10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2017OR

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

For the transition period from _______________ to _____________

Commission File Number 0-13888

CHEMUNG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

NEW YORK	16-123703-8
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
One Chemung Canal Plaza, Elmira, New York	14901
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code:  (607) 737-3711

Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
Common Stock, Par Value $0.01 Per Share	Nasdaq Stock Market, LLC
Securities registered pursuant to Section 12(g) of the Act:
None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES ☐ NO ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES ☐ NO ☒

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 ☒ 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 ☒ NO ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ☐

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 ☐ Accelerated filer ☒ Non-accelerated filer ☐ 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 ☒

Based upon the closing price of the registrant's Common Stock as of June 30, 2017, the aggregate market value of the voting stock held by non-affiliates of the registrant was $149,907,174.

As of March 7, 2018, there were 4,760,984 shares of Common Stock, $0.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 10, 2018 are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K.

CHEMUNG FINANCIAL CORPORATION

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

Form 10-K Item Number:		Page No.
PART I		1
Item 1.	Business	4
Item 1A.	Risk Factors	17
Item 1B.	Unresolved Staff Comments	24
Item 2.	Properties	24
Item 3.	Legal Proceedings	26
Item 4.	Mine Safety Disclosures	26
PART II		27
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	27
Item 6.	Selected Financial Data	30
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	67
Item 8.	Financial Statements and Supplementary Data	68
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	68
Item 9A.	Controls and Procedures	68
Item 9B.	Other Information	69
PART III		70
Item 10.	Directors, Executive Officers and Corporate Governance	70
Item 11.	Executive Compensation	70
Item 12.	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	70
Item 13.	Certain Relationships and Related Transactions, and Director Independence	70
Item 14.	Principal Accountant Fees and Services	70
PART IV		71
Item 15.	Exhibits and Financial Statement Schedules	71
Item 16.	Form 10-K Summary	72
	Index to Consolidated Financial Statements	73
	Report of Independent Registered Public Accounting Firm-Crowe Horwath LLP	F-1
	SIGNATURES	74

Some of the information contained in this report concerning the markets and industry in which we operate is derived from publicly available information and from industry sources.  Although we believe that this publicly available information and information provided by these industry sources are reliable, we have not independently verified the accuracy of any of this information.

To assist the reader, the Corporation has provided the following list of commonly used abbreviations and terms included in Parts I through IV.

Abbreviations

ALCO	Asset-Liability Committee
AOCI	Accumulated Other Comprehensive Income
ASC	Accounting Standards Codification
ASU	Accounting Standards Update
Bank	Chemung Canal Trust Company
Basel I	The First Basel Accord of the Basel Committee on Banking Supervision
Basel III	The Third Basel Accord of the Basel Committee on Banking Supervision
BHCA	Bank Holding Company Act of 1956
Board of Directors	Board of Directors of Chemung Financial Corporation
BOLI	Bank Owned Life Insurance
CAPM	Capital Asset Pricing Model
CDARS	Certificate of Deposit Account Registry Service
CDO	Collateralized Debt Obligation
CFPB	Consumer Financial Protection Bureau
CFS	CFS Group, Inc.
Corporation	Chemung Financial Corporation
CRA	Community Reinvestment Act
CRM	Chemung Risk Management, Inc.
DIF	Deposit Insurance Fund
Dodd-Frank Act	The Dodd-Frank Wall Street Reform and Consumer Protection Act
ECOA	Equal Credit Opportunity Act
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934
FACT Act	Fair and Accurate Credit Transactions Act of 2003
FASB	Financial Accounting Standards Board
FCRA	Fair Credit Reporting Act
FDIA	Federal Deposit Insurance Act
FDIC	Federal Deposit Insurance Corporation
FFIEC	Federal Financial Institution Examination Council
FHLBNY	Federal Home Loan Bank of New York
FICO	Financing Corporation
FINRA	Financial Industry Regulatory Authority
FOFC	Fort Orange Financial Corporation
FRB	Board of Governors of the Federal Reserve System
FRBNY	Federal Reserve Bank of New York
Freddie Mac	Federal Home Loan Mortgage Corporation
FTC	Federal Trade Commission
GAAP	U.S. Generally Accepted Accounting Principles
GLB Act	Gramm-Leach-Bliley Act
ICS	Insured Cash Sweep Service
IPS	Investment Policy Statement
LIBOR	London Interbank Offered Rate

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MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS	North American Industry Classification System
N/M	Not meaningful
NYSDFS	New York State Department of Financial Services
OCC	Office of the Comptroller of the Currency
OPEB	Other postemployment benefits
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PCI	Purchased credit impaired
Riegle-Neal Act	Riegle-Neal Interstate Banking and Branching Efficiency Act
RESPA	Real Estate Settlement Procedures Act
ROA	Return on average assets
ROE	Return on average equity
RWA	Risk-weighted assets
SBA	Small Business Administration
SEC	Securities and Exchange Commission
Security Guidelines	Interagency Guidelines Establishing Information Security Standards
Securities Act	Securities Act of 1933
Sarbanes-Oxley	Sarbanes-Oxley Act of 2002
Tax Act	Tax Cuts and Jobs Act of 2017
TDRs	Troubled debt restructurings
TILA	Truth in Lending Act
TRID Rule	TILA-RESPA Integrated Disclosure Rule
USA PATRIOT Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
WMG	Wealth Management Group

Terms

Accumulated benefit obligation	An approximate measure of the pension plan liability, which is based on the assumption that the pension plan is to be terminated immediately and does not consider any future salary increases.
Allowance for loan losses to total loans	Represents period-end allowance for loan losses divided by retained loans.
Assets under administration	Represents assets that are beneficially owned by clients and all investment decisions pertaining to these assets are also made by clients.
Assets under management	Represents assets that are managed on behalf of clients.
Basel I	A set of international banking regulations, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. The main focus was mainly on credit risk by creating a bank asset classification system.
Basel III	A comprehensive set of reform measures designed to improve the regulation, supervision, and risk management within the banking sector. The reforms require banks to maintain proper leverage ratios and meet certain capital requirements.
Benefit obligation	Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
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.
Captive insurance company	A company that provides risk-mitigation services for its parent company.
CDARS	Product involving a network of financial institutions that exchange certificates of deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.

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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	Data is not meaningful in context presented.
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.
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.
Projected benefit obligation	An approximate measure of the pension plan liability, which is based on the assumption that the plan will not terminate in the near future and that employees will continue to work and receive future salary increases.

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RWA	Risk-weighted assets, which is used to calculate regulatory capital ratios, 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.

PART I

ITEM 1.  BUSINESS

General

The Corporation was incorporated on January 2, 1985 under the laws of the State of New York and is headquartered in Elmira, NY.  The Corporation was organized for the purpose of acquiring the Bank.  The Bank was established in 1833 under the name Chemung Canal Bank, and was subsequently granted a New York State bank charter in 1895.  In 1902, the Bank was reorganized as a New York State trust company under the name Elmira Trust Company, and its name was changed to Chemung Canal Trust Company in 1903.

The Corporation became a financial holding company in June 2000.  Financial holding company status provided the Corporation with the flexibility to offer an array of financial services, such as insurance products, mutual funds, and brokerage services, which provide additional sources of fee based income and allow the Corporation to better serve its customers. The Corporation established a financial services subsidiary, CFS, in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage services, insurance and tax preparation services. The Corporation established a captive insurance subsidiary, CRM, based in the State of Nevada in May 2016, which insures gaps in commercial coverage and uninsured exposures in the Corporation's current insurance coverages and allows the Corporation to strengthen its overall risk management program.

The Corporation’s Board of Directors has concluded that the expansion of the franchise’s geographic footprint, an increase in the Bank’s earning assets, and the generation of new sources of non-interest income are important components of its strategic plan.  Towards that end, in recent years it has completed the following transactions:

• On May 3, 2007, the Bank acquired the trust business of Partners Trust Bank, Utica, New York.  At the time of the acquisition, the Bank acquired $351.0 million in trust assets.

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• On March 14, 2008, the Bank acquired three branches from Manufacturers and Traders Trust Company in the New York counties of Broome and Tioga.  At the time of the acquisition, the Bank assumed $64.4 million in deposits and acquired $12.6 million in loans.

• On May 29, 2009, the Corporation acquired Canton Bancorp, Inc., the holding company of Bank of Canton based in Canton, Pennsylvania.  At the time of the merger, Canton Bancorp, Inc. had $81.1 million in assets, $58.8 million in loans and $72.9 million in deposits.

• On April 8, 2011, the Corporation acquired FOFC, the holding company of Capital Bank & Trust Company based in Albany, New York.  At the time of the merger, Capital Bank had $254.4 million in assets, $170.7 million in loans and $199.2 million in deposits.

• On November 23, 2013, the Bank completed the acquisition of six branch offices from Bank of America located in Cayuga, Cortland, Seneca, and Tompkins counties in New York.  As part of the transaction, the Corporation acquired $177.7 million in deposits and $1.2 million in loans.

As a result of these transactions and organic growth, the Corporation had $1.708 billion in consolidated assets, $1.312 billion in loans, $1.467 billion in deposits and $149.8 million in shareholders’ equity at December 31, 2017.

Growth Strategy

The Corporation’s growth strategy is to leverage its expanding branch network in current or new markets to build client relationships and grow loans and deposits.  Consistent with the Corporation’s community banking model, emphasis is placed on acquiring stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposits to fund high-quality loans.  Expanding the branch network involves branch purchases or opening de novo branches in contiguous markets and acquiring other financial institutions in the Northeast.  The Corporation evaluates acquisition targets based on the economic viability of the markets they are in, the degree to which they can be effectively integrated into the Corporation’s current operations and the degree to which they are accretive to capital and earnings.

Description of Business

The Corporation, through the Bank and CFS, 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 derives its income primarily from interest and fees on loans, interest 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, 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.

In order to compete with other financial services companies, the Corporation relies upon personal relationships established with clients by its officers, employees, and directors.  The Corporation has maintained a strong community orientation by supporting the active participation of officers and employees in local charitable, civic, school, religious, and community development activities.  The Corporation believes that its emphasis on local relationship banking together with a prudent approach to lending are important factors in its success and growth.

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Lending Activities

Lending Strategy

The Corporation’s objective is to channel deposits gathered locally into high-quality, market-yielding loans without taking unacceptable credit and/or interest rate risk.  The Corporation seeks to have a diversified loan portfolio consisting of commercial and agricultural loans, commercial mortgages, residential mortgages, home equity lines of credit and home equity term loans, consumer and indirect auto loans.  The Bank operates with a traditional community bank model where the relationship manager possesses credit skills and has significant influence over credit decisions.  This creates value since clients and prospects know they are dealing with a decision maker.

Lending Authority

The Board of Directors establishes the lending policies, underwriting standards, and loan approval limits of the Bank.  In accordance with those policies, the Board of Directors has designated certain officers to consider and approve loans within their designated authority.  These officers exercise substantial authority over credit and pricing decisions, subject to loan committee approval for larger credits.  The Bank recognizes that exceptions to the lending policies may occasionally occur and has established procedures for approving exceptions to these policies.

In underwriting loans, primary emphasis is placed on the borrower’s financial condition, including ability to generate cash flow to support the debt and other cash expenses.  In addition, substantial consideration is given to collateral value and marketability as well as the borrower’s character, reputation and other relevant factors.  Interest rates charged by the Bank vary with degree of risk, type, size, complexity, repricing frequency, and other relevant factors associated with the loans.  Competition from other financial services companies also impacts interest rates charged on loans.

The Corporation has also implemented reporting systems to monitor loan originations, loan quality, concentration of credit, loan delinquencies, non-performing loans and potential problem loans.

Lending Segments

The Corporation segments its loan portfolio into the following major lending categories: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Corporation's market area in a diverse range of industries.  These loans are of higher risk and typically are made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  Further, the collateral securing the loans may depreciate over time, may be difficult to appraise and may fluctuate in value.  The credit risk related to commercial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Commercial mortgage loans generally have larger balances and involve a greater degree of risk than residential mortgage loans, and they, therefore, pose higher potential losses on an individual customer basis.  Loan repayment is often dependent on the successful operation and management of the properties and/or the businesses occupying the properties, as well as on the collateral securing the loan.  Economic events or conditions in the real estate market could have an adverse impact on the cash flows generated by properties securing the Corporation’s commercial real estate loans and on the value of such properties.

The Corporation offers interest rate swaps to certain larger commercial mortgage borrowers. These swaps allow the Corporation to originate a mortgage based on short-term LIBOR rates and allow the borrower to swap into a longer term fixed rate. The Corporation simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk. The swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets, which typically involves a day one gain.

Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, but are secured by real property whose value tends to be more easily ascertainable.  Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers and the nature of the loan collateral.

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The consumer loan segment includes home equity lines of credit and home equity loans, which exhibit many of the same risk characteristics as residential mortgages.  Indirect and other consumer loans may entail greater credit risk than residential mortgage and home equity loans, particularly in the case of other consumer loans which are unsecured or, in the case of indirect consumer loans, secured by depreciable assets, such as automobiles, recreational vehicles, or boats. In such cases, any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment of the outstanding loan balance.  In addition, consumer loan collections are dependent on the borrower’s continuing financial stability, thus are more likely to be affected by adverse personal circumstances such as job loss, illness, or personal bankruptcy.  Furthermore, the application of various federal and state laws, including bankruptcy and insolvency laws, may limit the amount which can be recovered on such loans.

Funding Activities

Funding Strategy

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.  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.  The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using brokered deposits as a secondary source of funding to support growth.  Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

Funding Sources

The Corporation’s primary sources of funds are deposits, principal and interest payments on loans and securities, borrowings and funds generated from operations of the Bank.  The Bank also has access to advances from the FHLBNY, other financial institutions, and the FRBNY.  Contractual loan payments are a relatively stable source of funds, while deposit inflows and outflows and loan prepayments are significantly influenced by general market interest rates and economic conditions.

The Corporation considers core deposits, consisting of non-interest-bearing and interest-bearing checking accounts, savings accounts, and insured money market accounts, to be a significant component of its deposits.  The Corporation monitors the activity on these core deposits and, based on historical experience and pricing strategy, believes it will continue to retain a large portion of such accounts.  The Bank is currently not limited with respect to the rates that it may offer on deposit products.  The Bank believes it is competitive in the types of accounts and interest rates it has offered on its deposit products.  The Bank regularly evaluates the internal cost of funds, surveys rates offered by competitors, reviews cash flow requirements for lending and liquidity, and executes rate changes when necessary as part of its asset/liability management, profitability and growth strategies.

The flow of deposits is influenced significantly by general economic conditions, changes in prevailing interest rates and competition.  The Bank’s deposits are obtained predominantly from the areas in which its retail offices are located.  The Bank relies primarily on customer service, long-standing relationships and other banking services, including loans and wealth management services, to attract and retain these deposits.  However, market interest rates and rates offered by competing financial institutions affect the Bank’s ability to attract and retain deposits.  The Bank utilizes a combination of traditional media, such as print, television, and radio, as well as digital advertising, such as social media and eBlasts, when advertising its deposit products.

Derivative Financial Instruments

The Corporation offers interest rate swaps to commercial loan customers who wish to fix the interest rates on their loans, and the Corporation matches these swaps with offsetting swaps with national bank counterparties. These swaps are considered free standing derivatives and are carried at fair value on the consolidated balance sheet in other assets and other liabilities, with gains and losses recorded through other non-interest income. The swaps are not designated as hedging derivatives. Additionally, the Corporation participates in risk participation agreements with dealer banks on commercial loans in which it participates. The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap associated with the commercial loan in which it is a participant and the fee received is recognized immediately in other non-interest income. The Corporation is exposed to its share of the credit loss equal to the fair value of the interest rate swap in the event of nonperformance by the counterparty of the interest rate swap.

The Corporation has a policy for managing its derivative financial instruments, and the policy and program activity are overseen by ALCO. Under the policy, derivative financial instruments with counterparties, who are not customers, are limited to a national financial institution. Cash and/or certain qualified securities are required to serve as collateral when exposures exceed $100 thousand, with a minimum collateral coverage of $150 thousand. The credit worthiness of the counterparty is reviewed internally by the Bank's credit department.

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Wealth Management Strategy

With $1.952 billion of assets under management or administration at December 31, 2017, including $346.8 million of assets held under management or administration for the Corporation, WMG is responsible for the largest component of non-interest income.  Wealth management services provided by the Bank include services as executor and trustee under wills and agreements, and guardian, custodian, trustee,andagent for pension, profit-sharing and other employee benefit trusts, as well as various investment, pension, estate planning, and employee benefit administrative services.  The Corporation’s growth strategy also includes the acquisition of trust businesses to generate new sources of fee income.

The Corporation offers an array of financial services including mutual funds, securities and insurance brokerage, tax preparation, and other services through CFS, its wholly owned subsidiary.

For additional information, including information concerning the results of operations of the Corporation and its subsidiaries, see Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7.

There were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2017.

Market Area and Competition

The Bank operates 34 branch offices located in 12 counties in New York and Bradford County in Pennsylvania.  Bank branch offices are located in the following New York counties:  Chemung, where the Bank is headquartered, Broome, Cayuga, Cortland, Schuyler, Seneca, Steuben, Tioga and Tompkins.  The Bank also operates under the name “Capital Bank, a division of Chemung Canal Trust Company,” with branch offices located in Albany, Saratoga, and Schenectady counties in New York.

Albany, Saratoga, and Schenectady counties rely heavily on business related to New York State government activities, the nanotechnology industry, and colleges located within these counties.  Tompkins County is dominated by the presence of Cornell University and Ithaca College.  The world headquarters of Corning Incorporated, the region’s largest employer, is located in Steuben County.  The remaining New York counties have a combination of service, small manufacturing and tourism related businesses, with colleges located in Broome, Chemung, and Cortland counties. Bradford County's largest employers are a combination of service and small manufacturing businesses, along with the natural gas industry.

Within all these market areas, the Bank encounters intense competition in the lending and deposit gathering aspects of its business from local, regional and national commercial banks and thrift institutions, credit unions and other providers of financial services, such as brokerage firms, investment companies, insurance companies and internet banking entities.  The Bank also competes with non-financial institutions, including retail stores and certain utilities that maintain their own credit programs, as well as governmental agencies that make loans to certain borrowers.  Many of these competitors are not subject to regulation as extensive as that affecting the Bank and, as a result, may have a competitive advantage over the Bank in certain respects. This is particularly true of credit unions because their pricing structure is not encumbered by the payment of income taxes.

Similarly, the competition for the Bank's wealth management services is primarily from local offices of national brokerage firms, independent investment advisors, national and regional banks as well as internet based brokerage and advisory firms.  The Bank operates full-service wealth management centers in Chemung, Broome, and Albany counties in New York.

Employees

As of December 31, 2017, the Corporation and its subsidiaries employed 371 persons on a full-time equivalent basis. None of the Corporation's employees are covered by collective bargaining agreements. The Corporation provides its employees with a comprehensive benefit program, some of which is contributory. The Corporation believes that its relationship with its employees is good.

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Available Information

The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation.  You may also read and copy materials we file with the SEC at the SEC's Public Reference Room at 100 F St., NE, Washington, D.C. 20549.  You may obtain information concerning the operation of the Public Reference Room by calling 1-800-SEC-0330.  In addition, the Corporation maintains a corporate web site at www.chemungcanal.com.  The Corporation makes available free of charge through Bank's web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.  These items are availableas soon as reasonably practicable after we electronically file or furnish such material with the SEC. These items are also available on the Bank's web site as Interactive Data Files as required pursuant to Rule 405 of Regulation S-T (§232.405).  The contents of the Bank's web site are not a part of this report.  These materials are also available free of charge by written request to: Kathleen S. McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901.

Supervision and Regulation

The Corporation and the Bank are subject to comprehensive regulation, supervision and examination by regulatory authorities. Numerous statutes and regulations apply to the Corporation’s and, to a greater extent, the Bank’s operations, including required reserves, investments, loans, deposits, issuances of securities, payments of dividends and establishment of branches. Set forth below is a brief description of some of these laws and regulations. The description does not purport to be complete, and is qualified in its entirety by reference to the text of the applicable laws and regulations.

The Corporation

Bank Holding Company Act

The Corporation is a bank holding company registered with, and subject to regulation and examination by, the FRB pursuant to the BHCA, as amended. The FRB regulates and requires the filing of reports describing the activities of bank holding companies, and conducts periodic examinations to test compliance with applicable regulatory requirements. The FRB has enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, to issue cease and desist or removal orders, and to require a bank holding company to divest subsidiaries.

The Corporation generally may engage in the activities permissible for a bank holding company, which includes banking, managing or controlling banks, performing certain servicing activities for subsidiaries, and engaging in other activities that the FRB has determined to be so closely related to banking as to be a proper incident thereto, as set forth in the FRB's Regulation Y. As the Corporation has elected financial holding company status, it may also engage in a broader range of activities that are determined by the FRB and the Secretary of the Treasury to be financial in nature or incidental to financial activities or, with the prior approval of the FRB, activities that are determined by the FRB to be complementary to a financial activity and that do not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally.

The BHCA prohibits a bank holding company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank, or increasing such ownership or control of any bank, without the prior approval of the FRB.

Interstate Banking and Branching

Under the Riegle-Neal Act, subject to certain concentration limits and other requirements, adequately capitalized bank holding companies, such as the Corporation, are permitted to acquire banks and bank holding companies located in any state. Any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans, and receive loan payments as an agent for any other bank subsidiary of that bank holding company. Subject to certain conditions, bank are permitted to acquire branch offices outside of their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states.

In April 2008, banking regulators in the states of New Jersey, New York, and Pennsylvania entered into a Memorandum of Understanding (the "Interstate MOU") to clarify their respective roles, as home and host state regulators, regarding interstate branching activity on a regional basis pursuant to the Riegle-Neal Amendments Act of 1997. The Interstate MOU established the regulatory responsibilities of the respective state banking regulators regarding bank regulatory examinations and is intended to reduce the regulatory burden on state-chartered banks branching within the region by elimination duplicative host state compliance exams.

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Under the Interstate MOU, the activities of branches the Bank established in Pennsylvania would be governed by New York state law to the same extent that the Federal law governs the activities of the branch of an out-of-state national bank in such host states. Issues regarding whether a particular host state law is preempted are to be determined in the first instance by the NYSDFS. In the event that the NYSDFS and the applicable host state regulator disagree regarding whether a particular host state law is pre-empted, the NYSDFS and the applicable host state regulator would use their reasonable best efforts to consider all points of view to resolve the disagreement.

New York Law

The Corporation is organized under New York law and is subject to the New York Business Corporation Law, which governs the rights and obligations of directors and shareholders and other corporate matters.

The Corporation is also a bank holding company as defined in the New York Banking Law by virtue of its ownership and control of the Bank. Generally, this means that the NYSDFS must approve the Corporation’s acquisition of control of other banking institutions and similar transactions.

Federal Securities Law

The Corporation is subject to the information, reporting, proxy solicitation, insider trading, and other rules contained in the Exchange Act, the disclosure requirements of the Securities Act and the regulations of the SEC thereunder.  In addition, the Corporation must comply with the corporate governance and listing standards of the Nasdaq Stock Market to maintain the listing of its common stock on the exchange. These standards include rules relating to a listed company's board of directors, audit committees and independent director oversight of executive compensation, the director nomination process, a code of conduct and shareholder meetings.

The SEC has adopted certain proxy disclosure rules regarding executive compensation and corporate governance, with which the Corporation must comply. They include:  (i) disclosure of total compensation of key officers of the Corporation, including disclosure of restricted and unrestricted stock awards compensation; (ii) disclosure regarding any potential conflict of interest of any compensation consultants of the Corporation; (iii) disclosure regarding compensation committee independence and experience, qualifications, skills and diversity of its directors and any director nominees; (iv) “say-on-pay” disclosure; and (v) information relating to the leadership structure of the Corporation’s Board of Directors and the Board of Directors' role in the risk management process. Additionally, these rules require the Corporation to report the voting results of annual meetings in a much more timely manner on Form 8-K, rather than on a quarterly or annual report.

Sarbanes-Oxley

The Corporation is also subject to Sarbanes-Oxley.  Sarbanes-Oxley established laws affecting public companies’ corporate governance, accounting obligations, and corporate reporting by: (i) creating a federal accounting oversight body; (ii) revamping auditor independence rules; (iii) enacting new corporate responsibility and governance measures; (iv) enhancing disclosures by public companies, their directors, and their executive officers; (v) strengthening the powers and resources of the SEC; and (vi) imposing new criminal and civil penalties for securities fraud and related wrongful conduct.

The SEC has adopted regulations under Sarbanes-Oxley, including: (i) executive compensation disclosure rules; (ii) standards of independence for directors who serve on the Corporation’s audit committee; (iii) disclosure requirements as to whether at least one member of the Corporation’s audit committee qualifies as a “financial expert” as defined in SEC regulations; (iv) whether the Corporation has adopted a code of ethics applicable to its chief executive officer, chief financial officer, or those persons performing similar functions; (v) and disclosure requirements regarding the operations of Board of Directors' nominating committees and the means, if any, by which security holders may communicate with directors.

Support of Subsidiary Banks

The Dodd-Frank Act, discussed in the section of this document entitled “Additional Important Legislation and Regulation,” codifies the FRB’s long-standing policy of requiring bank holding companies to act as a source of financial and managerial strength to their subsidiary banks. Accordingly, the Corporation is expected to commit resources to support its banking subsidiaries, including at times when it may not be advantageous for the Corporation to do so.

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Capital Distributions

A bank holding company is generally required to give the FRB prior written notice of any purchase or redemption of then outstanding equity securities if the gross consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the company’s consolidated net worth. The FRB may disapprove such a purchase or redemption if it determines that the proposal would constitute an unsafe and unsound practice, or would violate any law, regulation, FRB order or directive, or any condition imposed by, or written agreement with, the FRB. There is an exception to this approval requirement for well-capitalized bank holding companies that meet certain other conditions.

The FRB has issued a policy statement regarding capital distributions, including dividends, by bank holding companies. In general, the FRB’s policies provide that dividends should be paid only out of current earnings and only if the prospective rate of earnings retention by the bank holding company appears consistent with the organization’s capital needs, asset quality and overall financial condition. Under applicable laws, the ability of a bank holding company to pay dividends may be restricted if a subsidiary bank becomes undercapitalized. In addition, the FRB has issued guidance which requires consultation with the agency prior to a bank holding company’s payment of dividends or repurchase or redemption of its stock under certain circumstances. These regulatory policies could affect the ability of the Corporation to pay dividends, repurchase its stock or otherwise engage in capital distributions.

The Bank

General

The Bank is a commercial bank chartered under the laws of New York State and is supervised by the NYSDFS.  The Bank also is a member bank of the FRB and, therefore, the FRB serves as its primary federal regulator. The FDIC insures the Bank’s deposit accounts up to applicable limits. The Bank must file reports with the FFIEC, the FRB and the FDIC concerning its activities and financial condition and must obtain regulatory approval before commencing certain activities or engaging in transactions such as mergers and other business combinations or the establishment, closing, purchase or sale of branch offices.  This regulatory structure gives the regulatory authorities extensive discretion in the enforcement of laws and regulations and the supervision of the Bank.

Loans to One Borrower

The Bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.  Up to an additional 10% of unimpaired capital and surplus can be lent if the additional amount is fully secured by certain readily marketable collateral.  At December 31, 2017, the Bank’s legal lending limit on loans to one borrower was $23.4 million for loans not fully secured by readily marketable collateral and $25.8 million for loans secured by readily marketable collateral.  The Bank’s internal limit on loans is set at $15.0 million.  At December 31, 2017, the Bank did not have any loans or agreements to extend credit to a single or related group of borrowers in excess of its legal lending limit.

Branching

Subject to the approval of the NYSDFS and FRB, New York-chartered member commercial banks may establish branch offices anywhere within New York State, except in communities having populations of less than 50,000 inhabitants in which another New York-chartered commercial bank or a national bank has its principal office.  Additionally, under the Dodd-Frank Act, state-chartered banks may generally branch into other states to the same extent as commercial banks chartered under the laws of that state may branch.

Payment of Dividends

The Bank is subject to substantial regulatory restrictions affecting its ability to pay dividends to the Corporation.  Under FRB and NYSDFS regulations, the Bank may not pay a dividend without prior approval of the FRB and the NYSDFS if the total amount of all dividends declared during such calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the calendar year and its retained net income over the preceding two calendar years. As of December 31, 2017, approximately $13.8 million was available for the payment of dividends by the Bank to the Corporation without prior approval.  The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements.  The Bank is currently in compliance with these requirements.

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Federal Reserve System

FRB member banks must maintain, with a Federal Reserve bank, reserves against their transaction accounts (primarily checking, NOW, and Super NOW accounts) and non-personal time accounts. As of December 31, 2017, the Bank was in compliance with applicable reserve requirements. In all years preceding 2008, these reserves were maintained as vault cash or noninterest-bearing accounts, thereby reducing the Bank’s earnings potential.  In the fourth quarter of 2008, the FRB announced that they would begin to pay interest on member banks’ required reserve balances, as well as excess reserve balances.

Standards for Safety and Soundness

The FRB has adopted guidelines prescribing safety and soundness standards. These guidelines establish general standards relating to capital adequacy, asset quality, management, earnings performance, liquidity and sensitivity to market risk.  In evaluating these safety and soundness standards, the FRB considers internal controls and information systems, internal audit systems, loan documentation, credit underwriting, exposure to changes in interest rates, asset growth, compensation, fees, and benefits.  In general, the guidelines require appropriate systems and practices to identify and manage the risks and exposures specified in the guidelines.  The FRB may order an institution that has been given notice that it is not satisfying these safety and soundness standards to submit a compliance plan, and if an institution fails to do so, the FRB must issue an order directing action to correct the deficiency and may issue an order directing other action. If an institution fails to comply with such an order, the FRB may seek to enforce such order in judicial proceedings and to impose civil money penalties.

Real Estate Lending Standards

The FRB has adopted guidelines that generally require each FRB state member bank to establish and maintain written internal real estate lending standards that are consistent with safe and sound banking practices and appropriate to the size of the bank and the nature and scope of its real estate lending activities. The standards also must be consistent with accompanying FRB guidelines, which include loan-to-value ratios for the different types of real estate loans.

Transactions with Related Parties

The Federal Reserve Act governs transactions between the Bank and its affiliates, specifically the Corporation, CFS, and CRM.  In general, an affiliate of the Bank is any company that controls, is controlled by, or is under common control with the Bank. Generally, the Federal Reserve Act limits the extent to which the Bank or its subsidiaries may engage in “covered transactions” with any one affiliate to 10% of the Bank’s capital stock and surplus, and contains an aggregate limit of 20% of capital stock and surplus for covered transactions with all affiliates. Covered transactions include loans, asset purchases, the issuance of guarantees, and similar transactions. Certain transactions must be collateralized according to the requirements of the statute. In addition, all covered transactions and other transactions between the Bank and its affiliates must be on terms and conditions that are substantially the same as, or at least as favorable to, the Bank.

Section 22(h) of the Federal Reserve Act and its implementing Regulation O restricts a bank's loans to its directors, executive officers, and principal stockholders ("Insiders"). Loans to Insiders (and their related entities) may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank's total capital and surplus. Loans to Insiders above specified amounts must receive the prior approval of the Bank's Board of Directors. The loans must be made on terms that are substantially the same as, and follow credit underwriting procedures that are not less stringent than, those prevailing for comparable transactions with unaffiliated persons and that do not involve more than the normal risk of repayment or present other unfavorable features, except that such Insiders may receive preferential loans made under a benefit or compensation program that is widely available to the Bank's employees and does not give preference to the Insider over the employees.  Loans to executive officers are subject to additional restrictions on the types and amounts of permissible loans.

Deposit Insurance

The FDIC insures the deposits of the Bank up to regulatory limits and the deposits are subject to the deposit insurance premium assessments of the DIF. The FDIC currently maintains a risk-based assessment system under which assessment rates vary based on the level of risk posed by the institution to the DIF.  Therefore, the assessment rate may change if any of these measurements change.

Assessments for institutions with less than $10 billion of assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years, with institutions deemed less risky paying lower assessments. That system, effective July 1, 2016, replaced a previous system under which institutions were placed into risk categories.

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The Dodd-Frank Act required the FDIC to revise its procedures to base assessments upon each insured institution’s total assets less tangible equity instead of deposits. The FDIC finalized a rule, effective April 1, 2011, that set the risk-based assessment range (inclusive of possible adjustments) at 2.5 to 45 basis points of total assets less tangible equity. In conjunction with the DIF’s reserve ratio achieving 1.15%, the assessment range was reduced for insured institutions of less than $10 billion of total assets to 1.5 basis points to 30 basis points, effective July 1, 2016.

All institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by FICO, an agency of the federal government established to recapitalize the former Savings Association Insurance Fund. These assessments will continue until the FICO bonds mature through 2019.  The FDIC's FICO assessment authority is separate from its authority to assess risk-based premiums for deposit insurance. The FICO assessment rate is adjusted quarterly to reflect changes in the assessment bases of the fund and is not risk-based by institution.  The FICO assessment rate for the third quarter of 2017, due December 29, 2017, was 0.115 basis points, or an annual rate of 0.46 basis points,of the Bank's assessment base, or average total assets less average tangible equity and allowable deductions.

The FDIC has authority to increase insurance assessments. Any material increases would likely have an adverse effect on the operating expenses and results of operations of the Bank and the Corporation. Future insurance assessments cannot be predicted.

Insurance of deposits may be terminated by the FDIC upon a finding that an institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed in writing. Management of the Bank does not know of any practice, condition, or violation that may lead to termination of the Bank’s deposit insurance.

Regulatory Capital Requirements

On October 11, 2013, the FRB approved a final rule that amended the regulatory capital rules for state member banks effective January 1, 2015. The FRB approved the new capital rules in coordination with substantially identical final rules approved by the FDIC and the Office of the Comptroller of the Currency for other types of banking organizations. The revisions make the capital rules consistent with agreements that were reached by Basel III and certain provisions of the Dodd-Frank Act. In general, the new capital rules revise regulatory capital definitions and minimum ratios; redefine Tier 1 Capital as two components (common equity Tier 1 capital and additional Tier 1 capital); create a new “common equity Tier 1 risk-based capital ratio”; implement a capital conservation buffer; revise prompt corrective action thresholds; and change risk weights for certain assets and off-balance sheet exposures.

The new capital rules implemented a revised definition of regulatory capital, a new common equity Tier 1 minimum capital requirement of 4.5%, and a higher minimum Tier 1 capital requirement of 6.0% (which is an increase from 4.0%). Under the new rules, the total capital ratio remains at 8.0%, and the minimum leverage ratio (Tier 1 capital to total assets) for all banking organizations, regardless of supervisory rating, is 4.0%. Additionally, under the new capital rules, in order to avoid limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers, a banking organization must hold a capital conservation buffer composed of common equity Tier 1 capital above its minimum risk-based capital requirements. The buffer is measured relative to risk-weighted assets. The final rules also enhance risk sensitivity and address weaknesses identified by the regulators over recent years with the measure of risk-weighted assets, including through new measures of creditworthiness to replace references to credit ratings, consistent with the requirements of the Dodd-Frank Act. Effective January 1, 2016, the additional capital conservation buffer of 0.625% was added to the minimum requirements for capital adequacy purposes, subject to a multi-year phase-in of an increase of 0.625% each succeeding January 1. The capital conservation buffer will be fully phased-in on January 1, 2019 at 2.5%.

The new capital requirements also include changes in the risk-weights of assets to better reflect credit risk and other risk exposures. These include a 150% risk weight (up from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and the unsecured portion of non-residential mortgage loans that are 90 days past due or otherwise on non-accrual status; a 20% (up from 0%) credit conversion factor for the unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable; a 250% risk weight (up from 100%) for mortgage servicing rights and deferred tax assets that are not deducted from capital; and increased risk weights (from 0% to up to 600%) for equity exposures. 

The Corporation is subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank. 

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In assessing a state member bank’s capital adequacy, the FRB takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual banks where necessary. 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. The Bank, in accordance with its internal prudential standards, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with its risk profile. As of December 31, 2017, the Bank exceeded all regulatory capital ratios necessary to be considered well capitalized.

Prompt Corrective Action

The FDIA requires the federal banking agencies to resolve the problems of insured banks at the least possible loss to the DIF. The FRB has adopted prompt corrective action regulations to carry out this statutory mandate. The FRB’s regulations authorize, and in some situations, require, the FRB to take certain supervisory actions against undercapitalized state member banks, including the imposition of restrictions on asset growth and other forms of expansion. The prompt corrective action regulations place state member banks in one of the following five categories based on the bank’s capital:

• well capitalized

• adequately capitalized

• undercapitalized

• significantly undercapitalized

• critically undercapitalized

The capital rules described above under “Regulatory Capital Requirements” maintained the existing general structure of the current prompt corrective action framework and increased some of the thresholds for the prompt corrective action capital categories. For example, an adequately capitalized bank is required to maintain a Tier 1 risk-based capital ratio of 6.0% (increased from the current level of 4.0%). The rule also introduced the common equity Tier 1 capital ratio as a new prompt corrective action capital category threshold.

As an institution’s capital decreases within the three undercapitalized categories listed above, the severity of the action that is authorized or required to be taken by the FRB for state member banks under the prompt corrective action regulations increases. All banks are prohibited from paying dividends or other capital distributions or paying management fees to any controlling person if, following such distribution, the bank would be undercapitalized. The FRB is required to monitor closely the condition of an undercapitalized institution and to restrict the growth of its assets.

An undercapitalized state member bank is required to file a capital restoration plan with the FRB within 45 days (or other timeframe prescribed by the FRB) of the date the bank receives notice that it is within any of the three undercapitalized categories, and the plan must be guaranteed by its parent holding company, subject to a cap on the guarantee that is the lesser of: (i) an amount equal to 5.0% of the bank’s total assets at the time it was notified that it became undercapitalized; and (ii) the amount that is necessary to restore the bank’s capital ratios to the levels required to be classified as “adequately classified,” as those ratios and levels are defined as of the time the bank failed to comply with the plan. If the bank fails to submit an acceptable plan, it is treated as if it were “significantly undercapitalized.” Banks that are significantly or critically undercapitalized are subject to a wider range of regulatory requirements and restrictions including, with respect to critically undercapitalized status, the appointment of a receiver or conservator within specified periods of time.

The NYSDFS possesses enforcement power over New York State-chartered banks pursuant to New York law. This includes authority to order a New York State bank to, among other things, cease an apparent violation of law, discontinue unauthorized or unsafe banking practices or maintain prescribed books and accounts. Such orders are enforceable by financial penalties. Upon a finding by the NYSDFS that a bank director or officer has violated any law or regulation or continued unauthorized or unsafe practices in conducting its business after having been notified by the NYSDFS to discontinue such violation or practices, such director or officer may be removed from office after notice and an opportunity to be heard. The NYSDFS also has authority to appoint a conservator or receiver (which may be the FDIC) for a bank under certain circumstances.

Under federal law, the FRB possesses authority to bring enforcement actions against member banks and their ‘‘institution-affiliated parties,’’ including directors, officers, employees and, under certain circumstances, a stockholder, attorney, appraiser or accountant. Such enforcement action can occur for matters such as failure to comply with applicable law or regulations or engaging in unsafe or unsound banking practices. Possible enforcement actions range from an informal measure, such as a memorandum of understanding, to formal actions, such as a written agreement, cease and desist order, civil money penalty, capital directive, removal of directors or officers or the appointment of a conservator or receiver. The FRB also possesses authority to bring enforcement actions against bank holding companies, their nonbanking subsidiaries and their “institution-affiliated parties.”

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Federal Home Loan Bank

The Bank is also a member of the FHLBNY, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending. The Bank is subject to the rules and requirements of the FHLBNY, including the requirement to acquire and hold shares of capital stock in the FHLBNY. The Bank was in compliance with the rules and requirements of the FHLBNY at December 31, 2017.

Community Reinvestment Act

Under the federal CRA, the Bank, consistent with its safe and sound operation, must help meet the credit needs of its entire community, including low and moderate income neighborhoods.  The FRB periodically assesses the Bank's compliance with CRA requirements.  The Bank received a “satisfactory” rating for CRA on its last performance evaluation conducted by the FRB as of June 19, 2017.

Fair Lending and Consumer Protection Laws

The Bank must also comply with the federal Equal Credit Opportunity Act and the New York Executive Law, which prohibit creditors from discrimination in their lending practices on bases specified in these statutes. In addition, the Bank is subject to a number of federal statutes and regulations implementing them, which are designed to protect the general public, borrowers, depositors, and other customers of depository institutions. These include the Bank Secrecy Act, the Truth in Lending Act, the Home Ownership and Equity Protection Act, the Truth in Savings Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Electronic Funds Transfers Act, the FCRA, the Right to Financial Privacy Act, the Expedited Funds Availability Act, the Flood Disaster Protection Act, the Fair Debt Collection Practices Act, Helping Families Save Their Homes Act, and the Consumer Protection for Depository Institutions Sales of Insurance regulation.  The FRB and, in some instances, other regulators, including the U.S. Department of Justice, the FTC, the CFPB and state Attorneys General, may take enforcement action against institutions that fail to comply with these laws.

Prohibitions against Tying Arrangements

Subject to some exceptions, regulations under the BHCA and the Federal Reserve Act prohibit  banks from extending credit to or offering any other service, or fixing or varying the consideration for such extension of credit or service, on the condition that the customer obtain some additional service from the bank or its affiliates or not obtain services of a competitor of the bank.

Privacy Regulations

Regulations under the Federal Reserve Act generally require the Bank to disclose its privacy policy.  The policy must identify with whom the Bank shares its customers’ “nonpublic personal information,” at the time of establishing the customer relationship and annually thereafter. In addition, the Bank must provide its customers with the ability to “opt out” of having their personal information shared with unaffiliated third parties and not to disclose account numbers or access codes to non-affiliated third parties for marketing purposes.  The Bank’s privacy policy complies with Federal Reserve Act regulations.

The USA PATRIOT Act

The Bank is subject to the USA PATRIOT Act, which gives the federal government powers to address terrorist threats through enhanced domestic security measures, expanded surveillance powers, increased information sharing, and broadened anti-money laundering requirements. The USA PATRIOT Act imposes affirmative obligations on financial institutions, including the Bank, to establish anti-money laundering programs which require: (i) the establishment of internal policies, procedures, and controls; (ii) the designation of an anti-money laundering compliance officer; (iii) ongoing employee training programs; and (iv) an independent audit function to test the anti-money laundering program. The FRB must consider the Bank’s effectiveness in combating money laundering when ruling on merger and other applications.

CFS

CFS is subject to supervision by other regulatory authorities as determined by the activities in which it is engaged.  Insurance activities are supervised by the NYSDFS, and brokerage activities are subject to supervision by the SEC and FINRA.

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CRM

CRM is subject to regulations of the State of Nevada and undergoes periodic examinations by the Nevada Division of Insurance.

Additional Important Legislation and Regulation

The Dodd-Frank Act

The Dodd-Frank Act, enacted on July 21, 2010, 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. We have summarized below significant rules adopted by the federal agencies pursuant to the Dodd-Frank Act.

Consumer Financial Protection Bureau Rules

The Dodd-Frank Act created the CFPB, with wide-ranging powers to supervise and enforce consumer protection laws. The CFPB has broad rule-making authority for a wide range of consumer protection laws that apply to all banks and savings institutions, including the authority to prohibit "unfair, deceptive or abusive" acts and practices. The CFPB has examination and enforcement authority over all banks and savings institutions with more than $10 billion in assets. Smaller institutions continue to be examined by their primary federal regulator as to compliance with consumer protection laws. The Dodd-Frank Act also weakened the federal preemption rules that had been applicable to national banks and federal savings associations, especially with respect to the applicability of state consumer protection laws, and gives state attorneys general certain powers to enforce federal consumer protection regulations.

The CFPB has issued several new rules pursuant to the Dodd-Frank Act concerning the regulation of mortgage markets in the U.S. The rules amend several existing regulations, including Regulation Z, which implements the Truth in Lending Act, Regulation X, which implements the Real Estate Settlement Procedures Act and Regulation B, which implements the Equal Credit Opportunity Act.  The CFPB has also issued amendments to Regulation P, which governs information privacy and Regulation E, which implements the Electronic Funds Transfers Act. The CFPB may from time to time issue additional amendments or new rules that will affect the Corporation's business practices.

In December 2013, the FRB and the SEC released final rules to implement certain provisions of the Dodd-Frank Act, commonly known as the “Volcker Rule.” The Volcker Rule, among other things, prohibits banking entities from engaging in proprietary trading and from sponsoring, having an ownership interest in or having certain relationships with a hedge fund or private equity fund, subject to certain exemptions.  At December 31, 2017, the Corporation was not engaged in any activities and it did not have any ownership interests in any funds that are not permitted under the Volcker Rule.

In 2013, the CFPB issued a final rule amending Regulation Z (which implements TILA) and Regulation X (which implements RESPA). In 2015, the CFPB issued a final rule, effective October 3, 2015, specifying mandatory new procedures for the making of these disclosures. The purpose of the new rule, known as the TRID Rule, is to integrate certain disclosures for closed-end credit extended against real property, the appraisal notice required under the ECOA, and the servicing notice required under RESPA in two new forms: a Loan Estimate that must be provided to a consumer within a specified time after receiving his or her application, and a Closing Disclosure that must be provided at least three days before the loan is closed. The TRID Rule generally applies to all lenders, including the Bank, that extended credit to consumers 25 or more times in the preceding or current year.

Securities and Exchange Commission Rules

As discussed above under “Federal Securities Law,” pursuant to the Dodd-Frank Act, the SEC issued regulations that provide the shareholders of public companies with an advisory vote on: i) executive compensation ("say-on-pay"); ii) the desired frequency of say-on-pay; and iii) compensation arrangements and understandings in connection with merger transactions, known as "golden parachute" arrangements. Additionally, the SEC has issued regulations effective January 1, 2017 requiring companies subject to the reporting rules of the SEC to disclose to shareholders the ratio of compensation of the chief executive officer to the median compensation of employees. The SEC has also adopted corporate governance regulations that provide to shareholders of companies subject to the SEC’s proxy rules: i) the opportunity to nominate directors at a shareholder meeting and to have their nominees included in the company proxy materials sent to all shareholders; and ii) the ability to use the shareholder proposal process to establish procedures for the inclusion of shareholder director nominations in company proxy materials.

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Banking Agency Rules

As discussed above under “Regulatory Capital Requirements,” pursuant to the Dodd-Frank Act, the FRB and the other federal banking agencies have established minimum leverage and risk-based capital requirements for insured depository institutions and bank holding companies.

The Dodd-Frank Act directs the federal banking regulators to promulgate rules requiring the reporting of incentive-based compensation and prohibiting excessive incentive-based compensation paid to executives of depository institutions and their holding companies with total assets in excess of $1.0 billion that encourages excessive risk-taking that could lead to a material financial loss.  In April 2011, the FRB, along with other federal banking supervisors, issued a joint notice of proposed rulemaking implementing those requirements.

Many other provisions of the Dodd-Frank Act still require extensive rulemaking, guidance and interpretation by regulatory agencies. Accordingly, in many respects, the ultimate impact of the legislation and its effects on the Corporation and the Bank remain uncertain. The Corporation continues to closely monitor and evaluate regulatory developments. Such developments could adversely affect its financial condition and results of operations through significant increases in its regulatory compliance costs.

Gramm-Leach-Bliley Act

Under the privacy and data security provisions of the Financial Modernization Act of 1999, also known as the GLB Act, and rules promulgated thereunder, all financial institutions, including the Corporation, the Bank and CFS are required to establish policies and procedures to restrict the sharing of nonpublic customer data with nonaffiliated parties at the customer's request and to protect customer data from unauthorized access. In addition, the FCRA, as amended by the FACT Act, includes many provisions affecting the Corporation, Bank, and/or CFS including provisions concerning obtaining consumer reports, furnishing information to consumer reporting agencies, maintaining a program to prevent identity theft, sharing of certain information among affiliated companies, and other provisions.  For instance, the FCRA requires persons subject to the FCRA to notify their customers if they report negative information about them to a credit bureau or if they are granted credit on terms less favorable than those generally available. The FRB and the FTC have extensive rulemaking authority under the FACT Act, and the Corporation and the Bank are subject to the rules that have been promulgated by the FRB and FTC thereunder, including recent rules regarding limitations on affiliate marketing and implementation of programs to identify, detect and mitigate the risk of identity theft through red flags. The Corporation has developed policies and procedures for itself and its subsidiaries to maintain compliance and believes it is in compliance with all privacy, information sharing and notification provisions of the GLB Act and the FCRA.

The GLB Act and the FCRA also impose requirements regarding data security and the safeguarding of customer information. The Bank is subject to the Security Guidelines, which implement section 501(b) of the GLB Act and section 216 of the FACT Act. The Security Guidelines establish standards relating to administrative, technical, and physical safeguards to ensure the security, confidentiality, integrity and the proper disposal of customer information.  The Bank believes it is in compliance with all such standards.

ITEM 1A.  RISK FACTORS

The Corporation’s business is subject to many risks and uncertainties.  Although the Corporation seeks ways to manage these risks and develop programs to control those that management can control, the Corporation ultimately cannot predict the extent to which these risks and uncertainties could affect the Corporation's results.  Actual results may differ materially from management's expectations.  The following discussion sets forth what the Corporation currently believes could be the most significant factors of which it is currently aware that could affect the Corporation's business, results of operations or financial condition. You should consider all of the following risks together with all of the other information in this Annual Report on Form 10-K.

17

Economic conditions may adversely affect the Corporation’s financial performance.

The Corporation's businesses and results of operation are affected by the financial markets and general economic conditions in the United States, and particularly to adverse conditions in New York and Pennsylvania. Key economic factors affecting the Corporation include the level and volatility of short-term and long-term interest rates, inflation, home prices, unemployment and under-employment levels, bankruptcies, household income, consumer spending, fluctuations in both debt and equity capital markets and currencies, liquidity of the financial markets, the availability and the cost of capital and credit, investor sentiment, confidence in the financial markets, and the sustainability of economic growth. The deterioration of any of these conditions could adversely affect the Corporation's consumer and commercial businesses, its securities and derivatives portfolios, its level of charge-offs and provision for credit losses, the carrying value of the Corporation's deferred tax assets, its capital levels and liquidity, and the Corporation's results of operations.

A decline or prolonged weakness in business and economic conditions generally or specifically in the principal markets in which the Corporation does business could have one or more of the following adverse effects on the Corporation’s business:

i. a decrease in the demand for loans and other products and services;

ii. a decrease in the value of the Corporation’s loans or other assets secured by consumer or commercial real estate;

iii. an impairment of certain of the Corporation’s intangible assets, such as goodwill; and

iv. an increase in the number of borrowers and counter-parties who become delinquent, file for protection under bankruptcy laws or default on their loans or other obligations to the Corporation.

For example, in 2018, S&P Global Rating lowered the long-term bond rating of Elmira, New York, the location of the Corporation's headquarters, to junk status due to the city's growing revenue challenges and current weak economy.

Additionally, in light of economic conditions, the Corporation’s ability to assess the creditworthiness of its customers may be impaired if the models and approaches that it uses to select, manage and underwrite loans become less predictive of future behaviors.  Further, competition in the Corporation’s industry may intensify as a result of consolidation of financial services companies in response to adverse market conditions and the Corporation may face increased regulatory scrutiny, which may increase its costs and limit its ability to pursue business opportunities.

Commercial real estate and business loans increase the Corporation’s exposure to credit risks.

At December 31, 2017, the Corporation’s portfolio of commercial real estate and business loans totaled $843.3 million or 64.3% of total loans.  The Corporation plans to continue to emphasize the origination of these types of loans, which generally expose the Corporation to a greater risk of nonpayment and loss than residential real estate or consumer loans because repayment of commercial real estate and business loans often depends on the successful operation and income stream of the borrower’s business.  Additionally, such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate and consumer loans.  Also, some of the Corporation’s borrowers have more than one commercial loan outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose the Corporation to a significantly greater risk of loss compared to an adverse development with respect to residential real estate and consumer loans. In some instances, the Corporation has originated unsecured commercial loans with certain high net worth individuals who have personally guaranteed such loans. This type of commercial loan has an increased risk of loss if the Corporation is unable to collect repayment through legal action due to personal bankruptcy or other financial limitations of the borrower.  The Corporation targets its business lending and marketing strategy towards small to medium-sized businesses.  These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.  If general economic conditions negatively impact these businesses, the Corporation’s results of operations and financial condition may be adversely affected.

The Corporation's portfolio of indirect automobile lending exposes it to increased credit risks.

At December 31, 2017, $153.1 million, or 11.7% of our total loan portfolio, consisted of automobile loans, primarily originated through automobile dealers for the purchase of new or used automobiles. The Corporation serves customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles. Automobile loans are inherently risky as they are often secured by assets that may be difficult to locate and can depreciate rapidly. In some cases, repossessed collateral for a defaulted automobile loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower. Automobile loan collections depend on the borrower's continuing financial stability, and therefore, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.

18

The allowance for loan losses may prove to be insufficient to absorb losses in the loan portfolio.

The Corporation’s customers may not repay their loans according to the original terms, and the collateral securing the payment of those loans may be insufficient to pay any remaining loan balance.  Hence, the Corporation may experience significant loan losses, which could have a material adverse effect on the Corporation's operating results.  Management makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of loans.  In determining the amount of the allowance for loan losses, management relies on loan quality reviews, past loss experience, and an evaluation of economic conditions, among other factors.  If these assumptions prove to be incorrect, the allowance for loan losses may not be sufficient to cover losses inherent in the Corporation’s loan portfolio, resulting in additions to the allowance.  Material additions to the allowance would materially decrease net income.

The Corporation’s emphasis on the origination of commercial loans is one of the more significant factors in evaluating its allowance for loan losses.  As the Corporation continues to increase the amount of these loans, additional or increased provisions for loan losses may be necessary, which could result in a decrease in earnings.

Bank regulators periodically review the Corporation’s allowance for loan losses and may require the Corporation to increase its provision for loan losses or loan charge-offs. Any increase in the allowance for loan losses or loan charge-offs as required by these regulatory authorities could have a material adverse effect on the Corporation's results of operations and/or financial condition.

Changes in interest rates could adversely affect the Corporation’s results of operations and financial condition.

The Corporation’s results of operations and financial condition are significantly affected by changes in interest rates.  The Corporation's financial results depend substantially on net interest income, which is the difference between the interest income that it earns on interest-earning assets and the interest expense paid on interest-bearing liabilities.  If the Corporation’s interest-bearing liabilities mature or reprice more quickly than its interest-earning assets in a given period as a result of increasing interest rates, net interest income may decrease.  Likewise, net interest income may decrease if interest-earning assets mature or reprice more quickly than interest-bearing liabilities in a given period as a result of decreasing interest rates.  The Corporation has taken steps to mitigate this risk, such as holding fewer longer-term residential mortgages, as well as investing excess funds in shorter-term investments.

Changes in interest rates also affect the fair value of the Corporation’s interest-earning assets and, in particular, its investment securities available for sale.  Generally, the fair value of investment securities fluctuates inversely with changes in interest rates.  Decreases in the fair value of investment securities available for sale, therefore, could have an adverse effect on its shareholders’ equity or earnings if the decrease in fair value is deemed to be other than temporary.

Changes in interest rates may also affect the average life of loans and mortgage-related securities.  Increases in interest rates may decrease loan demand and make it more difficult for borrowers to repay adjustable rate loans. Additionally, decreases in interest rates can result in increased prepayments of loans and mortgage-related securities, as borrowers refinance to reduce borrowing costs.  Under these circumstances, the Corporation is subject to reinvestment risk to the extent that it is unable to reinvest the cash received from such prepayments at rates that are comparable to the rates on its existing loans and securities.

Municipal deposits are generally more sensitive to interest rates and may require competitive rates at placement and subsequent rollover dates, which may make it more difficult for the Bank to attract and retain public and municipal deposits. Additionally, when municipal deposits exceed FDIC coverage, any amounts not insured under the FDIC must be properly secured through a pledge of eligible securities. The requirement that the Bank collateralize municipal deposits above FDIC insurance may have an adverse effect on the Corporation's liquidity.

Strong competition within the Corporation's industry and market area could limit its growth and profitability.

The Corporation faces substantial competition in all phases of its operations from a variety of different competitors.  Future growth and success will depend on the ability to compete effectively in this highly competitive environment. The Corporation competes for deposits, loans and other financial services with a variety of banks, thrifts, credit unions and other financial institutions as well as other entities, which provide financial services.  Some of the financial institutions and financial services organizations with which the Corporation competes with are not subject to the same degree of regulation as the Corporation. Many competitors have been in business for many years, have established customer bases, are larger, and have substantially higher lending limits.  The financial services industry is also likely to become more competitive as further technological advances enable more companies to provide financial services.  These technological advances may diminish the importance of depository institutions and other financial intermediaries in the transfer of funds between parties.

19

The Corporation’s growth strategy may not prove to be successful and its market value and profitability may suffer.

As part of the Corporation's strategy for continued growth, it may open additional branches.  New branches do not initially contribute to operating profits due to the impact of overhead expenses and the start-up phase of generating loans and deposits.  To the extent that additional branches are opened, the Corporation may experience the effects of higher operating expenses relative to operating income from the new operations, which may have an adverse effect on the Corporation's levels of net income, return on average equity and return on average assets.

In addition, the Corporation may acquire banks and related businesses that it believes provide a strategic fit with its business, such as the 2011 acquisition of FOFC and the 2013 acquisition of six branches from Bank of America.  To the extent that the Corporation grows through acquisitions, it cannot provide assurance that such strategic decisions will be accretive to earnings.

Compliance with the Dodd-Frank Act has increased the Corporation’s costs of operations and may adversely affect the Corporation’s earnings and financial condition.

The Dodd-Frank Act significantly changed the then-existing bank regulatory structure and affected the lending, deposit, investment, trading, and operating activities of financial institutions and their holding companies. The Dodd-Frank Act changed the regulatory structure to which the Corporation and the Bank are subject in numerous ways, including, but not limited to, the following:

• the base for FDIC insurance assessments has been changed to a bank's average consolidated total assets minus average tangible equity, rather than upon its deposit base, while the FDIC's authority to raise insurance premiums has been expanded;

• the current standard deposit insurance limit has been permanently raised to $250,000;

• the FDIC must raise the ratio of reserves to deposits from 1.15% to 1.35% for deposit insurance purposes by September 30, 2020 and to "offset the effect" of increased assessments on insured depository institutions with assets of less than $10.0 billion;

• the interchange fees payable on debit card transactions have been limited;

• there are multiple new provisions affecting corporate governance and executive compensation at all publicly traded companies; and

• all federal prohibitions on the ability of financial institutions to pay interest on commercial demand deposit accounts have been repealed.

