10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

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

For the fiscal year ended December 31, 2019OR

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

For the transition period from _______________ to _____________

Commission File Number 0-13888

CHEMUNG FINANCIAL CORPORATION

(Exact name of registrant as specified in its charter)

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

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

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

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). YES ☒ NO ☐

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

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller Reporting Company ☒ Emerging Growth Company ☐

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

Based upon the closing price of the registrant's Common Stock as of June 30, 2019, the aggregate market value of the voting stock held by non-affiliates of the registrant was $184,887,776.

As of March 11, 2020, there were 4,870,366 shares of Common Stock, $0.01 par value, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the Proxy Statement for the Annual Meeting of Shareholders to be held on May 13, 2020 are incorporated by reference into Part III, Items 10, 11, 12, 13, and 14 of this Form 10-K.

CHEMUNG FINANCIAL CORPORATION

ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2019

Form 10-K Item Number:		Page No.
PART I		5
Item 1.	Business	5
Item 1A.	Risk Factors	19
Item 1B.	Unresolved Staff Comments	29
Item 2.	Properties	29
Item 3.	Legal Proceedings	31
Item 4.	Mine Safety Disclosures	31
PART II		32
Item 5.	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	32
Item 6.	Selected Financial Data	34
Item 7.	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	73
Item 8.	Financial Statements and Supplementary Data	73
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	74
Item 9A.	Controls and Procedures	74
Item 9B.	Other Information	74
PART III		75
Item 10.	Directors, Executive Officers and Corporate Governance	75
Item 11.	Executive Compensation	75
Item 12.	Security Ownership of Certain Beneficial Owners and Management, and Related Stockholder Matters	75
Item 13.	Certain Relationships and Related Transactions, and Director Independence	75
Item 14.	Principal Accountant Fees and Services	75
PART IV		76
Item 15.	Exhibits and Financial Statement Schedules	76
Item 16.	Form 10-K Summary	77
	Index to Consolidated Financial Statements	78
	Report of Independent Registered Public Accounting Firm-Crowe LLP	F-1
	SIGNATURES	79

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

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

Abbreviations

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

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IPS	Investment Policy Statement
LIBOR	London Interbank Offered Rate
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS	North American Industry Classification System
N/M	Not meaningful
NYSDFS	New York State Department of Financial Services
OCC	Office of the Comptroller of the Currency
OPEB	Other postemployment benefits
OREO	Other real estate owned
OTTI	Other-than-temporary impairment
PCI	Purchased credit impaired
Regulatory Relief Act	The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018
RESPA	Real Estate Settlement Procedures Act
Riegle-Neal Act	Riegle-Neal Interstate Banking and Branching Efficiency Act
ROA	Return on average assets
ROE	Return on average equity
RWA	Risk-weighted assets
SOFR	Secured Overnight Financing Rate
SBA	Small Business Administration
SEC	U.S. Securities and Exchange Commission
Security Guidelines	Interagency Guidelines Establishing Information Security Standards
Securities Act	Securities Act of 1933
Sarbanes-Oxley	Sarbanes-Oxley Act of 2002
Tax Act	Tax Cuts and Jobs Act of 2017
TDRs	Troubled debt restructurings
TILA	Truth in Lending Act
TRID Rule	TILA-RESPA Integrated Disclosure Rule
USA PATRIOT Act	Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001
WMG	Wealth Management Group

Terms

Accumulated benefit obligation	An approximate measure of the pension plan liability, which is based on the assumption that the pension plan is to be terminated immediately and does not consider any future salary increases.
Allowance for loan losses to total loans	Represents period-end allowance for loan losses divided by retained loans.
Assets under administration	Represents assets that are beneficially owned by clients and all investment decisions pertaining to these assets are also made by clients.
Assets under management	Represents assets that are managed on behalf of clients.
Basel I	A set of international banking regulations, which set out the minimum capital requirements of financial institutions with the goal of minimizing credit risk. The main focus was mainly on credit risk by creating a bank asset classification system.
Basel III	A comprehensive set of reform measures designed to improve the regulation, supervision, and risk management within the banking sector. The reforms require banks to maintain proper leverage ratios and meet certain capital requirements.
Benefit obligation	Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Capital Bank	Division of Chemung Canal Trust Company located in the “Capital Region” of New York State and includes the counties of Albany and Saratoga.
Captive insurance company	A company that provides risk-mitigation services for its parent company.

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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.
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.
Economic Growth, Regulatory Relief, and Consumer Protection Act	The Economic Growth, Regulatory Relief, and Consumer Protection Act was signed on May, 24 2018 and repeals or modifies certain provisions to the Dodd-Frank Act and will ease certain regulations on all but the largest banks.
Fully taxable equivalent basis	Income from tax-exempt loans and investment securities that have been increased by an amount equivalent to the taxes that would have been paid if this income were taxable at statutory rates; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
GAAP	Accounting principles generally accepted in the United States of America.
Holding company	Consists of the operations for Chemung Financial Corporation (parent only).
ICS	Product involving a network of financial institutions that exchange interest-bearing money market deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit. Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Loans held for sale	Residential real estate loans originated for sale on the secondary market with maturities from 15-30 years.
Long term lease obligation	An obligation extending beyond the current year, which is related to a long term capital lease that is considered to have the economic characteristics of asset ownership.
Mortgage-backed securities	A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients	A political unit, such as a city, town, or village, incorporated for local self-government.
N/A	Data is not applicable or available for the period presented.
N/M	Data is not meaningful in context presented.
Non-GAAP	A calculation not made according to GAAP.
Obligations of state and political subdivisions	An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.
Obligations of U.S. Government	A federally guaranteed obligation backed by the full power of the U.S. government, including Treasury bills, Treasury notes and Treasury bonds.
Obligations of U.S. Government sponsored enterprise obligations	Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
OREO	Represents real property owned by the Corporation, which is not directly related to its business and is most frequently the result of a foreclosure on real property.
OTTI	Impairment charge taken on a security whose fair value has fallen below the carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.
PCI loans	Represents loans that were acquired in the Fort Orange Financial Corp. transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of FASB.

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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 non-interest expense, before income tax expense (benefit). The Corporation believes that this financial measure is useful in assessing the ability of a bank to generate income in excess of its provision for credit losses.
Projected benefit obligation	An approximate measure of the pension plan liability, which is based on the assumption that the plan will not terminate in the near future and that employees will continue to work and receive future salary increases.
Regulatory Relief Act	The Regulatory Relief Act was signed on May, 24 2018 and repeals or modifies certain provisions to the Dodd-Frank Act and will ease certain regulations on all but the largest banks.
RWA	Risk-weighted assets, which is used to calculate regulatory capital ratios, consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
SBA loan pools	Business loans partially guaranteed by the SBA.
Securities sold under agreements to repurchase	Sale of securities together with an agreement for the seller to buy back the securities at a later date.
TDR	A TDR is deemed to occur when the Corporation modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Trust preferred securities	A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.
Unaudited	Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
WMG	Provides services as executor and trustee under wills and agreements, and guardian, custodian, trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, financial planning, pension, estate planning and employee benefit administration services.

PART I

ITEM 1.  BUSINESS

General

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

The Corporation became a financial holding company in June 2000.  Financial holding company status provided the Corporation with the flexibility to offer an array of financial services, such as insurance products, mutual funds, and brokerage services, which provide additional sources of fee based income and allow the Corporation to better serve its customers. The Corporation established a financial services subsidiary, CFS, in September 2001 which offers non-banking financial services such as mutual funds, annuities, brokerage services, insurance and tax preparation services. The Corporation established a captive insurance subsidiary, CRM,

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based in the State of Nevada in May 2016, which insures gaps in commercial coverage and uninsured exposures in the Corporation's current insurance coverages and allows the Corporation to strengthen its overall risk management program.

The Corporation’s Board of Directors has concluded that the expansion of the franchise’s geographic footprint, an increase in the Bank’s interest earning assets, and the generation of new sources of non-interest income are important components of its strategic plan.  Over the last 11 years, the Corporation and the Bank have completed the following transactions to grow the franchise:

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

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

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

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

As a result of these transactions and organic growth, the Corporation had $1.788 billion in consolidated assets, $1.309 billion in loans, $1.572 billion in deposits, and $182.6 million in shareholders’ equity at December 31, 2019.

Growth Strategy

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

Description of Business

The Corporation, through the Bank and CFS, provides a wide range of financial services, including demand, savings and time deposits, commercial, residential and consumer loans, interest rate swaps, letters of credit, wealth management services, employee benefit plans, insurance products, mutual funds and brokerage services.  The Bank derives its income primarily from interest and fees on loans, interest on investment securities, WMG fee income, and fees received in connection with deposit and other services.  The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans and general operating expenses.

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

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

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Lending Activities

Lending Strategy

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

Lending Authority

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

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

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

Lending Segments

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

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

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

The Bank offers interest rate swaps to certain larger commercial mortgage borrowers. These swaps allow the Bank to originate a mortgage based on short-term LIBOR rates and allow the borrower to swap into a longer term fixed rate. The Bank simultaneously sells an offsetting back-to-back swap to an investment grade national bank so that it does not retain this fixed-rate risk. The swap agreements are free-standing derivatives and are recorded at fair value in the Bank's consolidated balance sheets. As it is anticipated that LIBOR will be discontinued after 2021, the Corporation is reviewing its loans to determine alternate reference rates.

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The Bank offers fixed-rate and adjustable-rate residential mortgage loans to individuals with maturities of up to 30 years that are fully amortizing with monthly loan payments. Mortgages are generally underwritten according to U.S. government sponsored enterprise guidelines designated as "A" or "A-" and referred to as "conforming loans". The Bank also originates jumbo loans above conforming loan amounts which generally are consistent with secondary market guidelines for these loans; however, these are typically held for investment. The Bank does not offer a subprime mortgage lending program. The Bank's secondary market lending is sold on a servicing-retained basis. Residential mortgage loans are generally made on the basis of the borrower’s ability to make repayment from his or her employment and other income, and are secured by real property whose value tends to be more easily ascertainable.  Credit risk for these types of loans is generally influenced by general economic conditions, the characteristics of individual borrowers and the nature of the loan collateral.

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

Funding Activities

Funding Strategy

The Corporation’s deposit strategy is to fund the Bank with stable, low-cost deposits, primarily checking account deposits and low interest-bearing deposit accounts.  A checking account is the driver of a banking relationship and consumers consider the bank where they have their checking account as their primary bank.  These customers will typically turn to their primary bank first when in need of other financial services.  The Corporation also considers brokered deposits to be an element of its deposit strategy and anticipates that it will continue using brokered deposits as a secondary source of funding to support growth.  Borrowings may be used on a short-term basis for liquidity purposes or on a long-term basis to fund asset growth.

Funding Sources

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

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

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

Investment Activities

The general objective of the Bank's investment portfolio is to provide liquidity when loan demand is high, and to absorb excess funds when demand is low. The securities portfolio also provides a medium for certain interest risk measures intended to maintain an appropriate balance between interest income from loans and total interest income. The Bank only invests in high-quality investment-grade securities such as mortgage-backed securities and obligations of states and political subdivisions. Investment

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decisions are made in accordance with the Bank's investment policy and include consideration of risk, return, duration, and portfolio concentrations.

Derivative Financial Instruments

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

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

Wealth Management Strategy

With $1.915 billion of assets under management or administration at December 31, 2019, including $289.7 million of assets held under management or administration for the Corporation, WMG is responsible for the largest component of the Corporation's non-interest income.  Wealth management services provided by the Bank include services as executor and trustee under wills and agreements, and guardian, custodian, trustee,andagent for pension, profit-sharing and other employee benefit trusts, as well as various investment, pension, estate planning, and employee benefit administrative services.  The Corporation’s growth strategy also includes the acquisition of trust businesses to generate new sources of fee income.

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

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

There were no material changes in the manner of doing business by the Corporation or its subsidiaries during the fiscal year ended December 31, 2019.

Market Area and Competition

The Bank operates 33 branch offices located in 12 counties in New York and Bradford County in Pennsylvania.  Bank branch offices are located in the following New York counties:  Chemung, where the Bank is headquartered, Broome, Cayuga, Cortland, Schuyler, Seneca, Steuben, Tioga and Tompkins.  The Bank also operates under the name “Capital Bank, a division of Chemung Canal Trust Company,” with branch offices located in Albany, Saratoga, and Schenectady counties in New York.

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

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

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

Employees

As of December 31, 2019, the Corporation and its subsidiaries employed 362 persons on a full-time equivalent basis. None of the Corporation's employees are covered by collective bargaining agreements. The Corporation provides its employees with a comprehensive benefit program, some of which is contributory. The Corporation believes that its relationship with its employees is good.

Available Information

The SEC maintains a web site at www.sec.gov that contains reports, proxy and information statements, and other information regarding the Corporation.  In addition, the Corporation maintains a corporate web site at www.chemungcanal.com.  The Corporation makes available free of charge through the Bank's web site its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.  These items are availableas soon as reasonably practicable after we electronically file or furnish such material with the SEC.  The contents of the Bank's web site are not a part of this report.  These materials are also available free of charge by written request to: Kathleen S. McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901.

Supervision and Regulation

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

The Corporation

Bank Holding Company Act

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

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

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

Interstate Banking and Branching

Under the Riegle-Neal Act, subject to certain concentration limits and other requirements, adequately capitalized bank holding companies, such as the Corporation, are permitted to acquire banks and bank holding companies located in any state. Any bank that is a subsidiary of a bank holding company is permitted to receive deposits, renew time deposits, close loans, service loans, and receive loan payments as an agent for any other bank subsidiary of that bank holding company. Subject to certain conditions,

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bank are permitted to acquire branch offices outside of their home states by merging with out-of-state banks, purchasing branches in other states, and establishing de novo branch offices in other states.

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

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

New York Law

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

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

Federal Securities Law

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

The SEC has adopted certain proxy disclosure rules regarding executive compensation and corporate governance, with which the Corporation must comply. They include:  (i) disclosure of total compensation of key officers of the Corporation, including disclosure of restricted and unrestricted stock awards compensation; (ii) disclosure regarding any potential conflict of interest of any compensation consultants of the Corporation; (iii) disclosure regarding compensation committee independence and experience, qualifications, skills and diversity of its directors and any director nominees; (iv) “say-on-pay” disclosure; and (v) information relating to the leadership structure of the Corporation’s Board of Directors and the Board of Directors' role in the risk management process.

Sarbanes-Oxley

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

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

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Support of Subsidiary Banks

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

Capital Distributions

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

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

The Bank

General

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

Loans to One Borrower

The Bank generally may not make a loan or extend credit to a single or related group of borrowers in excess of 15% of its unimpaired capital and surplus.  Up to an additional 10% of unimpaired capital and surplus can be lent if the additional amount is fully secured by certain readily marketable collateral.  At December 31, 2019, the Bank’s legal lending limit on loans to one borrower was $27.2 million for loans not fully secured by readily marketable collateral and $29.9 million for loans secured by readily marketable collateral.  The Bank’s internal limit on loans is set at $15.0 million.  At December 31, 2019, the Bank did not have any loans or agreements to extend credit to a single or related group of borrowers in excess of its legal lending limit.

Branching

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

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Payment of Dividends

The Bank is subject to substantial regulatory restrictions affecting its ability to pay dividends to the Corporation.  Under FRB and NYSDFS regulations, the Bank may not pay a dividend without prior approval of the FRB and the NYSDFS if the total amount of all dividends declared during such calendar year, including the proposed dividend, exceeds the sum of its retained net income to date during the calendar year and its retained net income over the preceding two calendar years. As of December 31, 2019, approximately $29.8 million was available for the payment of dividends by the Bank to the Corporation without prior approval.  The Bank's ability to pay dividends also is subject to the Bank being in compliance with regulatory capital requirements.  The Bank is currently in compliance with these requirements.

Federal Reserve System

FRB member banks must maintain, with a Federal Reserve Bank, reserves against their transaction accounts (primarily checking, NOW, and Super NOW accounts) and non-personal time accounts. As of December 31, 2019, the Bank was in compliance with applicable reserve requirements.

Standards for Safety and Soundness

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

Real Estate Lending Standards

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

Transactions with Related Parties

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

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

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Deposit Insurance

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

Assessments for institutions with less than $10 billion of assets, such as the Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution’s failure within three years, with institutions deemed less risky paying lower assessments. The assessment range (inclusive of possible adjustments) for institutions of less than $10 billion in total assets is 1.5 basis points to 30 basis points. The Dodd-Frank Act increased the minimum target DIF ratio from 1.15% of estimated insured deposits to 1.35% of estimated insured deposits. The FDIC was required to seek to achieve the 1.35% ratio by September 30, 2020. The FDIC indicated that the 1.35% ratio was exceeded in November 2018. Insured institutions of less than $10 billion of assets received credits for the portion of their assessments that contributed to the reserve ratio between 1.15% and 1.35% in 2019. The Bank received credits totaling $439 thousand during 2019. The Dodd-Frank Act eliminated the 1.5% maximum fund ratio, instead leaving it to the discretion of the FDIC, and the FDIC has exercised that discretion by establishing a long-range fund ratio of 2%.

All institutions with deposits insured by the FDIC were required to pay assessments to fund interest payments on bonds issued by FICO, an agency of the federal government established to recapitalize the former Savings Association Insurance Fund. These assessments continued until the FICO bonds matured in the first quarter of 2019.  The FDIC's FICO assessment authority is separate from its authority to assess risk-based premiums for deposit insurance. The FICO assessment rate was adjusted quarterly to reflect changes in the assessment bases of the fund and is not risk-based by institution.  The final FICO assessment rate for the fourth quarter of 2018, due March 29, 2019, was 0.030 basis points, or an annual rate of 0.12 basis points,of the Bank's assessment base, or average total assets less average tangible equity and allowable deductions.

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

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

Regulatory Capital Requirements

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

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

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

The Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.  

In assessing a state member bank’s capital adequacy, the FRB takes into consideration not only these numeric factors but also qualitative factors, and has the authority to establish higher capital requirements for individual banks where necessary. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. The Bank, in accordance with its internal prudential standards, targets as its goal the maintenance of capital ratios which exceed these minimum requirements and that are consistent with its risk profile. As of December 31, 2019, the Bank exceeded all regulatory capital ratios necessary to be considered well capitalized.

On October 29, 2019, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporations (collectively, the "Federal Agencies") adopted a final rule (the "Final Rule") to simplify the regulatory capital requirements for eligible community banks and holding companies that opt into the Community Bank Leverage Ratio ("CBLR") framework, as required by Section 201 of the Economic Growth, Relief and Consumer Protection Act of 2018.

Under the Final Rule, a depository institution or holding company that satisfies certain qualifying criteria, including having less than $10 billion in average total consolidated assets and a leverage ratio of greater than 9%, would be considered a "qualifying community banking organization" and may elect (but is not required) to use the CBLR framework. If this election is made, the qualifying community banking organization would be considered to have satisfied the Federal Agencies' generally applicable risk-weighted and leverage capital requirements (the "Basel III capital framework") and would be considered to be well-capitalized under the Federal Agencies' prompt corrective action ("PCA") rules. Under the CBLR framework, a qualifying community banking organization would satisfy the regulatory capital requirements by calculating and reporting a single leverage ratio, i.e., the CBLR, which would require significantly less data than needed to calculate the capital ratios, under the Basel III capital framework and eliminate the time consuming need to risk-weight assets. The Final Rule takes effect on January 1, 2020.

Prompt Corrective Action

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

• well capitalized

• adequately capitalized

• undercapitalized

• significantly undercapitalized

• critically undercapitalized

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

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

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

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

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

Federal Home Loan Bank

The Bank is also a member of the FHLBNY, which provides a central credit facility primarily for member institutions for home mortgage and neighborhood lending. The Bank is subject to the rules and requirements of the FHLBNY, including the requirement to acquire and hold shares of capital stock in the FHLBNY. The Bank was in compliance with the rules and requirements of the FHLBNY at December 31, 2019.

Community Reinvestment Act

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

Fair Lending and Consumer Protection Laws

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

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Prohibitions against Tying Arrangements

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

Privacy Regulations

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

The USA PATRIOT Act

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

CFS

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

CRM

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

Additional Important Legislation and Regulation

The Regulatory Relief Act

On May 24, 2018, the Regulatory Relief Act was enacted, which repeals or modifies certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks. The Regulatory Relief Act’s provisions include, among other things: (i) exempting banks with less than $10 billion in assets from the ability-to-repay requirements for certain qualified residential mortgage loans held in portfolio; (ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from HMDA’s expanded data disclosures; (iv) clarifying that, subject to various 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; (v) raising eligibility for the 18-month exam cycle from $1 billion to banks with $3 billion in assets; (vi) allowing qualifying federal savings banks to elect to operate with National Bank powers; and (vii) simplifying capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well-capitalized status.

The Dodd-Frank Act

The Dodd-Frank Act, enacted on July 21, 2010, significantly changed the bank regulatory landscape and has impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies. The Dodd-Frank Act required various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress. We have summarized below significant rules adopted by the federal agencies pursuant to the Dodd-Frank Act.

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Consumer Financial Protection Bureau Rules

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

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

In December 2013, the FRB and the SEC released final rules to implement certain provisions of the Dodd-Frank Act, commonly known as the “Volcker Rule.” The Volcker Rule, among other things, prohibits banking entities from engaging in proprietary trading and from sponsoring, having an ownership interest in or having certain relationships with a hedge fund or private equity fund, subject to certain exemptions.  At December 31, 2019, the Corporation was not engaged in any activities and it did not have any ownership interests in any funds that are not permitted under the Volcker Rule.

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

Securities and Exchange Commission Rules

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

Banking Agency Rules

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

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

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NYSDFS Cybersecurity Rule

Effective March 1, 2017, the NYSDFS requires New York chartered banks to establish and maintain a cybersecurity program designed to protect consumers and ensure the safety and soundness of the bank. Specifically, NYSDFS requires regulated financial institutions to establish a cybersecurity program; adopt a written cybersecurity policy; designate a Chief Information Security Officer responsible for implementing, overseeing and enforcing its new program and policy; and have policies and procedures designed to ensure the security of information systems and nonpublic information accessible to, or held by, third-parties, along with a variety of other requirements to protect the confidentiality, integrity and availability of information systems. 

Gramm-Leach-Bliley Act

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

The GLB Act and the FCRA also impose requirements regarding data security and the safeguarding of customer information. The Bank is subject to the Security Guidelines, which implement section 501(b) of the GLB Act and section 216 of the FACT Act. The Security Guidelines establish standards relating to administrative, technical, and physical safeguards to ensure the security, confidentiality, integrity and the proper disposal of customer information.  As of December 31, 2019, the Bank believes it is in compliance with all such standards.

ITEM 1A.  RISK FACTORS

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

Risks Related to Our Business

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

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

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

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

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

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

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

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

Our funding sources may prove insufficient to replace deposits at maturity and support our future growth.

We must maintain sufficient funds to respond to the needs of depositors and borrowers. As a part of our liquidity management, we use a number of funding sources in addition to core deposit growth and repayments and maturities of loans and investments. As we continue to grow, we are likely to become more dependent on these sources, which include Federal Home Loan Bank advances, proceeds from the sale of loans, federal funds purchased and brokered certificates of deposit. Adverse operating results or changes in industry conditions could lead to difficulty or an inability to access these additional funding sources. Our financial flexibility will be severely constrained if we are unable to maintain our access to funding or if adequate financing is not available to accommodate future growth at acceptable interest rates. If we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our operating margins and profitability would be adversely affected.

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

The FRB and the other federal bank regulatory agencies have promulgated joint guidance on sound risk management practices for financial institutions with concentrations in commercial real estate lending. Under the guidance, a financial institution that, like us, is actively involved in commercial real estate lending should perform a risk assessment to identify concentrations. The purpose of the guidance is to assist banks in developing risk management practices and capital levels commensurate with the level and nature of real estate concentrations. Management employs heightened risk management practices including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing on commercial real estate loans and real estate concentrations.

At December 31, 2019, the Corporation’s portfolio of commercial real estate and business loans totaled $879.1 million or 67.1% of total loans.  The Corporation plans to continue to emphasize the origination of these types of loans, which generally expose the Corporation to a greater risk of nonpayment and loss than residential real estate or consumer loans because repayment of commercial real estate and business loans often depends on the successful operation and income stream of the borrower’s business.  Additionally, such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to residential real estate and consumer loans.  Also, some of the Corporation’s borrowers have more than one commercial loan outstanding. Consequently, an adverse development with respect to one loan or one credit relationship can expose the Corporation to a significantly greater risk of loss compared to an adverse development with respect to residential real estate and consumer loans. In some instances, the Corporation has originated unsecured commercial loans with certain high net worth individuals who have personally guaranteed such loans. This type of commercial loan has an increased risk of loss if the Corporation is unable to collect repayment through legal action due to personal bankruptcy or other financial limitations of the borrower.  The Corporation targets its business lending and marketing strategy towards small to medium-sized businesses.  These small to medium-sized businesses generally have fewer financial resources in terms of capital or borrowing capacity than larger entities.  If general economic conditions negatively impact these businesses, the Corporation’s results of operations and financial condition may be adversely affected.

Loan participations may have a higher risk of loss than loans the Bank originates because the Bank is not the lead lender and has limited control over credit monitoring.

The Corporation occasionally purchases commercial real estate and commercial and industrial loan participations secured by properties outside its market area in which the Bank is not the lead lender. The Corporation has purchased loan participations secured by various types of collateral such as real estate, equipment and other business assets located primarily in New York, and Pennsylvania. Loan participations may have a higher risk of loss than loans the Bank originates because we rely on the lead

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lender to monitor the performance of the loan. Moreover, our decisions regarding the classification of a loan participation and loan loss provisions associated with a loan participation are made in part based upon information provided by the lead lender. A lead lender also may not monitor a participation loan in the same manner as we would for loans that the Bank originates. At December 31, 2019, loan participation balances where the Bank is not the lead lender totaled $139.1 million, or 10.62% of our loan portfolio. At December 31, 2019, commercial and industrial loan participations outside our market area totaled $18.5 million, or 8.1% of the commercial and industrial loan portfolio and commercial real estate loan participations outside our market area totaled $22.9 million, or 3.5% of the commercial real estate loan portfolio. If the Bank’s underwriting of these participation loans is not sufficient, our non-performing loans may increase and our earnings may decrease.

We are subject to environmental liability risk associated with lending activities.

A significant portion of our loan portfolio is secured by real estate, and we could become subject to environmental liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and take title to properties securing defaulted loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If hazardous conditions or toxic substances are found on these properties, we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property. Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on us.

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

At December 31, 2019, $135.0 million, or 10.3% of our total loan portfolio, consisted of automobile loans, primarily originated through automobile dealers for the purchase of new or used automobiles. The Corporation serves customers that cover a range of creditworthiness and the required terms and rates are reflective of those risk profiles. Automobile loans are inherently risky as they are often secured by assets that may be difficult to locate and can depreciate rapidly. In some cases, repossessed collateral for a defaulted automobile loan may not provide an adequate source of repayment for the outstanding loan and the remaining deficiency may not warrant further substantial collection efforts against the borrower. Automobile loan collections depend on the borrower's continuing financial stability, and therefore, are more likely to be adversely affected by job loss, divorce, illness, or personal bankruptcy. Additional risk elements associated with indirect lending include the limited personal contact with the borrower as a result of indirect lending through non-bank channels, namely automobile dealers.

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

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

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

The Financial Accounting Standards Board has adopted a new accounting standard that will be effective for the Bank for our first fiscal year beginning after December 15, 2023. This standard, referred to as Current Expected Credit Loss, or CECL, will require financial institutions to determine periodic estimates of lifetime expected credit losses on loans, and recognize the expected credit losses as allowances for loan losses. This will change the current method of establishing allowances for loan losses that are probable, which may require us to increase our allowance for loan losses, and increase the data we would need to collect and review to determine the appropriate level of our allowance for loan losses.

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

The Corporation is subject to risks and losses resulting from fraudulent activities that could adversely impact its financial performance and results of operations.

As a bank, we are susceptible to fraudulent activity that may be committed against us or our clients, which may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. We are subject to fraud and compliance risk, including but not limited to, in connection with the origination of loans, ACH transactions, wire transactions, ATM transactions, checking transactions, and debit cards that we have issued to our customers and through our online banking portals. We have experienced losses due to apparent fraud.

The Bank owns a participating interest totaling $4.2 million in an approximately $36.0 million commercial credit facility on

which the borrower defaulted due to fraudulent activity.

While the Corporation believes this recent incident was an isolated occurrence, there can be no assurance that such losses will not occur again or that such acts will be detected in a timely manner. We maintain a system of internal controls and insurance coverage to mitigate against such risks, including data processing system failures and errors, and customer fraud. If our internal controls fail to prevent or detect any such occurrence, or if any resulting loss is not insured or exceeds applicable insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.

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

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

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

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

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

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

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

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

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

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

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

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

Monetary policies and regulations of the Federal Reserve Board could adversely affect our business, financial condition and results of operations.

In addition to being affected by general economic conditions, our earnings and growth are affected by the policies of the FRB. An important function of the FRB is to regulate the money supply and credit conditions. Among the instruments used by the FRB to implement these objectives are open market purchases and sales of U.S. government securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and deposits. Their use also affects interest rates charged on loans or paid on deposits.

The monetary policies and regulations of the FRB have had a significant effect on the operating results of financial institutions in the past and are expected to continue to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be predicted.

Uncertainty surrounding the future of LIBOR (London Interbank Offer Rate) may affect the fair value and return on the Corporation's financial instruments that use LIBOR as a reference rate.

The Corporation holds assets, liabilities, and derivatives that are indexed to the various tenors of LIBOR including but not limited to the one-month LIBOR, three-month LIBOR, one-year LIBOR, and the ten-year constant maturing swap rate. The LIBOR yield curve is also utilized in the fair value calculation of many of these instruments. The reform of major interest benchmarks led to the announcement of the United Kingdom’s Financial Conduct Authority, the regulator of the LIBOR index,

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that LIBOR would not be supported in its current form after the end of 2021. The Corporation believes the U.S. financial sector will maintain an orderly and smooth transition to new interest rate benchmarks of which the Corporation will evaluate and adopt if appropriate. While in the U.S., the Alternative Rates Committee of the FRB and Federal Reserve Bank of New York have identified the SOFR as an alternative U.S. dollar reference interest rate, it is too early to predict the financial impact this rate index replacement may have, if at all.

We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to material penalties.

The Community Reinvestment Act (“CRA”), the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose nondiscriminatory lending requirements on financial institutions. A successful regulatory challenge to an institution’s performance under the CRA or fair lending laws and regulations could result in a wide variety of sanctions, including the required payment of damages and civil money penalties, injunctive relief, imposition of restrictions on mergers and acquisitions activity and restrictions on expansion. Private parties may also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation. Such actions could have a material adverse effect on our business, financial condition and results of operations.

Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions.

The USA PATRIOT and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. In recent years, several banking institutions have received large fines for non-compliance with these laws and regulations. While we have developed policies and procedures designed to assist in compliance with these laws and regulations, these policies and procedures may not be effective in preventing violations of these laws and regulations.

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

In July 2013, the FRB approved a new rule that substantially amended the regulatory risk-based capital rules applicable to the Bank. The final rule implements the "Basel III" regulatory capital reforms and changes required by the Dodd-Frank Act.

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

The recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act (the “Regulatory Relief Act”) simplifies capital calculations by requiring the federal regulators to establish for institutions under $10 billion in assets a community bank leverage ratio at a percentage not less than 8% and not greater than 10% that eligible institutions may choose to elect to replace the general applicable risk-based capital requirements under the Basel III capital rules for such institutions. Such institutions that meet the community bank leverage ratio will automatically be deemed to be well-capitalized under the federal regulator’s prompt corrective action framework, although the regulators retain the flexibility to determine that the institution may not qualify for the community bank leverage ratio test based on the institution’s risk profile. The federal regulators jointly issued a final rule on October 29, 2019, whereby a qualifying community bank organization may elect, but is not required to, use the community bank leverage ratio capital framework, in which case it will be considered well-capitalized so long as its community bank leverage ratio (tier 1 capital to average consolidated assets) is greater than 9%. The new rule takes effect on January 1, 2020.

The application of more stringent capital requirements for the Bank could, among other things, result in lower returns on equity, require the raising of additional capital, and result in regulatory actions constraining them from paying dividends or repurchasing

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shares if they are unable to comply with such requirements.

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

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

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

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

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

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

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

Financial counterparties expose the Corporation to risks.

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

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

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

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

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

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

Our risk management framework may not be effective in mitigating risk and reducing the potential for significant losses.

Our risk management framework is designed to minimize risk and loss to us. We seek to identify, measure, monitor, report and control our exposure to risk, including strategic, market, liquidity, compliance and operational risks. While we use a broad and diversified set of risk monitoring and mitigation techniques, these techniques are inherently limited because they cannot anticipate the existence or future development of currently unanticipated or unknown risks. Recent economic conditions and heightened legislative and regulatory scrutiny of the financial services industry, among other developments, have increased our level of risk. Accordingly, we could suffer losses as a result of our failure to properly anticipate and manage these risks.

We face significant operational risks because the financial services business involves a high volume of transactions.

We operate in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including but not limited to, the risk of fraud by employees or persons outside our company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, breaches of our internal control systems and compliance requirements, and business continuation and disaster recovery. Insurance coverage may not be available for such losses, or where available, such losses may exceed insurance limits. This risk of loss also includes the potential legal actions that could arise as a result of operational deficiencies or as a result of non-compliance with applicable regulatory standards or customer attrition due to potential negative publicity. In the event of a breakdown in our internal control systems, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and/or suffer damage to our reputation.

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

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

26

Systems failures or breaches of our network security could subject us to increased operating costs as well as litigation and other liabilities.

Our operations depend upon our ability to protect our computer systems and network infrastructure against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Any damage or failure that causes an interruption in our operations could have a material adverse effect on our financial condition and results of operations. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, which may result in significant liability to us and may cause existing and potential customers to refrain from doing business with us. Although we, with the help of third-party service providers, intend to continue to implement security technology and establish operational procedures designed to prevent such damage, our security measures may not be successful. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer transaction data. A failure of such security measures could have a material adverse effect on our financial condition and results of operations.

It is possible that we could incur significant costs associated with a breach of our computer systems. While we have cyber liability insurance, there are limitations on coverage. Furthermore, cyber incidents carry a greater risk of injury to our reputation. Finally, depending on the type of incident, banking regulators can impose restrictions on our business and consumer laws may require reimbursement of customer losses.

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

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

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

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

Additionally, global markets may be adversely affected by natural disasters, the emergence of widespread health emergencies or pandemics, cyber-attacks or campaigns, military conflict, terrorism or other geopolitical events. Global market disruptions may affect our business liquidity. Also, any sudden or prolonged market downturn in the U.S. or abroad, as a result of the above factors or otherwise could result in a decline in revenue and adversely affect our results of operations and financial condition, including capital and liquidity levels.

27

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

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

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

Specifically, in June of 2016, FASB issued a new accounting standard, ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) that will substantially change the accounting for credit losses under GAAP. Under GAAP's current standards, credit losses are not reflected in the Corporation's financial statements until it is probable that the credit losses has been incurred. This methodology has the effect of delaying the recognition of credit losses on loans. Under the new credit loss standard, the allowance for credit losses will be an estimate of the "expected" credit losses on loans. The new credit loss standard may have a negative impact on the reporting of results of operations and financial condition of the Corporation. The amendments in this ASU are effective for the Corporation for the years beginning after December 15, 2022.

Involvement in wealth management creates risks associated with the industry.

The Corporation’s wealth management operations present special risks not borne by institutions that focus exclusively on other traditional retail and commercial banking products. For example, the investment advisory industry is subject to fluctuations in the stock market that may have a significant adverse effect on transaction fees, client activity and client investment portfolio gains and losses. Also, additional or modified regulations may adversely affect our wealth management operations. In addition, our wealth management operations are dependent on a small number of established financial advisors, whose departure could result in the loss of a significant number of client accounts. A significant decline in fees and commissions or trading losses suffered in the investment portfolio could adversely affect our income and potentially require the contribution of additional capital to support our operations.

There may be claims and litigation pertaining to fiduciary responsibility.

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

Risks Relating to Ownership of Our Common Stock

The Corporation’s common stock is not heavily traded, and the stock price may fluctuate significantly.

The Corporation’s common stock is traded on the NASDAQ under the symbol “CHMG.” Certain brokers currently make a market in the common stock, but such transactions are infrequent and the volume of shares traded is relatively small. Management cannot predict whether these or other brokers will continue to make a market in our common stock. Prices on stock that is not heavily

28

traded, such as our common stock, can be more volatile than heavily traded stock. Factors such as our financial results, the introduction of new products and services by us or our competitors, publicity regarding the banking industry, and various other factors affecting the banking industry may have a significant impact on the market price of the shares of the common stock. Management also cannot predict the extent to which an active public market for our common stock will develop or be sustained in the future. Accordingly, shareholders may not be able to sell their shares of our common stock at the volumes, prices, or times that they desire.

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

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

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

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

ITEM 1B.  UNRESOLVED STAFF COMMENTS

None.

ITEM 2.  PROPERTIES

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

29

Corporate Headquarters Executive and Administrative Offices
One Chemung Canal Plaza, Elmira, NY 14901
New York
Albany County	Saratoga County
*132 State St., Albany, NY 12207	*25 Park Ave., Clifton Park, NY 12065
*65 Wolf Rd., Albany, NY 12205	*3057 Route 50, Saratoga Springs, NY 12866
*581 Loudon Rd., Latham, NY 12110
*1365 New Scotland Rd., Slingerlands, NY 12159	Schenectady County
	*2 Rush St., Schenectady, NY 12305
Broome County
*127 Court St., Binghamton,  NY 13901	Schuyler County
*100 Rano Blvd., Vestal, NY 13850	318 N. Franklin St., Watkins Glen, NY 14891
	303 W. Main St., Montour Falls, NY 14865
Cayuga County
*110 Genesee St., Auburn, NY 13021	Seneca County
185 Grant Ave., Auburn, NY 13021	54 Fall St., Seneca Falls, NY 13148
Chemung County	Steuben County
One Chemung Canal Plaza, Elmira, NY 14901	*410 West Morris St., Bath, NY 14810
628 W. Church St., Elmira, NY 14905	149 West Market St., Corning, NY 14830
437 Maple St., Big Flats, NY 14814
951 Pennsylvania Ave., Elmira, NY 14904	Tioga County
100 W. McCann's Blvd., Elmira Heights, NY 14903	203 Main St., Owego, NY 13827
29 Arnot Rd., Horseheads, NY 14845	*1054 State Route 17C, Owego, NY 13827
602 S. Main St., Horseheads, NY 14845	405 Chemung St., Waverly, NY 14892
305 E. Water St., Elmira, NY 14901
	Tompkins County
Cortland County	806 W. Buffalo St., Ithaca, NY 14850
*1094 State Rte. 222, Cortland, NY 13045	304 Elmira Rd., Ithaca, NY 14850
	*909 Hanshaw Rd., Ithaca, NY 14850
Pennsylvania
Bradford County
5 West Main St., Canton, PA 17724
^304 Main St., Towanda, PA 18848
159 Canton St., Troy, PA 16947
CFS Group
One Chemung Canal Plaza, Elmira, NY 14901
* Leased facilities and/or property
^ Subsequent to December 31, 2019, the Bank announced that it will close this branch location on April 30, 2020.

30

Leased Off-Site ATM Locations
Albany Capital Center	Albany, NY
Elmira-Corning Regional Airport	Big Flats, NY
E-Z Food Mart	Elmira, NY
Ithaca College	Ithaca, NY

ITEM 3.  LEGAL PROCEEDINGS

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries. On February 4, 2020, the Corporation filed a lawsuit against Pioneer Bank, Albany, New York, in the Supreme Court of the State of New York in the County of Albany. The Corporation owns a participating interest totaling $4.2 million in an approximately $36.0 million commercial credit facility on which the borrower defaulted due to fraudulent activity. The Corporation's complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Corporation seeks to recover $4.2 million and additional damages as a result of purchasing the participation interest.

ITEM 4.  MINE SAFETY DISCLOSURES

None.

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PART II

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

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

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

Common Stock Market Prices and Dividends Paid

During the Past Two Years

December 31, 2019	High		Low		Dividends
4th Quarter	$	46.04	$	41.60	$	0.26
3rd Quarter	49.00		39.00		0.26
2nd Quarter	49.96		44.80		0.26
1st  Quarter	48.36		39.69		0.26
December 31, 2018	High		Low		Dividends
4th Quarter	$	44.52	$	38.50	$	0.26
3rd Quarter	51.69		41.02		0.26
2nd Quarter	52.99		46.01		0.26
1st  Quarter	50.24		42.50		0.26

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

As of February 28, 2020, there were 482 registered holders of record of the Corporation's stock.

The table below sets forth the information with respect to purchases made by the Corporation of our common stock during the quarter ended December 31, 2019:

Period			Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
10/01/19	-	10/31/19	—	$	—	—	121,906
11/01/19	-	11/30/19	—	$	—	—	121,906
12/01/19	-	12/31/19	—	$	—	—	121,906
Quarter ended 12/31/2019			—	$	—	—	121,906

On December 19, 2012, the Corporation’s Board of Directors approved a stock repurchase plan authorizing the purchase of up to 125,000 shares of the Corporation's outstanding common stock. Purchases may be made from time to time on the open market or in private negotiated transactions and will be at the discretion of management. For the year ended December 31, 2019, 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.

32

STOCK PERFORMANCE GRAPH

The following graph compares the yearly change in the cumulative total shareholder return on the Corporation’s common stock against the cumulative total return of the NASDAQ Stock Market (U.S. Companies), NASDAQ Bank Stocks Index, SNL U.S. Bank NASDAQ, and SNL $1B - $5B Bank Index for the period of five years commencing December 31, 2014.

		Period Ending
Index	12/31/2014	12/31/2015	12/31/2016	12/31/2017	12/31/2018	12/31/2019
Chemung Financial Corporation	100.00	103.29	141.32	191.69	168.47	177.33
NASDAQ Composite	100.00	106.96	116.45	150.96	146.67	200.49
SNL U.S. Bank NASDAQ	100.00	107.95	149.68	157.58	132.82	166.75
SNL Bank $1B-$5B	100.00	111.94	161.04	171.69	150.42	182.85

The cumulative total return includes (1) dividends paid and (2) changes in the share price of the Corporation’s common stock and assumes that all dividends were reinvested. The above graph assumes that the value of the investment in Chemung Financial Corporation and each index was $100 on December 31, 2014.

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

33

ITEM 6.  SELECTED FINANCIAL DATA

The following tables present selected financial data as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015.  The selected financial data at December 31, 2019, and 2018 and for the three year period ended December 31, 2019 is derived from our audited consolidated financial statements that appear in this annual report on Form 10-K. The other years presented in these tables are derived from audited consolidated financial statements that do not appear in this annual report on Form 10-K.   The selected financial data should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our audited consolidated financial statements and related notes.

	SUMMARIZED BALANCE SHEET DATA AT DECEMBER 31,
(in thousands)	2019		2018		2017		2016		2015
Total assets	$	1,787,827	$	1,755,343	$	1,707,620	$	1,657,179	$	1,619,964
Loans, net of deferred fees	1,309,219		1,311,906		1,311,824		1,200,290		1,168,633
AFS and HTM securities	287,205		247,133		296,872		308,107		349,386
Operating lease right-of-use assets	8,001		—		—		—		—
FHLBNY and FRBNY stock	3,099		3,138		5,784		4,041		4,797
Deposits	1,572,138		1,569,237		1,467,446		1,456,343		1,400,295
Securities sold under agreements to repurchase	—		—		10,000		27,606		28,453
FHLBNY advances	—		—		59,700		9,093		33,103
Operating lease liabilities	8,084		—		—		—		—
Long term finance lease obligation	4,085		4,304		4,517		4,722		2,873
Shareholders' equity	182,627		165,029		149,813		143,748		137,242

	SUMMARIZED EARNINGS DATA FOR THE YEARS ENDED DECEMBER 31,
(in thousands)	2019		2018		2017		2016		2015
Net interest income	$	60,611	$	60,480	$	56,987	$	52,329	$	50,642
Provision for loan losses	5,945		3,153		9,022		2,437		1,571
Net interest income after provision for loan losses	54,666		57,327		47,965		49,892		49,071
Wealth management group fee income	9,503		9,317		8,804		8,316		8,522
Service charges on deposit accounts	4,460		4,727		4,961		5,089		4,886
Interchange revenue from debit card transactions	4,104		4,040		3,761		4,027		3,307
Securities gains, net	19		—		109		987		372
Change in fair value of equity investments	81		2,004		80		43		26
Other non-interest income	1,906		2,986		2,776		2,687		3,334
Total non-interest income	20,073		23,074		20,491		21,149		20,447
Legal accruals and settlements	—		989		850		1,200		—
Other non-interest expenses	55,696		55,777		52,914		55,410		55,427
Total non-interest expenses	55,696		56,766		53,764		56,610		55,427
Income before income tax expense	19,043		23,635		14,692		14,431		14,091
Income tax expense	3,434		4,009		7,262		4,404		4,658
Net income	$	15,609	$	19,626	$	7,430	$	10,027	$	9,433

34

	SELECTED PER SHARE DATA ON SHARES OF COMMON STOCK AT OR FOR THE YEARS ENDED DECEMBER 31,
	2019		2018		2017		2016		2015		% Change 2018 To 2019		Compounded Annual Growth 5 Years
Earnings per share (1)	$	3.21	$	4.06	$	1.55	$	2.11	$	2.00	(20.9	)%	5.1	%
Dividends declared	1.04		1.04		1.04		1.04		1.04		—	%	0.7	%
Tangible book value (2) (4)	32.74		29.22		26.14		24.89		23.53		12.0	%	6.5	%
Book Value	37.35		33.99		31.10		30.07		28.96		9.9	%	4.8	%
Market price at December 31,	42.50		41.31		48.10		36.35		27.50		2.9	%	6.0	%
Common shares outstanding at year end (in thousands) (3)	4,889		4,855		4,817		4,781		4,739		0.7	%	0.8	%
Weighted average shares outstanding (in thousands)	4,869		4,832		4,800		4,762		4,719		0.8	%	0.8	%

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

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

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

(4) See the GAAP to Non-GAAP reconciliations starting at pages 68-71.

	SELECTED RATIOS AT OR FOR THE YEARS ENDED DECEMBER 31,
	2019		2018		2017		2016		2015
Return on average assets	0.88	%	1.14	%	0.43	%	0.60	%	0.60	%
Return on average equity	8.86	%	12.76	%	4.91	%	7.02	%	6.84	%
Dividend yield at year end	2.45	%	2.52	%	2.16	%	2.86	%	3.78	%
Dividend payout ratio	32.28	%	25.42	%	66.30	%	48.76	%	51.34	%
Total capital to risk adjusted assets (4)	13.98	%	13.14	%	11.82	%	12.14	%	12.26	%
Tier I capital to risk adjusted assets (4)	12.73	%	11.89	%	10.56	%	10.94	%	11.01	%
Tier I leverage ratio (4)	9.35	%	8.79	%	8.02	%	7.81	%	7.83	%
Average equity to average assets	9.98	%	8.96	%	8.83	%	8.57	%	8.74	%
Year-end equity to year-end assets ratio	10.22	%	9.40	%	8.77	%	8.67	%	8.47	%
Loans to deposits	83.28	%	83.60	%	89.40	%	82.42	%	83.46	%
Allowance for loan losses to total loans	1.79	%	1.44	%	1.61	%	1.19	%	1.22	%
Allowance for loan losses to non-performing loans	130.38	%	154.59	%	122.14	%	118.35	%	116.58	%
Non-performing loans to total loans	1.38	%	0.93	%	1.32	%	1.00	%	1.05	%
Non-performing assets to total assets	1.04	%	0.73	%	1.13	%	0.75	%	0.85	%
Net interest rate spread	3.45	%	3.59	%	3.47	%	3.26	%	3.36	%
Net interest margin	3.64	%	3.72	%	3.56	%	3.37	%	3.46	%
Efficiency ratio (unadjusted) (1)	69.03	%	67.94	%	69.39	%	77.04	%	77.97	%
Efficiency ratio (adjusted) (2) (3)	67.95	%	67.22	%	66.60	%	74.43	%	76.18	%

(1) Efficiency ratio (unadjusted) is non-interest bearing expense divided by the total of net interest income plus non-interest income.

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

(3) See the GAAP to Non-GAAP reconciliations starting at pages 69-72.

(4) Consolidated capital ratios.

35

The following tables summarize the Corporation’s unaudited net income and basic earnings per share at each quarter end for the years 2019 and 2018:

	2019
(in thousands, except per share data)	Quarter Ended
UNAUDITED QUARTERLY DATA	Mar. 31		June 30		Sept. 30		Dec. 31
Interest and dividend income	$	16,665	$	16,682	$	16,808	$	16,777
Interest expense	1,498		1,581		1,666		1,576
Net interest income	15,167		15,101		15,142		15,201
Provision for loan losses (1)	1,093		150		4,441		261
Net interest income after provision for loan losses	14,074		14,951		10,701		14,940
Total other non-interest income	4,925		5,086		4,956		5,106
Total other non-interest expenses	13,497		13,823		13,525		14,851
Income before income tax expense	5,502		6,214		2,132		5,195
Income tax expense	1,034		1,233		176		991
Net income	$	4,468	$	4,981	$	1,956	$	4,204
Basic and dilutedearnings per share	$	0.92	$	1.02	$	0.40	$	0.87

(1) The quarter ended September 30, 2019 included a $4.2 million specific impairment related to a participating interest in a commercial credit.

	2018
(in thousands, except per share data)	Quarter Ended
UNAUDITED QUARTERLY DATA	Mar. 31		June 30		Sept. 30		Dec. 31
Interest and dividend income	$	15,669	$	15,869	$	16,136	$	16,879
Interest expense	769		852		1,057		1,395
Net interest income	14,900		15,017		15,079		15,484
Provision (credit) for loan losses (1)	709		2,362		300		(218		)
Net interest income after provision (credit) for loan losses	14,191		12,655		14,779		15,702
Total other non-interest income (3)	5,475		5,325		7,381		4,893
Total other non-interest expenses (2)	14,166		14,967		13,428		14,205
Income before income tax expense	5,500		3,013		8,732		6,390
Income tax expense	1,061		486		1,802		660
Net income	$	4,439	$	2,527	$	6,930	$	5,730
Basic and dilutedearnings per share	$	0.92	$	0.52	$	1.43	$	1.18

(1) The quarter ended June 30, 2018 included an increase in the historical loss factor due to the charge-off of multiple commercial loans to one borrower in the amount of $3.6 million.

(2) The quarter ended June 30, 2018 included a $1.0 million legal settlement. Please refer to Footnote 17 of the audited consolidated financial statements for further discussion.

(3) The quarter ended September 30, 2018 included a $2.1 million increase in fair value of equity investments recognized as a result of the sale of Visa Class B shares.

36

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

Overview

The following is the MD&A of the Corporation in this Form 10-K at December 31, 2019 and 2018, and for the years ended December 31, 2019, 2018, and 2017. The purpose of this discussion is to focus on information about the financial condition and results of operations of the Corporation. Reference should be made to the accompanying audited consolidated financial statements and footnotes for an understanding of the following discussion and analysis. See the list of commonly used abbreviations and terms on pages 1-4.

The MD&A included in this Form 10-K contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below.

The Corporation has been a financial holding company since 2000, and the Bank was established in 1833, CFS in 2001, and CRM in 2016. Through the Bank and CFS, the Corporation provides a wide range of financial services, including demand, savings and time deposits, commercial, residential and consumer loans, interest rate swaps, letters of credit, wealth management services, employee benefit plans, insurance products, mutual funds and brokerage services. The Bank relies substantially on a foundation of locally generated deposits. The Corporation, on a stand-alone basis, has minimal results of operations. The Bank derives its income primarily from interest and fees on loans, interest on investment securities, WMG fee income and fees received in connection with deposit and other services. The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans and general operating expenses.

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

Forward-looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act, Section 21E of the Exchange Act, and the Private Securities Litigation Reform Act of 1995. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding the Corporation's expected financial position and operating results, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend." The Corporation cannot guarantee that its expectations in such forward-looking statements will turn out to be correct. The Corporation's actual results could be materially different from expectations because of various factors, including changes in economic conditions or interest rates, credit risk, difficulties in managing the Corporation’s growth, competition, changes in law or the regulatory environment, including the Dodd-Frank Act, and changes in general business and economic trends. Information concerning these and other factors can be found in the Corporation’s periodic filings with the SEC, including the discussion under the heading “Item 1A. Risk Factors” of this annual report on Form 10-K. The Corporation's quarterly filings are available publicly on the SEC’s web site at http://www.sec.gov, on the Corporation's web site at http://www.chemungcanal.com or by written request to: Kathleen S. McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal Plaza, Elmira, NY 14901. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

37

Consolidated Financial Highlights

	As of or for the Years Ended
	December 31,			December 31,			December 31,
(in thousands, except per share data)	2019			2018			2017
RESULTS OF OPERATIONS
Interest and dividend income	$	66,932		$	64,553		$	60,055
Interest expense	6,321			4,073			3,068
Net interest income	60,611			60,480			56,987
Provision for loan losses	5,945			3,153			9,022
Net interest income after provision for loan losses	54,666			57,327			47,965
Non-interest income	20,073			23,074			20,491
Non-interest expenses	55,696			56,766			53,764
Income before income tax expense	19,043			23,635			14,692
Income tax expense	3,434			4,009			7,262
Net income	$	15,609		$	19,626		$	7,430
Basic and diluted earnings per share	$	3.21		$	4.06		$	1.55
Average basic and diluted shares outstanding	4,869			4,832			4,800
PERFORMANCE RATIOS
Return on average assets	0.88		%	1.14		%	0.43		%
Return on average equity	8.86		%	12.76		%	4.91		%
Return on average tangible equity (a)	10.18		%	15.07		%	5.85		%
Efficiency ratio (unadjusted) (g)	69.03		%	67.94		%	69.39		%
Efficiency ratio (adjusted) (a) (b)	67.95		%	67.22		%	66.60		%
Non-interest expense to average assets (a) (c)	3.16		%	3.31		%	3.14		%
Loans to deposits	83.28		%	83.60		%	89.40		%
AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	4.50		%	4.39		%	4.24		%
Yield on investments	2.37		%	2.19		%	2.08		%
Yield on interest-earning assets	4.02		%	3.96		%	3.75		%
Cost of interest-bearing deposits	0.56		%	0.31		%	0.20		%
Cost of borrowings	3.53		%	2.37		%	2.78		%
Cost of interest-bearing liabilities	0.57		%	0.37		%	0.28		%
Interest rate spread	3.45		%	3.59		%	3.47		%
Net interest margin, fully taxable equivalent	3.64		%	3.72		%	3.56		%
CAPITAL
Total equity to total assets at end of year	10.22		%	9.40		%	8.77		%
Tangible equity to tangible assets at end of year (a)	9.07		%	8.19		%	7.48		%
Book value per share	$	37.35		$	33.99		$	31.10
Tangible book value per share (a)	32.74			29.22			26.14
Year-end market value per share	42.50			41.31			48.10
Dividends declared per share	1.04			1.04			1.04

38

	As of or for the Years Ended
	December 31,			December 31,			December 31,
(in thousands, except per share data)	2019			2018			2017
AVERAGE BALANCES
Loans (d)	$	1,296,426		$	1,320,059		$	1,251,225
Interest-earning assets	1,674,668			1,638,803			1,623,948
Total assets	1,764,401			1,716,992			1,713,233
Deposits	1,558,164			1,515,658			1,514,457
Total equity	176,138			153,793			151,229
Tangible equity (a)	153,278			130,256			126,902
ASSET QUALITY
Net charge-offs	$	1,411		$	5,369		$	2,114
Non-performing loans (e)	18,008			12,254			17,324
Non-performing assets (f)	18,525			12,828			19,264
Allowance for loan losses	23,478			18,944			21,161
Annualized net charge-offs to average loans	0.11		%	0.41		%	0.17		%
Non-performing loans to total loans	1.38		%	0.93		%	1.32		%
Non-performing assets to total assets	1.04		%	0.73		%	1.13		%
Allowance for loan losses to total loans	1.79		%	1.44		%	1.61		%
Allowance for loan losses to non-performing loans	130.38		%	154.59		%	122.14		%
(a) See the GAAP to Non-GAAP reconciliations on pages 69-72.
(b) Efficiency ratio (adjusted) is non-interest expense less merger and acquisition expenses less amortization of intangible assets less legal accruals and settlements divided by the total of fully taxable equivalent net interest income plus non-interest income less net gains on securities transactions.
(c) For the non-interest expense to average assets ratio, non-interest expense does not include legal accruals and settlements. See footnote 17 of the audited consolidated financial statements for further discussion.
(d) Loans include loans held for sale. Loans do not reflect the allowance for loan losses.
(e) Non-performing loans include non-accrual loans only.
(f) Non-performing assets include non-performing loans plus other real estate owned.
(g) Efficiency ratio (unadjusted) is non-interest bearing expense divided by the total of net interest income plus non-interest income.

39

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

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

	Years Ended December 31,
	2019			2018			Change			Percentage Change
Net interest income	$	60,611		$	60,480		$	131		0.2	%
Non-interest income	20,073			23,074			(3,001		)	(13.0	)%
Non-interest expenses	55,696			56,766			(1,070		)	(1.9	)%
Pre-provision income	24,988			26,788			(1,800		)	(6.7	)%
Provision for loan losses	5,945			3,153			2,792			88.6	%
Income tax expense	3,434			4,009			(575		)	(14.3	)%
Net income	$	15,609		$	19,626		$	(4,017	)	(20.5	)%
Basic and diluted earnings per share	$	3.21		$	4.06		$	(0.85	)	(20.9	)%
Selected financial ratios
Return on average assets	0.88		%	1.14		%
Return on average equity	8.86		%	12.76		%
Net interest margin, fully taxable equivalent	3.64		%	3.72		%
Efficiency ratio (a)	67.95		%	67.22		%
Non-interest expense to average assets (a)	3.16		%	3.31		%

(a) See the GAAP to Non-GAAP reconciliations on pages 68-71.

Net income for the year ended December 31, 2019 was $15.6 million, or $3.21 per share, compared with net income of $19.6 million, or $4.06 per share, for the prior year. Return on average equity for the year ended December 31, 2019 was 8.86%, compared with 12.76% for the prior year. The decrease in net income for the year ended December 31, 2019, compared to the prior year, was driven by a decrease in non-interest income and an increase in the provision for loan losses, partially offset by an increase in net interest income and decreases in non-interest expenses and income tax expense.

Net interest income

Net interest income increased $0.1 million, or 0.2% in 2019, compared with the prior year. The increase was due primarily to the impact of an increase of $35.9 million in average interest-earning assets, offset by the impact of an eight basis points decline in net interest margin.

