10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For Quarterly period ended June 30, 2018

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

CHEMUNG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New York			16-1237038
(State or other jurisdiction of incorporation or organization)			I.R.S. Employer Identification No.
One Chemung Canal Plaza, Elmira, NY			14901
(Address of principal executive offices)			(Zip Code)
(607) 737-3711 or (800) 836-3711
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES:    X         NO:____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES:    X        NO:____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer	[   ]	Non-accelerated filer	[   ]
Accelerated filer	[X]	Smaller reporting company	[   ]
		Emerging growth company	[   ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
YES:             NO:  X

The number of shares of the registrant's common stock, $.01 par value, outstanding on July 31, 2018 was 4,803,888.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

		PAGES
	Glossary of Abbreviations and Terms	3
PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements – Unaudited
	Consolidated Balance Sheets	6
	Consolidated Statements of Income	7
	Consolidated Statements of Comprehensive Income	8
	Consolidated Statements of Shareholders’ Equity	9
	Consolidated Statements of Cash Flows	10
	Notes to Unaudited Consolidated Financial Statements	12
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	43
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	74
Item 4:	Controls and Procedures	75
PART II.	OTHER INFORMATION
Item 1:	Legal Proceedings	76
Item 1A:	Risk Factors	76
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	76
Item 3:	Defaults Upon Senior Securities	76
Item 4:	Mine Safety Disclosures	76
Item 5:	Other Information	76
Item 6:	Exhibits	77
SIGNATURES		78
EXHIBIT INDEX

2

GLOSSARY OF ABBREVIATIONS AND TERMS

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

Abbreviations

ALCO	Asset-Liability Committee
ASU	Accounting Standards Update
Bank	Chemung Canal Trust Company
Basel III	The Third Basel Accord of the Basel Committee on Banking Supervision
Board of Directors	Board of Directors of Chemung Financial Corporation
CDARS	Certificate of Deposit Account Registry Service
CDO	Collateralized Debt Obligation
CECL	Current expected credit loss
CFS	CFS Group, Inc.
Corporation	Chemung Financial Corporation
CRM	Chemung Risk Management, Inc.
Dodd-Frank Act	The Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLBNY	Federal Home Loan Bank of New York
FRB	Board of Governors of the Federal Reserve System
FRBNY	Federal Reserve Bank of New York
Freddie Mac	Federal Home Loan Mortgage Corporation
GAAP	U.S. Generally Accepted Accounting Principles
ICS	Insured Cash Sweep Service
IFRS	International Financial Reporting Standards
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS	North American Industry Classification System
N/M	Not meaningful
OPEB	Other postemployment benefits
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PCI	Purchased credit impaired
ROA	Return on average assets
Regulatory Relief Act	Economic Growth, Regulatory Relief, and Consumer Protection Act
ROE	Return on average equity
RWA	Risk-weighted assets
SBA	Small Business Administration
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933
Tax Act	Tax Cuts and Jobs Act of 2017
TDRs	Troubled debt restructurings
WMG	Wealth Management Group

3

Terms

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 III	A comprehensive set of reform measures designed to improve the regulation, supervision, and risk management within the banking sector. The reforms require banks to maintain proper leverage ratios and meet certain capital requirements.
Benefit obligation	Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Capital Bank	Division of Chemung Canal Trust Company located in the “Capital Region” of New York State and includes the counties of Albany and Saratoga.
CDARS	Product involving a network of financial institutions that exchange certificates of deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Captive insurance company	A company that provides risk-mitigation services for its parent company.
Collateralized debt obligation	A structured financial product that pools together cash flow-generating assets, such as mortgages, bonds, and loans.
Collateralized mortgage obligations	A type of mortgage-backed security with principal repayments organized according to their maturities and into different classes based on risk.  The mortgages serve as collateral and are organized into classes based on their risk profile.
Dodd-Frank Act	The Dodd-Frank Act was enacted on July 21, 2010 and significantly changed the bank regulatory landscape and has impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.  The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress.
Fully taxable equivalent basis	Income from tax-exempt loans and investment securities that have been increased by an amount equivalent to the taxes that would have been paid if this income were taxable at statutory rates; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
GAAP	Accounting principles generally accepted in the United States of America.
Holding company	Consists of the operations for Chemung Financial Corporation (parent only).
ICS	Product involving a network of financial institutions that exchange interest-bearing money market deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Loans held for sale	Residential real estate loans originated for sale on the secondary market with maturities from 15-30 years.
Long term lease obligation	An obligation extending beyond the current year, which is related to a long term capital lease that is considered to have the economic characteristics of asset ownership.
Mortgage-backed securities	A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients	A political unit, such as a city, town, or village, incorporated for local self-government.
N/A	Data is not applicable or available for the period presented.
N/M	Not meaningful.
Non-GAAP	A calculation not made according to GAAP.
Obligations of state and political subdivisions	An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.

4

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.
Regulatory Relief Act	The Regulatory Relief Act was enacted on May 22, 2018 provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis regulatory requirements.  In addition, the legislation establishes new consumer protections and amends various securities- and investment company-related requirements.
RWA	Risk-weighted assets consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.  On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any.  Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets.  Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments.  The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
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.
Tax Act	The Tax Act was enacted on December 22, 2017 and amended the Internal Revenue Code of 1986. The legislation reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, with some related business deductions and credits being either reduced or eliminated.
TDR	A TDR is deemed to occur when the Corporation modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Trust preferred securities	A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.
Unaudited	Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
WMG	Provides services as executor and trustee under wills and agreements, and guardian, custodian, trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, financial planning, pension, estate planning and employee benefit administration services.

5

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)	June 30, 2018			December 31, 2017
ASSETS
Cash and due from financial institutions	$	30,837		$	27,966
Interest-earning deposits in other financial institutions	3,978			2,763
Total cash and cash equivalents	34,815			30,729
Equity investments, at estimated fair value	2,112			2,337
Securities available for sale, at estimated fair value	265,157			293,091
Securities held to maturity, estimated fair value of $3,790 at June 30, 2018   and $3,776 at December 31, 2017	3,806			3,781
FHLBNY and FRBNY Stock, at cost	5,816			5,784
Loans, net of deferred loan fees	1,334,444			1,311,824
Allowance for loan losses	(19,645		)	(21,161		)
Loans, net	1,314,799			1,290,663
Loans held for sale	684			542
Premises and equipment, net	26,049			26,657
Goodwill	21,824			21,824
Other intangible assets, net	1,709			2,085
Bank-owned life insurance	3,014			2,982
Accrued interest receivable and other assets	30,381			27,145
Total assets	$	1,710,166		$	1,707,620
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	462,233		$	467,610
Interest-bearing	1,016,676			999,836
Total deposits	1,478,909			1,467,446
FHLBNY overnight advances	58,950			57,700
Securities sold under agreements to repurchase	—			10,000
FHLBNY term advances	—			2,000
Long term capital lease obligation	4,411			4,517
Dividends payable	1,249			1,232
Accrued interest payable and other liabilities	14,867			14,912
Total liabilities	1,558,386			1,557,807
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized;   5,310,076 issued at June 30, 2018 and December 31, 2017	53			53
Additional paid-in capital	45,873			45,967
Retained earnings	132,973			128,453
Treasury stock, at cost; 507,471 shares at June 30, 2018 and 559,094   shares at December 31, 2017	(12,998		)	(14,320		)
Accumulated other comprehensive loss	(14,121		)	(10,340		)
Total shareholders' equity	151,780			149,813
Total liabilities and shareholders' equity	$	1,710,166		$	1,707,620

See accompanying notes to unaudited consolidated financial statements.

6

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended   June 30,						Six Months Ended   June 30,
(in thousands, except per share data)	2018			2017			2018			2017
Interest and dividend income:
Loans, including fees	$	14,300		$	12,817		$	28,350		$	25,316
Taxable securities	1,264			1,398			2,553			2,820
Tax exempt securities	295			276			603			514
Interest-earning deposits	10			193			32			348
Total interest and dividend income	15,869			14,684			31,538			28,998
Interest expense:
Deposits	608			549			1,109			1,087
Securities sold under agreements to repurchase	44			95			137			288
Borrowed funds	200			90			375			179
Total interest expense	852			734			1,621			1,554
Net interest income	15,017			13,950			29,917			27,444
Provision for loan losses	2,362			421			3,071			1,461
Net interest income after provision for loan losses	12,655			13,529			26,846			25,983
Non-interest income:
WMG fee income	2,373			2,269			4,689			4,378
Service charges on deposit accounts	1,144			1,225			2,308			2,409
Interchange revenue from debit card transactions	996			964			2,031			1,884
Net gains (losses) on security transactions	—			12			—			12
Net gains on sales of loans held for sale	59			53			105			122
Net gains (losses) on sales of other real estate owned	(48		)	(9		)	(4		)	8
Income from bank-owned life insurance	17			18			33			35
Other	784			490			1,638			1,021
Total non-interest income	5,325			5,022			10,800			9,869
Non-interest expenses:
Salaries and wages	5,564			5,422			11,278			10,697
Pension and other employee benefits	1,518			1,540			3,176			3,091
Other components of net periodic pension and postretirement benefits	(408		)	(333		)	(816		)	(666		)
Net occupancy expenses	1,643			1,702			3,251			3,308
Furniture and equipment expenses	702			781			1,360			1,462
Data processing expense	1,764			1,587			3,506			3,191
Professional services	508			417			1,048			717
Legal accruals and settlements	989			850			989			850
Amortization of intangible assets	182			213			376			439
Marketing and advertising expenses	255			118			604			367
Other real estate owned expenses	100			11			238			31
FDIC insurance	301			309			618			634
Loan expense	184			166			353			282
Other	1,665			1,549			3,152			2,974
Total non-interest expenses	14,967			14,332			29,133			27,377
Income before income tax expense	3,013			4,219			8,513			8,475
Income tax expense	486			1,263			1,547			2,540
Net income	$	2,527		$	2,956		6,966			$	5,935
Weighted average shares outstanding	4,828			4,797			4,825			4,793
Basic and diluted earnings per share	$	0.52		$	0.62		$	1.44		$	1.24

See accompanying notes to unaudited consolidated financial statements.

7

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended   June 30,						Six Months Ended   June 30,
(in thousands)	2018			2017			2018			2017
Net income	$	2,527		$	2,956		$	6,966		$	5,935
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(400		)	2,854			(4,839		)	6,020
Reclassification adjustment for gains realized in net income	—			(12		)	—			(12		)
Net unrealized gains (losses)	(400		)	2,842			(4,839		)	6,008
Tax effect	(101		)	1,078			(1,233		)	2,267
Net of tax amount	(299		)	1,764			(3,606		)	3,741
Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period	—			—			—			—
Reclassification adjustment for amortization of prior service costs	(55		)	(55		)	(110		)	(110		)
Reclassification adjustment for amortization of net actuarial loss	73			88			146			176
Total before tax effect	18			33			36			66
Tax effect	4			13			9			25
Net of tax amount	14			20			27			41
Total other comprehensive income (loss)	(285		)	1,784			(3,579		)	3,782
Comprehensive income	$	2,242		$	4,740		$	3,387		$	9,717

See accompanying notes to unaudited consolidated financial statements.

8

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balances at January 1, 2017	$	53	$	45,603		$	124,111		$	(15,265	)	$	(10,754	)	$	143,748
Net income	—		—			5,935			—			—			5,935
Other comprehensive income	—		—			—			—			3,782			3,782
Restricted stock awards	—		107			—			—			—			107
Restricted stock units for directors' deferred compensation plan	—		49			—			—			—			49
Cash dividends declared ($0.52 per share)	—		—			(2,461		)	—			—			(2,461		)
Distribution of 7,880 shares of treasury stock for directors' compensation	—		68			—			201			—			269
Distribution of 5,861 shares of treasury stock for employee compensation	—		50			—			150			—			200
Distribution of 2,438 shares of treasury stock for deferred directors’ compensation	—		(51		)	—			62			—			11
Sale of 8,788 shares of treasury stock (a)	—		97			—			225			—			322
Forfeiture of 1,139 shares of restricted stock awards	—		43			—			(43		)	—			—
Balances at June 30, 2017	$	53	$	45,966		$	127,585		$	(14,670	)	$	(6,972	)	$	151,962
Balances at December 31, 2017, as reported	$	53	$	45,967		$	128,453		$	(14,320	)	$	(10,340	)	$	149,813
Cumulative effect of accounting change (b)	—		—			40			—			(202		)	(162		)
Balances at January 1, 2018, as adjusted	53		45,967			128,493			(14,320		)	(10,542		)	149,651
Net income	—		—			6,966			—			—			6,966
Other comprehensive loss	—		—			—			—			(3,579		)	(3,579		)
Restricted stock awards	—		232			—			—			—			232
Restricted stock units for directors' deferred compensation plan	—		47			—			—			—			47
Cash dividends declared ($0.52 per share)	—		—			(2,486		)	—			—			(2,486		)
Distribution of 6,015 shares of treasury stock for directors' compensation	—		147			—			154			—			301
Distribution of 1,784 shares of treasury stock for employee compensation	—		44			—			45			—			89
Distribution of 36,681 shares of treasury stock for deferred directors’ compensation	—		(722		)	—			940			—			218
Sale of 7,143 shares of treasury stock (a)	—		158			—			183			—			341
Balances at June 30, 2018	$	53	$	45,873		$	132,973		$	(12,998	)	$	(14,121	)	$	151,780

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

(b) Due to implementation of ASC 2016-01. See "Adoption of New Accounting Standards" discussion in Note 1.

See accompanying notes to unaudited consolidated financial statements.

9

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)	Six Months Ended   June 30,
CASH FLOWS FROM OPERATING ACTIVITIES:	2018			2017
Net income	$	6,966		$	5,935
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	376			439
Provision for loan losses	3,071			1,461
Net losses on disposal of fixed assets	10			31
Depreciation and amortization of fixed assets	1,816			1,946
Amortization of premiums on securities, net	608			736
Gains on sales of loans held for sale, net	(105		)	(122		)
Proceeds from sales of loans held for sale	5,308			6,204
Loans originated and held for sale	(5,345		)	(6,056		)
Net gains on equity investments	(36		)	(64		)
Net gains on securities transactions	—			(12		)
Net (gains) losses on sales of other real estate owned	4			(8		)
Purchase of equity investments	(50		)	(39		)
Expense related to restricted stock units for directors' deferred compensation plan	47			49
Expense related to employee stock compensation	89			200
Expense related to employee restricted stock awards	232			107
Income from bank-owned life insurance	(33		)	(35		)
Increase in other assets and accrued interest receivable	(4,197		)	(132		)
Decrease in accrued interest payable	(33		)	(47		)
Increase (decrease) in other liabilities	1,825			(1,594		)
Net cash provided by operating activities	10,553			8,999
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and calls of securities available for sale	820			1,075
Proceeds from maturities and principal collected on securities available for sale	21,666			24,624
Proceeds from maturities and principal collected on securities held to maturity	585			1,544
Purchases of securities available for sale	—			(41,306		)
Purchases of securities held to maturity	(610		)	(1,767		)
Purchase of FHLBNY and FRBNY stock	(17,123		)	(173		)
Redemption of FHLBNY and FRBNY stock	17,091			450
Purchases of premises and equipment	(1,218		)	(890		)
Proceeds from sales of other real estate owned	1,295			176
Net increase in loans	(27,451		)	(53,083		)
Net cash used in investing activities	(4,945		)	(69,350		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, interest-bearing demand accounts,   savings accounts, and insured money market accounts	(16,269		)	79,997
Net increase (decrease) in time deposits	27,732			(11,303		)
Net decrease in securities sold under agreements to repurchase	(10,000		)	(15,669		)
Net increase in FHLBNY overnight advances	1,250			—
Repayments of FHLBNY long term advances	(2,000		)	(55		)
Payments made on capital leases	(106		)	(102		)
Sale of treasury stock	341			322
Cash dividends paid	(2,470		)	(2,455		)
Net cash (used in) provided by financing activities	(1,522		)	50,735
Net increase (decrease) in cash and cash equivalents	4,086			(9,616		)
Cash and cash equivalents, beginning of period	30,729			74,162
Cash and cash equivalents, end of period	$	34,815		$	64,546
(continued)

See accompanying notes to unaudited consolidated financial statements.

10

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)

(in thousands)	Six Months Ended   June 30,
Supplemental disclosure of cash flow information:	2018		2017
Cash paid (received) for:
Interest	$	1,654	$	1,601
Income taxes	$	1,355	$	4,050
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	$	244	$	116
Dividends declared, not yet paid	$	1,249	$	1,231
Distribution of treasury stock for directors' compensation	$	301	$	269
Distribution of treasury stock for deferred directors' compensation	$	218	$	11

See accompanying notes to unaudited consolidated financial statements.

11

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unconsolidated financial statements should be read in conjunction with the Corporation's 2017 Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, though early adoption is permitted. The Corporation intends to adopt the new lease guidance as of January 1, 2019 and is currently evaluating the impact that adoption of these updates will have on its consolidated financial statements. Currently, the Corporation believes the implementation of this ASU will create a right of use asset of less than $15.0 million for the Corporation's 16 leased facilities and a related capital obligation of the same amount as of January 1, 2019.

12

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

NOTE 2EARNING PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.  Earnings per share were computed by dividing net income by 4,828 and 4,797weighted average shares outstanding for the three-month periods ended June 30, 2018 and 2017, respectively. Earnings per share were computed by dividing net income by 4,825 and 4,793weighted average shares outstanding for the six- month periods ended June 30, 2018 and 2017, respectively. There were no common stock equivalents during the three and six-month periods ended June 30, 2018 or 2017.

13

NOTE 3SECURITIES

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,489	$	11	$	50	$	15,450
Mortgage-backed securities, residential	207,708		69		9,137		198,640
Obligations of states and political subdivisions	47,574		37		582		47,029
Corporate bonds and notes	249		1		—		250
SBA loan pools	3,832		—		44		3,788
Total	$	274,852	$	118	$	9,813	$	265,157

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	20	$	21	$	15,491
Mortgage-backed securities, residential	224,939		136		5,166		219,909
Obligations of states and political subdivisions	52,928		355		151		53,132
Corporate bonds and notes	249		2		—		251
SBA loan pools	4,339		1		32		4,308
Total	$	297,947	$	514	$	5,370	$	293,091

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,481	$	—	$	—	$	1,481
Time deposits with other financial institutions	2,325		—		16		2,309
Total	$	3,806	$	—	$	16	$	3,790

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	—	$	—	$	1,946
Time deposits with other financial institutions	1,835		—		5		1,830
Total	$	3,781	$	—	$	5	$	3,776

14

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

	June 30, 2018
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	16,875	$	16,873	$	884	$	882
After one, but within five years	19,459		19,347		2,689		2,675
After five, but within ten years	26,495		26,053		233		233
After ten years	483		456		—		—
	63,312		62,729		3,806		3,790
Mortgage-backed securities, residential	207,708		198,640		—		—
SBA loan pools	3,832		3,788		—		—
Total	$	274,852	$	265,157	$	3,806	$	3,790

The proceeds from sales and calls of securities resulting in gains or losses for the three months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

The proceeds from sales and calls of securities resulting in gains or losses for the six months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

The following tables summarize the investment securities available for sale with unrealized losses at June 30, 2018 and December 31, 2017 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
June 30, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,948	$	50	$	—	$	—	$	14,948	$	50
Mortgage-backed securities, residential	65,746		2,193		130,586		6,944		196,332		9,137
Obligations of states and political subdivisions	36,819		488		1,709		94		38,528		582
SBA loan pools	243		1		3,545		43		3,788		44
Total temporarily impaired securities	$	117,756	$	2,732	$	135,840	$	7,081	$	253,596	$	9,813

15

	Less than 12 months				12 months or longer				Total
December 31, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
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

Other-Than-Temporary Impairment

As of June 30, 2018, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.  At June 30, 2018, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at June 30, 2018.

NOTE 4LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	June 30,   2018		December 31,   2017
Commercial and agricultural:
Commercial and industrial	$	193,092	$	198,463
Agricultural	424		544
Commercial mortgages:
Construction	45,543		45,558
Commercial mortgages, other	621,150		598,772
Residential mortgages	193,423		194,440
Consumer loans:
Credit cards	1,367		1,517
Home equity lines and loans	99,052		100,591
Indirect consumer loans	162,813		153,060
Direct consumer loans	17,580		18,879
Total loans, net of deferred origination fees and costs	$	1,334,444	$	1,311,824
Interest receivable on loans	3,666		3,758
Total recorded investment in loans	$	1,338,110	$	1,315,582

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

16

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance	$	7,003		$	8,640		$	1,407		$	4,340		$	21,390
Charge-offs	(3,624		)	(145		)	(71		)	(463		)	(4,303		)
Recoveries	11			1			—			184			196
Net recoveries (charge-offs)	(3,613		)	(144		)	(71		)	(279		)	(4,107		)
Provision	1,579			244			109			430			2,362
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Three Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance	$	1,650		$	7,749	$	1,512		$	4,049		$	14,960
Charge-offs	(2		)	—		(48		)	(397		)	(447		)
Recoveries	36			2		13			119			170
Net recoveries (charge-offs)	34			2		(35		)	(278		)	(277		)
Provision	199			27		40			155			421
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

	Six Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161
Charge-offs:	(3,644		)	(145		)	(165		)	(921		)	(4,875		)
Recoveries:	21			2			5			260			288
Net recoveries (charge-offs)	(3,623		)	(143		)	(160		)	(661		)	(4,587		)
Provision	1,616			369			289			797			3,071
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Six Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270	$	1,523		$	3,871		$	14,253
Charge-offs:	(7		)	—		(60		)	(825		)	(892		)
Recoveries:	61			3		30			188			282
Net recoveries (charge-offs)	54			3		(30		)	(637		)	(610		)
Provision	240			505		24			692			1,461
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

17

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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,285	$	453	$	—	$	—	$	1,738
Collectively evaluated for impairment	3,684		8,287		1,445		4,491		17,907
Total ending allowance balance	$	4,969	$	8,740	$	1,445	$	4,491	$	19,645

	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

	June 30, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,017	$	6,847	$	417	$	61	$	9,342
Loans collectively evaluated for  impairment	192,040		661,711		193,514		281,503		1,328,768
Total ending loans balance	$	194,057	$	668,558	$	193,931	$	281,564	$	1,338,110

	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

18

The following table presents loans individually evaluated for impairment recognized by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018						December 31, 2017
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	643	$	647	$	—	$	861	$	867	$	—
Commercial mortgages:
Construction	336		338		—		364		365		—
Commercial mortgages, other	4,366		4,370		—		4,135		4,138		—
Residential mortgages	439		417		—		450		427		—
Consumer loans:
Home equity lines and loans	60		61		—		64		64		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,370		1,370		1,285		5,231		5,266		5,135
Commercial mortgages:
Commercial mortgages, other	2,173		2,139		453		2,989		2,799		802
Total	$	9,387	$	9,342	$	1,738	$	14,094	$	13,926	$	5,937

19

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended   June 30, 2018				Three Months Ended   June 30, 2017				Six Months Ended   June 30, 2018				Six Months Ended   June 30, 2017
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	710	$	7	$	626	$	8	$	762	$	15	$	649	$	17
Commercial mortgages:
Construction	345		3		1,555		3		352		6		1,130		6
Commercial mortgages, other	4,290		5		5,879		32		4,240		10		6,538		90
Residential mortgages	421		2		417		2		423		4		410		4
Consumer loans:
Home equity lines & loans	61		1		71		1		62		2		79		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,196		—		84		1		3,886		—		56		1
Commercial mortgages:
Commercial mortgages, other	2,467		1		4,461		4		2,578		3		3,723		7
Consumer loans:
Home equity lines and loans	—		—		180		—		—		—		240		—
Total	$	11,490	$	19	$	13,273	$	51	$	12,303	$	40	$	12,825	$	126

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

20

The following table present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Commercial and agricultural:
Commercial and industrial	$	1,513	$	5,250	$	3	$	5
Commercial mortgages:
Construction	123		135		—		—
Commercial mortgages, other	6,101		6,520		—		—
Residential mortgages	2,981		3,160		—		—
Consumer loans:
Credit cards	—		—		14		24
Home equity lines and loans	1,359		1,310		—		—
Indirect consumer loans	673		935		—		—
Direct consumer loans	40		14		—		—
Total	$	12,790	$	17,324	$	17	$	29

The following tables present the aging of the recorded investment in loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
	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	$	392	$	—	$	17	$	409	$	—	$	193,223	$	193,632
Agricultural	—		—		—		—		—		425		425
Commercial mortgages:
Construction	—		—		—		—		—		45,671		45,671
Commercial mortgages, other	992		93		3,339		4,424		—		618,463		622,887
Residential mortgages	1,117		492		1,261		2,870		—		191,061		193,931
Consumer loans:
Credit cards	11		11		14		36		—		1,332		1,368
Home equity lines and loans	359		196		787		1,342		—		97,995		99,337
Indirect consumer loans	979		218		231		1,428		—		161,778		163,206
Direct consumer loans	56		24		22		102		—		17,551		17,653
Total	$	3,906	$	1,034	$	5,671	$	10,611	$	—	$	1,327,499	$	1,338,110

21

	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, other	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

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 June 30, 2018 and December 31, 2017, the Corporation has a recorded investment in TDRs of $7.1 million and $7.7 million, respectively.  There were specific reserves of $0.5 million and $0.7 million allocated for TDRs at June 30, 2018 and December 31, 2017, respectively.  As of June 30, 2018, TDRs totaling $1.4 million were accruing interest under the modified terms and $5.7 million were on non-accrual status.  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.  The Corporation had committed no additional amounts as of both June 30, 2018 and December 31, 2017, to customers with outstanding loans that are classified as TDRs.

There were no loans modified as TDRs during the three month period ended June 30, 2018 while the terms of certain loans were modified as TDRs during the three month period ended June 30, 2017. The modification of the terms of two commercial & industrial term loans and one commercial line of credit during the three months ended June 30, 2017 included consolidating the loans into one commercial & industrial loan, extending the maturity date by approximately two years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a residential mortgage loan during the three months ended June 30, 2017 included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of the loan.

22

During the six months ended June 30, 2018 and 2017, the terms of certain loans were modified as TDRs. The modification of the terms of one commercial & industrial term loan during the six months ended June 30, 2018 included an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. In addition to the modifications noted above, the modification of the terms of one commercial mortgage loan during the six months ended June 30, 2017 included a reduction of the scheduled amortized payments of the loan for greater than a three month period.

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

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Residential mortgages	1	105		105
Total	4	$	276	$	276

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

The following tables presents loans by class modified as TDRs that occurred during the six months ended June 30, 2018 and 2017 (dollars in thousands):

June 30, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	100	$	100
Total	1	$	100	$	100

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	442	$	442

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the six months ended June 30, 2018. The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge-offs during the six months ended June 30, 2017.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three and six month periods ended June 30, 2018 and 2017.

23

Credit Quality Indicators

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

For the retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment.

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

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

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

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

24

Commercial loans not meeting the criteria above to be considered criticized or classified are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans performing under terms of the loan notes.  Based on the analyses performed as of June 30, 2018 and December 31, 2017, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	June 30, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	179,814	$	9,843	$	2,619	$	1,356	$	—	$	193,632
Agricultural	—		425		—		—		—		—		425
Commercial mortgages:
Construction	—		45,548		—		123		—		—		45,671
Commercial mortgages	—		598,395		10,639		12,526		1,327		—		622,887
Residential mortgages	190,776		—		—		3,155		—		—		193,931
Consumer loans:
Credit cards	1,368		—		—		—		—		—		1,368
Home equity lines and loans	97,978		—		—		1,359		—		—		99,337
Indirect consumer loans	162,533		—		—		673		—		—		163,206
Direct consumer loans	17,613		—		—		40		—		—		17,653
Total	$	470,268	$	824,182	$	20,482	$	20,495	$	2,683	$	—	$	1,338,110

25

	December 31, 2017
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		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		9,665		13,331		1,377		792		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	$	14,112	$	25,489	$	2,799	$	792	$	1,315,582

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	190,950	$	1,368	$	97,978	$	162,533	$	17,613
Non-Performing	2,981		—		1,359		673		40
	$	193,931	$	1,368	$	99,337	$	163,206	$	17,653

	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
	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

26

NOTE 5FAIR VALUE

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

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

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments 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.