In addition to the foregoing, the Dodd-Frank Act established the CFPB as an independent entity within the FRB. The CFPB has broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards, as well as with respect to certain mortgage-related matters, such as steering incentives, determinations as to a borrower's ability to repay and prepayment penalties.

As a result of the Dodd-Frank Act, operating and compliance costs have increased and may continue to increase in the future. 

The Corporation operates in a highly regulated environment and may be adversely affected by changes in laws and regulations.

Currently, the Corporation and its subsidiaries are subject to extensive regulation, supervision, and examination by regulatory authorities.  For example, the FRB regulates the Corporation, the FRB, the FDIC and the NYSDFS regulate the Bank, and CRM is regulated by the Nevada Division of Insurance.  Such regulators govern the activities in which the Corporation and its subsidiaries may engage.  These regulatory authorities have extensive discretion in connection with their supervisory and enforcement activities, including the imposition of restrictions on the operation of a bank, the classification of assets by a bank, and the adequacy of a bank’s allowance for loan losses.  Any change in such regulation and oversight, whether in the form of regulatory policy, regulations, or legislation, could have a material impact on the Corporation and its operations.  The Corporation believes that it is in substantial compliance with applicable federal, state and local laws, rules and regulations.  As the Corporation's business is highly regulated, the laws, rules and applicable regulations are subject to regular modification and change.  There can be no assurance that proposed laws, rules and regulations, or any other law, rule or regulation, will not be adopted in the future, which could make compliance more difficult or expensive or otherwise adversely affect the Corporation's business, financial condition or prospects.

20

The Corporation and Bank have become subject to more stringent capital requirements, which may adversely impact the Corporation's return on equity, require it to raise additional capital, or constrain it from paying dividends or repurchasing shares.

In July 2013, the Federal Reserve Board approved a new rule that substantially amended the regulatory risk-based capital rules applicable to the Corporation, on a consolidated basis, and the Bank, on a stand-alone basis. The final rule implements the "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Act.

The final rule includes new minimum risk-based capital and leverage ratios, which became effective for the Corporation and the Bank on January 1, 2015, and refines the definition of what constitutes "capital" for purposes of calculating these ratios. The new minimum capital requirements are: (i) a new common equity Tier 1 capital ratio of 4.5%; (ii) a Tier 1 to risk-based assets capital ratio of 6% (increased from 4%); (iii) a total capital ratio of 8% (unchanged from former rules); and (iv) a Tier 1 leverage ratio of 4%. The final rule also establishes a "capital conservation buffer" of 2.5%, and will result in the following minimum ratios: (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 to risk-based assets capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new capital conservation buffer requirement is being phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase each year until fully implemented in January 2019. For 2018, the capital conservation buffer will be 1.875% of risk-weighted assets. An institution will be subject to limitations on paying dividends, engaging in share repurchases, and paying discretionary bonuses if its capital level falls below the buffer amount. These limitations will establish a maximum percentage of eligible retained income that can be utilized for such actions.

The application of more stringent capital requirements for the Bank and the Corporation could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining them from paying dividends or repurchasing shares if they are unable to comply with such requirements.

Changes in tax rates could adversely affect the Corporation's results of operations and financial condition.

The Corporation is subject to the income tax laws of the United States, its states, and municipalities. The income tax laws of the jurisdictions in which the Corporation operates are complex and subject to different interpretations by the taxpayer and the relevant government taxing authorities. In establishing a provision for income tax expense, the Corporation must make judgments and interpretations about the application of these inherently complex tax laws to its business activities, as well as the timing of when certain items may affect taxable income.

The provision for income taxes is composed of current and deferred taxes. Deferred taxes arise from differences between assets and liabilities measured for financial reporting versus income tax return purposes. Deferred tax assets are recognized if, in the Corporation's judgment, their realizability is determined to be more likely than not. The Corporation performs regular reviews to ascertain the realizability of its deferred tax assets. These reviews include the Corporation's estimates and assumptions regarding future taxable income, which incorporates various tax planning strategies.

The Corporation may be adversely affected by recent changes in U.S. tax laws and regulations.

Changes in tax laws contained in the Tax Act, which was enacted in December 2017, include a number of provisions that will have an impact on the banking industry, borrowers and the market for single-family residential real estate. Included in this legislation is a reduction of the corporate income tax rate from 35% to 21%. In addition, other changes include (i) a lower limit on the deductibility of mortgage interest on single-family residential mortgage loans, (ii) the elimination of interest deductions for home equity loans, (iii) a limitation on the deductibility of business interest expense and (iv) a limitation on the deductibility of property taxes and state and local income taxes.These recent changes in the tax laws may have an adverse effect on the market for, and valuation of, residential properties, and on the demand for such loans in the future, and could make it harder for borrowers to make their loan payments. In addition, these recent changes may also have a disproportionate effect on taxpayers in states with high residential home prices and high state and local taxes, such as New York. If home ownership becomes less attractive, demand for mortgage loans could decrease. The value of the properties securing loans in the Corporation's loan portfolio may be adversely impacted as a result of the changing economics of home ownership, which could require an increase in the Corporation's provision for loan losses, which would reduce its profitability and could materially adversely affect the Corporation's business, financial condition and results of operations.

21

The Corporation is a holding company and depends on its subsidiaries for dividends, distributions and other payments.

The Corporation is a legal entity separate and distinct from the Bank and other subsidiaries.  Its principal source of cash flow, including cash flow to pay dividends to its shareholders, is dividends from the Bank.  There are statutory and regulatory limitations on the payment of dividends by the Bank to the Corporation, as well as by the Corporation to its shareholders. FRB regulations affect the ability of the Bank to pay dividends and other distributions and to make loans to the Corporation.  If the Bank is unable to make dividend payments to the Corporation and sufficient capital is not otherwise available, the Corporation may not be able to make dividend payments to its common shareholders.

The Corporation holds certain intangible assets that could be classified as impaired in the future.  If these assets are considered to be either partially or fully impaired in the future, its earnings and the book values of these assets would decrease.

The Corporation is required to test its goodwill and core deposit intangible assets for impairment on a periodic basis.  The impairment testing process considers a variety of factors, including the current market price of its common stock, the estimated net present value of its assets and liabilities, and information concerning the terminal valuation of similarly situated insured depository institutions.  If an impairment determination is made in a future reporting period, its earnings and the book value of these intangible assets would be reduced by the amount of the impairment.  If an impairment loss is recorded, it will have little or no impact on the tangible book value of the Corporation's common shares or its regulatory capital levels, but such an impairment loss could significantly restrict the Bank from paying a dividend to the Corporation.

Financial counterparties expose the Corporation to risks.

The Corporation has increased its use of derivative financial instruments, primarily interest rate swaps, which exposes it to financial and contractual risks with counterparty banks. The Corporation maintains correspondent bank relationships, manages certain loan participations, engages in securities transactions, and engages in other activities with financial counterparties that are customary to its industry. Financial risks are inherent in these counterparty relationships.

The Corporation may not be able to attract and retain skilled people.

The Corporation's success depends, in large part, on its ability to attract and retain key people. Competition for the best people in most activities in which the Corporation engages can be intense and it may not be able to hire people or to retain them.  A key component of employee retention is providing a fair compensation base combined with the opportunity for additional compensation for above average performance. In this regard, the Corporation uses a stock-based compensation program that aligns the interest of the Corporation's executives and senior managers with the interests of the Corporation, and its shareholders.

The Corporation's compensation practices are designed to be competitive and comparable to those of its peers, however, the unexpected loss of services of one or more of the Corporation's key personnel could have a material adverse impact on the business because it would lose the employees’ skills, knowledge of the market, and years of industry experience and may have difficulty promptly finding qualified replacement personnel.

The Corporation's controls and procedures may fail or be circumvented, which may result in a material adverse effect on its business.

Management regularly reviews and updates its internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  

22

The Corporation continually encounters technological change and the failure to understand and adapt to these changes could adversely affect its business.

The banking industry is undergoing rapid technological changes with frequent introductions of new technology-driven products and services.  Technology has lowered barriers to entry and made it possible for "non-banks" to offer traditional bank products and services using innovative technological platforms such as Fintech and Blockchain. These "digital banks" may be able to achieve economies of scale and offer better pricing for banking products and services than the Corporation can. The Corporation's future success will depend, in part, on the ability to address the needs of customers by using technology to provide products and services that will satisfy customer demands for convenience as well as to create additional efficiencies in operations.  Many competitors have substantially greater resources to invest in technological improvements.  There can be no assurance that the Corporation will be able to effectively implement new technology-driven products and services or be successful in marketing such products and services to customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on the Corporation's business and, in turn, its financial condition and results of operations.

The Corporation is subject to security and operational risks relating to its use of technology.

Despite instituted safeguards, the Corporation cannot be certain that all of its systems are entirely free from vulnerability to attack or other technological difficulties or failures, such as cyber-attacks. The Corporation relies on the services of a variety of vendors to meet its data processing and communication needs. If information security is breached or other technology difficulties or failures occur, information may be lost or misappropriated, services and operations may be interrupted and the Corporation could be exposed to claims from customers. Any of these results could have a material adverse effect on the Corporation's business, financial condition, results of operations or liquidity.

Provisions of the Corporation's certificate of incorporation, bylaws, as well as New York law and certain banking laws, could delay or prevent a takeover of the Corporation by a third party.

Provisions of the Corporation’s certificate of incorporation and bylaws, New York law, and state and federal banking laws, including regulatory approval requirements, could delay, defer or prevent a third party from acquiring the Corporation, despite the possible benefit to the Corporation’s shareholders, or otherwise adversely affect the market price of the Corporation’s common stock. These provisions include: a two-thirds affirmative vote of all outstanding shares of Corporation stock for certain business combinations; a supermajority shareholder vote of 75% of outstanding stock for business combinations involving 10% shareholders; the election of directors to staggered terms of three years; and advance notice requirements for nominations for election to the Corporation’s Board of Directors and for proposing matters that shareholders may act on at a shareholder meeting. In addition, the Corporation is subject to New York law, which among other things prohibits the Corporation from engaging in a business combination with any interested stockholder for a period of five years from the date the person became an interested stockholder unless certain conditions are met. These provisions may discourage potential takeover attempts, discouraging bids for the Corporation’s common stock at a premium over market price or adversely affect the market price of, and the voting and other rights of the holders of the Corporation’s common stock. These provisions could also discourage proxy contests and make it more difficult for shareholders to elect directors other than candidates nominated by the Board of Directors.

The risks presented by acquisitions could adversely affect the Corporation's financial condition and results of operations.

The business strategy of the Corporation has included and may continue to include growth through acquisition from time to time. Any future acquisitions will be accompanied by the risks commonly encountered in acquisitions. These risks may include, among other things: its ability to realize anticipated cost savings, the difficulty of integrating operations and personnel, the loss of key employees, the potential disruption of its or the acquired company’s ongoing business in such a way that could result in decreased revenues, the inability of its management to maximize its financial and strategic position, the inability to maintain uniform standards, controls, procedures and policies, and the impairment of relationships with the acquired company’s employees and customers as a result of changes in ownership and management.

Severe weather and other natural disasters can affect the Corporation’s business.

The Corporation's main office and its branch offices can be affected by natural disasters such as severe storms and flooding.  These kinds of events could interrupt the Corporation's operations, particularly its ability to deliver deposit and other retail banking services to its customers and as a result, the Corporation's business could suffer serious harm.  While the Corporation maintains adequate insurance against property and casualty losses arising from most natural disasters, and it has successfully overcome the challenges caused by past flooding in Central New York, there can be no assurance that it will be as successful if and when disasters occur.

23

The Corporation's accounting policies and estimates are critical to how the Corporation reports its financial condition and results of operations, and any changes to such accounting policies and estimates could materially affect how the Corporation reports its financial condition and results of operations.

Management has identified certain accounting policies as being critical because they require management’s judgment to ascertain the valuations of assets, liabilities, commitments and contingencies. A variety of factors could affect the ultimate value that is obtained either when earning income, recognizing an expense, recovering an asset, valuing an asset or liability or reducing a liability. The Corporation has established detailed policies and control procedures that are intended to ensure that these critical accounting estimates and judgments are well controlled and applied consistently. In addition, these policies and procedures are intended to ensure that the process for changing methodologies occurs in an appropriate manner. Because of the uncertainty surrounding its judgments and the estimates pertaining to these matters, actual outcomes may be materially different from amounts previously estimated. For example, because of the inherent uncertainty of estimates, management cannot provide any assurance that the Bank will not significantly increase its allowance for loan losses if actual losses are more than the amount reserved. Any increase in its allowance for loan losses or loan charge-offs could have a material adverse effect on the Corporation's financial condition and results of operations. In addition, the Corporation cannot guarantee that it will not be required to adjust accounting policies or restate prior financial statements.

Further, from time to time, the FASB and SEC change the financial accounting and reporting standards that govern the preparation of the Corporation's financial statements. These changes can be hard to predict and can materially impact how the Corporation records and reports its financial condition and results of operations. In some cases, the Corporation could be required to apply a new or revised standard retroactively, resulting in its restating prior period financial statements or otherwise adversely affecting its financial condition or results of operations.

Specifically, in June of 2016, FASB issued a new accounting standard, ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) that will substantially change the accounting for credit losses under GAAP. Under GAAP's current standards, credit losses are not reflected in the Corporation's financial statements until it is probable that the credit losses has been incurred. This methodology has the effect of delaying the recognition of credit losses on loans. Under the new credit loss standard, the allowance for credit losses will be an estimate of the "expected" credit losses on loans. The new credit loss standard may have a negative impact on the reporting of results of operations and financial condition of the Corporation. 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 years beginning after December 15, 2018.

There may be claims and litigation pertaining to fiduciary responsibility.

From time to time as part of the Corporation’s normal course of business, customers make claims and take legal action against the Corporation based on its actions or inactions related to the fiduciary responsibilities of the Wealth Management Group segment.  If such claims and legal actions are not resolved in a manner favorable to the Corporation, they may result in financial liability and/or adversely affect the market perception of the Corporation and its products and services. This may also impact customer demand for the Corporation’s products and services. Any financial liability or reputation damage could have a material adverse effect on the Corporation’s business, which, in turn, could have a material adverse effect on its financial condition and results of operations.

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

All properties owned or leased by the Bank are considered to be in good condition.  For additional information about the Corporation’s facilities, including rental expenses, see "Note 5 Premises and Equipment" in Notes to Consolidated Financial Statements in Part IV, Item  15. Exhibits and Financial Statement Schedules of this report.  The Corporation holds no real estate in its own name.

24

Corporate Headquarters Executive and Administrative Offices
One Chemung Canal Plaza, Elmira, NY 14901
New York
Albany County	Schenectady County
*132 State St., Albany, NY 12207	*2 Rush St., Schenectady, NY 12305
*65 Wolf Rd., Albany, NY 12205
*581 Loudon Rd., Latham, NY 12110	Schuyler County
*1365 New Scotland Rd., Slingerlands, NY 12159	318 N. Franklin St., Watkins Glen, NY 14891
	303 W. Main St., Montour Falls, NY 14865
Broome County
*127 Court St., Binghamton,  NY 13901	Seneca County
*601-635 Harry L. Dr., Johnson City, NY 13790 (Oakdale Mall)	54 Fall St., Seneca Falls, NY 13148
*100 Rano Blvd., Vestal, NY 13850
	Steuben County
Cayuga County	*410 West Morris St., Bath, NY 14810
*110 Genesee St., Auburn, NY 13021	149 West Market St., Corning, NY 14830
185 Grant Ave., Auburn, NY 13021	243 North Hamilton St., Painted Post, NY 14870
Chemung County	Tioga County
One Chemung Canal Plaza, Elmira, NY 14901	203 Main St., Owego, NY 13827
628 W. Church St., Elmira, NY 14905	*1054 State Route 17C, Owego, NY 13827
437 Maple St., Big Flats, NY 14814	405 Chemung St., Waverly, NY 14892
951 Pennsylvania Ave., Elmira, NY 14904
100 W. McCann's Blvd., Elmira Heights, NY 14903	Tompkins County
29 Arnot Rd., Horseheads, NY 14845	806 W. Buffalo St., Ithaca, NY 14850
602 S. Main St., Horseheads, NY 14845	304 Elmira Rd., Ithaca, NY 14850
	*909 Hanshaw Rd., Ithaca, NY 14850
Cortland County
*1094 State Rte. 222, Cortland, NY 13045
Saratoga County
*25 Park Ave., Clifton Park, NY 12065
Pennsylvania
Bradford County
5 West Main St., Canton, PA 17724
304 Main St., Towanda, PA 18848
159 Canton St., Troy, PA 16947
CFS Group
One Chemung Canal Plaza, Elmira, NY 14901
* Leased facilities and/or property

25

Leased Off-Site ATM Locations
Albany Capital Center	Albany, NY
Times Union Center	Albany, NY
Elmira-Corning Regional Airport	Big Flats, NY
Corning Community College	Corning, NY
Elmira College	Elmira, NY
E-Z Food Mart	Elmira, NY
Hardinge Inc. (employees only)	Elmira, NY
Quality Beverage	Elmira, NY
Collegetown Bagels	Ithaca, NY
Ithaca College	Ithaca, NY
Lansing Market	Lansing, NY
Schuyler Hospital	Montour Falls, NY

ITEM 3.  LEGAL PROCEEDINGS

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  Except for the legal matter discussed in Footnote 15 of the Corporation's consolidated financial statements, the Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity as of December 31, 2017.

ITEM 4.  MINE SAFETY DISCLOSURES

None.

26

PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The Corporation's common stock is traded on the Nasdaq Global Market under the symbol "CHMG."

The table below shows the price ranges for the Corporation’s common stock during each of the indicated quarters. The information is based upon the high and low closing sales prices reported by the Nasdaq Global Market.

Common Stock Market Prices and Dividends Paid

During the Past Two Years

December 31, 2017	High		Low		Dividends
4th Quarter	$	54.30	$	44.06	$	0.26
3rd Quarter	47.10		39.00		0.26
2nd Quarter	41.43		37.05		0.26
1st  Quarter	39.50		32.72		0.26
December 31, 2016	High		Low		Dividends
4th Quarter	$	36.74	$	28.29	$	0.26
3rd Quarter	32.19		27.47		0.26
2nd Quarter	32.95		26.20		0.26
1st  Quarter	28.03		26.25		0.26

Under New York law, the Corporation may pay dividends on its common stock either: (i) out of surplus, so that the Corporation’s net assets remaining after such payment equal the amount of its stated capital, or (ii) if there is no surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year.  The payment of dividends on the Corporation's common stock is dependent, in large part, upon receipt of dividends from the Bank, which is subject to certain restrictions which may limit its ability to pay the Corporation dividends.  See Item 1, “Business – Supervision and Regulation-The Bank-Payment of Dividends” for an explanation of legal limitations on the Bank’s ability to pay dividends.

As of February 28, 2018, there were 512 registered holders of record of the Corporation's stock.

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The table below sets forth the information with respect to purchases made by the Corporation of our common stock during the quarter ended December 31, 2017:

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
10/1/17-10/31/17	—	$	—	—	121,906
11/1/17-11/30/17	—	$	—	—	121,906
12/1/17-12/31/17	1,159	$	52.92	—	121,906
Quarter ended 12/31/17	1,159	$	52.92	—	121,906
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 year ended December 31, 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. Included above are 1,159 shares purchased in December 2017, at an average cost of $52.92, from employees who participate in the Corporation's restricted stock plan to cover related employee payroll taxes associated with those participants' vesting in shares granted under the plan.

28

STOCK PERFORMANCE GRAPH

The following graph compares the yearly change in the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the NASDAQ Stock Market (U.S. Companies), NASDAQ Bank Stocks Index, SNL U.S. Bank NASDAQ, and SNL $1B - $5B Bank Index for the period of five years commencing December 31, 2012.

		Period Ending
Index	12/31/2012	12/31/2013	12/31/2014	12/31/2015	12/31/2016	12/31/2017
Chemung Financial Corporation	100.00	118.03	99.10	102.36	140.04	190.86
NASDAQ Composite	100.00	140.12	160.78	171.97	187.22	242.71
SNL U.S. Bank NASDAQ	100.00	143.73	148.86	160.70	222.81	234.58
SNL Bank $1B-$5B	100.00	145.41	152.04	170.20	244.85	261.04

The cumulative total return includes (1) dividends paid and (2) changes in the share price of the Corporation’s common stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 2012.

The Total Returns Index for NASDAQ Composite and SNL bank stocks indices were obtained from S&P Global Market Intelligence, New York, NY.

29

ITEM 6.  SELECTED FINANCIAL DATA

The following tables present selected financial data as of and for the years ended December 31, 2017, 2016, 2015, 2014 and 2013.  The selected financial data at December 31, 2017, and 2016 and for the three year period ended December 31, 2017 is derived from our audited consolidated financial statements that appear in this annual report on Form 10-K. The other years presented in these tables are derived from audited consolidated financial statements that do not appear in this annual report on Form 10-K.   The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes.

	SUMMARIZED BALANCE SHEET DATA AT DECEMBER 31,
(in thousands)	2017		2016		2015		2014		2013
Total assets	$	1,707,620	$	1,657,179	$	1,619,964	$	1,524,539	$	1,476,143
Loans, net of deferred fees	1,311,824		1,200,290		1,168,633		1,121,574		995,866
Investment securities	297,408		308,107		349,386		286,338		352,511
FHLBNY and FRBNY stock	5,784		4,041		4,797		5,535		4,482
Deposits	1,467,446		1,456,343		1,400,295		1,280,014		1,266,256
Securities sold under agreements to repurchase	10,000		27,606		28,453		29,652		32,701
FHLBNY advances	59,700		9,093		33,103		50,140		25,243
Long term capital lease obligation	4,517		4,722		2,873		2,976		—
Shareholders' equity	149,813		143,748		137,242		133,628		138,578

	SUMMARIZED EARNINGS DATA FOR THE YEARS ENDED DECEMBER 31,
(in thousands)	2017		2016		2015		2014		2013
Net interest income	$	56,987	$	52,329	$	50,642	$	49,568	$	46,631
Provision for loan losses	9,022		2,437		1,571		3,981		2,755
Net interest income after provision for loan losses	47,965		49,892		49,071		45,587		43,876
Wealth management group fee income	8,804		8,316		8,522		7,747		7,344
Service charges on deposit accounts	4,961		5,089		4,886		5,281		4,706
Interchange revenue from debit card transactions	3,761		4,027		3,307		3,360		2,562
Securities gains, net	109		987		372		6,869		16
Other non-interest income	2,856		2,730		3,360		3,499		3,449
Total non-interest income	20,491		21,149		20,447		26,756		18,077
Legal accruals and settlements	850		1,200		—		4,250		—
Merger and acquisition related expenses	—		—		—		115		1,387
Other non-interest expenses	52,914		55,410		55,427		56,112		48,013
Total non-interest expenses	53,764		56,610		55,427		60,477		49,400
Income before income tax expense	14,692		14,431		14,091		11,866		12,553
Income tax expense	7,262		4,404		4,658		3,709		3,822
Net income	$	7,430	$	10,027	$	9,433	$	8,157	$	8,731

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	SELECTED PER SHARE DATA ON SHARES OF COMMON STOCK AT OR FOR THE YEARS ENDED DECEMBER 31,
	2017		2016		2015		2014		2013		% Change 2016 To 2017		Compounded Annual Growth 5 Years
Earnings per share (1)	$	1.55	$	2.11	$	2.00	$	1.74	$	1.87	(26.5	)%	(6.9	)%
Dividends declared	1.04		1.04		1.04		1.04		1.04		—	%	0.7	%
Tangible book value (2) (4)	26.14		24.89		23.53		22.71		23.63		5.0	%	2.6	%
Book Value	31.10		30.07		28.96		28.44		29.67		3.4	%	1.6	%
Market price at December 31,	48.10		36.35		27.50		27.66		34.17		32.3	%	8.3	%
Common shares outstanding at year end (in thousands) (3)	4,817		4,781		4,739		4,699		4,671		0.8	%	0.6	%
Weighted average shares outstanding (in thousands)	4,800		4,762		4,719		4,683		4,660		0.8	%	0.6	%

(1) Earnings per share is computed by dividing net income by the weighted average number of common shares outstanding. There is no difference between basic and diluted earnings per share.

(2)  Tangible book value is total shareholders’ equity less goodwill and other intangible assets divided by common shares outstanding.

(3) All issuable shares including those related to directors’ restricted stock units and directors’ stock compensation.

(4) See the GAAP to Non-GAAP reconciliations starting at pages 64-67.

	SELECTED RATIOS AT OR FOR THE YEARS ENDED DECEMBER 31,
	2017		2016		2015		2014		2013
Return on average assets	0.43	%	0.60	%	0.60	%	0.54	%	0.67	%
Return on average equity	4.91	%	7.02	%	6.84	%	5.74	%	6.50	%
Dividend yield at year end	2.16	%	2.86	%	3.78	%	3.76	%	3.08	%
Dividend payout	66.30	%	48.76	%	51.34	%	58.80	%	41.04	%
Total capital to risk adjusted assets	11.82	%	12.14	%	12.26	%	11.84	%	12.10	%
Tier I capital to risk adjusted assets	10.56	%	10.94	%	11.01	%	10.59	%	10.57	%
Tier I leverage ratio	8.02	%	7.81	%	7.83	%	7.78	%	8.08	%
Average equity to average assets	8.83	%	8.57	%	8.74	%	9.43	%	10.28	%
Year-end equity to year-end assets ratio	8.77	%	8.67	%	8.47	%	8.77	%	9.39	%
Loans to deposits	89.40	%	82.42	%	83.46	%	87.62	%	78.65	%
Allowance for loan losses to total loans	1.61	%	1.19	%	1.22	%	1.22	%	1.28	%
Allowance for loan losses to non-performing loans	122.14	%	118.35	%	116.58	%	175.96	%	150.11	%
Non-performing loans to total loans	1.32	%	1.00	%	1.05	%	0.69	%	0.86	%
Non-performing assets to total assets	1.13	%	0.75	%	0.85	%	0.71	%	0.61	%
Net interest rate spread	3.47	%	3.26	%	3.36	%	3.48	%	3.78	%
Net interest margin	3.56	%	3.37	%	3.46	%	3.59	%	3.91	%
Efficiency ratio (1) (2)	66.60	%	74.43	%	76.18	%	78.75	%	72.52	%

(1) Efficiency ratio is non-interest expense less merger and acquisition related expenses less amortization of intangible assets less legal settlement divided by the total of fully taxable equivalent net interest income plus non-interest income less net gain on securities transactions.

(2) See the GAAP to Non-GAAP reconciliations starting at pages 64-67.

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The following tables summarize the Corporation’s unaudited net income and basic earnings per share at each quarter end for the years 2017 and 2016:

	2017
(in thousands, except per share data)	Quarter Ended
UNAUDITED QUARTERLY DATA	Mar. 31		June 30		Sept. 30		Dec. 31
Interest and dividend income	$	14,314	$	14,684	$	15,497	$	15,560
Interest expense	820		734		734		780
Net interest income	13,494		13,950		14,763		14,780
Provision for loan losses (3)	1,040		421		1,289		6,272
Net interest income after provision for loan losses	12,454		13,529		13,474		8,508
Total other non-interest income	4,847		5,022		5,166		5,456
Total other non-interest expenses (1)	13,045		14,332		13,276		13,111
Income before income tax expense	4,256		4,219		5,364		853
Income tax expense (2)	1,277		1,263		1,710		3,012
Net income (loss)	$	2,979	$	2,956	$	3,654	$	(2,159	)
Basic and dilutedearnings per share	$	0.62	$	0.62	$	0.76	$	(0.45	)

(1) The quarter ended June 30, 2017 included a $0.9 million legal reserve. Please refer to Footnote 15 of the audited consolidated financial statements for further discussion.

(2) The quarter ended December 31, 2017 included a $2.9 million net deferred tax remeasurement. Please refer to Footnote 11 of the audited consolidated financial statements for further discussion.

(3) The quarter ended December 31, 2017 included $4.9 million in specific reserves for eight commercial loans to two long-standing relationships in the Southern Tier of New York.

	2016
(in thousands, except per share data)	Quarter Ended
UNAUDITED QUARTERLY DATA	Mar. 31		June 30		Sept. 30		Dec. 31
Interest and dividend income	$	13,949	$	13,925	$	14,025	$	14,269
Interest expense	924		957		985		973
Net interest income	13,025		12,968		13,040		13,296
Provision for loan losses	595		388		1,050		404
Net interest income after provision for loan losses	12,430		12,580		11,990		12,892
Total other non-interest income	5,601		5,216		5,435		4,897
Total other non-interest expenses (3)	14,008		15,570		13,471		13,561
Income before income tax expense	4,023		2,226		3,954		4,228
Income tax expense	1,316		605		1,209		1,274
Net income	$	2,707	$	1,621	$	2,745	$	2,954
Basic and dilutedearnings per share	$	0.57	$	0.34	$	0.58	$	0.62

(3) The quarter ended June 30, 2016 included a $1.2 million legal reserve. Please refer to Footnote 15 of the audited consolidated financial statements for further discussion.

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ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following is the MD&A of the Corporation in this Form 10-K at December 31, 2017 and 2016, and for the years ended December 31, 2017, 2016, and 2015. The purpose of this discussion is to focus on information about the financial condition and results of operations of the Corporation. Reference should be made to the accompanying audited consolidated financial statements and footnotes for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 1-4.

The MD&A included in this Form 10-K 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.

The Corporation has been a financial holding company since 2000, and 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 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, a wholly-owned subsidiary of the Corporation which was formed and began operations on May 31, 2016, is a Nevada-based captive insurance company that 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.

Forward-looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. 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” of this Form 10-K. The Corporation's quarterly 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 by written request to: Kathleen S. McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901. 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.

33

Consolidated Financial Highlights

	As of or for the Years Ended
	December 31,			December 31,			December 31,
(in thousands, except per share data)	2017			2016			2015
RESULTS OF OPERATIONS
Interest and dividend income	$	60,055		$	56,168		$	54,244
Interest expense	3,068			3,839			3,602
Net interest income	56,987			52,329			50,642
Provision for loan losses	9,022			2,437			1,571
Net interest income after provision for loan losses	47,965			49,892			49,071
Non-interest income	20,491			21,149			20,447
Non-interest expenses	53,764			56,610			55,427
Income before income tax expense	14,692			14,431			14,091
Income tax expense	7,262			4,404			4,658
Net income	$	7,430		$	10,027		$	9,433
Basic and diluted earnings per share	$	1.55		$	2.11		$	2.00
Average basic and diluted shares outstanding	4,800			4,762			4,719
PERFORMANCE RATIOS
Return on average assets	0.43		%	0.60		%	0.60		%
Return on average equity	4.91		%	7.02		%	6.84		%
Return on average tangible equity (a)	5.85		%	8.52		%	8.45		%
Efficiency ratio (a) (b)	66.60		%	74.43		%	76.18		%
Non-interest expense to average assets (a) (c)	3.14		%	3.32		%	3.51		%
Loans to deposits	89.40		%	82.42		%	83.46		%
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	4.24		%	4.18		%	4.24		%
Yield on investments	2.08		%	1.83		%	1.91		%
Yield on interest-earning assets	3.75		%	3.61		%	3.71		%
Cost of interest-bearing deposits	0.20		%	0.21		%	0.20		%
Cost of borrowings	2.78		%	3.01		%	2.85		%
Cost of interest-bearing liabilities	0.28		%	0.35		%	0.35		%
Interest rate spread	3.47		%	3.26		%	3.36		%
Net interest margin, fully taxable equivalent	3.56		%	3.37		%	3.46		%
CAPITAL
Total equity to total assets at end of year	8.77		%	8.67		%	8.47		%
Tangible equity to tangible assets at end of year (a)	7.48		%	7.29		%	6.99		%
Book value per share	$	31.10		$	30.07		$	28.96
Tangible book value per share (a)	26.14			24.89			23.53
Year-end market value per share	48.10			36.35			27.50
Dividends declared per share	1.04			1.04			1.04

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AVERAGE BALANCES
Loans (d)	$	1,251,225		$	1,194,589		$	1,141,992
Interest-earning assets	1,623,948			1,571,513			1,477,529
Total assets	1,713,233			1,667,184			1,577,831
Deposits	1,514,457			1,450,520			1,367,717
Total equity	151,229			142,906			137,891
Tangible equity (a)	126,902			117,656			111,583
ASSET QUALITY
Net charge-offs	$	2,114		$	2,444		$	997
Non-performing loans (e)	17,324			12,043			12,232
Non-performing assets (f)	19,264			12,431			13,762
Allowance for loan losses	21,160			14,253			14,260
Annualized net charge-offs to average loans	0.17		%	0.20		%	0.09		%
Non-performing loans to total loans	1.32		%	1.00		%	1.05		%
Non-performing assets to total assets	1.13		%	0.75		%	0.85		%
Allowance for loan losses to total loans	1.61		%	1.19		%	1.22		%
Allowance for loan losses to non-performing loans	122.14		%	118.35		%	116.58		%
(a) See the GAAP to Non-GAAP reconciliations on pages 64-67.
(b) Efficiency ratio is non-interest expense less merger and acquisition expenses less amortization of intangible assets less legal accruals and settlements divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions.
(c) For the non-interest expense to average assets ratio, non-interest expense does not include legal accruals and settlements. See footnote 15 of the audited consolidated financial statements for further discussion.
(d) Loans include loans held for sale. Loans do not reflect the allowance for loan losses.
(e) Non-performing loans include non-accrual loans only.
(f) Non-performing assets include non-performing loans plus other real estate owned.

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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-K. For a complete description of the trends and uncertainties, as well as the risks and critical accounting estimates affecting the Corporation, this Form 10-K should be read in its entirety.

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

	Years Ended December 31,
	2017			2016			Change			Percentage Change
Net interest income	$	56,987		$	52,329		$	4,658		8.9	%
Non-interest income	20,491			21,149			(658		)	(3.1	)%
Non-interest expenses	53,764			56,610			(2,846		)	(5.0	)%
Pre-provision income	23,714			16,868			6,846			40.6	%
Provision for loan losses	9,022			2,437			6,585			270.2	%
Income tax expense	7,262			4,404			2,858			64.9	%
Net income	$	7,430		$	10,027		$	(2,597	)	(25.9	)%
Basic and diluted earnings per share	$	1.55		$	2.11		$	(0.56	)	(26.5	)%
Selected financial ratios
Return on average assets	0.43		%	0.60		%
Return on average equity	4.91		%	7.02		%
Net interest margin, fully taxable equivalent	3.56		%	3.37		%
Efficiency ratio (a)	66.60		%	74.43		%
Non-interest expense to average assets (a)	3.14		%	3.32		%

(a) See the GAAP to Non-GAAP reconciliations on pages 64-67.

Net income for the year ended December 31, 2017 was $7.4 million, or $1.55 per share, compared with net income of $10.0 million, or $2.11 per share, for the prior year. Return on equity for the year was 4.91%, compared with 7.02% for the prior year. The decrease in net income for the year ended December 31, 2017, compared to the prior year, was driven by increases in the provision for loan losses and income tax expenses, partially offset by an increase in net interest income and a reduction in non-interest expenses. Net income in 2017 was impacted by a one-time $2.9 million reduction of the net deferred tax asset as a result of a revaluation required under GAAP due to the reduction in the corporation Federal income tax rate from 35% to 21% due to the Tax Act.

Net interest income

Net interest income increased $4.7 million, or 8.9% in 2017, compared with the prior year. The increase was due primarily to an increase of $52.4 million in average interest-earning assets and a 19 basis points increase in net interest margin.

Non-interest income

Non-interest income decreased $0.7 million, or 3.1% in 2017, compared to the prior year. The decrease was due primarily to decreases in service charges on deposit accounts, interchange revenue from debit card transactions, and net gains on securities transactions, partially offset by increases in WMG fee income and other non-interest income.

Non-interest expenses

Non-interest expense decreased $2.8 million, or 5.0% in 2017, compared to the prior year. The decrease was due primarily to the decreases in pension and other employee benefits, net occupancy, furniture and equipment, professional services, and legal accruals and settlements, partially offset by increases in salaries and wages and other non-interest expense. For the years ended December 31, 2017 and 2016, non-interest expense to average assets was 3.14% and 3.32%, respectively.

36

Provision for loan losses

The provision for loan losses increased $6.6 million, or 270.2% in 2017, compared to the prior year. The increase was the result of specific impairments in loans identified as impaired, including $4.9 million in specific reserves for eight commercial loans to two long-standing relationships in the Southern Tier of New York, volume increases in the commercial and indirect consumer loan portfolios, and an increase in loss factors relating to the indirect and consumer portfolios. Net charge-offs were $2.1 million in 2017, compared with $2.4 million for the prior year.

Income tax expense

Income tax expense increased $2.9 million, or 64.9% in 2017, compared to the prior year. The increase was the the result of a $2.9 million one-time reduction in the Corporation's net deferred asset. GAAP required a tax remeasurement of the Corporation's net deferred tax asset in the period of enactment of the Tax Act. The Tax Act was enacted on December 22, 2017, reducing the corporate Federal income tax rate from 35% to 21% and making other changes to the Federal corporate income tax laws. The additional expense was attributable to the reduction in the carrying value of net deferred tax assets reflecting lower future tax benefits resulting from the lower enacted corporate tax rate.

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):

	Years Ended December 31,
	2016			2015			Change			Percentage Change
Net interest income	$	52,329		$	50,642		$	1,687		3.3	%
Non-interest income	21,149			20,447			702			3.4	%
Non-interest expenses	56,610			55,427			1,183			2.1	%
Pre-provision income	16,868			15,662			1,206			7.7	%
Provision for loan losses	2,437			1,571			866			55.1	%
Income tax expense	4,404			4,658			(254		)	(5.5	)%
Net income	$	10,027		$	9,433		$	594		6.3	%
Basic and diluted earnings per share	$	2.11		$	2.00		$	0.11		5.5	%
Selected financial ratios
Return on average assets	0.60		%	0.60		%
Return on average equity	7.02		%	6.84		%
Net interest margin, fully taxable equivalent	3.37		%	3.46		%
Efficiency ratio (a)	74.43		%	76.18		%
Non-interest expense to average assets (a)	3.32		%	3.51		%

(a) See the GAAP to Non-GAAP reconciliations on pages 64-67.

Net income for the year ended December 31, 2016 was $10.0 million, or $2.11 per share, compared with $9.4 million, or $2.00 per share, for the prior year. Return on equity for the year ended December 31, 2016 was 7.02%, compared with 6.84% for the prior year. The increase in net income for the year ended December 31, 2016, compared to the prior year, was driven by increases in net interest income and non-interest income and a reduction in income tax expense, partially offset by increases in non-interest expense and the provision for loan losses.

Net interest income

Net interest income increased $1.7 million, or 3.3% in 2016, compared with the prior year. The increase was due primarily to an increase of $94.0 million in average interest-earning assets, offset by a nine basis points decline in net interest margin.

Non-interest income

Non-interest income increased $0.7 million, or 3.4% in 2016, compared to the prior year. The increase was due primarily to increases in service charges on deposit accounts, interchange revenue from debit card transactions, and net gains on securities transactions, offset by decreases in WMG fee income and other non-interest income.

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Non-interest expense

Non-interest expense increased $1.2 million, or 2.1% in 2016, compared to the same period in the prior year. The increase was due primarily to the establishment of a $1.2 million legal reserve associated with the Fane v. Chemung Canal Trust Company case, along with increases in pension and other employee benefits and professional services, offset by decreases in salaries and wages, net occupancy expenses, amortization of intangible assets, and other real estate owned expenses. Please refer to Footnote 15 of the audited consolidated financial statements for further discussion of the Fane v. Chemung Canal case. For the years ended December 31, 2016 and 2015, non-interest expense to average assets was 3.32% and 3.51%, respectively.

Provision for loan losses

The provision for loan losses increased $0.9 million, or 55.1% in 2016, compared to the prior year. The increase was the result of an increase in net charge-offs and growth in the commercial loan portfolio, compared to the prior year. Net charge-offs were $2.4 million in 2016, compared with $1.0 million for the prior year.

Income tax expense

Income tax expense decreased $0.3 million, or 5.5% in 2016, compared to the prior year. The decrease in income tax expense can be attributed to the formation of CRM and increasing the utilization of the Bank's real estate investment trust in 2016.

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 years ended December 31, 2017 and 2016 and for the years ended December 31, 2016 and 2015. For a discussion of the Critical Accounting Policies, Estimates and Risks and Uncertainties that affect the Consolidated Results of Operations, see page 64.

Net Interest Income

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

	Years Ended December 31,
	2017		2016		Change			Percentage Change
Interest and dividend income	$	60,055	$	56,168	$	3,887		6.9	%
Interest expense	3,068		3,839		(771		)	(20.1	)%
Net interest income	$	56,987	$	52,329	$	4,658		8.9	%

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

Net interest income for the year ended December 31, 2017 totaled $57.0 million, an increase of $4.7 million, or 8.9%, compared with $52.3 million for the prior year. Fully taxable equivalent net interest margin was 3.56% for the year ended December 31, 2017 compared with 3.37% for the prior year. The increase in net interest income was due primarily to an increase in interest income from the loan portfolio, primarily from the commercial loan portfolio, as average loan balances increased $56.6 million in 2017 when compared to the prior year. The increase in net interest margin was a result of the loan and securities portfolios repricing to current market rates as interest rates increased in 2017. The average yield on average interest-earning assets increased 14 basis points, while the average cost of interest-bearing liabilities decreased seven basis points. The increase in the average yield of interest-earning assets can be mostly attributed to increases of six and 20 basis points in the average yields of commercial loans and consumer loans, respectively, 13 and 18 basis points in the average yields of taxable and tax-exempt securities, respectively, and 59 basis points in the average yield of interest-earning deposits, partially offset by an 11 basis points decrease in mortgage loans. The decline in the average cost of interest-bearing liabilities can be attributed to a 23 basis points decline in the average 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.

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

	Years Ended December 31,
	2016		2015		Change		Percentage Change
Interest and dividend income	$	56,168	$	54,244	$	1,924	3.5	%
Interest expense	3,839		3,602		237		6.6	%
Net interest income	$	52,329	$	50,642	$	1,687	3.3	%

Net interest income for the year ended December 31, 2016 totaled $52.3 million, an increase of $1.7 million, or 3.3%, compared with $50.6 million for the prior year. Fully taxable equivalent net interest margin was 3.37% for the year ended December 31, 2016 compared with 3.46% for the prior year. The increase in net interest income was due primarily to interest income from the loan portfolio, as the average commercial loan balance increased $77.6 million in 2016 when compared to the prior year. The decline in interest margin was a result of the commercial loan portfolio repricing to current market rates. The average yield on average interest-earning assets decreased 10 basis points, while the average cost of interest-bearing liabilities remained flat. The decline in the average yield of interest-earning assets can be mostly attributed to declines of 23 basis points in the average yield of commercial loans and 17 basis points in the average yield of mortgage loans, due to new production at lower competitive rates, offset by a 33 basis points increase in consumer loans, due to the indirect loan portfolio and increasing the portfolio toward higher yielding used automobile loans. Average interest-earning assets increased $94.0 million in 2016 compared to the prior year, primarily in commercial loans.

Average Consolidated Balance Sheet and Interest Analysis

The following table presents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the years ended December 31, 2017, 2016 and 2015. It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2017, 2016 and 2015. 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. With the new 21% statutory federal tax rate effective January 1, 2018, the conversion factor to a fully taxable equivalent basis will decrease in 2018. The decline will have no impact on net income, but will cause the net interest margin on a fully taxable equivalent basis to decrease.

39

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
	Year Ended December 31,
	2017								2016								2015
(in thousands)	Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
Interest-earning assets:
Commercial loans	$	791,627		$	34,596		4.37	%	$	734,628		$	31,682		4.31	%	$	657,038		$	29,824		4.54	%
Mortgage loans	198,783			7,541			3.79	%	197,132			7,689			3.90	%	198,332			8,063			4.07	%
Consumer loans	260,815			10,964			4.20	%	262,829			10,512			4.00	%	286,622			10,516			3.67	%
Taxable securities	270,168			5,510			2.04	%	274,401			5,245			1.91	%	262,181			4,963			1.89	%
Tax-exempt securities	52,227			1,669			3.20	%	45,127			1,364			3.02	%	43,081			1,356			3.15	%
Interest-earning deposits	50,328			563			1.12	%	57,396			307			0.53	%	30,275			76			0.25	%
Total interest-earning assets	1,623,948			60,843			3.75	%	1,571,513			56,799			3.61	%	1,477,529			54,798			3.71	%
Non-interest earning assets:
Cash and due from banks	25,663								26,708								26,959
Premises and equipment, net	27,936								29,525								30,953
Other assets	53,883								51,590								53,153
Allowance for loan losses	(15,066		)						(14,771		)						(14,103		)
AFS valuation allowance	(3,131		)						2,619								3,340
Total assets	$	1,713,233							$	1,667,184							$	1,577,831
Interest-bearing liabilities:
Interest-bearing demand deposits	$	146,999		135			0.09	%	$	135,874		136			0.10	%	$	129,442		113			0.09	%
Savings and insured money market deposits	800,070			1,566			0.20	%	752,489			1,457			0.19	%	671,829			1,214			0.18	%
Time deposits	132,607			467			0.35	%	156,737			577			0.37	%	182,177			676			0.37	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	32,350			900			2.78	%	55,472			1,669			3.01	%	56,202			1,599			2.85	%
Total interest-bearing liabilities	1,112,026			3,068			0.28	%	1,100,572			3,839			0.35	%	1,039,650			3,602			0.35	%
Non-interest bearing liabilities:
Demand deposits	434,781								405,420								384,268
Other liabilities	15,197								18,286								16,022
Total liabilities	1,562,004								1,524,278								1,439,940
Shareholders' equity	151,229								142,906								137,891
Total liabilities and shareholders’ equity	$	1,713,233							$	1,667,184							$	1,577,831
Fully taxable equivalent net interest income				57,775								52,960								51,196
Net interest rate spread (1)							3.47	%							3.26	%							3.36	%
Net interest margin, fully taxable equivalent (2)							3.56	%							3.37	%							3.46	%
Taxable equivalent adjustment				(788		)						(631		)						(554		)
Net interest income				$	56,987							$	52,329							$	50,642

(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.

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Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes.  The table belows illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the years indicated.  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 years 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
	2017 vs. 2016									2016 vs. 2015
	Increase/(Decrease)									Increase/(Decrease)
(in thousands)	Total Change			Due to Volume			Due to Rate			Total Change			Due to Volume			Due to Rate
Interest income
Commercial loans	$	2,914		$	2,471		$	443		$	1,858		$	3,421		$	(1,563	)
Mortgage loans	(148		)	65			(213		)	(374		)	(47		)	(327		)
Consumer loans	452			(80		)	532			(4		)	(913		)	909
Taxable securities	265			(83		)	348			282			230			52
Tax-exempt securities	305			221			84			8			64			(56		)
Interest-earning deposits	256			(42		)	298			231			103			128
Total interest income	4,044			2,552			1,492			2,001			2,858			(857		)

Interest expense
Interest-bearing demand deposits	(1		)	12			(13		)	23			7			16
Savings and insured money market deposits	109			59			50			243			167			76
Time deposits	(110		)	(82		)	(28		)	(99		)	(99		)	—
FHLBNY advances, securities sold under agreements to repurchase and other debt	(769		)	(650		)	(119		)	70			(21		)	91
Total interest expense	(771		)	(661		)	(110		)	237			54			183
Net interest income	$	4,815		$	3,213		$	1,602		$	1,764		$	2,804		$	(1,040	)

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 the years ended December 31, 2017, 2016 and 2015 were $9.0 million, $2.4 million and $1.6 million, respectively. The increase in provision for loan losses in 2017 was due primarily to $4.9 million in specific reserves for eight commercial loans to two long-standing relationships in the Southern Tier of New York. Net charge-offs for the years ended December 31, 2017, 2016 and 2015 were $2.1 million, $2.4 million and $1.0 million, respectively.

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Non-interest income

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

	Years Ended December 31,
	2017		2016		Change			Percentage Change
WMG fee income	$	8,804	$	8,316	$	488		5.9	%
Service charges on deposit accounts	4,961		5,089		(128		)	(2.5	)%
Interchange revenue from debit card transactions	3,761		4,027		(266		)	(6.6	)%
Net gains on securities transactions	109		987		(878		)	(89.0	)%
Net gains on sales of loans held for sale	260		326		(66		)	(20.2	)%
Net gains on sales of other real estate owned	38		21		17			81.0	%
Income from bank owned life insurance	70		73		(3		)	(4.1	)%
CFS fee and commission income	646		544		102			18.8	%
Other	1,842		1,766		76			4.3	%
Total non-interest income	$	20,491	$	21,149	$	(658	)	(3.1	)%

Total non-interest income for the year ended December 31, 2017 decreased $0.7 million compared to the prior year. The decrease was primarily due to decreases in service charges on deposit accounts, interchange revenue from debit card transactions, and net gains on securities transactions, offset by increases in WMG fee income and CFS fee and commission income.

WMG fee income

WMG fee income increased in 2017 compared to the prior year due to an increase in assets under management or administration.

Service charges on deposit accounts

Service charges on deposit accounts decreased in 2017 compared to the prior year due to an decrease in overdraft fees.

Interchange revenue from debit card transactions

Interchange revenue from debit card transactions decreased in 2017 compared to the prior year due to the recognition of an incremental volume bonus related to the rebranding of the Bank's credit cards recognized in 2016.

Net gains on securities transactions

Net gains on securities transactions decreased in 2017 compared to the prior year due to the sale of $14.5 million in U.S. Treasuries and $25.0 million in obligations of U.S. Government sponsored enterprises in 2016.

CFS fee and commission income

CFS fee and commission income increased in 2017 compared to the prior year due to an increase in fee income.

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

	Years Ended December 31,
	2016		2015		Change			Percentage Change
WMG fee income	$	8,316	$	8,522	$	(206	)	(2.4	)%
Service charges on deposit accounts	5,089		4,886		203			4.2	%
Interchange revenue from debit card transactions	4,027		3,307		720			21.8	%
Net gains on securities transactions	987		372		615			165.3	%
Net gains on sales of loans held for sale	326		294		32			10.9	%
Net gains (losses) on sales of other real estate owned	21		84		(63		)	(75.0	)%
Income from bank owned life insurance	73		75		(2		)	(2.7	)%
CFS fee and commission income	544		906		(362		)	(40.0	)%
Other	1,766		2,001		(235		)	(11.7	)%
Total non-interest income	$	21,149	$	20,447	$	702		3.4	%

Total non-interest income for year ended December 31, 2016 increased $0.7 million compared to the prior year. The increase was primarily due to increases in service charges on deposit accounts, interchange revenue from debit card transactions, and net gains on securities transactions, offset by decreases in WMG fee income, CFS fee and commission income, and other non-interest income.

WMG fee income

WMG fee income decreased in 2016 compared to the prior year due to a decline in assets under management or administration from the loss of one large non-profit customer during 2016.

Service charges on deposit accounts

Service charges on deposit accounts increased in 2016 compared to the prior year due to an increase in overdraft fees.

Interchange revenue from debit card transactions

Interchange revenue from debit card transactions increased in 2016 compared to the prior year due to the recognition of an incremental volume bonus related to the rebranding of the Bank's credit cards recognized in 2016.

Net gains on securities transactions

Net gains on securities transactions increased in 2016 compared to the prior year due to the sale of $14.5 million in U.S. Treasuries and $25.0 million in obligations of U.S. Government sponsored enterprises.

CFS fee and commission income

CFS fee and commission income decreased in 2016 compared to the prior year due to a decrease in commissions from insurance annuity products.

Other

Other non-interest income decreased in 2016 compared to the prior year due to rental income from OREO properties in 2015, which were sold in 2016.

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Non-interest expenses

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

	Years Ended December 31,
	2017		2016		Change			Percentage Change
Compensation expenses:
Salaries and wages	$	21,476	$	20,954	$	522		2.5	%
Pension and other employee benefits	4,276		6,132		(1,856		)	(30.3	)%
Total compensation expenses	25,752		27,086		(1,334		)	(4.9	)%
Non-compensation expenses:
Net occupancy	6,263		6,837		(574		)	(8.4	)%
Furniture and equipment	2,828		2,967		(139		)	(4.7	)%
Data processing	6,539		6,593		(54		)	(0.8	)%
Professional services	1,774		2,175		(401		)	(18.4	)%
Legal accruals and settlements	850		1,200		(350		)	(29.2	)%
Amortization of intangible assets	860		986		(126		)	(12.8	)%
Marketing and advertising	794		877		(83		)	(9.5	)%
Other real estate owned expense	110		180		(70		)	(38.9	)%
FDIC insurance	1,236		1,193		43			3.6	%
Loan expense	694		669		25			3.7	%
Other	6,064		5,847		217			3.7	%
Total non-compensation expenses	28,012		29,524		(1,512		)	(5.1	)%
Total non-interest expenses	$	53,764	$	56,610	$	(2,846	)	(5.0	)%

Total non-interest expenses for the year ended December 31, 2017 decreased $2.8 million compared with the prior year. The decrease was primarily due to decreases in compensation and non-compensation expenses.

Compensation expenses

Compensation expenses decreased in 2017 compared to 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 the freezing of accruals for the pension and post-retirement healthcare plans, offset by an increase in healthcare and 401(k) plan contributions. The increase in salaries and wages can be attributed to annual merit increases.

Non-compensation expenses

Non-compensation expense decreased in 2017 compared to the prior year primarily due to decreases in net occupancy, furniture and equipment, professional services and legal accruals and settlements, partially offset by an increase in other non-interest expense. The decrease in net occupancy and furniture and equipment expenses can be attributed to the closure of the branch at 202 East State Street in Ithaca, NY during the second quarter of 2016, offset by exit costs for the branch at 120 Genesee Street in Auburn, NY recognized during the second quarter of 2017. The decrease in professional services can be attributed to professional fees incurred during the formation of CRM in 2016 and legal costs associated with the Fane v. Chemung Canal Trust Company case. The decrease in legal accruals and settlements can be attributed to the creation of a $1.2 million legal accrual for the Fane v. Chemung Canal Trust Company case in 2016, compared to a $0.9 million legal accrual for the same case in 2017. Please refer to Footnote 15 of the audited consolidated financial statements for further discussion of the Fane v. Chemung Canal case.

44

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

	Years Ended December 31,
	2016		2015		Change			Percentage Change
Compensation expenses:
Salaries and wages	$	20,954	$	21,223	$	(269	)	(1.3	)%
Pension and other employee benefits	6,132		5,908		224			3.8	%
Total compensation expenses	27,086		27,131		(45		)	(0.2	)%
Non-compensation expenses:
Net occupancy	6,837		7,006		(169		)	(2.4	)%
Furniture and equipment	2,967		2,979		(12		)	(0.4	)%
Data processing	6,593		6,586		7			0.1	%
Professional services	2,175		1,293		882			68.2	%
Legal settlements	1,200		—		1,200			N/M
Amortization of intangible assets	986		1,136		(150		)	(13.2	)%
Marketing and advertising	877		899		(22		)	(2.4	)%
Other real estate owned expense	180		812		(632		)	(77.8	)%
FDIC insurance	1,193		1,075		118			11.0	%
Loan expense	669		693		(24		)	(3.5	)%
Other	5,847		5,817		30			0.5	%
Total non-compensation expenses	29,524		28,296		1,228			4.3	%
Total non-interest expenses	$	56,610	$	55,427	$	1,183		2.1	%

Total non-interest expenses for the year ended December 31, 2016 increased $1.2 million compared with the same period in the prior year. The increase was primarily due to an increase in non-compensation expense related to the establishment of a $1.2 million legal reserve in 2016.

Compensation expenses

Compensation expense decreased in 2016 compared to the prior year due to a decrease in salaries and wages, offset by an increase in pension and other employee benefits. The decrease in salaries and wages was primarily due to a reduction in full-time equivalent employees. The $0.2 million increase in pension and other employee benefits was primarily due to an increase in health insurance costs, offset by a $0.3 million curtailment gain related to the amendment of the defined benefit health care plan during the fourth quarter of 2015.

Non-compensation expenses

Non-compensation expense increased in 2016 compared to the prior year primarily due to increases in professional services and legal accruals and settlements, offset by decreases in net occupancy expenses, amortization of intangible assets, and other real estate owned expenses. The increase in professional services can be mostly attributed to expenses incurred related to the feasibility and implementation of CRM, consulting costs associated with the conversion of the Corporation's debit cards to MasterCard, and legal costs associated with the appeal of the Fane v. Chemung Canal Trust Company decision. The increase in legal accruals and settlements can be attributed to the establishment of a $1.2 million legal reserve associated with the Fane v. Chemung Canal Trust Company case. Please refer to Footnote 15 of the audited consolidated financial statements for further discussion of the Fane v. Chemung Canal case. The decrease in net occupancy expenses can be attributed to the closure of the branch office at 202 East State Street in Ithaca, NY during the second quarter of 2016. The decrease in other real estate owned expenses can be attributed to the sale of properties in 2016.

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Income tax expense

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

	Years Ended December 31,
	2017			2016			Change		Percentage Change
Income before income tax expense	$	14,692		$	14,431		$	261	1.8	%
Income tax expense	$	7,262		$	4,404		$	2,858	64.9	%
Effective tax rate	49.4		%	30.5		%

The effective tax rate increased to 49.4% for the year ended December 31, 2017 compared with 30.5% for the same period in the prior year. The increase in the effective tax rate can be attributed to the $2.9 million one-time reduction in the net deferred tax asset as a result of the remeasurement required under GAAP due to the enactment of the Tax Act. The effective tax rate for the year ended December 31, 2017, excluding the one-time net deferred tax asset revaluation, was 29.5%¹.

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

	Years Ended December 31,
	2016			2015			Change			Percentage Change
Income before income tax expense	$	14,431		$	14,091		$	340		2.4	%
Income tax expense	$	4,404		$	4,658		$	(254	)	(5.5	)%
Effective tax rate	30.5		%	33.1		%

The decrease in the effective tax rate can be attributed to the formation of CRM in 2016 and increasing the utilization of the Bank's real estate investment trust during 2016.

¹ ($7,262 income tax expense - $2,927 revaluation of net deferred tax expense) / $14,692 income before income tax expense.