Non-interest income

Non-interest income decreased $3.0 million, or 13.0% in 2019, compared to the prior year. The decrease was due primarily to decreases of $1.9 million in the change in fair value of equity investments, $0.9 million in other non-interest income, $0.2 million in net gains (losses) on sales of other real estate owned, and $0.3 million in service charges on deposit accounts, offset by an increase of $0.2 million in WMG fee income and an increase of $0.2 million in CFS fee and commission income. The decrease in the change in fair value of equity investments was due primarily to the $2.1 million increase in the fair value of Visa Class B shares in the prior year, and a $0.1 million loss related to an investment in a limited partnership in the current year. Subsequent to the change in fair value, the Visa Class B shares were sold during the third quarter of 2018. The decrease in other non-interest income was due to a $0.4 million state sales tax refund in the prior year, a decrease of $0.1 million in rental income from other property owned in the prior year, and a decrease of $0.1 million in interest rate swap income primarily due to changes in market value in the current year. The increase in WMG fee income can be mostly attributed to an increase in the market value of assets under management and additional fee income from terminating trusts. CFS fee and commission income increased in 2019 compared to the prior year due to an increase in transaction activity.

40

Non-interest expenses

Non-interest expenses decreased $1.1 million, or 1.9% in 2019. The decrease was due primarily to decreases of $1.0 million in legal accruals and settlements, $0.6 million in net occupancy expenses, $0.6 million in FDIC insurance expense, $0.3 million in professional services, $0.3 million in other real estate owned expenses, and $0.2 in marketing and advertising expenses. These items were partially offset by increases of $1.1 million in salaries and wages, $0.4 million in pension and other employee benefits, $0.4 million in data processing expenses, and $0.1 million in other non-interest expenses. The decrease in legal accruals and settlements was due to the resolution by way of a settlement agreement in the matter of Fane v. Chemung Canal Trust Company. This matter was settled in March 2018. Additional information can be found in Footnote 17 of the attached Financial Statements. The decrease in net occupancy and furniture and equipment expenses was mostly attributable to a reduction in depreciation expense related to mechanical equipment, the closing of two branches in 2019, and the reduction in non-capitalizable fixed asset purchases as compared to the prior year due to the opening of two new branches in 2018. The decrease in FDIC insurance expense was primarily due to the receipt of a $0.4 million credit related to the Deposit Insurance Fund’s (DIF) minimum reserve ratio assessment. The decrease in professional services was due to consulting fees incurred in the prior year associated with a sales tax refund in the prior year. The decrease in other real estate owned expenses can be attributed to a reduction in the number of OREO properties in 2019 as compared to 2018. The decrease in marketing and advertising expenses was due to an increased marketing effort in 2018 to support the opening of two denovo branches during the year. The increase in salaries and wages can be attributed to annual merit increases and a lower vacancy rate in 2019. The increase in pension and other employee benefits can be attributed to full vesting of stock awards related to an executive retirement and an increase in payroll tax and health insurance expenses. The increase in other non-interest expense can be attributed to a $0.3 million charge taken to recognize the impairment of a fixed asset.

For the years ended December 31, 2019 and 2018, the ratio of non-interest expense to average assets was 3.16% and 3.31%, respectively.

Provision for loan losses

The provision for loan losses increased $2.8 million, or 88.6% in 2019, compared to the prior year. The increase was primarily the result of specific impairments in loans identified as impaired, including $1.8 million in specific reserves related to a commercial real estate loan and $4.2 million in specific reserves related to a participating interest in a commercial and industrial credit, offset by a decline in volume and loss factors on commercial and consumer unclassified pooled loans. Net charge-offs were $1.4 million in 2019, compared with $5.4 million for the prior year. The decrease in net charge-offs was due primarily to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

Income tax expense

Income tax expense decreased $0.6 million, or 14.3% in 2019, compared to the prior year. The effective tax rate for 2019 increased to 18.0% compared with 17.0% for the prior year. The decrease in income tax expense was primarily due to a decrease in pretax income.

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

	Years Ended December 31,
	2018			2017			Change			Percentage Change
Net interest income	$	60,480		$	56,987		$	3,493		6.1	%
Non-interest income	23,074			20,491			2,583			12.6	%
Non-interest expenses	56,766			53,764			3,002			5.6	%
Pre-provision income	26,788			23,714			3,074			13.0	%
Provision for loan losses	3,153			9,022			(5,869		)	(65.1	)%
Income tax expense	4,009			7,262			(3,253		)	(44.8	)%
Net income	$	19,626		$	7,430		$	12,196		164.1	%
Basic and diluted earnings per share	$	4.06		$	1.55		$	2.51		161.9	%
Selected financial ratios
Return on average assets	1.14		%	0.43		%
Return on average equity	12.76		%	4.91		%
Net interest margin, fully taxable equivalent	3.72		%	3.56		%
Efficiency ratio (a)	67.22		%	66.60		%
Non-interest expense to average assets (a)	3.31		%	3.14		%

(a) See the GAAP to Non-GAAP reconciliations on pages 69-72.

Net income for the year ended December 31, 2018 was $19.6 million, or $4.06 per share, compared with $7.4 million, or $1.55 per share, for the prior year. Return on equity for the year ended December 31, 2018 was 12.76%, compared with 4.91% for the prior year. The increase in net income for the year ended December 31, 2018, compared to the prior year, was driven by increases in net interest income and non-interest income, and decreases in the provision for loan losses and income tax expense, partially offset by an increase in non-interest expenses.

Net interest income

Net interest income increased $3.5 million, or 6.1% in 2018, compared with the prior year. The increase was due primarily to an increase of $14.9 million in average interest-earning assets, and a 16 basis points increase in net interest margin.

Non-interest income

Non-interest income increased $2.6 million, or 12.6% in 2018, compared to the prior year. The increase was due primarily to an increase in the fair value of equity investments as a result of the sale of Visa Class B shares, WMG fee income, and interchange revenue from debit card transactions, partially offset by a decrease in service charges on deposit accounts.

Non-interest expense

Non-interest expense increased $3.0 million, or 5.6% in 2018, compared to the prior year. The increase was due primarily to the increases in salaries and wages, net occupancy expenses, data processing expenses, professional services, marketing and advertising expenses, and other real estate owned expenses and a decrease in other components of net periodic pension cost (benefits). For the years ended December 31, 2018 and 2017, non-interest expense to average assets was 3.31% and 3.14%, respectively.

Provision for loan losses

The provision for loan losses decreased $5.9 million, or 65.1% in 2018, compared to the prior year. The decrease was primarily the result of specific impairments in loans identified as impaired, including $4.9 million in specific reserves for eight commercial loans to two long-standing relationships in the Southern Tier of New York recorded in 2017, a decrease in volume and loss factors relating to the residential, home equity, and the indirect and consumer portfolios, partially offset by an increase in volume and loss factors in the commercial loan portfolio. Net charge-offs were $5.4 million in 2018, compared with $2.1 million for the prior year. The increase in the net charge-offs was due primarily to the charge-off of multiple large commercial loans to one borrower for $3.6 million during the second quarter of 2018.

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Income tax expense

Income tax expense decreased $3.3 million, or 44.8% in 2018, compared to the prior year. The effective tax rate for 2018 decreased to 17.0% compared with 49.4% for the prior year. The decreases in income tax expense the effective tax rate can be attributed to a tax benefit of $0.4 million recorded in December 2018 and to the estimated $2.9 million one-time net deferred tax revaluation expense recorded in December 2017, both due to 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 expense.

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the years ended December 31, 2019 and 2018 and for the years ended December 31, 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 68.

Net Interest Income

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

	Years Ended December 31,
	2019		2018		Change		Percentage Change
Interest and dividend income	$	66,932	$	64,553	$	2,379	3.7	%
Interest expense	6,321		4,073		2,248		55.2	%
Net interest income	$	60,611	$	60,480	$	131	0.2	%

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

Net interest income for the year ended December 31, 2019 totaled $60.6 million, an increase of $0.1 million, or 0.2%, compared with $60.5 million for the prior year. Fully taxable equivalent net interest margin was 3.64% for the year ended December 31, 2019 compared with 3.72% for the prior year. The increase in total interest and dividend income in 2019 was due primarily to increases in interest income on interest-earning deposits of $1.5 million, interest and fees from loans of $0.4 million, and interest income from taxable securities of $0.5 million, compared to the prior year. The increase in total interest expense in 2019 was due primarily to an increase in interest expense on deposits of $2.9 million, offset by decreases in interest expense on securities sold under agreements to repurchase of $0.1 million, and interest expense on borrowed funds of $0.5 million, compared to the prior year. Average interest-earning assets increased $35.9 million in 2019 when compared to the prior year. The average yield on average interest-earning assets increased 6 basis points, while the average cost of interest-bearing liabilities increased 20 basis points, as compared to the prior year.

As compared to 2018, total interest income increased by $2.4 million. Interest income on interest-earning deposits was up $1.5 million due to a $67 million increase in average balances, and income on taxable securities increased by $0.5 million mainly due to an increase in average yield of 24 basis points. The increase in average interest-earning deposits was primarily driven by decreases in average total loan balances and increases in average total deposits. Additionally, interest on Commercial loans increased by $1.1 million due to an increase in average balances as well as an increase in average rates. This was offset by a decline of $0.5 million in consumer loan income, which declined mainly due to a decrease in average volume, and a decline of $0.2 million in mortgage loan income. Total interest expense increased by $2.2 million. This was mostly driven by interest on savings and money market deposits, time deposits, and interest-bearing demand deposits, which increased by $1.0 million, $1.4 million, and $0.4 million respectively, mainly due to increases in average rates due to competitive factors. This increase in expense was offset by a decrease in borrowing expense of $0.6 million, which was driven mainly due to a decrease in average volume due to a decline in average overnight FHLBNY advances.

43

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

	Years Ended December 31,
	2018		2017		Change		Percentage Change
Interest and dividend income	$	64,553	$	60,055	$	4,498	7.5	%
Interest expense	4,073		3,068		1,005		32.8	%
Net interest income	$	60,480	$	56,987	$	3,493	6.1	%

Net interest income for the year ended December 31, 2018 totaled $60.5 million, an increase of $3.5 million, or 6.1%, compared with $57.0 million for the prior year. Fully taxable equivalent net interest margin was 3.72% for the year ended December 31, 2018 compared with 3.56% for the prior year. The increase in total interest and dividend income in 2018 was due primarily to increases in interest and fees of $5.0 million from loans and interest income of $0.2 million from interest-earning deposits, while interest and dividend income from securities decreased $0.7 million compared to the prior year. The increase in total interest expense in 2018 was due primarily to increases in interest expense of $1.2 million on deposits and $0.2 million on borrowed funds, while interest expense on securities sold under agreements to repurchase decreased $0.3 million, compared to the prior year. Average interest-earning assets increased $14.9 million in 2018 when compared to the prior year. The average yield on average interest-earning assets increased 21 basis points, while the average cost of interest-bearing liabilities increased nine basis points, as compared to the prior year. The increase in interest and dividend income in 2018 was due primarily to a $61.6 million increase in the average balance of commercial loans, primarily commercial mortgages, along with a 22 basis points increase in the average yield on commercial loans as a result of the rising interest rate environment, and a $14.3 million increase in the average balance of consumer loans, compared to the prior year. The increase in interest expense in 2018 was due primarily to an increase in interest rates on interest-bearing deposit accounts, including promotional interest rates on time deposits, offset by a 41 basis points decrease in the average cost on borrowed funds due to the maturity of one $2.0 million FHLB term advance (3.05% rate) in January and one $10.0 million repurchase agreement (3.72% rate) in May 2018, as compared to the prior year.

Average Consolidated Balance Sheet and Interest Analysis

The following table presents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the years ended December 31, 2019, 2018 and 2017. It also reflects the average yield on interest-earning assets and average cost of interest-bearing liabilities for the years ended December 31, 2019, 2018 and 2017. For the purpose of the table below, non-accruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans and dividends on equity investments. With the new 21% statutory federal tax rate effective January 1, 2018, the conversion factor to a fully taxable equivalent basis decreased in 2018. The decline had no impact on net income, but caused the net interest margin on a fully taxable equivalent basis to decrease.

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AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
	Year Ended December 31,
	2019								2018								2017
(in thousands)	Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate		Average Balance			Interest			Yield/ Rate
Interest-earning assets:
Commercial loans	$	862,479		$	40,250		4.67	%	$	853,240		$	39,166		4.59	%	$	791,627		$	34,596		4.37	%
Mortgage loans	183,696			6,998			3.81	%	191,668			7,197			3.75	%	198,783			7,541			3.79	%
Consumer loans	250,251			11,133			4.45	%	275,151			11,625			4.22	%	260,815			10,964			4.20	%
Taxable securities	230,263			5,276			2.29	%	234,407			4,815			2.05	%	270,168			5,510			2.04	%
Tax-exempt securities	47,464			1,408			2.97	%	51,036			1,414			2.77	%	52,227			1,669			3.20	%
Interest-earning deposits	100,515			2,270			2.26	%	33,301			756			2.27	%	50,328			563			1.12	%
Total interest-earning assets	1,674,668			67,335			4.02	%	1,638,803			64,973			3.96	%	1,623,948			60,843			3.75	%
Non-interest earning assets:
Cash and due from banks	25,976								27,122								25,663
Premises and equipment, net	25,911								26,024								27,936
Other assets	59,306								54,831								53,883
Allowance for loan losses	(20,886		)						(20,534		)						(15,066		)
AFS valuation allowance	(574		)						(9,254		)						(3,131		)
Total assets	$	1,764,401							$	1,716,992							$	1,713,233
Interest-bearing liabilities:
Interest-bearing demand deposits	$	191,759		767			0.40	%	$	156,432		365			0.23	%	$	146,999		135			0.09	%
Savings and insured money market deposits	739,417			3,073			0.42	%	764,420			2,044			0.27	%	800,070			1,566			0.20	%
Time deposits	164,604			2,333			1.42	%	134,837			914			0.68	%	132,607			467			0.35	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	4,187			148			3.53	%	31,590			750			2.37	%	32,350			900			2.78	%
Total interest-bearing liabilities	1,099,967			6,321			0.57	%	1,087,279			4,073			0.37	%	1,112,026			3,068			0.28	%
Non-interest bearing liabilities:
Demand deposits	462,384								459,969								434,781
Other liabilities	25,912								15,951								15,197
Total liabilities	1,588,263								1,563,199								1,562,004
Shareholders' equity	176,138								153,793								151,229
Total liabilities and shareholders’ equity	$	1,764,401							$	1,716,992							$	1,713,233
Fully taxable equivalent net interest income				61,014								60,900								57,775
Net interest rate spread (1)							3.45	%							3.59	%							3.47	%
Net interest margin, fully taxable equivalent (2)							3.64	%							3.72	%							3.56	%
Taxable equivalent adjustment				(403		)						(420		)						(788		)
Net interest income				$	60,611							$	60,480							$	56,987

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

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

45

Changes Due to Rate and Volume

Net interest income can be analyzed in terms of the impact of changes in rates and volumes.  The table below illustrates the extent to which changes in interest rates and in the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the years indicated.  Information is provided in each category with respect to (i) changes attributable to changes in volume (changes in volume multiplied by prior rate); (ii) changes attributable to changes in rates (changes in rates multiplied by prior volume); and (iii) the net changes.  For purposes of this table, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate.  Due to the numerous simultaneous volume and rate changes during the years analyzed, it is not possible to precisely allocate changes between volume and rates.  In addition, average interest-earning assets include non-accrual loans and taxable equivalent adjustments were made.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	2019 vs. 2018									2018 vs. 2017
	Increase/(Decrease)									Increase/(Decrease)
(in thousands)	Total Change			Due to Volume			Due to Rate			Total Change			Due to Volume			Due to Rate
Interest income
Commercial loans	$	1,084		$	415		$	669		$	4,570		$	2,775		$	1,795
Mortgage loans	(199		)	(310		)	111			(344		)	(265		)	(79		)
Consumer loans	(492		)	(1,097		)	605			661			608			53
Taxable securities	461			(87		)	548			(695		)	(722		)	27
Tax-exempt securities	(6		)	(103		)	97			(255		)	(37		)	(218		)
Interest-earning deposits	1,514			1,517			(3		)	193			(239		)	432
Total interest income	2,362			335			2,027			4,130			2,120			2,010

Interest expense
Interest-bearing demand deposits	402			94			308			230			9			221
Savings and insured money market deposits	1,029			(71		)	1,100			478			(72		)	550
Time deposits	1,419			239			1,180			447			8			439
FHLBNY advances, securities sold under agreements to repurchase and other debt	(602		)	(853		)	251			(150		)	(20		)	(130		)
Total interest expense	2,248			(591		)	2,839			1,005			(75		)	1,080
Fully taxable equivalent net interest income	$	114		$	926		$	(812	)	$	3,125		$	2,195		$	930

Provision for loan losses

Management performs an ongoing assessment of the adequacy of the allowance for loan losses based upon a number of factors including an analysis of historical loss factors, collateral evaluations, recent charge-off experience, credit quality of the loan portfolio, current economic conditions and loan growth. Based on this analysis, the provision for loan losses for the years ended December 31, 2019, 2018 and 2017 were $5.9 million, $3.2 million and $9.0 million, respectively. The increase in provision for loan losses in 2019, as compared to 2018, was primarily the result of specific impairments in loans identified as impaired, including $1.8 million in specific reserves related to a commercial real estate loan and $4.2 million in specific reserves related to a participating interest in a commercial and industrial credit, offset by a decline in volume and loss factors on commercial and consumer unclassified pooled loans. The decrease in provision for loan losses in 2018, as compared to 2017, was due primarily to $4.9 million in specific reserves for commercial loans to two long-standing relationships in the Southern Tier of New York recorded in 2017, a decrease in volume and loss factors relating to the residential, home equity, and the indirect and consumer portfolios, partially offset by an increase in volume and loss factors in the commercial loan portfolio. Net charge-offs for the years ended December 31, 2019, 2018 and 2017 were $1.4 million, $5.4 million and $2.1 million, respectively.

46

Non-interest income

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

	Years Ended December 31,
	2019			2018		Change			Percentage Change
WMG fee income	$	9,503		$	9,317	$	186		2.0	%
Service charges on deposit accounts	4,460			4,727		(267		)	(5.6	)%
Interchange revenue from debit card transactions	4,104			4,040		64			1.6	%
Net gains on securities transactions	19			—		19			N/M
Change in fair value of equity investments	81			2,004		(1,923		)	(96.0	)%
Net gains on sales of loans held for sale	248			351		(103		)	(29.3	)%
Net gains (losses) on sales of other real estate owned	(99		)	90		(189		)	(210.0	)%
Income from bank owned life insurance	63			66		(3		)	(4.5	)%
CFS fee and commission income	673			510		163			32.0	%
Other	1,021			1,969		(948		)	(48.1	)%
Total non-interest income	$	20,073		$	23,074	$	(3,001	)	(13.0	)%

Non-interest income for the year ended December 31, 2019 was $20.1 million compared with $23.1 million for the prior year, a decrease of $3.0 million, or 13.0%. The decrease was due primarily to decreases of $1.9 million in the change in fair value of equity investments, $0.9 million in other non-interest income, $0.2 million in net gains (losses) on sales of other real estate owned, and $0.3 million in service charges on deposit accounts, offset by an increase of $0.2 million in WMG fee income and an increase of $0.2 million in CFS fee and commission income.

WMG fee income

WMG fee income increased in 2019 compared to the prior year primarily due to an increase in average assets under management and additional fee income from terminating trusts.

Service charges on deposit accounts

Service charges on deposit accounts decreased in 2019 compared to the prior year due to a decrease in overdraft fee income.

Net gains (losses) on sales of other real estate owned

Net losses on sales of other real estate owned was due to losses on properties sold.

Change in fair value of equity investments

Change in fair value of equity investments decreased in 2019 compared to the prior year due primarily to the increase in the fair value of Visa Class B shares in the prior year. Subsequent to the change in fair value, the Visa Class B shares were sold during the third quarter of 2018.

CFS fee and commission income

CFS fee and commission income increased in 2019 compared to the prior year due to an increase in transaction activity.

Other non-interest income

Other non-interest income decreased in 2019 compared to the prior year due primarily to a one time refund in sales tax in 2018, a decrease in swap fees and a decline in rental income on OREO properties.

47

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

	Years Ended December 31,
	2018		2017		Change			Percentage Change
WMG fee income	$	9,317	$	8,804	$	513		5.8	%
Service charges on deposit accounts	4,727		4,961		(234		)	(4.7	)%
Interchange revenue from debit card transactions	4,040		3,761		279			7.4	%
Net gains on securities transactions	—		109		(109		)	(100.0	)%
Change in fair value of equity investments	2,004		80		1,924			2,405.0	%
Net gains on sales of loans held for sale	351		260		91			35.0	%
Net gains (losses) on sales of other real estate owned	90		38		52			136.8	%
Income from bank owned life insurance	66		70		(4		)	(5.7	)%
CFS fee and commission income	510		646		(136		)	(21.1	)%
Other	1,969		1,762		207			11.7	%
Total non-interest income	$	23,074	$	20,491	$	2,583		12.6	%

Total non-interest income for year ended December 31, 2018 increased $2.6 million compared to the prior year. The increase was due primarily to increases in the fair value of equity investments, WMG fee income and interchange revenue from debit card transactions, partially offset by a decrease in service charges on deposits accounts.

WMG fee income

WMG fee income increased in 2018 compared to the prior year due to an increase in average assets under management or administration.

Service charges on deposit accounts

Service charges on deposit accounts decreased in 2018 compared to the prior year due to a decrease in overdraft fees.

Interchange revenue from debit card transactions

Interchange revenue from debit card transactions increased in 2018 compared to the prior year due to an increase in the volume of transactions.

Net gains on securities transactions

Net gains on securities transactions decreased in 2018 compared to the prior year due to there being no sales of securities in 2018.

Change in fair value of equity investments

Change in fair value of equity investments increased in 2018 compared to the prior year due primarily to the increase in the fair value of Visa Class B shares. Subsequent to the change in fair value, the Visa Class B shares were sold during the third quarter of 2018.

CFS fee and commission income

CFS fee and commission income decreased in 2018 compared to the prior year due to a decrease in transaction activity.

48

Non-interest expenses

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

	Years Ended December 31,
	2019			2018			Change			Percentage Change
Compensation expenses:
Salaries and wages	$	23,420		$	22,322		$	1,098		4.9	%
Pension and other employee benefits	5,902			5,524			378			6.8	%
Other components of net periodic pension cost (benefits)	(541		)	(770		)	229			29.7	%
Total compensation expenses	28,781			27,076			1,705			6.3	%
Non-compensation expenses:
Net occupancy	5,969			6,550			(581		)	(8.9	)%
Furniture and equipment	2,497			2,550			(53		)	(2.1	)%
Data processing	7,386			6,997			389			5.6	%
Professional services	1,885			2,169			(284		)	(13.1	)%
Legal accruals and settlements	—			989			(989		)	(100.0	)%
Amortization of intangible assets	609			734			(125		)	(17.0	)%
Marketing and advertising	932			1,181			(249		)	(21.1	)%
Other real estate owned expense	115			422			(307		)	(72.7	)%
FDIC insurance	537			1,142			(605		)	(53.0	)%
Loan expense	787			863			(76		)	(8.8	)%
Other	6,198			6,093			105			1.7	%
Total non-compensation expenses	26,915			29,690			(2,775		)	(9.3	)%
Total non-interest expenses	$	55,696		$	56,766		$	(1,070	)	(1.9	)%

Non-interest expense decreased $1.1 million, or 1.9% in 2019. The decrease was due primarily to decreases of $1.0 million in legal accruals and settlements, $0.6 million in net occupancy expenses, $0.6 million in FDIC insurance expense, $0.3 million in professional services, $0.3 million in other real estate owned expenses, and $0.2 in marketing and advertising expenses. These items were partially offset by increases of $1.1 million in salaries and wages, $0.4 million in pension and other employee benefits, $0.4 million in data processing expenses, and $0.1 million in other non-interest expenses.

Compensation expenses

Compensation expenses increased in 2019 compared to the prior year due to increases in salaries and wages, and pension and other employee benefit expense. The increase in salaries and wages can be attributed to annual merit increases and a lower vacancy rate in 2019. The increase in pension and other employee benefits can be partially attributed to full vesting of stock awards related to an executive retirement and increases in payroll tax and health insurance expenses.

Non-compensation expenses

The decrease in legal accruals and settlements was due to the resolution by way of a settlement agreement in the matter of Fane v. Chemung Canal Trust Company. This matter was settled in March 2018. Additional information can be found in Footnote 17 of the attached Financial Statements. The decrease in net occupancy and furniture and equipment expenses was mostly attributable to a reduction in depreciation expense related to mechanical equipment, the closing of two branches in 2019, and the reduction in non-capitalizable fixed asset purchases as compared to the prior year due to the opening of two new branches in 2018. The decrease in FDIC insurance expense was primarily due to the receipt of a $0.4 million credit related to the Deposit Insurance Fund’s (DIF) minimum reserve ratio assessment. The decrease in professional services was due to consulting fees incurred in the prior year associated with a sales tax refund in the prior year. The decrease in other real estate owned expenses can be attributed to a reduction in the number of OREO properties in 2019 as compared to 2018. The decrease in marketing and advertising expenses was due to an increased marketing effort in 2018 to support the opening of two denovo branches during the year. The increase in other non-interest expense can be attributed to a $0.3 million charge taken to recognize the impairment of a fixed asset.

49

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

	Years Ended December 31,
	2018			2017			Change			Percentage Change
Compensation expenses:
Salaries and wages	$	22,322		$	21,476		$	846		3.9	%
Pension and other employee benefits	5,524			5,510			14			0.3	%
Other components of net periodic pension cost (benefits)	(770		)	(1,234		)	464			37.6	%
Total compensation expenses	27,076			25,752			1,324			5.1	%
Non-compensation expenses:
Net occupancy	6,550			6,263			287			4.6	%
Furniture and equipment	2,550			2,828			(278		)	(9.8	)%
Data processing	6,997			6,539			458			7.0	%
Professional services	2,169			1,774			395			22.3	%
Legal settlements	989			850			139			16.4	%
Amortization of intangible assets	734			860			(126		)	(14.7	)%
Marketing and advertising	1,181			794			387			48.7	%
Other real estate owned expense	422			110			312			283.6	%
FDIC insurance	1,142			1,236			(94		)	(7.6	)%
Loan expense	863			694			169			24.4	%
Other	6,093			6,064			29			0.5	%
Total non-compensation expenses	29,690			28,012			1,678			6.0	%
Total non-interest expenses	$	56,766		$	53,764		$	3,002		5.6	%

Total non-interest expenses for the year ended December 31, 2018 increased $3.0 million compared with the prior year. The decrease was primarily due to decreases in compensation and non-compensation expenses.

Compensation expenses

Compensation expenses increased in 2018 compared to the prior year due to an increase in salaries and wages and a decrease in other components of net periodic pension and postretirement cost (benefits). The increase in salaries and wages can be attributed to annual merit increases and an increase in headcount with two denovo branches which opened in 2018. The decrease in other components of net periodic pension cost (benefits) was due primarily to a $0.8 million charge related to a lump sum settlement to terminated, vested employees in 2018.

Non-compensation expenses

Non-compensation expenses increased in 2018 compared to the prior year primarily due to increases in net occupancy, data processing, professional services, marketing and advertising, and other real estate owned expense, offset by a decrease in furniture and equipment expenses. The increase in net occupancy and data processing expenses can be attributed to the two new denovo branches, along with the timing of various projects. The increase in marketing and advertising can be attributed to advertising campaigns related to the opening of the two denovo branches. The increase in other real estate owned expense can be attributed to additional OREO properties acquired during 2017 and 2018.

50

Income tax expense

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

	Years Ended December 31,
	2019			2018			Change			Percentage Change
Income before income tax expense	$	19,043		$	23,635		$	(4,592	)	(19.4	)%
Income tax expense	$	3,434		$	4,009		$	(575	)	(14.3	)%
Effective tax rate	18.0		%	17.0		%

The effective tax rate increased to 18.0% for the year ended December 31, 2019 compared with 17.0% for the prior year. The increase in the effective tax rate can be attributed to a tax benefit of $0.4 million recorded in December 2018 due to the enactment of the Tax Act. The decrease in income tax expense can be attributed to a decrease in pre-tax income.

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

	Years Ended December 31,
	2018			2017			Change			Percentage Change
Income before income tax expense	$	23,635		$	14,692		$	8,943		60.9	%
Income tax expense	$	4,009		$	7,262		$	(3,253	)	(44.8	)%
Effective tax rate	17.0		%	49.4		%

The effective tax rate decreased to 17.0% for the year ended December 31, 2018 compared with 49.4% for the prior year. The decrease in the effective tax rate can be attributed to a tax benefit of $0.4 million recorded in December 2018 and to the estimated $2.9 million one-time net deferred tax revaluation expense recorded in December 2017, both due to the enactment of the Tax Act. The effective tax rates for the years ended December 31, 2018 and 2017, excluding the tax benefit and one-time net deferred tax revaluation, were 18.8%¹ and 29.5%², respectively.

¹ ($4,009 income tax expense + 445 revaluation of net deferred tax expense) / $23,635 income before income tax expense.

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

51

Financial Condition

The following table presents selected financial information at December 31, 2019 and 2018, and the dollar and percent change (in thousands):

	December 31, 2019			December 31, 2018			Change			Percentage Change
Assets
Total cash and cash equivalents	$	121,904		$	129,972		$	(8,068	)	(6.2	)%
Total investment securities, FHLB, and FRB stock	292,478			252,180			40,298			16.0	%
Loans, net of deferred loan fees	1,309,219			1,311,906			(2,687		)	(0.2	)%
Allowance for loan losses	(23,478		)	(18,944		)	(4,534		)	23.9	%
Loans, net	1,285,741			1,292,962			(7,221		)	(0.6	)%
Goodwill and other intangible assets, net	22,566			23,175			(609		)	(2.6	)%
Other assets	65,138			57,054			8,084			14.2	%
Total assets	$	1,787,827		$	1,755,343		$	32,484		1.9	%
Liabilities and Shareholders’ Equity
Total deposits	$	1,572,138		$	1,569,237		$	2,901		0.2	%
FHLBNY advances and other debt	4,085			4,304			(219		)	(5.1	)%
Other liabilities	28,977			16,773			12,204			72.8	%
Total liabilities	1,605,200			1,590,314			14,886			0.9	%
Total shareholders’ equity	182,627			165,029			17,598			10.7	%
Total liabilities and shareholders’ equity	$	1,787,827		$	1,755,343		$	32,484		1.9	%

Cash and cash equivalents

The decrease in cash and cash equivalents can be mostly attributed to changes in securities, loans, deposits, and borrowings, offset by net income.

Investment securities

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

Loans, net

The decrease in total loans, net, can be mostly attributed to decreases of $14.4 million in indirect consumer loans, $12.4 million in commercial mortgages, and $9.0 million in other consumer loans, offset by increases of $27.4 million in commercial and agriculture loans and $5.6 million in residential mortgages.

Goodwill and other intangible assets, net

The decrease in goodwill and other intangible assets, net can be attributed to amortization of other intangible assets. There were no impairments of goodwill or other intangible assets during the years ended December 31, 2019 and 2018.

Other assets

The increase in other assets can be mostly attributed to an increase of $8.7 million in operating lease right-of-use assets related to the adoption of ASU No. 2016-02 Leases as of January 1, 2019.

52

Deposits

The increase in deposits can be attributed to increases of $20.5 million in interest-bearing demand deposits and $11.0 million in time deposits, offset by decreases of $7.7 million in money market accounts and $16.2 million in non-interest bearing demand deposits. The increase in interest-bearing demand deposits was due primarily to commercial deposits and the increase in time deposits was primarily due to increases in personal municipal certificates of deposits. The decrease in non-interest-bearing demand deposits was mostly attributable to a decrease in personal customer deposits. The decrease in money market accounts can mostly be attributed to a decrease in ICS deposits, offset by an increase in personal customer deposits.

FHLBNY advances and other debt

The decrease in FHLBNY advances and other debt can be attributed to a decrease in long term capital lease obligations.

Other Liabilities

The increase in other liabilities can be mostly attributed to an increase in operating lease liabilities related to the January 1, 2019 adoption of ASU No. 2016-02 Leases.

Shareholders’ equity

The increase in shareholders' equity was due primarily to an increase in retained earnings of $10.6 million, which was a result of earnings of $15.6 million, offset by $5.0 million in dividends declared during the current year. The decrease in accumulated other comprehensive loss of $5.6 million can be attributed to the increase in the fair value of the securities portfolio. Also, treasury stock decreased $0.9 million, due to the issuance of shares to the Corporation's employee benefit stock plans and directors' stock plans.

Assets under management or administration

The market value of total assets under management or administration in our WMG was $1.915 billion, including $289.7 million of assets held under management or administration for the Corporation, at December 31, 2019 compared with $1.768 billion, including $283.0 million of assets held under management or administration for the Corporation, at December 31, 2018, an increase of $147.1 million, or 8.3%.

53

Balance Sheet Comparisons

The table below contains selected average balance sheet information for each year in the five-year period ended December 31, 2019 (in millions):

SELECTED AVERAGE BALANCE SHEET INFORMATION
											% Change		Compounded Annual
											2018 to		Growth 5
Average Balance Sheet	2019		2018		2017		2016		2015		2019		Years
Total assets	$	1,764.4	$	1,717.0	$	1,713.2	$	1,667.2	$	1,577.8	2.8	%	6.2	%
Interest-earning assets (1)	1,674.7		1,638.8		1,623.9		1,571.5		1,477.5		2.2	%	6.7	%
Loans (2)	1,296.4		1,320.1		1,251.2		1,194.6		1,142.0		(1.8	)%	6.6	%
Investments (3)	378.2		318.7		372.7		376.9		335.5		18.7	%	7.2	%
Deposits	1,558.2		1,515.7		1,514.5		1,450.5		1,367.7		2.8	%	7.4	%
Borrowings (4)	4.2		31.6		32.4		55.5		56.2		(86.7	)%	(43.0	)%
Shareholders’ equity	176.1		153.8		151.2		142.9		137.9		14.5	%	5.6	%

(1) Average interest-earning assets include securities available for sale and securities held to maturity based on amortized cost, loans and loans held for sale net of deferred loan fees, interest-earning deposits, FHLBNY stock, FRBNY stock and federal funds sold. For 2019, 2018 and 2017, average interest-earning assets also include equity investments.

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

(3) Average balances for investments include securities available for sale and securities held to maturity, based on amortized cost, FHLBNY stock, FRBNY stock, federal funds sold and interest-earning deposits. For 2019, 2018 and 2017, average balances for investments securities also include equity investments.

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

The table below contains selected year-end balance sheet information for each year in the five-year period ended December 31, 2019 (in millions):

SELECTED YEAR-END BALANCE SHEET INFORMATION
											% Change		Compounded Annual
											2018 to		Growth 5
Ending Balance Sheet	2019		2018		2017		2016		2015		2019		Years
Total assets	$	1,787.8	$	1,755.3	$	1,707.6	$	1,657.2	$	1,620.0	1.9	%	7.5	%
Interest-earning assets (1)	1,699.6		1,661.5		1,620.1		1,560.0		1,526.4		2.3	%	8.0	%
Loans (2)	1,310.4		1,312.4		1,312.4		1,200.7		1,169.7		(0.2	)%	7.9	%
Allowance for loan losses	23.5		18.9		21.2		14.3		14.3		24.3	%	17.7	%
Investments (3)	389.2		349.1		307.8		359.3		356.7		11.5	%	8.3	%
Deposits	1,572.1		1,569.2		1,467.4		1,456.3		1,400.3		0.2	%	8.5	%
Borrowings (4)	4.1		4.3		74.2		41.4		64.4		(4.7	)%	(41.5	)%
Shareholders’ equity	182.6		165.0		149.8		143.7		137.2		10.7	%	6.9	%

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

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

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

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

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Cash and Cash Equivalents

Total cash and cash equivalents decreased $8.1 million since December 31, 2018, due to decreases of $7.8 million in cash and due from financial institutions and $0.2 million in interest-earning deposits in other financial institutions.

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 and held to maturity securities portfolios are summarized in the tables below (in thousands):

SECURITIES AVAILABLE FOR SALE
	December 31, 2019				December 31, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government sponsored enterprises	$	—	$	—	$	5,489	$	5,472	$	15,492	$	15,491
Mortgage-backed securities, residential and collateralized mortgage obligations	225,029		225,234		189,111		183,192		224,939		219,909
Obligations of states and political subdivisions	41,265		42,845		44,390		44,152		52,928		53,132
Other securities (a)	15,962		16,011		9,506		9,442		4,588		4,559
Totals	$	282,256	$	284,090	$	248,496	$	242,258	$	297,947	$	293,091

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

The available for sale segment of the securities portfolio totaled $284.1 million at December 31, 2019, an increase of $41.8 million, or 17.3%, from $242.3 million at December 31, 2018. The increase resulted primarily from new purchases which exceeded maturities and calls.

HELD TO MATURITY SECURITIES
	December 31, 2019				December 31, 2018				December 31, 2017
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	1,045	$	3,020	$	3,020	$	1,946	$	1,946
Time deposits with other financial institutions	2,070		2,094		1,855		1,838		1,835		1,830
Totals	$	3,115	$	3,139	$	4,875	$	4,858	$	3,781	$	3,776

The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas. These securities totaled $3.1 million at December 31, 2019, a decrease of $1.8 million or (36.1)%, from $4.9 million at December 31, 2018, due primarily to maturities.

Non-marketable equity securities at December 31, 2019 include shares of FRBNY stock and FHLBNY stock, carried at their cost of $1.8 million and $1.3 million, respectively. The fair value of these securities is assumed to approximate their cost. The investment in these stocks is regulated by regulatory policies of the respective institutions.

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The table below sets forth the carrying amounts and maturities of available for sale and held to maturity debt securities at December 31, 2019 and the weighted average yields of such securities (all yields are calculated on the basis of the amortized cost and weighted for the scheduled maturity of each security, except mortgage-backed securities which are based on the average life at the projected prepayment speed of each security) (in thousands):

MATURITIES AND YIELDS OF AVAILABLE FOR SALE AND HELD TO MATURITY SECURITIES
	Within One Year				After One, But Within Five Years				After Five, But Within Ten Years				After Ten Years
	Amount		Yield		Amount		Yield		Amount		Yield		Amount		Yield
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	N/A		$	—	N/A		$	—	N/A		$	—	N/A
Mortgage-backed securities, residential	—		N/A		100,946		2.01	%	80,446		2.41	%	43,843		2.74	%
Obligations of states and political subdivisions	1,144		3.45	%	7,701		3.08	%	33,967		2.59	%	1,077		2.47	%
Time deposits with other institutions	915		2.23	%	1,155		2.56	%	—		N/A		—		N/A
Corporate bonds and notes	250		3.60	%	—		N/A		—		N/A		—		N/A
SBA loan pools	—		N/A		72		3.50	%	8,418		2.63	%	7,271		2.68	%
Total	$	2,309	2.98	%	$	109,874	2.09	%	$	122,831	2.47	%	$	52,191	2.73	%

Management evaluates securities for OTTI on a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation.  For the years ended December 31, 2019 and 2018, the Corporation had no OTTI charges.

Loans

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

The table below presents the Corporation’s loan composition by type and percentage of total loans at the end of each of the last five years (in thousands):

	LOANS
	December 31,
	2019		%	2018		%	2017		%	2016		%	2015		%
Commercial and agricultural	$	230,292	17.6	$	202,854	15.5	$	199,007	15.2	$	176,561	14.7	$	193,233	16.5
Commercial mortgages	648,794		49.5	661,170		50.4	644,330		49.1	568,656		47.4	506,478		43.3
Residential mortgages	188,338		14.4	182,724		13.9	194,440		14.8	198,493		16.6	195,778		16.8
Indirect consumer loans	134,973		10.3	149,380		11.4	153,060		11.7	139,572		11.6	151,327		13.0
Consumer loans	106,822		8.2	115,778		8.8	120,987		9.2	117,008		9.7	121,817		10.4
Total	$	1,309,219	100.0	$	1,311,906	100.0	$	1,311,824	100.0	$	1,200,290	100.0	$	1,168,633	100.0

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Portfolio loans totaled $1.309 billion at December 31, 2019 and $1.312 billion at December 31, 2018. Changes included an increase of $15.1 million, or 1.7%, in total commercial loans, an increase in residential mortgages of $5.6 million or 3.1%, offset by decreases in indirect consumer loans of $14.4 million or 9.6%, and consumer loans of $9.0 million or 7.7%. The growth in commercial loans was due primarily to an increase in commercial and agricultural loans. The decrease in indirect consumer loans was a result of the Corporation's decision to control the growth of the indirect consumer loan portfolio, primarily automobile loans, and the decrease in consumer loans was primarily due to a decrease in home equity lines and loans.

Residential mortgage loans totaled $188.3 million at December 31, 2019, an increase of $5.6 million, or 3.1%, from December 31, 2018.  The increase in residential mortgages was mainly due to new originations retained in the portfolio.

The Corporation anticipates that future growth in portfolio loans will continue to be in commercial loans, especially within the Capital Bank division of the Bank. Based on this growth and the increased complexity of the loans that the Bank originates, the position of Chief Credit Officer was added to Corporation's Executive Management team. The table below presents the Corporation’s outstanding loan balance by bank division (in thousands):

LOANS BY DIVISION
	December 31,
	2019		2018		2017		2016		2015
Chemung Canal Trust Company*	$	576,399	$	603,133	$	630,732	$	636,836	$	683,137
Capital Bank Division	732,820		708,773		681,092		563,454		485,496
Total loans	$	1,309,219	$	1,311,906	$	1,311,824	$	1,200,290	$	1,168,633
*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 changes in economic or other conditions. The Corporation’s concentration policy limits consider the volume of commercial loans to any one specific industry, sponsor, and by collateral type and location. In addition, the Corporation’s policy limits the volume of non-owner occupied commercial mortgages to four times total risk based capital. At December 31, 2019 and 2018, total non-owner occupied commercial real estate loans divided by total risk based capital was 330.5% and 362.0% respectively.

The Corporation also monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.  At December 31, 2019 and 2018, commercial loans to borrowers involved in the real estate, and real estate rental and leasing businesses were 45.0% and 47.2% of total loans, respectively.  No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of December 31, 2019 and 2018.

The table below shows the maturity of only commercial and agricultural loans and commercial mortgages outstanding as of December 31, 2019.  Also provided are the amounts due after one year, classified according to fixed interest rates and variable interest rates (in thousands):

	LOAN AMOUNTS CONTRACTUALLY DUE AFTER DECEMBER 31, 2019
	Within One Year		After One But Within Five Years		After Five Years		Total
Commercial and agricultural and commercial mortgages	$	100,435	$	274,365	$	504,285	$	879,086
Loans maturing with:
Fixed interest rates	$	20,245	$	129,339	$	102,141	$	251,725
Variable interest rates	80,190		145,026		402,145		627,361
Total	$	100,435	$	274,365	$	504,285	$	879,086

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Non-Performing Assets

Non-performing assets consist of non-accrual loans, non-accrual troubled debt restructurings and other real estate owned that has been acquired in partial or full satisfaction of loan obligations or upon foreclosure.

Past due status on all loans is based on the contractual terms of the loan.  It is generally the Corporation's policy that a loan 90 days past due be placed on 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 on non-accrual status, the accrual of interest is discontinued and previously accrued interest is reversed.  All payments received on non-accrual loans are applied to principal.  Loans are considered for return to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its contractual principal and interest.  In the case of non-accrual loans where a portion of the loan has been charged off, the remaining balance is kept in non-accrual status until the entire principal balance has been recovered.

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

NON-PERFORMING ASSETS

December 31,	2019			2018			2017			2016			2015
Non-accrual loans	$	9,938		$	6,305		$	11,389		$	7,649		$	7,821
Non-accrual troubled debt restructurings	8,070			5,949			5,935			4,394			4,411
Total non-performing loans	18,008			12,254			17,324			12,043			12,232
Other real estate owned	517			574			1,940			388			1,530
Total non-performing assets	$	18,525		$	12,828		$	19,264		$	12,431		$	13,762
Ratio of non-performing loans to total loans	1.38		%	0.93		%	1.32		%	1.00		%	1.05		%
Ratio of non-performing assets to total assets	1.04		%	0.73		%	1.13		%	0.75		%	0.85		%
Ratio of allowance for loan losses to non-performing loans	130.38		%	154.59		%	122.14		%	118.35		%	116.58		%
Accruing loans past due 90 days or more (1)	$	7		$	19		$	29		$	13		$	18
Accruing troubled debt restructurings (1)	$	952		$	816		$	1,728		$	5,839		$	7,609

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

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

INTEREST INCOME ON NON-ACCRUAL AND TROUBLED DEBT RESTRUCTURED LOANS
	2019		2018		2017
Interest income that would have been recorded under original terms	$	918	$	812	$	630
Interest income recorded during the year	$	72	$	61	$	153

Non-Performing Loans

Non-performing loans totaled $18.0 million at December 31, 2019, or 1.38% of total loans, compared with $12.3 million at December 31, 2018, or 0.93% of total loans. The increase in non-performing loans at December 31, 2019 as compared to December 31, 2018 was primarily due to increases of $4.1 million in non-accruing commercial and industrial loans and $2.9 million in non-accruing commercial mortgages, offset by decreases of $0.5 million in non-accruing residential mortgages and $0.5 million in non-accruing home equity lines and loans. The increase in non-accruing commercial and industrial loans was due primarily to the impairment of a commercial and industrial participation loan to one borrower for $4.2 million during the third quarter of 2019. The increase in non-accruing commercial mortgages was due to the impairment of a commercial loan to one borrower in the amount of $1.9 million in the first quarter of 2019. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $18.5 million, or 1.04% of total assets, at December 31, 2019, compared with $12.8 million, or 0.73% of total assets, at December 31, 2018.

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The recorded investment in accruing loans past due 90 days or more totaled less than $0.1 million at December 31, 2019, consistent with the prior year.

There were no PCI loans as of December 31, 2019 and 2018. Not included in non-performing loan totals are $0.8 million of acquired loans which the Corporation has identified as PCI loans at December 31, 2017. The PCI loans are accounted for under separate accounting guidance, ASC Subtopic 310-30, “Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality”.

Troubled Debt Restructurings

The Corporation works closely with borrowers that have financial difficulties to identify viable solutions that minimize the potential for loss. In that regard, the Corporation modified the terms of select loans to maximize their collectability. The modified loans are considered TDRs under current accounting guidance. Modifications generally involve short-term deferrals of principal and/or interest payments, reductions of scheduled payment amounts, interest rates or principal of the loan, and forgiveness of accrued interest. As of December 31, 2019 and 2018, the Corporation had $8.1 million and $6.0 million of non-accrual TDRs, respectively. As of December 31, 2019, the Corporation had $0.9 million of accruing TDRs compared with $0.8 million as of December 31, 2018.

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. The unpaid principal balance of impaired loans at December 31, 2019 totaled $15.7 million, including TDRs of $9.0 million, compared to $8.8 million at December 31, 2018, including TDRs of $6.8 million. Included in the recorded investment of impaired loans at December 31, 2019, were loans totaling $11.1 million for which impairment allowances of $8.1 million have been specifically allocated to the allowance for loan losses. The increase in impaired loans was primarily in the commercial loan segment of the loan portfolio related to the recognition of impairment for a commercial real estate loan to one borrower in the amount of $1.9 million in the first quarter and the recognition of impairment for a commercial and industrial participation loan to one borrower for $4.2 million during the third quarter of 2019. As of December 31, 2018, the impaired loan total included $3.7 million of loans for which specific impairment allowances of $2.2 million were allocated to the allowance for loan losses. The decrease in the amount of impaired loans for which specific allowances were allocated to the allowance for loan losses was due primarily 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 inherent losses in our portfolio in accordance with GAAP, and is comprised of both specific valuation allowances and general valuation allowances.

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement. Specific valuation allowances are established based on management’s analyses of individually impaired loans. Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length

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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.

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

The allowance for loan losses is increased through a provision for loan losses charged to operations. Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely. Management's evaluation of the adequacy of the allowance for loan losses is performed on a quarterly 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 $23.5 million at December 31, 2019, compared to $18.9 million at December 31, 2018. The increase in the allowance for loan losses can be mostly attributed to an increase in specific impairment related to a $1.9 million non-performing commercial mortgage relationship and a participating interest in a $4.2 million commercial credit. The ratio of allowance for loan losses to total loans was 1.79% at December 31, 2019 and 1.44% at December 31, 2018, respectively. Net charge-offs for the years ended December 31, 2019 and 2018 were $1.4 million and $5.4 million, respectively.

The table below summarizes the Corporation’s allocation of the allowance for loan losses and percent of loans by category to total loans for each year in the five-year period ended December 31, 2019 (in thousands):

ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Balance at end of year applicable to:	2019		%	2018		%	2017		%	2016		%	2015		%
Commercial and agricultural	$	10,227	17.6	$	5,383	15.5	$	6,976	15.2	$	1,589	14.7	$	1,831	16.5
Commercial mortgages	8,869		49.5	8,184		50.4	8,514		49.1	7,270		47.4	7,112		43.3
Residential mortgages	1,252		14.4	1,226		13.9	1,316		14.8	1,523		16.6	1,464		16.8
Consumer loans	3,130		18.5	4,151		20.2	4,355		20.9	3,871		21.3	3,853		23.4
	$	23,478	100.0	$	18,944	100.0	$	21,161	100.0	$	14,253	100.0	$	14,260	100.0

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The table below summarizes the Corporation's loan loss experience for each year in the five-year period ended December 31, 2019 (in thousands, except ratio data):

SUMMARY OF LOAN LOSS EXPERIENCE
	Years Ended December 31,
	2019			2018			2017			2016			2015
Allowance for loan losses at beginning of year	$	18,944		$	21,161		$	14,253		$	14,260		$	13,686
Charge-offs:
Commercial and agricultural	312			3,644			96			217			186
Commercial mortgages	1			213			419			911			104
Residential mortgages	151			226			225			65			47
Consumer loans	1,511			1,836			1,831			1,637			1,294
Total	1,975			5,919			2,571			2,830			1,631
Recoveries:
Commercial and agricultural	59			47			109			92			96
Commercial mortgages	4			3			5			10			131
Residential mortgages	45			5			30			—			—
Consumer loans	456			494			313			284			407
Total	564			549			457			386			634
Net charge-offs	1,411			5,370			2,114			2,444			997
Provision charged to operations	5,945			3,153			9,022			2,437			1,571
Allowance for loan losses at end of year	$	23,478		$	18,944		$	21,161		$	14,253		$	14,260
Ratio of net charge-offs during year to average loans outstanding	0.11		%	0.41		%	0.17		%	0.20		%	0.09		%
Ratio of allowance for loan losses to total loans outstanding	1.79		%	1.44		%	1.61		%	1.19		%	1.22		%

Net charge-offs for the year ended December 31, 2019 were $1.4 million compared with $5.4 million for the year ended December 31, 2018.  The ratio of net charge-offs to average loans outstanding was 0.11% for 2019 compared to 0.41% for 2018.  The decrease in net charge-offs in 2019 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.

Other Real Estate Owned

At December 31, 2019, OREO totaled $0.5 million compared to $0.6 million at December 31, 2018.  The decrease in other real estate owned was due primarily to twelve commercial properties being sold throughout 2019 in the amount of $0.6 million.

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Deposits

The table below summarizes the Corporation’s deposit composition by segment at December 31, 2019, 2018, and 2017, and the dollar and percent change from December 31, 2018 to December 31, 2019 and December 31, 2017 to December 31, 2018 (in thousands):

DEPOSITS
							Percentage Change from Prior Year
	December 31,
	2019		2018		2017		2019		2018
Non-interest-bearing demand deposits	$	468,238	$	484,433	$	467,610	(3.3	)%	3.6	%
Interest-bearing demand deposits	200,089		179,603		149,026		11.4	%	20.5	%
Insured money market accounts	530,242		537,948		513,782		(1.4	)%	4.7	%
Savings deposits	212,393		217,027		218,666		(2.1	)%	(0.7	)%
Time deposits	161,176		150,226		118,362		7.3	%	26.9	%
Total	$	1,572,138	$	1,569,237	$	1,467,446	0.2	%	6.9	%

Deposits totaled $1.572 billion at December 31, 2019, compared with $1.569 billion at December 31, 2018, an increase of $2.9 million, or 0.2%.  At December 31, 2019, demand deposit and money market accounts comprised 76.2% of total deposits compared with 76.6% at December 31, 2018.  The growth in deposits was attributable to increases of $20.5 million in interest-bearing demand deposits and $11.0 million of time deposits, offset by decreases of $7.7 million in money market accounts and $16.2 million in non-interest bearing demand deposits.

The increase in interest-bearing demand deposits was due primarily to commercial deposits and the increase in time deposits was primarily due to increases in personal and municipal certificates of deposits. The decrease in non-interest-bearing demand deposits was mainly attributable to a decrease in personal customer deposits. The decrease in money market accounts can be mostly attributed to a decrease on ICS deposits, offset by an increase in personal customer deposits.

At December 31, 2019, public funds deposits totaled $299.2 million compared to $306.5 million at December 31, 2018. The Corporation has developed a program for the retention and management of public funds deposits. These deposits are from public entities, such as school districts and municipalities. There is a seasonal component to public deposit levels associated with annual tax collections. Public funds deposits will increase at the end of the first and third quarters. Public funds deposit accounts above the FDIC insured limit are collateralized by municipal bonds and eligible government and government agency securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.

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

	December 31,
Public Funds:	2019			2018			2017
Non-interest-bearing demand deposits	$	10,615		$	12,070		$	11,229
Interest-bearing demand deposits	48,292			52,767			44,796
Insured money market accounts	226,834			225,630			225,756
Savings deposits	10,518			11,598			11,249
Time deposits	2,899			4,408			6,497
Total public funds	$	299,158		$	306,473		$	299,527
Total deposits	$	1,572,138		$	1,569,237		$	1,467,446
Percentage of public funds to total deposits	19.0		%	19.5		%	20.4		%

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As of December 31, 2019, the aggregate amount of the Corporation's outstanding certificates of deposit in amounts greater than or equal to $100,000 was $74.5 million. The table below presents the Corporation's scheduled maturity of those certificates as of December 31, 2019 (in thousands):

	December 31, 2019
3 months or less	$	8,287
Over 3 through 6 months	14,346
Over 6 through 12 months	11,329
Over 1 year to 3 years	30,248
Over 3 years	10,282
	$	74,492

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

DEPOSITS BY DIVISION
	December 31,
	2019		2018		2017		2016		2015
Chemung Canal Trust Company*	$	1,317,225	$	1,328,658	$	1,264,883	$	1,249,870	$	1,219,282
Capital Bank Division	254,913		240,579		202,563		206,473		181,013
Total deposits	$	1,572,138	$	1,569,237	$	1,467,446	$	1,456,343	$	1,400,295
*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 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 Corporation's participation in the CDARS and ICS programs.  The CDARS and ICS programs involve a network of financial institutions that exchange funds among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution. The Corporation had no deposits obtained through brokers as of December 31, 2019 and 2018.  Deposits obtained through the CDARS and ICS programs were $180.4 million and $193.6 million as of December 31, 2019 and 2018, respectively.

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

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

Information regarding deposits is included in Note 8 to the consolidated financial statements appearing elsewhere in this report.

Borrowings

There were no outstanding FHLBNY advances at December 31, 2019 and 2018 respectively.

For each of the three years ended December 31, 2019, 2018 and 2017, respectively, the average outstanding balance of borrowings that mature in one year or less did not exceed 30% of shareholders' equity.

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Information regarding securities sold under agreements to repurchase and FHLBNY advances is included in Footnotes 9 and 10 to the audited consolidated financial statements appearing elsewhere in this report. The following is a summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2019, 2018 and 2017 (in thousands):

	2019		2018		2017
Balance at December 31	$	—	$	—	$	10,000
Maximum month-end balance	$	—	$	10,000	$	25,718
Average balance during year	$	—	$	3,644	$	14,207

The following is a summary of FHLBNY overnight advances as of and for the years ended December 31, 2019, 2018, and 2017 (in thousands):

	2019		2018		2017
Balance at December 31	$	—	$	—	$	57,700
Maximum month-end balance	$	—	$	76,500	$	57,700
Average balance during year	$	—	$	23,539	$	5,534

The following is a summary of FHLBNY term advances as of and for the years ended December 31, 2019, 2018, and 2017. The carrying amount includes the advance plus purchase accounting adjustments that are amortized over the term of the advance (in thousands):

	2019		2018		2017
Balance at December 31	$	—	$	—	$	2,000
Maximum month-end balance	$	—	$	—	$	9,084
Average balance during year	$	—	$	5	$	7,998

Derivatives

The Corporation offers interest rate swap agreements to qualified commercial loan customers. These agreements allow the Corporation’s customers to effectively fix the interest rate on a variable rate loan by entering into a separate agreement. Simultaneous with the execution of such an agreement with a customer, the Corporation enters into a matching interest rate swap agreement with an unrelated third party provider, which allows the Corporation to continue to receive the variable rate under the loan agreement with the customer. The agreement with the third party is not designated as a hedge contract, therefore changes in fair value are recorded through other non-interest income. Assets and liabilities associated with the agreements are recorded in other assets and other liabilities on the balance sheet. Gains and losses are recorded as other non-interest income. The Corporation is exposed to credit loss equal to the fair value of the interest rate swaps, not the notional amount of the derivatives, in the event of nonperformance by the counterparty to the interest rate swap agreements. Additionally, the swap agreements are free-standing derivatives and are recorded at fair value in the Corporation's consolidated balance sheets, which typically involves a day one gain. Since the terms of the two interest rate swap agreements are identical, the income statement impact to the Corporation is limited to the day one gain and an allowance for credit loss exposure, in the event of nonperformance. The Corporation recognized $0.1 million and $0.2 million for the years ended December 31, 2019 and 2018, respectively.

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

Information regarding derivatives is included in Note 12 to the consolidated financial statements appearing elsewhere in this report.

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Shareholders’ Equity

Total shareholders’ equity was $182.6 million at December 31, 2019, compared with $165.0 million at December 31, 2018, an increase of $17.6 million, or 10.7%.  The increase in retained earnings of $10.6 million was due primarily to earnings of $15.6 million offset by $5.0 million in dividends declared during the year. The decrease in accumulated other comprehensive loss of $5.6 million can be attributed to the increase in the fair market value of the securities portfolio as a result of a decrease in interest rates. Also, treasury stock decreased $0.9 million, due to the issuance of shares to the Corporation's employee benefit stock plans and directors' stock plans. Total shareholders’ equity to total assets ratio was 10.22% at December 31, 2019 compared with 9.4% at December 31, 2018.  Tangible equity to tangible assets ratio increased to 9.07% at December 31, 2019, from 8.19% at December 31, 2018.

