CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands, except per share data)	2020		2019		2020		2019
Interest and dividend income:
Loans, including fees	$	14,876	$	14,664	$	43,770	$	43,723
Taxable securities	1,474		1,349		4,358		3,825
Tax exempt securities	263		293		799		872
Interest-earning deposits	101		502		643		1,735
Total interest and dividend income	16,714		16,808		49,570		50,155
Interest expense:
Deposits	809		1,629		2,922		4,634

Borrowed funds	36		37		126		111
Total interest expense	845		1,666		3,048		4,745
Net interest income	15,869		15,142		46,522		45,410
Provision for loan losses	679		4,441		3,989		5,684
Net interest income after provision for loan losses	15,190		10,701		42,533		39,726

Non-interest income:
WMG fee income	2,416		2,315		6,968		7,115
Service charges on deposit accounts	740		1,141		2,294		3,330
Interchange revenue from debit card transactions	1,082		1,058		2,989		3,113
Net gains on security transactions	0		0		0		19
Changes in fair value of equity investments	57		(10)		(33)		106
Net gains on sales of loans held for sale	553		69		916		146
Net gains (losses) on sales of other real estate owned	6		(1)		(71)		(87)
Income from bank-owned life insurance	14		17		147		48
Other	471		367		1,940		1,177
Total non-interest income	5,339		4,956		15,150		14,967

Non-interest expenses:
Salaries and wages	6,088		5,874		17,678		17,375
Pension and other employee benefits	1,245		1,470		4,095		4,488
Other components of net periodic pension and postretirement benefits	(254)		(141)		(762)		(423)
Net occupancy	1,454		1,424		4,406		4,469
Furniture and equipment	538		717		1,573		1,840
Data processing	1,777		1,818		5,630		5,418
Professional services	453		395		1,313		1,218

Amortization of intangible assets	120		151		371		465
Marketing and advertising	140		231		546		644
Other real estate owned	53		9		87		80
FDIC insurance	247		(10)		726		476
Loan expense	301		171		798		557

Other	1,200		1,416		3,878		4,238
Total non-interest expenses	13,362		13,525		40,339		40,845
Income before income tax expense	7,167		2,132		17,344		13,848
Income tax expense	1,456		176		3,315		2,443
Net income	$	5,711	$	1,956	$	14,029	$	11,405

Weighted average shares outstanding	4,773		4,871		4,836		4,866
Basic and diluted earnings per share	$	1.19	$	0.40	$	2.90	$	2.34

See accompanying notes to unaudited consolidated financial statements.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands, except per share data) 2019 2018 2019 2018
Interest and dividend income:
Loans, including fees $ 14,664
$ 14,580
$ 43,723
$ 42,930
Taxable securities 1,349
1,200
3,825
3,753
Tax exempt securities 293
272
872
875
Interest-earning deposits 502
84
1,735
116
Total interest and dividend income 16,808
16,136
50,155
47,674
Interest expense:

Deposits 1,629
858
4,634
1,967
Securities sold under agreements to repurchase —
—
—
137
Borrowed funds 37
199
111
574
Total interest expense 1,666
1,057
4,745
2,678
Net interest income 15,142
15,079
45,410
44,996
Provision for loan losses 4,441
300
5,684
3,371
Net interest income after provision for loan losses 10,701
14,779
39,726
41,625

Non-interest income:

WMG fee income 2,315
2,406
7,115
7,095
Service charges on deposit accounts 1,141
1,231
3,330
3,539
Interchange revenue from debit card transactions 1,058
982
3,113
3,013
Net gains on security transactions —
—
19
—
Changes in fair value of equity investments (10 ) 2,141
106
2,165
Net gains on sales of loans held for sale 69
79
146
184
Net gains (losses) on sales of other real estate owned (1 ) 123
(87 ) 119
Income from bank-owned life insurance 17
17
48
50
Other 367
402
1,177
2,016
Total non-interest income 4,956
7,381
14,967
18,181

Non-interest expenses:

Salaries and wages 5,874
5,691
17,375
16,969
Pension and other employee benefits 1,470
1,262
4,488
4,438
Other components of net periodic pension and postretirement benefits (141 ) (408 ) (423 ) (1,224 )
Net occupancy 1,424
1,671
4,469
4,922
Furniture and equipment 717
581
1,840
1,941
Data processing 1,818
1,782
5,418
5,288
Professional services 395
479
1,218
1,527
Legal accruals and settlements —
—
—
989
Amortization of intangible assets 151
182
465
558
Marketing and advertising 231
212
644
816
Other real estate owned 9
83
80
321
FDIC insurance (10 ) 263
476
881
Loan expense 171
262
557
615
Other 1,416
1,368
4,238
4,520
Total non-interest expenses 13,525
13,428
40,845
42,561
Income before income tax expense 2,132
8,732
13,848
17,245
Income tax expense 176
1,802
2,443
3,349
Net income $ 1,956
$ 6,930
$ 11,405
$ 13,896

Weighted average shares outstanding 4,871
4,834
4,866
4,828
Basic and diluted earnings per share $ 0.40
$ 1.43
$ 2.34
$ 2.88

