10-Q

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

Or
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 000-13888

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)
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:____
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:____
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

The number of shares of the registrant's common stock, $.01 par value, outstanding on October 31, 2017 was 4,740,401.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

		PAGES
	Glossary of Abbreviations and Terms	3
PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements – Unaudited
	Consolidated Balance Sheets	6
	Consolidated Statements of Income	7
	Consolidated Statements of Comprehensive Income	8
	Consolidated Statements of Shareholders’ Equity	9
	Consolidated Statements of Cash Flows	10
	Notes to Unaudited Consolidated Financial Statements	12
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	44
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4:	Controls and Procedures	75
PART II.	OTHER INFORMATION
Item 1:	Legal Proceedings	76
Item 1A:	Risk Factors	76
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3:	Defaults Upon Senior Securities	76
Item 4:	Mine Safety Disclosures	76
Item 5:	Other Information	76
Item 6:	Exhibits	77
SIGNATURES		78
EXHIBIT INDEX

2

GLOSSARY OF ABBREVIATIONS AND TERMS

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.

Abbreviations

ALCO	Asset-Liability Committee
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	Certificate of Deposit Account Registry Service
CDO	Collateralized Debt Obligation
CECL	Current expected credit loss
CFS	CFS Group, Inc.
Corporation	Chemung Financial Corporation
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	Insured Cash Sweep Service
IFRS	International Financial Reporting Standards
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
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
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

Terms

Allowance for loan losses to total loans Represents period-end allowance for loan losses divided by retained loans.

3

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 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.
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.
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.
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 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	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.

4

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 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	Risk-weighted assets consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.  On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any.  Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets.  Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments.  The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
SBA loan pools	Business loans partially guaranteed by the SBA.
Securities sold under agreements to repurchase	Sale of securities together with an agreement for the seller to buy back the securities at a later date.
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.

5

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(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

See accompanying notes to unaudited consolidated financial statements.

6

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended   September 30,				Nine Months Ended   September 30,
(in thousands, except per share data)	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

See accompanying notes to unaudited consolidated financial statements.

7

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended   September 30,						Nine Months Ended   September 30,
(in thousands)	2017			2016			2017			2016
Net income	$	3,654		$	2,745		$	9,589		$	7,073
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(522		)	(733		)	5,498			4,899
Reclassification adjustment for gains realized in net income	—			(75		)	(12		)	(983		)
Net unrealized gains (losses)	(522		)	(808		)	5,486			3,916
Tax effect	(198		)	(305		)	2,069			1,477
Net of tax amount	(324		)	(503		)	3,417			2,439
Change in funded status of defined benefit pension plan and other benefit plans:
Reclassification adjustment for amortization of prior service costs	(55		)	(22		)	(165		)	(67		)
Reclassification adjustment for amortization of net actuarial loss	88			396			264			1,188
Total before tax effect	33			374			99			1,121
Tax effect	12			141			37			423
Net of tax amount	21			233			62			698
Total other comprehensive income (loss)	(303		)	(270		)	3,479			3,137
Comprehensive income	$	3,351		$	2,475		$	13,068		$	10,210

See accompanying notes to unaudited consolidated financial statements.

8

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive 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

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

See accompanying notes to unaudited consolidated financial statements.

9

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(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)

See accompanying notes to unaudited consolidated financial statements.

10

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)

(in thousands)	Nine Months Ended   September 30,
Supplemental disclosure of cash flow information:	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

See accompanying notes to unaudited consolidated financial statements.

11

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, 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 10 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 financial statements should be read in conjunction with the Corporation's 2016 Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

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 are 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.

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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 Losses (Topic 326): Measurement of Credit Losses on Financial 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 by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal year beginning after December 15, 2018. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements. The Corporation anticipates that the adoption of the CECL model will result in an increase to the Corporation's allowance for loan losses. The Corporation has established a committee to oversee the implementation 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. The objective of the ASU is to reduce the existing diversity 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 relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement 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. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, though early adoption is permitted. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of 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. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 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.

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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 be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component 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 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 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The objective of the ASU is to align the amortization period 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.

NOTE 2EARNING 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, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.  Earnings per share were computed by dividing net income by 4,802 and 4,765weighted average shares outstanding for the three-month periods ended September 30, 2017 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, respectively. There were no common stock equivalents during the three and nine-month periods ended September 30, 2017 or 2016.

NOTE 3SECURITIES

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

	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

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	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):

	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, 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):

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

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

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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 and December 31, 2016 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
September 30, 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

	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, the majority of the Corporation’s unrealized losses in the 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 entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at September 30, 2017.

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NOTE 4LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	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.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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

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	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 loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of September 30, 2017 and December 31, 2016 (in thousands):

	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

	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

	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

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	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 of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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

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The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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.

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The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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 loans as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017
	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	$	217	$	17	$	2	$	236	$	—	$	188,617	$	188,853
Agricultural	—		—		—		—		—		450		450
Commercial mortgages:
Construction	—		—		—		—		—		57,861		57,861
Commercial mortgages, other	4,218		—		2,572		6,790		832		574,018		581,640
Residential mortgages	1,122		695		1,714		3,531		—		194,170		197,701
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
Indirect consumer loans	2,084		325		501		2,910		—		144,880		147,790
Direct consumer loans	112		21		8		141		—		17,618		17,759
Total	$	7,979	$	1,159	$	5,662	$	14,800	$	832	$	1,276,629	$	1,292,261

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	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.

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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, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	166		166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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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.

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.

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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 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	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

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	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 credit quality based on the aging status of the loan, which was previously presented, and 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 (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

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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.

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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.

NOTE 5FAIR VALUE

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

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

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

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

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

Investment 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:  Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value included in earnings.  The fair values of trading assets are determined by quoted market prices (Level 1 inputs).

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.

29

			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 Level 2 during the three and nine-month periods ended September 30, 2017. During the year ended December 31, 2016, the Corporation transferred corporate stocks with a fair market value of $158 thousand at the date of transfer (and $103 thousand at December 31, 2016) from Level 2 to Level 1 due to the corporation's stock becoming publicly listed.

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 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 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	)

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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 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 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.

31

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

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The following tables presents information related to Level 3 non-recurring fair value measurement 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
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.

33

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.

34

The carrying amounts and estimated fair values of other financial instruments, at September 30, 2017 and December 31, 2016, 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

(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.

35

	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

(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.

NOTE 6        GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the periods ended September 30, 2017 and 2016 were as follows (in thousands):

	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 amortization expense was $0.2 million for both of the three month periods ended September 30, 2017 and 2016. Aggregate amortization expense was $0.7 million for both of the nine month periods ended September 30, 2017 and 2016.

36

The remaining estimated aggregate amortization expense at September 30, 2017 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 as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

	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.

37

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	)

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

Details about Accumulated Other Comprehensive Income 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 9COMMITMENTS 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.

39

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

	September 30, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	21,664	$	26,834	$	38,246	$	33,189
Unused lines of credit	1,870		202,020		610		208,124
Standby letters of credit	—		14,490		—		14,241

On March 23, 2016, the Bank received a summons and complaint for an action brought in the State of New York Supreme Court for the County of Tompkins, regarding its lease of 202 East State Street, Ithaca, NY. The owner of the leased premises has alleged that 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.

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, we believe that we are not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

40

NOTE 10    COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

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

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	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 11    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 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017. 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 Holding Company, CFS, and CRM column below, along with amounts to eliminate transactions between those segments (in thousands).

41

	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

42

	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 12    STOCK COMPENSATION

Board of Directors' Stock Compensation

Members of the Board of Directors receive common shares of the Corporation equal in value to the amount of fees individually earned during the previous year for service as a director.  The common shares are distributed to the Corporation's individual board members from treasury shares of the Corporation on or about January 15 following the calendar year of service.

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.

43

During January 2017 and 2016, 7,880 and 9,532 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $68 thousand and $65 thousand related to this compensation was recognized during 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 month periods ended September 30, 2017 and 2016, 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 ended September 30, 2017 is presented below:

	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, there was $504 thousand of total unrecognized compensation cost related to nonvested shares granted under the Plan.  The cost is expected to be recognized over a weighted-average period of 3.21 years.  The total fair value of shares vested was $16 thousand and $17 thousand for the nine month periods ended September 30, 2017 and 2016, respectively.

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 Form 10-Q for the nine months ended September 30, 2017 and 2016.  Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2016 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017, for an understanding of the following discussion and analysis.  See the list of commonly used abbreviations and terms on pages 3–5.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below and Part I, Item 1A, Risk Factors, on pages 17–22 of the Corporation’s 2016 Annual Report.  For a discussion of use of non-GAAP financial measures, see pages 60–63 of the Corporation's 2016 Annual Report or pages 70-73 in this Form 10-Q.

44

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 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, difficulties in managing the Corporation’s growth, 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 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 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.

45

Consolidated Financial Highlights

																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

46

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 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Executive Summary

This executive summary of the MD&A includes selected information and may not contain all of the information that is important to readers of this Form 10-Q. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Corporation, this Form 10-Q should be read in its entirety.

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

	Three Months Ended   September 30,
	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		%

47

Net income for the third quarter of 2017 was $3.7 million, or $0.76 per share, compared with a net income of $2.7 million, or $0.58 per share, for the same period in the prior year.  Return on average equity for the 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%, 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		%

48

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% for the same period in the prior year.  The increase in net income from the prior year 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 $3.2 million, or 8.1%, 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 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 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 on interest-bearing liabilities such as deposits and borrowings, is the largest contributor to the Corporation’s earnings.

49

Net interest income for the three months ended September 30, 2017 totaled $14.8 million compared with $13.0 million for the same period in the prior year, an increase of $1.7 million, or 13.2%.  Fully taxable equivalent net interest margin was 3.68% for the three months ended September 30, 2017 compared with 3.33% for the same period in the prior year.  The increase in net interest income was due primarily to an increase of $38.5 million in interest-earning assets.  The yield on interest-earning assets increased 28 basis points, while the cost of interest-bearing liabilities decreased nine basis points compared to the same period in the prior year.  The increase in the yield on interest-earning assets can be mostly attributed to a 43 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 18 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 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%.  Fully taxable equivalent net interest margin was 3.53% for the nine months ended September 30, 2017 compared with 3.38% for 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 basis points, while the cost of interest-bearing liabilities decreased eight basis points 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.

50

Average Consolidated Balance Sheet and Interest Analysis

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and nine months ended September 30, 2017 and 2016.  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.

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.

51

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.

52

Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes.  The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and nine months ended September 30, 2017 and 2016.  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 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 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

53

	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 losses

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth. Based on this analysis, the provision for loan losses for both the third quarter 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, 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. 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.

54

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 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 quarter of 2017 decreased $0.3 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 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 a decrease in overdraft fees.

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 $0.1 million net gain on the sale of $15.0 million of U.S. Government sponsored enterprises during the third quarter of 2016.

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	)%

55

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 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 quarter of 2017 decreased $0.2 million compared with the same period in the prior year.  The decrease was due to a decrease in compensation expense, offset by an increase in non-compensation expense.

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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 $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. The increase in salaries and wages can be attributed to annual merit increases that occur throughout the year.