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Financial Condition

The following table presents selected financial information at December 31, 2017 and 2016, and the dollar and percent change (in thousands):

	December 31, 2017			December 31, 2016			Change			Percentage Change
Assets
Total cash and cash equivalents	$	30,729		$	74,162		$	(43,433	)	(58.6	)%
Total investment securities, FHLB, and FRB stock	303,192			312,148			(8,956		)	(2.9	)%
Loans, net of deferred loan fees	1,311,824			1,200,290			111,534			9.3	%
Allowance for loan losses	(21,161		)	(14,253		)	(6,908		)	48.5	%
Loans, net	1,290,663			1,186,037			104,626			8.8	%
Goodwill and other intangible assets, net	23,909			24,769			(860		)	(3.5	)%
Other assets	59,127			60,063			(936		)	(1.6	)%
Total assets	$	1,707,620		$	1,657,179		$	50,441		3.0	%
Liabilities and Shareholders’ Equity
Total deposits	$	1,467,446		$	1,456,343		$	11,103		0.8	%
FHLBNY advances and other debt	74,217			41,421			32,796			79.2	%
Other liabilities	16,144			15,667			477			3.0	%
Total liabilities	1,557,807			1,513,431			44,376			2.9	%
Total shareholders’ equity	149,813			143,748			6,065			4.2	%
Total liabilities and shareholders’ equity	$	1,707,620		$	1,657,179		$	50,441		3.0	%

Cash and cash equivalents

The decrease in cash and cash equivalents can be mostly attributed to an increase in total loans, offset by increases in deposits and FHLBNY advances.

Investment securities

The decrease in securities available for sale and held to maturity can be mostly attributed to maturities and calls exceeding new purchases of investment securities.

Loans, net

The increase in total loans can be mostly attributed to increases of $98.1 million in commercial loans and $17.5 million in consumer loans, offset by a $4.1 million decrease in residential mortgages. The increase in the commercial loan portfolio was primarily from the Capital Bank Division and the increase in consumer loans can be mostly attributed to an increase in the indirect automobile loan portfolio.

Goodwill and other intangible assets, net

The decrease in goodwill and other intangible assets, net can be attributed to amortization of other intangible assets. There were no impairments of goodwill or other intangible assets during the years ended December 31, 2017 and 2016.

Other assets

The decrease in other assets can be mostly attributed to the $2.9 million one-time reduction in the net deferred tax asset, as a result of a remeasurement required under GAAP due to the enactment of the Tax Act.

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Deposits

The increase in deposits can be attributed to increases of $49.8 million in non-interest bearing demand deposits, $12.2 million in interest-bearing demand deposits, and $10.0 million in savings deposits. Partially offsetting the increases noted above were decreases of $35.2 million in money market accounts and $25.7 million in time deposits.

FHLBNY advances and other debt

FHLBNY overnight advances increased due to loan growth increasing faster than deposit growth during the current year, offset by 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.

Shareholders’ equity

The increase in shareholders' equity was primarily due to an increase in retained earnings of $4.3 million, which was a result of earnings of $7.4 million and a $1.8 million re-class of the stranded accumulated other comprehensive loss associated with the revaluation of the net deferred tax asset from accumulated other comprehensive loss to retained earnings, offset by $4.9 million in dividends declared during the current year. The decrease in accumulated other comprehensive loss of $0.4 million can be attributed to the increase in the fair market value of the securities portfolio, offset by the $1.8 million re-class of the stranded accumulated other comprehensive loss associated with the revaluation of the net deferred tax asset to retained earnings. Also, additional-paid-in capital and treasury stock increased $0.4 million and $0.9 million, respectively, due to the issuance of shares to the Corporation’s employee benefit stock plans.

Assets under management or administration

The market value of total assets under management or administration in our WMG was $1.952 billion, including $346.8 million of assets held under management or administration for the Corporation, at December 31, 2017 compared with $1.721 billion, including $294.9 million of assets held under management or administration for the Corporation, at December 31, 2016, an increase of $230.4 million, or 13.4%.

Balance Sheet Comparisons

The table below contains selected average balance sheet information for each year in the five-year period ended December 31, 2017 (in millions):

SELECTED AVERAGE BALANCE SHEET INFORMATION
Average Balance Sheet	2017		2016		2015		2014		2013		% Change 2016 to 2017		Compounded Annual Growth 5 Years
Total assets	$	1,713.2	$	1,667.2	$	1,577.8	$	1,506.3	$	1,306.4	2.8	%	6.4	%
Interest-earning assets (1)	1,623.9		1,571.5		1,477.5		1,399.3		1,209.7		3.3	%	7.1	%
Loans (2)	1,251.2		1,194.6		1,142.0		1,066.4		942.9		4.7	%	8.2	%
Investments (3)	372.7		376.9		335.5		332.9		266.8		(1.1	)%	4.0	%
Deposits	1,514.5		1,450.5		1,367.7		1,297.4		1,092.8		4.4	%	7.7	%
Borrowings (4)	32.4		55.5		56.2		56.7		69.5		(41.6	)%	(14.4	)%
Shareholders’ equity	151.2		142.9		137.9		142.0		134.3		5.8	%	2.9	%

(1) Average interest-earning assets include securities available for sale and securities held to maturity based on amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock and federal funds sold.

(2) Average loans and loans held for sale, net of deferred loan fees.

(3) Average balances for investments include securities available for sale and securities held to maturity, based on amortized cost, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits.

(4) Average borrowings include FHLBNY advances, securities sold under agreements to repurchase and capitalized lease obligations.

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The table below contains selected year-end balance sheet information for each year in the five-year period ended December 31, 2017 (in millions):

SELECTED YEAR-END BALANCE SHEET INFORMATION
Ending Balance Sheet	2017		2016		2015		2014		2013		% Change 2016 to 2017		Compounded Annual Growth 5 Years
Total assets	$	1,707.6	$	1,657.2	$	1,620.0	$	1,524.5	$	1,476.1	3.0	%	6.5	%
Interest-earning assets (1)	1,618.3		1,558.8		1,525.2		1,415.1		1,373.6		3.8	%	7.0	%
Loans (2)	1,312.4		1,200.7		1,169.7		1,122.2		996.6		9.3	%	8.0	%
Allowance for loan losses	21.2		14.3		14.3		13.7		12.8		48.3	%	15.3	%
Investments (3)	306.0		358.1		355.5		292.9		377.0		(14.5	)%	3.2	%
Deposits	1,467.4		1,456.3		1,400.3		1,280.0		1,266.3		0.8	%	7.0	%
Borrowings (4)	74.2		41.4		64.4		82.8		57.9		79.2	%	4.4	%
Shareholders’ equity	149.8		143.7		137.2		133.6		138.6		4.2	%	2.7	%

(1) Interest-earning assets include securities available for sale, at estimated fair value and securities held to maturity based on amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock and federal funds sold.

(2) Loans and loans held for sale, net of deferred loan fees.

(3) Investments include securities available for sale, at estimated fair value, securities held to maturity, at amortized cost, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits.

(4) Borrowings include FHLBNY overnight and term advances, securities sold under agreements to repurchase and capitalized lease obligations.

Cash and Cash Equivalents

Total cash and cash equivalents decreased $43.4 million since December 31, 2016, due to decreases of $0.2 million in cash and due from financial institutions and $43.2 million in interest-earning deposits in other financial institutions in order to fund loan growth in 2017.

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.

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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
	December 31, 2017				December 31, 2016				December 31, 2015
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government	$	—	$	—	$	—	$	—	$	14,507	$	14,784
Obligations of U.S. Government sponsored enterprises	15,492		15,491		17,300		17,455		84,923		85,382
Mortgage-backed securities, residential and collateralized mortgage obligations	224,939		219,909		253,156		245,866		199,680		198,366
Obligations of states and political subdivisions	52,928		53,132		38,843		38,740		43,695		44,426
Other securities (a)	4,853		5,095		1,102		1,341		1,675		1,862
Totals	$	298,212	$	293,627	$	310,401	$	303,402	$	344,480	$	344,820

(a) Other securities consists of corporate bonds, SBA loan pools, and equity securities.

The available for sale segment of the securities portfolio totaled $293.6 million at December 31, 2017, a decrease of $9.8 million, or 3.2%, from $303.4 million at December 31, 2016. The decrease resulted primarily from maturities and calls, which exeeded new purchases.

The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas. These securities totaled $3.8 million at December 31, 2017, a decrease of $0.9 million from December 31, 2016, due primarily to maturities and principal collected.

Non-marketable equity securities at December 31, 2017 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.8 million and $4.0 million, respectively. The fair value of these securities is assumed to approximate their cost. The investment in these stocks is regulated by regulatory policies of the respective institutions.

The table below sets forth the carrying amounts and maturities of available for sale and held to maturity debt securities at December 31, 2017 and the weighted average yields of such securities (all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security, except mortgage-backed securities which are based on the average life at the projected prepayment speed of each security) (in thousands):

MATURIES AND YIELDS OF AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES
	Within One Year				After One, But Within Five Years				After Five, But Within Ten Years				After Ten Years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	9,997	1.57	%	$	5,494	2.03	%	$	—	N/A		$	—	N/A
Mortgage-backed securities, residential	353		2.77	%	142,786		1.92	%	76,770		1.92	%	—		N/A
Obligations of states and political subdivisions	9,188		2.12	%	15,349		1.94	%	29,699		2.45	%	841		2.66	%
Time deposits with other institutions	715		1.14	%	1,120		1.66	%	—		N/A		—		N/A
Corporate bonds and notes	—		N/A		251		3.23	%	—		N/A		—		N/A
SBA loan pools	—		N/A		171		3.12	%	201		2.75	%	3,937		2.05	%
Total	$	20,253	1.83	%	$	165,171	1.93	%	$	106,670	2.07	%	$	4,778	2.16	%

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Management evaluates securities for OTTI on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For the years ended December 31, 2017 and 2016, the Corporation had no OTTI charges.

Loans

The Corporation has reporting systems to monitor: (i) loan originations and concentrations, (ii) delinquent loans, (iii) non-performing assets, including non-performing loans, troubled debt restructurings, 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 type and percentage of total loans at the end of each of the last five years (in thousands):

	LOANS
	December 31,
	2017		%	2016		%	2015		%	2014		%	2013		%
Commercial and agricultural	$	199,007	15.2	$	176,561	14.7	$	193,233	16.5	$	166,406	14.8	$	145,363	14.6
Commercial mortgages	644,330		49.1	568,656		47.4	506,478		43.3	452,593		40.4	373,147		37.5
Residential mortgages	194,440		14.8	198,493		16.6	195,778		16.8	196,809		17.5	195,997		19.7
Indirect consumer loans	153,060		11.7	139,572		11.6	151,327		13.0	184,763		16.5	164,846		16.5
Consumer loans	120,987		9.2	117,008		9.7	121,817		10.4	121,003		10.8	116,513		11.7
Total	$	1,311,824	100.0	$	1,200,290	100.0	$	1,168,633	100.0	$	1,121,574	100.0	$	995,866	100.0

Portfolio loans totaled $1.312 billion at December 31, 2017, an increase of $111.5 million, or 9.3%, from $1.200 billion at December 31, 2016.  The increase in portfolio loans was due to strong growth of $98.1 million, or 13.2%, in commercial loans and $13.5 million, or 9.7%, in indirect consumer loans. The growth in commercial loans was due primarily to an increase in commercial mortgages in the Capital Bank division in the Albany, New York region.  The increase in indirect consumer loans was a result of the Corporation's decision to focus efforts into expanding its indirect automobile loan portfolio.

Residential mortgage loans totaled $194.4 million at December 31, 2017, a decrease of $4.1 million, or 2.0%, from December 31, 2016.  In addition, during 2017, $12.5 million of residential mortgages were sold in the secondary market to Freddie Mac, with an additional $0.6 million of residential mortgages 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
	December 31,
	2017		2016		2015		2014		2013
Chemung Canal Trust Company*	$	630,732	$	636,836	$	683,137	$	724,099	$	687,256
Capital Bank Division	681,092		563,454		485,496		397,475		308,610
Total loans	$	1,311,824	$	1,200,290	$	1,168,633	$	1,121,574	$	995,866
*All loans, excluding those originated by the Capital Bank Division.

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Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by changes in economic or other conditions. The Corporation’s concentration policy limits consider the volume of commercial loans to any one specific industry, sponsor, and by collateral type and location. In addition, the Corporation’s policy limits the volume of non-owner occupied commercial mortgages to four times total risk based capital. At December 31, 2017 and 2016, total non-owner occupied commercial real estate loans divided by total risk based capital was 386.7% and 351.1% respectively.

The Corporation also monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.  At December 31, 2017 and 2016, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses were 48.1% 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 December 31, 2017 and 2016.

The table below shows the maturity of only commercial and agricultural loans and commercial mortgages outstanding as of December 31, 2017.  Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):

	LOAN AMOUNTS CONTRACTUALLY DUE AFTER DECEMBER 31, 2017
	Within One Year		After One But Within Five Years		After Five Years		Total
Commercial and agricultural and commercial mortgages	$	97,435	$	192,862	$	553,040	$	843,337
Loans maturing with:
Fixed interest rates	$	17,756	$	131,424	$	130,653	$	279,833
Variable interest rates	79,679		61,438		422,387		563,504
Total	$	97,435	$	192,862	$	553,040	$	843,337

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 contractual 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.

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The following table summarizes the Corporation's non-performing assets, excluding purchased credit impaired loans (in thousands):

NON-PERFORMING ASSETS

December 31,	2017			2016			2015			2014			2013
Non-accrual loans	$	11,389		$	7,649		$	7,821		$	6,798		$	7,456
Non-accrual troubled debt restructurings	5,935			4,394			4,411			980			1,061
Total non-performing loans	17,324			12,043			12,232			7,778			8,517
Other real estate owned	1,940			388			1,530			3,065			538
Total non-performing assets	$	19,264		$	12,431		$	13,762		$	10,843		$	9,055
Ratio of non-performing loans to total loans	1.32		%	1.00		%	1.05		%	0.69		%	0.86		%
Ratio of non-performing assets to total assets	1.13		%	0.75		%	0.85		%	0.71		%	0.61		%
Ratio of allowance for loan losses to non-performing loans	122.14		%	118.35		%	116.58		%	175.96		%	150.01		%
Accruing loans past due 90 days or more (1)	$	29		$	13		$	18		$	1,454		$	1,473
Accruing troubled debt restructurings (1)	$	1,728		$	5,839		$	7,609		$	8,705		$	6,831

(1) These loans are not included in nonperforming assets above.

The table below shows interest income on non-accrual and troubled debt restructured loans for the indicated years ended December 31 (in thousands):

INTEREST INCOME ON NON-ACCRUAL AND TROUBLED DEBT RESTRUCTURED LOANS
	2017		2016		2015
Interest income that would have been recorded under original terms	$	630	$	657	$	578
Interest income recorded during the year	$	153	$	312	$	424

Non-Performing Loans

Non-performing loans totaled $17.3 million at December 31, 2017, or 1.32% 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 December 31, 2017 was primarily due to increases of $5.3 million in non-accruing commercial and industrial loans and $1.2 million in non-accruing commercial mortgages, offset by a decrease of $1.0 million in non-accruing residential mortgages. The increase in non-accruing commercial and industrial loans was due primarily to two long-standing relationships in the Southern Tier of New York. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $19.3 million, or 1.13% of total assets, at December 31, 2017, compared with $12.4 million, or 0.75% of total assets, at December 31, 2016.

The recorded investment in accruing loans past due 90 days or more totaled less than $0.1 million at December 31, 2017, consistent with the prior year.

Not included in non-performing loan totals are $0.8 million and $1.4 million of acquired loans which the Corporation has identified as PCI loans at December 31, 2017 and 2016, respectively. The PCI loans are accounted for under separate accounting guidance, ASC Subtopic 310-30, “Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality” as disclosed in Note 4 of the financial statements.

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 December 31, 2017, the Corporation had $6.0 million of non-accrual TDRs compared with $4.4 million as of December 31, 2016. As of December 31, 2017, the Corporation had $1.7 million of accruing TDRs compared with $5.8 million as of December 31, 2016.

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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. The unpaid principal balance of impaired loans at December 31, 2017 totaled $14.1 million, including TDRs of $7.7 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 increase in impaired loans was primarily in the commercial loan segment of the loan portfolio related to two long-standing relationships in the Southern Tier of New York, partially offset by the transfer of eight commercial properties from impaired loans to OREO. Included in the recorded investment of impaired loans at December 31, 2017, are loans totaling $8.1 million for which impairment allowances of $5.9 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 increase in the amount of impaired loans for which specific allowances were allocated to the allowance for loan losses was due primarily to an increase in impaired commercial loans.

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 inherent losses 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 analyses of individually impaired loans. Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, 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 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 $21.2 million at December 31, 2017, compared to $14.3 million at December 31, 2016. The increase in the allowance for loan losses can be mostly attributed to an increase in the commercial and consumer loans portfolios, an increase in impaired loans, and an increase in loss factors relating to the indirect and consumer loan portfolios. The ratio of allowance for loan losses to total loans was 1.61% at December 31, 2017 and 1.19% at December 31, 2016, respectively. Net charge-offs for the years ended December 31, 2017 and 2016 were $2.1 million and $2.4 million, respectively.

The table below summarizes the Corporation’s allocation of the allowance for loan losses and percent of loans by category to total loans for each year in the five-year period ended December 31, 2017 (in thousands):

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Balance at end of year applicable to:	2017		%	2016		%	2015		%	2014		%	2013		%
Commercial and agricultural	$	6,976	15.2	$	1,589	14.7	$	1,831	16.5	$	1,460	14.8	$	1,979	14.6
Commercial mortgages	8,514		49.1	7,270		47.4	7,112		43.3	6,326		40.4	6,243		37.5
Residential mortgages	1,316		14.8	1,523		16.6	1,464		16.8	1,572		17.5	1,517		19.7
Consumer loans	4,355		20.9	3,871		21.3	3,853		23.4	4,328		27.3	3,037		28.2
	$	21,161	100.0	$	14,253	100.0	$	14,260	100.0	$	13,686	100.0	$	12,776	100.0

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The table below summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 2017 (in thousands, except ratio data):

SUMMARY OF LOAN LOSS EXPERIENCE
	Years Ended December 31,
	2017			2016			2015			2014			2013
Allowance for loan losses at beginning of year	$	14,253		$	14,260		$	13,686		$	12,776		$	10,433
Charge-offs:
Commercial and agricultural	96			217			186			444			186
Commercial mortgages	419			911			104			2,229			44
Residential mortgages	225			65			47			97			124
Consumer loans	1,831			1,637			1,294			1,508			1,139
Total	2,571			2,830			1,631			4,278			1,493
Recoveries:
Commercial and agricultural	109			92			96			385			537
Commercial mortgages	5			10			131			156			98
Residential mortgages	30			—			—			32			65
Consumer loans	313			284			407			634			381
Total	457			386			634			1,207			1,081
Net charge-offs	2,114			2,444			997			3,071			412
Provision charged to operations	9,022			2,437			1,571			3,981			2,755
Allowance for loan losses at end of year	$	21,161		$	14,253		$	14,260		$	13,686		$	12,776
Ratio of net charge-offs during year to average loans outstanding	0.17		%	0.20		%	0.09		%	0.29		%	0.04		%
Ratio of allowance for loan losses to total loans outstanding	1.61		%	1.19		%	1.22		%	1.22		%	1.28		%

Net charge-offs for the year ended December 31, 2017 were $2.1 million compared with $2.4 million for the year ended December 31, 2016.  The ratio of net charge-offs to average loans outstanding was 0.17% for 2017 compared to 0.20% for 2016.  The decrease in net charge-offs can be attributed to a decline in write-offs in commercial loans, offset by increases in write-offs in residential mortgages and consumer loans.

Other Real Estate Owned

At December 31, 2017, OREO totaled $1.9 million compared to $0.4 million at December 31, 2016.  The increase in other real estate owned was due primarily to eight commercial properties added during the fourth quarter of 2017 in the amount of $1.6 million .

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Deposits

The table below summarizes the Corporation’s deposit composition by segment at December 31, 2017, 2016, and 2015, and the dollar and percent change from December 31, 2016 to December 31, 2017 and December 31, 2015 to December 31, 2016 (in thousands):

DEPOSITS
							Percentage Change from Prior Year
	December 31,
	2017		2016		2015		2017		2016
Non-interest-bearing demand deposits	$	467,610	$	417,812	$	402,236	11.9	%	3.9	%
Interest-bearing demand deposits	149,026		136,826		130,573		8.9	%	4.8	%
Insured money market accounts	513,782		548,963		497,658		(6.4	)%	10.3	%
Savings deposits	218,666		208,636		203,749		4.8	%	2.4	%
Time deposits	118,362		144,106		166,079		(17.9	)%	(13.2	)%
Total	$	1,467,446	$	1,456,343	$	1,400,295	0.8	%	4.0	%

Deposits totaled $1.467 billion at December 31, 2017, compared with $1.456 billion at December 31, 2016, an increase of $11.1 million, or 0.8%.  At December 31, 2017, demand deposit and money market accounts comprised 77.0% of total deposits compared with 75.8% at December 31, 2016.  Sorted by public, commercial, consumer and broker sources, the growth in deposits was due primarily to increases of $43.0 million in commercial deposits and $0.9 million in public deposits, offset by decreases of $16.9 million in consumer deposits and $15.9 million in brokered deposits.

At December 31, 2017, public funds deposits totaled $299.5 million compared to $306.3 million at December 31, 2016. The Corporation has developed a program for the retention and management of public funds deposits. These deposits are from public entities, such as school districts and municipalities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds deposits will increase at the end of the first and third quarters. Public funds deposit accounts above the FDIC insured limit are collateralized by municipal bonds and eligible government and government agency securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.

The table below summarizes the Corporation’s public funds deposit composition by segment (in thousands):

	December 31,
Public Funds:	2017			2016			2015
Non-interest-bearing demand deposits	$	11,229		$	7,929		$	10,961
Interest-bearing demand deposits	44,796			44,366			43,881
Insured money market accounts	225,756			233,745			211,709
Savings deposits	11,249			9,378			10,262
Time deposits	6,497			10,840			16,294
Total public funds	$	299,527		$	306,258		$	293,107
Total deposits	$	1,467,446		$	1,456,343		$	1,400,295
Percentage of public funds to total deposits	20.4		%	21.0		%	20.9		%

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As of December 31, 2017, the aggregate amount of the Corporation's outstanding certificates of deposit in amounts greater than or equal to $100 thousand was $31.3 million. The table below presents the Corporation's scheduled maturity of those certificates as of December 31, 2017 (in thousands):

	December 31, 2017
3 months or less	$	8,155
Over 3 through 6 months	6,704
Over 6 through 12 months	7,145
Over 1 year to 3 years	7,053
Over 3 years	2,228
	$	31,285

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

DEPOSITS BY DIVISION
	December 31,
	2017		2016		2015		2014		2013
Chemung Canal Trust Company*	$	1,264,883	$	1,249,870	$	1,219,282	$	1,119,377	$	1,097,920
Capital Bank Division	202,563		206,473		181,013		160,637		168,336
Total loans	$	1,467,446	$	1,456,343	$	1,400,295	$	1,280,014	$	1,266,256
*All deposits, excluding those originated by the Capital Bank Division.

Brokered deposits include funds obtained through brokers, and the Bank’s participation in CDARS and ICS programs.  The CDARS and ICS programs involve a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution. The Corporation had no deposits obtained through brokers as of December 31, 2017 and 2016.  Deposits obtained through the CDARS and ICS programs were $187.7 million and $203.7 million as of December 31, 2017 and 2016, respectively.

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and other low interest-bearing deposit accounts.  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 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 a 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.

Information regarding deposits is included in Note 7 to the consolidated financial statements appearing elsewhere in this report.

Borrowings

FHLBNY advances increased $50.6 million to $59.7 million at December 31, 2017 from $9.1 million at December 31, 2016.  FHLBNY overnight advances increased $57.7 million during 2017 while FHLBNY term advances decreased $7.1 million. FHLBNY overnight advances increased due to loan growth increasing faster than deposit growth during the year.

For each of the three years ended December 31, 2017, 2016 and 2015, respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity.

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Information regarding securities sold under agreements to repurchase and FHLBNY advances is included in Foonotes 8 and 9 to the audited consolidated financial statements appearing elsewhere in this report. The following is a summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2017, 2016 and 2015 (in thousands):

	2017		2016		2015
Balance at December 31	$	10,000	$	27,606	$	28,453
Maximum month-end balance	$	25,718	$	30,497	$	32,145
Average balance during year	$	14,207	$	29,120	$	30,236

The following is a summary of FHLBNY overnight advances as of and for the years ended December 31, 2017, 2016, and 2015 (in thousands):

	2017		2016		2015
Balance at December 31	$	57,700	$	—	$	13,900
Maximum month-end balance	$	57,700	$	29,700	$	15,600
Average balance during year	$	5,534	$	3,187	$	3,771

The following is a summary of FHLBNY term advances as of and for the years ended December 31, 2017, 2016, and 2015. The carrying amount includes the advance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

	2017		2016		2015
Balance at December 31	$	2,000	$	9,093	$	19,203
Maximum month-end balance	$	9,084	$	19,194	$	19,301
Average balance during year	$	7,998	$	18,874	$	19,256

Derivatives

The Corporation offers interest rate swap agreements to qualified commercial loan customers. These agreements allow the Corporation’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Corporation enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Corporation to continue to receive the variable rate under the loan agreement with the customer. The agreement with the third party is not designated as a hedge contract, therefore changes in fair value are recorded through other non-interest income. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other non-interest income. The Corporation is exposed to credit loss equal to the fair value of the interest rate swaps, not the notional amount of the derivatives, in the event of nonperformance by the counterparty to the interest rate swap agreements. Additionally, the swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets, which typically involves a day one gain. Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and an allowance for credit loss exposure, in the event of nonperformance. The Corporation recognized $0.2 million and $0.1 million in swap fee income for the years ended December 31, 2017 and 2016, respectively.

The Corporation also participates in the credit exposure of certain interest rate swaps in which it participates in the related commercial loan. The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap and recognizes the fee to other non-interest income immediately. The Corporation is exposed to its share of the credit loss equal to the fair value of the derivatives in the event of nonperformance by the counter-party of the interest rate swap. The Corporation determines the fair value of the credit loss exposure using historical losses of the loan category associated with the credit exposure.

Information regarding derivatives is included in Note 10 to the consolidated financial statements appearing elsewhere in this report.

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Shareholders’ Equity

Total shareholders’ equity was $149.8 million at December 31, 2017, compared with $143.7 million at December 31, 2016, an increase of $6.1 million, or 4.2%.  The increase in retained earnings of $4.3 million was due primarily to earnings of $7.4 million and a $1.8 million re-class of the stranded accumulated other comprehensive loss associated with the revaluation of the net deferred tax asset from accumulated other comprehensive loss to retained earnings, offset by $4.9 million in dividends declared during the year. The decrease in accumulated other comprehensive loss of $0.4 million can be attributed to the increase in the fair market value of the securities portfolio, offset by the $1.8 million re-class of the stranded accumulated other comprehensive loss associated with the revaluation of the net deferred tax asset to retained earnings. Also, additional-paid-in capital and treasury stock increased $0.4 million and $0.9 million, respectively, due to the issuance of shares to the Corporation’s employee benefit stock plans. The total shareholders’ equity to total assets ratio was 8.77% at December 31, 2017 compared with 8.67% at December 31, 2016.  Tangible equity to tangible assets ratio increased to 7.48% at December 31, 2017, from 7.29% 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, undercapitalized, significantly undercapitalized and critically undercapitalized.  As of December 31, 2017, both the Corporation’s and the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.  A comparison of the Corporation’s and the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized at December 31, 2017 and 2016, is included in Footnote 18 to the consolidated financial statements appearing elsewhere in this report.  For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.”

Cash dividends declared during 2017 and 2016 totaled $4.9 million or $1.04 per share, and cash dividends declared during 2015 totaled $4.8 million, or $1.04 per share. Dividends declared during 2017 amounted to 66.30% of net income compared to 48.76%, and 51.34% of net income for 2016 and 2015, respectively.  Management seeks to continue generating sufficient capital internally, while continuing to pay dividends to the Corporation’s shareholders.

When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions.  Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management.  On December 19, 2012, the Board of Directors approved a new stock repurchase plan under which the Corporation may repurchase up to 125,000 shares.  No shares were purchased under the plan in 2017 and 2016.  The Corporation has purchased 3,094 shares at a total cost of $93 thousand under the plan since its inception. 

Off-balance Sheet Arrangements

In the normal course of operations, the Corporation engages in a variety of financial transactions that, in accordance with GAAP are not recorded in the financial statements.  The Corporation is also 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, commitments to fund new loans, interest rate swaps, and risk participation agreements.  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 table below shows the Corporation’s off-balance sheet arrangements as of December 31, 2017 (in thousands):

COMMITMENT MATURITY BY PERIOD
	Total		2018		2019 - 2020		2021 - 2022		2023 and thereafter
Standby letters of credit	$	15,022	$	13,203	$	799	$	900	$	120
Unused portions of lines of credit (1)	135,265		135,265		—		—		—
Commitments to fund new loans	44,610		44,610		—		—		—
Total	$	194,897	$	193,078	$	799	$	900	$	120

(1) Not included in this total are unused portions of home equity lines of credit, credit card lines and consumer overdraft protection lines of credit, since no contractual maturity dates exist for these types of loans.  Commitments to outside parties under these lines of credit were $48.3 million, $12.9 million and $5.5 million, respectively, at December 31, 2017.

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Contractual Obligations

The table below shows the Corporation’s contractual obligations under long-term agreements as of December 31, 2017 (in thousands).  Note references are to the Notes of the Consolidated Financial Statements:

CONTRACTUAL OBLIGATIONS
			Payments Due by Period
	Total		2018		2019 - 2020		2021 - 2022		2023 and thereafter
Time Deposits (Note 7)	$	118,362	$	80,180	$	28,427	$	6,707	$	3,048
FHLBNY advances (Note 9)	59,700		59,700		—		—		—
Securities sold under agreements to   repurchase (Note 8)	10,000		10,000		—		—		—
Operating leases (Note 5)	8,593		1,121		1,639		1,464		4,369
Capital leases (Note 5)	5,920		367		743		779		4,031
Data processing services and other	2,749		1,186		1,563		—		—
Total (1)	$	205,324	$	152,554	$	32,372	$	8,950	$	11,448

(1) Not included in the above total is the Corporation's obligation regarding the Pension Plan and Other Benefit Plans.  Please refer to Part IV Item 15 Note 12 for information regarding these obligations at December 31, 2017.

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 $73.5 million and $131.6 million at December 31, 2017 and 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 were available at December 31, 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 years indicated (in thousands):

CONSOLIDATED SUMMARY OF CASH FLOWS
	Years Ended December 31,
(in thousands)	2017			2016
Net cash provided by operating activities	$	23,645		$	22,141
Net cash used by investing activities	(106,642		)	(729		)
Net cash provided by financing activities	39,564			26,565
Net increase (decrease) in cash and cash equivalents	$	(43,433	)	$	47,977

Operating activities

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

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Cash provided by operating activities in years ended 2017 and 2016 predominantly resulted from net income after non-cash operating adjustments.

Investing activities

Cash used in investing activities during the years ended 2017 and 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 years ended 2017 and 2016 predominantly resulted from an increase in deposits and FHLBNY overnight advances, offset by the repayment of FHLBNY term advances and securities sold under agreements to repurchase.

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 and the Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under Basel III rules, the Corporation 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 was 1.250%. 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.

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 December 31, 2017 and 2016, the Corporation and the Bank met all capital adequacy requirements to which they were subject.

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

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

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	153,020	11.82	%	$	103,527	8.00	%	$	119,703	9.250	%	N/A		N/A
Bank	$	146,129	11.31	%	$	103,390	8.00	%	$	119,545	9.250	%	$	129,238	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	77,645	6.00	%	$	93,821	7.250	%	N/A		N/A
Bank	$	129,881	10.05	%	$	77,543	6.00	%	$	93,697	7.250	%	$	103,390	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	58,234	4.50	%	$	74,410	5.750	%	N/A		N/A
Bank	$	129,881	10.05	%	$	58,157	4.50	%	$	74,312	5.750	%	$	84,004	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	136,660	8.02	%	$	68,200	4.00	%	N/A		N/A		N/A		N/A
Bank	$	129,881	7.63	%	$	68,045	4.00	%	N/A		N/A		$	85,057	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
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 the current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above.  At December 31, 2017, the Bank could, without prior approval, declare dividends of approximately $13.8 million.

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Adoption of New Accounting Standards

For a discussion of the impact of recently issued accounting standards, please see Note 1 to the Corporation's consolidated financial statements which begins on page F-10.

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 years presented.  Actual results could be different from these estimates.

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

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

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages F-3 through F-9. 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 rules, although we are unable to state with certainty that the SEC would so regard them.

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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.

	As of or for the Years Ended
(in thousands, except ratio data)	December 31,			December 31,			December 31,
	2017			2016			2015
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT AND EFFICIENCY RATIO
Net interest income (GAAP)	$	56,987		$	52,329		$	50,642
Fully taxable equivalent adjustment	788			631			554
Fully taxable equivalent net interest income (non-GAAP)	$	57,775		$	52,960		$	51,196
Non-interest income (GAAP)	$	20,491		$	21,149		$	20,447
Less: net (gains) losses on security transactions	(109		)	(987		)	(372		)
Adjusted non-interest income (non-GAAP)	$	20,382		$	20,162		$	20,075
Non-interest expense (GAAP)	$	53,764		$	56,610		$	55,427
Less: amortization of intangible assets	(860		)	(986		)	(1,136		)
Less: legal accruals and settlements	(850		)	(1,200		)	—
Adjusted non-interest expense (non-GAAP)	$	52,054		$	54,424		$	54,291
Average interest-earning assets (GAAP)	$	1,623,948		$	1,571,513		$	1,477,529
Net interest margin - fully taxable equivalent (non-GAAP)	3.56		%	3.37		%	3.46		%
Efficiency ratio (non-GAAP)	66.60		%	74.43		%	76.18		%

Tangible Equity and Tangible Assets (Year-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 year-end.  These measures are meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s use of equity.

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	As of or for the Years Ended
(in thousands, except per share and ratio data)	December 31,			December 31,			December 31,
	2017			2016			2015
TANGIBLE EQUITY AND TANGIBLE ASSETS
(YEAR END)
Total shareholders' equity (GAAP)	$	149,813		$	143,748		$	137,242
Less: intangible assets	(23,909		)	(24,769		)	(25,755		)
Tangible equity (non-GAAP)	$	125,904		$	118,979		$	111,487
Total assets (GAAP)	$	1,707,620		$	1,657,179		$	1,619,926
Less: intangible assets	(23,909		)	(24,769		)	(25,755		)
Tangible assets (non-GAAP)	$	1,683,711		$	1,632,410		$	1,594,171
Total equity to total assets at end of year (GAAP)	8.77		%	8.67		%	8.47		%
Book value per share (GAAP)	$	31.10		$	30.07		$	28.96
Tangible equity to tangible assets at end of year (non-GAAP)	7.48		%	7.29		%	6.99		%
Tangible book value per share (non-GAAP)	$	26.14		$	24.89		$	23.53

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 year.  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 Years Ended
	December 31,			December 31,			December 31,
(in thousands, except ratio data)	2017			2016			2015
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP)	$	151,229		$	142,906		$	137,891
Less: average intangible assets	(24,327		)	(25,250		)	(26,308		)
Average tangible equity (non-GAAP)	$	126,902		$	117,656		$	111,583
Return on average equity (GAAP)	4.91		%	7.02		%	6.84		%
Return on average tangible equity (non-GAAP)	5.85		%	8.52		%	8.45		%

Adjustments for Certain Items of Income or Expense

In addition to disclosures of certain GAAP financial measures, including net income, EPS, ROA, and ROE, we may also provide comparative disclosures that adjust these GAAP financial measures for a particular year by removing from the calculation thereof the impact of certain transactions or other material items of income or expense occurring during the year, including certain nonrecurring items.  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 year 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.

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	As of or for the Years Ended
(in thousands, except per share and ratio data)	December 31,			December 31,			December 31,
	2017			2016			2015
CORE NET INCOME
Reported net income (loss) (GAAP)	$	7,430		$	10,027		$	9,433
Net (gains) losses on security transactions (net of tax)	(68		)	(614		)	(230		)
Legal accruals and settlements (net of tax)	528			747			—
Remeasurement of net deferred tax asset	2,927			—			—
Core net income (non-GAAP)	$	10,817		$	10,160		$	9,203
Average basic and diluted shares outstanding	4,800			4,762			4,719
Reported basic and diluted earnings (loss) per share (GAAP)	$	1.55		$	2.11		$	2.00
Reported return on average assets (GAAP)	0.43		%	0.60		%	0.60		%
Reported return on average equity (GAAP)	4.91		%	7.02		%	6.84		%
Core basic and diluted earnings per share (non-GAAP)	$	2.25		$	2.13		$	1.95
Core return on average assets (non-GAAP)	0.63		%	0.61		%	0.58		%
Core return on average equity (non-GAAP)	7.15		%	7.11		%	6.67		%

ITEM 7A.  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 interest-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 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 points change in interest rates, with appropriate floors set for interest-bearing liabilities.  At December 31, 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 9.35% and an immediate 200-basis point increase would negatively impact the next 12 months net interest income by 7.91%.  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 4.75% and 12.01%, respectively.

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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 December 31, 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 12.11% and an immediate 200-basis point increase in interest rates would negatively impact the market value by 3.48%.  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 5.61% and 5.49%, 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.

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in Part IV, Item 15 are filed as part of this report and appear on pages F-1 through F-68.

ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.

Item 9A.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of our Chief Executive Officer, who is the Corporation's principal executive officer, and our Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, evaluated the effectiveness of the Corporation's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2017.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer and Treasurer have concluded that the Corporation's disclosure controls and procedures are effective as of December 31, 2017.

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(b) Management's Report on Internal Control over Financial Reporting

We, as members of management of the Corporation, are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.  The Corporation's internal control over financial reporting is a process designed to provide reasonable assurance to the Corporation's management and Board of Directors regarding the reliability of financial reporting and the preparation of the Corporation's financial statements for external purposes in accordance with U.S. generally accepted accounting principles.  Internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Corporation, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures of the Corporation are being made only in accordance with authorizations of management and directors of the Corporation, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Corporation's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

As of December 31, 2017 management assessed the effectiveness of the Corporation's internal control over financial reporting based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  The objective of this assessment was to determine whether the Corporation's internal control over financial reporting was effective as of December 31, 2017. Based on the assessment, we assert that the Corporation maintained effective internal control over financial reporting as of December 31, 2017 based on the specified criteria.

Crowe Horwath LLP, an independent registered public accounting firm, which audited the Corporation's 2017 consolidated financial statements included in the Annual Report, has issued an audit report on the effectiveness of the Corporation's internal control over financial reporting.

(c) Changes in Internal Control over Financial Reporting

During the fourth quarter, there have been no changes in the Corporation’s internal control over financial reporting that have materially affected, or that are reasonably likely to material affect, the Corporation’s internal control over financial reporting.

/s/ Anders M. Tomson	/s/ Karl F. Krebs
Anders M. Tomson	Karl F. Krebs
President and Chief Executive Officer	Chief Financial Officer and Treasurer
March 8, 2018	March 8, 2018

Item 9B. OTHER INFORMATION

None.

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PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this Item 10 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2018 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2017 fiscal year end.

ITEM 11.  EXECUTIVE COMPENSATION

Information responsive to this Item 11 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2018 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2017 fiscal year end.

ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT, AND RELATED STOCKHOLDER MATTERS

Information responsive to this Item 12 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2018 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2017 fiscal year end.

ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information responsive to this Item 13 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2018 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2017 fiscal year end.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information responsive to this Item 14 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2018 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2017 fiscal year end.

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PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1)    The following consolidated financial statements of the Corporation appear on pages F-1 through F-68 of this report and are incorporated in Part II, Item 8:

Report of Independent Registered Public Accounting Firm-Crowe Horwath LLP

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Income for the three years ended December 31, 2017

Consolidated Statements of Comprehensive Income for the three years ended December 31, 2017

Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2017

Consolidated Statements of Cash Flows for the three years ended December 31, 2017

Notes to Consolidated Financial Statements

(2) Financial statement schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes thereto under Item 8, "Financial Statements and Supplementary Data".

(b)The following exhibits are either filed with this Form 10-K or are incorporated herein by reference.

The Corporation's Securities Exchange Act file number is 000-13888.

Exhibit	The following exhibits are either filed with this Form 10-K 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 29, 2017 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on January 3, 2018).
4.1	Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
10.1	Post-Employment Consulting Agreement dated December 20, 2017 between Chemung Canal Trust Company and Ronald M. Bentley, Director (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the SEC on December 22, 2017 and incorporated herein by reference).

71

10.2	Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the SEC on January 27, 2015 and incorporated herein by reference).
10.3	Change of Control Agreement dated September 1, 2015 between Chemung Canal Trust Company and Thomas W. Wirth, Executive Vice President (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on September 3, 2015 and incorporated herein by reference).
10.4	Change of Control Agreement dated January 19, 2011 between Chemung Canal Trust Company and Louis C. DiFabio, Executive Vice President (filed as Exhibit 10.12 to Registrant’s Form 10-K filed with the SEC on March 16, 2011 and incorporated herein by reference).
10.5	Change of Control Agreement dated August 28, 2015 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on September 1, 2015 and incorporated herein by reference).
10.6	Change of Control Agreement dated November 7, 2011 between Chemung Canal Trust Company and Karen R. Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.16 to Registrant’s Form 10-K on March 28, 2012 and incorporated herein by reference).
10.7	Change of Control Agreement dated October 16, 2013 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on October 17, 2013 and incorporated herein by reference).
10.8	Change of Control Agreement dated August 17, 2016 between Chemung Canal Trust Company and Kimberly A. Hazelton, Executive Vice President (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on August 17, 2016 and incorporated herein by reference).
10.9	Change of Control Agreement dated January 3, 2018 between Chemung Canal Trust Company and Daniel D. Fariello, President of Capital Bank Division (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on January 8, 2018 and incorporated herein by reference).
21.0	Subsidiaries of the Registrant.*
23.0	Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm.*
31.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
32.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 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.

ITEM 16.  10-K SUMMARY

None.

72

CHEMUNG FINANCIAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Pages F-1 to F-68

	Page
Report of Independent Registered Public Accounting Firm-Crowe Horwath LLP	F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2017 and 2016	F-3
Consolidated Statements of Income for the three years ended December 31, 2017	F-4
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2017	F-5
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2017	F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 2017	F-8
Notes to Consolidated Financial Statements	F-10

73

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Chemung Financial Corporation

Elmira, New York

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2017, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Chemung Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Basis for Opinions

The Company’s management is responsible for these financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting, as disclosed in Item 9A. Our responsibility is to express an opinion on these financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the financial statements included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

F-1

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Crowe Horwath LLP

We have served as the Company’s auditor since 2006.

Livingston, New Jersey

March 8, 2018

F-2

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	DECEMBER 31
(in thousands, except share and per share amounts)	2017			2016
ASSETS
Cash and due from financial institutions	$	27,966		$	28,205
Interest-earning deposits in other financial institutions	2,763			45,957
Total cash and cash equivalents	30,729			74,162
Trading assets, at fair value	988			774
Securities available for sale, at estimated fair value	293,627			303,402
Securities held to maturity, estimated fair value of $3,776 at   December 31, 2017 and $4,912 at December 31, 2016	3,781			4,705
FHLBNY and FRBNY Stock, at cost	5,784			4,041
Loans, net of deferred loan fees	1,311,824			1,200,290
Allowance for loan losses	(21,161		)	(14,253		)
Loans, net	1,290,663			1,186,037
Loans held for sale	542			412
Premises and equipment, net	26,657			28,923
Goodwill	21,824			21,824
Other intangible assets, net	2,085			2,945
Bank owned life insurance	2,982			2,912
Accrued interest and other assets	27,958			27,042
Total assets	$	1,707,620		$	1,657,179
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	467,610		$	417,812
Interest-bearing	999,836			1,038,531
Total deposits	1,467,446			1,456,343
FHLBNY overnight advances	57,700			—
Securities sold under agreements to repurchase	10,000			27,606
FHLBNY term advances	2,000			9,093
Long term capital lease obligation	4,517			4,722
Dividends payable	1,233			1,225
Accrued interest payable and other liabilities	14,911			14,442
Total liabilities	1,557,807			1,513,431
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized;   5,310,076 issued at December 31, 2017 and December 31, 2016	53			53
Additional-paid-in capital	45,967			45,603
Retained earnings	128,453			124,111
Treasury stock, at cost (559,094 shares at December 31, 2017; 597,843   shares at December 31, 2016)	(14,320		)	(15,265		)
Accumulated other comprehensive loss	(10,340		)	(10,754		)
Total shareholders' equity	149,813			143,748
Total liabilities and shareholders' equity	$	1,707,620		$	1,657,179

See accompanying notes to consolidated financial statements.

F-3

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	YEARS ENDED DECEMBER 31
(in thousands, except per share amounts)	2017		2016		2015
Interest and Dividend Income:
Loans, including fees	$	52,840	$	49,677	$	48,271
Taxable securities	5,503		5,239		4,958
Tax exempt securities	1,149		945		939
Interest-earning deposits	563		307		76
Total interest and dividend income	60,055		56,168		54,244
Interest Expense:
Deposits	2,168		2,170		2,003
Securities sold under agreements to repurchase	478		849		848
Borrowed funds	422		820		751
Total interest expense	3,068		3,839		3,602
Net interest income	56,987		52,329		50,642
Provision for loan losses	9,022		2,437		1,571
Net interest income after provision for loan losses	47,965		49,892		49,071
Non-Interest Income:
Wealth management group fee income	8,804		8,316		8,522
Service charges on deposit accounts	4,961		5,089		4,886
Interchange revenue from debit card transactions	3,761		4,027		3,307
Net gains on securities transactions	109		987		372
Net gain on sales of loans held for sale	260		326		294
Net gains on sales of other real estate owned	38		21		84
Income from bank owned life insurance	70		73		75
Other	2,488		2,310		2,907
Total non-interest income	20,491		21,149		20,447
Non-Interest Expenses:
Salaries and wages	21,476		20,954		21,223
Pension and other employee benefits	4,276		6,132		5,908
Net occupancy expenses	6,263		6,837		7,006
Furniture and equipment expenses	2,828		2,967		2,979
Data processing expense	6,539		6,593		6,586
Professional services	1,774		2,175		1,293
Legal accruals and settlements	850		1,200		—
Amortization of intangible assets	860		986		1,136
Marketing and advertising expense	794		877		899
Other real estate owned expenses	110		180		812
FDIC insurance	1,236		1,193		1,075
Loan expense	694		669		693
Other	6,064		5,847		5,817
Total non-interest expenses	53,764		56,610		55,427
Income before income tax expense	14,692		14,431		14,091
Income tax expense	7,262		4,404		4,658
Net income	$	7,430	$	10,027	$	9,433
Weighted average shares outstanding	4,800		4,762		4,719
Basic and diluted earnings per share	$	1.55	$	2.11	$	2.00

See accompanying notes to consolidated financial statements.

F-4

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	YEARS ENDED DECEMBER 31
(in thousands)	2017			2016			2015
Net income	$	7,430		$	10,027		$	9,433
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	2,523			(6,352		)	(2,472		)
Reclassification adjustment gains realized in net income	(109		)	(987		)	(372		)
Net unrealized gains (losses)	2,414			(7,339		)	(2,844		)
Tax effect	(904		)	2,773			1,094
Net of tax amount	1,510			(4,566		)	(1,750		)
Change in funded status of defined benefit pension plan and other   benefit plans:
Net gain (loss) arising during the period	1,001			5,369			(2,052		)
Reclassification adjustment for amortization of prior service costs	(220		)	(427		)	(90		)
Prior service credit	—			1,101			—
Reclassification adjustment for amortization of net actuarial loss	413			1,595			1,484
Total before tax effect	1,194			7,638			(658		)
Tax effect	(453		)	(2,884		)	251
Net of tax amount	741			4,754			(407		)
Total other comprehensive income (loss)	2,251			188			(2,157		)
Comprehensive income	$	9,681		$	10,215		$	7,276

See accompanying notes to consolidated financial statements.

F-5

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2015	$	53	$	45,355		$	114,383		$	(17,378	)	$	(8,785	)	$	133,628
Net income	—		—			9,433			—			—			9,433
Other comprehensive loss	—		—			—			—			(2,157		)	(2,157		)
Restricted stock awards	—		314			—			—			—			314
Distribution of 3,598 shares of treasury stock granted for directors’ deferred compensation plan	—		(89		)	—			92			—			3
Distribution of 7,628 shares of treasury stock granted for employee restricted stock awards, net	—		(195		)	—			195			—			—
Restricted stock units for directors' deferred compensation plan	—		95			—			—			—			95
Cash dividends declared ($1.04 per share)	—		—			(4,843		)	—			—			(4,843		)
Distribution of 9,673 shares of treasury stock for directors' compensation	—		24			—			247			—			271
Distribution of 3,303 shares of treasury stock for employee compensation	—		8			—			85			—			93
Sale of 16,209 shares of treasury stock	—		25			—			413			—			438
Repurchase of 1,184 shares of common stock	—		—			—			(33		)	—			(33		)
Balances at December 31, 2015	$	53	$	45,537		$	118,973		$	(16,379	)	$	(10,942	)	$	137,242
Net income	—		—			10,027			—			—			10,027
Other comprehensive income	—		—			—			—			188			188
Restricted stock awards	—		192			—			—			—			192
Distribution of 3,740 shares of treasury stock granted for directors’ deferred compensation plan	—		(92		)	—			95			—			3
Distribution of 8,249 shares of treasury stock granted for employee restricted stock awards, net	—		(212		)	—			212			—			—
Restricted stock units for directors' deferred compensation plan	—		97			—			—			—			97
Cash dividends declared ($1.04 per share)	—		—			(4,889		)	—			—			(4,889		)
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
Sale of 15,308 shares of treasury stock	—		47			—			391			—			438
Repurchase of 612 shares of common stock	—		—			—			(22		)	—			(22		)
Balances at December 31, 2016	$	53	$	45,603		$	124,111		$	(15,265	)	$	(10,754	)	$	143,748

(continued)

F-6

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balances at December 31, 2016	$	53	$	45,603		$	124,111		$	(15,265	)	$	(10,754	)	$	143,748
Net income	—		—			7,430			—			—			7,430
Other comprehensive income	—		—			—			—			2,251			2,251
Restricted stock awards	—		210			—			—			—			210
Distribution of 2,438 shares of treasury stock granted for directors’ deferred compensation plan	—		(51		)	—			62			—			11
Distribution of 10,161 shares of treasury stock granted for employee restricted stock awards, net	—		(260		)	—			260			—			—
Restricted stock units for directors' deferred compensation plan	—		98			—			—			—			98
Cash dividends declared ($1.04 per share)	—		—			(4,925		)	—			—			(4,925		)
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
Sale of 14,707 shares of treasury stock	—		206			—			376			—			582
Repurchase of 1,159 shares of common stock	—		—			—			(61		)	—			(61		)
Forfeiture of 1,139 shares of restricted stock awards	—		43			—			(43		)	—			—
Reclassification of stranded tax effects in AOCI	—		—			1,837			—			(1,837		)	—
Balances at December 31, 2017	$	53	$	45,967		$	128,453		$	(14,320	)	$	(10,340	)	$	149,813

See accompanying notes to consolidated financial statements.

F-7

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)	Years Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	2017			2016			2015
Net income	$	7,430		$	10,027		$	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	860			986			1,136
Deferred income tax (benefit) expense	4,251			(2,564		)	774
Provision for loan losses	9,022			2,437			1,571
(Gain) loss on disposal of fixed assets	29			—			(18		)
Depreciation and amortization of fixed assets	3,703			4,205			4,044
Amortization of premiums on securities, net	1,450			1,771			1,903
Gains on sales of loans held for sale, net	(260		)	(326		)	(294		)
Proceeds from sales of loans held for sale	9,722			15,498			13,669
Loans originated and held for sale	(9,592		)	(14,508		)	(13,786		)
Net (gains) losses on sale of other real estate owned	(38		)	(21		)	(84		)
Writedowns on OREO	43			7			390
Net (gains) losses on trading assets	(137		)	(76		)	2
Net gains on securities transactions	(109		)	(987		)	(372		)
Proceeds from sales of trading assets	20			99			16
Purchase of trading assets	(97		)	(96		)	(170		)
(Increase) decrease in other assets	636			(165		)	4,931
Increase (decrease) in accrued interest payable	(62		)	1			(28		)
Expense related to restricted stock units for directors' deferred compensation plan	98			97			95
Expense related to employee stock compensation	200			210			93
Expense related to employee restricted stock awards	210			192			314
Increase (decrease) in other liabilities	(3,664		)	5,427			(9,421		)
Income from bank owned life insurance	(70		)	(73		)	(75		)
Net cash provided by operating activities	23,645			22,141			14,123
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and calls of securities available for sale	6,656			51,128			73,823
Proceeds from maturities and principal collected on securities available for sale	45,498			78,160			48,601
Proceeds from maturities and principal collected on securities held to maturity	2,891			2,868			3,290
Purchases of securities available for sale	(41,306		)	(95,993		)	(191,112		)
Purchases of securities held to maturity	(1,967		)	(3,007		)	(2,025		)
Purchase of FHLBNY and FRBNY stock	(7,208		)	(5,458		)	(8,552		)
Redemption of FHLBNY and FRBNY stock	5,465			6,214			9,290
Proceeds from sales of fixed assets	16			—			18
Purchases of premises and equipment	(1,482		)	(1,696		)	(1,154		)
Proceeds from sale of other real estate owned	383			1,568			1,329
Net increase in loans	(115,588		)	(34,513		)	(48,156		)
Net cash used by investing activities	(106,642		)	(729		)	(114,648		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	36,847			78,021			166,045
Net decrease in time deposits	(25,744		)	(21,973		)	(45,764		)
Net decrease in securities sold under agreements to repurchase	(17,606		)	(847		)	(1,199		)
Net change in FHLBNY overnight advances	57,700			(13,900		)	(16,930		)
Repayments of FHLBNY long term advances	(7,093		)	(10,110		)	(107		)
Payments made on capital lease	(205		)	(186		)	(103		)
Sale of treasury stock	582			438			438
Cash dividends paid	(4,917		)	(4,878		)	(4,833		)
Net cash provided by financing activities	39,564			26,565			97,547
Net increase (decrease) in cash and cash equivalents	(43,433		)	47,977			(2,978		)
Cash and cash equivalents, beginning of period	74,162			26,185			29,163
Cash and cash equivalents, end of period	$	30,729		$	74,162		$	26,185

(Continued)

F-8

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2017			2016			2015
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	3,130		$	3,838		$	3,630
Income Taxes	$	4,050		$	4,360		$	7,047
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	$	1,940		$	412		$	100
Dividends declared, not yet paid	$	1,233		$	1,225		$	1,214
Assets acquired through long term capital lease obligation	$	—		$	2,035		$	—
Repurchase of common stock in lieu of employee payroll taxes	$	(61	)	$	(22	)	$	(33	)
Distribution of treasury stock for directors' deferred compensation plan	$	11		$	3		$	3
Distribution of treasury stock for directors' compensation	$	269		$	262		$	271

See accompanying notes to consolidated financial statements.

F-9

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2017, 2016 and 2015

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

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

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 consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Corporation and its subsidiaries.  All significant intercompany balances and transactions are eliminated in consolidation.

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.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and amounts due from banks and demand interest-bearing deposits with other financial institutions.

Time deposits with other financial institutions are classified as held-to-maturity securities and are not included in cash and cash equivalents.

TRADING ASSETS

Securities that are held to fund a non-qualified deferred compensation plan are recorded at fair value with changes in fair value and interest and dividend income included in earnings.

SECURITIES

Management determines the appropriate classification of securities at the time of purchase.  If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost.  Securities to be held for indefinite periods of time or not intended to be held to maturity are classified as available for sale and carried at fair value.  Unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported as accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until realized. Realized gains and losses are determined using the specific identification method.

F-10

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.  OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income is recognized when collected.

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

The Bank is a member of both the FHLBNY and the FRBNY.  FHLBNY members are required to own a certain amount of stock based on the level of borrowings and other factors, while FRBNY members are required to own a certain amount of stock based on a percentage of the Bank’s capital stock and surplus.  FHLBNY and FRBNY stock are carried at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate recovery of par value.  Cash dividends are reported as income.

LOANS

Loans are stated at the amount of unpaid principal balance net of deferred loan fees.  Additionally, recorded investment in loans includes interest receivable on loans.  The Corporation has the ability and intent to hold its loans for the foreseeable future.  The Corporation’s loan portfolio is comprised of the following segments: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Corporation’s market area in a diverse range of industries.  These loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  Commercial mortgage loans are generally non-owner occupied commercial properties or owner occupied commercial real estate with larger balances.  Repayment of these loans is often dependent upon the successful operation and management of the properties and the businesses occupying the properties, as well as on the collateral securing the loan.  Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from their employment and other income, but are secured by real property.  Consumer loans include home equity lines of credit and home equity loans, which exhibit many of the same characteristics as residential mortgages.  Indirect and other consumer loans are typically secured by depreciable assets, such as automobiles or boats, and are dependent on the borrower’s continuing financial stability.

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned 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.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

F-11

Purchased Credit Impaired Loans:

Loans acquired that show evidence of credit deterioration since origination are considered purchased credit impaired loans  These loans are recorded at the fair value of the amount paid, such that there is no carryover of the seller’s allowance for loan losses.

Such purchased loans are accounted for individually.  The Corporation estimates the amount and timing of expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield).  The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

After acquisition, losses are recognized by an increase in the allowance for loan losses.  Over the life of the loan expected cash flows continue to be estimated.  If the present value of expected cash flows is less than the carrying amount, a reserve is established.  If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.  These 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.

The Corporation did not acquire any purchase credit impaired loans during the years ended December 31, 2017 and 2016.

TROUBLED DEBT RESTRUCTURINGS

A TDR is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise.  Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs.  Restructured loans can convert from non-accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms and when, in the opinion of management, the Corporation expects to receive all of its contractual principal and interest due under the restructured terms.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio segment.

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 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 analyses of individually impaired loans.  Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, 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 nonaccrual 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.

F-12

The general component covers non-impaired loans and is based on historical loss experience adjusted for current 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.

LOANS HELD FOR SALE

Certain mortgage loans are originated with the intent to sell.  The Corporation typically retains the right to service the mortgages upon sale. Loans held for sale are recorded at the lower of cost or fair value in the aggregate and are regularly evaluated for changes in fair value.  Commitments to sell the loans that are originated for sale are recorded at fair value.  If necessary, a valuation allowance is established with a charge to income for unrealized losses attributable to a change in market rates.

CAPITAL LEASES

Capital leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term. Initially, the capital lease is recorded as a building asset, which is depreciated over the shorter of the term of the lease or the estimated life of the asset, and a corresponding long term lease obligation, which amortizes as payments are made toward the lease. Interest expense is also incurred using the discount rate determined at the beginning of the lease term.