27

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

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

			Fair Value Measurement at June 30, 2018 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	$	15,450	$	—	$	15,450	$	—
Mortgage-backed securities, residential	198,640		—		198,640		—
Obligations of states and political subdivisions	47,029		—		47,029		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	3,788		—		3,788		—
Total available for sale securities	$	265,157	$	—	$	265,157	$	—
Equity investments	$	1,277	$	1,277	$	—	$	—
Derivative assets	2,304		—		2,304		—
Financial Liabilities:
Derivative liabilities	$	2,322	$	—	$	2,304	$	18

There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2018.

			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		—
Total available for sale securities	$	293,091	$	—	$	293,091	$	—
Equity investments	$	1,192	$	1,192	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

28

There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2017.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at April 1	$	—	$	251	$	(50	)	$	(65	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		33			(6		)
Included in other comprehensive income	—		1		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

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 six month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at January 1	$	—	$	250	$	(75	)	$	(68	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		58			(3		)
Included in other comprehensive income	—		2		—			—
Transfers out of Level 3	—		—		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

The following table presents information related to Level 3 recurring fair value measurements at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Derivative liabilities	$	18	Historical trend	Credit default rate	6.76% - 6.76% [6.76%]

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%]

29

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

			Fair Value Measurement at June 30, 2018 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	$	12	$	—	$	—	$	12	$	—
Total impaired loans	$	12	$	—	$	—	$	12	$	—
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	534	$	—	$	—	$	534	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	148		—		—		148		—
Total other real estate owned, net	$	886	$	—	$	—	$	886	$	—

			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	)

30

The following tables presents information related to Level 3 non-recurring fair value measurement at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	12	Sales comparison	Discount to appraised value	0.00% - 0.00% [0.00%]
	$	12
OREO:
Commercial mortgages:
Commercial mortgages	$	534	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.98%]
Residential mortgages	204		Sales comparison	Discount to appraised value	17.28% - 39.78% [20.44%]
Consumer loans:
Home equity lines and loans	148		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	886

Description	Fair Value at December 31, 2017		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 mortgages:
Commercial mortgages	$	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

31

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at June 30, 2018 and December 31, 2017, are as follows (in thousands):

	June 30, 2018
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	$	30,837	$	30,837	$	—	$	—	$	30,837
Interest-bearing deposits in other financial institutions	3,978		3,978		—		—		3,978
Equity investments	1,277		1,277		—		—		1,277
Securities available for sale	265,157		—		265,157		—		265,157
Securities held to maturity	3,806		—		2,309		1,481		3,790
FHLBNY and FRBNY stock	5,816		—		—		—		N/A
Loans, net and loans held for sale	1,315,483		—		—		1,296,697		1,296,697
Accrued interest receivable	4,404		1		737		3,666		4,404
Derivative assets	2,304		—		2,304		—		2,304
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,332,815	$	1,332,815	$	—	$	—	$	1,332,815
Time deposits	146,094		—		146,315		—		146,315
FHLBNY overnight advances	58,950		—		58,949		—		58,949
Accrued interest payable	115		21		94		—		115
Derivative liabilities	2,322		—		2,304		18		2,322

(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.

32

	December 31, 2017
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Equity investments	1,192		1,192		—		—		1,192
Securities available for sale	293,091		—		293,091		—		293,091
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,291,205		—		—		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.

NOTE 6        GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the six month periods ended June 30, 2018 and 2017 were as follows (in thousands):

	2018		2017
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance June 30,	$	21,824	$	21,824

Acquired intangible assets were as follows at June 30, 2018 and December 31, 2017 (in thousands):

	At June 30, 2018				At December 31, 2017
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,395	$	5,975	$	5,196
Other customer relationship intangibles	5,633		4,504		5,633		4,327
Total	$	11,608	$	9,899	$	11,608	$	9,523

33

Aggregate amortization expense was $0.2 million for both of the three month periods ended June 30, 2018 and 2017. Aggregate amortization expense was $0.4 million for both of the six month periods ended June 30, 2018 and 2017, respectively.

The remaining estimated aggregate amortization expense at June 30, 2018 is listed below (in thousands):

Year	Estimated Expense
2018	$	358
2019	609
2020	484
2021	258
2022	—
Total	$	1,709

NOTE 7        SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

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

There were no securities sold under agreements to repurchase as of June 30, 2018.

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

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Mortgage-backed securities, residential	$	—	$	11,798		$	—	$	—	$	11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
Gross amount of recognized liabilities for repurchase agreements	$	—	$	10,000		$	—	$	—	$	10,000

NOTE 8COMMITMENTS AND CONTINGENCIES

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

34

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018				December 31, 2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	17,062	$	32,329	$	16,019	$	28,591
Unused lines of credit	1,473		199,478		1,604		200,353
Standby letters of credit	—		14,416		—		15,022

On June 15, 2018, the Bank, through mediation, reached a resolution by way of a settlement agreement in the matter of Fane v. Chemung Canal Trust Company (the “Action”). The parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action. As of March 31, 2018, the Corporation had a legal reserve of $2.3 million for the Action and therefore recognized an additional $1.0 million of legal expense during the second quarter of 2018.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  Except for the above matter as of June 30, 2018, we believe that we are not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

NOTE 9        ACCUMULATED OTHER COMPREHENSIVE LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2018	$	(6,924	)	$	(6,912	)	$	(13,836	)
Other comprehensive income before reclassification	(299		)	—			(299		)
Amounts reclassified from accumulated other comprehensive income	—			14			14
Net current period other comprehensive income (loss)	(299		)	14			(285		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2017	$	(2,379	)	$	(6,377	)	$	(8,756	)
Other comprehensive loss before reclassification	1,772			—			1,772
Amounts reclassified from accumulated other comprehensive income	(8		)	20			12
Net current period other comprehensive income	1,764			20			1,784
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

35

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2018	$	(3,415	)	$	(6,925	)	$	(10,340	)
Cumulative effect of account change	(202		)	—			(202		)
Balance at January 1, 2018, as adjusted	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income before reclassification	(3,606		)	—			(3,606		)
Amounts reclassified from accumulated other comprehensive income	—			27			27
Net current period other comprehensive income (loss)	(3,606		)	27			(3,579		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2017	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	3,749			—			3,749
Amounts reclassified from accumulated other comprehensive income	(8		)	41			33
Net current period other comprehensive income	3,741			41			3,782
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

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

Details about Accumulated Other Comprehensive Income Components	Three Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	73			88			Other components of net periodic pension and postretirement benefits
Tax effect	(4		)	(13		)	Income tax expense
Net of tax	14			20
Total reclassification for the period, net of tax	$	14		$	12

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

36

Details about Accumulated Other Comprehensive Income Components	Six Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(110		)	(110		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	146			176			Other components of net periodic pension and postretirement benefits
Tax effect	(9		)	(25		)	Income tax expense
Net of tax	27			41
Total reclassification for the period, net of tax	$	27		$	33

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

NOTE 10    REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Corporation's non-interest income by revenue stream and reportable segment for the three and six months ended June 30, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	939		$	—	$	—		$	939
Other	205			—		—			205
Interchange revenue from debit card transactions	996			—		—			996
WMG fee income	—			2,373		—			2,373
CFS fee and commission income	—			—		135			135
Net gains (losses) on sales of OREO	(48		)	—		—			(48		)
Net gains on sales of loans(a)	59			—		—			59
Loan servicing fees(a)	22			—		—			22
Other(a)	649			—		(5		)	644
Total non-interest income (loss)	$	2,822		$	2,373	$	130		$	5,325

37

	Three Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	971		$	—	$	—		$	971
Other	254			—		—			254
Interchange revenue from debit card transactions	964			—		—			964
WMG fee income	—			2,269		—			2,269
CFS fee and commission income	—			—		174			174
Net gains (losses) on sales of OREO	(9		)	—		—			(9		)
Net gains on sales of loans(a)	53			—		—			53
Loan servicing fees(a)	21			—		—			21
Net gains (losses) on sales of securities(a)	12			—		—			12
Other(a)	368			—		(55		)	313
Total non-interest income	$	2,634		$	2,269	$	119		$	5,022

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

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

	Six Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,904		$	—	$	—		$	1,904
Other	404			—		—			404
Interchange revenue from debit card transactions	2,031			—		—			2,031
WMG fee income	—			4,689		—			4,689
CFS fee and commission income	—			—		245			245
Net gains (losses) on sales of OREO	(4		)	—		—			(4		)
Net gains on sales of loans(a)	105			—		—			105
Loan servicing fees(a)	45			—		—			45
Other(a)	1,520			—		(139		)	1,381
Total non-interest income (loss)	$	6,005		$	4,689	$	106		$	10,800

38

	Six Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,950	$	—	$	—		$	1,950
Other	459		—		—			459
Interchange revenue from debit card transactions	1,884		—		—			1,884
WMG fee income	—		4,378		—			4,378
CFS fee and commission income	—		—		312			312
Net gains on sales of OREO	8		—		—			8
Net gains on sales of loans(a)	122		—		—			122
Loan servicing fees(a)	41		—		—			41
Net gains (losses) on sales of securities(a)	12		—		—			12
Other(a)	763		—		(60		)	703
Total non-interest income	$	5,239	$	4,378	$	252		$	9,869

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

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

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

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

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

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

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

39

NOTE 11    COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

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

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2018			2017			2018			2017
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	384			403			769			806
Expected return on plan assets	(826		)	(785		)	(1,652		)	(1,570		)
Amortization of unrecognized transition obligation	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	44			58			87			116
Net periodic pension benefit	$	(398	)	$	(324	)	$	(796	)	$	(648	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	12			12			24			24
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	2			1			4			2
Net periodic supplemental pension cost	$	14		$	13		$	28		$	26
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	4			4			7			8
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	(55		)	(55		)	(110		)	(110		)
Amortization of unrecognized net loss	27			29			55			58
Net periodic postretirement, medical and life benefit	$	(24	)	$	(22	)	$	(48	)	$	(44	)

NOTE 12    SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s 2017 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2018. 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).

40

	Three months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	15,861	$	—	$	8		$	15,869
Interest expense	852		—		—			852
Net interest income	15,009		—		8			15,017
Provision for loan losses	2,362		—		—			2,362
Net interest income after provision for loan losses	12,647		—		8			12,655
Other non-interest income	2,822		2,373		130			5,325
Legal accruals and settlements	989		—		—			989
Other non-interest expenses	12,014		1,629		335			13,978
Income (loss) before income tax expense (benefit)	2,466		744		(197		)	3,013
Income tax expense (benefit)	342		190		(46		)	486
Segment net income (loss)	$	2,124	$	554	$	(151	)	$	2,527

	Three months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	14,680	$	—	$	4		$	14,684
Interest expense	734		—		—			734
Net interest income	13,946		—		4			13,950
Provision for loan losses	421		—		—			421
Net interest income after provision for loan losses	13,525		—		4			13,529
Other non-interest income	2,634		2,269		119			5,022
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	11,700		1,467		315			13,482
Income (loss) before income tax expense (benefit)	3,609		802		(192		)	4,219
Income tax expense (benefit)	1,018		304		(59		)	1,263
Segment net income (loss)	$	2,591	$	498	$	(133	)	$	2,956

	Six months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	31,523	$	—	$	15		$	31,538
Interest expense	1,621		—		—			1,621
Net interest income	29,902		—		15			29,917
Provision for loan losses	3,071		—		—			3,071
Net interest income after provision for loan losses	26,831		—		15			26,846
Other non-interest income	6,005		4,689		106			10,800
Other non-interest expenses	24,429		3,107		608			28,144
Income (loss) before income tax expense (benefit)	7,418		1,582		(487		)	8,513
Income tax expense (benefit)	1,236		403		(92		)	1,547
Segment net income (loss)	$	6,182	$	1,179	$	(395	)	$	6,966
Segment assets	$	1,694,891	$	3,844	$	11,431		$	1,710,166

41

	Six months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	28,991	$	—	$	7		$	28,998
Interest expense	1,554		—		—			1,554
Net interest income	27,437		—		7			27,444
Provision for loan losses	1,461		—		—			1,461
Net interest income after provision for loan losses	25,976		—		7			25,983
Other non-interest income	5,239		4,378		252			9,869
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	23,144		2,772		611			26,527
Income (loss) before income tax expense (benefit)	7,221		1,606		(352		)	8,475
Income tax expense (benefit)	2,066		609		(135		)	2,540
Segment net income (loss)	$	5,155	$	997	$	(217	)	$	5,935
Segment assets	$	1,706,266	$	4,863	$	7,443		$	1,718,572

NOTE 13    STOCK COMPENSATION

Board of Directors' Stock Compensation

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

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

During January 2018 and 2017, 6,015 and 7,880 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $100 thousand and $75 thousand related to this compensation was recognized during the three month periods ended June 30, 2018 and 2017, respectively. An expense of $184 thousand and $154 thousand related to this compensation was recognized during the six month periods ended June 30, 2018 and 2017, respectively. This expense is accrued as shares are earned.

Restricted Stock Plan

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

42

A summary of restricted stock activity for the three month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at April 1, 2018	23,933		$	38.12
Granted	—		—
Vested	(849	)	44.84
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

A summary of restricted stock activity for the six month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2018	25,522		$	38.01
Granted	—		—
Vested	(2,438	)	39.28
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

As of June 30, 2018, there was $838 thousand of total unrecognized compensation cost related to nonvested shares granted under the Plan.  The cost is expected to be recognized over a weighted-average period of 3.26 years.  The total fair value of shares vested was $112 thousand and $16 thousand for the six month periods ended June 30, 2018 and 2017, respectively.

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

Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and six months ended June 30, 2018 and 2017.  Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2017 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2018, for an understanding of the following discussion and analysis.  See the list of commonly used abbreviations and terms on pages 3–5.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below and in Part I, Item 1A, Risk Factors, on pages 17–24 of the Corporation’s 2017 Form 10-K.  For a discussion of use of non-GAAP financial measures, see pages 64–67 of the Corporation's 2017 Form 10-K or pages 70-73 in this Form 10-Q.

The Corporation has been a financial holding company since 2000, the Bank was established in 1833, CFS in 2001, and CRM in 2016.  Through the Bank and CFS, the Corporation provides a wide range of financial services, including demand, savings and time deposits, commercial, residential and consumer loans, interest rate swaps, letters of credit, wealth management services, employee benefit plans, insurance products, mutual funds and brokerage services.  The Bank relies substantially on a foundation of locally generated deposits.  The Corporation, on a stand-alone basis, has minimal results of operations.  The Bank derives its income primarily from interest and fees on loans, interest income on investment securities, WMG fee income, and fees received in connection with deposit and other services.  The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans, and general operating expenses. CRM is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

43

Forward-looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections.  All statements regarding the Corporation's expected financial position and operating results, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend."  The Corporation cannot promise that its expectations in such forward-looking statements will turn out to be correct.  The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, including the Dodd-Frank Act, and changes in general business and economic trends. Information concerning these and other factors can be found in the Corporation’s periodic filings with the SEC, including the discussion under the heading “Item 1A. Risk Factors” in the Corporation’s 2017 Annual Report on Form 10-K.  These filings are available publicly on the SEC’s web site at http://www.sec.gov, on the Corporation's web site at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

44

Consolidated Financial Highlights

																As of or for the
	As of or for the Three Months Ended															Six Months Ended
	June 30,			March 31,			Dec. 31,			Sept. 30,			June 30,			June 30,			June 30,
(in thousands, except per share data)	2018			2018			2017			2017			2017			2018			2017
RESULTS OF OPERATIONS
Interest income	$	15,869		$	15,669		$	15,560		$	15,497		$	14,684		$	31,538		$	28,998
Interest expense	852			769			780			734			734			1,621			1,554
Net interest income	15,017			14,900			14,780			14,763			13,950			29,917			27,444
Provision for loan losses	2,362			709			6,272			1,289			421			3,071			1,461
Net interest income after provision for loan losses	12,655			14,191			8,508			13,474			13,529			26,846			25,983
Non-interest income	5,325			5,475			5,456			5,166			5,022			10,800			9,869
Non-interest expense	14,967			14,166			13,111			13,276			14,332			29,133			27,377
Income before income tax expense	3,013			5,500			853			5,364			4,219			8,513			8,475
Income tax expense	486			1,061			3,012			1,710			1,263			1,547			2,540
Net income (loss)	$	2,527		$	4,439		$	(2,159	)	$	3,654		$	2,956		$	6,966		$	5,935
Basic and diluted earnings per share	$	0.52		$	0.92		$	(0.45	)	$	0.76		$	0.62		$	1.44		$	1.24
Average basic and diluted shares outstanding	4,828			4,822			4,809			4,802			4,797			4,825			4,793
PERFORMANCE RATIOS - Annualized
Return on average assets	0.59		%	1.06		%	(0.50		)%	0.85		%	0.69		%	0.82		%	0.70		%
Return on average equity	6.70		%	11.96		%	(5.53		)%	9.46		%	7.90		%	9.31		%	8.06		%
Return on average tangible equity (a)	7.94		%	14.21		%	(6.55		)%	11.24		%	9.43		%	11.05		%	9.66		%
Efficiency ratio (a) (b)	67.47		%	68.21		%	63.43		%	64.83		%	69.28		%	67.84		%	69.27		%
Non-interest expense to average assets	3.52		%	3.37		%	3.01		%	3.09		%	3.34		%	3.45		%	3.23		%
Loans to deposits	90.23		%	86.94		%	89.40		%	83.85		%	82.14		%	90.23		%	82.14		%
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	4.33		%	4.34		%	4.26		%	4.34		%	4.18		%	4.34		%	4.18		%
Yield on investments	2.21		%	2.22		%	2.15		%	2.16		%	2.01		%	2.22		%	2.01		%
Yield on interest-earning assets	3.94		%	3.94		%	3.82		%	3.86		%	3.65		%	3.94		%	3.65		%
Cost of interest-bearing deposits	0.24		%	0.20		%	0.20		%	0.20		%	0.20		%	0.22		%	0.20		%
Cost of borrowings	2.41		%	2.23		%	2.42		%	2.95		%	2.82		%	2.31		%	2.94		%
Cost of interest-bearing liabilities	0.32		%	0.29		%	0.28		%	0.27		%	0.26		%	0.30		%	0.28		%
Interest rate spread	3.62		%	3.65		%	3.54		%	3.59		%	3.39		%	3.64		%	3.37		%
Net interest margin, fully taxable equivalent	3.73		%	3.75		%	3.63		%	3.68		%	3.47		%	3.74		%	3.46		%
CAPITAL
Total equity to total assets at end of period	8.88		%	8.84		%	8.77		%	8.91		%	8.84		%	8.88		%	8.84		%
Tangible equity to tangible assets at end of period (a)	7.60		%	7.55		%	7.48		%	7.62		%	7.53		%	7.60		%	7.53		%
Book value per share	$	31.42		$	31.16		$	31.10		$	32.11		$	31.67		$	31.42		$	31.67
Tangible book value per share (a)	26.55			26.24			26.14			27.09			26.60			26.55			26.60
Period-end market value per share	50.11			46.47			48.10			47.10			40.88			50.11			40.88
Dividends declared per share	0.26			0.26			0.26			0.26			0.26			0.52			0.52
AVERAGE BALANCES
Loans and loans held for sale (c)	$	1,328,386		$	1,315,207		$	1,291,414		$	1,259,919		$	1,237,189		$	1,321,834		$	1,226,377
Earning assets	1,625,591			1,623,748			1,639,257			1,615,833			1,634,955			1,624,676			1,620,290
Total assets	1,703,722			1,703,047			1,727,616			1,707,111			1,723,664			1,703,386			1,709,014
Deposits	1,495,410			1,488,708			1,516,390			1,512,685			1,532,819			1,492,076			1,514,374
Total equity	151,216			150,495			154,767			153,244			150,155			150,857			148,408
Tangible equity (a)	127,591			126,665			130,759			129,024			125,720			127,130			123,864
ASSET QUALITY
Net charge-offs	$	4,107		$	480		$	805		$	699		$	277		$	4,587		$	610

45

Non-performing loans (d)	12,790		17,280		17,324		14,028		15,208		12,790		15,208
Non-performing assets (e)	13,676		19,113		19,264		14,216		15,545		13,676		15,545
Allowance for loan losses	19,645		21,390		21,161		15,694		15,104		19,645		15,104
Annualized net charge-offs to average loans	1.24	%	0.15	%	0.25	%	0.22	%	0.10	%	0.70	%	0.10	%
Non-performing loans to total loans	0.96	%	1.31	%	1.32	%	1.09	%	1.21	%	0.96	%	1.21	%
Non-performing assets to total assets	0.80	%	1.12	%	1.13	%	0.82	%	0.90	%	0.80	%	0.90	%
Allowance for loan losses to total loans	1.47	%	1.62	%	1.61	%	1.22	%	1.21	%	1.47	%	1.21	%
Allowance for loan losses to non-performing loans	153.60	%	123.78	%	122.15	%	111.88	%	99.32	%	153.60	%	99.32	%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio is non-interest expense less merger and acquisition expenses less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions.
(c) Loans and loans held for sale do not reflect the allowance for loan losses.
(d) Non-performing loans include non-accrual loans only.
(e) Non-performing assets include non-performing loans plus other real estate owned.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of its competitors. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 70-73 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Executive Summary

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

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

	Three Months Ended   June 30,
	2018			2017			Change			Percentage Change
Net interest income	$	15,017		$	13,950		$	1,067		7.6	%
Non-interest income	5,325			5,022			303			6.0	%
Non-interest expense	14,967			14,332			635			4.4	%
Pre-provision income	5,375			4,640			735			15.8	%
Provision for loan losses	2,362			421			1,941			461.0	%
Income tax expense	486			1,263			(777		)	(61.5	)%
Net income	$	2,527		$	2,956		$	(429	)	(14.5	)%
Basic and diluted earnings per share	$	0.52		$	0.62		$	(0.10	)	(16.1	)%
Selected financial ratios:
Return on average assets	0.59		%	0.69		%
Return on average equity	6.70		%	7.90		%
Net interest margin, fully taxable equivalent	3.73		%	3.47		%
Efficiency ratio	67.47		%	69.28		%
Non-interest expenses to average assets	3.52		%	3.34		%

46

Net income for the second quarter of 2018 was $2.5 million, or $0.52 per share, compared with $3.0 million, or $0.62 per share, for the same period in the prior year.  Return on average equity for the quarter was 6.70%, compared with 7.90% for the prior year quarter.  The decrease in net income was driven by increases in non-interest expense and provision for loan losses, partially offset by increases in net interest income and non-interest income and a decrease in income tax expense.

Net interest income

Net interest income increased $1.1 million, or 7.6%, compared with the same period in the prior year. The increase was due primarily to increases in interest income from the commercial and indirect consumer loan portfolios and a decrease in interest expense on securities sold under agreements to repurchase, partially offset by decreases in interest income from taxable securities and interest-earning deposits and an increase in interest expense on deposits and borrowed funds.

Non-interest income

Non-interest income increased $0.3 million, or 6.0%, compared with the same period in the prior year.  The increase was due primarily to increases in WMG fee income and other non-interest income.

Non-interest expense

Non-interest expense increased $0.6 million, or 4.4%, compared with the same period in the prior year.  The increase was due primarily to increases in salaries and wages, data processing expenses, legal accruals and settlements, marketing and advertising expenses, other real estate owned expenses, and other non-interest expenses. For the three months ended June 30, 2018, non-interest expense to average assets was 3.52%, compared with 3.34% for the same period in the prior year.

Provision for loan losses

The provision for loan losses increased $1.9 million, or 461.0%, compared to the same period in the prior year.  The increase was due primarily to an increase in the historical loss factor of the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018, compared to the same period in the prior year. Net charge-offs increased $3.8 million, compared with the same period in the prior year, mostly due to the previously mentioned charge-off of multiple loans to one borrower.

Income tax expense

Income tax expense decreased $0.8 million, or 61.5%, compared to the same period in the prior year. The decrease was due primarily to the decline in the Federal income tax rate from 34% to 21%, with the enactment of the Tax Act. Additionally, the Corporation increased income generated from CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, reducing the Corporation’s state income tax. Finally, the Corporation recognized a $1.2 million decline in income before income tax expense for the quarter, when compared to the same period in the prior year.

47

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):

	Six Months Ended   June 30,
	2018			2017			Change			Percentage Change
Net interest income	$	29,917		$	27,444		$	2,473		9.0	%
Non-interest income	10,800			9,869			931			9.4	%
Non-interest expense	29,133			27,377			1,756			6.4	%
Pre-provision income	11,584			9,936			1,648			16.6	%
Provision for loan losses	3,071			1,461			1,610			110.2	%
Income tax expense	1,547			2,540			(993		)	(39.1	)%
Net income	$	6,966		$	5,935		$	1,031		17.4	%
Basic and diluted earnings per share	$	1.44		$	1.24		$	0.20		16.1	%
Selected financial ratios:
Return on average assets	0.82		%	0.70		%
Return on average equity	9.31		%	8.06		%
Net interest margin, fully taxable equivalent	3.74		%	3.46		%
Efficiency ratio	67.84		%	69.27		%
Non-interest expense to average assets	3.45		%	3.23		%

Net income for the six months ended June 30, 2018 was $7.0 million, or $1.44 per share, compared with $5.9 million, or $1.24 per share, for the same period in the prior year.  Return on average equity for the six months ended June 30, 2018 was 9.31%, compared with 8.06% for the same period in the prior year.  The increase in net income from the prior year period 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 provision for loan losses.

Net interest income

Net interest income increased $2.5 million, or 9.0%, compared with the same period in the prior year. The increase was due primarily to increases in interest income from the commercial and indirect consumer loan portfolios and tax exempt securities and a decrease in interest expense on securities sold under agreements to repurchase, partially offset by decreases in interest income from taxable securities and interest-earning deposits and an increase in interest expense on deposits and borrowed funds.

Non-interest income

Non-interest income increased $0.9 million, or 9.4%, compared to the same period in the prior year.  The increase was due primarily to increases in WMG fee income, interchange revenue from debit card transactions, and other non-interest income.

Non-interest expense

Non-interest expense increased $1.8 million, or 6.4%, compared to the same period in the prior year.  The increase was due primarily to increases in salaries and wages, data processing expenses, professional services, marketing and advertising expenses, other real estate owned expenses, and other non-interest expenses, partially offset by decreases in furniture and equipment expenses and an increased credit in other components of net periodic pension benefits. For the six months ended June 30, 2018, non-interest expense to average assets was 3.45%, compared with 3.23% for the same period in the prior year.

Provision for loan losses

The provision for loan losses increased $1.6 million, or 110.2%, compared to the same period in the prior year.  The increase was due primarily to an increase in the historical loss factor of the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the first six months of 2018, compared to the same period in the prior year. Net charge-offs increased $4.0 million, compared with the same period in the prior year, mostly due to the previously mentioned charge-off of multiple loans to one borrower.

48

Income tax expense

Income tax expensed decreased $1.0 million, or 39.1%, compared to the same period in the prior year. The decrease was due primarily to the decline in the Federal income tax rate from 34% to 21%, with the enactment of the Tax Act. Additionally, the Corporation increased income generated from CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, reducing the Corporation’s state income tax.

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three and six months ended June 30, 2018 and 2017. For a discussion of the Critical Accounting Policies, Estimates and Risks and Uncertainties that affect the Consolidated Results of Operations, see page 70 of this Form 10-Q and page 60 of the Corporation’s 2017 Form 10-K.

