Holding company			Consists of the operations for Chemung Financial Corporation (parent only).
ICS			Product involving a network of financial institutions that exchange interest-bearing money market deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Loans held for sale			Residential real estate loans originated for sale on the secondary market with maturities from 15-30 years.
Long term lease obligation			An obligation extending beyond the current year, which is related to a long term ~~capital~~finance lease that is considered to have the economic characteristics of asset ownership.
Mortgage-backed securities			A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients			A political unit, such as a city, town, or village, incorporated for local self-government.
N/A			Data is not applicable or available for the period presented.
N/M			Not meaningful.
Non-GAAP			A calculation not made according to GAAP.
Obligations of state and political subdivisions			An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.
Obligations of U.S. Government			A federally guaranteed obligation backed by the full power of the U.S. government, including Treasury bills, Treasury notes and Treasury bonds.
Obligations of U.S. Government sponsored ~~enterprise obligations~~enterprises			Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.


SBA loan pools			Business loans partially guaranteed by the SBA.
Securities sold under agreements to repurchase			Sale of securities together with an agreement for the seller to buy back the securities at a later date.
~~TDR~~Tax Act			The Tax Act was enacted on December 22, 2017 and amended the Internal Revenue Code of 1986. The legislation reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, with some related business deductions and credits being either reduced or eliminated.
TDR			A TDR is deemed to occur when the Corporation modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Trust preferred securities			A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.
Unaudited			Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
WMG			Provides services as executor and trustee under wills and agreements, and guardian, custodian, trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, financial planning, pension, estate planning and employee benefit administration services.



~~ALCO~~ACL			~~Asset-Liability Committee~~Allowance for Credit Losses
~~ASU~~AFS			Available for sale securities
ALCO			Asset-Liability Committee
AOCI			Accumulated Other Comprehensive Income
ASC			Accounting Standards Codification
ASU			Accounting Standards Update
Bank			Chemung Canal Trust Company
Basel III			The Third Basel Accord of the Basel Committee on Banking Supervision
Board of Directors			Board of Directors of Chemung Financial Corporation
~~CDARS~~BOLI			Bank Owned Life Insurance
BTFP			Bank Term Funding Program
CAM			Common area maintenance charges
CARES Act			Coronavirus Aid, Relief, and Economic Security Act
CDARS			Certificate of Deposit Account Registry Service
CDO			Collateralized Debt Obligation
CECL			Current expected credit loss
CFS			CFS Group, Inc.
Corporation			Chemung Financial Corporation
~~CRM~~COVID-19			Coronavirus disease 2019
CRM			Chemung Risk Management, Inc.
Dodd-Frank Act			The Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS			Earnings per share
Exchange Act			Securities Exchange Act of 1934
FASB			Financial Accounting Standards Board
FDIC			Federal Deposit Insurance Corporation
FHLBNY			Federal Home Loan Bank of New York
FRB			Board of Governors of the Federal Reserve System
FRBNY			Federal Reserve Bank of New York
Freddie Mac			Federal Home Loan Mortgage Corporation
GAAP			U.S. Generally Accepted Accounting Principles
~~ICS~~HTM			Held to maturity securities
ICS			Insured Cash Sweep Service
IFRS			International Financial Reporting Standards
LGD			Loss given default
MD&A			Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS			North American Industry Classification System
N/M			Not meaningful
OPEB			Other postemployment benefits


(in thousands, except share and per share data)	March 31, 2023		December 31, 2022
ASSETS
Cash and due from financial institutions	$	25,109	$	29,309
Interest-earning deposits in other financial institutions	9,532		26,560
Total cash and cash equivalents	34,641		55,869

Equity investments, at estimated fair value	2,949		2,830
Securities available for sale, at estimated fair value (net of allowance for credit losses of $0 at March 31, 2023)	626,055		632,589
Securities held to maturity, estimated fair value of $1,905 at March 31, 2023 and $2,402 at December 31, 2022 (net of allowance for credit losses of $0 at March 31, 2023)	1,932		2,424
FHLBNY and FRBNY Stock, at cost	7,913		8,197