Non-compensation expense

Non-compensation expense increased compared to the same period in the prior year due primarily to increases in marketing and advertising expense 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 compared with the same period in the prior year.  The decrease was due 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.

57

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 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 in the effective tax rate can be attributed to an improvement in income before income tax expense, offset by changes in the mix 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.

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

	Nine Months Ended September 30,
	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.

58

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

The decrease in cash and cash equivalents can be mostly attributed to increases in investment securities 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.

Investment securities

The increase in investment securities can be mostly attributed to additional purchases and a decline in the unrealized losses in the securities available for sale portfolio, offset by maturities and calls.

Loans, net

The increase in total loans can be attributed to increases of $69.1 million in commercial mortgages, $12.2 million in commercial and agriculture loans, $7.9 million in indirect consumer loans, and $0.6 million in other consumer loans, offset by a decrease of $1.3 million in residential mortgages. The increase in the allowance for loan 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 attributed to the amortization of intangible assets.

Other assets

The decrease in other assets can be mostly attributed to a decline in premises and equipment, net.

59

Deposits

The increase in deposits can be attributed to increases of $32.0 million in non-interest bearing demand deposits, $19.3 million in interest-bearing demand deposits, $37.8 million in money market accounts, and $9.5 million in savings deposits. Partially offsetting the increases noted above was a decrease of $17.9 million in time deposits. The changes in money market accounts 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

The decrease in FHLBNY advances and other debt can be mostly 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.

Other liabilities

The increase in other liabilities can be mostly attributed to the legal reserve for the Fane v. Chemung Canal Trust Company case.

Shareholders’ equity

The increase in shareholders’ equity was 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, mostly attributable to the increase in the fair market value of the securities portfolio, offset by $3.7 million in dividends declared during the year.

Assets under management or administration

The market value of total assets under management or administration in our WMG was $1.890 billion at September 30, 2017, including $345.0 million of assets held under management or administration for the Corporation, compared with $1.721 billion at December 31, 2016, including $294.9 million of assets held under management or administration for the Corporation, an increase of $169.3 million, or 9.8%.

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".  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 million at September 30, 2017, an increase of $8.8 million, or 2.9%, from $303.4 million at December 31, 2016.  The increase can be mostly attributed to additional purchases of obligations of states and political subdivisions and a decline in unrealized losses, offset by maturities and calls.

60

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 million at September 30, 2017, a decrease of $0.8 million, or 17.9%, from $4.7 million at December 31, 2016.

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, 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 the periods indicated, and the dollar and percent change from December 31, 2016 to September 30, 2017 (in thousands):

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 billion at September 30, 2017, an increase of $88.5 million, or 7.4%, from $1.200 billion at December 31, 2016.  The increase in loans can be attributed to increases of $12.2 million in commercial and agricultural loans, $69.1 million in commercial mortgages, $7.9 million in indirect consumer loans, and $0.6 million in other consumer loans, offset by a decrease of $1.3 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. 

Residential mortgage loans totaled $197.2 million at September 30, 2017, a decrease of $1.3 million, or 0.6%, from December 31, 2016.  In addition, during the nine months ended September 30, 2017, $9.3 million of newly originated residential mortgages were sold in the secondary market to Freddie Mac and $0.2 million of residential mortgages were sold to the State of New York Mortgage Agency. 

The Corporation anticipates that future growth in portfolio loans will continue to be in commercial mortgages and commercial and industrial loans, especially within the Capital Bank division of the Bank. The table below presents the Corporation’s outstanding loan balance by bank division (in thousands):

LOANS BY DIVISION
	September 30, 2017		December 31, 2016		December 31, 2015		December 31, 2014		December 31, 2013
Chemung Canal Trust Company*	$	626,708	$	636,836	$	683,137	$	724,099	$	687,256
Capital Bank Division	662,105		563,454		485,496		397,475		308,610
Total loans	$	1,288,813	$	1,200,290	$	1,168,633	$	1,121,574	$	995,866

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

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 of commercial loans to identify concentrations greater than 10.0% of total loans.  At September 30, 2017 and December 31, 2016, commercial loans to borrowers involved in the real estate, and real estate rental and lending businesses were 47.1% and 43.9% 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 and December 31, 2016.

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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.

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 thousands):

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.

Non-Performing Loans

Non-performing loans totaled $14.0 million at September 30, 2017, or 1.09% of total loans, compared with $12.0 million 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. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $14.2 million, or 0.82% of total assets, at September 30, 2017, compared with $12.4 million, or 0.75% of total assets, at December 31, 2016. As noted above, the increase in non-performing assets was primarily due to the commercial mortgage segment of the loan portfolio.

Not included 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 in accruing loans past due 90 days or more totaled $21.0 thousand at September 30, 2017, an increase of $8.0 thousand from December 31, 2016.

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Troubled Debt Restructurings

The Corporation works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss.  In that regard, the Corporation modified the terms 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, the Corporation had $7.2 million of non-accrual TDRs compared with $4.4 million as of December 31, 2016.  As of September 30, 2017, the Corporation had $2.0 million of accruing TDRs compared with $5.8 million as of December 31, 2016.

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.  Impaired loans at September 30, 2017 totaled $12.2 million, including TDRs of $9.2 million, compared to $12.9 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.  Included in the recorded investment of impaired loans at September 30, 2017, are loans totaling $5.2 million for which impairment allowances of $1.2 million have been specifically allocated to the allowance for loan losses.  As of December 31, 2016, the impaired loan total included $2.6 million of loans for which specific impairment allowances of $0.9 million were allocated to the allowance for loan losses.

The majority of the Corporation's impaired 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.  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 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.  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 Losses

The allowance is an amount that management believes will be adequate to absorb probable incurred losses on existing loans.  The allowance is established based on management’s evaluation of the probable incurred losses inherent in our portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms 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 of the underlying collateral, expected cash flows, delinquent or unpaid property taxes, 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 cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

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The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors.  Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five-year history of net losses.  For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Corporation over 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) 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 any concentrations of credit, and changes in the level of such concentrations, (9) the effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank’s current portfolio and (10) the impact of the global economy.

The allowance for loan losses is increased through a provision for loan losses charged to operations.  Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely.  Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.  In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Corporation's allowance for loan losses. Such agencies may require the Corporation to recognize additions to the allowance based on their judgments about information available to them at the time of their examination.

The allowance for loan losses was $15.7 million at September 30, 2017, up from $14.3 million at December 31, 2016.  The ratio of allowance for loan losses to total loans was 1.22% at September 30, 2017, up from 1.19% at December 31, 2016.  Net charge-offs for both the nine months ended September 30, 2017 and 2016 were $1.3 million and $1.0 million, respectively.

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The table below summarizes the Corporation’s loan loss experience for the nine months ended September 30, 2017 and 2016 (in thousands, except ratio data):

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, and the dollar and percent change from December 31, 2016 to September 30, 2017 (in thousands):

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 billion at September 30, 2017 compared with $1.456 billion at December 31, 2016, an increase of $80.7 million, or 5.5%. The increase was attributable to increases of $32.0 million in non-interest bearing demand deposits, $19.3 million in interest-bearing demand deposits, $37.8 million in money market accounts, and $9.5 million in savings deposits. These items were offset by a decrease of $17.9 million in time 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, demand deposit and money market accounts comprised 77.6% of total deposits compared with 75.8% at December 31, 2016.

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

DEPOSITS BY DIVISION
	September 30, 2017		December 31, 2016		December 31, 2015		December 31, 2014		December 31, 2013
Chemung Canal Trust Company*	$	1,323,713	$	1,249,870	$	1,219,282	$	1,119,377	$	1,097,920
Capital Bank Division	213,305		206,473		181,013		160,637		168,336
Total loans	$	1,537,018	$	1,456,343	$	1,400,295	$	1,280,014	$	1,266,256

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

In addition to consumer, commercial and public deposits, other sources of funds include brokered deposits.  Brokered deposits include funds obtained through brokers, and the Bank’s participation in the CDARS and ICS programs.  There were no deposits obtained through brokers as of September 30, 2017 and December 31, 2016. Deposits obtained through the CDARS and ICS programs were $242.4 million and $203.7 million as of September 30, 2017 and 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 of current municipal client balances.

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 brokered deposits as a secondary source of funding to support growth.

Borrowings

Borrowings decreased $17.7 million from $36.7 million at December 31, 2016 to $19.0 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 December 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 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, offset by $3.7 million in dividends declared during the nine months ended September 30, 2017.  The total shareholders’ equity to total assets ratio was 8.91% at September 30, 2017 compared with 8.67% at December 31, 2016.  The tangible equity to tangible assets ratio was 7.62% at September 30, 2017 compared with 7.29% at December 31, 2016.  Book value per share increased to $32.11 at September 30, 2017 from $30.07 at December 31, 2016.

The Corporation and the Bank are 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, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines and the Corporation met capital requirements under regulatory guidelines.

Off-balance Sheet Arrangements

See Note 9 – Commitments and Contingencies in the Notes to Unaudited Consolidated Financial Statements for a discussion of off-balance sheet arrangements.

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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, securities sold under agreements to repurchase and other borrowings.

The Corporation is a member of the FHLBNY which allows it to access borrowings which enhance management's ability to satisfy future liquidity needs.  Based on available collateral and current advances outstanding, the Corporation was eligible to borrow up to a total of $126.2 million and $131.6 million at September 30, 2017 and December 31, 2016, respectively.  The Corporation also had a total of $38.0 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 million of unsecured lines of credit with four different financial institutions, all of which was available at December 31, 2016.

Consolidated Cash Flows Analysis

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

CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands)	Nine Months Ended September 30,
	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 months of 2017 and 2016 predominantly resulted from net income after non-cash operating adjustments. 

Investing activities

Cash used in investing activities during the first nine months of 2017 predominantly resulted from a net increase in loans and purchases of securities, offset by sales, calls, maturities, and principal collected in securities available for sale. Cash used in investing activities during the first nine months of 2016 predominantly resulted from purchases of securities available for sale and a net increase in loans, offset by sales, calls, maturities, and principal collected on securities available for sale. 

Financing activities

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

. 

Capital Resources

The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies. 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

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Corporation 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 to 2.50% by 2019. The capital conservation buffer for 2017 is 1.25%. 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 of September 30, 2017, the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

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 and December 31, 2016, the Corporation and the Bank met all capital adequacy requirements to which they were subject.

As of September 30, 2017, 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 and December 31, 2016 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

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

	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 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	%

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	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.  At September 30, 2017, the Bank could, without prior approval, declare dividends of approximately $17.3 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.

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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. 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, 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.

The efficiency ratio is a non-GAAP financial measures 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.