PREMISES AND EQUIPMENT

Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture.  Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset. Leases of branch offices, which have been capitalized, are included within buildings and depreciated on the straight-line method over the shorter of the lease term or the estimated life of the asset.

BANK OWNED LIFE INSURANCE

BOLI is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.  Changes in the cash surrender value are recorded in other income.

OTHER REAL ESTATE

Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the property less estimated costs to dispose at the time of acquisition to establish a new carrying value.  Write downs from the carrying value of the loan to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses.  Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur.

F-13

INCOME TAXES

The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for unused tax loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.  The unaudited market value of trust assets under administration total $1.952 billion, including $346.8 million of assets held under management or administration for the Corporation, at December 31, 2017 and $1.721 billion, including $294.9 million of assets held under management or administration for the Corporation, at December 31, 2016.

POSTRETIREMENT BENEFITS

Pension Plan:

The Chemung Canal Trust Company Pension Plan is a non-contributory defined benefit pension plan.  The Pension Plan is a “qualified plan” under the IRS Code and therefore must be funded.  Contributions are deposited to the Plan and held in trust.  The Plan assets may only be used to pay retirement benefits and eligible plan expenses.  The plan was amended such that new employees hired on or after July 1, 2010 would not be eligible to participate in the plan, however, existing participants at that time would continue to accrue benefits.

Under the Plan, pension benefits are based upon final average annual compensation where the annual compensation is total base earnings paid plus 401(k) salary deferrals.  Bonuses, overtime, commissions and dividends are excluded.  The normal retirement benefit equals 1.2% of final average compensation (highest consecutive five years of annual compensation in the prior ten years) times years of service (up to a maximum of 25 years), plus 1% of average monthly compensation for each additional year of service (up to a maximum of 10 years), plus 0.65% of average monthly compensation in excess of covered compensation for each year of credited service up to 35 years.  Covered compensation is the average of the social security taxable wage base in effect for the 35 year period prior to normal social security retirement age.  Compensation for purposes of determining benefits under the Plan is reviewed annually.

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Defined Contribution Profit Sharing, Savings and Investment Plan:

The Corporation also sponsors a 401(K) defined contribution profit sharing, savings and investment plan which covers all eligible employees.  The Corporation contributes a non-discretionary 3% of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50% match up to 6% of gross annual wages. All contributions made on or after January 1, 2017 will vest immediately, while all previous contributions continue vesting on a five-year vesting schedule. The plan's assets consist of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.  The plan’s expense is the amount of non-discretionary and matching contributions and is charged to non-interest expenses in the consolidated statements of income.

F-14

Defined Benefit Health Care Plan:

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements.  This plan was amended effective July 1, 2006. Prior to this amendment, all retirees age 55 or older were eligible for coverage under the Corporation's self-insured health care plan, contributing 40% of the cost of the coverage. Under the amended plan, coverage for Medicare eligible retirees who reside in the Central New York geographic area is provided under a group sponsored plan with Excellus BlueCross BlueShield called Medicare Blue PPO, with the retiree paying 100% of the premium. Excellus BlueCross BlueShield assumes full liability for the payment of health care benefits incurred after July 1, 2006. Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self insurance plan through December 31, 2009, contributing 50% of the cost of coverage. Effective January 1, 2010, these out of area retirees were eligible for coverage under a Medicare Supplement Plan C administered by Excellus BlueCross BlueShield, contributing 50% of the premium. Current retirees between the ages of 55 and 65, will continue to be eligible for coverage under the Corporation's self insured plan, contributing 50% of the cost of the coverage. Employees who retired after July 1, 2006, and become Medicare eligible will only have access to the Medicare Blue PPO plan. Additionally, effective July 1, 2006, dental benefits were eliminated for all retirees.  The cost of the plan is based on actuarial computations of current and future benefits for employees, and is charged to non-interest expenses in the consolidated statements of income.

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Executive Supplemental Pension Plan:

U.S. laws place limitations on compensation amounts that may be included under the Pension Plan.  The Executive Supplemental Pension Plan was provided to executives in order to produce total retirement benefits, as a percentage of compensation that is comparable to employees whose compensation is not restricted by the annual compensation limit.  Pension amounts, which exceed the applicable Internal Revenue Service code limitations, will be paid under the Executive Supplemental Pension Plan.

The Executive Supplemental Pension Plan is a “non-qualified plan” under the Internal Revenue Service Code.  Contributions to the Plan are not held in trust; therefore, they may be subject to the claims of creditors in the event of bankruptcy or insolvency.  When payments come due under the Plan, cash is distributed from general assets. The cost of the plan is based on actuarial computations of current and future benefits for executives, and is charged to non-interest expense in the consolidated statements of income.

Defined Contribution Supplemental Executive Retirement Plan:

The Defined Contribution Supplemental Executive Retirement Plan is provided to certain executives to motivate and retain key management employees by providing a nonqualified retirement benefit that is payable at retirement, disability, death and certain other events.

The Supplemental Executive Retirement Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974.  The plan’s expense is the Corporation’s annual contribution plus interest credits.

F-15

STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Corporation or the Bank, with or without cause, or if the participant retires prior to attainment of age 65.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 13 for more information regarding this Plan.

Deferred Directors Fee Plan:

A Deferred Directors Fee Plan for non-employee directors provides that directors may elect to defer receipt of all or any part of their fees.  Deferrals are either credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments or converted to units, which appreciate or depreciate, as would an actual share of the Corporation’s common stock purchased on the deferral date.  Cash deferrals will be paid into an interest bearing account and paid in cash.  Units will be paid in shares of common stock.  All directors’ fees are charged to non-interest expenses in the consolidated statements of income.

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income.

Incentive Compensation Plan:

The purpose of the Incentive Compensation Plan is to attract and retain highly qualified officers and key employees, and to motivate such persons to serve the Corporation and the Bank and to expend maximum effort to improve the business results and earnings of the Corporation by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Corporation.  To this end, the Incentive Compensation Plan provides for the discretionary grant of cash and/or unrestricted stock, i.e., common stock of the Corporation that is free of any restrictions, such as restrictions on transferability, to select officers and key employees as designated by the Board of Directors in its sole discretion.  The maximum number of shares that can be awarded as unrestricted stock under the Incentive Compensation Plan to any individual is 10,000 per calendar year; and the maximum amount that may be earned in cash as an Incentive Award in any calendar year by any individual is $300,000.  The right of any eligible employee to receive a grant of an incentive award, whether in the form of cash or unrestricted stock, is subject to performance standards that are specified by either the Compensation Committee or the Board of Directors.  The cost of all cash and unrestricted stock compensation is charged to non-interest expenses in the consolidated statements of income.

F-16

Non-qualified Deferred Compensation Plan:

The Deferred Compensation Plan allows a select group of management and employees to defer all or a portion of their annual compensation to a future date.  Eligible employees are generally highly compensated employees and are designated by the Board of Directors from time to time.  Investments in the plan are recorded as trading assets and deferred amounts are an unfunded liability of the Corporation.  The plan requires deferral elections be made before the beginning of the calendar year during which the participant will perform the services to which the compensation relates. Participants in the Plan are required to elect a form of distribution, either lump sum payment or annual installments not to exceed ten years, and a time of distribution, either a specified age or a specified date. The terms and conditions for the deferral of compensation are subject to the provisions of 409A of the IRS Code.  The income from investments and cost of the plan are recorded as non-interest income and non-interest expenses, respectively, in the consolidated statements of income.

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2017.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $1.3 million, $0.4 million and $0.3 million, respectively, at December 31, 2017.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit and customer relationship intangibles related to the M&T branch offices, and Canton Bancorp, Inc. acquisitions are being amortized to expense using a 7.25 year accelerated method.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation enters into sales of securities under agreements to repurchase.  The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's securities portfolio.  The Corporation has agreed to repurchase securities identical to those sold.  The securities underlying the agreements are under the Corporation's control.

DERIVATIVES

The Corporation utilizes interest rate swaps with commercial borrowers and third-party counterparties as well as agreements with lead banks in participation loan relationships wherein the Corporation guarantees a portion of the fair value of an interest rate swap entered into by the lead bank. These transactions are accounted for as derivatives. The Company’s derivatives are entered into in connection with its asset and liability management activities and not for trading purposes.

The Company does not have any derivatives that are designated as hedges and therefore all derivatives are considered free standing and are recorded at fair value as derivative assets or liabilities on the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of income as non-interest income.

Premiums received when entering into derivative contracts are recognized as part of the fair value of the derivative asset or liability and are carried at fair value with any gain/loss at inception and any changes in fair value reflected in income.

F-17

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions. The Corporation had no pledge collateral to derivative counterparties as of December 31, 2017.

OTHER FINANCIAL INSTRUMENTS

The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused portions of lines of credit and commitments to fund new loans.  The Corporation's policy is to record such instruments when funded.

ADVERTISING COSTS

Costs for advertising products and services or for promoting our corporate image are expensed as incurred.

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 as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in the funded status of the Corporation’s defined benefit pension plan and other benefit plans, net of the related tax effect, which are also recognized as separate components of equity.

SEGMENT REPORTING

The Corporation has identified separate operating segments and internal financial information is primarily reported and aggregated in two lines of business, banking and wealth management services.

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, an amendment to Revenue from Contracts with Customers (Topic 606). The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial 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 requires 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 collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance as of January 1, 2018 using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank.

F-18

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 adopted all provisions of this ASU as of January 1, 2018. The ASU did not have a material impact on its consolidated financial statements, as the Corporation's equity investment portfolio is less than $3.0 million as of December 31, 2017. 

In February 2016, the FASB issued ASU No. 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 $10.0 million for the Corporation's 15 leased facilities and a related capital obligation of the same amount as of January 1, 2019.

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 years 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 and has selected a vendor to assist in the implementation process. In 2018 the committee plans to begin establishing parameters which will be used in the CECL model with the selected vendor. The Corporation further plans to run its current incurred loss model and a CECL model concurrently for twelve 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 will not 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.

F-19

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 will not 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.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income as of December 31, 2017. The objective of the ASU is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act passed in December 2017. Adoption of the ASU eliminates the stranded tax effects within accumulated other comprehensive income resulting from the revaluation of the net deferred tax asset. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted for public business entities for reporting period for which financial statements have not yet been issued. The Corporation adopted this ASU as of December 31, 2017 and reclassified $1.8 million from accumulated other comprehensive income to retained earnings, relating to its early adoption of the ASU.

(2)RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Corporation was in compliance with the reserve requirement with the Federal Reserve Bank of New York as of December 31, 2017.

The Corporation also maintains a pre-funded settlement account with a financial institution in the amount of $1.4 million for electronic funds transaction settlement purposes at December 31, 2017 and 2016.

The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program. The account serves as collateral in the event of default on the interest rate swaps with the counterparties. There was no collateral held in the account as of December 31, 2017. The collateral held at the financial institution was $0.5 million as of December 31, 2016.

F-20

(3)SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	15,491	$	17,300	$	17,455
Mortgage-backed securities, residential	224,939		219,909		253,156		245,866
Obligations of states and political subdivisions	52,928		53,132		38,843		38,740
Corporate bonds and notes	249		251		249		250
SBA loan pools	4,339		4,308		568		570
Corporate stocks	265		536		285		521
Total	$	298,212	$	293,627	$	310,401	$	303,402

Gross unrealized gains and losses on securities available for sale at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	20	$	21	$	155	$	—
Mortgage-backed securities, residential	136		5,166		202		7,492
Obligations of states and political subdivisions	355		151		209		312
Corporate bonds and notes	2		—		1		—
SBA loan pools	1		32		3		1
Corporate stocks	271		—		236		—
Total	$	785	$	5,370	$	806	$	7,805

The amortized cost and estimated fair value of debt securities available for sale are shown below by contractual 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):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	16,998	$	16,990
After one, but within five years	21,048		21,074
After five, but within ten years	12,700		12,746
After ten years	17,923		18,064
Mortgage-backed securities, residential	224,939		219,909
SBA loan pools	4,339		4,308
Total	$	297,947	$	293,091

Actual maturities may differ from contractual maturities above because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

F-21

The proceeds from sales and calls of securities resulting in gains or losses are listed below (in thousands):

	2017		2016			2015
Proceeds	$	5,576	$	40,413		$	72,718
Gross gains	$	109	$	989		$	410
Gross losses	$	—	$	(2	)	$	(38	)
Tax expense	$	41	$	373		$	142

Amortized cost and estimated fair value of securities held to maturity at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	1,946	$	3,725	$	3,931
Time deposits with other financial institutions	1,835		1,830		980		981
	$	3,781	$	3,776	$	4,705	$	4,912

Gross unrealized gains and losses on securities held to maturity at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	206	$	—
Time deposits with other financial institutions	—		5		1		—
Total	$	—	$	5	$	207	$	—

There were no sales of securities held to maturity in 2017 or 2016.

The contractual maturity of securities held to maturity is as follows at December 31, 2017 (in thousands):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	988	$	986
After one, but within five years	2,560		2,557
After five, but within ten years	233		233
After ten years	—		—
Total	$	3,781	$	3,776

F-22

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

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2017
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,982	$	21	$	—	$	—	$	14,982	$	21
Mortgage-backed securities, residential	$	83,562	$	1,013	$	131,165	$	4,153	$	214,727	$	5,166
Obligations of states and political subdivisions	20,526		133		271		18		20,797		151
SBA loan pools	3,937		32		—		—		3,937		32
Total temporarily impaired securities	$	123,007	$	1,199	$	131,436	$	4,171	$	254,443	$	5,370

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2016
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 December 31, 2017, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities. At December 31, 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 the Corporation does not have the intent to sell these securities and it is not likely that it 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 December 31, 2017.

The Corporation's unrealized losses on securities held to maturity related to certificates of deposits. At December 31, 2017, all of the unrealized losses related to certificates of deposit within other financial institutions and were under the FDIC insurance limit of $250,000. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to see these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2017.

Pledged Securities

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $231.6 million at December 31, 2017 and $191.0 million at December 31, 2016.

F-23

The table below shows the securities pledged to secure securities sold under agreements to repurchase at December 31, 2017 and 2016 (in thousands):

	2017				2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. Government and U. S. Government sponsored enterprises	$	—	$	—	$	1,231	$	1,276
Mortgage-backed securities, residential	12,082		11,798		37,769		37,000
Total	$	12,082	$	11,798	$	39,000	$	38,276

Concentrations

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2017 or 2016.

Equity Method Investments

The Corporation has an equity investment in Cephas Capital Partners, L.P.  This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas. As of both December 31, 2017 and 2016, these investments totaled $0.4 million, are included in other assets, and are accounted for under the equity method of accounting.

(4)LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	December 31, 2017		December 31, 2016
Commercial and agricultural:
Commercial and industrial	$	198,463	$	176,201
Agricultural	544		360
Commercial mortgages:
Construction	45,558		46,387
Commercial mortgages	598,772		522,269
Residential mortgages	194,440		198,493
Consumer loans:
Credit cards	1,517		1,476
Home equity lines and loans	100,591		98,590
Indirect consumer loans	153,060		139,572
Direct consumer loans	18,879		16,942
Total loans, net of deferred loan fees	1,311,824		1,200,290
Interest receivable on loans	3,758		3,192
Total recorded investment in loans	$	1,315,582	$	1,203,482

Residential mortgages held for sale as of December 31, 2017 and 2016 totaling $0.5 million and $0.4 million, respectively, are not included in the above table.

Residential mortgages totaling $149.7 million at December 31, 2017 and $158.0 million at December 31, 2016 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

F-24

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):

	December 31, 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		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net (charge offs) recoveries	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

	December 31, 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:	(217		)	(911		)	(65		)	(1,637		)	(2,830		)
Recoveries:	92			10			—			284			386
Net recoveries (charge offs)	(125		)	(901		)	(65		)	(1,353		)	(2,444		)
Provision	(117		)	1,059			124			1,371			2,437
Ending balance	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253

	December 31, 2015
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,460		$	6,326		$	1,572		$	4,328		$	13,686
Charge Offs:	(186		)	(104		)	(47		)	(1,294		)	(1,631		)
Recoveries:	96			131			—			407			634
Net recoveries (charge offs)	(90		)	27			(47		)	(887		)	(997		)
Provision	461			759			(61		)	412			1,571
Ending balance	$	1,831		$	7,112		$	1,464		$	3,853		$	14,260

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 December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 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	$	5,135	$	802	$	—	$	—	$	5,937
Collectively evaluated for impairment	1,841		7,683		1,316		4,355		15,195
Loans acquired with deteriorated credit quality	—		29		—		—		29
Total ending allowance balance	$	6,976	$	8,514	$	1,316	$	4,355	$	21,161

F-25

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

	December 31, 2017
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,133	$	7,302	$	427	$	64	$	13,926
Loans collectively evaluated for impairment	193,443		638,080		194,510		274,831		1,300,864
Loans acquired with deteriorated credit quality	—		792		—		—		792
Total ending loans balance	$	199,576	$	646,174	$	194,937	$	274,895	$	1,315,582

	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

F-26

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2017 and December 31, 2016, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2017, 2016 and 2015 (in thousands):

	December 31, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	861	$	867	$	—	$	690	$	693	$	—
Commercial mortgages:
Construction	364		365		—		277		278		—
Commercial mortgages	4,135		4,138		—		8,792		7,857		—
Residential mortgages	450		427		—		395		396		—
Consumer loans:
Home equity lines and loans	64		64		—		93		95		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,231		5,266		5,135		—		—		—
Commercial mortgages:
Commercial mortgages	2,989		2,799		802		2,245		2,247		735
Consumer loans:
Home equity lines and loans	—		—		—		360		360		141
Total	$	14,094	$	13,926	$	5,937	$	12,852	$	11,926	$	876

	December 31, 2017				December 31, 2016				December 31, 2015
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	706	$	35	$	1,010	$	42	$	1,358	$	64
Commercial mortgages:
Construction	830		12		320		14		992		36
Commercial mortgages	5,606		78		6,793		240		7,728		264
Residential mortgages	418		8		366		5		244		4
Consumer loans:
Home equity lines & loans	74		3		102		5		396		6
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,170		6		33		—		146		3
Commercial mortgages:
Commercial mortgages	3,751		12		4,749		6		4,503		49
Consumer loans:
Home equity lines and loans	144		—		362		—		84		18
Total	$	12,699	$	154	$	13,735	$	312	$	15,451	$	444

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

F-27

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 December 31, 2017 and December 31, 2016 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2017		2016		2017		2016
Commercial and agricultural:
Commercial and industrial	$	5,250	$	—	$	5	$	2
Commercial mortgages:
Construction	135		19		—		—
Commercial mortgages	6,520		5,454		—		—
Residential mortgages	3,160		4,201		—		—
Consumer loans:
Credit cards	—		—		24		11
Home equity lines and loans	1,310		1,670		—		—
Indirect consumer loans	935		654		—		—
Direct consumer loans	14		45		—		—
Total	$	17,324	$	12,043	$	29	$	13

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

	December 31, 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	$	1,689	$	999	$	20	$	2,708	$	—	$	196,322	$	199,030
Agricultural	—		—		—		—		—		546		546
Commercial mortgages:
Construction	—		—		—		—		—		45,688		45,688
Commercial mortgages	2,399		115		748		3,262		792		596,432		600,486
Residential mortgages	1,399		939		1,474		3,812		—		191,125		194,937
Consumer loans:
Credit cards	17		9		24		50		—		1,466		1,516
Home equity lines and loans	265		31		983		1,279		—		99,599		100,878
Indirect consumer loans	1,822		484		581		2,887		—		150,645		153,532
Direct consumer loans	48		28		2		78		—		18,891		18,969
Total	$	7,639	$	2,605	$	3,832	$	14,076	$	792	$	1,300,714	$	1,315,582

F-28

	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	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 December 31, 2017, 2016 and 2015, the Corporation has a recorded investment in TDRs of $7.7 million, $10.2 million, and $12.0 million, respectively.  There were specific reserves of $0.7 million allocated for TDRs at December 31, 2017, and $0.9 million allocated for December 31, 2016, and $1.4 million allocated for December 31, 2015.  As of December 31, 2017, TDRs totaling $1.7 million were accruing interest under the modified terms and $6.0 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.  As of December 31, 2015, TDRs totaling $7.6 million were accruing interest under the modified terms and $4.4 million were on non-accrual status.  The Corporation has committed no additional amounts as of December 31, 2017 or 2016, to customers with outstanding loans that are classified as TDRs. The Corporation committed additional amounts totaling up to $0.1 million as of December 31, 2015 to customers with outstanding loans that are classified as TDRs.

During the years ended December 31, 2017, 2016 and 2015, the terms of certain loans were modified as TDRs. During the year ended December 31, 2017, the modification of the terms of two commercial & industrial loans 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. Additionally, the modification of the terms of two commercial & industrial term loans and one line of credit 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 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 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 loan.

F-29

The modification of the terms of a residential mortgage loan during the year ended December 31, 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. Also, $8 thousand of closing costs were capitalized on the restructured loan. Additionally, the modification of the terms of five commercial real estate loans and one residential home equity loan 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. Also the modification of the terms of a residential mortgage loan 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 modification of the terms of another commercial real estate loan included a postponement or reduction of the scheduled amortized payments of the loan for greater than a 3 month period and a partial release of collateral due to a sale of property after which the bank received part of the proceeds to bring the loan current and reduce the principal balance with the remainder of the proceeds used to pay delinquent taxes. This results in a reduction in outstanding principal of $97 thousand at the time of restructuring.

The modification of the terms of such commercial loans performed during the year ended December 31, 2015 included renewing a line of credit and extending the maturity date at a rate lower than the current market rate, decreases of scheduled amortization payments for five loans and reductions of interest rates for two loans.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2017, 2016 and 2015 (in thousands):

December 31, 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

The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge offs during the year ended December 31, 2017.

December 31, 2016	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	6	$	485	$	388
Residential mortgages	2	295		307
Consumer loans:
Home equity lines and loans	1	74		74
Total	9	$	854	$	769

The TDRs described above did not increase the allowance for loan losses and resulted in no charge offs during the year ended December 31, 2016.

F-30

December 31, 2015	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	477	$	477
Commercial mortgages:
Commercial mortgages	5	2,810		2,810
Total	6	$	3,287	$	3,287

The TDRs described above increased the allowance for loan losses by $1.1 million and resulted in no charge offs during the year ended December 31, 2015.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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 year ended December 31, 2017:

December 31, 2017	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	1	$	164
Total	1	$	164

There were no payment defaults on any loans previously modified as troubled debt restructurings during the year ended December 31, 2016, within twelve months following the modification.

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 year ended December 31, 2015:

December 31, 2015	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	2	$	1,877
Total	2	$	1,877

The TDRs that subsequently defaulted described above did not increase the allowance for loan losses and resulted in no charge offs during the year ended December 31, 2015.

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 their debt and affirm the risk ratings for the loans at least annually.

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

F-31

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 as 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.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2017 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2017
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	186,556	$	—	$	4,447	$	6,605	$	1,422	$	199,030
Agricultural	—		546		—		—		—		—		546
Commercial mortgages:
Construction	—		45,553		—		—		135		—		45,688
Commercial mortgages	—		575,321		792		9,665		13,331		1,377		600,486
Residential mortgages	191,777		—		—		—		3,160		—		194,937
Consumer loans
Credit cards	1,516		—		—		—		—		—		1,516
Home equity lines and loans	99,568		—		—		—		1,310		—		100,878
Indirect consumer loans	152,598		—		—		—		934		—		153,532
Direct consumer loans	18,955		—		—		—		14		—		18,969
Total	$	464,414	$	807,976	$	792	$	14,112	$	25,489	$	2,799	$	1,315,582

F-32

	December 31, 2016
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		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		1,323		8,574		15,566		1,460		523,646
Residential mortgages	194,669		—		95		—		4,201		—		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	$	1,418	$	11,110	$	24,848	$	1,460	$	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.  Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 2017
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,777	$	1,516	$	99,568	$	152,598	$	18,955
Non-Performing	3,160		—		1,310		934		14
Total	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

	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
Total	$	198,965	$	1,476	$	98,853	$	139,993	$	17,012

F-33

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 tables below summarize 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, 2015 to December 31, 2017 (in thousands):

	Balance at December 31, 2016			Income Accretion		All Other Adjustments			Balance at December 31, 2017
Contractually required principal and interest	$	1,940		$	—	$	(988	)	$	952
Contractual cash flows not expected to be collected (non accretable discount)	(352		)	—		286			(66		)
Cash flows expected to be collected	1,588			—		(702		)	886
Interest component of expected cash flows (accretable yield)	(170		)	61		15			(94		)
Recorded investment in loans acquired with deteriorating credit quality	$	1,418		$	61	$	(687	)	$	792

	Balance at December 31, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2016
Contractually required principal and interest	$	2,912		$	—	$	(972	)	$	1,940
Contractual cash flows not expected to be collected (non accretable discount)	(506		)	—		154			(352		)
Cash flows expected to be collected	2,406			—		(818		)	1,588
Interest component of expected cash flows (accretable yield)	(311		)	112		29			(170		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,095		$	112	$	(789	)	$	1,418

	Balance at January 1, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2015
Contractually required principal and interest	$	3,621		$	—	$	(709	)	$	2,912
Contractual cash flows not expected to be collected (non accretable discount)	(570		)	—		64			(506		)
Cash flows expected to be collected	3,051			—		(645		)	2,406
Interest component of expected cash flows (accretable yield)	(420		)	174		(65		)	(311		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,631		$	174	$	(710	)	$	2,095

For those purchased credit impaired loans disclosed above, the Corporation decreased the allowance for loan losses by $55 thousand and $15 thousand during the year ended December 31, 2017 and 2016 respectively. The Corporation increased the allowance for loan losses by $5 thousand during the year ended December 31, 2015. For those purchased credit impaired loans disclosed above, the Corporation reversed $30 thousand of the allowance for loan losses during the year ended December 31, 2017 and did not reverse any allowance for loans losses during the years ended December 31, 2016 and 2015, respectively.

F-34

(5)    PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Land	$	4,803	$	4,803
Buildings	41,045		40,831
Projects in progress	357		—
Equipment and furniture	37,545		37,072
Leasehold improvements	5,465		5,445
	89,215		88,151
Less accumulated depreciation and amortization	62,558		59,228
Net book value	$	26,657	$	28,923

Depreciation expense was $3.7 million, $4.2 million and $4.0 million for 2017, 2016, and 2015, respectively.

Operating Leases

The Corporation leases certain branch properties under operating leases.  Rent expense was $1.2 million, $1.2 million and $1.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.  Rent commitments, before considering renewal options that generally are present, were as follows (in thousands):

Year	Estimated Expense
2018	$	1,121
2019	902
2020	737
2021	732
2022	732
2023 and thereafter	4,369
Total	$	8,593

Capital Leases

The Corporation leases certain buildings under capital leases.  The lease arrangements require monthly payments through 2036.

The Corporation has included these leases in premises and equipment as follows:

	2017			2016
Buildings	$	5,572		$	5,572
Accumulated depreciation	(874		)	(540		)
Net book value	$	4,698		$	5,032

F-35

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2017 (in thousands):

Year	Amount
2018	$	367
2019	367
2020	376
2021	388
2022	391
2023 and thereafter	4,031
Total minimum lease payments	5,920
Less amount representing interest	1,403
Present value of net minimum lease payments	$	4,517

(6)GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the years ended December 31, 2017 and 2016 were as follows (in thousands):

	2017		2016
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

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

	At December 31, 2017				At December 31, 2016
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,196	$	5,975	$	4,689
Other customer relationship intangibles	5,633		4,327		5,633		3,974
Total	$	11,608	$	9,523	$	11,608	$	8,663

Aggregate amortization expense was $0.9 million, $1.0 million, and $1.1 million for 2017, 2016 and 2015, respectively.

The remaining estimated aggregate amortization expense at December 31, 2017 is listed below (in thousands):

Year	Estimated Expense
2018	$	734
2019	609
2020	484
2021	258
Total	$	2,085

F-36

(7)    DEPOSITS

A summary of deposits at December 31, 2017 and 2016 is as follows (in thousands):

	2017		2016
Non-interest-bearing demand deposits	$	467,610	$	417,812
Interest-bearing demand deposits	149,026		136,826
Insured money market accounts	513,782		548,963
Savings deposits	218,666		208,636
Time deposits	118,362		144,106
Total	$	1,467,446	$	1,456,343

Scheduled maturities of time deposits at December 31, 2017, are summarized as follows (in thousands):

Year	Maturities
2018	$	80,180
2019	20,475
2020	7,952
2021	2,658
2022	4,049
2023	3,048
Total	$	118,362

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2017 and 2016 were $8.9 million and $14.1 million, respectively.

(8)SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Repurchase agreements are secured borrowings. The Corporation pledges investment securities to secure these borrowings. A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):

	2017			2016			2015
Balance at December 31	$	10,000		$	27,606		$	28,453
Maximum month-end balance	$	25,718		$	30,497		$	32,145
Average balance during year	$	14,207		$	29,120		$	30,236
Weighted-average interest rate at December 31	3.72		%	3.02		%	2.93		%
Average interest rate paid during year	3.37		%	2.92		%	2.80		%

F-37

The contractual maturity of securities sold under agreements to repurchase by collateral pledged as of December 31, 2017 and 2016 is as follows (in thousands):

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—		$	—	$	—	$	—
Mortgage-backed securities, residential	—		11,798			—		—		11,798
Total	—		11,798			—		—		11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
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. See Note 3 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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.

(9)FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

The following is a summary of FHLBNY fixed rate advances at December 31, 2017 and 2016.  The carrying amount includes the advance balance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

2017
Amount		Rate		Maturity Date	Call Date
$	57,700	1.53	%	January 2, 2018	-
2,000		3.05	%	January 2, 2018	-
$	59,700	1.58	%

F-38

2016
Amount		Rate		Maturity Date	Call Date
$	4,041	3.90	%	October 19, 2017	January 19, 2017
3,031		2.91	%	December 4, 2017	March 3, 2017
2,021		3.05	%	January 2, 2018	April 1, 2017
$	9,093	3.38	%

Each advance is payable at its maturity date, with a prepayment penalty for term advances.  The Corporation has pledged $149.7 million and $158.0 million of first mortgage loans under a blanket lien arrangement at December 31, 2017 and 2016, respectively, as collateral for theses advances and future borrowings.  Based on this collateral and the Corporation’s holdings of FHLBNY stock, the Corporation is eligible to borrow up to a total of $73.5 million at year-end 2017.

Payments over the next five years are as follows:

Year	Amount
2018	$	59,700
2019	—
2020	—
2021	—
2022	—
Total	$	59,700

(10)DERIVATIVES

As part of the Corporation's product offerings, the Corporation acts as an interest rate swap counterparty for certain commercial borrowers in the normal course of servicing our customers. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets. The Corporation manages its exposure to such interest rate swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the interest rate swaps it has with the commercial borrowers. These positions directly offset each other and the Corporation's exposure is the fair value of the derivatives due to potential changes in credit risk of our commercial borrowers and third parties. The Corporation also enters into risk participation agreements with dealer banks on commercial loans in which it participates. The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap associated with the commercial loan in which it is a participant and the fee received is recognized immediately in other non-interest income. The Corporation is exposed to its share of the credit loss equal to the fair value of the interest rate swap in the event of nonperformance by the counterparty of the interest rate swap. The Corporation determines the fair value of the credit loss exposure using an estimated credit default rate based on the historical performance of similar assets.

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At December 31, 2017, the Corporation held derivatives not designated as hedging instruments with a total notional amount of $93.8 million. Derivatives not designated as hedging instruments included back-to-back interest rate swaps of $73.4 million, consisting of $36.7 million of interest rate swaps with commercial borrowers and an additional $36.7 million of offsetting interest rate swaps with third-party counter-parties on substantially the same terms, and risk participation agreements with dealer banks of $20.4 million. Free-standing derivatives are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded in other non-interest income.

F-39

The following table presents information regarding our derivative financial instruments, at December 31:

2017	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	7	$	36,675	8.3	4.40	%	4.17	%	$	(974	)
Interest rate swap agreements with third-party counter-parties	7	36,675		8.3	4.17	%	4.40	%	974
Risk participation agreements	6	20,427		17.7					(75		)
Total	20	$	93,777						$	(75	)

2016	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	5	$	18,378	7.9	4.05	%	3.36	%	$	(693	)
Interest rate swap agreements with third-party counter-parties	5	18,378		7.9	3.36	%	4.05	%	693
Risk participation agreements	5	15,401		23.5					(68		)
	15	$	52,157						$	(68	)

2015	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	1	$	1,934	5.9	4.33	%	3.02	%	$	15
Interest rate swap agreements with third-party counter-parties	1	$	1,934	5.9	3.02	%	4.33	%	$	(16	)
Risk participation agreements	4	$	10,528	26.2					$	(47	)
	6	$	14,396						$	(48	)

Off-balance sheet exposure for the risk participation agreements was $1.3 million for December 31, 2017 and 2016, respectively.

F-40

Amounts included in the Consolidated Statements of Income related to derivatives not designated as hedging were as follows:

	Years Ended December 31,
	2017			2016			2015
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized gain (loss) recognized in non-interest income	$	(281	)	$	(708	)	$	15
Interest rate swap agreements with third-party counter-parties:
Unrealized gain (loss) recognized in non-interest income	281			709			(16		)
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(7		)	(21		)	(29		)
Unrealized gain (loss) recognized in non-interest income	$	(7	)	$	(20	)	$	(30	)

(11)INCOME TAXES

For the years ended December 31, 2017, 2016 and 2015, income tax expense attributable to income from operations consisted of the following (in thousands):

	2017		2016			2015
Current expense:
Federal	$	2,594	$	6,330		$	3,668
State	417		638			216
Total current	3,011		6,968			3,884
Deferred expense/(benefit):
Federal	942		(2,177		)	595
State	382		(387		)	179
Remeasurement of deferred tax assets	2,927		—			—
Total deferred	4,251		(2,564		)	774
Income tax expense	$	7,262	$	4,404		$	4,658

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):

	2017			2016			2015
Statutory federal tax rate	34		%	34		%	34		%
Tax computed at statutory rate	$	5,006		$	4,907		$	4,791
Increase (reduction) resulting from:
Tax-exempt income	(663		)	(511		)	(441		)
831(b) premium adjustment	(269		)	(368		)	—
Dividend exclusion	(8		)	(5		)	(41		)
State taxes, net of Federal impact	201			165			238
Nondeductible interest expense	8			9			8
Remeasurement of deferred tax assets	2,927			—			—
Other items, net	60			207			103
Income tax expense	$	7,262		$	4,404		$	4,658
Effective tax rate	49.4		%	30.5		%	33.1		%

F-41

The higher tax expense in 2017 when compared to 2016 is the result of $2.9 million of additional tax expense to estimate the remeasurement of deferred tax assets due to the lowering of the federal corporate tax rate to 21%. On December 22, 2017, the Tax Act was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Corporation has recorded $2.9 million for the remeasurement of the Corporation's deferred tax assets.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, are presented below (in thousands):

	2017		2016
Deferred tax assets:
Allowance for loan losses	$	5,396	$	5,405
Accrual for employee benefit plans	186		337
Depreciation	86		2,119
Deferred compensation and directors' fees	872		1,195
Purchase accounting adjustment – deposits	7		21
Purchase accounting adjustment – loans	35		44
Purchase accounting adjustment – fixed assets	149		221
Gain on deemed sale of securities	567		798
Net unrealized losses on securities available for sale	1,169		2,643
Accounting for defined benefit pension and other benefit plans	2,370		4,091
Nonaccrued interest	544		944
Accrued expense	868		854
Other items, net	160		286
Total gross deferred tax assets	12,409		18,958
Deferred tax liabilities:
Deferred loan fees and costs	676		940
Prepaid pension	3,023		3,956
Discount accretion	239		342
Core deposit intangible	1,026		1,460
REIT dividend	844		—
Other	101		152
Total gross deferred tax liabilities	5,909		6,850
Net deferred tax asset	$	6,500	$	12,108

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the loss carryback period. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized.  In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax assets, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible.  Based on its assessment, management determined that no valuation allowance is necessary.

As of December 31, 2017, 2016 and 2015, the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes.  As of December 31, 2017, 2016 and 2015, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2014 and for New York State taxing authorities for the years prior to 2014.

F-42

(12)    PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

The Corporation has a noncontributory defined benefit pension plan covering a majority of employees.  The plan's defined benefit formula generally based payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment.

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.  On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits.

The Corporation uses a December 31 measurement date for its pension plan.

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	39,791		$	43,797
Service cost	—			1,047
Interest cost	1,646			1,883
Actuarial (gain) loss	2,634			913
Curtailments	—			(6,161		)
Benefits paid	(1,831		)	(1,688		)
Benefit obligation at end of year	$	42,240		$	39,791

Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	41,560		$	39,951
Actual return on plan assets	6,943			3,297
Employer contributions	—			—
Benefits paid	(1,831		)	(1,688		)
Fair value of plan assets at end of year	$	46,672		$	41,560
Funded status	$	4,432		$	1,769

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	9,356	$	10,788
Prior service cost	—		—
Total before tax effects	$	9,356	$	10,788

The accumulated benefit obligation at December 31, 2017 and 2016 was $42.2 million and $39.8 million, respectively.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

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Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2017, 2016 and 2015 consist of the following (in thousands):

Net periodic benefit cost	2017			2016			2015
Service cost, benefits earned during the year	$	—		$	1,047		$	1,231
Interest cost on projected benefit obligation	1,646			1,883			1,806
Expected return on plan assets	(3,144		)	(3,019		)	(3,287		)
Amortization of net loss	267			1,549			1,414
Amortization of  prior service cost	—			7			7
Net periodic cost (benefit)	$	(1,231	)	$	1,467		$	1,171

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	(1,165	)	$	(5,526	)	$	1,888
Recognized loss	(267		)	(1,549		)	(1,414		)
Amortization of prior service cost	—			(7		)	(7		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	(1,432	)	$	(7,082	)	$	467
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(2,663	)	$	(5,615	)	$	1,638

During 2017, the plan's total unrecognized net loss decreased by $1.4 million.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the projected benefit obligation or 10% of the plan assets, and the plan is frozen, the excess will be amortized over the average future life expectancy of all plan participants. Prior to the plan freeze on December 31, 2016, the excess had been amortized over the average future working lifetime of all plan participants. As of January 1, 2017, the average expected future life expectancy of all participants which was 27.79 years. Actual results for 2018 will depend on the 2018 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	174
Prior service cost recognition	$	—

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Expected long-term rate of return on assets	7.75	%	7.75	%	7.75	%
Assumed rate of future compensation increase	N/A		5.00	%	5.00	%

The Corporation changes important assumptions whenever changing conditions warrant.  At December 31, 2017, the Corporation used IRS Static 2018 Mortality Table as a basis for the Plan's valuation. At December 31, 2016, the Corporation used Retirement Plan 2014 (RP-2014) and Mortality Improvement Scale 2016 (MP-2016) as a basis for the Plan's valuation. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years, or as conditions warrant.  Other material assumptions include the compensation increase rates, rates of employee terminations, and rates of participant mortality.

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The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types.  The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds.  Other investments may consist of mutual funds, money market funds and cash & cash equivalents.  While no significant changes in the asset allocations are expected during 2018, the Corporation may make changes at any time.

The expected return on plan assets was determined based on a CAPM using historical and expected future returns of the various asset classes, reflecting the target allocations described below.

Asset Class	Target Allocation 2017	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2017		2016
Large cap domestic equities	30% - 60%	40	%	57	%	10.3	%
Mid-cap domestic equities	0% - 20%	6	%	5	%	10.6	%
Small-cap domestic equities	0% - 15%	7	%	2	%	10.8	%
International equities	0% - 25%	13	%	7	%	10.3	%
Intermediate fixed income	20% - 50%	29	%	26	%	4.7	%
Alternative assets	0% - 10%	—	%	—	%	7.5	%
Cash	0% - 20%	5	%	3	%	2.5	%
Total		100	%	100	%

The investment policy of the plan is to provide for long-term growth of principal and income without undue exposure to risk.  The focus is on long-term capital appreciation and income generation. The Corporation maintains an IPS that guides the investment allocation in the plan.  The IPS describes the target asset allocation positions as shown in the table above.

The Corporation has appointed an Employee Pension and Profit Sharing Committee to manage the general philosophy, objectives and process of the plan. The Employee Pension and Profit Sharing Committee meets with the Investment Manager periodically to review the plan's performance and to ensure that the current investment allocation is within the guidelines set forth in the IPS.  Only the Employee Pension and Profit Sharing Committee, in consultation with the Investment Manager, can make adjustments to maintain target ranges and for any permanent changes to the IPS.  Quarterly, the Board of Directors' Trust and Employee Benefits Committee reviews the performance of the plan with the Investment Manager.

As of December 31, 2017 and 2016, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument held by the pension plan:

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.  The fair value hierarchy described below requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  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).

Discounted cash flows are calculated using spread and optionality.  During times when trading is more liquid, broker quotes are used (if available) to validate the model.  Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

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The fair value of the plan assets at December 31, 2017 and 2016, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2017 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,066	$	2,066	$	—	$	—
Equity securities:
U.S. companies	20,865		20,865		—		—
International companies	—		—		—		—
Mutual funds	19,253		19,253		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,217		—		2,217		—
U.S. Corporate bonds	2,271		—		2,271		—
Total plan assets	$	46,672	$	42,184	$	4,488	$	—

			Fair Value Measurement at December 31, 2016 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	1,324	$	1,324	$	—	$	—
Equity securities:
U.S. companies	19,972		19,972		—		—
International companies	847		847		—		—
Mutual funds	14,680		14,680		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,218		—		2,218		—
U.S. Corporate bonds	2,519		—		2,519		—
Total plan assets	$	41,560	$	36,823	$	4,737	$	—

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The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the pension plan (in thousands):

Calendar Year	Future Expected Benefit Payments
2018	$	2,200
2019	$	2,244
2020	$	2,270
2021	$	2,301
2022	$	2,326
2023-2027	$	11,829

The Corporation does not expect to contribute to the plan during 2018.  Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes the Corporation may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Defined Contribution Profit Sharing, Savings and Investment Plan

On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1,000 hours of service requirement to participate in employer contributions.  Beginning on January 1, 2017  the Bank began contributing a non-discretionary 3% of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010.  Additionally, beginning January 1, 2017 the Bank began contributing a 50% match up to 6% of gross annual wages.

Expense related to both plans totaled $1,160 thousand, $609 thousand, and $639 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.  The plan's assets at December 31, 2017, 2016 and 2015 include 155,336, 174,957, and 169,398 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.

Defined Benefit Health Care Plan

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the defined benefit health care plan disclosures as of December 31, 2017 and 2016.

The Corporation uses a December 31 measurement date for its defined benefit health care plan.

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Changes in accumulated postretirement benefit obligation:	2017			2016
Accumulated postretirement benefit obligation - beginning of year	$	423		$	1,664
Service cost	—			43
Interest cost	20			66
Participant contributions	76			87
Amendments	—			(1,101		)
Actuarial (gain) loss	98			138
Benefits paid	(176		)	(474		)
Accumulated postretirement benefit obligation at end of year	$	441		$	423

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Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	100			387
Plan participants’ contributions	76			87
Benefits paid	(176		)	(474		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(441	)	$	(423	)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017			2016
Net actuarial loss	$	592		$	636
Prior service credit	(881		)	(1,101		)
Total before tax effects	$	(289	)	$	(465	)

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Health care cost trend: Initial	6.50	%	6.50	%	7.00	%
Health care cost trend: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate cost trend reached	2021		2020		2019

The components of net periodic postretirement benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic cost (benefit)	2017			2016			2015
Service cost	$	—		$	43		$	46
Interest cost	20			66			70
Amortization of prior service benefit	(220		)	(97		)	(97		)
Recognized actuarial loss	143			20			20
Recognized prior service benefit due to curtailments	—			(337		)	—
Net periodic postretirement cost (benefit)	$	(57	)	$	(305	)	$	39

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2017			2016			2015
Net actuarial gain	$	98		$	139		$	216
Recognized actuarial loss	(143		)	(20		)	(20		)
Prior service credit	—			(1,101		)	—
Amortization of  prior service benefit	220			434			97
Total recognized in other comprehensive income (loss)(before tax effect)	$	175		$	(548	)	$	293
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	118		$	(853	)	$	332

During 2017 the plan's total unrecognized net loss decreased by $45 thousand.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants.  As of January 1, 2017, the average future life expectancy of all plan participants was 5.0 years.  Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees. Actual results for 2018 will depend on the 2018 actuarial valuation of the plan.

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Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	110
Prior service cost recognition	$	(220	)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan.  A one-percentage point change in assumed health care cost trend rates would have the following effects (in thousands):

Effect of a 1% increase in health care trend rate on:	2017		2016		2015
Benefit obligation	$	5	$	2	$	3
Total service and interest cost	$	—	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2017			2016			2015
Benefit obligation	$	(6	)	$	(3	)	$	(3	)
Total service and interest cost	$	—		$	—		$	—

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Health care cost trend: Initial	6.50	%	7.00	%	7.00	%
Health care cost tread: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate reached	2020		2019		2018

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	139
2019	$	111
2020	$	59
2021	$	38
2022	$	28
2023-2027	$	77

The Corporation’s policy is to contribute the amount required to fund postretirement benefits as they become due to retirees.  The amount expected to be required in contributions to the plan during 2018 is $139 thousand.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code.  The benefits under this plan are unfunded as of December 31, 2017 and 2016.

The Corporation uses a December 31 measurement date for its Executive Supplemental Pension Plan.

The following table presents Executive Supplemental Pension plan status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	1,248		$	1,210
Service cost	—			43
Interest cost	50			51
Actuarial (gain) loss	66			19
Benefits paid	(75		)	(75		)
Projected benefit obligation at end of year	$	1,289		$	1,248

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Changes in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	75			75
Benefits paid	(75		)	(75		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,289	)	$	(1,248	)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	228	$	165
Prior service cost	—		—
Total before tax effects	$	228	$	165

Accumulated benefit obligation at December 31, 2017 and 2016 was $1.3 million.

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

The components of net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic benefit cost	2017		2016		2015
Service cost	$	—	$	43	$	44
Interest cost	50		51		49
Recognized actuarial loss	3		26		50
Net periodic postretirement benefit cost	$	53	$	120	$	143

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	66		$	18		$	(52	)
Recognized actuarial loss	(3		)	(26		)	(50		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	63		$	(8	)	$	(102	)
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	116		$	112		$	41

During 2017, the plan's total unrecognized net loss increased by $64 thousand. Because the unrecognized net gain or loss exceeds the greater of 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future life expectancy of all participants. Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants. As of January 1, 2018, the average future life expectancy of plan participants was 14.20 years.

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Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	7
Prior service cost recognition	$	—

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Salary scale	N/A		N/A		5.00	%

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the Supplemental Pension Plan (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	109
2019	$	107
2020	$	106
2021	$	104
2022	$	101
2023-2027	$	456

The Corporation expects to contribute $110 thousand to the plan during 2018. Corporation contributions are equal to the benefit payments to plan participants.

Defined Contribution Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012.  The plan is unfunded as of December 31, 2017 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events.  The accrued obligation for the plan as of December 31, 2017 and 2016 was $872 thousand and $1,043 thousand, respectively.  A total of $279 thousand, $262 thousand, and $231 thousand was expensed during the years ended December 31, 2017, 2016, and 2015, respectively.  In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will equal the average yield on five year U.S. Treasury Notes.

(13)    STOCK COMPENSATION

Board of Director’s 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 of Directors 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 of Directors members not employed by the Corporation who have served for 12 months during the prior year.

During January 2018, 2017, and 2016, 6,015, 7,880 and 9,532 shares, respectively, were re-issued from treasury to fund the stock component of the directors' and the Chief Executive Officer’s compensation.  An expense of $301 thousand, $269 thousand and $262 thousand related to this compensation was recognized during the years ended December 31, 2017, 2016 and 2015, respectively.  This expense is accrued as shares are earned.

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Restricted Stock Plan

Pursuant to the Corporation’s Restricted Stock Plan (the “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 as of December 31, 2017, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2016	23,794		$	29.90
Granted	10,161		49.74
Vested	(7,294	)	29.15
Forfeited or Cancelled	(1,139	)	29.97
Nonvested at December 31, 2017	25,522		$	38.01

As of December 31, 2017, there was $955 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 4.06 years.  The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 were $382 thousand, $193 thousand and $314 thousand, respectively.

(14)    RELATED PARTY TRANSACTIONS

Members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners (more than 10% interest) or board members, were customers of, and had loans and other transactions with the Corporation.  These loans are summarized as follows for the years ended December 31, 2017 and 2016 (in thousands):

	2017			2016
Balance at beginning of year	$	35,469		$	36,911
New loans or additional advances	6,872			5,742
Repayments	(3,188		)	(7,184		)
Balance at end of year	$	39,153		$	35,469

Deposits from principal officers, directors, and their affiliates at year-end 2017 and 2016 were $11.3 million and $10.3 million, respectively.

The Bank leased its branch located at 7 Southside Drive, Clifton Park, New York under a month to month lease from a member of the Corporation's Board of Directors with a monthly rent expense totaling $4 thousand. In April 2016, the Bank moved its Clifton Park branch to 25 Park Avenue, Clifton Park, New York under a lease agreement through March 2036 from the same member of the Corporation's Board of Directors with monthly lease payments of $11 thousand. In October 2016, the property was sold to an unrelated third party, from which the Bank continues to lease the property. The Bank also leases from this Board of Directors member its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through August 2019 with monthly rent expense totaling $4 thousand per month. Annual rent paid to this Board of Directors member totaled $51 thousand, $169 thousand, and $90 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

The Bank utilized legal services from a local law firm in which a member of the Board of Directors is a principal owner. Services totaled $17 thousand, $36 thousand, and $88 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

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The Bank leases its branch located at 127 Court Street, Binghamton, New York under a lease agreement through June 2030 with monthly lease payments of $5 thousand. The lease originated with an entity in whom the employer of a Director of the Corporation had a twenty percent interest. In July 2017, the employer of the Director sold its interest in the property to an unrelated third party from which the Bank continues to lease the property. Annual rent paid to the leasing entity while there was a related party interest totaled $79 thousand and $62 thousand for the years ended December 31, 2017 and 2016, respectively.  The Bank sold a $2.0 million loan participation and a $1.9 million loan participation to the same employer of a Director of the Corporation during the years ended December 31, 2017 and 2016, respectively. There were no similar transactions for the year ended December 31, 2015. As of December 31, 2017 and 2016, the Bank had outstanding loan participations with the same employer of a Director of the Corporation in the amount of $6.6 million and $4.7 million.  CFS offers insurance products to its customers through the same employer of a Director of the Corporation. CFS earned income of less than $1 thousand related to these insurance products during the year ended December 31, 2017. CFS earned income of $2 thousand related to these insurance products for the year ended December 31, 2016. There were no similar transactions for the years ended December 31, 2015. The Bank purchased insurance products from the same employer of a Director of the Corporation in the amount of $34 thousand during the year ended December 31, 2017. There were no similar transactions for the years ended December 31, 2016 and December 31, 2015.

WMG provided trust services to members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners or board members. WMG fee income for the trust services provided totaled $332 thousand, $328 thousand, and $904 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

(15)    COMMITMENTS AND CONTINGENCIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.  These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.  Commitments may expire without being used.  Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated.  The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows (in thousands):

	2017				2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	16,019	$	28,591	$	38,246	$	33,189
Unused lines of credit	$	1,604	$	200,353	$	610	$	208,124
Standby letters of credit	$	—	$	15,022	$	—	$	14,241

Commitments to make real estate and home equity loans are generally made for periods of sixty days or less.  As of December 31, 2017, the fixed rate commitments to make loans have interest rates ranging from 3.38% to 5.88% and maturities ranging from five years to thirty years.  Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months.  As of December 31, 2017, the fixed rate commitments have interest rates ranging from 4.25% to 5.50%.

Because many commitments and almost all standby letters of credit expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows.  Loan commitments and unused lines of credit have off-balance sheet credit risk because only origination fees are recognized on the consolidated balance sheet until commitments are fulfilled or expire.  The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and collateral or other security is of no value.  The Corporation does not anticipate losses as a result of these transactions.  These commitments also have off-balance sheet interest rate risk in that the interest rate at which these commitments were made may not be at market rates on the date the commitments are fulfilled.

F-53

The Corporation has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships.  The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers.  Contingent obligations under standby letters of credit totaled $15.0 million at December 31, 2017 and represent the maximum potential future payments the Corporation could be required to make.  Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments.  Corporation policies governing loan collateral apply to standby letters of credit at the time of credit extension.  The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2017 was not significant.

On March 26, 2015, the New York Surrogate’s Court for Chemung County entered an order approving two stipulations that discontinued litigation against the WMG of the Bank and approved settlements of the litigations. Under the terms of the settlements, the Bank agreed to pay the two parties $12.1 million, in total. Payments for the two settlements, offset by $7.9 million of insurance proceeds, occurred during the second quarter of 2015. The Bank established a $4.3 million legal reserve in connection with this case during the third quarter of 2014.

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, a branch location which the Bank had vacated. 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. The Bank has denied that it breached the contract. 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, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York 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 was filed and denied during the fourth quarter of 2017.

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, the Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity.

F-54

(16)    PARENT COMPANY FINANCIAL INFORMATION

Condensed parent company only financial statement information of Chemung Financial Corporation is as follows (investment in subsidiaries is recorded using the equity method of accounting) (in thousands):

BALANCE SHEETS - DECEMBER 31	2017		2016
Assets:
Cash on deposit with subsidiary bank	$	3,017	$	2,336
Investment in subsidiary - Chemung Canal Trust Company	142,884		138,469
Investment in subsidiary - CFS Group, Inc.	904		946
Investment in subsidiary - Chemung Risk Management, Inc.	1,624		833
Dividends receivable from subsidiary bank	1,233		1,225
Securities available for sale, at estimated fair value	420		386
Other assets	1,039		825
Total assets	$	151,121	$	145,020
Liabilities and shareholders' equity:
Dividends payable	$	1,233	$	1,225
Other liabilities	75		47
Total liabilities	1,308		1,272
Shareholders' equity:
Total shareholders' equity	149,813		143,748
Total liabilities and shareholders' equity	$	151,121	$	145,020

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2017			2016			2015
Dividends from subsidiary bank	$	4,926		$	4,889		$	2,424
Interest and dividend income	10			9			9
Non-interest income	22			—			—
Non-interest expenses	433			526			270
Income before impact of subsidiaries' undistributed earnings	4,525			4,372			2,163
Equity in undistributed earnings of Chemung Canal Trust Company	1,939			4,856			7,015
Equity in undistributed earnings of CFS Group, Inc.	(42		)	(48		)	86
Equity in undistributed earnings of Chemung Risk Management, Inc.	791			583			—
Income before income tax	7,213			9,763			9,264
Income tax benefit	(217		)	(264		)	(169		)
Net Income	$	7,430		$	10,027		$	9,433

F-55

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2017			2016			2015
Cash flows from operating activities:
Net Income	$	7,430		$	10,027		$	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(1,939		)	(4,856		)	(7,015		)
Equity in undistributed earnings of CFS Group, Inc.	42			48			(86		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	(791		)	(583		)	—
Change in dividend receivable	(8		)	(11		)	(10		)
Change in other assets	(214		)	82			222
Change in other liabilities	51			(203		)	(23		)
Expense related to employee stock compensation	200			210			93
Expense related to restricted stock units for directors' deferred compensation plan	98			97			95
Expense to employee restricted stock awards	210			192			314
Net cash provided by operating activities	5,079			5,003			3,023
Cash flow from financing activities:
Cash dividends paid	(4,919		)	(4,878		)	(4,833		)
Purchase of treasury stock	(61		)	(22		)	(33		)
Sale of treasury stock	582			438			438
Net cash used in financing activities	(4,398		)	(4,462		)	(4,428		)
Increase (decrease) in cash and cash equivalents	681			541			(1,405		)
Cash and cash equivalents at beginning of year	2,336			1,795			3,200
Cash and cash equivalents at end of year	$	3,017		$	2,336		$	1,795

(17)    FAIR VALUES

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:

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).

F-56

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.

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.

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 credit risk participations are based on credit default rate assumptions (Level 3 inputs).

F-57

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

			Fair Value Measurement at December 31, 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	$	15,491	$	—	$	15,491	$	—
Mortgage-backed securities, residential	219,909		—		219,909		—
Obligations of states and political subdivisions	53,132		—		53,132		—
Corporate bonds and notes	251		—		251		—
SBA loan pools	4,308		—		4,308		—
Corporate stocks	536		204		332		—
Total available for sale securities	$	293,627	$	204	$	293,423	$	—
Trading assets	$	988	$	988	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

			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

F-58

There were no transfers between Level 1 and Level 2 during the twelve month period ending December 31, 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 year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes					Derivative Liabilities
(in thousands)	2017			2016		2017			2016
Balance of recurring Level 3 assets at January 1	$	250		$	248	$	(68	)	$	(48	)
Derivative instruments entered into	—			—		(5		)	(25		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—			—		(2		)	5
Included in other comprehensive income	1			2		—			—
Transfers out of Level 3	(251		)	—		—			—
Balance of recurring Level 3 assets at December 31	$	—		$	250	$	(75	)	$	(68	)

As of December 31, 2017, one corporate bond was transferred from Level 3 and into Level 2 due to the availability of pricing in secondary markets.

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

Description	Fair Value at December 31, 2017		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Derivative liabilities	$	75	Historical trend	Credit default rate	5.67% - 5.67% [5.67%]

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%]

F-59

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

			Fair Value Measurement at December 31, 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)		Total Gains (Losses)
Impaired Loans:
Commercial and agricultural:
Commercial and industrial	$	96	$	—	$	—	$	96	$	(70	)
Commercial mortgages:
Commercial mortgages	411		—		—		411		(105		)
Total impaired loans	$	507	$	—	$	—	$	507	$	(175	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	1,483	$	—	$	—	$	1,483	$	(43	)
Residential mortgages	382		—		—		382		—
Consumer loans:
Home equity lines and loans	75		—		—		75		—
Total other real estate owned, net	$	1,940	$	—	$	—	$	1,940	$	(43	)

			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)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	2,631	$	—	$	—	$	2,631	$	8
Consumer loans:
Home equity lines and loans	219		—		—		219		(65		)
Total impaired loans	$	2,850	$	—	$	—	$	2,850	$	(57	)
Other real estate owned:
Residential mortgages	$	344	$	—	$	—	$	344	$	(7	)
Total other real estate owned, net	$	344	$	—	$	—	$	344	$	(7	)

F-60

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2017 and 2016 (in thousands):

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	96	Sales comparison	Discount to appraised value	0.00% - 36.07% [33.02%]
Commercial mortgages:
Commercial mortgages	411		Sales comparison	Discount to appraised value	10.00% - 89.98% [51.35%]
	$	507
OREO:
Commercial and agricultural:
Commercial and industrial	$	1,483	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.75%]
Residential mortgages	382		Sales comparison	Discount to appraised value	17.28% - 27.97% [20.77%]
Consumer loans:
Home equity lines and loans	75		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	1,940

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2016
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	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

F-61

FAIR VALUE OF FINANCIAL INSTRUMENTS

The following methods and assumptions were used to estimate the fair value of each class of financial instruments:

Cash, Due From 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, and time deposits are classified as Level 2.