Loans, net of deferred loan fees	1,873,701		1,829,448
Allowance for credit losses (1)	(20,075)		(19,659)
Loans, net	1,853,626		1,809,789


Premises and equipment, net	15,867		16,113
Operating lease right-of-use assets	6,250		6,449
Goodwill	21,824		21,824

Bank-owned life insurance	2,881		2,871
Interest rate swap assets	22,710		27,141
Accrued interest receivable and other assets	57,535		59,457

Total assets	$	2,654,183	$	2,645,553

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	690,596	$	733,329
Interest-bearing	1,641,833		1,593,898
Total deposits	2,332,429		2,327,227

FHLBNY overnight advances	90,070		95,810


Long term finance lease obligation	3,258		3,327
Operating lease liabilities	6,427		6,620
Dividends payable	1,460		1,455
Interest rate swap liabilities	22,776		27,196
Accrued interest payable and other liabilities	20,422		17,530
Total liabilities	2,476,842		2,479,165

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at March 31, 2023 and December 31, 2022	53		53
Additional paid-in capital	47,387		47,331
Retained earnings	216,593		211,859
Treasury stock, at cost; 600,973 shares at March 31, 2023 and 615,448 shares at December 31, 2022	(17,219)		(17,598)
Accumulated other comprehensive loss	(69,473)		(75,257)
Total shareholders' equity	177,341		166,388

Total liabilities and shareholders' equity	$	2,654,183	$	2,645,553



(in thousands, except share and per share data)	September 30, 2017			December 31, 2016
ASSETS
Cash and due from financial institutions	$	34,572		$	28,205
Interest-bearing deposits in other financial institutions	21,806			45,957
Total cash and cash equivalents	56,378			74,162

Trading assets, at fair value	909			774

Securities available for sale, at estimated fair value	312,226			303,402
Securities held to maturity, estimated fair value of $3,861 at September 30, 2017 and $4,912 at December 31, 2016	3,865			4,705
FHLBNY and FRBNY Stock, at cost	3,497			4,041

Loans, net of deferred loan fees	1,288,813			1,200,290
Allowance for loan losses	(15,694		)	(14,253		)
Loans, net	1,273,119			1,186,037

Loans held for sale	1,246			412
Premises and equipment, net	27,366			28,923
Goodwill	21,824			21,824
Other intangible assets, net	2,292			2,945
Bank-owned life insurance	2,964			2,912
Accrued interest receivable and other assets	25,996			27,042

Total assets	$	1,731,682		$	1,657,179

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	449,841		$	417,812
Interest-bearing	1,087,177			1,038,531
Total deposits	1,537,018			1,456,343

Securities sold under agreements to repurchase	10,000			27,606
FHLBNY term advances	9,009			9,093
Long term capital lease obligation	4,568			4,722
Dividends payable	1,232			1,225
Accrued interest payable and other liabilities	15,578			14,442
Total liabilities	1,577,405			1,513,431

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at September 30, 2017 and December 31, 2016	53			53
Additional paid-in capital	46,089			45,603
Retained earnings	130,006			124,111
Treasury stock, at cost; 571,115 shares at September 30, 2017 and 597,843 shares at December 31, 2016	(14,596		)	(15,265		)
Accumulated other comprehensive loss	(7,275		)	(10,754		)
Total shareholders' equity	154,277			143,748

Total liabilities and shareholders' equity	$	1,731,682		$	1,657,179



	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2017		2016		2017		2016
Interest and dividend income:
Loans, including fees	$	13,709	$	12,487	$	39,025	$	37,054
Taxable securities	1,369		1,225		4,189		3,943
Tax exempt securities	322		228		836		722
Interest-bearing deposits	97		85		445		180
Total interest and dividend income	15,497		14,025		44,495		41,899
Interest expense:
Deposits	545		561		1,632		1,607
Securities sold under agreements to repurchase	95		214		383		636
Borrowed funds	94		210		273		623
Total interest expense	734		985		2,288		2,866
Net interest income	14,763		13,040		42,207		39,033
Provision for loan losses	1,289		1,050		2,750		2,033
Net interest income after provision for loan losses	13,474		11,990		39,457		37,000