Net Interest Income

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

	Three Months Ended June 30,
	2018		2017		Change		Percentage Change
Interest and dividend income	$	15,869	$	14,684	$	1,185	8.1	%
Interest expense	852		734		118		16.1	%
Net interest income	$	15,017	$	13,950	$	1,067	7.6	%

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

Net interest income for the three months ended June 30, 2018 totaled $15.0 million compared with $14.0 million for the same period in the prior year, an increase of $1.1 million, or 7.6%.  Interest and fees from loans increased $1.5 million, while interest from investments, including interest-earning deposits, decreased $0.3 million in the second quarter of 2018 as compared to the same period in the prior year. Interest expense on deposits and borrowed funds both increased $0.1 million, while interest expense on securities sold under agreements to repurchase decreased $0.1 million in the second quarter of 2018 when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.73% for the three months ended June 30, 2018 compared with 3.47% for the same period in the prior year.  Average interest-earning assets decreased $9.4 million in the second quarter of 2018, compared to the same period in the prior year due primarily to a decrease in the average balances of interest-earning deposits and taxable securities. The average yield on interest-earning assets increased 29 basis points, while the average cost of interest-bearing liabilities increased six basis points in the second quarter of 2018, compared to the same period in the prior year. The increase in the average yield on interest-earning assets can be mostly attributed to a 23 basis points increase in the average yield on commercial loans, due to an increase in PRIME and LIBOR, and a $75.9 million increase in the average balance of commercial loans, compared to the same period in the prior year. The increase in the average cost of interest-bearing liabilities can be attributed to a 14 basis points increase in the average cost of time deposits and a $14.2 million increase in the average balance of FHLB advances and repos, offset by a 41 basis points decline in the average cost of FHLB advances and repos due to the maturity of one $4.0 million FHLB advance (3.90% rate) in October 2017, one $2.0 million FHLB term advance (3.05%) in January 2018, and one $10.0 million repurchase agreement (3.72% rate) in May 2018.

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

	Six Months Ended June 30,
	2018		2017		Change		Percentage Change
Interest and dividend income	$	31,538	$	28,998	$	2,540	8.8	%
Interest expense	1,621		1,554		67		4.3	%
Net interest income	$	29,917	$	27,444	$	2,473	9.0	%

49

Net interest income for the six months ended June 30, 2018 totaled $29.9 million compared with $27.4 million for the same period in the prior year, an increase of $2.5 million, or 9.0%.  Interest and fees from loans increased $3.0 million, while interest from investments, including interest-earning deposits, decreased $0.5 million for the six months ended June 30, 2018 as compared to the same period in the prior year. Interest expense on borrowed funds increased $0.2 million, while interest expense on securities sold under agreements to repurchase decreased $0.2 million for the six months ended June 30, 2018 as compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.74% for the six months ended June 30, 2018 compared with 3.46% for the same period in the prior year.  Average interest-earning assets increased $4.4 million for the six months ended June 30, 2018 as compared to the same period in the prior year due primarily to an increase in the average balance of commercial and consumer loans and tax-exempt securities. The average yield on interest-earning assets increased 29 basis points, while the average cost of interest-bearing liabilities increased two basis points for the six months ended June 30, 2018 as compared to the same period in the prior year. The increase in the average yield on interest-earning assets can be mostly attributed to a 24 basis points increase in the average yield on commercial loans, due to an increase in PRIME and LIBOR, and a $79.7 million increase in the average balance of commercial loans, compared to the same period in the prior year. The increase in the average cost of interest-bearing liabilities can be attributed to a two basis points increase in the average cost of savings and money market accounts, a five basis points increase in the average cost of time deposits and a $12.6 million increase in the average balance of FHLB advances and repos, offset by a 63 basis points decline in the average cost of FHLB advances and repos due to the maturity of one $4.0 million FHLB term advance (3.90% rate) in October 2017, one $3.0 million FHLB term advance (2.91% rate) in December 2017, one $2.0 million FHLB term advance (3.05% rate) in January 2018, and one $10.0 million repurchase agreement (3.72% rate) in May 2018.

Average Consolidated Balance Sheet and Interest Analysis

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and six months ended June 30, 2018 and 2017.  For the purpose of the tables 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.

50

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands)	Three Months Ended June 30, 2018								Three Months Ended June 30, 2017
	Average Balance			Interest			Yield/Rate		Average Balance			Interest			Yield/Rate
Interest-earning assets:
Commercial loans	$	855,121		$	9,663		4.53	%	$	779,218		$	8,357		4.30	%
Mortgage loans	194,244			1,800			3.72	%	201,093			1,867			3.72	%
Consumer loans	279,021			2,873			4.13	%	256,878			2,658			4.15	%
Taxable securities	240,800			1,266			2.11	%	275,275			1,400			2.04	%
Tax-exempt securities	52,527			363			2.77	%	51,027			401			3.15	%
Interest-earning deposits	3,878			10			1.03	%	71,464			193			1.08	%
Total interest-earning assets	1,625,591			15,975			3.94	%	1,634,955			14,876			3.65	%
Non-earning assets:
Cash and due from banks	27,130								24,446
Premises and equipment, net	26,287								28,205
Other assets	56,002								54,033
Allowance for loan losses	(21,218		)						(15,060		)
AFS valuation allowance	(10,070		)						(2,915		)
Total assets	$	1,703,722							$	1,723,664
Interest-bearing liabilities:
Interest-bearing demand deposits	$	131,863		$	28		0.09	%	$	142,892		$	33		0.09	%
Savings and insured money market deposits	774,020			419			0.22	%	822,989			394			0.19	%
Time deposits	130,432			161			0.50	%	137,502			122			0.36	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	40,557			244			2.41	%	26,341			185			2.82	%
Total interest-bearing liabilities	1,076,872			852			0.32	%	1,129,724			734			0.26	%
Non-interest-bearing liabilities:
Demand deposits	459,095								429,436
Other liabilities	16,539								14,349
Total liabilities	1,552,506								1,573,509
Shareholders' equity	151,216								150,155
Total liabilities and shareholders’ equity	$	1,703,722							$	1,723,664
Fully taxable equivalent net interest income				15,123								14,142
Net interest rate spread (1)							3.62	%							3.39	%
Net interest margin, fully taxable equivalent (2)							3.73	%							3.47	%
Taxable equivalent adjustment				(106		)						(192		)
Net interest income				$	15,017							$	13,950

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

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

51

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands)	Six Months Ended June 30, 2018								Six Months Ended June 30, 2017
	Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
Interest-earning assets:
Commercial loans	$	849,927		$	19,096		4.53	%	$	770,267		$	16,387		4.29	%
Mortgage loans	194,579			3,610			3.74	%	199,740			3,754			3.79	%
Consumer loans	277,328			5,717			4.16	%	256,370			5,300			4.17	%
Taxable securities	245,382			2,557			2.10	%	273,935			2,823			2.08	%
Tax-exempt securities	53,570			742			2.79	%	47,910			747			3.14	%
Interest-bearing deposits	3,890			32			1.66	%	72,068			348			0.97	%
Total interest-earning assets	1,624,676			31,754			3.94	%	1,620,290			29,359			3.65	%
Non-earning assets:
Cash and due from banks	27,191								25,161
Premises and equipment, net	26,415								28,429
Other assets	54,882								53,994
Allowance for loan losses	(21,236		)						(14,706		)
AFS valuation allowance	(8,542		)						(4,154		)
Total assets	$	1,703,386							$	1,709,014
Interest-bearing liabilities:
Interest-bearing demand deposits	$	141,632		$	63		0.09	%	$	147,895		$	67		0.09	%
Savings and insured money market deposits	772,019			793			0.21	%	803,269			771			0.19	%
Time deposits	123,813			253			0.41	%	139,366			250			0.36	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	44,616			512			2.31	%	31,973			466			2.94	%
Total interest-bearing liabilities	1,082,080			1,621			0.30	%	1,122,503			1,554			0.28	%
Non-interest-bearing liabilities:
Demand deposits	454,612								423,844
Other liabilities	15,837								14,259
Total liabilities	1,552,529								1,560,606
Shareholders' equity	150,857								148,408
Total liabilities and shareholders’ equity	$	1,703,386							$	1,709,014
Fully taxable equivalent net interest income				30,133								27,805
Net interest rate spread (1)							3.64	%							3.37	%
Net interest margin, fully taxable equivalent (2)							3.74	%							3.46	%
Taxable equivalent adjustment				(216		)						(361		)
Net interest income				$	29,917							$	27,444

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

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

52

Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes.  The tables below illustrate the extent to which changes in interest rates and the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three and six months ended June 30, 2018 and 2017.  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 these tables, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate.  Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates.  In addition, average interest-earning assets include non-accrual loans and taxable equivalent adjustments were made.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	Three Months Ended June 30, 2018 vs. 2017
	Increase/(Decrease)
	Total Change			Due to Volume			Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans	$	1,306		$	843		$	463
Mortgage loans	(67		)	(67		)	—
Consumer loans	215			228			(13		)
Taxable investment securities	(134		)	(180		)	46
Tax-exempt investment securities	(38		)	12			(50		)
Interest-earning deposits	(183		)	(174		)	(9		)
Total interest and dividend income, fully taxable equivalent	1,099			662			437
Interest expense on:
Interest-bearing demand deposits	(5		)	(5		)	—
Savings and insured money market deposits	25			(27		)	52
Time deposits	39			(6		)	45
FHLBNY advances, securities sold under agreements to repurchase and other debt	59			89			(30		)
Total interest expense	118			51			67
Net interest income, fully taxable equivalent	$	981		$	611		$	370

53

	Six Months Ended June 30, 2018 vs. 2017
	Increase/(Decrease)
	Total Change			Due to Volume			Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans	$	2,709		$	1,758		$	951
Mortgage loans	(144		)	(95		)	(49		)
Consumer loans	417			430			(13		)
Taxable investment securities	(266		)	(293		)	27
Tax-exempt investment securities	(5		)	83			(88		)
Interest-earning deposits	(316		)	(462		)	146
Total interest and dividend income	2,395			1,421			974
Interest expense on:
Interest-bearing demand deposits	(4		)	(4		)	—
Savings and insured money market deposits	22			(37		)	59
Time deposits	3			(30		)	33
FHLBNY advances, securities sold under agreements to repurchase and other debt	46			159			(113		)
Total interest expense	67			88			(21		)
Net interest income, fully taxable equivalent	$	2,328		$	1,333		$	995

Provision for loan losses

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth. Based on this analysis, the provision for loan losses for both the second quarter of 2018 and 2017 were $2.4 million and $0.4 million, respectively. The increase in the provision for loan losses for the three months ended June 30,2018, compared to the same period in the prior year, can be mostly attributed to an increase in the historical loss factor of the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018 when compared to the same period in the prior year.

The provision for loan losses for the six months ended June 30, 2018 and 2017 were $3.1 million and $1.5 million, respectively. The increase in the provision for loan losses for the six months ended June 30,2018, compared to the same period in the prior year, can be mostly attributed to an increase in the historical loss factor of the commercial and industrial loan portfolio, due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the six months ended June 30, 2018 when compared to the same period in the prior year.

Net charge-offs for the three months ended June 30, 2018 and 2017 were $4.1 million and $0.3 million, respectively. Net charge-offs for the six months ended June 30, 2018 and 2017 were $4.6 million and $0.6 million, respectively. As previously discussed, the increase in net charge offs for the three and six months ended June 30, 2018 can be attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

54

Non-interest income

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

	Three Months Ended June 30,
	2018			2017			Change			Percentage Change
WMG fee income	$	2,373		$	2,269		$	104		4.6	%
Service charges on deposit accounts	1,144			1,225			(81		)	(6.6	)%
Interchange revenue from debit card transactions	996			964			32			3.3	%
Net gains on securities transactions	—			12			(12		)	(100.0	)%
Net gains on sales of loans held for sale	59			53			6			11.3	%
Net gains (losses) on sales of other real estate owned	(48		)	(9		)	(39		)	433.3	%
Income from bank owned life insurance	17			18			(1		)	(5.6	)%
CFS fee and commission income	136			174			(38		)	(21.8	)%
Other	648			316			332			105.1	%
Total non-interest income	$	5,325		$	5,022		$	303		6.0	%

Total non-interest income for the second quarter of 2018 increased $0.3 million compared with the same period in the prior year.  The increase was mostly due to increases in WMG fee income and other non-interest income.

WMG fee income

The increase in WMG fee income, compared to the same period in the prior year, can be mostly attributed to an increase in assets under management or administration. The market value of total assets under management or administration in WMG was $1.894 billion at June 30, 2018, including $289.7 million of assets under management or administration for the Corporation, compared to $1.826 billion at June 30, 2017, including $323.9 million of assets under management or administration for the Corporation, an increase of $68.2 million, or 3.7%.

Other

The increase in other non-interest income, compared to the same period in the prior year, can be mostly attributed to an increase in swap fee income and other real estate owned rental income.

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

	Six Months Ended June 30,
	2018			2017		Change			Percentage Change
WMG fee income	$	4,689		$	4,378	$	311		7.1	%
Service charges on deposit accounts	2,308			2,409		(101		)	(4.2	)%
Interchange revenue from debit card transactions	2,031			1,884		147			7.8	%
Net gains on securities transactions	—			12		(12		)	(100.0	)%
Net gains on sales of loans held for sale	105			122		(17		)	(13.9	)%
Net gains (losses) on sales of other real estate owned	(4		)	8		(12		)	(150.0	)%
Income from bank owned life insurance	33			35		(2		)	(5.7	)%
CFS fee and commission income	246			313		(67		)	(21.4	)%
Other	1,392			708		684			96.6	%
Total non-interest income	$	10,800		$	9,869	$	931		9.4	%

Total non-interest income for the six months ended June 30, 2018 increased $0.9 million compared with the same period in the prior year.  The increase was mostly due to increases in WMG fee income, interchange revenue from debit card transactions, and other non-interest income, partially offset by a decrease in service charges on deposit accounts.

55

WMG fee income

The increase in WMG fee income, compared to the same period in the prior year, can be mostly attributed to an increase in assets under management or administration. The market value of total assets under management or administration in WMG was $1.894 billion at June 30, 2018, including $289.7 million of assets under management or administration for the Corporation, compared to $1.826 billion at June 30, 2017, including $323.9 million of assets under management or administration for the Corporation, an increase of $68.2 million, or 3.7%.

Service charges on deposit accounts

The decrease in service charges on deposit accounts, compared to the same period in the prior year, can be mostly attributed to a decline in overdraft fees and other service charges.

Other

The increase in other non-interest income, compared to the same period in the prior year, can be mostly attributed to a $0.4 million New York State sales tax refund received during the first quarter of 2018 and increases in swap fee income and other real estate owned rental income.

Non-interest expense

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

	Three Months Ended June 30,
	2018			2017			Change			Percentage Change
Compensation expense:
Salaries and wages	$	5,564		$	5,422		$	142		2.6	%
Pension and other employee benefits	1,518			1,540			(22		)	(1.4	)%
Total compensation expense	7,082			6,962			120			1.7	%
Non-compensation expense:
Other components of net periodic pension and postretirement benefits	(408		)	(333		)	(75		)	22.5	%
Net occupancy expense	1,643			1,702			(59		)	(3.5	)%
Furniture and equipment expense	702			781			(79		)	(10.1	)%
Data processing expense	1,764			1,587			177			11.2	%
Professional services	508			417			91			21.8	%
Legal accruals and settlements	989			850			139			16.4	%
Amortization of intangible assets	182			213			(31		)	(14.6	)%
Marketing and advertising expense	255			118			137			116.1	%
Other real estate owned expense	100			11			89			809.1	%
FDIC insurance	301			309			(8		)	(2.6	)%
Loan expense	184			166			18			10.8	%
Other	1,665			1,549			116			7.5	%
Total non-compensation expense	7,885			7,370			515			7.0	%
Total non-interest expense	$	14,967		$	14,332		$	635		4.4	%

Total non-interest expense for the second quarter of 2018 increased $0.6 million compared with the same period in the prior year.  The increase was due to increases in compensation expense and non-compensation expense.

Compensation expense

The increase in compensation expense, compared to the same period in the prior year, can be mostly attributable to an increase in salaries and wages. The increase in salaries and wages can be attributed to annual merit increases and an increase in the number of employees associated with two denovo branches opened in 2018, compared to the same period in the prior year. The Bank opened one denovo branch in Schenectady, New York in January 2018 and one denovo branch in Wilton, New York in May 2018.

56

Non-compensation expense

The increase in non-compensation expense, compared to the same period in the prior year, can be mostly attributed to increases in data processing, legal accruals and settlements, marketing and advertising expenses, other real estate owned expenses, and other non-interest expenses. The increase in data processing can be attributed to the timing of projects and the addition of two new denovo branches in 2018. The increase in legal accruals and settlements can be attributed to the settlement agreement in the matter of Fane vs. Chemung Canal Trust Company (the "Action") during the second quarter of 2018. As noted within the Current Report on Form 8-K filed on June 15, 2018, the two parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action. The increase in marketing and advertising expenses can be attributed to the promotion of two new denovo branches in 2018 and the timing of campaigns and sponsored events. The increase in other real estate owned expenses can be attributed to additional OREO properties, compared to the prior year period.

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

	Six Months Ended June 30,
	2018			2017			Change			Percentage Change
Compensation expense:
Salaries and wages	$	11,278		$	10,697		$	581		5.4	%
Pension and other employee benefits	3,176			3,091			85			2.7	%
Total compensation expense	14,454			13,788			666			4.8	%
Non-compensation expense:
Other components of net periodic pension and postretirement benefits	(816		)	(666		)	(150		)	N/M
Net occupancy expense	3,251			3,308			(57		)	(1.7	)%
Furniture and equipment expense	1,360			1,462			(102		)	(7.0	)%
Data processing expense	3,506			3,191			315			9.9	%
Professional services	1,048			717			331			46.2	%
Legal accruals and settlements	989			850			139			16.4	%
Amortization of intangible assets	376			439			(63		)	(14.4	)%
Marketing and advertising expense	604			367			237			64.6	%
Other real estate owned expense	238			31			207			667.7	%
FDIC insurance	618			634			(16		)	(2.5	)%
Loan expense	353			282			71			25.2	%
Other	3,152			2,974			178			6.0	%
Total non-compensation expense	14,679			13,589			1,090			8.0	%
Total non-interest expense	$	29,133		$	27,377		$	1,756		6.4	%

Total non-interest expense for the six months ended June 30, 2018 increased $1.8 million compared with the same period in the prior year.  The increase was due to increases in compensation expense and non-compensation expense.

Compensation expense

The increase in compensation expense, compared to the same period in the prior year, can be mostly attributable to an increase in salaries and wages. The increase in salaries and wages can be attributed to annual merit increases and an increase in the number of employees associated with two denovo branches opened in 2018, compared to the same period in the prior year. The Bank opened one denovo branch in Schenectady, New York in January 2018 and one denovo branch in Wilton, New York in May 2018.

57

Non-compensation expense

The increase in non-compensation expense, compared to the same period in the prior year, can be mostly attributed to increases in data processing, professional services, legal accruals and settlements, marketing and advertising expenses, other real estate owned expenses, and other non-interest expenses. The increase in data processing can be attributed to the timing of projects and the addition of two new denovo branches in 2018. The increase in legal accruals and settlements can be attributed to the settlement agreement in the matter of Fane vs. Chemung Canal Trust Company (the "Action") during the second quarter of 2018. As noted within the Current Report on Form 8-K filed on June 15, 2018, the two parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action. The increase in marketing and advertising expenses can be attributed to the promotion of two new denovo branches in 2018 and the timing of campaigns and sponsored events. The increase in other real estate owned expenses can be attributed to additional OREO properties, compared to the prior year period.

Income tax expense

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

	Three Months Ended June 30,
	2018			2017			Change			Percentage Change
Income before income tax expense	$	3,013		$	4,219		$	(1,206	)	(28.6	)%
Income tax expense	486			1,263			(777		)	(61.5	)%
Effective tax rate	16.1		%	29.9		%

The decrease in the effective tax rate was due primarily to the decline in the Federal income tax rate from 34% to 21%, with the enactment of the Tax Act. Additionally, the Corporation increased income generated from CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, reducing the Corporation’s state income tax. Finally, the Corporation recognized a $1.2 million decline in income before income tax expense for the quarter, when compared to the same period in the prior year.

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

	Six Months Ended June 30,
	2018			2017			Change			Percentage Change
Income before income tax expense	$	8,513		$	8,475		$	38		0.4	%
Income tax expense	1,547			2,540			(993		)	(39.1	)%
Effective tax rate	18.2		%	30.0		%

The decrease in the effective tax rate was due primarily to the decline in the Federal income tax rate from 34% to 21%, with the enactment of the Tax Act. Additionally, the Corporation increased income generated from CCTC Funding Corp., a real estate investment trust subsidiary of the Bank, reducing the Corporation’s state income tax.

58

Financial Condition

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

	June 30, 2018			December 31, 2017			Change			Percentage Change
ASSETS
Total cash and cash equivalents	$	34,815		$	30,729		$	4,086		13.3	%
Total investment securities	274,779			302,656			(27,877		)	(9.2	)%
Loans, net of deferred loan fees	1,334,444			1,311,824			22,620			1.7	%
Allowance for loan losses	(19,645		)	(21,161		)	1,516			(7.2	)%
Loans, net	1,314,799			1,290,663			24,136			1.9	%
Goodwill and other intangible assets, net	23,533			23,909			(376		)	(1.6	)%
Other assets	62,240			59,663			2,577			4.3	%
Total assets	$	1,710,166		$	1,707,620		$	2,546		0.1	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,478,909		$	1,467,446		$	11,463		0.8	%
FHLBNY advances and other debt	63,361			74,217			(10,856		)	(14.6	)%
Other liabilities	16,116			16,144			(28		)	(0.2	)%
Total liabilities	1,558,386			1,557,807			579			—	%
Total shareholders’ equity	151,780			149,813			1,967			1.3	%
Total liabilities and shareholders’ equity	$	1,710,166		$	1,707,620		$	2,546		0.1	%

Investment securities

The decrease in investment securities can be mostly attributed to pay-downs, maturities, and an increase in unrealized losses.

Loans, net

The increase in total loans can be attributed to increases of $22.4 million in commercial mortgages and $9.8 million in indirect consumer loans, partially offset by decreases of $5.5 million in commercial and agriculture loans, $1.0 million in residential mortgages, and $3.0 million in other consumer loans.

Goodwill and other intangible assets, net

The decrease in goodwill and other intangible assets, net can be attributed to the amortization of intangible assets.

Other assets

The increase in other assets can be mostly attributed to the fair market value adjustment to interest rate swaps of $1.3 million at June 30, 2018 and increases in operating prepaid assets and the net deferred tax asset as compared to December 31, 2017.

Deposits

The increase in deposits can be attributed to increases of $8.6 million in money market accounts, $3.7 million in savings deposits, and $27.7 million in time deposits, due to a rate promotion, offset by decreases of $5.4 million in non-interest-bearing demand deposits and $23.2 million in interest-bearing demand deposits.

FHLBNY advances and other debt

The decrease in FHLBNY advances and other debt can be mostly attributed to an increase in deposits and decline in securities, offset by growth in the loan portfolio.

59

Shareholders’ equity

The increase in retained earnings of $4.5 million was due primarily to earnings of $7.0 million, offset by $2.5 million in dividends declared during the first half of 2018. The increase in accumulated other comprehensive loss of $3.8 million can be attributed to the decline in the fair market value of the securities portfolio. Also, additional-paid-in capital decreased $0.1 million and treasury stock decreased $1.3 million, 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 WMG was $1.894 billion at June 30, 2018, including $289.7 million of assets held under management or administration for the Corporation, compared with $1.952 billion at December 31, 2017, including $346.8 million of assets held under management or administration for the Corporation, a decrease of $57.6 million, or 3.0%. The decline in total assets under management or administration can be mostly attributed to a decrease in the Corporation's pledged securities portfolio for municipal deposits, which is held by WMG.

Securities

The Corporation’s Funds Management Policy includes an investment policy that in general, requires debt securities purchased for the bond portfolio to carry a minimum agency rating of "A".  After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated.  The Corporation intends to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements and other types of transactions.  Fluctuations in the fair value of the Corporation’s securities relate primarily to changes in interest rates.

Marketable securities are classified as Available for Sale, while investments in local municipal obligations are generally classified as Held to Maturity.  The composition of the available for sale segment of the securities portfolio is summarized in the table as follows (in thousands):

SECURITIES AVAILABLE FOR SALE
	June 30, 2018						December 31, 2017
	Amortized Cost		Estimated Fair Value		Percent of Total Estimated Fair Value		Amortized Cost		Estimated Fair Value		Percent of Total Estimated Fair Value
Obligations of U.S. Government sponsored enterprises	$	15,489	$	15,450	5.8	%	$	15,492	$	15,491	5.3	%
Mortgage-backed securities, residential and collateralized mortgage obligations	207,708		198,640		74.9	%	224,939		219,909		75.0	%
Obligations of states and political subdivisions	47,574		47,029		17.8	%	52,928		53,132		18.1	%
Other securities	4,081		4,038		1.5	%	4,588		4,559		1.6	%
Total	$	274,852	$	265,157	100.0	%	$	297,947	$	293,091	100.0	%

The available for sale segment of the securities portfolio totaled $265.2 million at June 30, 2018, a decrease of $27.9 million, or 9.5%, from $293.1 million at December 31, 2017.  The decrease can be mostly attributed to pay-downs, maturities, and an increase in unrealized losses.

The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas and certificates of deposit.  These securities totaled $3.8 million at June 30, 2018, flat compared to December 31, 2017.

Loans

The Corporation has reporting systems to monitor: (i) loan origination and concentrations, (ii) delinquent loans, (iii) non-performing assets, including non-performing loans, troubled debt restructurings, and other real estate owned, (iv) impaired loans, and (v) potential problem loans.  Management reviews these systems on a regular basis.

60

The table below presents the Corporation’s loan composition by segment at the dates indicated, and the dollar and percent change from December 31, 2017 to June 30, 2018 (in thousands):

LOANS
	June 30, 2018		December 31, 2017		Dollar Change			Percentage Change
Commercial and agricultural	$	193,516	$	199,007	$	(5,491	)	(2.8	)%
Commercial mortgages	666,693		644,330		22,363			3.5	%
Residential mortgages	193,423		194,440		(1,017		)	(0.5	)%
Indirect consumer loans	162,813		153,060		9,753			6.4	%
Other consumer loans	117,999		120,987		(2,988		)	(2.5	)%
Total loans, net of deferred loan fees	$	1,334,444	$	1,311,824	$	22,620		1.7	%

Portfolio loans totaled $1.334 billion at June 30, 2018, an increase of $22.6 million, or 1.7%, from $1.312 billion at December 31, 2017.  The increase in loans can be attributed to increases of $22.4 million in commercial mortgages and $9.8 million in indirect consumer loans, offset by decreases of $5.5 million in commercial and agricultural loans, $1.0 million in residential mortgages, and $3.0 million in other consumer loans. The growth in commercial mortgages was due primarily to an increase in the Capital Bank division in the Albany, New York region. The decline in commercial and agricultural loans can be mostly attributable to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

Residential mortgage loans totaled $193.4 million at June 30, 2018, a decrease of $1.0 million, or 0.5%, from December 31, 2017.  During the six months ended June 30, 2018, $5.0 million of newly originated residential mortgages were sold in the secondary market to Freddie Mac and $0.2 million of residential mortgages were sold to the State of New York Mortgage Agency. 

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

LOANS BY DIVISION
	June 30, 2018		December 31, 2017		December 31, 2016		December 31, 2015		December 31, 2014
Chemung Canal Trust Company*	$	624,177	$	630,732	$	636,836	$	683,137	$	724,099
Capital Bank Division	710,267		681,092		563,454		485,496		397,475
Total loans	$	1,334,444	$	1,311,824	$	1,200,290	$	1,168,633	$	1,121,574

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

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions.  Specific industries are identified using NAICS codes.  The Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.  At June 30, 2018 and December 31, 2017, commercial loans to borrowers involved in the real estate, and real estate rental and lending businesses were 45.4% and 48.1% 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 June 30, 2018 and December 31, 2017.

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.