FHLB and FRB Stock

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

Loans Receivable

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 are classified as Level 2.

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 fair value in the aggregate.  Loans held for sale 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 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.

Commitments to Extend Credit

The fair value of commitments to extend credit is based on fees currently charged to enter into similar agreements, the counter-party's credit standing and discounted cash flow analysis.  The fair value of these commitments to extend credit approximates the recorded amounts of the related fees and is not material at December 31, 2017 and 2016.

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.

F-62

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

			Fair Value Measurements at December 31, 2017 Using
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	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Trading assets	988		988		—		—		988
Securities available for sale	293,627		204		293,423		—		293,627
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,290,663		—		—		1,289,584		1,289,584
Loans held for sale	542		—		542		—		542
Accrued interest receivable	4,642		1		867		3,774		4,642
Derivative assets	974		—		974		—		974
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,349,084	$	1,349,084	$	—	$	—	$	1,349,084
Time deposits	118,362		—		118,598		—		118,598
Securities sold under agreements to repurchase	10,000		—		10,058		—		10,058
FHLBNY overnight advances	57,700		—		57,700		—		57,700
FHLBNY term advances	2,000		—		2,001		—		2,001
Accrued interest payable	148		24		124		—		148
Derivative liabilities	1,049		—		974		75		1,049

(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.

F-63

			Fair Value Measurements at December 31, 2016 Using
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.

(18)REGULATORY CAPITAL REQUIREMENTS

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 Corporation must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by 2019. The capital conservation buffer for 2017 is 1.250%. and for 2016 is 0.625%. 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 December 31, 2017, the Corporation and the Bank meet all capital adequacy requirements to which they are subject.

F-64

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. At December 31, 2017 and 2016, the most recent regulatory notifications categorized the Corporation and the Bank as well categorized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

As of December 31, 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 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 the 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.  During 2018, the Bank could, without prior approval, declare dividends of approximately $13.8 million plus any 2018 net income retained to the date of the dividend declaration.

The actual capital amounts and ratios of the Corporation and the Bank are presented in the following tables (in thousands):

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	153,020	11.82	%	$	103,527	8.00	%	$	119,703	9.250	%	N/A		N/A
Bank	$	146,129	11.31	%	$	103,390	8.00	%	$	119,545	9.250	%	$	129,238	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	77,645	6.00	%	$	93,821	7.250	%	N/A		N/A
Bank	$	129,881	10.05	%	$	77,543	6.00	%	$	93,697	7.250	%	$	103,390	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	58,234	4.50	%	$	74,410	5.750	%	N/A		N/A
Bank	$	129,881	10.05	%	$	58,157	4.50	%	$	74,312	5.750	%	$	84,004	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	136,660	8.02	%	$	68,200	4.00	%	N/A		N/A		N/A		N/A
Bank	$	129,881	7.63	%	$	68,045	4.00	%	N/A		N/A		$	85,057	5.00	%

F-65

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
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	%

(19)    ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

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

The following is a summary of the changes in accumulated other comprehensive income or 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 December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive income	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)
Other comprehensive income (loss) before reclassification	(3,952		)	3,341			(611		)
Amounts reclassified from accumulated other comprehensive income (loss)	(614		)	1,413			799
Net current period other comprehensive income (loss)	(4,566		)	4,754			188
Balance at December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)

F-66

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2015	$	1,960		$	(10,745	)	$	(8,785	)
Other comprehensive income (loss) before reclassification	(1,520		)	(1,268		)	(2,788		)
Amounts reclassified from accumulated other comprehensive income (loss)	(230		)	861			631
Net current period other comprehensive loss	(1,750		)	(407		)	(2,157		)
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2017			2016			2015
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	(109	)	$	(987	)	$	(372	)	Net gains on securities transactions
Tax effect	41			373			142			Income tax expense
Net of tax	(68		)	(614		)	(230		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	674			(90		)	Pension and other employee benefits
Actuarial losses (a)	413			1,595			1,484			Pension and other employee benefits
Tax effect	(74		)	(856		)	(533		)	Income tax expense
Net of tax	119			1,413			861
Total reclassification for the period, net of tax	$	51		$	799		$	631

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 12 for additional information).

(20)    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. 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.  The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands). CRM was formed during the second quarter of 2016, therefore, is not included within the year ended December 31, 2015 results.

F-67

Year ended December 31, 2017	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,224		8,805		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,234		3,141		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,951	$	1,950	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

Year ended December 31, 2016	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	56,159	$	—	$	9		$	56,168
Interest expense	3,839		—		—			3,839
Net interest income	52,320		—		$	9		52,329
Provision for loan losses	2,437		—		—			2,437
Net interest income after provision for loan losses	49,883		—		9			49,892
Non-interest income	12,318		8,316		515			21,149
Non-interest expenses	49,783		5,676		1,151			56,610
Income before income tax expense	12,418		2,640		(627		)	14,431
Income tax expense (benefit)	3,693		997		(286		)	4,404
Segment net income (loss)	$	8,725	$	1,643	$	(341	)	$	10,027
Segment assets	$	1,650,100	$	4,586	$	2,493		$	1,657,179

Year ended December 31, 2015	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	54,240	$	—	$	4		$	54,244
Interest expense	3,602		—		—			3,602
Net interest income	50,638		—		4			50,642
Provision for loan losses	1,571		—		—			1,571
Net interest income after provision for loan losses	49,067		—		4			49,071
Non-interest income	11,019		8,522		906			20,447
Non-interest expenses	48,882		5,517		1,028			55,427
Income (loss) before income tax expense	11,204		3,005		(118		)	14,091
Income tax expense (benefit)	3,620		1,149		(111		)	4,658
Segment net income (loss)	$	7,584	$	1,856	$	(7	)	$	9,433
Segment assets	$	1,614,481	$	4,282	$	1,201		$	1,619,964

F-68

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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: MARCH 8, 2018	By: /s/ Anders M. Tomson
	Anders M. Tomson, President and Chief Executive Officer (Principal Executive Officer)

DATED: MARCH 8, 2018	By: /s/ Karl F. Krebs
	Karl F. Krebs, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been executed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Larry H. Becker	Director	March 8, 2018
Larry H. Becker
/s/ Ronald M. Bentley	Director	March 8, 2018
Ronald M. Bentley
/s/ Bruce W. Boyea	Director	March 8, 2018
Bruce W. Boyea
/s/ David J. Dalrymple	Director and Chairman of the Board of Directors	March 8, 2018
David J. Dalrymple
/s/ Robert H. Dalrymple	Director	March 8, 2018
Robert H. Dalrymple
/s/ Clover M. Drinkwater	Director	March 8, 2018
Clover M. Drinkwater
/s/ Stephen M. Lounsberry, III	Director	March 8, 2018
Stephen M. Lounsberry, III
/s/ John F. Potter	Director	March 8, 2018
John F. Potter

74

(signature’s continued)

Signature	Title	Date
/s/ Richard W. Swan	Director	March 8, 2018
Richard W. Swan
/s/ G. Thomas Tranter, Jr.	Director	March 8, 2018
G. Thomas Tranter, Jr.
/s/ Kevin B. Tully	Director	March 8, 2018
Kevin B. Tully
/s/ Thomas R. Tyrrell	Director	March 8, 2018
Thomas R. Tyrrell
/s/ Anders M. Tomson	Chief Executive Officer and President	March 8, 2018
Anders M. Tomson
/s/ Karl F. Krebs	Chief Financial Officer and Treasurer	March 8, 2018
Karl F. Krebs

75

EXHIBIT INDEX

Exhibit	The following exhibits are either filed with this Form 10-K 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 29, 2017 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on January 3, 2018).
4.1	Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
10.1	Post-Employment Consulting Agreement dated December 20, 2017 between Chemung Canal Trust Company and Ronald M. Bentley, Director (filed as Exhibit 10.1 to Registrant's Form 8-K filed with the SEC on December 22, 2017 and incorporated herein by reference).
10.2	Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the SEC on January 27, 2015 and incorporated herein by reference).
10.3	Change of Control Agreement dated September 1, 2015 between Chemung Canal Trust Company and Thomas W. Wirth, Executive Vice President (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on September 3, 2015 and incorporated herein by reference).
10.4	Change of Control Agreement dated January 19, 2011 between Chemung Canal Trust Company and Louis C. DiFabio, Executive Vice President (filed as Exhibit 10.12 to Registrant’s Form 10-K filed with the SEC on March 16, 2011 and incorporated herein by reference).
10.5	Change of Control Agreement dated August 28, 2015 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on September 1, 2015 and incorporated herein by reference).
10.6	Change of Control Agreement dated November 7, 2011 between Chemung Canal Trust Company and Karen R. Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.16 to Registrant’s Form 10-K on March 28, 2012 and incorporated herein by reference).
10.7	Change of Control Agreement dated October 16, 2013 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on October 17, 2013 and incorporated herein by reference).
10.8	Change of Control Agreement dated August 17, 2016 between Chemung Canal Trust Company and Kimberly A. Hazelton, Executive Vice President (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on August 17, 2016 and incorporated herein by reference).
10.9	Change of Control Agreement dated January 3, 2018 between Chemung Canal Trust Company and Daniel D. Fariello, President of Capital Bank Division (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on January 8, 2018 and incorporated herein by reference).
21	Subsidiaries of the Registrant.*
23	Consent of Crowe Horwath LLP, Independent Registered Public Accounting Firm.*
31.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
32.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 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-21

EXHIBIT 21

CHEMUNG FINANCIAL CORPORATION

Subsidiary List

Name	State of Incorporation
Chemung Canal Trust Company	New York
CFS Group, Inc.	New York
Chemung Risk Management, Inc.	Nevada

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statement on Form S-8 (File No. 333-104663 and 333-201715), Form S-3 (File No. 333-185400) and registration statement on Form S-4 (File No. 333-171504) of Chemung Financial Corporation of our report dated March 8, 2018, related to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Chemung Financial Corporation for the year ended December 31, 2017.

/s/ Crowe Horwath LLP

Livingston, New Jersey

March 8, 2018

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRESIDENT AND CHIEF 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-K 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(s) 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:  March 8, 2018

By:         /s/ Anders M. Tomson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER AND TREASURER 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-K 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(s) 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:  March 8, 2018

By:/s/ Karl F. Krebs

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 19 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 Annual Report on Form 10-K of the Corporation for the period ended December 31, 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; 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

March 8, 2018

EX-32.2

EXHIBIT 32.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER AND TREASURER OF CHEMUNG FINANCIAL CORPORATION PURSUANT TO RULE 13a-14(b) UNDER THE SECURITIES EXCHANGE ACT OF 1934 AND 19 U.S.C. §1350.

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

a) the annual Report on Form 10-K of the Corporation for the period ended December 31, 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; 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

March 8, 2018

XML

Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2017	Mar. 07, 2018	Jun. 30, 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-K
Document Period End Date	Dec. 31, 2017
Document Fiscal Year Focus	2017
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,760,984
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 149,907,174

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
ASSETS
Cash and due from financial institutions	$ 27,966	$ 28,205
Interest-earning deposits in other financial institutions	2,763	45,957
Total cash and cash equivalents	30,729	74,162
Trading assets, at fair value	988	774
Securities available for sale, at estimated fair value	293,627	303,402
Securities held to maturity, estimated fair value of $3,776 at December 31, 2017 and $4,912 at December 31, 2016	3,781	4,705
FHLBNY and FRBNY Stock, at cost	5,784	4,041
Loans, net of deferred loan fees	1,311,824	1,200,290
Allowance for loan losses	(21,161)	(14,253)
Loans, net	1,290,663	1,186,037
Loans held for sale	542	412
Premises and equipment, net	26,657	28,923
Goodwill	21,824	21,824
Other intangible assets, net	2,085	2,945
Bank owned life insurance	2,982	2,912
Accrued interest and other assets	27,958	27,042
Total assets	1,707,620	1,657,179
Deposits:
Non-interest-bearing	467,610	417,812
Interest-bearing	999,836	1,038,531
Total deposits	1,467,446	1,456,343
FHLBNY overnight advances	57,700	0
Securities sold under agreements to repurchase	10,000	27,606
FHLBNY term advances	2,000	9,093
Long term capital lease obligation	4,517	4,722
Dividends payable	1,233	1,225
Accrued interest payable and other liabilities	14,911	14,442
Total liabilities	1,557,807	1,513,431
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at December 31, 2017 and December 31, 2016	53	53
Additional-paid-in capital	45,967	45,603
Retained earnings	128,453	124,111
Treasury stock, at cost (559,094 shares at December 31, 2017; 597,843 shares at December 31, 2016)	(14,320)	(15,265)
Accumulated other comprehensive loss	(10,340)	(10,754)
Total shareholders' equity	149,813	143,748
Total liabilities and shareholders' equity	$ 1,707,620	$ 1,657,179

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
ASSETS
Securities held to maturity, estimated fair value	$ 3,776	$ 4,912
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	5,310,076	5,310,076
Treasury stock, at cost (in shares)	559,094	597,843

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Interest and Dividend Income:
Loans, including fees	$ 52,840	$ 49,677	$ 48,271
Taxable securities	5,503	5,239	4,958
Tax exempt securities	1,149	945	939
Interest-earning deposits	563	307	76
Total interest and dividend income	60,055	56,168	54,244
Interest Expense:
Deposits	2,168	2,170	2,003
Securities sold under agreements to repurchase	478	849	848
Borrowed funds	422	820	751
Total interest expense	3,068	3,839	3,602
Net interest income	56,987	52,329	50,642
Provision for loan losses	9,022	2,437	1,571
Net interest income after provision for loan losses	47,965	49,892	49,071
Non-Interest Income:
Wealth management group fee income	8,804	8,316	8,522
Service charges on deposit accounts	4,961	5,089	4,886
Interchange revenue from debit card transactions	3,761	4,027	3,307
Net gains on securities transactions	109	987	372
Net gain on sales of loans held for sale	260	326	294
Net gains on sales of other real estate owned	38	21	84
Income from bank owned life insurance	70	73	75
Other	2,488	2,310	2,907
Total non-interest income	20,491	21,149	20,447
Non-Interest Expenses:
Salaries and wages	21,476	20,954	21,223
Pension and other employee benefits	4,276	6,132	5,908
Net occupancy expenses	6,263	6,837	7,006
Furniture and equipment expenses	2,828	2,967	2,979
Data processing expense	6,539	6,593	6,586
Professional services	1,774	2,175	1,293
Legal accruals and settlements	850	1,200	0
Amortization of intangible assets	860	986	1,136
Marketing and advertising expense	794	877	899
Other real estate owned expenses	110	180	812
FDIC insurance	1,236	1,193	1,075
Loan expense	694	669	693
Other	6,064	5,847	5,817
Total non-interest expenses	53,764	56,610	55,427
Income before income tax expense	14,692	14,431	14,091
Income tax expense	7,262	4,404	4,658
Net income	$ 7,430	$ 10,027	$ 9,433
Weighted average shares outstanding (in shares)	4,800	4,762	4,719
Basic and diluted earnings per share (in dollars per share)	$ 1.55	$ 2.11	$ 2.00

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
Net income	$ 7,430	$ 10,027	$ 9,433
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	2,523	(6,352)	(2,472)
Reclassification adjustment gains realized in net income	(109)	(987)	(372)
Net unrealized gains (losses)	2,414	(7,339)	(2,844)
Tax effect	(904)	2,773	1,094
Net of tax amount	1,510	(4,566)	(1,750)
Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period	1,001	5,369	(2,052)
Reclassification adjustment for amortization of prior service costs	(220)	(427)	(90)
Prior service credit	0	1,101	0
Reclassification adjustment for amortization of net actuarial loss	413	1,595	1,484
Total before tax effect	1,194	7,638	(658)
Tax effect	(453)	(2,884)	251
Net of tax amount	741	4,754	(407)
Total other comprehensive income (loss)	2,251	188	(2,157)
Comprehensive income	$ 9,681	$ 10,215	$ 7,276

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)
Beginning Balances at Dec. 31, 2014	$ 133,628	$ 53	$ 45,355	$ 114,383	$ (17,378)	$ (8,785)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income	9,433			9,433
Other comprehensive income (loss)	(2,157)					(2,157)
Restricted stock awards	314		314
Distribution of treasury stock for directors' deferred compensation plan	3		(89)		92
Distribution of shares of treasury stock granted for employee restricted stock awards, net	0		(195)		195
Restricted stock units for directors' deferred compensation plan	95		95
Cash dividends declared	(4,843)			(4,843)
Distribution of shares of treasury stock for directors' compensation	271		24		247
Distribution of shares of treasury stock for employee compensation	93		8		85
Sale of shares of treasury stock	438		25		413
Repurchase of shares of common stock	(33)				(33)
Ending 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	10,027			10,027
Other comprehensive income (loss)	188					188
Restricted stock awards	192		192
Distribution of treasury stock for directors' deferred compensation plan	3		(92)		95
Distribution of shares of treasury stock granted for employee restricted stock awards, net	0		(212)		212
Restricted stock units for directors' deferred compensation plan	97		97
Cash dividends declared	(4,889)			(4,889)
Distribution of shares of treasury stock for directors' compensation	262		19		243
Distribution of shares of treasury stock for employee compensation	210		15		195
Sale of shares of treasury stock	438		47		391
Repurchase of shares of common stock	(22)				(22)
Ending 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	7,430			7,430
Other comprehensive income (loss)	2,251					2,251
Restricted stock awards	210		210
Distribution of treasury stock for directors' deferred compensation plan	11		(51)		62
Distribution of shares of treasury stock granted for employee restricted stock awards, net	0		(260)		260
Restricted stock units for directors' deferred compensation plan	98		98
Cash dividends declared	(4,925)			(4,925)
Distribution of shares of treasury stock for directors' compensation	269		68		201
Distribution of shares of treasury stock for employee compensation	200		50		150
Sale of shares of treasury stock	582		206		376
Repurchase of shares of common stock	(61)				(61)
Forfeiture of 1,139 shares of restricted stock awards	0		43		(43)
Reclassification of stranded tax effects in AOCI	0			1,837		(1,837)
Ending Balances at Dec. 31, 2017	$ 149,813	$ 53	$ 45,967	$ 128,453	$ (14,320)	$ (10,340)

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Distribution of shares of treasury stock for directors' deferred compensation (in shares)	2,438	3,740	3,598
Distribution of shares of treasury stock granted for employee restricted stock awards (in shares)	10,161	8,249	7,628
Cash dividends declared (in dollars per share)	$ 1.04	$ 1.04	$ 1.04
Distribution of shares of treasury stock for directors' compensation (in shares)	7,880	9,532	9,673
Distribution of shares of treasury stock for employee compensation (in shares)	5,861	7,661	3,303
Sale of shares of treasury stock (in shares)	14,707	15,308	16,209
Purchase of shares of treasury stock (in shares)	1,159	612	1,184
Restricted stock awards, forfeited (in shares)	1,139

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CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 7,430	$ 10,027	$ 9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	860	986	1,136
Deferred income tax (benefit) expense	4,251	(2,564)	774
Provision for loan losses	9,022	2,437	1,571
(Gain) loss on disposal of fixed assets	29	0	(18)
Depreciation and amortization of fixed assets	3,703	4,205	4,044
Amortization of premiums on securities, net	1,450	1,771	1,903
Gains on sales of loans held for sale, net	(260)	(326)	(294)
Proceeds from sales of loans held for sale	9,722	15,498	13,669
Loans originated and held for sale	(9,592)	(14,508)	(13,786)
Net (gains) losses on sale of other real estate owned	(38)	(21)	(84)
Writedowns on OREO	43	7	390
Net (gains) losses on trading assets	(137)	(76)	2
Net gains on securities transactions	(109)	(987)	(372)
Proceeds from sales of trading assets	20	99	16
Purchase of trading assets	(97)	(96)	(170)
(Increase) decrease in other assets	636	(165)	4,931
Increase (decrease) in accrued interest payable	(62)	1	(28)
Expense related to restricted stock units for directors' deferred compensation plan	98	97	95
Expense related to employee stock compensation	200	210	93
Expense related to employee restricted stock awards	210	192	314
Increase (decrease) in other liabilities	(3,664)	5,427	(9,421)
Income from bank owned life insurance	(70)	(73)	(75)
Net cash provided by operating activities	23,645	22,141	14,123
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and calls of securities available for sale	6,656	51,128	73,823
Proceeds from maturities and principal collected on securities available for sale	45,498	78,160	48,601
Proceeds from maturities and principal collected on securities held to maturity	2,891	2,868	3,290
Purchases of securities available for sale	(41,306)	(95,993)	(191,112)
Purchases of securities held to maturity	(1,967)	(3,007)	(2,025)
Purchase of FHLBNY and FRBNY stock	(7,208)	(5,458)	(8,552)
Redemption of FHLBNY and FRBNY stock	5,465	6,214	9,290
Proceeds from sales of fixed assets	16	0	18
Purchases of premises and equipment	(1,482)	(1,696)	(1,154)
Proceeds from sale of other real estate owned	383	1,568	1,329
Net increase in loans	(115,588)	(34,513)	(48,156)
Net cash used by investing activities	(106,642)	(729)	(114,648)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	36,847	78,021	166,045
Net decrease in time deposits	(25,744)	(21,973)	(45,764)
Net decrease in securities sold under agreements to repurchase	(17,606)	(847)	(1,199)
Net change in FHLBNY overnight advances	57,700	(13,900)	(16,930)
Repayments of FHLBNY long term advances	(7,093)	(10,110)	(107)
Payments made on capital lease	(205)	(186)	(103)
Sale of treasury stock	582	438	438
Cash dividends paid	(4,917)	(4,878)	(4,833)
Net cash provided by financing activities	39,564	26,565	97,547
Net increase (decrease) in cash and cash equivalents	(43,433)	47,977	(2,978)
Cash and cash equivalents, beginning of period	74,162	26,185	29,163
Cash and cash equivalents, end of period	30,729	74,162	26,185
Cash paid during the year for:
Interest	3,130	3,838	3,630
Income Taxes	4,050	4,360	7,047
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	1,940	412	100
Dividends declared, not yet paid	1,233	1,225	1,214
Assets acquired through long term capital lease obligation	0	2,035	0
Repurchase of common stock in lieu of employee payroll taxes	(61)	(22)	(33)
Distribution of treasury stock for directors' deferred compensation plan	11	3	3
Distribution of treasury stock for directors' compensation	$ 269	$ 262	$ 271

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 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 Group, Inc., provides a wide range of banking, financing, fiduciary and other financial services to its clients.  The Corporation is subject to the regulations of certain federal and state agencies and undergoes periodic examinations by those regulatory agencies.

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 consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Corporation and its subsidiaries.  All significant intercompany balances and transactions are eliminated in consolidation.

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.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and amounts due from banks and demand interest-bearing deposits with other financial institutions.

Time deposits with other financial institutions are classified as held-to-maturity securities and are not included in cash and cash equivalents.

TRADING ASSETS

Securities that are held to fund a non-qualified deferred compensation plan are recorded at fair value with changes in fair value and interest and dividend income included in earnings.

SECURITIES

Management determines the appropriate classification of securities at the time of purchase.  If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost.  Securities to be held for indefinite periods of time or not intended to be held to maturity are classified as available for sale and carried at fair value.  Unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported as accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until realized. Realized gains and losses are determined using the specific identification method.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.  OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income is recognized when collected.

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

The Bank is a member of both the FHLBNY and the FRBNY.  FHLBNY members are required to own a certain amount of stock based on the level of borrowings and other factors, while FRBNY members are required to own a certain amount of stock based on a percentage of the Bank’s capital stock and surplus.  FHLBNY and FRBNY stock are carried at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate recovery of par value.  Cash dividends are reported as income.

LOANS

Loans are stated at the amount of unpaid principal balance net of deferred loan fees.  Additionally, recorded investment in loans includes interest receivable on loans.  The Corporation has the ability and intent to hold its loans for the foreseeable future.  The Corporation’s loan portfolio is comprised of the following segments: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Corporation’s market area in a diverse range of industries.  These loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  Commercial mortgage loans are generally non-owner occupied commercial properties or owner occupied commercial real estate with larger balances.  Repayment of these loans is often dependent upon the successful operation and management of the properties and the businesses occupying the properties, as well as on the collateral securing the loan.  Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from their employment and other income, but are secured by real property.  Consumer loans include home equity lines of credit and home equity loans, which exhibit many of the same characteristics as residential mortgages.  Indirect and other consumer loans are typically secured by depreciable assets, such as automobiles or boats, and are dependent on the borrower’s continuing financial stability.

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned 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.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

Purchased Credit Impaired Loans:

Loans acquired that show evidence of credit deterioration since origination are considered purchased credit impaired loans  These loans are recorded at the fair value of the amount paid, such that there is no carryover of the seller’s allowance for loan losses.

Such purchased loans are accounted for individually.  The Corporation estimates the amount and timing of expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield).  The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

After acquisition, losses are recognized by an increase in the allowance for loan losses.  Over the life of the loan expected cash flows continue to be estimated.  If the present value of expected cash flows is less than the carrying amount, a reserve is established.  If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.  These 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.

The Corporation did not acquire any purchase credit impaired loans during the years ended December 31, 2017 and 2016.

TROUBLED DEBT RESTRUCTURINGS

A TDR is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise.  Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs.  Restructured loans can convert from non-accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms and when, in the opinion of management, the Corporation expects to receive all of its contractual principal and interest due under the restructured terms.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio segment.

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 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 analyses of individually impaired loans.  Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, 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 nonaccrual 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.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current 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.

LOANS HELD FOR SALE

Certain mortgage loans are originated with the intent to sell.  The Corporation typically retains the right to service the mortgages upon sale. Loans held for sale are recorded at the lower of cost or fair value in the aggregate and are regularly evaluated for changes in fair value.  Commitments to sell the loans that are originated for sale are recorded at fair value.  If necessary, a valuation allowance is established with a charge to income for unrealized losses attributable to a change in market rates.

CAPITAL LEASES

Capital leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term. Initially, the capital lease is recorded as a building asset, which is depreciated over the shorter of the term of the lease or the estimated life of the asset, and a corresponding long term lease obligation, which amortizes as payments are made toward the lease. Interest expense is also incurred using the discount rate determined at the beginning of the lease term.

PREMISES AND EQUIPMENT

Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture.  Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset. Leases of branch offices, which have been capitalized, are included within buildings and depreciated on the straight-line method over the shorter of the lease term or the estimated life of the asset.

BANK OWNED LIFE INSURANCE

BOLI is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.  Changes in the cash surrender value are recorded in other income.

OTHER REAL ESTATE

Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the property less estimated costs to dispose at the time of acquisition to establish a new carrying value.  Write downs from the carrying value of the loan to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses.  Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur.

INCOME TAXES

The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for unused tax loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.  The unaudited market value of trust assets under administration total $1.952 billion, including $346.8 million of assets held under management or administration for the Corporation, at December 31, 2017 and $1.721 billion, including $294.9 million of assets held under management or administration for the Corporation, at December 31, 2016.

POSTRETIREMENT BENEFITS

Pension Plan:

The Chemung Canal Trust Company Pension Plan is a non-contributory defined benefit pension plan.  The Pension Plan is a “qualified plan” under the IRS Code and therefore must be funded.  Contributions are deposited to the Plan and held in trust.  The Plan assets may only be used to pay retirement benefits and eligible plan expenses.  The plan was amended such that new employees hired on or after July 1, 2010 would not be eligible to participate in the plan, however, existing participants at that time would continue to accrue benefits.

Under the Plan, pension benefits are based upon final average annual compensation where the annual compensation is total base earnings paid plus 401(k) salary deferrals.  Bonuses, overtime, commissions and dividends are excluded.  The normal retirement benefit equals 1.2% of final average compensation (highest consecutive five years of annual compensation in the prior ten years) times years of service (up to a maximum of 25 years), plus 1% of average monthly compensation for each additional year of service (up to a maximum of 10 years), plus 0.65% of average monthly compensation in excess of covered compensation for each year of credited service up to 35 years.  Covered compensation is the average of the social security taxable wage base in effect for the 35 year period prior to normal social security retirement age.  Compensation for purposes of determining benefits under the Plan is reviewed annually.

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Defined Contribution Profit Sharing, Savings and Investment Plan:

The Corporation also sponsors a 401(K) defined contribution profit sharing, savings and investment plan which covers all eligible employees.  The Corporation contributes a non-discretionary 3% of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50% match up to 6% of gross annual wages. All contributions made on or after January 1, 2017 will vest immediately, while all previous contributions continue vesting on a five-year vesting schedule. The plan's assets consist of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.  The plan’s expense is the amount of non-discretionary and matching contributions and is charged to non-interest expenses in the consolidated statements of income.

Defined Benefit Health Care Plan:

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements.  This plan was amended effective July 1, 2006. Prior to this amendment, all retirees age 55 or older were eligible for coverage under the Corporation's self-insured health care plan, contributing 40% of the cost of the coverage. Under the amended plan, coverage for Medicare eligible retirees who reside in the Central New York geographic area is provided under a group sponsored plan with Excellus BlueCross BlueShield called Medicare Blue PPO, with the retiree paying 100% of the premium. Excellus BlueCross BlueShield assumes full liability for the payment of health care benefits incurred after July 1, 2006. Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self insurance plan through December 31, 2009, contributing 50% of the cost of coverage. Effective January 1, 2010, these out of area retirees were eligible for coverage under a Medicare Supplement Plan C administered by Excellus BlueCross BlueShield, contributing 50% of the premium. Current retirees between the ages of 55 and 65, will continue to be eligible for coverage under the Corporation's self insured plan, contributing 50% of the cost of the coverage. Employees who retired after July 1, 2006, and become Medicare eligible will only have access to the Medicare Blue PPO plan. Additionally, effective July 1, 2006, dental benefits were eliminated for all retirees.  The cost of the plan is based on actuarial computations of current and future benefits for employees, and is charged to non-interest expenses in the consolidated statements of income.

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Executive Supplemental Pension Plan:

U.S. laws place limitations on compensation amounts that may be included under the Pension Plan.  The Executive Supplemental Pension Plan was provided to executives in order to produce total retirement benefits, as a percentage of compensation that is comparable to employees whose compensation is not restricted by the annual compensation limit.  Pension amounts, which exceed the applicable Internal Revenue Service code limitations, will be paid under the Executive Supplemental Pension Plan.

The Executive Supplemental Pension Plan is a “non-qualified plan” under the Internal Revenue Service Code.  Contributions to the Plan are not held in trust; therefore, they may be subject to the claims of creditors in the event of bankruptcy or insolvency.  When payments come due under the Plan, cash is distributed from general assets. The cost of the plan is based on actuarial computations of current and future benefits for executives, and is charged to non-interest expense in the consolidated statements of income.

Defined Contribution Supplemental Executive Retirement Plan:

The Defined Contribution Supplemental Executive Retirement Plan is provided to certain executives to motivate and retain key management employees by providing a nonqualified retirement benefit that is payable at retirement, disability, death and certain other events.

The Supplemental Executive Retirement Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974.  The plan’s expense is the Corporation’s annual contribution plus interest credits.

STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Corporation or the Bank, with or without cause, or if the participant retires prior to attainment of age 65.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 13 for more information regarding this Plan.

Deferred Directors Fee Plan:

A Deferred Directors Fee Plan for non-employee directors provides that directors may elect to defer receipt of all or any part of their fees.  Deferrals are either credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments or converted to units, which appreciate or depreciate, as would an actual share of the Corporation’s common stock purchased on the deferral date.  Cash deferrals will be paid into an interest bearing account and paid in cash.  Units will be paid in shares of common stock.  All directors’ fees are charged to non-interest expenses in the consolidated statements of income.

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income.

Incentive Compensation Plan:

The purpose of the Incentive Compensation Plan is to attract and retain highly qualified officers and key employees, and to motivate such persons to serve the Corporation and the Bank and to expend maximum effort to improve the business results and earnings of the Corporation by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Corporation.  To this end, the Incentive Compensation Plan provides for the discretionary grant of cash and/or unrestricted stock, i.e., common stock of the Corporation that is free of any restrictions, such as restrictions on transferability, to select officers and key employees as designated by the Board of Directors in its sole discretion.  The maximum number of shares that can be awarded as unrestricted stock under the Incentive Compensation Plan to any individual is 10,000 per calendar year; and the maximum amount that may be earned in cash as an Incentive Award in any calendar year by any individual is $300,000.  The right of any eligible employee to receive a grant of an incentive award, whether in the form of cash or unrestricted stock, is subject to performance standards that are specified by either the Compensation Committee or the Board of Directors.  The cost of all cash and unrestricted stock compensation is charged to non-interest expenses in the consolidated statements of income.

Non-qualified Deferred Compensation Plan:

The Deferred Compensation Plan allows a select group of management and employees to defer all or a portion of their annual compensation to a future date.  Eligible employees are generally highly compensated employees and are designated by the Board of Directors from time to time.  Investments in the plan are recorded as trading assets and deferred amounts are an unfunded liability of the Corporation.  The plan requires deferral elections be made before the beginning of the calendar year during which the participant will perform the services to which the compensation relates. Participants in the Plan are required to elect a form of distribution, either lump sum payment or annual installments not to exceed ten years, and a time of distribution, either a specified age or a specified date. The terms and conditions for the deferral of compensation are subject to the provisions of 409A of the IRS Code.  The income from investments and cost of the plan are recorded as non-interest income and non-interest expenses, respectively, in the consolidated statements of income.

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2017.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $1.3 million, $0.4 million and $0.3 million, respectively, at December 31, 2017.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit and customer relationship intangibles related to the M&T branch offices, and Canton Bancorp, Inc. acquisitions are being amortized to expense using a 7.25 year accelerated method.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation enters into sales of securities under agreements to repurchase.  The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's securities portfolio.  The Corporation has agreed to repurchase securities identical to those sold.  The securities underlying the agreements are under the Corporation's control.

DERIVATIVES

The Corporation utilizes interest rate swaps with commercial borrowers and third-party counterparties as well as agreements with lead banks in participation loan relationships wherein the Corporation guarantees a portion of the fair value of an interest rate swap entered into by the lead bank. These transactions are accounted for as derivatives. The Company’s derivatives are entered into in connection with its asset and liability management activities and not for trading purposes.

The Company does not have any derivatives that are designated as hedges and therefore all derivatives are considered free standing and are recorded at fair value as derivative assets or liabilities on the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of income as non-interest income.

Premiums received when entering into derivative contracts are recognized as part of the fair value of the derivative asset or liability and are carried at fair value with any gain/loss at inception and any changes in fair value reflected in income.

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions. The Corporation had no pledge collateral to derivative counterparties as of December 31, 2017.

OTHER FINANCIAL INSTRUMENTS

The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused portions of lines of credit and commitments to fund new loans.  The Corporation's policy is to record such instruments when funded.

ADVERTISING COSTS

Costs for advertising products and services or for promoting our corporate image are expensed as incurred.

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 as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in the funded status of the Corporation’s defined benefit pension plan and other benefit plans, net of the related tax effect, which are also recognized as separate components of equity.

SEGMENT REPORTING

The Corporation has identified separate operating segments and internal financial information is primarily reported and aggregated in two lines of business, banking and wealth management services.

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2014, the FASB issued ASU 2014-09, an amendment to Revenue from Contracts with Customers (Topic 606). The objective of this amendment is to clarify the principles for recognizing revenue and to develop a common revenue standard for U.S. GAAP and IFRS. This update affects any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial 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 requires 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 collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance as of January 1, 2018 using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank.

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 adopted all provisions of this ASU as of January 1, 2018. The ASU did not have a material impact on its consolidated financial statements, as the Corporation's equity investment portfolio is less than $3.0 million as of December 31, 2017. 

In February 2016, the FASB issued ASU No. 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 $10.0 million for the Corporation's 15 leased facilities and a related capital obligation of the same amount as of January 1, 2019.

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 years 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 and has selected a vendor to assist in the implementation process. In 2018 the committee plans to begin establishing parameters which will be used in the CECL model with the selected vendor. The Corporation further plans to run its current incurred loss model and a CECL model concurrently for twelve 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 will not 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 will not 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.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income as of December 31, 2017. The objective of the ASU is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act passed in December 2017. Adoption of the ASU eliminates the stranded tax effects within accumulated other comprehensive income resulting from the revaluation of the net deferred tax asset. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted for public business entities for reporting period for which financial statements have not yet been issued. The Corporation adopted this ASU as of December 31, 2017 and reclassified $1.8 million from accumulated other comprehensive income to retained earnings, relating to its early adoption of the ASU.

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RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

12 Months Ended

Dec. 31, 2017

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS [Abstract]

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Corporation was in compliance with the reserve requirement with the Federal Reserve Bank of New York as of December 31, 2017.

The Corporation also maintains a pre-funded settlement account with a financial institution in the amount of $1.4 million for electronic funds transaction settlement purposes at December 31, 2017 and 2016.

The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program. The account serves as collateral in the event of default on the interest rate swaps with the counterparties. There was no collateral held in the account as of December 31, 2017. The collateral held at the financial institution was $0.5 million as of December 31, 2016.

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SECURITIES

12 Months Ended

Dec. 31, 2017

Investments, Debt and Equity Securities [Abstract]

SECURITIES

SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	15,491	$	17,300	$	17,455
Mortgage-backed securities, residential	224,939		219,909		253,156		245,866
Obligations of states and political subdivisions	52,928		53,132		38,843		38,740
Corporate bonds and notes	249		251		249		250
SBA loan pools	4,339		4,308		568		570
Corporate stocks	265		536		285		521
Total	$	298,212	$	293,627	$	310,401	$	303,402

Gross unrealized gains and losses on securities available for sale at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	20	$	21	$	155	$	—
Mortgage-backed securities, residential	136		5,166		202		7,492
Obligations of states and political subdivisions	355		151		209		312
Corporate bonds and notes	2		—		1		—
SBA loan pools	1		32		3		1
Corporate stocks	271		—		236		—
Total	$	785	$	5,370	$	806	$	7,805

The amortized cost and estimated fair value of debt securities available for sale are shown below by contractual 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):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	16,998	$	16,990
After one, but within five years	21,048		21,074
After five, but within ten years	12,700		12,746
After ten years	17,923		18,064
Mortgage-backed securities, residential	224,939		219,909
SBA loan pools	4,339		4,308
Total	$	297,947	$	293,091

Actual maturities may differ from contractual maturities above because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

The proceeds from sales and calls of securities resulting in gains or losses are listed below (in thousands):

	2017		2016			2015
Proceeds	$	5,576	$	40,413		$	72,718
Gross gains	$	109	$	989		$	410
Gross losses	$	—	$	(2	)	$	(38	)
Tax expense	$	41	$	373		$	142

Amortized cost and estimated fair value of securities held to maturity at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	1,946	$	3,725	$	3,931
Time deposits with other financial institutions	1,835		1,830		980		981
	$	3,781	$	3,776	$	4,705	$	4,912

Gross unrealized gains and losses on securities held to maturity at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	206	$	—
Time deposits with other financial institutions	—		5		1		—
Total	$	—	$	5	$	207	$	—

There were no sales of securities held to maturity in 2017 or 2016.

The contractual maturity of securities held to maturity is as follows at December 31, 2017 (in thousands):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	988	$	986
After one, but within five years	2,560		2,557
After five, but within ten years	233		233
After ten years	—		—
Total	$	3,781	$	3,776

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

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2017
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,982	$	21	$	—	$	—	$	14,982	$	21
Mortgage-backed securities, residential	$	83,562	$	1,013	$	131,165	$	4,153	$	214,727	$	5,166
Obligations of states and political subdivisions	20,526		133		271		18		20,797		151
SBA loan pools	3,937		32		—		—		3,937		32
Total temporarily impaired securities	$	123,007	$	1,199	$	131,436	$	4,171	$	254,443	$	5,370

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2016
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 December 31, 2017, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities. At December 31, 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 the Corporation does not have the intent to sell these securities and it is not likely that it 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 December 31, 2017.

The Corporation's unrealized losses on securities held to maturity related to certificates of deposits. At December 31, 2017, all of the unrealized losses related to certificates of deposit within other financial institutions and were under the FDIC insurance limit of $250,000. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to see these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2017.

Pledged Securities

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $231.6 million at December 31, 2017 and $191.0 million at December 31, 2016.

The table below shows the securities pledged to secure securities sold under agreements to repurchase at December 31, 2017 and 2016 (in thousands):

	2017				2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. Government and U. S. Government sponsored enterprises	$	—	$	—	$	1,231	$	1,276
Mortgage-backed securities, residential	12,082		11,798		37,769		37,000
Total	$	12,082	$	11,798	$	39,000	$	38,276

Concentrations

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2017 or 2016.

Equity Method Investments

The Corporation has an equity investment in Cephas Capital Partners, L.P.  This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas. As of both December 31, 2017 and 2016, these investments totaled $0.4 million, are included in other assets, and are accounted for under the equity method of accounting.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 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 loan fees is summarized as follows (in thousands):

	December 31, 2017		December 31, 2016
Commercial and agricultural:
Commercial and industrial	$	198,463	$	176,201
Agricultural	544		360
Commercial mortgages:
Construction	45,558		46,387
Commercial mortgages	598,772		522,269
Residential mortgages	194,440		198,493
Consumer loans:
Credit cards	1,517		1,476
Home equity lines and loans	100,591		98,590
Indirect consumer loans	153,060		139,572
Direct consumer loans	18,879		16,942
Total loans, net of deferred loan fees	1,311,824		1,200,290
Interest receivable on loans	3,758		3,192
Total recorded investment in loans	$	1,315,582	$	1,203,482

Residential mortgages held for sale as of December 31, 2017 and 2016 totaling $0.5 million and $0.4 million, respectively, are not included in the above table.

Residential mortgages totaling $149.7 million at December 31, 2017 and $158.0 million at December 31, 2016 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2017, 2016 and 2015, respectively (in thousands):

	December 31, 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		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net (charge offs) recoveries	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

	December 31, 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:	(217		)	(911		)	(65		)	(1,637		)	(2,830		)
Recoveries:	92			10			—			284			386
Net recoveries (charge offs)	(125		)	(901		)	(65		)	(1,353		)	(2,444		)
Provision	(117		)	1,059			124			1,371			2,437
Ending balance	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253

	December 31, 2015
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,460		$	6,326		$	1,572		$	4,328		$	13,686
Charge Offs:	(186		)	(104		)	(47		)	(1,294		)	(1,631		)
Recoveries:	96			131			—			407			634
Net recoveries (charge offs)	(90		)	27			(47		)	(887		)	(997		)
Provision	461			759			(61		)	412			1,571
Ending balance	$	1,831		$	7,112		$	1,464		$	3,853		$	14,260

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 December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 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	$	5,135	$	802	$	—	$	—	$	5,937
Collectively evaluated for impairment	1,841		7,683		1,316		4,355		15,195
Loans acquired with deteriorated credit quality	—		29		—		—		29
Total ending allowance balance	$	6,976	$	8,514	$	1,316	$	4,355	$	21,161

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

	December 31, 2017
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,133	$	7,302	$	427	$	64	$	13,926
Loans collectively evaluated for impairment	193,443		638,080		194,510		274,831		1,300,864
Loans acquired with deteriorated credit quality	—		792		—		—		792
Total ending loans balance	$	199,576	$	646,174	$	194,937	$	274,895	$	1,315,582

	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 tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2017 and December 31, 2016, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2017, 2016 and 2015 (in thousands):

	December 31, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	861	$	867	$	—	$	690	$	693	$	—
Commercial mortgages:
Construction	364		365		—		277		278		—
Commercial mortgages	4,135		4,138		—		8,792		7,857		—
Residential mortgages	450		427		—		395		396		—
Consumer loans:
Home equity lines and loans	64		64		—		93		95		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,231		5,266		5,135		—		—		—
Commercial mortgages:
Commercial mortgages	2,989		2,799		802		2,245		2,247		735
Consumer loans:
Home equity lines and loans	—		—		—		360		360		141
Total	$	14,094	$	13,926	$	5,937	$	12,852	$	11,926	$	876

	December 31, 2017				December 31, 2016				December 31, 2015
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	706	$	35	$	1,010	$	42	$	1,358	$	64
Commercial mortgages:
Construction	830		12		320		14		992		36
Commercial mortgages	5,606		78		6,793		240		7,728		264
Residential mortgages	418		8		366		5		244		4
Consumer loans:
Home equity lines & loans	74		3		102		5		396		6
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,170		6		33		—		146		3
Commercial mortgages:
Commercial mortgages	3,751		12		4,749		6		4,503		49
Consumer loans:
Home equity lines and loans	144		—		362		—		84		18
Total	$	12,699	$	154	$	13,735	$	312	$	15,451	$	444

(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 December 31, 2017 and December 31, 2016 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2017		2016		2017		2016
Commercial and agricultural:
Commercial and industrial	$	5,250	$	—	$	5	$	2
Commercial mortgages:
Construction	135		19		—		—
Commercial mortgages	6,520		5,454		—		—
Residential mortgages	3,160		4,201		—		—
Consumer loans:
Credit cards	—		—		24		11
Home equity lines and loans	1,310		1,670		—		—
Indirect consumer loans	935		654		—		—
Direct consumer loans	14		45		—		—
Total	$	17,324	$	12,043	$	29	$	13

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

	December 31, 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	$	1,689	$	999	$	20	$	2,708	$	—	$	196,322	$	199,030
Agricultural	—		—		—		—		—		546		546
Commercial mortgages:
Construction	—		—		—		—		—		45,688		45,688
Commercial mortgages	2,399		115		748		3,262		792		596,432		600,486
Residential mortgages	1,399		939		1,474		3,812		—		191,125		194,937
Consumer loans:
Credit cards	17		9		24		50		—		1,466		1,516
Home equity lines and loans	265		31		983		1,279		—		99,599		100,878
Indirect consumer loans	1,822		484		581		2,887		—		150,645		153,532
Direct consumer loans	48		28		2		78		—		18,891		18,969
Total	$	7,639	$	2,605	$	3,832	$	14,076	$	792	$	1,300,714	$	1,315,582

	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	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 December 31, 2017, 2016 and 2015, the Corporation has a recorded investment in TDRs of $7.7 million, $10.2 million, and $12.0 million, respectively.  There were specific reserves of $0.7 million allocated for TDRs at December 31, 2017, and $0.9 million allocated for December 31, 2016, and $1.4 million allocated for December 31, 2015.  As of December 31, 2017, TDRs totaling $1.7 million were accruing interest under the modified terms and $6.0 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.  As of December 31, 2015, TDRs totaling $7.6 million were accruing interest under the modified terms and $4.4 million were on non-accrual status.  The Corporation has committed no additional amounts as of December 31, 2017 or 2016, to customers with outstanding loans that are classified as TDRs. The Corporation committed additional amounts totaling up to $0.1 million as of December 31, 2015 to customers with outstanding loans that are classified as TDRs.

During the years ended December 31, 2017, 2016 and 2015, the terms of certain loans were modified as TDRs. During the year ended December 31, 2017, the modification of the terms of two commercial & industrial loans 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. Additionally, the modification of the terms of two commercial & industrial term loans and one line of credit 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 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 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 loan.

The modification of the terms of a residential mortgage loan during the year ended December 31, 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. Also, $8 thousand of closing costs were capitalized on the restructured loan. Additionally, the modification of the terms of five commercial real estate loans and one residential home equity loan 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. Also the modification of the terms of a residential mortgage loan 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 modification of the terms of another commercial real estate loan included a postponement or reduction of the scheduled amortized payments of the loan for greater than a 3 month period and a partial release of collateral due to a sale of property after which the bank received part of the proceeds to bring the loan current and reduce the principal balance with the remainder of the proceeds used to pay delinquent taxes. This results in a reduction in outstanding principal of $97 thousand at the time of restructuring.

The modification of the terms of such commercial loans performed during the year ended December 31, 2015 included renewing a line of credit and extending the maturity date at a rate lower than the current market rate, decreases of scheduled amortization payments for five loans and reductions of interest rates for two loans.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2017, 2016 and 2015 (in thousands):

December 31, 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

The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge offs during the year ended December 31, 2017.

December 31, 2016	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	6	$	485	$	388
Residential mortgages	2	295		307
Consumer loans:
Home equity lines and loans	1	74		74
Total	9	$	854	$	769

The TDRs described above did not increase the allowance for loan losses and resulted in no charge offs during the year ended December 31, 2016.

December 31, 2015	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	477	$	477
Commercial mortgages:
Commercial mortgages	5	2,810		2,810
Total	6	$	3,287	$	3,287

The TDRs described above increased the allowance for loan losses by $1.1 million and resulted in no charge offs during the year ended December 31, 2015.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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 year ended December 31, 2017:

December 31, 2017	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	1	$	164
Total	1	$	164

There were no payment defaults on any loans previously modified as troubled debt restructurings during the year ended December 31, 2016, within twelve months following the modification.

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 year ended December 31, 2015:

December 31, 2015	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	2	$	1,877
Total	2	$	1,877

The TDRs that subsequently defaulted described above did not increase the allowance for loan losses and resulted in no charge offs during the year ended December 31, 2015.

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 their debt and affirm the risk ratings for the loans at least annually.

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2017 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2017
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	186,556	$	—	$	4,447	$	6,605	$	1,422	$	199,030
Agricultural	—		546		—		—		—		—		546
Commercial mortgages:
Construction	—		45,553		—		—		135		—		45,688
Commercial mortgages	—		575,321		792		9,665		13,331		1,377		600,486
Residential mortgages	191,777		—		—		—		3,160		—		194,937
Consumer loans
Credit cards	1,516		—		—		—		—		—		1,516
Home equity lines and loans	99,568		—		—		—		1,310		—		100,878
Indirect consumer loans	152,598		—		—		—		934		—		153,532
Direct consumer loans	18,955		—		—		—		14		—		18,969
Total	$	464,414	$	807,976	$	792	$	14,112	$	25,489	$	2,799	$	1,315,582

	December 31, 2016
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		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		1,323		8,574		15,566		1,460		523,646
Residential mortgages	194,669		—		95		—		4,201		—		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	$	1,418	$	11,110	$	24,848	$	1,460	$	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.  Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 2017
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,777	$	1,516	$	99,568	$	152,598	$	18,955
Non-Performing	3,160		—		1,310		934		14
Total	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

	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
Total	$	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 tables below summarize 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, 2015 to December 31, 2017 (in thousands):

	Balance at December 31, 2016			Income Accretion		All Other Adjustments			Balance at December 31, 2017
Contractually required principal and interest	$	1,940		$	—	$	(988	)	$	952
Contractual cash flows not expected to be collected (non accretable discount)	(352		)	—		286			(66		)
Cash flows expected to be collected	1,588			—		(702		)	886
Interest component of expected cash flows (accretable yield)	(170		)	61		15			(94		)
Recorded investment in loans acquired with deteriorating credit quality	$	1,418		$	61	$	(687	)	$	792

	Balance at December 31, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2016
Contractually required principal and interest	$	2,912		$	—	$	(972	)	$	1,940
Contractual cash flows not expected to be collected (non accretable discount)	(506		)	—		154			(352		)
Cash flows expected to be collected	2,406			—		(818		)	1,588
Interest component of expected cash flows (accretable yield)	(311		)	112		29			(170		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,095		$	112	$	(789	)	$	1,418

	Balance at January 1, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2015
Contractually required principal and interest	$	3,621		$	—	$	(709	)	$	2,912
Contractual cash flows not expected to be collected (non accretable discount)	(570		)	—		64			(506		)
Cash flows expected to be collected	3,051			—		(645		)	2,406
Interest component of expected cash flows (accretable yield)	(420		)	174		(65		)	(311		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,631		$	174	$	(710	)	$	2,095

For those purchased credit impaired loans disclosed above, the Corporation decreased the allowance for loan losses by $55 thousand and $15 thousand during the year ended December 31, 2017 and 2016 respectively. The Corporation increased the allowance for loan losses by $5 thousand during the year ended December 31, 2015. For those purchased credit impaired loans disclosed above, the Corporation reversed $30 thousand of the allowance for loan losses during the year ended December 31, 2017 and did not reverse any allowance for loans losses during the years ended December 31, 2016 and 2015, respectively.

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Land	$	4,803	$	4,803
Buildings	41,045		40,831
Projects in progress	357		—
Equipment and furniture	37,545		37,072
Leasehold improvements	5,465		5,445
	89,215		88,151
Less accumulated depreciation and amortization	62,558		59,228
Net book value	$	26,657	$	28,923

Depreciation expense was $3.7 million, $4.2 million and $4.0 million for 2017, 2016, and 2015, respectively.

Operating Leases

The Corporation leases certain branch properties under operating leases.  Rent expense was $1.2 million, $1.2 million and $1.3 million for the years ended December 31, 2017, 2016 and 2015, respectively.  Rent commitments, before considering renewal options that generally are present, were as follows (in thousands):

Year	Estimated Expense
2018	$	1,121
2019	902
2020	737
2021	732
2022	732
2023 and thereafter	4,369
Total	$	8,593

Capital Leases

The Corporation leases certain buildings under capital leases.  The lease arrangements require monthly payments through 2036.

The Corporation has included these leases in premises and equipment as follows:

	2017			2016
Buildings	$	5,572		$	5,572
Accumulated depreciation	(874		)	(540		)
Net book value	$	4,698		$	5,032

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2017 (in thousands):

Year	Amount
2018	$	367
2019	367
2020	376
2021	388
2022	391
2023 and thereafter	4,031
Total minimum lease payments	5,920
Less amount representing interest	1,403
Present value of net minimum lease payments	$	4,517

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GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 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 years ended December 31, 2017 and 2016 were as follows (in thousands):

	2017		2016
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

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

	At December 31, 2017				At December 31, 2016
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,196	$	5,975	$	4,689
Other customer relationship intangibles	5,633		4,327		5,633		3,974
Total	$	11,608	$	9,523	$	11,608	$	8,663

Aggregate amortization expense was $0.9 million, $1.0 million, and $1.1 million for 2017, 2016 and 2015, respectively.

The remaining estimated aggregate amortization expense at December 31, 2017 is listed below (in thousands):

Year	Estimated Expense
2018	$	734
2019	609
2020	484
2021	258
Total	$	2,085

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DEPOSITS

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

DEPOSITS

DEPOSITS

A summary of deposits at December 31, 2017 and 2016 is as follows (in thousands):

	2017		2016
Non-interest-bearing demand deposits	$	467,610	$	417,812
Interest-bearing demand deposits	149,026		136,826
Insured money market accounts	513,782		548,963
Savings deposits	218,666		208,636
Time deposits	118,362		144,106
Total	$	1,467,446	$	1,456,343

Scheduled maturities of time deposits at December 31, 2017, are summarized as follows (in thousands):

Year	Maturities
2018	$	80,180
2019	20,475
2020	7,952
2021	2,658
2022	4,049
2023	3,048
Total	$	118,362

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2017 and 2016 were $8.9 million and $14.1 million, respectively.

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

12 Months Ended

Dec. 31, 2017

Disclosure of Repurchase Agreements [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Repurchase agreements are secured borrowings. The Corporation pledges investment securities to secure these borrowings. A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):

	2017			2016			2015
Balance at December 31	$	10,000		$	27,606		$	28,453
Maximum month-end balance	$	25,718		$	30,497		$	32,145
Average balance during year	$	14,207		$	29,120		$	30,236
Weighted-average interest rate at December 31	3.72		%	3.02		%	2.93		%
Average interest rate paid during year	3.37		%	2.92		%	2.80		%

The contractual maturity of securities sold under agreements to repurchase by collateral pledged as of December 31, 2017 and 2016 is as follows (in thousands):

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—		$	—	$	—	$	—
Mortgage-backed securities, residential	—		11,798			—		—		11,798
Total	—		11,798			—		—		11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
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. See Note 3 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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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FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

12 Months Ended

Dec. 31, 2017

Advances from Federal Home Loan Banks [Abstract]

FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

The following is a summary of FHLBNY fixed rate advances at December 31, 2017 and 2016.  The carrying amount includes the advance balance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

2017
Amount		Rate		Maturity Date	Call Date
$	57,700	1.53	%	January 2, 2018	-
2,000		3.05	%	January 2, 2018	-
$	59,700	1.58	%

2016
Amount		Rate		Maturity Date	Call Date
$	4,041	3.90	%	October 19, 2017	January 19, 2017
3,031		2.91	%	December 4, 2017	March 3, 2017
2,021		3.05	%	January 2, 2018	April 1, 2017
$	9,093	3.38	%

Each advance is payable at its maturity date, with a prepayment penalty for term advances.  The Corporation has pledged $149.7 million and $158.0 million of first mortgage loans under a blanket lien arrangement at December 31, 2017 and 2016, respectively, as collateral for theses advances and future borrowings.  Based on this collateral and the Corporation’s holdings of FHLBNY stock, the Corporation is eligible to borrow up to a total of $73.5 million at year-end 2017.

Payments over the next five years are as follows:

Year	Amount
2018	$	59,700
2019	—
2020	—
2021	—
2022	—
Total	$	59,700

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DERIVATIVES

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

As part of the Corporation's product offerings, the Corporation acts as an interest rate swap counterparty for certain commercial borrowers in the normal course of servicing our customers. The interest rate swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets. The Corporation manages its exposure to such interest rate swaps by entering into corresponding and offsetting interest rate swaps with third parties that mirror the terms of the interest rate swaps it has with the commercial borrowers. These positions directly offset each other and the Corporation's exposure is the fair value of the derivatives due to potential changes in credit risk of our commercial borrowers and third parties. The Corporation also enters into risk participation agreements with dealer banks on commercial loans in which it participates. The Corporation receives an upfront fee for participating in the credit exposure of the interest rate swap associated with the commercial loan in which it is a participant and the fee received is recognized immediately in other non-interest income. The Corporation is exposed to its share of the credit loss equal to the fair value of the interest rate swap in the event of nonperformance by the counterparty of the interest rate swap. The Corporation determines the fair value of the credit loss exposure using an estimated credit default rate based on the historical performance of similar assets.