70

																As of the
	As of the Three Months Ended															Nine Months Ended
(in thousands, except ratio data)	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,			Sept. 30,			Sept. 30,
	2017			2017			2017			2016			2016			2017			2016
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT AND EFFICIENCY RATIO
Net interest income (GAAP)	$	14,763		$	13,950		$	13,494		$	13,296		$	13,040		$	42,207		$	39,033
Fully taxable equivalent adjustment	220			192			169			154			154			581			477
Fully taxable equivalent net interest income (non-GAAP)	$	14,983		$	14,142		$	13,663		$	13,450		$	13,194		$	42,788		$	39,510
Non-interest income (GAAP)	$	5,166		$	5,022		$	4,847		$	4,897		$	5,435		$	15,035		$	16,252
Less:  net (gains) losses on security transactions	—			(12		)	—			(4		)	(75		)	(12		)	(983		)
Adjusted non-interest income (non-GAAP)	$	5,166		$	5,010		$	4,847		$	4,893		$	5,360		$	15,023		$	15,269
Non-interest expense (GAAP)	$	13,276		$	14,332		$	13,045		$	13,561		$	13,471		$	40,653		$	43,049
Less:  amortization of intangible assets	(214		)	(213		)	(226		)	(238		)	(245		)	(653		)	(748		)
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
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		%

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 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.

71

																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
	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		%

72

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
(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
NON-GAAP NET INCOME
Reported net income (GAAP)	$	3,654		$	2,956		$	2,979		$	2,954		$	2,745		$	9,589		$	7,073
Net (gains) losses on security transactions (net of tax)	—			(8		)	—			(2		)	(47		)	(8		)	(612		)
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
Average basic and diluted shares outstanding	4,802			4,797			4,790			4,773			4,765			4,796			4,758
Reported basic and diluted earnings per share (GAAP)	$	0.76		$	0.62		$	0.62		$	0.62		$	0.58		$	2.00		$	1.49
Reported return on average assets (GAAP)	0.85		%	0.69		%	0.71		%	0.69		%	0.65		%	0.75		%	0.57		%
Reported return on average equity (GAAP)	9.46		%	7.90		%	8.24		%	8.20		%	7.55		%	8.54		%	6.62		%
Non-GAAP basic and diluted earnings per share	$	0.76		$	0.72		$	0.62		$	0.62		$	0.57		$	2.10		$	1.51
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 equity	9.46		%	9.29		%	8.24		%	8.19		%	7.42		%	9.01		%	6.75		%

73

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, 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 point change in interest rates, with appropriate floors set for interest-bearing liabilities.  At September 30, 2017, it is estimated that an immediate 200-basis point decrease in interest rates would negatively impact the next 12 months net interest income by 10.43% and an immediate 200-basis point increase would negatively impact the next 12 months net interest income by 8.37%.  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.

A related component of interest rate risk is the expectation that the market value of the Corporation’s capital account will fluctuate with changes in interest rates.  This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to shrinkage in market value.  At September 30, 2017, it is estimated that an immediate 200-basis point decrease in interest rates would negatively impact the market value of the Corporation’s capital account by 13.30% and an immediate 200-basis point increase in interest rates would negatively impact the market value by 4.15%.  Both are within the 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.

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 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), Chief 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.

74

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 pursuant to Rule 13a-15 of the Exchange, 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, 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.

75

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

For information related to this item, please see Note 9 to the Corporation’s financial statements included herein.

ITEM 1A.    RISK FACTORS

There have been no material changes in the risk factors set forth in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2016, filed with the Securities and Exchange Commission on March 8, 2017.

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

(c)    Issuer Purchases of Equity Securities (1)

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
7/1/17-7/31/17	—	$	—	—	121,906
8/1/17-8/31/17	—	—		—	121,906
9/1/17-9/30/17	—	—		—	121,906
Quarter ended 9/30/17	—	$	—	—	121,906
(1) On December 19, 2012, the Corporation’s Board of Directors approved a stock repurchase plan authorizing the purchase of up to 125,000 shares of the Corporation's outstanding common stock. 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 the three months ended September 30, 2017, no shares had been purchased under this plan. Since inception of the plan, a total of 3,094 shares have been purchased under the plan.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

76

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 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on December 23, 2016).
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.

77

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	By:  /s/ Anders M. Tomson
	Anders M. Tomson Chief Executive Officer (Principal Executive Officer)

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

78

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 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on December 23, 2016).
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.

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934.

I, Anders M. Tomson, certify that:

1.  I have reviewed this report on Form 10-Q of Chemung Financial Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: November 1, 2017

By:/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934.

I, Karl F. Krebs, certify that:

1.  I have reviewed this report on Form 10-Q of Chemung Financial Corporation;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)  designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)  designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)  evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)  disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.  The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a)  all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)  any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting

Date: November 1, 2017

By:/s/ Karl F. Krebs___________________

Karl F. Krebs

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. §1350.

The undersigned, the Chief Executive Officer of Chemung Financial Corporation (the "Corporation"), hereby certifies that, to his knowledge on the date hereof:

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended September 30, 2017, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

November 1, 2017

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 18 U.S.C. §1350.

The undersigned, the Chief Financial Officer of Chemung Financial Corporation (the "Corporation"), hereby certifies that, to his knowledge on the date hereof:

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended September 30, 2017, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(b) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Corporation.

/s/ Karl F. Krebs

Karl F. Krebs

Chief Financial Officer and Treasurer

November 1, 2017

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Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2017	Oct. 31, 2017
Document and Entity Information [Abstract]
Entity Registrant Name	CHEMUNG FINANCIAL CORP
Entity Central Index Key	0000763563
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding (shares)		4,740,401

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 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
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

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (Parenthetical) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
ASSETS
Securities held to maturity, estimated fair value	$ 3,861	$ 4,912
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (shares)	10,000,000	10,000,000
Common stock, shares issued (shares)	5,310,076	5,310,076
Treasury stock, at cost (shares)	571,115	597,843

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CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 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	0	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	0	0	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 (in shares)	4,802	4,765	4,796	4,758
Basic and diluted earnings per share (in dollars per share)	$ 0.76	$ 0.58	$ 2.00	$ 1.49

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Statement of Comprehensive Income [Abstract]
Net income	$ 3,654	$ 2,745	$ 9,589	$ 7,073
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(522)	(733)	5,498	4,899
Reclassification adjustment for gains realized in net income	0	(75)	(12)	(983)
Net unrealized gains (losses)	(522)	(808)	5,486	3,916
Tax effect	(198)	(305)	2,069	1,477
Net of tax amount	(324)	(503)	3,417	2,439
Change in funded status of defined benefit pension plan and other benefit plans:
Reclassification adjustment for amortization of prior service costs	(55)	(22)	(165)	(67)
Reclassification adjustment for amortization of net actuarial loss	88	396	264	1,188
Total before tax effect	33	374	99	1,121
Tax effect	12	141	37	423
Net of tax amount	21	233	62	698
Total other comprehensive income (loss)	(303)	(270)	3,479	3,137
Comprehensive income	$ 3,351	$ 2,475	$ 13,068	$ 10,210

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) - USD ($) $ in Thousands		Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Balances at Dec. 31, 2015		$ 137,242	$ 53	$ 45,537	$ 118,973	$ (16,379)	$ (10,942)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
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		(3,664)			(3,664)
Distribution of shares of treasury stock for directors' compensation		262		19		243
Distribution of shares of treasury stock for employee stock compensation		210		15		195
Distribution of treasury stock for deferred directors' compensation		3		(92)		95
Sale of treasury stock	[1]	332		28		304
Balances at Sep. 30, 2016		144,812	53	45,724	122,382	(15,542)	(7,805)
Balances at Jun. 30, 2016							(7,535)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		2,745
Other comprehensive income		(270)					(270)
Balances at Sep. 30, 2016		144,812	53	45,724	122,382	(15,542)	(7,805)
Balances at Dec. 31, 2016		143,748	53	45,603	124,111	(15,265)	(10,754)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
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		(3,694)			(3,694)
Distribution of shares of treasury stock for directors' compensation		269		68		201
Distribution of shares of treasury stock for employee stock compensation		200		50		150
Distribution of treasury stock for deferred directors' compensation		11		(51)		62
Sale of treasury stock	[1]	441		142		299
Forfeiture of 1,139 shares of restricted stock awards		0		43		(43)
Balances at Sep. 30, 2017		154,277	53	46,089	130,006	(14,596)	(7,275)
Balances at Jun. 30, 2017							(6,972)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		3,654
Other comprehensive income		(303)					(303)
Balances at Sep. 30, 2017		$ 154,277	$ 53	$ 46,089	$ 130,006	$ (14,596)	$ (7,275)

[1] 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.

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (UNAUDITED) (Parenthetical) - $ / shares	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
Statement of Stockholders' Equity [Abstract]
Cash dividends declared (in dollars per share)	$ 0.78	$ 0.78
Distribution of shares of treasury stock for directors' compensation (in shares)	7,880	9,532
Distribution of shares of treasury stock for employee stock compensation (in shares)	5,861	7,661
Distribution of shares of treasury stock for directors deferred compensation shares(in shares)	2,438	3,740
Sale of shares of treasury stock (in shares)	11,688	11,857
Restricted stock awards, forfeited (in shares)	1,139

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) - USD ($) $ in Thousands	9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:
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	0
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	0
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	0	(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
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	$ 0	$ 2,035

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

CRM, a wholly-owned subsidiary of the Corporation, which was formed and began operations on May 31, 2016, is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. 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 10 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 financial statements should be read in conjunction with the Corporation's 2016 Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

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 are 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.

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 Losses (Topic 326): Measurement of Credit Losses on Financial 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 by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal year beginning after December 15, 2018. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements. The Corporation anticipates that the adoption of the CECL model will result in an increase to the Corporation's allowance for loan losses. The Corporation has established a committee to oversee the implementation 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. The objective of the ASU is to reduce the existing diversity 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 relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement 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. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, though early adoption is permitted. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of 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. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 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 be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component 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 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 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The objective of the ASU is to align the amortization period 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.

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EARNING PER COMMON SHARE

9 Months Ended

Sep. 30, 2017

Earnings Per Share [Abstract]

EARNING PER COMMON SHARE

EARNING 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, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.  Earnings per share were computed by dividing net income by 4,802 and 4,765weighted average shares outstanding for the three-month periods ended September 30, 2017 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, respectively. There were no common stock equivalents during the three and nine-month periods ended September 30, 2017 or 2016.

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SECURITIES

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

SECURITIES

SECURITIES

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

	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, 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):

	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, 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):

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

	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 and December 31, 2016 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
September 30, 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

	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, the majority of the Corporation’s unrealized losses in the 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 entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at September 30, 2017.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2017

Loans and Leases Receivable Disclosure [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	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.

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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

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

	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

	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

	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

	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 of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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 the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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 loans as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017
	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	$	217	$	17	$	2	$	236	$	—	$	188,617	$	188,853
Agricultural	—		—		—		—		—		450		450
Commercial mortgages:
Construction	—		—		—		—		—		57,861		57,861
Commercial mortgages, other	4,218		—		2,572		6,790		832		574,018		581,640
Residential mortgages	1,122		695		1,714		3,531		—		194,170		197,701
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
Indirect consumer loans	2,084		325		501		2,910		—		144,880		147,790
Direct consumer loans	112		21		8		141		—		17,618		17,759
Total	$	7,979	$	1,159	$	5,662	$	14,800	$	832	$	1,276,629	$	1,292,261

	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, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	166		166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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.

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 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	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 credit quality based on the aging status of the loan, which was previously presented, and 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 (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.