61

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

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

NON-PERFORMING ASSETS
	June 30, 2018			December 31, 2017
Non-accrual loans	$	7,076		$	11,389
Non-accrual troubled debt restructurings	5,714			5,935
Total non-performing loans	12,790			17,324
Other real estate owned	886			1,940
Total non-performing assets	$	13,676		$	19,264
Ratio of non-performing loans to total loans	0.96		%	1.32		%
Ratio of non-performing assets to total assets	0.80		%	1.13		%
Ratio of allowance for loan losses to non-performing loans	153.60		%	122.14		%
Accruing loans past due 90 days or more (1)	$	17		$	29
Accruing troubled debt restructurings (1)	1,360			1,728
(1) These loans are not included in non-performing assets above.

Non-Performing Loans

Non-performing loans totaled $12.8 million at June 30, 2018, or 0.96% of total loans, compared with $17.3 million at December 31, 2017, or 1.32% of total loans. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $13.7 million, or 0.80% of total assets, at June 30, 2018, compared with $19.3 million, or 1.13% of total assets, at December 31, 2017. The decline in non-performing assets can be mostly attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million and the sale of one other real estate owned property during the second quarter of 2018.

Not included in non-performing loan totals are $0.8 million of acquired loans that the Corporation has identified as PCI loans as of December 31, 2017.  The PCI loans are accounted for under separate accounting guidance, Accounting Standards Codification (“ASC”) Subtopic 310-30, “Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality” as disclosed in Note 4 of the financial statements. There were no PCI loans as of June 30, 2018.

Accruing Loans Past due 90 Days or More

The recorded investment in accruing loans past due 90 days or more totaled $17 thousand at June 30, 2018, a decrease of $12 thousand from December 31, 2017.

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 June 30, 2018, the Corporation had $5.7 million of non-accrual TDRs compared with $5.9 million as of December 31, 2017.  As of June 30, 2018, the Corporation had $1.4 million of accruing TDRs compared with $1.7 million as of December 31, 2017.

62

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.  Impaired loans at June 30, 2018 totaled $9.4 million, including TDRs of $7.1 million, compared to $14.1 million, including TDRs of $7.7 million, at December 31, 2017.  Not included in the impaired loan totals are acquired loans which the Corporation has identified as PCI loans, as these loans are accounted for under ASC Subtopic 310-30 as noted under the above discussion of non-performing loans.  The decrease in impaired loans was due primarily to a decrease in impaired commercial and industrial loans, mostly due to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.  Included in the recorded investment of impaired loans at June 30, 2018, are loans totaling $3.5 million for which impairment allowances of $1.7 million have been specifically allocated to the allowance for loan losses.  As of December 31, 2017, the impaired loan total included $8.1 million of loans for which specific impairment allowances of $5.9 million were allocated to the allowance for loan losses. The decrease in impaired loans can be mostly attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

The majority of the Corporation's impaired loans are secured and measured for impairment based on collateral evaluations.  It is the Corporation's policy to obtain updated appraisals, by independent third parties, on loans secured by real estate at the time a loan is determined to be impaired.  An impairment measurement is performed based upon the most recent appraisal on file to determine the amount of any specific allocation or charge-off.  In determining the amount of any specific allocation or charge-off, the Corporation will make adjustments to reflect the estimated costs to sell the property.  Upon receipt and review of the updated appraisal, an additional measurement is performed to determine if any adjustments are necessary to reflect the proper provisioning or charge-off.  Impaired loans are reviewed on a quarterly basis to determine if any changes in credit quality or market conditions would require any additional allocation or recognition of additional charge-offs.  Real estate values in the Corporation's market area have been holding steady.  Non-real estate collateral may be valued using (i) an appraisal, (ii) net book value of the collateral per the borrower’s financial statements, or (iii) accounts receivable aging reports, that may be adjusted based on management’s knowledge of the client and client’s business.  If market conditions warrant, future appraisals are obtained for both real estate and non-real estate collateral.

Allowance for Loan Losses

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

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.  Specific valuation allowances are established based on management’s analysis of individually impaired loans.  Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, delinquent or unpaid property taxes, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  If a loan is determined to be impaired and is placed on non-accrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

63

The general component covers non-impaired loans and is based on historical loss experience adjusted for current qualitative factors.  Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five-year history of net losses.  For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Corporation over the most recent two years.  This actual loss experience is supplemented with other qualitative factors based on the risks present for each portfolio class.  These qualitative factors include consideration of the following: (1) lending policies and procedures, including underwriting standards and collection, charge-off and recovery policies, (2) national and local economic and business conditions and developments, including the condition of various market segments, (3) loan profiles and volume of the portfolio, (4) the experience, ability, and depth of lending management and staff, (5) the volume and severity of past due, classified and watch-list loans, non-accrual loans, troubled debt restructurings, and other modifications (6) the quality of the Bank’s loan review system and the degree of oversight by the Bank’s Board of Directors, (7) collateral related issues: secured vs. unsecured, type, declining valuation environment and trend of other related factors, (8) the existence and effect of any concentrations of credit, and changes in the level of such concentrations, (9) the effect of external factors, such as competition and legal and regulatory requirements, on the level of estimated credit losses in the Bank’s current portfolio and (10) the impact of the global economy.

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

The allowance for loan losses was $19.6 million at June 30, 2018, down from $21.2 million at December 31, 2017.  The ratio of allowance for loan losses to total loans was 1.47% at June 30, 2018, down from 1.61% at December 31, 2017.  Net charge-offs for the six months ended June 30, 2018 and 2017 were $4.6 million and $0.6 million, respectively. The increase in net charge-offs can be mostly attributed to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

64

The table below summarizes the Corporation’s loan loss experience for the six months ended June 30, 2018 and 2017 (in thousands, except ratio data):

SUMMARY OF LOAN LOSS EXPERIENCE
	Six Months Ended   June 30,
	2018			2017
Balance at beginning of period	$	21,161		$	14,253
Charge-offs:
Commercial and agricultural	3,644			7
Commercial mortgages	145			—
Residential mortgages	165			60
Consumer loans	921			825
Total charge-offs	4,875			892
Recoveries:
Commercial and agricultural	21			61
Commercial mortgages	2			3
Residential mortgages	5			30
Consumer loans	260			188
Total  recoveries	288			282
Net charge-offs	4,587			610
Provision for loan losses	3,071			1,461
Balance at end of period	$	19,645		$	15,104
Ratio of net charge-offs to average loans outstanding	1.24		%	0.10		%
Ratio of allowance for loan losses to total loans outstanding	1.47		%	1.21		%

Deposits

The table below summarizes the Corporation’s deposit composition by segment at the dates indicated, and the dollar and percent change from December 31, 2017 to June 30, 2018 (in thousands):

DEPOSITS
	June 30, 2018		December 31, 2017		Dollar Change			Percentage Change
Non-interest-bearing demand deposits	$	462,233	$	467,610	$	(5,377	)	(1.1	)%
Interest-bearing demand deposits	125,867		149,026		(23,159		)	(15.5	)%
Insured money market accounts	522,328		513,782		8,546			1.7	%
Savings deposits	222,387		218,666		3,721			1.7	%
Time deposits	146,094		118,362		27,732			23.4	%
Total	$	1,478,909	$	1,467,446	$	11,463		0.8	%

Deposits totaled $1.479 billion at June 30, 2018 compared with $1.467 billion at December 31, 2017, an increase of $11.5 million, or 0.8%. The increase was attributable to increases of $8.5 million in money market accounts, $3.7 million in savings deposits, and $27.7 million in time deposits, offset by decreases of $5.4 million in non-interest bearing demand deposits and $23.2 million in interest-bearing demand deposits. The increase in time deposits can be attributed to a rate promotion during the second quarter of 2018.  At June 30, 2018, demand deposit and money market accounts comprised 75.0% of total deposits compared with 77.0% at December 31, 2017.

65

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

DEPOSITS BY DIVISION
	June 30, 2018		December 31, 2017		December 31, 2016		December 31, 2015		December 31, 2014
Chemung Canal Trust Company*	$	1,281,129	$	1,264,883	$	1,249,870	$	1,219,282	$	1,119,377
Capital Bank Division	197,780		202,563		206,473		181,013		160,637
Total loans	$	1,478,909	$	1,467,446	$	1,456,343	$	1,400,295	$	1,280,014

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

In addition to consumer, commercial and public deposits, other sources of funds include brokered deposits.  The recently enacted Regulatory Relief Act changed the definition of brokered deposits, such that subject to certain conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC’s brokered-deposit regulations. This will apply to the CDARS and ICS programs. Brokered deposits include funds obtained through brokers, and the Bank’s participation in the CDARS and ICS programs.  There were no deposits obtained through brokers as of June 30, 2018 and December 31, 2017. Deposits obtained through the CDARS and ICS programs were $219.4 million and $187.7 million as of June 30, 2018 and December 31, 2017, respectively.  The increase in CDARS and ICS deposits was due to the seasonal inflow of current municipal client balances.

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

The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using brokered deposits as a secondary source of funding to support growth.

Borrowings

Borrowings decreased $10.8 million from $74.2 million at December 31, 2017 to $63.4 million at June 30, 2018, mostly attributed to a decline of $10.0 million in securities sold under agreements to repurchase. The decline in repurchase agreements was due to the maturity of one $10.0 million repurchase agreement in May 2018.

Shareholders’ Equity

Shareholders’ equity was $151.8 million at June 30, 2018 compared with $149.8 million at December 31, 2017.  The increase was primarily due to earnings of $7.0 million, and a reduction of $1.3 million in treasury stock, offset by a decrease of of $0.1 million in additional-paid-in-capital, an increase of $3.8 million in accumulated other comprehensive loss, mostly attributable to the decrease in the fair market value of the securities portfolio, and $2.5 million in dividends declared during the six months ended June 30, 2018. 

The total shareholders’ equity to total assets ratio was 8.88% at June 30, 2018 compared with 8.77% at December 31, 2017.  The tangible equity to tangible assets ratio was 7.60% at June 30, 2018 compared with 7.48% at December 31, 2017.  Book value per share increased to $31.42 at June 30, 2018 from $31.10 at December 31, 2017.

The Corporation and the Bank are subject to capital adequacy guidelines of the Federal Reserve which establish a framework for the classification of financial holding companies and financial institutions into five categories:  well-capitalized, adequately capitalized, under-capitalized, significantly under-capitalized and critically under-capitalized.  As of June 30, 2018, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines and the Corporation met capital requirements under regulatory guidelines.

66

As a result of the recently enacted Regulatory Relief Act, the FRB is required to amend its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, will no longer be subject to regulatory capital requirements, effective no later than November 2018. 

Off-balance Sheet Arrangements

See Note 8 – Commitments and Contingencies in the Notes to Unaudited Consolidated Financial Statements for a discussion of off-balance sheet arrangements.

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 $68.4 million and $73.5 million at June 30, 2018 and December 31, 2017, respectively.  The Corporation also had a total of $38.0 million of unsecured lines of credit with five different financial institutions, all of which was available at June 30, 2018 and at December 31, 2017.

Consolidated Cash Flows Analysis

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

CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands)	Six Months Ended June 30,
	2018			2017
Net cash provided by operating activities	$	10,553		$	8,999
Net cash used in investing activities	(4,945		)	(69,350		)
Net cash (used in) provided by financing activities	(1,522		)	50,735
Net increase (decrease) in cash and cash equivalents	$	4,086		$	(9,616	)

Operating activities

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

Cash provided by operating activities in the first six months of 2018 and 2017 predominantly resulted from net income after non-cash operating adjustments. 

Investing activities

Cash used in investing activities during the first six months of 2018 predominantly resulted from a net increase in loans offset by calls, maturities, and principal collected in securities available for sale. Cash used in investing activities during the first six months of 2017 predominantly resulted from a net increase in loans and purchases of securities, offset by sales, calls, maturities, and principal collected in securities available for sale.

67

Financing activities

Cash used in financing activities during the first six months of 2018 predominantly resulted from a net increase in deposits, offset by the maturity of one $10.0 million repurchase agreement and the repayment of FHLBNY overnight and long term advances. Cash provided by financing activities during the first six months of 2017 predominantly resulted from a net increase in deposits, offset by the maturity of one $10.0 million repurchase agreement.

Capital Resources

The Corporation and the Bank are subject to regulatory capital requirements administered by federal banking agencies. As a result of the recently enacted Regulatory Relief Act, the FRB is required to amend its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (3) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, will no longer be subject to regulatory capital requirements, effective no later than November 2018. 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 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2018 is 1.875%. Organizations that fail to maintain the minimum capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital.

As a result of the Regulatory Relief Act, the federal banking agencies are required to develop a “Community Bank Leverage Ratio” (the ratio of a bank’s tangible equity capital to average total consolidated assets) for financial institutions with assets of less than $10 billion.  A “qualifying community bank” that exceeds this ratio will be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under Prompt corrective action statutes.  The federal banking agencies may consider a financial institution’s risk profile when evaluating whether it qualifies as a community bank for purposes of the capital ratio requirement. The federal banking agencies must set the minimum capital for the new Community Bank Leverage Ratio at not less than 8% and not more than 10%.  A financial institution can elect to be subject to this new definition.

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 June 30, 2018 and December 31, 2017, the Corporation and the Bank met all capital adequacy requirements to which they were subject.

As of June 30, 2018, 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 June 30, 2018 and December 31, 2017 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

68

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

	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of June 30, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	158,793	12.11	%	$	104,864	8.00	%	$	129,441	9.875	%	N/A		N/A
Bank	$	149,889	11.45	%	$	104,763	8.00	%	$	129,316	9.875	%	$	130,953	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	142,368	10.86	%	$	78,648	6.00	%	$	103,225	7.875	%	N/A		N/A
Bank	$	133,479	10.19	%	$	78,572	6.00	%	$	103,126	7.875	%	$	104,763	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	142,368	10.86	%	$	58,986	4.50	%	$	83,563	6.375	%	N/A		N/A
Bank	$	133,479	10.19	%	$	58,929	4.50	%	$	83,483	6.375	%	$	85,120	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	142,368	8.44	%	$	67,467	4.00	%	N/A		N/A		N/A		N/A
Bank	$	133,479	7.94	%	$	67,233	4.00	%	N/A		N/A		$	84,041	5.00	%

	Actual				Minimum Capital Adequacy				Minimum 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	%

69

Dividend Restrictions

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above.  At June 30, 2018, the Bank could, without prior approval, declare dividends of approximately $11.1 million.

Adoption of New Accounting Standards

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

Critical Accounting Policies, Estimates and Risks and Uncertainties

Critical accounting policies include the areas where the Corporation has made what it considers to be particularly difficult, subjective or complex judgments concerning estimates, and where these estimates can significantly affect the Corporation's financial results under different assumptions and conditions.  The Corporation prepares its financial statements in conformity with GAAP.  As a result, the Corporation is required to make certain estimates, judgments and assumptions that it believes are reasonable based upon the information available at that time. These estimates, judgments and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the periods presented.  Actual results could be different from these estimates.

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

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

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages 6–11. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

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

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

70

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 the
	As of the Three Months Ended															Six Months Ended
(in thousands, except ratio data)	June 30,			March 31,			Dec. 31,			Sept. 30,			June 30,			June 30,			June 30,
	2018			2018			2017			2017			2017			2018			2017
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT AND EFFICIENCY RATIO
Net interest income (GAAP)	$	15,017		$	14,900		$	14,780		$	14,763		$	13,950		$	29,917		$	27,444
Fully taxable equivalent adjustment	106			110			206			220			192			216			361
Fully taxable equivalent net interest income (non-GAAP)	$	15,123		$	15,010		$	14,986		$	14,983		$	14,142		$	30,133		$	27,805
Non-interest income (GAAP)	$	5,325		$	5,475		$	5,456		$	5,166		$	5,022		$	10,800		$	9,869
Less:  net (gains) losses on security transactions	—			—			(97		)	—			(12		)	—			(12		)
Adjusted non-interest income (non-GAAP)	$	5,325		$	5,475		$	5,359		$	5,166		$	5,010		$	10,800		$	9,857
Non-interest expense (GAAP)	$	14,967		$	14,166		$	13,111		$	13,276		$	14,332		$	29,133		$	27,377
Less:  amortization of intangible assets	(182		)	(194		)	(207		)	(214		)	(213		)	(376		)	(439		)
Less: legal reserve	(989		)	—			—			—			(850		)	(989		)	(850		)
Adjusted non-interest expense (non-GAAP)	$	13,796		$	13,972		$	12,904		$	13,062		$	13,269		$	27,768		$	26,088
Average interest-earning assets (GAAP)	$	1,625,591		$	1,623,748		$	1,639,257		$	1,615,833		$	1,634,955		$	1,624,676		$	1,620,290
Net interest margin - fully taxable equivalent (non-GAAP)	3.73		%	3.75		%	3.63		%	3.68		%	3.47		%	3.74		%	3.46		%
Efficiency ratio (non-GAAP)	67.47		%	68.21		%	63.43		%	64.83		%	69.28		%	67.84		%	69.27		%

71

Tangible Equity and Tangible Assets (Period-End)

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

																As of or for the
	As of or for the Three Months Ended															Six Months Ended
(in thousands, except per share and ratio data)	June 30,			March 31,			Dec. 31,			Sept. 30,			June 30,			June 30,			June 30,
	2018			2018			2017			2017			2017			2018			2017
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP)	$	151,780		$	150,262		$	149,813		$	154,277		$	151,962		$	151,780		$	151,962
Less: intangible assets	(23,533		)	(23,715		)	(23,909		)	(24,116		)	(24,330		)	(23,533		)	(24,330		)
Tangible equity (non-GAAP)	$	128,247		$	126,547		$	125,904		$	130,161		$	127,632		$	128,247		$	127,632
Total assets (GAAP)	$	1,710,166		$	1,699,954		$	1,707,620		$	1,731,682		$	1,718,572		$	1,710,166		$	1,718,572
Less: intangible assets	(23,533		)	(23,715		)	(23,909		)	(24,116		)	(24,330		)	(23,533		)	(24,330		)
Tangible assets (non-GAAP)	$	1,686,633		$	1,676,239		$	1,683,711		$	1,707,566		$	1,694,242		$	1,686,633		$	1,694,242
Total equity to total assets at end of period (GAAP)	8.88		%	8.84		%	8.77		%	8.91		%	8.84		%	8.88		%	8.84		%
Book value per share (GAAP)	$	31.42		$	31.16		$	31.10		$	32.11		$	31.67		$	31.42		$	31.67
Tangible equity to tangible assets at end of period (non-GAAP)	7.60		%	7.55		%	7.48		%	7.62		%	7.53		%	7.60		%	7.53		%
Tangible book value per share (non-GAAP)	$	26.55		$	26.24		$	26.14		$	27.09		$	26.60		$	26.55		$	26.60

Tangible Equity (Average)

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

																As of or for the
	As of or for the Three Months Ended															Six Months Ended
	June 30,			March 31,			Dec. 31,			Sept. 30,			June 30,			June 30,			June 30,
(in thousands, except ratio data)	2018			2018			2017			2017			2017			2018			2017
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP)	$	151,216		$	150,495		$	154,767		$	153,244		$	150,155		$	150,857		$	148,408
Less: average intangible assets	(23,625		)	(23,830		)	(24,008		)	(24,220		)	(24,435		)	(23,727		)	(24,544		)
Average tangible equity (non-GAAP)	$	127,591		$	126,665		$	130,759		$	129,024		$	125,720		$	127,130		$	123,864
Return on average equity (GAAP)	6.70		%	11.96		%	(5.53		)%	9.46		%	7.90		%	9.31		%	8.06		%
Return on average tangible equity (non-GAAP)	7.94		%	14.21		%	(6.55		)%	11.24		%	9.43		%	11.05		%	9.66		%

72

Adjustments for Certain Items of Income or Expense

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

																As of or for the
	As of or for the Three Months Ended															Six Months Ended
(in thousands, except per share and ratio data)	June 30,			March 31,			Dec. 31,			Sept. 30,			June 30,			June 30,			June 30,
	2018			2018			2017			2017			2017			2018			2017
NON-GAAP NET INCOME
Reported net income (GAAP)	$	2,527		$	4,439		$	(2,159	)	$	3,654		$	2,956		$	6,966		$	5,935
Net (gains) losses on security transactions (net of tax)	—			—			(60		)	—			(8		)	—			(8		)
Legal reserve (net of tax)	737			—			—			—			528			737			528
Revaluation of net deferred tax asset	—			—			2,927			—			—			—			—
Non- GAAP net income	$	3,264		$	4,439		$	708		$	3,654		$	3,476		$	7,703		$	6,455
Average basic and diluted shares outstanding	4,828			4,822			4,809			4,802			4,797			4,825			4,793
Reported basic and diluted earnings per share (GAAP)	$	0.52		$	0.92		$	(0.45	)	$	0.76		$	0.62		$	1.44		$	1.24
Reported return on average assets (GAAP)	0.59		%	1.06		%	(0.50		)%	0.85		%	0.69		%	0.82		%	0.70		%
Reported return on average equity (GAAP)	6.70		%	11.96		%	(5.53		)%	9.46		%	7.90		%	9.31		%	8.06		%
Non-GAAP basic and diluted earnings per share	$	0.68		$	0.92		$	0.15		$	0.76		$	0.72		$	1.60		$	1.35
Non-GAAP return on average assets	0.77		%	1.06		%	0.16		%	0.85		%	0.81		%	0.91		%	0.76		%
Non-GAAP return on average equity	8.66		%	11.96		%	1.81		%	9.46		%	9.29		%	10.30		%	8.77		%

73

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

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

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

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates.  It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon a 200-basis point change in interest rates, with appropriate floors set for interest-bearing liabilities.  At June 30, 2018, it is estimated that an immediate 200-basis point decrease in interest rates would negatively impact the next 12 months net interest income by 9.61% and an immediate 200-basis point increase would positively impact the next 12 months net interest income by 2.59%.  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 at this time, management additionally modeled an immediate 100-basis point decline and an immediate 300-basis point increase in interest rates. When applied, it is estimated that an immediate 100-basis point decrease in interest rates would negatively impact the next 12 months net interest income by 4.55% and an immediate 300-basis point increase would positively impact the next 12 months net interest income by 3.78%.

A related component of interest rate risk is the expectation that the market value of the Corporation’s equity account will fluctuate with changes in interest rates.  This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to a decline in market value.  At June 30, 2018, 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 12.16% and an immediate 200-basis point increase in interest rates would positively impact the market value by 4.53%.  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 that an immediate 100-basis point decrease in interest rates would negatively impact the market value of the Corporation’s capital account by 5.27% and an immediate 300-basis point increase in interest rates would positively impact the market value by 6.28%.

Management does recognize the need for certain hedging strategies during periods of anticipated higher fluctuations in interest rates and the Funds Management Policy provides for limited use of certain derivatives in asset liability management.

Credit Risk

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

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

74

ITEM 4:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of June 30, 2018 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Corporation's disclosure controls and procedures are effective as of June 30, 2018.  In addition, there have been no changes in the Corporation’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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

75

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

For information related to this item, please see Note 8 to the Corporation’s financial statements included herein.

ITEM 1A.    RISK FACTORS

There have been no material changes in the risk factors set forth in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2017, filed with the Securities and Exchange Commission on March 8, 2018.

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

(c)    Issuer Purchases of Equity Securities (1)

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
4/1/18-4/30/18	—	$	—	—	121,906
5/1/18-5/31/18	—	—		—	121,906
6/1/18-6/30/18	—	—		—	121,906
Quarter ended 6/30/18	—	$	—	—	121,906
(1) On December 19, 2012, the Corporation’s Board of Directors approved a stock repurchase plan authorizing the purchase of up to 125,000 shares of the Corporation's outstanding common stock. Purchases may be made from time to time on the open market or in private negotiated transactions and will be at the discretion of management. For the three months ended June 30, 2018, no shares had been purchased under this plan. Since inception of the plan, a total of 3,094 shares have been purchased under the plan.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

76

ITEM 6.    EXHIBITS

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

3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to May 16, 2018 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on May 17, 2018).
31.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
101.INS	Instance Document*
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

77

SIGNATURES

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

CHEMUNG FINANCIAL CORPORATION

DATED: August 1, 2018	By:  /s/ Anders M. Tomson
	Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer)

DATED: August 1, 2018	By:  /s/ Karl F. Krebs
	Karl F. Krebs Chief Financial Officer and Treasurer (Principal Financial Officer)

78

EXHIBIT INDEX

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

3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to May 16, 2018 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on May 17, 2018).
31.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
101.INS	Instance Document*
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

EX-31.1

EXHIBIT 31.1

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

I, Anders M. Tomson, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: August 1, 2018

By:/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

I, Karl F. Krebs, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: August 1, 2018

By:/s/ Karl F. Krebs___________________

Karl F. Krebs

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

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

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

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended June 30, 2018, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

August 1, 2018

EX-32.2

EXHIBIT 32.2

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

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

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended June 30, 2018, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

/s/ Karl F. Krebs

Karl F. Krebs

Chief Financial Officer and Treasurer

August 1, 2018

XML

Document and Entity Information - shares	6 Months Ended
	Jun. 30, 2018	Jul. 31, 2018
Document and Entity Information [Abstract]
Entity Registrant Name	CHEMUNG FINANCIAL CORP
Entity Central Index Key	0000763563
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2018
Document Fiscal Year Focus	2018
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding (shares)		4,803,888

XML

CONSOLIDATED BALANCE SHEETS - USD ($)	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Cash and due from financial institutions	$ 30,837,000	$ 27,966,000
Interest-earning deposits in other financial institutions	3,978,000	2,763,000
Total cash and cash equivalents	34,815,000	30,729,000
Equity investments, at estimated fair value	2,112,000	2,337,000
Securities available for sale, at estimated fair value	265,157,000	293,091,000
Securities held to maturity, estimated fair value of $3,790 at June 30, 2018 and $3,776 at December 31, 2017	3,806,000	3,781,000
FHLBNY and FRBNY Stock, at cost	5,816,000	5,784,000
Loans, net of deferred loan fees	1,334,444,000	1,311,824,000
Allowance for loan losses	(19,645,000)	(21,161,000)
Loans, net	1,314,799,000	1,290,663,000
Loans held for sale	684,000	542,000
Premises and equipment, net	26,049,000	26,657,000
Goodwill	21,824,000	21,824,000
Other intangible assets, net	1,709,000	2,085,000
Bank-owned life insurance	3,014,000	2,982,000
Accrued interest receivable and other assets	30,381,000	27,145,000
Total assets	1,710,166,000	1,707,620,000
Deposits:
Non-interest-bearing	462,233,000	467,610,000
Interest-bearing	1,016,676,000	999,836,000
Total deposits	1,478,909,000	1,467,446,000
FHLBNY overnight advances	58,950,000	57,700,000
Securities sold under agreements to repurchase	0	10,000,000
FHLBNY term advances	0	2,000,000
Long term capital lease obligation	4,411,000	4,517,000
Dividends payable	1,249,000	1,232,000
Accrued interest payable and other liabilities	14,867,000	14,912,000
Total liabilities	1,558,386,000	1,557,807,000
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at June 30, 2018 and December 31, 2017	53,000	53,000
Additional paid-in capital	45,873,000	45,967,000
Retained earnings	132,973,000	128,453,000
Treasury stock, at cost; 507,471 shares at June 30, 2018 and 559,094 shares at December 31, 2017	(12,998,000)	(14,320,000)
Accumulated other comprehensive loss	(14,121,000)	(10,340,000)
Total shareholders' equity	151,780,000	149,813,000
Total liabilities and shareholders' equity	$ 1,710,166,000	$ 1,707,620,000

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
ASSETS
Securities held to maturity, estimated fair value	$ 3,790	$ 3,776
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (shares)	10,000,000	10,000,000
Common stock, shares issued (shares)	5,310,076	5,310,076
Treasury stock, at cost (shares)	507,471	559,094

