10-Q

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

For Quarterly period ended March 31, 2020

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

CHEMUNG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
New York		16-1237038
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
One Chemung Canal Plaza, Elmira, NY		14901
(Address of principal executive offices)		(Zip Code)
	(607) 737-3711 or (800) 836-3711
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class	Trading Symbol	Name of exchange on which registered
Common stock, par value $.01 per share	CHMG	The Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES:    X         NO:____
Indicate by check mark whether the registrant has submitted electronically 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:    X        NO:____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company.  See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer	[   ]	Non-accelerated filer	[   ]
Accelerated filer	[X]	Smaller reporting company	[X]
		Emerging growth company	[   ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [   ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
YES:____       NO:    X

The number of shares of the registrant's common stock, $.01 par value, outstanding on May 1, 2020 was 4,827,049.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

INDEX

		PAGES
	Glossary of Abbreviations and Terms	3
PART I.	FINANCIAL INFORMATION
Item 1:	Financial Statements – Unaudited
	Consolidated Balance Sheets	7
	Consolidated Statements of Income	8
	Consolidated Statements of Comprehensive Income	9
	Consolidated Statements of Shareholders’ Equity	10
	Consolidated Statements of Cash Flows	11
	Notes to Unaudited Consolidated Financial Statements	13
Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	37
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	65
Item 4:	Controls and Procedures	66
PART II.	OTHER INFORMATION
Item 1:	Legal Proceedings	67
Item 1A:	Risk Factors	67
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3:	Defaults Upon Senior Securities	68
Item 4:	Mine Safety Disclosures	68
Item 5:	Other Information	68
Item 6:	Exhibits	69
SIGNATURES		70
EXHIBIT INDEX

2

GLOSSARY OF ABBREVIATIONS AND TERMS

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

Abbreviations

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 III	The Third Basel Accord of the Basel Committee on Banking Supervision
Board of Directors	Board of Directors of Chemung Financial Corporation
BOLI	Bank Owned Life Insurance
CAM	Common area maintenance charges
CARES Act	Coronavirus Aid, Relief, and Economic Security Act
CDARS	Certificate of Deposit Account Registry Service
CDO	Collateralized Debt Obligation
CECL	Current expected credit loss
CFS	CFS Group, Inc.
Corporation	Chemung Financial Corporation
COVID-19	Coronavirus disease 2019
CRM	Chemung Risk Management, Inc.
Dodd-Frank Act	The Dodd-Frank Wall Street Reform and Consumer Protection Act
EPS	Earnings per share
Exchange Act	Securities Exchange Act of 1934
FASB	Financial Accounting Standards Board
FDIC	Federal Deposit Insurance Corporation
FHLBNY	Federal Home Loan Bank of New York
FRB	Board of Governors of the Federal Reserve System
FRBNY	Federal Reserve Bank of New York
Freddie Mac	Federal Home Loan Mortgage Corporation
GAAP	U.S. Generally Accepted Accounting Principles
HTM	Held to maturity securities
ICS	Insured Cash Sweep Service
IFRS	International Financial Reporting Standards
IRT	Incident Response Team
MD&A	Management’s Discussion and Analysis of Financial Condition and Results of Operations
NAICS	North American Industry Classification System
N/M	Not meaningful
OPEB	Other postemployment benefits
OREO	Other real estate owned
OTTI	Other-than-temporary impairment

3

PCI	Purchased credit impaired
PPP	Paycheck Protection Program
PPPLF	Paycheck Protection Program Liquidity Facility
Regulatory Relief Act	Economic Growth, Regulatory Relief, and Consumer Protection Act
ROA	Return on average assets
ROE	Return on average equity
RWA	Risk-weighted assets
SBA	Small Business Administration
SEC	Securities and Exchange Commission
Securities Act	Securities Act of 1933
Tax Act	Tax Cuts and Jobs Act of 2017
TDRs	Troubled debt restructurings
WMG	Wealth Management Group

Terms

Allowance for loan losses to total loans	Represents period-end allowance for loan losses divided by retained loans.
Assets under administration	Represents assets that are beneficially owned by clients and all investment decisions pertaining to these assets are also made by clients.
Assets under management	Represents assets that are managed on behalf of clients.
Basel III	A comprehensive set of reform measures designed to improve the regulation, supervision, and risk management within the banking sector. The reforms require banks to maintain proper leverage ratios and meet certain capital requirements.
Benefit obligation	Refers to the projected benefit obligation for pension plans and the accumulated postretirement benefit obligation for OPEB plans.
Capital Bank	Division of Chemung Canal Trust Company located in the “Capital Region” of New York State and includes the counties of Albany and Saratoga.
CDARS	Product involving a network of financial institutions that exchange certificates of deposits among members in order to ensure FDIC insurance coverage on customer deposits above the single institution limit.  Using a sophisticated matching system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent of an original deposit comes back to the originating institution.
Captive insurance company	A company that provides risk-mitigation services for its parent company.
Collateralized debt obligation	A structured financial product that pools together cash flow-generating assets, such as mortgages, bonds, and loans.
Collateralized mortgage obligations	A type of mortgage-backed security with principal repayments organized according to their maturities and into different classes based on risk.  The mortgages serve as collateral and are organized into classes based on their risk profile.
Dodd-Frank Act	The Dodd-Frank Act was enacted on July 21, 2010 and significantly changed the bank regulatory landscape and has impacted and will continue to impact the lending, deposit, investment, trading and operating activities of financial institutions and their holding companies.  The Dodd-Frank Act requires various federal agencies to adopt a broad range of new rules and regulations, and to prepare various studies and reports for Congress.
Fully taxable equivalent basis	Income from tax-exempt loans and investment securities that have been increased by an amount equivalent to the taxes that would have been paid if this income were taxable at statutory rates; the corresponding income tax impact related to tax-exempt items is recorded within income tax expense.
GAAP	Accounting principles generally accepted in the United States of America.
Holding company	Consists of the operations for Chemung Financial Corporation (parent only).

4

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 finance lease that is considered to have the economic characteristics of asset ownership.
Mortgage-backed securities	A type of asset-backed security that is secured by a collection of mortgages.
Municipal clients	A political unit, such as a city, town, or village, incorporated for local self-government.
N/A	Data is not applicable or available for the period presented.
N/M	Not meaningful.
Non-GAAP	A calculation not made according to GAAP.
Obligations of state and political subdivisions	An obligation that is guaranteed by the full faith and credit of a state or political subdivision that has the power to tax.
Obligations of U.S. Government	A federally guaranteed obligation backed by the full power of the U.S. government, including Treasury bills, Treasury notes and Treasury bonds.
Obligations of U.S. Government sponsored enterprise obligations	Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
OREO	Represents real property owned by the Corporation, which is not directly related to its business and is most frequently the result of a foreclosure on real property.
OTTI	Impairment charge taken on a security whose fair value has fallen below the carrying value on the balance sheet and whose value is not expected to recover through the holding period of the security.
PCI loans	Represents loans that were acquired in the Fort Orange Financial Corp. transaction and deemed to be credit-impaired on the acquisition date in accordance with the guidance of FASB.
Political subdivision	A county, city, town, or other municipal corporation, a public authority, or a publicly-owned entity that is an instrumentality of a state or a municipal corporation.
Pre-provision profit/(loss)	Represents total net revenue less 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.
Regulatory Relief Act	The Economic Growth, Regulatory Relief and Consumer Protection Act was enacted on May 24, 2018 provides certain limited amendments to the Dodd-Frank Act, as well as certain targeted modifications to other post-financial crisis regulatory requirements.  In addition, the legislation establishes new consumer protections and amends various securities- and investment company-related requirements.
RWA	Risk-weighted assets consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default.  On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any.  Off-balance sheet assets such as lending-related commitments, guarantees, derivatives and other applicable off-balance sheet positions are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets.  Risk-weighted assets also incorporate a measure for market risk related to applicable trading assets-debt and equity instruments.  The resulting risk-weighted values for each of the risk categories are then aggregated to determine total risk-weighted assets.
SBA loan pools	Business loans partially guaranteed by the SBA.
Securities sold under agreements to repurchase	Sale of securities together with an agreement for the seller to buy back the securities at a later date.

5

Tax Act	The Tax Act was enacted on December 22, 2017 and amended the Internal Revenue Code of 1986. The legislation reduced the U.S. federal corporate income tax rate from 35 percent to 21 percent, with some related business deductions and credits being either reduced or eliminated.
TDR	A TDR is deemed to occur when the Corporation modifies the original terms of a loan agreement by granting a concession to a borrower that is experiencing financial difficulty.
Trust preferred securities	A hybrid security with characteristics of both subordinated debt and preferred stock which allows for early redemption by the issuer, makes fixed or variable payments, and matures at face value.
Unaudited	Financial statements and information that have not been subjected to auditing procedures sufficient to permit an independent certified public accountant to express an opinion.
WMG	Provides services as executor and trustee under wills and agreements, and guardian, custodian, trustee and agent for pension, profit-sharing and other employee benefit trusts, as well as various investment, financial planning, pension, estate planning and employee benefit administration services.

6

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

(in thousands, except share and per share data)	March 31, 2020			December 31, 2019
ASSETS
Cash and due from financial institutions	$	27,522		$	25,203
Interest-earning deposits in other financial institutions	116,936			96,701
Total cash and cash equivalents	144,458			121,904
Equity investments, at estimated fair value	1,999			2,174
Securities available for sale, at estimated fair value	299,075			284,090
Securities held to maturity, estimated fair value of $3,024 at March 31, 2020   and $3,139 at December 31, 2019	3,001			3,115
FHLBNY and FRBNY Stock, at cost	3,099			3,099
Loans, net of deferred loan fees	1,320,461			1,309,219
Allowance for loan losses	(26,233		)	(23,478		)
Loans, net	1,294,228			1,285,741
Loans held for sale	801			1,185
Premises and equipment, net	21,781			22,417
Operating lease right-of-use assets	7,826			8,001
Goodwill	21,824			21,824
Other intangible assets, net	610			742
Bank-owned life insurance	3,017			3,111
Accrued interest receivable and other assets	39,610			30,424
Total assets	$	1,841,329		$	1,787,827
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	469,535		$	468,238
Interest-bearing	1,138,568			1,103,900
Total deposits	1,608,103			1,572,138
Long term finance lease obligation	4,028			4,085
Operating lease liabilities	7,919			8,084
Dividends payable	1,266			1,263
Accrued interest payable and other liabilities	29,566			19,630
Total liabilities	1,650,882			1,605,200
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized;   5,310,076 issued at March 31, 2020 and December 31, 2019	53			53
Additional paid-in capital	46,754			46,382
Retained earnings	154,926			153,701
Treasury stock, at cost; 432,257 shares at March 31, 2020 and 452,641   shares at December 31, 2019	(11,204		)	(11,710		)
Accumulated other comprehensive loss	(82		)	(5,799		)
Total shareholders' equity	190,447			182,627
Total liabilities and shareholders' equity	$	1,841,329		$	1,787,827

See accompanying notes to unaudited consolidated financial statements.

7

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three Months Ended   March 31,
(in thousands, except per share data)	2020			2019
Interest and dividend income:
Loans, including fees	$	14,228		$	14,489
Taxable securities	1,487			1,195
Tax exempt securities	271			273
Interest-earning deposits	398			708
Total interest and dividend income	16,384			16,665
Interest expense:
Deposits	1,286			1,461
Borrowed funds	36			37
Total interest expense	1,322			1,498
Net interest income	15,062			15,167
Provision for loan losses	3,050			1,093
Net interest income after provision for loan losses	12,012			14,074
Non-interest income:
WMG fee income	2,229			2,276
Service charges on deposit accounts	990			1,104
Interchange revenue from debit card transactions	925			1,031
Changes in fair value of equity investments	(246		)	89
Net gains on sales of loans held for sale	75			48
Net gains (losses) on sales of other real estate owned	(29		)	(83		)
Income from bank-owned life insurance	119			15
Other	667			445
Total non-interest income	4,730			4,925
Non-interest expenses:
Salaries and wages	5,768			5,721
Pension and other employee benefits	1,516			1,545
Other components of net periodic pension and postretirement benefits	(265		)	(141		)
Net occupancy	1,522			1,567
Furniture and equipment	475			528
Data processing	1,914			1,727
Professional services	329			405
Amortization of intangible assets	132			163
Marketing and advertising	324			268
Other real estate owned	29			31
FDIC insurance	250			265
Loan expense	310			196
Other	1,445			1,222
Total non-interest expenses	13,749			13,497
Income before income tax expense	2,993			5,502
Income tax expense	502			1,034
Net income	$	2,491		$	4,468
Weighted average shares outstanding	4,895			4,860
Basic and diluted earnings per share	$	0.51		$	0.92

See accompanying notes to unaudited consolidated financial statements.

8

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three Months Ended   March 31,
(in thousands)	2020			2019
Net income	$	2,491		$	4,468
Other comprehensive income
Unrealized holding gains on securities available for sale	7,646			3,430
Tax effect	1,950			874
Net of tax amount	5,696			2,556
Change in funded status of defined benefit pension plan and other benefit plans:
Reclassification adjustment for amortization of prior service costs	(55		)	(55		)
Reclassification adjustment for amortization of net actuarial loss	77			73
Total before tax effect	22			18
Tax effect	1			5
Net of tax amount	21			13
Total other comprehensive income	5,717			2,569
Comprehensive income	$	8,208		$	7,037

See accompanying notes to unaudited consolidated financial statements.

9

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)

(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital			Retained Earnings			Treasury Stock			Accumulated Other Comprehensive Loss			Total
Balances at January 1, 2019, as reported	$	53	$	45,820		$	143,129		$	(12,562	)	$	(11,411	)	$	165,029
Net income	—		—			4,468			—			—			4,468
Other comprehensive income	—		—			—			—			2,569			2,569
Restricted stock awards	—		101			—			—			—			101
Restricted stock units for directors' deferred compensation plan	—		11			—			—			—			11
Cash dividends declared ($0.26 per share)	—		—			(1,257		)	—			—			(1,257		)
Distribution of 8,465 shares of treasury stock for directors' compensation	—		139			—			218			—			357
Distribution of 2,373 shares of treasury stock for employee compensation	—		39			—			61			—			100
Distribution of 439 shares of treasury stock granted for employee restricted stock awards	—		—			—			11			—			11
Repurchase of 272 shares of common stock	—		—			—			(13		)	—			(13		)
Sale of 3,665 shares of treasury stock (a)	—		64			—			94			—			158
Balances at March 31, 2019	$	53	$	46,174		$	146,340		$	(12,191	)	$	(8,842	)	$	171,534
Balances at January 1, 2020	$	53	$	46,382		$	153,701		$	(11,710	)	$	(5,799	)	$	182,627
Net income	—		—			2,491			—			—			2,491
Other comprehensive income	—		—			—			—			5,717			5,717
Restricted stock awards	—		125			—			—			—			125
Restricted stock units for directors' deferred compensation plan	—		11			—			—			—			11
Distribution of 255 shares of treasury stock grants for employee restricted stock awards	—		(7		)	—			7			—			—
Cash dividends declared ($0.26 per share)	—		—			(1,266		)	—			—			(1,266		)
Distribution of 7,923 shares of treasury stock for directors' compensation	—		144			—			206			—			350
Distribution of 2,274 shares of treasury stock for employee compensation	—		41			—			59			—			100
Repurchase of 4,141 shares of common stock	—		—			—			(128		)	—			(128		)
Sale of 14,185 shares of treasury stock (a)	—		53			—			367			—			420
Forfeiture of 112 shares of restricted stock awards	—		5			—			(5		)	—			—
Balances at March 31, 2020	$	53	$	46,754		$	154,926		$	(11,204	)	$	(82	)	$	190,447

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

See accompanying notes to unaudited consolidated financial statements.

10

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)	Three Months Ended   March 31,
CASH FLOWS FROM OPERATING ACTIVITIES:	2020		2019
Net income	2,491		4,468
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of right-of-use assets	175		159
Amortization of intangible assets	132		163
Provision for loan losses	3,050		1,093
Loss on disposal of fixed assets	—		9
Depreciation and amortization of fixed assets	757		816
Amortization of premiums on securities, net	237		236
Gain on sales of loans held for sale, net	(75	)	(48	)
Proceeds from sales of loans held for sale	3,089		2,416
Loans originated and held for sale	(2,630	)	(2,524	)
Net losses on sale of other real estate owned	29		83
Write-downs on other real estate owned	8		—
Net change in fair value of equity investments	246		(89	)
Purchase of equity investments	(71	)	(34	)
Increase in other assets and accrued interest receivable	(9,322	)	(1,147	)
(Decrease) increase in accrued interest payable	(6	)	47
Expense related to restricted stock units for directors' deferred compensation plan	11		11
Expense related to employee stock compensation	101		100
Expense related to employee restricted stock awards	125		101
Payments on operating leases	(165	)	(151	)
Increase in other liabilities	8,231		1,550
Income from bank owned life insurance	(119	)	(15	)
Net cash provided by operating activities	6,294		7,244
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls, and principal paydowns on securities available for sale	8,882		8,198
Proceeds from maturities and principal collected on securities held to maturity	114		1,074
Purchases of securities available for sale	(16,458	)	(29,467	)
Purchases of securities held to maturity	—		(60	)
Purchase of FHLBNY and FRBNY stock	—		(5	)
Purchases of premises and equipment	(121	)	(124	)
Proceeds from sale of other real estate owned	101		313
Proceeds from bank owned life insurance	213		—
Net (increase) decrease in loans	(11,537	)	12,550
Net cash used in investing activities	(18,806	)	(7,521	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	30,880		(9,502	)
Increase in time deposits	5,086		6,767
Payments made on capital lease	(57	)	(54	)
Sale of treasury stock	420		158
Cash dividends paid	(1,263	)	(1,254	)
Net cash provided by (used in) financing activities	35,066		(3,885	)
Net increase (decrease) in cash and cash equivalents	22,554		(4,162	)
Cash and cash equivalents, beginning of period	121,904		129,972
Cash and cash equivalents, end of period	144,458		125,810

See accompanying notes to unaudited consolidated financial statements.

11

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)

(in thousands)	Three Months Ended   March 31,
Supplemental disclosure of cash flow information:	2020	2019
Cash paid for:
Interest	1,328	1,451
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	—	27
Dividends declared, not yet paid	1,266	1,257
Repurchase of common stock in lieu of employee payroll taxes	37	—
Distribution of treasury stock for directors' compensation	350	357

See accompanying notes to unaudited consolidated financial statements.

12

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unaudited consolidated financial statements should be read in conjunction with the Corporation's 2019 Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

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

Recent Accounting Pronouncements

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 is eligible for the proposed delay and has elected to defer implementation until January 1, 2023. 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides banking organizations which previously adopted for fiscal years beginning after December 15, 2019, temporary relief from complying with CECL. 

13

Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40, Receivables: Troubled Debt Restructurings by Creditors, in certain situations. Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. All loan modifications made by the Corporation in response to the COLVID-19 pandemic have been in accordance with Section 4013 of the CARES Act.

Adoption of New Accounting Standards

On January 1, 2020, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

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.

Risks and Uncertainties - COVID19

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic, more than 30 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

The Corporation's consolidated financial statements reflect estimates and assumptions that affect the reported amounts of assets and liabilities, including the amount of the allowances for credit losses established. Management evaluated the potential impact of the COVID-19 pandemic as it related to the loan portfolio and as part of this analysis, management identified what it believes to be higher risk loans through a detailed analysis of industry codes. Certain allowance qualitative factors were increased based on an assessment of the impact of the current pandemic on local, national and global economic conditions as well as the perceived risks inherent in specific industries and credit characteristics.

14

Management has taken actions to identify and assess additional possible credit exposure due to the COVID-19 pandemic based upon the industry types within the current loan portfolio. As of March 31, 2020, "highly impacted" industries total $199.4 million, or 22.3% of the Bank's commercial loan portfolio as of March 31, 2020.

NOTE 2EARNING PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur. Earnings per share were computed by dividing net income by 4,895 and 4,860 weighted average shares outstanding for the three-month periods ended March 31, 2020 and 2019, respectively. There were no common stock equivalents during the three-month periods ended March 31, 2020 or 2019.

NOTE 3SECURITIES

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

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	$	227,180	$	8,025	$	206	$	234,999
Obligations of states and political subdivisions	40,984		1,641		—		42,625
Corporate bonds and notes	250		—		—		250
SBA loan pools	21,181		91		71		21,201
Total	$	289,595	$	9,757	$	277	$	299,075

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	225,029		1,471		1,266		225,234
Obligations of states and political subdivisions	41,265		1,580		—		42,845
Corporate bonds and notes	250		—		—		250
SBA loan pools	15,712		95		46		15,761
Total	$	282,256	$	3,146	$	1,312	$	284,090

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

	March 31, 2020
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	931	$	—	$	—	$	931
Time deposits with other financial institutions	2,070		23		—		2,093
Total	$	3,001	$	23	$	—	$	3,024

	December 31, 2019
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	—	$	—	$	1,045
Time deposits with other financial institutions	2,070		24		—		2,094
Total	$	3,115	$	24	$	—	$	3,139

15

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

	March 31, 2020
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	475	$	475	$	1,480	$	1,484
After one, but within five years	10,439		10,779		1,521		1,540
After five, but within ten years	29,271		30,541		—		—
After ten years	1,049		1,080		—		—
	41,234		42,875		3,001		3,024
Mortgage-backed securities, residential	227,180		234,999		—		—
SBA loan pools	21,181		21,201		—		—
Total	$	289,595	$	299,075	$	3,001	$	3,024

There were no proceeds from sales of securities resulting in gains or losses for the three months ended March 31, 2020 and 2019.

The following tables summarize the investment securities available for sale with unrealized losses at March 31, 2020 and December 31, 2019 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	$	5,168	$	114	$	3,875	$	92	$	9,043	$	206
SBA loan pools	6,009		37		1,338		34		7,347		71
Total temporarily impaired securities	$	11,177	$	151	$	5,213	$	126	$	16,390	$	277

	Less than 12 months				12 months or longer				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
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

Other-Than-Temporary Impairment

As of March 31, 2020, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.  At March 31, 2020, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

16

NOTE 4LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	March 31,   2020		December 31,   2019
Commercial and agricultural:
Commercial and industrial	$	235,690	$	230,018
Agricultural	289		274
Commercial mortgages:
Construction	40,957		43,962
Commercial mortgages, other	618,831		604,832
Residential mortgages	192,722		188,338
Consumer loans:
Credit cards	—		—
Home equity lines and loans	88,149		91,784
Indirect consumer loans	129,473		134,973
Direct consumer loans	14,350		15,038
Total loans, net of deferred origination fees and costs	1,320,461		1,309,219
Interest receivable on loans	3,759		3,684
Total recorded investment in loans	$	1,324,220	$	1,312,903

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

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31, 2020
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages		Consumer Loans			Total
Beginning balance	$	10,227		$	8,869	$	1,252	$	3,130		$	23,478
Charge-offs	(30		)	—		—		(403		)	(433		)
Recoveries	4			1		—		135			140
Net recoveries (charge-offs)	(26		)	—		—		(268		)	(294		)
Provision	990			1,603		169		288			3,050
Ending balance	$	11,191		$	10,472	$	1,421	$	3,149		$	26,233

	Three Months Ended March 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	(7		)	—		(2		)	(439		)	(448		)
Recoveries	11			1		—			144			156
Net recoveries (charge-offs)	4			1		(2		)	(295		)	(292		)
Provision	42			1,289		(9		)	(229		)	1,093
Ending balance	$	5,429		$	9,474	$	1,215		$	3,627		$	19,745

17

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,851	$	2,058	$	—	$	—	$	7,909
Collectively evaluated for impairment	5,340		8,414		1,421		3,149		18,324
Total ending allowance balance	$	11,191	$	10,472	$	1,421	$	3,149	$	26,233

	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

	March 31, 2020
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	5,952	$	8,478	$	518	$	149	$	15,097
Loans collectively evaluated for  impairment	230,698		653,183		192,751		232,491		1,309,123
Total ending loans balance	$	236,650	$	661,661	$	193,269	$	232,640	$	1,324,220

	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

18

The following table presents loans individually evaluated for impairment recognized by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020						December 31, 2019
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	105	$	106	$	—	$	133	$	133	$	—
Commercial mortgages:
Construction	231		232		—		247		247		—
Commercial mortgages, other	3,219		3,220		—		3,501		3,503		—
Residential mortgages	547		518		—		554		525		—
Consumer loans:
Home equity lines and loans	171		149		—		171		149		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,845		5,846		5,851		6,013		6,014		6,000
Commercial mortgages:
Commercial mortgages, other	5,025		5,026		2,058		5,093		5,094		2,097
Total	$	15,143	$	15,097	$	7,909	$	15,712	$	15,665	$	8,097

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended   March 31, 2020				Three Months Ended   March 31, 2019
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	120	$	—	$	325	$	1
Commercial mortgages:
Construction	239		2		301		2
Commercial mortgages, other	3,362		—		3,889		5
Residential mortgages	521		5		397		2
Consumer loans:
Home equity lines & loans	149		2		111		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,930		—		1,807		—
Commercial mortgages:
Commercial mortgages, other	5,060		—		3,523		—
Total	$	15,381	$	9	$	10,353	$	11

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

19

The following table presents the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	5,951	$	6,147	$	8	$	7
Commercial mortgages:
Construction	73		80		—		—
Commercial mortgages, other	8,247		8,407		—		—
Residential mortgages	2,265		2,155		—		—
Consumer loans:
Credit cards	—		—		—		—
Home equity lines and loans	638		641		—		—
Indirect consumer loans	767		571		—		—
Direct consumer loans	7		7		—		—
Total	$	17,948	$	18,008	$	8	$	7

The following tables present the aging of the recorded investment in loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
	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	$	347	$	1,373	$	4,264	$	5,984	$	230,376	$	236,360
Agricultural	—		—		—		—		290		290
Commercial mortgages:
Construction	—		—		—		—		41,073		41,073
Commercial mortgages, other	2,385		1,211		2,297		5,893		614,695		620,588
Residential mortgages	1,432		286		1,131		2,849		190,420		193,269
Consumer loans:
Home equity lines and loans	368		174		95		637		87,784		88,421
Indirect consumer loans	1,050		216		376		1,642		128,167		129,809
Direct consumer loans	33		21		6		60		14,350		14,410
Total	$	5,615	$	3,281	$	8,169	$	17,065	$	1,307,155	$	1,324,220

20

	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, other	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		804		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		10		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

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. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 related modifications and therefore will not be treated as TDRs.  As of March 31, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 444 commercial and consumer loans represented by a total loan balance of $56.6 million.

As of March 31, 2020 and December 31, 2019, the Corporation has a recorded investment in TDRs of $8.7 million and $9.0 million, respectively.  There were specific reserves of $2.3 million allocated for TDRs at both March 31, 2020 and December 31, 2019, respectively.  As of March 31, 2020, TDRs totaling $0.8 million were accruing interest under the modified terms and $7.9 million were on non-accrual status.  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.  The Corporation had committed no additional amounts as of both March 31, 2020 and December 31, 2019, to customers with outstanding loans that are classified as TDRs.

During the three month period ended March 31, 2020, no loans were modified as TDRs. During the three-month period ended March 31, 2019, the terms of certain loans were modified as TDRs. The modification of the terms of one home equity loan during the three months ended March 31, 2019 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.