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FAIR VALUE

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

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

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

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

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions 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 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:  Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value included in earnings.  The fair values of trading assets are determined by quoted market prices (Level 1 inputs).

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 Level 2 during the three and nine-month periods ended September 30, 2017. During the year ended December 31, 2016, the Corporation transferred corporate stocks with a fair market value of $158 thousand at the date of transfer (and $103 thousand at December 31, 2016) from Level 2 to Level 1 due to the corporation's stock becoming publicly listed.

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 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 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	)

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 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 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):

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 and December 31, 2016, 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

(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

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

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GOODWILL AND INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the periods ended September 30, 2017 and 2016 were as follows (in thousands):

	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 amortization expense was $0.2 million for both of the three month periods ended September 30, 2017 and 2016. Aggregate amortization expense was $0.7 million for both of the nine month periods ended September 30, 2017 and 2016.

The remaining estimated aggregate amortization expense at September 30, 2017 is listed below (in thousands):

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

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

9 Months Ended

Sep. 30, 2017

Disclosure of Repurchase Agreements [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

A summary of securities sold under agreements to repurchase as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

	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.

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ACCUMULATED OTHER COMPREHENSIVE LOSS

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

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	)

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

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).

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COMMITMENTS AND CONTINGENCIES

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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

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

	September 30, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	21,664	$	26,834	$	38,246	$	33,189
Unused lines of credit	1,870		202,020		610		208,124
Standby letters of credit	—		14,490		—		14,241

On March 23, 2016, the Bank received a summons and complaint for an action brought in the State of New York Supreme Court for the County of Tompkins, regarding its lease of 202 East State Street, Ithaca, NY. The owner of the leased premises has alleged that 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.

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, we believe that we are not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

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COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

9 Months Ended

Sep. 30, 2017

Retirement Benefits [Abstract]

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

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

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	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

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SEGMENT REPORTING

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

SEGMENT REPORTING

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 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017. 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 Holding Company, CFS, and CRM column below, along with amounts to eliminate transactions between those segments (in thousands).

	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

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STOCK COMPENSATION

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

STOCK COMPENSATION

STOCK COMPENSATION

Board of Directors' Stock Compensation

Members of the Board of Directors receive common shares of the Corporation equal in value to the amount of fees individually earned during the previous year for service as a director.  The common shares are distributed to the Corporation's individual board members from treasury shares of the Corporation on or about January 15 following the calendar year of service.

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 and 2016, 7,880 and 9,532 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $68 thousand and $65 thousand related to this compensation was recognized during 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 month periods ended September 30, 2017 and 2016, 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 ended September 30, 2017 is presented below:

	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, there was $504 thousand of total unrecognized compensation cost related to nonvested shares granted under the Plan.  The cost is expected to be recognized over a weighted-average period of 3.21 years.  The total fair value of shares vested was $16 thousand and $17 thousand for the nine month periods ended September 30, 2017 and 2016, respectively.

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

9 Months Ended

Sep. 30, 2017

Accounting Policies [Abstract]

Organization

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, 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

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 10 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 financial statements should be read in conjunction with the Corporation's 2016 Annual Report on Form 10-K for the year ended December 31, 2016. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year.

Recent Accounting Pronouncements

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 are 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.

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 Losses (Topic 326): Measurement of Credit Losses on Financial 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 by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal year beginning after December 15, 2018. The Corporation is currently evaluating the impact of the adoption of this guidance on its consolidated financial statements. The Corporation anticipates that the adoption of the CECL model will result in an increase to the Corporation's allowance for loan losses. The Corporation has established a committee to oversee the implementation 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. The objective of the ASU is to reduce the existing diversity 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 relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement 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. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years, though early adoption is permitted. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of 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. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 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 be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component 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 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 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The objective of the ASU is to align the amortization period 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.

Earnings Per Common Share

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, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

Fair Value Measurement

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 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:  Securities that are held to fund a deferred compensation plan are recorded at fair value with changes in fair value included in earnings.  The fair values of trading assets are determined by quoted market prices (Level 1 inputs).

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).

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SECURITIES (Tables)

9 Months Ended

Sep. 30, 2017

Investments, Debt and Equity Securities [Abstract]

Amortized cost and estimated fair value of securities available for sale

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

	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, 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

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

	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, 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

Amortized cost and estimated fair value of debt securities by contractual maturity

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):

	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

Proceeds from sales and calls of securities resulting in gains or losses

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

	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

Investment securities available for sale in an unrealized loss position

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

	Less than 12 months				12 months or longer				Total
September 30, 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

	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

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

9 Months Ended

Sep. 30, 2017

Loans and Leases Receivable Disclosure [Abstract]

Composition of the loan portfolio by type

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

	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

Allowance for loan losses by portfolio segment

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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

Allowance for loan losses and the recorded investment in loans based on impairment method

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

	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

	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

	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

	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

Summary of impaired financing receivables

The following table presents loans individually evaluated for impairment recognized by class of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and nine-month periods ended September 30, 2017 and 2016 (in thousands):

	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 the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of September 30, 2017 and December 31, 2016 (in thousands):

	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

Recorded investment in past due and non-accrual status by class of loans

The following tables present the aging of the recorded investment in loans as of September 30, 2017 and December 31, 2016 (in thousands):

	September 30, 2017
	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	$	217	$	17	$	2	$	236	$	—	$	188,617	$	188,853
Agricultural	—		—		—		—		—		450		450
Commercial mortgages:
Construction	—		—		—		—		—		57,861		57,861
Commercial mortgages, other	4,218		—		2,572		6,790		832		574,018		581,640
Residential mortgages	1,122		695		1,714		3,531		—		194,170		197,701
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
Indirect consumer loans	2,084		325		501		2,910		—		144,880		147,790
Direct consumer loans	112		21		8		141		—		17,618		17,759
Total	$	7,979	$	1,159	$	5,662	$	14,800	$	832	$	1,276,629	$	1,292,261

	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

Loans by class modified as troubled debt restructurings

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, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	166		166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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. 

Risk category of the recorded investment of loans by class of loans

Based on the analyses performed as of September 30, 2017 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	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

Recorded investment in residential and consumer loans based on 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 (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

Summary of changes in contractually required principal and interest on loans acquired

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

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FAIR VALUE (Tables)

9 Months Ended

Sep. 30, 2017

Fair Value Disclosures [Abstract]

Summary of assets and liabilities measured at fair value on a recurring basis

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

Reconciliation of all assets measured at fair value

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 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 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	)

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 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	)

Reconciliation of liabilities measured at fair value

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 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 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	)

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 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	)

Summary of assets and liabilities measured at fair value on a non-recurring basis

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

Nonrecurring fair value measurement, valuation techniques

The following tables presents information related to Level 3 non-recurring fair value measurement 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
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

The following table presents information related 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%]

Carrying value and estimated fair value of financial instruments

The carrying amounts and estimated fair values of other financial instruments, at September 30, 2017 and December 31, 2016, 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

(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

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

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GOODWILL AND INTANGIBLE ASSETS (Tables)

9 Months Ended

Sep. 30, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The changes in goodwill included in the core banking segment during the periods ended September 30, 2017 and 2016 were as follows (in thousands):

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

Schedule of acquired finite-lived intangible assets by major class

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

Schedule of expected amortization expense

The remaining estimated aggregate amortization expense at September 30, 2017 is listed below (in thousands):

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

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Tables)

9 Months Ended

Sep. 30, 2017

Disclosure of Repurchase Agreements [Abstract]

Summary of securities sold under agreements to repurchase

A summary of securities sold under agreements to repurchase as of September 30, 2017 and December 31, 2016 is as follows (in thousands):

	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

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ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

9 Months Ended

Sep. 30, 2017

Equity [Abstract]

Components of accumulated other comprehensive income (loss)

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	)

Reclassification out of accumulated other comprehensive income

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

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).

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COMMITMENTS AND CONTINGENCIES (Tables)

9 Months Ended

Sep. 30, 2017

Commitments and Contingencies Disclosure [Abstract]

Contractual amounts of financial instruments with off-balance sheet risk

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

	September 30, 2017				December 31, 2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	21,664	$	26,834	$	38,246	$	33,189
Unused lines of credit	1,870		202,020		610		208,124
Standby letters of credit	—		14,490		—		14,241

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COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS (Tables)

9 Months Ended

Sep. 30, 2017

Retirement Benefits [Abstract]

Components of net periodic benefit costs

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

	Three Months Ended   September 30,						Nine Months Ended   September 30,
	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

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SEGMENT REPORTING (Tables)

9 Months Ended

Sep. 30, 2017

Segment Reporting [Abstract]

Summarized financial information showing reconciliation of segment net income loss and assets to consolidated results

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s 2016 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2017. 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 Holding Company, CFS, and CRM column below, along with amounts to eliminate transactions between those segments (in thousands).

	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

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STOCK COMPENSATION (Tables)

9 Months Ended

Sep. 30, 2017

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Summary of restricted stock activity

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

	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

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) $ in Thousands	Dec. 31, 2018 USD ($) lease	Sep. 30, 2017 USD ($)	Dec. 31, 2016 USD ($)
Property, Plant and Equipment [Line Items]
Equity investment portfolio (less than $1.0 million)		$ 1,000
Long term capital lease obligation		$ 4,568	$ 4,722
Forecast | Use Rights
Property, Plant and Equipment [Line Items]
Property, plant, and equipment, gross	$ 8,000
Number of leased facilities | lease	15

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EARNING PER COMMON SHARE (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Earnings Per Share [Abstract]
Weighted average number of shares outstanding (shares)	4,802,000	4,765,000	4,796,000	4,758,000
Dilutive common stock equivalents (shares)	0	0	0	0

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SECURITIES - Securities Available for Sale (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	$ 313,739		$ 313,739		$ 310,401
Unrealized Gains	1,445		1,445		806
Unrealized Losses	2,958		2,958		7,805
Estimated Fair Value	312,226		312,226		303,402
Amortized Cost [Abstract]
Within one year	13,067		13,067
After one, but within five years	26,063		26,063
After five, but within ten years	29,621		29,621
After ten years	1,136		1,136
Total	69,887		69,887
Total	313,474		313,474
Fair Value [Abstract]
Within one year	13,135		13,135
After one, but within five years	26,328		26,328
After five, but within ten years	29,944		29,944
After ten years	1,147		1,147
Total	70,554		70,554
Total	311,700		311,700
Proceeds from sales and calls of securities resulting in gains or losses [Abstract]
Proceeds	545	$ 20,709	1,620	$ 36,130
Gross gains	0	75	12	983
Tax expense	0	$ 28	4	$ 371
Obligations of U.S. Government and U.S. Government sponsored enterprises
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	15,494		15,494		17,300
Unrealized Gains	90		90		155
Unrealized Losses	0		0		0
Estimated Fair Value	15,584		15,584		17,455
Mortgage-backed securities, residential
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	239,074		239,074		253,156
Unrealized Gains	480		480		202
Unrealized Losses	2,893		2,893		7,492
Estimated Fair Value	236,661		236,661		245,866
Amortized Cost [Abstract]
Without single maturity date	239,074		239,074
Fair Value [Abstract]
Without single maturity date	236,661		236,661
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	54,144		54,144		38,843
Unrealized Gains	612		612		209
Unrealized Losses	28		28		312
Estimated Fair Value	54,728		54,728		38,740
Corporate bonds and notes
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	249		249		249
Unrealized Gains	0		0		1
Unrealized Losses	7		7		0
Estimated Fair Value	242		242		250
SBA loan pools
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	4,513		4,513		568
Unrealized Gains	2		2		3
Unrealized Losses	30		30		1
Estimated Fair Value	4,485		4,485		570
Amortized Cost [Abstract]
Without single maturity date	4,513		4,513
Fair Value [Abstract]
Without single maturity date	4,485		4,485
Corporate stocks
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	265		265		285
Unrealized Gains	261		261		236
Unrealized Losses	0		0		0
Estimated Fair Value	$ 526		$ 526		$ 521