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Interest and dividend income:
Loans, including fees	$ 14,300	$ 12,817	$ 28,350	$ 25,316
Taxable securities	1,264	1,398	2,553	2,820
Tax exempt securities	295	276	603	514
Interest-earning deposits	10	193	32	348
Total interest and dividend income	15,869	14,684	31,538	28,998
Interest expense:
Deposits	608	549	1,109	1,087
Securities sold under agreements to repurchase	44	95	137	288
Borrowed funds	200	90	375	179
Total interest expense	852	734	1,621	1,554
Net interest income	15,017	13,950	29,917	27,444
Provision for loan losses	2,362	421	3,071	1,461
Net interest income after provision for loan losses	12,655	13,529	26,846	25,983
Non-interest income:
Financial services revenue	59	53	105	122
Net gains (losses) on sales of other real estate owned	(48)	(9)	(4)	8
Income from bank-owned life insurance	17	18	33	35
Other	784	490	1,638	1,021
Total non-interest income	5,325	5,022	10,800	9,869
Non-interest expenses:
Salaries and wages	5,564	5,422	11,278	10,697
Pension and other employee benefits	1,518	1,540	3,176	3,091
Other components of net periodic pension and postretirement benefits	(408)	(333)	(816)	(666)
Net occupancy expenses	1,643	1,702	3,251	3,308
Furniture and equipment expenses	702	781	1,360	1,462
Data processing expense	1,764	1,587	3,506	3,191
Professional services	508	417	1,048	717
Legal accruals and settlements	989	850	989	850
Amortization of intangible assets	182	213	376	439
Marketing and advertising expenses	255	118	604	367
Other real estate owned expenses	100	11	238	31
FDIC insurance	301	309	618	634
Loan expense	184	166	353	282
Other	1,665	1,549	3,152	2,974
Total non-interest expenses	14,967	14,332	29,133	27,377
Income before income tax expense	3,013	4,219	8,513	8,475
Income tax expense	486	1,263	1,547	2,540
Net income	$ 2,527	$ 2,956	$ 6,966	$ 5,935
Weighted average shares outstanding (in shares)	4,828	4,797	4,825	4,793
Basic and diluted earnings per share (in dollars per share)	$ 0.52	$ 0.62	$ 1.44	$ 1.24
WMG fee income
Non-interest income:
Revenue from contract with customer, including assessed tax	$ 2,373	$ 2,269	$ 4,689	$ 4,378
Service charge on deposits
Non-interest income:
Revenue from contract with customer, including assessed tax	1,144	1,225	2,308	2,409
Interchange revenue from debit card transactions
Non-interest income:
Revenue from contract with customer, including assessed tax	996	964	2,031	1,884
Sale of securities
Non-interest income:
Revenue from contract with customer, including assessed tax	0	12	0	12
Financial services revenue		12		12
Net gains on sales of loans
Non-interest income:
Financial services revenue	59	53	105	122
Net gains (losses) on sales of OREO
Non-interest income:
Net gains (losses) on sales of other real estate owned	(48)	(9)	(4)	8
Core Banking
Non-interest income:
Total non-interest income	2,822	2,634	6,005	5,239
Core Banking | WMG fee income
Non-interest income:
Revenue from contract with customer, including assessed tax	0	0	0	0
Core Banking | Interchange revenue from debit card transactions
Non-interest income:
Revenue from contract with customer, including assessed tax	996	964	2,031	1,884
Core Banking | Sale of securities
Non-interest income:
Financial services revenue		12		12
Core Banking | Net gains on sales of loans
Non-interest income:
Financial services revenue	59	53	105	122
Core Banking | Net gains (losses) on sales of OREO
Non-interest income:
Net gains (losses) on sales of other real estate owned	$ (48)	$ (9)	$ (4)	$ 8

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Statement of Comprehensive Income [Abstract]
Net income	$ 2,527	$ 2,956	$ 6,966	$ 5,935
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(400)	2,854	(4,839)	6,020
Reclassification adjustment for gains realized in net income	0	(12)	0	(12)
Net unrealized gains (losses)	(400)	2,842	(4,839)	6,008
Tax effect	(101)	1,078	(1,233)	2,267
Net of tax amount	(299)	1,764	(3,606)	3,741
Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period	0	0	0	0
Reclassification adjustment for amortization of prior service costs	(55)	(55)	(110)	(110)
Reclassification adjustment for amortization of net actuarial loss	73	88	146	176
Total before tax effect	18	33	36	66
Tax effect	4	13	9	25
Net of tax amount	14	20	27	41
Total other comprehensive income (loss)	(285)	1,784	(3,579)	3,782
Comprehensive income	$ 2,242	$ 4,740	$ 3,387	$ 9,717

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands		Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Beginning 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		5,935			5,935
Other comprehensive income		3,782					3,782
Restricted stock awards		107		107
Restricted stock units for directors' deferred compensation plan		49		49
Cash dividends declared		(2,461)			(2,461)
Distribution of treasury stock for directors' compensation		269		68		201
Distribution of shares of treasury stock for employee stock compensation		200		50		150
Distribution of treasury stock for deferred directors' compensation		11		(51)		62
Sale of treasury stock	[1]	322		97		225
Forfeiture of 1,139 shares of restricted stock awards		0		43		(43)
Ending balances at Jun. 30, 2017		151,962	53	45,966	127,585	(14,670)	(6,972)
Beginning balances at Mar. 31, 2017							(8,756)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		2,956
Other comprehensive income		1,784					1,784
Ending balances at Jun. 30, 2017		151,962	53	45,966	127,585	(14,670)	(6,972)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Cumulative effect of account change	[2]	(162)			40		(202)
Balances at January 1, 2018, as adjusted		149,651	53	45,967	128,493	(14,320)	(10,542)
Beginning balances at Dec. 31, 2017		149,813	53	45,967	128,453	(14,320)	(10,340)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		6,966			6,966
Other comprehensive income		(3,579)					(3,579)
Restricted stock awards		232		232
Restricted stock units for directors' deferred compensation plan		47		47
Cash dividends declared		(2,486)			(2,486)
Distribution of treasury stock for directors' compensation		301		147		154
Distribution of shares of treasury stock for employee stock compensation		89		44		45
Distribution of treasury stock for deferred directors' compensation		218		(722)		940
Sale of treasury stock	[1]	341		158		183
Ending balances at Jun. 30, 2018		151,780	53	45,873	132,973	(12,998)	(14,121)
Beginning balances at Mar. 31, 2018							(13,836)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		2,527
Other comprehensive income		(285)					(285)
Ending balances at Jun. 30, 2018		$ 151,780	$ 53	$ 45,873	$ 132,973	$ (12,998)	$ (14,121)

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

[2] Due to implementation of ASC 2016-01. See "Adoption of New Accounting Standards" discussion in Note 1.

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017
Statement of Stockholders' Equity [Abstract]
Cash dividends declared (in dollars per share)	$ 0.52	$ 0.52
Distribution of shares of treasury stock for directors' compensation (in shares)	6,015	7,880
Distribution of shares of treasury stock for employee stock compensation (in shares)	1,784	5,861
Distribution of shares of treasury stock for directors deferred compensation shares (in shares)	36,861	2,438
Sale of shares of treasury stock (in shares)	7,143	8,788
Restricted stock awards, forfeited (in shares)		1,139

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,527	$ 2,956	$ 6,966	$ 5,935
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	182	213	376	439
Provision for loan losses	2,362	421	3,071	1,461
Net losses on disposal of fixed assets			10	31
Depreciation and amortization of fixed assets			1,816	1,946
Amortization of premiums on securities, net			608	736
Gains on sales of loans held for sale, net			(105)	(122)
Proceeds from sales of loans held for sale			5,308	6,204
Loans originated and held for sale			(5,345)	(6,056)
Net gains on equity investments			(36)	(64)
Net gains on securities transactions			0	(12)
Net (gains) losses on sales of other real estate owned	48	9	4	(8)
Purchase of equity investments			(50)	(39)
Expense related to restricted stock units for directors' deferred compensation plan			47	49
Expense related to employee stock compensation			89	200
Expense related to employee restricted stock awards			232	107
Income from bank-owned life insurance	(17)	(18)	(33)	(35)
Increase in other assets and accrued interest receivable			(4,197)	(132)
Decrease in accrued interest payable			(33)	(47)
Increase (decrease) in other liabilities			1,825	(1,594)
Net cash provided by operating activities			10,553	8,999
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales and calls of securities available for sale			820	1,075
Proceeds from maturities and principal collected on securities available for sale			21,666	24,624
Proceeds from maturities and principal collected on securities held to maturity			585	1,544
Purchases of securities available for sale			0	(41,306)
Purchases of securities held to maturity			(610)	(1,767)
Purchase of FHLBNY and FRBNY stock			(17,123)	(173)
Redemption of FHLBNY and FRBNY stock			17,091	450
Purchases of premises and equipment			(1,218)	(890)
Proceeds from sales of other real estate owned			1,295	176
Net increase in loans			(27,451)	(53,083)
Net cash used in investing activities			(4,945)	(69,350)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts			(16,269)	79,997
Net increase (decrease) in time deposits			27,732	(11,303)
Net decrease in securities sold under agreements to repurchase			(10,000)	(15,669)
Net increase in FHLBNY overnight advances			1,250	0
Repayments of FHLBNY long term advances			(2,000)	(55)
Payments made on capital leases			(106)	(102)
Sale of treasury stock			341	322
Cash dividends paid			(2,470)	(2,455)
Net cash (used in) provided by financing activities			(1,522)	50,735
Net increase (decrease) in cash and cash equivalents			4,086	(9,616)
Cash and cash equivalents, beginning of period			30,729	74,162	$ 74,162
Cash and cash equivalents, end of period	34,815	64,546	34,815	64,546	30,729
Cash paid (received) for:
Interest			1,654	1,601
Income taxes			1,355	4,050
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned			244	116
Dividends declared, not yet paid	$ 1,249	$ 1,231	1,249	1,231	$ 1,232
Distribution of treasury stock for directors' compensation			301	269
Distribution of treasury stock for deferred directors' compensation			$ 218	$ 11

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unconsolidated financial statements should be read in conjunction with the Corporation's 2017 Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, though early adoption is permitted. The Corporation intends to adopt the new lease guidance as of January 1, 2019 and is currently evaluating the impact that adoption of these updates will have on its consolidated financial statements. Currently, the Corporation believes the implementation of this ASU will create a right of use asset of less than $15.0 million for the Corporation's 16 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 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 2017-08, 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.

XML

EARNING PER COMMON SHARE

6 Months Ended

Jun. 30, 2018

Earnings Per Share [Abstract]

EARNING PER COMMON SHARE

EARNING PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.  Earnings per share were computed by dividing net income by 4,828 and 4,797weighted average shares outstanding for the three-month periods ended June 30, 2018 and 2017, respectively. Earnings per share were computed by dividing net income by 4,825 and 4,793weighted average shares outstanding for the six- month periods ended June 30, 2018 and 2017, respectively. There were no common stock equivalents during the three and six-month periods ended June 30, 2018 or 2017.

XML

SECURITIES

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

SECURITIES

SECURITIES

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,489	$	11	$	50	$	15,450
Mortgage-backed securities, residential	207,708		69		9,137		198,640
Obligations of states and political subdivisions	47,574		37		582		47,029
Corporate bonds and notes	249		1		—		250
SBA loan pools	3,832		—		44		3,788
Total	$	274,852	$	118	$	9,813	$	265,157

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	20	$	21	$	15,491
Mortgage-backed securities, residential	224,939		136		5,166		219,909
Obligations of states and political subdivisions	52,928		355		151		53,132
Corporate bonds and notes	249		2		—		251
SBA loan pools	4,339		1		32		4,308
Total	$	297,947	$	514	$	5,370	$	293,091

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,481	$	—	$	—	$	1,481
Time deposits with other financial institutions	2,325		—		16		2,309
Total	$	3,806	$	—	$	16	$	3,790

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	—	$	—	$	1,946
Time deposits with other financial institutions	1,835		—		5		1,830
Total	$	3,781	$	—	$	5	$	3,776

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

	June 30, 2018
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	16,875	$	16,873	$	884	$	882
After one, but within five years	19,459		19,347		2,689		2,675
After five, but within ten years	26,495		26,053		233		233
After ten years	483		456		—		—
	63,312		62,729		3,806		3,790
Mortgage-backed securities, residential	207,708		198,640		—		—
SBA loan pools	3,832		3,788		—		—
Total	$	274,852	$	265,157	$	3,806	$	3,790

The proceeds from sales and calls of securities resulting in gains or losses for the three months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

The proceeds from sales and calls of securities resulting in gains or losses for the six months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

The following tables summarize the investment securities available for sale with unrealized losses at June 30, 2018 and December 31, 2017 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
June 30, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,948	$	50	$	—	$	—	$	14,948	$	50
Mortgage-backed securities, residential	65,746		2,193		130,586		6,944		196,332		9,137
Obligations of states and political subdivisions	36,819		488		1,709		94		38,528		582
SBA loan pools	243		1		3,545		43		3,788		44
Total temporarily impaired securities	$	117,756	$	2,732	$	135,840	$	7,081	$	253,596	$	9,813

	Less than 12 months				12 months or longer				Total
December 31, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
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

Other-Than-Temporary Impairment

As of June 30, 2018, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.  At June 30, 2018, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at June 30, 2018.

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES

6 Months Ended

Jun. 30, 2018

Loans and Leases Receivable Disclosure [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	June 30,   2018		December 31,   2017
Commercial and agricultural:
Commercial and industrial	$	193,092	$	198,463
Agricultural	424		544
Commercial mortgages:
Construction	45,543		45,558
Commercial mortgages, other	621,150		598,772
Residential mortgages	193,423		194,440
Consumer loans:
Credit cards	1,367		1,517
Home equity lines and loans	99,052		100,591
Indirect consumer loans	162,813		153,060
Direct consumer loans	17,580		18,879
Total loans, net of deferred origination fees and costs	$	1,334,444	$	1,311,824
Interest receivable on loans	3,666		3,758
Total recorded investment in loans	$	1,338,110	$	1,315,582

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

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance	$	7,003		$	8,640		$	1,407		$	4,340		$	21,390
Charge-offs	(3,624		)	(145		)	(71		)	(463		)	(4,303		)
Recoveries	11			1			—			184			196
Net recoveries (charge-offs)	(3,613		)	(144		)	(71		)	(279		)	(4,107		)
Provision	1,579			244			109			430			2,362
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Three Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance	$	1,650		$	7,749	$	1,512		$	4,049		$	14,960
Charge-offs	(2		)	—		(48		)	(397		)	(447		)
Recoveries	36			2		13			119			170
Net recoveries (charge-offs)	34			2		(35		)	(278		)	(277		)
Provision	199			27		40			155			421
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

	Six Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161
Charge-offs:	(3,644		)	(145		)	(165		)	(921		)	(4,875		)
Recoveries:	21			2			5			260			288
Net recoveries (charge-offs)	(3,623		)	(143		)	(160		)	(661		)	(4,587		)
Provision	1,616			369			289			797			3,071
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Six Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270	$	1,523		$	3,871		$	14,253
Charge-offs:	(7		)	—		(60		)	(825		)	(892		)
Recoveries:	61			3		30			188			282
Net recoveries (charge-offs)	54			3		(30		)	(637		)	(610		)
Provision	240			505		24			692			1,461
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,285	$	453	$	—	$	—	$	1,738
Collectively evaluated for impairment	3,684		8,287		1,445		4,491		17,907
Total ending allowance balance	$	4,969	$	8,740	$	1,445	$	4,491	$	19,645

	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

	June 30, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,017	$	6,847	$	417	$	61	$	9,342
Loans collectively evaluated for  impairment	192,040		661,711		193,514		281,503		1,328,768
Total ending loans balance	$	194,057	$	668,558	$	193,931	$	281,564	$	1,338,110

	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

The following table presents loans individually evaluated for impairment recognized by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018						December 31, 2017
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	643	$	647	$	—	$	861	$	867	$	—
Commercial mortgages:
Construction	336		338		—		364		365		—
Commercial mortgages, other	4,366		4,370		—		4,135		4,138		—
Residential mortgages	439		417		—		450		427		—
Consumer loans:
Home equity lines and loans	60		61		—		64		64		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,370		1,370		1,285		5,231		5,266		5,135
Commercial mortgages:
Commercial mortgages, other	2,173		2,139		453		2,989		2,799		802
Total	$	9,387	$	9,342	$	1,738	$	14,094	$	13,926	$	5,937

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended   June 30, 2018				Three Months Ended   June 30, 2017				Six Months Ended   June 30, 2018				Six Months Ended   June 30, 2017
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	710	$	7	$	626	$	8	$	762	$	15	$	649	$	17
Commercial mortgages:
Construction	345		3		1,555		3		352		6		1,130		6
Commercial mortgages, other	4,290		5		5,879		32		4,240		10		6,538		90
Residential mortgages	421		2		417		2		423		4		410		4
Consumer loans:
Home equity lines & loans	61		1		71		1		62		2		79		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,196		—		84		1		3,886		—		56		1
Commercial mortgages:
Commercial mortgages, other	2,467		1		4,461		4		2,578		3		3,723		7
Consumer loans:
Home equity lines and loans	—		—		180		—		—		—		240		—
Total	$	11,490	$	19	$	13,273	$	51	$	12,303	$	40	$	12,825	$	126

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

The following table present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Commercial and agricultural:
Commercial and industrial	$	1,513	$	5,250	$	3	$	5
Commercial mortgages:
Construction	123		135		—		—
Commercial mortgages, other	6,101		6,520		—		—
Residential mortgages	2,981		3,160		—		—
Consumer loans:
Credit cards	—		—		14		24
Home equity lines and loans	1,359		1,310		—		—
Indirect consumer loans	673		935		—		—
Direct consumer loans	40		14		—		—
Total	$	12,790	$	17,324	$	17	$	29

The following tables present the aging of the recorded investment in loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
	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	$	392	$	—	$	17	$	409	$	—	$	193,223	$	193,632
Agricultural	—		—		—		—		—		425		425
Commercial mortgages:
Construction	—		—		—		—		—		45,671		45,671
Commercial mortgages, other	992		93		3,339		4,424		—		618,463		622,887
Residential mortgages	1,117		492		1,261		2,870		—		191,061		193,931
Consumer loans:
Credit cards	11		11		14		36		—		1,332		1,368
Home equity lines and loans	359		196		787		1,342		—		97,995		99,337
Indirect consumer loans	979		218		231		1,428		—		161,778		163,206
Direct consumer loans	56		24		22		102		—		17,551		17,653
Total	$	3,906	$	1,034	$	5,671	$	10,611	$	—	$	1,327,499	$	1,338,110

	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, other	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

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 June 30, 2018 and December 31, 2017, the Corporation has a recorded investment in TDRs of $7.1 million and $7.7 million, respectively.  There were specific reserves of $0.5 million and $0.7 million allocated for TDRs at June 30, 2018 and December 31, 2017, respectively.  As of June 30, 2018, TDRs totaling $1.4 million were accruing interest under the modified terms and $5.7 million were on non-accrual status.  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.  The Corporation had committed no additional amounts as of both June 30, 2018 and December 31, 2017, to customers with outstanding loans that are classified as TDRs.

There were no loans modified as TDRs during the three month period ended June 30, 2018 while the terms of certain loans were modified as TDRs during the three month period ended June 30, 2017. The modification of the terms of two commercial & industrial term loans and one commercial line of credit during the three months ended June 30, 2017 included consolidating the loans into one commercial & industrial loan, extending the maturity date by approximately two years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a residential mortgage loan during the three months ended June 30, 2017 included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of the loan.

During the six months ended June 30, 2018 and 2017, the terms of certain loans were modified as TDRs. The modification of the terms of one commercial & industrial term loan during the six months ended June 30, 2018 included an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk. In addition to the modifications noted above, the modification of the terms of one commercial mortgage loan during the six months ended June 30, 2017 included a reduction of the scheduled amortized payments of the loan for greater than a three month period.

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

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Residential mortgages	1	105		105
Total	4	$	276	$	276

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

The following tables presents loans by class modified as TDRs that occurred during the six months ended June 30, 2018 and 2017 (dollars in thousands):

June 30, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	100	$	100
Total	1	$	100	$	100

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	442	$	442

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the six months ended June 30, 2018. The TDRs described above increased the allowance for loan losses by $0.1 million and resulted in no charge-offs during the six months ended June 30, 2017.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three and six month periods ended June 30, 2018 and 2017.

Credit Quality Indicators

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

For the retail loans, which include residential mortgages, indirect and direct consumer loans, home equity lines and loans, and credit cards, once a loan is properly approved and closed, the Corporation evaluates credit quality based upon loan repayment.

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

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

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

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

Commercial loans not meeting the criteria above to be considered criticized or classified are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans performing under terms of the loan notes.  Based on the analyses performed as of June 30, 2018 and December 31, 2017, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	June 30, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	179,814	$	9,843	$	2,619	$	1,356	$	—	$	193,632
Agricultural	—		425		—		—		—		—		425
Commercial mortgages:
Construction	—		45,548		—		123		—		—		45,671
Commercial mortgages	—		598,395		10,639		12,526		1,327		—		622,887
Residential mortgages	190,776		—		—		3,155		—		—		193,931
Consumer loans:
Credit cards	1,368		—		—		—		—		—		1,368
Home equity lines and loans	97,978		—		—		1,359		—		—		99,337
Indirect consumer loans	162,533		—		—		673		—		—		163,206
Direct consumer loans	17,613		—		—		40		—		—		17,653
Total	$	470,268	$	824,182	$	20,482	$	20,495	$	2,683	$	—	$	1,338,110

	December 31, 2017
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		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		9,665		13,331		1,377		792		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	$	14,112	$	25,489	$	2,799	$	792	$	1,315,582

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following table presents the recorded investment in residential and consumer loans based on payment activity as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	190,950	$	1,368	$	97,978	$	162,533	$	17,613
Non-Performing	2,981		—		1,359		673		40
	$	193,931	$	1,368	$	99,337	$	163,206	$	17,653

	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
	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

XML

FAIR VALUE

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

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

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

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments 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 its derivatives utilize 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 June 30, 2018 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	$	15,450	$	—	$	15,450	$	—
Mortgage-backed securities, residential	198,640		—		198,640		—
Obligations of states and political subdivisions	47,029		—		47,029		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	3,788		—		3,788		—
Total available for sale securities	$	265,157	$	—	$	265,157	$	—
Equity investments	$	1,277	$	1,277	$	—	$	—
Derivative assets	2,304		—		2,304		—
Financial Liabilities:
Derivative liabilities	$	2,322	$	—	$	2,304	$	18

There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2018.

			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		—
Total available for sale securities	$	293,091	$	—	$	293,091	$	—
Equity investments	$	1,192	$	1,192	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2017.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at April 1	$	—	$	251	$	(50	)	$	(65	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		33			(6		)
Included in other comprehensive income	—		1		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

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 six month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at January 1	$	—	$	250	$	(75	)	$	(68	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		58			(3		)
Included in other comprehensive income	—		2		—			—
Transfers out of Level 3	—		—		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

The following table presents information related to Level 3 recurring fair value measurements at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Derivative liabilities	$	18	Historical trend	Credit default rate	6.76% - 6.76% [6.76%]

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%]

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

			Fair Value Measurement at June 30, 2018 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	$	12	$	—	$	—	$	12	$	—
Total impaired loans	$	12	$	—	$	—	$	12	$	—
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	534	$	—	$	—	$	534	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	148		—		—		148		—
Total other real estate owned, net	$	886	$	—	$	—	$	886	$	—

			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	)

The following tables presents information related to Level 3 non-recurring fair value measurement at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	12	Sales comparison	Discount to appraised value	0.00% - 0.00% [0.00%]
	$	12
OREO:
Commercial mortgages:
Commercial mortgages	$	534	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.98%]
Residential mortgages	204		Sales comparison	Discount to appraised value	17.28% - 39.78% [20.44%]
Consumer loans:
Home equity lines and loans	148		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	886

Description	Fair Value at December 31, 2017		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 mortgages:
Commercial mortgages	$	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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at June 30, 2018 and December 31, 2017, are as follows (in thousands):

	June 30, 2018
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	$	30,837	$	30,837	$	—	$	—	$	30,837
Interest-bearing deposits in other financial institutions	3,978		3,978		—		—		3,978
Equity investments	1,277		1,277		—		—		1,277
Securities available for sale	265,157		—		265,157		—		265,157
Securities held to maturity	3,806		—		2,309		1,481		3,790
FHLBNY and FRBNY stock	5,816		—		—		—		N/A
Loans, net and loans held for sale	1,315,483		—		—		1,296,697		1,296,697
Accrued interest receivable	4,404		1		737		3,666		4,404
Derivative assets	2,304		—		2,304		—		2,304
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,332,815	$	1,332,815	$	—	$	—	$	1,332,815
Time deposits	146,094		—		146,315		—		146,315
FHLBNY overnight advances	58,950		—		58,949		—		58,949
Accrued interest payable	115		21		94		—		115
Derivative liabilities	2,322		—		2,304		18		2,322

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

	December 31, 2017
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Equity investments	1,192		1,192		—		—		1,192
Securities available for sale	293,091		—		293,091		—		293,091
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,291,205		—		—		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.

XML

GOODWILL AND INTANGIBLE ASSETS

6 Months Ended

Jun. 30, 2018

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 six month periods ended June 30, 2018 and 2017 were as follows (in thousands):

	2018		2017
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance June 30,	$	21,824	$	21,824

Acquired intangible assets were as follows at June 30, 2018 and December 31, 2017 (in thousands):

	At June 30, 2018				At December 31, 2017
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,395	$	5,975	$	5,196
Other customer relationship intangibles	5,633		4,504		5,633		4,327
Total	$	11,608	$	9,899	$	11,608	$	9,523

Aggregate amortization expense was $0.2 million for both of the three month periods ended June 30, 2018 and 2017. Aggregate amortization expense was $0.4 million for both of the six month periods ended June 30, 2018 and 2017, respectively.

The remaining estimated aggregate amortization expense at June 30, 2018 is listed below (in thousands):

Year	Estimated Expense
2018	$	358
2019	609
2020	484
2021	258
2022	—
Total	$	1,709

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

6 Months Ended

Jun. 30, 2018

Disclosure of Repurchase Agreements [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

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

There were no securities sold under agreements to repurchase as of June 30, 2018.