The Bank is subject to capital adequacy guidelines of the Federal Reserve which establish a framework for the classification of financial institutions into five categories:  well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized.  As of December 31, 2019, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines. A comparison of the Bank’s actual capital ratios to the ratios required to be adequately or well-capitalized at December 31, 2019 and 2018, is included in Footnote 20 to the consolidated financial statements appearing elsewhere in this report.  For more information regarding current capital regulations see Part I-“Business-Supervision and Regulation-Regulatory Capital Requirements.”

Cash dividends declared during 2019 and 2018, each totaled $5.0 million respectively, and $4.9 million in 2017, or $1.04 per share. Dividends declared during 2019 amounted to 32.28% of net income compared to 25.42%, and 66.30% of net income for 2018 and 2017, respectively.  Management seeks to continue generating sufficient capital internally, while continuing to pay dividends to the Corporation’s shareholders.

When shares of the Corporation become available in the market, the Corporation may purchase them after careful consideration of the Corporation’s liquidity and capital positions.  Purchases may be made from time to time on the open market or in privately negotiated transactions at the discretion of management.  On December 19, 2012, the Board of Directors approved a stock repurchase plan under which the Corporation may repurchase up to 125,000 shares.  No shares were purchased under the plan in 2019 and 2018.  The Corporation has purchased 3,094 shares at a total cost of $93,000 under the plan since its inception. 

Off-balance Sheet Arrangements

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

The table below shows the Corporation’s off-balance sheet arrangements as of December 31, 2019 (in thousands):

COMMITMENT MATURITY BY PERIOD
	Total		2020		2021-2022		2023-2024		2025 and thereafter
Standby letters of credit	$	16,272	$	14,673	$	1,055	$	514	$	30
Unused portions of lines of credit (1)	165,396		165,396		—		—		—
Commitments to fund new loans	40,793		40,793		—		—		—
Total	$	222,461	$	220,862	$	1,055	$	514	$	30

(1) Not included in this total are unused portions of home equity lines of credit, credit card lines and consumer overdraft protection lines of credit, since no contractual maturity dates exist for these types of loans.  Commitments to outside parties under these lines of credit were $52.0 million, $5.1 million and $7.7 million, respectively, at December 31, 2019.

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Contractual Obligations

The table below shows the Corporation’s contractual obligations under long-term agreements as of December 31, 2019 (in thousands).  Note references are to the Notes of the Consolidated Financial Statements:

CONTRACTUAL OBLIGATIONS
			Payments Due by Period
	Total		2020		2021 - 2022		2023 - 2024		2025 and thereafter
Time Deposits (Note 8)	$	161,176	$	81,015	$	60,979	$	16,059	$	3,123
FHLBNY advances (Note 10)	—		—		—		—		—
Securities sold under agreements to   repurchase (Note 9)	—		—		—		—		—
Operating leases (Note 5)	5,906		806		1,471		1,018		2,611
Capital leases (Note 5)	5,183		376		778		781		3,248
Data processing services and other	722		475		247		—		—
Total (1)	$	172,987	$	82,672	$	63,475	$	17,858	$	8,982

(1) Not included in the above total is the Corporation's obligation regarding the Pension Plan and Other Benefit Plans.  Please refer to Part IV Item 15 Note 14 for information regarding these obligations at December 31, 2019.

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 $141.8 million and $112.6 million at December 31, 2019 and 2018, respectively.  The Corporation also had a total of $58.0 million of unsecured lines of credit with 5 different financial institutions, all of which were available at December 31, 2019. The Corporation had a total of $28.0 million of unsecured lines of credit with 4 different financial institutions, all of which was available at December 31, 2018.

Consolidated Cash Flows Analysis

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

CONSOLIDATED SUMMARY OF CASH FLOWS
	Years Ended December 31,
(in thousands)	2019			2018
Net cash provided by operating activities	$	26,405		$	27,772
Net cash provided (used) by investing activities	(32,711		)	43,919
Net cash provided by financing activities	(1,762		)	27,552
Net increase (decrease) in cash and cash equivalents	$	(8,068	)	$	99,243

Operating activities

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

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Cash provided by operating activities in the years ended December 31, 2019 and 2018 predominantly resulted from net income after non-cash operating adjustments.

Investing activities

Cash provided by investing activities during the year ended December 31, 2019 predominantly resulted from calls, maturities, and principal collected on securities available for sale, offset by purchases of securities available for sale and a net increase in loans. Cash used in investing activities during the year ended December 31, 2018 predominantly resulted from purchases of securities available for sale and a net increase in loans, offset by sales, calls, maturities, and principal collected on securities available for sale. 

Financing activities

Cash provided by financing activities during the year ended December 31, 2019 resulted from an increase in deposits, offset by the payment of dividends to shareholders. Cash provided by financing activities during the year ended December 31, 2018 predominantly resulted from an increase in deposits and FHLBNY overnight advances, offset by the repayment of FHLBNY term advances and securities sold under agreements to repurchase and the payment of dividends to shareholders.

Capital Resources

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and 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 Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer was phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2019 was 2.50%. 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.

Pursuant to the Regulatory Relief Act, the FRB finalized a rule that established a community bank leverage ratio (tier 1 capital to average consolidated assets) at 9% for institutions under $10 billion in assets that such institutions may elect to utilize in lieu of the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community bank leverage ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. The new rule took effect on January 1, 2020.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. Management believes that, as of December 31, 2019, the Corporation and the Bank met all capital adequacy requirements to which they were subject. Management believes that, as of December 31, 2018, the Bank met all capital adequacy requirements to which it was subject. As of December 31, 2018, the Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets.

As of December 31, 2019, 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 capital category.

The regulatory capital ratios as of December 31, 2019 and 2018 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

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

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	182,239	13.98	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	175,062	13.45	%	$	104,136	8.00	%	$	136,679	10.500	%	$	130,170	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	78,102	6.00	%	$	110,645	8.500	%	$	104,136	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	58,577	4.50	%	$	91,119	7.000	%	$	84,611	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	165,859	9.35	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	8.98	%	$	70,719	4.00	%	N/A		N/A		$	88,399	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	169,416	13.14	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	162,536	12.62	%	$	103,039	8.00	%	$	127,189	9.875	%	$	128,799	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	77,280	6.00	%	$	101,429	7.875	%	$	103,039	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	57,960	4.50	%	$	82,110	6.375	%	$	83,720	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	153,263	8.79	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	8.41	%	$	69,598	4.00	%	N/A		N/A		$	86,998	5.00	%

Dividend Restrictions

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above.  At December 31, 2019, the Bank could, without prior approval, declare dividends of approximately $29.8 million.

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Adoption of New Accounting Standards

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

Critical Accounting Policies, Estimates and Risks and Uncertainties

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

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

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

The Corporation prepares its Consolidated Financial Statements in accordance with GAAP; these financial statements appear on pages F-3 through F-9. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

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

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

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Fully Taxable Equivalent Net Interest Income and Net Interest Margin

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

	As of or for the Years Ended
(in thousands, except ratio data)	December 31,			December 31,			December 31,
	2019			2018			2017
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
Net interest income (GAAP)	$	60,611		$	60,480		$	56,987
Fully taxable equivalent adjustment	403			420			788
Fully taxable equivalent net interest income (non-GAAP)	$	61,014		$	60,900		$	57,775
Average interest-earning assets (GAAP)	$	1,674,668		$	1,638,803		$	1,623,948
Net interest margin - fully taxable equivalent (non-GAAP)	3.64		%	3.72		%	3.56		%

Efficiency Ratio

The unadjusted efficiency ratio is calculated as non-interest expense divided by total revenue (net interest income and non-interest income). The adjusted efficiency ratio is a non-GAAP financial measure which represents the Corporation’s ability to turn resources into revenue and is calculated as non-interest expense divided by total revenue (fully taxable equivalent net interest income and non-interest income), adjusted for one-time occurrences and amortization. This measure is meaningful to the Corporation, as well as investors and analysts, in assessing the Corporation’s productivity measured by the amount of revenue generated for each dollar spent.

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	As of or for the Years Ended
(in thousands, except ratio data)	December 31,			December 31,			December 31,
	2019			2018			2017
EFFICIENCY RATIO
Net interest income (GAAP)	$	60,611		$	60,480		$	56,987
Fully taxable equivalent adjustment	403			420			788
Fully taxable equivalent net interest income (non-GAAP)	$	61,014		$	60,900		$	57,775
Non-interest income (GAAP)	$	20,073		$	23,074		$	20,491
Less: changes in fair value of equity investments	—			(2,093		)	—
Less: net (gains) losses on security transactions	(19		)	—			(109		)
Adjusted non-interest income (non-GAAP)	$	20,054		$	20,981		$	20,382
Non-interest expense (GAAP)	$	55,696		$	56,766		$	53,764
Less: amortization of intangible assets	(609		)	(734		)	(860		)
Less: legal accruals and settlements	—			(989		)	(850		)
Adjusted non-interest expense (non-GAAP)	$	55,087		$	55,043		$	52,054
Efficiency ratio (unadjusted)	69.03		%	67.94		%	69.39		%
Efficiency ratio (adjusted)	67.95		%	67.22		%	66.60		%

Tangible Equity and Tangible Assets (Year-End)

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

	As of or for the Years Ended
(in thousands, except per share and ratio data)	December 31,			December 31,			December 31,
	2019			2018			2017
TANGIBLE EQUITY AND TANGIBLE ASSETS
(YEAR END)
Total shareholders' equity (GAAP)	$	182,627		$	165,029		$	149,813
Less: intangible assets	(22,566		)	(23,175		)	(23,909		)
Tangible equity (non-GAAP)	$	160,061		$	141,854		$	125,904
Total assets (GAAP)	$	1,787,827		$	1,755,343		$	1,707,620
Less: intangible assets	(22,566		)	(23,175		)	(23,909		)
Tangible assets (non-GAAP)	$	1,765,261		$	1,732,168		$	1,683,711
Total equity to total assets at end of year (GAAP)	10.22		%	9.40		%	8.77		%
Book value per share (GAAP)	$	37.35		$	33.99		$	31.10
Tangible equity to tangible assets at end of year (non-GAAP)	9.07		%	8.19		%	7.48		%
Tangible book value per share (non-GAAP)	$	32.74		$	29.22		$	26.14

71

Tangible Equity (Average)

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

	As of or for the Years Ended
	December 31,			December 31,			December 31,
(in thousands, except ratio data)	2019			2018			2017
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP)	$	176,138		$	153,793		$	151,229
Less: average intangible assets	(22,860		)	(23,537		)	(24,327		)
Average tangible equity (non-GAAP)	$	153,278		$	130,256		$	126,902
Return on average equity (GAAP)	8.86		%	12.76		%	4.91		%
Return on average tangible equity (non-GAAP)	10.18		%	15.07		%	5.85		%

Adjustments for Certain Items of Income or Expense

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

	As of or for the Years Ended
(in thousands, except per share and ratio data)	December 31,			December 31,			December 31,
	2019			2018			2017
NON-GAAP NET INCOME
Reported net income (loss) (GAAP)	$	15,609		$	19,626		$	7,430
Net changes in fair value of investments (net of tax)	—			(1,559		)	—
Net (gains) losses on security transactions (net of tax)	(14		)	—			(68		)
Legal accruals and settlements (net of tax)	—			737			528
Remeasurement of net deferred tax asset	—			(445		)	2,927
Net income (non-GAAP)	$	15,595		$	18,359		$	10,817
Average basic and diluted shares outstanding	4,869			4,832			4,800
Reported basic and diluted earnings (loss) per share (GAAP)	$	3.21		$	4.06		$	1.55
Reported return on average assets (GAAP)	0.88		%	1.14		%	0.43		%
Reported return on average equity (GAAP)	8.86		%	12.76		%	4.91		%
Basic and diluted earnings per share (non-GAAP)	$	3.20		$	3.80		$	2.25
Return on average assets (non-GAAP)	0.88		%	1.07		%	0.63		%
Return on average equity (non-GAAP)	8.85		%	11.94		%	7.15		%

72

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

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

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

Interest rate risk is the risk that net interest income will fluctuate as a result of a change in interest rates.  It is the assumption of interest rate risk, along with credit risk, that drives the net interest margin of a financial institution. For that reason, the ALCO has established tolerance limits based upon various basis point changes in interest rates, with appropriate floors set for interest-bearing liabilities.  At December 31, 2019, it is estimated that an immediate 100-basis point decrease in interest rates would negatively impact the next 12 months net interest income by 5.93% and an immediate 200-basis point increase would positively impact the next 12 months net interest income by 9.14%.  Both are within the Corporation's policy guidelines.

A related component of interest rate risk is the expectation that the market value of the Corporation’s capital account will fluctuate with changes in interest rates.  This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to shrinkage in market value.  At December 31, 2019, 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 7.36%. An immediate 200-basis point increase in interest rates would positively impact the market value by 4.94%, which is within the Corporation’s policy guidelines.

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

Credit Risk

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

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

ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements listed in Part IV, Item 15 are filed as part of this report and appear on pages F-1 through F-69.

73

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

None.

Item 9A.  CONTROLS AND PROCEDURES

(a) Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of our Chief Executive Officer, who is the Corporation's principal executive officer, and our Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, evaluated the effectiveness of the Corporation's disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) promulgated under the Exchange Act) as of December 31, 2019.  Based upon that evaluation, the Chief Executive Officer and the Chief Financial Officer and Treasurer have concluded that the Corporation's disclosure controls and procedures are effective as of December 31, 2019.

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

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

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

As of December 31, 2019 management assessed the effectiveness of the Corporation's internal control over financial reporting based on criteria established in the 2013 Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").  The objective of this assessment was to determine whether the Corporation's internal control over financial reporting was effective as of December 31, 2019. Based on the assessment, we assert that the Corporation maintained effective internal control over financial reporting as of December 31, 2019 based on the specified criteria.

Crowe LLP, an independent registered public accounting firm, which audited the Corporation's 2019 consolidated financial statements included in the Annual Report, has issued an audit report on the effectiveness of the Corporation's internal control over financial reporting.

(c) Changes in Internal Control over Financial Reporting

During the fourth quarter of 2019, there have been no changes in the Corporation’s internal control over financial reporting that have materially affected, or that are reasonably likely to material affect, the Corporation’s internal control over financial reporting.

/s/ Anders M. Tomson	/s/ Karl F. Krebs
Anders M. Tomson	Karl F. Krebs
President and Chief Executive Officer	Chief Financial Officer and Treasurer
March 12, 2020	March 12, 2020

Item 9B. OTHER INFORMATION

None.

74

PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this Item 10 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2020 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2019 fiscal year end.

ITEM 11.  EXECUTIVE COMPENSATION

Information responsive to this Item 11 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2020 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2019 fiscal year end.

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

Information responsive to this Item 12 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2020 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2019 fiscal year end.

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

Information responsive to this Item 13 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2020 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2019 fiscal year end.

ITEM 14.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information responsive to this Item 14 is incorporated herein by reference to the Corporation's definitive proxy statement for its 2020 Annual Meeting of Shareholders, which will be filed with the SEC within 120 days after the Corporation’s 2019 fiscal year end.

75

PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) (1)    The following consolidated financial statements of the Corporation appear on pages F-1 through F-69 of this report and are incorporated in Part II, Item 8:

Report of Independent Registered Public Accounting Firm-Crowe LLP

Consolidated Financial Statements

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Income for the three years ended December 31, 2019

Consolidated Statements of Comprehensive Income for the three years ended December 31, 2019

Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2019

Consolidated Statements of Cash Flows for the three years ended December 31, 2019

Notes to Consolidated Financial Statements

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

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

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

Exhibit	The following exhibits are either filed with this Form 10-K or are incorporated herein by reference.  The Corporation’s Securities Exchange Act file number is 000-13888.
3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to November 20, 2019 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on November 20, 2019).
4.1	Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
4.2	Description of Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934, filed herewith.*

76

10.1	Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the SEC on January 27, 2015 and incorporated herein by reference).
10.2	Change of Control Agreement dated December 19, 2018 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on December 19, 2018 and incorporated herein by reference).
10.3	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.4	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Louis C. DiFabio, Executive Vice President, filed herewith.*
10.5	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karen R. Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.3 to Registrant’s Form 10-K on December 23, 2019 and incorporated herein by reference).
10.6	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Thomas W. Wirth, Executive Vice President (filed as Exhibit 10.4 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.7	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Daniel D. Fariello, President of Capital Bank Division (filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.8	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Loren D. Cole, Executive Vice President and Chief Information Officer, filed herewith.*
21	Subsidiaries of the Registrant.*
23.0	Consent of Crowe LLP, Independent Registered Public Accounting Firm.*
31.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
32.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
101.INS	Instance Document
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

ITEM 16.  10-K SUMMARY

None.

77

CHEMUNG FINANCIAL CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Pages F-1 to F-69

	Page
Report of Independent Registered Public Accounting Firm-Crowe LLP	F-1
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3
Consolidated Statements of Income for the three years ended December 31, 2019	F-4
Consolidated Statements of Comprehensive Income (Loss) for the three years ended December 31, 2019	F-5
Consolidated Statements of Shareholders' Equity for the three years ended December 31, 2019	F-6
Consolidated Statements of Cash Flows for the three years ended December 31, 2019	F-8
Notes to Consolidated Financial Statements	F-10

78

Report of Independent Registered Public Accounting Firm

Board of Directors and Shareholders

Chemung Financial Corporation

Elmira, New York

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Chemung Financial Corporation (the “Company”) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders’ equity and cash flows for each of the years in the three-year period ended December 31, 2019, and the related notes (collectively referred to as the "financial statements"). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, Chemung Financial Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.

Basis for Opinions

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

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

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

Definition and Limitations of Internal Control Over Financial Reporting

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

F-1

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

Crowe LLP

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

Livingston, New Jersey

March 12, 2020

F-2

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

	DECEMBER 31,
(in thousands, except share and per share amounts)	2019			2018
ASSETS
Cash and due from financial institutions	$	25,203		$	33,040
Interest-earning deposits in other financial institutions	96,701			96,932
Total cash and cash equivalents	121,904			129,972
Equity investments, at fair value	2,174			1,909
Securities available for sale, at estimated fair value	284,090			242,258
Securities held to maturity, estimated fair value of $3,139 at   December 31, 2019 and $4,858 at December 31, 2018	3,115			4,875
FHLBNY and FRBNY Stock, at cost	3,099			3,138
Loans, net of deferred loan fees	1,309,219			1,311,906
Allowance for loan losses	(23,478		)	(18,944		)
Loans, net	1,285,741			1,292,962
Loans held for sale	1,185			502
Premises and equipment, net	22,417			24,980
Operating lease right-of-use assets	8,001			—
Goodwill	21,824			21,824
Other intangible assets, net	742			1,351
Bank owned life insurance	3,111			3,048
Accrued interest and other assets	30,424			28,524
Total assets	$	1,787,827		$	1,755,343
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	468,238		$	484,433
Interest-bearing	1,103,900			1,084,804
Total deposits	1,572,138			1,569,237
Long term capital lease obligation	4,085			4,304
Operating lease liabilities	8,084			—
Dividends payable	1,263			1,254
Accrued interest payable and other liabilities	19,630			15,519
Total liabilities	1,605,200			1,590,314
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized;   5,310,076 issued at December 31, 2019 and December 31, 2018	53			53
Additional-paid-in capital	46,382			45,820
Retained earnings	153,701			143,129
Treasury stock, at cost (452,641 shares at December 31, 2019; 488,844   shares at December 31, 2018)	(11,710		)	(12,562		)
Accumulated other comprehensive loss	(5,799		)	(11,411		)
Total shareholders' equity	182,627			165,029
Total liabilities and shareholders' equity	$	1,787,827		$	1,755,343

See accompanying notes to consolidated financial statements.

F-3

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

	YEARS ENDED DECEMBER 31,
(in thousands, except per share amounts)	2019			2018			2017
Interest and Dividend Income:
Loans, including fees	$	58,245		$	57,840		$	52,840
Taxable securities	5,265			4,804			5,503
Tax exempt securities	1,152			1,153			1,149
Interest-earning deposits	2,270			756			563
Total interest and dividend income	66,932			64,553			60,055
Interest Expense:
Deposits	6,173			3,323			2,168
Securities sold under agreements to repurchase	—			137			478
Borrowed funds	148			613			422
Total interest expense	6,321			4,073			3,068
Net interest income	60,611			60,480			56,987
Provision for loan losses	5,945			3,153			9,022
Net interest income after provision for loan losses	54,666			57,327			47,965
Non-Interest Income:
Wealth management group fee income	9,503			9,317			8,804
Service charges on deposit accounts	4,460			4,727			4,961
Interchange revenue from debit card transactions	4,104			4,040			3,761
Net gains on securities transactions	19			—			109
Change in fair value of equity investments	81			2,004			80
Net gain on sales of loans held for sale	248			351			260
Net gains (losses) on sales of other real estate owned	(99		)	90			38
Income from bank owned life insurance	63			66			70
Other	1,694			2,479			2,408
Total non-interest income	20,073			23,074			20,491
Non-Interest Expenses:
Salaries and wages	23,420			22,322			21,476
Pension and other employee benefits	5,902			5,524			5,510
Other components of net periodic pension cost (benefit)	(541		)	(770		)	(1,234		)
Net occupancy expenses	5,969			6,550			6,263
Furniture and equipment expenses	2,497			2,550			2,828
Data processing expense	7,386			6,997			6,539
Professional services	1,885			2,169			1,774
Legal accruals and settlements	—			989			850
Amortization of intangible assets	609			734			860
Marketing and advertising expense	932			1,181			794
Other real estate owned expenses	115			422			110
FDIC insurance	537			1,142			1,236
Loan expense	787			863			694
Other	6,198			6,093			6,064
Total non-interest expenses	55,696			56,766			53,764
Income before income tax expense	19,043			23,635			14,692
Income tax expense	3,434			4,009			7,262
Net income	$	15,609		$	19,626		$	7,430
Weighted average shares outstanding	4,869			4,832			4,800
Basic and diluted earnings per share	$	3.21		$	4.06		$	1.55

See accompanying notes to consolidated financial statements.

F-4

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

	YEARS ENDED DECEMBER 31,
(in thousands)	2019			2018			2017
Net income	$	15,609		$	19,626		$	7,430
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	8,053			(1,382		)	2,523
Reclassification adjustment gains realized in net income	19			—			(109		)
Net unrealized gains (losses)	8,072			(1,382		)	2,414
Tax effect	(2,058		)	353			(904		)
Net of tax amount	6,014			(1,029		)	1,510
Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period	(626		)	(711		)	1,001
Reclassification adjustment for amortization of prior service benefit	(220		)	(220		)	(220		)
Prior service credit	—			—			—
Reclassification adjustment for partial pension settlement loss included in pension expense	—			828			—
Reclassification adjustment for amortization of net actuarial losses	312			318			413
Total before tax effect	(534		)	215			1,194
Tax effect	132			(55		)	(453		)
Net of tax amount	(402		)	160			741
Total other comprehensive income (loss)	5,612			(869		)	2,251
Comprehensive income	$	21,221		$	18,757		$	9,681

See accompanying notes to consolidated financial statements.

F-5

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balances at January 1, 2017	$	53	$	45,603		$	124,111		$	(15,265	)	$	(10,754	)	$	143,748
Net income	—		—			7,430			—			—			7,430
Other comprehensive income	—		—			—			—			2,251			2,251
Restricted stock awards	—		210			—			—			—			210
Distribution of 2,438 shares of treasury stock granted for directors’ deferred compensation plan	—		(51		)	—			62			—			11
Distribution of 10,161 shares of treasury stock granted for employee restricted stock awards, net	—		(260		)	—			260			—			—
Restricted stock units for directors' deferred compensation plan	—		98			—			—			—			98
Cash dividends declared ($1.04 per share)	—		—			(4,925		)	—			—			(4,925		)
Distribution of 7,880 shares of treasury stock for directors' compensation	—		68			—			201			—			269
Distribution of 5,861 shares of treasury stock for employee compensation	—		50			—			150			—			200
Sale of 14,707 shares of treasury stock (a)	—		206			—			376			—			582
Repurchase of 1,159 shares of common stock	—		—			—			(61		)	—			(61		)
Forfeiture of 1,139 shares of restricted stock awards	—		43			—			(43		)	—			—
Reclassification of stranded tax effects in AOCI	—		—			1,837			—			(1,837		)	—
Balances at December 31, 2017	$	53	$	45,967		$	128,453		$	(14,320	)	$	(10,340	)	$	149,813
Cumulative effect of accounting change (b)	—		—			40			—			(202		)	(162		)
Balances as of January 1, 2018, as adjusted	53		45,967			128,493			(14,320		)	(10,542		)	149,651
Net income	—		—			19,626			—			—			19,626
Other comprehensive loss	—		—			—			—			(869		)	(869		)
Restricted stock awards	—		405			—			—			—			405
Distribution of 36,681 shares of treasury stock granted for directors’ deferred compensation plan	—		(722		)	—			940			—			218
Distribution of 14,425 shares of treasury stock granted for employee restricted stock awards, net	—		(370		)	—			370			—			—
Restricted stock units for directors' deferred compensation plan	—		67			—			—			—			67
Cash dividends declared ($1.04 per share)	—		—			(4,990		)	—			—			(4,990		)
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
Sale of 14,081 shares of treasury stock (a)	—		282			—			361			—			643
Repurchase of 2,736 shares of common stock	—		—			—			(112		)	—			(112		)
Balances at December 31, 2018	$	53	$	45,820		$	143,129		$	(12,562	)	$	(11,411	)	$	165,029

(continued)

F-6

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Income (Loss)			Total
Balances at December 31, 2018	$	53	$	45,820		$	143,129		$	(12,562	)	$	(11,411	)	$	165,029
Net income	—		—			15,609			—			—			15,609
Other comprehensive income	—		—						—			5,612			5,612
Restricted stock awards	—		503			—			—			—			503
Distribution of 2,551 shares of treasury stock granted for directors’ deferred compensation plan	—		(52		)	—			65			—			13
Distribution of 13,692 shares of treasury stock granted for employee restricted stock awards, net	—		(353		)	—			353			—			—
Restricted stock units for directors' deferred compensation plan	—		42			—			—			—			42
Cash dividends declared ($1.04 per share)	—		—			(5,037		)	—			—			(5,037		)
Distribution of 8,465 shares of treasury stock for directors' compensation	—		139			—			217			—			356
Distribution of 2,373 shares of treasury stock for employee compensation	—		39			—			61			—			100
Sale of 13,270 shares of treasury stock (a)	—		244			—			341			—			585
Repurchase of 4,148 shares of common stock	—		—			—			(185		)	—			(185		)
Balances at December 31, 2019	$	53	$	46,382		$	153,701		$	(11,710	)	$	(5,799	)	$	182,627

(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 consolidated financial statements.

F-7

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)	YEARS ENDED DECEMBER 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	2019			2018			2017
Net income	$	15,609		$	19,626		$	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of right-of-use assets	712			—			—
Amortization of intangible assets	609			734			860
Deferred income tax (benefit) expense	(1,564		)	2,153			4,251
Provision for loan losses	5,945			3,153			9,022
(Gain) loss on disposal of fixed assets	334			10			29
Depreciation and amortization of fixed assets	3,112			3,437			3,703
Amortization of premiums on securities, net	1,055			1,304			1,450
Gains on sales of loans held for sale, net	(248		)	(351		)	(260		)
Proceeds from sales of loans held for sale	12,488			18,262			9,722
Loans originated and held for sale	(12,923		)	(17,871		)	(9,592		)
Net (gains) losses on sale of other real estate owned	99			(90		)	(38		)
Write-downs on OREO	53			14			43
Net change in fair value of equity investments	(81		)	(2,004		)	(80		)
Net gains on securities transactions	(19		)	—			(109		)
Proceeds from sales of trading assets	22			2,288			20
Purchase of trading assets	(206		)	(167		)	(97		)
(Increase) decrease in other assets	(1,945		)	(2,651		)	579
Increase (decrease) in accrued interest payable	67			84			(62		)
Expense related to restricted stock units for directors' deferred compensation plan	42			67			98
Expense related to employee stock compensation	100			89			200
Expense related to employee restricted stock awards	503			405			210
Payments on operating leases	(629		)
Increase (decrease) in other liabilities	3,333			(654		)	(3,664		)
Income from bank owned life insurance	(63		)	(66		)	(70		)
Net cash provided by operating activities	26,405			27,772			23,645
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	33,690			—			5,576
Proceeds from maturities, calls, and principal paydowns on securities available for sale	49,665			64,180			46,578
Proceeds from maturities and principal collected on securities held to maturity	2,903			1,316			2,891
Purchases of securities available for sale	(118,151		)	(16,033		)	(41,306		)
Purchases of securities held to maturity	(1,143		)	(2,410		)	(1,967		)
Purchase of FHLBNY and FRBNY stock	(14		)	(22,003		)	(7,208		)
Redemption of FHLBNY and FRBNY stock	53			24,649			5,465
Proceeds from sales of fixed assets	—			—			16
Purchases of premises and equipment	(883		)	(1,770		)	(1,482		)
Proceeds from sale of other real estate owned	458			1,709			383
Net increase (decrease) in loans	711			(5,719		)	(115,588		)
Net cash (used by) provided by investing activities	(32,711		)	43,919			(106,642		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	(8,050		)	69,927			36,847
Increase (decrease) in time deposits	10,951			31,864			(25,744		)
Net decrease in securities sold under agreements to repurchase	—			(10,000		)	(17,606		)
Net change in FHLBNY overnight advances	—			(57,700		)	57,700
Repayments of FHLBNY long term advances	—			(2,000		)	(7,093		)
Payments made on capital lease	(219		)	(213		)	(205		)
Sale of treasury stock	585			643			582
Cash dividends paid	(5,029		)	(4,969		)	(4,917		)
Net cash (used in) provided by financing activities	(1,762		)	27,552			39,564
Net increase (decrease) in cash and cash equivalents	(8,068		)	99,243			(43,433		)
Cash and cash equivalents, beginning of period	129,972			30,729			74,162
Cash and cash equivalents, end of period	$	121,904		$	129,972		$	30,729

(Continued)

F-8

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Years Ended December 31,
	2019			2018			2017
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest	$	6,254		$	3,989		$	3,130
Income Taxes	$	4,455		$	1,730		$	4,050
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	$	517		$	267		$	1,940
Dividends declared, not yet paid	$	1,263		$	1,254		$	1,233
Assets acquired through long term capital lease obligation	$	—		$	—		$	—
Repurchase of common stock in lieu of employee payroll taxes	$	(185	)	$	(112	)	$	(61	)
Distribution of treasury stock for directors' deferred compensation plan	$	13		$	218		$	11
Distribution of treasury stock for directors' compensation	$	356		$	301		$	269

See accompanying notes to consolidated financial statements.

F-9

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2019, 2018 and 2017

(1)    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

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

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

BASIS OF PRESENTATION

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.

CASH AND CASH EQUIVALENTS

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

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

EQUITY INVESTMENTS

On January 1, 2018, the Corporation adopted ASU 2016-01, an amendment to Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The adoption of this guidance resulted in a $40 thousand increase to beginning retained earnings and a $202 thousand decrease to beginning accumulated other comprehensive income (loss).

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

SECURITIES

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

F-10

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

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

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

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

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

LOANS

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

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

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

F-11

TROUBLED DEBT RESTRUCTURINGS

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

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

ALLOWANCE FOR LOAN LOSSES

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

A loan is classified as impaired when, based on current information and events, it is probable that the Bank 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, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  If a loan is determined to be impaired and is placed on nonaccrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors.  Loans not impaired but classified as substandard and special mention use a historical loss factor on a rolling five year history of net losses.  For all other unclassified loans, the historical loss experience is determined by portfolio class and is based on the actual loss history experienced by the Bank 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.

F-12

LOANS HELD FOR SALE

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

CAPITAL LEASES

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

PREMISES AND EQUIPMENT

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

BANK OWNED LIFE INSURANCE

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

OTHER REAL ESTATE

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

INCOME TAXES

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

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

F-13

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.  The unaudited market value of trust assets under administration total $1.915 billion, including $290.0 million of assets held under management or administration for the Corporation, at December 31, 2019 and $1.768 billion, including $283.0 million of assets held under management or administration for the Corporation, at December 31, 2018.

POSTRETIREMENT BENEFITS

Pension Plan:

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

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

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments. The effects of these changes are reflected in the pension plan disclosures as of December 31, 2018 and 2017. See Note 14 for further details.

Defined Contribution Profit Sharing, Savings and Investment Plan:

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

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Defined Benefit Health Care Plan:

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

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2019 and 2018. See Note 14.

Executive Supplemental Pension Plan:

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

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

Defined Contribution Supplemental Executive Retirement Plan:

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

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

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STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Bank, or if the participant retires prior to attainment of age 65, unless otherwise waived by the Compensation and Personnel Committee of the Board of Directors.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 15 for more information regarding this Plan.

Deferred Directors Fee Plan:

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

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income. In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $6,000 to $11,500 and $19,250 for the Chairman of the Board.  The retainer for the Chairman of the Audit Committee was also increased by an additional $2,875 to $14,375.  The directors waived their right to stock compensation for the additional retainer fees paid.

F-16

Incentive Compensation Plan:

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

Non-qualified Deferred Compensation Plan:

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

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2019.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $0.6 million, $0.1 million and $0.1 million, respectively, at December 31, 2019.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

F-17

DERIVATIVES

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

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

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

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions.

OTHER FINANCIAL INSTRUMENTS

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

ADVERTISING COSTS

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

EARNINGS PER COMMON SHARE

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares including those related to directors’ restricted stock units and directors’ stock compensation are considered outstanding and are included in the computation of basic earnings per share as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

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

SEGMENT REPORTING

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

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2019, the Corporation adopted 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

F-18

Corporation adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. In addition, the Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $8.6 million as of January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

On January 1, 2019, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

On January 1, 2018, the Corporation adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent amendments to the ASU (collectively, "ASU 606"), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation's revenues come from interest income and other sources, including loans, securities, and derivatives that are outside the scope of ASC 606. The Corporation's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, and the sale of OREO. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank; as such, no cumulative effect adjustment was recorded. Refer to Note 11 - Revenue from Contracts with Customers for further discussion on the Corporation's accounting policies for revenue sources within the scope of ASC 606.

In January 2016, the FASB issued ASU No. 2016-01, an amendment to Recognition and Measurement of Financial Asset and Financial Liabilities (Subtopic 825-10). The objectives of the ASU are to (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The Corporation adopted all provisions of this ASU as of January 1, 2018 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC 825, with comparable consolidated balance sheets also reported. The adjustments to opening retained earnings and accumulated other comprehensive loss related to the adoption of ASC 825 are immaterial to the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal years beginning after December 15, 2018. In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation would be eligible for the proposed delay. 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 began establishing parameters which will be used in the CECL model with the selected vendor. The Corporation is running its current incurred loss model and a CECL model concurrently. The Corporation is currently evaluating the impact of the delay on its implementation plan.

F-19

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the ASU is to reduce the existing diversity in practice relating to eight specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principal. Results for reporting periods beginning after January 1, 2018 are presented under ASC 230, while prior periods amounts continue to be reported in accordance with legacy GAAP. The adoption of ASU 2016-15 as of January 1, 2018 did not result in a change to how the Corporation accounts for its cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of the ASU is to simplify the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost. The objective of the ASU was to improve guidance related to the presentation of defined benefit costs in the income statement. Specifically, the ASU required that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component to be eligible for capitalization, when applicable. Results for reporting periods beginning after January 1, 2018 are presented under ASC 715, while prior period amounts continue to be reported in accordance with legacy GAAP, with comparable periods presented retrospectively for the presentation of the service cost and net periodic postretirement benefit cost in the income statement. The Corporation adopted ASU 2017-07 as of January 1, 2018 and elected the practical expedient, which permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation for applying retrospective presentation requirements.

(2)RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Corporation was in compliance with the reserve requirement with the Federal Reserve Bank of New York as of December 31, 2019.

The Corporation also maintains a pre-funded settlement account with a financial institution in the amount of $1.6 million and $1.4 million for electronic funds transaction settlement purposes at December 31, 2019 and 2018, respectively.

The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program. The account serves as collateral in the event of default on the interest rate swaps with the counterparties. The collateral held at the financial institution was $9.4 million as of December 31, 2019, and $550,000 collateral held at the financial institution as of December 31, 2018.

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(3)SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	5,489	$	5,472
Mortgage-backed securities, residential	225,029		225,234		189,111		183,192
Obligations of states and political subdivisions	41,265		42,845		44,390		44,152
Corporate bonds and notes	250		250		249		247
SBA loan pools	15,712		15,761		9,257		9,195
Total	$	282,256	$	284,090	$	248,496	$	242,258

Gross unrealized gains and losses on securities available for sale at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	10	$	27
Mortgage-backed securities, residential	1,471		1,266		146		6,065
Obligations of states and political subdivisions	1,580		—		70		308
Corporate bonds and notes	—		—		—		2
SBA loan pools	95		46		—		62
Total	$	3,146	$	1,312	$	226	$	6,464

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

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	725	$	726
After one, but within five years	7,095		7,324
After five, but within ten years	32,646		33,968
After ten years	1,049		1,077
Mortgage-backed securities, residential	225,029		225,234
SBA loan pools	15,712		15,761
Total	$	282,256	$	284,090

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

F-21

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

	2019			2018		2017
Proceeds	$	8,513		$	—	$	5,576
Gross gains	$	159		$	—	$	109
Gross losses	$	(140	)	$	—	$	—
Tax expense	$	5		$	—	$	41

Amortized cost and estimated fair value of securities held to maturity at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	1,045	$	3,020	$	3,020
Time deposits with other financial institutions	2,070		2,094		1,855		1,838
	$	3,115	$	3,139	$	4,875	$	4,858

Gross unrealized gains and losses on securities held to maturity at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	—	$	—
Time deposits with other financial institutions	24		—		—		17
Total	$	24	$	—	$	—	$	17

There were no sales of securities held to maturity in 2019 or 2018.

The contractual maturity of securities held to maturity is as follows at December 31, 2019 (in thousands):

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	1,583	$	1,589
After one, but within five years	1,532		1,550
After five, but within ten years	—		—
After ten years	—		—
Total	$	3,115	$	3,139

F-22

The following table summarizes the investment securities available for sale with unrealized losses at December 31, 2019 and December 31, 2018 by aggregated major security type and length of time in a continuous unrealized position (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2019
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
Obligations of states and political subdivisions	—		—		—		—		—		—
Corporate bonds and notes	—		—		—		—		—		—
SBA loan pools	3,014		9		1,405		37		4,419		46
Total temporarily impaired securities	$	74,520	$	800	$	55,748	$	512	$	130,268	$	1,312

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2018
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	4,969	$	27	$	4,969	$	27
Mortgage-backed securities, residential	—		—		171,481		$	6,065	171,481		6,065
Obligations of states and political subdivisions	10,868		38		21,345		270		32,213		308
Corporate bonds and notes	247		2		—		—		247		2
SBA loan pools	5,985		17		3,210		45		9,195		62
Total temporarily impaired securities	$	17,100	$	57	$	201,005	$	6,407	$	218,105	$	6,464

Other-Than-Temporary-Impairment

As of December 31, 2019, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities. At December 31, 2019, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

Pledged Securities

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $205.9 million at December 31, 2019 and $212.7 million at December 31, 2018.

There are no securities pledged to secure securities sold under agreements to repurchase at December 31, 2019 and 2018, respectively.

Concentrations

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2019 or 2018.

F-23

Equity Method Investments

The Corporation has an equity investment in Cephas Capital Partners, L.P.  This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas. As of December 31, 2019 and 2018, this investment totaled $0.3 million and $0.4 million respectively, is included in other assets, and is accounted for under the equity method of accounting.

(4)LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	December 31, 2019		December 31, 2018
Commercial and agricultural:
Commercial and industrial	$	230,018	$	202,526
Agricultural	274		328
Commercial mortgages:
Construction	43,962		54,476
Commercial mortgages	604,832		606,694
Residential mortgages	188,338		182,724
Consumer loans:
Credit cards	—		1,449
Home equity lines and loans	91,784		98,145
Indirect consumer loans	134,973		149,380
Direct consumer loans	15,038		16,184
Total loans, net of deferred loan fees	1,309,219		1,311,906
Interest receivable on loans	3,684		3,703
Total recorded investment in loans	$	1,312,903	$	1,315,609

Residential mortgages held for sale as of December 31, 2019 and 2018 totaling $1.2 million and $0.5 million, respectively, are not included in the above table.

Residential mortgages totaling $170.0 million at December 31, 2019 and $132.5 million at December 31, 2018 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017, respectively (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944
Charge Offs:	(312		)	(1		)	(151		)	(1,511		)	(1,975		)
Recoveries:	59			4			45			456			564
Net (charge offs) recoveries	(253		)	3			(106		)	(1,055		)	(1,411		)
Provision	5,097			682			132			34			5,945
Ending balance	$	10,227		$	8,869		$	1,252		$	3,130		$	23,478

F-24

	December 31, 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		)	(213		)	(226		)	(1,836		)	(5,919		)
Recoveries:	47			3			5			494			549
Net recoveries (charge offs)	(3,597		)	(210		)	(221		)	(1,342		)	(5,370		)
Provision	2,004			(120		)	131			1,138			3,153
Ending balance	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944

	December 31, 2017
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253
Charge Offs:	(96		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net recoveries (charge offs)	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,000	$	2,097	$	—	$	—	$	8,097
Collectively evaluated for impairment	4,227		6,772		1,252		3,130		15,381
Total ending allowance balance	$	10,227	$	8,869	$	1,252	$	3,130	$	23,478

	December 31, 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	$	1,743	$	446	$	—	$	—	$	2,189
Collectively evaluated for impairment	3,640		7,738		1,226		4,151		16,755
Total ending allowance balance	$	5,383	$	8,184	$	1,226	$	4,151	$	18,944

	December 31, 2019
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,147	$	8,844	$	525	$	149	$	15,665
Loans collectively evaluated for impairment	224,775		641,726		188,349		242,388		1,297,238
Total ending loans balance	$	230,922	$	650,570	$	188,874	$	242,537	$	1,312,903

F-25

	December 31, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,128	$	6,146	$	402	$	55	$	8,731
Loans collectively evaluated for impairment	201,284		656,842		182,823		265,929		1,306,878
Total ending loans balance	$	203,412	$	662,988	$	183,225	$	265,984	$	1,315,609

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2019 and December 31, 2018, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2019, 2018 and 2017 (in thousands):

	December 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	133	$	133	$	—	$	345	$	346	$	—
Commercial mortgages:
Construction	247		247		—		307		308		—
Commercial mortgages	3,501		3,503		—		4,007		3,935		—
Residential mortgages	554		525		—		424		402		—
Consumer loans:
Home equity lines and loans	171		149		—		54		55		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	6,013		6,014		6,000		1,780		1,782		1,743
Commercial mortgages:
Commercial mortgages	5,093		5,094		2,097		1,902		1,903		446
Consumer loans:
Home equity lines and loans	—		—		—		—		—		—
Total	$	15,712	$	15,665	$	8,097	$	8,819	$	8,731	$	2,189

F-26

	December 31, 2019				December 31, 2018				December 31, 2017
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	248	$	—	$	608	$	12	$	706	$	35
Commercial mortgages:
Construction	278		10		337		11		830		12
Commercial mortgages	3,605		12		4,193		21		5,606		78
Residential mortgages	422		44		416		7		418		8
Consumer loans:
Home equity lines & loans	137		6		60		3		74		3
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,209		—		3,043		3		1,170		6
Commercial mortgages:
Commercial mortgages	6,524		—		2,315		4		3,751		12
Consumer loans:
Home equity lines and loans	—		—		—		—		144		—
Total	$	14,423	$	72	$	10,972	$	61	$	12,699	$	154

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

The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2019 and December 31, 2018 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2019		2018		2019		2018
Commercial and agricultural:
Commercial and industrial	$	6,147	$	2,048	$	7	$	10
Commercial mortgages:
Construction	80		109		—		—
Commercial mortgages	8,407		5,529		—		—
Residential mortgages	2,155		2,655		—		—
Consumer loans:
Credit cards	—		—		—		9
Home equity lines and loans	641		1,183		—		—
Indirect consumer loans	571		693		—		—
Direct consumer loans	7		37		—		—
Total	$	18,008	$	12,254	$	7	$	19

F-27

The following tables present the aging of the recorded investment in loans as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	1,285	$	49	$	4,398	$	5,732	$	224,916	$	230,648
Agricultural	—		—		—		—		274		274
Commercial mortgages:
Construction	—		—		—		—		44,082		44,082
Commercial mortgages	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		803		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		11		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

F-28

	December 31, 2018
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	284	$	61	$	71	$	416	$	202,667	$	203,083
Agricultural	16		—		—		16		313		329
Commercial mortgages:
Construction	—		—		—		—		54,626		54,626
Commercial mortgages	6,273		158		169		6,600		601,762		608,362
Residential mortgages	2,204		516		1,026		3,746		179,479		183,225
Consumer loans:
Credit cards	1		3		9		13		1,437		1,450
Home equity lines and loans	279		97		730		1,106		97,360		98,466
Indirect consumer loans	1,511		319		436		2,266		147,540		149,806
Direct consumer loans	120		53		31		204		16,058		16,262
Total	$	10,688	$	1,207	$	2,472	$	14,367	$	1,301,242	$	1,315,609

Troubled Debt Restructurings:

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

As of December 31, 2019, 2018 and 2017, the Corporation has a recorded investment in TDRs of $9.0 million, $6.8 million, and $7.7 million, respectively.  There were specific reserves of $2.3 million allocated for TDRs at December 31, 2019, and $0.9 million and $0.7 million allocated for December 31, 2018 and 2017, respectively.  As of December 31, 2019, TDRs totaling $0.9 million were accruing interest under the modified terms and $8.1 million were on non-accrual status.  As of December 31, 2018, TDRs totaling $0.8 million were accruing interest under the modified terms and $6.0 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 has committed $17 thousand to customers with outstanding loans that are classified as TDRs as of December 31, 2019 and no additional amounts as of December 31, 2018 or 2017.

During the years ended December 31, 2019, 2018 and 2017, the terms of certain loans were modified as TDRs. During the year ended December 31, 2019, the modification of the terms of one commercial real estate term loan included a reduction of the scheduled amortized payments for greater than a three month period, and modification of the terms of one home equity loan included a reduction in the stated interest rate for the remaining life of the loan, an extension of the maturity date for approximately three years and a reduction of the scheduled amortized payment of the loan for greater than a three month period. Additionally, one residential mortgage loan modification included a reduction in the stated interest rate for the remaining life of the loan, a deferral of the principal balance decreasing the effective borrowing rate, an extension of the maturity date by thirteen years at a stated rate lower than the current market rate for new debt with similar risk and a postponement of the scheduled amortized payments of the loan for greater than a three month period.

F-29

During the year ended December 31, 2018, the modification of the terms of two commercial and industrial term loans included extensions of the maturity dates at stated rates of interest lower than current market rates for new debt with similar risks.

During the year ended December 31, 2017, the modification of the terms of two commercial and industrial loans included a reduction of the scheduled amortized payments for greater than a three month period, the release of collateral related to one of the loans and the extension of a maturity date. Additionally, the modification of the terms of two commercial and industrial term loans and one line of credit included consolidating the loans into one commercial and industrial loan, extending the maturity date by approximately two years years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a commercial mortgage loan included a reduction of the scheduled amortized payments of the loan for greater than a three month period. The modification of the terms of a residential mortgage loan included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2019, 2018 and 2017 (in thousands):

December 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	1	4,223		4,223
Residential mortgages	1	123		123
Consumer loans:
Home equity lines and loans	1	137		137
Total	3	$	4,483	$	4,483

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no charge offs during the year ended December 31, 2019.

December 31, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	491	$	491
Total	2	$	491	$	491

The TDRs described above increased the allowance for loan losses by $0.4 million and resulted in no charge offs during the year ended December 31, 2018.

December 31, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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

F-30

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 troubled debt restructurings during the year ended December 31, 2019, and 2018, within twelve months following the modification.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017:

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

Credit Quality Indicators

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

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

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

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

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

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

F-31

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2019 and 2018, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	—		274		—		—		—		274
Commercial mortgages:
Construction	—		40,304		168		3,610		—		44,082
Commercial mortgages	—		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719				—		2,155		—		188,874
Consumer loans
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		—		—		641		—		92,065
Indirect consumer loans	134,795		—		—		571		—		135,366
Direct consumer loans	15,099		—		—		7		—		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903

F-32

	December 31, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	190,666	$	4,452	$	6,222	$	1,743	$	203,083
Agricultural	—		329		—		—		—		329
Commercial mortgages:
Construction	—		54,517		—		109		—		54,626
Commercial mortgages	—		574,221		16,830		15,948		1,363		608,362
Residential mortgages	180,570		—		—		2,655		—		183,225
Consumer loans
Credit cards	1,450		—		—		—		—		1,450
Home equity lines and loans	97,283		—		—		1,183		—		98,466
Indirect consumer loans	149,113		—		—		693		—		149,806
Direct consumer loans	16,225		—		—		37		—		16,262
Total	$	444,641	$	819,733	$	21,282	$	26,847	$	3,106	$	1,315,609

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2019 and 2018 (in thousands):

	December 31, 2019
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	186,719	$	—	$	91,424	$	134,795	$	15,099
Non-Performing	2,155		—		641		571		7
Total	$	188,874	$	—	$	92,065	$	135,366	$	15,106

	December 31, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	180,570	$	1,450	$	97,283	$	149,113	$	16,225
Non-Performing	2,655		—		1,183		693		37
Total	$	183,225	$	1,450	$	98,466	$	149,806	$	16,262

F-33

(5)    PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2019 and 2018 are as follows (in thousands):

	2019		2018
Land	$	4,803	$	4,803
Buildings	41,408		41,332
Projects in progress	113		31
Equipment and furniture	37,007		38,008
Leasehold improvements	5,757		6,174
	89,088		90,348
Less accumulated depreciation and amortization	66,671		65,368
Net book value	$	22,417	$	24,980

Depreciation expense was $3.1 million, $3.4 million and $3.7 million for 2019, 2018, and 2017, respectively.

Capital Leases

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

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

	2019			2018
Buildings	$	5,572		$	5,572
Accumulated depreciation	(1,541		)	(1,208		)
Net book value	$	4,031		$	4,364

F-34

NOTE 6        LEASES

Operating Leases

The Corporation leases certain branch properties under long-term, operating lease agreements.  The leases expire at various dates through 2033 and generally include renewal options.  As of December 31, 2019, the weighted average remaining lease term was 11.2 years with a weighted average discount rate of 3.38%.  Rent expense was $1.0 million, $1.1 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements.  The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees.

Leased branch properties at December 31, 2019 and December 31, 2018 consist of the following (in thousands):

	December 31, 2019			December 31, 2018
Operating lease right-of-use asset	$	8,713		$	—
Less: accumulated amortization	(712		)	—
Operating lease right-of-use-assets, net	$	8,001		$	—

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2019 (in thousands):

Year	Amount
2020	$	932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764		)
Present value of net minimum lease payments	$	8,084

As of December 31, 2019, the Corporation had no operating leases that were signed, but had not yet commenced.

Finance Leases

The Corporation leases certain buildings under finance leases.  The lease arrangements require monthly payments through 2036. As of December 31, 2019, the weighted average remaining lease term was 13.0 years with a weighted average discount rate of 3.34%.  The Corporation has included these leases in premises and equipment as of December 31, 2019 and December 31, 2018.

F-35

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2019 (in thousands):

Year	Amount
2020	$	376
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,185
Less: amount representing interest	(1,100		)
Present value of net minimum lease payments	$	4,085

As of December 31, 2019, the Corporation had no finance leases that were signed, but had not yet commenced.

F-36

(7)GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the years ended December 31, 2019 and 2018 were as follows (in thousands):

	2019		2018
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

Acquired intangible assets were as follows at December 31, 2019 and 2018 (in thousands):

	At December 31, 2019				At December 31, 2018
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,832	$	5,975	$	5,576
Other customer relationship intangibles	5,633		5,034		5,633		4,681
Total	$	11,608	$	10,866	$	11,608	$	10,257

Aggregate amortization expense was $0.6 million, $0.7 million, and $0.9 million for 2019, 2018 and 2017, respectively.

The remaining estimated aggregate amortization expense at December 31, 2019 is listed below (in thousands):

Year	Estimated Expense
2020	$	484
2021	258
Total	$	742

(8)    DEPOSITS

A summary of deposits at December 31, 2019 and 2018 is as follows (in thousands):

	2019		2018
Non-interest-bearing demand deposits	$	468,238	$	484,433
Interest-bearing demand deposits	200,089		179,603
Insured money market accounts	530,242		537,948
Savings deposits	212,393		217,027
Time deposits	161,176		150,226
Total	$	1,572,138	$	1,569,237

Scheduled maturities of time deposits at December 31, 2019, are summarized as follows (in thousands):

Year	Maturities
2020	$	81,015
2021	18,939
2022	42,040
2023	13,091
2024	2,968
2025	3,123
Total	$	161,176

F-37

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2019 and 2018 were $27.7 million and $22.4 million, respectively.

(9)SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Repurchase agreements are secured borrowings. The Corporation pledges investment securities to secure these borrowings. A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):

	2019			2018			2017
Balance at December 31	$	—		$	—		$	10,000
Maximum month-end balance	$	—		$	10,000		$	25,718
Average balance during year	$	—		$	3,644		$	14,207
Weighted-average interest rate at December 31	—		%	—		%	3.72		%
Average interest rate paid during year	—		%	3.77		%	3.37		%

There were no securities sold under agreements to repurchase as of December 31, 2019 and December 31, 2018.

The Corporation enters into sales of securities under agreements to repurchase and the amounts received under these agreements represent borrowings and are reflected as a liability in the consolidated balance sheets.  The securities underlying these agreements are included in investment securities in the consolidated balance sheets. See Note 3 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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

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

There were no FHLBNY fixed rate term advances and overnight advances as of December 31, 2019 and December 31, 2018.

The Corporation has pledged $170.0 million and $132.5 million of first mortgage loans under a blanket lien arrangement at December 31, 2019 and 2018, respectively, as collateral for future borrowings.  Based on this collateral and the Corporation’s holdings of FHLBNY stock, the Corporation is eligible to borrow up to a total of $141.8 million at December 31, 2019.

(11)    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 tables present the Corporation's non-interest income by revenue stream and reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

F-38

	Year ended December 31, 2019
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,653		$	—	$	—		$	3,653
Other	807			—		—			807
Interchange revenue from debit card transactions	4,104			—					4,104
WMG fee income	—			9,503		—			9,503
CFS fee and commission income	—			—		673			673
Net gains (losses) on sales of OREO	(99		)	—		—			(99		)
Net gains on sales of loans(a)	248			—		—			248
Loan servicing fees(a)	103			—		—			103
Net gains on sales of securities(a)	19			—		—			19
Change in fair value of equity securities(a)	143					(62		)	81
Other(a)	1,378			—		(397		)	981
Total non-interest income	$	10,356		$	9,503	$	214		$	20,073

(a) Not within scope of ASC 606.

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

	Year ended December 31, 2018
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,934	$	—	$	—		$	3,934
Other	793		—		—			793
Interchange revenue from debit card transactions	4,040		—		—			4,040
WMG fee income	—		9,317		—			9,317
CFS fee and commission income	—		—		510			510
Net gains (losses) on sales of OREO	90		—		—			90
Net gains on sales of loans(a)	351		—		—			351
Loan servicing fees(a)	92		—		—			92
Net gains on sales of securities(a)	—		—		—			—
Change in fair value of equity securities(a)	2,024		—		(20		)	2,004
Other(a)	2,272		—		(329		)	1,943
Total non-interest income	$	13,596	$	9,317	$	161		$	23,074

(a) Not within scope of ASC 606.

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

F-39

	Year ended December 31, 2017
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	4,189	$	—	$	—		$	4,189
Other	772		—		—			772
Interchange revenue from debit card transactions	3,761		—		—			3,761
WMG fee income	—		8,804		—			8,804
CFS fee and commission income	—		—		646			646
Net gains (losses) on sales of OREO	38		—		—			38
Net gains on sales of loans(a)	260		—		—			260
Loan servicing fees(a)	84		—		—			84
Net gains on sales of securities(a)	109		—		—			109
Change in fair value of equity securities(a)	80		—		—			80
Other(a)	1,933		—		(185		)	1,748
Total non-interest income	$	11,226	$	8,804	$	461		$	20,491

(a) Not within scope of ASC 606.

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

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

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

Interchange Income from Debit Card Transactions: The Corporation earns interchange fees from debit cardholder transactions conducted through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with 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 conduct transactions on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at quarter-end.

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

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

F-40

(12)DERIVATIVES

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

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At December 31, 2019, the Corporation held derivatives not designated as hedging instruments with a total notional amount of $238.2 million. Derivatives not designated as hedging instruments included back-to-back interest rate swaps of $226.4 million, consisting of $113.2 million of interest rate swaps with commercial borrowers and an additional $113.2 million of offsetting interest rate swaps with third-party counter-parties on substantially the same terms, and risk participation agreements with dealer banks of $11.8 million. Free-standing derivatives are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded in other non-interest income.

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

2019	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	15	$	113,204	7.9	4.44	%	4.03	%	$	(6,800	)
Interest rate swap agreements with third-party counter-parties	15	113,204		7.9	4.03	%	4.44	%	6,466
Risk participation agreements	3	11,819		5.6					(31		)
Total	33	$	238,227						$	(365	)

F-41

2018	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	11	$	76,395	7.1	4.69	%	4.61	%	$	(3,255	)
Interest rate swap agreements with third-party counter-parties	11	76,395		7.1	4.61	%	4.69	%	3,142
Risk participation agreements	6	20,142		15.0					(27		)
	28	$	172,932						$	(140	)

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

Off-balance sheet exposure for the risk participation agreements was $0.4 million for December 31, 2019 and $0.3 million for December 31, 2018, respectively.

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

	Years Ended December 31,
	2019			2018			2017
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized (loss) recognized in non-interest income	$	(3,544	)	$	(2,281	)	$	(281	)
Interest rate swap agreements with third-party counter-parties:
Unrealized gain recognized in non-interest income	3,324			2,168			281
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(4		)	48			(7		)
Unrealized gain (loss) recognized in non-interest income	$	(224	)	$	(65	)	$	(7	)

F-42

(13)INCOME TAXES

For the years ended December 31, 2019, 2018 and 2017, income tax expense attributable to income from operations consisted of the following (in thousands):

	2019			2018			2017
Current expense:
Federal	$	4,603		$	1,732		$	2,594
State	395			124			417
Total current	4,998			1,856			3,011
Deferred expense/(benefit):
Federal	(1,126		)	2,253			942
State	(438		)	345			382
Remeasurement of deferred tax assets	—			(445		)	2,927
Total deferred	(1,564		)	2,153			4,251
Income tax expense	$	3,434		$	4,009		$	7,262

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

	2019			2018			2017
Statutory federal tax rate	21		%	21		%	34		%
Tax computed at statutory rate	$	3,999		$	4,963		$	5,006
Increase (reduction) resulting from:
Tax-exempt income	(424		)	(430		)	(663		)
831(b) premium adjustment	(189		)	(167		)	(269		)
Dividend exclusion	(7		)	(7		)	(8		)
State taxes, net of Federal impact	(86		)	262			201
Nondeductible interest expense	9			7			8
Remeasurement of deferred tax assets	—			(445		)	2,927
Other items, net	132			(174		)	60
Income tax expense	$	3,434		$	4,009		$	7,262
Effective tax rate	18.0		%	17.0		%	49.4		%

The lower tax expense in 2019 when compared to 2018 can be attributed to a decrease in pretax income.