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SECURITIES - Securities Held to Maturity (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	$ 3,865	$ 4,705
Unrealized Gains	1	207
Unrealized Losses	5	0
Securities held to maturity	3,861	4,912
Amortized Cost [Abstract]
Within one year	753
After one, but within five years	2,841
After five, but within ten years	271
After ten years	0
Total	3,865
Fair Value [Abstract]
Within one year	751
After one, but within five years	2,839
After five, but within ten years	271
After ten years	0
Total	3,861
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	2,030	3,725
Unrealized Gains	0	206
Unrealized Losses	0	0
Securities held to maturity	2,030	3,931
Time deposits with other financial institutions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	1,835	980
Unrealized Gains	1	1
Unrealized Losses	5	0
Securities held to maturity	$ 1,831	$ 981

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SECURITIES - Investment Securities Available for Sale in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	$ 129,637	$ 259,567
12 months or longer	57,919	225
Total	187,556	259,792
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	1,078	7,804
12 months or longer	1,880	1
Total	2,958	7,805
Mortgage-backed securities, residential
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	121,345	233,843
12 months or longer	57,638	0
Total	178,983	233,843
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	1,022	7,492
12 months or longer	1,871	0
Total	2,893	7,492
Obligations of states and political subdivisions
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	4,080	25,724
12 months or longer	281	0
Total	4,361	25,724
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	19	312
12 months or longer	9	0
Total	28	312
Corporate bonds and notes
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	242
12 months or longer	0
Total	242
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	7
12 months or longer	0
Total	7
SBA loan pools
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	3,970	0
12 months or longer	0	225
Total	3,970	225
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	30	0
12 months or longer	0	1
Total	$ 30	$ 1

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Composition of loan portfolio [Abstract]
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
Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	189,303	177,027
Commercial mortgages:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	639,501	570,156
Commercial mortgages: | Construction
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	57,704	46,387
Total recorded investment in loans	57,861	46,510
Commercial mortgages: | Commercial mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	580,061	522,269
Total recorded investment in loans	581,640	523,646
Residential mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	197,210	198,493
Total recorded investment in loans	197,701	198,965
Consumer loans:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	265,756	257,334
Consumer loans: | Credit cards
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	1,444	1,476
Total recorded investment in loans	1,444	1,476
Consumer loans: | Home equity lines and loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	98,492	98,590
Total recorded investment in loans	98,763	98,853
Consumer loans: | Indirect consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	147,426	139,572
Total recorded investment in loans	147,790	139,993
Consumer loans: | Direct consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	17,687	16,942
Total recorded investment in loans	17,759	17,012
Commercial and industrial | Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	188,341	176,201
Total recorded investment in loans	188,853	176,666
Agricultural | Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	448	360
Total recorded investment in loans	$ 450	$ 361

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowances (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Dec. 31, 2016
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	$ 15,104	$ 14,668	$ 14,253	$ 14,260
Charge-offs	(816)	(443)	(1,708)	(1,233)
Recoveries	117	50	399	265
Net recoveries (charge-offs)	(699)	(393)	(1,309)	(968)
Provision	1,289	1,050	2,750	2,033
Ending balance	15,694	15,325	15,694	15,325
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment					$ 1,168	$ 876
Collectively evaluated for impairment					14,497	13,293
Total ending allowance balance	15,104	14,668	14,253	14,260	15,694	14,253
Loans [Abstract]
Loans individually evaluated for impairment					11,092	11,926
Loans collectively evaluated for impairment					1,280,337	1,190,138
Total ending loans balance					1,292,261	1,203,482
Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			84
Ending balance	29		29
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance	29		84		29	84
Loans [Abstract]
Total ending loans balance					832	1,418
Commercial and agricultural:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	1,883	1,771	1,589	1,831
Charge-offs	(89)	(104)	(96)	(121)
Recoveries	34	15	95	65
Net recoveries (charge-offs)	(55)	(89)	(1)	(56)
Provision	99	101	339	8
Ending balance	1,927	1,783	1,927	1,783
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment					159	0
Collectively evaluated for impairment					1,768	1,589
Total ending allowance balance	1,883	1,771	1,589	1,831	1,927	1,589
Loans [Abstract]
Loans individually evaluated for impairment					1,133	693
Loans collectively evaluated for impairment					188,170	176,334
Total ending loans balance					189,303	177,027
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			0
Ending balance	0		0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance	0		0		0	0
Loans [Abstract]
Total ending loans balance					0	0
Commercial Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	7,778	7,754	7,270	7,112
Charge-offs	(154)	(52)	(154)	(52)
Recoveries	1	1	4	10
Net recoveries (charge-offs)	(153)	(51)	(150)	(42)
Provision	758	520	1,263	1,153
Ending balance	8,383	8,223	8,383	8,223
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment					1,009	735
Collectively evaluated for impairment					7,345	6,476
Total ending allowance balance	7,778	7,754	7,270	7,112	8,383	7,270
Loans [Abstract]
Loans individually evaluated for impairment					9,458	10,382
Loans collectively evaluated for impairment					629,211	558,451
Total ending loans balance					639,501	570,156
Commercial Mortgages | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			59
Ending balance	29		29
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance	29		59		29	59
Loans [Abstract]
Total ending loans balance					832	1,323
Residential mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	1,517	1,504	1,523	1,464
Charge-offs	(133)	(7)	(193)	(65)
Recoveries	0	0	30	0
Net recoveries (charge-offs)	(133)	(7)	(163)	(65)
Provision	12	50	36	148
Ending balance	1,396	1,547	1,396	1,547
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment					0	0
Collectively evaluated for impairment					1,396	1,498
Total ending allowance balance	1,517	1,504	1,523	1,464	1,396	1,523
Loans [Abstract]
Loans individually evaluated for impairment					434	396
Loans collectively evaluated for impairment					197,267	198,474
Total ending loans balance					197,701	198,965
Residential mortgages | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			25
Ending balance	0		0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance	0		25		0	25
Loans [Abstract]
Total ending loans balance					0	95
Consumer loans:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	3,926	3,639	3,871	3,853
Charge-offs	(440)	(280)	(1,265)	(995)
Recoveries	82	34	270	190
Net recoveries (charge-offs)	(358)	(246)	(995)	(805)
Provision	420	379	1,112	724
Ending balance	3,988	3,772	3,988	3,772
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment					0	141
Collectively evaluated for impairment					3,988	3,730
Total ending allowance balance	3,926	$ 3,639	3,871	$ 3,853	3,988	3,871
Loans [Abstract]
Loans individually evaluated for impairment					67	455
Loans collectively evaluated for impairment					265,689	256,879
Total ending loans balance					265,756	257,334
Consumer loans: | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			0
Ending balance	0		0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance	$ 0		$ 0		0	0
Loans [Abstract]
Total ending loans balance					$ 0	$ 0

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Unpaid Principal Balance [Abstract]
Unpaid principal balance, total	$ 12,194		$ 12,194		$ 12,852
Recorded Investment [Abstract]
Recorded investment, total	11,092		11,092		11,926
Allowance for loan losses allocated	1,168		1,168		876
Average Recorded Investment [Abstract]
Average recorded investment, total	12,100	$ 13,434	12,391	$ 14,023
Interest Income, Accrual Method [Abstract]
Interest income, accrual method, total	26	79	128	240
Commercial Mortgages | Construction
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	395		395		277
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	396		396		278
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	974	310	946	329
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	3	4	9	11
Commercial Mortgages | Commercial mortgages, other
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	4,274		4,274		8,792
With related allowance, Unpaid Principal Balance	5,875		5,875		2,245
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	4,277		4,277		7,857
With related allowance, Recorded Investment	4,785		4,785		2,247
Allowance for loan losses allocated	1,009		1,009		735
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	4,946	6,124	5,973	6,760
With related allowance, Average Recorded Investment	4,721	5,151	3,989	4,998
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	5	60	73	181
With related allowance, Interest Income, Accrual Method	4	1	10	4
Residential mortgages
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	457		457		395
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	434		434		396
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	439	443	416	358
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	2	2	6	3
Consumer loans: | Home equity lines and loans
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	66		66		93
With related allowance, Unpaid Principal Balance	0		0		360
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	67		67		95
With related allowance, Recorded Investment	0		0		360
Allowance for loan losses allocated	0		0		141
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	68	101	76	104
With related allowance, Average Recorded Investment	0	360	180	362
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	1	1	2	4
With related allowance, Interest Income, Accrual Method	0	0	0	0
Commercial and industrial | Commercial and agricultural:
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	714		714		690
With related allowance, Unpaid Principal Balance	413		413		0
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	719		719		693
With related allowance, Recorded Investment	414		414		0
Allowance for loan losses allocated	159		159		$ 0
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	661	900	666	1,083
With related allowance, Average Recorded Investment	291	45	145	29
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	8	10	24	33
With related allowance, Interest Income, Accrual Method	$ 3	$ 1	$ 4	$ 4