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

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Mortgage-backed securities, residential	$	—	$	11,798		$	—	$	—	$	11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
Gross amount of recognized liabilities for repurchase agreements	$	—	$	10,000		$	—	$	—	$	10,000

XML

COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018				December 31, 2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	17,062	$	32,329	$	16,019	$	28,591
Unused lines of credit	1,473		199,478		1,604		200,353
Standby letters of credit	—		14,416		—		15,022

On June 15, 2018, the Bank, through mediation, reached a resolution by way of a settlement agreement in the matter of Fane v. Chemung Canal Trust Company (the “Action”). The parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3 million in connection with the settlement of the Action. As of March 31, 2018, the Corporation had a legal reserve of $2.3 million for the Action and therefore recognized an additional $1.0 million of legal expense during the second quarter of 2018.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  Except for the above matter as of June 30, 2018, we believe that we are not a party to any pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

ACCUMULATED OTHER COMPREHENSIVE LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2018	$	(6,924	)	$	(6,912	)	$	(13,836	)
Other comprehensive income before reclassification	(299		)	—			(299		)
Amounts reclassified from accumulated other comprehensive income	—			14			14
Net current period other comprehensive income (loss)	(299		)	14			(285		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2017	$	(2,379	)	$	(6,377	)	$	(8,756	)
Other comprehensive loss before reclassification	1,772			—			1,772
Amounts reclassified from accumulated other comprehensive income	(8		)	20			12
Net current period other comprehensive income	1,764			20			1,784
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2018	$	(3,415	)	$	(6,925	)	$	(10,340	)
Cumulative effect of account change	(202		)	—			(202		)
Balance at January 1, 2018, as adjusted	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income before reclassification	(3,606		)	—			(3,606		)
Amounts reclassified from accumulated other comprehensive income	—			27			27
Net current period other comprehensive income (loss)	(3,606		)	27			(3,579		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2017	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	3,749			—			3,749
Amounts reclassified from accumulated other comprehensive income	(8		)	41			33
Net current period other comprehensive income	3,741			41			3,782
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

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

Details about Accumulated Other Comprehensive Income Components	Three Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	73			88			Other components of net periodic pension and postretirement benefits
Tax effect	(4		)	(13		)	Income tax expense
Net of tax	14			20
Total reclassification for the period, net of tax	$	14		$	12

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

Details about Accumulated Other Comprehensive Income Components	Six Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(110		)	(110		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	146			176			Other components of net periodic pension and postretirement benefits
Tax effect	(9		)	(25		)	Income tax expense
Net of tax	27			41
Total reclassification for the period, net of tax	$	27		$	33

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

REVENUES FROM CONTRACTS WITH CUSTOMERS

REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following table presents the Corporation's non-interest income by revenue stream and reportable segment for the three and six months ended June 30, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	939		$	—	$	—		$	939
Other	205			—		—			205
Interchange revenue from debit card transactions	996			—		—			996
WMG fee income	—			2,373		—			2,373
CFS fee and commission income	—			—		135			135
Net gains (losses) on sales of OREO	(48		)	—		—			(48		)
Net gains on sales of loans(a)	59			—		—			59
Loan servicing fees(a)	22			—		—			22
Other(a)	649			—		(5		)	644
Total non-interest income (loss)	$	2,822		$	2,373	$	130		$	5,325

	Three Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	971		$	—	$	—		$	971
Other	254			—		—			254
Interchange revenue from debit card transactions	964			—		—			964
WMG fee income	—			2,269		—			2,269
CFS fee and commission income	—			—		174			174
Net gains (losses) on sales of OREO	(9		)	—		—			(9		)
Net gains on sales of loans(a)	53			—		—			53
Loan servicing fees(a)	21			—		—			21
Net gains (losses) on sales of securities(a)	12			—		—			12
Other(a)	368			—		(55		)	313
Total non-interest income	$	2,634		$	2,269	$	119		$	5,022

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

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

	Six Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,904		$	—	$	—		$	1,904
Other	404			—		—			404
Interchange revenue from debit card transactions	2,031			—		—			2,031
WMG fee income	—			4,689		—			4,689
CFS fee and commission income	—			—		245			245
Net gains (losses) on sales of OREO	(4		)	—		—			(4		)
Net gains on sales of loans(a)	105			—		—			105
Loan servicing fees(a)	45			—		—			45
Other(a)	1,520			—		(139		)	1,381
Total non-interest income (loss)	$	6,005		$	4,689	$	106		$	10,800

	Six Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,950	$	—	$	—		$	1,950
Other	459		—		—			459
Interchange revenue from debit card transactions	1,884		—		—			1,884
WMG fee income	—		4,378		—			4,378
CFS fee and commission income	—		—		312			312
Net gains on sales of OREO	8		—		—			8
Net gains on sales of loans(a)	122		—		—			122
Loan servicing fees(a)	41		—		—			41
Net gains (losses) on sales of securities(a)	12		—		—			12
Other(a)	763		—		(60		)	703
Total non-interest income	$	5,239	$	4,378	$	252		$	9,869

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

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

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

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

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

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

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

XML

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

6 Months Ended

Jun. 30, 2018

Retirement Benefits [Abstract]

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

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

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2018			2017			2018			2017
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	384			403			769			806
Expected return on plan assets	(826		)	(785		)	(1,652		)	(1,570		)
Amortization of unrecognized transition obligation	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	44			58			87			116
Net periodic pension benefit	$	(398	)	$	(324	)	$	(796	)	$	(648	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	12			12			24			24
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	2			1			4			2
Net periodic supplemental pension cost	$	14		$	13		$	28		$	26
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	4			4			7			8
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	(55		)	(55		)	(110		)	(110		)
Amortization of unrecognized net loss	27			29			55			58
Net periodic postretirement, medical and life benefit	$	(24	)	$	(22	)	$	(48	)	$	(44	)

XML

SEGMENT REPORTING

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s 2017 Annual Report on Form 10-K, which was filed with the SEC on March 8, 2018. 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).

	Three months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	15,861	$	—	$	8		$	15,869
Interest expense	852		—		—			852
Net interest income	15,009		—		8			15,017
Provision for loan losses	2,362		—		—			2,362
Net interest income after provision for loan losses	12,647		—		8			12,655
Other non-interest income	2,822		2,373		130			5,325
Legal accruals and settlements	989		—		—			989
Other non-interest expenses	12,014		1,629		335			13,978
Income (loss) before income tax expense (benefit)	2,466		744		(197		)	3,013
Income tax expense (benefit)	342		190		(46		)	486
Segment net income (loss)	$	2,124	$	554	$	(151	)	$	2,527

	Three months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	14,680	$	—	$	4		$	14,684
Interest expense	734		—		—			734
Net interest income	13,946		—		4			13,950
Provision for loan losses	421		—		—			421
Net interest income after provision for loan losses	13,525		—		4			13,529
Other non-interest income	2,634		2,269		119			5,022
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	11,700		1,467		315			13,482
Income (loss) before income tax expense (benefit)	3,609		802		(192		)	4,219
Income tax expense (benefit)	1,018		304		(59		)	1,263
Segment net income (loss)	$	2,591	$	498	$	(133	)	$	2,956

	Six months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	31,523	$	—	$	15		$	31,538
Interest expense	1,621		—		—			1,621
Net interest income	29,902		—		15			29,917
Provision for loan losses	3,071		—		—			3,071
Net interest income after provision for loan losses	26,831		—		15			26,846
Other non-interest income	6,005		4,689		106			10,800
Other non-interest expenses	24,429		3,107		608			28,144
Income (loss) before income tax expense (benefit)	7,418		1,582		(487		)	8,513
Income tax expense (benefit)	1,236		403		(92		)	1,547
Segment net income (loss)	$	6,182	$	1,179	$	(395	)	$	6,966
Segment assets	$	1,694,891	$	3,844	$	11,431		$	1,710,166

	Six months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	28,991	$	—	$	7		$	28,998
Interest expense	1,554		—		—			1,554
Net interest income	27,437		—		7			27,444
Provision for loan losses	1,461		—		—			1,461
Net interest income after provision for loan losses	25,976		—		7			25,983
Other non-interest income	5,239		4,378		252			9,869
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	23,144		2,772		611			26,527
Income (loss) before income tax expense (benefit)	7,221		1,606		(352		)	8,475
Income tax expense (benefit)	2,066		609		(135		)	2,540
Segment net income (loss)	$	5,155	$	997	$	(217	)	$	5,935
Segment assets	$	1,706,266	$	4,863	$	7,443		$	1,718,572

XML

STOCK COMPENSATION

6 Months Ended

Jun. 30, 2018

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

STOCK COMPENSATION

STOCK COMPENSATION

Board of Directors' Stock Compensation

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

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

During January 2018 and 2017, 6,015 and 7,880 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $100 thousand and $75 thousand related to this compensation was recognized during the three month periods ended June 30, 2018 and 2017, respectively. An expense of $184 thousand and $154 thousand related to this compensation was recognized during the six month periods ended June 30, 2018 and 2017, respectively. This expense is accrued as shares are earned.

Restricted Stock Plan

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

A summary of restricted stock activity for the three month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at April 1, 2018	23,933		$	38.12
Granted	—		—
Vested	(849	)	44.84
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

A summary of restricted stock activity for the six month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2018	25,522		$	38.01
Granted	—		—
Vested	(2,438	)	39.28
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

As of June 30, 2018, there was $838 thousand of total unrecognized compensation cost related to nonvested shares granted under the Plan.  The cost is expected to be recognized over a weighted-average period of 3.26 years.  The total fair value of shares vested was $112 thousand and $16 thousand for the six month periods ended June 30, 2018 and 2017, respectively.

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2018

Accounting Policies [Abstract]

Organization

Organization

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

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

Basis of Presentation

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unconsolidated financial statements should be read in conjunction with the Corporation's 2017 Annual Report on Form 10-K for the year ended December 31, 2017. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Reclassifications

Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior year net income or shareholders' equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 requires companies that lease valuable assets to recognize on their balance sheets the assets and liabilities generated by contracts longer than a year. The amendments in this update are effective for annual periods, and interim periods within those annual periods, beginning after December 15, 2018, though early adoption is permitted. The Corporation intends to adopt the new lease guidance as of January 1, 2019 and is currently evaluating the impact that adoption of these updates will have on its consolidated financial statements. Currently, the Corporation believes the implementation of this ASU will create a right of use asset of less than $15.0 million for the Corporation's 16 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 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 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The objective of the ASU is to align the amortization period of premiums and discounts to expectations incorporated in market pricing on the underlying securities. The amendment requires that the premium be amortized to the earliest call date, but does not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this ASU are effective for fiscal years, and for interim periods within those fiscal years, beginning after December 15, 2018. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

Earnings Per Common Share

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

Fair Value Measurement

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

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

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments 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 its derivatives utilize credit default rate assumptions (Level 3 inputs).

XML

SECURITIES (Tables)

6 Months Ended

Jun. 30, 2018

Investments, Debt and Equity Securities [Abstract]

Amortized cost and estimated fair value of securities available for sale

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,489	$	11	$	50	$	15,450
Mortgage-backed securities, residential	207,708		69		9,137		198,640
Obligations of states and political subdivisions	47,574		37		582		47,029
Corporate bonds and notes	249		1		—		250
SBA loan pools	3,832		—		44		3,788
Total	$	274,852	$	118	$	9,813	$	265,157

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	15,492	$	20	$	21	$	15,491
Mortgage-backed securities, residential	224,939		136		5,166		219,909
Obligations of states and political subdivisions	52,928		355		151		53,132
Corporate bonds and notes	249		2		—		251
SBA loan pools	4,339		1		32		4,308
Total	$	297,947	$	514	$	5,370	$	293,091

Amortized cost and estimated fair value of securities held to maturity

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

	June 30, 2018
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,481	$	—	$	—	$	1,481
Time deposits with other financial institutions	2,325		—		16		2,309
Total	$	3,806	$	—	$	16	$	3,790

	December 31, 2017
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,946	$	—	$	—	$	1,946
Time deposits with other financial institutions	1,835		—		5		1,830
Total	$	3,781	$	—	$	5	$	3,776

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

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

	June 30, 2018
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	16,875	$	16,873	$	884	$	882
After one, but within five years	19,459		19,347		2,689		2,675
After five, but within ten years	26,495		26,053		233		233
After ten years	483		456		—		—
	63,312		62,729		3,806		3,790
Mortgage-backed securities, residential	207,708		198,640		—		—
SBA loan pools	3,832		3,788		—		—
Total	$	274,852	$	265,157	$	3,806	$	3,790

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

The proceeds from sales and calls of securities resulting in gains or losses for the three months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

The proceeds from sales and calls of securities resulting in gains or losses for the six months ended June 30, 2018 and 2017 are listed below (in thousands):

	2018		2017
Proceeds	$	—	$	540
Gross gains	—		12
Tax expense	—		4

Investment securities available for sale in an unrealized loss position

The following tables summarize the investment securities available for sale with unrealized losses at June 30, 2018 and December 31, 2017 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
June 30, 2018	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	14,948	$	50	$	—	$	—	$	14,948	$	50
Mortgage-backed securities, residential	65,746		2,193		130,586		6,944		196,332		9,137
Obligations of states and political subdivisions	36,819		488		1,709		94		38,528		582
SBA loan pools	243		1		3,545		43		3,788		44
Total temporarily impaired securities	$	117,756	$	2,732	$	135,840	$	7,081	$	253,596	$	9,813

	Less than 12 months				12 months or longer				Total
December 31, 2017	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
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

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

6 Months Ended

Jun. 30, 2018

Loans and Leases Receivable Disclosure [Abstract]

Composition of the loan portfolio by type

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

	June 30,   2018		December 31,   2017
Commercial and agricultural:
Commercial and industrial	$	193,092	$	198,463
Agricultural	424		544
Commercial mortgages:
Construction	45,543		45,558
Commercial mortgages, other	621,150		598,772
Residential mortgages	193,423		194,440
Consumer loans:
Credit cards	1,367		1,517
Home equity lines and loans	99,052		100,591
Indirect consumer loans	162,813		153,060
Direct consumer loans	17,580		18,879
Total loans, net of deferred origination fees and costs	$	1,334,444	$	1,311,824
Interest receivable on loans	3,666		3,758
Total recorded investment in loans	$	1,338,110	$	1,315,582

Allowance for loan losses by portfolio segment

The following tables present the activity in the allowance for loan losses by portfolio segment for the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance	$	7,003		$	8,640		$	1,407		$	4,340		$	21,390
Charge-offs	(3,624		)	(145		)	(71		)	(463		)	(4,303		)
Recoveries	11			1			—			184			196
Net recoveries (charge-offs)	(3,613		)	(144		)	(71		)	(279		)	(4,107		)
Provision	1,579			244			109			430			2,362
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Three Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance	$	1,650		$	7,749	$	1,512		$	4,049		$	14,960
Charge-offs	(2		)	—		(48		)	(397		)	(447		)
Recoveries	36			2		13			119			170
Net recoveries (charge-offs)	34			2		(35		)	(278		)	(277		)
Provision	199			27		40			155			421
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

	Six Months Ended June 30, 2018
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161
Charge-offs:	(3,644		)	(145		)	(165		)	(921		)	(4,875		)
Recoveries:	21			2			5			260			288
Net recoveries (charge-offs)	(3,623		)	(143		)	(160		)	(661		)	(4,587		)
Provision	1,616			369			289			797			3,071
Ending balance	$	4,969		$	8,740		$	1,445		$	4,491		$	19,645

	Six Months Ended June 30, 2017
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270	$	1,523		$	3,871		$	14,253
Charge-offs:	(7		)	—		(60		)	(825		)	(892		)
Recoveries:	61			3		30			188			282
Net recoveries (charge-offs)	54			3		(30		)	(637		)	(610		)
Provision	240			505		24			692			1,461
Ending balance	$	1,883		$	7,778	$	1,517		$	3,926		$	15,104

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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	1,285	$	453	$	—	$	—	$	1,738
Collectively evaluated for impairment	3,684		8,287		1,445		4,491		17,907
Total ending allowance balance	$	4,969	$	8,740	$	1,445	$	4,491	$	19,645

	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

	June 30, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,017	$	6,847	$	417	$	61	$	9,342
Loans collectively evaluated for  impairment	192,040		661,711		193,514		281,503		1,328,768
Total ending loans balance	$	194,057	$	668,558	$	193,931	$	281,564	$	1,338,110

	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

Summary of impaired financing receivables

The following table presents loans individually evaluated for impairment recognized by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018						December 31, 2017
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	643	$	647	$	—	$	861	$	867	$	—
Commercial mortgages:
Construction	336		338		—		364		365		—
Commercial mortgages, other	4,366		4,370		—		4,135		4,138		—
Residential mortgages	439		417		—		450		427		—
Consumer loans:
Home equity lines and loans	60		61		—		64		64		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	1,370		1,370		1,285		5,231		5,266		5,135
Commercial mortgages:
Commercial mortgages, other	2,173		2,139		453		2,989		2,799		802
Total	$	9,387	$	9,342	$	1,738	$	14,094	$	13,926	$	5,937

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans as of the three and six-month periods ended June 30, 2018 and 2017 (in thousands):

	Three Months Ended   June 30, 2018				Three Months Ended   June 30, 2017				Six Months Ended   June 30, 2018				Six Months Ended   June 30, 2017
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	710	$	7	$	626	$	8	$	762	$	15	$	649	$	17
Commercial mortgages:
Construction	345		3		1,555		3		352		6		1,130		6
Commercial mortgages, other	4,290		5		5,879		32		4,240		10		6,538		90
Residential mortgages	421		2		417		2		423		4		410		4
Consumer loans:
Home equity lines & loans	61		1		71		1		62		2		79		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,196		—		84		1		3,886		—		56		1
Commercial mortgages:
Commercial mortgages, other	2,467		1		4,461		4		2,578		3		3,723		7
Consumer loans:
Home equity lines and loans	—		—		180		—		—		—		240		—
Total	$	11,490	$	19	$	13,273	$	51	$	12,303	$	40	$	12,825	$	126

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

The following table present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of June 30, 2018 and December 31, 2017 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	June 30, 2018		December 31, 2017		June 30, 2018		December 31, 2017
Commercial and agricultural:
Commercial and industrial	$	1,513	$	5,250	$	3	$	5
Commercial mortgages:
Construction	123		135		—		—
Commercial mortgages, other	6,101		6,520		—		—
Residential mortgages	2,981		3,160		—		—
Consumer loans:
Credit cards	—		—		14		24
Home equity lines and loans	1,359		1,310		—		—
Indirect consumer loans	673		935		—		—
Direct consumer loans	40		14		—		—
Total	$	12,790	$	17,324	$	17	$	29

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

The following tables present the aging of the recorded investment in loans as of June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
	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	$	392	$	—	$	17	$	409	$	—	$	193,223	$	193,632
Agricultural	—		—		—		—		—		425		425
Commercial mortgages:
Construction	—		—		—		—		—		45,671		45,671
Commercial mortgages, other	992		93		3,339		4,424		—		618,463		622,887
Residential mortgages	1,117		492		1,261		2,870		—		191,061		193,931
Consumer loans:
Credit cards	11		11		14		36		—		1,332		1,368
Home equity lines and loans	359		196		787		1,342		—		97,995		99,337
Indirect consumer loans	979		218		231		1,428		—		161,778		163,206
Direct consumer loans	56		24		22		102		—		17,551		17,653
Total	$	3,906	$	1,034	$	5,671	$	10,611	$	—	$	1,327,499	$	1,338,110

	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, other	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

Loans by class modified as troubled debt restructurings

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

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Residential mortgages	1	105		105
Total	4	$	276	$	276

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

The following tables presents loans by class modified as TDRs that occurred during the six months ended June 30, 2018 and 2017 (dollars in thousands):

June 30, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	1	$	100	$	100
Total	1	$	100	$	100

June 30, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	171	$	171
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	442	$	442

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

Based on the analyses performed as of June 30, 2018 and December 31, 2017, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	June 30, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	179,814	$	9,843	$	2,619	$	1,356	$	—	$	193,632
Agricultural	—		425		—		—		—		—		425
Commercial mortgages:
Construction	—		45,548		—		123		—		—		45,671
Commercial mortgages	—		598,395		10,639		12,526		1,327		—		622,887
Residential mortgages	190,776		—		—		3,155		—		—		193,931
Consumer loans:
Credit cards	1,368		—		—		—		—		—		1,368
Home equity lines and loans	97,978		—		—		1,359		—		—		99,337
Indirect consumer loans	162,533		—		—		673		—		—		163,206
Direct consumer loans	17,613		—		—		40		—		—		17,653
Total	$	470,268	$	824,182	$	20,482	$	20,495	$	2,683	$	—	$	1,338,110

	December 31, 2017
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Loans acquired with deteriorated credit quality		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		9,665		13,331		1,377		792		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	$	14,112	$	25,489	$	2,799	$	792	$	1,315,582

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 June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	190,950	$	1,368	$	97,978	$	162,533	$	17,613
Non-Performing	2,981		—		1,359		673		40
	$	193,931	$	1,368	$	99,337	$	163,206	$	17,653

	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
	$	194,937	$	1,516	$	100,878	$	153,532	$	18,969

XML

FAIR VALUE (Tables)

6 Months Ended

Jun. 30, 2018

Fair Value Disclosures [Abstract]

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

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

			Fair Value Measurement at June 30, 2018 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	$	15,450	$	—	$	15,450	$	—
Mortgage-backed securities, residential	198,640		—		198,640		—
Obligations of states and political subdivisions	47,029		—		47,029		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	3,788		—		3,788		—
Total available for sale securities	$	265,157	$	—	$	265,157	$	—
Equity investments	$	1,277	$	1,277	$	—	$	—
Derivative assets	2,304		—		2,304		—
Financial Liabilities:
Derivative liabilities	$	2,322	$	—	$	2,304	$	18

There were no transfers between Level 1 and Level 2 during the three and six month periods ended June 30, 2018.

			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		—
Total available for sale securities	$	293,091	$	—	$	293,091	$	—
Equity investments	$	1,192	$	1,192	$	—	$	—
Derivative assets	974		—		974		—
Financial Liabilities:
Derivative liabilities	$	1,049	$	—	$	974	$	75

Reconciliation of all assets measured at fair value

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at April 1	$	—	$	251	$	(50	)	$	(65	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		33			(6		)
Included in other comprehensive income	—		1		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

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 six month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at January 1	$	—	$	250	$	(75	)	$	(68	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		58			(3		)
Included in other comprehensive income	—		2		—			—
Transfers out of Level 3	—		—		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

Reconciliation of liabilities measured at fair value

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at April 1	$	—	$	251	$	(50	)	$	(65	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		33			(6		)
Included in other comprehensive income	—		1		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

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 six month periods ended June 30, 2018 and June 30, 2017 (in thousands):

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
	June 30, 2018		June 30, 2017		June 30, 2018			June 30, 2017
Balance of recurring Level 3 assets at January 1	$	—	$	250	$	(75	)	$	(68	)
Derivative instruments entered into	—		—		(1		)	—
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		58			(3		)
Included in other comprehensive income	—		2		—			—
Transfers out of Level 3	—		—		—			—
Balance of recurring Level 3 assets at June 30	$	—	$	252	$	(18	)	$	(71	)

Nonrecurring fair value measurement, valuation techniques

The following table presents information related to Level 3 recurring fair value measurements at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Derivative liabilities	$	18	Historical trend	Credit default rate	6.76% - 6.76% [6.76%]

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%]

The following tables presents information related to Level 3 non-recurring fair value measurement at June 30, 2018 and December 31, 2017 (in thousands):

Description	Fair Value at June 30, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at June 30, 2018
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	12	Sales comparison	Discount to appraised value	0.00% - 0.00% [0.00%]
	$	12
OREO:
Commercial mortgages:
Commercial mortgages	$	534	Sales comparison	Discount to appraised value	10.00% - 22.95% [19.98%]
Residential mortgages	204		Sales comparison	Discount to appraised value	17.28% - 39.78% [20.44%]
Consumer loans:
Home equity lines and loans	148		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	886

Description	Fair Value at December 31, 2017		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 mortgages:
Commercial mortgages	$	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

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

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

			Fair Value Measurement at June 30, 2018 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	$	12	$	—	$	—	$	12	$	—
Total impaired loans	$	12	$	—	$	—	$	12	$	—
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	534	$	—	$	—	$	534	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	148		—		—		148		—
Total other real estate owned, net	$	886	$	—	$	—	$	886	$	—

			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	)

Carrying value and estimated fair value of financial instruments

The carrying amounts and estimated fair values of other financial instruments, at June 30, 2018 and December 31, 2017, are as follows (in thousands):

	June 30, 2018
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	$	30,837	$	30,837	$	—	$	—	$	30,837
Interest-bearing deposits in other financial institutions	3,978		3,978		—		—		3,978
Equity investments	1,277		1,277		—		—		1,277
Securities available for sale	265,157		—		265,157		—		265,157
Securities held to maturity	3,806		—		2,309		1,481		3,790
FHLBNY and FRBNY stock	5,816		—		—		—		N/A
Loans, net and loans held for sale	1,315,483		—		—		1,296,697		1,296,697
Accrued interest receivable	4,404		1		737		3,666		4,404
Derivative assets	2,304		—		2,304		—		2,304
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,332,815	$	1,332,815	$	—	$	—	$	1,332,815
Time deposits	146,094		—		146,315		—		146,315
FHLBNY overnight advances	58,950		—		58,949		—		58,949
Accrued interest payable	115		21		94		—		115
Derivative liabilities	2,322		—		2,304		18		2,322

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

	December 31, 2017
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,966	$	27,966	$	—	$	—	$	27,966
Interest-bearing deposits in other financial institutions	2,763		2,763		—		—		2,763
Equity investments	1,192		1,192		—		—		1,192
Securities available for sale	293,091		—		293,091		—		293,091
Securities held to maturity	3,781		—		1,830		1,946		3,776
FHLBNY and FRBNY stock	5,784		—		—		—		N/A
Loans, net	1,291,205		—		—		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.

XML

GOODWILL AND INTANGIBLE ASSETS (Tables)

6 Months Ended

Jun. 30, 2018

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The changes in goodwill included in the core banking segment during the six month periods ended June 30, 2018 and 2017 were as follows (in thousands):

	2018		2017
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance June 30,	$	21,824	$	21,824

Schedule of acquired finite-lived intangible assets by major class

Acquired intangible assets were as follows at June 30, 2018 and December 31, 2017 (in thousands):

	At June 30, 2018				At December 31, 2017
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,395	$	5,975	$	5,196
Other customer relationship intangibles	5,633		4,504		5,633		4,327
Total	$	11,608	$	9,899	$	11,608	$	9,523

Schedule of expected amortization expense

The remaining estimated aggregate amortization expense at June 30, 2018 is listed below (in thousands):

Year	Estimated Expense
2018	$	358
2019	609
2020	484
2021	258
2022	—
Total	$	1,709

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Tables)

6 Months Ended

Jun. 30, 2018

Disclosure of Repurchase Agreements [Abstract]

Summary of securities sold under agreements to repurchase

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

	December 31, 2017
	Overnight and Continuous		Up to 1 Year			1 - 3 Years		3+ Years		Total
Mortgage-backed securities, residential	$	—	$	11,798		$	—	$	—	$	11,798
Excess collateral held	—		(1,798		)	—		—		(1,798		)
Gross amount of recognized liabilities for repurchase agreements	$	—	$	10,000		$	—	$	—	$	10,000

XML

COMMITMENTS AND CONTINGENCIES (Tables)

6 Months Ended

Jun. 30, 2018

Commitments and Contingencies Disclosure [Abstract]

Contractual amounts of financial instruments with off-balance sheet risk

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at June 30, 2018 and December 31, 2017 (in thousands):

	June 30, 2018				December 31, 2017
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	17,062	$	32,329	$	16,019	$	28,591
Unused lines of credit	1,473		199,478		1,604		200,353
Standby letters of credit	—		14,416		—		15,022

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

6 Months Ended

Jun. 30, 2018

Equity [Abstract]

Components of accumulated other comprehensive income (loss)

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2018	$	(6,924	)	$	(6,912	)	$	(13,836	)
Other comprehensive income before reclassification	(299		)	—			(299		)
Amounts reclassified from accumulated other comprehensive income	—			14			14
Net current period other comprehensive income (loss)	(299		)	14			(285		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at April 1, 2017	$	(2,379	)	$	(6,377	)	$	(8,756	)
Other comprehensive loss before reclassification	1,772			—			1,772
Amounts reclassified from accumulated other comprehensive income	(8		)	20			12
Net current period other comprehensive income	1,764			20			1,784
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2018	$	(3,415	)	$	(6,925	)	$	(10,340	)
Cumulative effect of account change	(202		)	—			(202		)
Balance at January 1, 2018, as adjusted	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income before reclassification	(3,606		)	—			(3,606		)
Amounts reclassified from accumulated other comprehensive income	—			27			27
Net current period other comprehensive income (loss)	(3,606		)	27			(3,579		)
Balance at June 30, 2018	$	(7,223	)	$	(6,898	)	$	(14,121	)

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2017	$	(4,356	)	$	(6,398	)	$	(10,754	)
Other comprehensive income before reclassification	3,749			—			3,749
Amounts reclassified from accumulated other comprehensive income	(8		)	41			33
Net current period other comprehensive income	3,741			41			3,782
Balance at June 30, 2017	$	(615	)	$	(6,357	)	$	(6,972	)

Reclassification out of accumulated other comprehensive income

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

Details about Accumulated Other Comprehensive Income Components	Three Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	73			88			Other components of net periodic pension and postretirement benefits
Tax effect	(4		)	(13		)	Income tax expense
Net of tax	14			20
Total reclassification for the period, net of tax	$	14		$	12

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

Details about Accumulated Other Comprehensive Income Components	Six Months Ended   June 30,						Affected Line Item in the Statement Where Net Income is Presented
	2018			2017
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	—		$	(12	)	Net gains (losses) on securities transactions
Tax effect	—			4			Income tax expense
Net of tax	—			(8		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(110		)	(110		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	146			176			Other components of net periodic pension and postretirement benefits
Tax effect	(9		)	(25		)	Income tax expense
Net of tax	27			41
Total reclassification for the period, net of tax	$	27		$	33

(a) These accumulated other comprehensive income components are included in the computation of net periodic pension and other benefit plan costs (see Note 11 for additional information).