The following table present loans by class modified as TDRs that occurred during the three months ended March 31, 2019 (dollars in thousands):

March 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Consumer loans:
Home equity lines and loans	1	$	137	$	137
Total	1	$	137	$	137

21

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the three-month period ended March 31, 2019.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three-month periods ended March 31, 2020 and 2019.

Credit Quality Indicators

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

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

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

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

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

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

Commercial loans not meeting the criteria above to be considered criticized or classified are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans performing under terms of the loan notes.  Based on the analyses performed as of March 31, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	March 31, 2020
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	214,801	$	5,852	$	9,926	$	5,781	$	236,360
Agricultural	—		290		—		—		—		290
Commercial mortgages:
Construction	—		37,123		398		3,552		—		41,073
Commercial mortgages	—		593,742		11,483		11,008		4,355		620,588
Residential mortgages	191,004		—		—		2,265		—		193,269
Consumer loans:
Home equity lines and loans	87,783		—		—		638		—		88,421
Indirect consumer loans	129,042		—		—		767		—		129,809
Direct consumer loans	14,403		—		—		7		—		14,410
Total	$	422,232	$	845,956	$	17,733	$	28,163	$	10,136	$	1,324,220

22

	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

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following tables present the recorded investment in residential and consumer loans based on payment activity as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,004	$	—	$	87,783	$	129,042	$	14,403
Non-Performing	2,265		—		638		767		7
	$	193,269	$	—	$	88,421	$	129,809	$	14,410

	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
	$	188,874	$	—	$	92,065	$	135,366	$	15,106

NOTE 5FAIR VALUE

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

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

23

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments are determined by quoted market prices (Level 1 inputs).

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting.  For collateral dependent loans, fair value is commonly based on real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

OREO:  Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation.  Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO.  On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition.

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

24

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

			Fair Value Measurement at March 31, 2020 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)
Mortgage-backed securities, residential	$	234,999	$	—	$	234,999	$	—
Obligations of states and political subdivisions	42,625		—		42,625		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	21,201		—		21,201		—
Total available for sale securities	$	299,075	$	—	$	299,075	$	—
Equity investments, at fair value	$	1,274	$	1,274	$	—	$	—
Derivative assets	16,343		—		16,343		—
Financial Liabilities:
Derivative liabilities	$	16,773	$	—	$	16,343	$	430

There were no transfers between Level 1 and Level 2 during the three month period ended March 31, 2020.

			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)
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, at fair value	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

There were no transfers between Level 1 and Level 2 during the three month period ended March 31, 2019.

25

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Assets (Liabilities)
	Derivative Liabilities
	March 31, 2020			March 31, 2019
Balance of recurring Level 3 assets at January 1	$	(365	)	$	(140	)
Derivative instruments entered into	(9		)	(24		)
Total gains or losses for the period:
Included in earnings - other non-interest income	(56		)	(66		)
Included in other comprehensive income	—			—
Transfers out of Level 3	—			—
Balance of recurring Level 3 assets at March 31,	$	(430	)	$	(230	)

The following table presents information related to Level 3 recurring fair value measurements at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Derivative liabilities	$	430	Historical trend	Credit default rate	12.86% - 20.75% [13.82%]

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%]

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

			Fair Value Measurement at March 31, 2020 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	$	(1,429	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,429	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	178		—		—		178		—
Consumer loans:
Home equity lines and loans	91		—		—		91		—
Total other real estate owned, net	$	380	$	—	$	—	$	380	$	—

26

			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	)

The following tables present information related to Level 3 non-recurring fair value measurement at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.31% - 10.31% [10.31%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	178		Sales comparison	Discount to appraised value	0.00% -0.00% [0.00%]
Consumer loans:
Home equity lines and loans	91		Sales comparison	Discount to appraised value	27.49% - 27.49% [27.49%]
	$	380

27

Description	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%]
Consumer loans:
	$	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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at March 31, 2020 and December 31, 2019, are as follows (in thousands):

	March 31, 2020
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,522	$	27,522	$	—	$	—	$	27,522
Interest-earning deposits in other financial institutions	116,936		116,936		—		—		116,936
Equity investments	1,999		1,999		—		—		1,999
Securities held to maturity	3,001		—		2,093		931		3,024
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,295,029		—		—		1,298,475		1,298,475
Accrued interest receivable	4,786		39		988		3,759		4,786
Derivative Assets	16,343		—		16,343		—		16,343
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,441,841	$	1,441,841	$	—	$	—	$	1,441,841
Time deposits	166,262		—		169,803		—		169,803
Accrued interest payable	293		11		282		—		293
Derivative Liabilities	16,773		—		16,343		430		16,773

(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.

28

	December 31, 2019
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-earning 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 Asset	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.

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 March 31, 2020, the weighted average remaining lease term was 9.0 years with a weighted average discount rate of 3.27%.  Rent expense was $0.2 million for the three months ended March 31, 2020. 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 March 31, 2020 and December 31, 2019 consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Operating lease right-of-use asset	$	8,713		$	8,713
Less: accumulated amortization	(887		)	(712		)
Operating lease right-of-use-assets, net	$	7,826		$	8,001

29

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of March 31, 2020 (in thousands):

Year	Amount
2020	$	700
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,615
Less: amount representing interest	(1,696		)
Present value of net minimum lease payments	$	7,919

As of March 31, 2020, 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 March 31, 2020, the weighted average remaining lease term was 12.8 years with a weighted average discount rate of 3.35%.  The Corporation has included these leases in premises and equipment as of March 31, 2020 and December 31, 2019 as follows (in thousands):

	March 31, 2020			December 31, 2019
Buildings	$	5,572		$	5,572
Less: accumulated depreciation	(1,625		)	(1,541		)
Net book value	$	3,947		$	4,031

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 March 31, 2020 (in thousands):

Year	Amount
2020	$	284
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,093
Less: amount representing interest	(1,065		)
Present value of net minimum lease payments	$	4,028

As of March 31, 2020, the Corporation had no finance leases that were signed, but had not yet commenced.

Related Party Transactions

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. Rent paid to this Board of Directors member totaled $12 thousand and $12 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

30

The Bank leases 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 $24 thousand and $24 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

NOTE 7        GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the three month periods ended March 31, 2020 and 2019 were as follows (in thousands):

	2020		2019
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance March 31,	$	21,824	$	21,824

Acquired intangible assets were as follows at March 31, 2020 and December 31, 2019 (in thousands):

	At March 31, 2020				At December 31, 2019
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,875	$	5,975	$	5,832
Other customer relationship intangibles	5,633		5,123		5,633		5,034
Total	$	11,608	$	10,998	$	11,608	$	10,866

Aggregate amortization expense was $0.1 million and $0.2 million for the three month periods ended March 31, 2020 and 2019, respectively.

The remaining estimated aggregate amortization expense at March 31, 2020 is listed below (in thousands):

Year	Estimated Expense
2020	$	352
2021	258
2022
2023	—
2024	—
Total	$	610

The amount of goodwill reflected in the Corporation's Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis.  The test for impairment of goodwill on the identified reporting unit is considered a critical accounting estimate because it requires judgment on the part of management and the use of estimates related to the growth assumptions and market multiples used in the valuation model.  The goodwill impairment testing is performed annually as of December 31 and no impairment charges were incurred.

Changes in the macroeconomic environment resulting from the COVID-19 pandemic created a triggering event in the three month period ended March 31, 2020 and the Corporation performed an interim impairment test. The impairment test performed for the quarter ended March 31, 2020 determined no additional impairment was required.

NOTE 8COMMITMENTS AND CONTINGENCIES

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

31

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020				December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	22,930	$	24,160	$	15,560	$	25,233
Unused lines of credit	2,213		234,343		1,062		229,137
Standby letters of credit	—		16,022		—		16,272

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. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, 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. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Bank seeks to recover $4.2 million and additional damages as a result of purchasing the participation interest.

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreements. This event was not considered material in nature and thus did not result in an adjustment to the financial statements.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  As of March 31, 2020, we believe that we are not a party to any additional pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

NOTE 9        ACCUMULATED OTHER COMPREHENSIVE LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2020	$	1,368	$	(7,167	)	$	(5,799	)
Other comprehensive income before reclassification	5,696		—			5,696
Amounts reclassified from accumulated other comprehensive income	—		21			21
Net current period other comprehensive income	5,696		21			5,717
Balance at March 31, 2020	$	7,064	$	(7,146	)	$	(82	)

32

	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 loss before reclassification	2,556			—			2,556
Amounts reclassified from accumulated other comprehensive income	—			13			13
Net current period other comprehensive income	2,556			13			2,569
Balance at March 31, 2019	$	(2,090	)	$	(6,752	)	$	(8,842	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Three Months Ended   March 31,						Affected Line Item in the Statement Where Net Income is Presented
	2020			2019
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	77			73			Other components of net periodic pension and postretirement benefits
Tax effect	(1		)	(5		)	Income tax expense
Net of tax	21			13
Total reclassification for the period, net of tax	$	21		$	13

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

NOTE 10    REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Corporation's revenue from contracts with customers in the scope of ASC 606 is recognized within non-interest income. The following tables present the Corporation's non-interest income by revenue stream and reportable segment for the three months ended March 31, 2020 and 2019 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended March 31, 2020
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	805		$	—	$	—		$	805
Other	185			—		—			185
Interchange revenue from debit card transactions	925			—		—			925
WMG fee income	—			2,229		—			2,229
CFS fee and commission income	—			—		177			177
Net gains (losses) on sales of OREO	(29		)	—		—			(29		)
Net gains on sales of loans(a)	75			—		—			75
Loan servicing fees(a)	27			—		—			27
Net gains on sales of securities(a)	—			—		—			—
Changes in fair value of equity investments(a)	(167		)	—		(79		)	(246		)
Other(a)	543			—		39			582
Total non-interest income (loss)	$	2,364		$	2,229	$	137		$	4,730

33

	Three Months Ended March 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	$	888		$	—	$	—	$	888
Other	216			—		—		216
Interchange revenue from debit card transactions	1,031			—		—		1,031
WMG fee income	—			2,276		—		2,276
CFS fee and commission income	—			—		168		168
Net gains (losses) on sales of OREO	(83		)	—		—		(83		)
Net gains on sales of loans(a)	48			—		—		48
Loan servicing fees(a)	35			—		—		35
Net gains on sales of securities(a)	—			—		—		—
Changes in fair value of equity investments(a)	73			—		16		89
Other(a)	257			—		—		257
Total non-interest income	$	2,465		$	2,276	$	184	$	4,925

(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 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.

34

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

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

	Three Months Ended   March 31,
	2020			2019
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	322			379
Expected return on plan assets	(610		)	(554		)
Amortization of unrecognized transition obligation	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	49			49
Net periodic pension benefit	$	(239	)	$	(126	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	10			13
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	3			1
Net periodic supplemental pension cost	$	13		$	14
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	2			3
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	(55		)	(55		)
Amortization of unrecognized net loss	25			23
Net periodic postretirement, medical and life benefit	$	(28	)	$	(29	)

NOTE 12    SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s 2019 Annual Report on Form 10-K, which was filed with the SEC on March 12, 2020. 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).

35

	Three months ended March 31, 2020
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,367	$	—	$	17		$	16,384
Interest expense	1,322		—		—			1,322
Net interest income	15,045		—		17			15,062
Provision for loan losses	3,050		—		—			3,050
Net interest income after provision for loan losses	11,995		—		17			12,012
Other non-interest income	2,364		2,229		137			4,730
Other non-interest expenses	11,882		1,602		265			13,749
Income (loss) before income tax expense (benefit)	2,477		627		(111		)	2,993
Income tax expense (benefit)	390		161		(49		)	502
Segment net income (loss)	$	2,087	$	466	$	(62	)	$	2,491
Segment assets	$	1,833,135	$	3,281	$	4,913		$	1,841,329

	Three months ended March 31, 2019
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,652	$	—	$	13		$	16,665
Interest expense	1,498		—		—			1,498
Net interest income	15,154		—		13			15,167
Provision for loan losses	1,093		—		—			1,093
Net interest income after provision for loan losses	14,061		—		13			14,074
Other non-interest income	2,465		2,276		184			4,925
Legal accruals and settlements	—		—		—			—
Other non-interest expenses	11,625		1,575		297			13,497
Income (loss) before income tax expense (benefit)	4,901		701		(100		)	5,502
Income tax expense (benefit)	889		179		(34		)	1,034
Segment net income (loss)	$	4,012	$	522	$	(66	)	$	4,468
Segment assets	$	1,758,795	$	3,697	$	7,080		$	1,769,572

NOTE 13    STOCK COMPENSATION

Board of Directors' Stock Compensation

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

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

During January 2020 and 2019, 7,923 and 8,465 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $89 thousand and $93 thousand related to this compensation was recognized during the three month periods ended March 31, 2020 and 2019, respectively. This expense is accrued as shares are earned.

36

Restricted Stock Plan

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

A summary of restricted stock activity for the three month period ended March 31, 2020 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2020	33,575		$	43.24
Granted	255		39.35
Vested	(2,350	)	41.52
Forfeited or cancelled	(112	)	44.72
Nonvested at March 31, 2020	31,368		$	43.33

As of March 31, 2020, there was $1.2 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 3.38 years.  The total fair value of shares vested was $97 thousand and $32 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

NOTE 14    SUBSEQUENT EVENTS

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreements in place related to 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. This event was not considered material in nature and thus did not result in an adjustment to the financial statements.

On April 27, 2020, the Corporation filed a Form S-3 Registration Statement under the Securities Act of 1933. The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $50 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities. The SEC declared the registration statement effective on May 7, 2020.

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

Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three months ended March 31, 2020 and 2019.  Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s 2019 Annual Report on Form 10-K, which was filed with the SEC on March 12, 2020, for an understanding of the following discussion and analysis.  See the list of commonly used abbreviations and terms on pages 3–6.

The MD&A included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on the current beliefs and expectations of the Corporation's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. For a discussion of those risks and uncertainties and the factors that could cause the Corporation’s actual results to differ materially from those risks and uncertainties, see Forward-looking Statements below and in Part I, Item 1A, Risk Factors, on pages 19–29 of the Corporation’s 2019 Form 10-K and in Part II, Item 1A, Risk Factors on pages 67-68 in this Form 10Q. For a discussion of use of non-GAAP financial measures, see pages 61–64 of the Corporation's 2019 Form 10-K and pages 71-75 in this Form 10-Q.

The Corporation has been a financial holding company since 2000, the Bank was established in 1833, CFS in 2001, and CRM in 2016.  Through the Bank and CFS, the Corporation provides a wide range of financial services, including demand, savings and time deposits, commercial, residential and consumer loans, interest rate swaps, letters of credit, wealth management services,

37

employee benefit plans, insurance products, mutual funds and brokerage services.  The Bank relies substantially on a foundation of locally generated deposits.  The Corporation, on a stand-alone basis, has minimal results of operations.  The Bank derives its income primarily from interest and fees on loans, interest income on investment securities, WMG fee income, and fees received in connection with deposit and other services.  The Bank’s operating expenses are interest expense paid on deposits and borrowings, salaries and employee benefit plans, and general operating expenses. CRM is a Nevada-based captive insurance company which insures against certain risks unique to the operations of the Corporation and its subsidiaries and for which insurance may not be currently available or economically feasible in today's insurance marketplace. CRM pools resources with several other similar insurance company subsidiaries of financial institutions to spread a limited amount of risk among themselves.

Forward-looking Statements

This discussion contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The Corporation intends its forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections.  All statements regarding the Corporation's expected financial position and operating results, the Corporation's business strategy, the Corporation's financial plans, forecasted demographic and economic trends relating to the Corporation's industry and similar matters are forward-looking statements. These statements can sometimes be identified by the Corporation's use of forward-looking words such as "may," "will," "anticipate," "estimate," "expect," or "intend."  The Corporation cannot 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” in the Corporation’s 2019 Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q.  These filings are available publicly on the SEC’s web site at http://www.sec.gov, on the Corporation's web site at http://www.chemungcanal.com or upon request from the Corporate Secretary at (607) 737-3746. Except as otherwise required by law, the Corporation undertakes no obligation to publicly update or revise its forward-looking statements, whether as a result of new information, future events or otherwise.

COVID-19

The Effect of COVID-19 on Our Business

During the first quarter of 2020 our national economy encountered the impact of the COVID-19 pandemic. First starting in Wuhan, China, during January 2020, the world began evaluating the financial impact as key economic sectors and financial markets, in addition to the international supply chain, experienced the uncertainty of the spread of the virus and evaluated whether this health issue would be contained within China. On January 20^th the World Health Organization declared a global health emergency and the following day the first Coronavirus case was reported in Washington State.

In February 2020, with US international travel banned to/from China and Italy (and subsequently all of Europe), and continuation of the interruption of the supply chain, the U.S. financial markets began to experience record volatility as a result of the lack of confidence that the virus could be contained. This volatility continues today, although recovering from various troughs through the period identified below. While market indices reported record highs during the first quarter of 2020, recent lows were reported for all three of the following indices on March 23, 2020: DJIA (18,951.93), NASDAQ (6,860.67) and S&P 500 (2,237.40). A summary of the fluctuation in financial market valuation is as follows:

	12/31/2019	4/30/2020	% Change
Dow Jones Industrial Average	28,538.44	24,345.72	(14.69)%
NASDAQ	8,972.65	8,889.55	(0.93)%
S&P 500	3,230.78	2,912.43	(9.85)%

On March 2, 2020 the Corporation held the first meeting of our Incident Response Team (IRT) to execute on the Bank’s pandemic recovery plan and evaluated the impact of the virus on our organization and the communities we serve within our 13 county footprint. Since that time, the Corporation's IRT, which is comprised of members of the Bank’s Executive Management Team and key department managers, has focused on the impact on our major lines of business (retail banking, commercial business services and wealth management), our infrastructure (technology & equipment, system access, IT security, facility operations - including enhanced cleaning protocols and physical security), communications with our staff, clients and the communities we serve, and the health and well-being of our over 360 employees. During this time our IRT has identified two main goals: providing essential

38

banking services to our clients and the communities that we serve, and providing a safe banking environment for our clients and our staff.

On March 7, 2020, New York Governor Andrew Cuomo declared a state of emergency, and Pennsylvania Governor Thomas Wolf issued a similar executive order the following day. On March 13, 2020 President Trump declared a national state of emergency. The result of these executive orders was to temporarily close all non-essential businesses which has led to increased unemployment due to furloughs or in some cases, losses of jobs within our communities.

As of April 30, 2020, 41% (roughly 135) of our staff was working remotely, and 8% (25 employees) have been relocated to provide greater social distance. The Corporation created social distancing with remote work capabilities and staff relocations, deployed 36 additional laptops across departments, and reassigned 27 staff members to areas with increased workloads to facilitate productivity.

Management does not anticipate any negative effect on our ability to maintain operations and financial reporting systems, and has not identified any impact on business continuity plans. Management does not anticipate additional risk with respect to its ability to maintain internal control over financial reporting and disclosure controls and procedures, nor does it expect any changes in such controls and procedures.

We continue to provide essential banking services to our clients and the communities we serve. As of the date of this filing we have 24 of our 32 offices open, offering banking transactions through our drive-up or walk-up windows, while completing more complex transactions inside our lobby, by appointment only and adhering to social distancing guidelines. Offices that have been temporarily closed either had no drive-up/walk-up access, or were in close proximity to other, larger branches and were impacted by reduced office transactions as the result of the New York Governor’s “stay at home” mandate, as well as, an increase in electronic banking transactions.

In support of our clients financially affected by COVID-19, when requested, we are waiving fees for overdrafts or NSF fees, rebating ATM transaction fees and allowing early withdrawal of CD balances (up to $25,000) without penalty. As of April 30, 2020 we have waived and refunded fees totaling $15,332 to our commercial and retail clients. In addition as of April 30, 2020, the Corporation has deferred a total of $5.5 million in interest and principal payments for 170 commercial loan clients represented by a total loan balance of $281.3 million, and a total of $1.7 million in interest and principal payments for 806 retail loan clients, represented by a total loan balance of $36.3 million in our retail and residential real estate businesses. Of these modifications, all were considered current prior to the forbearance, and primarily reflect deferrals for 90 days.

Loans in deferment status will continue to accrue interest during the deferment period unless otherwise classified as nonperforming. Consistent with industry regulatory guidance, borrowers that were otherwise current on loan payments that were granted COVID-19 related financial hardship payment deferrals will continue to be reported as current loans throughout the agreed upon deferral period. These payment deferrals were not classified as troubled-debt restructured loans during the first quarter. Borrowers that were delinquent in their payments to the Bank, prior to requesting a COVID-19 related financial hardship payment deferral were reviewed on a case by case basis for troubled debt restructure classification and non-performing loan status. The Corporation anticipates that the number and amount of COVID-19 financial hardship payment deferral requests may increase during the second quarter of 2020.

Paycheck Protection Program (PPP) Initiative

As part of the Coronavirus Aid, Relief and Economic Security Act ("CARES" Act), Congress established the Paycheck Protection Program (“PPP”) under the direction of the United States Small Business Administration (the “SBA”). Included in the legislation was $349 billion to assist small businesses by providing SBA guaranteed loans to help pay for up to 8 weeks of their payroll, in addition to interest expense on mortgages, rent or utility payments. PPP loans have an interest rate of 1.0%, a two-year loan term to maturity and principal and interest payments deferred for six months from the date of disbursement. The funds are an effort to encourage retention of employees and up to the entire loan balance and interest may be forgiven, if the borrower meets certain predetermined SBA criteria. Businesses with less than 500 employees are eligible, although certain corporate organizational structures were not included in the legislation. As a qualified SBA lender, the Corporation was automatically authorized to originate PPP loans. In less than two weeks the $349 billion funding was fully depleted. During that time, the Bank submitted 405 applications, which were approved by the SBA, for $145.4 million of loans under the PPP, impacting over 18,000 employees of the approved businesses. The second phase of the PPP was approved by Congress on April 23, 2020, and extended an additional $310.0 billion to small businesses. The Bank is participating in this second phase and as of April 30, 2020, the Corporation has submitted an additional 590 loan applications for a total of $36.0 million for approval by the SBA.

Participation in Paycheck Protection Program Liquidity Facility (PPPLF)

The PPPLF was created by the Federal Reserve System on April 9, 2020 to facilitate lending by participating financial institutions

39

to small businesses under the PPP of the CARES Act. Under the facility, the Federal Reserve Banks lend to participating financial institutions on a non-recourse basis, taking PPP loans as collateral. The Bank is participating in the PPPLF and as of April 30, 2020 has received funding for 141 loans totaling $66.4 million.

Outlook

Management believes that the Corporation's liquidity position is strong. 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, FHLB borrowings, securities sold under agreements to repurchase and other borrowings. At March 31, 2020, the Corporation's cash and cash equivalents balances was $144.5 million. The Corporation also maintains an investment portfolio of securities available for sale, comprised primarily of mortgage-backed securities and municipal bonds. Although this portfolio generates interest income for the Corporation, it also serves as an available source of liquidity and capital if the need should arise. As of March 31, 2020, the Corporation's investment in securities available for sale was $299.1 million, $102.0 million of which was unpledged collateral. Additionally, the Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $137.0 million as of March 31, 2020. The Corporation did not experience excessive draws on available working capital lines of credit and home equity lines of credit during the first quarter of 2020 due to the COVID-19 pandemic.

With respect to the Corporation's credit risk and lending activities, management has taken actions to identify and assess additional possible credit exposure due to the COVID-19 pandemic based upon the industry types within the current loan portfolio. The table below summarizes the Bank's loan portfolio, by NAICS code, as of March 31, 2020. While most industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, the industries designated by Management to be most impacted by COVID-19 are indicated in bold.

Commercial Loan Portfolio by NAICS Codes
"Highly Impacted" industries in bold (dollars in thousands)			% of Total Loans		% of RBC*
Industry Sectors	Loan Balance
Real Estate, Rental & Leasing
Multifamily	$	176,199	19.67	%	95.21	%
Hospitality	41,482		4.63	%	0.22	%
Nursing Home/Assisted Living	13,253		1.48	%	7.16	%
Non-Essential Retail	39,587		4.42	%	21.39	%
CRE Other	276,837		30.91	%	149.59	%
Non-Real Estate Secured	50,616		5.65	%	27.35	%
Accommodation and Food Services	44,113		4.92	%	23.84	%
Manufacturing	37,466		4.18	%	20.24	%
Arts, Entertainment and Recreation	36,827		4.11	%	19.90	%
Health Care and Social Assistance	31,727		3.54	%	17.14	%
Construction	29,500		3.29	%	15.94	%
Wholesale Trade	26,218		2.93	%	14.17	%
Retail Trade	22,418		2.50	%	12.11	%
Professional, Scientific, and Technical Services	12,896		1.44	%	6.97	%
Transportation and Warehousing	12,683		1.42	%	6.85	%
Finance and Insurance	7,036		0.79	%	3.80	%
Administration and Support, Waste Management, Remediation	6,816		0.76	%	3.68	%
Educational Services	4,854		0.54	%	2.62	%
Mining	1,693		0.19	%	0.91	%
Other	23,546		2.63	%	11.76	%
Total	$	895,767	100.00	%
COVID Sensitive Industries	$	199,373	22.30	%
* Risk Based Capital

COVID sensitive industries total $199.4 million, or 22.3% of the Bank's commercial loan portfolio as of March 31, 2020. The rental and leasing sector encompasses real estate rental properties plus rental of non-real estate items. In this same sector, $94.3 million of the loan balances relate to commercial real estate rentals for hospitality, nursing/home assisted living, and non-essential retail and are considered "highly impacted." The arts, entertainment and recreation sector includes $26.7 million of loan balances related to casinos.

The COVID-19 pandemic is expected to continue to impact the Corporation's financial results, as well as demand for its services and products during the second quarter of 2020 and potentially beyond. The short and long-term implications of the COVID-19 pandemic, and related monetary and fiscal stimulus measures, on the Corporation's future revenues, earnings results, allowance for credit losses, capital reserves, and liquidity are uncertain at this time.