The lower tax expense in 2018 when compared to 2017 can be attributed to a tax benefit of $0.4 million recorded in December 2018 and to the estimated $2.9 million one-time net deferred tax revaluation recorded in December 2017, both due to the enactment of Tax Act. On December 22, 2017, the Tax Act was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Corporation had recorded $2.9 million for the remeasurement of the Corporation's deferred tax assets.

Additionally, on December 22, 2017, the SEC released Staff Bulletin No. 118 ("SAB 118") to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Tax Act in situations where the necessary information is not available, prepared, or analyzed in reasonable detail to complete the accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period not to extend beyond one year from the Tax Act's enactment date to the complete the necessary accounting. In 2017, the Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in areas where information necessary to complete the accounting was not available, prepared, or analyzed. In 2018, the Corporation completed its accounting of the effects of the Tax Act with the completion of its 2017 tax returns.

F-43

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018, are presented below (in thousands):

	2019		2018
Deferred tax assets:
Allowance for loan losses	$	6,046	$	4,834
Accrual for employee benefit plans	92		136
Depreciation	379		(93		)
Deferred compensation and directors' fees	765		634
Operating lease liabilities	2,050		—
Purchase accounting adjustment – loans	1		7
Purchase accounting adjustment – fixed assets	149		149
Gain on deemed sale of securities	71		339
Net unrealized losses on securities available for sale	—		1,590
Accounting for defined benefit pension and other benefit plans	2,448		2,315
Nonaccrued interest	695		625
Accrued expense	179		200
Other items, net	38		153
Total gross deferred tax assets	12,913		10,889
Deferred tax liabilities:
Deferred loan fees and costs	592		640
Prepaid pension	3,189		3,141
Net unrealized gains on securities available for sale	468		—
Discount accretion	24		137
Core deposit intangible	1,213		1,101
REIT dividend	922		1,048
Operating lease right-of-use assets	2,050		—
Other	103		109
Total gross deferred tax liabilities	8,561		6,176
Net deferred tax asset	$	4,352	$	4,713

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

As of December 31, 2019, 2018 and 2017, the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes.  As of December 31, 2019, 2018 and 2017, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2016 and for New York State taxing authorities for the year prior to 2016.

F-44

(14)    PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

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

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.  On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments. A payout to participants of $3.3 million during the year ended December 31, 2018 is reflected in the projected benefit obligation and fair value of assets tables presented below. A settlement charge of $828 thousand has been recognized during the year ended December 31, 2018 in order to accelerate the recognition of a portion of the plan's unrecognized net loss.

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

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	36,022		$	42,240
Interest cost	1,522			1,551
Actuarial (gain) loss	4,474			(2,491		)
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Benefit obligation at end of year	$	39,886		$	36,022

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	41,476		$	46,672
Actual return on plan assets	6,213			82
Employer contributions	—			—
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Fair value of plan assets at end of year	$	45,557		$	41,476
Funded status	$	5,671		$	5,454

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	9,352	$	9,075
Prior service cost	—		—
Total before tax effects	$	9,352	$	9,075

The accumulated benefit obligation at December 31, 2019 and 2018 was $39.9 million and $36.0 million, respectively.

F-45

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2019, 2018 and 2017 consist of the following (in thousands):

Net periodic benefit cost	2019			2018			2017
Service cost, benefits earned during the year	$	—		$	—		$	—
Interest cost on projected benefit obligation	1,522			1,551			1,646
Expected return on plan assets	(2,221		)	(3,309		)	(3,144		)
Amortization of net loss	204			188			267
Amortization of  prior service cost	—			—			—
Recognized (gain) loss due to settlements	—			828			—
Net periodic cost (benefit)	$	(495	)	$	(742	)	$	(1,231	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	481		$	736		$	(1,165	)
Recognized loss	(204		)	(1,016		)	(267		)
Amortization of prior service cost	—			—			—
Total recognized in other comprehensive income (loss) (before tax effect)	$	277		$	(280	)	$	(1,432	)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(218	)	$	(1,022	)	$	(2,663	)

During 2019, the plan's total unrecognized net loss increased by $0.3 million.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the projected benefit obligation or 10% of the plan assets, and the plan is frozen, the excess will be amortized over the average future life expectancy of all plan participants. Prior to the plan freeze on December 31, 2016, the excess had been amortized over the average future working lifetime of all plan participants. As of January 1, 2019, the average expected future life expectancy of all participants which was 24.54 years. Actual results for 2020 will depend on the 2020 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	196
Prior service cost recognition	$	—

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Expected long-term rate of return on assets	5.50	%	7.25	%	7.75	%
Assumed rate of future compensation increase	N/A		N/A		N/A

F-46

The Corporation changes important assumptions whenever changing conditions warrant.  At December 31, 2019 the Corporation used IRS Static 2020 Mortality Table with Mortality Improvement Scale 2020 (MP-2020) as a basis for the Plan's valuation. At December 31, 2018, the Corporation used IRS Static 2019 Mortality Table as a basis for the Plan's valuation. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years, or as conditions warrant. 

The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types.  The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds.  Other investments may consist of mutual funds, money market funds and cash & cash equivalents.  While no significant changes in the asset allocations are expected during 2020, the Corporation may make changes at any time.

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

Asset Class	Target Allocation 2019	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2019		2018
Large cap domestic equities	20% - 50%	38	%	38	%	7.5	%
Mid-cap domestic equities	0% - 15%	2	%	2	%	9.5	%
Small-cap domestic equities	0% - 10%	2	%	6	%	7.8	%
International equities	0% - 20%	8	%	4	%	4.7	%
Intermediate fixed income	30% - 70%	45	%	37	%	4.6	%
Alternative assets	0% - 10%	—	%	—	%	—	%
Cash	0% - 20%	5	%	13	%	1.3	%
Total		100	%	100	%

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

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

As of December 31, 2019 and 2018, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock.

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

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

The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

F-47

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

The fair value of the plan assets at December 31, 2019 and 2018, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2019 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,210	$	2,210	$	—	$	—
Equity securities:
U.S. companies	17,939		17,939		—		—
International companies	—				—		—
Mutual funds	21,328		21,328		—		—
Debt securities:
U.S. Treasuries/Government bonds	3,054		—		3,054		—
U.S. Corporate bonds	1,026		—		1,026		—
Total plan assets	$	45,557	$	41,477	$	4,080	$	—

			Fair Value Measurement at December 31, 2018 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	5,476	$	5,476	$	—	$	—
Equity securities:
U.S. companies	16,244		16,244		—		—
International companies	—		—		—		—
Mutual funds	16,242		16,242		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,031		—		2,031		—
U.S. Corporate bonds	1,483		—		1,483		—
Total plan assets	$	41,476	$	37,962	$	3,514	$	—

F-48

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

Calendar Year	Future Expected Benefit Payments
2020	$	2,223
2021	$	2,240
2022	$	2,251
2023	$	2,251
2024	$	2,269
2025-2029	$	11,350

The Corporation does not expect to contribute to the plan during 2020.  Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

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

Defined Contribution Profit Sharing, Savings and Investment Plan

On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1000 hours of service requirement to participate in employer contributions.  Beginning on January 1, 2017, the Bank began contributing a non-discretionary 3% of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010.  Additionally, beginning January 1, 2017 the Bank began contributing a 50% match up to 6% of gross annual wages.

Expense related to both plans totaled $1.3 million, $1.2 million, and $1.16 million for the years ended December 31, 2019, 2018 and 2017, respectively.  The plan's assets at December 31, 2019, 2018 and 2017 include 155,696, 148,716, and 155,336 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.

Defined Benefit Health Care Plan

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

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

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Changes in accumulated postretirement benefit obligation:	2019			2018
Accumulated postretirement benefit obligation - beginning of year	$	363		$	441
Service cost	—			—
Interest cost	16			16
Participant contributions	49			73
Amendments	—			—
Actuarial (gain) loss	31			22
Benefits paid	(127		)	(189		)
Accumulated postretirement benefit obligation at end of year	$	332		$	363

F-49

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	78			116
Plan participants’ contributions	49			73
Benefits paid	(127		)	(189		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(332	)	$	(363	)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019			2018
Net actuarial loss	$	417		$	491
Prior service credit	(440		)	(661		)
Total before tax effects	$	(23	)	$	(170	)

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Health care cost trend: Initial (Pre-65/Post 65)	6.95% / 5.45%		6.95% / 5.45%		6.50	%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75% / 4.75%		4.75% / 4.75%		5.00	%
Year ultimate cost trend reached	2025		2024		2021

The components of net periodic postretirement benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic cost (benefit)	2019			2018			2017
Service cost	$	—		$	—		$	—
Interest cost	16			16			20
Amortization of prior service benefit	(220		)	(220		)	(220		)
Recognized actuarial loss	105			123			143
Recognized prior service benefit due to curtailments	—			—			—
Net periodic postretirement cost (benefit)	$	(99	)	$	(81	)	$	(57	)

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2019			2018			2017
Net actuarial loss	$	31		$	22		$	98
Recognized actuarial loss	(105		)	(123		)	(143		)
Prior service credit	—			—			—
Amortization of prior service benefit	220			220			220
Total recognized in other comprehensive income (loss)(before tax effect)	$	146		$	119		$	175
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	47		$	38		$	118

During 2019 the plan's total unrecognized net loss decreased by $74 thousand.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants.  As of January 1, 2019, the average future life expectancy of all plan participants was 5.0 years.  Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees. Actual results for 2020 will depend on the 2020 actuarial valuation of the plan.

F-50

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	96
Prior service cost recognition	$	(220	)

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

Effect of a 1% increase in health care trend rate on:	2019		2018		2017
Benefit obligation	$	17	$	4	$	5
Total service and interest cost	$	1	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2019			2018			2017
Benefit obligation	$	(16	)	$	(4	)	$	(6	)
Total service and interest cost	$	(1	)	$	—		$	—

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Health care cost trend: Initial	6.95% / 5.45%		6.50	%	6.50	%
Health care cost tread: Ultimate	4.75% / 4.75%		5.00	%	5.00	%
Year ultimate reached	2024		2021		2020

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

Calendar Year	Future Estimated Benefit Payments
2020	$	86
2021	$	50
2022	$	37
2023	$	38
2024	$	21
2025-2029	$	87

The Corporation’s policy is to contribute the amount required to fund postretirement benefits as they become due to retirees.  The amount expected to be required in contributions to the plan during 2020 is $86 thousand.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code.  The benefits under this plan are unfunded as of December 31, 2019 and 2018.

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

The following table presents Executive Supplemental Pension plan status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	1,179		$	1,289
Service cost	—			—
Interest cost	49			46
Actuarial (gain) loss	113			(47		)
Benefits paid	(109		)	(109		)
Projected benefit obligation at end of year	$	1,232		$	1,179

F-51

Changes in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	109			109
Benefits paid	(109		)	(109		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,232	)	$	(1,179	)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	283	$	174
Prior service cost	—		—
Total before tax effects	$	283	$	174

Accumulated benefit obligation at December 31, 2019 and 2018 was $1.2 million and $1.2 million, respectively.

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

The components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic benefit cost	2019		2018		2017
Service cost	$	—	$	—	$	—
Interest cost	49		46		50
Recognized actuarial loss	4		7		3
Net periodic postretirement benefit cost	$	53	$	53	$	53

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	113		$	(47	)	$	66
Recognized actuarial loss	(4		)	(7		)	(3		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	109		$	(54	)	$	63
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	162		$	(1	)	$	116

During 2019, the plan's total unrecognized net loss increased by $109 thousand. Because the unrecognized net gain or loss exceeds the greater of 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future life expectancy of all participants. Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants. As of January 1, 2020, the average future life expectancy of plan participants was 12.73 years.

F-52

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	13
Prior service cost recognition	$	—

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Salary scale	N/A		N/A		N/A

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

Calendar Year	Future Estimated Benefit Payments
2020	$	109
2021	$	107
2022	$	105
2023	$	102
2024	$	99
2025-2029	$	431

The Corporation expects to contribute $110 thousand to the plan during 2020. Corporation contributions are equal to the benefit payments to plan participants.

Defined Contribution Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012.  The plan is unfunded as of December 31, 2019 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events.  The accrued obligation for the plan as of December 31, 2019 and 2018 was $1.6 million and $1.2 million, respectively.  A total of $0.4 million, $0.3 million, and $0.3 million was expensed during the years ended December 31, 2019, 2018, and 2017, respectively.  In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will equal the average yield on five year U.S. Treasury Notes.

(15)    STOCK COMPENSATION

Board of Directors' Stock Compensation

Members of the Board of Directors receive common shares of the Corporation equal in value to the amount of fees individually earned during the previous year for service as a director.  The common shares are distributed to the Corporation's individual Board of Directors members from treasury shares of the Corporation on or about January15 following the calendar year of service. In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $6,000 to $11,500 and $19,250 for the Chairman of the Board.  The retainer for the Chairman of the Audit Committee was also increased by an additional $2,875 to $14,375.  The directors waived their right to stock compensation for the additional retainer fees paid.

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

During January 2020, 2019, and 2018, 7,923, 8,465 and 6,015 shares, respectively, were re-issued from treasury to fund the stock component of the directors' and the Chief Executive Officer’s compensation.  An expense of $350 thousand, $357 thousand and $301 thousand related to this compensation was recognized during the years ended December 31, 2019, 2018 and 2017, respectively.  This expense is accrued as shares are earned.

F-53

Restricted Stock Plan

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

A summary of restricted stock activity as of December 31, 2019, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2018	29,694		$	40.81
Granted	13,692		44.75
Vested	(9,811	)	38.01
Forfeited or Cancelled	—		—
Nonvested at December 31, 2019	33,575		$	43.24

As of December 31, 2019, there was $1.3 million 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 3.53 years.  The total fair value of shares vested during the years ended December 31, 2019, 2018 and 2017 were $438 thousand, $432 thousand and $382 thousand, respectively.

(16)    RELATED PARTY TRANSACTIONS

Members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners (more than 10% interest) or board members, were customers of, and had loans and other transactions with the Corporation.  These loans are summarized as follows for the years ended December 31, 2019 and 2018 (in thousands):

	2019			2018
Balance at beginning of year	$	62,741		$	39,153
New loans or additional advances	1,895			10,624
Effect of changes in composition of related parties	4,456			25,815
Repayments	(9,119		)	(12,851		)
Balance at end of year	$	59,973		$	62,741

Deposits from principal officers, directors, and their affiliates at December 31, 2019 and 2018 were $18.3 million and $22.2 million, respectively.

The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July 2022 from a member of the Corporation's Board of Directors with monthly rent expense totaling $4 thousand per month. Annual rent paid to this Board of Directors member totaled $52 thousand, $45 thousand, and $51 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

The Bank utilized legal services from a local law firm in which a member of the Board of Directors is a principal owner. Services totaled $10 thousand, $28 thousand, and $17 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

The Bank entered into a lease agreement in 2018 of its branch located at 2 Rush Street, Schenectady, New York, under a lease agreement through February 2033 from a member of the Corporation's Board of Directors with monthly rent expense totaling $8 thousand per month. Rent paid to this Board of Directors member totaled $93 thousand and $84 thousand for the years ended December 31, 2019 and 2018, respectively.

F-54

The Bank leases its branch located at 127 Court Street, Binghamton, New York under a lease agreement through June 2030 with monthly lease payments of $5 thousand. The lease originated with an entity in whom the employer of a Director of the Corporation had a twenty percent interest. In July 2017, the employer of the Director sold its interest in the property to an unrelated third party from which the Bank continues to lease the property. Annual rent paid to the leasing entity while there was a related party interest totaled $79 thousand for the year ended December 31, 2017. The Bank sold a $2.0 million loan participation to the same employer of a Director of the Corporation during the the year ended December 31, 2017. As of December 31, 2017, the Bank had outstanding loan participations with the same employer of a Director of the Corporation in the amount of $6.6 million.  CFS offered insurance products to its customers through the same employer of a Director of the Corporation during the years ended December 31, 2018 and 2017. CFS earned income of less than $1 thousand related to these insurance products during the years ended December 31, 2018 and 2017. The Bank purchased insurance products from the same employer of a Director of the Corporation in the amount of $34 thousand during the years ended December 31, 2018 and 2017.

WMG provided trust services to members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners or board members. WMG fee income for the trust services provided totaled $580 thousand, $593 thousand, and $332 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

(17)    COMMITMENTS AND CONTINGENCIES

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

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

	2019				2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	15,560	$	25,233	$	9,137	$	18,033
Unused lines of credit	$	1,062	$	229,137	$	848	$	212,601
Standby letters of credit	$	—	$	16,272	$	—	$	16,161

Commitments to make real estate and home equity loans are generally made for periods of sixty days or less.  As of December 31, 2019, the fixed rate commitments to make loans have interest rates ranging from 3.88% to 5.88% and maturities ranging from five years to thirty years.  Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months.  As of December 31, 2019, the fixed rate commitments have interest rates ranging from 3.50% to 6.25%.

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

The Corporation has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships.  The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers.  Contingent obligations under standby letters of credit totaled $16.3 million at December 31, 2019 and represent the maximum potential future payments the Corporation could be required to make.  Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments.  Corporation policies governing loan collateral apply to standby letters of credit at the time of credit extension.  The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2019 was not significant.

F-55

On March 23, 2016, the Bank received a summons and complaint for an action brought in the State of New York Supreme Court for the County of Tompkins, regarding its lease of 202 East State Street, Ithaca, NY, a branch location which the Bank had vacated. The owner of the leased premises has alleged that the Bank has breached its contract and is requesting a judgment declaring that the term of the lease runs through December 31, 2025 or a judgment in his favor in the amount of $4.0 million. The Bank has denied that it breached the contract. On July 25, 2016, the Corporation received Notice of Entry of the decision and order of the New York Supreme Court for the County of Tompkins, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York against the Bank. The Court granted, in part, partial summary judgment in favor of the plaintiff - on the issue of liability only - for anticipatory breach and breach of contract. The fraud claims were dismissed, and summary judgment was denied on the plaintiff’s trespass claims. The Court set the matter down for an inquest on damages at a later date, with the original claim by the plaintiff seeking $4.0 million in damages. The Corporation established a legal reserve of $1.2 million in connection with this case during the second quarter of 2016.

Subsequent to an appeal of the lower court determination, which was perfected in the Appellate Division, Third Department of State Supreme Court, on June 29, 2017, the Bank received Notice of Entry of the decision and Order of that Court which affirmed the lower court’s decision in favor of the plaintiff with damages to be determined at a later proceeding. The Bank established an additional legal reserve in the amount of $850 thousand, in connection with this case, during the second quarter of 2017. The Bank’s total reserve with respect to this matter stood at $2.3 million, including $0.2 million accrued for related expenses not yet paid as of June 30, 2017. A motion to the Appellate Division for reargument or permission for leave to appeal to the Court of Appeals was filed and denied during the fourth quarter of 2017.

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

(18)    PARENT COMPANY FINANCIAL INFORMATION

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

BALANCE SHEETS - DECEMBER 31	2019		2018
Assets:
Cash on deposit with subsidiary bank	$	3,938	$	3,978
Investment in subsidiary - Chemung Canal Trust Company	175,470		158,166
Investment in subsidiary - CFS Group, Inc.	868		873
Investment in subsidiary - Chemung Risk Management, Inc.	1,954		1,748
Dividends receivable from subsidiary bank	—		—
Securities available for sale, at estimated fair value	492		554
Other assets	1,266		1,071
Total assets	$	183,988	$	166,390
Liabilities and shareholders' equity:
Dividends payable	$	1,263	$	1,254
Other liabilities	98		107
Total liabilities	1,361		1,361
Shareholders' equity:
Total shareholders' equity	182,627		165,029
Total liabilities and shareholders' equity	$	183,988	$	166,390

F-56

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2019			2018			2017
Dividends from subsidiary bank and non-bank	$	4,516		$	3,187		$	4,926
Interest and dividend income	9			10			10
Non-interest income	(62		)	(20		)	22
Non-interest expenses	439			477			433
Income before impact of subsidiaries' undistributed earnings	4,024			2,700			4,525
Equity in undistributed earnings of Chemung Canal Trust Company	11,220			16,670			1,939
Equity in undistributed earnings of CFS Group, Inc.	(4		)	(32		)	(42		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	205			124			791
Income before income tax	15,445			19,462			7,213
Income tax benefit	(164		)	(164		)	(217		)
Net income	$	15,609		$	19,626		$	7,430

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2019			2018			2017
Cash flows from operating activities:
Net Income	$	15,609		$	19,626		$	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(11,220		)	(16,670		)	(1,939		)
Equity in undistributed earnings of CFS Group, Inc.	4			32			42
Equity in undistributed earnings of Chemung Risk Management, Inc.	(205		)	(124		)	(791		)
Change in dividend receivable	—			1,233			(8		)
Change in other assets	(196		)	(32		)	(214		)
Change in other liabilities	(48		)	773			51
Expense related to employee stock compensation	100			89			200
Expense related to restricted stock units for directors' deferred compensation plan	42			67			98
Expense to employee restricted stock awards	503			405			210
Net cash provided by operating activities	4,589			5,399			5,079
Cash flow from financing activities:
Cash dividends paid	(5,029		)	(4,969		)	(4,919		)
Purchase of treasury stock	(185		)	(112		)	(61		)
Sale of treasury stock	585			643			582
Net cash used in financing activities	(4,629		)	(4,438		)	(4,398		)
Increase (decrease) in cash and cash equivalents	(40		)	961			681
Cash and cash equivalents at beginning of year	3,978			3,017			2,336
Cash and cash equivalents at end of year	$	3,938		$	3,978		$	3,017

(19)    FAIR VALUES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) 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.

F-57

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:

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 non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded 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 credit risk participations are based on credit default rate assumptions (Level 3 inputs).

F-58

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

			Fair Value Measurement at December 31, 2019 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	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	225,234		—		225,234		—
Obligations of states and political subdivisions	42,845		—		42,845		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	15,761		—		15,761		—
Total available for sale securities	$	284,090	$	—	$	284,090	$	—
Equity Investments	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

			Fair Value Measurement at December 31, 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	$	5,472	$	—	$	5,472	$	—
Mortgage-backed securities, residential	183,192		—		183,192		—
Obligations of states and political subdivisions	44,152		—		44,152		—
Corporate bonds and notes	247		—		247		—
SBA loan pools	9,195		—		9,195		—
Total available for sale securities	$	242,258	$	—	$	242,258	$	—
Equity investments	$	1,075	$	1,075	$	—	$	—
Derivative assets	3,142		—		3,142		—
Financial Liabilities:
Derivative liabilities	$	3,282	$	—	$	3,142	$	140

F-59

There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2019 and 2018.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
(in thousands)	2019		2018		2019			2018
Balance of recurring Level 3 assets at January 1	$	—	$	—	$	(140	)	$	(75	)
Derivative instruments entered into	—		—		(43		)	(1		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		(182		)	(64		)
Balance of recurring Level 3 assets at December 31	$	—	$	—	$	(365	)	$	(140	)

The following table presents information related to Level 3 recurring fair value measurement at December 31, 2019 and December 31, 2018 (in thousands):

Description	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Derivative liabilities	$	365	Historical trend	Credit default rate	7.30% - 7.30% [7.30%]

Description	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018
Derivative liabilities	$	140	Historical trend	Credit default rate	7.46% - 7.46% [7.46%]

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

			Fair Value Measurement at December 31, 2019 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	284		—		—		284		(12		)
Consumer loans:
Home equity lines and loans	122		—		—		122		—
Total other real estate owned, net	$	517	$	—	$	—	$	517	$	(12	)

F-60

			Fair Value Measurement at December 31, 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 mortgages:
Commercial mortgages	$	1,456	—		—		$	1,456	$	240
Total impaired loans	$	1,456	$	—	$	—	$	1,456	$	240
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	213	$	—	$	—	$	213	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	157		—		—		157		(14		)
Total other real estate owned, net	$	574	$	—	$	—	$	574	$	(14	)

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2019 and 2018 (in thousands):

Asset	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.00% - 10.00% [10.00%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	284		Sales comparison	Discount to appraised value	20.80% - 35.29% [24.09%]
Consumer loans:
Home equity lines and loans	122		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	517

F-61

Asset	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018.
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,456	Sales comparison	Discount to appraised value	11.76% - 11.76% [11.76%]
	$	1,456
OREO:
Commercial mortgages:
Commercial mortgages	$	213	Sales comparison	Discount to appraised value	10.00% - 24.80% [17.72%]
Residential mortgages	204		Sales comparison	Discount to appraised value	20.80% - 39.78% [22.94%]
Consumer loans:
Home equity lines and loans	157		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	574

F-62

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at December 31, 2019 and December 31, 2018, are as follows (in thousands):

			Fair Value Measurements at December 31, 2019 Using
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	25,203	$	25,203	$	—	$	—	$	25,203
Interest-bearing deposits in other financial institutions	96,701		96,701		—		—		96,701
Equity investments	2,174		2,174		—		—		2,174
Securities available for sale	284,090		—		284,090		—		284,090
Securities held to maturity	3,115		—		2,094		1,045		3,139
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,286,926		—		—		1,285,215		1,285,215
Accrued interest receivable	4,633		63		885		3,685		4,633
Derivative assets	6,466		—		6,466		—		6,466
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,410,962	$	1,410,962	$	—	$	—	$	1,410,962
Time deposits	161,176		—		163,761		—		163,761
Accrued interest payable	299		27		272		—		299
Derivative liabilities	6,831		—		6,466		365		6,831

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

F-63

			Fair Value Measurements at December 31, 2018 Using
Financial Assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	33,040	$	33,040	$	—	$	—	$	33,040
Interest-bearing deposits in other financial institutions	96,932		96,932		—		—		96,932
Equity investments	1,909		1,909		—		—		1,909
Securities available for sale	242,258		—		242,258		—		242,258
Securities held to maturity	4,875		—		1,838		3,020		4,858
FHLBNY and FRBNY stock	3,138		—		—		—		N/A
Loans, net and loans held for sale	1,293,464		—		—		1,287,495		1,287,495
Accrued interest receivable	4,480		80		697		3,703		4,480
Derivative assets	3,142		—		3,142		—		3,142
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,419,011	$	1,419,011	$	—	$	—	$	1,419,011
Time deposits	150,226		—		150,938		—		150,938
Securities sold under agreements to repurchase	—		—		—		—		—
FHLBNY overnight advances	—		—		—		—		—
FHLBNY term advances	—		—		—		—		—
Accrued interest payable	232		26		206		—		232
Derivative liabilities	3,282		—		3,142		140		3,282

(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.

(20)REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and 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 Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by 2019. The capital conservation buffer for 2019 is 2.500% and for 2018 is 1.875%. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital. Management believes as of December 31, 2019, the Bank met all capital adequacy requirements to which they are subject.

F-64

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. At December 31, 2018, the most recent regulatory notifications categorized the Corporation and the Bank as well capitalized under the regulatory framework for prompt corrective action. The Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets. There are no conditions or events since that notification that management believes have changed the institution's category.

As of December 31, 2019, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.  There have been no conditions or events since that notification that management believes have changed the Bank's or the Corporation's capital category.

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table below.  During 2020, the Bank could, without prior approval, declare dividends of approximately $29.8 million plus any 2020 net income retained to the date of the dividend declaration.

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

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	182,239	13.98	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	175,062	13.45	%	$	104,136	8.00	%	$	136,679	10.500	%	$	130,170	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	78,102	6.00	%	$	110,645	8.50	%	$	104,136	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	58,577	4.50	%	$	91,119	7.00	%	$	84,611	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	165,859	9.35	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	8.98	%	$	70,719	4.00	%	N/A		N/A		$	88,399	5.00	%

F-65

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	169,416	13.14	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	162,536	12.62	%	$	103,039	8.00	%	$	127,189	9.875	%	$	128,799	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	77,280	6.00	%	$	101,429	7.875	%	$	103,039	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	57,960	4.50	%	$	82,110	6.375	%	$	83,720	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	153,263	8.79	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	8.41	%	$	69,598	4.00	%	N/A		N/A		$	86,998	5.00	%

(21)    ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2019	(4,646		)	(6,765		)	(11,411		)
Other comprehensive income before reclassification	6,028			(467		)	5,561
Amounts reclassified from accumulated other comprehensive income (loss)	(14		)	65			51
Net current period other comprehensive income (loss)	6,014			(402		)	5,612
Balance at December 31, 2019	$	1,368		$	(7,167	)	$	(5,799	)

F-66

	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	)
Adjusted cumulative effect of accounting change	(202		)	—			(202		)
Balance at January 1, 2018	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income (loss) before reclassification	(1,029		)	(530		)	(1,559		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			690			690
Net current period other comprehensive income (loss)	(1,029		)	160			(869		)
Balance at December 31, 2018	$	(4,646	)	$	(6,765	)	$	(11,411	)

	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 (loss) before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive loss	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2019			2018			2017
Unrealized gains and losses on securities available for sale:	—			—			—
Realized gains on securities available for sale	$	(19	)	$	—		$	(109	)	Net gains on securities transactions
Tax effect	5			—			41			Income tax expense
Net of tax	(14		)	—			(68		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	(220		)	(220		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	312			1,146			413			Other components of net periodic pension and postretirement benefits
Tax effect	(27		)	(236		)	(74		)	Income tax expense
Net of tax	65			690			119
Total reclassification for the period, net of tax	$	51		$	690		$	51

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 14 for additional information).

F-67

(22)    SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1. Summarized financial information concerning the Corporation’s reportable segments and the reconciliation to the Corporation’s consolidated results are shown in the following table.  Income taxes are allocated based on the separate taxable income of each entity and indirect overhead expenses are allocated based on reasonable and equitable allocations applicable to the reportable segment.  The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands).

Year ended December 31, 2019	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	66,868	$	—	$	64		$	66,932
Interest expense	6,321		—		—			6,321
Net interest income	60,547		—		64			60,611
Provision for loan losses	5,945		—		—			5,945
Net interest income after provision for loan losses	54,602		—		64			54,666
Non-interest income	10,356		9,503		214			20,073
Non-interest expenses	48,213		6,326		1,157			55,696
Income (loss) before income tax expense	16,745		3,177		(879		)	19,043
Income tax expense (benefit)	2,778		810		(154		)	3,434
Segment net income (loss)	$	13,967	$	2,367	$	(725	)	$	15,609
Segment assets	$	1,780,401	$	3,345	$	4,082		$	1,787,827

Year ended December 31, 2018	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	64,511	$	—	$	42		$	64,553
Interest expense	4,073		—		—			4,073
Net interest income	60,438		—		42			60,480
Provision for loan losses	3,153		—		—			3,153
Net interest income after provision for loan losses	57,285		—		42			57,327
Non-interest income	13,597		9,317		160			23,074
Non-interest expenses	49,650		5,997		1,119			56,766
Income (loss) before income tax expense	21,232		3,320		(917		)	23,635
Income tax expense (benefit)	3,329		847		(167		)	4,009
Segment net income (loss)	$	17,903	$	2,473	$	(750	)	$	19,626
Segment assets	$	1,747,208	$	3,606	$	4,529		$	1,755,343

F-68

Year ended December 31, 2017	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,225		8,804		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,235		3,140		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,952	$	1,949	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

F-69

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	CHEMUNG FINANCIAL CORPORATION
DATED: MARCH 12, 2020	By: /s/ Anders M. Tomson
	Anders M. Tomson, President and Chief Executive Officer (Principal Executive Officer)

DATED: MARCH 12, 2020	By: /s/ Karl F. Krebs
	Karl F. Krebs, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer)

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

Signature	Title	Date
/s/ Larry H. Becker	Director	March 12, 2020
Larry H. Becker
/s/ Ronald M. Bentley	Director	March 12, 2020
Ronald M. Bentley
/s/ Bruce W. Boyea	Director	March 12, 2020
Bruce W. Boyea
/s/ David M. Buicko	Director	March 12, 2020
David M. Buicko
/s/ David J. Dalrymple	Director and Chairman of the Board of Directors	March 12, 2020
David J. Dalrymple
/s/ Robert H. Dalrymple	Director	March 12, 2020
Robert H. Dalrymple
/s/ Denise V. Gonick	Director	March 12, 2020
Denise V. Gonick
/s/ Stephen M. Lounsberry, III	Director	March 12, 2020
Stephen M. Lounsberry, III
/s/ Jeffrey B. Streeter	Director	March 12, 2020
Jeffrey B. Streeter

79

(Signatures, continued)

Signature	Title	Date
/s/ Richard W. Swan	Director	March 12, 2020
Richard W. Swan
/s/ G. Thomas Tranter, Jr.	Director	March 12, 2020
G. Thomas Tranter, Jr.
/s/ Thomas R. Tyrrell	Director	March 12, 2020
Thomas R. Tyrrell
/s/ Anders M. Tomson	Chief Executive Officer and President	March 12, 2020
Anders M. Tomson
/s/ Karl F. Krebs	Chief Financial Officer and Treasurer	March 12, 2020
Karl F. Krebs

80

EXHIBIT INDEX

Exhibit	The following exhibits are either filed with this Form 10-K or are incorporated herein by reference.  The Corporation’s Securities Exchange Act file number is 000-13888.
3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to November 20, 2019 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on November 20, 2019).
4.1	Specimen Stock Certificate (filed as Exhibit 4.1 to Registrant's Form 10-K for the year ended December 31, 2002 and incorporated herein by reference).
4.2	Description of Common Stock Registered Under Section 12 of the Securities Exchange Act of 1934, filed herewith.*
10.1	Chemung Financial Corporation 2014 Omnibus Plan and Component Plans (Chemung Financial Corporation Restricted Stock Plan, Chemung Financial Corporation Incentive Compensation Plan, Chemung Financial Corporation Directors’ Compensation Plan and Chemung Financial Corporation/Chemung Canal Trust Company Directors’ Deferred Fee Plan) (filed as Exhibits 10.1, 10.2, 10.3, 10.4 and 10.5 to Registrant’s Form S-8 filed with the SEC on January 27, 2015 and incorporated herein by reference).
10.2	Change of Control Agreement dated December 19, 2018 between Chemung Canal Trust Company and Anders M. Tomson, President and Chief Executive Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on December 19, 2018 and incorporated herein by reference).
10.3	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karl F. Krebs, Executive Vice President and Chief Financial Officer (filed as Exhibit 10.1 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.4	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Louis C. DiFabio, Executive Vice President, filed herewith.*
10.5	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Karen R. Makowski, Executive Vice President and Chief Administration and Risk Officer (filed as Exhibit 10.3 to Registrant’s Form 10-K on December 23, 2019 and incorporated herein by reference).
10.6	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Thomas W. Wirth, Executive Vice President (filed as Exhibit 10.4 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.7	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Daniel D. Fariello, President of Capital Bank Division (filed as Exhibit 10.2 to Registrant’s Form 8-K filed with the SEC on December 23, 2019 and incorporated herein by reference).
10.8	Change of Control Agreement dated December 18, 2019 between Chemung Canal Trust Company and Loren D. Cole, Executive Vice President and Chief Information Officer, filed herewith.*
21	Subsidiaries of the Registrant.*
23	Consent of Crowe LLP, Independent Registered Public Accounting Firm.*
31.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of President and Chief Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
32.2	Certification of Treasurer and Chief Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 19 U.S.C. §1350.*
101.INS	Instance Document
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

EX-4.2

Exhibit 4.2

Description of Common Stock

Unless otherwise indicated or unless the context requires otherwise, all references to the “Corporation,” “we,” “us,” “our” or similar references mean Chemung Financial Corporation.

We are authorized to issue 10,000,000 shares of common stock, par value $0.01 per share. Each share of common stock has the same relative rights as, and is identical in all respects to, each other share of common stock. All of our shares of common stock are duly authorized, fully paid and nonassessable.

Dividends

The holders of our common stock are entitled to receive and share equally in such dividends, if any, declared by the Board of Directors out of funds legally available therefor. Under the New York Business Corporation Law, we may pay dividends on our outstanding shares except when the Corporation is insolvent or would be made insolvent by the dividend. In addition, we may pay dividends and other distributions either (1) out of surplus, so that our net assets remaining after such payment or distribution shall at least equal the amount of our stated capital, or (2) if we have no such surplus, out of our net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year; provided, that, if our capital is less than the aggregate amount of the stated capital represented by the issued and outstanding shares of all classes having a preference upon the distribution of assets, we may not pay dividends out of such net profits until the deficiency in the amount of stated capital represented by the issued and outstanding shares of all classes having a preference upon the distribution of assets shall have been repaired. If we issue preferred stock, the holders thereof may have a priority over the holders of our common stock with respect to dividends.

Voting Rights

The holders of our common stock are generally entitled to one vote per share.

Board of Directors

Our bylaws provide that the Board of Directors (subject to amendment) shall consist of 13 members and never less than three. Directors are elected by a plurality of the votes cast by stockholders present at the annual stockholders’ meeting, or if the annual meeting is not held, at a special meeting called for the purpose of the election of directors. Holders of our common stock are not entitled to cumulate their votes in the election of directors.

The Board of Directors is divided into three classes, as nearly equal in number as possible. The members of each class are elected for a term of three years and only one class of directors is elected annually. Thus, it would take at least two annual elections to replace a majority of the Board of Directors.

Liquidation

In the event of our liquidation, dissolution or winding up, the holders of our common stock would be entitled to receive, after payment or provision for payment of all our debts and liabilities and the holders of any preferred stock if authorized, all of our assets available for distribution.

No Preemptive or Redemption Rights

Holders of our common stock are not entitled to preemptive rights with respect to any shares that may be issued. The common stock is not subject to redemption.

Certain Provisions in Our Certificate of Incorporation, Our Bylaws, and Applicable Laws and Regulations

Our certificate of incorporation, our bylaws, and applicable federal and New York laws and regulations contain a number of provisions relating to corporate governance and rights of stockholders that might discourage future takeover attempts. As a result, stockholders who might desire to participate in such transactions may not have an opportunity to do so. In addition, these provisions would also render the removal of our Board of Directors or management more difficult. Such provisions include, but are not limited to, the requirement of a supermajority vote of stockholders to approve certain business combinations and other corporate actions, special procedural rules for certain business combinations, a classified board of directors and restrictions on the calling of special meetings of stockholders that do not provide for the calling of special meetings by the stockholders.

Provisions in our Certificate of Incorporation and Bylaws

Election of Directors. Our Board of Directors is divided into three classes, as nearly equal in number as possible. The members of each class are elected for a term of three years and only one class of directors is elected annually. Thus, it would take at least two annual elections to replace a majority of the Board of Directors. Further, our bylaws establish qualifications for board members, including Corporation stock ownership requirements, and notice and information requirements and procedures in connection with the nomination by stockholders of candidates for election to the Board of Directors or the proposal by stockholders of business to be acted upon at a meeting of stockholders. Such notice and information requirements are applicable to all stockholder business proposals and nominations, and are in addition to any requirements under federal securities laws.

Prohibition of Cumulative Voting. Our stockholders are not entitled to cumulative voting in the election of directors.

Restrictions on Call of Special Meetings. Our bylaws provide that special meetings of stockholders can be called by the Board of Directors, the chairman of the Board or the President.

Amendments to Certificate of Incorporation and Bylaws. Our certificate of incorporation provides that provisions relating to the powers of directors and business combinations with certain stockholdersmay only be amended by an affirmative vote of at least 75% of the outstanding shares of common stock of the Corporation. Article III of the Bylaws which describes the powers of directors may only be amended by an affirmative vote of at least 75% of the outstanding shares of common stock of the Corporation.

Removal of Directors. A director of the Corporation may be removed from the Board of Directors with or without cause only by an affirmative vote of at least 75% of the outstanding shares of common stock of the Corporation.

Business Combinations Involving Certain Stockholders. Our certificate of incorporation provides that a “Major Stockholder” (a person who owns with an affiliate or associate or any person acting in concert therewith 10% or more of the Corporation’s common stock) may engage in a business combination with the Corporation (i) if the Business Combination was approved by the Board of Directors prior to the Major Stockholder becoming a Major Stockholder, (ii) if the Major Stockholders sought and obtained the unanimous approval of the Board of Directors to become a Major Stockholder and the Business Combination was approved by a majority of the continuing directors of the Corporation, (iii) if approved by 75% or more of the continuing directors, or (iv) if approved by the affirmative vote of at least 75% of the outstanding shares of common stock of the Corporation and at least 75% of the outstanding shares of common stock of the Corporation beneficially owned by stockholders other than any Major Stockholder.

Federal Laws and Regulations

The Bank Holding Company Act generally would prohibit any company that is not engaged in financial activities and activities that are permissible for a bank holding company or a financial holding company from acquiring control of us. “Control” is generally defined as ownership of 25% or more of the voting stock or other exercise of a controlling influence. In addition, any existing bank holding company would need the prior approval of the Federal Reserve before acquiring 5% or more of our voting stock. The Change in Bank Control Act of 1978, as amended, prohibits a person or group of persons from acquiring control of a bank holding company unless the Federal Reserve has been notified and has not objected to the transaction. Under a rebuttable presumption established by the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of securities registered under Section 12 of the Exchange Act, such as us, could constitute acquisition of control of the bank holding company.

New York Business Corporation Law

The business combination provisions of the New York Business Corporation Law could prohibit or delay mergers or other takeovers or change in control attempts with respect to the Corporation and, accordingly, may discourage attempts to acquire the Corporation. In general such provisions prohibit an “interested stockholder” (i.e., a person who owns 20% or more of our outstanding voting stock) from engaging in various business combination transactions with our Corporation, unless (a) the business combination transaction, or the transaction in which the interested stockholder became an interested stockholder, was approved by the Board of Directors prior to the interested stockholder's stock acquisition date, (b) the business combination transaction was approved by the disinterested stockholders at a meeting called no earlier than five years after the interested stockholder's stock acquisition date, or (c) if the business combination transaction takes place no earlier than five years after the interested stockholder's stock acquisition date, the price paid to all the stockholders under such transaction meets statutory criteria.

{Clients/1667/00358246.DOCX/ }

EX-10.4

CHANGE OF CONTROL AGREEMENT

THIS CHANGE OF CONTROL AGREEMENT (“Agreement”) is hereby entered into on this 18th day of December, 2019, by and between CHEMUNG CANAL TRUST COMPANY, a trust company chartered under the laws of the State of New York with its principal office located at One Chemung Canal Plaza, Elmira, New York 14902 (“Bank”), and LOUIS C. DIFABIO (“Executive”). Any reference to the “Company” shall mean Chemung Financial Corporation, the stock holding company of the Bank, or any successor thereto.

WHEREAS, Executive serves as EXECUTIVE VICE PRESIDENT (the “Executive Position”); and

WHEREAS, the Bank desires to set forth the severance benefits Executive would receive in the event of a termination of Executive’s employment with the Bank following the occurrence of a Change of Control;

NOW THEREFORE, to ensure Executive’s continued dedication to the Bank and to induce Executive to remain and continue in the employ of the Bank, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows:

1. CHANGE OF CONTROL. This Agreement shall become operative only if and when there has occurred a “Change of Control” of the Company or the Bank. A “Change of Control” shall mean (1) any merger, consolidation or other corporate reorganization in which the Company or the Bank is not the surviving corporation, (2) the event that any “person” (as that term is used in Section

2. s 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner, directly or indirectly, of securities of the Company or the Bank representing thirty percent (30%) or more of the combined voting power of the Bank’s then outstanding securities, provided that the acquisition of additional securities or voting power by a person who, as of the date of this Agreement, already is the direct or indirect beneficial owner of twenty percent (20%) of such combined voting power, shall not constitute a Change of Control, or (3) the event in which a majority of the members of the Company’s or the Bank’s Board of Directors is replaced during any twenty-four (24) month period by Directors whose appointment or election is not endorsed by two-thirds (2/3) of the members of the Company’s or the Bank’s Board of Directors (who were either members of the Board of Directors of the Company or the Bank, as applicable, at the beginning of such twenty-four (24) month period or who was appointed to the Company’s or the Bank’s Board during such twenty-four (24) month period as a result of a directive, supervisory agreement or order issued by the primary federal regulator of the Company or the Bank) prior to the date of appointment or election.

2.   TERMINATION.

(a)      If, after the occurrence of a Change of Control, Executive’s employment is terminated by the Bank without Cause or Executive voluntarily terminates employment for Good Reason within the twelve (12) month period immediately following the effective date of the Change of Control,, the Bank shall pay to Executive, in addition to any other compensation, remuneration, or benefits due to Executive under any other plan, contract, or arrangement with the Bank, the Severance Pay described in Section 3 of this Agreement in equal monthly installments for the twenty-four (24) months immediately following the effective date of the termination of Executive’s employment. Except as otherwise provided in Section 2(e), the first such installment to be paid on the first day of the first month immediately following the month in which Executive’s employment is terminated.

  (b)      For the purposes of this section, the Bank shall have “Cause” to terminate Executive’s employment if Executive engages in personal dishonesty, willful misconduct, breach of fiduciary duty, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), gross insubordination, or gross negligence. For the purposes of this paragraph, no act or failure to act shall be considered “willful” unless done or omitted to be done, by the Executive not in good faith and without a reasonable belief that Executive’s action or omission is in the best interests of the Bank. In no event shall Executive be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a certification by a majority of the non-officer members of the Board of Directors finding that the Executive was guilty of conduct deemed to be Cause within the meaning of this paragraph.

(c)    For purposes of this section, “Good Reason” exists if, without Executive’s express written consent, any of the following occurs: (1) a material reduction in Executive’s base salary or benefits in effect as of the effective date of the Change in Control; (2) a material reduction in Executive’s authority, duties or responsibilities from the position and attributes associated with the Executive Position (or any successor executive position in effect as of the effective date of the Change in Control); (3) a relocation of Executive’s principal place of employment in effect immediately prior to the effective date of the Change in Control, resulting in an increase of Executive’s commute of thirty (30) miles or more; or (4) a material breach of this Agreement by the Bank. Notwithstanding the foregoing, no such event shall constitute “Good Reason” unless (A) Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof, (B) the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties), and (C) Executive terminates employment within thirty (30) days after expiration of such cure period.

(d)    Notwithstanding anything in this Agreement to the contrary, to the extent that a payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits will be payable only upon the Executive’s “Separation from Service.” For purposes of this Agreement, a “Separation from Service” will have occurred if the Bank and Executive reasonably anticipate that either no further services will be performed by Executive after the date of termination (whether as an employee or as an independent contractor) or the level of further services performed is less than 20 percent of the average level of bona fide services in the 36 months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

(e)    Notwithstanding the foregoing, if Executive is a “Specified Employee” (i.e., a “key employee” of a publicly traded company within the meaning of Section 409A of the Code and the final regulations issued thereunder) and any payment under this Agreement is triggered due to Executive’s Separation from Service, then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment shall be made during the first six (6) months following Executive’s Separation from Service. Rather, any payment which would otherwise be paid to Executive during such period shall be accumulated and paid to Executive in a lump sum on the first day of the seventh month following such Separation from Service. All subsequent payments shall be paid in the manner specified in this Agreement.

(f)    To the extent that a payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, such payment that is payable pursuant to this Agreement is intended to constitute a “separate payment” for purposes of Treasury Regulation 1.409A-2(b)(ii).

3.   SEVERANCE PAY.  Severance Pay payable to the Executive pursuant to this Agreement shall mean 2 times the sum of Executive’s: (i) highest annual rate of base salary; and (ii) highest annual incentive award, regardless if paid in the form of cash or unrestricted stock pursuant to the Company’s or the Bank’s incentive compensation plan(s) paid to, or earned by, Executive during the calendar year of the Change in Control or either of the two (2) calendar years immediately preceding the Change in Control. Severance Pay shall be reduced by all amounts that are required to be withheld or deducted under federal, state or municipal law.

4.   REGULATORY LIMITS. The provisions of this Section 4 shall control as to continuing rights and obligations under this agreement notwithstanding any other provision of this Agreement, for so long as the Bank shall be regulated by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the New York State Department of Financial Services or any other federal or state banking agency (each a “Regulator”).

(a)      All obligations under this Agreement shall be terminated, except to the extent determined by any Regulator that continuation thereof is necessary for the continued operation of the Bank at the time the Regulator enters into an agreement to provide assistance to or on behalf of the Bank, or approves a supervisory merger to resolve problems related to the operation of the Bank, or when the Bank is determined by a Regulator to be in an unsafe or unsound condition, notwithstanding the vesting of any rights of the parties.

(b)      All obligations under this Agreement shall be subject to and conditioned upon the Bank’s satisfaction of and compliance with all state and federal laws, rules, and regulations applicable to the Bank, notwithstanding the vesting of any rights hereunder. The Bank shall be relieved of all obligations under this Agreement to the extent that performance or satisfaction of such obligations would violate or be inconsistent with any federal or state law, rule, or regulation (including, without limitation, safety and soundness standards and related regulatory guidance), any order, directive or notice from a Regulator, or any formal or informal agreement, safety and soundness compliance plan, or other agreement or plan entered into by and between the Bank and any Regulator. Whether the obligations of this Agreement are inconsistent with any law, rule, regulation, order, directive, notice, agreement, or plan just described shall be deemed determined if so found by any Regulator or by an opinion of the Bank’s counsel, a copy or written summary of which finding or opinion of counsel shall be provided by the Bank to Executive within five (5) business days of the Bank’s notice of such a determination.

(c)      The payment, accrual and/or vesting of any Severance Pay shall be suspended in the event the Bank receives any notice from any Regulator indicating an intent to issue an order or directive requiring the Bank to take prompt corrective action or to take or refrain from taking any other action, or to the extent that the Bank or any affiliate is prohibited from paying any Severance Pay by Section 18(k) of the Federal Deposit Insurance Act, 12 C.F.R. Part 359 or any other applicable law.

(d)      In the event that any Regulator terminates or requires the Bank by order or directive to terminate Executive, Bank shall be relieved of all obligations under this Agreement and this Agreement shall be terminated and shall have no further force and effect.

(e)      In the event that the Bank is relieved of any or all of its obligations under this Agreement as a result of the application of this Section 4 or that any or all of such obligations is suspended, the Bank shall provide, within five (5) business days of the Bank’s notice of relief or suspension, written notice to Executive describing the extent to which the Bank has been relieved of its obligations under this Agreement or to which such obligations have been suspended and the reason(s) therefor.

5.   SUCCESSORS. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal representatives and heirs. In the event that Executive dies while any amounts remain payable to Executive hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to designee(s) or, if there is no such designee, to Executive’s estate.

6.   SEVERABILITY. In the event that any court or other authority of competent jurisdiction determines that any provision of this Agreement is invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall be limited to such provision and shall not affect the validity, legality, or enforceability of any other provision. Any provision in this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be invalid, illegal or unenforceable, only to the extent required by such jurisdiction and without rendering such provision invalid, illegal, or unenforceable in any other jurisdiction.

7.   NO RIGHT TO CONTINUE EMPLOYMENT. This Agreement shall not give Executive any right to remain in the employ of the Bank. Subject to the severance provisions in this Agreement or in any other written agreement between the Bank and Executive, the Bank reserves the right to terminate Executive’s employment at any time.

8.   AMENDMENT; WAIVER. No provision of this Agreement may be modified or waived except by a written instrument executed by Executive and on behalf of the Bank by an authorized representative, which instrument specifically refers to this Section 8. No waiver of compliance with any condition or provision of this Agreement shall be deemed or constitute a waiver of any other provision or condition of this Agreement and shall not operate to preclude or limit any future waivers or modifications of the Agreement.

9.   NOTICES. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States first-class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:	Most recent address on file with the Bank
If to the Bank	Chemung Canal Trust Company
	One Chemung Canal Plaza
	P.O. Box 1522
	Elmira, New York 14902-1522

or at such other address as any party may furnish to the other in writing. Notices of change of address shall be effective only upon receipt.

10.   ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all current and prior agreements and understandings, whether written or oral, between the parties, with respect to the subject matter hereof.

11.   GOVERNING LAW. This Agreement shall be interpreted and construed in accordance with the laws of the State of New York, without regard to any conflicts of law rules or principles.

12.   JURISDICTION; VENUE; WAIVER OF JURY TRIAL. The Bank and Executive agree that any action or proceeding seeking to enforce any provision of, or based on any claim arising out of, or otherwise relating to this Agreement shall be brought in the courts of the State of New York, or, if it has or can acquire jurisdiction, in the United States District Court for the Western District of New York. The Bank and Executive each give their consent to the jurisdiction of these courts in any such action or proceeding and hereby waive any object to venue being laid in such courts. The Bank and Executive further agree to waive their respective rights to a trial by jury in any such action or proceeding.

13.   SECTION HEADINGS. All Section headings herein are included for the purposes of convenience only and shall not be deemed to have any effect on the construction or interpretation of any provision of this Agreement.

IN WITNESS WHEREOF, the parties hereto have hereby executed this Agreement as of the date set forth above.

CHEMUNG CANAL TRUST COMPANY,
By:	Anders M. Tomson
	Its: President & Chief Executive Officer
EXECUTIVE
	/s/ Louis C. DiFabio

{Clients/1667/00328223.DOCX/ }

EX-10.8

CHANGE OF CONTROL AGREEMENT

THIS CHANGE OF CONTROL AGREEMENT (“Agreement”) is hereby entered into on this 18th day of December, 2019, by and between CHEMUNG CANAL TRUST COMPANY, a trust company chartered under the laws of the State of New York with its principal office located at One Chemung Canal Plaza, Elmira, New York 14902 (“Bank”), and LOREN D. COLE (“Executive”). Any reference to the “Company” shall mean Chemung Financial Corporation, the stock holding company of the Bank, or any successor thereto.

WHEREAS, Executive serves as EXECUTIVE VICE PRESIDENT (the “Executive Position”); and

WHEREAS, the Bank desires to set forth the severance benefits Executive would receive in the event of a termination of Executive’s employment with the Bank following the occurrence of a Change of Control;

NOW THEREFORE, to ensure Executive’s continued dedication to the Bank and to induce Executive to remain and continue in the employ of the Bank, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereby agree as follows:

1. CHANGE OF CONTROL. This Agreement shall become operative only if and when there has occurred a “Change of Control” of the Company or the Bank. A “Change of Control” shall mean (1) any merger, consolidation or other corporate reorganization in which the Company or the Bank is not the surviving corporation, (2) the event that any “person” (as that term is used in Section

2. s 13(d) and 14(d)(2) of the Securities Exchange Act of 1934) becomes the beneficial owner, directly or indirectly, of securities of the Company or the Bank representing thirty percent (30%) or more of the combined voting power of the Bank’s then outstanding securities, provided that the acquisition of additional securities or voting power by a person who, as of the date of this Agreement, already is the direct or indirect beneficial owner of twenty percent (20%) of such combined voting power, shall not constitute a Change of Control, or (3) the event in which a majority of the members of the Company’s or the Bank’s Board of Directors is replaced during any twenty-four (24) month period by Directors whose appointment or election is not endorsed by two-thirds (2/3) of the members of the Company’s or the Bank’s Board of Directors (who were either members of the Board of Directors of the Company or the Bank, as applicable, at the beginning of such twenty-four (24) month period or who was appointed to the Company’s or the Bank’s Board during such twenty-four (24) month period as a result of a directive, supervisory agreement or order issued by the primary federal regulator of the Company or the Bank) prior to the date of appointment or election.

2.   TERMINATION.

(a)      If, after the occurrence of a Change of Control, Executive’s employment is terminated by the Bank without Cause or Executive voluntarily terminates employment for Good Reason within the twelve (12) month period immediately following the effective date of the Change of Control, the Bank shall pay to Executive, in addition to any other compensation, remuneration, or benefits due to Executive under any other plan, contract, or arrangement with the Bank, the Severance Pay described in Section 3 of this Agreement in equal monthly installments for the twenty-four (24) months immediately following the effective date of the termination of Executive’s employment. Except as otherwise provided in Section 2(e), the first such installment to be paid on the first day of the first month immediately following the month in which Executive’s employment is terminated.

  (b)      For the purposes of this section, the Bank shall have “Cause” to terminate Executive’s employment if Executive engages in personal dishonesty, willful misconduct, breach of fiduciary duty, willful violation of any law, rule, or regulation (other than traffic violations or similar offenses), gross insubordination, or gross negligence. For the purposes of this paragraph, no act or failure to act shall be considered “willful” unless done or omitted to be done, by the Executive not in good faith and without a reasonable belief that Executive’s action or omission is in the best interests of the Bank. In no event shall Executive be deemed to have been terminated for Cause unless and until there shall have been delivered to Executive a copy of a certification by a majority of the non-officer members of the Board of Directors finding that the Executive was guilty of conduct deemed to be Cause within the meaning of this paragraph.

(c)    For purposes of this section, “Good Reason” exists if, without Executive’s express written consent, any of the following occurs: (1) a material reduction in Executive’s base salary or benefits in effect as of the effective date of the Change in Control; (2) a material reduction in Executive’s authority, duties or responsibilities from the position and attributes associated with the Executive Position (or any successor executive position in effect as of the effective date of the Change in Control); (3) a relocation of Executive’s principal place of employment in effect immediately prior to the effective date of the Change in Control, resulting in an increase of Executive’s commute of thirty (30) miles or more; or (4) a material breach of this Agreement by the Bank. Notwithstanding the foregoing, no such event shall constitute “Good Reason” unless (A) Executive shall have given written notice of such event to the Bank within ninety (90) days after the initial occurrence thereof, (B) the Bank shall have failed to cure the situation within thirty (30) days following the delivery of such notice (or such longer cure period as may be agreed upon by the parties), and (C) Executive terminates employment within thirty (30) days after expiration of such cure period.

(d)    Notwithstanding anything in this Agreement to the contrary, to the extent that a payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, and to the extent that such payment or benefit is payable upon the Executive’s termination of employment, then such payments or benefits will be payable only upon the Executive’s “Separation from Service.” For purposes of this Agreement, a “Separation from Service” will have occurred if the Bank and Executive reasonably anticipate that either no further services will be performed by Executive after the date of termination (whether as an employee or as an independent contractor) or the level of further services performed is less than 20 percent of the average level of bona fide services in the 36 months immediately preceding the termination. For all purposes hereunder, the definition of Separation from Service shall be interpreted consistent with Treasury Regulation Section 1.409A-1(h)(ii).