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Receivables Past Due (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	$ 14,028	$ 12,043
Loans Past Due 90 Days or More and Still Accruing	21	13
Aging of the recorded investment in loans past due [Abstract]
Past Due	14,800	17,873
Loans Not Past Due	1,276,629	1,184,191
Total recorded investment in loans	1,292,261	1,203,482
30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	7,979	4,969
60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,159	6,383
90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	5,662	6,521
Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	832	1,418
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	832	1,418
Commercial and agricultural:
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	189,303	177,027
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Commercial Mortgages
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	639,501	570,156
Commercial Mortgages | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	832	1,323
Commercial Mortgages | Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	159	19
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	1,177
Loans Not Past Due	57,861	45,333
Total recorded investment in loans	57,861	46,510
Commercial Mortgages | Construction | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	1,177
Commercial Mortgages | Construction | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Commercial Mortgages | Commercial mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	8,473	5,454
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	6,790	7,524
Loans Not Past Due	574,018	514,799
Total recorded investment in loans	581,640	523,646
Commercial Mortgages | Commercial mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	4,218	652
Commercial Mortgages | Commercial mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	4,460
Commercial Mortgages | Commercial mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,572	2,412
Commercial Mortgages | Commercial mortgages | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	832	1,323
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	832	1,323
Residential mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	3,210	4,201
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	3,531	4,919
Loans Not Past Due	194,170	193,951
Total recorded investment in loans	197,701	198,965
Residential mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,122	2,100
Residential mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	695	436
Residential mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,714	2,383
Residential mortgages | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	95
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	95
Consumer loans:
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	265,756	257,334
Consumer loans: | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Credit cards
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans Past Due 90 Days or More and Still Accruing	19	11
Aging of the recorded investment in loans past due [Abstract]
Past Due	27	23
Loans Not Past Due	1,417	1,453
Total recorded investment in loans	1,444	1,476
Consumer loans: | Credit cards | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	6	3
Consumer loans: | Credit cards | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2	9
Consumer loans: | Credit cards | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	19	11
Consumer loans: | Credit cards | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Home equity lines and loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	1,178	1,670
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,165	1,376
Loans Not Past Due	97,598	97,477
Total recorded investment in loans	98,763	98,853
Consumer loans: | Home equity lines and loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	220	227
Consumer loans: | Home equity lines and loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	99	0
Consumer loans: | Home equity lines and loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	846	1,149
Consumer loans: | Home equity lines and loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Indirect consumer loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	837	654
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,910	2,602
Loans Not Past Due	144,880	137,391
Total recorded investment in loans	147,790	139,993
Consumer loans: | Indirect consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,084	1,773
Consumer loans: | Indirect consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	325	287
Consumer loans: | Indirect consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	501	542
Consumer loans: | Indirect consumer loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Direct consumer loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	21	45
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	141	83
Loans Not Past Due	17,618	16,929
Total recorded investment in loans	17,759	17,012
Consumer loans: | Direct consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	112	54
Consumer loans: | Direct consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	21	7
Consumer loans: | Direct consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	8	22
Consumer loans: | Direct consumer loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Commercial and industrial | Commercial and agricultural:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	150	0
Loans Past Due 90 Days or More and Still Accruing	2	2
Aging of the recorded investment in loans past due [Abstract]
Past Due	236	169
Loans Not Past Due	188,617	176,497
Total recorded investment in loans	188,853	176,666
Commercial and industrial | Commercial and agricultural: | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	217	160
Commercial and industrial | Commercial and agricultural: | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	17	7
Commercial and industrial | Commercial and agricultural: | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2	2
Commercial and industrial | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Agricultural | Commercial and agricultural:
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Loans Not Past Due	450	361
Total recorded investment in loans	450	361
Agricultural | Commercial and agricultural: | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	$ 0	$ 0

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details)	3 Months Ended				9 Months Ended
	Sep. 30, 2017 USD ($) loan	Sep. 30, 2016	Sep. 30, 2016 loan	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) loan	Sep. 30, 2016 USD ($) loan	Dec. 31, 2016 USD ($)
Troubled Debt Restructurings [Abstract]
Recorded investment in troubled debt restructurings	$ 9,200,000				$ 9,200,000		$ 10,200,000
Troubled debt restructuring reserve	1,000,000				1,000,000		900,000
Troubled debt restructurings accruing interest under modified terms	2,000,000				2,000,000		5,800,000
Troubled debt restructurings on non-accrual status	7,200,000				7,200,000		4,400,000
Additional amounts committed to customers with loans classified as troubled debt restructurings	$ 0				$ 0		$ 0
Number of Loans	0	0	0		0
Troubled debt restructuring, extension of maturity date						13 years
Increase (decrease) in allowance for loan losses	$ 100,000			$ 0	$ 200,000	$ 0
TDR charge-offs	$ 0			$ 0	$ 0	$ 0
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan	2		0		5	8
Pre-modification outstanding recorded investment	$ 506,000				$ 948,000	$ 681,000
Post-modification outstanding recorded investment	$ 506,000				$ 948,000	$ 691,000
Commercial mortgages
Troubled Debt Restructurings [Abstract]
Number of Loans | loan						5
Troubled debt restructurings, modifications, consolidated loans						1
Residential mortgages
Troubled Debt Restructurings [Abstract]
Number of Loans | loan						1
Troubled debt restructuring, extension of maturity date					5 years
Troubled debt restructuring, interest capitalized						$ 4,000
Commercial Mortgages | Commercial mortgages
Troubled Debt Restructurings [Abstract]
Number of Loans | loan						2
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan					1	5
Pre-modification outstanding recorded investment					$ 166,000	$ 312,000
Post-modification outstanding recorded investment					$ 166,000	310,000
Recorded Investment						$ 2,100,000
Residential mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan					1	2
Pre-modification outstanding recorded investment					$ 105,000	$ 295,000
Post-modification outstanding recorded investment					$ 105,000	$ 307,000
Consumer loans: | Home equity lines and loans
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan						1
Pre-modification outstanding recorded investment						$ 74,000
Post-modification outstanding recorded investment						$ 74,000
Commercial and industrial
Troubled Debt Restructurings [Abstract]
Number of Loans | loan	2				2
Financing receivable, modifications, release of collateral, number of contracts	1
Troubled debt restructurings, modifications, consolidated loans					1
Troubled debt restructuring, extension of maturity date					2 years
Commercial and industrial | Commercial mortgages
Troubled Debt Restructurings [Abstract]
Number of Loans | loan					1
Commercial and industrial | Commercial and agricultural:
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan	2				3
Pre-modification outstanding recorded investment	$ 506,000				$ 677,000
Post-modification outstanding recorded investment	$ 506,000				$ 677,000

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit Quality Indicator (Details) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Finance receivable by credit quality indicator [Abstract]
Loans	$ 1,292,261,000		$ 1,292,261,000		$ 1,203,482,000
Deteriorated Loans Transferred in [Abstract]
Contractually required principal and interest, opening balance	1,167,000	$ 2,492,000	1,940,000	$ 2,912,000
Contractually required principal and interest, income accretion	0	0	0	0
Contractually required principal and interest, all other adjustments	(165,000)	(60,000)	(938,000)	(480,000)
Contractually required principal and interest, closing balance	1,002,000	2,432,000	1,002,000	2,432,000
Contractual cash flows not expected to be collected (nonaccretable discount), opening balance	(33,000)	(374,000)	(352,000)	(506,000)
Contractual cash flows not expected to be collected (nonaccretable discount), income accretion	0	0	0	0
Contractual cash flows not expected to be collected (nonaccretable discount), all other adjustments	(33,000)	(33,000)	286,000	99,000
Contractual cash flows not expected to be collected (nonaccretable discount), closing balance	(66,000)	(407,000)	(66,000)	(407,000)
Cash flows expected to be collected, opening balance	1,134,000	2,118,000	1,588,000	2,406,000
Cash flows expected to be collected, income accretion	0	0	0	0
Cash flows expected to be collected, all other adjustments	(198,000)	(93,000)	(652,000)	(381,000)
Cash flows expected to be collected, closing balance	936,000	2,025,000	936,000	2,025,000
Interest component of expected cash flows (accretable yield), opening balance	(128,000)	(243,000)	(170,000)	(311,000)
Interest component of expected cash flows (accretable yield), income accretion	11,000	26,000	51,000	96,000
Interest component of expected cash flows (accretable yield), all other adjustments	13,000	30,000	15,000	28,000
Interest component of expected cash flows (accretable yield), closing balance	(104,000)	(187,000)	(104,000)	(187,000)
Carrying amount of loans acquired with deteriorating credit quality, opening balance	1,006,000	1,875,000	1,418,000	2,095,000
Carrying amount of loans acquired with deteriorating credit quality, income accretion	11,000	26,000	51,000	96,000
Carrying amount of loans acquired with deteriorating credit quality, all other adjustments	(185,000)	(63,000)	(637,000)	(353,000)
Carrying amount of loans acquired with deteriorating credit quality, closing balance	832,000	1,838,000	832,000	1,838,000
Allowance for loan and lease losses, period increase (decrease)	1,000		55,000	15,000
Allowance for loan and lease loss, recovery of bad debts	1,000	$ 0	30,000	$ 0
Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	832,000		832,000		1,418,000
Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	458,211,000		458,211,000		449,634,000
Pass
Finance receivable by credit quality indicator [Abstract]
Loans	796,980,000		796,980,000		715,012,000
Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	12,438,000		12,438,000		11,110,000
Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	22,401,000		22,401,000		24,848,000
Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	1,399,000		1,399,000		1,460,000
Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	189,303,000		189,303,000		177,027,000
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial Mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	639,501,000		639,501,000		570,156,000
Commercial Mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	832,000		832,000		1,323,000
Commercial Mortgages | Construction
Finance receivable by credit quality indicator [Abstract]
Loans	57,861,000		57,861,000		46,510,000
Commercial Mortgages | Construction | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial Mortgages | Construction | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial Mortgages | Construction | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	57,702,000		57,702,000		45,055,000
Commercial Mortgages | Construction | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		259,000
Commercial Mortgages | Construction | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	159,000		159,000		1,196,000
Commercial Mortgages | Construction | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial Mortgages | Commercial mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	581,640,000		581,640,000		523,646,000
Commercial Mortgages | Commercial mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	832,000		832,000		1,323,000
Commercial Mortgages | Commercial mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial Mortgages | Commercial mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	557,371,000		557,371,000		496,723,000
Commercial Mortgages | Commercial mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	7,048,000		7,048,000		8,574,000
Commercial Mortgages | Commercial mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	14,990,000		14,990,000		15,566,000
Commercial Mortgages | Commercial mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	1,399,000		1,399,000		1,460,000
Residential mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	197,701,000		197,701,000		198,965,000
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	197,701,000		197,701,000		198,965,000
Residential mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		95,000
Residential mortgages | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	194,491,000		194,491,000		194,764,000
Residential mortgages | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	3,210,000		3,210,000		4,201,000
Residential mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	194,491,000		194,491,000		194,669,000
Residential mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Residential mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Residential mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	3,210,000		3,210,000		4,201,000
Residential mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans:
Finance receivable by credit quality indicator [Abstract]
Loans	265,756,000		265,756,000		257,334,000
Consumer loans: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Credit cards
Finance receivable by credit quality indicator [Abstract]
Loans	1,444,000		1,444,000		1,476,000
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,444,000		1,444,000		1,476,000
Consumer loans: | Credit cards | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Credit cards | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,444,000		1,444,000		1,476,000
Consumer loans: | Credit cards | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	0		0		0
Consumer loans: | Credit cards | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	1,444,000		1,444,000		1,476,000
Consumer loans: | Credit cards | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Credit cards | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Credit cards | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Credit cards | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Home equity lines and loans
Finance receivable by credit quality indicator [Abstract]
Loans	98,763,000		98,763,000		98,853,000
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	98,763,000		98,763,000		98,853,000
Consumer loans: | Home equity lines and loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Home equity lines and loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	97,585,000		97,585,000		97,183,000
Consumer loans: | Home equity lines and loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,178,000		1,178,000		1,670,000
Consumer loans: | Home equity lines and loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	97,585,000		97,585,000		97,183,000
Consumer loans: | Home equity lines and loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Home equity lines and loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Home equity lines and loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	1,178,000		1,178,000		1,670,000
Consumer loans: | Home equity lines and loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Indirect consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	147,790,000		147,790,000		139,993,000
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	147,790,000		147,790,000		139,993,000
Consumer loans: | Indirect consumer loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Indirect consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	146,953,000		146,953,000		139,339,000
Consumer loans: | Indirect consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	837,000		837,000		654,000
Consumer loans: | Indirect consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	146,953,000		146,953,000		139,339,000
Consumer loans: | Indirect consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Indirect consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Indirect consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	837,000		837,000		654,000
Consumer loans: | Indirect consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Direct consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	17,759,000		17,759,000		17,012,000
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	17,759,000		17,759,000		17,012,000
Consumer loans: | Direct consumer loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Direct consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	17,738,000		17,738,000		16,967,000
Consumer loans: | Direct consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	21,000		21,000		45,000
Consumer loans: | Direct consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	17,738,000		17,738,000		16,967,000
Consumer loans: | Direct consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Direct consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Consumer loans: | Direct consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	21,000		21,000		45,000
Consumer loans: | Direct consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial and industrial | Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	188,853,000		188,853,000		176,666,000
Commercial and industrial | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial and industrial | Commercial and agricultural: | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Commercial and industrial | Commercial and agricultural: | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	181,457,000		181,457,000		172,873,000
Commercial and industrial | Commercial and agricultural: | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	5,390,000		5,390,000		2,277,000
Commercial and industrial | Commercial and agricultural: | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	2,006,000		2,006,000		1,516,000
Commercial and industrial | Commercial and agricultural: | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Agricultural | Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	450,000		450,000		361,000
Agricultural | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Agricultural | Commercial and agricultural: | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Agricultural | Commercial and agricultural: | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	450,000		450,000		361,000
Agricultural | Commercial and agricultural: | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0		0		0
Agricultural | Commercial and agricultural: | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans					0
Agricultural | Commercial and agricultural: | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	$ 0		$ 0		$ 0