Non-interest income:
WMG fee income	2,147		2,027		6,525		6,240
Service charges on deposit accounts	1,269		1,361		3,678		3,781
Interchange revenue from debit card transactions	925		1,203		2,809		3,035
Net gains on securities transactions	—		75		12		983
Net gains on sales of loans held for sale	71		115		193		273
Net gains (losses) on sales of other real estate owned	30		10		38		(6		)
Income from bank-owned life insurance	17		19		52		55
Other	707		625		1,728		1,891
Total non-interest income	5,166		5,435		15,035		16,252

Non-interest expenses:
Salaries and wages	5,480		5,355		16,177		15,720
Pension and other employee benefits	992		1,573		3,417		4,894
Net occupancy expenses	1,476		1,503		4,784		5,287
Furniture and equipment expenses	657		685		2,119		2,286
Data processing expense	1,667		1,624		4,858		5,058
Professional services	452		502		1,169		1,418
Legal accruals and settlements	—		—		850		1,200
Amortization of intangible assets	214		245		653		748
Marketing and advertising expenses	213		101		580		648
Other real estate owned expenses	4		41		35		150
FDIC insurance	312		324		946		895
Loan expense	165		162		447		462
Other	1,644		1,356		4,618		4,283
Total non-interest expenses	13,276		13,471		40,653		43,049
Income before income tax expense	5,364		3,954		13,839		10,203
Income tax expense	1,710		1,209		4,250		3,130
Net income	$	3,654	$	2,745	9,589		$	7,073

Weighted average shares outstanding	4,802		4,765		4,796		4,758
Basic and diluted earnings per share	$	0.76	$	0.58	$	2.00	$	1.49



	2017		2016
Proceeds	$	1,620	$	36,130
Gross gains	12		983
Tax expense	4		371



	Three Months Ended September 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance	$	1,883		$	7,778		$	1,517		$	3,926		$	15,104
Charge-offs	(89		)	(154		)	(133		)	(440		)	(816		)
Recoveries	34			1			—			82			117
Net recoveries (charge-offs)	(55		)	(153		)	(133		)	(358		)	(699		)
Provision	99			758			12			420			1,289
Ending balance	$	1,927		$	8,383		$	1,396		$	3,988		$	15,694



	Three Months Ended September 30, 2016
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance	$	1,771		$	7,754		$	1,504		$	3,639		$	14,668
Charge-offs	(104		)	(52		)	(7		)	(280		)	(443		)
Recoveries	15			1			—			34			50
Net recoveries (charge-offs)	(89		)	(51		)	(7		)	(246		)	(393		)
Provision	101			520			50			379			1,050
Ending balance	$	1,783		$	8,223		$	1,547		$	3,772		$	15,325



	Nine Months Ended September 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253
Charge-offs:	(96		)	(154		)	(193		)	(1,265		)	(1,708		)
Recoveries:	95			4			30			270			399
Net recoveries (charge-offs)	(1		)	(150		)	(163		)	(995		)	(1,309		)
Provision	339			1,263			36			1,112			2,750
Ending balance	$	1,927		$	8,383		$	1,396		$	3,988		$	15,694



	Nine Months Ended September 30, 2016
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,831		$	7,112		$	1,464		$	3,853		$	14,260
Charge-offs:	(121		)	(52		)	(65		)	(995		)	(1,233		)
Recoveries:	65			10			—			190			265
Net recoveries (charge-offs)	(56		)	(42		)	(65		)	(805		)	(968		)
Provision	8			1,153			148			724			2,033
Ending balance	$	1,783		$	8,223		$	1,547		$	3,772		$	15,325