40

Consolidated Financial Highlights

	As of or for the Three Months Ended
	Mar. 31			Dec. 31			Sept. 30,			June 30,			Mar. 31
(in thousands, except per share data)	2020			2019			2019			2019			2019
RESULTS OF OPERATIONS
Interest income	$	16,384		$	16,777		$	16,808		$	16,682		$	16,665
Interest expense	1,322			1,576			1,666			1,581			1,498
Net interest income	15,062			15,201			15,142			15,101			15,167
Provision for loan losses	3,050			261			4,441			150			1,093
Net interest income after provision for loan losses	12,012			14,940			10,701			14,951			14,074
Non-interest income	4,730			5,106			4,956			5,086			4,925
Non-interest expense	13,749			14,851			13,525			13,823			13,497
Income before income tax expense	2,993			5,195			2,132			6,214			5,502
Income tax expense	502			991			176			1,233			1,034
Net income	$	2,491		$	4,204		$	1,956		$	4,981		$	4,468
Basic and diluted earnings per share	$	0.51		$	0.87		$	0.40		$	1.02		$	0.92
Average basic and diluted shares outstanding	4,895			4,879			4,871			4,866			4,860
PERFORMANCE RATIOS - Annualized
Return on average assets	0.55		%	0.93		%	0.44		%	1.15		%	1.03		%
Return on average equity	5.32		%	9.14		%	4.29		%	11.51		%	10.83		%
Return on average tangible equity (a)	6.04		%	10.43		%	4.91		%	13.27		%	12.56		%
Efficiency ratio (unadjusted) (f)	69.47		%	73.13		%	67.30		%	68.47		%	67.18		%
Efficiency ratio (adjusted) (a) (b)	68.50		%	72.08		%	66.21		%	67.44		%	66.04		%
Non-interest expense to average assets	3.06		%	3.28		%	3.05		%	3.18		%	3.12		%
Loans to deposits	82.11		%	83.28		%	82.88		%	83.60		%	82.93		%
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	4.37		%	4.43		%	4.50		%	4.54		%	4.54		%
Yield on investments	2.20		%	2.29		%	2.36		%	2.41		%	2.42		%
Yield on interest-earning assets	3.86		%	3.92		%	4.03		%	4.07		%	4.07		%
Cost of interest-bearing deposits	0.46		%	0.55		%	0.60		%	0.57		%	0.54		%
Cost of borrowings	3.58		%	3.58		%	3.53		%	3.52		%	3.52		%
Cost of interest-bearing liabilities	0.47		%	0.56		%	0.61		%	0.58		%	0.55		%
Interest rate spread	3.39		%	3.36		%	3.42		%	3.49		%	3.52		%
Net interest margin, fully taxable equivalent (a)	3.55		%	3.56		%	3.63		%	3.69		%	3.71		%
CAPITAL
Total equity to total assets at end of period	10.34		%	10.22		%	10.15		%	10.18		%	9.69		%
Tangible equity to tangible assets at end of period (a)	9.24		%	9.07		%	9.00		%	8.99		%	8.50		%
Book value per share	$	38.83		$	37.35		$	37.35		$	36.64		$	35.27
Tangible book value per share (a)	34.25			32.74			32.69			31.95			30.54
Period-end market value per share	32.98			42.50			42.00			48.34			46.93
Dividends declared per share	0.26			0.26			0.26			0.26			0.26
AVERAGE BALANCES
Loans and loans held for sale (c)	$	1,310,342		$	1,303,349		$	1,295,167		$	1,290,923		$	1,296,200
Earning assets	1,715,562			1,705,766			1,665,793			1,654,156			1,671,063
Total assets	1,807,753			1,798,385			1,760,385			1,744,599			1,753,788
Deposits	1,588,147			1,581,645			1,545,858			1,539,739			1,565,371
Total equity	188,427			182,522			180,896			173,534			167,385
Tangible equity (a)	165,911			159,889			158,111			150,598			144,293

41

ASSET QUALITY
Net charge-offs	$	294		$	706		$	174		$	239		$	292
Non-performing loans (d)	17,948			18,008			23,468			19,505			15,099
Non-performing assets (e)	18,328			18,525			23,679			19,719			15,304
Allowance for loan losses	26,233			23,478			23,923			19,656			19,745
Annualized net charge-offs to average loans	0.09		%	0.21		%	0.05		%	0.07		%	0.09		%
Non-performing loans to total loans	1.36		%	1.38		%	1.80		%	1.51		%	1.16		%
Non-performing assets to total assets	1.00		%	1.04		%	1.32		%	1.12		%	0.86		%
Allowance for loan losses to total loans	1.99		%	1.79		%	1.83		%	1.53		%	1.52		%
Allowance for loan losses to non-performing loans	146.16		%	130.38		%	101.94		%	100.77		%	130.77		%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio (adjusted) is non-interest expense less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less changes in fair value of equity investments less net gains on securities transactions.
(c) Loans and loans held for sale do not reflect the allowance for loan losses.
(d) Non-performing loans include non-accrual loans only.
(e) Non-performing assets include non-performing loans plus other real estate owned.
(f) Efficiency ratio (unadjusted) is non-interest expense divided by the total of net interest income plus non-interest income.

In addition to analyzing the Corporation’s results on a reported basis, management uses certain non-GAAP financial measures because it believes these non-GAAP financial measures provide information to investors about the underlying operational performance and trends of the Corporation and, therefore, facilitate a comparison of the Corporation with the performance of its competitors. Non-GAAP financial measures used by the Corporation may not be comparable to similarly named non-GAAP financial measures used by other companies. Refer to pages 61-64 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

42

Executive Summary

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

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

	Three Months Ended   March 31,
	2020			2019			Change			Percentage Change
Net interest income	$	15,062		$	15,167		$	(105	)	(0.7	)%
Non-interest income	4,730			4,925			(195		)	(4.0	)%
Non-interest expense	13,749			13,497			252			1.9	%
Pre-provision income	6,043			6,595			(552		)	(8.4	)%
Provision for loan losses	3,050			1,093			1,957			179.0	%
Income tax expense	502			1,034			(532		)	(51.5	)%
Net income	$	2,491		$	4,468		$	(1,977	)	(44.2	)%
Basic and diluted earnings per share	$	0.51		$	0.92		$	(0.41	)	(44.6	)%
Selected financial ratios:
Return on average assets	0.55		%	1.03		%
Return on average equity	5.32		%	10.83		%
Net interest margin, fully taxable equivalent (a)	3.55		%	3.71		%
Efficiency ratio (adjusted) (b)	68.50		%	66.04		%
Non-interest expenses to average assets	3.06		%	3.12		%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio (adjusted) is non-interest expense less amortization of intangible assets less legal reserve divided by the total of fully taxable equivalent net interest income plus non-interest income less changes in fair value of equity investments less net gains on securities transactions.

Net income for the first quarter of 2020 was $2.5 million, or $0.51 per share, compared with $4.5 million, or $0.92 per share, for the same period in the prior year.  Return on average equity for the current quarter was 5.32%, compared with 10.83% for the prior year quarter.  The decrease in net income was due primarily to increases in provision for loan losses and non-interest expenses and a decrease in non-interest income, offset by a decrease in income tax expense.

Net interest income

Net interest income decreased $0.1 million, or 0.7%, compared with the same period in the prior year. The decrease was due primarily to a decrease in interest and dividend income, offset by a decrease in total interest expense.

Non-interest income

Non-interest income decreased $0.2 million, or 4.0%, compared with the same period in the prior year.  The decrease can be mostly attributed to decreases in the change in fair value of equity investments, service charges on deposit accounts, and interchange revenue from debit card transactions, offset by an increase in other non-interest income.

Non-interest expense

Non-interest expense increased $0.3 million, or 1.9%, compared with the same period in the prior year.  The increase was due primarily to increases in other non-interest expense, data processing expenses and loan expenses, offset by a decrease in other components of net periodic pension cost (benefits). For the three months ended March 31, 2020, non-interest expense to average assets was 3.06%, compared with 3.12% for the same period in the prior year.

Provision for loan losses

The provision for loan losses increased $2.0 million, compared to the same period in the prior year.  The increase can be mostly attributed to revised projected loss estimates based on the current economic environment and response to the COVID-19 pandemic. Net charge-offs for the first quarter of 2020 were $0.3 million, compared with $0.3 million for the first quarter of 2019.

43

Income tax expense

Income tax expense was $0.5 million in the first quarter of 2020, a decrease of $0.5 million when compared to the same period in the prior year. The decrease was due primarily to a decrease of $2.5 million in income before income tax expense for the first quarter of 2020 as compared to the same period in the prior year. The effective tax rate decreased from 18.8% for the first quarter of 2019 to 16.8% for the first quarter of 2020.

Consolidated Results of Operations

The following section of the MD&A provides a comparative discussion of the Corporation’s Consolidated Results of Operations on a reported basis for the three months ended March 31, 2020 and 2019. For a discussion of the Critical Accounting Policies, Estimates and Risks and Uncertainties that affect the Consolidated Results of Operations, see page 71 of this Form 10-Qand page 69 of the Corporation’s 2019 Form 10-K.

Net Interest Income

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

	Three Months Ended   March 31,
	2020		2019		Change			Percentage Change
Interest and dividend income	$	16,384	$	16,665	$	(281	)	(1.7	)%
Interest expense	1,322		1,498		(176		)	(11.7	)%
Net interest income	$	15,062	$	15,167	$	(105	)	(0.7	)%

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

Net interest income for the three months ended March 31, 2020 decreased $0.1 million, or 0.7%, to $15.1 million compared to the same period in the prior year, due primarily to a $0.3 million decrease in total interest and dividend income, offset by a $0.2 million decrease in total interest expense. Interest and fees from loans decreased $0.3 million, and interest from interest-earning deposits decreased $0.3 million, while interest from taxable securities increased $0.3 million, in the first quarter of 2020 as compared to the same period in the prior year. Interest expense on deposits decreased $0.2 million in the first quarter of 2020 when compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.55% in the first quarter of 2020, compared with 3.71% for the same period in the prior year.

The average yield on interest-earning assets decreased 21 basis points, and the average cost of interest-bearing liabilities decreased eight basis points in the first quarter of 2020, compared to the same period in the prior year. Average interest-earning assets increased $44.5 million compared to the same period in the prior year. The decrease in interest and dividend income for the current quarter can be mostly attributed to $23.9 million decrease in average balance of consumer loans, and average annualized yield decreases of 108 basis points on interest-earning deposits and 21 basis points on commercial loans, offset by a $38.0 million increase in the average balance of taxable securities, and a $10.1 million increase in the average balance of mortgage loans, compared to the same period in the prior year.

The decrease in interest expense for the current quarter can be mostly attributed to a decrease of $0.3 million in interest-bearing checking, savings, and money market interest, which was due to decreases in average rates paid on these products as a result of the Federal Reserve's 50 and 100 basis point drops on overnight rates in March, 2020. This decrease was offset by an increase of $0.1 million in interest expense on time deposits.

44

Average Consolidated Balance Sheets and Interest Analysis

The following tablepresents certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three months ended March 31, 2020 and 2019.  For the purpose of the table below, non-accruing loans are included in the daily average loan amounts outstanding.  Daily balances were used for average balance computations.  Investment securities are stated at amortized cost.  Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans and dividends on equity investments.

AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands)	Three Months Ended   March 31, 2020								Three Months Ended   March 31, 2019
	Average Balance			Interest			Yield/Rate (3)		Average Balance			Interest			Yield/Rate (3)
Interest-earning assets:
Commercial loans	$	882,150		$	9,872		4.50	%	$	854,201		$	9,927		4.71	%
Mortgage loans	191,856			1,836			3.85	%	181,721			1,721			3.84	%
Consumer loans	236,336			2,544			4.33	%	260,278			2,878			4.48	%
Taxable securities	251,669			1,488			2.38	%	213,702			1,198			2.27	%
Tax-exempt securities	42,220			332			3.16	%	47,295			333			2.86	%
Interest-earning deposits	111,331			398			1.44	%	113,866			708			2.52	%
Total interest-earning assets	1,715,562			16,470			3.86	%	1,671,063			16,765			4.07	%
Non-earning assets:
Cash and due from banks	25,694								27,976
Other assets	90,216								74,002
Allowance for loan losses	(23,719		)						(19,253		)
Total assets	$	1,807,753							$	1,753,788
Interest-bearing liabilities:
Interest-bearing demand deposits	$	210,027		$	160		0.31	%	$	195,814		$	205		0.42	%
Savings and insured money market deposits	750,814			542			0.29	%	754,295			795			0.43	%
Time deposits	160,951			584			1.46	%	153,264			461			1.22	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	4,048			36			3.58	%	4,268			37			3.52	%
Total interest-bearing liabilities	1,125,840			1,322			0.47	%	1,107,641			1,498			0.55	%
Non-interest-bearing liabilities:
Demand deposits	466,355								461,998
Other liabilities	27,131								16,764
Total liabilities	1,619,326								1,586,403
Shareholders' equity	188,427								167,385
Total liabilities and shareholders’ equity	$	1,807,753							$	1,753,788
Fully taxable equivalent net interest income				15,148								15,267
Net interest rate spread (1)							3.39	%							3.52	%
Net interest margin, fully taxable equivalent (2)							3.55	%							3.71	%
Taxable equivalent adjustment				(86		)						(100		)
Net interest income				$	15,062							$	15,167

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

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

(3) Annualized.

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 the volume of average interest-earning assets and interest-bearing liabilities have affected the Corporation’s interest income and interest expense during the three months ended March 31, 2020 and 2019.  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 purpose of thistable, changes that are not due solely to volume or rate changes have been allocated to these categories based on the respective percentage changes in average volume and rate.  Due to the numerous simultaneous volume and rate changes during the periods analyzed, it is not possible to precisely allocate changes between volume and rates.  In addition, average interest-earning assets include non-accrual loans and taxable equivalent adjustments were made.

RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	Three Months Ended March 31, 2020 vs. 2019
	Increase/(Decrease)
	Total Change			Due to Volume			Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans	$	(55	)	$	355		$	(410	)
Mortgage loans	115			110			5
Consumer loans	(334		)	(245		)	(89		)
Taxable investment securities	290			228			62
Tax-exempt investment securities	(1		)	(36		)	35
Interest-earning deposits	(310		)	(15		)	(295		)
Total interest and dividend income, fully taxable equivalent	(295		)	397			(692		)
Interest expense on:
Interest-bearing demand deposits	(45		)	14			(59		)
Savings and insured money market deposits	(253		)	(4		)	(249		)
Time deposits	123			25			98
FHLBNY advances, securities sold under agreements to repurchase and other debt	(1		)	(2		)	1
Total interest expense	(176		)	33			(209		)
Net interest income, fully taxable equivalent	$	(119	)	$	364		$	(483	)

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. In the first quarter of 2020, management also evaluated the potential impact of the COVID-19 pandemic as it related to the loan portfolio. As part of this analysis, management identified what it believes to be higher risk loans through a detailed analysis of industry codes. Management increased certain allowance qualitative factors based on its assessment of the impact of the current pandemic on local, national and global economic conditions as well as the perceived risks inherent in specific industries and credit characteristics.

Based on this analysis, the provision for loan losses for the first quarter of 2020 and 2019 was $3.1 million and $1.1 million, respectively. $2.7 million of the increase in the provision for loan losses can be attributed to revised projected loss estimates based on the current economic environment and response to the COVID-19 pandemic. Net charge-offs for the current quarter were $0.3 million, compared with $0.3 million for the same period in the prior year.

46

Non-interest income

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

	Three Months Ended   March 31,
	2020			2019			Change			Percentage Change
WMG fee income	$	2,229		$	2,276		$	(47	)	(2.1	)%
Service charges on deposit accounts	990			1,104			(114		)	(10.3	)%
Interchange revenue from debit card transactions	925			1,031			(106		)	(10.3	)%
Changes in fair value of equity investments	(246		)	89			(335		)	(376.4	)%
Net gains on sales of loans held for sale	75			48			27			56.3	%
Net gains (losses) on sales of other real estate owned	(29		)	(83		)	54			(65.1	)%
Income from bank owned life insurance	119			15			104			693.3	%
CFS fee and commission income	177			168			9			5.4	%
Other	490			277			213			76.9	%
Total non-interest income	$	4,730		$	4,925		$	(195	)	(4.0	)%

Total non-interest income for the first quarter of 2020 decreased $0.2 million compared with the same period in the prior year.  The decrease can be mostly attributed to decreases in the change in fair value of equity investments, service charges on deposit accounts, and interchange revenue from debit card transactions, offset by increases in income from bank owned life insurance and other non-interest income.

Change in Fair Value of Equity Investments

The decrease in changes in fair value of equity investments was primarily due to the general decline in the equity markets during the first quarter of 2020.

Change in Service Charges on Deposit Accounts

The decrease in service charges on deposit accounts was primarily due to a decline in non-sufficient fund fees when compared to the same period in the prior year.

Change in Interchange Revenue From Debit Card Transactions

The decrease in interchange revenue from debit card transactions was primarily due to a decrease in the overall debit card usage when compared to the same period in the prior year.

Change in Income from Bank Owned Life Insurance

The increase in income from bank owned life insurance was due to proceeds received related to a death benefit.

Change in Other Non-Interest Income

The increase in other non-interest income was due primarily to an increase in interest rate swap fees earned, partially offset by an increase in the interest rate swap valuation reserve.

47

Non-interest expense

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

	Three Months Ended   March 31,
	2020			2019			Change			Percentage Change
Compensation expense:
Salaries and wages	$	5,768		$	5,721		$	47		0.8	%
Pension and other employee benefits	1,516			1,545			(29		)	(1.9	)%
Other components of net periodic pension and postretirement benefits	(265		)	(141		)	(124		)	N/M
Total compensation expense	7,019			7,125			(106		)	(1.5	)%
Non-compensation expense:
Net occupancy	1,522			1,567			(45		)	(2.9	)%
Furniture and equipment	475			528			(53		)	(10.0	)%
Data processing	1,914			1,727			187			10.8	%
Professional services	329			405			(76		)	(18.8	)%
Amortization of intangible assets	132			163			(31		)	(19.0	)%
Marketing and advertising	324			268			56			20.9	%
Other real estate owned expenses	29			31			(2		)	(6.5	)%
FDIC insurance	250			265			(15		)	(5.7	)%
Loan expenses	310			196			114			58.2	%
Other	1,445			1,222			223			18.2	%
Total non-compensation expense	6,730			6,372			358			5.6	%
Total non-interest expense	$	13,749		$	13,497		$	252		1.9	%

Total non-interest expense for the first quarter of 2020 increased $0.3 million compared with the same period in the prior year.  The increase was due to an increase in total non-compensation expense, partially offset by a decrease in total compensation expense.

Compensation expense

The decrease in compensation expense, compared to the same period in the prior year, can mostly be attributed to a decrease in other components of net periodic pension cost (benefits). The decrease in other components of net periodic pension cost (benefits) was primarily attributed to a change in the actuarial adjustments related to the employee pension plan.

Non-compensation expense

The increase in non-compensation expense, compared to the same period in the prior year, can be mostly attributed to increases in other non-interest expense, data processing expenses and loan expenses, offset by decreases in professional services and furniture and equipment. The increase in other non-interest expense was due primarily to a credit received in check card rewards expenses in the prior period. The increase in data processing expense was primarily attributable to an increase in the cost of our core operating system which was outsourced in 2019. The increase in loan expense was primarily attributed to legal fees associated with a legal action taken by the Corporation related to the $4.2 million impairment of a commercial credit disclosed in the Corporation's Current Report on Form 8-K, dated September 12, 2019. The decrease in professional services was primarily attributed to timing differences. The decrease in furniture and equipment expenses was primarily attributed to a decrease in the overall depreciation expense after the closure of two branch locations in 2019.

48

Income tax expense

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

	Three Months Ended   March 31,
	2020			2019			Change			Percentage Change
Income before income tax expense	$	2,993		$	5,502		$	(2,509	)	(45.6	)%
Income tax expense	502			1,034			(532		)	(51.5	)%
Effective tax rate	16.8		%	18.8		%

Income tax expense for the current quarter was $0.5 million compared to $1.0 million for the same period in the prior year. The decrease in income tax expense was due primarily to a decrease of $2.5 million in income before income tax expense. The effective income tax rate decreased from 18.8% for the first quarter of 2019 to 16.8% for the first quarter of 2020.

Financial Condition

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

	March 31, 2020			December 31, 2019			Change			Percentage Change
ASSETS
Total cash and cash equivalents	$	144,458		$	121,904		$	22,554		18.5	%
Total investment securities, FHLB, and FRB stock	307,174			292,478			14,696			5.0	%
Loans, net of deferred loan fees	1,320,461			1,309,219			11,242			0.9	%
Allowance for loan losses	(26,233		)	(23,478		)	(2,755		)	11.7	%
Loans, net	1,294,228			1,285,741			8,487			0.7	%
Goodwill and other intangible assets, net	22,434			22,566			(132		)	(0.6	)%
Other assets	73,035			65,138			7,897			12.1	%
Total assets	$	1,841,329		$	1,787,827		$	53,502		3.0	%
LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,608,103		$	1,572,138		$	35,965		2.3	%
FHLBNY advances and other debt	4,028			4,085			(57		)	(1.4	)%
Other liabilities	38,751			28,977			9,774			33.7	%
Total liabilities	1,650,882			1,605,200			45,682			2.8	%
Total shareholders’ equity	190,447			182,627			7,820			4.3	%
Total liabilities and shareholders’ equity	$	1,841,329		$	1,787,827		$	53,502		3.0	%

Cash and Cash Equivalents

The increase in cash and cash equivalents can be attributed to changes in securities, loans, and deposits.

Investment securities

The increase in investment securities can be mostly attributed to purchases in the amount of $16.5 million and an increase in the fair value of the portfolio of $7.6 million, offset by $8.2 million in maturities, calls and principal paydowns.

49

Loans, net

The increase in loans can be attributed to increases of $11.0 million in commercial mortgages, $5.7 million in commercial and agricultural loans, and $4.4 million in residential mortgages, partially offset by decreases of $5.5 million in indirect consumer loans, and $4.3 million in other consumer loans.

Goodwill and other intangible assets, net

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

Other assets

The increase in other assets can be mostly attributed to an increase of $9.9 million in interest rate swap assets.

Deposits

The increase in deposits can be attributed to increases of $13.8 million in money market accounts, $10.4 million in interest-bearing demand deposit accounts, $5.4 million in savings deposits, $5.1 million in time deposits, and $1.3 million in non-interest-bearing demand deposits.

Other liabilities

The increase in other liabilities can be mostly attributed to an increase of $9.9 million in interest rate swap liabilities.

Shareholders’ equity

Shareholders’ equity was $190.4 million at March 31, 2020 compared with $182.6 million at December 31, 2019.  The increase can be mostly attributed to earnings of $2.5 million, a decrease in accumulated other comprehensive loss of $5.7 million, offset by $1.3 million in dividendsdeclared during the three months ended March 31, 2020. The decrease in accumulated other comprehensive loss of $5.7 million can be mostly attributed to the increase in the fair market value of the securities portfolio. Also, treasury stock decreased $0.5 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 WMG was $1.726 billion at March 31, 2020, including $287.3 million of assets held under management or administration for the Corporation, compared with $1.915 billion at December 31, 2019, including $289.7 million of assets held under management or administration for the Corporation, a decrease of $189.9 million, or 9.9%. The decrease in total assets under management or administration can be mostly attributed to a decrease in the market value of total assets.

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.

50

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

SECURITIES AVAILABLE FOR SALE
	March 31, 2020						December 31, 2019
	Amortized Cost		Estimated Fair Value		Percent of Total Estimated Fair Value		Amortized Cost		Estimated Fair Value		Percent of Total Estimated Fair Value
Mortgage-backed securities, residential and collateralized mortgage obligations	227,180		234,999		78.6	%	225,029		225,234		79.3	%
Obligations of states and political subdivisions	40,984		42,625		14.3	%	41,265		42,845		15.1	%
Other securities	21,431		21,451		7.1	%	15,962		16,011		5.6	%
Total	$	289,595	$	299,075	100.0	%	$	282,256	$	284,090	100.0	%

The available for sale segment of the securities portfolio totaled $299.1 million at March 31, 2020, an increase of $15.0 million, or 5.3%, from $284.1 million at December 31, 2019.  The increase can be mostly attributed to purchases in the amount of $16.5 million and an increase in the fair value of the portfolio of $7.6 million, offset by maturities, calls and principal paydowns.

The held to maturity segment of the securities portfolio consists of obligations of political subdivisions in the Corporation’s market areas and certificates of deposit.  These securities totaled $3.0 million at March 31, 2020, a decrease of $0.1 million, or 3.6%, from $3.1 million at December 31, 2019, mostly attributed to maturities.

Loans

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

The table below presents the Corporation’s loan composition by segment at the dates indicated, and the dollar and percent change from December 31, 2019 to March 31, 2020 (in thousands):

LOANS
	March 31, 2020		December 31, 2019		Dollar Change			Percentage Change
Commercial and agricultural	$	235,979	$	230,292	$	5,687		2.5	%
Commercial mortgages	659,788		648,794		10,994			1.7	%
Residential mortgages	192,722		188,338		4,384			2.3	%
Indirect consumer loans	129,473		134,973		(5,500		)	(4.1	)%
Other consumer loans	102,499		106,822		(4,323		)	(4.0	)%
Total loans, net of deferred loan fees	$	1,320,461	$	1,309,219	$	11,242		0.9	%

Portfolio loans totaled $1.320 billion at March 31, 2020, an increase of $11.2 million, or 0.9%, from $1.309 billion at December 31, 2019.  The increase in loans can be attributed to increases of $4.4 million in residential mortgages and $5.7 million in commercial and agricultural loans and $11.0 million in commercial mortgages, offset by a decreases of $5.5 million in indirect consumer loans, and $4.3 million in other consumer loans.

Residential mortgage loans totaled $192.7 million at March 31, 2020, an increase of $4.4 million, or 2.3%, from December 31, 2019.  During the three months ended March 31, 2020, $15.0 million of residential mortgages were originated, of which $2.6 million were sold in the secondary market to Freddie Mac and $0.4 million were sold to the State of New York Mortgage Agency.

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

51

LOANS BY DIVISION
	March 31, 2020		December 31, 2019		December 31, 2018		December 31, 2017		December 31, 2016
Chemung Canal Trust Company*	$	573,758	$	576,399	$	603,133	$	630,732	$	636,836
Capital Bank Division	746,703		732,820		708,773		681,092		563,454
Total loans	$	1,320,461	$	1,309,219	$	1,311,906	$	1,311,824	$	1,200,290

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

Loan concentrations are considered to exist when there are amounts loaned to a multiple number of borrowers engaged in similar activities which would cause them to be similarly impacted by economic or other conditions.  Specific industries are identified using NAICS codes.  The Corporation monitors specific NAICS industry classifications of commercial loans to identify concentrations greater than 10.0% of total loans.  At March 31, 2020 and December 31, 2019, commercial loans to borrowers involved in the real estate, and real estate rental and lending businesses were each 45.0% of total loans.  No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of March 31, 2020 and December 31, 2019.

Non-Performing Assets

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

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

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

NON-PERFORMING ASSETS
	March 31, 2020			December 31, 2019
Non-accrual loans	$	10,010		$	9,938
Non-accrual troubled debt restructurings	7,938			8,070
Total non-performing loans	17,948			18,008
Other real estate owned	380			517
Total non-performing assets	$	18,328		$	18,525
Ratio of non-performing loans to total loans	1.36		%	1.38		%
Ratio of non-performing assets to total assets	1.00		%	1.04		%
Ratio of allowance for loan losses to non-performing loans	146.16		%	130.38		%
Accruing loans past due 90 days or more (1)	$	8		$	7
Accruing troubled debt restructurings (1)	$	745		$	952
(1) These loans are not included in non-performing assets above.

52

Non-Performing Loans

Non-performing loans totaled $17.9 million at March 31, 2020, or 1.36% of total loans, compared with $18.0 million at December 31, 2019, or 1.38% of total loans. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was $18.3 million, or 1.00% of total assets, at March 31, 2020, compared with $18.5 million, or 1.04% of total assets, at December 31, 2019. The decrease in non-performing loans can mostly be attributed to payments received on commercial loans partially offset by additional non-performing indirect consumer loans. The decrease in non-performing assets can be attributed to a combination of payments received on commercial loans and sales of other real estate owned.

Accruing Loans Past due 90 Days or More

The recorded investment in accruing loans past due 90 days or more totaled $8 thousand at March 31, 2020, an increase of $1 thousand from December 31, 2019.