XML

FAIR VALUE (Details) - USD ($)	3 Months Ended
	Sep. 30, 2017	Dec. 31, 2016	Oct. 31, 2016
Financial Assets [Abstract]
Total available for sale securities	$ 312,226,000	$ 303,402,000
Trading assets	909,000	774,000
Impaired Loans, Fair Value Disclosure [Abstract]
Fair value, assets, level 2 to level 1 transfers, amount	0	103,000	$ 158,000
Recurring
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	15,584,000	17,455,000
Mortgage-backed securities, residential	236,661,000	245,866,000
Obligations of states and political subdivisions	54,728,000	38,740,000
Corporate bonds and notes	242,000	250,000
SBA loan pools	4,485,000	570,000
Corporate stocks	526,000	521,000
Total available for sale securities	312,226,000	303,402,000
Trading assets	909,000	774,000
Derivative assets	670,000	693,000
Derivative liabilities	741,000	761,000
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	0
Mortgage-backed securities, residential	0	0
Obligations of states and political subdivisions	0	0
Corporate bonds and notes	0	0
SBA loan pools	0	0
Corporate stocks	194,000	170,000
Total available for sale securities	194,000	170,000
Trading assets	909,000	774,000
Derivative assets	0	0
Derivative liabilities	0	0
Recurring | Significant Other Observable Inputs (Level 2)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	15,584,000	17,455,000
Mortgage-backed securities, residential	236,661,000	245,866,000
Obligations of states and political subdivisions	54,728,000	38,740,000
Corporate bonds and notes	242,000	0
SBA loan pools	4,485,000	570,000
Corporate stocks	332,000	351,000
Total available for sale securities	312,032,000	302,982,000
Trading assets	0	0
Derivative assets	670,000	693,000
Derivative liabilities	670,000	693,000
Recurring | Significant Unobservable Inputs (Level 3)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	0
Mortgage-backed securities, residential	0	0
Obligations of states and political subdivisions	0	0
Corporate bonds and notes	0	250,000
SBA loan pools	0	0
Corporate stocks	0	0
Total available for sale securities	0	250,000
Trading assets	0	0
Derivative assets	0	0
Derivative liabilities	71,000	68,000
Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	3,242,000	2,850,000
Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0	0
Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0	0
Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	3,242,000	2,850,000
Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	179,000	344,000
Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0	0
Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0	0
Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	179,000	344,000
Corporate bond securities | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Fair value, assets, level 3 to level 2 transfers, amount	242,000
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	85,000
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	85,000
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	3,157,000	2,631,000
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0	0
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0	0
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	3,157,000	2,631,000
Residential mortgages | Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	179,000	344,000
Residential mortgages | Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0	0
Residential mortgages | Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0	0
Residential mortgages | Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	$ 179,000	344,000
Consumer loans: | Home equity lines and loans | Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans		219,000
Consumer loans: | Home equity lines and loans | Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans		0
Consumer loans: | Home equity lines and loans | Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans		0
Consumer loans: | Home equity lines and loans | Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans		$ 219,000

XML

FAIR VALUE - Unobservable Inputs (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Corporate Bonds and Notes
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at beginning of period	$ 252	$ 256	$ 250	$ 248
Derivative instruments entered into	0	0	0	0
Included in earnings - other non-interest income	0	0	0	0
Included in other comprehensive income	(10)	(1)	(8)	7
Transfers into Level 3	(242)	0	(242)	0
Balance of recurring Level 3 assets at end of period	0	255	0	255
Derivative Liabilities
Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at beginning of period	(71)	(120)	(68)	(48)
Derivative instruments entered into	0	0	(1)	(25)
Included in earnings - other non-interest income	0	26	(2)	(21)
Included in other comprehensive income	0	0	0	0
Transfers into Level 3	0	0	0	0
Balance of recurring Level 3 assets at end of period	$ (71)	$ (94)	$ (71)	$ (94)

XML

FAIR VALUE - Quantitative Information (Details) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	9 Months Ended	12 Months Ended
	Sep. 30, 2017	Dec. 31, 2016
Corporate Bonds and Notes | Recurring | Discounted cash flow
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure		$ 250
Corporate Bonds and Notes | Recurring | Discounted cash flow | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit spread		1.73%
Corporate Bonds and Notes | Recurring | Discounted cash flow | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit spread		1.73%
Corporate Bonds and Notes | Recurring | Discounted cash flow | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit spread		1.73%
Impaired Loans: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 3,242	$ 2,850
Other real estate owned: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	179	344
Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	179	344
Derivative Liabilities | Recurring | Historical trend
Information related to Level 3 non-recurring fair value measurement [Abstract]
Liabilities, fair value disclosure	$ 71	$ 68
Derivative Liabilities | Recurring | Historical trend | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	5.15%	4.92%
Derivative Liabilities | Recurring | Historical trend | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	5.15%	4.92%
Derivative Liabilities | Recurring | Historical trend | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	5.15%	4.92%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 85
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	36.07%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	36.07%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	36.07%
Commercial and Industrial | Impaired Loans: | Non-recurring | Income approach | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	5.00%
Commercial and Industrial | Impaired Loans: | Non-recurring | Income approach | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	5.00%
Commercial and Industrial | Impaired Loans: | Non-recurring | Income approach | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	5.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value		$ 2,631
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 707
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	10.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	44.52%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.34%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Income approach
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 2,450
Commercial mortgages, other | Impaired Loans: | Non-recurring | Income approach | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Capitalization rate	9.00%	9.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Income approach | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Capitalization rate	10.00%	10.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Income approach | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Capitalization rate	9.52%	9.52%
Home equity lines and loans | Impaired Loans: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value		$ 219
Home equity lines and loans | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		22.98%
Home equity lines and loans | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		22.98%
Home equity lines and loans | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		22.98%
Residential mortgages | Other real estate owned: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	17.28%	20.80%
Residential mortgages | Other real estate owned: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	27.97%	48.17%
Residential mortgages | Other real estate owned: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.73%	30.50%

XML

FAIR VALUE - Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Financial Assets [Abstract]
Cash and due from financial institutions	$ 34,572	$ 28,205
Interest-bearing deposits in other financial institutions	21,806	45,957
Securities available for sale	312,226	303,402
Securities held to maturity	3,861	4,912
Loans, net	1,273,119	1,186,037
Accrued interest receivable	3,448	3,192
Financial liabilities [Abstract]
Securities sold under agreements to repurchase	10,000	27,606
FHLBNY term advances	9,009	9,093
Recurring
Financial Assets [Abstract]
Securities available for sale	312,226	303,402
Derivative assets	670	693
Financial liabilities [Abstract]
Derivative liabilities	741	761
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets [Abstract]
Cash and due from financial institutions	34,572	28,205
Interest-bearing deposits in other financial institutions	21,806	45,957
Trading assets	909	774
Securities available for sale	194	170
Securities held to maturity	0	0
FHLBNY and FRBNY stock	0	0
Loans, net	0	0
Loans held for sale	0	0
Accrued interest receivable	2	9
Derivative assets	0	0
Financial liabilities [Abstract]
Demand, savings, and insured money market accounts	1,410,836	1,312,237
Time deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLBNY term advances	0	0
Accrued interest payable	21	25
Derivative liabilities	0	0
Recurring | Significant Other Observable Inputs (Level 2)
Financial Assets [Abstract]
Cash and due from financial institutions	0	0
Interest-bearing deposits in other financial institutions	0	0
Trading assets	0	0
Securities available for sale	312,032	302,982
Securities held to maturity	1,831	981
FHLBNY and FRBNY stock	0	0
Loans, net	0	0
Loans held for sale	1,246	412
Accrued interest receivable	1,050	784
Derivative assets	670	693
Financial liabilities [Abstract]
Demand, savings, and insured money market accounts	0	0
Time deposits	126,445	144,460
Securities sold under agreements to repurchase	10,117	27,880
FHLBNY term advances	9,030	9,189
Accrued interest payable	163	185
Derivative liabilities	670	693
Recurring | Significant Unobservable Inputs (Level 3)
Financial Assets [Abstract]
Cash and due from financial institutions	0	0
Interest-bearing deposits in other financial institutions	0	0
Trading assets	0	0
Securities available for sale	0	250
Securities held to maturity	2,030	3,931
FHLBNY and FRBNY stock	0	0
Loans, net	1,277,896	1,205,814
Loans held for sale	0	0
Accrued interest receivable	3,464	3,207
Derivative assets	0	0
Financial liabilities [Abstract]
Demand, savings, and insured money market accounts	0	0
Time deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLBNY term advances	0	0
Accrued interest payable	0	0
Derivative liabilities	71	68
Recurring | Carrying Amount
Financial Assets [Abstract]
Cash and due from financial institutions	34,572	28,205
Interest-bearing deposits in other financial institutions	21,806	45,957
Trading assets	909	774
Securities available for sale	312,226	303,402
Securities held to maturity	3,865	4,705
FHLBNY and FRBNY stock	3,497	4,041
Loans, net	1,273,119	1,186,037
Loans held for sale	1,246	412
Accrued interest receivable	4,516	4,000
Derivative assets	670	693
Financial liabilities [Abstract]
Demand, savings, and insured money market accounts	1,410,836	1,312,237
Time deposits	126,182	144,106
Securities sold under agreements to repurchase	10,000	27,606
FHLBNY term advances	9,009	9,093
Accrued interest payable	184	210
Derivative liabilities	741	761
Recurring | Estimated Fair Value
Financial Assets [Abstract]
Cash and due from financial institutions	34,572	28,205
Interest-bearing deposits in other financial institutions	21,806	45,957
Trading assets	909	774
Securities available for sale	312,226	303,402
Securities held to maturity	3,861	4,912
Loans, net	1,277,896	1,205,814
Loans held for sale	1,246	412
Accrued interest receivable	4,516	4,000
Derivative assets	670	693
Financial liabilities [Abstract]
Demand, savings, and insured money market accounts	1,410,836	1,312,237
Time deposits	126,445	144,460
Securities sold under agreements to repurchase	10,117	27,880
FHLBNY term advances	9,030	9,189
Accrued interest payable	184	210
Derivative liabilities	$ 741	$ 761