	September 30, 2017
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	159	$	1,009	$	—	$	—	$	1,168
Collectively evaluated for impairment	1,768		7,345		1,396		3,988		14,497
Loans acquired with deteriorated credit quality	—		29		—		—		29
Total ending allowance balance	$	1,927	$	8,383	$	1,396	$	3,988	$	15,694



	Three Months Ended September 30, 2017				Three Months Ended September 30, 2016				Nine Months Ended September 30, 2017				Nine Months Ended September 30, 2016
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	661	$	8	$	900	$	10	$	666	$	24	$	1,083	$	33
Commercial mortgages:
Construction	974		3		310		4		946		9		329		11
Commercial mortgages, other	4,946		5		6,124		60		5,973		73		6,760		181
Residential mortgages	439		2		443		2		416		6		358		3
Consumer loans:
Home equity lines & loans	68		1		101		1		76		2		104		4
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	291		3		45		1		145		4		29		4
Commercial mortgages:
Commercial mortgages, other	4,721		4		5,151		1		3,989		10		4,998		4
Consumer loans:
Home equity lines and loans	—		—		360		—		180		—		362		—
Total	$	12,100	$	26	$	13,434	$	79	$	12,391	$	128	$	14,023	$	240



September 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	506	$	506
Total	2	$	506	$	506



September 30, 2016	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	5	$	312	$	310
Residential mortgages	2	295		307
Consumer loans:
Home equity lines and loans	1	74		74
Total	8	$	681	$	691


	Term Loans Amortized Cost by Origination Year												Revolving Loans Amortized Cost		Revolving Loans Converted to Term		Total
	2023		2022		2021		2020		2019		Prior
Commercial & industrial
Pass	$	7,750	$	43,899	$	21,452	$	14,723	$	38,017	$	12,844	$	88,666	$	—	$	227,351
Special mention	100		104		350		3		86		457		3,478		9,315		13,893
Substandard	—		36		—		412		28		370		629		588		2,063
Doubtful	—		—		—		—		—		867		—		—		867
Total	7,850		44,039		21,802		15,138		38,131		14,538		92,773		9,903		244,174
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	190	$	—	$	—	$	190

Agricultural
Pass	—		17		170		—		—		—		146		—		333
Special mention	—		—		—		—		—		—		—		—		—
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total	—		17		170		—		—		—		146		—		333
Gross charge-offs	—		—		—		—		—		—		—		—		—

Construction
Pass	8,311		2,819		1,975		—		2,317		1,205		101,857		—		118,484
Special mention	—		176		—		—		—		—		—		—		176
Substandard	—		—		—		—		—		—		—		—		—
Doubtful	—		—		—		—		—		—		—		—		—
Total	8,311		2,995		1,975		—		2,317		1,205		101,857		—		118,660
Gross charge-offs	—		—		—		—		—		—		—		—		—

Commercial mortgages
Pass	31,729		214,915		129,614		99,057		40,489		180,523		192,038		—		888,365
Special mention	—		2,563		8,828		1,033		—		3,867		—		6,154		22,445
Substandard	277		1,186		—		—		—		4,790		97		441		6,791
Doubtful	—		—		—		—		—		36		—		—		36
Total	32,006		218,664		138,442		100,090		40,489		189,216		192,135		6,595		917,637
Gross charge-offs	—		—		—		—		—		—		—		—		—

Residential mortgages
Not rated	5,594		52,576		52,443		75,198		16,416		52,615		30,066		—		284,908
Substandard	—		107		64		111		181		573		—		—		1,036
Total	5,594		52,683		52,507		75,309		16,597		53,188		30,066		—		285,944
Gross charge-offs	—		—		—		—		—		—		—		—		—