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.  Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 related modifications and therefore will not be treated as TDRs.  As of March 31, 2020, the Corporation had $7.9 million of non-accrual TDRs compared with $8.1 million as of December 31, 2019.  As of March 31, 2020 and December 31, 2019, the Corporation had $0.8 million and $0.9 million respectively, of accruing TDRs.

Impaired Loans

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.  Impaired loans at March 31, 2020 totaled $15.1 million, including TDRs of $7.9 million, compared to $15.7 million, including TDRs of $9.0 million, at December 31, 2019.  The decrease in impaired loans was due primarily to payoffs on two smaller loans and other payments received during the quarter. Included in the recorded investment of impaired loans at March 31, 2020, were loans totaling $10.9 million for which impairment allowances of $7.9 million have been specifically allocated to the allowance for loan losses.  As of December 31, 2019, the impaired loan total included $11.1 million of loans for which specific impairment allowances of $8.1 million were allocated to the allowance for loan losses.

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

Allowance for Loan Losses

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

A loan is classified as impaired when, based on current information and events, it is probable that the Corporation will be unable to collect both the principal and interest due under the contractual terms of the loan agreement.  Specific valuation allowances are established based on management’s analysis of individually impaired loans.  Factors considered by management in determining impairment include payment status, evaluations of the underlying collateral, expected cash flows, delinquent or unpaid property

53

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

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

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

The allowance for loan losses was $26.2 million at March 31, 2020, compared with $23.5 million at December 31, 2019.  The ratio of allowance for loan losses to total loans was 1.99% at March 31, 2020, compared with 1.79% at December 31, 2019.  Net charge-offs for the three months ended March 31, 2020 and 2019 were $0.3 million and $0.3 million, respectively.

54

The table below summarizes the Corporation’s loan loss experience for the three months ended March 31, 2020 and 2019 (in thousands, except ratio data):

SUMMARY OF LOAN LOSS EXPERIENCE
	Three Months Ended   March 31,
	2020			2019
Balance of allowance for loan losses at beginning of period	$	23,478		$	18,944
Charge-offs:
Commercial and agricultural	29			7
Commercial mortgages	—			—
Residential mortgages	—			2
Consumer loans	403			439
Total charge-offs	432			448
Recoveries:
Commercial and agricultural	3			11
Commercial mortgages	1			1
Residential mortgages	—			—
Consumer loans	134			144
Total recoveries	138			156
Net charge-offs	294			292
Provision for loan losses	3,050			1,093
Balance of allowance for loan losses at end of period	$	26,234		$	19,745
Ratio of net charge-offs to average loans outstanding	0.09		%	0.09		%
Ratio of allowance for loan losses to total loans outstanding	1.99		%	1.52		%

Deposits

The table below summarizes the Corporation’s deposit composition by segment at the dates indicated, and the dollar and percent change from December 31, 2019 to March 31, 2020 (in thousands):

DEPOSITS
	March 31, 2020		December 31, 2019		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	469,535	$	468,238	$	1,297	0.3	%
Interest-bearing demand deposits	210,493		200,089		10,404		5.2	%
Insured money market accounts	544,024		530,242		13,782		2.6	%
Savings deposits	217,789		212,393		5,396		2.5	%
Time deposits	166,262		161,176		5,086		3.2	%
Total	$	1,608,103	$	1,572,138	$	35,965	2.3	%

Deposits totaled $1.608 billion at March 31, 2020 compared with $1.572 billion at December 31, 2019, an increase of $36.0 million, or 2.3%. The increase was attributable to increases of $5.1 million in time deposits, and $10.4 million in interest-bearing demand deposit accounts, $13.8 million in money market accounts, $5.4 million in savings deposits, and $1.3 million in non-interest-bearing demand deposits. The growth in deposits was due primarily to increases of $13.5 million in public deposits, $18.8 million in commercial deposits and $3.7 million in consumer deposits. At March 31, 2020, demand deposit and money market accounts comprised 76.1% of total deposits compared with 76.2% at December 31, 2019.

55

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

DEPOSITS BY DIVISION
	March 31, 2020		December 31, 2019		December 31, 2018		December 31, 2017		December 31, 2016
Chemung Canal Trust Company*	$	1,358,211	$	1,317,225	$	1,328,658	$	1,264,883	$	1,249,870
Capital Bank Division	249,892		254,913		240,579		202,563		206,473
Total	$	1,608,103	$	1,572,138	$	1,569,237	$	1,467,446	$	1,456,343

*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. Brokered deposits include funds obtained through brokers.  There were no deposits obtained through brokers as of March 31, 2020 and December 31, 2019. Deposits obtained through the CDARS and ICS programs were $189.4 million and $180.4 million as of March 31, 2020 and December 31, 2019, respectively. The increase in CDARS and ICS deposits was due to the seasonal inflow of municipal client balances.

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

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

Borrowings

Borrowings decreased$0.1 million from $4.1 million at December 31, 2019 to $4.0 million at March 31, 2020, attributable to normal recurring finance lease payments.

Shareholders’ Equity

Total shareholders' equity increased$7.8 million from $182.6 million at December 31, 2019 to $190.4 million at March 31, 2020, due primarily to an increase in retained earnings and a decrease in accumulated other comprehensive loss. The increase in retained earnings of $1.2 million was due primarily to earnings of $2.5 million, offset by $1.3 million in dividends declared during the three months ended March 31, 2020. The decrease in accumulated other comprehensive loss of $5.7 million can be mostly attributed to the increase in the fair market value of the securities portfolio. Also, treasury stock decreased$0.5 million, primarily due to the issuance of shares pursuant to the Corporation's employee benefit plans and the directors' stock compensation plans.

The total shareholders’ equity to total assets ratio was 10.34% at March 31, 2020 compared with 10.22% at December 31, 2019.  The tangible equity to tangible assets ratio was 9.24% at March 31, 2020 compared with 9.07% at December 31, 2019.  Book value per share increased to $38.83 at March 31, 2020 from $37.35 at December 31, 2019.

On March 18, 2020, the Corporation's Board of Directors approved a stock repurchase program which replaces the previously authorized repurchase program. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its then outstanding shares starting March 18, 2020. The repurchase program permits shares to be repurchased in open market or privately negotiated transactions, through block trades, and pursuant to any trading plan that may be adopted in accordance with Rule 10b5-1 of the Securities and Exchange Commission. During the first quarter of 2020, the Corporation repurchased 3,252 shares of common stock at a total cost of $90,399 under its share repurchase program. The weighted average cost was $27.80 per share repurchased. Remaining buyback authority under the share repurchase program was 246,748 shares at March 31, 2020.

56

On April 27, 2020, the Corporation filed a Form S-3 Registration Statement under the Securities Act of 1933. The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $50 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities. The SEC declared the registration statement effective on May 7, 2020.

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, under-capitalized, significantly under-capitalized and critically under-capitalized.  As of March 31, 2020, the Bank’s capital ratios were in excess of those required to be considered well-capitalized under regulatory capital guidelines.

The 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 took effect on January 1, 2020. Pursuant to the CARES Act, the federal banking regulators in April 2020 issued interim final rules to set the community bank leverage ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the community bank leverage ratio will increase to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the community bank leverage ratio requirement will return to 9%. The Bank has elected not to use the community bank leverage ratio.

Off-balance Sheet Arrangements

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

Subsequent Events

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreements in place related to 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. This event was not considered material in nature and thus did not result in an adjustment to the financial statements.

On April 27, 2020, the Corporation filed a Form S-3 Registration Statement under the Securities Act of 1933. The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $50 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities. The SEC declared the registration statement effective on May 7, 2020.

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 $137.0 million and $141.8 million at March 31, 2020 and December 31, 2019, respectively.  The Corporation also

57

had a total of $68.0 million of unsecured lines of credit with six different financial institutions, all of which was available at March 31, 2020. The Corporation had a total of $58.0 million of unsecured lines of credit with five different financial institutions at December 31, 2019, all of which was available.

Consolidated Cash Flows Analysis

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

CONSOLIDATED SUMMARY OF CASH FLOWS
(in thousands)	Three Months Ended   March 31,
	2020			2019
Net cash provided by operating activities	6,294			$	7,244
Net cash used in investing activities	(18,806		)	(7,521		)
Net cash provided (used) in financing activities	35,066			(3,885		)
Net increase (decrease) in cash and cash equivalents	$	22,554		$	(4,162	)

Operating activities

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

Cash provided by operating activities in the first three months of 2020 and 2019 predominantly resulted from net income after non-cash operating adjustments.

Investing activities

Cash used in investing activities during the first three months of 2020 predominantly resulted from purchases of securities available for sale, and a net increase in loans, offset by maturities and principal paydowns on securities available for sale. Cash used in investing activities during the first three months of 2019 predominantly resulted from purchases of securities available for sale, offset by maturities and principal paydowns on securities available for sale and a net decrease in loans.

Financing activities

Cash provided by financing activities during the first three months of 2020 predominantly resulted from a net increase in deposits. Cash used in financing activities during the first three months of 2019 predominantly resulted from a net decrease in deposits.

Capital Resources

The Bank is subject to regulatory capital requirements administered by federal banking agencies. As a result of the recently enacted Regulatory Relief Act, the FRB amended its small bank holding company and savings and loan holding company policy statement to provide that holding companies with consolidated assets of less than $3 billion that are (i) not engaged in significant non-banking activities, (ii) do not conduct significant off-balance sheet activities, and (iii) do not have a material amount of SEC-registered debt or equity securities, other than trust preferred securities, that contribute to an organization’s complexity, are no longer subject to regulatory capital requirements, effective August 30, 2018. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel III rules became effective for the 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 2.50%. Organizations that fail to maintain the minimum capital conservation buffer could face restrictions on capital distributions or discretionary bonus payments to executive officers. The net unrealized gain or loss on available for sale securities and changes in the funded status of the defined benefit pension plan and other benefit plans are not included in computing regulatory capital.

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

58

ratio and certain other qualifying criteria will automatically be deemed to be well-capitalized. The new rule took effect on January 1, 2020. Pursuant to the CARES Act, the federal banking regulators in April 2020 issued interim final rules to set the community bank leverage ratio at 8% beginning in the second quarter of 2020 through the end of 2020. Beginning in 2021, the community bank leverage ratio will increase to 8.5% for the calendar year. Community banks will have until Jan. 1, 2022, before the community bank leverage ratio requirement will return to 9%. The Bank has not elected to use the community bank leverage ratio.

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 March 31, 2020 and December 31, 2019, the Bank met all capital adequacy requirements to which it was subject.

As of March 31, 2020, 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 March 31, 2020 and December 31, 2019 were calculated under Basel III rules. There is no threshold for well-capitalized status for bank holding companies.

The Corporation and the Bank’s capital ratios as of March 31, 2020 were as follows (in thousands, except ratio data):

	Actual				Minimum Capital Adequacy				Minimum Capital Adequacy with Capital Buffer				To Be Well Capitalized Under Prompt Corrective Action Provisions
As of March 31, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	185,068	13.72	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	176,864	13.13	%	$	107,757	8.00	%	$	133,013	9.875	%	$	134,697	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	168,094	12.46	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	159,911	11.87	%	$	80,818	6.00	%	$	106,074	7.875	%	$	107,757	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	168,094	12.46	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	159,911	11.87	%	$	60,614	4.50	%	$	85,869	6.375	%	$	87,553	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	168,094	9.44	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	159,911	9.01	%	$	70,995	4.00	%	N/A		N/A		$	88,744	5.00	%

59

The Corporation and the Bank’s capital ratios as of December 31, 2019 were as follows (in thousands, except ratio data):

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

Dividend Restrictions

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank.  Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies.  Under these regulations, the amount of dividends that may be paid in any calendar year is limited to current year’s net income, combined with the retained net income of the preceding two years, subject to the capital requirements in the table above.  At March 31, 2020, the Bank could, without prior approval, declare dividends of approximately $28.8 million.

Adoption of New Accounting Standards

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

Critical Accounting Policies, Estimates and Risks and Uncertainties

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

60

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.

For additional information on critical accounting policies and to gain a greater understanding of how the Corporation's financial performance is reported, refer to Note 1 - "Summary of Significant Accounting Policies" in Notes to Unaudited Consolidated Financial Statements included in Part I of this Quarterly Report on Form 10-Q for a discussion of recent accounting updates, and the section captioned "Critical Accounting Policies" in Management's Discussion and Analysis of Financial Condition and Results of Operations, contained in the Corporation's Annual Report on Form 10-K for the year ended December 31, 2019.

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 7–12. That presentation provides the reader with an understanding of the Corporation’s results that can be tracked consistently from year-to-year and enables a comparison of the Corporation’s performance with other companies’ GAAP financial statements.

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

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

Fully Taxable Equivalent Net Interest Income 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.

61

	As of the Three Months Ended
(in thousands, except ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2020			2019			2019			2019			2019
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
Net interest income (GAAP)	$	15,062		$	15,201		$	15,142		$	15,101		$	15,167
Fully taxable equivalent adjustment	86			98			101			104			100
Fully taxable equivalent net interest income (non-GAAP)	$	15,148		$	15,299		$	15,243		$	15,205		$	15,267
Average interest-earning assets (GAAP)	$	1,715,562		$	1,705,766		$	1,665,793		$	1,654,156		$	1,671,063
Net interest margin - fully taxable equivalent (non-GAAP)	3.55		%	3.56		%	3.63		%	3.69		%	3.71		%

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.

	As of the Three Months Ended
(in thousands, except ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2020			2019			2019			2019			2019
EFFICIENCY RATIO
Net interest income (GAAP)	$	15,062		$	15,201		$	15,142		$	15,101		$	15,167
Fully taxable equivalent adjustment	86			98			101			104			100
Fully taxable equivalent net interest income (non-GAAP)	$	15,148		$	15,299		$	15,243		$	15,205		$	15,267
Non-interest income (GAAP)	$	4,730		$	5,106		$	4,956		$	5,086		$	4,925
Less: changes in fair value of equity investments	—			—			—			—			—
Less:  net (gains) losses on security transactions	—			—			—			(19		)	—
Adjusted non-interest income (non-GAAP)	$	4,730		$	5,106		$	4,956		$	5,067		$	4,925
Non-interest expense (GAAP)	$	13,749		$	14,851		$	13,525		$	13,823		$	13,497
Less:  amortization of intangible assets	(132		)	(144		)	(151		)	(151		)	(163		)
Less: legal reserve	—			—			—			—			—
Adjusted non-interest expense (non-GAAP)	$	13,617		$	14,707		$	13,374		$	13,672		$	13,334
Efficiency ratio (unadjusted)	69.47		%	73.13		%	67.30		%	68.47		%	67.18		%
Efficiency ratio (adjusted)	68.50		%	72.08		%	66.21		%	67.44		%	66.04		%

62

Tangible Equity and Tangible Assets (Period-End)

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

	As of or for the Three Months Ended
(in thousands, except per share and ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2020			2019			2019			2019			2019
TANGIBLE EQUITY AND TANGIBLE ASSETS
(PERIOD END)
Total shareholders' equity (GAAP)	$	190,447		$	182,627		$	182,044		$	178,387		$	171,534
Less: intangible assets	(22,434		)	(22,566		)	(22,710		)	(22,861		)	(23,012		)
Tangible equity (non-GAAP)	$	168,013		$	160,061		$	159,334		$	155,526		$	148,522
Total assets (GAAP)	$	1,841,329		$	1,787,827		$	1,793,643		$	1,752,997		$	1,769,572
Less: intangible assets	(22,434		)	(22,566		)	(22,710		)	(22,861		)	(23,012		)
Tangible assets (non-GAAP)	$	1,818,895		$	1,765,261		$	1,770,933		$	1,730,136		$	1,746,560
Total equity to total assets at end of period (GAAP)	10.34		%	10.22		%	10.15		%	10.18		%	9.69		%
Book value per share (GAAP)	$	38.83		$	37.35		$	37.35		$	36.64		$	35.27
Tangible equity to tangible assets at end of period (non-GAAP)	9.24		%	9.07		%	9.00		%	8.99		%	8.50		%
Tangible book value per share (non-GAAP)	$	34.25		$	32.74		$	32.69		$	31.95		$	30.54

Tangible Equity (Average)

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

	As of or for the Three Months Ended
	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
(in thousands, except ratio data)	2020			2019			2019			2019			2019
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP)	$	188,427		$	182,522		$	180,896		$	173,534		$	167,385
Less: average intangible assets	(22,516		)	(22,633		)	(22,785		)	(22,936		)	(23,092		)
Average tangible equity (non-GAAP)	$	165,911		$	159,889		$	158,111		$	150,598		$	144,293
Return on average equity (GAAP)	5.32		%	9.14		%	4.29		%	11.51		%	10.83		%
Return on average tangible equity (non-GAAP)	6.04		%	10.43		%	4.91		%	13.27		%	12.56		%

63

Adjustments for Certain Items of Income or Expense

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

	As of or for the Three Months Ended
(in thousands, except per share and ratio data)	March 31,			Dec. 31,			Sept. 30,			June 30,			March 31,
	2020			2019			2019			2019			2019
NON-GAAP NET INCOME
Reported net income (GAAP)	$	2,491		$	4,204		$	1,956		$	4,981		$	4,468
Net changes in fair value of investments (net of tax)	—			—			—			—			—
Net (gains) losses on security transactions (net of tax)	—			—			—			(14		)	—
Legal reserve (net of tax)	—			—			—			—			—
Revaluation of net deferred tax asset	—			—			—			—			—
Non- GAAP net income	$	2,491		$	4,204		$	1,956		$	4,967		$	4,468
Average basic and diluted shares outstanding	4,895			4,879			4,871			4,866			4,860
Reported basic and diluted earnings per share (GAAP)	$	0.51		$	0.87		$	0.40		$	1.02		$	0.92
Reported return on average assets (GAAP)	0.55		%	0.93		%	0.44		%	1.15		%	1.03		%
Reported return on average equity (GAAP)	5.32		%	9.14		%	4.29		%	11.51		%	10.83		%
Non-GAAP basic and diluted earnings per share	$	0.51		$	0.87		$	0.40		$	1.02		$	0.92
Non-GAAP return on average assets	0.55		%	0.93		%	0.44		%	1.14		%	1.03		%
Non-GAAP return on average equity	5.32		%	9.14		%	4.29		%	11.48		%	10.83		%

64

ITEM 3:    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest Rate Risk

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

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

The Corporation’s objectives in its asset and liability management are to maintain a strong, stable net interest margin, to utilize its capital effectively without taking undue risks, to maintain adequate liquidity, and to reduce vulnerability of its operations to changes in interest rates.  The Corporation's ALCO has the strategic responsibility for setting the policy guidelines on acceptable exposure to interest rate risk.  These guidelines contain specific measures and limits regarding the risks, which are monitored on a regular basis.  The ALCO is made up of the President and Chief Executive Officer, the Chief Financial Officer and Treasurer, 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 March 31, 2020, it is estimated that an immediate 100-basis point decrease in interest rates would negatively impact the next 12 months net interest income by 6.76% and an immediate 200-basis point increase would positively impact the next 12 months net interest income by 9.90%.  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 equity account will fluctuate with changes in interest rates.  This component is a direct corollary to the earnings-impact component: an institution exposed to earnings erosion is also exposed to a decline in market value.  At March 31, 2020, 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 9.83%. An immediate 200-basis point increase in interest rates would positively impact the market value by 8.88%. Both are 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), Chief Credit and Risk Officer, 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.

65

ITEM 4:CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Corporation's management, with the participation of its Chief Executive Officer, who is the Corporation's principal executive officer, and its Chief Financial Officer and Treasurer, who is the Corporation's principal financial officer, have evaluated the effectiveness of the Corporation's disclosure controls and procedures as of March 31, 2020 pursuant to Rule 13a-15 of the Exchange Act, as amended. Based upon that evaluation, the principal executive officer and principal financial officer have concluded that the Corporation's disclosure controls and procedures are effective as of March 31, 2020.  In addition, there have been no changes in the Corporation’s internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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

66

PART II.    OTHER INFORMATION

ITEM 1.    LEGAL PROCEEDINGS

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. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, 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. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Bank seeks to recover $4.2 million and additional damages as a result of purchasing the participation interest.

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreement. This event was considered immaterial in nature and thus did not result in an adjustment to the financial statements.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  As of March 31, 2020, we believe that we are not a party to any additional pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

ITEM 1A.    RISK FACTORS

In addition to the other information contained in this Quarterly Report on Form 10-Q, the following risk factor represents material updates and additions to the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 as filed with the SEC on March 12, 2020. Additional risks not presently known to us, or that we currently deem immaterial, may also adversely affect our business, financial condition or results of operations. Further, to the extent that any of the information contained in this Quarterly Report on Form 10-Q constitutes forward-looking statements, the risk factor set forth below also is a cautionary statement identifying important factors that could cause our actual results to differ materially from those expressed in any forward-looking statements made by or on behalf of us.

The economic impact of the COVID-19 outbreak could adversely affect our financial condition and results of operations.

In December 2019, a coronavirus (COVID-19) was reported in China, and, in March 2020, the World Health Organization declared it a pandemic. On March 12, 2020 the President of the United States declared the COVID-19 pandemic in the United States a national emergency. The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic, more than 30 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. In response to the COVID-19 pandemic, the Federal Reserve has reduced the benchmark fed funds rate to a target range of 0% to 0.25%, and the yields on 10 and 30-year treasury notes have declined to historic lows. The State of New York and certain federal agencies are requiring lenders to provide forbearance and other relief to borrowers (e.g., waiving late payment and other fees). The federal banking agencies have encouraged financial institutions to prudently work with affected borrowers and recently passed legislation has provided relief from reporting loan classifications due to modifications related to the COVID-19 pandemic. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened. As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, we could be subject to any of the following risks, any of which could have a material, adverse effect on our business, financial condition, liquidity, and results of operations:

• demand for our products and services may decline, making it difficult to grow assets and income;

• if the economy is unable to substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, problem assets, and foreclosures may increase, resulting in increased charges and reduced income;

• collateral for loans, especially real estate, may decline in value, which could cause loan losses to increase;

67

• our allowance for loan losses may have to be increased if borrowers experience financial difficulties beyond forbearance periods, which will adversely affect our net income;

• the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments to us.

• as the result of the decline in the Federal Reserve Board’s target federal funds rate to near 0%, the yield on our assets may decline to a greater extent than the decline in our cost of interest-bearing liabilities, reducing our net interest margin and spread and reducing net income;

• a material decrease in net income or a net loss over several quarters could result in a decrease in the rate of our quarterly cash dividend,

• our wealth management revenues may decline with continuing market turmoil;

• our cyber security risks are increased as the result of an increase in the number of employees working remotely;

• we rely on third party vendors for certain services and the unavailability of a critical service due to the COVID-19 outbreak could have an adverse effect on us; and

• Federal Deposit Insurance Corporation premiums may increase if the agency experience additional resolution costs.

Moreover, our future success and profitability substantially depends on the management skills of our executive officers and directors, many of whom have held officer and director positions with us for many years. The unanticipated loss or unavailability of key employees due to the outbreak could harm our ability to operate our business or execute our business strategy. We may not be successful in finding and integrating suitable successors in the event of key employee loss or unavailability.

Any one or a combination of the factors identified above could negatively impact our business, financial condition and results of operations and prospects.

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

(c)    Issuer Purchases of Equity Securities (1)

Period	Total number of shares purchased	Average price paid per share		Total number of shares purchased as part of publicly announced plans or programs	Maximum number of shares that may yet be purchased under the plans or programs
January 1 - January 31, 2020	—	$	—	—	121,906
February 1 - February 29, 2020	—	—		—	121,906
March 1 - March 31, 2020	3,252	27.80		3,252	246,748
Quarter ended 3/31/20	3,252	$	27.80	3,252	246,748
(1) On March 18, 2020, the Corporation’s Board of Directors approved a stock repurchase plan which replaced the previously authorized repurchase program. Under the new repurchase program, the Corporation may repurchase up to 250,000 shares of its common stock, or approximately 5% of its outstanding shares. 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.

ITEM 3.    DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4.    MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5.    OTHER INFORMATION

Not applicable.

68

ITEM 6.    EXHIBITS

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

3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to May 15, 2019 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on May 16, 2019).
31.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
101.INS	Instance Document*
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

69

SIGNATURES

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

CHEMUNG FINANCIAL CORPORATION

DATED: May 8, 2020	By:  /s/ Anders M. Tomson
	Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer)

DATED: May 8, 2020	By:  /s/ Karl F. Krebs
	Karl F. Krebs Chief Financial Officer and Treasurer (Principal Financial Officer)

70

EXHIBIT INDEX

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

3.1	Certificate of Incorporation of Chemung Financial Corporation dated December 20, 1984 (as incorporated by reference to Exhibit 3.1 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.2	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated March 28, 1988 (as incorporated by reference to Exhibit 3.2 to Registrant's Form 10-K for the year ended December 31, 2007 filed with the Commission on March 13, 2008).
3.3	Certificate of Amendment to the Certificate of Incorporation of Chemung Financial Corporation, dated May 13, 1998 (as incorporated by reference to Exhibit 3.4 to Registrant’s Form 10-K for the year ended December 31, 2005 and filed with the Commission on March 15, 2006).
3.4	Amended and Restated Bylaws of Chemung Financial Corporation, as amended to May 15, 2019 (as incorporated by reference to Exhibit 3.1 to Registrant’s Form 8-K filed with the Commission on May 16, 2019).
31.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
31.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.*
32.1	Certification of Principal Executive Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
32.2	Certification of Principal Financial Officer of the Registrant pursuant to Rule 13a-14(b) under the Securities Exchange Act of 1934 and 18 U.S.C. §1350.*
101.INS	Instance Document*
101.SCH	XBRL Taxonomy Schema*
101.CAL	XBRL Taxonomy Calculation Linkbase*
101.DEF	XBRL Taxonomy Definition Linkbase*
101.LAB	XBRL Taxonomy Label Linkbase*
101.PRE	XBRL Taxonomy Presentation Linkbase*
*	Filed herewith.