(e)    Notwithstanding the foregoing, if Executive is a “Specified Employee” (i.e., a “key employee” of a publicly traded company within the meaning of Section 409A of the Code and the final regulations issued thereunder) and any payment under this Agreement is triggered due to Executive’s Separation from Service, then solely to the extent necessary to avoid penalties under Section 409A of the Code, no payment shall be made during the first six (6) months following Executive’s Separation from Service. Rather, any payment which would otherwise be paid to Executive during such period shall be accumulated and paid to Executive in a lump sum on the first day of the seventh month following such Separation from Service. All subsequent payments shall be paid in the manner specified in this Agreement.

(f)    To the extent that a payment or benefit described in this Agreement constitutes “non-qualified deferred compensation” under Section 409A of the Code, such payment that is payable pursuant to this Agreement is intended to constitute a “separate payment” for purposes of Treasury Regulation 1.409A-2(b)(ii).

3.   SEVERANCE PAY.  Severance Pay payable to the Executive pursuant to this Agreement shall mean 2 times the sum of Executive’s: (i) highest annual rate of base salary; and (ii) highest annual incentive award, regardless if paid in the form of cash or unrestricted stock pursuant to the Company’s or the Bank’s incentive compensation plan(s) paid to, or earned by, Executive during the calendar year of the Change in Control or either of the two (2) calendar years immediately preceding the Change in Control. Severance Pay shall be reduced by all amounts that are required to be withheld or deducted under federal, state or municipal law.

4.   REGULATORY LIMITS. The provisions of this Section 4 shall control as to continuing rights and obligations under this agreement notwithstanding any other provision of this Agreement, for so long as the Bank shall be regulated by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the New York State Department of Financial Services or any other federal or state banking agency (each a “Regulator”).

(a)      All obligations under this Agreement shall be terminated, except to the extent determined by any Regulator that continuation thereof is necessary for the continued operation of the Bank at the time the Regulator enters into an agreement to provide assistance to or on behalf of the Bank, or approves a supervisory merger to resolve problems related to the operation of the Bank, or when the Bank is determined by a Regulator to be in an unsafe or unsound condition, notwithstanding the vesting of any rights of the parties.

(b)      All obligations under this Agreement shall be subject to and conditioned upon the Bank’s satisfaction of and compliance with all state and federal laws, rules, and regulations applicable to the Bank, notwithstanding the vesting of any rights hereunder. The Bank shall be relieved of all obligations under this Agreement to the extent that performance or satisfaction of such obligations would violate or be inconsistent with any federal or state law, rule, or regulation (including, without limitation, safety and soundness standards and related regulatory guidance), any order, directive or notice from a Regulator, or any formal or informal agreement, safety and soundness compliance plan, or other agreement or plan entered into by and between the Bank and any Regulator. Whether the obligations of this Agreement are inconsistent with any law, rule, regulation, order, directive, notice, agreement, or plan just described shall be deemed determined if so found by any Regulator or by an opinion of the Bank’s counsel, a copy or written summary of which finding or opinion of counsel shall be provided by the Bank to Executive within five (5) business days of the Bank’s notice of such a determination.

(c)      The payment, accrual and/or vesting of any Severance Pay shall be suspended in the event the Bank receives any notice from any Regulator indicating an intent to issue an order or directive requiring the Bank to take prompt corrective action or to take or refrain from taking any other action, or to the extent that the Bank or any affiliate is prohibited from paying any Severance Pay by Section 18(k) of the Federal Deposit Insurance Act, 12 C.F.R. Part 359 or any other applicable law.

(d)      In the event that any Regulator terminates or requires the Bank by order or directive to terminate Executive, Bank shall be relieved of all obligations under this Agreement and this Agreement shall be terminated and shall have no further force and effect.

(e)      In the event that the Bank is relieved of any or all of its obligations under this Agreement as a result of the application of this Section 4 or that any or all of such obligations is suspended, the Bank shall provide, within five (5) business days of the Bank’s notice of relief or suspension, written notice to Executive describing the extent to which the Bank has been relieved of its obligations under this Agreement or to which such obligations have been suspended and the reason(s) therefor.

5.   SUCCESSORS. This Agreement shall inure to the benefit of and be enforceable by Executive’s personal representatives and heirs. In the event that Executive dies while any amounts remain payable to Executive hereunder, all such amounts shall be paid in accordance with the terms of this Agreement to designee(s) or, if there is no such designee, to Executive’s estate.

6.   SEVERABILITY. In the event that any court or other authority of competent jurisdiction determines that any provision of this Agreement is invalid, illegal or unenforceable, such invalidity, illegality or unenforceability shall be limited to such provision and shall not affect the validity, legality, or enforceability of any other provision. Any provision in this Agreement which is invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be invalid, illegal or unenforceable, only to the extent required by such jurisdiction and without rendering such provision invalid, illegal, or unenforceable in any other jurisdiction.

7.   NO RIGHT TO CONTINUE EMPLOYMENT. This Agreement shall not give Executive any right to remain in the employ of the Bank. Subject to the severance provisions in this Agreement or in any other written agreement between the Bank and Executive, the Bank reserves the right to terminate Executive’s employment at any time.

8.   AMENDMENT; WAIVER. No provision of this Agreement may be modified or waived except by a written instrument executed by Executive and on behalf of the Bank by an authorized representative, which instrument specifically refers to this Section 8. No waiver of compliance with any condition or provision of this Agreement shall be deemed or constitute a waiver of any other provision or condition of this Agreement and shall not operate to preclude or limit any future waivers or modifications of the Agreement.

9.   NOTICES. For the purposes of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States first-class registered or certified mail, return receipt requested, postage prepaid, addressed as follows:

If to Executive:	Most recent address on file with the Bank
If to the Bank	Chemung Canal Trust Company
	One Chemung Canal Plaza
	P.O. Box 1522
	Elmira, New York 14902-1522

or at such other address as any party may furnish to the other in writing. Notices of change of address shall be effective only upon receipt.

10.   ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the parties and supersedes all current and prior agreements and understandings, whether written or oral, between the parties, with respect to the subject matter hereof.

11.   GOVERNING LAW. This Agreement shall be interpreted and construed in accordance with the laws of the State of New York, without regard to any conflicts of law rules or principles.

12.   JURISDICTION; VENUE; WAIVER OF JURY TRIAL. The Bank and Executive agree that any action or proceeding seeking to enforce any provision of, or based on any claim arising out of, or otherwise relating to this Agreement shall be brought in the courts of the State of New York, or, if it has or can acquire jurisdiction, in the United States District Court for the Western District of New York. The Bank and Executive each give their consent to the jurisdiction of these courts in any such action or proceeding and hereby waive any object to venue being laid in such courts. The Bank and Executive further agree to waive their respective rights to a trial by jury in any such action or proceeding.

13.   SECTION HEADINGS. All Section headings herein are included for the purposes of convenience only and shall not be deemed to have any effect on the construction or interpretation of any provision of this Agreement.

IN WITNESS WHEREOF, the parties hereto have hereby executed this Agreement as of the date set forth above.

CHEMUNG CANAL TRUST COMPANY,
By:	Anders M. Tomson
	Its: President & Chief Executive Officer
EXECUTIVE
	/s/ Loren D. Cole

{Clients/1667/00328223.DOCX/ }

EX-21

EXHIBIT 21

CHEMUNG FINANCIAL CORPORATION

Subsidiary List

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

EX-23

EXHIBIT 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the registration statement on Form S-8 (File No. 333-104663 and 333-201715), Form S-3 (File No. 333-185400) and registration statement on Form S-4 (File No. 333-171504) of Chemung Financial Corporation of our report dated March 12, 2020, related to the consolidated financial statements and effectiveness of internal control over financial reporting, appearing in this Annual Report on Form 10-K of Chemung Financial Corporation for the year ended December 31, 2019.

/s/ Crowe LLP

Livingston, New Jersey

March 12, 2020

EX-31.1

EXHIBIT 31.1

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

I, Anders M. Tomson, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  March 12, 2020

By:         /s/ Anders M. Tomson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

I, Karl F. Krebs, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date:  March 12, 2020

By:/s/ Karl F. Krebs

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

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

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

a) the Annual Report on Form 10-K of the Corporation for the period ended December 31, 2019, filed on the date hereof with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

March 12, 2020

EX-32.2

EXHIBIT 32.2

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

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

a) the annual Report on Form 10-K of the Corporation for the period ended December 31, 2019, filed on the date hereof with the Securities and Exchange Commission (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

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

/s/ Karl F. Krebs

Karl F. Krebs

Chief Financial Officer and Treasurer

March 12, 2020

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REVENUE FROM CONTRACTS WITH CUSTOMERS

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

REVENUE 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 tables present the Corporation's non-interest income by revenue stream and reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Year ended December 31, 2019
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,653		$	—	$	—		$	3,653
Other	807			—		—			807
Interchange revenue from debit card transactions	4,104			—					4,104
WMG fee income	—			9,503		—			9,503
CFS fee and commission income	—			—		673			673
Net gains (losses) on sales of OREO	(99		)	—		—			(99		)
Net gains on sales of loans(a)	248			—		—			248
Loan servicing fees(a)	103			—		—			103
Net gains on sales of securities(a)	19			—		—			19
Change in fair value of equity securities(a)	143					(62		)	81
Other(a)	1,378			—		(397		)	981
Total non-interest income	$	10,356		$	9,503	$	214		$	20,073

(a) Not within scope of ASC 606.

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

	Year ended December 31, 2018
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,934	$	—	$	—		$	3,934
Other	793		—		—			793
Interchange revenue from debit card transactions	4,040		—		—			4,040
WMG fee income	—		9,317		—			9,317
CFS fee and commission income	—		—		510			510
Net gains (losses) on sales of OREO	90		—		—			90
Net gains on sales of loans(a)	351		—		—			351
Loan servicing fees(a)	92		—		—			92
Net gains on sales of securities(a)	—		—		—			—
Change in fair value of equity securities(a)	2,024		—		(20		)	2,004
Other(a)	2,272		—		(329		)	1,943
Total non-interest income	$	13,596	$	9,317	$	161		$	23,074

(a) Not within scope of ASC 606.

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

	Year ended December 31, 2017
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	4,189	$	—	$	—		$	4,189
Other	772		—		—			772
Interchange revenue from debit card transactions	3,761		—		—			3,761
WMG fee income	—		8,804		—			8,804
CFS fee and commission income	—		—		646			646
Net gains (losses) on sales of OREO	38		—		—			38
Net gains on sales of loans(a)	260		—		—			260
Loan servicing fees(a)	84		—		—			84
Net gains on sales of securities(a)	109		—		—			109
Change in fair value of equity securities(a)	80		—		—			80
Other(a)	1,933		—		(185		)	1,748
Total non-interest income	$	11,226	$	8,804	$	461		$	20,491

(a) Not within scope of ASC 606.

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

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

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

Interchange Income from Debit Card Transactions: The Corporation earns interchange fees from debit cardholder transactions conducted through the Mastercard payment network. Interchange fees from cardholder transactions represent a percentage of the underlying transaction value and are recognized daily, concurrently with 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 conduct transactions on their accounts. These fees are primarily earned over time as the Corporation provides the contracted monthly or quarterly services and are generally assessed based on a tiered scale of the market value of assets under management (AUM) at quarter-end.

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

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

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SECURITIES

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

SECURITIES

SECURITIES

Amortized cost and estimated fair value of securities available for sale at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	5,489	$	5,472
Mortgage-backed securities, residential	225,029		225,234		189,111		183,192
Obligations of states and political subdivisions	41,265		42,845		44,390		44,152
Corporate bonds and notes	250		250		249		247
SBA loan pools	15,712		15,761		9,257		9,195
Total	$	282,256	$	284,090	$	248,496	$	242,258

Gross unrealized gains and losses on securities available for sale at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	10	$	27
Mortgage-backed securities, residential	1,471		1,266		146		6,065
Obligations of states and political subdivisions	1,580		—		70		308
Corporate bonds and notes	—		—		—		2
SBA loan pools	95		46		—		62
Total	$	3,146	$	1,312	$	226	$	6,464

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

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	725	$	726
After one, but within five years	7,095		7,324
After five, but within ten years	32,646		33,968
After ten years	1,049		1,077
Mortgage-backed securities, residential	225,029		225,234
SBA loan pools	15,712		15,761
Total	$	282,256	$	284,090

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

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

	2019			2018		2017
Proceeds	$	8,513		$	—	$	5,576
Gross gains	$	159		$	—	$	109
Gross losses	$	(140	)	$	—	$	—
Tax expense	$	5		$	—	$	41

Amortized cost and estimated fair value of securities held to maturity at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	1,045	$	3,020	$	3,020
Time deposits with other financial institutions	2,070		2,094		1,855		1,838
	$	3,115	$	3,139	$	4,875	$	4,858

Gross unrealized gains and losses on securities held to maturity at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	—	$	—
Time deposits with other financial institutions	24		—		—		17
Total	$	24	$	—	$	—	$	17

There were no sales of securities held to maturity in 2019 or 2018.

The contractual maturity of securities held to maturity is as follows at December 31, 2019 (in thousands):

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	1,583	$	1,589
After one, but within five years	1,532		1,550
After five, but within ten years	—		—
After ten years	—		—
Total	$	3,115	$	3,139

The following table summarizes the investment securities available for sale with unrealized losses at December 31, 2019 and December 31, 2018 by aggregated major security type and length of time in a continuous unrealized position (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2019
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
Obligations of states and political subdivisions	—		—		—		—		—		—
Corporate bonds and notes	—		—		—		—		—		—
SBA loan pools	3,014		9		1,405		37		4,419		46
Total temporarily impaired securities	$	74,520	$	800	$	55,748	$	512	$	130,268	$	1,312

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2018
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	4,969	$	27	$	4,969	$	27
Mortgage-backed securities, residential	—		—		171,481		$	6,065	171,481		6,065
Obligations of states and political subdivisions	10,868		38		21,345		270		32,213		308
Corporate bonds and notes	247		2		—		—		247		2
SBA loan pools	5,985		17		3,210		45		9,195		62
Total temporarily impaired securities	$	17,100	$	57	$	201,005	$	6,407	$	218,105	$	6,464

Other-Than-Temporary-Impairment

As of December 31, 2019, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities. At December 31, 2019, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because the Corporation does not have the intent to sell these securities and it is not likely that it will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at December 31, 2019.

Pledged Securities

The fair value of securities pledged to secure public funds on deposit or for other purposes as required by law was $205.9 million at December 31, 2019 and $212.7 million at December 31, 2018.

There are no securities pledged to secure securities sold under agreements to repurchase at December 31, 2019 and 2018, respectively.

Concentrations

There are no securities of a single issuer (other than securities of U.S. Government sponsored enterprises) that exceed 10% of shareholders' equity at December 31, 2019 or 2018.

Equity Method Investments

The Corporation has an equity investment in Cephas Capital Partners, L.P.  This small business investment company was established for the purpose of providing financing to small businesses in market areas served by the Corporation, including minority-owned small businesses and those that are anticipated to create jobs for the low to moderate income levels in the targeted areas. As of December 31, 2019 and 2018, this investment totaled $0.3 million and $0.4 million respectively, is included in other assets, and is accounted for under the equity method of accounting.

XML

Label	Element	Value
Treasury Stock [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Adjusted Balance	us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterestAdjustedBalance1	$ (14,320,000)
Additional Paid-in Capital [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Adjusted Balance	us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterestAdjustedBalance1	45,967,000
Common Stock [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Adjusted Balance	us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterestAdjustedBalance1	53,000
Retained Earnings [Member]
Stockholders' Equity, Including Portion Attributable to Noncontrolling Interest, Adjusted Balance	us-gaap_StockholdersEquityIncludingPortionAttributableToNoncontrollingInterestAdjustedBalance1	$ 128,493,000

XML

GOODWILL AND INTANGIBLE ASSETS

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the years ended December 31, 2019 and 2018 were as follows (in thousands):

	2019		2018
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

Acquired intangible assets were as follows at December 31, 2019 and 2018 (in thousands):

	At December 31, 2019				At December 31, 2018
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,832	$	5,975	$	5,576
Other customer relationship intangibles	5,633		5,034		5,633		4,681
Total	$	11,608	$	10,866	$	11,608	$	10,257

Aggregate amortization expense was $0.6 million, $0.7 million, and $0.9 million for 2019, 2018 and 2017, respectively.

The remaining estimated aggregate amortization expense at December 31, 2019 is listed below (in thousands):

Year	Estimated Expense
2020	$	484
2021	258
Total	$	742

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GOODWILL AND INTANGIBLE ASSETS (Tables)

12 Months Ended

Dec. 31, 2019

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Changes in Goodwill

The changes in goodwill included in the core banking segment during the years ended December 31, 2019 and 2018 were as follows (in thousands):

	2019		2018
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
End of year	$	21,824	$	21,824

Schedule of Acquired Intangible Assets

Acquired intangible assets were as follows at December 31, 2019 and 2018 (in thousands):

	At December 31, 2019				At December 31, 2018
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,832	$	5,975	$	5,576
Other customer relationship intangibles	5,633		5,034		5,633		4,681
Total	$	11,608	$	10,866	$	11,608	$	10,257

Schedule of Remaining Estimated Aggregate Amortization Expense

The remaining estimated aggregate amortization expense at December 31, 2019 is listed below (in thousands):

Year	Estimated Expense
2020	$	484
2021	258
Total	$	742

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SECURITIES (Tables)

12 Months Ended

Dec. 31, 2019

Investments, Debt and Equity Securities [Abstract]

Amortized Cost and Estimated Fair Value of Securities Available for Sale

Amortized cost and estimated fair value of securities available for sale at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	5,489	$	5,472
Mortgage-backed securities, residential	225,029		225,234		189,111		183,192
Obligations of states and political subdivisions	41,265		42,845		44,390		44,152
Corporate bonds and notes	250		250		249		247
SBA loan pools	15,712		15,761		9,257		9,195
Total	$	282,256	$	284,090	$	248,496	$	242,258

Gross unrealized gains and losses on securities available for sale at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	10	$	27
Mortgage-backed securities, residential	1,471		1,266		146		6,065
Obligations of states and political subdivisions	1,580		—		70		308
Corporate bonds and notes	—		—		—		2
SBA loan pools	95		46		—		62
Total	$	3,146	$	1,312	$	226	$	6,464

Amortized Cost and Estimated Fair Value of Debt Securities Available for Sale by Contractual Maturity

Securities not due at a single maturity date are shown separately (in thousands):

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	725	$	726
After one, but within five years	7,095		7,324
After five, but within ten years	32,646		33,968
After ten years	1,049		1,077
Mortgage-backed securities, residential	225,029		225,234
SBA loan pools	15,712		15,761
Total	$	282,256	$	284,090

Proceeds from Sales and Calls of Securities Resulting in Gains or Losses

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

	2019			2018		2017
Proceeds	$	8,513		$	—	$	5,576
Gross gains	$	159		$	—	$	109
Gross losses	$	(140	)	$	—	$	—
Tax expense	$	5		$	—	$	41

Amortized Cost and Estimated Fair Value of Securities Held to Maturity

Amortized cost and estimated fair value of securities held to maturity at December 31, 2019 and 2018 are as follows (in thousands):

	2019				2018
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	1,045	$	3,020	$	3,020
Time deposits with other financial institutions	2,070		2,094		1,855		1,838
	$	3,115	$	3,139	$	4,875	$	4,858

Gross unrealized gains and losses on securities held to maturity at December 31, 2019 and 2018, were as follows (in thousands):

	2019				2018
	Unrealized Gains		Unrealized Losses		Unrealized Gains		Unrealized Losses
Obligations of states and political subdivisions	$	—	$	—	$	—	$	—
Time deposits with other financial institutions	24		—		—		17
Total	$	24	$	—	$	—	$	17

Contractual Maturities of Securities Held to Maturity

The contractual maturity of securities held to maturity is as follows at December 31, 2019 (in thousands):

	December 31, 2019
	Amortized Cost		Fair Value
Within one year	$	1,583	$	1,589
After one, but within five years	1,532		1,550
After five, but within ten years	—		—
After ten years	—		—
Total	$	3,115	$	3,139

Investment Securities Available for Sale in Unrealized Loss Position

The following table summarizes the investment securities available for sale with unrealized losses at December 31, 2019 and December 31, 2018 by aggregated major security type and length of time in a continuous unrealized position (in thousands):

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2019
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
Obligations of states and political subdivisions	—		—		—		—		—		—
Corporate bonds and notes	—		—		—		—		—		—
SBA loan pools	3,014		9		1,405		37		4,419		46
Total temporarily impaired securities	$	74,520	$	800	$	55,748	$	512	$	130,268	$	1,312

	Less than 12 months				12 months or longer				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
2018
Obligations of U.S. Government and U.S. Government sponsored enterprises	$	—	$	—	$	4,969	$	27	$	4,969	$	27
Mortgage-backed securities, residential	—		—		171,481		$	6,065	171,481		6,065
Obligations of states and political subdivisions	10,868		38		21,345		270		32,213		308
Corporate bonds and notes	247		2		—		—		247		2
SBA loan pools	5,985		17		3,210		45		9,195		62
Total temporarily impaired securities	$	17,100	$	57	$	201,005	$	6,407	$	218,105	$	6,464

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Stock-based compensation (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) shares
Restricted Stock
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares	15,000
Age limit for forfeiture of stock award	65 years
Restricted Stock | Share-based Compensation Award, Vesting Each Year Commencing with First Anniversary Date of Award
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights percent	20.00%
Restricted Stock | Share-based Compensation Award, Vesting on Fifth Anniversary Date
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Award vesting rights percent	100.00%
Incentive Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares	10,000
Cash compensation	$ 300,000
Director
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase in annual cash retainer paid	6,000
Annual cash retainer paid to individuals	$ 11,500
Director | Directors' Compensation Plan
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Number of shares authorized (in shares) | shares	20,000
Award requisite service period	12 months
Trading days period	30 days
Board of Directors Chairman
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Annual cash retainer paid to individuals	$ 19,250
Audit Committee Chairman
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Increase in annual cash retainer paid	2,875
Annual cash retainer paid to individuals	$ 14,375
Deferred Compensation, Share-based Payments
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Maximum annual installments period	10 years

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SECURITIES - Securities Available for Sale (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	$ 282,256	$ 248,496
Estimated Fair Value	284,090	242,258
Unrealized Gains	3,146	226
Unrealized Losses	1,312	6,464
Amortized Cost
Within one year	725
After one, but within five years	7,095
After five, but within ten years	32,646
After ten years	1,049
Total	282,256	248,496
Fair Value
Within one year	726
After one, but within five years	7,324
After five, but within ten years	33,968
After ten years	1,077
Total	284,090	242,258
Proceeds from sales and calls of securities resulting in gains or losses
Proceeds	8,513	0	$ 5,576
Gross gains	159	0	109
Gross losses	(140)	0	0
Tax expense	5	0	$ 41
Obligations of U.S. Government and U.S. Government sponsored enterprises
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	0	5,489
Estimated Fair Value	0	5,472
Unrealized Gains	0	10
Unrealized Losses	0	27
Amortized Cost
Total	0	5,489
Fair Value
Total	0	5,472
Mortgage-backed securities, residential
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	225,029	189,111
Estimated Fair Value	225,234	183,192
Unrealized Gains	1,471	146
Unrealized Losses	1,266	6,065
Amortized Cost
Without single maturity date	225,029
Total	225,029	189,111
Fair Value
Without single maturity date	225,234
Total	225,234	183,192
Obligations of states and political subdivisions
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	41,265	44,390
Estimated Fair Value	42,845	44,152
Unrealized Gains	1,580	70
Unrealized Losses	0	308
Amortized Cost
Total	41,265	44,390
Fair Value
Total	42,845	44,152
Corporate bonds and notes
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	250	249
Estimated Fair Value	250	247
Unrealized Gains	0	0
Unrealized Losses	0	2
Amortized Cost
Total	250	249
Fair Value
Total	250	247
SBA loan pools
Amortized cost and estimated fair value of debt securities available-for-sale
Amortized Cost	15,712	9,257
Estimated Fair Value	15,761	9,195
Unrealized Gains	95	0
Unrealized Losses	46	62
Amortized Cost
Without single maturity date	15,712
Total	15,712	9,257
Fair Value
Without single maturity date	15,761
Total	$ 15,761	$ 9,195

XML

RELATED PARTY TRANSACTIONS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Loans to Related Parties [Roll Forward]
Balance at beginning of year	$ 62,741	$ 39,153
New loans or additional advances	1,895	10,624
Effect of changes in composition of related parties	4,456	25,815
Repayments	(9,119)	(12,851)
Balance at end of year	59,973	62,741	$ 39,153
Deposit liabilities	18,300	22,200
Rent expense	1,000
Legal accruals and settlements	0	989	850
Fee income	$ 58,245	57,840	52,840
Minimum
Related Party Transactions [Line Items]
Related party principal ownership threshold (in hundredths)	10.00%
Director
Loans to Related Parties [Roll Forward]
Legal accruals and settlements	$ 10	28	17
1365 New Scotland Road, Slingerlands, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	4
Rent expense	52
Rent expense		45	51
2 Rush Street, Schenectady, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	8
Rent expense	93
Rent expense		84
127 Court Street, Binghamton, New York | Director
Loans to Related Parties [Roll Forward]
Monthly rent expense	$ 5
Rent expense		79
Related party, ownership percentage	20.00%
Participating mortgage loans, amount sold		2,000
Participating mortgage loans, participation liabilities, amount		6,600
Participating mortgage loans, income from insurance products (less than $1 thousand)		1
Participating mortgage loans, purchase of insurance product		34	34
WMG | Operating Segments | Trust Services | Management
Loans to Related Parties [Roll Forward]
Fee income	$ 580	$ 593	$ 332

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DEPOSITS (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Summary of deposits [Abstract]
Non-interest-bearing demand deposits	$ 468,238	$ 484,433
Interest-bearing demand deposits	200,089	179,603
Insured money market accounts	530,242	537,948
Savings deposits	212,393	217,027
Time deposits	161,176	150,226
Total deposits	1,572,138	1,569,237
Scheduled maturities of time deposits [Abstract]
2020	81,015
2021	18,939
2022	42,040
2023	13,091
2024	2,968
2025	3,123
Total	$ 161,176	150,226
Time Deposits 250,000, Or More		$ 27,700	$ 22,400

XML

LEASES - Leased Branch Properties (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Leases [Abstract]
Operating lease right-of-use asset	$ 8,713	$ 0
Less: accumulated amortization	(712)	0
Operating lease right-of-use-assets, net	$ 8,001	$ 0

XML

PENSION PLAN AND OTHER BENEFIT PLANS - Changes in Projected Benefit Obligation and Plan Assets, and Funded Status (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Pension Plan
Change in projected benefit obligation:
Benefit obligation at beginning of year	$ 36,022	$ 42,240
Service cost	0	0	$ 0
Interest cost	1,522	1,551	1,646
Actuarial (gain) loss	4,474	(2,491)
Settlements	0	(3,288)
Benefits paid	(2,132)	(1,990)
Benefit obligation at end of year	39,886	36,022	42,240
Change in plan assets:
Fair value of plan assets at beginning of year	41,476	46,672
Actual return on plan assets	6,213	82
Employer contributions	0	0
Settlements	0	(3,288)
Benefits paid	(2,132)	(1,990)
Fair value of plan assets at end of year	45,557	41,476	46,672
Funded status of plan	5,671	5,454
Defined Benefit Health Care Plan
Change in projected benefit obligation:
Benefit obligation at beginning of year	363	441
Service cost	0	0	0
Interest cost	16	16	20
Participant contributions	49	73
Amendments	0	0
Actuarial (gain) loss	31	22
Benefits paid	(127)	(189)
Benefit obligation at end of year	332	363	441
Change in plan assets:
Fair value of plan assets at beginning of year	0	0
Employer contributions	78	116
Participant contributions	49	73
Benefits paid	(127)	(189)
Fair value of plan assets at end of year	0	0	0
Funded status of plan	(332)	(363)
Executive Supplemental Pension Plan
Change in projected benefit obligation:
Benefit obligation at beginning of year	1,179	1,289
Service cost	0	0	0
Interest cost	49	46	50
Actuarial (gain) loss	113	(47)
Benefits paid	(109)	(109)
Benefit obligation at end of year	1,232	1,179	1,289
Change in plan assets:
Fair value of plan assets at beginning of year	0	0
Employer contributions	109	109
Benefits paid	(109)	(109)
Fair value of plan assets at end of year	0	0	$ 0
Funded status of plan	$ (1,232)	$ (1,179)

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DERIVATIVES (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) loan	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Derivative [Line Items]
Unrealized gain (loss) recognized in other non-interest income	$ (224)	$ (65)	$ (7)
Derivatives not designated as hedging instruments:
Derivative [Line Items]
Number of Instruments | loan	33	28	20
Notional Amount	$ 238,227	$ 172,932	$ 93,777
Fair Value Other Assets/ (Other Liabilities)	(365)	$ (140)	$ (75)
Derivatives not designated as hedging instruments: | Swap
Derivative [Line Items]
Notional Amount	$ 226,400
Derivatives not designated as hedging instruments: | Interest Rate Swap
Derivative [Line Items]
Number of Instruments | loan	15	11	7
Notional Amount	$ 113,204	$ 76,395	$ 36,675
Weighted Average Maturity (in years)	7 years 10 months 13 days	7 years 1 month 6 days	8 years 3 months 4 days
Fair Value Other Assets/ (Other Liabilities)	$ (6,800)	$ (3,255)	$ (974)
Unrealized gain (loss) recognized in other non-interest income	$ (3,544)	$ (2,281)	$ (281)
Derivatives not designated as hedging instruments: | Interest Rate Swap | Weighted Average Interest Rate Received
Derivative [Line Items]
Average interest rate	4.44%	4.69%	4.40%
Derivatives not designated as hedging instruments: | Interest Rate Swap | Weighted Average Contract Pay Rate
Derivative [Line Items]
Average interest rate	4.03%	4.61%	4.17%
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap
Derivative [Line Items]
Number of Instruments | loan	15	11	7
Notional Amount	$ 113,204	$ 76,395	$ 36,675
Weighted Average Maturity (in years)	7 years 10 months 13 days	7 years 1 month 6 days	8 years 3 months 4 days
Fair Value Other Assets/ (Other Liabilities)	$ 6,466	$ 3,142	$ 974
Unrealized gain (loss) recognized in other non-interest income	$ 3,324	$ 2,168	$ 281
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap | Weighted Average Interest Rate Received
Derivative [Line Items]
Average interest rate	4.03%	4.61%	4.17%
Derivatives not designated as hedging instruments: | Reverse Interest Rate Swap | Weighted Average Contract Pay Rate
Derivative [Line Items]
Average interest rate	4.44%	4.69%	4.40%
Derivatives not designated as hedging instruments: | Risk participation agreements
Derivative [Line Items]
Number of Instruments | loan	3	6	6
Notional Amount	$ 11,819	$ 20,142	$ 20,427
Weighted Average Maturity (in years)	5 years 7 months 10 days	14 years 11 months 23 days	17 years 8 months 23 days
Fair Value Other Assets/ (Other Liabilities)	$ (31)	$ (27)	$ (75)
Off-balance sheet risk	400	300
Unrealized gain (loss) recognized in other non-interest income	$ (4)	$ 48	$ (7)

XML

FAIR VALUES - Unobservable Input Reconciliation (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Corporate bonds and notes
Assets Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at January 1	$ 0	$ 0
Derivative instruments entered into	0	0
Total gains or losses for the period:
Included in earnings - other non-interest income	0	0
Balance of recurring Level 3 assets at December 31	0	0
Derivative liabilities
Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation [Roll Forward]
Balance of recurring Level 3 assets at January 1	(140)	(75)
Derivative instruments entered into	(43)	(1)
Included in earnings - other non-interest income	(182)	(64)
Balance of recurring Level 3 assets at December 31	$ (365)	$ (140)

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Distribution of shares of treasury stock for directors' deferred compensation (in shares)	2,551	36,681	2,438
Distribution of shares of treasury stock granted for employee restricted stock awards (in shares)	13,692	14,425	10,161
Cash dividends declared (in dollars per share)	$ 1.04	$ 1.04	$ 1.04
Distribution of shares of treasury stock for directors' compensation (in shares)	8,465	6,015	7,880
Distribution of shares of treasury stock for employee compensation (in shares)	2,373	1,784	5,861
Sale of shares of treasury stock (in shares)	13,270	14,081	14,707
Purchase of shares of treasury stock (in shares)	4,148	2,736	1,159
Restricted stock awards, forfeited (in shares)			1,139

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CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Securities held to maturity, estimated fair value	$ 3,139	$ 4,858
Shareholders' equity:
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	10,000,000	10,000,000
Common stock, shares issued (in shares)	5,310,076	5,310,076
Treasury stock, at cost (in shares)	452,641	488,844

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PARENT COMPANY FINANCIAL INFORMATION (Tables)

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Disclosure [Abstract]

Parent Company Statement of Financial Position

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

BALANCE SHEETS - DECEMBER 31	2019		2018
Assets:
Cash on deposit with subsidiary bank	$	3,938	$	3,978
Investment in subsidiary - Chemung Canal Trust Company	175,470		158,166
Investment in subsidiary - CFS Group, Inc.	868		873
Investment in subsidiary - Chemung Risk Management, Inc.	1,954		1,748
Dividends receivable from subsidiary bank	—		—
Securities available for sale, at estimated fair value	492		554
Other assets	1,266		1,071
Total assets	$	183,988	$	166,390
Liabilities and shareholders' equity:
Dividends payable	$	1,263	$	1,254
Other liabilities	98		107
Total liabilities	1,361		1,361
Shareholders' equity:
Total shareholders' equity	182,627		165,029
Total liabilities and shareholders' equity	$	183,988	$	166,390

Parent Company Statement of Income

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2019			2018			2017
Dividends from subsidiary bank and non-bank	$	4,516		$	3,187		$	4,926
Interest and dividend income	9			10			10
Non-interest income	(62		)	(20		)	22
Non-interest expenses	439			477			433
Income before impact of subsidiaries' undistributed earnings	4,024			2,700			4,525
Equity in undistributed earnings of Chemung Canal Trust Company	11,220			16,670			1,939
Equity in undistributed earnings of CFS Group, Inc.	(4		)	(32		)	(42		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	205			124			791
Income before income tax	15,445			19,462			7,213
Income tax benefit	(164		)	(164		)	(217		)
Net income	$	15,609		$	19,626		$	7,430

Parent Company Statement of Cash Flows

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2019			2018			2017
Cash flows from operating activities:
Net Income	$	15,609		$	19,626		$	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(11,220		)	(16,670		)	(1,939		)
Equity in undistributed earnings of CFS Group, Inc.	4			32			42
Equity in undistributed earnings of Chemung Risk Management, Inc.	(205		)	(124		)	(791		)
Change in dividend receivable	—			1,233			(8		)
Change in other assets	(196		)	(32		)	(214		)
Change in other liabilities	(48		)	773			51
Expense related to employee stock compensation	100			89			200
Expense related to restricted stock units for directors' deferred compensation plan	42			67			98
Expense to employee restricted stock awards	503			405			210
Net cash provided by operating activities	4,589			5,399			5,079
Cash flow from financing activities:
Cash dividends paid	(5,029		)	(4,969		)	(4,919		)
Purchase of treasury stock	(185		)	(112		)	(61		)
Sale of treasury stock	585			643			582
Net cash used in financing activities	(4,629		)	(4,438		)	(4,398		)
Increase (decrease) in cash and cash equivalents	(40		)	961			681
Cash and cash equivalents at beginning of year	3,978			3,017			2,336
Cash and cash equivalents at end of year	$	3,938		$	3,978		$	3,017

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PENSION PLAN AND OTHER BENEFIT PLANS (Tables)

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

Change in Benefit Obligation

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Changes in accumulated postretirement benefit obligation:	2019			2018
Accumulated postretirement benefit obligation - beginning of year	$	363		$	441
Service cost	—			—
Interest cost	16			16
Participant contributions	49			73
Amendments	—			—
Actuarial (gain) loss	31			22
Benefits paid	(127		)	(189		)
Accumulated postretirement benefit obligation at end of year	$	332		$	363

The following table presents Executive Supplemental Pension plan status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	1,179		$	1,289
Service cost	—			—
Interest cost	49			46
Actuarial (gain) loss	113			(47		)
Benefits paid	(109		)	(109		)
Projected benefit obligation at end of year	$	1,232		$	1,179

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	36,022		$	42,240
Interest cost	1,522			1,551
Actuarial (gain) loss	4,474			(2,491		)
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Benefit obligation at end of year	$	39,886		$	36,022

Change in Plan Assets

Changes in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	109			109
Benefits paid	(109		)	(109		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,232	)	$	(1,179	)

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	78			116
Plan participants’ contributions	49			73
Benefits paid	(127		)	(189		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(332	)	$	(363	)

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	41,476		$	46,672
Actual return on plan assets	6,213			82
Employer contributions	—			—
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Fair value of plan assets at end of year	$	45,557		$	41,476
Funded status	$	5,671		$	5,454

Amount Recognized in Accumulated Other Comprehensive Income

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	283	$	174
Prior service cost	—		—
Total before tax effects	$	283	$	174

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019			2018
Net actuarial loss	$	417		$	491
Prior service credit	(440		)	(661		)
Total before tax effects	$	(23	)	$	(170	)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	9,352	$	9,075
Prior service cost	—		—
Total before tax effects	$	9,352	$	9,075

Assumptions Used in Determining Benefit Obligation

Accumulated benefit obligation at December 31, 2019 and 2018 was $1.2 million and $1.2 million, respectively.

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

Components of Net Periodic Benefit Cost

The components of net periodic postretirement benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic cost (benefit)	2019			2018			2017
Service cost	$	—		$	—		$	—
Interest cost	16			16			20
Amortization of prior service benefit	(220		)	(220		)	(220		)
Recognized actuarial loss	105			123			143
Recognized prior service benefit due to curtailments	—			—			—
Net periodic postretirement cost (benefit)	$	(99	)	$	(81	)	$	(57	)

The components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic benefit cost	2019		2018		2017
Service cost	$	—	$	—	$	—
Interest cost	49		46		50
Recognized actuarial loss	4		7		3
Net periodic postretirement benefit cost	$	53	$	53	$	53

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2019, 2018 and 2017 consist of the following (in thousands):

Net periodic benefit cost	2019			2018			2017
Service cost, benefits earned during the year	$	—		$	—		$	—
Interest cost on projected benefit obligation	1,522			1,551			1,646
Expected return on plan assets	(2,221		)	(3,309		)	(3,144		)
Amortization of net loss	204			188			267
Amortization of  prior service cost	—			—			—
Recognized (gain) loss due to settlements	—			828			—
Net periodic cost (benefit)	$	(495	)	$	(742	)	$	(1,231	)

Schedule of Other Amounts Recognized in Other Comprehensive Income

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	481		$	736		$	(1,165	)
Recognized loss	(204		)	(1,016		)	(267		)
Amortization of prior service cost	—			—			—
Total recognized in other comprehensive income (loss) (before tax effect)	$	277		$	(280	)	$	(1,432	)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(218	)	$	(1,022	)	$	(2,663	)

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	113		$	(47	)	$	66
Recognized actuarial loss	(4		)	(7		)	(3		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	109		$	(54	)	$	63
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	162		$	(1	)	$	116

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2019			2018			2017
Net actuarial loss	$	31		$	22		$	98
Recognized actuarial loss	(105		)	(123		)	(143		)
Prior service credit	—			—			—
Amortization of prior service benefit	220			220			220
Total recognized in other comprehensive income (loss)(before tax effect)	$	146		$	119		$	175
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	47		$	38		$	118

Amounts Expected to be Recognized in Net Periodic Cost

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	196
Prior service cost recognition	$	—

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	96
Prior service cost recognition	$	(220	)

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	13
Prior service cost recognition	$	—

Assumptions Used in Determining Net Periodic Benefit Cost

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Expected long-term rate of return on assets	5.50	%	7.25	%	7.75	%
Assumed rate of future compensation increase	N/A		N/A		N/A

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Salary scale	N/A		N/A		N/A

Target Assets Allocations

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

Asset Class	Target Allocation 2019	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2019		2018
Large cap domestic equities	20% - 50%	38	%	38	%	7.5	%
Mid-cap domestic equities	0% - 15%	2	%	2	%	9.5	%
Small-cap domestic equities	0% - 10%	2	%	6	%	7.8	%
International equities	0% - 20%	8	%	4	%	4.7	%
Intermediate fixed income	30% - 70%	45	%	37	%	4.6	%
Alternative assets	0% - 10%	—	%	—	%	—	%
Cash	0% - 20%	5	%	13	%	1.3	%
Total		100	%	100	%

Fair Value of Plan Assets

The fair value of the plan assets at December 31, 2019 and 2018, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2019 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,210	$	2,210	$	—	$	—
Equity securities:
U.S. companies	17,939		17,939		—		—
International companies	—				—		—
Mutual funds	21,328		21,328		—		—
Debt securities:
U.S. Treasuries/Government bonds	3,054		—		3,054		—
U.S. Corporate bonds	1,026		—		1,026		—
Total plan assets	$	45,557	$	41,477	$	4,080	$	—

			Fair Value Measurement at December 31, 2018 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	5,476	$	5,476	$	—	$	—
Equity securities:
U.S. companies	16,244		16,244		—		—
International companies	—		—		—		—
Mutual funds	16,242		16,242		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,031		—		2,031		—
U.S. Corporate bonds	1,483		—		1,483		—
Total plan assets	$	41,476	$	37,962	$	3,514	$	—

Effect of One-Percentage Point Change in Assumed Health Care Cost Trend Rates

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

Effect of a 1% increase in health care trend rate on:	2019		2018		2017
Benefit obligation	$	17	$	4	$	5
Total service and interest cost	$	1	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2019			2018			2017
Benefit obligation	$	(16	)	$	(4	)	$	(6	)
Total service and interest cost	$	(1	)	$	—		$	—

Weighted-Average Assumption for Disclosure of Health Care Cost Trend

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Health care cost trend: Initial (Pre-65/Post 65)	6.95% / 5.45%		6.95% / 5.45%		6.50	%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75% / 4.75%		4.75% / 4.75%		5.00	%
Year ultimate cost trend reached	2025		2024		2021

Weighted-Average Assumption for Net Periodic Cost

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Health care cost trend: Initial	6.95% / 5.45%		6.50	%	6.50	%
Health care cost tread: Ultimate	4.75% / 4.75%		5.00	%	5.00	%
Year ultimate reached	2024		2021		2020

Estimated Benefit Payments

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

Calendar Year	Future Expected Benefit Payments
2020	$	2,223
2021	$	2,240
2022	$	2,251
2023	$	2,251
2024	$	2,269
2025-2029	$	11,350

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

Calendar Year	Future Estimated Benefit Payments
2020	$	109
2021	$	107
2022	$	105
2023	$	102
2024	$	99
2025-2029	$	431

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

Calendar Year	Future Estimated Benefit Payments
2020	$	86
2021	$	50
2022	$	37
2023	$	38
2024	$	21
2025-2029	$	87

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LEASES (Details) - USD ($) $ in Millions	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Leases [Abstract]
Operating lease, weighted average remaining lease term	11 years 1 month 30 days
Operating lease, weighted average discount rate	3.38%
Operating leases, rent expense	$ 1.0
Operating leases, rent expense		$ 1.1	$ 1.2
Finance lease, weighted average remaining lease term	13 years
Finance lease, weighted average discount rate	3.34%

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REGULATORY CAPITAL REQUIREMENTS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Compliance with Regulatory Capital Requirements under Banking Regulations [Line Items]
Net profits period for accessing dividends declarable	2 years
Declarable dividends without prior approval for next fiscal year	$ 29,800
Total Capital (to Risk Weighted Assets):
Actual	182,239	$ 169,416
Tier 1 Capital (to Risk Weighted Assets):
Actual	165,859	153,263
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Actual	165,859	153,263
Tier 1 Capital (to Average Assets):
Actual	$ 165,859	$ 153,263
Risk Based Ratios [Abstract]
Capital to Risk Weighted Assets	13.98%	13.14%
Tier One Risk Based Capital to Risk Weighted Assets	12.73%	11.89%
Common Equity Tier 1 Capital to Risk Weighted Assets	12.73%	11.89%
Leverage Ratios [Abstract]
Tier One Leverage Capital to Average Assets (in hundredths)	9.35%	8.79%
Bank
Total Capital (to Risk Weighted Assets):
Actual	$ 175,062	$ 162,536
Minimal Capital Adequacy	104,136	103,039
Minimal Capital Adequacy with Capital Buffer	136,679	127,189
To Be Well Capitalized Under Prompt Corrective Action Provisions	130,170	128,799
Tier 1 Capital (to Risk Weighted Assets):
Actual	158,702	146,401
Minimal Capital Adequacy	78,102	77,280
Minimal Capital Adequacy with Capital Buffer	110,645	101,429
To Be Well Capitalized Under Prompt Corrective Action Provisions	104,136	103,039
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Actual	158,702	146,401
Minimal Capital Adequacy	58,577	57,960
Minimal Capital Adequacy with Capital Buffer	91,119	82,110
To Be Well Capitalized Under Prompt Corrective Action Provisions	84,611	83,720
Tier 1 Capital (to Average Assets):
Actual	158,702	146,401
Minimal Capital Adequacy	70,719	69,598
To Be Well Capitalized Under Prompt Corrective Action Provisions	$ 88,399	$ 86,998
Risk Based Ratios [Abstract]
Capital to Risk Weighted Assets	13.45%	12.62%
Capital Required To Be Adequately Capitalized to Risk Weighted Assets	8.00%	8.00%
Capital Required for Capital Adequacy with Capital Buffer to Risk Weighted Assets	10.50%	9.875%
Capital Required To Be Well Capitalized to Risk Weighted Assets	10.00%	10.00%
Tier One Risk Based Capital to Risk Weighted Assets	12.19%	11.37%
Tier One Risk Based Capital Required To Be Adequately Capitalized to Risk Weighted Assets	6.00%	6.00%
Tier One Risk Based Capital Required for Capital Adequacy With Capital Buffer to Risk Weighted Assets	8.50%	7.875%
Tier One Risk Based Capital Required To Be Well Capitalized to Risk Weighted Assets	8.00%	8.00%
Common Equity Tier 1 Capital to Risk Weighted Assets	12.19%	11.37%
Common Equity Tier 1 Capital Required to be Adequately Capitalized to Risk Weighted Assets	4.50%	4.50%
Common Equity Tier One Risk Based Capital Requirement for Capital Adequacy with Capital Buffer to Risk Weighted Assets	7.00%	6.375%
Common Equity Tier 1 Capital Required to be Well Capitalized to Risk Weighted Assets	6.50%	6.50%
Leverage Ratios [Abstract]
Tier One Leverage Capital to Average Assets (in hundredths)	8.98%	8.41%
Tier One Leverage Capital Required To Be Adequately Capitalized to Average Assets (in hundredths)	4.00%	4.00%
Tier One Leverage Capital Required To Be Well Capitalized to Average Assets (in hundredths)	5.00%	5.00%

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan Portfolio (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	$ 1,309,219	$ 1,311,906
Interest receivable on loans	3,684	3,703
Total ending loans balance	1,312,903	1,315,609
Residential mortgages held for sale	1,185	502
Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total ending loans balance	230,922	203,412
Commercial mortgages
Composition of loan portfolio [Abstract]
Total ending loans balance	650,570	662,988
Commercial mortgages | Construction
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	43,962	54,476
Total ending loans balance	44,082	54,626
Commercial mortgages | Commercial mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	604,832	606,694
Total ending loans balance	606,488	608,362
Residential Mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	188,338	182,724
Total ending loans balance	188,874	183,225
Loans pledged as collateral	170,000	132,500
Consumer Loans
Composition of loan portfolio [Abstract]
Total ending loans balance	242,537	265,984
Consumer Loans | Credit cards
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	0	1,449
Total ending loans balance	0	1,450
Consumer Loans | Home equity lines and loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	91,784	98,145
Total ending loans balance	92,065	98,466
Consumer Loans | Indirect Consumer Loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	134,973	149,380
Total ending loans balance	135,366	149,806
Consumer Loans | Direct consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	15,038	16,184
Total ending loans balance	15,106	16,262
Commercial and industrial | Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	230,018	202,526
Total ending loans balance	230,648	203,083
Agricultural | Commercial, and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred loan fees	274	328
Total ending loans balance	$ 274	$ 329

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details)	12 Months Ended
	Dec. 31, 2019 USD ($) loan	Dec. 31, 2018 USD ($) loan	Dec. 31, 2017 USD ($) loan
Trouble debt restructurings [Abstract]
Recorded investment in troubled debt restructurings	$ 9,000,000	$ 6,800,000	$ 7,700,000
Specific reserves allocated for troubled debt restructuring	2,300,000	900,000	700,000
Troubled debt restructurings accruing interest under modified terms	900,000	800,000	1,700,000
Troubled debt restructurings on non-accrual status	8,100,000	6,000,000	6,000,000
Additional amounts committed to customers with loans classified as troubled debt restructurings	$ 17,000	$ 0	$ 0
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	3	2	5
Pre-Modification Outstanding Recorded Investment	$ 4,483,000	$ 491,000	$ 948,000
Post-Modification Outstanding Recorded Investment	4,483,000	491,000	948,000
Increase in allowance for loan losses related to troubled debt restructurings	1,700,000	400,000	100,000
Troubled debt restructurings, charge offs (less than $0.1 million in 2014)	$ 0	$ 0	$ 0
Number of days past due after which a loan is considered to be in payment default	90 days
Financing receivable, modifications, subsequent default, number of loans | loan	1
Financing receivable, modifications, subsequent default, recorded investment	$ 164,000
Commercial mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Financing receivable, modifications, subsequent default, number of loans | loan	1
Financing receivable, modifications, subsequent default, recorded investment	$ 164,000
Commercial mortgages | Commercial mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1		1
Pre-Modification Outstanding Recorded Investment	$ 4,223,000		$ 166,000
Post-Modification Outstanding Recorded Investment	$ 4,223,000		$ 166,000
Residential Mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1		1
Pre-Modification Outstanding Recorded Investment	$ 123,000		$ 105,000
Post-Modification Outstanding Recorded Investment	$ 123,000		$ 105,000
Consumer Loans | Home equity lines and loans
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1
Pre-Modification Outstanding Recorded Investment	$ 137,000
Post-Modification Outstanding Recorded Investment	$ 137,000
Principal Forgiveness
Trouble debt restructurings [Abstract]
Troubled debt restructuring, extension of maturity date, duration	3 years
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1
Interest Rate Below Market Reduction
Trouble debt restructurings [Abstract]
Troubled debt restructuring, extension of maturity date, duration	13 years
Interest Rate Below Market Reduction | Residential Mortgages
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1
Interest Rate Below Market Reduction | Consumer Loans | Home equity lines and loans
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan	1
Loan Consolidation
Trouble debt restructurings [Abstract]
Troubled debt restructuring, extension of maturity date, duration			2 years
Payment Deferral
Trouble debt restructurings [Abstract]
Troubled debt restructuring, extension of maturity date, duration			5 years
Commercial and industrial | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan		2	3
Pre-Modification Outstanding Recorded Investment		$ 491,000	$ 677,000
Post-Modification Outstanding Recorded Investment		$ 491,000	$ 677,000
Commercial and industrial | Principal Forgiveness | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan			2
Commercial and industrial | Extended Maturity | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan			1
Commercial and industrial | Loan Consolidation | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan			2
Commercial and industrial | Extended Maturity, Interest Rate Below Market Reduction | Commercial, and Agricultural
Loans by class modified as troubled debt restructurings [Abstract]
Number of Loans | loan		2

XML

STOCK COMPENSATION

12 Months Ended

Dec. 31, 2019

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

STOCK COMPENSATION

STOCK COMPENSATION

Board of Directors' Stock Compensation

Members of the Board of Directors receive common shares of the Corporation equal in value to the amount of fees individually earned during the previous year for service as a director.  The common shares are distributed to the Corporation's individual Board of Directors members from treasury shares of the Corporation on or about January15 following the calendar year of service. In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $6,000 to $11,500 and $19,250 for the Chairman of the Board.  The retainer for the Chairman of the Audit Committee was also increased by an additional $2,875 to $14,375.  The directors waived their right to stock compensation for the additional retainer fees paid.

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

During January 2020, 2019, and 2018, 7,923, 8,465 and 6,015 shares, respectively, were re-issued from treasury to fund the stock component of the directors' and the Chief Executive Officer’s compensation.  An expense of $350 thousand, $357 thousand and $301 thousand related to this compensation was recognized during the years ended December 31, 2019, 2018 and 2017, respectively.  This expense is accrued as shares are earned.

Restricted Stock Plan

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

A summary of restricted stock activity as of December 31, 2019, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2018	29,694		$	40.81
Granted	13,692		44.75
Vested	(9,811	)	38.01
Forfeited or Cancelled	—		—
Nonvested at December 31, 2019	33,575		$	43.24

As of December 31, 2019, there was $1.3 million 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 3.53 years.  The total fair value of shares vested during the years ended December 31, 2019, 2018 and 2017 were $438 thousand, $432 thousand and $382 thousand, respectively.

XML

FAIR VALUES

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

FAIR VALUES

FAIR VALUES

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) 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:

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 non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded 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 credit risk participations are based on credit default rate assumptions (Level 3 inputs).