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

6 Months Ended

Jun. 30, 2018

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following table presents the Corporation's non-interest income by revenue stream and reportable segment for the three and six months ended June 30, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	939		$	—	$	—		$	939
Other	205			—		—			205
Interchange revenue from debit card transactions	996			—		—			996
WMG fee income	—			2,373		—			2,373
CFS fee and commission income	—			—		135			135
Net gains (losses) on sales of OREO	(48		)	—		—			(48		)
Net gains on sales of loans(a)	59			—		—			59
Loan servicing fees(a)	22			—		—			22
Other(a)	649			—		(5		)	644
Total non-interest income (loss)	$	2,822		$	2,373	$	130		$	5,325

	Three Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	971		$	—	$	—		$	971
Other	254			—		—			254
Interchange revenue from debit card transactions	964			—		—			964
WMG fee income	—			2,269		—			2,269
CFS fee and commission income	—			—		174			174
Net gains (losses) on sales of OREO	(9		)	—		—			(9		)
Net gains on sales of loans(a)	53			—		—			53
Loan servicing fees(a)	21			—		—			21
Net gains (losses) on sales of securities(a)	12			—		—			12
Other(a)	368			—		(55		)	313
Total non-interest income	$	2,634		$	2,269	$	119		$	5,022

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

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

	Six Months Ended June 30, 2018
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,904		$	—	$	—		$	1,904
Other	404			—		—			404
Interchange revenue from debit card transactions	2,031			—		—			2,031
WMG fee income	—			4,689		—			4,689
CFS fee and commission income	—			—		245			245
Net gains (losses) on sales of OREO	(4		)	—		—			(4		)
Net gains on sales of loans(a)	105			—		—			105
Loan servicing fees(a)	45			—		—			45
Other(a)	1,520			—		(139		)	1,381
Total non-interest income (loss)	$	6,005		$	4,689	$	106		$	10,800

	Six Months Ended June 30, 2017 (b)
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(c)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	1,950	$	—	$	—		$	1,950
Other	459		—		—			459
Interchange revenue from debit card transactions	1,884		—		—			1,884
WMG fee income	—		4,378		—			4,378
CFS fee and commission income	—		—		312			312
Net gains on sales of OREO	8		—		—			8
Net gains on sales of loans(a)	122		—		—			122
Loan servicing fees(a)	41		—		—			41
Net gains (losses) on sales of securities(a)	12		—		—			12
Other(a)	763		—		(60		)	703
Total non-interest income	$	5,239	$	4,378	$	252		$	9,869

(a) Not within scope of ASC 606.

(b) The Corporation elected the modified retrospective approach of adoption; therefore, prior period balances are presented under legacy GAAP and may not be comparable to current year presentation.

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

XML

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

6 Months Ended

Jun. 30, 2018

Retirement Benefits [Abstract]

Components of net periodic benefit costs

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

	Three Months Ended   June 30,						Six Months Ended   June 30,
	2018			2017			2018			2017
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	384			403			769			806
Expected return on plan assets	(826		)	(785		)	(1,652		)	(1,570		)
Amortization of unrecognized transition obligation	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	44			58			87			116
Net periodic pension benefit	$	(398	)	$	(324	)	$	(796	)	$	(648	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	12			12			24			24
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	—			—			—			—
Amortization of unrecognized net loss	2			1			4			2
Net periodic supplemental pension cost	$	14		$	13		$	28		$	26
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—		$	—		$	—
Interest cost on projected benefit obligation	4			4			7			8
Expected return on plan assets	—			—			—			—
Amortization of unrecognized prior service cost	(55		)	(55		)	(110		)	(110		)
Amortization of unrecognized net loss	27			29			55			58
Net periodic postretirement, medical and life benefit	$	(24	)	$	(22	)	$	(48	)	$	(44	)

XML

SEGMENT REPORTING (Tables)

6 Months Ended

Jun. 30, 2018

Segment Reporting [Abstract]

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

	Three months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	15,861	$	—	$	8		$	15,869
Interest expense	852		—		—			852
Net interest income	15,009		—		8			15,017
Provision for loan losses	2,362		—		—			2,362
Net interest income after provision for loan losses	12,647		—		8			12,655
Other non-interest income	2,822		2,373		130			5,325
Legal accruals and settlements	989		—		—			989
Other non-interest expenses	12,014		1,629		335			13,978
Income (loss) before income tax expense (benefit)	2,466		744		(197		)	3,013
Income tax expense (benefit)	342		190		(46		)	486
Segment net income (loss)	$	2,124	$	554	$	(151	)	$	2,527

	Three months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	14,680	$	—	$	4		$	14,684
Interest expense	734		—		—			734
Net interest income	13,946		—		4			13,950
Provision for loan losses	421		—		—			421
Net interest income after provision for loan losses	13,525		—		4			13,529
Other non-interest income	2,634		2,269		119			5,022
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	11,700		1,467		315			13,482
Income (loss) before income tax expense (benefit)	3,609		802		(192		)	4,219
Income tax expense (benefit)	1,018		304		(59		)	1,263
Segment net income (loss)	$	2,591	$	498	$	(133	)	$	2,956

	Six months ended June 30, 2018
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	31,523	$	—	$	15		$	31,538
Interest expense	1,621		—		—			1,621
Net interest income	29,902		—		15			29,917
Provision for loan losses	3,071		—		—			3,071
Net interest income after provision for loan losses	26,831		—		15			26,846
Other non-interest income	6,005		4,689		106			10,800
Other non-interest expenses	24,429		3,107		608			28,144
Income (loss) before income tax expense (benefit)	7,418		1,582		(487		)	8,513
Income tax expense (benefit)	1,236		403		(92		)	1,547
Segment net income (loss)	$	6,182	$	1,179	$	(395	)	$	6,966
Segment assets	$	1,694,891	$	3,844	$	11,431		$	1,710,166

	Six months ended June 30, 2017
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	28,991	$	—	$	7		$	28,998
Interest expense	1,554		—		—			1,554
Net interest income	27,437		—		7			27,444
Provision for loan losses	1,461		—		—			1,461
Net interest income after provision for loan losses	25,976		—		7			25,983
Other non-interest income	5,239		4,378		252			9,869
Legal accruals and settlements	850		—		—			850
Other non-interest expenses	23,144		2,772		611			26,527
Income (loss) before income tax expense (benefit)	7,221		1,606		(352		)	8,475
Income tax expense (benefit)	2,066		609		(135		)	2,540
Segment net income (loss)	$	5,155	$	997	$	(217	)	$	5,935
Segment assets	$	1,706,266	$	4,863	$	7,443		$	1,718,572

XML

STOCK COMPENSATION (Tables)

6 Months Ended

Jun. 30, 2018

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

Summary of restricted stock activity

A summary of restricted stock activity for the three month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at April 1, 2018	23,933		$	38.12
Granted	—		—
Vested	(849	)	44.84
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

A summary of restricted stock activity for the six month period ended June 30, 2018 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2018	25,522		$	38.01
Granted	—		—
Vested	(2,438	)	39.28
Forfeited or cancelled	—		—
Nonvested at June 30, 2018	23,084		$	37.88

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Forecast - Use Rights $ in Millions	Dec. 31, 2018 USD ($) lease
Property, Plant and Equipment [Line Items]
Property, plant, and equipment, gross | $	$ 15.0
Number of leased facilities | lease	16

XML

EARNING PER COMMON SHARE (Details) - shares	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Earnings Per Share [Abstract]
Weighted average number of shares outstanding (shares)	4,828,000	4,797,000	4,825,000	4,793,000
Dilutive common stock equivalents (shares)	0	0	0	0

XML

SECURITIES - Securities Available for Sale (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	$ 274,852	$ 297,947
Unrealized Gains	118	514
Unrealized Losses	9,813	5,370
Securities available for sale	265,157	293,091
Amortized Cost [Abstract]
Within one year	16,875
After one, but within five years	19,459
After five, but within ten years	26,495
After ten years	483
Total	63,312
Amortized Cost	274,852	297,947
Fair Value [Abstract]
Within one year	16,873
After one, but within five years	19,347
After five, but within ten years	26,053
After ten years	456
Total	62,729
Estimated Fair Value	265,157	293,091
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	15,489	15,492
Unrealized Gains	11	20
Unrealized Losses	50	21
Securities available for sale	15,450	15,491
Amortized Cost [Abstract]
Amortized Cost	15,489	15,492
Fair Value [Abstract]
Estimated Fair Value	15,450	15,491
Mortgage-backed securities, residential
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	207,708	224,939
Unrealized Gains	69	136
Unrealized Losses	9,137	5,166
Securities available for sale	198,640	219,909
Amortized Cost [Abstract]
Without single maturity date	207,708
Amortized Cost	207,708	224,939
Fair Value [Abstract]
Without single maturity date	198,640
Estimated Fair Value	198,640	219,909
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	47,574	52,928
Unrealized Gains	37	355
Unrealized Losses	582	151
Securities available for sale	47,029	53,132
Amortized Cost [Abstract]
Amortized Cost	47,574	52,928
Fair Value [Abstract]
Estimated Fair Value	47,029	53,132
Corporate bonds and notes
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	249	249
Unrealized Gains	1	2
Unrealized Losses	0	0
Securities available for sale	250	251
Amortized Cost [Abstract]
Amortized Cost	249	249
Fair Value [Abstract]
Estimated Fair Value	250	251
SBA loan pools
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	3,832	4,339
Unrealized Gains	0	1
Unrealized Losses	44	32
Securities available for sale	3,788	4,308
Amortized Cost [Abstract]
Without single maturity date	3,832
Amortized Cost	3,832	4,339
Fair Value [Abstract]
Without single maturity date	3,788
Estimated Fair Value	$ 3,788	$ 4,308

XML

SECURITIES - Securities Held to Maturity (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	$ 3,806	$ 3,781
Unrealized Gains	0	0
Unrealized Losses	16	5
Securities held to maturity	3,790	3,776
Amortized Cost [Abstract]
Within one year	884
After one, but within five years	2,689
After five, but within ten years	233
After ten years	0
Total	3,806
Amortized Cost	3,806	3,781
Fair Value [Abstract]
Within one year	882
After one, but within five years	2,675
After five, but within ten years	233
After ten years	0
Total	3,790
Securities held to maturity	3,790	3,776
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	1,481	1,946
Unrealized Gains	0	0
Unrealized Losses	0	0
Securities held to maturity	1,481	1,946
Amortized Cost [Abstract]
Amortized Cost	1,481	1,946
Fair Value [Abstract]
Securities held to maturity	1,481	1,946
Time deposits with other financial institutions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	2,325	1,835
Unrealized Gains	0	0
Unrealized Losses	16	5
Securities held to maturity	2,309	1,830
Amortized Cost [Abstract]
Amortized Cost	2,325	1,835
Fair Value [Abstract]
Securities held to maturity	2,309	$ 1,830
Mortgage-backed securities, residential
Amortized Cost [Abstract]
Without single maturity date	0
SBA loan pools
Amortized Cost [Abstract]
Without single maturity date	$ 0

XML

SECURITIES - Sales and Calls (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Investments, Debt and Equity Securities [Abstract]
Proceeds	$ 0	$ 540	$ 0	$ 540
Gross gains	0	12	0	12
Tax expense	$ 0	$ 4	$ 0	$ 4

XML

SECURITIES - Investment Securities Available for Sale in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	$ 117,756	$ 123,007
12 months or longer	135,840	131,436
Total	253,596	254,443
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	2,732	1,199
12 months or longer	7,081	4,171
Total	9,813	5,370
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	14,948	14,982
12 months or longer	0	0
Total	14,948	14,982
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	50	21
12 months or longer	0	0
Total	50	21
Mortgage-backed securities, residential
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	65,746	83,562
12 months or longer	130,586	131,165
Total	196,332	214,727
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	2,193	1,013
12 months or longer	6,944	4,153
Total	9,137	5,166
Obligations of states and political subdivisions
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	36,819	20,526
12 months or longer	1,709	271
Total	38,528	20,797
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	488	133
12 months or longer	94	18
Total	582	151
SBA loan pools
Available-for-sale securities in a continuous unrealized loss position, fair value [Abstract]
Less than 12 months	243	3,937
12 months or longer	3,545	0
Total	3,788	3,937
Available-for-sale securities in a continuous unrealized loss position, unrealized losses [Abstract]
Less than 12 months	1	32
12 months or longer	43	0
Total	$ 44	$ 32

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	$ 1,334,444	$ 1,311,824
Interest receivable on loans	3,666	3,758
Total recorded investment in loans	1,338,110	1,315,582
Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	194,057	199,576
Commercial mortgages:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	668,558	646,174
Commercial mortgages: | Construction
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	45,543	45,558
Total recorded investment in loans	45,671	45,688
Commercial mortgages: | Commercial mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	621,150	598,772
Total recorded investment in loans	622,887	600,486
Residential mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	193,423	194,440
Total recorded investment in loans	193,931	194,937
Consumer loans:
Composition of loan portfolio [Abstract]
Total recorded investment in loans	281,564	274,895
Consumer loans: | Credit cards
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	1,367	1,517
Total recorded investment in loans	1,368	1,516
Consumer loans: | Home equity lines and loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	99,052	100,591
Total recorded investment in loans	99,337	100,878
Consumer loans: | Indirect consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	162,813	153,060
Total recorded investment in loans	163,206	153,532
Consumer loans: | Direct consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	17,580	18,879
Total recorded investment in loans	17,653	18,969
Commercial and industrial | Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	193,092	198,463
Total recorded investment in loans	193,632	199,030
Agricultural | Commercial and agricultural:
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	424	544
Total recorded investment in loans	$ 425	$ 546

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowances (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017	Jun. 30, 2018	Dec. 31, 2017
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	$ 21,390	$ 14,960	$ 21,161	$ 14,253	$ 14,253
Charge-offs	(4,303)	(447)	(4,875)	(892)
Recoveries	196	170	288	282
Net recoveries (charge-offs)	(4,107)	(277)	(4,587)	(610)
Provision	2,362	421	3,071	1,461
Ending balance	19,645	15,104	19,645	15,104	21,161
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment						$ 1,738	$ 5,937
Collectively evaluated for impairment						17,907	15,195
Total ending allowance balance	21,390	14,960	21,161	14,253	14,253	19,645	21,161
Loans [Abstract]
Loans individually evaluated for impairment						9,342	13,926
Loans collectively evaluated for impairment						1,328,768	1,300,864
Total recorded investment in loans						1,338,110	1,315,582
Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			29
Ending balance					29
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance			29		29		29
Loans [Abstract]
Total recorded investment in loans						0	792
Commercial and agricultural:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	7,003	1,650	6,976	1,589	1,589
Charge-offs	(3,624)	(2)	(3,644)	(7)
Recoveries	11	36	21	61
Net recoveries (charge-offs)	(3,613)	34	(3,623)	54
Provision	1,579	199	1,616	240
Ending balance	4,969	1,883	4,969	1,883	6,976
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment						1,285	5,135
Collectively evaluated for impairment						3,684	1,841
Total ending allowance balance	7,003	1,650	6,976	1,589	1,589	4,969	6,976
Loans [Abstract]
Loans individually evaluated for impairment						2,017	6,133
Loans collectively evaluated for impairment						192,040	193,443
Total recorded investment in loans						194,057	199,576
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			0
Ending balance					0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance			0		0		0
Loans [Abstract]
Total recorded investment in loans							0
Commercial Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	8,640	7,749	8,514	7,270	7,270
Charge-offs	(145)	0	(145)	0
Recoveries	1	2	2	3
Net recoveries (charge-offs)	(144)	2	(143)	3
Provision	244	27	369	505
Ending balance	8,740	7,778	8,740	7,778	8,514
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment						453	802
Collectively evaluated for impairment						8,287	7,683
Total ending allowance balance	8,640	7,749	8,514	7,270	7,270	8,740	8,514
Loans [Abstract]
Loans individually evaluated for impairment						6,847	7,302
Loans collectively evaluated for impairment						661,711	638,080
Total recorded investment in loans						668,558	646,174
Commercial Mortgages | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			29
Ending balance					29
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance			29		29		29
Loans [Abstract]
Total recorded investment in loans							792
Residential mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	1,407	1,512	1,316	1,523	1,523
Charge-offs	(71)	(48)	(165)	(60)
Recoveries	0	13	5	30
Net recoveries (charge-offs)	(71)	(35)	(160)	(30)
Provision	109	40	289	24
Ending balance	1,445	1,517	1,445	1,517	1,316
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment						0	0
Collectively evaluated for impairment						1,445	1,316
Total ending allowance balance	1,407	1,512	1,316	1,523	1,523	1,445	1,316
Loans [Abstract]
Loans individually evaluated for impairment						417	427
Loans collectively evaluated for impairment						193,514	194,510
Total recorded investment in loans						193,931	194,937
Residential mortgages | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			0
Ending balance					0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance			0		0		0
Loans [Abstract]
Total recorded investment in loans						0	0
Consumer loans:
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	4,340	4,049	4,355	3,871	3,871
Charge-offs	(463)	(397)	(921)	(825)
Recoveries	184	119	260	188
Net recoveries (charge-offs)	(279)	(278)	(661)	(637)
Provision	430	155	797	692
Ending balance	4,491	3,926	4,491	3,926	4,355
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment						0	0
Collectively evaluated for impairment						4,491	4,355
Total ending allowance balance	$ 4,340	$ 4,049	4,355	$ 3,871	3,871	4,491	4,355
Loans [Abstract]
Loans individually evaluated for impairment						61	64
Loans collectively evaluated for impairment						281,503	274,831
Total recorded investment in loans						$ 281,564	274,895
Consumer loans: | Loans acquired with deteriorated credit quality
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance			0
Ending balance					0
Ending allowance balance attributable to loans [Abstract]
Total ending allowance balance			$ 0		$ 0		0
Loans [Abstract]
Total recorded investment in loans							$ 0

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Unpaid Principal Balance [Abstract]
Unpaid principal balance, total	$ 9,387		$ 9,387		$ 14,094
Recorded Investment [Abstract]
Recorded investment, total	9,342		9,342		13,926
Allowance for loan losses allocated	1,738		1,738		5,937
Average Recorded Investment [Abstract]
Average recorded investment, total	11,490	$ 13,273	12,303	$ 12,825
Interest Income, Accrual Method [Abstract]
Interest income, accrual method, total	19	51	40	126
Commercial Mortgages | Construction
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	336		336		364
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	338		338		365
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	345	1,555	352	1,130
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	3	3	6	6
Commercial Mortgages | Commercial mortgages, other
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	4,366		4,366		4,135
With related allowance, Unpaid Principal Balance	2,173		2,173		2,989
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	4,370		4,370		4,138
With related allowance, Recorded Investment	2,139		2,139		2,799
Allowance for loan losses allocated	453		453		802
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	4,290	5,879	4,240	6,538
With related allowance, Average Recorded Investment	2,467	4,461	2,578	3,723
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	5	32	10	90
With related allowance, Interest Income, Accrual Method	1	4	3	7
Residential mortgages
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	439		439		450
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	417		417		427
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	421	417	423	410
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	2	2	4	4
Consumer loans: | Home equity lines and loans
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	60		60		64
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	61		61		64
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	61	71	62	79
With related allowance, Average Recorded Investment	0	180	0	240
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	1	1	2	1
With related allowance, Interest Income, Accrual Method	0	0	0	0
Commercial and industrial | Commercial and agricultural:
Unpaid Principal Balance [Abstract]
With no related allowance, Unpaid Principal Balance	643		643		861
With related allowance, Unpaid Principal Balance	1,370		1,370		5,231
Recorded Investment [Abstract]
With no related allowance, Recorded Investment	647		647		867
With related allowance, Recorded Investment	1,370		1,370		5,266
Allowance for loan losses allocated	1,285		1,285		$ 5,135
Average Recorded Investment [Abstract]
With no related allowance, Average Recorded Investment	710	626	762	649
With related allowance, Average Recorded Investment	3,196	84	3,886	56
Interest Income, Accrual Method [Abstract]
With no related allowance, Interest Income, Accrual Method	7	8	15	17
With related allowance, Interest Income, Accrual Method	$ 0	$ 1	$ 0	$ 1

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Receivables Past Due (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	$ 12,790	$ 17,324
Loans Past Due 90 Days or More and Still Accruing	17	29
Aging of the recorded investment in loans past due [Abstract]
Past Due	10,611	14,076
Loans Not Past Due	1,327,499	1,300,714
Total recorded investment in loans	1,338,110	1,315,582
30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	3,906	7,639
60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,034	2,605
90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	5,671	3,832
Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	792
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	792
Commercial and agricultural:
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	194,057	199,576
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans		0
Commercial Mortgages
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	668,558	646,174
Commercial Mortgages | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans		792
Commercial Mortgages | Construction
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	123	135
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Loans Not Past Due	45,671	45,688
Total recorded investment in loans	45,671	45,688
Commercial Mortgages | Construction | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Commercial Mortgages | Commercial mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	6,101	6,520
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	4,424	3,262
Loans Not Past Due	618,463	596,432
Total recorded investment in loans	622,887	600,486
Commercial Mortgages | Commercial mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	992	2,399
Commercial Mortgages | Commercial mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	93	115
Commercial Mortgages | Commercial mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	3,339	748
Commercial Mortgages | Commercial mortgages | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	792
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	792
Residential mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	2,981	3,160
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,870	3,812
Loans Not Past Due	191,061	191,125
Total recorded investment in loans	193,931	194,937
Residential mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,117	1,399
Residential mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	492	939
Residential mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,261	1,474
Residential mortgages | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans:
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	281,564	274,895
Consumer loans: | Loans acquired with deteriorated credit quality
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans		0
Consumer loans: | Credit cards
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans Past Due 90 Days or More and Still Accruing	14	24
Aging of the recorded investment in loans past due [Abstract]
Past Due	36	50
Loans Not Past Due	1,332	1,466
Total recorded investment in loans	1,368	1,516
Consumer loans: | Credit cards | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	11	17
Consumer loans: | Credit cards | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	11	9
Consumer loans: | Credit cards | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	14	24
Consumer loans: | Credit cards | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Home equity lines and loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	1,359	1,310
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,342	1,279
Loans Not Past Due	97,995	99,599
Total recorded investment in loans	99,337	100,878
Consumer loans: | Home equity lines and loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	359	265
Consumer loans: | Home equity lines and loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	196	31
Consumer loans: | Home equity lines and loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	787	983
Consumer loans: | Home equity lines and loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Indirect consumer loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	673	935
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,428	2,887
Loans Not Past Due	161,778	150,645
Total recorded investment in loans	163,206	153,532
Consumer loans: | Indirect consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	979	1,822
Consumer loans: | Indirect consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	218	484
Consumer loans: | Indirect consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	231	581
Consumer loans: | Indirect consumer loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Consumer loans: | Direct consumer loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	40	14
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	102	78
Loans Not Past Due	17,551	18,891
Total recorded investment in loans	17,653	18,969
Consumer loans: | Direct consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	56	48
Consumer loans: | Direct consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	24	28
Consumer loans: | Direct consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	22	2
Consumer loans: | Direct consumer loans | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Commercial and industrial | Commercial and agricultural:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	1,513	5,250
Loans Past Due 90 Days or More and Still Accruing	3	5
Aging of the recorded investment in loans past due [Abstract]
Past Due	409	2,708
Loans Not Past Due	193,223	196,322
Total recorded investment in loans	193,632	199,030
Commercial and industrial | Commercial and agricultural: | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	392	1,689
Commercial and industrial | Commercial and agricultural: | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	999
Commercial and industrial | Commercial and agricultural: | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	17	20
Commercial and industrial | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	0	0
Agricultural | Commercial and agricultural:
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Loans Not Past Due	425	546
Total recorded investment in loans	425	546
Agricultural | Commercial and agricultural: | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	$ 0	$ 0

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($) contract loan	Jun. 30, 2017 USD ($) contract loan	Jun. 30, 2018 USD ($) contract loan	Jun. 30, 2017 USD ($) contract loan	Dec. 31, 2017 USD ($)
Troubled Debt Restructurings [Abstract]
Recorded investment in troubled debt restructurings	$ 7,100,000		$ 7,100,000		$ 7,700,000
Troubled debt restructuring reserve	500,000		500,000		700,000
Troubled debt restructurings accruing interest under modified terms	1,400,000		1,400,000		1,700,000
Troubled debt restructurings on non-accrual status	5,700,000		5,700,000		6,000,000
Additional amounts committed to customers with loans classified as troubled debt restructurings	$ 0		$ 0		$ 0
Number of loans | contract	0	0	0	0
Allowance for loan losses		$ 100,000		$ 100,000
TDR charge-offs		$ 0		$ 0
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan		4	1	5
Pre-modification outstanding recorded investment		$ 276,000	$ 100,000	$ 442,000
Post-modification outstanding recorded investment		$ 276,000	$ 100,000	$ 442,000
Residential mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan		1		1
Pre-modification outstanding recorded investment		$ 105,000		$ 105,000
Post-modification outstanding recorded investment		$ 105,000		$ 105,000
Commercial and industrial
Troubled Debt Restructurings [Abstract]
Number of loans | loan	1
Commercial and industrial | Commercial and agricultural:
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan		3	1	3
Pre-modification outstanding recorded investment		$ 171,000	$ 100,000	$ 171,000
Post-modification outstanding recorded investment		$ 171,000	$ 100,000	$ 171,000
Commercial mortgages
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
Pre-modification outstanding recorded investment				$ 166,000
Post-modification outstanding recorded investment				$ 166,000

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit Quality Indicator (Details) - USD ($) $ in Thousands	Jun. 30, 2018	Dec. 31, 2017
Finance receivable by credit quality indicator [Abstract]
Loans	$ 1,338,110	$ 1,315,582
Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	792
Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	470,268	464,414
Pass
Finance receivable by credit quality indicator [Abstract]
Loans	824,182	807,976
Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	20,482	14,112
Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	20,495	25,489
Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	2,683	2,799
Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	194,057	199,576
Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans		0
Commercial Mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	668,558	646,174
Commercial Mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans		792
Commercial Mortgages | Construction
Finance receivable by credit quality indicator [Abstract]
Loans	45,671	45,688
Commercial Mortgages | Construction | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Construction | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Construction | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	45,548	45,553
Commercial Mortgages | Construction | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Construction | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	123	135
Commercial Mortgages | Construction | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Commercial mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	622,887	600,486
Commercial Mortgages | Commercial mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	792
Commercial Mortgages | Commercial mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Commercial mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	598,395	575,321
Commercial Mortgages | Commercial mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	10,639	9,665
Commercial Mortgages | Commercial mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	12,526	13,331
Commercial Mortgages | Commercial mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	1,327	1,377
Residential mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	193,931	194,937
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	193,931	194,937
Residential mortgages | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Residential mortgages | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	190,950	191,777
Residential mortgages | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	2,981	3,160
Residential mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	190,776	191,777
Residential mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Residential mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Residential mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	3,155	3,160
Residential mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans:
Finance receivable by credit quality indicator [Abstract]
Loans	281,564	274,895
Consumer loans: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer loans: | Credit cards
Finance receivable by credit quality indicator [Abstract]
Loans	1,368	1,516
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,368	1,516
Consumer loans: | Credit cards | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Credit cards | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,368	1,516
Consumer loans: | Credit cards | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	0	0
Consumer loans: | Credit cards | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	1,368	1,516
Consumer loans: | Credit cards | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Credit cards | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Credit cards | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Credit cards | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Home equity lines and loans
Finance receivable by credit quality indicator [Abstract]
Loans	99,337	100,878
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	99,337	100,878
Consumer loans: | Home equity lines and loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Home equity lines and loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	97,978	99,568
Consumer loans: | Home equity lines and loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	1,359	1,310
Consumer loans: | Home equity lines and loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	97,978	99,568
Consumer loans: | Home equity lines and loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Home equity lines and loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Home equity lines and loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	1,359	1,310
Consumer loans: | Home equity lines and loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Indirect consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	163,206	153,532
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	163,206	153,532
Consumer loans: | Indirect consumer loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Indirect consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	162,533	152,598
Consumer loans: | Indirect consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	673	934
Consumer loans: | Indirect consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	162,533	152,598
Consumer loans: | Indirect consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Indirect consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Indirect consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	673	934
Consumer loans: | Indirect consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Direct consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	17,653	18,969
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	17,653	18,969
Consumer loans: | Direct consumer loans | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Direct consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	17,613	18,955
Consumer loans: | Direct consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	40	14
Consumer loans: | Direct consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	17,613	18,955
Consumer loans: | Direct consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Direct consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer loans: | Direct consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	40	14
Consumer loans: | Direct consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial and industrial | Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	193,632	199,030
Commercial and industrial | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial and industrial | Commercial and agricultural: | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial and industrial | Commercial and agricultural: | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	179,814	186,556
Commercial and industrial | Commercial and agricultural: | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	9,843	4,447
Commercial and industrial | Commercial and agricultural: | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	2,619	6,605
Commercial and industrial | Commercial and agricultural: | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	1,356	1,422
Agricultural | Commercial and agricultural:
Finance receivable by credit quality indicator [Abstract]
Loans	425	546
Agricultural | Commercial and agricultural: | Loans acquired with deteriorated credit quality
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural: | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural: | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	425	546
Agricultural | Commercial and agricultural: | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural: | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural: | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	$ 0	$ 0