EX-31.1

EXHIBIT 31.1

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

I, Anders M. Tomson, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 8, 2020

By:/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

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

I, Karl F. Krebs, certify that:

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

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

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

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

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

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

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

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

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

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

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

Date: May 8, 2020

By:/s/ Karl F. Krebs___________________

Karl F. Krebs

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

EX-32.1

EXHIBIT 32.1

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

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

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended March 31, 2020, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

/s/ Anders M. Tomson

Anders M. Tomson

President and Chief Executive Officer

May 8, 2020

EX-32.2

EXHIBIT 32.2

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

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

(a) the Quarterly Report on Form 10-Q of the Corporation for the period ended March 31, 2020, filed on the date hereof with the Securities and Exchange Commission (the "Report"), fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

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

/s/ Karl F. Krebs

Karl F. Krebs

Chief Financial Officer and Treasurer

May 8, 2020

XML

COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

Contractual amounts of financial instruments with off-balance sheet risk

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020				December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	22,930	$	24,160	$	15,560	$	25,233
Unused lines of credit	2,213		234,343		1,062		229,137
Standby letters of credit	—		16,022		—		16,272

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES (Tables)

3 Months Ended

Mar. 31, 2020

Loans and Leases Receivable Disclosure [Abstract]

Composition of the loan portfolio by type

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

	March 31,   2020		December 31,   2019
Commercial and agricultural:
Commercial and industrial	$	235,690	$	230,018
Agricultural	289		274
Commercial mortgages:
Construction	40,957		43,962
Commercial mortgages, other	618,831		604,832
Residential mortgages	192,722		188,338
Consumer loans:
Credit cards	—		—
Home equity lines and loans	88,149		91,784
Indirect consumer loans	129,473		134,973
Direct consumer loans	14,350		15,038
Total loans, net of deferred origination fees and costs	1,320,461		1,309,219
Interest receivable on loans	3,759		3,684
Total recorded investment in loans	$	1,324,220	$	1,312,903

Allowance for loan losses by portfolio segment

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31, 2020
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages		Consumer Loans			Total
Beginning balance	$	10,227		$	8,869	$	1,252	$	3,130		$	23,478
Charge-offs	(30		)	—		—		(403		)	(433		)
Recoveries	4			1		—		135			140
Net recoveries (charge-offs)	(26		)	—		—		(268		)	(294		)
Provision	990			1,603		169		288			3,050
Ending balance	$	11,191		$	10,472	$	1,421	$	3,149		$	26,233

	Three Months Ended March 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	(7		)	—		(2		)	(439		)	(448		)
Recoveries	11			1		—			144			156
Net recoveries (charge-offs)	4			1		(2		)	(295		)	(292		)
Provision	42			1,289		(9		)	(229		)	1,093
Ending balance	$	5,429		$	9,474	$	1,215		$	3,627		$	19,745

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

The following tables present the balance in the allowance for loan losses and the recorded investment in loans by portfolio segment and based on impairment method as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,851	$	2,058	$	—	$	—	$	7,909
Collectively evaluated for impairment	5,340		8,414		1,421		3,149		18,324
Total ending allowance balance	$	11,191	$	10,472	$	1,421	$	3,149	$	26,233

	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

	March 31, 2020
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	5,952	$	8,478	$	518	$	149	$	15,097
Loans collectively evaluated for  impairment	230,698		653,183		192,751		232,491		1,309,123
Total ending loans balance	$	236,650	$	661,661	$	193,269	$	232,640	$	1,324,220

	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

Summary of impaired financing receivables

The following table presents loans individually evaluated for impairment recognized by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020						December 31, 2019
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	105	$	106	$	—	$	133	$	133	$	—
Commercial mortgages:
Construction	231		232		—		247		247		—
Commercial mortgages, other	3,219		3,220		—		3,501		3,503		—
Residential mortgages	547		518		—		554		525		—
Consumer loans:
Home equity lines and loans	171		149		—		171		149		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,845		5,846		5,851		6,013		6,014		6,000
Commercial mortgages:
Commercial mortgages, other	5,025		5,026		2,058		5,093		5,094		2,097
Total	$	15,143	$	15,097	$	7,909	$	15,712	$	15,665	$	8,097

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended   March 31, 2020				Three Months Ended   March 31, 2019
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	120	$	—	$	325	$	1
Commercial mortgages:
Construction	239		2		301		2
Commercial mortgages, other	3,362		—		3,889		5
Residential mortgages	521		5		397		2
Consumer loans:
Home equity lines & loans	149		2		111		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,930		—		1,807		—
Commercial mortgages:
Commercial mortgages, other	5,060		—		3,523		—
Total	$	15,381	$	9	$	10,353	$	11

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

The following table presents the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	5,951	$	6,147	$	8	$	7
Commercial mortgages:
Construction	73		80		—		—
Commercial mortgages, other	8,247		8,407		—		—
Residential mortgages	2,265		2,155		—		—
Consumer loans:
Credit cards	—		—		—		—
Home equity lines and loans	638		641		—		—
Indirect consumer loans	767		571		—		—
Direct consumer loans	7		7		—		—
Total	$	17,948	$	18,008	$	8	$	7

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

The following tables present the aging of the recorded investment in loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
	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	$	347	$	1,373	$	4,264	$	5,984	$	230,376	$	236,360
Agricultural	—		—		—		—		290		290
Commercial mortgages:
Construction	—		—		—		—		41,073		41,073
Commercial mortgages, other	2,385		1,211		2,297		5,893		614,695		620,588
Residential mortgages	1,432		286		1,131		2,849		190,420		193,269
Consumer loans:
Home equity lines and loans	368		174		95		637		87,784		88,421
Indirect consumer loans	1,050		216		376		1,642		128,167		129,809
Direct consumer loans	33		21		6		60		14,350		14,410
Total	$	5,615	$	3,281	$	8,169	$	17,065	$	1,307,155	$	1,324,220

	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, other	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		804		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		10		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

Loans by class modified as troubled debt restructurings

The following table present loans by class modified as TDRs that occurred during the three months ended March 31, 2019 (dollars in thousands):

March 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Consumer loans:
Home equity lines and loans	1	$	137	$	137
Total	1	$	137	$	137

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the three-month period ended March 31, 2019.

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

Based on the analyses performed as of March 31, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	March 31, 2020
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	214,801	$	5,852	$	9,926	$	5,781	$	236,360
Agricultural	—		290		—		—		—		290
Commercial mortgages:
Construction	—		37,123		398		3,552		—		41,073
Commercial mortgages	—		593,742		11,483		11,008		4,355		620,588
Residential mortgages	191,004		—		—		2,265		—		193,269
Consumer loans:
Home equity lines and loans	87,783		—		—		638		—		88,421
Indirect consumer loans	129,042		—		—		767		—		129,809
Direct consumer loans	14,403		—		—		7		—		14,410
Total	$	422,232	$	845,956	$	17,733	$	28,163	$	10,136	$	1,324,220

	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

Recorded investment in residential and consumer loans based on payment activity

The following tables present the recorded investment in residential and consumer loans based on payment activity as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,004	$	—	$	87,783	$	129,042	$	14,403
Non-Performing	2,265		—		638		767		7
	$	193,269	$	—	$	88,421	$	129,809	$	14,410

	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
	$	188,874	$	—	$	92,065	$	135,366	$	15,106

XML

STOCK COMPENSATION

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

STOCK COMPENSATION

STOCK COMPENSATION

Board of Directors' Stock Compensation

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

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

During January 2020 and 2019, 7,923 and 8,465 shares, respectively, were re-issued from treasury to fund the stock component of directors' compensation.  An expense of $89 thousand and $93 thousand related to this compensation was recognized during the three month periods ended March 31, 2020 and 2019, respectively. This expense is accrued as shares are earned.

Restricted Stock Plan

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

A summary of restricted stock activity for the three month period ended March 31, 2020 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2020	33,575		$	43.24
Granted	255		39.35
Vested	(2,350	)	41.52
Forfeited or cancelled	(112	)	44.72
Nonvested at March 31, 2020	31,368		$	43.33

As of March 31, 2020, there was $1.2 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 3.38 years.  The total fair value of shares vested was $97 thousand and $32 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

XML

SECURITIES - Investment Securities Available for Sale in Continuous Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Fair Value
Less than 12 months	$ 11,177	$ 74,520
12 months or longer	5,213	55,748
Total	16,390	130,268
Unrealized Losses
Less than 12 months	151	800
12 months or longer	126	512
Total	277	1,312
Mortgage-backed securities, residential
Fair Value
Less than 12 months	5,168	71,506
12 months or longer	3,875	54,343
Total	9,043	125,849
Unrealized Losses
Less than 12 months	114	791
12 months or longer	92	475
Total	206	1,266
SBA loan pools
Fair Value
Less than 12 months	6,009	3,014
12 months or longer	1,338	1,405
Total	7,347	4,419
Unrealized Losses
Less than 12 months	37	9
12 months or longer	34	37
Total	$ 71	$ 46

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

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

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

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unaudited consolidated financial statements should be read in conjunction with the Corporation's 2019 Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

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

Recent Accounting Pronouncements

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 is eligible for the proposed delay and has elected to defer implementation until January 1, 2023. 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides banking organizations which previously adopted for fiscal years beginning after December 15, 2019, temporary relief from complying with CECL. 

Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40, Receivables: Troubled Debt Restructurings by Creditors, in certain situations. Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. All loan modifications made by the Corporation in response to the COLVID-19 pandemic have been in accordance with Section 4013 of the CARES Act.

Adoption of New Accounting Standards

On January 1, 2020, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

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.

Risks and Uncertainties - COVID19

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic, more than 30 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

The Corporation's consolidated financial statements reflect estimates and assumptions that affect the reported amounts of assets and liabilities, including the amount of the allowances for credit losses established. Management evaluated the potential impact of the COVID-19 pandemic as it related to the loan portfolio and as part of this analysis, management identified what it believes to be higher risk loans through a detailed analysis of industry codes. Certain allowance qualitative factors were increased based on an assessment of the impact of the current pandemic on local, national and global economic conditions as well as the perceived risks inherent in specific industries and credit characteristics.

Management has taken actions to identify and assess additional possible credit exposure due to the COVID-19 pandemic based upon the industry types within the current loan portfolio. As of March 31, 2020, "highly impacted" industries total $199.4 million, or 22.3% of the Bank's commercial loan portfolio as of March 31, 2020.

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Receivables Past Due (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Financing Receivable, Past Due [Line Items]
Non-accrual	$ 17,948	$ 18,008
Loans Past Due 90 Days or More and Still Accruing	8	7
Aging of the recorded investment in loans past due [Abstract]
Past Due	17,065	14,370
Loans Not Past Due	1,307,155	1,298,533
Total recorded investment in loans	1,324,220	1,312,903
30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	5,615	4,672
60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	3,281	1,668
90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	8,169	8,029
Commercial and agricultural
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	236,650	230,922
Commercial Mortgages
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	661,661	650,570
Commercial Mortgages | Construction
Financing Receivable, Past Due [Line Items]
Non-accrual	73	80
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Loans Not Past Due	41,073	44,082
Total recorded investment in loans	41,073	44,082
Commercial Mortgages | Construction | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Construction | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Commercial Mortgages | Commercial mortgages
Financing Receivable, Past Due [Line Items]
Non-accrual	8,247	8,407
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	5,893	2,883
Loans Not Past Due	614,695	603,605
Total recorded investment in loans	620,588	606,488
Commercial Mortgages | Commercial mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,385	440
Commercial Mortgages | Commercial mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,211	277
Commercial Mortgages | Commercial mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,297	2,165
Residential mortgages
Financing Receivable, Past Due [Line Items]
Non-accrual	2,265	2,155
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	2,849	2,775
Loans Not Past Due	190,420	186,099
Total recorded investment in loans	193,269	188,874
Residential mortgages | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,432	1,016
Residential mortgages | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	286	804
Residential mortgages | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,131	956
Consumer Loans
Aging of the recorded investment in loans past due [Abstract]
Total recorded investment in loans	232,640	242,537
Consumer Loans | Credit cards
Financing Receivable, Past Due [Line Items]
Non-accrual	0	0
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due		0
Loans Not Past Due		0
Total recorded investment in loans		0
Consumer Loans | Credit cards | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due		0
Consumer Loans | Credit cards | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due		0
Consumer Loans | Credit cards | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due		0
Consumer Loans | Home equity lines and loans
Financing Receivable, Past Due [Line Items]
Non-accrual	638	641
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	637	653
Loans Not Past Due	87,784	91,412
Total recorded investment in loans	88,421	92,065
Consumer Loans | Home equity lines and loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	368	353
Consumer Loans | Home equity lines and loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	174	151
Consumer Loans | Home equity lines and loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	95	149
Consumer Loans | Indirect consumer loans
Financing Receivable, Past Due [Line Items]
Non-accrual	767	571
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,642	2,278
Loans Not Past Due	128,167	133,088
Total recorded investment in loans	129,809	135,366
Consumer Loans | Indirect consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,050	1,546
Consumer Loans | Indirect consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	216	377
Consumer Loans | Indirect consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	376	355
Consumer Loans | Direct consumer loans
Financing Receivable, Past Due [Line Items]
Non-accrual	7	7
Loans Past Due 90 Days or More and Still Accruing	0	0
Aging of the recorded investment in loans past due [Abstract]
Past Due	60	49
Loans Not Past Due	14,350	15,057
Total recorded investment in loans	14,410	15,106
Consumer Loans | Direct consumer loans | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	33	32
Consumer Loans | Direct consumer loans | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	21	10
Consumer Loans | Direct consumer loans | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	6	6
Commercial and industrial | Commercial and agricultural
Financing Receivable, Past Due [Line Items]
Non-accrual	5,951	6,147
Loans Past Due 90 Days or More and Still Accruing	8	7
Aging of the recorded investment in loans past due [Abstract]
Past Due	5,984	5,732
Loans Not Past Due	230,376	224,916
Total recorded investment in loans	236,360	230,648
Commercial and industrial | Commercial and agricultural | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	347	1,285
Commercial and industrial | Commercial and agricultural | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	1,373	49
Commercial and industrial | Commercial and agricultural | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	4,264	4,398
Agricultural | Commercial and agricultural
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Loans Not Past Due	290	274
Total recorded investment in loans	290	274
Agricultural | Commercial and agricultural | 30 - 59 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural | 60 - 89 Days Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	0	0
Agricultural | Commercial and agricultural | 90 Days or More Past Due
Aging of the recorded investment in loans past due [Abstract]
Past Due	$ 0	$ 0

XML

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Comprehensive Income [Abstract]
Net income	$ 2,491	$ 4,468
Other comprehensive income
Unrealized holding gains on securities available for sale	7,646	3,430
Tax effect	1,950	874
Net of tax amount	5,696	2,556
Change in funded status of defined benefit pension plan and other benefit plans:
Reclassification adjustment for amortization of prior service costs	(55)	(55)
Reclassification adjustment for amortization of net actuarial loss	77	73
Total before tax effect	22	18
Tax effect	1	5
Net of tax amount	21	13
Total other comprehensive income	5,717	2,569
Comprehensive income	$ 8,208	$ 7,037

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 01, 2020
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 Small Business	true
Entity Emerging Growth Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Current Reporting Status	Yes
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		4,827,049

XML

FAIR VALUE - Unobservable Inputs (Details) - Derivative Liabilities - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Derivative Liabilities
Balance of recurring Level 3 assets at beginning of period	$ (365)	$ (140)
Derivative instruments entered into	(9)	(24)
Included in earnings - other non-interest income	(56)	(66)
Included in other comprehensive income	0	0
Transfers out of Level 3	0	0
Balance of recurring Level 3 assets at end of period	$ (430)	$ (230)

XML

STOCK COMPENSATION (Details) - USD ($) $ / shares in Units, $ in Thousands	1 Months Ended		3 Months Ended
	Jan. 31, 2020	Jan. 31, 2019	Mar. 31, 2020	Mar. 31, 2019
Restricted Stock
Shares [Roll Forward]
Nonvested, Beginning Balance (in shares)	33,575		33,575
Granted (in shares)			255
Vested (in shares)			(2,350)
Forfeited or cancelled (in shares)			(112)
Nonvested, Ending Balance (in shares)			31,368
Weighted-Average Grant Date Fair Value [Roll Forward]
Nonvested, Beginning Balance (in dollars per share)	$ 43.24		$ 43.24
Granted (in dollars per share)			39.35
Vested (in dollars per share)			41.52
Forfeitures or cancelled (in dollars per share)			44.72
Nonvested, Ending Balance (in dollars per share)			$ 43.33
Total unrecognized compensation cost related to nonvested shares granted under the Plan			$ 1,200
Weighted-average period for recognition			3 years 4 months 17 days
Total fair value of shares vested			$ 97	$ 32
President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Service period for comparable group used to determine share based payment awards			12 months
Directors and President and Chief Executive Officer
Deferred Compensation Arrangement with Individual, Share-based Payments [Line Items]
Number of treasury shares reissued to fund stock compensation (in shares)	7,923	8,465
Expenses related to stock based compensation recognized			$ 89	$ 93

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS - Details about Accumulated Other Comprehensive Income Components (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense (benefit)	$ 502	$ 1,034
Pension and other employee benefits	1,516	1,545
Net income	2,491	4,468
Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income	21	13
Prior service costs | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Pension and other employee benefits	(55)	(55)
Actuarial losses | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Pension and other employee benefits	77	73
Defined Benefit and Other Benefit Plans | Reclassification out of Accumulated Other Comprehensive Income
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense (benefit)	(1)	(5)
Net income	$ 21	$ 13

XML

LEASES - Future Minimum Lease Payment Obligations Under Capital Leases (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
2020	$ 284
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,093
Less: amount representing interest	(1,065)
Present value of net minimum lease payments	$ 4,028	$ 4,085

XML

LEASES - Narrative (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Lessee, Lease, Description [Line Items]
Operating lease, weighted average remaining lease term	9 years 5 days
Operating lease, weighted average discount rate	3.27%
Operating lease, rent expense	$ 200
Finance lease, weighted average remaining lease term	12 years 9 months 19 days
Finance lease, weighted average discount rate	3.35%
Director
Lessee, Lease, Description [Line Items]
Operating lease, rent expense	$ 24	$ 24
1365 New Scotland Road, Slingerlands, New York | Director
Lessee, Lease, Description [Line Items]
Operating lease, rent expense	12	$ 12
Operating lease, monthly rent expense	$ 4
2 Rush Street, Schenectady, New York | Director
Lessee, Lease, Description [Line Items]
Operating lease, monthly rent expense			$ 8

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE LOSS

ACCUMULATED OTHER COMPREHENSIVE LOSS

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

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

	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2020	$	1,368	$	(7,167	)	$	(5,799	)
Other comprehensive income before reclassification	5,696		—			5,696
Amounts reclassified from accumulated other comprehensive income	—		21			21
Net current period other comprehensive income	5,696		21			5,717
Balance at March 31, 2020	$	7,064	$	(7,146	)	$	(82	)

	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 loss before reclassification	2,556			—			2,556
Amounts reclassified from accumulated other comprehensive income	—			13			13
Net current period other comprehensive income	2,556			13			2,569
Balance at March 31, 2019	$	(2,090	)	$	(6,752	)	$	(8,842	)

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Three Months Ended   March 31,						Affected Line Item in the Statement Where Net Income is Presented
	2020			2019
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	77			73			Other components of net periodic pension and postretirement benefits
Tax effect	(1		)	(5		)	Income tax expense
Net of tax	21			13
Total reclassification for the period, net of tax	$	21		$	13

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

XML

FAIR VALUE

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

FAIR VALUE

FAIR VALUE

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

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

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments are determined by quoted market prices (Level 1 inputs).

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting.  For collateral dependent loans, fair value is commonly based on real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

OREO:  Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation.  Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO.  On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition.

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

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

			Fair Value Measurement at March 31, 2020 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)
Mortgage-backed securities, residential	$	234,999	$	—	$	234,999	$	—
Obligations of states and political subdivisions	42,625		—		42,625		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	21,201		—		21,201		—
Total available for sale securities	$	299,075	$	—	$	299,075	$	—
Equity investments, at fair value	$	1,274	$	1,274	$	—	$	—
Derivative assets	16,343		—		16,343		—
Financial Liabilities:
Derivative liabilities	$	16,773	$	—	$	16,343	$	430

There were no transfers between Level 1 and Level 2 during the three month period ended March 31, 2020.

			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)
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, at fair value	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

There were no transfers between Level 1 and Level 2 during the three month period ended March 31, 2019.

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Assets (Liabilities)
	Derivative Liabilities
	March 31, 2020			March 31, 2019
Balance of recurring Level 3 assets at January 1	$	(365	)	$	(140	)
Derivative instruments entered into	(9		)	(24		)
Total gains or losses for the period:
Included in earnings - other non-interest income	(56		)	(66		)
Included in other comprehensive income	—			—
Transfers out of Level 3	—			—
Balance of recurring Level 3 assets at March 31,	$	(430	)	$	(230	)

The following table presents information related to Level 3 recurring fair value measurements at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Derivative liabilities	$	430	Historical trend	Credit default rate	12.86% - 20.75% [13.82%]

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%]

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

			Fair Value Measurement at March 31, 2020 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	$	(1,429	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,429	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	178		—		—		178		—
Consumer loans:
Home equity lines and loans	91		—		—		91		—
Total other real estate owned, net	$	380	$	—	$	—	$	380	$	—

			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	)

The following tables present information related to Level 3 non-recurring fair value measurement at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.31% - 10.31% [10.31%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	178		Sales comparison	Discount to appraised value	0.00% -0.00% [0.00%]
Consumer loans:
Home equity lines and loans	91		Sales comparison	Discount to appraised value	27.49% - 27.49% [27.49%]
	$	380

Description	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%]
Consumer loans:
	$	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

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at March 31, 2020 and December 31, 2019, are as follows (in thousands):

	March 31, 2020
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,522	$	27,522	$	—	$	—	$	27,522
Interest-earning deposits in other financial institutions	116,936		116,936		—		—		116,936
Equity investments	1,999		1,999		—		—		1,999
Securities held to maturity	3,001		—		2,093		931		3,024
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,295,029		—		—		1,298,475		1,298,475
Accrued interest receivable	4,786		39		988		3,759		4,786
Derivative Assets	16,343		—		16,343		—		16,343
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,441,841	$	1,441,841	$	—	$	—	$	1,441,841
Time deposits	166,262		—		169,803		—		169,803
Accrued interest payable	293		11		282		—		293
Derivative Liabilities	16,773		—		16,343		430		16,773

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

	December 31, 2019
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-earning 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 Asset	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.

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS (Tables)

3 Months Ended

Mar. 31, 2020

Equity [Abstract]

Components of accumulated other comprehensive income (loss)

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

	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans			Total
Balance at January 1, 2020	$	1,368	$	(7,167	)	$	(5,799	)
Other comprehensive income before reclassification	5,696		—			5,696
Amounts reclassified from accumulated other comprehensive income	—		21			21
Net current period other comprehensive income	5,696		21			5,717
Balance at March 31, 2020	$	7,064	$	(7,146	)	$	(82	)

	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 loss before reclassification	2,556			—			2,556
Amounts reclassified from accumulated other comprehensive income	—			13			13
Net current period other comprehensive income	2,556			13			2,569
Balance at March 31, 2019	$	(2,090	)	$	(6,752	)	$	(8,842	)

Reclassification out of accumulated other comprehensive income

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

Details about Accumulated Other Comprehensive Income (Loss) Components	Three Months Ended   March 31,						Affected Line Item in the Statement Where Net Income is Presented
	2020			2019
Prior service costs (a)	$	(55	)	$	(55	)	Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	77			73			Other components of net periodic pension and postretirement benefits
Tax effect	(1		)	(5		)	Income tax expense
Net of tax	21			13
Total reclassification for the period, net of tax	$	21		$	13

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

XML

STOCK COMPENSATION (Tables)

3 Months Ended

Mar. 31, 2020

Share-based Payment Arrangement [Abstract]

Summary of restricted stock activity

A summary of restricted stock activity for the three month period ended March 31, 2020 is presented below:

	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2020	33,575		$	43.24
Granted	255		39.35
Vested	(2,350	)	41.52
Forfeited or cancelled	(112	)	44.72
Nonvested at March 31, 2020	31,368		$	43.33

XML

SECURITIES - Securities Held to Maturity (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Securities held to maturity	$ 3,001	$ 3,115
Unrecognized Gains	23	24
Unrecognized Losses	0	0
Securities held to maturity	3,024	3,139
Amortized Cost [Abstract]
Within one year	1,480
After one, but within five years	1,521
After five, but within ten years	0
After ten years	0
Total	3,001
Securities held to maturity	3,001	3,115
Fair Value [Abstract]
Within one year	1,484
After one, but within five years	1,540
After five, but within ten years	0
After ten years	0
Total	3,024
Securities held to maturity	3,024	3,139
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Securities held to maturity	931	1,045
Unrecognized Gains	0	0
Unrecognized Losses	0	0
Securities held to maturity	931	1,045
Amortized Cost [Abstract]
Securities held to maturity	931	1,045
Fair Value [Abstract]
Securities held to maturity	931	1,045
Time deposits with other financial institutions
Amortized cost and estimated fair value of securities held to maturity [Abstract]
Securities held to maturity	2,070	2,070
Unrecognized Gains	23	24
Unrecognized Losses	0	0
Securities held to maturity	2,093	2,094
Amortized Cost [Abstract]
Securities held to maturity	2,070	2,070
Fair Value [Abstract]
Securities held to maturity	2,093	$ 2,094
Mortgage-backed securities, residential
Amortized Cost [Abstract]
Without single maturity date	0
SBA loan pools
Amortized Cost [Abstract]
Without single maturity date	$ 0

XML

- Premises and Equipment (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Buildings	$ 5,572	$ 5,572
Less: accumulated depreciation	(1,625)	(1,541)
Net book value	$ 3,947	$ 4,031

XML

FAIR VALUE - Carrying Amounts and Estimated Fair Values of Other Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Financial assets:
Cash and due from financial institutions	$ 27,522	$ 25,203
Interest-earning deposits in other financial institutions	116,936	96,701
Securities available for sale	299,075	284,090
Securities held to maturity	3,024	3,139
Accrued interest receivable	3,759	3,684
Recurring
Financial assets:
Securities available for sale	299,075	284,090
Derivative Asset	16,343	6,466
Financial liabilities:
Derivative Liabilities	16,773	6,831
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Financial assets:
Cash and due from financial institutions	27,522	25,203
Interest-earning deposits in other financial institutions	116,936	96,701
Equity investments	1,999	2,174
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	39	63
Derivative Asset	0	0
Financial liabilities:
Demand, savings, and insured money market accounts	1,441,841	1,410,962
Time deposits	0	0
Accrued interest payable	11	27
Derivative Liabilities	0	0
Recurring | Significant Other Observable Inputs (Level 2)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Equity investments	0	0
Securities available for sale	299,075	284,090
Securities held to maturity	2,093	2,094
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	0	0
Accrued interest receivable	988	885
Derivative Asset	16,343	6,466
Financial liabilities:
Demand, savings, and insured money market accounts	0	0
Time deposits	170	163,761
Accrued interest payable	282	272
Derivative Liabilities	16,343	6,466
Recurring | Significant Unobservable Inputs (Level 3)
Financial assets:
Cash and due from financial institutions	0	0
Interest-earning deposits in other financial institutions	0	0
Equity investments	0	0
Securities available for sale	0	0
Securities held to maturity	931	1,045
FHLBNY and FRBNY stock	0	0
Loans, net and loans held for sale	1,298	1,285,215
Accrued interest receivable	3,759	3,685
Derivative Asset	0	0
Financial liabilities:
Demand, savings, and insured money market accounts	0	0
Time deposits	0	0
Accrued interest payable	0	0
Derivative Liabilities	430	365
Recurring | Carrying Amount
Financial assets:
Cash and due from financial institutions	27,522	25,203
Interest-earning deposits in other financial institutions	116,936	96,701
Equity investments	1,999	2,174
Securities available for sale		284,090
Securities held to maturity	3,001	3,115
FHLBNY and FRBNY stock	3,099	3,099
Loans, net and loans held for sale	1,295,029	1,286,926
Accrued interest receivable	4,786	4,633
Derivative Asset	16,343	6,466
Financial liabilities:
Demand, savings, and insured money market accounts	1,441,841	1,410,962
Time deposits	166,262	161,176
Accrued interest payable	293	299
Derivative Liabilities	16,773	6,831
Recurring | Estimated Fair Value
Financial assets:
Cash and due from financial institutions	27,522	25,203
Interest-earning deposits in other financial institutions	116,936	96,701
Equity investments	1,999	2,174
Securities available for sale		284,090
Securities held to maturity	3,024	3,139
Loans, net and loans held for sale	1,298	1,285,215
Accrued interest receivable	4,786	4,633
Derivative Asset	16,343	6,466
Financial liabilities:
Demand, savings, and insured money market accounts	1,441,841	1,410,962
Time deposits	170	163,761
Accrued interest payable	293	299
Derivative Liabilities	$ 16,773	$ 6,831

XML

ACCUMULATED OTHER COMPREHENSIVE LOSS - Summary of Changes in Accumulated Other Comprehensive Income or Loss by Component (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances	$ 182,627	$ 165,029
Other comprehensive income before reclassification	5,696	2,556
Amounts reclassified from accumulated other comprehensive income	21	13
Total other comprehensive income	5,717	2,569
Ending balances	190,447	171,534
Total
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances	(5,799)	(11,411)
Total other comprehensive income	5,717	2,569
Ending balances	(82)	(8,842)
Unrealized Gains and Losses on Securities Available for Sale
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances	1,368	(4,646)
Other comprehensive income before reclassification	5,696	2,556
Amounts reclassified from accumulated other comprehensive income	0	0
Total other comprehensive income	5,696	2,556
Ending balances	7,064	(2,090)
Defined Benefit and Other Benefit Plans
Changes in accumulated other comprehensive income or loss by component, net of tax [Roll Forward]
Beginning balances	(7,167)	(6,765)
Other comprehensive income before reclassification	0	0
Amounts reclassified from accumulated other comprehensive income	21	13
Total other comprehensive income	21	13
Ending balances	$ (7,146)	$ (6,752)

XML

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2020

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

COMMITMENTS AND CONTINGENCIES

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

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020				December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	22,930	$	24,160	$	15,560	$	25,233
Unused lines of credit	2,213		234,343		1,062		229,137
Standby letters of credit	—		16,022		—		16,272

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. As disclosed in the Corporation’s September 12, 2019 Current Report on Form 8-K, 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. The Bank’s complaint alleges that Pioneer Bank, as lead bank, breached the participation agreement and engaged in fraud and negligent misrepresentation. The Bank seeks to recover $4.2 million and additional damages as a result of purchasing the participation interest.