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

			Fair Value Measurement at December 31, 2019 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	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	225,234		—		225,234		—
Obligations of states and political subdivisions	42,845		—		42,845		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	15,761		—		15,761		—
Total available for sale securities	$	284,090	$	—	$	284,090	$	—
Equity Investments	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

			Fair Value Measurement at December 31, 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	$	5,472	$	—	$	5,472	$	—
Mortgage-backed securities, residential	183,192		—		183,192		—
Obligations of states and political subdivisions	44,152		—		44,152		—
Corporate bonds and notes	247		—		247		—
SBA loan pools	9,195		—		9,195		—
Total available for sale securities	$	242,258	$	—	$	242,258	$	—
Equity investments	$	1,075	$	1,075	$	—	$	—
Derivative assets	3,142		—		3,142		—
Financial Liabilities:
Derivative liabilities	$	3,282	$	—	$	3,142	$	140

There were no transfers between Level 1 and Level 2 during the twelve month periods ending December 31, 2019 and 2018.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
(in thousands)	2019		2018		2019			2018
Balance of recurring Level 3 assets at January 1	$	—	$	—	$	(140	)	$	(75	)
Derivative instruments entered into	—		—		(43		)	(1		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		(182		)	(64		)
Balance of recurring Level 3 assets at December 31	$	—	$	—	$	(365	)	$	(140	)

The following table presents information related to Level 3 recurring fair value measurement at December 31, 2019 and December 31, 2018 (in thousands):

Description	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Derivative liabilities	$	365	Historical trend	Credit default rate	7.30% - 7.30% [7.30%]

Description	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018
Derivative liabilities	$	140	Historical trend	Credit default rate	7.46% - 7.46% [7.46%]

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

			Fair Value Measurement at December 31, 2019 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	284		—		—		284		(12		)
Consumer loans:
Home equity lines and loans	122		—		—		122		—
Total other real estate owned, net	$	517	$	—	$	—	$	517	$	(12	)

			Fair Value Measurement at December 31, 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 mortgages:
Commercial mortgages	$	1,456	—		—		$	1,456	$	240
Total impaired loans	$	1,456	$	—	$	—	$	1,456	$	240
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	213	$	—	$	—	$	213	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	157		—		—		157		(14		)
Total other real estate owned, net	$	574	$	—	$	—	$	574	$	(14	)

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2019 and 2018 (in thousands):

Asset	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.00% - 10.00% [10.00%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	284		Sales comparison	Discount to appraised value	20.80% - 35.29% [24.09%]
Consumer loans:
Home equity lines and loans	122		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	517

Asset	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018.
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,456	Sales comparison	Discount to appraised value	11.76% - 11.76% [11.76%]
	$	1,456
OREO:
Commercial mortgages:
Commercial mortgages	$	213	Sales comparison	Discount to appraised value	10.00% - 24.80% [17.72%]
Residential mortgages	204		Sales comparison	Discount to appraised value	20.80% - 39.78% [22.94%]
Consumer loans:
Home equity lines and loans	157		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	574

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at December 31, 2019 and December 31, 2018, are as follows (in thousands):

			Fair Value Measurements at December 31, 2019 Using
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	25,203	$	25,203	$	—	$	—	$	25,203
Interest-bearing deposits in other financial institutions	96,701		96,701		—		—		96,701
Equity investments	2,174		2,174		—		—		2,174
Securities available for sale	284,090		—		284,090		—		284,090
Securities held to maturity	3,115		—		2,094		1,045		3,139
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,286,926		—		—		1,285,215		1,285,215
Accrued interest receivable	4,633		63		885		3,685		4,633
Derivative assets	6,466		—		6,466		—		6,466
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,410,962	$	1,410,962	$	—	$	—	$	1,410,962
Time deposits	161,176		—		163,761		—		163,761
Accrued interest payable	299		27		272		—		299
Derivative liabilities	6,831		—		6,466		365		6,831

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

			Fair Value Measurements at December 31, 2018 Using
Financial Assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	33,040	$	33,040	$	—	$	—	$	33,040
Interest-bearing deposits in other financial institutions	96,932		96,932		—		—		96,932
Equity investments	1,909		1,909		—		—		1,909
Securities available for sale	242,258		—		242,258		—		242,258
Securities held to maturity	4,875		—		1,838		3,020		4,858
FHLBNY and FRBNY stock	3,138		—		—		—		N/A
Loans, net and loans held for sale	1,293,464		—		—		1,287,495		1,287,495
Accrued interest receivable	4,480		80		697		3,703		4,480
Derivative assets	3,142		—		3,142		—		3,142
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,419,011	$	1,419,011	$	—	$	—	$	1,419,011
Time deposits	150,226		—		150,938		—		150,938
Securities sold under agreements to repurchase	—		—		—		—		—
FHLBNY overnight advances	—		—		—		—		—
FHLBNY term advances	—		—		—		—		—
Accrued interest payable	232		26		206		—		232
Derivative liabilities	3,282		—		3,142		140		3,282

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

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FAIR VALUES (Tables)

12 Months Ended

Dec. 31, 2019

Fair Value Disclosures [Abstract]

Summary of Assets and Liabilities Measured at Fair Value on Recurring Basis

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

			Fair Value Measurement at December 31, 2019 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	$	—	$	—	$	—	$	—
Mortgage-backed securities, residential	225,234		—		225,234		—
Obligations of states and political subdivisions	42,845		—		42,845		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	15,761		—		15,761		—
Total available for sale securities	$	284,090	$	—	$	284,090	$	—
Equity Investments	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

			Fair Value Measurement at December 31, 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	$	5,472	$	—	$	5,472	$	—
Mortgage-backed securities, residential	183,192		—		183,192		—
Obligations of states and political subdivisions	44,152		—		44,152		—
Corporate bonds and notes	247		—		247		—
SBA loan pools	9,195		—		9,195		—
Total available for sale securities	$	242,258	$	—	$	242,258	$	—
Equity investments	$	1,075	$	1,075	$	—	$	—
Derivative assets	3,142		—		3,142		—
Financial Liabilities:
Derivative liabilities	$	3,282	$	—	$	3,142	$	140

Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
(in thousands)	2019		2018		2019			2018
Balance of recurring Level 3 assets at January 1	$	—	$	—	$	(140	)	$	(75	)
Derivative instruments entered into	—		—		(43		)	(1		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		(182		)	(64		)
Balance of recurring Level 3 assets at December 31	$	—	$	—	$	(365	)	$	(140	)

Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the year ended December 31:

	Assets (Liabilities)
	Corporate Bonds and Notes				Derivative Liabilities
(in thousands)	2019		2018		2019			2018
Balance of recurring Level 3 assets at January 1	$	—	$	—	$	(140	)	$	(75	)
Derivative instruments entered into	—		—		(43		)	(1		)
Total gains or losses for the period:
Included in earnings - other non-interest income	—		—		(182		)	(64		)
Balance of recurring Level 3 assets at December 31	$	—	$	—	$	(365	)	$	(140	)

Information Related To Level 3 Non-Recurring Fair Value Measurement

The following table presents information related to Level 3 recurring fair value measurement at December 31, 2019 and December 31, 2018 (in thousands):

Description	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Derivative liabilities	$	365	Historical trend	Credit default rate	7.30% - 7.30% [7.30%]

Description	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018
Derivative liabilities	$	140	Historical trend	Credit default rate	7.46% - 7.46% [7.46%]

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

			Fair Value Measurement at December 31, 2019 Using
Financial Assets:	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,597	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	284		—		—		284		(12		)
Consumer loans:
Home equity lines and loans	122		—		—		122		—
Total other real estate owned, net	$	517	$	—	$	—	$	517	$	(12	)

			Fair Value Measurement at December 31, 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 mortgages:
Commercial mortgages	$	1,456	—		—		$	1,456	$	240
Total impaired loans	$	1,456	$	—	$	—	$	1,456	$	240
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	213	$	—	$	—	$	213	$	—
Residential mortgages	204		—		—		204		—
Consumer loans:
Home equity lines and loans	157		—		—		157		(14		)
Total other real estate owned, net	$	574	$	—	$	—	$	574	$	(14	)

The following table presents information related to Level 3 non-recurring fair value measurement at December 31, 2019 and 2018 (in thousands):

Asset	Fair Value at December 31, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2019
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.00% - 10.00% [10.00%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	284		Sales comparison	Discount to appraised value	20.80% - 35.29% [24.09%]
Consumer loans:
Home equity lines and loans	122		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	517

Asset	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018.
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,456	Sales comparison	Discount to appraised value	11.76% - 11.76% [11.76%]
	$	1,456
OREO:
Commercial mortgages:
Commercial mortgages	$	213	Sales comparison	Discount to appraised value	10.00% - 24.80% [17.72%]
Residential mortgages	204		Sales comparison	Discount to appraised value	20.80% - 39.78% [22.94%]
Consumer loans:
Home equity lines and loans	157		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	574

Carrying Value and Estimated Fair Value of Other Financial Instruments

The carrying amounts and estimated fair values of other financial instruments, at December 31, 2019 and December 31, 2018, are as follows (in thousands):

			Fair Value Measurements at December 31, 2019 Using
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	25,203	$	25,203	$	—	$	—	$	25,203
Interest-bearing deposits in other financial institutions	96,701		96,701		—		—		96,701
Equity investments	2,174		2,174		—		—		2,174
Securities available for sale	284,090		—		284,090		—		284,090
Securities held to maturity	3,115		—		2,094		1,045		3,139
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,286,926		—		—		1,285,215		1,285,215
Accrued interest receivable	4,633		63		885		3,685		4,633
Derivative assets	6,466		—		6,466		—		6,466
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,410,962	$	1,410,962	$	—	$	—	$	1,410,962
Time deposits	161,176		—		163,761		—		163,761
Accrued interest payable	299		27		272		—		299
Derivative liabilities	6,831		—		6,466		365		6,831

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

			Fair Value Measurements at December 31, 2018 Using
Financial Assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	33,040	$	33,040	$	—	$	—	$	33,040
Interest-bearing deposits in other financial institutions	96,932		96,932		—		—		96,932
Equity investments	1,909		1,909		—		—		1,909
Securities available for sale	242,258		—		242,258		—		242,258
Securities held to maturity	4,875		—		1,838		3,020		4,858
FHLBNY and FRBNY stock	3,138		—		—		—		N/A
Loans, net and loans held for sale	1,293,464		—		—		1,287,495		1,287,495
Accrued interest receivable	4,480		80		697		3,703		4,480
Derivative assets	3,142		—		3,142		—		3,142
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,419,011	$	1,419,011	$	—	$	—	$	1,419,011
Time deposits	150,226		—		150,938		—		150,938
Securities sold under agreements to repurchase	—		—		—		—		—
FHLBNY overnight advances	—		—		—		—		—
FHLBNY term advances	—		—		—		—		—
Accrued interest payable	232		26		206		—		232
Derivative liabilities	3,282		—		3,142		140		3,282

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

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STOCK COMPENSATION (Tables)

12 Months Ended

Dec. 31, 2019

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

Summary of Restricted Stock Activity

A summary of restricted stock activity as of December 31, 2019, and changes during the year ended is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at December 31, 2018	29,694		$	40.81
Granted	13,692		44.75
Vested	(9,811	)	38.01
Forfeited or Cancelled	—		—
Nonvested at December 31, 2019	33,575		$	43.24

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FAIR VALUES - Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($)	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financial assets:
Cash and due from financial institutions	$ 25,203,000	$ 33,040,000
Interest-earning deposits in other financial institutions	96,701,000	96,932,000
Securities available for sale	284,090,000	242,258,000
Securities held to maturity	3,115,000	4,875,000
Loans, net and loans held for sale	1,312,903,000	1,315,609,000
Accrued interest receivable	3,684,000	3,703,000
Deposits:
Time deposits	161,176,000	150,226,000
Securities sold under agreements to repurchase	0	0	$ 10,000,000
Carrying Amount
Financial assets:
Cash and due from financial institutions	25,203,000	33,040,000
Interest-earning deposits in other financial institutions	96,701,000	96,932,000
Equity investments	2,174,000	1,909,000
Securities available for sale	284,090,000	242,258,000
Securities held to maturity	3,115,000	4,875,000
FHLBNY and FRBNY stock	3,099,000	3,138,000
Loans, net and loans held for sale	1,286,926,000	1,293,464,000
Accrued interest receivable	4,633,000	4,480,000
Derivative assets	6,466,000	3,142,000
Deposits:
Demand, savings, and insured money market accounts	1,410,962,000	1,419,011,000
Time deposits	161,176,000	150,226,000
Securities sold under agreements to repurchase		0
FHLBNY overnight advances		0
FHLBNY term advances		0
Accrued interest payable	299,000	232,000
Derivative liabilities	6,831,000	3,282,000
Estimated Fair Value
Financial assets:
Cash and due from financial institutions	25,203,000	33,040,000
Interest-earning deposits in other financial institutions	96,701,000	96,932,000
Equity investments	2,174,000	1,909,000
Securities available for sale	284,090,000	242,258,000
Securities held to maturity	3,139,000	4,858,000
Loans, net and loans held for sale	1,285,215,000	1,287,495,000
Accrued interest receivable	4,633,000	4,480,000
Derivative assets	6,466,000	3,142,000
Deposits:
Demand, savings, and insured money market accounts	1,410,962,000	1,419,011,000
Time deposits	163,761,000	150,938,000
Securities sold under agreements to repurchase		0
FHLBNY overnight advances		0
FHLBNY term advances		0
Accrued interest payable	299,000	232,000
Derivative liabilities	6,831,000	3,282,000
Estimated Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and due from financial institutions	25,203,000	33,040,000
Interest-earning deposits in other financial institutions	96,701,000	96,932,000
Equity investments	2,174,000	1,909,000
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
Accrued interest receivable	63,000	80,000
Derivative assets	0	0
Deposits:
Demand, savings, and insured money market accounts	1,410,962,000	1,419,011,000
Time deposits	0	0
Securities sold under agreements to repurchase		0
FHLBNY overnight advances		0
FHLBNY term advances		0
Accrued interest payable	27,000	26,000
Derivative liabilities	0	0
Estimated Fair Value | Significant Other Observable Inputs (Level 2)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Equity investments	0	0
Securities available for sale	284,090,000	242,258,000
Securities held to maturity	2,094,000	1,838,000
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	0	0
Accrued interest receivable	885,000	697,000
Derivative assets	6,466,000	3,142,000
Deposits:
Demand, savings, and insured money market accounts	0	0
Time deposits	163,761,000	150,938,000
Securities sold under agreements to repurchase		0
FHLBNY overnight advances		0
FHLBNY term advances		0
Accrued interest payable	272,000	206,000
Derivative liabilities		3,142,000
Estimated Fair Value | Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Equity investments	0	0
Securities available for sale	0	0
Securities held to maturity	1,045,000	3,020,000
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	1,285,215,000	1,287,495,000
Accrued interest receivable	3,685,000	3,703,000
Derivative assets	0	0
Deposits:
Demand, savings, and insured money market accounts	0	0
Time deposits	0	0
Securities sold under agreements to repurchase		0
FHLBNY overnight advances		0
FHLBNY term advances		0
Accrued interest payable	$ 0	0
Derivative liabilities		$ 140,000

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SECURITIES - Securities Pledged (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Financial Instruments Owned and Pledged as Collateral [Line Items]
Fair value of securities pledged to secure public funds on deposit or for other purposes	$ 205.9	$ 212.7
Cephas Capital Partners, L.P.
Financial Instruments Owned and Pledged as Collateral [Line Items]
Equity method investments	$ 0.3	$ 0.4

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Receivables Past Due (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	$ 18,008	$ 12,254
Loans Past Due 90 Days or More and Still Accruing	7	19
Past due	14,370	14,367
Loans Not Past Due	1,298,533	1,301,242
Total ending loans balance	1,312,903	1,315,609
30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	4,672	10,688
60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,668	1,207
90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	8,029	2,472
Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	230,922	203,412
Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	650,570	662,988
Residential Mortgages
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	2,155	2,655
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	2,775	3,746
Loans Not Past Due	186,099	179,479
Total ending loans balance	188,874	183,225
Residential Mortgages | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,016	2,204
Residential Mortgages | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	803	516
Residential Mortgages | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	956	1,026
Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Total ending loans balance	242,537	265,984
Construction | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	80	109
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	0	0
Loans Not Past Due	44,082	54,626
Total ending loans balance	44,082	54,626
Construction | Commercial mortgages: | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Construction | Commercial mortgages: | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Construction | Commercial mortgages: | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Commercial mortgages | Commercial mortgages:
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	8,407	5,529
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	2,883	6,600
Loans Not Past Due	603,605	601,762
Total ending loans balance	606,488	608,362
Commercial mortgages | Commercial mortgages: | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	440	6,273
Commercial mortgages | Commercial mortgages: | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	277	158
Commercial mortgages | Commercial mortgages: | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	2,165	169
Credit cards | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	0	0
Loans Past Due 90 Days or More and Still Accruing	0	9
Past due	0	13
Loans Not Past Due	0	1,437
Total ending loans balance	0	1,450
Credit cards | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	1
Credit cards | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	3
Credit cards | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	9
Home equity lines and loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	641	1,183
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	653	1,106
Loans Not Past Due	91,412	97,360
Total ending loans balance	92,065	98,466
Home equity lines and loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	353	279
Home equity lines and loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	151	97
Home equity lines and loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	149	730
Indirect Consumer Loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	571	693
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	2,278	2,266
Loans Not Past Due	133,088	147,540
Total ending loans balance	135,366	149,806
Indirect Consumer Loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,546	1,511
Indirect Consumer Loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	377	319
Indirect Consumer Loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	355	436
Direct consumer loans | Consumer Loans
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	7	37
Loans Past Due 90 Days or More and Still Accruing	0	0
Past due	49	204
Loans Not Past Due	15,057	16,058
Total ending loans balance	15,106	16,262
Direct consumer loans | Consumer Loans | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	32	120
Direct consumer loans | Consumer Loans | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	11	53
Direct consumer loans | Consumer Loans | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	6	31
Commercial and industrial | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Non-accrual	6,147	2,048
Loans Past Due 90 Days or More and Still Accruing	7	10
Past due	5,732	416
Loans Not Past Due	224,916	202,667
Total ending loans balance	230,648	203,083
Commercial and industrial | Commercial, and Agricultural | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	1,285	284
Commercial and industrial | Commercial, and Agricultural | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	49	61
Commercial and industrial | Commercial, and Agricultural | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	4,398	71
Agricultural | Commercial, and Agricultural
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	16
Loans Not Past Due	274	313
Total ending loans balance	274	329
Agricultural | Commercial, and Agricultural | 30 - 59 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	16
Agricultural | Commercial, and Agricultural | 60 - 89 Days Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	0	0
Agricultural | Commercial, and Agricultural | 90 Days or More Past Due
Financing Receivable, Recorded Investment, Past Due [Line Items]
Past due	$ 0	$ 0

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PREMISES AND EQUIPMENT PREMISES AND EQUIPMENT - Leases in Premises and Equipment (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Property, Plant and Equipment [Abstract]
Buildings	$ 5,572	$ 5,572
Less: accumulated depreciation	(1,541)	(1,208)
Net book value	$ 4,031	$ 4,364

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PENSION PLAN AND OTHER BENEFIT PLANS

12 Months Ended

Dec. 31, 2019

Retirement Benefits [Abstract]

PENSION PLAN AND OTHER BENEFIT PLANS

PENSION PLAN AND OTHER BENEFIT PLANS

Pension Plan

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

New employees hired on or after the July 10, 2010 were not eligible to participate in the plan, however, existing participants at that time continued to accrue benefits.  On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments. A payout to participants of $3.3 million during the year ended December 31, 2018 is reflected in the projected benefit obligation and fair value of assets tables presented below. A settlement charge of $828 thousand has been recognized during the year ended December 31, 2018 in order to accelerate the recognition of a portion of the plan's unrecognized net loss.

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

The following table presents (1) changes in the plan's projected benefit obligation and plan assets, and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	36,022		$	42,240
Interest cost	1,522			1,551
Actuarial (gain) loss	4,474			(2,491		)
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Benefit obligation at end of year	$	39,886		$	36,022

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	41,476		$	46,672
Actual return on plan assets	6,213			82
Employer contributions	—			—
Settlements	—			(3,288		)
Benefits paid	(2,132		)	(1,990		)
Fair value of plan assets at end of year	$	45,557		$	41,476
Funded status	$	5,671		$	5,454

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	9,352	$	9,075
Prior service cost	—		—
Total before tax effects	$	9,352	$	9,075

The accumulated benefit obligation at December 31, 2019 and 2018 was $39.9 million and $36.0 million, respectively.

The principal actuarial assumptions used in determining the projected benefit obligation as of December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

Components of net periodic benefit cost and other amounts recognized in other comprehensive income (loss) in 2019, 2018 and 2017 consist of the following (in thousands):

Net periodic benefit cost	2019			2018			2017
Service cost, benefits earned during the year	$	—		$	—		$	—
Interest cost on projected benefit obligation	1,522			1,551			1,646
Expected return on plan assets	(2,221		)	(3,309		)	(3,144		)
Amortization of net loss	204			188			267
Amortization of  prior service cost	—			—			—
Recognized (gain) loss due to settlements	—			828			—
Net periodic cost (benefit)	$	(495	)	$	(742	)	$	(1,231	)

Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	481		$	736		$	(1,165	)
Recognized loss	(204		)	(1,016		)	(267		)
Amortization of prior service cost	—			—			—
Total recognized in other comprehensive income (loss) (before tax effect)	$	277		$	(280	)	$	(1,432	)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$	(218	)	$	(1,022	)	$	(2,663	)

During 2019, the plan's total unrecognized net loss increased by $0.3 million.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the projected benefit obligation or 10% of the plan assets, and the plan is frozen, the excess will be amortized over the average future life expectancy of all plan participants. Prior to the plan freeze on December 31, 2016, the excess had been amortized over the average future working lifetime of all plan participants. As of January 1, 2019, the average expected future life expectancy of all participants which was 24.54 years. Actual results for 2020 will depend on the 2020 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	196
Prior service cost recognition	$	—

The principal actuarial assumptions used in determining the net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 were as follows:

	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Expected long-term rate of return on assets	5.50	%	7.25	%	7.75	%
Assumed rate of future compensation increase	N/A		N/A		N/A

The Corporation changes important assumptions whenever changing conditions warrant.  At December 31, 2019 the Corporation used IRS Static 2020 Mortality Table with Mortality Improvement Scale 2020 (MP-2020) as a basis for the Plan's valuation. At December 31, 2018, the Corporation used IRS Static 2019 Mortality Table as a basis for the Plan's valuation. The discount rate is evaluated at least annually and the expected long-term return on plan assets will typically be revised every three to five years, or as conditions warrant. 

The Corporation's overall investment strategy is to achieve a mix of investments for long-term growth and for near-term benefit payments with a wide diversification of asset types.  The target allocations for plan assets are shown in the table below. Equity securities primarily include investments in common or preferred shares of both U.S. and international companies. Debt securities include U.S. Treasury and Government bonds as well as U.S. Corporate bonds.  Other investments may consist of mutual funds, money market funds and cash & cash equivalents.  While no significant changes in the asset allocations are expected during 2020, the Corporation may make changes at any time.

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

Asset Class	Target Allocation 2019	Percentage of Plan Assets at December 31,				Expected Long-Term Rate of Return
		2019		2018
Large cap domestic equities	20% - 50%	38	%	38	%	7.5	%
Mid-cap domestic equities	0% - 15%	2	%	2	%	9.5	%
Small-cap domestic equities	0% - 10%	2	%	6	%	7.8	%
International equities	0% - 20%	8	%	4	%	4.7	%
Intermediate fixed income	30% - 70%	45	%	37	%	4.6	%
Alternative assets	0% - 10%	—	%	—	%	—	%
Cash	0% - 20%	5	%	13	%	1.3	%
Total		100	%	100	%

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

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

As of December 31, 2019 and 2018, the Corporation's pension plan did not hold any direct investment in the Corporation's common stock.

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

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

The fair values for investment securities are determined by quoted market prices, if available (Level 1).  For securities where quoted prices are not available, fair values are calculated based on market prices of similar securities (Level 2).  For securities where quoted prices or market prices of similar securities are not available, fair values are calculated using discounted cash flows or other market indicators (Level 3).

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

The fair value of the plan assets at December 31, 2019 and 2018, by asset class are as follows (in thousands):

			Fair Value Measurement at December 31, 2019 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	2,210	$	2,210	$	—	$	—
Equity securities:
U.S. companies	17,939		17,939		—		—
International companies	—				—		—
Mutual funds	21,328		21,328		—		—
Debt securities:
U.S. Treasuries/Government bonds	3,054		—		3,054		—
U.S. Corporate bonds	1,026		—		1,026		—
Total plan assets	$	45,557	$	41,477	$	4,080	$	—

			Fair Value Measurement at December 31, 2018 Using
Plan Assets	Carrying Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Cash	$	5,476	$	5,476	$	—	$	—
Equity securities:
U.S. companies	16,244		16,244		—		—
International companies	—		—		—		—
Mutual funds	16,242		16,242		—		—
Debt securities:
U.S. Treasuries/Government bonds	2,031		—		2,031		—
U.S. Corporate bonds	1,483		—		1,483		—
Total plan assets	$	41,476	$	37,962	$	3,514	$	—

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

Calendar Year	Future Expected Benefit Payments
2020	$	2,223
2021	$	2,240
2022	$	2,251
2023	$	2,251
2024	$	2,269
2025-2029	$	11,350

The Corporation does not expect to contribute to the plan during 2020.  Funding requirements for subsequent years are uncertain and will significantly depend on changes in assumptions used to calculate plan funding levels, the actual return on plan assets, changes in the employee groups covered by the plan, and any legislative or regulatory changes affecting plan funding requirements.

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

Defined Contribution Profit Sharing, Savings and Investment Plan

On October 20, 2016, the Bank amended its defined contribution profit sharing, savings, and investment plan for all active participants to supersede the current contribution formula used by the Plan, which included eliminating the 1000 hours of service requirement to participate in employer contributions.  Beginning on January 1, 2017, the Bank began contributing a non-discretionary 3% of gross annual wages for each participant, regardless of the participant’s deferral, and eliminated discretionary contributions for participants hired prior to July 1, 2010.  Additionally, beginning January 1, 2017 the Bank began contributing a 50% match up to 6% of gross annual wages.

Expense related to both plans totaled $1.3 million, $1.2 million, and $1.16 million for the years ended December 31, 2019, 2018 and 2017, respectively.  The plan's assets at December 31, 2019, 2018 and 2017 include 155,696, 148,716, and 155,336 shares, respectively, of Chemung Financial Corporation common stock, as well as other common and preferred stocks, U.S. Government securities, corporate bonds and notes, and mutual funds.

Defined Benefit Health Care Plan

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

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

The following table presents (1) changes in the plan's accumulated postretirement benefit obligation and (2) the plan's funded status at December 31, 2019 and 2018 (in thousands):

Changes in accumulated postretirement benefit obligation:	2019			2018
Accumulated postretirement benefit obligation - beginning of year	$	363		$	441
Service cost	—			—
Interest cost	16			16
Participant contributions	49			73
Amendments	—			—
Actuarial (gain) loss	31			22
Benefits paid	(127		)	(189		)
Accumulated postretirement benefit obligation at end of year	$	332		$	363

Change in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contribution	78			116
Plan participants’ contributions	49			73
Benefits paid	(127		)	(189		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(332	)	$	(363	)

Amount recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019			2018
Net actuarial loss	$	417		$	491
Prior service credit	(440		)	(661		)
Total before tax effects	$	(23	)	$	(170	)

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Health care cost trend: Initial (Pre-65/Post 65)	6.95% / 5.45%		6.95% / 5.45%		6.50	%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75% / 4.75%		4.75% / 4.75%		5.00	%
Year ultimate cost trend reached	2025		2024		2021

The components of net periodic postretirement benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic cost (benefit)	2019			2018			2017
Service cost	$	—		$	—		$	—
Interest cost	16			16			20
Amortization of prior service benefit	(220		)	(220		)	(220		)
Recognized actuarial loss	105			123			143
Recognized prior service benefit due to curtailments	—			—			—
Net periodic postretirement cost (benefit)	$	(99	)	$	(81	)	$	(57	)

Other changes in plan assets and benefit obligations   recognized  in other comprehensive income (loss):	2019			2018			2017
Net actuarial loss	$	31		$	22		$	98
Recognized actuarial loss	(105		)	(123		)	(143		)
Prior service credit	—			—			—
Amortization of prior service benefit	220			220			220
Total recognized in other comprehensive income (loss)(before tax effect)	$	146		$	119		$	175
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	47		$	38		$	118

During 2019 the plan's total unrecognized net loss decreased by $74 thousand.  Because the total unrecognized net gain or loss in the plan exceeds 10% of the accumulated postretirement benefit obligation, the excess will be amortized over the average future life expectancy of all plan participants.  As of January 1, 2019, the average future life expectancy of all plan participants was 5.0 years.  Previous to the plan freeze as of December 31, 2016, the amortization period was based upon average future working lifetime of active employees. Actual results for 2020 will depend on the 2020 actuarial valuation of the plan.

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	96
Prior service cost recognition	$	(220	)

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

Effect of a 1% increase in health care trend rate on:	2019		2018		2017
Benefit obligation	$	17	$	4	$	5
Total service and interest cost	$	1	$	—	$	—

Effect of a 1% decrease in health care trend rate on:	2019			2018			2017
Benefit obligation	$	(16	)	$	(4	)	$	(6	)
Total service and interest cost	$	(1	)	$	—		$	—

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Health care cost trend: Initial	6.95% / 5.45%		6.50	%	6.50	%
Health care cost tread: Ultimate	4.75% / 4.75%		5.00	%	5.00	%
Year ultimate reached	2024		2021		2020

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

Calendar Year	Future Estimated Benefit Payments
2020	$	86
2021	$	50
2022	$	37
2023	$	38
2024	$	21
2025-2029	$	87

The Corporation’s policy is to contribute the amount required to fund postretirement benefits as they become due to retirees.  The amount expected to be required in contributions to the plan during 2020 is $86 thousand.

Executive Supplemental Pension Plan

The Corporation also sponsors an Executive Supplemental Pension Plan for certain former executive officers to restore certain pension benefits that may be reduced due to limitations under the Internal Revenue Code.  The benefits under this plan are unfunded as of December 31, 2019 and 2018.

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

The following table presents Executive Supplemental Pension plan status at December 31, 2019 and 2018 (in thousands):

Change in projected benefit obligation:	2019			2018
Benefit obligation at beginning of year	$	1,179		$	1,289
Service cost	—			—
Interest cost	49			46
Actuarial (gain) loss	113			(47		)
Benefits paid	(109		)	(109		)
Projected benefit obligation at end of year	$	1,232		$	1,179

Changes in plan assets:	2019			2018
Fair value of plan assets at beginning of year	$	—		$	—
Employer contributions	109			109
Benefits paid	(109		)	(109		)
Fair value of plan assets at end of year	$	—		$	—
Unfunded status	$	(1,232	)	$	(1,179	)

Amounts recognized in accumulated other comprehensive income (loss) at December 31, 2019 and 2018 consist of the following (in thousands):

	2019		2018
Net actuarial loss	$	283	$	174
Prior service cost	—		—
Total before tax effects	$	283	$	174

Accumulated benefit obligation at December 31, 2019 and 2018 was $1.2 million and $1.2 million, respectively.

Weighted-average assumption for disclosure as of December 31:	2019		2018		2017
Discount rate	3.33	%	4.35	%	3.74	%
Assumed rate of future compensation increase	N/A		N/A		N/A

The components of net periodic benefit cost for the years ended December 31, 2019, 2018 and 2017 are as follows (in thousands):

Net periodic benefit cost	2019		2018		2017
Service cost	$	—	$	—	$	—
Interest cost	49		46		50
Recognized actuarial loss	4		7		3
Net periodic postretirement benefit cost	$	53	$	53	$	53

Other changes in plan assets and benefit obligation recognized in other comprehensive income (loss):	2019			2018			2017
Net actuarial (gain) loss	$	113		$	(47	)	$	66
Recognized actuarial loss	(4		)	(7		)	(3		)
Total recognized in other comprehensive income (loss) (before tax effect)	$	109		$	(54	)	$	63
Total recognized in net benefit cost and other comprehensive income (loss) (before tax effect)	$	162		$	(1	)	$	116

During 2019, the plan's total unrecognized net loss increased by $109 thousand. Because the unrecognized net gain or loss exceeds the greater of 10% of the projected benefit obligation or 10% of the plan assets, the excess will be amortized over the average future life expectancy of all participants. Previously, the excess had been amortized over the average future working lifetime of active participants, however, there are no longer any active participants in the plan as of January 1, 2017, so the amortization period was changed to be the average future life expectancy of all plan participants. As of January 1, 2020, the average future life expectancy of plan participants was 12.73 years.

Amounts expected to be recognized in net periodic cost during 2020 (in thousands):
Loss recognition	$	13
Prior service cost recognition	$	—

Weighted-average assumptions for net periodic cost as of December 31:	2019		2018		2017
Discount rate	4.35	%	3.74	%	4.16	%
Salary scale	N/A		N/A		N/A

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

Calendar Year	Future Estimated Benefit Payments
2020	$	109
2021	$	107
2022	$	105
2023	$	102
2024	$	99
2025-2029	$	431

The Corporation expects to contribute $110 thousand to the plan during 2020. Corporation contributions are equal to the benefit payments to plan participants.

Defined Contribution Supplemental Executive Retirement Plan

The Corporation also sponsors a Defined Contribution Supplemental Executive Retirement Plan for certain current executive officers, which was initiated in 2012.  The plan is unfunded as of December 31, 2019 and is intended to provide nonqualified deferred compensation benefits payable at retirement, disability, death or certain other events.  The accrued obligation for the plan as of December 31, 2019 and 2018 was $1.6 million and $1.2 million, respectively.  A total of $0.4 million, $0.3 million, and $0.3 million was expensed during the years ended December 31, 2019, 2018, and 2017, respectively.  In addition to each participants account being credited with the annual company contribution, each account will receive a quarterly interest credit that will equal the average yield on five year U.S. Treasury Notes.

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PARENT COMPANY FINANCIAL INFORMATION

12 Months Ended

Dec. 31, 2019

Condensed Financial Information Disclosure [Abstract]

PARENT COMPANY FINANCIAL INFORMATION

PARENT COMPANY FINANCIAL INFORMATION

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

BALANCE SHEETS - DECEMBER 31	2019		2018
Assets:
Cash on deposit with subsidiary bank	$	3,938	$	3,978
Investment in subsidiary - Chemung Canal Trust Company	175,470		158,166
Investment in subsidiary - CFS Group, Inc.	868		873
Investment in subsidiary - Chemung Risk Management, Inc.	1,954		1,748
Dividends receivable from subsidiary bank	—		—
Securities available for sale, at estimated fair value	492		554
Other assets	1,266		1,071
Total assets	$	183,988	$	166,390
Liabilities and shareholders' equity:
Dividends payable	$	1,263	$	1,254
Other liabilities	98		107
Total liabilities	1,361		1,361
Shareholders' equity:
Total shareholders' equity	182,627		165,029
Total liabilities and shareholders' equity	$	183,988	$	166,390

STATEMENTS OF INCOME - YEARS ENDED DECEMBER 31	2019			2018			2017
Dividends from subsidiary bank and non-bank	$	4,516		$	3,187		$	4,926
Interest and dividend income	9			10			10
Non-interest income	(62		)	(20		)	22
Non-interest expenses	439			477			433
Income before impact of subsidiaries' undistributed earnings	4,024			2,700			4,525
Equity in undistributed earnings of Chemung Canal Trust Company	11,220			16,670			1,939
Equity in undistributed earnings of CFS Group, Inc.	(4		)	(32		)	(42		)
Equity in undistributed earnings of Chemung Risk Management, Inc.	205			124			791
Income before income tax	15,445			19,462			7,213
Income tax benefit	(164		)	(164		)	(217		)
Net income	$	15,609		$	19,626		$	7,430

STATEMENTS OF CASH FLOWS - YEARS ENDED DECEMBER 31	2019			2018			2017
Cash flows from operating activities:
Net Income	$	15,609		$	19,626		$	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings of Chemung Canal Trust Company	(11,220		)	(16,670		)	(1,939		)
Equity in undistributed earnings of CFS Group, Inc.	4			32			42
Equity in undistributed earnings of Chemung Risk Management, Inc.	(205		)	(124		)	(791		)
Change in dividend receivable	—			1,233			(8		)
Change in other assets	(196		)	(32		)	(214		)
Change in other liabilities	(48		)	773			51
Expense related to employee stock compensation	100			89			200
Expense related to restricted stock units for directors' deferred compensation plan	42			67			98
Expense to employee restricted stock awards	503			405			210
Net cash provided by operating activities	4,589			5,399			5,079
Cash flow from financing activities:
Cash dividends paid	(5,029		)	(4,969		)	(4,919		)
Purchase of treasury stock	(185		)	(112		)	(61		)
Sale of treasury stock	585			643			582
Net cash used in financing activities	(4,629		)	(4,438		)	(4,398		)
Increase (decrease) in cash and cash equivalents	(40		)	961			681
Cash and cash equivalents at beginning of year	3,978			3,017			2,336
Cash and cash equivalents at end of year	$	3,938		$	3,978		$	3,017

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RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

12 Months Ended

Dec. 31, 2019

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS [Abstract]

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS

The Corporation was in compliance with the reserve requirement with the Federal Reserve Bank of New York as of December 31, 2019.

The Corporation also maintains a pre-funded settlement account with a financial institution in the amount of $1.6 million and $1.4 million for electronic funds transaction settlement purposes at December 31, 2019 and 2018, respectively.

The Corporation also maintains a collateral restricted account with a financial institution related to the Corporation's interest rate swap program. The account serves as collateral in the event of default on the interest rate swaps with the counterparties. The collateral held at the financial institution was $9.4 million as of December 31, 2019, and $550,000 collateral held at the financial institution as of December 31, 2018.

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LEASES

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

LEASES

LEASES

Operating Leases

The Corporation leases certain branch properties under long-term, operating lease agreements.  The leases expire at various dates through 2033 and generally include renewal options.  As of December 31, 2019, the weighted average remaining lease term was 11.2 years with a weighted average discount rate of 3.38%.  Rent expense was $1.0 million, $1.1 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements.  The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees.

Leased branch properties at December 31, 2019 and December 31, 2018 consist of the following (in thousands):

	December 31, 2019			December 31, 2018
Operating lease right-of-use asset	$	8,713		$	—
Less: accumulated amortization	(712		)	—
Operating lease right-of-use-assets, net	$	8,001		$	—

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2019 (in thousands):

Year	Amount
2020	$	932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764		)
Present value of net minimum lease payments	$	8,084

As of December 31, 2019, the Corporation had no operating leases that were signed, but had not yet commenced.

Finance Leases

The Corporation leases certain buildings under finance leases.  The lease arrangements require monthly payments through 2036. As of December 31, 2019, the weighted average remaining lease term was 13.0 years with a weighted average discount rate of 3.34%.  The Corporation has included these leases in premises and equipment as of December 31, 2019 and December 31, 2018.

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2019 (in thousands):

Year	Amount
2020	$	376
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,185
Less: amount representing interest	(1,100		)
Present value of net minimum lease payments	$	4,085

As of December 31, 2019, the Corporation had no finance leases that were signed, but had not yet commenced.

LEASES

LEASES

Operating Leases

The Corporation leases certain branch properties under long-term, operating lease agreements.  The leases expire at various dates through 2033 and generally include renewal options.  As of December 31, 2019, the weighted average remaining lease term was 11.2 years with a weighted average discount rate of 3.38%.  Rent expense was $1.0 million, $1.1 million, and $1.2 million for the years ended December 31, 2019, 2018 and 2017, respectively.  Certain leases provide for increases in future minimum annual rent payments as defined in the lease agreements.  The Corporation’s operating lease agreements contain both lease and non-lease components, which are generally accounted for separately. The Corporation’s lease agreements do not contain any residual value guarantees.

Leased branch properties at December 31, 2019 and December 31, 2018 consist of the following (in thousands):

	December 31, 2019			December 31, 2018
Operating lease right-of-use asset	$	8,713		$	—
Less: accumulated amortization	(712		)	—
Operating lease right-of-use-assets, net	$	8,001		$	—

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2019 (in thousands):

Year	Amount
2020	$	932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764		)
Present value of net minimum lease payments	$	8,084

As of December 31, 2019, the Corporation had no operating leases that were signed, but had not yet commenced.

Finance Leases

The Corporation leases certain buildings under finance leases.  The lease arrangements require monthly payments through 2036. As of December 31, 2019, the weighted average remaining lease term was 13.0 years with a weighted average discount rate of 3.34%.  The Corporation has included these leases in premises and equipment as of December 31, 2019 and December 31, 2018.

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2019 (in thousands):

Year	Amount
2020	$	376
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,185
Less: amount representing interest	(1,100		)
Present value of net minimum lease payments	$	4,085

As of December 31, 2019, the Corporation had no finance leases that were signed, but had not yet commenced.

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FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

12 Months Ended

Dec. 31, 2019

Advances from Federal Home Loan Banks [Abstract]

FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES

There were no FHLBNY fixed rate term advances and overnight advances as of December 31, 2019 and December 31, 2018.

The Corporation has pledged $170.0 million and $132.5 million of first mortgage loans under a blanket lien arrangement at December 31, 2019 and 2018, respectively, as collateral for future borrowings.  Based on this collateral and the Corporation’s holdings of FHLBNY stock, the Corporation is eligible to borrow up to a total of $141.8 million at December 31, 2019.

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DEPOSITS (Tables)

12 Months Ended

Dec. 31, 2019

Deposits [Abstract]

Summary of Deposits

A summary of deposits at December 31, 2019 and 2018 is as follows (in thousands):

	2019		2018
Non-interest-bearing demand deposits	$	468,238	$	484,433
Interest-bearing demand deposits	200,089		179,603
Insured money market accounts	530,242		537,948
Savings deposits	212,393		217,027
Time deposits	161,176		150,226
Total	$	1,572,138	$	1,569,237

Scheduled Maturities of Time Deposits

Scheduled maturities of time deposits at December 31, 2019, are summarized as follows (in thousands):

Year	Maturities
2020	$	81,015
2021	18,939
2022	42,040
2023	13,091
2024	2,968
2025	3,123
Total	$	161,176

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LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

12 Months Ended

Dec. 31, 2019

Loans and Leases Receivable Disclosure [Abstract]

Composition of Loan Portfolio by Type

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

	December 31, 2019		December 31, 2018
Commercial and agricultural:
Commercial and industrial	$	230,018	$	202,526
Agricultural	274		328
Commercial mortgages:
Construction	43,962		54,476
Commercial mortgages	604,832		606,694
Residential mortgages	188,338		182,724
Consumer loans:
Credit cards	—		1,449
Home equity lines and loans	91,784		98,145
Indirect consumer loans	134,973		149,380
Direct consumer loans	15,038		16,184
Total loans, net of deferred loan fees	1,309,219		1,311,906
Interest receivable on loans	3,684		3,703
Total recorded investment in loans	$	1,312,903	$	1,315,609

Allowance for Loan Losses by Portfolio Segment

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017, respectively (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944
Charge Offs:	(312		)	(1		)	(151		)	(1,511		)	(1,975		)
Recoveries:	59			4			45			456			564
Net (charge offs) recoveries	(253		)	3			(106		)	(1,055		)	(1,411		)
Provision	5,097			682			132			34			5,945
Ending balance	$	10,227		$	8,869		$	1,252		$	3,130		$	23,478

	December 31, 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		)	(213		)	(226		)	(1,836		)	(5,919		)
Recoveries:	47			3			5			494			549
Net recoveries (charge offs)	(3,597		)	(210		)	(221		)	(1,342		)	(5,370		)
Provision	2,004			(120		)	131			1,138			3,153
Ending balance	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944

	December 31, 2017
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253
Charge Offs:	(96		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net recoveries (charge offs)	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

Allowance for Loan Losses and Recorded Investment in Loans Based on Impairment Method

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,000	$	2,097	$	—	$	—	$	8,097
Collectively evaluated for impairment	4,227		6,772		1,252		3,130		15,381
Total ending allowance balance	$	10,227	$	8,869	$	1,252	$	3,130	$	23,478

	December 31, 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	$	1,743	$	446	$	—	$	—	$	2,189
Collectively evaluated for impairment	3,640		7,738		1,226		4,151		16,755
Total ending allowance balance	$	5,383	$	8,184	$	1,226	$	4,151	$	18,944

	December 31, 2019
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,147	$	8,844	$	525	$	149	$	15,665
Loans collectively evaluated for impairment	224,775		641,726		188,349		242,388		1,297,238
Total ending loans balance	$	230,922	$	650,570	$	188,874	$	242,537	$	1,312,903

	December 31, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,128	$	6,146	$	402	$	55	$	8,731
Loans collectively evaluated for impairment	201,284		656,842		182,823		265,929		1,306,878
Total ending loans balance	$	203,412	$	662,988	$	183,225	$	265,984	$	1,315,609

Summary of Impaired Financing Receivables

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2019 and December 31, 2018, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2019, 2018 and 2017 (in thousands):

	December 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	133	$	133	$	—	$	345	$	346	$	—
Commercial mortgages:
Construction	247		247		—		307		308		—
Commercial mortgages	3,501		3,503		—		4,007		3,935		—
Residential mortgages	554		525		—		424		402		—
Consumer loans:
Home equity lines and loans	171		149		—		54		55		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	6,013		6,014		6,000		1,780		1,782		1,743
Commercial mortgages:
Commercial mortgages	5,093		5,094		2,097		1,902		1,903		446
Consumer loans:
Home equity lines and loans	—		—		—		—		—		—
Total	$	15,712	$	15,665	$	8,097	$	8,819	$	8,731	$	2,189

	December 31, 2019				December 31, 2018				December 31, 2017
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	248	$	—	$	608	$	12	$	706	$	35
Commercial mortgages:
Construction	278		10		337		11		830		12
Commercial mortgages	3,605		12		4,193		21		5,606		78
Residential mortgages	422		44		416		7		418		8
Consumer loans:
Home equity lines & loans	137		6		60		3		74		3
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,209		—		3,043		3		1,170		6
Commercial mortgages:
Commercial mortgages	6,524		—		2,315		4		3,751		12
Consumer loans:
Home equity lines and loans	—		—		—		—		144		—
Total	$	14,423	$	72	$	10,972	$	61	$	12,699	$	154

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

Recorded Investment in Past Due and Non-Accrual Status by Class of Loans

The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2019 and December 31, 2018 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2019		2018		2019		2018
Commercial and agricultural:
Commercial and industrial	$	6,147	$	2,048	$	7	$	10
Commercial mortgages:
Construction	80		109		—		—
Commercial mortgages	8,407		5,529		—		—
Residential mortgages	2,155		2,655		—		—
Consumer loans:
Credit cards	—		—		—		9
Home equity lines and loans	641		1,183		—		—
Indirect consumer loans	571		693		—		—
Direct consumer loans	7		37		—		—
Total	$	18,008	$	12,254	$	7	$	19

The following tables present the aging of the recorded investment in loans as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	1,285	$	49	$	4,398	$	5,732	$	224,916	$	230,648
Agricultural	—		—		—		—		274		274
Commercial mortgages:
Construction	—		—		—		—		44,082		44,082
Commercial mortgages	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		803		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		11		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

	December 31, 2018
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	284	$	61	$	71	$	416	$	202,667	$	203,083
Agricultural	16		—		—		16		313		329
Commercial mortgages:
Construction	—		—		—		—		54,626		54,626
Commercial mortgages	6,273		158		169		6,600		601,762		608,362
Residential mortgages	2,204		516		1,026		3,746		179,479		183,225
Consumer loans:
Credit cards	1		3		9		13		1,437		1,450
Home equity lines and loans	279		97		730		1,106		97,360		98,466
Indirect consumer loans	1,511		319		436		2,266		147,540		149,806
Direct consumer loans	120		53		31		204		16,058		16,262
Total	$	10,688	$	1,207	$	2,472	$	14,367	$	1,301,242	$	1,315,609

Loans by Class Modified as Troubled Debt Restructurings

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2019, 2018 and 2017 (in thousands):

December 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	1	4,223		4,223
Residential mortgages	1	123		123
Consumer loans:
Home equity lines and loans	1	137		137
Total	3	$	4,483	$	4,483

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no charge offs during the year ended December 31, 2019.

December 31, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	491	$	491
Total	2	$	491	$	491

The TDRs described above increased the allowance for loan losses by $0.4 million and resulted in no charge offs during the year ended December 31, 2018.

December 31, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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

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 troubled debt restructurings during the year ended December 31, 2019, and 2018, within twelve months following the modification.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017:

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

Risk Category of Recorded Investment of Loans by Class of Loans

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2019 and 2018, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	—		274		—		—		—		274
Commercial mortgages:
Construction	—		40,304		168		3,610		—		44,082
Commercial mortgages	—		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719				—		2,155		—		188,874
Consumer loans
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		—		—		641		—		92,065
Indirect consumer loans	134,795		—		—		571		—		135,366
Direct consumer loans	15,099		—		—		7		—		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903

	December 31, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	190,666	$	4,452	$	6,222	$	1,743	$	203,083
Agricultural	—		329		—		—		—		329
Commercial mortgages:
Construction	—		54,517		—		109		—		54,626
Commercial mortgages	—		574,221		16,830		15,948		1,363		608,362
Residential mortgages	180,570		—		—		2,655		—		183,225
Consumer loans
Credit cards	1,450		—		—		—		—		1,450
Home equity lines and loans	97,283		—		—		1,183		—		98,466
Indirect consumer loans	149,113		—		—		693		—		149,806
Direct consumer loans	16,225		—		—		37		—		16,262
Total	$	444,641	$	819,733	$	21,282	$	26,847	$	3,106	$	1,315,609

Recorded Investment in Residential and Consumer Loans Based on Payment Activity

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2019 and 2018 (in thousands):

	December 31, 2019
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	186,719	$	—	$	91,424	$	134,795	$	15,099
Non-Performing	2,155		—		641		571		7
Total	$	188,874	$	—	$	92,065	$	135,366	$	15,106

	December 31, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	180,570	$	1,450	$	97,283	$	149,113	$	16,225
Non-Performing	2,655		—		1,183		693		37
Total	$	183,225	$	1,450	$	98,466	$	149,806	$	16,262

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Postretirement Benefits (Details)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2017
Pension Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Normal retirement benefit as percentage of final average compensation (in hundredths)	1.20%
Number of consecutive years considered in final average compensation	5 years
Number of prior years considered in final average compensation	10 years
Maximum service period	25 years
Normal retirement additional benefit	1.00%
Maximum additional service years	10 years
Percentage of average monthly compensation in excess of covered compensation for each year of credited service	0.65%
Maximum period of credited service	35 years
Covered compensation period	35 years
Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Contribution cost percentage	50.00%
Minimum age for eligibility before amendment	55 years
Contribution percentage before amendment	40.00%
Retiree premium percentage	100.00%
Cost of coverage contribution	50.00%
Premium contribution percentage after amendment	50.00%
Minimum | Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Retiree age group range	55 years
Maximum | Other Postretirement Benefit Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Retiree age group range	65 years
Defined Contribution Profit Sharing, Savings and Investment Plan
Defined Benefit Plans and Other Postretirement Benefit Plans Table Text Block [Line Items]
Defined contribution plan, employer non-discretionary contribution amount	3.00%
Contribution cost percentage	50.00%
Defined contribution plan, employer matching contribution, percent of employees' gross pay	6.00%
Defined contribution plan, employer contribution, vesting period		5 years

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RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
RESTRICTIONS ON CASH AND DUE FROM BANK ACCOUNTS [Abstract]
Reserve requirement	$ 1,600	$ 1,400
Derivative, collateral, obligation to return cash	$ 9,400	$ 550

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INCOME TAXES (Details) - USD ($)		12 Months Ended
	Dec. 22, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Current:
Federal		$ 4,603,000	$ 1,732,000	$ 2,594,000
State		395,000	124,000	417,000
Total current		4,998,000	1,856,000	3,011,000
Deferred expense/(benefit):
Federal		(1,126,000)	2,253,000	942,000
State		(438,000)	345,000	382,000
Remeasurement of deferred tax assets	$ 2,900,000	0	(445,000)	2,927,000
Total deferred		(1,564,000)	2,153,000	4,251,000
Income tax expense		$ 3,434,000	$ 4,009,000	$ 7,262,000
Reconciliation of income tax expense [Abstract]
Statutory federal tax rate		21.00%	21.00%	34.00%
Tax computed at statutory rate		$ 3,999,000	$ 4,963,000	$ 5,006,000
Tax-exempt income		(424,000)	(430,000)	(663,000)
831(b) premium adjustment		(189,000)	(167,000)	(269,000)
Dividend exclusion		(7,000)	(7,000)	(8,000)
State taxes, net of Federal impact		(86,000)	262,000	201,000
Nondeductible interest expense		9,000	7,000	8,000
Remeasurement of deferred tax assets		0	(445,000)	2,927,000
Other items, net		132,000	(174,000)	60,000
Income tax expense		$ 3,434,000	$ 4,009,000	$ 7,262,000
Effective tax rate		18.00%	17.00%	49.40%
Deferred tax assets:
Allowance for loan losses		$ 6,046,000	$ 4,834,000
Accrual for employee benefit plans		92,000	136,000
Depreciation			(93,000)
Depreciation		379,000
Deferred compensation and directors' fees		765,000	634,000
Operating lease liabilities		2,050,000
Purchase accounting adjustment – loans		1,000	7,000
Purchase accounting adjustment – fixed assets		149,000	149,000
Gain on deemed sale of securities		71,000	339,000
Net unrealized losses on securities available for sale		0	1,590,000
Accounting for defined benefit pension and other benefit plans		2,448,000	2,315,000
Nonaccrued interest		695,000	625,000
Accrued expense		179,000	200,000
Other items, net		38,000	153,000
Total gross deferred tax assets		12,913,000	10,889,000
Deferred tax liabilities:
Deferred loan fees and costs		592,000	640,000
Prepaid pension		3,189,000	3,141,000
Net unrealized gains on securities available for sale		468,000	0
Discount accretion		24,000	137,000
Core deposit intangible		1,213,000	1,101,000
REIT dividend		922,000	1,048,000
Operating lease right-of-use assets		2,050,000
Other		103,000	109,000
Total gross deferred tax liabilities		8,561,000	6,176,000
Net deferred tax asset		4,352,000	4,713,000
Unrecognized tax benefits		0	0	$ 0
Accrued interest or penalties related to uncertain tax positions		$ 0	$ 0	$ 0

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FAIR VALUES - Quantitative Information (Details) - Significant Unobservable Inputs (Level 3) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Liabilities, fair value, recurring	$ 365	$ 140
Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	1,554	1,456
Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	$ 517	$ 574
Residential Mortgage | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	20.80%
Residential Mortgage | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	35.29%	39.78%
Residential Mortgage | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	24.09%	22.94%
Sales Comparison | Commercial mortgages | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	$ 1,554	$ 1,456
Sales Comparison | Commercial mortgages | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	$ 111	$ 213
Sales Comparison | Commercial mortgages | Minimum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	10.00%	11.76%
Sales Comparison | Commercial mortgages | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	10.00%
Sales Comparison | Commercial mortgages | Maximum | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	10.00%	11.76%
Sales Comparison | Commercial mortgages | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	24.80%
Sales Comparison | Commercial mortgages | Weighted Average | Non-recurring | Impaired Loans
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	10.00%	11.76%
Sales Comparison | Commercial mortgages | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	17.72%
Sales Comparison | Residential Mortgage | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	$ 284	$ 204
Sales Comparison | Home equity lines and loans | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Assets, fair value, recurring	$ 122	$ 157
Sales Comparison | Home equity lines and loans | Minimum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	20.80%
Sales Comparison | Home equity lines and loans | Maximum | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	20.80%
Sales Comparison | Home equity lines and loans | Weighted Average | Non-recurring | OREO
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Fair value inputs, discount to appraised value	20.80%	20.80%
Measurement Input, Discount Rate | Minimum | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.0730	0.0746
Measurement Input, Discount Rate | Maximum | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.0730	0.0746
Measurement Input, Discount Rate | Weighted Average | Recurring | Derivative liabilities
Fair Value Inputs, Liabilities, Quantitative Information [Line Items] (Deprecated 2018-01-31)
Discount rate	0.0730	0.0746

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CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands		Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Income (Loss)
Beginning balance at Dec. 31, 2016		$ 143,748	$ 53	$ 45,603	$ 124,111	$ (15,265)	$ (10,754)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		7,430			7,430
Other comprehensive income (loss)		2,251					2,251
Restricted stock awards		210		210
Distribution of treasury stock for directors' deferred compensation plan		11		(51)		62
Distribution of shares of treasury stock granted for employee restricted stock awards, net		0		(260)		260
Restricted stock units for directors' deferred compensation plan		98		98
Cash dividends declared		(4,925)			(4,925)
Distribution of shares of treasury stock for directors' compensation		269		68		201
Distribution of shares of treasury stock for employee compensation		200		50		150
Sale of shares of treasury stock	[1]	582		206		376
Repurchase of common stock		(61)				(61)
Forfeiture of restricted stock awards		0		43		(43)
Reclassification of stranded tax effects in AOCI		0			1,837		(1,837)
Ending balance at Dec. 31, 2017		149,813	53	45,967	128,453	(14,320)	(10,340)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		19,626			19,626
Other comprehensive income (loss)		(869)					(869)
Restricted stock awards		405		405
Distribution of treasury stock for directors' deferred compensation plan		218		(722)		940
Distribution of shares of treasury stock granted for employee restricted stock awards, net		0		(370)		370
Restricted stock units for directors' deferred compensation plan		67		67
Cash dividends declared		(4,990)			(4,990)
Distribution of shares of treasury stock for directors' compensation		301		147		154
Distribution of shares of treasury stock for employee compensation		89		44		45
Sale of shares of treasury stock	[1]	643		282		361
Repurchase of common stock		(112)				(112)
Ending balance at Dec. 31, 2018		165,029	53	45,820	143,129	(12,562)	(11,411)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		15,609			15,609
Other comprehensive income (loss)		5,612					5,612
Restricted stock awards		503		503
Distribution of treasury stock for directors' deferred compensation plan		13		(52)		65
Distribution of shares of treasury stock granted for employee restricted stock awards, net		0		(353)		353
Restricted stock units for directors' deferred compensation plan		42		42
Cash dividends declared		(5,037)			(5,037)
Distribution of shares of treasury stock for directors' compensation		356		139		217
Distribution of shares of treasury stock for employee compensation		100		39		61
Sale of shares of treasury stock	[1]	585		244		341
Repurchase of common stock		(185)				(185)
Ending balance at Dec. 31, 2019		$ 182,627	$ 53	$ 46,382	$ 153,701	$ (11,710)	$ (5,799)

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

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CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
ASSETS
Cash and due from financial institutions	$ 25,203	$ 33,040
Interest-earning deposits in other financial institutions	96,701	96,932
Total cash and cash equivalents	121,904	129,972
Equity investments, at fair value	2,174	1,909
Securities available for sale, at estimated fair value	284,090	242,258
Securities held to maturity, estimated fair value of $3,139 at December 31, 2019 and $4,858 at December 31, 2018	3,115	4,875
FHLBNY and FRBNY Stock, at cost	3,099	3,138
Loans, net of deferred loan fees	1,309,219	1,311,906
Allowance for loan losses	(23,478)	(18,944)
Loans, net	1,285,741	1,292,962
Loans held for sale	1,185	502
Premises and equipment, net	22,417	24,980
Operating lease right-of-use assets	8,001	0
Goodwill	21,824	21,824
Other intangible assets, net	742	1,351
Bank owned life insurance	3,111	3,048
Accrued interest and other assets	30,424	28,524
Total assets	1,787,827	1,755,343
Deposits:
Non-interest-bearing	468,238	484,433
Interest-bearing	1,103,900	1,084,804
Total deposits	1,572,138	1,569,237
Long term capital lease obligation	4,085
Long term capital lease obligation		4,304
Operating lease liabilities	8,084
Dividends payable	1,263	1,254
Accrued interest payable and other liabilities	19,630	15,519
Total liabilities	1,605,200	1,590,314
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at December 31, 2019 and December 31, 2018	53	53
Additional-paid-in capital	46,382	45,820
Retained earnings	153,701	143,129
Treasury stock, at cost (452,641 shares at December 31, 2019; 488,844 shares at December 31, 2018)	(11,710)	(12,562)
Accumulated other comprehensive loss	(5,799)	(11,411)
Total shareholders' equity	182,627	165,029
Total liabilities and shareholders' equity	$ 1,787,827	$ 1,755,343

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($) $ in Thousands			3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 15, 2018	Mar. 23, 2016	Jun. 30, 2018	Jun. 30, 2017	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Mar. 31, 2018	Jun. 30, 2016
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations					$ 16,300
Legal accruals and settlements					$ 0	$ 989	$ 850
Pending Litigation
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations				$ 2,300					$ 1,200
Damages sought		$ 4,000
Loss contingency, accrual, noncurrent				850
Legal accruals and settlements				$ 200
Chemung Canal Trust Company
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contingent obligations								$ 2,300
Legal accruals and settlements			$ 1,000
Litigation settlement amount	$ 3,300
Minimum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments period to make fixed-rate commercial draw notes					3 months
Minimum | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Interest rate on fixed-rate commitments to make loans					3.875%
Maturity period of fixed-rate commitments to make loans					5 years
Interest rate on fixed-rate commitments to make commercial draw notes (in hundredths)					3.50%
Maximum
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Commitments period to make real estate and home equity loans					60 days
Commitments period to make fixed-rate commercial draw notes					24 months
Off-balance sheet financial instruments, standard term					12 months
Maximum | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Interest rate on fixed-rate commitments to make loans					5.875%
Maturity period of fixed-rate commitments to make loans					30 years
Interest rate on fixed-rate commitments to make commercial draw notes (in hundredths)					6.25%
Commitments to make loans | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					$ 15,560	9,137
Commitments to make loans | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					25,233	18,033
Unused lines of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					1,062	848
Unused lines of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					229,137	212,601
Standby letters of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					0	0
Standby letters of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Contractual amounts of financial instruments with off-balance sheet risk					$ 16,272	$ 16,161

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Disclosure of Repurchase Agreements [Abstract]
Securities sold under agreements to repurchase	$ 0	$ 0	$ 10,000,000
Maximum month-end balance	0	10,000,000	25,718,000
Average balance during year	$ 0	$ 3,644,000	$ 14,207,000
Weighted-average interest rate at December 31	0.00%	0.00%	3.72%
Average interest rate paid during year	0.00%	3.77%	3.37%

XML

LEASES - Maturities of Operating Lease Liabilities (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Leases [Abstract]
2020	$ 932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764)
Present value of net minimum lease payments	$ 8,084