Home equity lines and loans
Not rated	3,945		19,073		6,477		3,827		3,110		12,740		34,500		—		83,672
Substandard	—		—		—		—		121		392		352		—		865
Total	3,945		19,073		6,477		3,827		3,231		13,132		34,852		—		84,537
Gross charge-offs	—		—		—		—		—		—		8		—		8

Indirect consumer
Not rated	26,012		123,593		32,138		14,374		7,385		7,211		—		—		210,713
Substandard	—		186		98		59		73		141		—		—		557
Total	26,012		123,779		32,236		14,433		7,458		7,352		—		—		211,270
Gross charge-offs	—		43		36		30		12		23		—		—		144

Direct consumer
Not rated	1,121		3,956		1,330		630		266		478		3,362		—		11,143
Substandard	—		—		—		—		—		3		—		—		3
Total	1,121		3,956		1,330		630		266		481		3,362		—		11,146
Gross charge-offs	—		—		1		4		—		36		—		—		41

Total loans	$	84,839	$	465,206	$	254,939	$	209,427	$	108,489	$	279,112	$	455,191	$	16,498	$	1,873,701
Total gross charge-offs	$	—	$	43	$	37	$	34	$	12	$	249	$	8	$	—	$	383



Three Months Ended September 30, 2017	Balance at June 30, 2017			Income Accretion		All Other Adjustments			Balance at September 30, 2017
Contractually required principal and interest	$	1,167		$	—	$	(165	)	$	1,002
Contractual cash flows not expected to be collected (nonaccretable discount)	(33		)	—		(33		)	(66		)
Cash flows expected to be collected	1,134			—		(198		)	936
Interest component of expected cash flows (accretable yield)	(128		)	11		13			(104		)
Carrying amount of loans acquired with deteriorating credit quality	$	1,006		$	11	$	(185	)	$	832



Three Months Ended September 30, 2016	Balance at June 30, 2016			Income Accretion		All Other Adjustments			Balance at September 30, 2016
Contractually required principal and interest	$	2,492		$	—	$	(60	)	$	2,432
Contractual cash flows not expected to be collected (nonaccretable discount)	(374		)	—		(33		)	(407		)
Cash flows expected to be collected	2,118			—		(93		)	2,025
Interest component of expected cash flows (accretable yield)	(243		)	26		30			(187		)
Carrying amount of loans acquired with deteriorating credit quality	$	1,875		$	26	$	(63	)	$	1,838



Nine Months Ended September 30, 2017	Balance at December 31, 2016			Income Accretion		All Other Adjustments			Balance at September 30, 2017
Contractually required principal and interest	$	1,940		$	—	$	(938	)	$	1,002
Contractual cash flows not expected to be collected (nonaccretable discount)	(352		)	—		286			(66		)
Cash flows expected to be collected	1,588			—		(652		)	936
Interest component of expected cash flows (accretable yield)	(170		)	51		15			(104		)
Carrying amount of loans acquired with deteriorating credit quality	$	1,418		$	51	$	(637	)	$	832



Nine Months Ended September 30, 2016	Balance at December 31, 2015			Income Accretion		All Other Adjustments			Balance at September 30, 2016
Contractually required principal and interest	$	2,912		$	—	$	(480	)	$	2,432
Contractual cash flows not expected to be collected (nonaccretable discount)	(506		)	—		99			(407		)
Cash flows expected to be collected	2,406			—		(381		)	2,025
Interest component of expected cash flows (accretable yield)	(311		)	96		28			(187		)
Carrying amount of loans acquired with deteriorating credit quality	$	2,095		$	96	$	(353	)	$	1,838


			Fair Value Measurement at March 31, 2023 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
U.S. Treasury notes and bonds	$	56,328	$	56,328	$	—	$	—
Mortgage-backed securities, residential	432,654		—		432,654		—

Obligations of states and political subdivisions	39,414		—		39,414		—
Corporate bonds and notes	20,630		—		11,964		8,666
SBA loan pools	77,029		—		77,029		—
Total available for sale securities	$	626,055	$	56,328	$	561,061	$	8,666