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreements. This event was not considered material in nature and thus did not result in an adjustment to the financial statements.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries.  As of March 31, 2020, we believe that we are not a party to any additional pending legal, arbitration, or regulatory proceedings that could have a material adverse impact on our financial results or liquidity.

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES

3 Months Ended

Mar. 31, 2020

Loans and Leases Receivable Disclosure [Abstract]

LOANS AND ALLOWANCE FOR LOAN LOSSES

LOANS AND ALLOWANCE FOR LOAN LOSSES

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

	March 31,   2020		December 31,   2019
Commercial and agricultural:
Commercial and industrial	$	235,690	$	230,018
Agricultural	289		274
Commercial mortgages:
Construction	40,957		43,962
Commercial mortgages, other	618,831		604,832
Residential mortgages	192,722		188,338
Consumer loans:
Credit cards	—		—
Home equity lines and loans	88,149		91,784
Indirect consumer loans	129,473		134,973
Direct consumer loans	14,350		15,038
Total loans, net of deferred origination fees and costs	1,320,461		1,309,219
Interest receivable on loans	3,759		3,684
Total recorded investment in loans	$	1,324,220	$	1,312,903

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

The following tables present the activity in the allowance for loan losses by portfolio segment for the three month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31, 2020
Allowance for loan losses	Commercial and Agricultural			Commercial Mortgages		Residential Mortgages		Consumer Loans			Total
Beginning balance	$	10,227		$	8,869	$	1,252	$	3,130		$	23,478
Charge-offs	(30		)	—		—		(403		)	(433		)
Recoveries	4			1		—		135			140
Net recoveries (charge-offs)	(26		)	—		—		(268		)	(294		)
Provision	990			1,603		169		288			3,050
Ending balance	$	11,191		$	10,472	$	1,421	$	3,149		$	26,233

	Three Months Ended March 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	(7		)	—		(2		)	(439		)	(448		)
Recoveries	11			1		—			144			156
Net recoveries (charge-offs)	4			1		(2		)	(295		)	(292		)
Provision	42			1,289		(9		)	(229		)	1,093
Ending balance	$	5,429		$	9,474	$	1,215		$	3,627		$	19,745

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 March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
Allowance for loan losses:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Ending allowance balance attributable to loans:
Individually evaluated for impairment	$	5,851	$	2,058	$	—	$	—	$	7,909
Collectively evaluated for impairment	5,340		8,414		1,421		3,149		18,324
Total ending allowance balance	$	11,191	$	10,472	$	1,421	$	3,149	$	26,233

	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

	March 31, 2020
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	5,952	$	8,478	$	518	$	149	$	15,097
Loans collectively evaluated for  impairment	230,698		653,183		192,751		232,491		1,309,123
Total ending loans balance	$	236,650	$	661,661	$	193,269	$	232,640	$	1,324,220

	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

The following table presents loans individually evaluated for impairment recognized by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020						December 31, 2019
With no related allowance recorded:	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated
Commercial and agricultural:
Commercial and industrial	$	105	$	106	$	—	$	133	$	133	$	—
Commercial mortgages:
Construction	231		232		—		247		247		—
Commercial mortgages, other	3,219		3,220		—		3,501		3,503		—
Residential mortgages	547		518		—		554		525		—
Consumer loans:
Home equity lines and loans	171		149		—		171		149		—
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,845		5,846		5,851		6,013		6,014		6,000
Commercial mortgages:
Commercial mortgages, other	5,025		5,026		2,058		5,093		5,094		2,097
Total	$	15,143	$	15,097	$	7,909	$	15,712	$	15,665	$	8,097

The following table presents the average recorded investment and interest income of loans individually evaluated for impairment recognized by class of loans for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended   March 31, 2020				Three Months Ended   March 31, 2019
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	120	$	—	$	325	$	1
Commercial mortgages:
Construction	239		2		301		2
Commercial mortgages, other	3,362		—		3,889		5
Residential mortgages	521		5		397		2
Consumer loans:
Home equity lines & loans	149		2		111		1
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,930		—		1,807		—
Commercial mortgages:
Commercial mortgages, other	5,060		—		3,523		—
Total	$	15,381	$	9	$	10,353	$	11

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

The following table presents the recorded investment in non-accrual and loans past due 90 days or more and still accruing by class of loans as of March 31, 2020 and December 31, 2019 (in thousands):

	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	March 31, 2020		December 31, 2019		March 31, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	5,951	$	6,147	$	8	$	7
Commercial mortgages:
Construction	73		80		—		—
Commercial mortgages, other	8,247		8,407		—		—
Residential mortgages	2,265		2,155		—		—
Consumer loans:
Credit cards	—		—		—		—
Home equity lines and loans	638		641		—		—
Indirect consumer loans	767		571		—		—
Direct consumer loans	7		7		—		—
Total	$	17,948	$	18,008	$	8	$	7

The following tables present the aging of the recorded investment in loans as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
	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	$	347	$	1,373	$	4,264	$	5,984	$	230,376	$	236,360
Agricultural	—		—		—		—		290		290
Commercial mortgages:
Construction	—		—		—		—		41,073		41,073
Commercial mortgages, other	2,385		1,211		2,297		5,893		614,695		620,588
Residential mortgages	1,432		286		1,131		2,849		190,420		193,269
Consumer loans:
Home equity lines and loans	368		174		95		637		87,784		88,421
Indirect consumer loans	1,050		216		376		1,642		128,167		129,809
Direct consumer loans	33		21		6		60		14,350		14,410
Total	$	5,615	$	3,281	$	8,169	$	17,065	$	1,307,155	$	1,324,220

	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, other	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		804		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		10		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

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. Under Section 4013 of the CARES Act, loans less than 30 days past due as of December 31, 2019 will be considered current for COVID-19 related modifications and therefore will not be treated as TDRs.  As of March 31, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 444 commercial and consumer loans represented by a total loan balance of $56.6 million.

As of March 31, 2020 and December 31, 2019, the Corporation has a recorded investment in TDRs of $8.7 million and $9.0 million, respectively.  There were specific reserves of $2.3 million allocated for TDRs at both March 31, 2020 and December 31, 2019, respectively.  As of March 31, 2020, TDRs totaling $0.8 million were accruing interest under the modified terms and $7.9 million were on non-accrual status.  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.  The Corporation had committed no additional amounts as of both March 31, 2020 and December 31, 2019, to customers with outstanding loans that are classified as TDRs.

During the three month period ended March 31, 2020, no loans were modified as TDRs. During the three-month period ended March 31, 2019, the terms of certain loans were modified as TDRs. The modification of the terms of one home equity loan during the three months ended March 31, 2019 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.

The following table present loans by class modified as TDRs that occurred during the three months ended March 31, 2019 (dollars in thousands):

March 31, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Consumer loans:
Home equity lines and loans	1	$	137	$	137
Total	1	$	137	$	137

The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the three-month period ended March 31, 2019.

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three-month periods ended March 31, 2020 and 2019.

Credit Quality Indicators

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

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

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

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

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

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

Commercial loans not meeting the criteria above to be considered criticized or classified are considered to be pass rated loans.  Loans listed as not rated are included in groups of homogeneous loans performing under terms of the loan notes.  Based on the analyses performed as of March 31, 2020 and December 31, 2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):

	March 31, 2020
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	—	$	214,801	$	5,852	$	9,926	$	5,781	$	236,360
Agricultural	—		290		—		—		—		290
Commercial mortgages:
Construction	—		37,123		398		3,552		—		41,073
Commercial mortgages	—		593,742		11,483		11,008		4,355		620,588
Residential mortgages	191,004		—		—		2,265		—		193,269
Consumer loans:
Home equity lines and loans	87,783		—		—		638		—		88,421
Indirect consumer loans	129,042		—		—		767		—		129,809
Direct consumer loans	14,403		—		—		7		—		14,410
Total	$	422,232	$	845,956	$	17,733	$	28,163	$	10,136	$	1,324,220

	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

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity.  The following tables present the recorded investment in residential and consumer loans based on payment activity as of March 31, 2020 and December 31, 2019 (in thousands):

	March 31, 2020
			Consumer Loans
	Residential Mortgages		Credit Card		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	191,004	$	—	$	87,783	$	129,042	$	14,403
Non-Performing	2,265		—		638		767		7
	$	193,269	$	—	$	88,421	$	129,809	$	14,410

	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
	$	188,874	$	—	$	92,065	$	135,366	$	15,106

XML

SECURITIES - Narrative (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Investments, Debt and Equity Securities [Abstract]
Proceeds form sale of securities resulting in gain (loss)	$ 0	$ 0

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS (Tables)

3 Months Ended

Mar. 31, 2020

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 three months ended March 31, 2020 and 2019 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended March 31, 2020
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	805		$	—	$	—		$	805
Other	185			—		—			185
Interchange revenue from debit card transactions	925			—		—			925
WMG fee income	—			2,229		—			2,229
CFS fee and commission income	—			—		177			177
Net gains (losses) on sales of OREO	(29		)	—		—			(29		)
Net gains on sales of loans(a)	75			—		—			75
Loan servicing fees(a)	27			—		—			27
Net gains on sales of securities(a)	—			—		—			—
Changes in fair value of equity investments(a)	(167		)	—		(79		)	(246		)
Other(a)	543			—		39			582
Total non-interest income (loss)	$	2,364		$	2,229	$	137		$	4,730

	Three Months Ended March 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	$	888		$	—	$	—	$	888
Other	216			—		—		216
Interchange revenue from debit card transactions	1,031			—		—		1,031
WMG fee income	—			2,276		—		2,276
CFS fee and commission income	—			—		168		168
Net gains (losses) on sales of OREO	(83		)	—		—		(83		)
Net gains on sales of loans(a)	48			—		—		48
Loan servicing fees(a)	35			—		—		35
Net gains on sales of securities(a)	—			—		—		—
Changes in fair value of equity investments(a)	73			—		16		89
Other(a)	257			—		—		257
Total non-interest income	$	2,465		$	2,276	$	184	$	4,925

(a) Not within scope of ASC 606.

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

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Jan. 01, 2019
Property, Plant and Equipment [Line Items]
Operating lease right-of-use assets	$ 7,826		$ 8,001
Operating lease liabilities	7,919		$ 8,084
Provision for loan losses	3,050	$ 1,093
Accounting Standards Update 2016-02
Property, Plant and Equipment [Line Items]
Operating lease right-of-use assets				$ 8,600
Operating lease liabilities				$ 8,600
Commercial loan portfolio
Property, Plant and Equipment [Line Items]
Provision for loan losses	1,603	$ 1,289
COVID-19 | Commercial loan portfolio
Property, Plant and Equipment [Line Items]
Provision for loan losses	$ 199,400
Provision for loan losses, percent	22.30%

XML

SECURITIES (Tables)

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

Amortized cost and estimated fair value of securities available for sale

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

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	$	227,180	$	8,025	$	206	$	234,999
Obligations of states and political subdivisions	40,984		1,641		—		42,625
Corporate bonds and notes	250		—		—		250
SBA loan pools	21,181		91		71		21,201
Total	$	289,595	$	9,757	$	277	$	299,075

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	225,029		1,471		1,266		225,234
Obligations of states and political subdivisions	41,265		1,580		—		42,845
Corporate bonds and notes	250		—		—		250
SBA loan pools	15,712		95		46		15,761
Total	$	282,256	$	3,146	$	1,312	$	284,090

Amortized cost and estimated fair value of securities held to maturity

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

	March 31, 2020
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	931	$	—	$	—	$	931
Time deposits with other financial institutions	2,070		23		—		2,093
Total	$	3,001	$	23	$	—	$	3,024

	December 31, 2019
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	—	$	—	$	1,045
Time deposits with other financial institutions	2,070		24		—		2,094
Total	$	3,115	$	24	$	—	$	3,139

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

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

	March 31, 2020
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	475	$	475	$	1,480	$	1,484
After one, but within five years	10,439		10,779		1,521		1,540
After five, but within ten years	29,271		30,541		—		—
After ten years	1,049		1,080		—		—
	41,234		42,875		3,001		3,024
Mortgage-backed securities, residential	227,180		234,999		—		—
SBA loan pools	21,181		21,201		—		—
Total	$	289,595	$	299,075	$	3,001	$	3,024

Investment securities available for sale in an unrealized loss position

he following tables summarize the investment securities available for sale with unrealized losses at March 31, 2020 and December 31, 2019 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	$	5,168	$	114	$	3,875	$	92	$	9,043	$	206
SBA loan pools	6,009		37		1,338		34		7,347		71
Total temporarily impaired securities	$	11,177	$	151	$	5,213	$	126	$	16,390	$	277

	Less than 12 months				12 months or longer				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
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

XML

SEGMENT REPORTING

3 Months Ended

Mar. 31, 2020

Segment Reporting [Abstract]

SEGMENT REPORTING

SEGMENT REPORTING

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

Accounting policies for the segments are the same as those described in Note 1 of the Corporation’s 2019 Annual Report on Form 10-K, which was filed with the SEC on March 12, 2020. Summarized financial information concerning the Corporation’s reportable segments and the reconciliation to the Corporation’s consolidated results are shown in the following table.  Income taxes are allocated based on the separate taxable income of each entity and indirect overhead expenses are allocated based on reasonable and equitable allocations applicable to the reportable segment.  The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands).

	Three months ended March 31, 2020
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,367	$	—	$	17		$	16,384
Interest expense	1,322		—		—			1,322
Net interest income	15,045		—		17			15,062
Provision for loan losses	3,050		—		—			3,050
Net interest income after provision for loan losses	11,995		—		17			12,012
Other non-interest income	2,364		2,229		137			4,730
Other non-interest expenses	11,882		1,602		265			13,749
Income (loss) before income tax expense (benefit)	2,477		627		(111		)	2,993
Income tax expense (benefit)	390		161		(49		)	502
Segment net income (loss)	$	2,087	$	466	$	(62	)	$	2,491
Segment assets	$	1,833,135	$	3,281	$	4,913		$	1,841,329

	Three months ended March 31, 2019
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,652	$	—	$	13		$	16,665
Interest expense	1,498		—		—			1,498
Net interest income	15,154		—		13			15,167
Provision for loan losses	1,093		—		—			1,093
Net interest income after provision for loan losses	14,061		—		13			14,074
Other non-interest income	2,465		2,276		184			4,925
Legal accruals and settlements	—		—		—			—
Other non-interest expenses	11,625		1,575		297			13,497
Income (loss) before income tax expense (benefit)	4,901		701		(100		)	5,502
Income tax expense (benefit)	889		179		(34		)	1,034
Segment net income (loss)	$	4,012	$	522	$	(66	)	$	4,468
Segment assets	$	1,758,795	$	3,697	$	7,080		$	1,769,572

XML

GOODWILL AND INTANGIBLE ASSETS (Tables)

3 Months Ended

Mar. 31, 2020

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of changes in goodwill

The changes in goodwill included in the core banking segment during the three month periods ended March 31, 2020 and 2019 were as follows (in thousands):

	2020		2019
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance March 31,	$	21,824	$	21,824

Schedule of acquired finite-lived intangible assets by major class

Acquired intangible assets were as follows at March 31, 2020 and December 31, 2019 (in thousands):

	At March 31, 2020				At December 31, 2019
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,875	$	5,975	$	5,832
Other customer relationship intangibles	5,633		5,123		5,633		5,034
Total	$	11,608	$	10,998	$	11,608	$	10,866

Schedule of expected amortization expense

The remaining estimated aggregate amortization expense at March 31, 2020 is listed below (in thousands):

Year	Estimated Expense
2020	$	352
2021	258
2022
2023	—
2024	—
Total	$	610

XML

CONSOLIDATED STATEMENTS OF INCOME - USD ($) shares in Thousands, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Interest and dividend income:
Loans, including fees	$ 14,228	$ 14,489
Taxable securities	1,487	1,195
Tax exempt securities	271	273
Interest-earning deposits	398	708
Total interest and dividend income	16,384	16,665
Interest expense:
Deposits	1,286	1,461
Borrowed funds	36	37
Total interest expense	1,322	1,498
Net interest income	15,062	15,167
Provision for loan losses	3,050	1,093
Net interest income after provision for loan losses	12,012	14,074
Non-interest income:
Changes in fair value of equity investments	(246)	89
Net gains on sales of loans held for sale	75	48
Net gains (losses) on sales of other real estate owned	(29)	(83)
Income from bank-owned life insurance	119	15
Other	667	445
Total non-interest income	4,730	4,925
Non-interest expenses:
Salaries and wages	5,768	5,721
Pension and other employee benefits	1,516	1,545
Other components of net periodic pension and postretirement benefits	(265)	(141)
Net occupancy	1,522	1,567
Furniture and equipment	475	528
Data processing	1,914	1,727
Professional services	329	405
Amortization of intangible assets	132	163
Marketing and advertising	324	268
Other real estate owned	29	31
FDIC insurance	250	265
Loan expense	310	196
Other	1,445	1,222
Total non-interest expenses	13,749	13,497
Income before income tax expense	2,993	5,502
Income tax expense	502	1,034
Net income	$ 2,491	$ 4,468
Weighted average shares outstanding (in shares)	4,895	4,860
Basic and diluted earnings per share (in dollars per share)	$ 0.51	$ 0.92
WMG fee income
Non-interest income:
Revenue from contract with customer, excluding assessed tax	$ 2,229	$ 2,276
Service charges on deposit accounts
Non-interest income:
Revenue from contract with customer, excluding assessed tax	990	1,104
Interchange revenue from debit card transactions
Non-interest income:
Revenue from contract with customer, excluding assessed tax	$ 925	$ 1,031

XML

FAIR VALUE - Quantitative Information (Details) - Significant Unobservable Inputs (Level 3) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Impaired Loans: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 1,554	$ 1,554
Other real estate owned: | Non-recurring
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 380	$ 517
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%
Commercial and Industrial | Other real estate owned: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	20.80%	20.80%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 1,554	$ 1,554
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	10.31%	10.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	10.31%	10.00%
Commercial mortgages, other | Impaired Loans: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	10.31%	10.00%
Commercial mortgages, other | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 111	$ 111
Residential mortgages | Other real estate owned: | Non-recurring | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	20.80%
Residential mortgages | Other real estate owned: | Non-recurring | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	35.29%
Residential mortgages | Other real estate owned: | Non-recurring | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	0.00%	24.09%
Residential mortgages | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 178	$ 284
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison
Information related to Level 3 non-recurring fair value measurement [Abstract]
Assets, fair value disclosure	$ 91	$ 122
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	27.49%	20.80%
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	27.49%	20.80%
Home equity lines and loans | Other real estate owned: | Non-recurring | Sales comparison | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Discount to appraised value	27.49%	20.80%
Derivative Liabilities | Recurring | Historical trend
Information related to Level 3 non-recurring fair value measurement [Abstract]
Liabilities, fair value disclosure	$ 430	$ 365
Derivative Liabilities | Recurring | Historical trend | Minimum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	12.86%	7.30%
Derivative Liabilities | Recurring | Historical trend | Maximum
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	20.75%	7.30%
Derivative Liabilities | Recurring | Historical trend | Weighted Average
Information related to Level 3 non-recurring fair value measurement [Abstract]
Credit default rate	13.82%	7.30%

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Loan Portfolio (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	$ 1,320,461	$ 1,309,219
Interest receivable on loans	3,759	3,684
Total recorded investment in loans	1,324,220	1,312,903
Commercial and Agricultural
Composition of loan portfolio [Abstract]
Total recorded investment in loans	236,650	230,922
Commercial Mortgages
Composition of loan portfolio [Abstract]
Total recorded investment in loans	661,661	650,570
Commercial Mortgages | Construction
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	40,957	43,962
Total recorded investment in loans	41,073	44,082
Commercial Mortgages | Commercial mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	618,831	604,832
Total recorded investment in loans	620,588	606,488
Residential mortgages
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	192,722	188,338
Total recorded investment in loans	193,269	188,874
Consumer Loans
Composition of loan portfolio [Abstract]
Total recorded investment in loans	232,640	242,537
Consumer Loans | Credit cards
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	0	0
Total recorded investment in loans		0
Consumer Loans | Home equity lines and loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	88,149	91,784
Total recorded investment in loans	88,421	92,065
Consumer Loans | Indirect consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	129,473	134,973
Total recorded investment in loans	129,809	135,366
Consumer Loans | Direct consumer loans
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	14,350	15,038
Total recorded investment in loans	14,410	15,106
Commercial and industrial | Commercial and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	235,690	230,018
Total recorded investment in loans	236,360	230,648
Agricultural | Commercial and Agricultural
Composition of loan portfolio [Abstract]
Total loans, net of deferred origination fees and costs	289	274
Total recorded investment in loans	$ 290	$ 274

XML

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 2,491,000	$ 4,468,000
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of right-of-use assets	175,000	159,000
Amortization of intangible assets	132,000	163,000
Provision for loan losses	3,050,000	1,093,000
Loss on disposal of fixed assets	0	9,000
Depreciation and amortization of fixed assets	757,000	816,000
Amortization of premiums on securities, net	237,000	236,000
Gain on sales of loans held for sale, net	(75,000)	(48,000)
Proceeds from sales of loans held for sale		2,416,000
Loans originated and held for sale	(2,630,000)	(2,524,000)
Net losses on sale of other real estate owned	29,000	83,000
Write-downs on other real estate owned	8,000	0
Net change in fair value of equity investments	246,000	(89,000)
Purchase of equity investments		(34,000)
Increase in other assets and accrued interest receivable	(9,322,000)	(1,147,000)
(Decrease) increase in accrued interest payable	(6,000)	47,000
Expense related to restricted stock units for directors' deferred compensation plan	11,000	11,000
Expense related to employee stock compensation	101,000	100,000
Expense related to employee restricted stock awards	125,000	101,000
Payments on operating leases	(165,000)	(151,000)
Increase in other liabilities	8,231,000	1,550,000
Income from bank owned life insurance	(119,000)	(15,000)
Net cash provided by operating activities		7,244,000
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities, calls, and principal paydowns on securities available for sale	8,882,000	8,198,000
Proceeds from maturities and principal collected on securities held to maturity	114,000	1,074,000
Purchases of securities available for sale	(16,458,000)	(29,467,000)
Purchases of securities held to maturity	0	(60,000)
Purchase of FHLBNY and FRBNY stock	0	(5,000)
Purchases of premises and equipment	(121,000)	(124,000)
Proceeds from sale of other real estate owned	101,000	313,000
Proceeds from bank owned life insurance	213,000	0
Net (increase) decrease in loans	(11,537,000)	12,550,000
Net cash used in investing activities		(7,521,000)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	30,880,000	(9,502,000)
Increase in time deposits	5,086,000	6,767,000
Payments made on capital lease	(57,000)	(54,000)
Sale of treasury stock	420,000	158,000
Cash dividends paid	(1,263,000)	(1,254,000)
Net cash provided by (used in) financing activities		(3,885,000)
Net increase (decrease) in cash and cash equivalents		(4,162,000)
Cash and cash equivalents, beginning of period	121,904,000	129,972,000	$ 129,972,000
Cash and cash equivalents, end of period		125,810,000	121,904,000
Cash paid for:
Interest	1,328,000	1,451,000
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	0	27,000
Dividends declared, not yet paid	1,266,000	1,257,000	$ 1,263,000
Repurchase of common stock in lieu of employee payroll taxes	(37)	0
Distribution of treasury stock for directors' compensation	$ 350,000	$ 357,000

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Troubled Debt Restructuring (Details)	3 Months Ended
	Mar. 31, 2020 USD ($) loan contract	Mar. 31, 2019 USD ($) loan contract	Dec. 31, 2019 USD ($)
Troubled Debt Restructurings [Abstract]
Recorded investment in troubled debt restructurings	$ 8,700,000		$ 9,000,000
Troubled debt restructuring reserve	2,300,000		2,300,000
Troubled debt restructurings accruing interest under modified terms	800,000		900,000
Troubled debt restructurings on non-accrual status	7,900,000		8,100,000
Additional amounts committed to customers with loans classified as troubled debt restructurings	0		$ 0
TDR charge-offs	$ 0	$ 0
Number of loans | contract	0	0
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
Commercial and Consumer Loans
Loans by class modified as troubled debt restructurings [Abstract]
Number of loans | loan	444
Post-modification outstanding recorded investment	$ 56,600,000
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
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
Principal Forgiveness
Troubled Debt Restructurings [Abstract]
Extension period		3 years

XML

SEGMENT REPORTING (Details) $ in Thousands	3 Months Ended
	Mar. 31, 2020 USD ($) segment	Mar. 31, 2019 USD ($)	Dec. 31, 2019 USD ($)
Segment Reporting Information [Line Items]
Number of primary business segments | segment	2
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	$ 16,384	$ 16,665
Interest expense	1,322	1,498
Net interest income	15,062	15,167
Provision for loan losses	3,050	1,093
Net interest income after provision for loan losses	12,012	14,074
Other non-interest income	4,730	4,925
Legal accruals and settlements		0
Other non-interest expenses	13,749	13,497
Income (loss) before income tax expense (benefit)	2,993	5,502
Income tax expense (benefit)	502	1,034
Net income	2,491	4,468
Segment assets	1,841,329	1,769,572	$ 1,787,827
Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Other non-interest income	2,364	2,465
Operating Segments | Core Banking
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	16,367	16,652
Interest expense	1,322	1,498
Net interest income	15,045	15,154
Provision for loan losses	3,050	1,093
Net interest income after provision for loan losses	11,995	14,061
Other non-interest income	2,364	2,465
Legal accruals and settlements		0
Other non-interest expenses	11,882	11,625
Income (loss) before income tax expense (benefit)	2,477	4,901
Income tax expense (benefit)	390	889
Net income	2,087	4,012
Segment assets	1,833,135	1,758,795
Operating Segments | WMG
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	0	0
Interest expense	0	0
Net interest income	0	0
Provision for loan losses	0	0
Net interest income after provision for loan losses	0	0
Other non-interest income	2,229	2,276
Legal accruals and settlements		0
Other non-interest expenses	1,602	1,575
Income (loss) before income tax expense (benefit)	627	701
Income tax expense (benefit)	161	179
Net income	466	522
Segment assets	3,281	3,697
Intersegment Eliminations
Reportable segments and reconciliation to consolidated results [Abstract]
Interest and dividend income	17	13
Interest expense	0	0
Net interest income	17	13
Provision for loan losses	0	0
Net interest income after provision for loan losses	17	13
Other non-interest income	137	184
Legal accruals and settlements		0
Other non-interest expenses	265	297
Income (loss) before income tax expense (benefit)	(111)	(100)
Income tax expense (benefit)	(49)	(34)
Net income	(62)	(66)
Segment assets	$ 4,913	$ 7,080

XML

GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Goodwill [Roll Forward]
Beginning of year	$ 21,824	$ 21,824	$ 21,824
Acquired goodwill	0	0
Ending balance	21,824	21,824	21,824
Finite-lived intangible assets, net [Abstract]
Balance Acquired	11,608		11,608
Accumulated Amortization	10,998		10,866
Aggregate amortization expense	132	$ 163
Finite-lived intangible assets, future amortization expense [Abstract]
2020	352
2021	258
2022
2023	0
2024	0
Total	610
Core deposit intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired	5,975		5,975
Accumulated Amortization	5,875		5,832
Other customer relationship intangibles
Finite-lived intangible assets, net [Abstract]
Balance Acquired	5,633		5,633
Accumulated Amortization	$ 5,123		$ 5,034

XML

LEASES - Leased Branch Properties (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
Operating lease right-of-use asset	$ 8,713	$ 8,713
Less: accumulated amortization	(887)	(712)
Operating lease right-of-use-assets, net	$ 7,826	$ 8,001

XML

SEGMENT REPORTING (Tables)

3 Months Ended

Mar. 31, 2020

Segment Reporting [Abstract]

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

The Holding Company, CFS, and CRM column below includes amounts to eliminate transactions between segments (in thousands).