XML

GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016	Dec. 31, 2016
Goodwill [Roll Forward]
Beginning of year			$ 21,824	$ 21,824	$ 21,824
Acquired goodwill			0	0
Ending balance	$ 21,824	$ 21,824	21,824	21,824	21,824
Finite-lived intangible assets, net [Abstract]
Balance Acquired			11,608		11,608
Accumulated Amortization	9,316		9,316		8,663
Aggregate amortization expense	214	$ 245	653	$ 748
Finite-lived intangible assets, future amortization expense [Abstract]
2017	207		207
2018	734		734
2019	609		609
2020	484		484
2021	258		258
Total	2,292		2,292
Core deposit intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired			5,975		5,975
Accumulated Amortization	5,077		5,077		4,689
Other customer relationship intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired			5,633		5,633
Accumulated Amortization	$ 4,239		$ 4,239		$ 3,974

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Details) - USD ($) $ in Thousands	Sep. 30, 2017	Dec. 31, 2016
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		$ 38,276
Excess collateral held	$ (2,536)	(10,670)
Gross amount of recognized liabilities for repurchase agreements	10,000	27,606
Obligations of U.S. Government and U.S. Government sponsored enterprises
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		1,276
Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	12,536	37,000
Overnight and Continuous
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		13,092
Excess collateral held	0	(5,486)
Gross amount of recognized liabilities for repurchase agreements	0	7,606
Overnight and Continuous | Obligations of U.S. Government and U.S. Government sponsored enterprises
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
Overnight and Continuous | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	13,092
Up to 1 Year
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		10,940
Excess collateral held	(2,536)	(940)
Gross amount of recognized liabilities for repurchase agreements	10,000	10,000
Up to 1 Year | Obligations of U.S. Government and U.S. Government sponsored enterprises
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		1,276
Up to 1 Year | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	12,536	9,664
1 - 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		14,244
Excess collateral held	0	(4,244)
Gross amount of recognized liabilities for repurchase agreements	0	10,000
1 - 3 Years | Obligations of U.S. Government and U.S. Government sponsored enterprises
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
1 - 3 Years | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	14,244
3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
Excess collateral held	0	0
Gross amount of recognized liabilities for repurchase agreements	0	0
3 Years | Obligations of U.S. Government and U.S. Government sponsored enterprises
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
3 Years | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	$ 0	$ 0

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Summary of Changes in Accumulated Other Comprehensive Income or Loss by Component (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Balances			$ 143,748	$ 137,242
Total other comprehensive income (loss)	$ (303)	$ (270)	3,479	3,137
Balances	154,277	144,812	154,277	144,812
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Balances	(6,972)	(7,535)	(10,754)	(10,942)
Other comprehensive income before reclassification	(324)	(456)	3,425	3,051
Amounts reclassified from accumulated other comprehensive income	21	186	54	86
Total other comprehensive income (loss)	(303)	(270)	3,479	3,137
Balances	(7,275)	(7,805)	(7,275)	(7,805)
Unrealized Gains and Losses on Securities Available for Sale
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Balances	(615)	3,152	(4,356)	210
Other comprehensive income before reclassification	(324)	(456)	3,425	3,051
Amounts reclassified from accumulated other comprehensive income	0	(47)	(8)	(612)
Total other comprehensive income (loss)	(324)	(503)	3,417	2,439
Balances	(939)	2,649	(939)	2,649
Defined Benefit and Other Benefit Plans
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Balances	(6,357)	(10,687)	(6,398)	(11,152)
Other comprehensive income before reclassification	0	0	0	0
Amounts reclassified from accumulated other comprehensive income	21	233	62	698
Total other comprehensive income (loss)	21	233	62	698
Balances	$ (6,336)	$ (10,454)	$ (6,336)	$ (10,454)

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ACCUMULATED OTHER COMPREHENSIVE LOSS - Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Realized gains on securities available for sale	$ 0	$ (75)	$ (12)	$ (983)
Tax effect	1,710	1,209	4,250	3,130
Pension and other employee benefits	(992)	(1,573)	(3,417)	(4,894)
Net of tax	(3,654)	(2,745)	(9,589)	(7,073)
Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net of tax	21	186	54	86
Unrealized Gains and Losses on Securities Available for Sale | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Realized gains on securities available for sale	0	(75)	(12)	(983)
Tax effect	0	28	4	371
Net of tax	0	(47)	(8)	(612)
Defined Benefit and Other Benefit Plans | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Tax effect	(12)	(141)	37	423
Net of tax	21	233	62	698
Prior Service Costs | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Pension and other employee benefits	(55)	(22)	(165)	(67)
Actuarial Losses | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Pension and other employee benefits	$ (88)	$ (396)	$ (264)	$ (1,188)

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COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands		3 Months Ended
	Mar. 23, 2016	Sep. 30, 2017	Jun. 30, 2017	Dec. 31, 2016	Jun. 30, 2016
Commitments to Make Loans | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		$ 21,664		$ 38,246
Commitments to Make Loans | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		26,834		33,189
Unused Line of Credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		1,870		610
Unused Line of Credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		202,020		208,124
Standby Letters of Credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		0		0
Standby Letters of Credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		14,490		$ 14,241
Pending Litigation
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Loss contingency, damages sought, value	$ 4,000
Legal reserve		2,300			$ 1,200
Loss contingency, accrual, noncurrent			$ 850
Legal fees		$ 200

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COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS (Details) - USD ($) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Qualified Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	$ 0	$ 298	$ 0	$ 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	0	0	0	0
Amortization of unrecognized prior service cost	0	1	0	5
Amortization of unrecognized net loss	58	383	174	1,150
Net periodic pension cost (benefit)	(324)	396	(972)	1,190
Supplemental Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	11	0	32
Interest cost on projected benefit obligation	12	13	36	39
Expected return on plan assets	0	0	0	0
Amortization of unrecognized prior service cost	0	0	0	0
Amortization of unrecognized net loss	1	6	3	19
Net periodic pension cost (benefit)	13	30	39	90
Postretirement Plan, Medical and Life
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	11	0	35
Interest cost on projected benefit obligation	3	18	11	53
Expected return on plan assets	0	0	0	0
Amortization of unrecognized prior service cost	(55)	(23)	(165)	(72)
Amortization of unrecognized net loss	29	7	87	19
Net periodic pension cost (benefit)	$ (23)	$ 13	$ (67)	$ 35

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SEGMENT REPORTING (Details) $ in Thousands	3 Months Ended		9 Months Ended
	Sep. 30, 2017 USD ($)	Sep. 30, 2016 USD ($)	Sep. 30, 2017 USD ($) segment	Sep. 30, 2016 USD ($)	Dec. 31, 2016 USD ($)
Segment Reporting Information [Line Items]
Number of primary business segments | segment			2
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	$ 15,497	$ 14,025	$ 44,495	$ 41,899
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
Other non-interest income	5,166	5,435	15,035	16,252
Legal accruals and settlements	0	0	850	1,200
Other non-interest expenses	13,276	13,471	39,803	41,849
Income before income tax expense	5,364	3,954	13,839	10,203
Income tax expense (benefit)	1,710	1,209	4,250	3,130
Net income	3,654	2,745	9,589	7,073
Segment assets	1,731,682	1,728,865	1,731,682	1,728,865	$ 1,657,179
Holding Company, CFS, and CRM
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	10	3	17	6
Interest expense	0	0	0	0
Net interest income	10	3	17	6
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	10	3	17	6
Other non-interest income	30	168	282	496
Legal accruals and settlements	0	0	0	0
Other non-interest expenses	255	290	866	993
Income before income tax expense	(215)	(119)	(567)	(491)
Income tax expense (benefit)	(42)	(42)	(177)	(212)
Net income	(173)	(77)	(390)	(279)
Segment assets	5,999	2,728	5,999	2,728
Operating Segments | Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	15,487	14,022	44,478	41,893
Interest expense	734	985	2,288	2,866
Net interest income	14,753	13,037	42,190	39,027
Provision for loan losses	1,289	1,050	2,750	2,033
Net interest income after provision for loan losses	13,464	11,987	39,440	36,994
Other non-interest income	2,989	3,240	8,228	9,516
Legal accruals and settlements	0	0	850	1,200
Other non-interest expenses	11,651	11,888	34,795	36,605
Income before income tax expense	4,802	3,339	12,023	8,705
Income tax expense (benefit)	1,457	974	3,523	2,591
Net income	3,345	2,365	8,500	6,114
Segment assets	1,721,571	1,721,739	1,721,571	1,721,739
Operating Segments | WMG
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	0	0	0	0
Interest expense	0	0	0	0
Net interest income	0	0	0	0
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	0	0	0	0
Other non-interest income	2,147	2,027	6,525	6,240
Legal accruals and settlements	0	0	0	0
Other non-interest expenses	1,370	1,293	4,142	4,251
Income before income tax expense	777	734	2,383	1,989
Income tax expense (benefit)	295	277	904	751
Net income	482	457	1,479	1,238
Segment assets	$ 4,112	$ 4,398	$ 4,112	$ 4,398

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STOCK COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		9 Months Ended
	Jan. 31, 2017	Jan. 31, 2016	Sep. 30, 2017	Sep. 30, 2016	Sep. 30, 2017	Sep. 30, 2016
Restricted Stock
Shares [Roll Forward]
Nonvested, Beginning Balance (shares)	23,794		22,240		23,794
Granted (shares)			0		0
Vested (shares)			0		(415)
Forfeited or cancelled (shares)			0		(1,139)
Nonvested, Ending Balance (shares)			22,240		22,240
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, Beginning Balance (in dollars per share)	$ 29.90		$ 29.96		$ 29.90
Granted (in dollars per share)			0.00		0.00
Vested (in dollars per share)			0.00		26.59
Forfeitures or cancelled (in dollars per share)			0.00		29.97
Nonvested, Ending Balance (in dollars per share)			$ 29.96		$ 29.96
Total unrecognized compensation cost related to nonvested shares granted under the Plan			$ 504		$ 504
Weighted-average period for recognition					3 years 2 months 16 days
Total fair value of shares vested					$ 16	$ 17
President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Service period for comparable group used to determine share based payment awards					12 months
Directors and President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of treasury shares reissued to fund stock compensation (in shares)	7,880	9,532
Expenses related to stock based compensation recognized			$ 68	$ 65	$ 222	$ 200