XML

PENSION PLAN AND OTHER BENEFIT PLANS - Amounts Recognized, Assumptions Used, Target and Actual Allocation, Fair Value, Estimated Future Benefit Payments, and Other Disclosures (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	$ 626	$ 711	$ (1,001)
Recognized actuarial loss	312	318	413
Prior service credit	0	0	0
Amortization of prior service benefit	(220)	(220)	(220)
Total before tax effect	(534)	215	1,194
Pension Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	9,352	9,075
Prior service cost	0	0
Total before tax effects	9,352	9,075
Accumulated benefit obligation	39,900	36,000
Net periodic benefit cost [Abstract]
Service cost	0	0	0
Interest cost	1,522	1,551	1,646
Expected return on plan assets	(2,221)	(3,309)	(3,144)
Recognized actuarial loss	204	188	267
Amortization of prior service cost	0	0	0
Recognized (gain) loss due to settlements	0	828	0
Net periodic cost (benefit)	(495)	(742)	(1,231)
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	481	736	(1,165)
Recognized actuarial loss	(204)	(1,016)	(267)
Amortization of prior service benefit	0	0	0
Total before tax effect	277	(280)	(1,432)
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ (218)	$ (1,022)	$ (2,663)
Unrecognized net gain or loss increase threshold percentage for amortization of obligation (in hundredths)	10.00%
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 196
Prior service cost recognition	$ 0
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.35%	3.74%	4.16%
Expected long-term rate of return on assets	5.50%	7.25%	7.75%
Discount rate	3.33%	4.35%	3.74%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	100.00%	100.00%
Expected long-term rate of return on assets	5.50%	7.25%	7.75%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 45,557	$ 41,476	$ 46,672
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2020	2,223
2021	2,240
2022	2,251
2023	2,251
2024	2,269
2025-2029	$ 11,350
Pension Plan | Minimum
Effect of a 1% decrease in health care trend rate on:
Evaluation period of expected long-term return on plan assets	3 years
Pension Plan | Maximum
Effect of a 1% decrease in health care trend rate on:
Evaluation period of expected long-term return on plan assets	5 years
Pension Plan | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 45,557	41,476
Pension Plan | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	41,477	37,962
Pension Plan | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	4,080	3,514
Pension Plan | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0
Pension Plan | Large-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	7.50%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	38.00%	38.00%
Expected long-term rate of return on assets	7.50%
Pension Plan | Large-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Large-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	50.00%
Pension Plan | Mid-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	9.50%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	2.00%	2.00%
Expected long-term rate of return on assets	9.50%
Pension Plan | Mid-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Mid-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	15.00%
Pension Plan | Small-Cap Domestic Equities
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	7.80%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	2.00%	6.00%
Expected long-term rate of return on assets	7.80%
Pension Plan | Small-Cap Domestic Equities | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Small-Cap Domestic Equities | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	10.00%
Pension Plan | Equity Securities - International Companies
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	4.70%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	8.00%	4.00%
Expected long-term rate of return on assets	4.70%
Pension Plan | Equity Securities - International Companies | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Equity Securities - International Companies | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Equity Securities - International Companies | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0
Pension Plan | Equity Securities - International Companies | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets		0
Pension Plan | Equity Securities - International Companies | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - International Companies | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0
Pension Plan | Intermediate Fixed Income
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	4.60%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	45.00%	37.00%
Expected long-term rate of return on assets	4.60%
Pension Plan | Intermediate Fixed Income | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	30.00%
Pension Plan | Intermediate Fixed Income | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	70.00%
Pension Plan | Alternative Assets
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	0.00%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	0.00%	0.00%
Expected long-term rate of return on assets	0.00%
Pension Plan | Alternative Assets | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Alternative Assets | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	10.00%
Pension Plan | Cash
Weighted-average assumptions for net periodic cost [Abstract]
Expected long-term rate of return on assets	1.30%
Target allocations of plan assets [Abstract]
Percentage of plan assets (in hundredths)	5.00%	13.00%
Expected long-term rate of return on assets	1.30%
Pension Plan | Cash | Minimum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	0.00%
Pension Plan | Cash | Maximum
Target allocations of plan assets [Abstract]
Target allocation, minimum (in hundredths)	20.00%
Pension Plan | Cash | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 2,210	$ 5,476
Pension Plan | Cash | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	2,210	5,476
Pension Plan | Cash | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Cash | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - U.S. Companies | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	17,939	16,244
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	17,939	16,244
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Equity Securities - U.S. Companies | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Mutual Funds | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	21,328	16,242
Pension Plan | Mutual Funds | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	21,328	16,242
Pension Plan | Mutual Funds | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Mutual Funds | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | U.S. Treasuries/Government Bonds | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	3,054	2,031
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	3,054	2,031
Pension Plan | U.S. Treasuries/Government Bonds | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Corporate bonds and notes | Carrying Value
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	1,026	1,483
Pension Plan | Corporate bonds and notes | Fair Value | Quoted Prices in Active Markets for Identical Assets (Level 1)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Pension Plan | Corporate bonds and notes | Fair Value | Significant Other Observable Inputs (Level 2)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	1,026	1,483
Pension Plan | Corporate bonds and notes | Fair Value | Significant Unobservable Inputs (Level 3)
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	0	0
Defined Benefit Health Care Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	417	491
Prior service cost	(440)	(661)
Total before tax effects	(23)	(170)
Net periodic benefit cost [Abstract]
Service cost	0	0	0
Interest cost	16	16	20
Recognized actuarial loss	105	123	143
Recognized prior service benefit due to curtailments	0	0	0
Amortization of prior service cost	(220)	(220)	(220)
Net periodic cost (benefit)	(99)	(81)	(57)
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	(31)	(22)	(98)
Recognized actuarial loss	(105)	(123)	(143)
Prior service credit	0	0	0
Amortization of prior service benefit	220	220	220
Total before tax effect	146	119	175
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ 47	$ 38	$ 118
Average future working lifetime of active participants	5 years
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 96
Prior service cost recognition	$ (220)
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.35%	3.74%	4.16%
Discount rate	3.33%	4.35%	3.74%
Health care cost trend rate assumed, next fiscal year			6.50%
Health care cost trend: Ultimate (Pre-65/Post 65)		5.00%	5.00%
Health care cost trend: Initial		6.50%	6.50%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0	$ 0
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2020	86
2021	50
2022	37
2023	38
2024	21
2025-2029	87
Effect of a 1% increase in health care trend rate on:
Benefit obligation	17	4	5
Total service and interest cost	1	0	0
Effect of a 1% decrease in health care trend rate on:
Benefit obligation	(16)	(4)	(6)
Total service and interest cost	(1)	$ 0	0
Estimated employer contributions in next fiscal year	$ 86
Defined Benefit Health Care Plan | Minimum
Weighted-average assumptions for net periodic cost [Abstract]
Health care cost trend rate assumed, next fiscal year	6.95%	6.95%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75%	4.75%
Defined Benefit Health Care Plan | Maximum
Weighted-average assumptions for net periodic cost [Abstract]
Health care cost trend rate assumed, next fiscal year	5.45%	5.45%
Health care cost trend: Ultimate (Pre-65/Post 65)	4.75%	4.75%
Executive Supplemental Pension Plan
Amount recognized in accumulated other comprehensive income [Abstract]
Net actuarial loss	$ 283	$ 174
Prior service cost	0	0
Total before tax effects	283	174
Accumulated benefit obligation	1,200	1,200
Net periodic benefit cost [Abstract]
Service cost	0	0	0
Interest cost	49	46	50
Recognized actuarial loss	4	7	3
Net periodic cost (benefit)	53	53	53
Other changes in plan assets and benefit obligations recognized in other comprehensive income (loss): [Abstract]
Net actuarial (gain) loss	(113)	47	(66)
Recognized actuarial loss	(4)	(7)	(3)
Total before tax effect	109	(54)	63
Total recognized in net (benefit) cost and other comprehensive income (loss) (before tax effect)	$ 162	$ (1)	$ 116
Unrecognized net gain or loss increase threshold percentage for amortization of obligation (in hundredths)	10.00%
Amounts expected to be recognized in net periodic cost during next fiscal year [Abstract]
Loss recognition	$ 13
Prior service cost recognition	$ 0
Weighted-average assumptions for net periodic cost [Abstract]
Discount rate	4.35%	3.74%	4.16%
Discount rate	3.33%	4.35%	3.74%
Fair value plan assets by asset class [Abstract]
Fair value of plan assets	$ 0	$ 0	$ 0
Estimated benefit payments for each of next five years and aggregate amount expected to be paid [Abstract]
2020	109
2021	107
2022	105
2023	102
2024	99
2025-2029	431
Effect of a 1% decrease in health care trend rate on:
Estimated employer contributions in next fiscal year	$ 110

XML

ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Jan. 01, 2018
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balance	$ 165,029	$ 149,813	$ 143,748
Adjusted cumulative effect of accounting change				$ (162)
Balances as adjusted				149,651
Other comprehensive income before reclassification	5,561	(1,559)	2,200
Amounts reclassified from accumulated other comprehensive income (loss)	51	690	51
Total other comprehensive income (loss)	5,612	(869)	2,251
Stranded AOCI reclassification			0
Ending balance	182,627	165,029	149,813
Realized gains on securities available for sale	19	0	109
Income tax expense	(3,434)	(4,009)	(7,262)
Pension and other employee benefits	5,902	5,524	5,510
Net of tax	15,609	19,626	7,430
Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Net of tax	51	690	51
Total
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balance	(11,411)	(10,340)	(10,754)
Adjusted cumulative effect of accounting change				(202)
Balances as adjusted				(10,542)
Total other comprehensive income (loss)	5,612	(869)	2,251
Stranded AOCI reclassification			(1,837)
Ending balance	(5,799)	(11,411)	(10,340)
Unrealized Gains and Losses on Securities Available for Sale
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balance	(4,646)	(3,415)	(4,356)
Adjusted cumulative effect of accounting change				(202)
Balances as adjusted				(3,617)
Other comprehensive income before reclassification	6,028	(1,029)	1,578
Amounts reclassified from accumulated other comprehensive income (loss)	(14)	0	(68)
Total other comprehensive income (loss)	6,014	(1,029)	1,510
Stranded AOCI reclassification			(569)
Ending balance	1,368	(4,646)	(3,415)
Unrealized Gains and Losses on Securities Available for Sale | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Realized gains on securities available for sale	(19)	0	(109)
Income tax expense	5	0	41
Net of tax	(14)	0	(68)
Defined Benefit and Other Benefit Plans
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balance	(6,765)	(6,925)	(6,398)
Balances as adjusted				$ (6,925)
Other comprehensive income before reclassification	(467)	(530)	622
Amounts reclassified from accumulated other comprehensive income (loss)	65	690	119
Total other comprehensive income (loss)	(402)	160	741
Stranded AOCI reclassification			(1,268)
Ending balance	(7,167)	(6,765)	(6,925)
Defined Benefit and Other Benefit Plans | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Income tax expense	(27)	(236)	(74)
Net of tax	65	690	119
Net Prior Service Cost (Credit) | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Pension and other employee benefits	(220)	(220)	(220)
Net Unamortized Gain (Loss) | Reclassification out of Accumulated Other Comprehensive Income (loss)
Summary of changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Pension and other employee benefits	$ 312	$ 1,146	$ 413

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowances (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2019	Dec. 31, 2018
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	$ 18,944	$ 21,161	$ 14,253
Charge Offs	(1,975)	(5,919)	(2,571)
Recoveries	564	549	457
Net (charge offs) recoveries	(1,411)	(5,370)	(2,114)
Provision	5,945	3,153	9,022
Ending balance	23,478	18,944	21,161
Ending allowance balance attributable to loans:
Individually evaluated for impairment				$ 8,097	$ 2,189
Collectively evaluated for impairment				15,381	16,755
Allowance for loan losses	23,478	18,944	21,161	23,478	18,944
Loans:
Loans individually evaluated for impairment				15,665	8,731
Loans collectively evaluated for impairment				1,297,238	1,306,878
Total ending loans balance				1,312,903	1,315,609
Commercial, and Agricultural
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	5,383	6,976	1,589
Charge Offs	(312)	(3,644)	(96)
Recoveries	59	47	109
Net (charge offs) recoveries	(253)	(3,597)	13
Provision	5,097	2,004	5,374
Ending balance	10,227	5,383	6,976
Ending allowance balance attributable to loans:
Individually evaluated for impairment				6,000	1,743
Collectively evaluated for impairment				4,227	3,640
Allowance for loan losses	10,227	5,383	6,976	10,227	5,383
Loans:
Loans individually evaluated for impairment				6,147	2,128
Loans collectively evaluated for impairment				224,775	201,284
Total ending loans balance				230,922	203,412
Commercial mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	8,184	8,514	7,270
Charge Offs	(1)	(213)	(419)
Recoveries	4	3	5
Net (charge offs) recoveries	3	(210)	(414)
Provision	682	(120)	1,658
Ending balance	8,869	8,184	8,514
Ending allowance balance attributable to loans:
Individually evaluated for impairment				2,097	446
Collectively evaluated for impairment				6,772	7,738
Allowance for loan losses	8,869	8,184	8,514	8,869	8,184
Loans:
Loans individually evaluated for impairment				8,844	6,146
Loans collectively evaluated for impairment				641,726	656,842
Total ending loans balance				650,570	662,988
Residential Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	1,226	1,316	1,523
Charge Offs	(151)	(226)	(225)
Recoveries	45	5	30
Net (charge offs) recoveries	(106)	(221)	(195)
Provision	132	131	(12)
Ending balance	1,252	1,226	1,316
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				1,252	1,226
Allowance for loan losses	1,252	1,226	1,316	1,252	1,226
Loans:
Loans individually evaluated for impairment				525	402
Loans collectively evaluated for impairment				188,349	182,823
Total ending loans balance				188,874	183,225
Consumer Loans
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance:	4,151	4,355	3,871
Charge Offs	(1,511)	(1,836)	(1,831)
Recoveries	456	494	313
Net (charge offs) recoveries	(1,055)	(1,342)	(1,518)
Provision	34	1,138	2,002
Ending balance	3,130	4,151	4,355
Ending allowance balance attributable to loans:
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				3,130	4,151
Allowance for loan losses	$ 3,130	$ 4,151	$ 4,355	3,130	4,151
Loans:
Loans individually evaluated for impairment				149	55
Loans collectively evaluated for impairment				242,388	265,929
Total ending loans balance				$ 242,537	$ 265,984

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit Quality Indicator (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Financing Receivable, Recorded Investment [Line Items]
Number of days past due after which a retail loan is rated	90 days
Loans	$ 1,312,903	$ 1,315,609
Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	428,037	444,641
Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	826,396	819,733
Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	18,534	21,282
Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	29,701	26,847
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	10,235	3,106
Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	230,922	203,412
Commercial mortgages:
Financing Receivable, Recorded Investment [Line Items]
Loans	650,570	662,988
Commercial mortgages: | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	44,082	54,626
Commercial mortgages: | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	606,488	608,362
Commercial mortgages: | Not Rated | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Not Rated | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Pass | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	40,304	54,517
Commercial mortgages: | Pass | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	577,266	574,221
Commercial mortgages: | Special Mention | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	168	0
Commercial mortgages: | Special Mention | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	12,451	16,830
Commercial mortgages: | Substandard | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	3,610	109
Commercial mortgages: | Substandard | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	12,356	15,948
Commercial mortgages: | Doubtful | Construction
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial mortgages: | Doubtful | Commercial mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	4,415	1,363
Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	188,874	183,225
Residential Mortgages | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	186,719	180,570
Residential Mortgages | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans		0
Residential Mortgages | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Residential Mortgages | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	2,155	2,655
Residential Mortgages | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	242,537	265,984
Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	1,450
Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	92,065	98,466
Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	135,366	149,806
Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	15,106	16,262
Consumer Loans | Not Rated | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	1,450
Consumer Loans | Not Rated | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	91,424	97,283
Consumer Loans | Not Rated | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	134,795	149,113
Consumer Loans | Not Rated | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	15,099	16,225
Consumer Loans | Pass | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Pass | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Special Mention | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Substandard | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Substandard | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	641	1,183
Consumer Loans | Substandard | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	571	693
Consumer Loans | Substandard | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	7	37
Consumer Loans | Doubtful | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Consumer Loans | Doubtful | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and industrial | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	230,648	203,083
Commercial and industrial | Commercial, and Agricultural | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Commercial and industrial | Commercial, and Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	208,552	190,666
Commercial and industrial | Commercial, and Agricultural | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	5,915	4,452
Commercial and industrial | Commercial, and Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	10,361	6,222
Commercial and industrial | Commercial, and Agricultural | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	5,820	1,743
Agricultural | Commercial, and Agricultural
Financing Receivable, Recorded Investment [Line Items]
Loans	274	329
Agricultural | Commercial, and Agricultural | Not Rated
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Pass
Financing Receivable, Recorded Investment [Line Items]
Loans	274	329
Agricultural | Commercial, and Agricultural | Special Mention
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Substandard
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Agricultural | Commercial, and Agricultural | Doubtful
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Performing | Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	186,719	180,570
Performing | Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	1,450
Performing | Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	91,424	97,283
Performing | Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	134,795	149,113
Performing | Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	15,099	16,225
Non-Performing | Residential Mortgages
Financing Receivable, Recorded Investment [Line Items]
Loans	2,155	2,655
Non-Performing | Consumer Loans | Credit cards
Financing Receivable, Recorded Investment [Line Items]
Loans	0	0
Non-Performing | Consumer Loans | Home equity lines and loans
Financing Receivable, Recorded Investment [Line Items]
Loans	641	1,183
Non-Performing | Consumer Loans | Indirect Consumer Loans
Financing Receivable, Recorded Investment [Line Items]
Loans	571	693
Non-Performing | Consumer Loans | Direct consumer loans
Financing Receivable, Recorded Investment [Line Items]
Loans	$ 7	$ 37

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COMMITMENTS AND CONTINGENCIES (Tables)

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

Contractual Amounts of Financial Instruments with Off-Balance Sheet Risk

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

	2019				2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	15,560	$	25,233	$	9,137	$	18,033
Unused lines of credit	$	1,062	$	229,137	$	848	$	212,601
Standby letters of credit	$	—	$	16,272	$	—	$	16,161

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INCOME TAXES (Tables)

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

Components of Income Tax Expense Attributable to Income from Operations

For the years ended December 31, 2019, 2018 and 2017, income tax expense attributable to income from operations consisted of the following (in thousands):

	2019			2018			2017
Current expense:
Federal	$	4,603		$	1,732		$	2,594
State	395			124			417
Total current	4,998			1,856			3,011
Deferred expense/(benefit):
Federal	(1,126		)	2,253			942
State	(438		)	345			382
Remeasurement of deferred tax assets	—			(445		)	2,927
Total deferred	(1,564		)	2,153			4,251
Income tax expense	$	3,434		$	4,009		$	7,262

Reconciliation of Income Tax Expense

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

	2019			2018			2017
Statutory federal tax rate	21		%	21		%	34		%
Tax computed at statutory rate	$	3,999		$	4,963		$	5,006
Increase (reduction) resulting from:
Tax-exempt income	(424		)	(430		)	(663		)
831(b) premium adjustment	(189		)	(167		)	(269		)
Dividend exclusion	(7		)	(7		)	(8		)
State taxes, net of Federal impact	(86		)	262			201
Nondeductible interest expense	9			7			8
Remeasurement of deferred tax assets	—			(445		)	2,927
Other items, net	132			(174		)	60
Income tax expense	$	3,434		$	4,009		$	7,262
Effective tax rate	18.0		%	17.0		%	49.4		%

Deferred Tax Assets and Deferred Tax Liabilities

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018, are presented below (in thousands):

	2019		2018
Deferred tax assets:
Allowance for loan losses	$	6,046	$	4,834
Accrual for employee benefit plans	92		136
Depreciation	379		(93		)
Deferred compensation and directors' fees	765		634
Operating lease liabilities	2,050		—
Purchase accounting adjustment – loans	1		7
Purchase accounting adjustment – fixed assets	149		149
Gain on deemed sale of securities	71		339
Net unrealized losses on securities available for sale	—		1,590
Accounting for defined benefit pension and other benefit plans	2,448		2,315
Nonaccrued interest	695		625
Accrued expense	179		200
Other items, net	38		153
Total gross deferred tax assets	12,913		10,889
Deferred tax liabilities:
Deferred loan fees and costs	592		640
Prepaid pension	3,189		3,141
Net unrealized gains on securities available for sale	468		—
Discount accretion	24		137
Core deposit intangible	1,213		1,101
REIT dividend	922		1,048
Operating lease right-of-use assets	2,050		—
Other	103		109
Total gross deferred tax liabilities	8,561		6,176
Net deferred tax asset	$	4,352	$	4,713

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ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS (Tables)

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

Summary of Changes in Accumulated Other Comprehensive Income or Loss by Component, Net of Tax

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2019	(4,646		)	(6,765		)	(11,411		)
Other comprehensive income before reclassification	6,028			(467		)	5,561
Amounts reclassified from accumulated other comprehensive income (loss)	(14		)	65			51
Net current period other comprehensive income (loss)	6,014			(402		)	5,612
Balance at December 31, 2019	$	1,368		$	(7,167	)	$	(5,799	)

	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	)
Adjusted cumulative effect of accounting change	(202		)	—			(202		)
Balance at January 1, 2018	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income (loss) before reclassification	(1,029		)	(530		)	(1,559		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			690			690
Net current period other comprehensive income (loss)	(1,029		)	160			(869		)
Balance at December 31, 2018	$	(4,646	)	$	(6,765	)	$	(11,411	)

	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 (loss) before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive loss	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

Reclassification Out of Accumulated Other Comprehensive Income

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2019			2018			2017
Unrealized gains and losses on securities available for sale:	—			—			—
Realized gains on securities available for sale	$	(19	)	$	—		$	(109	)	Net gains on securities transactions
Tax effect	5			—			41			Income tax expense
Net of tax	(14		)	—			(68		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	(220		)	(220		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	312			1,146			413			Other components of net periodic pension and postretirement benefits
Tax effect	(27		)	(236		)	(74		)	Income tax expense
Net of tax	65			690			119
Total reclassification for the period, net of tax	$	51		$	690		$	51

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 14 for additional information).

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REGULATORY CAPITAL REQUIREMENTS

12 Months Ended

Dec. 31, 2019

Regulatory Capital Requirements [Abstract]

REGULATORY CAPITAL REQUIREMENTS

REGULATORY CAPITAL REQUIREMENTS

The Bank is subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and 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 Bank on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under Basel III rules, the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.00% for 2015 to 2.50% by 2019. The capital conservation buffer for 2019 is 2.500% and for 2018 is 1.875%. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital. Management believes as of December 31, 2019, the Bank met all capital adequacy requirements to which they are subject.

Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2019, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. At December 31, 2018, the most recent regulatory notifications categorized the Corporation and the Bank as well capitalized under the regulatory framework for prompt corrective action. The Corporation is no longer subject to FRB consolidated capital requirements applicable to bank holding companies, which are similar to those applicable to the Bank, until it reaches $3.0 billion in assets. There are no conditions or events since that notification that management believes have changed the institution's category.

As of December 31, 2019, the most recent notification from the Federal Reserve Bank of New York categorized the Bank as well capitalized under the regulatory framework for prompt corrective action.  To be categorized as well capitalized the Bank must maintain minimum total risk-based, Tier 1 risk-based, common equity Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below.  There have been no conditions or events since that notification that management believes have changed the Bank's or the Corporation's capital category.

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to the current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table below.  During 2020, the Bank could, without prior approval, declare dividends of approximately $29.8 million plus any 2020 net income retained to the date of the dividend declaration.

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

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	182,239	13.98	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	175,062	13.45	%	$	104,136	8.00	%	$	136,679	10.500	%	$	130,170	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	78,102	6.00	%	$	110,645	8.50	%	$	104,136	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	58,577	4.50	%	$	91,119	7.00	%	$	84,611	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	165,859	9.35	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	8.98	%	$	70,719	4.00	%	N/A		N/A		$	88,399	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	169,416	13.14	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	162,536	12.62	%	$	103,039	8.00	%	$	127,189	9.875	%	$	128,799	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	77,280	6.00	%	$	101,429	7.875	%	$	103,039	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	57,960	4.50	%	$	82,110	6.375	%	$	83,720	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	153,263	8.79	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	8.41	%	$	69,598	4.00	%	N/A		N/A		$	86,998	5.00	%

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DERIVATIVES

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVES

DERIVATIVES

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

The notional amount of the interest rate swaps does not represent amounts exchanged by the parties. The amount exchanged is determined by reference to the notional amount and the other terms of the individual interest rate swap agreements. At December 31, 2019, the Corporation held derivatives not designated as hedging instruments with a total notional amount of $238.2 million. Derivatives not designated as hedging instruments included back-to-back interest rate swaps of $226.4 million, consisting of $113.2 million of interest rate swaps with commercial borrowers and an additional $113.2 million of offsetting interest rate swaps with third-party counter-parties on substantially the same terms, and risk participation agreements with dealer banks of $11.8 million. Free-standing derivatives are not designated as hedges for accounting purposes and are therefore recorded at fair value with changes in fair value recorded in other non-interest income.

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

2019	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	15	$	113,204	7.9	4.44	%	4.03	%	$	(6,800	)
Interest rate swap agreements with third-party counter-parties	15	113,204		7.9	4.03	%	4.44	%	6,466
Risk participation agreements	3	11,819		5.6					(31		)
Total	33	$	238,227						$	(365	)

2018	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	11	$	76,395	7.1	4.69	%	4.61	%	$	(3,255	)
Interest rate swap agreements with third-party counter-parties	11	76,395		7.1	4.61	%	4.69	%	3,142
Risk participation agreements	6	20,142		15.0					(27		)
	28	$	172,932						$	(140	)

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

Off-balance sheet exposure for the risk participation agreements was $0.4 million for December 31, 2019 and $0.3 million for December 31, 2018, respectively.

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

	Years Ended December 31,
	2019			2018			2017
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized (loss) recognized in non-interest income	$	(3,544	)	$	(2,281	)	$	(281	)
Interest rate swap agreements with third-party counter-parties:
Unrealized gain recognized in non-interest income	3,324			2,168			281
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(4		)	48			(7		)
Unrealized gain (loss) recognized in non-interest income	$	(224	)	$	(65	)	$	(7	)

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RELATED PARTY TRANSACTIONS

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

RELATED PARTY TRANSACTIONS

RELATED PARTY TRANSACTIONS

Members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners (more than 10% interest) or board members, were customers of, and had loans and other transactions with the Corporation.  These loans are summarized as follows for the years ended December 31, 2019 and 2018 (in thousands):

	2019			2018
Balance at beginning of year	$	62,741		$	39,153
New loans or additional advances	1,895			10,624
Effect of changes in composition of related parties	4,456			25,815
Repayments	(9,119		)	(12,851		)
Balance at end of year	$	59,973		$	62,741

Deposits from principal officers, directors, and their affiliates at December 31, 2019 and 2018 were $18.3 million and $22.2 million, respectively.

The Bank leases its branch located at 1365 New Scotland Road, Slingerlands, New York, under a lease agreement through July 2022 from a member of the Corporation's Board of Directors with monthly rent expense totaling $4 thousand per month. Annual rent paid to this Board of Directors member totaled $52 thousand, $45 thousand, and $51 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

The Bank utilized legal services from a local law firm in which a member of the Board of Directors is a principal owner. Services totaled $10 thousand, $28 thousand, and $17 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

The Bank entered into a lease agreement in 2018 of its branch located at 2 Rush Street, Schenectady, New York, under a lease agreement through February 2033 from a member of the Corporation's Board of Directors with monthly rent expense totaling $8 thousand per month. Rent paid to this Board of Directors member totaled $93 thousand and $84 thousand for the years ended December 31, 2019 and 2018, respectively.

The Bank leases its branch located at 127 Court Street, Binghamton, New York under a lease agreement through June 2030 with monthly lease payments of $5 thousand. The lease originated with an entity in whom the employer of a Director of the Corporation had a twenty percent interest. In July 2017, the employer of the Director sold its interest in the property to an unrelated third party from which the Bank continues to lease the property. Annual rent paid to the leasing entity while there was a related party interest totaled $79 thousand for the year ended December 31, 2017. The Bank sold a $2.0 million loan participation to the same employer of a Director of the Corporation during the the year ended December 31, 2017. As of December 31, 2017, the Bank had outstanding loan participations with the same employer of a Director of the Corporation in the amount of $6.6 million.  CFS offered insurance products to its customers through the same employer of a Director of the Corporation during the years ended December 31, 2018 and 2017. CFS earned income of less than $1 thousand related to these insurance products during the years ended December 31, 2018 and 2017. The Bank purchased insurance products from the same employer of a Director of the Corporation in the amount of $34 thousand during the years ended December 31, 2018 and 2017.

WMG provided trust services to members of the Board of Directors, certain Corporation officers, and their immediate families directly, or through entities in which they are principal owners or board members. WMG fee income for the trust services provided totaled $580 thousand, $593 thousand, and $332 thousand for the years ended December 31, 2019, 2018, and 2017, respectively.

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LEASES (Tables)

12 Months Ended

Dec. 31, 2019

Leases [Abstract]

Assets and Liabilities, Lessee

Leased branch properties at December 31, 2019 and December 31, 2018 consist of the following (in thousands):

	December 31, 2019			December 31, 2018
Operating lease right-of-use asset	$	8,713		$	—
Less: accumulated amortization	(712		)	—
Operating lease right-of-use-assets, net	$	8,001		$	—

Lessee, Operating Lease, Liability, Maturity

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2019 (in thousands):

Year	Amount
2020	$	932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764		)
Present value of net minimum lease payments	$	8,084

Property, Plant and Equipment

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

	2019			2018
Buildings	$	5,572		$	5,572
Accumulated depreciation	(1,541		)	(1,208		)
Net book value	$	4,031		$	4,364

Premises and equipment at December 31, 2019 and 2018 are as follows (in thousands):

	2019		2018
Land	$	4,803	$	4,803
Buildings	41,408		41,332
Projects in progress	113		31
Equipment and furniture	37,007		38,008
Leasehold improvements	5,757		6,174
	89,088		90,348
Less accumulated depreciation and amortization	66,671		65,368
Net book value	$	22,417	$	24,980

The Corporation has included these leases in premises and equipment as of December 31, 2019 and December 31, 2018.

Finance Lease, Liability, Maturity

The following is a schedule by year of future minimum lease payments under the capitalized lease, together with the present value of net minimum lease payments as of December 31, 2019 (in thousands):

Year	Amount
2020	$	376
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,185
Less: amount representing interest	(1,100		)
Present value of net minimum lease payments	$	4,085

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

ORGANIZATION

ORGANIZATION

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

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

BASIS OF PRESENTATION

BASIS OF PRESENTATION

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.

CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS

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

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

EQUITY INVESTMENTS

EQUITY INVESTMENTS

On January 1, 2018, the Corporation adopted ASU 2016-01, an amendment to Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The adoption of this guidance resulted in a $40 thousand increase to beginning retained earnings and a $202 thousand decrease to beginning accumulated other comprehensive income (loss).

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

SECURITIES

SECURITIES

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

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

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

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

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

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

LOANS

LOANS

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

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

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

TROUBLED DEBT RESTRUCTURINGS

TROUBLED DEBT RESTRUCTURINGS

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

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

ALLOWANCE FOR LOAN LOSSES

ALLOWANCE FOR LOAN LOSSES

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

A loan is classified as impaired when, based on current information and events, it is probable that the Bank 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, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  If a loan is determined to be impaired and is placed on nonaccrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

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

The allowance for loan losses is increased through a provision for loan losses charged to operations.  Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely.  Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

LOANS HELD FOR SALE

LOANS HELD FOR SALE

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

CAPITAL LEASES

CAPITAL LEASES

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

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

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

BANK OWNED LIFE INSURANCE

BANK OWNED LIFE INSURANCE

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

OTHER REAL ESTATE

OTHER REAL ESTATE

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

INCOME TAXES

INCOME TAXES

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

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

WEALTH MANAGEMENT GROUP FEE INCOME

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.

POSTRETIREMENT BENEFITS

POSTRETIREMENT BENEFITS

Pension Plan:

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

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

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments. The effects of these changes are reflected in the pension plan disclosures as of December 31, 2018 and 2017. See Note 14 for further details.

Defined Contribution Profit Sharing, Savings and Investment Plan:

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

Defined Benefit Health Care Plan:

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

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2019 and 2018. See Note 14.

Executive Supplemental Pension Plan:

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

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

Defined Contribution Supplemental Executive Retirement Plan:

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

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

STOCK-BASED COMPENSATION

STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Bank, or if the participant retires prior to attainment of age 65, unless otherwise waived by the Compensation and Personnel Committee of the Board of Directors.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 15 for more information regarding this Plan.

Deferred Directors Fee Plan:

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

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income. In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $6,000 to $11,500 and $19,250 for the Chairman of the Board.  The retainer for the Chairman of the Audit Committee was also increased by an additional $2,875 to $14,375.  The directors waived their right to stock compensation for the additional retainer fees paid.

Incentive Compensation Plan:

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

Non-qualified Deferred Compensation Plan:

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

GOODWILL AND INTANGIBLE ASSETS

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2019.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $0.6 million, $0.1 million and $0.1 million, respectively, at December 31, 2019.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

DERIVATIVES

DERIVATIVES

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

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

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

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions.

OTHER FINANCIAL INSTRUMENTS

OTHER FINANCIAL INSTRUMENTS

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

ADVERTISING COSTS

ADVERTISING COSTS

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

EARNINGS PER COMMON SHARE

EARNINGS PER COMMON SHARE

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares including those related to directors’ restricted stock units and directors’ stock compensation are considered outstanding and are included in the computation of basic earnings per share as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE INCOME (LOSS)

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

SEGMENT REPORTING

SEGMENT REPORTING

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

RECLASSIFICATION

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2019, the Corporation adopted 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 Corporation adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. In addition, the Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $8.6 million as of January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

On January 1, 2019, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

On January 1, 2018, the Corporation adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent amendments to the ASU (collectively, "ASU 606"), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation's revenues come from interest income and other sources, including loans, securities, and derivatives that are outside the scope of ASC 606. The Corporation's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, and the sale of OREO. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank; as such, no cumulative effect adjustment was recorded. Refer to Note 11 - Revenue from Contracts with Customers for further discussion on the Corporation's accounting policies for revenue sources within the scope of ASC 606.

In January 2016, the FASB issued ASU No. 2016-01, an amendment to Recognition and Measurement of Financial Asset and Financial Liabilities (Subtopic 825-10). The objectives of the ASU are to (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The Corporation adopted all provisions of this ASU as of January 1, 2018 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC 825, with comparable consolidated balance sheets also reported. The adjustments to opening retained earnings and accumulated other comprehensive loss related to the adoption of ASC 825 are immaterial to the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal years beginning after December 15, 2018. In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation would be eligible for the proposed delay. 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 began establishing parameters which will be used in the CECL model with the selected vendor. The Corporation is running its current incurred loss model and a CECL model concurrently. The Corporation is currently evaluating the impact of the delay on its implementation plan.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the ASU is to reduce the existing diversity in practice relating to eight specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principal. Results for reporting periods beginning after January 1, 2018 are presented under ASC 230, while prior periods amounts continue to be reported in accordance with legacy GAAP. The adoption of ASU 2016-15 as of January 1, 2018 did not result in a change to how the Corporation accounts for its cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of the ASU is to simplify the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost. The objective of the ASU was to improve guidance related to the presentation of defined benefit costs in the income statement. Specifically, the ASU required that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component to be eligible for capitalization, when applicable. Results for reporting periods beginning after January 1, 2018 are presented under ASC 715, while prior period amounts continue to be reported in accordance with legacy GAAP, with comparable periods presented retrospectively for the presentation of the service cost and net periodic postretirement benefit cost in the income statement. The Corporation adopted ASU 2017-07 as of January 1, 2018 and elected the practical expedient, which permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation for applying retrospective presentation requirements.

FAIR VALUE

Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) 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:

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 non-qualified deferred compensation plan and securities that have a readily determinable fair market value, are recorded 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 credit risk participations are based on credit default rate assumptions (Level 3 inputs).

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REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

12 Months Ended

Dec. 31, 2019

Revenue from Contract with Customer [Abstract]

Disaggregation of Revenue

The following tables present the Corporation's non-interest income by revenue stream and reportable segment for the years ended December 31, 2019, 2018 and 2017 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Year ended December 31, 2019
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,653		$	—	$	—		$	3,653
Other	807			—		—			807
Interchange revenue from debit card transactions	4,104			—					4,104
WMG fee income	—			9,503		—			9,503
CFS fee and commission income	—			—		673			673
Net gains (losses) on sales of OREO	(99		)	—		—			(99		)
Net gains on sales of loans(a)	248			—		—			248
Loan servicing fees(a)	103			—		—			103
Net gains on sales of securities(a)	19			—		—			19
Change in fair value of equity securities(a)	143					(62		)	81
Other(a)	1,378			—		(397		)	981
Total non-interest income	$	10,356		$	9,503	$	214		$	20,073

(a) Not within scope of ASC 606.

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

	Year ended December 31, 2018
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	3,934	$	—	$	—		$	3,934
Other	793		—		—			793
Interchange revenue from debit card transactions	4,040		—		—			4,040
WMG fee income	—		9,317		—			9,317
CFS fee and commission income	—		—		510			510
Net gains (losses) on sales of OREO	90		—		—			90
Net gains on sales of loans(a)	351		—		—			351
Loan servicing fees(a)	92		—		—			92
Net gains on sales of securities(a)	—		—		—			—
Change in fair value of equity securities(a)	2,024		—		(20		)	2,004
Other(a)	2,272		—		(329		)	1,943
Total non-interest income	$	13,596	$	9,317	$	161		$	23,074

(a) Not within scope of ASC 606.

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

	Year ended December 31, 2017
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	4,189	$	—	$	—		$	4,189
Other	772		—		—			772
Interchange revenue from debit card transactions	3,761		—		—			3,761
WMG fee income	—		8,804		—			8,804
CFS fee and commission income	—		—		646			646
Net gains (losses) on sales of OREO	38		—		—			38
Net gains on sales of loans(a)	260		—		—			260
Loan servicing fees(a)	84		—		—			84
Net gains on sales of securities(a)	109		—		—			109
Change in fair value of equity securities(a)	80		—		—			80
Other(a)	1,933		—		(185		)	1,748
Total non-interest income	$	11,226	$	8,804	$	461		$	20,491

(a) Not within scope of ASC 606.

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

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LOANS AND ALLOWANCE FOR LOAN LOSSES

12 Months Ended

Dec. 31, 2019

Loans and Leases Receivable Disclosure [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	December 31, 2019		December 31, 2018
Commercial and agricultural:
Commercial and industrial	$	230,018	$	202,526
Agricultural	274		328
Commercial mortgages:
Construction	43,962		54,476
Commercial mortgages	604,832		606,694
Residential mortgages	188,338		182,724
Consumer loans:
Credit cards	—		1,449
Home equity lines and loans	91,784		98,145
Indirect consumer loans	134,973		149,380
Direct consumer loans	15,038		16,184
Total loans, net of deferred loan fees	1,309,219		1,311,906
Interest receivable on loans	3,684		3,703
Total recorded investment in loans	$	1,312,903	$	1,315,609

Residential mortgages held for sale as of December 31, 2019 and 2018 totaling $1.2 million and $0.5 million, respectively, are not included in the above table.

Residential mortgages totaling $170.0 million at December 31, 2019 and $132.5 million at December 31, 2018 were pledged under a blanket collateral agreement for the Corporation's line of credit with the FHLBNY.

The following tables present the activity in the allowance for loan losses by portfolio segment for the years ended December 31, 2019, 2018 and 2017, respectively (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944
Charge Offs:	(312		)	(1		)	(151		)	(1,511		)	(1,975		)
Recoveries:	59			4			45			456			564
Net (charge offs) recoveries	(253		)	3			(106		)	(1,055		)	(1,411		)
Provision	5,097			682			132			34			5,945
Ending balance	$	10,227		$	8,869		$	1,252		$	3,130		$	23,478

	December 31, 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		)	(213		)	(226		)	(1,836		)	(5,919		)
Recoveries:	47			3			5			494			549
Net recoveries (charge offs)	(3,597		)	(210		)	(221		)	(1,342		)	(5,370		)
Provision	2,004			(120		)	131			1,138			3,153
Ending balance	$	5,383		$	8,184		$	1,226		$	4,151		$	18,944

	December 31, 2017
Allowance for loan losses	Commercial, and Agricultural			Commercial Mortgages			Residential Mortgages			Consumer Loans			Total
Beginning balance:	$	1,589		$	7,270		$	1,523		$	3,871		$	14,253
Charge Offs:	(96		)	(419		)	(225		)	(1,831		)	(2,571		)
Recoveries:	109			5			30			313			457
Net recoveries (charge offs)	13			(414		)	(195		)	(1,518		)	(2,114		)
Provision	5,374			1,658			(12		)	2,002			9,022
Ending balance	$	6,976		$	8,514		$	1,316		$	4,355		$	21,161

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
Allowance for loan losses	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	6,000	$	2,097	$	—	$	—	$	8,097
Collectively evaluated for impairment	4,227		6,772		1,252		3,130		15,381
Total ending allowance balance	$	10,227	$	8,869	$	1,252	$	3,130	$	23,478

	December 31, 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	$	1,743	$	446	$	—	$	—	$	2,189
Collectively evaluated for impairment	3,640		7,738		1,226		4,151		16,755
Total ending allowance balance	$	5,383	$	8,184	$	1,226	$	4,151	$	18,944

	December 31, 2019
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	6,147	$	8,844	$	525	$	149	$	15,665
Loans collectively evaluated for impairment	224,775		641,726		188,349		242,388		1,297,238
Total ending loans balance	$	230,922	$	650,570	$	188,874	$	242,537	$	1,312,903

	December 31, 2018
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	2,128	$	6,146	$	402	$	55	$	8,731
Loans collectively evaluated for impairment	201,284		656,842		182,823		265,929		1,306,878
Total ending loans balance	$	203,412	$	662,988	$	183,225	$	265,984	$	1,315,609

The following tables present loans individually evaluated for impairment recognized by class of loans as of December 31, 2019 and December 31, 2018, the average recorded investment and interest income recognized by class of loans as of the years ended December 31, 2019, 2018 and 2017 (in thousands):

	December 31, 2019						December 31, 2018
	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	133	$	133	$	—	$	345	$	346	$	—
Commercial mortgages:
Construction	247		247		—		307		308		—
Commercial mortgages	3,501		3,503		—		4,007		3,935		—
Residential mortgages	554		525		—		424		402		—
Consumer loans:
Home equity lines and loans	171		149		—		54		55		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	6,013		6,014		6,000		1,780		1,782		1,743
Commercial mortgages:
Commercial mortgages	5,093		5,094		2,097		1,902		1,903		446
Consumer loans:
Home equity lines and loans	—		—		—		—		—		—
Total	$	15,712	$	15,665	$	8,097	$	8,819	$	8,731	$	2,189

	December 31, 2019				December 31, 2018				December 31, 2017
	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
With no related allowance recorded:
Commercial and agricultural:
Commercial and industrial	$	248	$	—	$	608	$	12	$	706	$	35
Commercial mortgages:
Construction	278		10		337		11		830		12
Commercial mortgages	3,605		12		4,193		21		5,606		78
Residential mortgages	422		44		416		7		418		8
Consumer loans:
Home equity lines & loans	137		6		60		3		74		3
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	3,209		—		3,043		3		1,170		6
Commercial mortgages:
Commercial mortgages	6,524		—		2,315		4		3,751		12
Consumer loans:
Home equity lines and loans	—		—		—		—		144		—
Total	$	14,423	$	72	$	10,972	$	61	$	12,699	$	154

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

The following tables present the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of December 31, 2019 and December 31, 2018 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	2019		2018		2019		2018
Commercial and agricultural:
Commercial and industrial	$	6,147	$	2,048	$	7	$	10
Commercial mortgages:
Construction	80		109		—		—
Commercial mortgages	8,407		5,529		—		—
Residential mortgages	2,155		2,655		—		—
Consumer loans:
Credit cards	—		—		—		9
Home equity lines and loans	641		1,183		—		—
Indirect consumer loans	571		693		—		—
Direct consumer loans	7		37		—		—
Total	$	18,008	$	12,254	$	7	$	19

The following tables present the aging of the recorded investment in loans as of December 31, 2019 and December 31, 2018 (in thousands):

	December 31, 2019
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	1,285	$	49	$	4,398	$	5,732	$	224,916	$	230,648
Agricultural	—		—		—		—		274		274
Commercial mortgages:
Construction	—		—		—		—		44,082		44,082
Commercial mortgages	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		803		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		11		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

	December 31, 2018
	30 - 59 Days Past Due		60 - 89 Days Past Due		90 Days or More Past Due		Total Past Due		Loans Not Past Due		Total
Commercial and agricultural:
Commercial and industrial	$	284	$	61	$	71	$	416	$	202,667	$	203,083
Agricultural	16		—		—		16		313		329
Commercial mortgages:
Construction	—		—		—		—		54,626		54,626
Commercial mortgages	6,273		158		169		6,600		601,762		608,362
Residential mortgages	2,204		516		1,026		3,746		179,479		183,225
Consumer loans:
Credit cards	1		3		9		13		1,437		1,450
Home equity lines and loans	279		97		730		1,106		97,360		98,466
Indirect consumer loans	1,511		319		436		2,266		147,540		149,806
Direct consumer loans	120		53		31		204		16,058		16,262
Total	$	10,688	$	1,207	$	2,472	$	14,367	$	1,301,242	$	1,315,609

Troubled Debt Restructurings:

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

As of December 31, 2019, 2018 and 2017, the Corporation has a recorded investment in TDRs of $9.0 million, $6.8 million, and $7.7 million, respectively.  There were specific reserves of $2.3 million allocated for TDRs at December 31, 2019, and $0.9 million and $0.7 million allocated for December 31, 2018 and 2017, respectively.  As of December 31, 2019, TDRs totaling $0.9 million were accruing interest under the modified terms and $8.1 million were on non-accrual status.  As of December 31, 2018, TDRs totaling $0.8 million were accruing interest under the modified terms and $6.0 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 has committed $17 thousand to customers with outstanding loans that are classified as TDRs as of December 31, 2019 and no additional amounts as of December 31, 2018 or 2017.

During the years ended December 31, 2019, 2018 and 2017, the terms of certain loans were modified as TDRs. During the year ended December 31, 2019, the modification of the terms of one commercial real estate term loan included a reduction of the scheduled amortized payments for greater than a three month period, and modification of the terms of one home equity loan included a reduction in the stated interest rate for the remaining life of the loan, an extension of the maturity date for approximately three years and a reduction of the scheduled amortized payment of the loan for greater than a three month period. Additionally, one residential mortgage loan modification included a reduction in the stated interest rate for the remaining life of the loan, a deferral of the principal balance decreasing the effective borrowing rate, an extension of the maturity date by thirteen years at a stated rate lower than the current market rate for new debt with similar risk and a postponement of the scheduled amortized payments of the loan for greater than a three month period.

During the year ended December 31, 2018, the modification of the terms of two commercial and industrial term loans included extensions of the maturity dates at stated rates of interest lower than current market rates for new debt with similar risks.

During the year ended December 31, 2017, the modification of the terms of two commercial and industrial loans included a reduction of the scheduled amortized payments for greater than a three month period, the release of collateral related to one of the loans and the extension of a maturity date. Additionally, the modification of the terms of two commercial and industrial term loans and one line of credit included consolidating the loans into one commercial and industrial loan, extending the maturity date by approximately two years years and lowering the monthly payment. An additional piece of equipment was taken as collateral but was not considered to be of greater value than the concessions given. The modification of the terms of a commercial mortgage loan included a reduction of the scheduled amortized payments of the loan for greater than a three month period. The modification of the terms of a residential mortgage loan included an extension of the maturity date by approximately five years and a postponement of the scheduled amortized past due payments to the end of loan.

The following table presents loans by class modified as troubled debt restructurings that occurred during the years ended December 31, 2019, 2018 and 2017 (in thousands):

December 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages	1	4,223		4,223
Residential mortgages	1	123		123
Consumer loans:
Home equity lines and loans	1	137		137
Total	3	$	4,483	$	4,483

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no charge offs during the year ended December 31, 2019.

December 31, 2018	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	491	$	491
Total	2	$	491	$	491

The TDRs described above increased the allowance for loan losses by $0.4 million and resulted in no charge offs during the year ended December 31, 2018.

December 31, 2017	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	3	$	677	$	677
Commercial mortgages:
Commercial mortgages	1	$	166	$	166
Residential mortgages	1	105		105
Total	5	$	948	$	948

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

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 troubled debt restructurings during the year ended December 31, 2019, and 2018, within twelve months following the modification.

The following table presents loans by class modified as TDRs for which there was a payment default within twelve months following the modification during the year ended December 31, 2017:

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

Credit Quality Indicators

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

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

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

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

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

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

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans.  Based on the analyses performed as of December 31, 2019 and 2018, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	—		274		—		—		—		274
Commercial mortgages:
Construction	—		40,304		168		3,610		—		44,082
Commercial mortgages	—		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719				—		2,155		—		188,874
Consumer loans
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		—		—		641		—		92,065
Indirect consumer loans	134,795		—		—		571		—		135,366
Direct consumer loans	15,099		—		—		7		—		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903

	December 31, 2018
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	190,666	$	4,452	$	6,222	$	1,743	$	203,083
Agricultural	—		329		—		—		—		329
Commercial mortgages:
Construction	—		54,517		—		109		—		54,626
Commercial mortgages	—		574,221		16,830		15,948		1,363		608,362
Residential mortgages	180,570		—		—		2,655		—		183,225
Consumer loans
Credit cards	1,450		—		—		—		—		1,450
Home equity lines and loans	97,283		—		—		1,183		—		98,466
Indirect consumer loans	149,113		—		—		693		—		149,806
Direct consumer loans	16,225		—		—		37		—		16,262
Total	$	444,641	$	819,733	$	21,282	$	26,847	$	3,106	$	1,315,609

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  Non-performing loans include non-accrual loans and non-accrual troubled debt restructurings.

The following table presents the recorded investment in residential and consumer loans based on payment activity as of December 31, 2019 and 2018 (in thousands):

	December 31, 2019
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	186,719	$	—	$	91,424	$	134,795	$	15,099
Non-Performing	2,155		—		641		571		7
Total	$	188,874	$	—	$	92,065	$	135,366	$	15,106

	December 31, 2018
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	180,570	$	1,450	$	97,283	$	149,113	$	16,225
Non-Performing	2,655		—		1,183		693		37
Total	$	183,225	$	1,450	$	98,466	$	149,806	$	16,262

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DEPOSITS

12 Months Ended

Dec. 31, 2019

Deposits [Abstract]

DEPOSITS

DEPOSITS

A summary of deposits at December 31, 2019 and 2018 is as follows (in thousands):

	2019		2018
Non-interest-bearing demand deposits	$	468,238	$	484,433
Interest-bearing demand deposits	200,089		179,603
Insured money market accounts	530,242		537,948
Savings deposits	212,393		217,027
Time deposits	161,176		150,226
Total	$	1,572,138	$	1,569,237

Scheduled maturities of time deposits at December 31, 2019, are summarized as follows (in thousands):

Year	Maturities
2020	$	81,015
2021	18,939
2022	42,040
2023	13,091
2024	2,968
2025	3,123
Total	$	161,176

Time deposits that meet or exceed the FDIC Insurance limit of $250 thousand at December 31, 2019 and 2018 were $27.7 million and $22.4 million, respectively.

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CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Interest and Dividend Income:
Loans, including fees	$ 58,245	$ 57,840	$ 52,840
Taxable securities	5,265	4,804	5,503
Tax exempt securities	1,152	1,153	1,149
Interest-earning deposits	2,270	756	563
Total interest and dividend income	66,932	64,553	60,055
Interest Expense:
Deposits	6,173	3,323	2,168
Securities sold under agreements to repurchase	0	137	478
Borrowed funds	148	613	422
Total interest expense	6,321	4,073	3,068
Net interest income	60,611	60,480	56,987
Provision for loan losses	5,945	3,153	9,022
Net interest income after provision for loan losses	54,666	57,327	47,965
Non-Interest Income:
Net gains on securities transactions	19	0	109
Change in fair value of equity investments	81	2,004	80
Net gain on sales of loans held for sale	248	351	260
Net gains (losses) on sales of other real estate owned	(99)	90	38
Income from bank owned life insurance	63	66	70
Other	1,694	2,479	2,408
Total non-interest income	20,073	23,074	20,491
Non-Interest Expenses:
Salaries and wages	23,420	22,322	21,476
Pension and other employee benefits	5,902	5,524	5,510
Other components of net periodic pension cost (benefit)	(541)	(770)	(1,234)
Net occupancy expenses	5,969	6,550	6,263
Furniture and equipment expenses	2,497	2,550	2,828
Data processing expense	7,386	6,997	6,539
Professional services	1,885	2,169	1,774
Legal accruals and settlements	0	989	850
Amortization of intangible assets	609	734	860
Marketing and advertising expense	932	1,181	794
Other real estate owned expenses	115	422	110
FDIC insurance	537	1,142	1,236
Loan expense	787	863	694
Other	6,198	6,093	6,064
Total non-interest expenses	55,696	56,766	53,764
Income before income tax expense	19,043	23,635	14,692
Income tax expense	3,434	4,009	7,262
Net income	$ 15,609	$ 19,626	$ 7,430
Weighted average shares outstanding (in shares)	4,869	4,832	4,800
Basic and diluted earnings per share (in dollars per share)	$ 3.21	$ 4.06	$ 1.55
WMG
Non-Interest Income:
Revenues from contracts with customer	$ 9,503	$ 9,317	$ 8,804
Service Charge on Deposits
Non-Interest Income:
Revenues from contracts with customer	4,460	4,727	4,961
Interchange Revenue
Non-Interest Income:
Revenues from contracts with customer	$ 4,104	$ 4,040	$ 3,761

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FAIR VALUES (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Financial Assets [Abstract]
Total	$ 284,090	$ 242,258
Provision for loan losses	(5,945)	(3,153)	$ (9,022)
Recurring
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	5,472
Mortgage-backed securities, residential	225,234	183,192
Obligations of states and political subdivisions	42,845	44,152
Corporate bonds and notes	250	247
SBA loan pools	15,761	9,195
Total	284,090	242,258
Equity Investments	1,442	1,075
Derivative assets	6,466	3,142
Derivative liabilities	6,831	3,282
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	0
Mortgage-backed securities, residential	0	0
Obligations of states and political subdivisions	0	0
Corporate bonds and notes	0	0
SBA loan pools	0	0
Total	0	0
Equity Investments	1,442	1,075
Derivative assets	0	0
Derivative liabilities	0	0
Recurring | Significant Other Observable Inputs (Level 2)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	5,472
Mortgage-backed securities, residential	225,234	183,192
Obligations of states and political subdivisions	42,845	44,152
Corporate bonds and notes	250	247
SBA loan pools	15,761	9,195
Total	284,090	242,258
Equity Investments	0	0
Derivative assets	6,466	3,142
Derivative liabilities	6,466	3,142
Recurring | Significant Unobservable Inputs (Level 3)
Financial Assets [Abstract]
Obligations of U.S. Government and U.S. Government sponsored enterprises	0	0
Mortgage-backed securities, residential	0	0
Obligations of states and political subdivisions	0	0
Corporate bonds and notes	0	0
SBA loan pools	0	0
Total	0	0
Equity Investments	0	0
Derivative assets	0	0
Derivative liabilities	365	140
Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,554	1,456
Provision for loan losses	(1,597)	240
Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	517	574
Provision for loan losses	(12)	(14)
Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,554	1,456
Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	517	574
Commercial mortgages | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	111	213
Provision for loan losses	0	0
Commercial mortgages | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	111	213
Commercial mortgages:
Financial Assets [Abstract]
Provision for loan losses	(682)	120	(1,658)
Residential Mortgages
Financial Assets [Abstract]
Provision for loan losses	(132)	(131)	12
Residential Mortgages | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	284	204
Provision for loan losses	(12)	0
Residential Mortgages | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Residential Mortgages | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	0	0
Residential Mortgages | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Other real estate, foreclosed assets, and repossessed assets	284	204
Consumer Loans
Financial Assets [Abstract]
Provision for loan losses	(34)	(1,138)	$ (2,002)
Commercial mortgages | Commercial mortgages: | Non-recurring | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,554	1,456
Provision for loan losses	(1,597)	240
Commercial mortgages | Commercial mortgages: | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Commercial mortgages: | Non-recurring | Significant Other Observable Inputs (Level 2) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Commercial mortgages | Commercial mortgages: | Non-recurring | Significant Unobservable Inputs (Level 3) | Impaired Loans
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	1,554	1,456
Home equity lines and loans | Consumer Loans | Non-recurring | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	122	157
Provision for loan losses	0	(14)
Home equity lines and loans | Consumer Loans | Non-recurring | Quoted Prices in Active Markets for Identical Assets (Level 1) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Other Observable Inputs (Level 2) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	0	0
Home equity lines and loans | Consumer Loans | Non-recurring | Significant Unobservable Inputs (Level 3) | Other Real Estate Owned
Financial Assets [Abstract]
Total impaired loans/ other real estate owned, net	$ 122	$ 157

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 15,609	$ 19,626	$ 7,430
Operating Lease, Right-Of-Use Asset, Amortization	712
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of intangible assets	609	734	860
Deferred income tax (benefit) expense	(1,564)	2,153	4,251
Provision for loan losses	5,945	3,153	9,022
(Gain) loss on disposal of fixed assets	334	10	29
Depreciation and amortization of fixed assets	3,112	3,437	3,703
Amortization of premiums on securities, net	1,055	1,304	1,450
Gains on sales of loans held for sale, net	(248)	(351)	(260)
Proceeds from sales of loans held for sale	12,488	18,262	9,722
Loans originated and held for sale	(12,923)	(17,871)	(9,592)
Net (gains) losses on sale of other real estate owned	99	(90)	(38)
Write-downs on OREO	53	14	43
Net change in fair value of equity investments	(81)	(2,004)	(80)
Net gains on securities transactions	(19)	0	(109)
Proceeds from sales of trading assets	22	2,288	20
Purchase of trading assets	(206)	(167)	(97)
(Increase) decrease in other assets	(1,945)	(2,651)	579
Increase (decrease) in accrued interest payable	67	84	(62)
Expense related to restricted stock units for directors' deferred compensation plan	42	67	98
Expense related to employee stock compensation	100	89	200
Expense related to employee restricted stock awards	503	405	210
Payments on operating leases	(629)
Increase (decrease) in other liabilities	3,333	(654)	(3,664)
Income from bank owned life insurance	(63)	(66)	(70)
Net cash provided by operating activities	26,405	27,772	23,645
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	33,690	0	5,576
Proceeds from maturities, calls, and principal paydowns on securities available for sale	49,665	64,180	46,578
Proceeds from maturities and principal collected on securities held to maturity	2,903	1,316	2,891
Purchases of securities available for sale	(118,151)	(16,033)	(41,306)
Purchases of securities held to maturity	(1,143)	(2,410)	(1,967)
Purchase of FHLBNY and FRBNY stock	(14)	(22,003)	(7,208)
Redemption of FHLBNY and FRBNY stock	53	24,649	5,465
Proceeds from sales of fixed assets	0	0	16
Purchases of premises and equipment	(883)	(1,770)	(1,482)
Proceeds from sale of other real estate owned	458	1,709	383
Net increase (decrease) in loans	711	(5,719)	(115,588)
Net cash (used by) provided by investing activities	(32,711)	43,919	(106,642)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	(8,050)	69,927	36,847
Increase (decrease) in time deposits	10,951	31,864	(25,744)
Net decrease in securities sold under agreements to repurchase	0	(10,000)	(17,606)
Net change in FHLBNY overnight advances	0	(57,700)	57,700
Repayments of FHLBNY long term advances	0	(2,000)	(7,093)
Payments made on capital lease	(219)	(213)	(205)
Sale of treasury stock	585	643	582
Cash dividends paid	(5,029)	(4,969)	(4,917)
Net cash (used in) provided by financing activities	(1,762)	27,552	39,564
Net increase (decrease) in cash and cash equivalents	(8,068)	99,243	(43,433)
Cash and cash equivalents, beginning of period	129,972	30,729	74,162
Cash and cash equivalents, end of period	121,904	129,972	30,729
Cash paid during the year for:
Interest	6,254	3,989	3,130
Income Taxes	4,455	1,730	4,050
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	517	267	1,940
Dividends declared, not yet paid	1,263	1,254	1,233
Assets acquired through long term capital lease obligation	0	0	0
Repurchase of common stock in lieu of employee payroll taxes	(185)	(112)	(61)
Distribution of treasury stock for directors' deferred compensation plan	13	218	11
Distribution of treasury stock for directors' compensation	$ 356	$ 301	$ 269

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Disaggregation of Revenue [Line Items]
Net gains on sales of other real estate	$ (99)	$ 90	$ 38
Changes in fair value of equity securities	81	2,004	80
Total non-interest income	20,073	23,074	20,491
Overdraft Fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	3,653	3,934	4,189
Service Charge on Deposits, Other
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	807	793	772
Interchange Revenue
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	4,104	4,040	3,761
WMG
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	9,503	9,317	8,804
Investment Brokerage
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	673	510	646
Sale of OREO
Disaggregation of Revenue [Line Items]
Net gains on sales of other real estate	(99)	90	38
Sale of Loans
Disaggregation of Revenue [Line Items]
Revenues	248	351	260
Loan Servicing Fees
Disaggregation of Revenue [Line Items]
Revenues	103	92	84
Sale of Securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	19	0	109
Product and Service, Other
Disaggregation of Revenue [Line Items]
Revenues	981	1,943	1,748
Core Banking
Disaggregation of Revenue [Line Items]
Changes in fair value of equity securities	143	2,024	80
Total non-interest income	10,356	13,596	11,226
Core Banking | Overdraft Fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	3,653	3,934	4,189
Core Banking | Service Charge on Deposits, Other
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	807	793	772
Core Banking | Interchange Revenue
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	4,104	4,040	3,761
Core Banking | WMG
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
Core Banking | Investment Brokerage
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
Core Banking | Sale of OREO
Disaggregation of Revenue [Line Items]
Net gains on sales of other real estate	(99)	90	38
Core Banking | Sale of Loans
Disaggregation of Revenue [Line Items]
Revenues	248	351	260
Core Banking | Loan Servicing Fees
Disaggregation of Revenue [Line Items]
Revenues	103	92	84
Core Banking | Sale of Securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	19	0	109
Core Banking | Product and Service, Other
Disaggregation of Revenue [Line Items]
Revenues	1,378	2,272	1,933
WMG
Disaggregation of Revenue [Line Items]
Changes in fair value of equity securities		0	0
Total non-interest income	9,503	9,317	8,804
WMG | Overdraft Fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
WMG | Service Charge on Deposits, Other
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
WMG | Interchange Revenue
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
WMG | WMG
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	9,503	9,317	8,804
WMG | Investment Brokerage
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
WMG | Sale of OREO
Disaggregation of Revenue [Line Items]
Net gains on sales of other real estate	0	0	0
WMG | Sale of Loans
Disaggregation of Revenue [Line Items]
Revenues	0	0	0
WMG | Loan Servicing Fees
Disaggregation of Revenue [Line Items]
Revenues	0	0	0
WMG | Sale of Securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0	0
WMG | Product and Service, Other
Disaggregation of Revenue [Line Items]
Revenues	0	0	0
Holding Company, CFS, and CRM(b)
Disaggregation of Revenue [Line Items]
Changes in fair value of equity securities	(62)	(20)	0
Total non-interest income	214	161	461
Holding Company, CFS, and CRM(b) | Overdraft Fees
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
Holding Company, CFS, and CRM(b) | Service Charge on Deposits, Other
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
Holding Company, CFS, and CRM(b) | Interchange Revenue
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer		0	0
Holding Company, CFS, and CRM(b) | WMG
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	0	0	0
Holding Company, CFS, and CRM(b) | Investment Brokerage
Disaggregation of Revenue [Line Items]
Revenues from contracts with customer	673	510	646
Holding Company, CFS, and CRM(b) | Sale of OREO
Disaggregation of Revenue [Line Items]
Net gains on sales of other real estate	0	0	0
Holding Company, CFS, and CRM(b) | Sale of Loans
Disaggregation of Revenue [Line Items]
Revenues	0	0	0
Holding Company, CFS, and CRM(b) | Loan Servicing Fees
Disaggregation of Revenue [Line Items]
Revenues	0	0	0
Holding Company, CFS, and CRM(b) | Sale of Securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0	0
Holding Company, CFS, and CRM(b) | Product and Service, Other
Disaggregation of Revenue [Line Items]
Revenues	$ (397)	$ (329)	$ (185)

XML

GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Goodwill [Roll Forward]
Beginning of year	$ 21,824	$ 21,824
Acquired goodwill	0	0
End of year	21,824	21,824	$ 21,824
Balance Acquired	11,608	11,608
Accumulated Amortization	10,866	10,257
Aggregate amortization expense	609	734	$ 860
Remaining estimated aggregate amortization expense [Abstract]
2020	484
2021	258
Total	742
Core deposit intangibles
Goodwill [Roll Forward]
Balance Acquired	5,975	5,975
Accumulated Amortization	5,832	5,576
Other customer relationship intangibles
Goodwill [Roll Forward]
Balance Acquired	5,633	5,633
Accumulated Amortization	$ 5,034	$ 4,681

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STOCK COMPENSATION (Details) - USD ($)	12 Months Ended
	Dec. 31, 2020	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Restricted Stock
Shares [Roll Forward]
Nonvested, beginning of period (in shares)	33,575	29,694
Granted (in shares)		13,692
Vested (in shares)		(9,811)
Forfeited or cancelled (in shares)		0
Nonvested, end of period (in shares)		33,575	29,694
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, beginning of period (in dollars per share)	$ 43.24	$ 40.81
Granted (in dollars per share)		44.75
Vested (in dollars per share)		38.01
Forfeitures or cancelled (in dollars per share)		0.00
Nonvested, end of period (in dollars per share)		$ 43.24	$ 40.81
Total unrecognized compensation cost related to nonvested shares granted under the Plan		$ 1,300,000
Weighted-average period for recognition		3 years 6 months 10 days
Total fair value of shares vested		$ 438,000	$ 432,000	$ 382,000
Director
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Increase in annual cash retainer paid		6,000
Annual cash retainer paid to individuals		11,500
Board of Directors Chairman
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Annual cash retainer paid to individuals		19,250
Audit Committee Chairman
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Increase in annual cash retainer paid		2,875
Annual cash retainer paid to individuals		$ 14,375
President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Service period		12 months
Directors and President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of treasury shares reissued to fund stock compensation (in shares)		8,465	6,015
Expense related to stock compensation recognized		$ 350,000	$ 357,000	$ 301,000
Subsequent Event | Directors and President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of treasury shares reissued to fund stock compensation (in shares)	7,923

XML

SECURITIES - Securities Held to Maturity (Details) - USD ($)	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	$ 3,115,000	$ 4,875,000
Estimated Fair Value	3,139,000	4,858,000
Unrealized Gains	24,000	0
Unrealized Losses	0	17,000
Amortized Cost
Within one year	1,583,000
After one, but within five years	1,532,000
After five, but within ten years	0
After ten years	0
Total	3,115,000	4,875,000
Fair Value
Within one year	1,589,000
After one, but within five years	1,550,000
After five, but within ten years	0
After ten years	0
Total	3,139,000	4,858,000
Gain (loss) on sale of held-to-maturity securities	0	0
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	1,045,000	3,020,000
Estimated Fair Value	1,045,000	3,020,000
Unrealized Gains	0	0
Unrealized Losses	0	0
Amortized Cost
Total	1,045,000	3,020,000
Fair Value
Total	1,045,000	3,020,000
Time deposits with other financial institutions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Amortized Cost	2,070,000	1,855,000
Estimated Fair Value	2,094,000	1,838,000
Unrealized Gains	24,000	0
Unrealized Losses	0	17,000
Amortized Cost
Total	2,070,000	1,855,000
Fair Value
Total	$ 2,094,000	$ 1,838,000

XML

SEGMENT REPORTING (Tables)

12 Months Ended

Dec. 31, 2019

Segment Reporting [Abstract]

Summarized Financial Information Concerning Reportable Segments And Reconciliation To Consolidated Results

The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands).