	Three months ended March 31, 2020
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,367	$	—	$	17		$	16,384
Interest expense	1,322		—		—			1,322
Net interest income	15,045		—		17			15,062
Provision for loan losses	3,050		—		—			3,050
Net interest income after provision for loan losses	11,995		—		17			12,012
Other non-interest income	2,364		2,229		137			4,730
Other non-interest expenses	11,882		1,602		265			13,749
Income (loss) before income tax expense (benefit)	2,477		627		(111		)	2,993
Income tax expense (benefit)	390		161		(49		)	502
Segment net income (loss)	$	2,087	$	466	$	(62	)	$	2,491
Segment assets	$	1,833,135	$	3,281	$	4,913		$	1,841,329

	Three months ended March 31, 2019
	Core Banking		WMG		Holding Company, CFS, and CRM			Consolidated Totals
Interest and dividend income	$	16,652	$	—	$	13		$	16,665
Interest expense	1,498		—		—			1,498
Net interest income	15,154		—		13			15,167
Provision for loan losses	1,093		—		—			1,093
Net interest income after provision for loan losses	14,061		—		13			14,074
Other non-interest income	2,465		2,276		184			4,925
Legal accruals and settlements	—		—		—			—
Other non-interest expenses	11,625		1,575		297			13,497
Income (loss) before income tax expense (benefit)	4,901		701		(100		)	5,502
Income tax expense (benefit)	889		179		(34		)	1,034
Segment net income (loss)	$	4,012	$	522	$	(66	)	$	4,468
Segment assets	$	1,758,795	$	3,697	$	7,080		$	1,769,572

XML

SECURITIES - Securities Available for Sale (Details) - USD ($)	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	$ 289,595,000		$ 282,256,000
Unrealized Gains	9,757,000		3,146,000
Unrealized Losses	277,000		1,312,000
Estimated Fair Value	299,075,000		284,090,000
Amortized Cost [Abstract]
Within one year	475,000
After one, but within five years	10,439,000
After five, but within ten years	29,271,000
After ten years	1,049,000
Total	41,234,000
Amortized Cost	289,595,000		282,256,000
Fair Value [Abstract]
Within one year	475,000
After one, but within five years	10,779,000
After five, but within ten years	30,541,000
After ten years	1,080,000
Total	42,875,000
Estimated Fair Value	299,075,000		284,090,000
Debt Securities, Available-for-sale, Realized Gain (Loss) [Abstract]
Proceeds form sale of securities resulting in gain (loss)	0	$ 0
Mortgage-backed securities, residential
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	227,180,000		225,029,000
Unrealized Gains	8,025,000		1,471,000
Unrealized Losses	206,000		1,266,000
Estimated Fair Value	234,999,000		225,234,000
Amortized Cost [Abstract]
Without single maturity date	227,180,000
Amortized Cost	227,180,000		225,029,000
Fair Value [Abstract]
Without single maturity date	234,999,000
Estimated Fair Value	234,999,000		225,234,000
Obligations of states and political subdivisions
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	40,984,000		41,265,000
Unrealized Gains	1,641,000		1,580,000
Unrealized Losses	0		0
Estimated Fair Value	42,625,000		42,845,000
Amortized Cost [Abstract]
Amortized Cost	40,984,000		41,265,000
Fair Value [Abstract]
Estimated Fair Value	42,625,000		42,845,000
Corporate bonds and notes
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	250,000		250,000
Unrealized Gains	0		0
Unrealized Losses	0		0
Estimated Fair Value	250,000		250,000
Amortized Cost [Abstract]
Amortized Cost	250,000		250,000
Fair Value [Abstract]
Estimated Fair Value	250,000		250,000
SBA loan pools
Amortized cost and estimated fair value of securities available for sale [Abstract]
Amortized Cost	21,181,000		15,712,000
Unrealized Gains	91,000		95,000
Unrealized Losses	71,000		46,000
Estimated Fair Value	21,201,000		15,761,000
Amortized Cost [Abstract]
Without single maturity date	21,181,000
Amortized Cost	21,181,000		15,712,000
Fair Value [Abstract]
Without single maturity date	21,201,000
Estimated Fair Value	$ 21,201,000		$ 15,761,000

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS

3 Months Ended

Mar. 31, 2020

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 three months ended March 31, 2020 and 2019 (in thousands). Items outside the scope of ASC 606 are noted as such.

	Three Months Ended March 31, 2020
Revenue by Operating Segment:	Core Banking			WMG		Holding Company, CFS, and CRM(b)			Total
Non-interest income
Service charges on deposit accounts
Overdraft fees	$	805		$	—	$	—		$	805
Other	185			—		—			185
Interchange revenue from debit card transactions	925			—		—			925
WMG fee income	—			2,229		—			2,229
CFS fee and commission income	—			—		177			177
Net gains (losses) on sales of OREO	(29		)	—		—			(29		)
Net gains on sales of loans(a)	75			—		—			75
Loan servicing fees(a)	27			—		—			27
Net gains on sales of securities(a)	—			—		—			—
Changes in fair value of equity investments(a)	(167		)	—		(79		)	(246		)
Other(a)	543			—		39			582
Total non-interest income (loss)	$	2,364		$	2,229	$	137		$	4,730

	Three Months Ended March 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	$	888		$	—	$	—	$	888
Other	216			—		—		216
Interchange revenue from debit card transactions	1,031			—		—		1,031
WMG fee income	—			2,276		—		2,276
CFS fee and commission income	—			—		168		168
Net gains (losses) on sales of OREO	(83		)	—		—		(83		)
Net gains on sales of loans(a)	48			—		—		48
Loan servicing fees(a)	35			—		—		35
Net gains on sales of securities(a)	—			—		—		—
Changes in fair value of equity investments(a)	73			—		16		89
Other(a)	257			—		—		257
Total non-interest income	$	2,465		$	2,276	$	184	$	4,925

(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 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.

XML

LEASES

3 Months Ended

Mar. 31, 2020

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 March 31, 2020, the weighted average remaining lease term was 9.0 years with a weighted average discount rate of 3.27%.  Rent expense was $0.2 million for the three months ended March 31, 2020. 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 March 31, 2020 and December 31, 2019 consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Operating lease right-of-use asset	$	8,713		$	8,713
Less: accumulated amortization	(887		)	(712		)
Operating lease right-of-use-assets, net	$	7,826		$	8,001

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of March 31, 2020 (in thousands):

Year	Amount
2020	$	700
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,615
Less: amount representing interest	(1,696		)
Present value of net minimum lease payments	$	7,919

As of March 31, 2020, 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 March 31, 2020, the weighted average remaining lease term was 12.8 years with a weighted average discount rate of 3.35%.  The Corporation has included these leases in premises and equipment as of March 31, 2020 and December 31, 2019 as follows (in thousands):

	March 31, 2020			December 31, 2019
Buildings	$	5,572		$	5,572
Less: accumulated depreciation	(1,625		)	(1,541		)
Net book value	$	3,947		$	4,031

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 March 31, 2020 (in thousands):

Year	Amount
2020	$	284
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,093
Less: amount representing interest	(1,065		)
Present value of net minimum lease payments	$	4,028

As of March 31, 2020, the Corporation had no finance leases that were signed, but had not yet commenced.

Related Party Transactions

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. Rent paid to this Board of Directors member totaled $12 thousand and $12 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

The Bank leases 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 $24 thousand and $24 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

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 March 31, 2020, the weighted average remaining lease term was 9.0 years with a weighted average discount rate of 3.27%.  Rent expense was $0.2 million for the three months ended March 31, 2020. 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 March 31, 2020 and December 31, 2019 consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Operating lease right-of-use asset	$	8,713		$	8,713
Less: accumulated amortization	(887		)	(712		)
Operating lease right-of-use-assets, net	$	7,826		$	8,001

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of March 31, 2020 (in thousands):

Year	Amount
2020	$	700
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,615
Less: amount representing interest	(1,696		)
Present value of net minimum lease payments	$	7,919

As of March 31, 2020, 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 March 31, 2020, the weighted average remaining lease term was 12.8 years with a weighted average discount rate of 3.35%.  The Corporation has included these leases in premises and equipment as of March 31, 2020 and December 31, 2019 as follows (in thousands):

	March 31, 2020			December 31, 2019
Buildings	$	5,572		$	5,572
Less: accumulated depreciation	(1,625		)	(1,541		)
Net book value	$	3,947		$	4,031

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 March 31, 2020 (in thousands):

Year	Amount
2020	$	284
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,093
Less: amount representing interest	(1,065		)
Present value of net minimum lease payments	$	4,028

As of March 31, 2020, the Corporation had no finance leases that were signed, but had not yet commenced.

Related Party Transactions

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. Rent paid to this Board of Directors member totaled $12 thousand and $12 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

The Bank leases 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 $24 thousand and $24 thousand for the three month periods ended March 31, 2020 and 2019, respectively.

XML

EARNING PER COMMON SHARE

3 Months Ended

Mar. 31, 2020

Earnings Per Share [Abstract]

EARNING PER COMMON SHARE

EARNING PER COMMON SHARE (shares in thousands)

Basic earnings per share is net income divided by the weighted average number of common shares outstanding during the period.  Issuable shares, including those related to directors’ restricted stock units and directors’ stock compensation, are considered outstanding and are included in the computation of basic earnings per share.  All outstanding unvested share-based payment awards that contain rights to non-forfeitable dividends are considered participating securities for this calculation.  Restricted stock awards are grants of participating securities and are considered outstanding at grant date.  Earnings per share information is adjusted to present comparative results for stock splits and stock dividends that occur. Earnings per share were computed by dividing net income by 4,895 and 4,860 weighted average shares outstanding for the three-month periods ended March 31, 2020 and 2019, respectively. There were no common stock equivalents during the three-month periods ended March 31, 2020 or 2019.

XML

FAIR VALUE (Tables)

3 Months Ended

Mar. 31, 2020

Fair Value Disclosures [Abstract]

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

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

			Fair Value Measurement at March 31, 2020 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)
Mortgage-backed securities, residential	$	234,999	$	—	$	234,999	$	—
Obligations of states and political subdivisions	42,625		—		42,625		—
Corporate bonds and notes	250		—		250		—
SBA loan pools	21,201		—		21,201		—
Total available for sale securities	$	299,075	$	—	$	299,075	$	—
Equity investments, at fair value	$	1,274	$	1,274	$	—	$	—
Derivative assets	16,343		—		16,343		—
Financial Liabilities:
Derivative liabilities	$	16,773	$	—	$	16,343	$	430

There were no transfers between Level 1 and Level 2 during the three month period ended March 31, 2020.

			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)
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, at fair value	$	1,442	$	1,442	$	—	$	—
Derivative assets	6,466		—		6,466		—
Financial Liabilities:
Derivative liabilities	$	6,831	$	—	$	6,466	$	365

Reconciliation of all assets measured at fair value

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Assets (Liabilities)
	Derivative Liabilities
	March 31, 2020			March 31, 2019
Balance of recurring Level 3 assets at January 1	$	(365	)	$	(140	)
Derivative instruments entered into	(9		)	(24		)
Total gains or losses for the period:
Included in earnings - other non-interest income	(56		)	(66		)
Included in other comprehensive income	—			—
Transfers out of Level 3	—			—
Balance of recurring Level 3 assets at March 31,	$	(430	)	$	(230	)

Reconciliation of liabilities measured at fair value

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the three-month periods ended March 31, 2020 and 2019 (in thousands):

	Assets (Liabilities)
	Derivative Liabilities
	March 31, 2020			March 31, 2019
Balance of recurring Level 3 assets at January 1	$	(365	)	$	(140	)
Derivative instruments entered into	(9		)	(24		)
Total gains or losses for the period:
Included in earnings - other non-interest income	(56		)	(66		)
Included in other comprehensive income	—			—
Transfers out of Level 3	—			—
Balance of recurring Level 3 assets at March 31,	$	(430	)	$	(230	)

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

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

			Fair Value Measurement at March 31, 2020 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	$	(1,429	)
Total impaired loans	$	1,554	$	—	$	—	$	1,554	$	(1,429	)
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	—	$	—	$	111	$	—
Residential mortgages	178		—		—		178		—
Consumer loans:
Home equity lines and loans	91		—		—		91		—
Total other real estate owned, net	$	380	$	—	$	—	$	380	$	—

			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	)

Nonrecurring fair value measurement, valuation techniques

The following table presents information related to Level 3 recurring fair value measurements at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Derivative liabilities	$	430	Historical trend	Credit default rate	12.86% - 20.75% [13.82%]

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%]

The following tables present information related to Level 3 non-recurring fair value measurement at March 31, 2020 and December 31, 2019 (in thousands):

Description	Fair Value at March 31, 2020		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at March 31, 2020
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	1,554	Sales comparison	Discount to appraised value	10.31% - 10.31% [10.31%]
	$	1,554
OREO:
Commercial mortgages:
Commercial mortgages	$	111	Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
Residential mortgages	178		Sales comparison	Discount to appraised value	0.00% -0.00% [0.00%]
Consumer loans:
Home equity lines and loans	91		Sales comparison	Discount to appraised value	27.49% - 27.49% [27.49%]
	$	380

Description	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%]
Consumer loans:
	$	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

Carrying value and estimated fair value of financial instruments

The carrying amounts and estimated fair values of other financial instruments, at March 31, 2020 and December 31, 2019, are as follows (in thousands):

	March 31, 2020
Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	27,522	$	27,522	$	—	$	—	$	27,522
Interest-earning deposits in other financial institutions	116,936		116,936		—		—		116,936
Equity investments	1,999		1,999		—		—		1,999
Securities held to maturity	3,001		—		2,093		931		3,024
FHLBNY and FRBNY stock	3,099		—		—		—		N/A
Loans, net and loans held for sale	1,295,029		—		—		1,298,475		1,298,475
Accrued interest receivable	4,786		39		988		3,759		4,786
Derivative Assets	16,343		—		16,343		—		16,343
Financial liabilities:
Deposits:
Demand, savings, and insured money market accounts	$	1,441,841	$	1,441,841	$	—	$	—	$	1,441,841
Time deposits	166,262		—		169,803		—		169,803
Accrued interest payable	293		11		282		—		293
Derivative Liabilities	16,773		—		16,343		430		16,773

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

	December 31, 2019
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-earning 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 Asset	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.

XML

SUBSEQUENT EVENT

3 Months Ended

Mar. 31, 2020

Subsequent Events [Abstract]

SUBSEQUENT EVENT

SUBSEQUENT EVENTS

On April 23, 2020 the Corporation received payment of $461,309 from Pioneer Bank related to its obligation under the participation agreements in place related to 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. This event was not considered material in nature and thus did not result in an adjustment to the financial statements.

On April 27, 2020, the Corporation filed a Form S-3 Registration Statement under the Securities Act of 1933. The Corporation's Board of Directors approved the filing with the SEC of a Shelf Registration Statement to register for sale from time to time up to $50 million of the following securities: (i) shares of common stock; (ii) unsecured debt securities, which may consist of notes, debentures or other evidences of indebtedness; (iii) warrants; (iv) purchase contracts; (v) units consisting of any combination of the foregoing; and (vi) subscription rights to purchase shares of common stock or debt securities. The SEC declared the registration statement effective on May 7, 2020.

XML

SUBSEQUENT EVENT (Details) - USD ($)	Apr. 23, 2020	Feb. 04, 2020
Subsequent Event [Line Items]
Participating credit facility receivable, ownership interest, amount		$ 4,200,000
Participating credit facility receivable, amount		$ 36,000,000
Subsequent Event
Subsequent Event [Line Items]
Proceeds from participation agreement	$ 461,309
Participating credit facility receivable, ownership interest, amount	4,200,000
Participating credit facility receivable, amount	$ 36,000,000

XML

REVENUE FROM CONTRACTS WITH CUSTOMERS - Revenue By Operating Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Disaggregation of Revenue [Line Items]
Net gains (losses) on sales of OREO	$ (29)	$ (83)
Net gains on sales of loans held for sale	75	48
Change in fair value of equity investments	(246)	89
Total non-interest income	4,730	4,925
Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	805	888
Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	185	216
Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	925	1,031
WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	2,229	2,276
CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	177	168
Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Net gains (losses) on sales of OREO	(29)	(83)
Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Net gains on sales of loans held for sale	75	48
Loan servicing fees
Disaggregation of Revenue [Line Items]
Loan servicing fees	27	35
Sale of securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0
Other
Disaggregation of Revenue [Line Items]
Other	582	257
Core Banking
Disaggregation of Revenue [Line Items]
Change in fair value of equity investments	(167)	73
Total non-interest income	2,364	2,465
Core Banking | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	805	888
Core Banking | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	185	216
Core Banking | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	925	1,031
Core Banking | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Core Banking | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Core Banking | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Net gains (losses) on sales of OREO	(29)	(83)
Core Banking | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Net gains on sales of loans held for sale	75	48
Core Banking | Loan servicing fees
Disaggregation of Revenue [Line Items]
Loan servicing fees	27	35
Core Banking | Sale of securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0
Core Banking | Other
Disaggregation of Revenue [Line Items]
Other	543	257
WMG
Disaggregation of Revenue [Line Items]
Change in fair value of equity investments	0	0
Total non-interest income	2,229	2,276
WMG | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
WMG | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
WMG | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
WMG | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	2,229	2,276
WMG | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
WMG | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Net gains (losses) on sales of OREO	0	0
WMG | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Net gains on sales of loans held for sale	0	0
WMG | Loan servicing fees
Disaggregation of Revenue [Line Items]
Loan servicing fees	0	0
WMG | Sale of securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0
WMG | Other
Disaggregation of Revenue [Line Items]
Other	0	0
Holding Company, CFS, and CRM
Disaggregation of Revenue [Line Items]
Change in fair value of equity investments	(79)	16
Total non-interest income	137	184
Holding Company, CFS, and CRM | Overdraft fees
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Holding Company, CFS, and CRM | Other
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Holding Company, CFS, and CRM | Interchange revenue from debit card transactions
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Holding Company, CFS, and CRM | WMG fee income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	0	0
Holding Company, CFS, and CRM | CFS fee and commission income
Disaggregation of Revenue [Line Items]
Revenue from contract with customer, excluding assessed tax	177	168
Holding Company, CFS, and CRM | Net gains (losses) on sales of OREO
Disaggregation of Revenue [Line Items]
Net gains (losses) on sales of OREO	0	0
Holding Company, CFS, and CRM | Net gains on sales of loans
Disaggregation of Revenue [Line Items]
Net gains on sales of loans held for sale	0	0
Holding Company, CFS, and CRM | Loan servicing fees
Disaggregation of Revenue [Line Items]
Loan servicing fees	0	0
Holding Company, CFS, and CRM | Sale of securities
Disaggregation of Revenue [Line Items]
Net gains on sales of securities	0	0
Holding Company, CFS, and CRM | Other
Disaggregation of Revenue [Line Items]
Other	$ 39	$ 0

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY - USD ($) $ in Thousands		Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Treasury Stock	Accumulated Other Comprehensive Loss
Beginning balances at Dec. 31, 2018		$ 165,029	$ 53	$ 45,820	$ 143,129	$ (12,562)	$ (11,411)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		4,468			4,468
Other comprehensive income		2,569					2,569
Restricted stock awards		101		101
Restricted stock units for directors' deferred compensation plan		11		11
Distribution of shares of treasury stock grants for employee restricted stock awards		11				11
Cash dividends declared		(1,257)			(1,257)
Operating lease liabilities		357		139		218
Distribution of shares of treasury stock for employee stock compensation		100		39		61
Repurchase of common stock		(13)				(13)
Sale of treasury stock	[1]	158		64		94
Ending balances at Mar. 31, 2019		171,534	53	46,174	146,340	(12,191)	(8,842)
Beginning balances at Dec. 31, 2019		182,627	53	46,382	153,701	(11,710)	(5,799)
Increase (Decrease) in Shareholders' Equity [Roll Forward]
Net income		2,491			2,491
Other comprehensive income		5,717					5,717
Restricted stock awards		125		125
Restricted stock units for directors' deferred compensation plan		11		11
Distribution of shares of treasury stock grants for employee restricted stock awards		0		(7)		7
Cash dividends declared		(1,266)			(1,266)
Operating lease liabilities		350		144		206
Distribution of shares of treasury stock for employee stock compensation		100		41		59
Repurchase of common stock		(128)				(128)
Sale of treasury stock	[1]	420		53		367
Forfeiture of shares of restricted stock awards		0		5		(5)
Ending balances at Mar. 31, 2020		$ 190,447	$ 53	$ 46,754	$ 154,926	$ (11,204)	$ (82)

[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.

XML

CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
ASSETS
Cash and due from financial institutions	$ 27,522	$ 25,203
Interest-earning deposits in other financial institutions	116,936	96,701
Total cash and cash equivalents	144,458	121,904
Equity investments, at estimated fair value	1,999	2,174
Securities available for sale, at estimated fair value	299,075	284,090
Securities held to maturity, estimated fair value of $3,024 at March 31, 2020 and $3,139 at December 31, 2019	3,001	3,115
FHLBNY and FRBNY Stock, at cost	3,099	3,099
Loans, net of deferred loan fees	1,320,461	1,309,219
Allowance for loan losses	(26,233)	(23,478)
Loans, net	1,294,228	1,285,741
Loans held for sale	801	1,185
Premises and equipment, net	21,781	22,417
Operating lease right-of-use assets	7,826	8,001
Goodwill	21,824	21,824
Other intangible assets, net	610	742
Bank-owned life insurance	3,017	3,111
Accrued interest receivable and other assets	39,610	30,424
Total assets	1,841,329	1,787,827
Deposits:
Non-interest-bearing	469,535	468,238
Interest-bearing	1,138,568	1,103,900
Total deposits	1,608,103	1,572,138
Long term finance lease obligation	4,028	4,085
Operating lease liabilities	7,919	8,084
Dividends payable	1,266	1,263
Accrued interest payable and other liabilities	29,566	19,630
Total liabilities	1,650,882	1,605,200
Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at March 31, 2020 and December 31, 2019	53	53
Additional paid-in capital	46,754	46,382
Retained earnings	154,926	153,701
Treasury stock, at cost; 432,257 shares at March 31, 2020 and 452,641 shares at December 31, 2019	(11,204)	(11,710)
Accumulated other comprehensive loss	(82)	(5,799)
Total shareholders' equity	190,447	182,627
Total liabilities and shareholders' equity	$ 1,841,329	$ 1,787,827

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Unpaid Principal Balance [Abstract]
Unpaid principal balance, total	$ 15,143		$ 15,712
Recorded Investment [Abstract]
Recorded investment, total	15,097		15,665
Allowance for loan losses allocated	7,909		8,097
Average Recorded Investment [Abstract]
Average recorded investment, total	15,381	$ 10,353
Interest Income, Accrual Method [Abstract]
Interest income, accrual method, total	9	11
Commercial Mortgages | Construction
Unpaid Principal Balance [Abstract]
With no related allowance, unpaid principal balance	231		247
Recorded Investment [Abstract]
With no related allowance, recorded investment	232		247
Average Recorded Investment [Abstract]
With no related allowance, average recorded investment	239	301
Interest Income, Accrual Method [Abstract]
With no related allowance, interest income, accrual method	2	2
Commercial Mortgages | Commercial mortgages, other
Unpaid Principal Balance [Abstract]
With no related allowance, unpaid principal balance	3,219		3,501
With related allowance, Unpaid Principal Balance	5,025		5,093
Recorded Investment [Abstract]
With no related allowance, recorded investment	3,220		3,503
With related allowance, recorded investment	5,026		5,094
Allowance for loan losses allocated	2,058		2,097
Average Recorded Investment [Abstract]
With no related allowance, average recorded investment	3,362	3,889
With related allowance, average recorded investment	5,060	3,523
Interest Income, Accrual Method [Abstract]
With no related allowance, interest income, accrual method	0	5
With related allowance, interest income, accrual method	0	0
Residential mortgages
Unpaid Principal Balance [Abstract]
With no related allowance, unpaid principal balance	547		554
Recorded Investment [Abstract]
With no related allowance, recorded investment	518		525
Average Recorded Investment [Abstract]
With no related allowance, average recorded investment	521	397
Interest Income, Accrual Method [Abstract]
With no related allowance, interest income, accrual method	5	2
Consumer Loans | Home equity lines and loans
Unpaid Principal Balance [Abstract]
With no related allowance, unpaid principal balance	171		171
Recorded Investment [Abstract]
With no related allowance, recorded investment	149		149
Average Recorded Investment [Abstract]
With no related allowance, average recorded investment	149	111
Interest Income, Accrual Method [Abstract]
With no related allowance, interest income, accrual method	2	1
Commercial and industrial | Commercial and agricultural
Unpaid Principal Balance [Abstract]
With no related allowance, unpaid principal balance	105		133
With related allowance, Unpaid Principal Balance	5,845		6,013
Recorded Investment [Abstract]
With no related allowance, recorded investment	106		133
With related allowance, recorded investment	5,846		6,014
Allowance for loan losses allocated	5,851		$ 6,000
Average Recorded Investment [Abstract]
With no related allowance, average recorded investment	120	325
With related allowance, average recorded investment	5,930	1,807
Interest Income, Accrual Method [Abstract]
With no related allowance, interest income, accrual method	0	1
With related allowance, interest income, accrual method	$ 0	$ 0