Equity investments, at fair value	$	2,311	$	2,311	$	—	$	—
Derivative assets	22,710		—		22,710		—

Financial Liabilities:
Derivative liabilities	$	22,776	$	—	$	22,776	$	—



	Assets (Liabilities)
	Corporate Bonds and Notes						Derivative Liabilities
	2017			2016			2017			2016
Balance of recurring Level 3 assets at July 1	$	252		$	256		$	(71	)	$	(120	)
Derivative instruments entered into	—			—			—			—
Total gains or losses for the period:
Included in earnings - other non-interest income	—			—			—			26
Included in other comprehensive income	(10		)	(1		)	—			—
Transfers out of Level 3	(242		)	—			—			—
Balance of recurring Level 3 assets at September 30	$	—		$	255		$	(71	)	$	(94	)



Description	Fair Value at September 30, 2017		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at September 30, 2017
Derivative liabilities	$	71	Historical trend	Credit default rate	5.15% - 5.15% [5.15%]



Description	Fair Value at December 31, 2016		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2016
Corporate bonds and notes	$	250	Discounted cash flow	Credit spread	1.73% - 1.73% [1.73%]

Derivative liabilities	$	68	Historical trend	Credit default rate	4.92% - 4.92% [4.92%]



Description	Fair Value at September 30, 2017		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at September 30, 2017
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	85	Sales comparison	Discount to appraised value	36.07%-36.07% [36.07%]
Commercial mortgages:
Commercial mortgages, other	707		Sales comparison	Discount to appraised value	10.00% - 44.52% [20.34%]
	2,450		Income approach	Capitalization rate	9.00% - 10.00% [9.52%]
	$	3,242

OREO:
Residential mortgages	$	179	Sales comparison	Discount to appraised value	17.28% - 27.97% [20.73%]
	$	179



Description	Fair Value at December 31, 2016		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2016
Impaired loans:
Commercial mortgages:
Commercial mortgages, other	$	2,631	Income approach	Capitalization rate	9.00% - 10.00% [9.52%]
Consumer loans:
Home equity lines and loans	219		Sales comparison	Discount to appraised value	22.98% - 22.98% [22.98%]
	$	2,850

OREO:
Residential mortgages	$	344	Sales comparison	Discount to appraised value	20.80% - 48.17% [30.50%]
	$	344



	At September 30, 2017				At December 31, 2016
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,077	$	5,975	$	4,689
Other customer relationship intangibles	5,633		4,239		5,633		3,974
Total	$	11,608	$	9,316	$	11,608	$	8,663



Year	Estimated Expense
2017	$	207
2018	734
2019	609
2020	484
2021	258
Total	$	2,292



	September 30, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Mortgage-backed securities, residential	$	—	$	12,536		$	—	$	—	$	12,536
Excess collateral held	—		(2,536		)	—		—		(2,536		)
Gross amount of recognized liabilities for repurchase agreements	$	—	$	10,000		$	—	$	—	$	10,000



Details about Accumulated Other Comprehensive Income Components	Three Months Ended September 30,						Affected Line Item in the Statement Where Net Income is Presented
	2017			2016
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(75	)	Net gains (losses) on securities transactions
Tax effect	—			28			Income tax expense
Net of tax	—			(47		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(55		)	(22		)	Pension and other employee benefits
Actuarial losses (a)	88			396			Pension and other employee benefits
Tax effect	(12		)	(141		)	Income tax expense
Net of tax	21			233
Total reclassification for the period, net of tax	$	21		$	186


	March 31, 2023				December 31, 2022
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	40,759	$	71,151	$	44,481	$	75,028
Unused lines of credit	3,085		344,423		2,887		326,188
Standby letters of credit	—		17,425		—		17,211



	Shares	Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2017	22,240	$	29.96
Granted	—	—
Vested	—	—
Forfeited or cancelled	—	—
Nonvested at September 30, 2017	22,240	$	29.96