Year ended December 31, 2019	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	66,868	$	—	$	64		$	66,932
Interest expense	6,321		—		—			6,321
Net interest income	60,547		—		64			60,611
Provision for loan losses	5,945		—		—			5,945
Net interest income after provision for loan losses	54,602		—		64			54,666
Non-interest income	10,356		9,503		214			20,073
Non-interest expenses	48,213		6,326		1,157			55,696
Income (loss) before income tax expense	16,745		3,177		(879		)	19,043
Income tax expense (benefit)	2,778		810		(154		)	3,434
Segment net income (loss)	$	13,967	$	2,367	$	(725	)	$	15,609
Segment assets	$	1,780,401	$	3,345	$	4,082		$	1,787,827

Year ended December 31, 2018	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	64,511	$	—	$	42		$	64,553
Interest expense	4,073		—		—			4,073
Net interest income	60,438		—		42			60,480
Provision for loan losses	3,153		—		—			3,153
Net interest income after provision for loan losses	57,285		—		42			57,327
Non-interest income	13,597		9,317		160			23,074
Non-interest expenses	49,650		5,997		1,119			56,766
Income (loss) before income tax expense	21,232		3,320		(917		)	23,635
Income tax expense (benefit)	3,329		847		(167		)	4,009
Segment net income (loss)	$	17,903	$	2,473	$	(750	)	$	19,626
Segment assets	$	1,747,208	$	3,606	$	4,529		$	1,755,343

Year ended December 31, 2017	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,225		8,804		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,235		3,140		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,952	$	1,949	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Goodwill and Intangible Assets (Details) $ in Millions	1 Months Ended		12 Months Ended
	Nov. 30, 2013 Branch	Mar. 31, 2008 Branch	Dec. 31, 2019 USD ($) segment
Finite-Lived Intangible Assets [Line Items]
Number of operating segments | segment			2
Bank of America
Finite-Lived Intangible Assets [Line Items]
Number of branches acquired | Branch	6
Finite-lived intangible assets			$ 0.1
Bank of America | Core Deposits
Finite-Lived Intangible Assets [Line Items]
Useful life			7 years
Partners Trust Bank | Trust Business
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets			$ 0.6
Useful life			15 years
Fort Orange Financial Corp
Finite-Lived Intangible Assets [Line Items]
Finite-lived intangible assets			$ 0.1
Useful life			10 years
M&T Bank branch offices
Finite-Lived Intangible Assets [Line Items]
Number of branches acquired | Branch		3

XML

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Tables)

12 Months Ended

Dec. 31, 2019

Disclosure of Repurchase Agreements [Abstract]

Summary of Securities Sold under Agreements to Repurchase

A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):

	2019			2018			2017
Balance at December 31	$	—		$	—		$	10,000
Maximum month-end balance	$	—		$	10,000		$	25,718
Average balance during year	$	—		$	3,644		$	14,207
Weighted-average interest rate at December 31	—		%	—		%	3.72		%
Average interest rate paid during year	—		%	3.77		%	3.37		%

XML

PREMISES AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

Schedule of Premises and Equipment

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

	2019			2018
Buildings	$	5,572		$	5,572
Accumulated depreciation	(1,541		)	(1,208		)
Net book value	$	4,031		$	4,364

Premises and equipment at December 31, 2019 and 2018 are as follows (in thousands):

	2019		2018
Land	$	4,803	$	4,803
Buildings	41,408		41,332
Projects in progress	113		31
Equipment and furniture	37,007		38,008
Leasehold improvements	5,757		6,174
	89,088		90,348
Less accumulated depreciation and amortization	66,671		65,368
Net book value	$	22,417	$	24,980

The Corporation has included these leases in premises and equipment as of December 31, 2019 and December 31, 2018.

Lessee, Operating Lease, Liability, Maturity

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of December 31, 2019 (in thousands):

Year	Amount
2020	$	932
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,348
Total minimum lease payments	9,848
Less: amount representing interest	(1,764		)
Present value of net minimum lease payments	$	8,084

XML

SEGMENT REPORTING

12 Months Ended

Dec. 31, 2019

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1. Summarized financial information concerning the Corporation’s reportable segments and the reconciliation to the Corporation’s consolidated results are shown in the following table.  Income taxes are allocated based on the separate taxable income of each entity and indirect overhead expenses are allocated based on reasonable and equitable allocations applicable to the reportable segment.  The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands).

Year ended December 31, 2019	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	66,868	$	—	$	64		$	66,932
Interest expense	6,321		—		—			6,321
Net interest income	60,547		—		64			60,611
Provision for loan losses	5,945		—		—			5,945
Net interest income after provision for loan losses	54,602		—		64			54,666
Non-interest income	10,356		9,503		214			20,073
Non-interest expenses	48,213		6,326		1,157			55,696
Income (loss) before income tax expense	16,745		3,177		(879		)	19,043
Income tax expense (benefit)	2,778		810		(154		)	3,434
Segment net income (loss)	$	13,967	$	2,367	$	(725	)	$	15,609
Segment assets	$	1,780,401	$	3,345	$	4,082		$	1,787,827

Year ended December 31, 2018	Core Banking		WMG		Holding Company, CFS and CRM			Consolidated Totals
Interest and dividend income	$	64,511	$	—	$	42		$	64,553
Interest expense	4,073		—		—			4,073
Net interest income	60,438		—		42			60,480
Provision for loan losses	3,153		—		—			3,153
Net interest income after provision for loan losses	57,285		—		42			57,327
Non-interest income	13,597		9,317		160			23,074
Non-interest expenses	49,650		5,997		1,119			56,766
Income (loss) before income tax expense	21,232		3,320		(917		)	23,635
Income tax expense (benefit)	3,329		847		(167		)	4,009
Segment net income (loss)	$	17,903	$	2,473	$	(750	)	$	19,626
Segment assets	$	1,747,208	$	3,606	$	4,529		$	1,755,343

Year ended December 31, 2017	Core Banking		WMG		Holding Company and CFS			Consolidated Totals
Interest and dividend income	$	60,031	$	—	$	24		$	60,055
Interest expense	3,068		—		—			3,068
Net interest income	56,963		—		24			56,987
Provision for loan losses	9,022		—		—			9,022
Net interest income after provision for loan losses	47,941		—		24			47,965
Non-interest income	11,225		8,804		462			20,491
Non-interest expenses	46,931		5,664		1,169			53,764
Income (loss) before income tax expense	12,235		3,140		(683		)	14,692
Income tax expense (benefit)	6,283		1,191		(212		)	7,262
Segment net income (loss)	$	5,952	$	1,949	$	(471	)	$	7,430
Segment assets	$	1,700,196	$	4,061	$	3,363		$	1,707,620

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PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2019

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

PREMISES AND EQUIPMENT

Premises and equipment at December 31, 2019 and 2018 are as follows (in thousands):

	2019		2018
Land	$	4,803	$	4,803
Buildings	41,408		41,332
Projects in progress	113		31
Equipment and furniture	37,007		38,008
Leasehold improvements	5,757		6,174
	89,088		90,348
Less accumulated depreciation and amortization	66,671		65,368
Net book value	$	22,417	$	24,980

Depreciation expense was $3.1 million, $3.4 million and $3.7 million for 2019, 2018, and 2017, respectively.

Capital Leases

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

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

	2019			2018
Buildings	$	5,572		$	5,572
Accumulated depreciation	(1,541		)	(1,208		)
Net book value	$	4,031		$	4,364

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SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

12 Months Ended

Dec. 31, 2019

Disclosure of Repurchase Agreements [Abstract]

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

Repurchase agreements are secured borrowings. The Corporation pledges investment securities to secure these borrowings. A summary of securities sold under agreements to repurchase as of and for the years ended December 31, 2019, 2018 and 2017 is as follows (in thousands):

	2019			2018			2017
Balance at December 31	$	—		$	—		$	10,000
Maximum month-end balance	$	—		$	10,000		$	25,718
Average balance during year	$	—		$	3,644		$	14,207
Weighted-average interest rate at December 31	—		%	—		%	3.72		%
Average interest rate paid during year	—		%	3.77		%	3.37		%

There were no securities sold under agreements to repurchase as of December 31, 2019 and December 31, 2018.

The Corporation enters into sales of securities under agreements to repurchase and the amounts received under these agreements represent borrowings and are reflected as a liability in the consolidated balance sheets.  The securities underlying these agreements are included in investment securities in the consolidated balance sheets. See Note 3 for additional information regarding securities pledged as collateral for securities sold under the repurchase agreements.

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

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PARENT COMPANY FINANCIAL INFORMATION (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017	Dec. 31, 2016
Assets:
Cash on deposit with subsidiary bank	$ 25,203	$ 33,040
Securities available for sale, at estimated fair value	284,090	242,258
Total assets	1,787,827	1,755,343	$ 1,707,620
Liabilities and shareholders' equity:
Dividends payable	1,263	1,254	1,233
Total liabilities	1,605,200	1,590,314
Shareholders' equity:
Total shareholders' equity	182,627	165,029	149,813	$ 143,748
Total liabilities and shareholders' equity	1,787,827	1,755,343
STATEMENTS OF INCOME [Abstract]
Income before income tax expense	19,043	23,635	14,692
Income tax benefit	3,434	4,009	7,262
Net of tax	15,609	19,626	7,430
Cash flows from operating activities:
Net income	15,609	19,626	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Change in other assets	(1,945)	(2,651)	579
Change in other liabilities	3,333	(654)	(3,664)
Net cash provided by operating activities	26,405	27,772	23,645
Cash flow from financing activities:
Cash dividends paid	(5,029)	(4,969)	(4,917)
Sale of treasury stock	585	643	582
Net cash (used in) provided by financing activities	(1,762)	27,552	39,564
Cash and cash equivalents, beginning of period	129,972
Cash and cash equivalents, end of period	121,904	129,972
Parent Company
Assets:
Cash on deposit with subsidiary bank	3,938	3,978
Dividends receivable from subsidiary bank	0	0
Securities available for sale, at estimated fair value	492	554
Other assets	1,266	1,071
Total assets	183,988	166,390
Liabilities and shareholders' equity:
Dividends payable	1,263	1,254
Other liabilities	98	107
Total liabilities	1,361	1,361
Shareholders' equity:
Total shareholders' equity	182,627	165,029
Total liabilities and shareholders' equity	183,988	166,390
STATEMENTS OF INCOME [Abstract]
Dividends from subsidiary bank and non-bank	4,516	3,187	4,926
Interest and dividend income	9	10	10
Non-interest income	(62)	(20)	22
Non-interest expenses	439	477	433
Income before impact of subsidiaries' undistributed earnings	4,024	2,700	4,525
Income before income tax expense	15,445	19,462	7,213
Income tax benefit	(164)	(164)	(217)
Net of tax	15,609	19,626	7,430
Cash flows from operating activities:
Net income	15,609	19,626	7,430
Adjustments to reconcile net income to net cash provided by operating activities:
Change in dividend receivable	0	1,233	(8)
Change in other assets	(196)	(32)	(214)
Change in other liabilities	(48)	773	51
Expense related to employee stock compensation	100	89	200
Expense related to restricted stock units for directors' deferred compensation plan	42	67	98
Expense to employee restricted stock awards	503	405	210
Net cash provided by operating activities	4,589	5,399	5,079
Cash flow from financing activities:
Cash dividends paid	(5,029)	(4,969)	(4,919)
Purchase of treasury stock	(185)	(112)	(61)
Sale of treasury stock	585	643	582
Net cash (used in) provided by financing activities	(4,629)	(4,438)	(4,398)
Net increase (decrease) in cash and cash equivalents	(40)	961	681
Cash and cash equivalents, beginning of period	3,978	3,017	2,336
Cash and cash equivalents, end of period	3,938	3,978	3,017
Parent Company | Chemung Canal Trust Company
Assets:
Investment in subsidiary	175,470	158,166
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	11,220	16,670	1,939
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	(11,220)	(16,670)	(1,939)
Parent Company | CFS Group Inc.
Assets:
Investment in subsidiary	868	873
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	(4)	(32)	(42)
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	4	32	42
Parent Company | Chemung Risk Management
Assets:
Investment in subsidiary	1,954	1,748
STATEMENTS OF INCOME [Abstract]
Income (loss) from equity method investments	205	124	791
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed earnings	$ (205)	$ (124)	$ (791)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2019

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

ORGANIZATION

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

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

BASIS OF PRESENTATION

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.

CASH AND CASH EQUIVALENTS

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

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

EQUITY INVESTMENTS

On January 1, 2018, the Corporation adopted ASU 2016-01, an amendment to Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10), which requires equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. The adoption of this guidance resulted in a $40 thousand increase to beginning retained earnings and a $202 thousand decrease to beginning accumulated other comprehensive income (loss).

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

SECURITIES

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

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

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

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

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK STOCK

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

LOANS

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

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

Interest on loans is accrued and credited to operations using the interest method.  Past due status is based on the contractual terms of the loan.  The accrual of interest is generally discontinued and previously accrued interest is reversed when loans become 90 days delinquent.  Loans may also be placed on non-accrual status if management believes such classification is otherwise warranted.  All payments received on non-accrual loans are applied to principal.  Loans are returned to accrual status when they become current as to principal and interest and remain current for a period of six consecutive months or when, in the opinion of management, the Corporation expects to receive all of its original principal and interest.  Loan origination fees and certain direct loan origination costs are deferred and amortized over the life of the loan as an adjustment to yield, using the interest method.

TROUBLED DEBT RESTRUCTURINGS

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

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

ALLOWANCE FOR LOAN LOSSES

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

A loan is classified as impaired when, based on current information and events, it is probable that the Bank 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, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired.  Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.  If a loan is determined to be impaired and is placed on nonaccrual status, all future payments received are applied to principal and a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral.

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

The allowance for loan losses is increased through a provision for loan losses charged to operations.  Loans are charged against the allowance for loan losses when management believes that the collectability of all or a portion of the principal is unlikely.  Management's evaluation of the adequacy of the allowance for loan losses is performed on a periodic basis and takes into consideration such factors as the credit risk grade assigned to the loan, historical loan loss experience and review of specific impaired loans.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions.

LOANS HELD FOR SALE

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

CAPITAL LEASES

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

PREMISES AND EQUIPMENT

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

BANK OWNED LIFE INSURANCE

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

OTHER REAL ESTATE

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

INCOME TAXES

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

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

WEALTH MANAGEMENT GROUP FEE INCOME

Assets held in a fiduciary or agency capacity for customers are not included in the accompanying consolidated balance sheets, since such assets are not assets of the Corporation. Wealth Management Group income is recognized on the accrual method as earned based on contractual rates applied to the balances of individual trust accounts.  The unaudited market value of trust assets under administration total $1.915 billion, including $290.0 million of assets held under management or administration for the Corporation, at December 31, 2019 and $1.768 billion, including $283.0 million of assets held under management or administration for the Corporation, at December 31, 2018.

POSTRETIREMENT BENEFITS

Pension Plan:

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

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

On October 20, 2016, the Corporation amended its noncontributory defined benefit pension plan (“pension plan”) to freeze future retirement benefits after December 31, 2016. Beginning on January 1, 2017, both the pay-based and service-based component of the formula used to determine retirement benefits in the pension plan were frozen so that participants will no longer earn further retirement benefits. During the fourth quarter of 2018, the Corporation offered terminated, vested employees the option to receive lump sum settlement payments. The effects of these changes are reflected in the pension plan disclosures as of December 31, 2018 and 2017. See Note 14 for further details.

Defined Contribution Profit Sharing, Savings and Investment Plan:

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

Defined Benefit Health Care Plan:

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

On October 20, 2016, the Corporation amended its defined benefit health care plan to not allow any new retirees into the plan, effective January 1, 2017. The effects of this freeze are reflected in the pension plan disclosures as of December 31, 2019 and 2018. See Note 14.

Executive Supplemental Pension Plan:

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

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

Defined Contribution Supplemental Executive Retirement Plan:

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

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

STOCK-BASED COMPENSATION

Restricted Stock Plan:

The Restricted Stock Plan is designed to align the interests of the Corporation’s executives and senior managers with the interests of the Corporation and its shareholders, to ensure the Corporation’s compensation practices are competitive and comparable with those of its peers, and to promote the retention of select management-level employees.  Under the terms of the Plan, the Corporation may make discretionary grants of restricted shares of the Corporation’s common stock to or for the benefit of employees selected to participate in the Plan.  Each officer of the Corporation, other than the Corporation’s chief executive officer, is eligible to participate in the Plan.  Awards are based on the performance, responsibility and contributions of the employee and are targeted at an average of the peer group.  The maximum number of shares of the Corporation’s common stock that may be awarded as restricted shares to Plan participants may not exceed 15,000 per calendar year.  Twenty percent of the restricted stock awarded to a participant vests each year commencing with the first anniversary date of the award and is 100 percent vested on the fifth anniversary date.  Except in the case of the participant’s death, disability, or in the event of a change in control, the participant’s unvested shares of unrestricted stock will be forfeited if the participant leaves the employment of the Bank, or if the participant retires prior to attainment of age 65, unless otherwise waived by the Compensation and Personnel Committee of the Board of Directors.  The plan’s expense is recognized as compensation expense ratably over the vesting period for the fair value of the award, measured at the grant date. See Note 15 for more information regarding this Plan.

Deferred Directors Fee Plan:

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

Directors’ Compensation Plan:

The purpose of the Directors’ Compensation Plan is to enable the Corporation to attract and retain persons of exceptional ability to serve as directors and stockholders in enhancing the value of the common stock of the Corporation.  The Plan was originally established to provide for the cash payment of an annual retainer and fees to non-employee directors serving on the Board of Directors of the Corporation and the Bank.  The Plan was subsequently amended to provide: (i) payment of additional compensation to each non-employee director in shares of the Corporation’s common stock in an amount equal to the total cash compensation earned by each non-employee director during the year for service on the Board of Directors of each of the Corporation and the Bank, and for each year of service thereafter, to be distributed from treasury shares in January of the following calendar year; and (ii) payment to the President and CEO of the Corporation and the Bank for his service on the Boards of Directors of the Corporation and the Bank in an amount equal in value to the average cash compensation awarded to non-employee directors who have served twelve (12) months of the previous year.   The maximum number of shares of Corporation’s common stock that may be granted under the Plan may not exceed 20,000 per year.  The Plan provides that the value of a share of common stock granted under the Plan shall be determined as the average of the closing prices of a share of common stock as quoted on the applicable established securities market for each of the prior 30 trading days ending on December 31^st of the calendar year.  The cost of all cash and stock compensation is charged to non-interest expenses in the consolidated statements of income. In 2019, the annual cash retainer paid to each non-employee director of the Corporation was increased by $6,000 to $11,500 and $19,250 for the Chairman of the Board.  The retainer for the Chairman of the Audit Committee was also increased by an additional $2,875 to $14,375.  The directors waived their right to stock compensation for the additional retainer fees paid.

Incentive Compensation Plan:

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

Non-qualified Deferred Compensation Plan:

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

GOODWILL AND INTANGIBLE ASSETS

Goodwill resulting from business combinations prior to January 1, 2009 represents the excess of the purchase price over the fair value of the net assets of businesses acquired.  Goodwill resulting from business combinations after January 1, 2009, is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date.  Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually.  The Corporation has selected December 31 as the date to perform the annual impairment test. Goodwill is the only intangible asset with an indefinite life on our balance sheet.  Intangible assets with definite useful lives are amortized over their estimated useful lives to their estimated residual values.  The balances are reviewed for impairment on an ongoing basis or whenever events or changes in business circumstances warrant a review of the carrying value.  If impairment is determined to exist, the related write-down of the intangible asset's carrying value is charged to operations.  Based on these impairment reviews, the Corporation determined that goodwill and other intangible assets were not impaired at December 31, 2019.

The Corporation's intangible assets with definite useful lives resulted from the purchase of the trust business of Partners Trust Bank in May of 2007, the acquisition of FOFC in April 2011 and the acquisition of six branches of Bank of America in November of 2013, with balances of $0.6 million, $0.1 million and $0.1 million, respectively, at December 31, 2019.  The intangible assets related to the acquisition of Canton Bancorp, Inc. in May 2009 were fully amortized at December 31, 2016. The intangible assets related to the acquisition of three former M&T Bank branch offices in March 2008 were fully amortized at December 31, 2015. The trust business intangible is being amortized to expense over the expected useful life of 15 years.  The identifiable core deposit related to the branch offices in the Bank of America acquisition is being amortized to expense using a 7 year accelerated method.  The identifiable core deposit intangible related to the FOFC acquisition is being amortized using a 10 year accelerated method.

SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE

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

DERIVATIVES

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

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

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

The Corporation does not typically require its commercial customers to post cash or securities as collateral on its program of back-to-back interest rate swap program. The Corporation may need to post collateral, either cash or certain qualified securities, in proportion to potential increases in unrealized loss positions.

OTHER FINANCIAL INSTRUMENTS

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

ADVERTISING COSTS

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

EARNINGS PER COMMON SHARE

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares including those related to directors’ restricted stock units and directors’ stock compensation are considered outstanding and are included in the computation of basic earnings per share as they are earned.  All outstanding unvested share based payment awards that contain rights to nonforfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities.  The impact of the participating securities on earnings per share is not material.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur.

COMPREHENSIVE INCOME (LOSS)

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

SEGMENT REPORTING

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

RECLASSIFICATION

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

RECENT ACCOUNTING PRONOUNCEMENTS

On January 1, 2019, the Corporation adopted 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 Corporation adopted the new lease guidance using the modified retrospective approach and elected the transition option issued under ASU 2018-11, Leases (Topic 842) Targeted Improvements, allowing entities to continue to apply the legacy guidance in ASC 840, Leases, to prior periods, including disclosure requirements. Accordingly, prior period financial results and disclosures have not been adjusted. In addition, the Corporation elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed the Corporation to carry forward the historical lease classification. Adoption of the new standard resulted in the recording of operating lease right-of-use assets and operating lease liabilities of approximately $8.6 million as of January 1, 2019. The standard did not materially impact our consolidated net earnings and had no impact on cash flows.

On January 1, 2019, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

On January 1, 2018, the Corporation adopted ASU 2014-09 Revenue from Contracts with Customers (Topic 606) and all subsequent amendments to the ASU (collectively, "ASU 606"), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation's revenues come from interest income and other sources, including loans, securities, and derivatives that are outside the scope of ASC 606. The Corporation's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, and the sale of OREO. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank; as such, no cumulative effect adjustment was recorded. Refer to Note 11 - Revenue from Contracts with Customers for further discussion on the Corporation's accounting policies for revenue sources within the scope of ASC 606.

In January 2016, the FASB issued ASU No. 2016-01, an amendment to Recognition and Measurement of Financial Asset and Financial Liabilities (Subtopic 825-10). The objectives of the ASU are to (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity's other deferred tax assets. The Corporation adopted all provisions of this ASU as of January 1, 2018 using the modified retrospective method. Results for reporting periods beginning after January 1, 2018 are presented under ASC 825, with comparable consolidated balance sheets also reported. The adjustments to opening retained earnings and accumulated other comprehensive loss related to the adoption of ASC 825 are immaterial to the financial statements.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The objective of the ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date by replacing the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to form credit loss estimates. The amendments in this ASU are effective for public companies for fiscal years beginning after December 15, 2019, though entities may adopt the amendments earlier for fiscal years beginning after December 15, 2018. In November 2019, the FASB adopted changes to delay the effective date of ASU 2016-13 to January 2023 for certain entities, including certain Securities and Exchange Commission filers, public business entities, and private companies. As a smaller reporting company, the Corporation would be eligible for the proposed delay. 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 began establishing parameters which will be used in the CECL model with the selected vendor. The Corporation is running its current incurred loss model and a CECL model concurrently. The Corporation is currently evaluating the impact of the delay on its implementation plan.

In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments. The objective of the ASU is to reduce the existing diversity in practice relating to eight specific cash flow issues: (1) debt prepayment or debt extinguishment costs, (2) settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, (3) contingent consideration payments made after a business combination, (4) proceeds from the settlement of insurance claims, (5) proceeds from the settlement of corporate-owned life insurance policies, including bank-owned life insurance policies, (6) distributions received from equity method investees, (7) beneficial interests in securitization transactions, and (8) separately identifiable cash flows and application of the predominance principal. Results for reporting periods beginning after January 1, 2018 are presented under ASC 230, while prior periods amounts continue to be reported in accordance with legacy GAAP. The adoption of ASU 2016-15 as of January 1, 2018 did not result in a change to how the Corporation accounts for its cash flows.

In January 2017, the FASB issued ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. The objective of the ASU is to simplify the manner in which an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Additionally, the ASU removes the requirement for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails such qualitative test, to perform Step 2 of the goodwill impairment test. The amendments in this ASU are effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The adoption of the ASU is not expected to have a significant impact on the Corporation's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, Compensation - Retirement Benefits (Topic 715) - Improving the Presentation of Net Periodic Cost and Net Periodic Postretirement Benefit Cost. The objective of the ASU was to improve guidance related to the presentation of defined benefit costs in the income statement. Specifically, the ASU required that an employer report the service cost component in the same line item(s) as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. Additionally, the ASU allows only the service cost component to be eligible for capitalization, when applicable. Results for reporting periods beginning after January 1, 2018 are presented under ASC 715, while prior period amounts continue to be reported in accordance with legacy GAAP, with comparable periods presented retrospectively for the presentation of the service cost and net periodic postretirement benefit cost in the income statement. The Corporation adopted ASU 2017-07 as of January 1, 2018 and elected the practical expedient, which permits employers to use the amounts disclosed in its pension and other postretirement benefit plan note for the prior comparative periods as the estimation for applying retrospective presentation requirements.

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FEDERAL HOME LOAN BANK TERM ADVANCES AND OVERNIGHT ADVANCES (Details) - USD ($) $ in Millions	Dec. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank, Advances, Maturity Periods [Line Items]
Maximum amount eligible to borrow	$ 141.8
Residential Mortgages
Federal Home Loan Bank, Advances, Maturity Periods [Line Items]
Loans pledged as collateral	$ 170.0	$ 132.5

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LEASES - Future Minimum Lease Payment Obligations Under Capital Leases (Details) $ in Thousands	Dec. 31, 2019 USD ($)
Leases [Abstract]
2020	$ 376
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,185
Less: amount representing interest	(1,100)
Present value of net minimum lease payments	$ 4,085

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PENSION PLAN AND OTHER BENEFIT PLANS - Additional Information (Details) - USD ($) $ in Thousands			12 Months Ended
	Jan. 01, 2019	Oct. 20, 2016	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Defined Benefit Plan Disclosure [Line Items]
Hours requirement to be eligible		1000 hours
Defined Contribution Profit Sharing, Savings and Investment Plan
Defined Benefit Plan Disclosure [Line Items]
Total expense			$ 1,300	$ 1,200	$ 1,160
Chemung common stock included in defined contribution plan assets (in shares)			155,696	148,716	155,336
Defined Contribution Supplemental Executive Retirement Plan
Defined Benefit Plan Disclosure [Line Items]
Total expense			$ 400	$ 300	$ 300
Balance in the plan			1,600	1,200
Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Lump sum settlement payments to employee			0	3,288
Settlement charge			0	$ 828	$ 0
Other comprehensive income, defined benefit plans, increase (decrease) in net unamortized gain loss arising during period net of tax			$ 300
Total unrecognized net loss increased percentage of obligation amortization threshold			10.00%
Total unrecognized net loss increased (decreased) percentage of plan assets threshold			10.00%
Average total life expectancy of participants	24 years 6 months 16 days
Other Postretirement Benefit Plan
Defined Benefit Plan Disclosure [Line Items]
Other comprehensive income, defined benefit plans, increase (decrease) in net unamortized gain loss arising during period net of tax			$ 74
Average future working lifetime of active participants			5 years
Executive Supplemental Pension Plan
Defined Benefit Plan Disclosure [Line Items]
Total unrecognized net loss increased percentage of obligation amortization threshold			10.00%
Total unrecognized net loss increased (decreased) percentage of plan assets threshold			10.00%
Average total life expectancy of participants	12 years 8 months 24 days
Defined benefit plan, increase(decrease) in total unrecognized net loss			$ 109

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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Statement of Comprehensive Income [Abstract]
Net income	$ 15,609	$ 19,626	$ 7,430
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	8,053	(1,382)	2,523
Reclassification adjustment gains realized in net income	19	0	(109)
Net unrealized gains (losses)	8,072	(1,382)	2,414
Tax effect	(2,058)	353	(904)
Net of tax amount	6,014	(1,029)	1,510
Change in funded status of defined benefit pension plan and other benefit plans:
Net gain (loss) arising during the period	(626)	(711)	1,001
Reclassification adjustment for amortization of prior service benefit	(220)	(220)	(220)
Prior service credit	0	0	0
Reclassification adjustment for partial pension settlement loss included in pension expense	0	828	0
Reclassification adjustment for amortization of net actuarial losses	312	318	413
Total before tax effect	(534)	215	1,194
Tax effect	132	(55)	(453)
Net of tax amount	(402)	160	741
Total other comprehensive income (loss)	5,612	(869)	2,251
Comprehensive income	$ 21,221	$ 18,757	$ 9,681

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Document and Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2019	Mar. 11, 2020	Jun. 30, 2019
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
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Shell Company	false
Document Type	10-K
Document Period End Date	Dec. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	FY
Amendment Flag	false
Entity Common Stock, Shares Outstanding		4,870,366
Entity Well-known Seasoned Issuer	No
Entity Voluntary Filers	No
Entity Current Reporting Status	Yes
Entity Public Float			$ 184,887,776

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Additional Information (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Jan. 01, 2018
Property, Plant and Equipment [Line Items]
Adjusted cumulative effect of accounting change			$ (162)
Period of delinquency after which a loan is placed on non-accrual status	90 days
Number of consecutive months for which loans remain current before non-accrual loans are returned to accrual status	6 months
Rolling historical period of net losses used in evaluating general component of valuation allowance for loans not impaired but classified as substandard and special mention	5 years
Number of most recent years of actual loss history used in determining historical loss experience for all other unclassified loans	2 years
Assets under management	$ 1,915,000	$ 1,768,000
Buildings | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives	15 years
Buildings | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives	50 years
Equipment and Furniture | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives	3 years
Equipment and Furniture | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives	10 years
Chemung Financial Corporation
Property, Plant and Equipment [Line Items]
Assets under management	$ 290,000	$ 283,000
Retained Earnings
Property, Plant and Equipment [Line Items]
Adjusted cumulative effect of accounting change			40
Accumulated Other Comprehensive Income (Loss)
Property, Plant and Equipment [Line Items]
Adjusted cumulative effect of accounting change			(202)
Accounting Standards Update 2016-01 | Retained Earnings
Property, Plant and Equipment [Line Items]
Adjusted cumulative effect of accounting change			40
Accounting Standards Update 2016-01 | Accumulated Other Comprehensive Income (Loss)
Property, Plant and Equipment [Line Items]
Adjusted cumulative effect of accounting change			$ (202)

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SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Recent Accounting Pronouncements (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Jan. 01, 2019	Dec. 31, 2018
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right-of-use assets	$ 8,001		$ 0
Operating lease liabilities	$ 8,084
Accounting Standards Update 2016-02
New Accounting Pronouncements or Change in Accounting Principle [Line Items]
Operating lease right-of-use assets		$ 8,600
Operating lease liabilities		$ 8,600

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SECURITIES - Investment Securities Available for Sale in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Dec. 31, 2019	Dec. 31, 2018
Fair Value
Less than 12 months	$ 74,520	$ 17,100
12 months or longer	55,748	201,005
Total	130,268	218,105
Unrealized Losses
Less than 12 months	800	57
12 months or longer	512	6,407
Total	1,312	6,464
Obligations of U.S. Government and U.S. Government sponsored enterprises
Fair Value
Less than 12 months	0	0
12 months or longer	0	4,969
Total	0	4,969
Unrealized Losses
Less than 12 months	0	0
12 months or longer	0	27
Total	0	27
Mortgage-backed securities, residential
Fair Value
Less than 12 months	71,506	0
12 months or longer	54,343	171,481
Total	125,849	171,481
Unrealized Losses
Less than 12 months	791	0
12 months or longer	475	6,065
Total	1,266	6,065
Obligations of states and political subdivisions
Fair Value
Less than 12 months	0	10,868
12 months or longer	0	21,345
Total	0	32,213
Unrealized Losses
Less than 12 months	0	38
12 months or longer	0	270
Total	0	308
Corporate bonds and notes
Fair Value
Less than 12 months	0	247
12 months or longer	0	0
Total	0	247
Unrealized Losses
Less than 12 months	0	2
12 months or longer	0	0
Total	0	2
SBA loan pools
Fair Value
Less than 12 months	3,014	5,985
12 months or longer	1,405	3,210
Total	4,419	9,195
Unrealized Losses
Less than 12 months	9	17
12 months or longer	37	45
Total	$ 46	$ 62

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SEGMENT REPORTING (Details) $ in Thousands	12 Months Ended
	Dec. 31, 2019 USD ($) segment	Dec. 31, 2018 USD ($)	Dec. 31, 2017 USD ($)
Segment Reporting Information [Line Items]
Number of primary business segment | segment	2
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	$ 66,932	$ 64,553	$ 60,055
Interest expense	6,321	4,073	3,068
Net interest income	60,611	60,480	56,987
Provision for loan losses	5,945	3,153	9,022
Net interest income after provision for loan losses	54,666	57,327	47,965
Non-interest income	20,073	23,074	20,491
Non-interest expenses	55,696	56,766	53,764
Income before income tax expense	19,043	23,635	14,692
Income tax benefit	3,434	4,009	7,262
Net income	15,609	19,626	7,430
Segment assets	1,787,827	1,755,343	1,707,620
Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Non-interest income	10,356	13,596	11,226
Operating Segments | Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	66,868	64,511	60,031
Interest expense	6,321	4,073	3,068
Net interest income	60,547	60,438	56,963
Provision for loan losses	5,945	3,153	9,022
Net interest income after provision for loan losses	54,602	57,285	47,941
Non-interest income	10,356	13,597	11,225
Non-interest expenses	48,213	49,650	46,931
Income before income tax expense	16,745	21,232	12,235
Income tax benefit	2,778	3,329	6,283
Net income	13,967	17,903	5,952
Segment assets	1,780,401	1,747,208	1,700,196
Operating Segments | WMG
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	0	0	0
Interest expense	0	0	0
Net interest income	0	0	0
Provision for loan losses	0	0	0
Net interest income after provision for loan losses	0	0	0
Non-interest income	9,503	9,317	8,804
Non-interest expenses	6,326	5,997	5,664
Income before income tax expense	3,177	3,320	3,140
Income tax benefit	810	847	1,191
Net income	2,367	2,473	1,949
Segment assets	3,345	3,606	4,061
Intersegment Eliminations
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	64	42	24
Interest expense	0	0	0
Net interest income	64	42	24
Provision for loan losses	0	0	0
Net interest income after provision for loan losses	64	42	24
Non-interest income	214	160	462
Non-interest expenses	1,157	1,119	1,169
Income before income tax expense	(879)	(917)	(683)
Income tax benefit	(154)	(167)	(212)
Net income	(725)	(750)	(471)
Segment assets	$ 4,082	$ 4,529	$ 3,363

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LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired Loans (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Unpaid Principal Balance
Total	$ 15,712	$ 8,819
Recorded Investment
Total	15,665	8,731
Allowance for Loan Losses Allocated	8,097	2,189
Average Recorded Investment
With no related allowance recorded	14,423	10,972	$ 12,699
Interest Income Recognized
With no related allowance recorded	72	61	154
Residential Mortgages
Unpaid Principal Balance
With no related allowance recorded	554	424
Recorded Investment
With no related allowance recorded	525	402
Average Recorded Investment
With no related allowance recorded	422	416	418
Interest Income Recognized
With no related allowance recorded	44	7	8
Construction | Commercial mortgages
Unpaid Principal Balance
With no related allowance recorded	247	307
Recorded Investment
With no related allowance recorded	247	308
Average Recorded Investment
With no related allowance recorded	278	337	830
Interest Income Recognized
With no related allowance recorded	10	11	12
Commercial mortgages | Commercial mortgages
Unpaid Principal Balance
With no related allowance recorded	3,501	4,007
With an allowance recorded	5,093	1,902
Recorded Investment
With no related allowance recorded	3,503	3,935
With an allowance recorded	5,094	1,903
Allowance for Loan Losses Allocated	2,097	446
Average Recorded Investment
With no related allowance recorded	3,605	4,193	5,606
With an allowance recorded	6,524	2,315	3,751
Interest Income Recognized
With no related allowance recorded	12	21	78
With an allowance recorded	0	4	12
Home equity lines and loans | Consumer Loans
Unpaid Principal Balance
With no related allowance recorded	171	54
With an allowance recorded	0	0
Recorded Investment
With no related allowance recorded	149	55
With an allowance recorded	0	0
Allowance for Loan Losses Allocated	0	0
Average Recorded Investment
With no related allowance recorded	137	60	74
With an allowance recorded	0	0	144
Interest Income Recognized
With no related allowance recorded	6	3	3
With an allowance recorded	0	0	0
Commercial and industrial | Commercial and industrial
Unpaid Principal Balance
With no related allowance recorded	133	345
With an allowance recorded	6,013	1,780
Recorded Investment
With no related allowance recorded	133	346
With an allowance recorded	6,014	1,782
Allowance for Loan Losses Allocated	6,000	1,743
Average Recorded Investment
With no related allowance recorded	248	608	706
With an allowance recorded	3,209	3,043	1,170
Interest Income Recognized
With no related allowance recorded	0	12	35
With an allowance recorded	$ 0	$ 3	$ 6

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PREMISES AND EQUIPMENT (Details) - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2019	Dec. 31, 2018	Dec. 31, 2017
Premises and equipment [Abstract]
Premises and equipment, gross	$ 89,088	$ 90,348
Less accumulated depreciation and amortization	66,671	65,368
Net book value	22,417	24,980
Depreciation expense	3,112	3,437	$ 3,703
Land
Premises and equipment [Abstract]
Premises and equipment, gross	4,803	4,803
Buildings
Premises and equipment [Abstract]
Premises and equipment, gross	41,408	41,332
Projects in progress
Premises and equipment [Abstract]
Premises and equipment, gross	113	31
Equipment and furniture
Premises and equipment [Abstract]
Premises and equipment, gross	37,007	38,008
Leasehold improvements
Premises and equipment [Abstract]
Premises and equipment, gross	$ 5,757	$ 6,174

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REGULATORY CAPITAL REQUIREMENTS (Tables)

12 Months Ended

Dec. 31, 2019

Regulatory Capital Requirements [Abstract]

Actual Capital Amounts and Ratios of Corporation and Bank

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

	Actual				Minimal Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2019	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	182,239	13.98	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	175,062	13.45	%	$	104,136	8.00	%	$	136,679	10.500	%	$	130,170	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	78,102	6.00	%	$	110,645	8.50	%	$	104,136	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	165,859	12.73	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	12.19	%	$	58,577	4.50	%	$	91,119	7.00	%	$	84,611	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	165,859	9.35	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	158,702	8.98	%	$	70,719	4.00	%	N/A		N/A		$	88,399	5.00	%

	Actual				Minimum Capital Adequacy				Minimal Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2018	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	169,416	13.14	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	162,536	12.62	%	$	103,039	8.00	%	$	127,189	9.875	%	$	128,799	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	77,280	6.00	%	$	101,429	7.875	%	$	103,039	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	153,263	11.89	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	11.37	%	$	57,960	4.50	%	$	82,110	6.375	%	$	83,720	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	153,263	8.79	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	146,401	8.41	%	$	69,598	4.00	%	N/A		N/A		$	86,998	5.00	%

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RELATED PARTY TRANSACTIONS (Tables)

12 Months Ended

Dec. 31, 2019

Related Party Transactions [Abstract]

Summary of Related Party Loans

These loans are summarized as follows for the years ended December 31, 2019 and 2018 (in thousands):

	2019			2018
Balance at beginning of year	$	62,741		$	39,153
New loans or additional advances	1,895			10,624
Effect of changes in composition of related parties	4,456			25,815
Repayments	(9,119		)	(12,851		)
Balance at end of year	$	59,973		$	62,741

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DERIVATIVES (Tables)

12 Months Ended

Dec. 31, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Schedule of Derivative Instruments

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

2019	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	15	$	113,204	7.9	4.44	%	4.03	%	$	(6,800	)
Interest rate swap agreements with third-party counter-parties	15	113,204		7.9	4.03	%	4.44	%	6,466
Risk participation agreements	3	11,819		5.6					(31		)
Total	33	$	238,227						$	(365	)

2018	Number of Instruments	Notional Amount		Weighted Average Maturity (in years)	Weighted Average Interest Rate Received		Weighted Average Contract Pay Rate		Fair Value Other Assets/ (Other Liabilities)
Derivatives not designated as hedging instruments:
Interest rate swap agreements on loans with commercial loan customers	11	$	76,395	7.1	4.69	%	4.61	%	$	(3,255	)
Interest rate swap agreements with third-party counter-parties	11	76,395		7.1	4.61	%	4.69	%	3,142
Risk participation agreements	6	20,142		15.0					(27		)
	28	$	172,932						$	(140	)

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

Schedule of Derivatives Not Designated as Hedging Instruments, Statements of Income

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

	Years Ended December 31,
	2019			2018			2017
Derivatives not designated as hedging instruments:
Interest rate swap agreements with commercial loan customers:
Unrealized (loss) recognized in non-interest income	$	(3,544	)	$	(2,281	)	$	(281	)
Interest rate swap agreements with third-party counter-parties:
Unrealized gain recognized in non-interest income	3,324			2,168			281
Risk participation agreements:
Unrealized gain (loss) recognized in non-interest income	(4		)	48			(7		)
Unrealized gain (loss) recognized in non-interest income	$	(224	)	$	(65	)	$	(7	)

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INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

For the years ended December 31, 2019, 2018 and 2017, income tax expense attributable to income from operations consisted of the following (in thousands):

	2019			2018			2017
Current expense:
Federal	$	4,603		$	1,732		$	2,594
State	395			124			417
Total current	4,998			1,856			3,011
Deferred expense/(benefit):
Federal	(1,126		)	2,253			942
State	(438		)	345			382
Remeasurement of deferred tax assets	—			(445		)	2,927
Total deferred	(1,564		)	2,153			4,251
Income tax expense	$	3,434		$	4,009		$	7,262

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

	2019			2018			2017
Statutory federal tax rate	21		%	21		%	34		%
Tax computed at statutory rate	$	3,999		$	4,963		$	5,006
Increase (reduction) resulting from:
Tax-exempt income	(424		)	(430		)	(663		)
831(b) premium adjustment	(189		)	(167		)	(269		)
Dividend exclusion	(7		)	(7		)	(8		)
State taxes, net of Federal impact	(86		)	262			201
Nondeductible interest expense	9			7			8
Remeasurement of deferred tax assets	—			(445		)	2,927
Other items, net	132			(174		)	60
Income tax expense	$	3,434		$	4,009		$	7,262
Effective tax rate	18.0		%	17.0		%	49.4		%

The lower tax expense in 2019 when compared to 2018 can be attributed to a decrease in pretax income.

The lower tax expense in 2018 when compared to 2017 can be attributed to a tax benefit of $0.4 million recorded in December 2018 and to the estimated $2.9 million one-time net deferred tax revaluation recorded in December 2017, both due to the enactment of Tax Act. On December 22, 2017, the Tax Act was enacted into legislation. Under ASC 740, the effects of changes in tax rates and laws are recognized in the period in which the new legislation is enacted. Accordingly, the Corporation had recorded $2.9 million for the remeasurement of the Corporation's deferred tax assets.

Additionally, on December 22, 2017, the SEC released Staff Bulletin No. 118 ("SAB 118") to address any uncertainty or diversity of views in practice in accounting for the income tax effects of the Tax Act in situations where the necessary information is not available, prepared, or analyzed in reasonable detail to complete the accounting in the reporting period that includes the enactment date. SAB 118 allows for a measurement period not to extend beyond one year from the Tax Act's enactment date to the complete the necessary accounting. In 2017, the Corporation recorded provisional amounts of deferred income taxes using reasonable estimates in areas where information necessary to complete the accounting was not available, prepared, or analyzed. In 2018, the Corporation completed its accounting of the effects of the Tax Act with the completion of its 2017 tax returns.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018, are presented below (in thousands):

	2019		2018
Deferred tax assets:
Allowance for loan losses	$	6,046	$	4,834
Accrual for employee benefit plans	92		136
Depreciation	379		(93		)
Deferred compensation and directors' fees	765		634
Operating lease liabilities	2,050		—
Purchase accounting adjustment – loans	1		7
Purchase accounting adjustment – fixed assets	149		149
Gain on deemed sale of securities	71		339
Net unrealized losses on securities available for sale	—		1,590
Accounting for defined benefit pension and other benefit plans	2,448		2,315
Nonaccrued interest	695		625
Accrued expense	179		200
Other items, net	38		153
Total gross deferred tax assets	12,913		10,889
Deferred tax liabilities:
Deferred loan fees and costs	592		640
Prepaid pension	3,189		3,141
Net unrealized gains on securities available for sale	468		—
Discount accretion	24		137
Core deposit intangible	1,213		1,101
REIT dividend	922		1,048
Operating lease right-of-use assets	2,050		—
Other	103		109
Total gross deferred tax liabilities	8,561		6,176
Net deferred tax asset	$	4,352	$	4,713

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

As of December 31, 2019, 2018 and 2017, the Corporation did not have any unrecognized tax benefits.

The Corporation accounts for interest and penalties related to uncertain tax positions as part of its provision for Federal and State income taxes.  As of December 31, 2019, 2018 and 2017, the Corporation did not accrue any interest or penalties related to its uncertain tax positions.

The Corporation is not currently subject to examinations by Federal taxing authorities for the years prior to 2016 and for New York State taxing authorities for the year prior to 2016.

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COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2019

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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

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

	2019				2018
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	15,560	$	25,233	$	9,137	$	18,033
Unused lines of credit	$	1,062	$	229,137	$	848	$	212,601
Standby letters of credit	$	—	$	16,272	$	—	$	16,161

Commitments to make real estate and home equity loans are generally made for periods of sixty days or less.  As of December 31, 2019, the fixed rate commitments to make loans have interest rates ranging from 3.88% to 5.88% and maturities ranging from five years to thirty years.  Commitments to fund commercial draw notes are generally made for periods of three months to twenty-four months.  As of December 31, 2019, the fixed rate commitments have interest rates ranging from 3.50% to 6.25%.

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

The Corporation has issued conditional commitments in the form of standby letters of credit to guarantee payment on behalf of a customer and guarantee the performance of a customer to a third party.  Standby letters of credit generally arise in connection with lending relationships.  The credit risk involved in issuing these instruments is essentially the same as that involved in extending loans to customers.  Contingent obligations under standby letters of credit totaled $16.3 million at December 31, 2019 and represent the maximum potential future payments the Corporation could be required to make.  Typically, these instruments have terms of twelve months or less and expire unused; therefore, the total amounts do not necessarily represent future cash requirements.  Each customer is evaluated individually for creditworthiness under the same underwriting standards used for commitments to extend credit and on-balance sheet instruments.  Corporation policies governing loan collateral apply to standby letters of credit at the time of credit extension.  The carrying amount and fair value of the Corporation's standby letters of credit at December 31, 2019 was not significant.

On March 23, 2016, the Bank received a summons and complaint for an action brought in the State of New York Supreme Court for the County of Tompkins, regarding its lease of 202 East State Street, Ithaca, NY, a branch location which the Bank had vacated. The owner of the leased premises has alleged that the Bank has breached its contract and is requesting a judgment declaring that the term of the lease runs through December 31, 2025 or a judgment in his favor in the amount of $4.0 million. The Bank has denied that it breached the contract. On July 25, 2016, the Corporation received Notice of Entry of the decision and order of the New York Supreme Court for the County of Tompkins, involving claims by the owner of the leased premises at 202 East State Street, Ithaca, New York against the Bank. The Court granted, in part, partial summary judgment in favor of the plaintiff - on the issue of liability only - for anticipatory breach and breach of contract. The fraud claims were dismissed, and summary judgment was denied on the plaintiff’s trespass claims. The Court set the matter down for an inquest on damages at a later date, with the original claim by the plaintiff seeking $4.0 million in damages. The Corporation established a legal reserve of $1.2 million in connection with this case during the second quarter of 2016.

Subsequent to an appeal of the lower court determination, which was perfected in the Appellate Division, Third Department of State Supreme Court, on June 29, 2017, the Bank received Notice of Entry of the decision and Order of that Court which affirmed the lower court’s decision in favor of the plaintiff with damages to be determined at a later proceeding. The Bank established an additional legal reserve in the amount of $850 thousand, in connection with this case, during the second quarter of 2017. The Bank’s total reserve with respect to this matter stood at $2.3 million, including $0.2 million accrued for related expenses not yet paid as of June 30, 2017. A motion to the Appellate Division for reargument or permission for leave to appeal to the Court of Appeals was filed and denied during the fourth quarter of 2017.

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

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ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

12 Months Ended

Dec. 31, 2019

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

ACCUMULATED OTHER COMPREHENSIVE INCOME OR LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale			Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2019	(4,646		)	(6,765		)	(11,411		)
Other comprehensive income before reclassification	6,028			(467		)	5,561
Amounts reclassified from accumulated other comprehensive income (loss)	(14		)	65			51
Net current period other comprehensive income (loss)	6,014			(402		)	5,612
Balance at December 31, 2019	$	1,368		$	(7,167	)	$	(5,799	)

	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	)
Adjusted cumulative effect of accounting change	(202		)	—			(202		)
Balance at January 1, 2018	(3,617		)	(6,925		)	(10,542		)
Other comprehensive income (loss) before reclassification	(1,029		)	(530		)	(1,559		)
Amounts reclassified from accumulated other comprehensive income (loss)	—			690			690
Net current period other comprehensive income (loss)	(1,029		)	160			(869		)
Balance at December 31, 2018	$	(4,646	)	$	(6,765	)	$	(11,411	)

	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 (loss) before reclassification	1,578			622			2,200
Amounts reclassified from accumulated other comprehensive income (loss)	(68		)	119			51
Net current period other comprehensive loss	1,510			741			2,251
Stranded AOCI reclassification	(569		)	(1,268		)	(1,837		)
Balance at December 31, 2017	$	(3,415	)	$	(6,925	)	$	(10,340	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Year Ended December 31,									Affected Line Item  in the Statement Where Net Income is Presented
	2019			2018			2017
Unrealized gains and losses on securities available for sale:	—			—			—
Realized gains on securities available for sale	$	(19	)	$	—		$	(109	)	Net gains on securities transactions
Tax effect	5			—			41			Income tax expense
Net of tax	(14		)	—			(68		)
Amortization of defined pension plan and other benefit plan items:
Prior service costs (a)	(220		)	(220		)	(220		)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	312			1,146			413			Other components of net periodic pension and postretirement benefits
Tax effect	(27		)	(236		)	(74		)	Income tax expense
Net of tax	65			690			119
Total reclassification for the period, net of tax	$	51		$	690		$	51

(a) These accumulated other comprehensive income (loss) components are included in the computation of net periodic pension and other benefit plan costs (see Note 14 for additional information).