XML

FAIR VALUE (Details) - USD ($)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Financial Assets:
Estimated Fair Value	$ 265,157,000		$ 265,157,000		$ 293,091,000
Impaired Loans, Fair Value Disclosure [Abstract]
Level 2 to level 1 transfer amount	0	$ 0	0	$ 0
Provision for loan and lease losses	(2,362,000)	(421,000)	(3,071,000)	(1,461,000)
Recurring
Financial Assets:
Obligations of U.S. Government and U.S. Government sponsored enterprises	15,450,000		15,450,000		15,491,000
Mortgage-backed securities, residential	198,640,000		198,640,000		219,909,000
Obligations of states and political subdivisions	47,029,000		47,029,000		53,132,000
Corporate bonds and notes	250,000		250,000		251,000
SBA loan pools	3,788,000		3,788,000		4,308,000
Estimated Fair Value	265,157,000		265,157,000		293,091,000
Available-for-sale Securities, Equity Securities	1,277,000		1,277,000		1,192,000
Derivative assets	2,304,000		2,304,000		974,000
Financial Liabilities:
Derivative liabilities	2,322,000		2,322,000		1,049,000
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets:
Obligations of U.S. Government and U.S. Government sponsored enterprises	0		0		0
Mortgage-backed securities, residential	0		0		0
Obligations of states and political subdivisions	0		0		0
Corporate bonds and notes	0		0		0
SBA loan pools	0		0		0
Estimated Fair Value	0		0		0
Available-for-sale Securities, Equity Securities	1,277,000		1,277,000		1,192,000
Derivative assets	0		0		0
Financial Liabilities:
Derivative liabilities	0		0		0
Recurring | Significant Other Observable Inputs (Level 2)
Financial Assets:
Obligations of U.S. Government and U.S. Government sponsored enterprises	15,450,000		15,450,000		15,491,000
Mortgage-backed securities, residential	198,640,000		198,640,000		219,909,000
Obligations of states and political subdivisions	47,029,000		47,029,000		53,132,000
Corporate bonds and notes	250,000		250,000		251,000
SBA loan pools	3,788,000		3,788,000		4,308,000
Estimated Fair Value	265,157,000		265,157,000		293,091,000
Available-for-sale Securities, Equity Securities	0		0		0
Derivative assets	2,304,000		2,304,000		974,000
Financial Liabilities:
Derivative liabilities	2,304,000		2,304,000		974,000
Recurring | Significant Unobservable Inputs (Level 3)
Financial Assets:
Obligations of U.S. Government and U.S. Government sponsored enterprises	0		0		0
Mortgage-backed securities, residential	0		0		0
Obligations of states and political subdivisions	0		0		0
Corporate bonds and notes	0		0		0
SBA loan pools	0		0		0
Estimated Fair Value	0		0		0
Available-for-sale Securities, Equity Securities	0		0		0
Derivative assets	0		0		0
Financial Liabilities:
Derivative liabilities	18,000		18,000		75,000
Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	12,000		12,000		507,000
Provision for loan and lease losses			0		(175,000)
Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0		0
Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0		0
Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	12,000		12,000		507,000
Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	886,000		886,000		1,940,000
Provision for loan and lease losses			0		(43,000)
Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	886,000		886,000		1,940,000
Commercial mortgages, other | Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	534,000		534,000		1,483,000
Provision for loan and lease losses			0		(43,000)
Commercial mortgages, other | Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Commercial mortgages, other | Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Commercial mortgages, other | Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	534,000		534,000		1,483,000
Home equity lines and loans | Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net					75,000
Provision for loan and lease losses					0
Home equity lines and loans | Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net					0
Home equity lines and loans | Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net					0
Home equity lines and loans | Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net					75,000
Commercial and agricultural:
Impaired Loans, Fair Value Disclosure [Abstract]
Provision for loan and lease losses	(1,579,000)	(199,000)	(1,616,000)	(240,000)
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	12,000		12,000		96,000
Provision for loan and lease losses			0		(70,000)
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0		0
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0		0
Commercial and agricultural: | Commercial and industrial | Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	12,000		12,000		96,000
Commercial mortgages:
Impaired Loans, Fair Value Disclosure [Abstract]
Provision for loan and lease losses	(244,000)	(27,000)	(369,000)	(505,000)
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans					411,000
Provision for loan and lease losses					(105,000)
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans					0
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans					0
Commercial mortgages: | Commercial mortgages | Impaired Loans: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans					411,000
Residential mortgages
Impaired Loans, Fair Value Disclosure [Abstract]
Provision for loan and lease losses	(109,000)	(40,000)	(289,000)	(24,000)
Residential mortgages | Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	204,000		204,000		382,000
Provision for loan and lease losses			0		0
Residential mortgages | Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Residential mortgages | Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0		0
Residential mortgages | Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	204,000		204,000		$ 382,000
Consumer loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Provision for loan and lease losses	(430,000)	$ (155,000)	(797,000)	$ (692,000)
Consumer loans: | Home equity lines and loans | Other real estate owned: | Non-recurring
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	148,000		148,000
Provision for loan and lease losses			0
Consumer loans: | Home equity lines and loans | Other real estate owned: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Consumer loans: | Home equity lines and loans | Other real estate owned: | Non-recurring | Significant Other Observable Inputs (Level 2)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Consumer loans: | Home equity lines and loans | Other real estate owned: | Non-recurring | Significant Unobservable Inputs (Level 3)
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	$ 148,000		$ 148,000

XML

FAIR VALUE - Unobservable Inputs (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Corporate bonds and notes
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair Value, Measurement with Unobservable Inputs Reconciliation, Recurring Basis, Asset, Purchases	$ 0	$ 0	$ 0	$ 0
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at beginning of period	0	251	0	250
Included in earnings - other non-interest income	0	0	0	0
Included in other comprehensive income	0	1	0	2
Transfers out of Level 3			0	0
Balance of recurring Level 3 assets at end of period	0	252	0	252
Derivative Liabilities
Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at beginning of period	(50)	(65)	(75)	(68)
Derivative instruments entered into	(1)	0	(1)	0
Included in earnings - other non-interest income	33	(6)	58	(3)
Included in other comprehensive income	0	0	0	0
Balance of recurring Level 3 assets at end of period	$ (18)	$ (71)	(18)	(71)
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers out of Level 3			$ 0	$ 0

XML

FAIR VALUE - Quantitative Information (Details) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2018	Dec. 31, 2017
Impaired Loans: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 12	$ 507
Other real estate owned: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	886	1,940
Derivative Liabilities | Recurring | Historical trend
Information related to Level 3 non-recurring fair value measurement [Abstract]
Liabilities, fair value disclosure	$ 18	$ 75
Derivative Liabilities | Recurring | Historical trend | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	6.76%	5.67%
Derivative Liabilities | Recurring | Historical trend | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	6.76%	5.67%
Derivative Liabilities | Recurring | Historical trend | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	6.76%	5.67%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 12	$ 96
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	0.00%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	36.07%
Commercial and Industrial | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	33.02%
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	10.00%	10.00%
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	22.95%	22.95%
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	19.98%	19.75%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value		$ 411
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		10.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		89.98%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value		51.35%
Commercial mortgages, other | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 534	$ 1,483
Residential mortgages | Other real estate owned: | Non-recurring | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	17.28%	17.28%
Residential mortgages | Other real estate owned: | Non-recurring | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	39.78%	27.97%
Residential mortgages | Other real estate owned: | Non-recurring | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.44%	20.77%
Residential mortgages | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 204	$ 382
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Fair value	$ 148	$ 75
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%

XML

FAIR VALUE - Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Financial assets:
Cash and due from financial institutions	$ 30,837,000	$ 27,966,000
Interest-earning deposits in other financial institutions	3,978,000	2,763,000
Securities available for sale	265,157,000	293,091,000
Securities held to maturity	3,790,000	3,776,000
Loans, net and loans held for sale	1,314,799,000	1,290,663,000
Accrued interest receivable	3,666,000	3,758,000
Financial liabilities:
Securities sold under agreements to repurchase	0	10,000,000
FHLBNY overnight advances	58,950,000	57,700,000
FHLBNY term advances	0	2,000,000
Recurring
Financial assets:
Available-for-sale Securities, Equity Securities	1,277,000	1,192,000
Securities available for sale	265,157,000	293,091,000
Derivative assets	2,304,000	974,000
Financial liabilities:
Derivative liabilities	2,322,000	1,049,000
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and due from financial institutions	30,837,000	27,966,000
Interest-earning deposits in other financial institutions	3,978,000	2,763,000
Available-for-sale Securities, Equity Securities	1,277,000	1,192,000
Securities available for sale	0	0
Securities held to maturity	0	0
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	0	0
Loans held for sale		0
Accrued interest receivable	1,000	1,000
Derivative assets	0	0
Financial liabilities:
Demand, savings, and insured money market accounts	1,332,815,000	1,349,084,000
Time deposits	0	0
Securities sold under agreements to repurchase		0
FHLBNY overnight advances	0	0
FHLBNY term advances		0
Accrued interest payable	21,000	24,000
Derivative liabilities	0	0
Recurring | 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
Available-for-sale Securities, Equity Securities	0	0
Securities available for sale	265,157,000	293,091,000
Securities held to maturity	2,309,000	1,830,000
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	0	0
Loans held for sale		542,000
Accrued interest receivable	737,000	867,000
Derivative assets	2,304,000	974,000
Financial liabilities:
Demand, savings, and insured money market accounts	0	0
Time deposits	146,315,000	118,598,000
Securities sold under agreements to repurchase		10,058,000
FHLBNY overnight advances	58,949,000	57,700,000
FHLBNY term advances		2,001,000
Accrued interest payable	94,000	124,000
Derivative liabilities	2,304,000	974,000
Recurring | Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Available-for-sale Securities, Equity Securities	0	0
Securities available for sale	0	0
Securities held to maturity	1,481,000	1,946,000
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	1,296,697,000	1,289,584,000
Loans held for sale		0
Accrued interest receivable	3,666,000	3,774,000
Derivative assets	0	0
Financial liabilities:
Demand, savings, and insured money market accounts	0	0
Time deposits	0	0
Securities sold under agreements to repurchase		0
FHLBNY overnight advances	0	0
FHLBNY term advances		0
Accrued interest payable	0	0
Derivative liabilities	18,000	75,000
Recurring | Carrying Amount
Financial assets:
Cash and due from financial institutions	30,837,000	27,966,000
Interest-earning deposits in other financial institutions	3,978,000	2,763,000
Available-for-sale Securities, Equity Securities	1,277,000	1,192,000
Securities available for sale	265,157,000	293,091,000
Securities held to maturity	3,806,000	3,781,000
FHLBNY and FRBNY stock	5,816,000	5,784,000
Loans, net and loans held for sale	1,315,483,000	1,291,205,000
Loans held for sale		542,000
Accrued interest receivable	4,404,000	4,642,000
Derivative assets	2,304,000	974,000
Financial liabilities:
Demand, savings, and insured money market accounts	1,332,815,000	1,349,084,000
Time deposits	146,094,000	118,362,000
Securities sold under agreements to repurchase		10,000,000
FHLBNY overnight advances	58,950,000	57,700,000
FHLBNY term advances		2,000,000
Accrued interest payable	115,000	148,000
Derivative liabilities	2,322,000	1,049,000
Recurring | Estimated Fair Value
Financial assets:
Cash and due from financial institutions	30,837,000	27,966,000
Interest-earning deposits in other financial institutions	3,978,000	2,763,000
Available-for-sale Securities, Equity Securities	1,277,000	1,192,000
Securities available for sale	265,157,000	293,091,000
Securities held to maturity	3,790,000	3,776,000
Loans, net and loans held for sale	1,296,697,000	1,289,584,000
Loans held for sale		542,000
Accrued interest receivable	4,404,000	4,642,000
Derivative assets	2,304,000	974,000
Financial liabilities:
Demand, savings, and insured money market accounts	1,332,815,000	1,349,084,000
Time deposits	146,315,000	118,598,000
Securities sold under agreements to repurchase		10,058,000
FHLBNY overnight advances	58,949,000	57,700,000
FHLBNY term advances		2,001,000
Accrued interest payable	115,000	148,000
Derivative liabilities	$ 2,322,000	$ 1,049,000

XML

GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Goodwill [Roll Forward]
Beginning of year			$ 21,824	$ 21,824	$ 21,824
Acquired goodwill			0	0
Ending balance	$ 21,824	$ 21,824	21,824	21,824	21,824
Finite-lived intangible assets, net [Abstract]
Balance Acquired			11,608		11,608
Accumulated Amortization	9,899		9,899		9,523
Aggregate amortization expense	182	$ 213	376	$ 439
Finite-lived intangible assets, future amortization expense [Abstract]
2018	358		358
2019	609		609
2020	484		484
2021	258		258
2022	0		0
Total	1,709		1,709
Core deposit intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired			5,975		5,975
Accumulated Amortization	5,395		5,395		5,196
Other customer relationship intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired			5,633		5,633
Accumulated Amortization	$ 4,504		$ 4,504		$ 4,327

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Details) - USD ($)	Jun. 30, 2018	Dec. 31, 2017
Summary of securities sold under agreements to repurchase [Abstract]
Excess collateral held		$ (1,798,000)
Gross amount of recognized liabilities for repurchase agreements	$ 0	10,000,000
Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		11,798,000
Overnight and Continuous
Summary of securities sold under agreements to repurchase [Abstract]
Excess collateral held		0
Gross amount of recognized liabilities for repurchase agreements		0
Overnight and Continuous | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
Up to 1 Year
Summary of securities sold under agreements to repurchase [Abstract]
Excess collateral held		(1,798,000)
Gross amount of recognized liabilities for repurchase agreements		10,000,000
Up to 1 Year | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		11,798,000
1 - 3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Excess collateral held		0
Gross amount of recognized liabilities for repurchase agreements		0
1 - 3 Years | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		0
3 Years
Summary of securities sold under agreements to repurchase [Abstract]
Excess collateral held		0
Gross amount of recognized liabilities for repurchase agreements		0
3 Years | Mortgage-backed securities, residential
Summary of securities sold under agreements to repurchase [Abstract]
Securities sold under agreements to repurchase		$ 0

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands		3 Months Ended
	Jun. 15, 2018	Jun. 30, 2018	Mar. 31, 2018	Dec. 31, 2017
Commitments to make loans | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		$ 17,062		$ 16,019
Commitments to make loans | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		32,329		28,591
Unused lines of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		1,473		1,604
Unused lines of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		199,478		200,353
Standby letters of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		0		0
Standby letters of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments		14,416		$ 15,022
Fane v. Chemung Canal Trust Company
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Litigation Settlement, Amount Awarded to Other Party	$ 3,300
Legal reserve			$ 2,300
Legal fees		$ 1,000

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS - Summary of Changes in Accumulated Other Comprehensive Income or Loss by Component (Details) - USD ($) $ in Thousands		3 Months Ended		6 Months Ended
		Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2017
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances				$ 149,813	$ 143,748
Cumulative effect of account change	[1]					$ (162)
Balances at January 1, 2018, as adjusted						149,651
Total other comprehensive income (loss)		$ (285)	$ 1,784	(3,579)	3,782
Ending balances		151,780	151,962	151,780	151,962
Accumulated Other Comprehensive Loss
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances		(13,836)	(8,756)	(10,340)	(10,754)
Cumulative effect of account change	[1]					(202)
Balances at January 1, 2018, as adjusted						(10,542)
Other comprehensive income before reclassification		(299)	1,772	(3,606)	3,749
Amounts reclassified from accumulated other comprehensive income		14	12	27	33
Total other comprehensive income (loss)		(285)	1,784	(3,579)	3,782
Ending balances		(14,121)	(6,972)	(14,121)	(6,972)
Accumulated Net Investment Gain (Loss) Attributable to Parent
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances		(6,924)	(2,379)	(3,415)	(4,356)
Cumulative effect of account change						(202)
Balances at January 1, 2018, as adjusted						(3,617)
Other comprehensive income before reclassification		(299)	1,772	(3,606)	3,749
Amounts reclassified from accumulated other comprehensive income		0	(8)	0	(8)
Total other comprehensive income (loss)		(299)	1,764	(3,606)	3,741
Ending balances		(7,223)	(615)	(7,223)	(615)
Defined Benefit and Other Benefit Plans
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances		(6,912)	(6,377)	(6,925)	(6,398)
Cumulative effect of account change						0
Balances at January 1, 2018, as adjusted						$ (6,925)
Other comprehensive income before reclassification		0	0	0	0
Amounts reclassified from accumulated other comprehensive income		14	20	27	41
Total other comprehensive income (loss)		14	20	27	41
Ending balances		$ (6,898)	$ (6,357)	$ (6,898)	$ (6,357)

[1] Due to implementation of ASC 2016-01. See "Adoption of New Accounting Standards" discussion in Note 1.

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS - Reclassification out of Accumulated Other Comprehensive Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Gain (Loss) on Sale of Securities, Net			$ 0	$ (12)
Other components of net periodic pension and postretirement benefits	$ (408)	$ (333)	(816)	(666)
Income tax expense	486	1,263	1,547	2,540
Net income	(2,527)	(2,956)	(6,966)	(5,935)
Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Net income	14	12	27	33
Accumulated Net Investment Gain (Loss) Attributable to Parent | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Gain (Loss) on Sale of Securities, Net	0	(12)	0	(12)
Income tax expense	0	4	0	4
Net income	0	(8)	0	(8)
Defined Benefit and Other Benefit Plans | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	(4)	(13)	(9)	(25)
Net income	14	20	27	41
Prior Service Costs | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Other components of net periodic pension and postretirement benefits	(55)	(55)	(110)	(110)
Actuarial Losses | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment Out Of Accumulated Other Comprehensive Income [Line Items]
Other components of net periodic pension and postretirement benefits	$ 73	$ 88	$ 146	$ 176

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS - Revenue By Operating Segment (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Disaggregation of Revenue [Line Items]
Gains (losses) on sales of other real estate	$ (48)	$ (9)	$ (4)	$ 8
Financial services revenue	59	53	105	122
Total non-interest income	5,325	5,022	10,800	9,869
Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	939	971	1,904	1,950
Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	205	254	404	459
Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	996	964	2,031	1,884
WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	2,373	2,269	4,689	4,378
CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	135	174	245	312
Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Gains (losses) on sales of other real estate	(48)	(9)	(4)	8
Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Financial services revenue	59	53	105	122
Loan servicing fees
Disaggregation of Revenue [Line Items]
Financial services revenue	22	21	45	41
Sale of securities
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	12	0	12
Financial services revenue		12		12
Other
Disaggregation of Revenue [Line Items]
Financial services revenue	644	313	1,381	703
Core Banking
Disaggregation of Revenue [Line Items]
Total non-interest income	2,822	2,634	6,005	5,239
Core Banking | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	939	971	1,904	1,950
Core Banking | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	205	254	404	459
Core Banking | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	996	964	2,031	1,884
Core Banking | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Core Banking | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Core Banking | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Gains (losses) on sales of other real estate	(48)	(9)	(4)	8
Core Banking | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Financial services revenue	59	53	105	122
Core Banking | Loan servicing fees
Disaggregation of Revenue [Line Items]
Financial services revenue	22	21	45	41
Core Banking | Sale of securities
Disaggregation of Revenue [Line Items]
Financial services revenue		12		12
Core Banking | Other
Disaggregation of Revenue [Line Items]
Financial services revenue	649	368	1,520	763
WMG
Disaggregation of Revenue [Line Items]
Total non-interest income	2,373	2,269	4,689	4,378
WMG | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
WMG | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
WMG | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
WMG | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	2,373	2,269	4,689	4,378
WMG | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
WMG | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Gains (losses) on sales of other real estate	0	0	0	0
WMG | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Financial services revenue	0	0	0	0
WMG | Loan servicing fees
Disaggregation of Revenue [Line Items]
Financial services revenue	0	0	0	0
WMG | Sale of securities
Disaggregation of Revenue [Line Items]
Financial services revenue		0		0
WMG | Other
Disaggregation of Revenue [Line Items]
Financial services revenue	0	0	0	0
Holding Company, CFS, and CRM
Disaggregation of Revenue [Line Items]
Total non-interest income	130	119	106	252
Holding Company, CFS, and CRM | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Holding Company, CFS, and CRM | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Holding Company, CFS, and CRM | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Holding Company, CFS, and CRM | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	0	0	0	0
Holding Company, CFS, and CRM | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, including assessed tax	135	174	245	312
Holding Company, CFS, and CRM | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Gains (losses) on sales of other real estate	0	0	0	0
Holding Company, CFS, and CRM | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Financial services revenue	0	0	0	0
Holding Company, CFS, and CRM | Loan servicing fees
Disaggregation of Revenue [Line Items]
Financial services revenue	0	0	0	0
Holding Company, CFS, and CRM | Sale of securities
Disaggregation of Revenue [Line Items]
Financial services revenue		0		0
Holding Company, CFS, and CRM | Other
Disaggregation of Revenue [Line Items]
Financial services revenue	$ (5)	$ (55)	$ (139)	$ (60)

XML

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Qualified Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	$ 0	$ 0	$ 0	$ 0
Interest cost on projected benefit obligation	384	403	769	806
Expected return on plan assets	(826)	(785)	(1,652)	(1,570)
Amortization of unrecognized transition obligation	0	0	0	0
Amortization of unrecognized prior service cost	0	0	0	0
Amortization of unrecognized net loss	44	58	87	116
Net periodic pension benefit	(398)	(324)	(796)	(648)
Supplemental Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	0	0	0
Interest cost on projected benefit obligation	12	12	24	24
Expected return on plan assets	0	0	0	0
Amortization of unrecognized prior service cost	0	0	0	0
Amortization of unrecognized net loss	2	1	4	2
Net periodic pension benefit	14	13	28	26
Postretirement Plan, Medical and Life
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	0	0	0
Interest cost on projected benefit obligation	4	4	7	8
Expected return on plan assets	0	0	0	0
Amortization of unrecognized prior service cost	(55)	(55)	(110)	(110)
Amortization of unrecognized net loss	27	29	55	58
Net periodic pension benefit	$ (24)	$ (22)	$ (48)	$ (44)

XML

SEGMENT REPORTING (Details) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2018 USD ($)	Jun. 30, 2017 USD ($)	Jun. 30, 2018 USD ($) segment	Jun. 30, 2017 USD ($)	Dec. 31, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of primary business segments | segment			2
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	$ 15,869	$ 14,684	$ 31,538	$ 28,998
Interest expense	852	734	1,621	1,554
Net interest income	15,017	13,950	29,917	27,444
Provision for loan losses	2,362	421	3,071	1,461
Net interest income after provision for loan losses	12,655	13,529	26,846	25,983
Other non-interest income	5,325	5,022	10,800	9,869
Legal accruals and settlements	989	850	989	850
Other non-interest expenses	13,978	13,482	28,144	26,527
Income (loss) before income tax expense (benefit)	3,013	4,219	8,513	8,475
Income tax expense (benefit)	486	1,263	1,547	2,540
Net income	2,527	2,956	6,966	5,935
Segment assets	1,710,166	1,718,572	1,710,166	1,718,572	$ 1,707,620
Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Other non-interest income	2,822	2,634	6,005	5,239
Holding Company, CFS, and CRM
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	8	4	15	7
Interest expense	0	0	0	0
Net interest income	8	4	15	7
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	8	4	15	7
Other non-interest income	130	119	106	252
Legal accruals and settlements	0	0		0
Other non-interest expenses	335	315	608	611
Income (loss) before income tax expense (benefit)	(197)	(192)	(487)	(352)
Income tax expense (benefit)	(46)	(59)	(92)	(135)
Net income	(151)	(133)	(395)	(217)
Segment assets	11,431	7,443	11,431	7,443
Operating Segments | Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	15,861	14,680	31,523	28,991
Interest expense	852	734	1,621	1,554
Net interest income	15,009	13,946	29,902	27,437
Provision for loan losses	2,362	421	3,071	1,461
Net interest income after provision for loan losses	12,647	13,525	26,831	25,976
Other non-interest income	2,822	2,634	6,005	5,239
Legal accruals and settlements	989	850		850
Other non-interest expenses	12,014	11,700	24,429	23,144
Income (loss) before income tax expense (benefit)	2,466	3,609	7,418	7,221
Income tax expense (benefit)	342	1,018	1,236	2,066
Net income	2,124	2,591	6,182	5,155
Segment assets	1,694,891	1,706,266	1,694,891	1,706,266
Operating Segments | WMG
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	0	0	0	0
Interest expense	0	0	0	0
Net interest income	0	0	0	0
Provision for loan losses	0	0	0	0
Net interest income after provision for loan losses	0	0	0	0
Other non-interest income	2,373	2,269	4,689	4,378
Legal accruals and settlements	0	0		0
Other non-interest expenses	1,629	1,467	3,107	2,772
Income (loss) before income tax expense (benefit)	744	802	1,582	1,606
Income tax expense (benefit)	190	304	403	609
Net income	554	498	1,179	997
Segment assets	$ 3,844	$ 4,863	$ 3,844	$ 4,863

XML

STOCK COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended		6 Months Ended
	Jan. 31, 2018	Jan. 31, 2017	Jun. 30, 2018	Jun. 30, 2017	Jun. 30, 2018	Jun. 30, 2017
Restricted Stock
Shares [Roll Forward]
Nonvested, Beginning Balance (shares)	25,522		23,933		25,522
Granted (shares)			0		0
Vested (shares)			(849)		(2,438)
Forfeited or cancelled (shares)			0		0
Nonvested, Ending Balance (shares)			23,084		23,084
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, Beginning Balance (in dollars per share)	$ 38.01		$ 38.12		$ 38.01
Granted (in dollars per share)			0.00		0.00
Vested (in dollars per share)			44.84		39.28
Forfeitures or cancelled (in dollars per share)			0.00		0.00
Nonvested, Ending Balance (in dollars per share)			$ 37.88		$ 37.88
Total unrecognized compensation cost related to nonvested shares granted under the Plan			$ 838		$ 838
Weighted-average period for recognition					3 years 3 months 4 days
Total fair value of shares vested					$ 112	$ 16
President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Service period for comparable group used to determine share based payment awards					12 months
Directors and President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of treasury shares reissued to fund stock compensation (in shares)	6,015	7,880
Expenses related to stock based compensation recognized			$ 100	$ 75	$ 184	$ 154