KBRA Affirms Ratings for Chemung Financial Corporation

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Elmira, NY-based Chemung Financial Corporation (NASDAQ: CHMG) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its main subsidiary, Chemung Canal Trust Company ("the bank"). The Outlook for all long-term ratings is Stable.

Key Credit Considerations

CHMG’s ratings are supported by a strengthened earnings profile, with ROA of ~1.3% in 1Q26, which tracks above rated peer levels and is primarily attributable to the meaningful NIM expansion following the 2H25 balance sheet repositioning out of lower-yielding securities and into higher-yielding loans. Earnings also benefitted from back-book repricing, a favorable funding base, and minimal credit costs. Fee income remains a predictable source of revenue diversification, representing roughly 21% of total revenue, with wealth management ($2.3 billion of AUM/AUA as of 1Q26) and treasury management-related fees contributing meaningfully to the overall fee base. Moving forward, we anticipate profitability to remain fairly durable and track at the higher-end of the rating category given management's expectation of a relatively stable NIM (~3.60%) even in the event of further rate cuts from the Fed.

Asset quality remains solid. CHMG’s NPA ratio has consistently tracked below rated peer averages, standing at 0.41% in 1Q26. Loss content remains negligible, with net charge-offs below 10 bps over the past five years (recovery of 2 bps in 1Q26). Reserve coverage is sound, with the ACL at 1.08% of total loans, providing a meaningful buffer against potential future losses. However, we acknowledge that the company maintains a somewhat elevated investor CRE concentration, totaling nearly 400% of tier 1 capital + ALLL at the bank as of 1Q26. That said, management’s strategic focus on C&I lending in new markets is expected to result in a stable to gradually declining investor CRE concentration over time. Despite the current level, the CRE portfolio is highly granular, supported by disciplined underwriting standards, and is concentrated in stable markets where management has deep experience and long-standing customer relationships. Additionally, office exposure is relatively well-contained at 6% of total loans and is primarily comprised of properties with service-oriented tenants located in suburban markets, which have demonstrated greater resilience than central business districts.

CHMG continues to benefit from a stable, low-cost deposit franchise, supported by an extensive operating history and dominant market share in its Southern Tier legacy footprint. The deposit mix remains favorable, with noninterest-bearing deposits comprising 28% of total deposits, supporting funding flexibility and margin resilience, while reliance on wholesale funding remains limited. This profile contributes to comparatively low deposit costs, which declined to 1.49% in 1Q26 and remain well below rated peer levels, as higher-cost CDs and other rate-sensitive balances repriced lower following Fed rate cuts in 2H25. That said, we acknowledge that the liquidity position, as measured by the loan-to-deposit ratio, remains comparatively tight at 100% as of 1Q26. As such, continued loan growth will require corresponding deposit growth, which could place upward pressure on funding costs and deposit mix trends over time, particularly as the company expands into more competitive markets and deposit competition remains elevated.

Capital levels are strong and provide an adequate buffer against CHMG’s commercially oriented balance sheet. The CET1 ratio has been managed above rated peer levels at 12.3% in 1Q26, while TCE, though historically below peer levels, improved meaningfully in the current period. Management’s measured approach to capital distributions, together with improved earnings power, should continue to support risk-based capital accretion over time.

Rating Sensitivities

Positive rating momentum over the longer term could be supported by sustained profitability improvement, continued strong asset quality, funding and liquidity stability, and above peer core capital levels, alongside a continuation of further scale and diversification of the franchise. Conversely, negative rating pressure could emerge from asset quality deterioration, weakened earnings performance, more aggressive capital management, or execution risks tied to expansion in newer geographies.

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