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At December 31, 2017, the Corporation held derivatives not designated as hedging instruments with a total notional amount of $93.8 million. Derivatives not designated as hedging instruments included back-to-back interest rate swaps of $73.4 million, consisting of $36.7 million of interest rate swaps with commercial borrowers and an additional $36.7 million of offsetting interest rate swaps with third-party counter-parties on substantially the same terms, and risk participation agreements with dealer banks of $20.4 million. Free-standing derivatives are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded in other non-interest income.

The following table presents information regarding our derivative financial instruments, at December 31:

2017	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	7	$	36,675	8.3	4.40	%	4.17	%	$	(974	)
Interest rate swap agreements with third-party counter-parties	7	36,675		8.3	4.17	%	4.40	%	974
Risk participation agreements	6	20,427		17.7					(75		)
Total	20	$	93,777						$	(75	)

2016	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	5	$	18,378	7.9	4.05	%	3.36	%	$	(693	)
Interest rate swap agreements with third-party counter-parties	5	18,378		7.9	3.36	%	4.05	%	693
Risk participation agreements	5	15,401		23.5					(68		)
	15	$	52,157						$	(68	)

2015	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	1	$	1,934	5.9	4.33	%	3.02	%	$	15
Interest rate swap agreements with third-party counter-parties	1	$	1,934	5.9	3.02	%	4.33	%	$	(16	)
Risk participation agreements	4	$	10,528	26.2					$	(47	)
	6	$	14,396						$	(48	)

Off-balance sheet exposure for the risk participation agreements was $1.3 million for December 31, 2017 and 2016, respectively.

Amounts included in the Consolidated Statements of Income related to derivatives not designated as hedging were as follows:

	Years Ended December 31,
	2017			2016			2015
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized gain (loss) recognized in non-interest income	$	(281	)	$	(708	)	$	15
Interest rate swap agreements with third-party counter-parties:
Unrealized gain (loss) recognized in non-interest income	281			709			(16		)
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(7		)	(21		)	(29		)
Unrealized gain (loss) recognized in non-interest income	$	(7	)	$	(20	)	$	(30	)

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INCOME TAXES

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

For the years ended December 31, 2017, 2016 and 2015, income tax expense attributable to income from operations consisted of the following (in thousands):

	2017		2016			2015
Current expense:
Federal	$	2,594	$	6,330		$	3,668
State	417		638			216
Total current	3,011		6,968			3,884
Deferred expense/(benefit):
Federal	942		(2,177		)	595
State	382		(387		)	179
Remeasurement of deferred tax assets	2,927		—			—
Total deferred	4,251		(2,564		)	774
Income tax expense	$	7,262	$	4,404		$	4,658

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):

	2017			2016			2015
Statutory federal tax rate	34		%	34		%	34		%
Tax computed at statutory rate	$	5,006		$	4,907		$	4,791
Increase (reduction) resulting from:
Tax-exempt income	(663		)	(511		)	(441		)
831(b) premium adjustment	(269		)	(368		)	—
Dividend exclusion	(8		)	(5		)	(41		)
State taxes, net of Federal impact	201			165			238
Nondeductible interest expense	8			9			8
Remeasurement of deferred tax assets	2,927			—			—
Other items, net	60			207			103
Income tax expense	$	7,262		$	4,404		$	4,658
Effective tax rate	49.4		%	30.5		%	33.1		%

The higher tax expense in 2017 when compared to 2016 is the result of $2.9 million of additional tax expense to estimate the remeasurement of deferred tax assets due to the lowering of the federal corporate tax rate to 21%. On December 22, 2017, the Tax Act was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Corporation has recorded $2.9 million for the remeasurement of the Corporation's deferred tax assets.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, are presented below (in thousands):

	2017		2016
Deferred tax assets:
Allowance for loan losses	$	5,396	$	5,405
Accrual for employee benefit plans	186		337
Depreciation	86		2,119
Deferred compensation and directors' fees	872		1,195
Purchase accounting adjustment – deposits	7		21
Purchase accounting adjustment – loans	35		44
Purchase accounting adjustment – fixed assets	149		221
Gain on deemed sale of securities	567		798
Net unrealized losses on securities available for sale	1,169		2,643
Accounting for defined benefit pension and other benefit plans	2,370		4,091
Nonaccrued interest	544		944
Accrued expense	868		854
Other items, net	160		286
Total gross deferred tax assets	12,409		18,958
Deferred tax liabilities:
Deferred loan fees and costs	676		940
Prepaid pension	3,023		3,956
Discount accretion	239		342
Core deposit intangible	1,026		1,460
REIT dividend	844		—
Other	101		152
Total gross deferred tax liabilities	5,909		6,850
Net deferred tax asset	$	6,500	$	12,108

Realization of deferred tax assets is dependent upon the generation of future taxable income or the existence of sufficient taxable income within the loss carryback period. A valuation allowance is recognized when it is more likely than not that some portion of the deferred tax assets will not be realized.  In assessing the need for a valuation allowance, management considers the scheduled reversal of the deferred tax assets, the level of historical taxable income and projected future taxable income over the periods in which the temporary differences comprising the deferred tax assets will be deductible.  Based on its assessment, management determined that no valuation allowance is necessary.

As of December 31, 2017, 2016 and 2015, the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes.  As of December 31, 2017, 2016 and 2015, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2014 and for New York State taxing authorities for the years prior to 2014.

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PENSION PLAN AND OTHER BENEFIT PLANS

12 Months Ended

Dec. 31, 2017

Retirement Benefits [Abstract]

PENSION PLAN AND OTHER BENEFIT PLANS

PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

The Corporation has a noncontributory defined benefit pension plan covering a majority of employees.  The plan's defined benefit formula generally based payments to retired employees upon their length of service multiplied by a percentage of the average monthly pay over the last five years of employment.

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.  On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits.

The Corporation uses a December 31 measurement date for its pension plan.

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	39,791		$	43,797
Service cost	—			1,047
Interest cost	1,646			1,883
Actuarial (gain) loss	2,634			913
Curtailments	—			(6,161		)
Benefits paid	(1,831		)	(1,688		)
Benefit obligation at end of year	$	42,240		$	39,791

Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	41,560		$	39,951
Actual return on plan assets	6,943			3,297
Employer contributions	—			—
Benefits paid	(1,831		)	(1,688		)
Fair value of plan assets at end of year	$	46,672		$	41,560
Funded status	$	4,432		$	1,769

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	9,356	$	10,788
Prior service cost	—		—
Total before tax effects	$	9,356	$	10,788

The accumulated benefit obligation at December 31, 2017 and 2016 was $42.2 million and $39.8 million, respectively.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2017, 2016 and 2015 consist of the following (in thousands):

Net periodic benefit cost	2017			2016			2015
Service cost, benefits earned during the year	$	—		$	1,047		$	1,231
Interest cost on projected benefit obligation	1,646			1,883			1,806
Expected return on plan assets	(3,144		)	(3,019		)	(3,287		)
Amortization of net loss	267			1,549			1,414
Amortization of  prior service cost	—			7			7
Net periodic cost (benefit)	$	(1,231	)	$	1,467		$	1,171

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	(1,165	)	$	(5,526	)	$	1,888
Recognized loss	(267		)	(1,549		)	(1,414		)
Amortization of prior service cost	—			(7		)	(7		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	(1,432	)	$	(7,082	)	$	467
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(2,663	)	$	(5,615	)	$	1,638

During 2017, the plan's total unrecognized net loss decreased by $1.4 million.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the projected benefit obligation or 10% of the plan assets, and the plan is frozen, the excess will be amortized over the average future life expectancy of all plan participants. Prior to the plan freeze on December 31, 2016, the excess had been amortized over the average future working lifetime of all plan participants. As of January 1, 2017, the average expected future life expectancy of all participants which was 27.79 years. Actual results for 2018 will depend on the 2018 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	174
Prior service cost recognition	$	—

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Expected long-term rate of return on assets	7.75	%	7.75	%	7.75	%
Assumed rate of future compensation increase	N/A		5.00	%	5.00	%

The Corporation changes important assumptions whenever changing conditions warrant.  At December 31, 2017, the Corporation used IRS Static 2018 Mortality Table as a basis for the Plan's valuation. At December 31, 2016, the Corporation used Retirement Plan 2014 (RP-2014) and Mortality Improvement Scale 2016 (MP-2016) as a basis for the Plan's valuation. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years, or as conditions warrant.  Other material assumptions include the compensation increase rates, rates of employee terminations, and rates of participant mortality.

The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types.  The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds.  Other investments may consist of mutual funds, money market funds and cash & cash equivalents.  While no significant changes in the asset allocations are expected during 2018, the Corporation may make changes at any time.

The expected return on plan assets was determined based on a CAPM using historical and expected future returns of the various asset classes, reflecting the target allocations described below.

Asset Class	Target Allocation 2017	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2017		2016
Large cap domestic equities	30% - 60%	40	%	57	%	10.3	%
Mid-cap domestic equities	0% - 20%	6	%	5	%	10.6	%
Small-cap domestic equities	0% - 15%	7	%	2	%	10.8	%
International equities	0% - 25%	13	%	7	%	10.3	%
Intermediate fixed income	20% - 50%	29	%	26	%	4.7	%
Alternative assets	0% - 10%	—	%	—	%	7.5	%
Cash	0% - 20%	5	%	3	%	2.5	%
Total		100	%	100	%

The investment policy of the plan is to provide for long-term growth of principal and income without undue exposure to risk.  The focus is on long-term capital appreciation and income generation. The Corporation maintains an IPS that guides the investment allocation in the plan.  The IPS describes the target asset allocation positions as shown in the table above.

The Corporation has appointed an Employee Pension and Profit Sharing Committee to manage the general philosophy, objectives and process of the plan. The Employee Pension and Profit Sharing Committee meets with the Investment Manager periodically to review the plan's performance and to ensure that the current investment allocation is within the guidelines set forth in the IPS.  Only the Employee Pension and Profit Sharing Committee, in consultation with the Investment Manager, can make adjustments to maintain target ranges and for any permanent changes to the IPS.  Quarterly, the Board of Directors' Trust and Employee Benefits Committee reviews the performance of the plan with the Investment Manager.

As of December 31, 2017 and 2016, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock.

The Corporation used the following methods and significant assumptions to estimate the fair value of each type of financial instrument held by the pension plan:

Fair value is the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date.  The fair value hierarchy described below requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  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).

Discounted cash flows are calculated using spread and optionality.  During times when trading is more liquid, broker quotes are used (if available) to validate the model.  Rating agency and industry research reports as well as defaults and deferrals on individual securities are reviewed and incorporated into the calculations.

The fair value of the plan assets at December 31, 2017 and 2016, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2017 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,066	$	2,066	$	—	$	—
Equity securities:
U.S. companies	20,865		20,865		—		—
International companies	—		—		—		—
Mutual funds	19,253		19,253		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,217		—		2,217		—
U.S. Corporate bonds	2,271		—		2,271		—
Total plan assets	$	46,672	$	42,184	$	4,488	$	—

			Fair Value Measurement at December 31, 2016 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	1,324	$	1,324	$	—	$	—
Equity securities:
U.S. companies	19,972		19,972		—		—
International companies	847		847		—		—
Mutual funds	14,680		14,680		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,218		—		2,218		—
U.S. Corporate bonds	2,519		—		2,519		—
Total plan assets	$	41,560	$	36,823	$	4,737	$	—

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the pension plan (in thousands):

Calendar Year	Future Expected Benefit Payments
2018	$	2,200
2019	$	2,244
2020	$	2,270
2021	$	2,301
2022	$	2,326
2023-2027	$	11,829

The Corporation does not expect to contribute to the plan during 2018.  Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

For tax planning, financial planning, cash flow management or cost reduction purposes the Corporation may increase, accelerate, decrease or delay contributions to the plan to the extent permitted by law.

Defined Contribution Profit Sharing, Savings and Investment Plan

On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1,000 hours of service requirement to participate in employer contributions.  Beginning on January 1, 2017  the Bank began contributing a non-discretionary 3% of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010.  Additionally, beginning January 1, 2017 the Bank began contributing a 50% match up to 6% of gross annual wages.

Expense related to both plans totaled $1,160 thousand, $609 thousand, and $639 thousand for the years ended December 31, 2017, 2016 and 2015, respectively.  The plan's assets at December 31, 2017, 2016 and 2015 include 155,336, 174,957, and 169,398 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.

Defined Benefit Health Care Plan

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the defined benefit health care plan disclosures as of December 31, 2017 and 2016.

The Corporation uses a December 31 measurement date for its defined benefit health care plan.

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Changes in accumulated postretirement benefit obligation:	2017			2016
Accumulated postretirement benefit obligation - beginning of year	$	423		$	1,664
Service cost	—			43
Interest cost	20			66
Participant contributions	76			87
Amendments	—			(1,101		)
Actuarial (gain) loss	98			138
Benefits paid	(176		)	(474		)
Accumulated postretirement benefit obligation at end of year	$	441		$	423

Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	100			387
Plan participants’ contributions	76			87
Benefits paid	(176		)	(474		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(441	)	$	(423	)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017			2016
Net actuarial loss	$	592		$	636
Prior service credit	(881		)	(1,101		)
Total before tax effects	$	(289	)	$	(465	)

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Health care cost trend: Initial	6.50	%	6.50	%	7.00	%
Health care cost trend: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate cost trend reached	2021		2020		2019

The components of net periodic postretirement benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic cost (benefit)	2017			2016			2015
Service cost	$	—		$	43		$	46
Interest cost	20			66			70
Amortization of prior service benefit	(220		)	(97		)	(97		)
Recognized actuarial loss	143			20			20
Recognized prior service benefit due to curtailments	—			(337		)	—
Net periodic postretirement cost (benefit)	$	(57	)	$	(305	)	$	39

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2017			2016			2015
Net actuarial gain	$	98		$	139		$	216
Recognized actuarial loss	(143		)	(20		)	(20		)
Prior service credit	—			(1,101		)	—
Amortization of  prior service benefit	220			434			97
Total recognized in other comprehensive income (loss)(before tax effect)	$	175		$	(548	)	$	293
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	118		$	(853	)	$	332

During 2017 the plan's total unrecognized net loss decreased by $45 thousand.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants.  As of January 1, 2017, the average future life expectancy of all plan participants was 5.0 years.  Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees. Actual results for 2018 will depend on the 2018 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	110
Prior service cost recognition	$	(220	)

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan.  A one-percentage point change in assumed health care cost trend rates would have the following effects (in thousands):

Effect of a 1% increase in health care trend rate on:	2017		2016		2015
Benefit obligation	$	5	$	2	$	3
Total service and interest cost	$	—	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2017			2016			2015
Benefit obligation	$	(6	)	$	(3	)	$	(3	)
Total service and interest cost	$	—		$	—		$	—

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Health care cost trend: Initial	6.50	%	7.00	%	7.00	%
Health care cost tread: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate reached	2020		2019		2018

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	139
2019	$	111
2020	$	59
2021	$	38
2022	$	28
2023-2027	$	77

The Corporation’s policy is to contribute the amount required to fund postretirement benefits as they become due to retirees.  The amount expected to be required in contributions to the plan during 2018 is $139 thousand.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code.  The benefits under this plan are unfunded as of December 31, 2017 and 2016.

The Corporation uses a December 31 measurement date for its Executive Supplemental Pension Plan.

The following table presents Executive Supplemental Pension plan status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	1,248		$	1,210
Service cost	—			43
Interest cost	50			51
Actuarial (gain) loss	66			19
Benefits paid	(75		)	(75		)
Projected benefit obligation at end of year	$	1,289		$	1,248

Changes in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	75			75
Benefits paid	(75		)	(75		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,289	)	$	(1,248	)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	228	$	165
Prior service cost	—		—
Total before tax effects	$	228	$	165

Accumulated benefit obligation at December 31, 2017 and 2016 was $1.3 million.

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

The components of net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic benefit cost	2017		2016		2015
Service cost	$	—	$	43	$	44
Interest cost	50		51		49
Recognized actuarial loss	3		26		50
Net periodic postretirement benefit cost	$	53	$	120	$	143

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	66		$	18		$	(52	)
Recognized actuarial loss	(3		)	(26		)	(50		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	63		$	(8	)	$	(102	)
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	116		$	112		$	41

During 2017, the plan's total unrecognized net loss increased by $64 thousand. Because the unrecognized net gain or loss exceeds the greater of 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future life expectancy of all participants. Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants. As of January 1, 2018, the average future life expectancy of plan participants was 14.20 years.

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	7
Prior service cost recognition	$	—

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Salary scale	N/A		N/A		5.00	%

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the Supplemental Pension Plan (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	109
2019	$	107
2020	$	106
2021	$	104
2022	$	101
2023-2027	$	456

The Corporation expects to contribute $110 thousand to the plan during 2018. Corporation contributions are equal to the benefit payments to plan participants.

Defined Contribution Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012.  The plan is unfunded as of December 31, 2017 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events.  The accrued obligation for the plan as of December 31, 2017 and 2016 was $872 thousand and $1,043 thousand, respectively.  A total of $279 thousand, $262 thousand, and $231 thousand was expensed during the years ended December 31, 2017, 2016, and 2015, respectively.  In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will equal the average yield on five year U.S. Treasury Notes.

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STOCK COMPENSATION

12 Months Ended

Dec. 31, 2017

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

STOCK COMPENSATION

STOCK COMPENSATION

Board of Director’s 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 of Directors 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 of Directors members not employed by the Corporation who have served for 12 months during the prior year.

During January 2018, 2017, and 2016, 6,015, 7,880 and 9,532 shares, respectively, were re-issued from treasury to fund the stock component of the directors' and the Chief Executive Officer’s compensation.  An expense of $301 thousand, $269 thousand and $262 thousand related to this compensation was recognized during the years ended December 31, 2017, 2016 and 2015, respectively.  This expense is accrued as shares are earned.

Restricted Stock Plan

Pursuant to the Corporation’s Restricted Stock Plan (the “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 as of December 31, 2017, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2016	23,794		$	29.90
Granted	10,161		49.74
Vested	(7,294	)	29.15
Forfeited or Cancelled	(1,139	)	29.97
Nonvested at December 31, 2017	25,522		$	38.01

As of December 31, 2017, there was $955 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 4.06 years.  The total fair value of shares vested during the years ended December 31, 2017, 2016 and 2015 were $382 thousand, $193 thousand and $314 thousand, respectively.

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

Members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners (more than 10% interest) or board members, were customers of, and had loans and other transactions with the Corporation.  These loans are summarized as follows for the years ended December 31, 2017 and 2016 (in thousands):

	2017			2016
Balance at beginning of year	$	35,469		$	36,911
New loans or additional advances	6,872			5,742
Repayments	(3,188		)	(7,184		)
Balance at end of year	$	39,153		$	35,469

Deposits from principal officers, directors, and their affiliates at year-end 2017 and 2016 were $11.3 million and $10.3 million, respectively.

The Bank leased its branch located at 7 Southside Drive, Clifton Park, New York under a month to month lease from a member of the Corporation's Board of Directors with a monthly rent expense totaling $4 thousand. In April 2016, the Bank moved its Clifton Park branch to 25 Park Avenue, Clifton Park, New York under a lease agreement through March 2036 from the same member of the Corporation's Board of Directors with monthly lease payments of $11 thousand. In October 2016, the property was sold to an unrelated third party, from which the Bank continues to lease the property. The Bank also leases from this Board of Directors member its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through August 2019 with monthly rent expense totaling $4 thousand per month. Annual rent paid to this Board of Directors member totaled $51 thousand, $169 thousand, and $90 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

The Bank utilized legal services from a local law firm in which a member of the Board of Directors is a principal owner. Services totaled $17 thousand, $36 thousand, and $88 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

The Bank leases its branch located at 127 Court Street, Binghamton, New York under a lease agreement through June 2030 with monthly lease payments of $5 thousand. The lease originated with an entity in whom the employer of a Director of the Corporation had a twenty percent interest. In July 2017, the employer of the Director sold its interest in the property to an unrelated third party from which the Bank continues to lease the property. Annual rent paid to the leasing entity while there was a related party interest totaled $79 thousand and $62 thousand for the years ended December 31, 2017 and 2016, respectively.  The Bank sold a $2.0 million loan participation and a $1.9 million loan participation to the same employer of a Director of the Corporation during the years ended December 31, 2017 and 2016, respectively. There were no similar transactions for the year ended December 31, 2015. As of December 31, 2017 and 2016, the Bank had outstanding loan participations with the same employer of a Director of the Corporation in the amount of $6.6 million and $4.7 million.  CFS offers insurance products to its customers through the same employer of a Director of the Corporation. CFS earned income of less than $1 thousand related to these insurance products during the year ended December 31, 2017. CFS earned income of $2 thousand related to these insurance products for the year ended December 31, 2016. There were no similar transactions for the years ended December 31, 2015. The Bank purchased insurance products from the same employer of a Director of the Corporation in the amount of $34 thousand during the year ended December 31, 2017. There were no similar transactions for the years ended December 31, 2016 and December 31, 2015.

WMG provided trust services to members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners or board members. WMG fee income for the trust services provided totaled $332 thousand, $328 thousand, and $904 thousand for the years ended December 31, 2017, 2016, and 2015, respectively.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs.  These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates.  Commitments may expire without being used.  Off-balance sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated.  The same credit policies are used to make such commitments as are used for loans, including obtaining collateral at exercise of the commitment.

The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows (in thousands):

	2017				2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	16,019	$	28,591	$	38,246	$	33,189
Unused lines of credit	$	1,604	$	200,353	$	610	$	208,124
Standby letters of credit	$	—	$	15,022	$	—	$	14,241

Commitments to make real estate and home equity loans are generally made for periods of sixty days or less.  As of December 31, 2017, the fixed rate commitments to make loans have interest rates ranging from 3.38% to 5.88% and maturities ranging from five years to thirty years.  Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months.  As of December 31, 2017, the fixed rate commitments have interest rates ranging from 4.25% to 5.50%.

Because many commitments and almost all standby letters of credit expire without being funded in whole or in part, the contract amounts are not estimates of future cash flows.  Loan commitments and unused lines of credit have off-balance sheet credit risk because only origination fees are recognized on the consolidated balance sheet until commitments are fulfilled or expire.  The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and collateral or other security is of no value.  The Corporation does not anticipate losses as a result of these transactions.  These commitments also have off-balance sheet interest rate risk in that the interest rate at which these commitments were made may not be at market rates on the date the commitments are fulfilled.

The Corporation has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships.  The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers.  Contingent obligations under standby letters of credit totaled $15.0 million at December 31, 2017 and represent the maximum potential future payments the Corporation could be required to make.  Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments.  Corporation policies governing loan collateral apply to standby letters of credit at the time of credit extension.  The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2017 was not significant.

On March 26, 2015, the New York Surrogate’s Court for Chemung County entered an order approving two stipulations that discontinued litigation against the WMG of the Bank and approved settlements of the litigations. Under the terms of the settlements, the Bank agreed to pay the two parties $12.1 million, in total. Payments for the two settlements, offset by $7.9 million of insurance proceeds, occurred during the second quarter of 2015. The Bank established a $4.3 million legal reserve in connection with this case during the third quarter of 2014.

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, a branch location which the Bank had vacated. 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. The Bank has denied that it breached the contract. 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, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York 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 was filed and denied during the fourth quarter of 2017.

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, the Corporation believes that it is not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on its financial results or liquidity.

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PARENT COMPANY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

PARENT COMPANY FINANCIAL INFORMATION

PARENT COMPANY FINANCIAL INFORMATION

Condensed parent company only financial statement information of Chemung Financial Corporation is as follows (investment in subsidiaries is recorded using the equity method of accounting) (in thousands):

BALANCE SHEETS - DECEMBER 31	2017		2016
Assets:
Cash on deposit with subsidiary bank	$	3,017	$	2,336
Investment in subsidiary - Chemung Canal Trust Company	142,884		138,469
Investment in subsidiary - CFS Group, Inc.	904		946
Investment in subsidiary - Chemung Risk Management, Inc.	1,624		833
Dividends receivable from subsidiary bank	1,233		1,225
Securities available for sale, at estimated fair value	420		386
Other assets	1,039		825
Total assets	$	151,121	$	145,020
Liabilities and shareholders' equity:
Dividends payable	$	1,233	$	1,225
Other liabilities	75		47
Total liabilities	1,308		1,272
Shareholders' equity:
Total shareholders' equity	149,813		143,748
Total liabilities and shareholders' equity	$	151,121	$	145,020

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2017			2016			2015
Dividends from subsidiary bank	$	4,926		$	4,889		$	2,424
Interest and dividend income	10			9			9
Non-interest income	22			—			—
Non-interest expenses	433			526			270
Income before impact of subsidiaries' undistributed earnings	4,525			4,372			2,163
Equity in undistributed earnings of Chemung Canal Trust Company	1,939			4,856			7,015
Equity in undistributed earnings of CFS Group, Inc.	(42		)	(48		)	86
Equity in undistributed earnings of Chemung Risk Management, Inc.	791			583			—
Income before income tax	7,213			9,763			9,264
Income tax benefit	(217		)	(264		)	(169		)
Net Income	$	7,430		$	10,027		$	9,433

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2017			2016			2015
Cash flows from operating activities:
Net Income	$	7,430		$	10,027		$	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(1,939		)	(4,856		)	(7,015		)
Equity in undistributed earnings of CFS Group, Inc.	42			48			(86		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	(791		)	(583		)	—
Change in dividend receivable	(8		)	(11		)	(10		)
Change in other assets	(214		)	82			222
Change in other liabilities	51			(203		)	(23		)
Expense related to employee stock compensation	200			210			93
Expense related to restricted stock units for directors' deferred compensation plan	98			97			95
Expense to employee restricted stock awards	210			192			314
Net cash provided by operating activities	5,079			5,003			3,023
Cash flow from financing activities:
Cash dividends paid	(4,919		)	(4,878		)	(4,833		)
Purchase of treasury stock	(61		)	(22		)	(33		)
Sale of treasury stock	582			438			438
Net cash used in financing activities	(4,398		)	(4,462		)	(4,428		)
Increase (decrease) in cash and cash equivalents	681			541			(1,405		)
Cash and cash equivalents at beginning of year	2,336			1,795			3,200
Cash and cash equivalents at end of year	$	3,017		$	2,336		$	1,795

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FAIR VALUES

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

FAIR VALUES

FAIR VALUES

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:

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).

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.

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.

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 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 December 31, 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	$	15,491	$	—	$	15,491	$	—
Mortgage-backed securities, residential	219,909		—		219,909		—
Obligations of states and political subdivisions	53,132		—		53,132		—
Corporate bonds and notes	251		—		251		—
SBA loan pools	4,308		—		4,308		—
Corporate stocks	536		204		332		—
Total available for sale securities	$	293,627	$	204	$	293,423	$	—
Trading assets	$	988	$	988	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

			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 twelve month period ending December 31, 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 year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes					Derivative Liabilities
(in thousands)	2017			2016		2017			2016
Balance of recurring Level 3 assets at January 1	$	250		$	248	$	(68	)	$	(48	)
Derivative instruments entered into	—			—		(5		)	(25		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—			—		(2		)	5
Included in other comprehensive income	1			2		—			—
Transfers out of Level 3	(251		)	—		—			—
Balance of recurring Level 3 assets at December 31	$	—		$	250	$	(75	)	$	(68	)

As of December 31, 2017, one corporate bond was transferred from Level 3 and into Level 2 due to the availability of pricing in secondary markets.

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

Description	Fair Value at December 31, 2017		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Derivative liabilities	$	75	Historical trend	Credit default rate	5.67% - 5.67% [5.67%]

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%]

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

			Fair Value Measurement at December 31, 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)		Total Gains (Losses)
Impaired Loans:
Commercial and agricultural:
Commercial and industrial	$	96	$	—	$	—	$	96	$	(70	)
Commercial mortgages:
Commercial mortgages	411		—		—		411		(105		)
Total impaired loans	$	507	$	—	$	—	$	507	$	(175	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	1,483	$	—	$	—	$	1,483	$	(43	)
Residential mortgages	382		—		—		382		—
Consumer loans:
Home equity lines and loans	75		—		—		75		—
Total other real estate owned, net	$	1,940	$	—	$	—	$	1,940	$	(43	)

			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)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	2,631	$	—	$	—	$	2,631	$	8
Consumer loans:
Home equity lines and loans	219		—		—		219		(65		)
Total impaired loans	$	2,850	$	—	$	—	$	2,850	$	(57	)
Other real estate owned:
Residential mortgages	$	344	$	—	$	—	$	344	$	(7	)
Total other real estate owned, net	$	344	$	—	$	—	$	344	$	(7	)

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2017 and 2016 (in thousands):

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	96	Sales comparison	Discount to appraised value	0.00% - 36.07% [33.02%]
Commercial mortgages:
Commercial mortgages	411		Sales comparison	Discount to appraised value	10.00% - 89.98% [51.35%]
	$	507
OREO:
Commercial and agricultural:
Commercial and industrial	$	1,483	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.75%]
Residential mortgages	382		Sales comparison	Discount to appraised value	17.28% - 27.97% [20.77%]
Consumer loans:
Home equity lines and loans	75		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	1,940

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2016
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	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:

Cash, Due From 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, and time deposits are classified as Level 2.

FHLB and FRB Stock

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

Loans Receivable

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 are classified as Level 2.

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 fair value in the aggregate.  Loans held for sale 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 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.

Commitments to Extend Credit

The fair value of commitments to extend credit is based on fees currently charged to enter into similar agreements, the counter-party's credit standing and discounted cash flow analysis.  The fair value of these commitments to extend credit approximates the recorded amounts of the related fees and is not material at December 31, 2017 and 2016.

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 December 31, 2017 and December 31, 2016, are as follows (in thousands):

			Fair Value Measurements at December 31, 2017 Using
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	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Trading assets	988		988		—		—		988
Securities available for sale	293,627		204		293,423		—		293,627
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,290,663		—		—		1,289,584		1,289,584
Loans held for sale	542		—		542		—		542
Accrued interest receivable	4,642		1		867		3,774		4,642
Derivative assets	974		—		974		—		974
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,349,084	$	1,349,084	$	—	$	—	$	1,349,084
Time deposits	118,362		—		118,598		—		118,598
Securities sold under agreements to repurchase	10,000		—		10,058		—		10,058
FHLBNY overnight advances	57,700		—		57,700		—		57,700
FHLBNY term advances	2,000		—		2,001		—		2,001
Accrued interest payable	148		24		124		—		148
Derivative liabilities	1,049		—		974		75		1,049

(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.

			Fair Value Measurements at December 31, 2016 Using
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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REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2017

Regulatory Capital Requirements [Abstract]

REGULATORY CAPITAL REQUIREMENTS

REGULATORY CAPITAL REQUIREMENTS

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 Corporation must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by 2019. The capital conservation buffer for 2017 is 1.250%. and for 2016 is 0.625%. 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 December 31, 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. At December 31, 2017 and 2016, the most recent regulatory notifications categorized the Corporation and the Bank as well categorized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.

As of December 31, 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 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 the 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.  During 2018, the Bank could, without prior approval, declare dividends of approximately $13.8 million plus any 2018 net income retained to the date of the dividend declaration.

The actual capital amounts and ratios of the Corporation and the Bank are presented in the following tables (in thousands):

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	153,020	11.82	%	$	103,527	8.00	%	$	119,703	9.250	%	N/A		N/A
Bank	$	146,129	11.31	%	$	103,390	8.00	%	$	119,545	9.250	%	$	129,238	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	77,645	6.00	%	$	93,821	7.250	%	N/A		N/A
Bank	$	129,881	10.05	%	$	77,543	6.00	%	$	93,697	7.250	%	$	103,390	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	58,234	4.50	%	$	74,410	5.750	%	N/A		N/A
Bank	$	129,881	10.05	%	$	58,157	4.50	%	$	74,312	5.750	%	$	84,004	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	136,660	8.02	%	$	68,200	4.00	%	N/A		N/A		N/A		N/A
Bank	$	129,881	7.63	%	$	68,045	4.00	%	N/A		N/A		$	85,057	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
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	%

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ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

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

The following is a summary of the changes in accumulated other comprehensive income or 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 December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive income	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)
Other comprehensive income (loss) before reclassification	(3,952		)	3,341			(611		)
Amounts reclassified from accumulated other comprehensive income (loss)	(614		)	1,413			799
Net current period other comprehensive income (loss)	(4,566		)	4,754			188
Balance at December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2015	$	1,960		$	(10,745	)	$	(8,785	)
Other comprehensive income (loss) before reclassification	(1,520		)	(1,268		)	(2,788		)
Amounts reclassified from accumulated other comprehensive income (loss)	(230		)	861			631
Net current period other comprehensive loss	(1,750		)	(407		)	(2,157		)
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2017			2016			2015
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	(109	)	$	(987	)	$	(372	)	Net gains on securities transactions
Tax effect	41			373			142			Income tax expense
Net of tax	(68		)	(614		)	(230		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	674			(90		)	Pension and other employee benefits
Actuarial losses (a)	413			1,595			1,484			Pension and other employee benefits
Tax effect	(74		)	(856		)	(533		)	Income tax expense
Net of tax	119			1,413			861
Total reclassification for the period, net of tax	$	51		$	799		$	631

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 12 for additional information).

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SEGMENT REPORTING

12 Months Ended

Dec. 31, 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. 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.  The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands). CRM was formed during the second quarter of 2016, therefore, is not included within the year ended December 31, 2015 results.

Year ended December 31, 2017	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,224		8,805		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,234		3,141		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,951	$	1,950	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

Year ended December 31, 2016	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	56,159	$	—	$	9		$	56,168
Interest expense	3,839		—		—			3,839
Net interest income	52,320		—		$	9		52,329
Provision for loan losses	2,437		—		—			2,437
Net interest income after provision for loan losses	49,883		—		9			49,892
Non-interest income	12,318		8,316		515			21,149
Non-interest expenses	49,783		5,676		1,151			56,610
Income before income tax expense	12,418		2,640		(627		)	14,431
Income tax expense (benefit)	3,693		997		(286		)	4,404
Segment net income (loss)	$	8,725	$	1,643	$	(341	)	$	10,027
Segment assets	$	1,650,100	$	4,586	$	2,493		$	1,657,179

Year ended December 31, 2015	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	54,240	$	—	$	4		$	54,244
Interest expense	3,602		—		—			3,602
Net interest income	50,638		—		4			50,642
Provision for loan losses	1,571		—		—			1,571
Net interest income after provision for loan losses	49,067		—		4			49,071
Non-interest income	11,019		8,522		906			20,447
Non-interest expenses	48,882		5,517		1,028			55,427
Income (loss) before income tax expense	11,204		3,005		(118		)	14,091
Income tax expense (benefit)	3,620		1,149		(111		)	4,658
Segment net income (loss)	$	7,584	$	1,856	$	(7	)	$	9,433
Segment assets	$	1,614,481	$	4,282	$	1,201		$	1,619,964

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

ORGANIZATION

ORGANIZATION

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

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 consolidated financial statements have been prepared in conformity with GAAP and include the accounts of the Corporation and its subsidiaries.  All significant intercompany balances and transactions are eliminated in consolidation.

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.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash and amounts due from banks and demand interest-bearing deposits with other financial institutions.

Time deposits with other financial institutions are classified as held-to-maturity securities and are not included in cash and cash equivalents.

TRADING ASSETS

TRADING ASSETS

Securities that are held to fund a non-qualified deferred compensation plan are recorded at fair value with changes in fair value and interest and dividend income included in earnings.

SECURITIES

SECURITIES

Management determines the appropriate classification of securities at the time of purchase.  If management has the intent and the Corporation has the ability at the time of purchase to hold securities until maturity, they are classified as held to maturity and carried at amortized cost.  Securities to be held for indefinite periods of time or not intended to be held to maturity are classified as available for sale and carried at fair value.  Unrealized holding gains and losses on securities classified as available for sale are excluded from earnings and are reported as accumulated other comprehensive income (loss) in shareholders' equity, net of the related tax effects, until realized. Realized gains and losses are determined using the specific identification method.

Management evaluates securities for OTTI on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer.  Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings.  For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement and 2) OTTI related to other factors, which is recognized in other comprehensive income.  The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings.

In order to determine OTTI for purchased beneficial interests that, on the purchase date, were not highly rated, the Corporation compares the present value of the remaining cash flows as estimated at the preceding evaluation date to the current expected remaining cash flows.  OTTI is deemed to have occurred if there has been an adverse change in the remaining expected future cash flows.

Premiums and discounts are amortized or accreted over the life of the related security as an adjustment of yield using the interest method. Dividend and interest income is recognized when collected.

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

The Bank is a member of both the FHLBNY and the FRBNY.  FHLBNY members are required to own a certain amount of stock based on the level of borrowings and other factors, while FRBNY members are required to own a certain amount of stock based on a percentage of the Bank’s capital stock and surplus.  FHLBNY and FRBNY stock are carried at cost and classified as non-marketable equities and periodically evaluated for impairment based on ultimate recovery of par value.  Cash dividends are reported as income.

LOANS

LOANS

Loans are stated at the amount of unpaid principal balance net of deferred loan fees.  Additionally, recorded investment in loans includes interest receivable on loans.  The Corporation has the ability and intent to hold its loans for the foreseeable future.  The Corporation’s loan portfolio is comprised of the following segments: (i) commercial and agricultural, (ii) commercial mortgages, (iii) residential mortgages, and (iv) consumer loans.

Commercial and agricultural loans primarily consist of loans to small to mid-sized businesses in the Corporation’s market area in a diverse range of industries.  These loans are typically made on the basis of the borrower’s ability to make repayment from the cash flow of the borrower’s business.  Commercial mortgage loans are generally non-owner occupied commercial properties or owner occupied commercial real estate with larger balances.  Repayment of these loans is often dependent upon the successful operation and management of the properties and the businesses occupying the properties, as well as on the collateral securing the loan.  Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from their employment and other income, but are secured by real property.  Consumer loans include home equity lines of credit and home equity loans, which exhibit many of the same characteristics as residential mortgages.  Indirect and other consumer loans are typically secured by depreciable assets, such as automobiles or boats, and are dependent on the borrower’s continuing financial stability.

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned 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.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

PURCHASE CREDIT IMPAIRED LOANS

Purchased Credit Impaired Loans:

Loans acquired that show evidence of credit deterioration since origination are considered purchased credit impaired loans  These loans are recorded at the fair value of the amount paid, such that there is no carryover of the seller’s allowance for loan losses.

Such purchased loans are accounted for individually.  The Corporation estimates the amount and timing of expected cash flows for each purchased loan and the expected cash flows in excess of amount paid is recorded as interest income over the remaining life of the loan (accretable yield).  The excess of the loan’s contractual principal and interest over expected cash flows is not recorded (nonaccretable difference).

After acquisition, losses are recognized by an increase in the allowance for loan losses.  Over the life of the loan expected cash flows continue to be estimated.  If the present value of expected cash flows is less than the carrying amount, a reserve is established.  If the present value of expected cash flows is greater than the carrying amount, it is recognized as part of future interest income.  These 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.

The Corporation did not acquire any purchase credit impaired loans during the years ended December 31, 2017 and 2016.

TROUBLED DEBT RESTRUCTURINGS

TROUBLED DEBT RESTRUCTURINGS

A TDR is a formally renegotiated loan in which the Bank, for economic or legal reasons related to a borrower’s financial difficulties, grants a concession to the borrower that would not have been granted to the borrower otherwise.  Not all loans that are restructured as a TDR are classified as non-accrual before the restructuring occurs.  Restructured loans can convert from non-accrual to accrual status when said loans have demonstrated performance, generally evidenced by six months of payment performance in accordance with the restructured terms and when, in the opinion of management, the Corporation expects to receive all of its contractual principal and interest due under the restructured terms.

TDRs are individually evaluated for impairment and included in the separately identified impairment disclosures. TDRs are measured at the present value of estimated future cash flows using the loan's effective rate at inception. If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For TDRs that subsequently default, the Company determines the amount of the allowance on that loan in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired. The Company incorporates recent historical experience related to TDRs, including the performance of TDRs that subsequently default, into the calculation of the allowance by loan portfolio segment.

ALLOWANCE FOR LOAN LOSSES

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 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 analyses of individually impaired loans.  Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, 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 nonaccrual 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.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current 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.

LOANS HELD FOR SALE

LOANS HELD FOR SALE

Certain mortgage loans are originated with the intent to sell.  The Corporation typically retains the right to service the mortgages upon sale. Loans held for sale are recorded at the lower of cost or fair value in the aggregate and are regularly evaluated for changes in fair value.  Commitments to sell the loans that are originated for sale are recorded at fair value.  If necessary, a valuation allowance is established with a charge to income for unrealized losses attributable to a change in market rates.

CAPITAL LEASES

CAPITAL LEASES

Capital leases are recorded at the lesser of the present value of future cash outlays using a discounted cash flow, or fair value at the beginning of the lease term. Initially, the capital lease is recorded as a building asset, which is depreciated over the shorter of the term of the lease or the estimated life of the asset, and a corresponding long term lease obligation, which amortizes as payments are made toward the lease. Interest expense is also incurred using the discount rate determined at the beginning of the lease term.

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

Land is carried at cost, while buildings, equipment, leasehold improvements and furniture are stated at cost less accumulated depreciation and amortization. Depreciation is charged to current operations under the straight-line method over the estimated useful lives of the assets, which range from 15 to 50 years for buildings and from 3 to 10 years for equipment and furniture.  Amortization of leasehold improvements and leased equipment is recognized on the straight-line method over the shorter of the lease term or the estimated life of the asset. Leases of branch offices, which have been capitalized, are included within buildings and depreciated on the straight-line method over the shorter of the lease term or the estimated life of the asset.

BANK OWNED LIFE INSURANCE

BANK OWNED LIFE INSURANCE

BOLI is recorded at the amount that can be realized under the insurance contracts at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement.  Changes in the cash surrender value are recorded in other income.

OTHER REAL ESTATE

OTHER REAL ESTATE

Real estate acquired through foreclosure or deed in lieu of foreclosure is recorded at estimated fair value of the property less estimated costs to dispose at the time of acquisition to establish a new carrying value.  Write downs from the carrying value of the loan to estimated fair value which are required at the time of foreclosure are charged to the allowance for loan losses.  Subsequent adjustments to the carrying values of such properties resulting from declines in fair value are charged to operations in the period in which the declines occur.

INCOME TAXES

INCOME TAXES

The Corporation files a consolidated tax return. Deferred tax assets and liabilities are recognized for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, and for unused tax loss carry forwards.  Deferred tax assets and liabilities are measured using enacted tax rates to apply to taxable income in the years in which temporary differences are expected to be recovered or settled, or the tax loss carry forwards are expected to be utilized. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  A valuation allowance, if needed, reduces deferred tax assets to the amount expected to be realized.

A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur.  The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination.  For tax positions not meeting the "more likely than not" test, no tax benefit is recorded.

WEALTH MANAGEMENT GROUP FEE INCOME

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.

POSTRETIREMENT BENEFITS

POSTRETIREMENT BENEFITS

Pension Plan:

The Chemung Canal Trust Company Pension Plan is a non-contributory defined benefit pension plan.  The Pension Plan is a “qualified plan” under the IRS Code and therefore must be funded.  Contributions are deposited to the Plan and held in trust.  The Plan assets may only be used to pay retirement benefits and eligible plan expenses.  The plan was amended such that new employees hired on or after July 1, 2010 would not be eligible to participate in the plan, however, existing participants at that time would continue to accrue benefits.

Under the Plan, pension benefits are based upon final average annual compensation where the annual compensation is total base earnings paid plus 401(k) salary deferrals.  Bonuses, overtime, commissions and dividends are excluded.  The normal retirement benefit equals 1.2% of final average compensation (highest consecutive five years of annual compensation in the prior ten years) times years of service (up to a maximum of 25 years), plus 1% of average monthly compensation for each additional year of service (up to a maximum of 10 years), plus 0.65% of average monthly compensation in excess of covered compensation for each year of credited service up to 35 years.  Covered compensation is the average of the social security taxable wage base in effect for the 35 year period prior to normal social security retirement age.  Compensation for purposes of determining benefits under the Plan is reviewed annually.

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Defined Contribution Profit Sharing, Savings and Investment Plan:

The Corporation also sponsors a 401(K) defined contribution profit sharing, savings and investment plan which covers all eligible employees.  The Corporation contributes a non-discretionary 3% of gross annual wages (as defined by the 401(k) plan) for each participant, regardless of the participant’s deferral, in addition to a 50% match up to 6% of gross annual wages. All contributions made on or after January 1, 2017 will vest immediately, while all previous contributions continue vesting on a five-year vesting schedule. The plan's assets consist of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.  The plan’s expense is the amount of non-discretionary and matching contributions and is charged to non-interest expenses in the consolidated statements of income.

Defined Benefit Health Care Plan:

The Corporation sponsors a defined benefit health care plan that provides postretirement medical benefits to employees who meet minimum age and service requirements.  This plan was amended effective July 1, 2006. Prior to this amendment, all retirees age 55 or older were eligible for coverage under the Corporation's self-insured health care plan, contributing 40% of the cost of the coverage. Under the amended plan, coverage for Medicare eligible retirees who reside in the Central New York geographic area is provided under a group sponsored plan with Excellus BlueCross BlueShield called Medicare Blue PPO, with the retiree paying 100% of the premium. Excellus BlueCross BlueShield assumes full liability for the payment of health care benefits incurred after July 1, 2006. Current Medicare eligible retirees who reside outside of the Central New York geographic area were eligible for coverage under the Corporation's self insurance plan through December 31, 2009, contributing 50% of the cost of coverage. Effective January 1, 2010, these out of area retirees were eligible for coverage under a Medicare Supplement Plan C administered by Excellus BlueCross BlueShield, contributing 50% of the premium. Current retirees between the ages of 55 and 65, will continue to be eligible for coverage under the Corporation's self insured plan, contributing 50% of the cost of the coverage. Employees who retired after July 1, 2006, and become Medicare eligible will only have access to the Medicare Blue PPO plan. Additionally, effective July 1, 2006, dental benefits were eliminated for all retirees.  The cost of the plan is based on actuarial computations of current and future benefits for employees, and is charged to non-interest expenses in the consolidated statements of income.

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2017 and 2016. See Note 12.

Executive Supplemental Pension Plan:

U.S. laws place limitations on compensation amounts that may be included under the Pension Plan.  The Executive Supplemental Pension Plan was provided to executives in order to produce total retirement benefits, as a percentage of compensation that is comparable to employees whose compensation is not restricted by the annual compensation limit.  Pension amounts, which exceed the applicable Internal Revenue Service code limitations, will be paid under the Executive Supplemental Pension Plan.

The Executive Supplemental Pension Plan is a “non-qualified plan” under the Internal Revenue Service Code.  Contributions to the Plan are not held in trust; therefore, they may be subject to the claims of creditors in the event of bankruptcy or insolvency.  When payments come due under the Plan, cash is distributed from general assets. The cost of the plan is based on actuarial computations of current and future benefits for executives, and is charged to non-interest expense in the consolidated statements of income.

Defined Contribution Supplemental Executive Retirement Plan:

The Defined Contribution Supplemental Executive Retirement Plan is provided to certain executives to motivate and retain key management employees by providing a nonqualified retirement benefit that is payable at retirement, disability, death and certain other events.

The Supplemental Executive Retirement Plan is intended to be an unfunded plan maintained primarily for the purpose of providing deferred compensation benefits for a select group of management or highly compensated employees under Sections 201(2), 301(a)(3) and 401(a)(1) of the Employee Retirement Income Security Act of 1974.  The plan’s expense is the Corporation’s annual contribution plus interest credits.

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Corporation or the Bank, with or without cause, or if the participant retires prior to attainment of age 65.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 13 for more information regarding this Plan.

Deferred Directors Fee Plan:

A Deferred Directors Fee Plan for non-employee directors provides that directors may elect to defer receipt of all or any part of their fees.  Deferrals are either credited with interest compounded quarterly at the Applicable Federal Rate for short-term debt instruments or converted to units, which appreciate or depreciate, as would an actual share of the Corporation’s common stock purchased on the deferral date.  Cash deferrals will be paid into an interest bearing account and paid in cash.  Units will be paid in shares of common stock.  All directors’ fees are charged to non-interest expenses in the consolidated statements of income.

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income.

Incentive Compensation Plan:

The purpose of the Incentive Compensation Plan is to attract and retain highly qualified officers and key employees, and to motivate such persons to serve the Corporation and the Bank and to expend maximum effort to improve the business results and earnings of the Corporation by providing to such persons an opportunity to acquire or increase a direct proprietary interest in the operations and future success of the Corporation.  To this end, the Incentive Compensation Plan provides for the discretionary grant of cash and/or unrestricted stock, i.e., common stock of the Corporation that is free of any restrictions, such as restrictions on transferability, to select officers and key employees as designated by the Board of Directors in its sole discretion.  The maximum number of shares that can be awarded as unrestricted stock under the Incentive Compensation Plan to any individual is 10,000 per calendar year; and the maximum amount that may be earned in cash as an Incentive Award in any calendar year by any individual is $300,000.  The right of any eligible employee to receive a grant of an incentive award, whether in the form of cash or unrestricted stock, is subject to performance standards that are specified by either the Compensation Committee or the Board of Directors.  The cost of all cash and unrestricted stock compensation is charged to non-interest expenses in the consolidated statements of income.

Non-qualified Deferred Compensation Plan:

The Deferred Compensation Plan allows a select group of management and employees to defer all or a portion of their annual compensation to a future date.  Eligible employees are generally highly compensated employees and are designated by the Board of Directors from time to time.  Investments in the plan are recorded as trading assets and deferred amounts are an unfunded liability of the Corporation.  The plan requires deferral elections be made before the beginning of the calendar year during which the participant will perform the services to which the compensation relates. Participants in the Plan are required to elect a form of distribution, either lump sum payment or annual installments not to exceed ten years, and a time of distribution, either a specified age or a specified date. The terms and conditions for the deferral of compensation are subject to the provisions of 409A of the IRS Code.  The income from investments and cost of the plan are recorded as non-interest income and non-interest expenses, respectively, in the consolidated statements of income.

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2017.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $1.3 million, $0.4 million and $0.3 million, respectively, at December 31, 2017.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit and customer relationship intangibles related to the M&T branch offices, and Canton Bancorp, Inc. acquisitions are being amortized to expense using a 7.25 year accelerated method.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

The Corporation enters into sales of securities under agreements to repurchase.  The agreements are treated as financings, and the obligations to repurchase securities sold are reflected as liabilities in the consolidated balance sheets. The amount of the securities underlying the agreements continues to be carried in the Corporation's securities portfolio.  The Corporation has agreed to repurchase securities identical to those sold.  The securities underlying the agreements are under the Corporation's control.

DERIVATIVES

DERIVATIVES

The Corporation utilizes interest rate swaps with commercial borrowers and third-party counterparties as well as agreements with lead banks in participation loan relationships wherein the Corporation guarantees a portion of the fair value of an interest rate swap entered into by the lead bank. These transactions are accounted for as derivatives. The Company’s derivatives are entered into in connection with its asset and liability management activities and not for trading purposes.

The Company does not have any derivatives that are designated as hedges and therefore all derivatives are considered free standing and are recorded at fair value as derivative assets or liabilities on the consolidated balance sheets, with changes in fair value recognized in the consolidated statements of income as non-interest income.

Premiums received when entering into derivative contracts are recognized as part of the fair value of the derivative asset or liability and are carried at fair value with any gain/loss at inception and any changes in fair value reflected in income.

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions.

OTHER FINANCIAL INSTRUMENTS

OTHER FINANCIAL INSTRUMENTS

The Corporation is a party to certain other financial instruments with off-balance sheet risk such as unused portions of lines of credit and commitments to fund new loans.  The Corporation's policy is to record such instruments when funded.

ADVERTISING COSTS

ADVERTISING COSTS

Costs for advertising products and services or for promoting our corporate image are expensed as incurred.

EARNINGS PER COMMON SHARE

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 as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) consists of net income and other comprehensive income (loss).  Other comprehensive income (loss) includes unrealized gains and losses on securities available for sale and changes in the funded status of the Corporation’s defined benefit pension plan and other benefit plans, net of the related tax effect, which are also recognized as separate components of equity.

SEGMENT REPORTING

SEGMENT REPORTING

The Corporation has identified separate operating segments and internal financial information is primarily reported and aggregated in two lines of business, banking and wealth management services.

RECLASSIFICATION

RECLASSIFICATION

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

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 nonfinancial 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 requires 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 collectibility, presenting sales taxes, measuring noncash consideration, and certain transition matters. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance as of January 1, 2018 using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank.

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 adopted all provisions of this ASU as of January 1, 2018. The ASU did not have a material impact on its consolidated financial statements, as the Corporation's equity investment portfolio is less than $3.0 million as of December 31, 2017. 

In February 2016, the FASB issued ASU No. 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 $10.0 million for the Corporation's 15 leased facilities and a related capital obligation of the same amount as of January 1, 2019.

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 years 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 and has selected a vendor to assist in the implementation process. In 2018 the committee plans to begin establishing parameters which will be used in the CECL model with the selected vendor. The Corporation further plans to run its current incurred loss model and a CECL model concurrently for twelve 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 will not 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 will not 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.

In February 2018, the FASB issued ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income as of December 31, 2017. The objective of the ASU is to allow a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act passed in December 2017. Adoption of the ASU eliminates the stranded tax effects within accumulated other comprehensive income resulting from the revaluation of the net deferred tax asset. The amendments in this ASU are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of the amendments in this ASU is permitted for public business entities for reporting period for which financial statements have not yet been issued. The Corporation adopted this ASU as of December 31, 2017 and reclassified $1.8 million from accumulated other comprehensive income to retained earnings, relating to its early adoption of the ASU.

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:

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).

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.

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.

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 credit risk participations are based on credit default rate assumptions (Level 3 inputs).

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SECURITIES (Tables)

12 Months Ended

Dec. 31, 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 at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	15,491	$	17,300	$	17,455
Mortgage-backed securities, residential	224,939		219,909		253,156		245,866
Obligations of states and political subdivisions	52,928		53,132		38,843		38,740
Corporate bonds and notes	249		251		249		250
SBA loan pools	4,339		4,308		568		570
Corporate stocks	265		536		285		521
Total	$	298,212	$	293,627	$	310,401	$	303,402

Gross unrealized gains and losses on securities available for sale at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	20	$	21	$	155	$	—
Mortgage-backed securities, residential	136		5,166		202		7,492
Obligations of states and political subdivisions	355		151		209		312
Corporate bonds and notes	2		—		1		—
SBA loan pools	1		32		3		1
Corporate stocks	271		—		236		—
Total	$	785	$	5,370	$	806	$	7,805

Amortized Cost and Estimated Fair Value of Debt Securities Available for Sale by Contractual Maturity

Securities not due at a single maturity date are shown separately (in thousands):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	16,998	$	16,990
After one, but within five years	21,048		21,074
After five, but within ten years	12,700		12,746
After ten years	17,923		18,064
Mortgage-backed securities, residential	224,939		219,909
SBA loan pools	4,339		4,308
Total	$	297,947	$	293,091

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 are listed below (in thousands):

	2017		2016			2015
Proceeds	$	5,576	$	40,413		$	72,718
Gross gains	$	109	$	989		$	410
Gross losses	$	—	$	(2	)	$	(38	)
Tax expense	$	41	$	373		$	142

Amortized Cost and Estimated Fair Value of Securities Held to Maturity

Amortized cost and estimated fair value of securities held to maturity at December 31, 2017 and 2016 are as follows (in thousands):

	2017				2016
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	1,946	$	3,725	$	3,931
Time deposits with other financial institutions	1,835		1,830		980		981
	$	3,781	$	3,776	$	4,705	$	4,912

Gross unrealized gains and losses on securities held to maturity at December 31, 2017 and 2016, were as follows (in thousands):

	2017				2016
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	206	$	—
Time deposits with other financial institutions	—		5		1		—
Total	$	—	$	5	$	207	$	—

Contractual Maturities of Securities Held to Maturity

The contractual maturity of securities held to maturity is as follows at December 31, 2017 (in thousands):

	December 31, 2017
	Amortized Cost		Fair Value
Within one year	$	988	$	986
After one, but within five years	2,560		2,557
After five, but within ten years	233		233
After ten years	—		—
Total	$	3,781	$	3,776

Investment Securities Available for Sale in Unrealized Loss Position

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

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2017
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,982	$	21	$	—	$	—	$	14,982	$	21
Mortgage-backed securities, residential	$	83,562	$	1,013	$	131,165	$	4,153	$	214,727	$	5,166
Obligations of states and political subdivisions	20,526		133		271		18		20,797		151
SBA loan pools	3,937		32		—		—		3,937		32
Total temporarily impaired securities	$	123,007	$	1,199	$	131,436	$	4,171	$	254,443	$	5,370

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2016
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

Securities Pledged to Secure Securities Sold under Agreements to Repurchase

The table below shows the securities pledged to secure securities sold under agreements to repurchase at December 31, 2017 and 2016 (in thousands):

	2017				2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Obligations of U.S. Government and U. S. Government sponsored enterprises	$	—	$	—	$	1,231	$	1,276
Mortgage-backed securities, residential	12,082		11,798		37,769		37,000
Total	$	12,082	$	11,798	$	39,000	$	38,276

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2017

Loans and Leases Receivable Disclosure [Abstract]

Composition of Loan Portfolio by Type

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

	December 31, 2017		December 31, 2016
Commercial and agricultural:
Commercial and industrial	$	198,463	$	176,201
Agricultural	544		360
Commercial mortgages:
Construction	45,558		46,387
Commercial mortgages	598,772		522,269
Residential mortgages	194,440		198,493
Consumer loans:
Credit cards	1,517		1,476
Home equity lines and loans	100,591		98,590
Indirect consumer loans	153,060		139,572
Direct consumer loans	18,879		16,942
Total loans, net of deferred loan fees	1,311,824		1,200,290
Interest receivable on loans	3,758		3,192
Total recorded investment in loans	$	1,315,582	$	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 years ended December 31, 2017, 2016 and 2015, respectively (in thousands):

	December 31, 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		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net (charge offs) recoveries	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

	December 31, 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:	(217		)	(911		)	(65		)	(1,637		)	(2,830		)
Recoveries:	92			10			—			284			386
Net recoveries (charge offs)	(125		)	(901		)	(65		)	(1,353		)	(2,444		)
Provision	(117		)	1,059			124			1,371			2,437
Ending balance	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253

	December 31, 2015
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,460		$	6,326		$	1,572		$	4,328		$	13,686
Charge Offs:	(186		)	(104		)	(47		)	(1,294		)	(1,631		)
Recoveries:	96			131			—			407			634
Net recoveries (charge offs)	(90		)	27			(47		)	(887		)	(997		)
Provision	461			759			(61		)	412			1,571
Ending balance	$	1,831		$	7,112		$	1,464		$	3,853		$	14,260

Allowance for Loan Losses and 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 December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 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	$	5,135	$	802	$	—	$	—	$	5,937
Collectively evaluated for impairment	1,841		7,683		1,316		4,355		15,195
Loans acquired with deteriorated credit quality	—		29		—		—		29
Total ending allowance balance	$	6,976	$	8,514	$	1,316	$	4,355	$	21,161

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

	December 31, 2017
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,133	$	7,302	$	427	$	64	$	13,926
Loans collectively evaluated for impairment	193,443		638,080		194,510		274,831		1,300,864
Loans acquired with deteriorated credit quality	—		792		—		—		792
Total ending loans balance	$	199,576	$	646,174	$	194,937	$	274,895	$	1,315,582

	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 tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2017 and December 31, 2016, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2017, 2016 and 2015 (in thousands):

	December 31, 2017						December 31, 2016
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	861	$	867	$	—	$	690	$	693	$	—
Commercial mortgages:
Construction	364		365		—		277		278		—
Commercial mortgages	4,135		4,138		—		8,792		7,857		—
Residential mortgages	450		427		—		395		396		—
Consumer loans:
Home equity lines and loans	64		64		—		93		95		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,231		5,266		5,135		—		—		—
Commercial mortgages:
Commercial mortgages	2,989		2,799		802		2,245		2,247		735
Consumer loans:
Home equity lines and loans	—		—		—		360		360		141
Total	$	14,094	$	13,926	$	5,937	$	12,852	$	11,926	$	876

	December 31, 2017				December 31, 2016				December 31, 2015
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	706	$	35	$	1,010	$	42	$	1,358	$	64
Commercial mortgages:
Construction	830		12		320		14		992		36
Commercial mortgages	5,606		78		6,793		240		7,728		264
Residential mortgages	418		8		366		5		244		4
Consumer loans:
Home equity lines & loans	74		3		102		5		396		6
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,170		6		33		—		146		3
Commercial mortgages:
Commercial mortgages	3,751		12		4,749		6		4,503		49
Consumer loans:
Home equity lines and loans	144		—		362		—		84		18
Total	$	12,699	$	154	$	13,735	$	312	$	15,451	$	444

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

Recorded Investment in Past Due and Non-Accrual Status by Class of Loans

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 December 31, 2017 and December 31, 2016 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2017		2016		2017		2016
Commercial and agricultural:
Commercial and industrial	$	5,250	$	—	$	5	$	2
Commercial mortgages:
Construction	135		19		—		—
Commercial mortgages	6,520		5,454		—		—
Residential mortgages	3,160		4,201		—		—
Consumer loans:
Credit cards	—		—		24		11
Home equity lines and loans	1,310		1,670		—		—
Indirect consumer loans	935		654		—		—
Direct consumer loans	14		45		—		—
Total	$	17,324	$	12,043	$	29	$	13

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

	December 31, 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	$	1,689	$	999	$	20	$	2,708	$	—	$	196,322	$	199,030
Agricultural	—		—		—		—		—		546		546
Commercial mortgages:
Construction	—		—		—		—		—		45,688		45,688
Commercial mortgages	2,399		115		748		3,262		792		596,432		600,486
Residential mortgages	1,399		939		1,474		3,812		—		191,125		194,937
Consumer loans:
Credit cards	17		9		24		50		—		1,466		1,516
Home equity lines and loans	265		31		983		1,279		—		99,599		100,878
Indirect consumer loans	1,822		484		581		2,887		—		150,645		153,532
Direct consumer loans	48		28		2		78		—		18,891		18,969
Total	$	7,639	$	2,605	$	3,832	$	14,076	$	792	$	1,300,714	$	1,315,582

	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	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 troubled debt restructurings that occurred during the years ended December 31, 2017, 2016 and 2015 (in thousands):

December 31, 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

The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge offs during the year ended December 31, 2017.