XML

FAIR VALUE (Details) - USD ($)	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Financial Assets:
Estimated Fair Value	$ 299,075,000		$ 284,090,000
Impaired Loans, Fair Value Disclosure [Abstract]
Level 2 to level 1 transfer amount	0	$ 0
Total Gains (Losses)	(3,050,000)	(1,093,000)
Recurring
Financial Assets:
Mortgage-backed securities, residential	234,999,000		225,234,000
Obligations of states and political subdivisions	42,625,000		42,845,000
Corporate bonds and notes	250,000		250,000
SBA loan pools	21,201,000		15,761,000
Estimated Fair Value	299,075,000		284,090,000
Equity investments	1,274,000		1,442,000
Derivative Asset	16,343,000		6,466,000
Financial Liabilities:
Derivative Liabilities	16,773,000		6,831,000
Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	1,554,000		1,554,000
Total Gains (Losses)	(1,429,000)		(1,597,000)
Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	380,000		517,000
Total Gains (Losses)	0		(12,000)
Quoted Prices in Active Markets for Identical Assets (Level 1) | Recurring
Financial Assets:
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
Estimated Fair Value	0		0
Equity investments	1,274,000		1,442,000
Derivative Asset	0		0
Financial Liabilities:
Derivative Liabilities	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0
Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Significant Other Observable Inputs (Level 2) | Recurring
Financial Assets:
Mortgage-backed securities, residential	234,999,000		225,234,000
Obligations of states and political subdivisions	42,625,000		42,845,000
Corporate bonds and notes	250,000		250,000
SBA loan pools	21,201,000		15,761,000
Estimated Fair Value	299,075,000		284,090,000
Equity investments	0		0
Derivative Asset	16,343,000		6,466,000
Financial Liabilities:
Derivative Liabilities	16,343,000		6,466,000
Significant Other Observable Inputs (Level 2) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0
Significant Other Observable Inputs (Level 2) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Significant Unobservable Inputs (Level 3) | Recurring
Financial Assets:
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
Estimated Fair Value	0		0
Equity investments	0		0
Derivative Asset	0		0
Financial Liabilities:
Derivative Liabilities	430,000		365,000
Significant Unobservable Inputs (Level 3) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	1,554,000		1,554,000
Significant Unobservable Inputs (Level 3) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	380,000		517,000
Commercial mortgages, other | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	111,000		111,000
Total Gains (Losses)	0		0
Commercial mortgages, other | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Commercial mortgages, other | Significant Other Observable Inputs (Level 2) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Commercial mortgages, other | Significant Unobservable Inputs (Level 3) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	111,000		111,000
Home equity lines and loans | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net			122,000
Total Gains (Losses)			0
Home equity lines and loans | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net			0
Home equity lines and loans | Significant Other Observable Inputs (Level 2) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net			0
Home equity lines and loans | Significant Unobservable Inputs (Level 3) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net			122,000
Commercial Mortgages
Impaired Loans, Fair Value Disclosure [Abstract]
Total Gains (Losses)	(1,603,000)	(1,289,000)
Commercial Mortgages | Commercial mortgages | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	1,554,000		1,554,000
Total Gains (Losses)	(1,429,000)		(1,597,000)
Commercial Mortgages | Commercial mortgages | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0
Commercial Mortgages | Commercial mortgages | Significant Other Observable Inputs (Level 2) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	0		0
Commercial Mortgages | Commercial mortgages | Significant Unobservable Inputs (Level 3) | Non-recurring | Impaired Loans:
Impaired Loans, Fair Value Disclosure [Abstract]
Total impaired loans	1,554,000		1,554,000
Residential mortgages
Impaired Loans, Fair Value Disclosure [Abstract]
Total Gains (Losses)	(169,000)	9,000
Residential mortgages | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	178,000		284,000
Total Gains (Losses)	0		(12,000)
Residential mortgages | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Residential mortgages | Significant Other Observable Inputs (Level 2) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0		0
Residential mortgages | Significant Unobservable Inputs (Level 3) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	178,000		$ 284,000
Consumer Loans
Impaired Loans, Fair Value Disclosure [Abstract]
Total Gains (Losses)	(288,000)	$ 229,000
Consumer Loans | Home equity lines and loans | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	91,000
Total Gains (Losses)	0
Consumer Loans | Home equity lines and loans | Quoted Prices in Active Markets for Identical Assets (Level 1) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0
Consumer Loans | Home equity lines and loans | Significant Other Observable Inputs (Level 2) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	0
Consumer Loans | Home equity lines and loans | Significant Unobservable Inputs (Level 3) | Non-recurring | Other real estate owned:
Impaired Loans, Fair Value Disclosure [Abstract]
Total other real estate owned, net	$ 91,000

XML

LEASES (Tables)

3 Months Ended

Mar. 31, 2020

Leases [Abstract]

Assets and Liabilities, Lessee

Leased branch properties at March 31, 2020 and December 31, 2019 consist of the following (in thousands):

	March 31, 2020			December 31, 2019
Operating lease right-of-use asset	$	8,713		$	8,713
Less: accumulated amortization	(887		)	(712		)
Operating lease right-of-use-assets, net	$	7,826		$	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 March 31, 2020 (in thousands):

Year	Amount
2020	$	700
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,615
Less: amount representing interest	(1,696		)
Present value of net minimum lease payments	$	7,919

Property, Plant and Equipment

The Corporation has included these leases in premises and equipment as of March 31, 2020 and December 31, 2019 as follows (in thousands):

	March 31, 2020			December 31, 2019
Buildings	$	5,572		$	5,572
Less: accumulated depreciation	(1,625		)	(1,541		)
Net book value	$	3,947		$	4,031

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 March 31, 2020 (in thousands):

Year	Amount
2020	$	284
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,248
Total minimum lease payments	5,093
Less: amount representing interest	(1,065		)
Present value of net minimum lease payments	$	4,028

XML

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Organization

Organization

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

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

Basis of Presentation

Basis of Presentation

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

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information.  These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ.  In the opinion of management, all adjustments (consisting of normal recurring adjustments) and disclosures necessary for the fair presentation of the accompanying consolidated financial statements have been included. The unaudited consolidated financial statements should be read in conjunction with the Corporation's 2019 Annual Report on Form 10-K for the year ended December 31, 2019. The results of operations for any interim periods are not necessarily indicative of the results which may be expected for the entire year or any other period.

Reclassifications

Reclassifications

Recent Accounting Pronouncements and Adoption of New Accounting Standards

Recent Accounting Pronouncements

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 is eligible for the proposed delay and has elected to defer implementation until January 1, 2023. 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. On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") was signed into law. The CARES Act provides banking organizations which previously adopted for fiscal years beginning after December 15, 2019, temporary relief from complying with CECL. 

Section 4013 of the CARES Act gives entities temporary relief from the accounting and disclosure requirements for troubled debt restructurings (TDRs) under ASC 310-40, Receivables: Troubled Debt Restructurings by Creditors, in certain situations. Section 4013 of the CARES Act permits the suspension of ASC 310-40 for loan modifications that are made by financial institutions in response to the COVID-19 pandemic if (1) the borrower was not more than 30 days past due as of December 31, 2019, and (2) the modifications are related to arrangements that defer or delay the payment of principal or interest, or change the interest rate on the loan. All loan modifications made by the Corporation in response to the COLVID-19 pandemic have been in accordance with Section 4013 of the CARES Act.

Adoption of New Accounting Standards

On January 1, 2020, the Corporation adopted 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 adoption of the ASU did not have a significant impact on the Corporation's consolidated financial statements.

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.

Risks and Uncertainties - COVID19

The COVID-19 pandemic has caused significant economic dislocation in the United States as many state and local governments have ordered non-essential businesses to close and residents to shelter in place at home. This has resulted in an unprecedented slow-down in economic activity and a related increase in unemployment. Since the COVID-19 pandemic, more than 30 million people have filed claims for unemployment, and stock markets have declined in value and in particular bank stocks have significantly declined in value. Certain industries have been particularly hard-hit, including the travel and hospitality industry, the restaurant industry and the retail industry. Finally, the spread of the coronavirus has caused us to modify our business practices, including employee travel, employee work locations, and cancellation of physical participation in meetings, events and conferences. We have many employees working remotely and we may take further actions as may be required by government authorities or that we determine are in the best interests of our employees, customers and business partners.

Given the ongoing and dynamic nature of the circumstances, it is difficult to predict the full impact of the COVID-19 pandemic on our business. The extent of such impact will depend on future developments, which are highly uncertain, including when the coronavirus can be controlled and abated and when and how the economy may be reopened.

The Corporation's consolidated financial statements reflect estimates and assumptions that affect the reported amounts of assets and liabilities, including the amount of the allowances for credit losses established. Management evaluated the potential impact of the COVID-19 pandemic as it related to the loan portfolio and as part of this analysis, management identified what it believes to be higher risk loans through a detailed analysis of industry codes. Certain allowance qualitative factors were increased based on an assessment of the impact of the current pandemic on local, national and global economic conditions as well as the perceived risks inherent in specific industries and credit characteristics.

Management has taken actions to identify and assess additional possible credit exposure due to the COVID-19 pandemic based upon the industry types within the current loan portfolio. As of March 31, 2020, "highly impacted" industries total $199.4 million, or 22.3% of the Bank's commercial loan portfolio as of March 31, 2020.

Earnings Per Common Share

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

Fair Value Measurement

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

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

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

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

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

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

Equity Investments:  Securities that are held to fund a deferred compensation plan and securities that have a readily determinable fair market value, are recorded at fair value with changes in fair value included in earnings.  The fair values of equity investments are determined by quoted market prices (Level 1 inputs).

Impaired Loans:  At the time a loan is considered impaired, it is valued at the lower of cost or fair value.  Impaired loans carried at fair value have been partially charged-off or receive specific allocations as part of the allowance for loan loss accounting.  For collateral dependent loans, fair value is commonly based on real estate appraisals.  These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach.  Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available.  Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.  Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, typically resulting in a Level 3 fair value classification.  Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.

OREO:  Assets acquired through or instead of loan foreclosures are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis.  These assets are subsequently accounted for at lower of cost or fair value less estimated costs to sell.  Fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value.

Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (commercial properties) or certified residential appraisers (residential properties) whose qualifications and licenses have been reviewed and verified by the Corporation.  Once received, appraisals are reviewed for reasonableness of assumptions, approaches utilized, Uniform Standards of Professional Appraisal Practice and other regulatory compliance, as well as the overall resulting fair value in comparison with independent data sources such as recent market data or industry-wide statistics.  Appraisals are generally completed within the previous 12 month period prior to a property being placed into OREO.  On impaired loans, appraisal values are adjusted based on the age of the appraisal, the position of the lien, the type of the property and its condition.

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

XML

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Qualified Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	$ 0	$ 0
Interest cost on projected benefit obligation	322	379
Expected return on plan assets	(610)	(554)
Amortization of unrecognized transition obligation	0	0
Amortization of unrecognized prior service cost	0	0
Amortization of unrecognized net loss	49	49
Net periodic pension benefit	(239)	(126)
Supplemental Pension Plan
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	0
Interest cost on projected benefit obligation	10	13
Expected return on plan assets	0	0
Amortization of unrecognized prior service cost	0	0
Amortization of unrecognized net loss	3	1
Net periodic pension benefit	13	14
Postretirement Plan, Medical and Life
Defined Benefit Plan, Net Periodic Benefit Cost (Credit) [Abstract]
Service cost, benefits earned during the period	0	0
Interest cost on projected benefit obligation	2	3
Expected return on plan assets	0	0
Amortization of unrecognized prior service cost	(55)	(55)
Amortization of unrecognized net loss	25	23
Net periodic pension benefit	$ (28)	$ (29)

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Allowances (Details) - USD ($) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019	Mar. 31, 2020	Dec. 31, 2019
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	$ 23,478	$ 18,944	$ 18,944
Charge-offs	(433)	(448)
Recoveries	140	156
Net recoveries (charge-offs)	(294)	(292)
Provision	3,050	1,093
Ending balance	26,233	19,745	23,478
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment				$ 7,909	$ 8,097
Collectively evaluated for impairment				18,324	15,381
Total ending allowance balance	26,233	19,745	23,478	26,233	23,478
Loans [Abstract]
Loans individually evaluated for impairment				15,097	15,665
Loans collectively evaluated for impairment				1,309,123	1,297,238
Total recorded investment in loans				1,324,220	1,312,903
Commercial and Agricultural
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	10,227	5,383	5,383
Charge-offs	(30)	(7)
Recoveries	4	11
Net recoveries (charge-offs)	(26)	4
Provision	990	42
Ending balance	11,191	5,429	10,227
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment				5,851	6,000
Collectively evaluated for impairment				5,340	4,227
Total ending allowance balance	11,191	5,429	10,227	11,191	10,227
Loans [Abstract]
Loans individually evaluated for impairment				5,952	6,147
Loans collectively evaluated for impairment				230,698	224,775
Total recorded investment in loans				236,650	230,922
Commercial Mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	8,869	8,184	8,184
Charge-offs	0	0
Recoveries	1	1
Net recoveries (charge-offs)	0	1
Provision	1,603	1,289
Ending balance	10,472	9,474	8,869
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment				2,058	2,097
Collectively evaluated for impairment				8,414	6,772
Total ending allowance balance	10,472	9,474	8,869	10,472	8,869
Loans [Abstract]
Loans individually evaluated for impairment				8,478	8,844
Loans collectively evaluated for impairment				653,183	641,726
Total recorded investment in loans				661,661	650,570
Residential mortgages
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	1,252	1,226	1,226
Charge-offs	0	(2)
Recoveries	0	0
Net recoveries (charge-offs)	0	(2)
Provision	169	(9)
Ending balance	1,421	1,215	1,252
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				1,421	1,252
Total ending allowance balance	1,421	1,215	1,252	1,421	1,252
Loans [Abstract]
Loans individually evaluated for impairment				518	525
Loans collectively evaluated for impairment				192,751	188,349
Total recorded investment in loans				193,269	188,874
Consumer Loans
Allowance for loan losses, by portfolio segment [Roll Forward]
Beginning balance	3,130	4,151	4,151
Charge-offs	(403)	(439)
Recoveries	135	144
Net recoveries (charge-offs)	(268)	(295)
Provision	288	(229)
Ending balance	3,149	3,627	3,130
Ending allowance balance attributable to loans [Abstract]
Individually evaluated for impairment				0	0
Collectively evaluated for impairment				3,149	3,130
Total ending allowance balance	$ 3,149	$ 3,627	$ 3,130	3,149	3,130
Loans [Abstract]
Loans individually evaluated for impairment				149	149
Loans collectively evaluated for impairment				232,491	242,388
Total recorded investment in loans				$ 232,640	$ 242,537

XML

LOANS AND ALLOWANCE FOR LOAN LOSSES - Credit Quality Indicator (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Finance receivable by credit quality indicator [Abstract]
Loans	$ 1,324,220	$ 1,312,903
Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	422,232	428,037
Pass
Finance receivable by credit quality indicator [Abstract]
Loans	845,956	826,396
Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	17,733	18,534
Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	28,163	29,701
Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	10,136	10,235
Commercial and agricultural
Finance receivable by credit quality indicator [Abstract]
Loans	236,650	230,922
Commercial Mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	661,661	650,570
Commercial Mortgages | Construction
Finance receivable by credit quality indicator [Abstract]
Loans	41,073	44,082
Commercial Mortgages | Construction | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Construction | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	37,123	40,304
Commercial Mortgages | Construction | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	398	168
Commercial Mortgages | Construction | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	3,552	3,610
Commercial Mortgages | Construction | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Commercial mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	620,588	606,488
Commercial Mortgages | Commercial mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial Mortgages | Commercial mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	593,742	577,266
Commercial Mortgages | Commercial mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	11,483	12,451
Commercial Mortgages | Commercial mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	11,008	12,356
Commercial Mortgages | Commercial mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	4,355	4,415
Residential mortgages
Finance receivable by credit quality indicator [Abstract]
Loans	193,269	188,874
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	193,269	188,874
Residential mortgages | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	191,004	186,719
Residential mortgages | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	2,265	2,155
Residential mortgages | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	191,004	186,719
Residential mortgages | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Residential mortgages | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Residential mortgages | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	2,265	2,155
Residential mortgages | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans
Finance receivable by credit quality indicator [Abstract]
Loans	232,640	242,537
Consumer Loans | Credit cards
Finance receivable by credit quality indicator [Abstract]
Loans		0
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	0	0
Consumer Loans | Credit cards | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	0	0
Consumer Loans | Credit cards | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	0	0
Consumer Loans | Credit cards | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer Loans | Credit cards | Pass
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer Loans | Credit cards | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer Loans | Credit cards | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer Loans | Credit cards | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans		0
Consumer Loans | Home equity lines and loans
Finance receivable by credit quality indicator [Abstract]
Loans	88,421	92,065
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	88,421	92,065
Consumer Loans | Home equity lines and loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	87,783	91,424
Consumer Loans | Home equity lines and loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	638	641
Consumer Loans | Home equity lines and loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	87,783	91,424
Consumer Loans | Home equity lines and loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Home equity lines and loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Home equity lines and loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	638	641
Consumer Loans | Home equity lines and loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Indirect consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	129,809	135,366
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	129,809	135,366
Consumer Loans | Indirect consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	129,042	134,795
Consumer Loans | Indirect consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	767	571
Consumer Loans | Indirect consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	129,042	134,795
Consumer Loans | Indirect consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Indirect consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Indirect consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	767	571
Consumer Loans | Indirect consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Direct consumer loans
Finance receivable by credit quality indicator [Abstract]
Loans	14,410	15,106
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	14,410	15,106
Consumer Loans | Direct consumer loans | Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	14,403	15,099
Consumer Loans | Direct consumer loans | Non-Performing
Residential and consumer finance receivable [Abstract]
Residential and consumer loans receivable	7	7
Consumer Loans | Direct consumer loans | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	14,403	15,099
Consumer Loans | Direct consumer loans | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Direct consumer loans | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Consumer Loans | Direct consumer loans | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	7	7
Consumer Loans | Direct consumer loans | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial and industrial | Commercial and agricultural
Finance receivable by credit quality indicator [Abstract]
Loans	236,360	230,648
Commercial and industrial | Commercial and agricultural | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Commercial and industrial | Commercial and agricultural | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	214,801	208,552
Commercial and industrial | Commercial and agricultural | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	5,852	5,915
Commercial and industrial | Commercial and agricultural | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	9,926	10,361
Commercial and industrial | Commercial and agricultural | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	5,781	5,820
Agricultural | Commercial and agricultural
Finance receivable by credit quality indicator [Abstract]
Loans	290	274
Agricultural | Commercial and agricultural | Not Rated
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural | Pass
Finance receivable by credit quality indicator [Abstract]
Loans	290	274
Agricultural | Commercial and agricultural | Special Mention
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural | Substandard
Finance receivable by credit quality indicator [Abstract]
Loans	0	0
Agricultural | Commercial and agricultural | Doubtful
Finance receivable by credit quality indicator [Abstract]
Loans	$ 0	$ 0

XML

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (Parenthetical) - $ / shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Statement of Stockholders' Equity [Abstract]
Cash dividends declared (in dollars per share)	$ 0.26	$ 0.26
Distribution of shares of treasury stock for directors' compensation (in shares)	7,923	8,465
Distribution of shares of treasury stock for employee stock compensation (in shares)	2,274	2,373
Distribution of shares of treasury stock grants for employee restricted stock awards (in shares)	255	439
Sale of shares of treasury stock (in shares)	14,185	3,665
Forfeitures of shares of restricted stock awards (in shares)	112
Purchase of shares of treasury stock (in shares)	4,141	272

XML

CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
ASSETS
Securities held to maturity, estimated fair value	$ 3,024	$ 3,139
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)	432,257	452,641

XML

COMMITMENTS AND CONTINGENCIES (Details) - USD ($)	Apr. 23, 2020	Feb. 04, 2020	Mar. 31, 2020	Dec. 31, 2019
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Participating credit facility receivable, ownership interest, amount		$ 4,200,000
Participating credit facility receivable, amount		36,000,000
Loss contingency, damages sought		$ 4,200,000
Commitments to make loans | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			$ 22,930,000	$ 15,560,000
Commitments to make loans | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			24,160,000	25,233,000
Unused lines of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			2,213,000	1,062,000
Unused lines of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			234,343,000	229,137,000
Standby letters of credit | Fixed Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			0	0
Standby letters of credit | Variable Rate
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Off-balance sheet contractual amounts of financial instruments			$ 16,022,000	$ 16,272,000
Subsequent Event
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Participating credit facility receivable, ownership interest, amount	$ 4,200,000
Participating credit facility receivable, amount	36,000,000
Proceeds from participation agreement	$ 461,309

XML

- Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Leases [Abstract]
2020	$ 700
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,615
Less: amount representing interest	(1,696)
Operating lease liabilities	$ 7,919	$ 8,084

XML

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

3 Months Ended

Mar. 31, 2020

Retirement Benefits [Abstract]

Components of net periodic benefit costs

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

	Three Months Ended   March 31,
	2020			2019
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	322			379
Expected return on plan assets	(610		)	(554		)
Amortization of unrecognized transition obligation	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	49			49
Net periodic pension benefit	$	(239	)	$	(126	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	10			13
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	3			1
Net periodic supplemental pension cost	$	13		$	14
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	2			3
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	(55		)	(55		)
Amortization of unrecognized net loss	25			23
Net periodic postretirement, medical and life benefit	$	(28	)	$	(29	)

XML

EARNING PER COMMON SHARE (Details) - shares	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Earnings Per Share [Abstract]
Weighted average number of shares outstanding (in shares)	4,895,000	4,860,000
Dilutive common stock equivalents (in shares)	0	0

XML

GOODWILL AND INTANGIBLE ASSETS

3 Months Ended

Mar. 31, 2020

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 three month periods ended March 31, 2020 and 2019 were as follows (in thousands):

	2020		2019
Beginning of year	$	21,824	$	21,824
Acquired goodwill	—		—
Ending balance March 31,	$	21,824	$	21,824

Acquired intangible assets were as follows at March 31, 2020 and December 31, 2019 (in thousands):

	At March 31, 2020				At December 31, 2019
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,875	$	5,975	$	5,832
Other customer relationship intangibles	5,633		5,123		5,633		5,034
Total	$	11,608	$	10,998	$	11,608	$	10,866

Aggregate amortization expense was $0.1 million and $0.2 million for the three month periods ended March 31, 2020 and 2019, respectively.

The remaining estimated aggregate amortization expense at March 31, 2020 is listed below (in thousands):

Year	Estimated Expense
2020	$	352
2021	258
2022
2023	—
2024	—
Total	$	610

The amount of goodwill reflected in the Corporation's Unaudited Consolidated Financial Statements is required to be tested by management for impairment on at least an annual basis.  The test for impairment of goodwill on the identified reporting unit is considered a critical accounting estimate because it requires judgment on the part of management and the use of estimates related to the growth assumptions and market multiples used in the valuation model.  The goodwill impairment testing is performed annually as of December 31 and no impairment charges were incurred.

Changes in the macroeconomic environment resulting from the COVID-19 pandemic created a triggering event in the three month period ended March 31, 2020 and the Corporation performed an interim impairment test. The impairment test performed for the quarter ended March 31, 2020 determined no additional impairment was required.

XML

SECURITIES

3 Months Ended

Mar. 31, 2020

Investments, Debt and Equity Securities [Abstract]

SECURITIES

SECURITIES

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

	March 31, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	$	227,180	$	8,025	$	206	$	234,999
Obligations of states and political subdivisions	40,984		1,641		—		42,625
Corporate bonds and notes	250		—		—		250
SBA loan pools	21,181		91		71		21,201
Total	$	289,595	$	9,757	$	277	$	299,075

	December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Mortgage-backed securities, residential	225,029		1,471		1,266		225,234
Obligations of states and political subdivisions	41,265		1,580		—		42,845
Corporate bonds and notes	250		—		—		250
SBA loan pools	15,712		95		46		15,761
Total	$	282,256	$	3,146	$	1,312	$	284,090

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

	March 31, 2020
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	931	$	—	$	—	$	931
Time deposits with other financial institutions	2,070		23		—		2,093
Total	$	3,001	$	23	$	—	$	3,024

	December 31, 2019
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,045	$	—	$	—	$	1,045
Time deposits with other financial institutions	2,070		24		—		2,094
Total	$	3,115	$	24	$	—	$	3,139

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

	March 31, 2020
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	475	$	475	$	1,480	$	1,484
After one, but within five years	10,439		10,779		1,521		1,540
After five, but within ten years	29,271		30,541		—		—
After ten years	1,049		1,080		—		—
	41,234		42,875		3,001		3,024
Mortgage-backed securities, residential	227,180		234,999		—		—
SBA loan pools	21,181		21,201		—		—
Total	$	289,595	$	299,075	$	3,001	$	3,024

There were no proceeds from sales of securities resulting in gains or losses for the three months ended March 31, 2020 and 2019.

The following tables summarize the investment securities available for sale with unrealized losses at March 31, 2020 and December 31, 2019 by aggregated major security type and length of time in a continuous unrealized loss position (in thousands):

	Less than 12 months				12 months or longer				Total
March 31, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	$	5,168	$	114	$	3,875	$	92	$	9,043	$	206
SBA loan pools	6,009		37		1,338		34		7,347		71
Total temporarily impaired securities	$	11,177	$	151	$	5,213	$	126	$	16,390	$	277

	Less than 12 months				12 months or longer				Total
December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	71,506		791		54,343		475		125,849		1,266
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

Other-Than-Temporary Impairment

As of March 31, 2020, the majority of the Corporation’s unrealized losses in the investment securities portfolio related to mortgage-backed securities.  At March 31, 2020, all of the unrealized losses related to mortgage-backed securities were issued by U.S. government sponsored entities, Fannie Mae and Freddie Mac. Because the decline in fair value is attributable to changes in interest rates and not credit quality, and because it is not likely that the Corporation will be required to sell these securities before their anticipated recovery, the Corporation does not consider these securities to be other-than-temporarily impaired at March 31, 2020.

XML

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

3 Months Ended

Mar. 31, 2020

Retirement Benefits [Abstract]

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

COMPONENTS OF QUARTERLY AND YEAR TO DATE NET PERIODIC BENEFIT COSTS

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

	Three Months Ended   March 31,
	2020			2019
Qualified Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	322			379
Expected return on plan assets	(610		)	(554		)
Amortization of unrecognized transition obligation	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	49			49
Net periodic pension benefit	$	(239	)	$	(126	)
Supplemental Pension Plan
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	10			13
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	—			—
Amortization of unrecognized net loss	3			1
Net periodic supplemental pension cost	$	13		$	14
Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	—		$	—
Interest cost on projected benefit obligation	2			3
Expected return on plan assets	—			—
Amortization of unrecognized prior service cost	(55		)	(55		)
Amortization of unrecognized net loss	25			23
Net periodic postretirement, medical and life benefit	$	(28	)	$	(29	)