December 31, 2016	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	6	$	485	$	388
Residential mortgages	2	295		307
Consumer loans:
Home equity lines and loans	1	74		74
Total	9	$	854	$	769

The TDRs described above did not increase the allowance for loan losses and resulted in no charge offs during the year ended December 31, 2016.

December 31, 2015	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	477	$	477
Commercial mortgages:
Commercial mortgages	5	2,810		2,810
Total	6	$	3,287	$	3,287

The TDRs described above increased the allowance for loan losses by $1.1 million and resulted in no charge offs during the year ended December 31, 2015.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. 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 year ended December 31, 2017:

December 31, 2017	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	1	$	164
Total	1	$	164

There were no payment defaults on any loans previously modified as troubled debt restructurings during the year ended December 31, 2016, within twelve months following the modification.

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 year ended December 31, 2015:

December 31, 2015	Number of Loans	Recorded Investment
Commercial mortgages:
Commercial mortgages	2	$	1,877
Total	2	$	1,877

Risk Category of Recorded Investment of Loans by Class of Loans

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2017 and December 31, 2016, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2017
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	186,556	$	—	$	4,447	$	6,605	$	1,422	$	199,030
Agricultural	—		546		—		—		—		—		546
Commercial mortgages:
Construction	—		45,553		—		—		135		—		45,688
Commercial mortgages	—		575,321		792		9,665		13,331		1,377		600,486
Residential mortgages	191,777		—		—		—		3,160		—		194,937
Consumer loans
Credit cards	1,516		—		—		—		—		—		1,516
Home equity lines and loans	99,568		—		—		—		1,310		—		100,878
Indirect consumer loans	152,598		—		—		—		934		—		153,532
Direct consumer loans	18,955		—		—		—		14		—		18,969
Total	$	464,414	$	807,976	$	792	$	14,112	$	25,489	$	2,799	$	1,315,582

	December 31, 2016
	Not Rated		Pass		Loans acquired with deteriorated credit quality		Special Mention		Substandard		Doubtful		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		1,323		8,574		15,566		1,460		523,646
Residential mortgages	194,669		—		95		—		4,201		—		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	$	1,418	$	11,110	$	24,848	$	1,460	$	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 December 31, 2017 and December 31, 2016 (in thousands):

	December 31, 2017
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,777	$	1,516	$	99,568	$	152,598	$	18,955
Non-Performing	3,160		—		1,310		934		14
Total	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

	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
Total	$	198,965	$	1,476	$	98,853	$	139,993	$	17,012

Summary of Changes in Contractually Required Principal and Interest on Loans Acquired

The tables below summarize 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, 2015 to December 31, 2017 (in thousands):

	Balance at December 31, 2016			Income Accretion		All Other Adjustments			Balance at December 31, 2017
Contractually required principal and interest	$	1,940		$	—	$	(988	)	$	952
Contractual cash flows not expected to be collected (non accretable discount)	(352		)	—		286			(66		)
Cash flows expected to be collected	1,588			—		(702		)	886
Interest component of expected cash flows (accretable yield)	(170		)	61		15			(94		)
Recorded investment in loans acquired with deteriorating credit quality	$	1,418		$	61	$	(687	)	$	792

	Balance at December 31, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2016
Contractually required principal and interest	$	2,912		$	—	$	(972	)	$	1,940
Contractual cash flows not expected to be collected (non accretable discount)	(506		)	—		154			(352		)
Cash flows expected to be collected	2,406			—		(818		)	1,588
Interest component of expected cash flows (accretable yield)	(311		)	112		29			(170		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,095		$	112	$	(789	)	$	1,418

	Balance at January 1, 2015			Income Accretion		All Other Adjustments			Balance at December 31, 2015
Contractually required principal and interest	$	3,621		$	—	$	(709	)	$	2,912
Contractual cash flows not expected to be collected (non accretable discount)	(570		)	—		64			(506		)
Cash flows expected to be collected	3,051			—		(645		)	2,406
Interest component of expected cash flows (accretable yield)	(420		)	174		(65		)	(311		)
Recorded investment in loans acquired with deteriorating credit quality	$	2,631		$	174	$	(710	)	$	2,095

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PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2017

Property, Plant and Equipment [Abstract]

Schedule of Premises and Equipment

Premises and equipment at December 31, 2017 and 2016 are as follows (in thousands):

	2017		2016
Land	$	4,803	$	4,803
Buildings	41,045		40,831
Projects in progress	357		—
Equipment and furniture	37,545		37,072
Leasehold improvements	5,465		5,445
	89,215		88,151
Less accumulated depreciation and amortization	62,558		59,228
Net book value	$	26,657	$	28,923

Rent Commitments, before Considering Renewal Options

Rent commitments, before considering renewal options that generally are present, were as follows (in thousands):

Year	Estimated Expense
2018	$	1,121
2019	902
2020	737
2021	732
2022	732
2023 and thereafter	4,369
Total	$	8,593

Schedule of Capital Leased Assets

The Corporation has included these leases in premises and equipment as follows:

	2017			2016
Buildings	$	5,572		$	5,572
Accumulated depreciation	(874		)	(540		)
Net book value	$	4,698		$	5,032

Schedule of Future Minimum Lease Payments for Capital Leases

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2017 (in thousands):

Year	Amount
2018	$	367
2019	367
2020	376
2021	388
2022	391
2023 and thereafter	4,031
Total minimum lease payments	5,920
Less amount representing interest	1,403
Present value of net minimum lease payments	$	4,517

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GOODWILL AND INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2017

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Changes in Goodwill

The changes in goodwill included in the core banking segment during the years ended December 31, 2017 and 2016 were as follows (in thousands):

	2017		2016
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

Schedule of Acquired Intangible Assets

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

	At December 31, 2017				At December 31, 2016
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,196	$	5,975	$	4,689
Other customer relationship intangibles	5,633		4,327		5,633		3,974
Total	$	11,608	$	9,523	$	11,608	$	8,663

Schedule of Remaining Estimated Aggregate Amortization Expense

The remaining estimated aggregate amortization expense at December 31, 2017 is listed below (in thousands):

Year	Estimated Expense
2018	$	734
2019	609
2020	484
2021	258
Total	$	2,085

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2017

Deposits [Abstract]

Summary of Deposits

A summary of deposits at December 31, 2017 and 2016 is as follows (in thousands):

	2017		2016
Non-interest-bearing demand deposits	$	467,610	$	417,812
Interest-bearing demand deposits	149,026		136,826
Insured money market accounts	513,782		548,963
Savings deposits	218,666		208,636
Time deposits	118,362		144,106
Total	$	1,467,446	$	1,456,343

Scheduled Maturities of Time Deposits

Scheduled maturities of time deposits at December 31, 2017, are summarized as follows (in thousands):

Year	Maturities
2018	$	80,180
2019	20,475
2020	7,952
2021	2,658
2022	4,049
2023	3,048
Total	$	118,362

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Tables)

12 Months Ended

Dec. 31, 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 and for the years ended December 31, 2017, 2016 and 2015 is as follows (in thousands):

	2017			2016			2015
Balance at December 31	$	10,000		$	27,606		$	28,453
Maximum month-end balance	$	25,718		$	30,497		$	32,145
Average balance during year	$	14,207		$	29,120		$	30,236
Weighted-average interest rate at December 31	3.72		%	3.02		%	2.93		%
Average interest rate paid during year	3.37		%	2.92		%	2.80		%

The contractual maturity of securities sold under agreements to repurchase by collateral pledged as of December 31, 2017 and 2016 is as follows (in thousands):

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—		$	—	$	—	$	—
Mortgage-backed securities, residential	—		11,798			—		—		11,798
Total	—		11,798			—		—		11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
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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FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES (Tables)

12 Months Ended

Dec. 31, 2017

Advances from Federal Home Loan Banks [Abstract]

Schedule of Federal Home Loan Bank Advances

The following is a summary of FHLBNY fixed rate advances at December 31, 2017 and 2016.  The carrying amount includes the advance balance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

2017
Amount		Rate		Maturity Date	Call Date
$	57,700	1.53	%	January 2, 2018	-
2,000		3.05	%	January 2, 2018	-
$	59,700	1.58	%

2016
Amount		Rate		Maturity Date	Call Date
$	4,041	3.90	%	October 19, 2017	January 19, 2017
3,031		2.91	%	December 4, 2017	March 3, 2017
2,021		3.05	%	January 2, 2018	April 1, 2017
$	9,093	3.38	%

Federal Home Loan Bank, Advances

Payments over the next five years are as follows:

Year	Amount
2018	$	59,700
2019	—
2020	—
2021	—
2022	—
Total	$	59,700

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DERIVATIVES (Tables)

12 Months Ended

Dec. 31, 2017

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments

The following table presents information regarding our derivative financial instruments, at December 31:

2017	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	7	$	36,675	8.3	4.40	%	4.17	%	$	(974	)
Interest rate swap agreements with third-party counter-parties	7	36,675		8.3	4.17	%	4.40	%	974
Risk participation agreements	6	20,427		17.7					(75		)
Total	20	$	93,777						$	(75	)

2016	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	5	$	18,378	7.9	4.05	%	3.36	%	$	(693	)
Interest rate swap agreements with third-party counter-parties	5	18,378		7.9	3.36	%	4.05	%	693
Risk participation agreements	5	15,401		23.5					(68		)
	15	$	52,157						$	(68	)

2015	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	1	$	1,934	5.9	4.33	%	3.02	%	$	15
Interest rate swap agreements with third-party counter-parties	1	$	1,934	5.9	3.02	%	4.33	%	$	(16	)
Risk participation agreements	4	$	10,528	26.2					$	(47	)
	6	$	14,396						$	(48	)

Schedule of Derivatives Not Designated as Hedging Instruments, Statements of Income

Amounts included in the Consolidated Statements of Income related to derivatives not designated as hedging were as follows:

	Years Ended December 31,
	2017			2016			2015
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized gain (loss) recognized in non-interest income	$	(281	)	$	(708	)	$	15
Interest rate swap agreements with third-party counter-parties:
Unrealized gain (loss) recognized in non-interest income	281			709			(16		)
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(7		)	(21		)	(29		)
Unrealized gain (loss) recognized in non-interest income	$	(7	)	$	(20	)	$	(30	)

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2017

Income Tax Disclosure [Abstract]

Components of Income Tax Expense Attributable to Income from Operations

For the years ended December 31, 2017, 2016 and 2015, income tax expense attributable to income from operations consisted of the following (in thousands):

	2017		2016			2015
Current expense:
Federal	$	2,594	$	6,330		$	3,668
State	417		638			216
Total current	3,011		6,968			3,884
Deferred expense/(benefit):
Federal	942		(2,177		)	595
State	382		(387		)	179
Remeasurement of deferred tax assets	2,927		—			—
Total deferred	4,251		(2,564		)	774
Income tax expense	$	7,262	$	4,404		$	4,658

Reconciliation of Income Tax Expense

Income tax expense differed from the amounts computed by applying the U.S. Federal statutory income tax rate to income before income tax expense as follows (in thousands):

	2017			2016			2015
Statutory federal tax rate	34		%	34		%	34		%
Tax computed at statutory rate	$	5,006		$	4,907		$	4,791
Increase (reduction) resulting from:
Tax-exempt income	(663		)	(511		)	(441		)
831(b) premium adjustment	(269		)	(368		)	—
Dividend exclusion	(8		)	(5		)	(41		)
State taxes, net of Federal impact	201			165			238
Nondeductible interest expense	8			9			8
Remeasurement of deferred tax assets	2,927			—			—
Other items, net	60			207			103
Income tax expense	$	7,262		$	4,404		$	4,658
Effective tax rate	49.4		%	30.5		%	33.1		%

Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2017 and 2016, are presented below (in thousands):

	2017		2016
Deferred tax assets:
Allowance for loan losses	$	5,396	$	5,405
Accrual for employee benefit plans	186		337
Depreciation	86		2,119
Deferred compensation and directors' fees	872		1,195
Purchase accounting adjustment – deposits	7		21
Purchase accounting adjustment – loans	35		44
Purchase accounting adjustment – fixed assets	149		221
Gain on deemed sale of securities	567		798
Net unrealized losses on securities available for sale	1,169		2,643
Accounting for defined benefit pension and other benefit plans	2,370		4,091
Nonaccrued interest	544		944
Accrued expense	868		854
Other items, net	160		286
Total gross deferred tax assets	12,409		18,958
Deferred tax liabilities:
Deferred loan fees and costs	676		940
Prepaid pension	3,023		3,956
Discount accretion	239		342
Core deposit intangible	1,026		1,460
REIT dividend	844		—
Other	101		152
Total gross deferred tax liabilities	5,909		6,850
Net deferred tax asset	$	6,500	$	12,108

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PENSION PLAN AND OTHER BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2017

Pension Plan

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Change in Benefit Obligation

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	39,791		$	43,797
Service cost	—			1,047
Interest cost	1,646			1,883
Actuarial (gain) loss	2,634			913
Curtailments	—			(6,161		)
Benefits paid	(1,831		)	(1,688		)
Benefit obligation at end of year	$	42,240		$	39,791

Change in Plan Assets

Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	41,560		$	39,951
Actual return on plan assets	6,943			3,297
Employer contributions	—			—
Benefits paid	(1,831		)	(1,688		)
Fair value of plan assets at end of year	$	46,672		$	41,560
Funded status	$	4,432		$	1,769

Amount Recognized in Accumulated Other Comprehensive Income

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	9,356	$	10,788
Prior service cost	—		—
Total before tax effects	$	9,356	$	10,788

Assumptions Used in Determining Benefit Obligation

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

Components of Net Periodic Benefit Cost

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2017, 2016 and 2015 consist of the following (in thousands):

Net periodic benefit cost	2017			2016			2015
Service cost, benefits earned during the year	$	—		$	1,047		$	1,231
Interest cost on projected benefit obligation	1,646			1,883			1,806
Expected return on plan assets	(3,144		)	(3,019		)	(3,287		)
Amortization of net loss	267			1,549			1,414
Amortization of  prior service cost	—			7			7
Net periodic cost (benefit)	$	(1,231	)	$	1,467		$	1,171

Schedule of Other Amounts Recognized in Other Comprehensive Income

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	(1,165	)	$	(5,526	)	$	1,888
Recognized loss	(267		)	(1,549		)	(1,414		)
Amortization of prior service cost	—			(7		)	(7		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	(1,432	)	$	(7,082	)	$	467
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(2,663	)	$	(5,615	)	$	1,638

Amounts Expected to be Recognized in Net Periodic Cost

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	174
Prior service cost recognition	$	—

Assumptions Used in Determining Net Periodic Benefit Cost

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 were as follows:

	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Expected long-term rate of return on assets	7.75	%	7.75	%	7.75	%
Assumed rate of future compensation increase	N/A		5.00	%	5.00	%

Target Assets Allocations

The expected return on plan assets was determined based on a CAPM using historical and expected future returns of the various asset classes, reflecting the target allocations described below.

Asset Class	Target Allocation 2017	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2017		2016
Large cap domestic equities	30% - 60%	40	%	57	%	10.3	%
Mid-cap domestic equities	0% - 20%	6	%	5	%	10.6	%
Small-cap domestic equities	0% - 15%	7	%	2	%	10.8	%
International equities	0% - 25%	13	%	7	%	10.3	%
Intermediate fixed income	20% - 50%	29	%	26	%	4.7	%
Alternative assets	0% - 10%	—	%	—	%	7.5	%
Cash	0% - 20%	5	%	3	%	2.5	%
Total		100	%	100	%

Fair Value of Plan Assets

The fair value of the plan assets at December 31, 2017 and 2016, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2017 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,066	$	2,066	$	—	$	—
Equity securities:
U.S. companies	20,865		20,865		—		—
International companies	—		—		—		—
Mutual funds	19,253		19,253		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,217		—		2,217		—
U.S. Corporate bonds	2,271		—		2,271		—
Total plan assets	$	46,672	$	42,184	$	4,488	$	—

			Fair Value Measurement at December 31, 2016 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	1,324	$	1,324	$	—	$	—
Equity securities:
U.S. companies	19,972		19,972		—		—
International companies	847		847		—		—
Mutual funds	14,680		14,680		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,218		—		2,218		—
U.S. Corporate bonds	2,519		—		2,519		—
Total plan assets	$	41,560	$	36,823	$	4,737	$	—

Estimated Benefit Payments

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the pension plan (in thousands):

Calendar Year	Future Expected Benefit Payments
2018	$	2,200
2019	$	2,244
2020	$	2,270
2021	$	2,301
2022	$	2,326
2023-2027	$	11,829

Defined Benefit Health Care Plan

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Change in Benefit Obligation

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2017 and 2016 (in thousands):

Changes in accumulated postretirement benefit obligation:	2017			2016
Accumulated postretirement benefit obligation - beginning of year	$	423		$	1,664
Service cost	—			43
Interest cost	20			66
Participant contributions	76			87
Amendments	—			(1,101		)
Actuarial (gain) loss	98			138
Benefits paid	(176		)	(474		)
Accumulated postretirement benefit obligation at end of year	$	441		$	423

Change in Plan Assets

Change in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	100			387
Plan participants’ contributions	76			87
Benefits paid	(176		)	(474		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(441	)	$	(423	)

Amount Recognized in Accumulated Other Comprehensive Income

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017			2016
Net actuarial loss	$	592		$	636
Prior service credit	(881		)	(1,101		)
Total before tax effects	$	(289	)	$	(465	)

Components of Net Periodic Benefit Cost

The components of net periodic postretirement benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic cost (benefit)	2017			2016			2015
Service cost	$	—		$	43		$	46
Interest cost	20			66			70
Amortization of prior service benefit	(220		)	(97		)	(97		)
Recognized actuarial loss	143			20			20
Recognized prior service benefit due to curtailments	—			(337		)	—
Net periodic postretirement cost (benefit)	$	(57	)	$	(305	)	$	39

Schedule of Other Amounts Recognized in Other Comprehensive Income

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2017			2016			2015
Net actuarial gain	$	98		$	139		$	216
Recognized actuarial loss	(143		)	(20		)	(20		)
Prior service credit	—			(1,101		)	—
Amortization of  prior service benefit	220			434			97
Total recognized in other comprehensive income (loss)(before tax effect)	$	175		$	(548	)	$	293
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	118		$	(853	)	$	332

Amounts Expected to be Recognized in Net Periodic Cost

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	110
Prior service cost recognition	$	(220	)

Effect of One-Percentage Point Change in Assumed Health Care Cost Trend Rates

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan.  A one-percentage point change in assumed health care cost trend rates would have the following effects (in thousands):

Effect of a 1% increase in health care trend rate on:	2017		2016		2015
Benefit obligation	$	5	$	2	$	3
Total service and interest cost	$	—	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2017			2016			2015
Benefit obligation	$	(6	)	$	(3	)	$	(3	)
Total service and interest cost	$	—		$	—		$	—

Weighted-Average Assumption for Disclosure of Health Care Cost Trend

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Health care cost trend: Initial	6.50	%	6.50	%	7.00	%
Health care cost trend: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate cost trend reached	2021		2020		2019

Weighted-Average Assumption for Net Periodic Cost

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Health care cost trend: Initial	6.50	%	7.00	%	7.00	%
Health care cost tread: Ultimate	5.00	%	5.00	%	5.00	%
Year ultimate reached	2020		2019		2018

Estimated Benefit Payments

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	139
2019	$	111
2020	$	59
2021	$	38
2022	$	28
2023-2027	$	77

Executive Supplemental Pension Plan

Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]

Change in Benefit Obligation

The following table presents Executive Supplemental Pension plan status at December 31, 2017 and 2016 (in thousands):

Change in projected benefit obligation:	2017			2016
Benefit obligation at beginning of year	$	1,248		$	1,210
Service cost	—			43
Interest cost	50			51
Actuarial (gain) loss	66			19
Benefits paid	(75		)	(75		)
Projected benefit obligation at end of year	$	1,289		$	1,248

Change in Plan Assets

Changes in plan assets:	2017			2016
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	75			75
Benefits paid	(75		)	(75		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,289	)	$	(1,248	)

Amount Recognized in Accumulated Other Comprehensive Income

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2017 and 2016 consist of the following (in thousands):

	2017		2016
Net actuarial loss	$	228	$	165
Prior service cost	—		—
Total before tax effects	$	228	$	165

Assumptions Used in Determining Benefit Obligation

Accumulated benefit obligation at December 31, 2017 and 2016 was $1.3 million.

Weighted-average assumption for disclosure as of December 31:	2017		2016		2015
Discount rate	3.74	%	4.16	%	4.39	%
Assumed rate of future compensation increase	N/A		N/A		5.00	%

Components of Net Periodic Benefit Cost

The components of net periodic benefit cost for the years ended December 31, 2017, 2016 and 2015 are as follows (in thousands):

Net periodic benefit cost	2017		2016		2015
Service cost	$	—	$	43	$	44
Interest cost	50		51		49
Recognized actuarial loss	3		26		50
Net periodic postretirement benefit cost	$	53	$	120	$	143

Schedule of Other Amounts Recognized in Other Comprehensive Income

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2017			2016			2015
Net actuarial (gain) loss	$	66		$	18		$	(52	)
Recognized actuarial loss	(3		)	(26		)	(50		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	63		$	(8	)	$	(102	)
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	116		$	112		$	41

Amounts Expected to be Recognized in Net Periodic Cost

Amounts expected to be recognized in net periodic cost during 2018 (in thousands):
Loss recognition	$	7
Prior service cost recognition	$	—

Assumptions Used in Determining Net Periodic Benefit Cost

Weighted-average assumptions for net periodic cost as of December 31:	2017		2016		2015
Discount rate	4.16	%	4.39	%	4.09	%
Salary scale	N/A		N/A		5.00	%

Estimated Benefit Payments

The following table presents the estimated benefit payments for each of the next five years and the aggregate amount expected to be paid in years six through ten for the Supplemental Pension Plan (in thousands):

Calendar Year	Future Estimated Benefit Payments
2018	$	109
2019	$	107
2020	$	106
2021	$	104
2022	$	101
2023-2027	$	456

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STOCK COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2017

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

Summary of Restricted Stock Activity

A summary of restricted stock activity as of December 31, 2017, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2016	23,794		$	29.90
Granted	10,161		49.74
Vested	(7,294	)	29.15
Forfeited or Cancelled	(1,139	)	29.97
Nonvested at December 31, 2017	25,522		$	38.01

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2017

Related Party Transactions [Abstract]

Summary of Related Party Loans

These loans are summarized as follows for the years ended December 31, 2017 and 2016 (in thousands):

	2017			2016
Balance at beginning of year	$	35,469		$	36,911
New loans or additional advances	6,872			5,742
Repayments	(3,188		)	(7,184		)
Balance at end of year	$	39,153		$	35,469

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2017

Commitments and Contingencies Disclosure [Abstract]

Contractual Amounts of Financial Instruments with Off-Balance Sheet Risk

The contractual amounts of financial instruments with off-balance sheet risk at year-end were as follows (in thousands):

	2017				2016
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	16,019	$	28,591	$	38,246	$	33,189
Unused lines of credit	$	1,604	$	200,353	$	610	$	208,124
Standby letters of credit	$	—	$	15,022	$	—	$	14,241

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PARENT COMPANY FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2017

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Parent Company Statement of Financial Position

Condensed parent company only financial statement information of Chemung Financial Corporation is as follows (investment in subsidiaries is recorded using the equity method of accounting) (in thousands):

BALANCE SHEETS - DECEMBER 31	2017		2016
Assets:
Cash on deposit with subsidiary bank	$	3,017	$	2,336
Investment in subsidiary - Chemung Canal Trust Company	142,884		138,469
Investment in subsidiary - CFS Group, Inc.	904		946
Investment in subsidiary - Chemung Risk Management, Inc.	1,624		833
Dividends receivable from subsidiary bank	1,233		1,225
Securities available for sale, at estimated fair value	420		386
Other assets	1,039		825
Total assets	$	151,121	$	145,020
Liabilities and shareholders' equity:
Dividends payable	$	1,233	$	1,225
Other liabilities	75		47
Total liabilities	1,308		1,272
Shareholders' equity:
Total shareholders' equity	149,813		143,748
Total liabilities and shareholders' equity	$	151,121	$	145,020

Parent Company Statement of Income

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2017			2016			2015
Dividends from subsidiary bank	$	4,926		$	4,889		$	2,424
Interest and dividend income	10			9			9
Non-interest income	22			—			—
Non-interest expenses	433			526			270
Income before impact of subsidiaries' undistributed earnings	4,525			4,372			2,163
Equity in undistributed earnings of Chemung Canal Trust Company	1,939			4,856			7,015
Equity in undistributed earnings of CFS Group, Inc.	(42		)	(48		)	86
Equity in undistributed earnings of Chemung Risk Management, Inc.	791			583			—
Income before income tax	7,213			9,763			9,264
Income tax benefit	(217		)	(264		)	(169		)
Net Income	$	7,430		$	10,027		$	9,433

Parent Company Statement of Cash Flows

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2017			2016			2015
Cash flows from operating activities:
Net Income	$	7,430		$	10,027		$	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(1,939		)	(4,856		)	(7,015		)
Equity in undistributed earnings of CFS Group, Inc.	42			48			(86		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	(791		)	(583		)	—
Change in dividend receivable	(8		)	(11		)	(10		)
Change in other assets	(214		)	82			222
Change in other liabilities	51			(203		)	(23		)
Expense related to employee stock compensation	200			210			93
Expense related to restricted stock units for directors' deferred compensation plan	98			97			95
Expense to employee restricted stock awards	210			192			314
Net cash provided by operating activities	5,079			5,003			3,023
Cash flow from financing activities:
Cash dividends paid	(4,919		)	(4,878		)	(4,833		)
Purchase of treasury stock	(61		)	(22		)	(33		)
Sale of treasury stock	582			438			438
Net cash used in financing activities	(4,398		)	(4,462		)	(4,428		)
Increase (decrease) in cash and cash equivalents	681			541			(1,405		)
Cash and cash equivalents at beginning of year	2,336			1,795			3,200
Cash and cash equivalents at end of year	$	3,017		$	2,336		$	1,795

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FAIR VALUES (Tables)

12 Months Ended

Dec. 31, 2017

Fair Value Disclosures [Abstract]

Summary of Assets and Liabilities Measured at Fair Value on Recurring Basis

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

			Fair Value Measurement at December 31, 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	$	15,491	$	—	$	15,491	$	—
Mortgage-backed securities, residential	219,909		—		219,909		—
Obligations of states and political subdivisions	53,132		—		53,132		—
Corporate bonds and notes	251		—		251		—
SBA loan pools	4,308		—		4,308		—
Corporate stocks	536		204		332		—
Total available for sale securities	$	293,627	$	204	$	293,423	$	—
Trading assets	$	988	$	988	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

			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

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

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 year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes					Derivative Liabilities
(in thousands)	2017			2016		2017			2016
Balance of recurring Level 3 assets at January 1	$	250		$	248	$	(68	)	$	(48	)
Derivative instruments entered into	—			—		(5		)	(25		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—			—		(2		)	5
Included in other comprehensive income	1			2		—			—
Transfers out of Level 3	(251		)	—		—			—
Balance of recurring Level 3 assets at December 31	$	—		$	250	$	(75	)	$	(68	)

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Table Text Block]

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 year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes					Derivative Liabilities
(in thousands)	2017			2016		2017			2016
Balance of recurring Level 3 assets at January 1	$	250		$	248	$	(68	)	$	(48	)
Derivative instruments entered into	—			—		(5		)	(25		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—			—		(2		)	5
Included in other comprehensive income	1			2		—			—
Transfers out of Level 3	(251		)	—		—			—
Balance of recurring Level 3 assets at December 31	$	—		$	250	$	(75	)	$	(68	)

Fair Value Inputs, Liabilities, Quantitative Information

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

Description	Fair Value at December 31, 2017		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Derivative liabilities	$	75	Historical trend	Credit default rate	5.67% - 5.67% [5.67%]

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%]

Information Related To Level 3 Non-Recurring Fair Value Measurement

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

			Fair Value Measurement at December 31, 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)		Total Gains (Losses)
Impaired Loans:
Commercial and agricultural:
Commercial and industrial	$	96	$	—	$	—	$	96	$	(70	)
Commercial mortgages:
Commercial mortgages	411		—		—		411		(105		)
Total impaired loans	$	507	$	—	$	—	$	507	$	(175	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	1,483	$	—	$	—	$	1,483	$	(43	)
Residential mortgages	382		—		—		382		—
Consumer loans:
Home equity lines and loans	75		—		—		75		—
Total other real estate owned, net	$	1,940	$	—	$	—	$	1,940	$	(43	)

			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)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	2,631	$	—	$	—	$	2,631	$	8
Consumer loans:
Home equity lines and loans	219		—		—		219		(65		)
Total impaired loans	$	2,850	$	—	$	—	$	2,850	$	(57	)
Other real estate owned:
Residential mortgages	$	344	$	—	$	—	$	344	$	(7	)
Total other real estate owned, net	$	344	$	—	$	—	$	344	$	(7	)

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2017 and 2016 (in thousands):

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2017
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	96	Sales comparison	Discount to appraised value	0.00% - 36.07% [33.02%]
Commercial mortgages:
Commercial mortgages	411		Sales comparison	Discount to appraised value	10.00% - 89.98% [51.35%]
	$	507
OREO:
Commercial and agricultural:
Commercial and industrial	$	1,483	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.75%]
Residential mortgages	382		Sales comparison	Discount to appraised value	17.28% - 27.97% [20.77%]
Consumer loans:
Home equity lines and loans	75		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	1,940

Asset	Fair Value		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2016
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	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

Carrying Value and Estimated Fair Value of Other Financial Instruments

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

			Fair Value Measurements at December 31, 2017 Using
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	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Trading assets	988		988		—		—		988
Securities available for sale	293,627		204		293,423		—		293,627
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,290,663		—		—		1,289,584		1,289,584
Loans held for sale	542		—		542		—		542
Accrued interest receivable	4,642		1		867		3,774		4,642
Derivative assets	974		—		974		—		974
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,349,084	$	1,349,084	$	—	$	—	$	1,349,084
Time deposits	118,362		—		118,598		—		118,598
Securities sold under agreements to repurchase	10,000		—		10,058		—		10,058
FHLBNY overnight advances	57,700		—		57,700		—		57,700
FHLBNY term advances	2,000		—		2,001		—		2,001
Accrued interest payable	148		24		124		—		148
Derivative liabilities	1,049		—		974		75		1,049

(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.

			Fair Value Measurements at December 31, 2016 Using
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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REGULATORY CAPITAL REQUIREMENTS (Tables)

12 Months Ended

Dec. 31, 2017

Regulatory Capital Requirements [Abstract]

Actual Capital Amounts and Ratios of Corporation and Bank

The actual capital amounts and ratios of the Corporation and the Bank are presented in the following tables (in thousands):

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2017	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	153,020	11.82	%	$	103,527	8.00	%	$	119,703	9.250	%	N/A		N/A
Bank	$	146,129	11.31	%	$	103,390	8.00	%	$	119,545	9.250	%	$	129,238	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	77,645	6.00	%	$	93,821	7.250	%	N/A		N/A
Bank	$	129,881	10.05	%	$	77,543	6.00	%	$	93,697	7.250	%	$	103,390	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	136,660	10.56	%	$	58,234	4.50	%	$	74,410	5.750	%	N/A		N/A
Bank	$	129,881	10.05	%	$	58,157	4.50	%	$	74,312	5.750	%	$	84,004	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	136,660	8.02	%	$	68,200	4.00	%	N/A		N/A		N/A		N/A
Bank	$	129,881	7.63	%	$	68,045	4.00	%	N/A		N/A		$	85,057	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
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	%

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ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS (Tables)

12 Months Ended

Dec. 31, 2017

Equity [Abstract]

Summary of Changes in Accumulated Other Comprehensive Income or Loss by Component, Net of Tax

The following is a summary of the changes in accumulated other comprehensive income or 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 December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive income	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)
Other comprehensive income (loss) before reclassification	(3,952		)	3,341			(611		)
Amounts reclassified from accumulated other comprehensive income (loss)	(614		)	1,413			799
Net current period other comprehensive income (loss)	(4,566		)	4,754			188
Balance at December 31, 2016	$	(4,356	)	$	(6,398	)	$	(10,754	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2015	$	1,960		$	(10,745	)	$	(8,785	)
Other comprehensive income (loss) before reclassification	(1,520		)	(1,268		)	(2,788		)
Amounts reclassified from accumulated other comprehensive income (loss)	(230		)	861			631
Net current period other comprehensive loss	(1,750		)	(407		)	(2,157		)
Balance at December 31, 2015	$	210		$	(11,152	)	$	(10,942	)

Reclassification Out of Accumulated Other Comprehensive Income

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2017			2016			2015
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	(109	)	$	(987	)	$	(372	)	Net gains on securities transactions
Tax effect	41			373			142			Income tax expense
Net of tax	(68		)	(614		)	(230		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	674			(90		)	Pension and other employee benefits
Actuarial losses (a)	413			1,595			1,484			Pension and other employee benefits
Tax effect	(74		)	(856		)	(533		)	Income tax expense
Net of tax	119			1,413			861
Total reclassification for the period, net of tax	$	51		$	799		$	631

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 12 for additional information).

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SEGMENT REPORTING (Tables)

12 Months Ended

Dec. 31, 2017

Segment Reporting [Abstract]

Summarized Financial Information Concerning Reportable Segments And Reconciliation To Consolidated Results

CRM was formed during the second quarter of 2016, therefore, is not included within the year ended December 31, 2015 results.

Year ended December 31, 2017	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,224		8,805		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,234		3,141		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,951	$	1,950	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

Year ended December 31, 2016	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	56,159	$	—	$	9		$	56,168
Interest expense	3,839		—		—			3,839
Net interest income	52,320		—		$	9		52,329
Provision for loan losses	2,437		—		—			2,437
Net interest income after provision for loan losses	49,883		—		9			49,892
Non-interest income	12,318		8,316		515			21,149
Non-interest expenses	49,783		5,676		1,151			56,610
Income before income tax expense	12,418		2,640		(627		)	14,431
Income tax expense (benefit)	3,693		997		(286		)	4,404
Segment net income (loss)	$	8,725	$	1,643	$	(341	)	$	10,027
Segment assets	$	1,650,100	$	4,586	$	2,493		$	1,657,179

Year ended December 31, 2015	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	54,240	$	—	$	4		$	54,244
Interest expense	3,602		—		—			3,602
Net interest income	50,638		—		4			50,642
Provision for loan losses	1,571		—		—			1,571
Net interest income after provision for loan losses	49,067		—		4			49,071
Non-interest income	11,019		8,522		906			20,447
Non-interest expenses	48,882		5,517		1,028			55,427
Income (loss) before income tax expense	11,204		3,005		(118		)	14,091
Income tax expense (benefit)	3,620		1,149		(111		)	4,658
Segment net income (loss)	$	7,584	$	1,856	$	(7	)	$	9,433
Segment assets	$	1,614,481	$	4,282	$	1,201		$	1,619,964

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details)	12 Months Ended
	Dec. 31, 2017 USD ($) segment	Dec. 31, 2016 USD ($)
Property, Plant and Equipment [Line Items]
Period of delinquency after which a loan is placed on non-accrual status	90 days
Number of consecutive months for which loans remain current before non-accrual loans are returned to accrual status	6 months
Rolling historical period of net losses used in evaluating general component of valuation allowance for loans not impaired but classified as substandard and special mention	5 years
Number of most recent years of actual loss history used in determining historical loss experience for all other unclassified loans	2 years
Assets under management	$ 1,952,000,000	$ 1,721,000,000
Cash or securities pledged as collateral	$ 231,600,000	191,000,000
Number of operating segments | segment	2
Buildings | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives	15 years
Buildings | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives	50 years
Equipment and Furniture | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Equipment and Furniture | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Chemung Financial Corporation
Property, Plant and Equipment [Line Items]
Assets under management	$ 346,800,000	$ 294,900,000
Derivative
Property, Plant and Equipment [Line Items]
Cash or securities pledged as collateral	$ 0

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Postretirement Benefits (Details)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Pension Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Normal retirement benefit as percentage of final average compensation (in hundredths)	1.20%
Number of consecutive years considered in final average compensation	5 years
Number of prior years considered in final average compensation	10 years
Maximum service period	25 years
Normal retirement additional benefit	1.00%
Maximum additional service years	10 years
Percentage of average monthly compensation in excess of covered compensation for each year of credited service	0.65%
Maximum period of credited service	35 years
Covered compensation period	35 years
Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Contribution cost percentage	50.00%
Minimum age for eligibility before amendment	55 years
Contribution percentage before amendment	40.00%
Retiree premium percentage	100.00%
Cost of coverage contribution	50.00%
Premium contribution percentage after amendment	50.00%
Minimum | Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Retiree age group range	55 years
Maximum | Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Retiree age group range	65 years
Defined Contribution Profit Sharing, Savings and Investment Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Defined contribution plan, employer non-discretionary contribution amount	3.00%
Contribution cost percentage	50.00%
Defined contribution plan, employer matching contribution, percent of employees' gross pay	6.00%
Defined Contribution Plan, Employer Contribution, Vesting Period		5 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Stock-based compensation (Details)	12 Months Ended
	Dec. 31, 2017 USD ($) shares
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (shares)	15,000
Age limit for forfeiture of stock award	65 years
Restricted Stock | Share-based Compensation Award, Vesting Each Year Commencing with First Anniversary Date of Award
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights percent	20.00%
Restricted Stock | Share-based Compensation Award, Vesting on Fifth Anniversary Date
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights percent	100.00%
Incentive Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (shares)	10,000
Cash compensation | $	$ 300,000
Director | Directors' Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (shares)	20,000
Award requisite service period	12 months
Trading days period	30 days
Deferred Compensation, Share-based Payments
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum annual installments period	10 years

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill and Intangible Assets (Details) $ in Millions	1 Months Ended		12 Months Ended
	Nov. 30, 2013 Branch	Mar. 31, 2008 Branch	Dec. 31, 2017 USD ($)
Bank of America
Finite-Lived Intangible Assets [Line Items]
Number of branches acquired | Branch	6
Finite-lived intangible assets			$ 0.3
Bank of America | Core Deposits
Finite-Lived Intangible Assets [Line Items]
Useful life			7 years
Partners Trust Bank | Trust Business
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets			$ 1.3
Useful life			15 years
Fort Orange Financial Corp
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets			$ 0.4
Useful life			10 years
M&T Bank branch offices
Finite-Lived Intangible Assets [Line Items]
Number of branches acquired | Branch		3
MT Branch Offices and Canton Bancorp, Inc. | Core Deposits
Finite-Lived Intangible Assets [Line Items]
Useful life			7 years 3 months

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recent Accounting Pronouncements (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($)	Dec. 31, 2018 USD ($) lease	Dec. 31, 2016 USD ($)
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Equity investment portfolio balance	$ 3,000
Right of use leased asset	5,572		$ 5,572
Reclassification of stranded tax effects in AOCI	0
Adjustments for New Accounting Principle, Early Adoption
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Reclassification of stranded tax effects in AOCI	$ 1,800
Scenario, Forecast | Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Right of use leased asset		$ 10,000
Number of leased facilities | lease		15

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RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS (Details) - USD ($)	Dec. 31, 2017	Dec. 31, 2016
RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS [Abstract]
Reserve requirement	$ 1,400,000	$ 1,400,000
Derivative, collateral, obligation to return cash	$ 0	$ 500,000

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SECURITIES - Securities Available for Sale (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	$ 298,212	$ 310,401
Estimated Fair Value	293,627	303,402
Unrealized Gains	785	806
Unrealized Losses	5,370	7,805
Amortized Cost
Within one year	16,998
After one, but within five years	21,048
After five, but within ten years	12,700
After ten years	17,923
Total	297,947
Fair Value
Within one year	16,990
After one, but within five years	21,074
After five, but within ten years	12,746
After ten years	18,064
Total	293,091
Proceeds from sales and calls of securities resulting in gains or losses [Abstract]
Proceeds	5,576	40,413	$ 72,718
Gross gains	109	989	410
Gross losses	0	(2)	(38)
Tax expense	41	373	$ 142
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	15,492	17,300
Estimated Fair Value	15,491	17,455
Unrealized Gains	20	155
Unrealized Losses	21	0
Mortgage-backed securities, residential
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	224,939	253,156
Estimated Fair Value	219,909	245,866
Unrealized Gains	136	202
Unrealized Losses	5,166	7,492
Amortized Cost
Without single maturity date	224,939
Fair Value
Without single maturity date	219,909
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	52,928	38,843
Estimated Fair Value	53,132	38,740
Unrealized Gains	355	209
Unrealized Losses	151	312
Corporate bonds and notes
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	249	249
Estimated Fair Value	251	250
Unrealized Gains	2	1
Unrealized Losses	0	0
SBA loan pools
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	4,339	568
Estimated Fair Value	4,308	570
Unrealized Gains	1	3
Unrealized Losses	32	1
Amortized Cost
Without single maturity date	4,339
Fair Value
Without single maturity date	4,308
Corporate stocks
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	265	285
Estimated Fair Value	536	521
Unrealized Gains	271	236
Unrealized Losses	$ 0	$ 0

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SECURITIES - Securitites Held to Maturity (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	$ 3,781,000	$ 4,705,000
Estimated Fair Value	3,776,000	4,912,000
Unrealized Gains	0	207,000
Unrealized Losses	5,000	0
Amortized Cost
Within one year	988,000
After one, but within five years	2,560,000
After five, but within ten years	233,000
After ten years	0
Total	3,781,000	4,705,000
Fair Value
Within one year	986,000
After one, but within five years	2,557,000
After five, but within ten years	233,000
After ten years	0
Total	3,776,000	4,912,000
Gain (loss) on sale of held-to-maturity securities	0	0
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	1,946,000	3,725,000
Estimated Fair Value	1,946,000	3,931,000
Unrealized Gains	0	206,000
Unrealized Losses	0	0
Amortized Cost
Total	1,946,000	3,725,000
Fair Value
Total	1,946,000	3,931,000
Time deposits with other financial institutions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	1,835,000	980,000
Estimated Fair Value	1,830,000	981,000
Unrealized Gains	0	1,000
Unrealized Losses	5,000	0
Amortized Cost
Total	1,835,000	980,000
Fair Value
Total	$ 1,830,000	$ 981,000

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SECURITIES - Investment Securities Available for Sale in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	$ 123,007	$ 259,567
12 months or longer	131,436	225
Total	254,443	259,792
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	1,199	7,804
12 months or longer	4,171	1
Total	5,370	7,805
Obligations of U.S. Government and U.S. Government sponsored enterprises
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	14,982
12 months or longer	0
Total	14,982
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	21
12 months or longer	0
Total	21
Mortgage-backed securities, residential
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	83,562	233,843
12 months or longer	131,165	0
Total	214,727	233,843
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	1,013	7,492
12 months or longer	4,153	0
Total	5,166	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	20,526	25,724
12 months or longer	271	0
Total	20,797	25,724
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	133	312
12 months or longer	18	0
Total	151	312
SBA loan pools
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	3,937	0
12 months or longer	0	225
Total	3,937	225
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	32	0
12 months or longer	0	1
Total	$ 32	$ 1

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SECURITIES - Securities Pledged (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financial Instruments Owned and Pledged as Collateral [Line Items]
Fair value of securities pledged to secure public funds on deposit or for other purposes	$ 231,600	$ 191,000
Securities pledged to secure securities sold under agreements to repurchase [Abstract]
Amortized Cost	12,082	39,000
Fair Value	11,798	38,276
Equity method investments	3,000
Obligations of U.S. Government and U.S. Government sponsored enterprises
Securities pledged to secure securities sold under agreements to repurchase [Abstract]
Amortized Cost	0	1,231
Fair Value	0	1,276
Mortgage-backed securities, residential
Securities pledged to secure securities sold under agreements to repurchase [Abstract]
Amortized Cost	12,082	37,769
Fair Value	11,798	37,000
Cephas Capital Partners, L.P.
Securities pledged to secure securities sold under agreements to repurchase [Abstract]
Equity method investments	$ 400	$ 400

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan Portfolio (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	$ 1,311,824	$ 1,200,290
Interest receivable on loans	3,758	3,192
Total ending loans balance	1,315,582	1,203,482
Residential mortgages held for sale	542	412
Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total ending loans balance	199,576	177,027
Commercial mortgages:
Composition of loan portfolio [Abstract]
Total ending loans balance	646,174	570,156
Commercial mortgages: | Construction
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	45,558	46,387
Total ending loans balance	45,688	46,510
Commercial mortgages: | Commercial mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	598,772	522,269
Total ending loans balance	600,486	523,646
Residential Mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	194,440	198,493
Total ending loans balance	194,937	198,965
Loans pledged as collateral	149,700	158,000
Consumer Loans
Composition of loan portfolio [Abstract]
Total ending loans balance	274,895	257,334
Consumer Loans | Credit cards
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	1,517	1,476
Total ending loans balance	1,516	1,476
Consumer Loans | Home equity lines and loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	100,591	98,590
Total ending loans balance	100,878	98,853
Consumer Loans | Indirect Consumer Loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	153,060	139,572
Total ending loans balance	153,532	139,993
Consumer Loans | Direct consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	18,879	16,942
Total ending loans balance	18,969	17,012
Commercial and industrial | Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	198,463	176,201
Total ending loans balance	199,030	176,666
Agricultural | Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	544	360
Total ending loans balance	$ 546	$ 361

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowances (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2017	Dec. 31, 2016
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	$ 14,253	$ 14,260	$ 13,686
Charge Offs	(2,571)	(2,830)	(1,631)
Recoveries	457	386	634
Net (charge offs) recoveries	(2,114)	(2,444)	(997)
Provision	9,022	2,437	1,571
Ending balance	21,161	14,253	14,260
Ending allowance balance attributable to loans:
Individually evaluated for impairment				$ 5,937	$ 876
Collectively evaluated for impairment				15,195	13,293
Allowance for loan losses	14,253	14,260	13,686	21,161	14,253
Loans:
Loans individually evaluated for impairment				13,926	11,926
Loans collectively evaluated for impairment				1,300,864	1,190,138
Total ending loans balance				1,315,582	1,203,482
Commercial, and Agricultural
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	1,589	1,831	1,460
Charge Offs	(96)	(217)	(186)
Recoveries	109	92	96
Net (charge offs) recoveries	13	(125)	(90)
Provision	5,374	(117)	461
Ending balance	6,976	1,589	1,831
Ending allowance balance attributable to loans:
Individually evaluated for impairment				5,135	0
Collectively evaluated for impairment				1,841	1,589
Allowance for loan losses	1,589	1,831	1,460	6,976	1,589
Loans:
Loans individually evaluated for impairment				6,133	693
Loans collectively evaluated for impairment				193,443	176,334
Total ending loans balance				199,576	177,027
Commercial mortgages:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	7,270	7,112	6,326
Charge Offs	(419)	(911)	(104)
Recoveries	5	10	131
Net (charge offs) recoveries	(414)	(901)	27
Provision	1,658	1,059	759
Ending balance	8,514	7,270	7,112
Ending allowance balance attributable to loans:
Individually evaluated for impairment				802	735
Collectively evaluated for impairment				7,683	6,476
Allowance for loan losses	7,270	7,112	6,326	8,514	7,270
Loans:
Loans individually evaluated for impairment				7,302	10,382
Loans collectively evaluated for impairment				638,080	558,451
Total ending loans balance				646,174	570,156
Residential Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	1,523	1,464	1,572
Charge Offs	(225)	(65)	(47)
Recoveries	30	0	0
Net (charge offs) recoveries	(195)	(65)	(47)
Provision	(12)	124	(61)
Ending balance	1,316	1,523	1,464
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				1,316	1,498
Allowance for loan losses	1,523	1,464	1,572	1,316	1,523
Loans:
Loans individually evaluated for impairment				427	396
Loans collectively evaluated for impairment				194,510	198,474
Total ending loans balance				194,937	198,965
Consumer Loans
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	3,871	3,853	4,328
Charge Offs	(1,831)	(1,637)	(1,294)
Recoveries	313	284	407
Net (charge offs) recoveries	(1,518)	(1,353)	(887)
Provision	2,002	1,371	412
Ending balance	4,355	3,871	3,853
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	141
Collectively evaluated for impairment				4,355	3,730
Allowance for loan losses	3,871	3,853	$ 4,328	4,355	3,871
Loans:
Loans individually evaluated for impairment				64	455
Loans collectively evaluated for impairment				274,831	256,879
Total ending loans balance				274,895	257,334
Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	84
Ending balance	29	84
Ending allowance balance attributable to loans:
Allowance for loan losses	84	84		29	84
Loans:
Total ending loans balance				792	1,418
Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	0
Ending balance	0	0
Ending allowance balance attributable to loans:
Allowance for loan losses	0	0		0	0
Loans:
Total ending loans balance				0	0
Loans acquired with deteriorated credit quality | Commercial mortgages:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	59
Ending balance	29	59
Ending allowance balance attributable to loans:
Allowance for loan losses	59	59		29	59
Loans:
Total ending loans balance				792	1,323
Loans acquired with deteriorated credit quality | Residential Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	25
Ending balance	0	25
Ending allowance balance attributable to loans:
Allowance for loan losses	25	25		0	25
Loans:
Total ending loans balance				0	95
Loans acquired with deteriorated credit quality | Consumer Loans
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	0
Ending balance	0	0
Ending allowance balance attributable to loans:
Allowance for loan losses	$ 0	$ 0		0	0
Loans:
Total ending loans balance				$ 0	$ 0

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Unpaid Principal Balance
Total	$ 14,094	$ 12,852
Recorded Investment
Total	13,926	11,926
Allowance for Loan Losses Allocated	5,937	876
Average Recorded Investment
With no related allowance recorded	12,699	13,735	$ 15,451
Interest Income Recognized
With no related allowance recorded	154	312	444
Residential Mortgages
Unpaid Principal Balance
With no related allowance recorded	450	395
Recorded Investment
With no related allowance recorded	427	396
Average Recorded Investment
With no related allowance recorded	418	366	244
Interest Income Recognized
With no related allowance recorded	8	5	4
Construction | Commercial mortgages:
Unpaid Principal Balance
With no related allowance recorded	364	277
Recorded Investment
With no related allowance recorded	365	278
Average Recorded Investment
With no related allowance recorded	830	320	992
Interest Income Recognized
With no related allowance recorded	12	14	36
Commercial mortgages | Commercial mortgages:
Unpaid Principal Balance
With no related allowance recorded	4,135	8,792
With an allowance recorded	2,989	2,245
Recorded Investment
With no related allowance recorded	4,138	7,857
With an allowance recorded	2,799	2,247
Allowance for Loan Losses Allocated	802	735
Average Recorded Investment
With no related allowance recorded	5,606	6,793	7,728
With an allowance recorded	3,751	4,749	4,503
Interest Income Recognized
With no related allowance recorded	78	240	264
With an allowance recorded	12	6	49
Home equity lines and loans | Consumer Loans
Unpaid Principal Balance
With no related allowance recorded	64	93
With an allowance recorded	0	360
Recorded Investment
With no related allowance recorded	64	95
With an allowance recorded	0	360
Allowance for Loan Losses Allocated	0	141
Average Recorded Investment
With no related allowance recorded	74	102	396
With an allowance recorded	144	362	84
Interest Income Recognized
With no related allowance recorded	3	5	6
With an allowance recorded	0	0	18
Commercial and industrial | Commercial, and Agricultural
Unpaid Principal Balance
With no related allowance recorded	861	690
With an allowance recorded	5,231	0
Recorded Investment
With no related allowance recorded	867	693
With an allowance recorded	5,266	0
Allowance for Loan Losses Allocated	5,135	0
Average Recorded Investment
With no related allowance recorded	706	1,010	1,358
With an allowance recorded	1,170	33	146
Interest Income Recognized
With no related allowance recorded	35	42	64
With an allowance recorded	$ 6	$ 0	$ 3

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Receivables Past Due (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	$ 17,324	$ 12,043
Loans Past Due 90 Days or More and Still Accruing	29	13
Past Due	14,076	17,873
Loans Not Past Due	1,300,714	1,184,191
Loans	1,315,582	1,203,482
30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	7,639	4,969
60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2,605	6,383
90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	3,832	6,521
Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	199,576	177,027
Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	646,174	570,156
Residential Mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	3,160	4,201
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	3,812	4,919
Loans Not Past Due	191,125	193,951
Loans	194,937	198,965
Residential Mortgages | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,399	2,100
Residential Mortgages | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	939	436
Residential Mortgages | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,474	2,383
Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	274,895	257,334
Construction | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	135	19
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	0	1,177
Loans Not Past Due	45,688	45,333
Loans	45,688	46,510
Construction | Commercial mortgages: | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Construction | Commercial mortgages: | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	1,177
Construction | Commercial mortgages: | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Commercial mortgages | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	6,520	5,454
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	3,262	7,524
Loans Not Past Due	596,432	514,799
Loans	600,486	523,646
Commercial mortgages | Commercial mortgages: | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2,399	652
Commercial mortgages | Commercial mortgages: | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	115	4,460
Commercial mortgages | Commercial mortgages: | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	748	2,412
Credit cards | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans Past Due 90 Days or More and Still Accruing	24	11
Past Due	50	23
Loans Not Past Due	1,466	1,453
Loans	1,516	1,476
Credit cards | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	17	3
Credit cards | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	9	9
Credit cards | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	24	11
Home equity lines and loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	1,310	1,670
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	1,279	1,376
Loans Not Past Due	99,599	97,477
Loans	100,878	98,853
Home equity lines and loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	265	227
Home equity lines and loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	31	0
Home equity lines and loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	983	1,149
Indirect Consumer Loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	935	654
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	2,887	2,602
Loans Not Past Due	150,645	137,391
Loans	153,532	139,993
Indirect Consumer Loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,822	1,773
Indirect Consumer Loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	484	287
Indirect Consumer Loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	581	542
Direct consumer loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	14	45
Loans Past Due 90 Days or More and Still Accruing	0	0
Past Due	78	83
Loans Not Past Due	18,891	16,929
Loans	18,969	17,012
Direct consumer loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	48	54
Direct consumer loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	28	7
Direct consumer loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	2	22
Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	792	1,418
Loans	792	1,418
Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	792	1,323
Loans acquired with deteriorated credit quality | Residential Mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	95
Loans	0	95
Loans acquired with deteriorated credit quality | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Construction | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Loans acquired with deteriorated credit quality | Commercial mortgages | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	792	1,323
Loans	792	1,323
Loans acquired with deteriorated credit quality | Credit cards | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Loans acquired with deteriorated credit quality | Home equity lines and loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Loans acquired with deteriorated credit quality | Indirect Consumer Loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Loans acquired with deteriorated credit quality | Direct consumer loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Commercial and industrial | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	5,250	0
Loans Past Due 90 Days or More and Still Accruing	5	2
Past Due	2,708	169
Loans Not Past Due	196,322	176,497
Loans	199,030	176,666
Commercial and industrial | Commercial, and Agricultural | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	1,689	160
Commercial and industrial | Commercial, and Agricultural | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	999	7
Commercial and industrial | Commercial, and Agricultural | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	20	2
Commercial and industrial | Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	0	0
Agricultural | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Loans Not Past Due	546	361
Loans	546	361
Agricultural | Commercial, and Agricultural | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Agricultural | Commercial, and Agricultural | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Agricultural | Commercial, and Agricultural | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past Due	0	0
Agricultural | Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans	$ 0	$ 0

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details)	12 Months Ended
	Dec. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Trouble debt restructurings [Abstract]
Recorded investment in troubled debt restructurings	$ 7,700,000	$ 10,200,000	$ 12,000,000
Specific reserves allocated for troubled debt restructuring	700,000	900,000	1,400,000
Troubled debt restructurings accruing interest under modified terms	1,700,000	5,800,000	7,600,000
Troubled debt restructurings on non-accrual status	6,000,000	4,400,000	4,400,000
Additional amounts committed to customers with loans classified as troubled debt restructurings	$ 0	0	$ 100,000
Additional amounts of interest and past due escrow payments capitalized		$ 4,000
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	5	9	6
Pre-Modification Outstanding Recorded Investment	$ 948,000	$ 854,000	$ 3,287,000
Post-Modification Outstanding Recorded Investment	948,000	769,000	3,287,000
Increase in allowance for loan losses related to troubled debt restructurings	100,000		1,100,000
Troubled debt restructurings, charge offs (less than $0.1 million in 2014)	$ 0	$ 0	$ 0
Number of days past due after which a loan is considered to be in payment default	90 days
Financing receivable, modifications, subsequent default, number of loans | loan	1	0	2
Financing receivable, modifications, subsequent default, recorded investment	$ 164,000		$ 1,877,000
Commercial mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Financing receivable, modifications, subsequent default, number of loans | loan	1		2
Financing receivable, modifications, subsequent default, recorded investment	$ 164,000		$ 1,877,000
Residential Mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan		2
Pre-Modification Outstanding Recorded Investment		$ 295,000
Post-Modification Outstanding Recorded Investment		$ 307,000
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 mortgages:
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan		1
Commercial mortgages: | Commercial mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1	6	5
Pre-Modification Outstanding Recorded Investment	$ 166,000	$ 485,000	$ 2,810,000
Post-Modification Outstanding Recorded Investment	$ 166,000	$ 388,000	$ 2,810,000
Residential Mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans	1
Pre-Modification Outstanding Recorded Investment	$ 105,000
Post-Modification Outstanding Recorded Investment	$ 105,000
Consumer Loans | Home equity lines and loans
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans		1
Extended Maturity
Trouble debt restructurings [Abstract]
Troubled debt restructuring, extension of maturity date, duration		13 years
Closing costs capitalized on restructured loan		$ 8,000
Extended Maturity, Interest Rate Below Market Reduction | Commercial mortgages: | Commercial mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan		5
Payment Deferral
Trouble debt restructurings [Abstract]
Postponement or reduction, amortized payments, period		3 months
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans			5
Troubled debt restructurings, charge offs (less than $0.1 million in 2014)		$ 97,000
Interest Rate Below Market Reduction
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans			2
Commercial and industrial
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	3
Pre-Modification Outstanding Recorded Investment	$ 677,000
Post-Modification Outstanding Recorded Investment	$ 677,000
Commercial and industrial | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan			1
Pre-Modification Outstanding Recorded Investment			$ 477,000
Post-Modification Outstanding Recorded Investment			$ 477,000
Commercial and industrial | Principal Forgiveness | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	2
Commercial and industrial | Extended Maturity | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1
Commercial and industrial | Loan Consolidation | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	2

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit Quality Indicator (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Financing Receivable, Recorded Investment [Line Items]
Number of days past due after which a retail loan is rated	90 days
Loans	$ 1,315,582,000	$ 1,203,482,000
Deteriorated Loans Transferred in [Abstract]
Contractually required principal and interest, beginning of period	1,940,000	2,912,000	$ 3,621,000
Contractually required principal and interest, income accretion	0	0	0
Contractually required principal and interest, all other adjustments	(988,000)	(972,000)	(709,000)
Contractually required principal and interest, end of period	952,000	1,940,000	2,912,000
Contractual cash flows not expected to be collected (nonaccretable discount), beginning of period	(352,000)	(506,000)	(570,000)
Contractual cash flows not expected to be collected (nonaccretable discount), income accretion	0	0	0
Contractual cash flows not expected to be collected (nonaccretable discount), all other adjustments	286,000	154,000	64,000
Contractual cash flows not expected to be collected (nonaccretable discount), end of period	(66,000)	(352,000)	(506,000)
Cash flows expected to be collected	886,000	1,588,000	2,406,000	$ 3,051,000
Cash flows expected to be collected, income accretion	0	0	0
Cash flows expected to be collected, all other adjustments	(702,000)	(818,000)	(645,000)
Interest component of expected cash flows (accretable yield), beginning of period	(170,000)	(311,000)	(420,000)
Interest component of expected cash flows (accretable yield), income accretion	61,000	112,000	174,000
Interest component of expected cash flows (accretable yield), all other adjustments	15,000	29,000	(65,000)
Interest component of expected cash flows (accretable yield, end of period	(94,000)	(170,000)	(311,000)
Recorded Investment in loans acquired with deteriorating credit quality	792,000	1,418,000	2,095,000	$ 2,631,000
Recorded Investment in loans acquired with deteriorating credit quality, income accretion	61,000	112,000	174,000
Recorded Investment in loans acquired with deteriorating credit quality, all other adjustments	(687,000)	(789,000)	(710,000)
Increase in allowance for loan losses for loans acquired	55,000	15,000	5,000
Writedowns on OREO	30,000	0	$ 0
Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	464,414,000	449,634,000
Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	807,976,000	715,012,000
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	14,112,000	11,110,000
Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	25,489,000	24,848,000
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	2,799,000	1,460,000
Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	199,576,000	177,027,000
Commercial mortgages:
Financing Receivable, Recorded Investment [Line Items]
Loans	646,174,000	570,156,000
Commercial mortgages: | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	45,688,000	46,510,000
Commercial mortgages: | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	600,486,000	523,646,000
Commercial mortgages: | Not Rated | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Not Rated | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Pass | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	45,553,000	45,055,000
Commercial mortgages: | Pass | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	575,321,000	496,723,000
Commercial mortgages: | Special Mention | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	259,000
Commercial mortgages: | Special Mention | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	9,665,000	8,574,000
Commercial mortgages: | Substandard | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	135,000	1,196,000
Commercial mortgages: | Substandard | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	13,331,000	15,566,000
Commercial mortgages: | Doubtful | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Doubtful | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	1,377,000	1,460,000
Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	194,937,000	198,965,000
Residential Mortgages | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	191,777,000	194,669,000
Residential Mortgages | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Residential Mortgages | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Residential Mortgages | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	3,160,000	4,201,000
Residential Mortgages | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	274,895,000	257,334,000
Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	1,516,000	1,476,000
Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	100,878,000	98,853,000
Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	153,532,000	139,993,000
Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	18,969,000	17,012,000
Consumer Loans | Not Rated | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	1,516,000	1,476,000
Consumer Loans | Not Rated | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	99,568,000	97,183,000
Consumer Loans | Not Rated | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	152,598,000	139,339,000
Consumer Loans | Not Rated | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	18,955,000	16,967,000
Consumer Loans | Pass | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Substandard | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Substandard | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	1,310,000	1,670,000
Consumer Loans | Substandard | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	934,000	654,000
Consumer Loans | Substandard | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	14,000	45,000
Consumer Loans | Doubtful | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment [Line Items]
Loans	792,000	1,418,000
Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Commercial mortgages:
Financing Receivable, Recorded Investment [Line Items]
Loans	792,000	1,323,000
Loans acquired with deteriorated credit quality | Commercial mortgages: | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Commercial mortgages: | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	792,000	1,323,000
Loans acquired with deteriorated credit quality | Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	0	95,000
Loans acquired with deteriorated credit quality | Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Loans acquired with deteriorated credit quality | Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and industrial | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	199,030,000	176,666,000
Commercial and industrial | Commercial, and Agricultural | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and industrial | Commercial, and Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	186,556,000	172,873,000
Commercial and industrial | Commercial, and Agricultural | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	4,447,000	2,277,000
Commercial and industrial | Commercial, and Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	6,605,000	1,516,000
Commercial and industrial | Commercial, and Agricultural | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	1,422,000	0
Commercial and industrial | Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	546,000	361,000
Agricultural | Commercial, and Agricultural | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	546,000	361,000
Agricultural | Commercial, and Agricultural | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Loans acquired with deteriorated credit quality | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Performing | Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	191,777,000	194,764,000
Performing | Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	1,516,000	1,476,000
Performing | Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	99,568,000	97,183,000
Performing | Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	152,598,000	139,339,000
Performing | Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	18,955,000	16,967,000
Non-Performing | Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	3,160,000	4,201,000
Non-Performing | Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Non-Performing | Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	1,310,000	1,670,000
Non-Performing | Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	934,000	654,000
Non-Performing | Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 14,000	$ 45,000

XML

PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Premises and equipment [Abstract]
Premises and equipment, gross	$ 89,215	$ 88,151
Less accumulated depreciation and amortization	62,558	59,228
Net book value	26,657	28,923
Depreciation expense	3,703	4,205	$ 4,044
Rent expense	1,200	1,200	$ 1,300
Rent commitments, before considering renewal options [Abstract]
2018	1,121
2019	902
2020	737
2021	732
2022	732
2023 and thereafter	4,369
Total	8,593
Leases in premises and equipment [Abstract]
Buildings	5,572	5,572
Accumulated depreciation	(874)	(540)
Total	4,698	5,032
Schedule by year of future minimum lease payments under the capitalized lease [Abstract]
2018	367
2019	367
2020	376
2021	388
2022	391
2023 and thereafter	4,031
Total minimum lease payments	5,920
Less amount representing interest	1,403
Present value of net minimum lease payments	4,517
Land
Premises and equipment [Abstract]
Premises and equipment, gross	4,803	4,803
Buildings
Premises and equipment [Abstract]
Premises and equipment, gross	41,045	40,831
Projects in progress
Premises and equipment [Abstract]
Premises and equipment, gross	357	0
Equipment and furniture
Premises and equipment [Abstract]
Premises and equipment, gross	37,545	37,072
Leasehold improvements
Premises and equipment [Abstract]
Premises and equipment, gross	$ 5,465	$ 5,445

XML

GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Goodwill [Roll Forward]
Beginning of year	$ 21,824	$ 21,824
Acquired goodwill	0	0
End of year	21,824	21,824	$ 21,824
Balance Acquired	11,608	11,608
Accumulated Amortization	9,523	8,663
Aggregate amortization expense	860	986	$ 1,136
Remaining estimated aggregate amortization expense [Abstract]
2018	734
2019	609
2020	484
2021	258
Total	2,085
Core deposit intangibles
Goodwill [Roll Forward]
Balance Acquired	5,975	5,975
Accumulated Amortization	5,196	4,689
Other customer relationship intangibles
Goodwill [Roll Forward]
Balance Acquired	5,633	5,633
Accumulated Amortization	$ 4,327	$ 3,974

XML

DEPOSITS (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016
Summary of deposits [Abstract]
Non-interest-bearing demand deposits	$ 467,610	$ 417,812
Interest-bearing demand deposits	149,026	136,826
Insured money market accounts	513,782	548,963
Savings deposits	218,666	208,636
Time deposits	118,362	144,106
Total deposits	1,467,446	1,456,343
Scheduled maturities of time deposits [Abstract]
2018	80,180
2019	20,475
2020	7,952
2021	2,658
2022	4,049
2023	3,048
Time deposits	118,362	144,106
Time deposits meeting or exceeding FDIC Insurance limit	$ 8,900	$ 14,100

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	$ 10,000	$ 27,606	$ 28,453
Maximum month-end balance	25,718	30,497	32,145
Average balance during year	$ 14,207	$ 29,120	$ 30,236
Weighted-average interest rate at December 31	3.72%	3.02%	2.93%
Average interest rate paid during year	3.37%	2.92%	2.80%
Securities sold under agreements to repurchase	$ 11,798	$ 38,276
Excess collateral held	(1,798)	(10,670)
Securities sold under agreements to repurchase	10,000	27,606	$ 28,453
Overnight and Continuous
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	7,606
Securities sold under agreements to repurchase	0	13,092
Excess collateral held	0	(5,486)
Securities sold under agreements to repurchase	0	7,606
Up to 1 Year
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	10,000	10,000
Securities sold under agreements to repurchase	11,798	10,940
Excess collateral held	(1,798)	(940)
Securities sold under agreements to repurchase	10,000	10,000
1 - 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	10,000
Securities sold under agreements to repurchase	0	14,244
Excess collateral held	0	(4,244)
Securities sold under agreements to repurchase	0	10,000
3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	0
Securities sold under agreements to repurchase	0	0
Excess collateral held	0	0
Securities sold under agreements to repurchase	0	0
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	1,276
Obligations of U.S. Government and U.S. Government sponsored enterprises | Overnight and Continuous
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	0
Obligations of U.S. Government and U.S. Government sponsored enterprises | Up to 1 Year
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	1,276
Obligations of U.S. Government and U.S. Government sponsored enterprises | 1 - 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	0
Obligations of U.S. Government and U.S. Government sponsored enterprises | 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	0
Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	11,798	37,000
Mortgage-backed securities, residential | Overnight and Continuous
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	13,092
Mortgage-backed securities, residential | Up to 1 Year
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	11,798	9,664
Mortgage-backed securities, residential | 1 - 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	0	14,244
Mortgage-backed securities, residential | 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase	$ 0	$ 0

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FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Amount	$ 59,700	$ 9,093
Rate	1.58%	3.38%
Maximum amount eligible to borrow	$ 73,500
Federal Home Loan Bank, Advances, Maturity, Rolling Year [Abstract]
2018	59,700
2019	0
2020	0
2021	0
2022	0
Total	59,700
Federal Home Loan Bank Advances 1.53% Maturing January 2, 2018
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Amount	$ 57,700
Rate	1.53%
Maturity Date	Jan. 02, 2018
Federal Home Loan Bank Advances 3.05% Maturing January 2, 2018
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Amount	$ 2,000	$ 2,021
Rate	3.05%	3.05%
Maturity Date	Jan. 02, 2018	Jan. 02, 2018
Call Date		Apr. 01, 2017
Federal Home Loan Bank Advances Maturing October 19, 2017
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Amount		$ 4,041
Rate		3.90%
Maturity Date		Oct. 19, 2017
Call Date		Jan. 19, 2017
Federal Home Loan Bank Advances Maturing December 4, 2017
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Amount		$ 3,031
Rate		2.91%
Maturity Date		Dec. 04, 2017
Call Date		Mar. 03, 2017
Residential Mortgages
Summary of Federal Home Loan Bank fixed rate advances [Abstract]
Loans pledged as collateral	$ 149,700	$ 158,000

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DERIVATIVES (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) loan	Dec. 31, 2016 USD ($) loan	Dec. 31, 2015 USD ($) loan
Derivative [Line Items]
Unrealized gain (loss) recognized in other non-interest income	$ (7)	$ (20)	$ (30)
Derivatives not designated as hedging instruments:
Derivative [Line Items]
Number of Instruments | loan	20	15	6
Notional Amount	$ 93,777	$ 52,157	$ 14,396
Fair Value Other Assets/ (Other Liabilities)	(75)	$ (68)	$ (48)
Derivatives not designated as hedging instruments: | Swap
Derivative [Line Items]
Notional Amount	$ 73,400
Derivatives not designated as hedging instruments: | Interest Rate Swap
Derivative [Line Items]
Number of Instruments | loan	7	5	1
Notional Amount	$ 36,675	$ 18,378	$ 1,934
Weighted Average Maturity (in years)	8 years 3 months 4 days	7 years 10 months 10 days	5 years 10 months 24 days
Fair Value Other Assets/ (Other Liabilities)	$ (974)	$ (693)	$ 15
Unrealized gain (loss) recognized in other non-interest income	$ (281)	$ (708)	$ 15
Derivatives not designated as hedging instruments: | Interest Rate Swap | Weighted Average Interest Rate Received
Derivative [Line Items]
Average interest rate	4.40%	4.05%	4.33%
Derivatives not designated as hedging instruments: | Interest Rate Swap | Weighted Average Contract Pay Rate
Derivative [Line Items]
Average interest rate	4.17%	3.36%	3.02%
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap
Derivative [Line Items]
Number of Instruments | loan	7	5	1
Notional Amount	$ 36,675	$ 18,378	$ 1,934
Weighted Average Maturity (in years)	8 years 3 months 4 days	7 years 10 months 10 days	5 years 10 months 24 days
Fair Value Other Assets/ (Other Liabilities)	$ 974	$ 693	$ (16)
Unrealized gain (loss) recognized in other non-interest income	$ 281	$ 709	$ (16)
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap | Weighted Average Interest Rate Received
Derivative [Line Items]
Average interest rate	4.17%	3.36%	3.02%
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap | Weighted Average Contract Pay Rate
Derivative [Line Items]
Average interest rate	4.40%	4.05%	4.33%
Derivatives not designated as hedging instruments: | Risk participation agreements
Derivative [Line Items]
Number of Instruments | loan	6	5	4
Notional Amount	$ 20,427	$ 15,401	$ 10,528
Weighted Average Maturity (in years)	17 years 8 months 23 days	23 years 6 months	26 years 2 months 12 days
Fair Value Other Assets/ (Other Liabilities)	$ (75)	$ (68)	$ (47)
Off-balance sheet risk	1,300	1,300
Unrealized gain (loss) recognized in other non-interest income	$ (7)	$ (21)	$ (29)

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INCOME TAXES (Details) - USD ($)		12 Months Ended
	Dec. 22, 2017	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Current:
Federal		$ 2,594,000	$ 6,330,000	$ 3,668,000
State		417,000	638,000	216,000
Total current		3,011,000	6,968,000	3,884,000
Deferred expense/(benefit):
Federal		942,000	(2,177,000)	595,000
State		382,000	(387,000)	179,000
Remeasurement of deferred tax assets	$ 2,900,000	2,927,000	0	0
Total deferred		4,251,000	(2,564,000)	774,000
Income tax expense		$ 7,262,000	$ 4,404,000	$ 4,658,000
Reconciliation of income tax expense [Abstract]
Statutory federal tax rate		34.00%	34.00%	34.00%
Tax computed at statutory rate		$ 5,006,000	$ 4,907,000	$ 4,791,000
Tax-exempt income		(663,000)	(511,000)	(441,000)
831(b) premium adjustment		(269,000)	(368,000)	0
Dividend exclusion		(8,000)	(5,000)	(41,000)
State taxes, net of Federal impact		201,000	165,000	238,000
Nondeductible interest expense		8,000	9,000	8,000
Remeasurement of deferred tax assets		2,927,000	0	0
Other items, net		60,000	207,000	103,000
Income tax expense		$ 7,262,000	$ 4,404,000	$ 4,658,000
Effective tax rate		49.40%	30.50%	33.10%
Deferred tax assets:
Allowance for loan losses		$ 5,396,000	$ 5,405,000
Accrual for employee benefit plans		186,000	337,000
Depreciation		86,000	2,119,000
Deferred compensation and directors' fees		872,000	1,195,000
Purchase accounting adjustment – deposits		7,000	21,000
Purchase accounting adjustment – loans		35,000	44,000
Purchase accounting adjustment – fixed assets		149,000	221,000
Gain on deemed sale of securities		567,000	798,000
Net unrealized losses on securities available for sale		1,169,000	2,643,000
Accounting for defined benefit pension and other benefit plans		2,370,000	4,091,000
Nonaccrued interest		544,000	944,000
Accrued expense		868,000	854,000
Other items, net		160,000	286,000
Total gross deferred tax assets		12,409,000	18,958,000
Deferred tax liabilities:
Deferred loan fees and costs		676,000	940,000
Prepaid pension		3,023,000	3,956,000
Discount accretion		239,000	342,000
Core deposit intangible		1,026,000	1,460,000
REIT dividend		844,000	0
Other		101,000	152,000
Total gross deferred tax liabilities		5,909,000	6,850,000
Net deferred tax asset		6,500,000	12,108,000
Unrecognized tax benefits		0	0	$ 0
Accrued interest or penalties related to uncertain tax positions		$ 0	$ 0	$ 0

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PENSION PLAN AND OTHER BENEFIT PLANS - Changes in Projected Benefit Obligation and Plan Assets, and Funded Status (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Pension Plan
Changes in projected benefit obligation [Roll Forward]
Benefit obligation at beginning of year	$ 39,791	$ 43,797
Service cost	0	1,047	$ 1,231
Interest cost	1,646	1,883	1,806
Actuarial (gain) loss	2,634	913
Curtailments	0	(6,161)
Benefits paid	(1,831)	(1,688)
Benefit obligation at end of year	42,240	39,791	43,797
Changes in plan assets [Roll Forward]
Fair value of plan assets at beginning of year	41,560	39,951
Actual return on plan assets	6,943	3,297
Employer contributions	0	0
Benefits paid	(1,831)	(1,688)
Fair value of plan assets at end of year	46,672	41,560	39,951
Funded status of plan	4,432	1,769
Defined Benefit Health Care Plan
Changes in projected benefit obligation [Roll Forward]
Benefit obligation at beginning of year	423	1,664
Service cost	0	43	46
Interest cost	20	66	70
Participant contributions	76	87
Amendments	0	(1,101)
Actuarial (gain) loss	98	138
Benefits paid	(176)	(474)
Benefit obligation at end of year	441	423	1,664
Changes in plan assets [Roll Forward]
Fair value of plan assets at beginning of year	0	0
Employer contributions	100	387
Participant contributions	76	87
Benefits paid	(176)	(474)
Fair value of plan assets at end of year	0	0	0
Funded status of plan	(441)	(423)
Executive Supplemental Pension Plan
Changes in projected benefit obligation [Roll Forward]
Benefit obligation at beginning of year	1,248	1,210
Service cost	0	43	44
Interest cost	50	51	49
Actuarial (gain) loss	66	19
Benefits paid	(75)	(75)
Benefit obligation at end of year	1,289	1,248	1,210
Changes in plan assets [Roll Forward]
Fair value of plan assets at beginning of year	0	0
Employer contributions	75	75
Benefits paid	(75)	(75)
Fair value of plan assets at end of year	0	0	$ 0
Funded status of plan	$ (1,289)	$ (1,248)

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PENSION PLAN AND OTHER BENEFIT PLANS - Amounts Recognized, Assumptions Used, Target and Actual Allocation, Fair Value, Estimated Future Benefit Payments, and Other Disclosures (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	$ (1,001)	$ (5,369)	$ 2,052
Recognized actuarial loss	(413)	(1,595)	(1,484)
Prior service credit	0	1,101	0
Amortization of prior service benefit	(220)	(427)	(90)
Total before tax effect	1,194	7,638	$ (658)
Pension Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	9,356	10,788
Prior service cost	0	0
Total before tax effects	9,356	10,788
Accumulated benefit obligation	$ 42,200	$ 39,800
Principal actuarial assumptions used in determining projected benefit obligation [Abstract]
Discount rate	3.74%	4.16%	4.39%
Assumed rate of future compensation increase			5.00%
Net periodic benefit cost [Abstract]
Service cost	$ 0	$ 1,047	$ 1,231
Interest cost	1,646	1,883	1,806
Expected return on plan assets	(3,144)	(3,019)	(3,287)
Recognized actuarial loss	267	1,549	1,414
Amortization of prior service cost	0	7	7
Net periodic cost (benefit)	(1,231)	1,467	1,171
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	(1,165)	(5,526)	1,888
Recognized actuarial loss	(267)	(1,549)	(1,414)
Amortization of prior service benefit	0	(7)	(7)
Total before tax effect	(1,432)	(7,082)	467
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ (2,663)	$ (5,615)	$ 1,638
Unrecognized net gain or loss increase threshold percentage for amortization of obligation (in hundredths)	10.00%
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 174
Prior service cost recognition	$ 0
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.16%	4.39%	4.09%
Expected long-term rate of return on assets	7.75%	7.75%	7.75%
Assumed rate of future compensation increase		5.00%	5.00%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	100.00%	100.00%
Expected long-term rate of return on assets	7.75%	7.75%	7.75%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 46,672	$ 41,560	$ 39,951
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2018	2,200
2019	2,244
2020	2,270
2021	2,301
2022	2,326
2023-2027	$ 11,829
Pension Plan | Minimum
Effect of a 1% decrease in health care trend rate on:
Evaluation period of expected long-term return on plan assets	3 years
Pension Plan | Maximum
Effect of a 1% decrease in health care trend rate on:
Evaluation period of expected long-term return on plan assets	5 years
Pension Plan | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 46,672	41,560
Pension Plan | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	42,184	36,823
Pension Plan | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	4,488	4,737
Pension Plan | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - U.S. Companies | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	20,865	19,972
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	20,865	19,972
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - International Companies | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	847
Pension Plan | Equity Securities - International Companies | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	847
Pension Plan | Equity Securities - International Companies | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - International Companies | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | U.S. Treasuries/Government Bonds | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,217	2,218
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,217	2,218
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Corporate bonds and notes | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,271	2,519
Pension Plan | Corporate bonds and notes | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Corporate bonds and notes | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,271	2,519
Pension Plan | Corporate bonds and notes | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Mutual Funds | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	19,253	14,680
Pension Plan | Mutual Funds | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	19,253	14,680
Pension Plan | Mutual Funds | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Mutual Funds | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0
Pension Plan | Large-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	10.30%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	40.00%	57.00%
Expected long-term rate of return on assets	10.30%
Pension Plan | Large-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	30.00%
Pension Plan | Large-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	60.00%
Pension Plan | Mid-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	10.60%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	6.00%	5.00%
Expected long-term rate of return on assets	10.60%
Pension Plan | Mid-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Mid-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Small-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	10.80%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	7.00%	2.00%
Expected long-term rate of return on assets	10.80%
Pension Plan | Small-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Small-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	15.00%
Pension Plan | International Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	10.30%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	13.00%	7.00%
Expected long-term rate of return on assets	10.30%
Pension Plan | International Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | International Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	25.00%
Pension Plan | Intermediate Fixed Income
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	4.70%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	29.00%	26.00%
Expected long-term rate of return on assets	4.70%
Pension Plan | Intermediate Fixed Income | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Intermediate Fixed Income | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	50.00%
Pension Plan | Alternative Assets
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	7.50%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	0.00%	0.00%
Expected long-term rate of return on assets	7.50%
Pension Plan | Alternative Assets | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Alternative Assets | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	10.00%
Pension Plan | Cash
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	2.50%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	5.00%	3.00%
Expected long-term rate of return on assets	2.50%
Pension Plan | Cash | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Cash | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Cash | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 2,066	$ 1,324
Pension Plan | Cash | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,066	1,324
Pension Plan | Cash | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Cash | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Defined Benefit Health Care Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	592	636
Prior service cost	(881)	(1,101)
Total before tax effects	$ (289)	$ (465)
Principal actuarial assumptions used in determining projected benefit obligation [Abstract]
Discount rate	3.74%	4.16%	4.39%
Net periodic benefit cost [Abstract]
Service cost	$ 0	$ 43	$ 46
Interest cost	20	66	70
Recognized actuarial loss	143	20	20
Recognized prior service benefit due to curtailments	0	(337)	0
Amortization of prior service cost	(220)	(97)	(97)
Net periodic cost (benefit)	(57)	(305)	39
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	(98)	(139)	(216)
Recognized actuarial loss	143	20	20
Prior service credit	0	(1,101)	0
Amortization of prior service benefit	220	434	97
Total before tax effect	175	(548)	293
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ 118	$ (853)	$ 332
Average future working lifetime of active participants	5 years
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 110
Prior service cost recognition	$ (220)
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.16%	4.39%	4.09%
Health care cost trend: Initial	6.50%	6.50%	7.00%
Health care cost trend: Ultimate	5.00%	5.00%	5.00%
Health care cost trend rate assumed for net periodic benefit (cost), next fiscal year	6.50%	7.00%	7.00%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0	$ 0
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2018	139
2019	111
2020	59
2021	38
2022	28
2023-2027	77
Effect of a 1% increase in health care trend rate on:
Benefit obligation	5	2	3
Total service and interest cost	0	0	0
Effect of a 1% decrease in health care trend rate on:
Benefit obligation	(6)	(3)	(3)
Total service and interest cost	0	0	$ 0
Estimated employer contributions in next fiscal year	139
Executive Supplemental Pension Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	228	165
Prior service cost	0	0
Total before tax effects	228	$ 165
Accumulated benefit obligation	$ 1,300
Principal actuarial assumptions used in determining projected benefit obligation [Abstract]
Discount rate	3.74%	4.16%	4.39%
Assumed rate of future compensation increase			5.00%
Net periodic benefit cost [Abstract]
Service cost	$ 0	$ 43	$ 44
Interest cost	50	51	49
Recognized actuarial loss	3	26	50
Net periodic cost (benefit)	53	120	143
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	(66)	(18)	52
Recognized actuarial loss	3	26	50
Total before tax effect	63	(8)	(102)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ 116	$ 112	$ 41
Unrecognized net gain or loss increase threshold percentage for amortization of obligation (in hundredths)	10.00%
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 7
Prior service cost recognition	$ 0
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.16%	4.39%	4.09%
Assumed rate of future compensation increase			5.00%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0	$ 0
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2018	109
2019	107
2020	106
2021	104
2022	101
2023-2027	456
Effect of a 1% decrease in health care trend rate on:
Estimated employer contributions in next fiscal year	$ 110

XML

PENSION PLAN AND OTHER BENEFIT PLANS - Additional Information (Details) - USD ($) $ in Thousands			10 Months Ended	12 Months Ended
	Jan. 01, 2018	Jan. 01, 2016	Oct. 19, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Defined Benefit Plan Disclosure [Line Items]
Hours requirement to be eligible			1000 hours
Defined Contribution Profit Sharing, Savings and Investment Plan
Defined Benefit Plan Disclosure [Line Items]
Defined contribution plan, employer non-discretionary contribution amount				3.00%
Defined contribution plan, employer matching contribution, percent of employees' gross pay				6.00%
Chemung common stock included in defined contribution plan assets (in shares)				155,336	174,957	169,398
Total expense				$ 1,160	$ 609	$ 639
Defined Contribution Supplemental Executive Retirement Plan
Defined Benefit Plan Disclosure [Line Items]
Balance in the plan				872	1,043
Total expense				$ 279	$ 262	$ 231
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Total unrecognized net loss increased percentage of obligation amortization threshold				10.00%
Total unrecognized net loss increased(decreased) percentage of plan assets threshold				10.00%
Other comprehensive income, defined benefit plans, increase (decrease) in net unamortized gain loss arising during period net of tax				$ 1,400
Average total life expectancy of participants		27 years 9 months 15 days
Other Postretirement Benefit Plan
Defined Benefit Plan Disclosure [Line Items]
Other comprehensive income, defined benefit plans, increase (decrease) in net unamortized gain loss arising during period net of tax				$ 45
Average future working lifetime of active participants				5 years
Executive Supplemental Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Defined benefit plan, increase(decrease) in total unrecognized net loss				$ 64
Total unrecognized net loss increased percentage of obligation amortization threshold				10.00%
Total unrecognized net loss increased(decreased) percentage of plan assets threshold				10.00%
Scenario, Forecast | Executive Supplemental Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Average total life expectancy of participants	14 years 2 months 13 days

XML

STOCK COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended			12 Months Ended
	Jan. 31, 2018	Jan. 31, 2017	Jan. 31, 2016	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Restricted Stock
Shares [Roll Forward]
Nonvested, beginning of period (in shares)	25,522	23,794		23,794
Granted (in shares)				10,161
Vested (in shares)				(7,294)
Forfeited or cancelled (in shares)				(1,139)
Nonvested, end of period (in shares)				25,522	23,794
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, beginning of period (in dollars per share)	$ 38.01	$ 29.90		$ 29.90
Granted (in dollars per share)				49.74
Vested (in dollars per share)				29.15
Forfeitures or cancelled (in dollars per share)				29.97
Nonvested, end of period (in dollars per share)				$ 38.01	$ 29.90
Total unrecognized compensation cost related to nonvested shares granted under the Plan				$ 955
Weighted-average period for recognition				4 years 22 days
Total fair value of shares vested				$ 382	$ 193	$ 314
President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Service period				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
Expense related to stock compensation recognized				$ 301	$ 269	$ 262
Subsequent Event | 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)	6,015

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Loans to Related Parties [Roll Forward]
Balance at beginning of year	$ 35,469,000	$ 36,911,000
New loans or additional advances	6,872,000	5,742,000
Repayments	(3,188,000)	(7,184,000)
Balance at end of year	39,153,000	35,469,000	$ 36,911,000
Deposit liabilities	11,300,000	10,300,000
Legal accruals and settlements	850,000	1,200,000	0
Fee income	$ 52,840,000	49,677,000	48,271,000
Minimum
Related Party Transactions [Line Items]
Related party principal ownership threshold (in hundredths)	10.00%
Director
Loans to Related Parties [Roll Forward]
Legal accruals and settlements	$ 17,000	36,000	88,000
7 Southside Drive, Clifton Park, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	4,000
25 Park Avenue, Clifton Park, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	11,000
1365 New Scotland Road, Slingerlands, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	4,000
Rent expense	51,000	169,000	90,000
127 Court Street, Binghamton, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	$ 5,000
Related party, ownership percentage	20.00%
Rent expense	$ 79,000	62,000
Participating mortgage loans, amount sold	2,000,000	1,900,000	0
Participating mortgage loans, participation liabilities, amount	6,600,000	4,700,000
Participating mortgage loans, income(loss) From Insurance Products	1,000	2,000	0
Participating Mortgage Loans, Purchase Of Insurance Product	34,000	0	0
WMG | Operating Segments | Trust Services | Management
Loans to Related Parties [Roll Forward]
Fee income	$ 332,000	$ 328,000	$ 904,000

XML

COMMITMENTS AND CONTINGENCIES (Details) $ in Thousands		6 Months Ended	12 Months Ended
	Mar. 23, 2016 USD ($)	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)	Dec. 31, 2016 USD ($)	Mar. 26, 2016 USD ($) Proceeding Party	Dec. 31, 2015 USD ($)	Jun. 30, 2016 USD ($)	Sep. 30, 2014 USD ($)
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations			$ 15,000
Legal accruals and settlements			$ 850	$ 1,200		$ 0
Settled Litigation
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations								$ 4,300
Claims settled and dismissed | Proceeding					2
Number of party | Party					2
Litigation settlement amount					$ 12,100
Insurance proceeds					$ 7,900
Pending Litigation
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations		$ 2,300					$ 1,200
Damages sought	$ 4,000
Loss contingency, accrual, noncurrent		850
Legal accruals and settlements		$ 200
Minimum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments period to make fixed-rate commercial draw notes			3 months
Minimum | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Interest rate on fixed-rate commitments to make loans			3.375%
Maturity period of fixed-rate commitments to make loans			5 years
Interest rate on fixed-rate commitments to make commercial draw notes (in hundredths)			4.25%
Maximum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments period to make real estate and home equity loans			60 days
Commitments period to make fixed-rate commercial draw notes			24 months
Off-balance sheet financial instruments, standard term			12 months
Maximum | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Interest rate on fixed-rate commitments to make loans			5.875%
Maturity period of fixed-rate commitments to make loans			30 years
Interest rate on fixed-rate commitments to make commercial draw notes (in hundredths)			5.50%
Commitments to make loans | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			$ 16,019	38,246
Commitments to make loans | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			28,591	33,189
Unused lines of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			1,604	610
Unused lines of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			200,353	208,124
Standby letters of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			0	0
Standby letters of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk			$ 15,022	$ 14,241

XML

PARENT COMPANY FINANCIAL INFORMATION (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Assets:
Cash on deposit with subsidiary bank	$ 27,966	$ 28,205
Securities available for sale, at estimated fair value	293,627	303,402
Total assets	1,707,620	1,657,179	$ 1,619,964
Liabilities and shareholders' equity:
Dividends payable	1,233	1,225	1,214
Total liabilities	1,557,807	1,513,431
Shareholders' equity:
Total shareholders' equity	149,813	143,748	137,242	$ 133,628
Total liabilities and shareholders' equity	1,707,620	1,657,179
STATEMENTS OF INCOME [Abstract]
Income before income tax expense	14,692	14,431	14,091
Income tax benefit	7,262	4,404	4,658
Net income	7,430	10,027	9,433
Cash flows from operating activities:
Net income	7,430	10,027	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Change in other assets	636	(165)	4,931
Change in other liabilities	(3,664)	5,427	(9,421)
Net cash provided by operating activities	23,645	22,141	14,123
Cash flow from financing activities:
Cash dividends paid	(4,917)	(4,878)	(4,833)
Sale of treasury stock	582	438	438
Net cash provided by financing activities	39,564	26,565	97,547
Net increase (decrease) in cash and cash equivalents	(43,433)	47,977	(2,978)
Cash and cash equivalents, beginning of period	74,162	26,185	29,163
Cash and cash equivalents, end of period	30,729	74,162	26,185
Parent Company
Assets:
Cash on deposit with subsidiary bank	3,017	2,336
Dividends receivable from subsidiary bank	1,233	1,225
Securities available for sale, at estimated fair value	420	386
Other assets	1,039	825
Total assets	151,121	145,020
Liabilities and shareholders' equity:
Dividends payable	1,233	1,225
Other liabilities	75	47
Total liabilities	1,308	1,272
Shareholders' equity:
Total shareholders' equity	149,813	143,748
Total liabilities and shareholders' equity	151,121	145,020
STATEMENTS OF INCOME [Abstract]
Dividends from subsidiary bank	4,926	4,889	2,424
Interest and dividend income	10	9	9
Non-interest income	22	0	0
Non-interest expenses	433	526	270
Income before income tax expense	4,525	4,372	2,163
Income before income tax	7,213	9,763	9,264
Income tax benefit	(217)	(264)	(169)
Net income	7,430	10,027	9,433
Cash flows from operating activities:
Net income	7,430	10,027	9,433
Adjustments to reconcile net income to net cash provided by operating activities:
Change in dividend receivable	(8)	(11)	(10)
Change in other assets	(214)	82	222
Change in other liabilities	51	(203)	(23)
Expense related to employee stock compensation	200	210	93
Expense related to restricted stock units for directors' deferred compensation plan	98	97	95
Expense to employee restricted stock awards	210	192	314
Net cash provided by operating activities	5,079	5,003	3,023
Cash flow from financing activities:
Cash dividends paid	(4,919)	(4,878)	(4,833)
Purchase of treasury stock	(61)	(22)	(33)
Sale of treasury stock	582	438	438
Net cash provided by financing activities	(4,398)	(4,462)	(4,428)
Net increase (decrease) in cash and cash equivalents	681	541	(1,405)
Cash and cash equivalents, beginning of period	2,336	1,795	3,200
Cash and cash equivalents, end of period	3,017	2,336	1,795
Parent Company | Chemung Canal Trust Company
Assets:
Investment in subsidiary	142,884	138,469
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	1,939	4,856	7,015
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	(1,939)	(4,856)	(7,015)
Parent Company | CFS Group Inc.
Assets:
Investment in subsidiary	904	946
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	(42)	(48)	86
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	42	48	(86)
Parent Company | Chemung Risk Management
Assets:
Investment in subsidiary	1,624	833
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	791	583	0
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	$ (791)	$ (583)	$ 0

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FAIR VALUES (Details) - USD ($)	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financial Assets [Abstract]
Total available for sale securities	$ 293,627,000	$ 303,402,000
Trading assets	988,000	774,000
Provision for loan losses	(9,022,000)	(2,437,000)	$ (1,571,000)
Recurring
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	15,491,000	17,455,000
Mortgage-backed securities, residential	219,909,000	245,866,000
Obligations of states and political subdivisions	53,132,000	38,740,000
Corporate bonds and notes	251,000	250,000
SBA loan pools	4,308,000	570,000
Corporate stocks	536,000	521,000
Total available for sale securities	293,627,000	303,402,000
Trading assets	988,000	774,000
Derivative Asset	974,000	693,000
Derivative liabilities	1,049,000	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	204,000	170,000
Total available for sale securities	204,000	170,000
Trading assets	988,000	774,000
Derivative Asset	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	15,491,000	17,455,000
Mortgage-backed securities, residential	219,909,000	245,866,000
Obligations of states and political subdivisions	53,132,000	38,740,000
Corporate bonds and notes	251,000	0
SBA loan pools	4,308,000	570,000
Corporate stocks	332,000	351,000
Total available for sale securities	293,423,000	302,982,000
Trading assets	0	0
Derivative Asset	974,000	693,000
Derivative liabilities	974,000	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 Asset	0	0
Derivative liabilities	75,000	68,000
Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	507,000	2,850,000
Provision for loan losses	(175,000)	(57)
Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	1,940,000	344,000
Provision for loan losses	(43,000)	(7,000)
Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	507,000	2,850,000
Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	1,940,000	344,000
Commercial mortgages | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,483,000
Provision for loan losses	(43,000)
Commercial mortgages | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Commercial mortgages | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Commercial mortgages | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,483,000
Commercial, and Agricultural
Financial Assets [Abstract]
Provision for loan losses	(5,374,000)	117,000	(461,000)
Commercial, and Agricultural | Commercial and industrial | Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	96,000
Provision for loan losses	(70,000)
Commercial, and Agricultural | Commercial and industrial | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Commercial, and Agricultural | Commercial and industrial | Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Commercial, and Agricultural | Commercial and industrial | Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	96,000
Commercial mortgages:
Financial Assets [Abstract]
Provision for loan losses	(1,658,000)	(1,059,000)	(759,000)
Residential Mortgages
Financial Assets [Abstract]
Provision for loan losses	12,000	(124,000)	61,000
Residential Mortgages | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	382,000	344,000
Provision for loan losses	0	(7,000)
Residential Mortgages | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Residential Mortgages | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Residential Mortgages | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	382,000	344,000
Consumer Loans
Financial Assets [Abstract]
Provision for loan losses	(2,002,000)	(1,371,000)	$ (412,000)
Commercial mortgages | Commercial mortgages: | Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	411,000	2,631,000
Provision for loan losses	(105,000)	8
Commercial mortgages | Commercial mortgages: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Commercial mortgages: | Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Commercial mortgages: | Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	411,000	2,631,000
Home equity lines and loans | Consumer Loans | Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net		219,000
Provision for loan losses		(65)
Home equity lines and loans | Consumer Loans | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	75,000
Provision for loan losses	0
Home equity lines and loans | Consumer Loans | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net		0
Home equity lines and loans | Consumer Loans | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net		0
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net		$ 219,000
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	$ 75,000

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FAIR VALUES - Quantitative Information (Details) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Liabilities, fair value, recurring	$ 75	$ 68
Recurring | Corporate bonds and notes
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, recurring		250
Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	507	2,850
Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	$ 1,940	$ 344
Minimum | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate	5.67%	4.92%
Minimum | Recurring | Corporate bonds and notes
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate		1.73%
Maximum | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate	5.67%	4.92%
Maximum | Recurring | Corporate bonds and notes
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate		1.73%
Weighted Average | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate	5.67%	4.92%
Weighted Average | Recurring | Corporate bonds and notes
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Discount rate		1.73%
Residential Mortgage | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	20.80%	17.28%
Residential Mortgage | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	48.17%	27.97%
Residential Mortgage | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	30.50%	20.77%
Sales Comparison | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	$ 382	$ 344
Sales Comparison | Commercial and Industrial | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	96
Sales Comparison | Commercial and Industrial | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	$ 1,483
Sales Comparison | Commercial and Industrial | Minimum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	0.00%
Sales Comparison | Commercial and Industrial | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	10.00%
Sales Comparison | Commercial and Industrial | Maximum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	36.07%
Sales Comparison | Commercial and Industrial | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	22.95%
Sales Comparison | Commercial and Industrial | Weighted Average | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	33.02%
Sales Comparison | Commercial and Industrial | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	19.75%
Sales Comparison | Commercial mortgages | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	$ 411
Sales Comparison | Commercial mortgages | Minimum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	10.00%	9.00%
Sales Comparison | Commercial mortgages | Maximum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	89.98%	10.00%
Sales Comparison | Commercial mortgages | Weighted Average | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	51.35%	9.52%
Sales Comparison | Home equity lines and loans | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring		$ 219
Sales Comparison | Home equity lines and loans | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring	$ 75
Sales Comparison | Home equity lines and loans | Minimum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value		22.98%
Sales Comparison | Home equity lines and loans | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	20.80%
Sales Comparison | Home equity lines and loans | Maximum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value		22.98%
Sales Comparison | Home equity lines and loans | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	20.80%
Sales Comparison | Home equity lines and loans | Weighted Average | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value		22.98%
Sales Comparison | Home equity lines and loans | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Fair value inputs, discount to appraised value	20.80%
Income Approach Valuation Technique | Commercial mortgages | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items]
Assets, fair value, nonrecurring		$ 2,631

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FAIR VALUES - Narrative (Details) - USD ($) $ in Thousands	Dec. 31, 2016	Oct. 31, 2016
Fair Value Disclosures [Abstract]
Fair value, assets, level 2 to Level 1 transfers, amount	$ 103	$ 158

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FAIR VALUES FAIR VALUES - Unobservable Input Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Corporate bonds and notes
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at January 1	$ 250	$ 248
Derivative instruments entered into	0	0
Included in earnings - other non-interest income	0	0
Included in other comprehensive income	1	2
Transfers out of Level 3	(251)	0
Balance of recurring Level 3 assets at December 31	0	250
Derivative liabilities
Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at January 1	(68)	(48)
Derivative instruments entered into	(5)	(25)
Included in earnings - other non-interest income	(2)	5
Included in other comprehensive income	0	0
Transfers out of Level 3	0	0
Balance of recurring Level 3 assets at December 31	$ (75)	$ (68)

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FAIR VALUES - Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($) $ in Thousands	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Financial assets:
Cash and due from financial institutions	$ 27,966	$ 28,205
Interest-earning deposits in other financial institutions	2,763	45,957
Securities available for sale	293,627	303,402
Securities held to maturity	3,781	4,705
Loans, net	1,290,663	1,186,037
Loans held for sale	542	412
Accrued interest receivable	3,758	3,192
Deposits:
Time deposits	118,362	144,106
Securities sold under agreements to repurchase	10,000	27,606	$ 28,453
FHLBNY overnight advances	57,700	0
FHLBNY term advances	2,000	9,093
Carrying Amount
Financial assets:
Cash and due from financial institutions	27,966	28,205
Interest-earning deposits in other financial institutions	2,763	45,957
Trading assets	988	774
Securities available for sale	293,627	303,402
Securities held to maturity	3,781	4,705
FHLBNY and FRBNY stock	5,784	4,041
Loans, net	1,290,663	1,186,037
Loans held for sale	542	412
Accrued interest receivable	4,642	4,000
Derivative Asset	974	693
Deposits:
Demand, savings, and insured money market accounts	1,349,084	1,312,237
Time deposits	118,362	144,106
Securities sold under agreements to repurchase	10,000	27,606
FHLBNY term advances	2,000	9,093
Accrued interest payable	148	210
Derivative liabilities	1,049	761
Estimated Fair Value
Financial assets:
Cash and due from financial institutions	27,966	28,205
Interest-earning deposits in other financial institutions	2,763	45,957
Trading assets	988	774
Securities available for sale	293,627	303,402
Securities held to maturity	3,776	4,912
Loans, net	1,289,584	1,205,814
Loans held for sale	542	412
Accrued interest receivable	4,642	4,000
Derivative Asset	974	693
Deposits:
Demand, savings, and insured money market accounts	1,349,084	1,312,237
Time deposits	118,598	144,460
Securities sold under agreements to repurchase	10,058	27,880
FHLBNY overnight advances	57,700
FHLBNY term advances	2,001	9,189
Accrued interest payable	148	210
Derivative liabilities	1,049	761
Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and due from financial institutions	27,966	28,205
Interest-earning deposits in other financial institutions	2,763	45,957
Trading assets	988	774
Securities available for sale	204	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	1	9
Derivative Asset	0	0
Deposits:
Demand, savings, and insured money market accounts	1,349,084	1,312,237
Time deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLBNY overnight advances	0
FHLBNY term advances	0	0
Accrued interest payable	24	25
Derivative liabilities	0	0
Estimated Fair Value | Significant Other Observable Inputs (Level 2)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Trading assets	0	0
Securities available for sale	293,423	302,982
Securities held to maturity	1,830	981
FHLBNY and FRBNY stock	0	0
Loans, net	0	0
Loans held for sale	542	412
Accrued interest receivable	867	784
Derivative Asset	974	693
Deposits:
Demand, savings, and insured money market accounts	0	0
Time deposits	118,598	144,460
Securities sold under agreements to repurchase	10,058	27,880
FHLBNY overnight advances	57,700
FHLBNY term advances	2,001	9,189
Accrued interest payable	124	185
Derivative liabilities	974	693
Estimated Fair Value | Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Trading assets	0	0
Securities available for sale	0	250
Securities held to maturity	1,946	3,931
FHLBNY and FRBNY stock	0	0
Loans, net	1,289,584	1,205,814
Loans held for sale	0	0
Accrued interest receivable	3,774	3,207
Derivative Asset	0	0
Deposits:
Demand, savings, and insured money market accounts	0	0
Time deposits	0	0
Securities sold under agreements to repurchase	0	0
FHLBNY overnight advances	0
FHLBNY term advances	0	0
Accrued interest payable	0	0
Derivative liabilities	$ 75	$ 68

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REGULATORY CAPITAL REQUIREMENTS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Net profits period for accessing dividends declarable	2 years
Declarable dividends without prior approval for next fiscal year	$ 13,800
Total Capital (to Risk Weighted Assets):
Actual	153,020	$ 145,269
Minimal Capital Adequacy	103,527	95,748
Capital Required For Capital Adequacy With Capital Buffer	119,703	103,229
Tier 1 Capital (to Risk Weighted Assets):
Actual	136,660	130,911
Minimal Capital Adequacy	77,645	71,811
Tier One Risk Based Capital Required for Capital Adequacy with Capital Buffer	93,821	79,292
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Actual	136,660	130,911
Minimal Capital Adequacy	58,234	53,858
Common Equity Tier One Risk Based Capital Required for Capital Adequacy with Capital Buffer	74,410	61,339
Tier 1 Capital (to Average Assets):
Actual	136,660	130,911
Minimal Capital Adequacy	$ 68,200	$ 67,031
Risk Based Ratios [Abstract]
Capital to Risk Weighted Assets	11.82%	12.14%
Capital Required To Be Adequately Capitalized to Risk Weighted Assets	8.00%	8.00%
Capital Required for Capital Adequacy with Capital Buffer to Risk Weighted Assets	9.25%	8.625%
Tier One Risk Based Capital to Risk Weighted Assets	10.56%	10.94%
Tier One Risk Based Capital Required To Be Adequately Capitalized to Risk Weighted Assets	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy With Capital Buffer to Risk Weighted Assets	7.25%	6.625%
Common Equity Tier 1 Capital to Risk Weighted Assets	10.56%	10.94%
Common Equity Tier 1 Capital Required to be Adequately Capitalized to Risk Weighted Assets	4.50%	4.50%
Common Equity Tier One Risk Based Capital Requirement for Capital Adequacy with Capital Buffer to Risk Weighted Assets	5.75%	5.125%
Leverage Ratios [Abstract]
Tier One Leverage Capital to Average Assets (in hundredths)	8.02%	7.81%
Tier One Leverage Capital Required To Be Adequately Capitalized to Average Assets (in hundredths)	4.00%	4.00%
Bank
Total Capital (to Risk Weighted Assets):
Actual	$ 146,129	$ 140,020
Minimal Capital Adequacy	103,390	95,640
Capital Required For Capital Adequacy With Capital Buffer	119,545	103,112
To Be Well Capitalized Under Prompt Corrective Action Provisions	129,238	119,550
Tier 1 Capital (to Risk Weighted Assets):
Actual	129,881	125,736
Minimal Capital Adequacy	77,543	71,730
Tier One Risk Based Capital Required for Capital Adequacy with Capital Buffer	93,697	79,202
To Be Well Capitalized Under Prompt Corrective Action Provisions	103,390	95,640
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Actual	129,881	125,736
Minimal Capital Adequacy	58,157	53,798
Common Equity Tier One Risk Based Capital Required for Capital Adequacy with Capital Buffer	74,312	61,270
To Be Well Capitalized Under Prompt Corrective Action Provisions	84,004
Tier 1 Capital (to Average Assets):
Actual	129,881	125,736
Minimal Capital Adequacy	68,045	66,919
To Be Well Capitalized Under Prompt Corrective Action Provisions	$ 85,057	$ 83,649
Risk Based Ratios [Abstract]
Capital to Risk Weighted Assets	11.31%	11.71%
Capital Required To Be Adequately Capitalized to Risk Weighted Assets	8.00%	8.00%
Capital Required for Capital Adequacy with Capital Buffer to Risk Weighted Assets	9.25%	8.625%
Capital Required To Be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Tier One Risk Based Capital to Risk Weighted Assets	10.05%	10.52%
Tier One Risk Based Capital Required To Be Adequately Capitalized to Risk Weighted Assets	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy With Capital Buffer to Risk Weighted Assets	7.25%	6.625%
Tier One Risk Based Capital Required To Be Well Capitalized to Risk Weighted Assets	8.00%	8.00%
Common Equity Tier 1 Capital to Risk Weighted Assets	10.05%	10.52%
Common Equity Tier 1 Capital Required to be Adequately Capitalized to Risk Weighted Assets	4.50%	4.50%
Common Equity Tier One Risk Based Capital Requirement for Capital Adequacy with Capital Buffer to Risk Weighted Assets	5.75%	5.125%
Common Equity Tier 1 Capital Required to be Well Capitalized to Risk Weighted Assets	6.50%
Common Equity Tier One Risk Based Capital To Be Well Capitalized		$ 77,708
Common Equity Tier One Risk Based Capital Requirement to be Well Capitalized to Risk Weighted Assets		6.50%
Leverage Ratios [Abstract]
Tier One Leverage Capital to Average Assets (in hundredths)	7.63%	7.52%
Tier One Leverage Capital Required To Be Adequately Capitalized to Average Assets (in hundredths)	4.00%	4.00%
Tier One Leverage Capital Required To Be Well Capitalized to Average Assets (in hundredths)	5.00%	5.00%

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ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2017	Dec. 31, 2016	Dec. 31, 2015
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning Balances	$ 143,748	$ 137,242	$ 133,628
Stranded AOCI reclassification	0
Total other comprehensive income (loss)	2,251	188	(2,157)
Ending Balances	149,813	143,748	137,242
Net gains on securities transactions	109	987	372
Income tax expense	7,262	4,404	4,658
Pension and other employee benefits	4,276	6,132	5,908
Net of tax	7,430	10,027	9,433
Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Net of tax	51	799	631
Unrealized Gains and Losses on Securities Available for Sale
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning Balances	(4,356)	210	1,960
Other comprehensive income (loss) before reclassification	1,578	(3,952)	(1,520)
Amounts reclassified from accumulated other comprehensive income (loss)	(68)	(614)	(230)
Stranded AOCI reclassification	(569)
Total other comprehensive income (loss)	1,510	(4,566)	(1,750)
Ending Balances	(3,415)	(4,356)	210
Unrealized Gains and Losses on Securities Available for Sale | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Net gains on securities transactions	(109)	(987)	(372)
Income tax expense	41	373	142
Net of tax	(68)	(614)	(230)
Defined Benefit and Other Benefit Plans
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning Balances	(6,398)	(11,152)	(10,745)
Other comprehensive income (loss) before reclassification	622	3,341	(1,268)
Amounts reclassified from accumulated other comprehensive income (loss)	119	1,413	861
Stranded AOCI reclassification	(1,268)
Total other comprehensive income (loss)	741	4,754	(407)
Ending Balances	(6,925)	(6,398)	(11,152)
Defined Benefit and Other Benefit Plans | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Income tax expense	(74)	(856)	(533)
Net of tax	119	1,413	861
Net Prior Service Cost (Credit) | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Pension and other employee benefits	(220)	674	(90)
Net Unamortized Gain (Loss) | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Pension and other employee benefits	413	1,595	1,484
Accumulated Other Comprehensive Income (Loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning Balances	(10,754)	(10,942)	(8,785)
Other comprehensive income (loss) before reclassification	2,200	(611)	(2,788)
Amounts reclassified from accumulated other comprehensive income (loss)	51	799	631
Stranded AOCI reclassification	(1,837)
Total other comprehensive income (loss)	2,251	188	(2,157)
Ending Balances	$ (10,340)	$ (10,754)	$ (10,942)

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SEGMENT REPORTING (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2017 USD ($) segment	Dec. 31, 2016 USD ($)	Dec. 31, 2015 USD ($)
Segment Reporting Information [Line Items]
Number of primary business segment | segment	2
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	$ 60,055	$ 56,168	$ 54,244
Interest expense	3,068	3,839	3,602
Net interest income	56,987	52,329	50,642
Provision for loan losses	9,022	2,437	1,571
Net interest income after provision for loan losses	47,965	49,892	49,071
Noninterest Income	20,491	21,149	20,447
Non-interest expenses	53,764	56,610	55,427
Income before income tax expense	14,692	14,431	14,091
Income tax benefit	7,262	4,404	4,658
Net income	7,430	10,027	9,433
Segment assets	1,707,620	1,657,179	1,619,964
Holding Company, CFS and CRM
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	24	9	4
Interest expense	0	0	0
Net interest income	24	9	4
Provision for loan losses	0	0	0
Net interest income after provision for loan losses	24	9	4
Noninterest Income	462	515	906
Non-interest expenses	1,169	1,151	1,028
Income before income tax expense	(683)	(627)	(118)
Income tax benefit	(212)	(286)	(111)
Net income	(471)	(341)	(7)
Segment assets	3,363	2,493	1,201
Operating Segments | Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	60,031	56,159	54,240
Interest expense	3,068	3,839	3,602
Net interest income	56,963	52,320	50,638
Provision for loan losses	9,022	2,437	1,571
Net interest income after provision for loan losses	47,941	49,883	49,067
Noninterest Income	11,224	12,318	11,019
Non-interest expenses	46,931	49,783	48,882
Income before income tax expense	12,234	12,418	11,204
Income tax benefit	6,283	3,693	3,620
Net income	5,951	8,725	7,584
Segment assets	1,700,196	1,650,100	1,614,481
Operating Segments | WMG
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	0	0	0
Interest expense	0	0	0
Net interest income	0	0	0
Provision for loan losses	0	0	0
Net interest income after provision for loan losses	0	0	0
Noninterest Income	8,805	8,316	8,522
Non-interest expenses	5,664	5,676	5,517
Income before income tax expense	3,141	2,640	3,005
Income tax benefit	1,191	997	1,149
Net income	1,950	1,643	1,856
Segment assets	$ 4,061	$ 4,586	$ 4,282