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)


	Three Months Ended September 30,				Nine Months Ended September 30,
(in thousands)	2020		2019		2020		2019
Net income	$	5,711	$	1,956	$	14,029	$	11,405
Other comprehensive income (loss):
Unrealized holding gains (losses) on securities available for sale	(692)		3,573		9,919		10,885
Reclassification adjustment for gains realized in net income	0		0		0		(19)
Net unrealized gains (losses)	(692)		3,573		9,919		10,866
Tax effect	(176)		911		2,530		2,771
Net of tax amount	(516)		2,662		7,389		8,095

Change in funded status of defined benefit pension plan and other benefit plans:

Reclassification adjustment for amortization of prior service costs	(55)		(55)		(165)		(165)
Reclassification adjustment for amortization of net actuarial loss	77		72		231		218
Total before tax effect	22		17		66		53
Tax effect	6		4		14		13
Net of tax amount	16		13		52		40

Total other comprehensive income (loss)	(500)		2,675		7,441		8,135

Comprehensive income	$	5,211	$	4,631	$	21,470	$	19,540

See accompanying notes to unaudited consolidated financial statements.

Three Months Ended
September 30, Nine Months Ended
September 30,
(in thousands) 2019 2018 2019 2018
Net income $ 1,956
$ 6,930
$ 11,405
$ 13,896
Other comprehensive income (loss):

Unrealized holding gains (losses) on securities available for sale 3,573
(1,583 ) 10,885
(6,422 )
Reclassification adjustment for gains realized in net income —
—
(19 ) —
Net unrealized gains (losses) 3,573
(1,583 ) 10,866
(6,422 )
Tax effect 911
(404 ) 2,771
(1,637 )
Net of tax amount 2,662
(1,179 ) 8,095
(4,785 )

Change in funded status of defined benefit pension plan and other benefit plans:

Reclassification adjustment for amortization of prior service costs (55 ) (55 ) (165 ) (165 )
Reclassification adjustment for amortization of net actuarial loss 72
72
218
218
Total before tax effect 17
17
53
53
Tax effect 4
4
13
13
Net of tax amount 13
13
40
40

Total other comprehensive income (loss) 2,675
(1,166 ) 8,135
(4,745 )

Comprehensive income $ 4,631
$ 5,764
$ 19,540
$ 9,151

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			(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balances at June 30, 2018	$	53	$	45,873	$	132,973		$	(12,998	)	$	(14,121	)	$	151,780
Net income	—		—		6,930			—			—			6,930
Other comprehensive loss	—		—		—			—			(1,166		)	(1,166		)
Restricted stock awards	—		69		—			—			—			69
Restricted stock units for directors' deferred compensation plan	—		10		—			—			—			10
Cash dividends declared ($0.26 per share)	—		—		(1,249		)	—			—			(1,249		)
Sale of 2,648 shares of treasury stock (a)	—		54		—			71			—			125
Balances at September 30, 2018	$	53	$	46,006	$	138,654		$	(12,927	)	$	(15,287	)	$	156,499



Balances at June 30, 2019	$	53	$	46,284	$	150,063		$	(12,062	)	$	(5,951	)	$	178,387
Balance at June 30, 2019																	Balance at June 30, 2019	$	53	$	46,284	$	150,063	$	(12,062)	$	(5,951)	$	178,387
Net income	—		—		1,956			—			—			1,956			Net income	—		—		1,956		—		—		1,956
Other comprehensive income	—		—		—			—			2,675			2,675			Other comprehensive income	—		—		—		—		2,675		2,675
Restricted stock awards	—		97		—			—			—			97			Restricted stock awards	—		97		—		—		—		97
Restricted stock units for directors' deferred compensation plan	—		10		—			—			—			10			Restricted stock units for directors' deferred compensation plan	—		10		—		—		—		10
Cash dividends declared ($0.26 per share)	—		—		(1,260		)	—			—			(1,260		)	Cash dividends declared ($0.26 per share)	—		—		(1,260)		—		—		(1,260)
Sale of 4,100 shares of treasury stock (a)	—		73		—			106			—			179

Sale of 2,485 shares of treasury stock (a)																	Sale of 2,485 shares of treasury stock (a)	—		73		—		106		—		179
Balances at September 30, 2019	$	53	$	46,464	$	150,759		$	(11,956	)	$	(3,276	)	$	182,044		Balances at September 30, 2019	$	53	$	46,464	$	150,759	$	(11,956)	$	(3,276)	$	182,044

Balances at Balance at June 30, 2020																	Balances at Balance at June 30, 2020	$	53	$	46,758	$	159,505	$	(13,869)	$	2,142	$	194,589
Net income																	Net income	—		—		5,711		—		—		5,711
Other comprehensive income																	Other comprehensive income	—		—		—		—		(500)		(500)
Restricted stock awards																	Restricted stock awards	—		125		—		—		—		125
Restricted stock units for directors' deferred compensation plan																	Restricted stock units for directors' deferred compensation plan	—		5		—		—		—		5

Cash dividends declared ($0.26 per share)																	Cash dividends declared ($0.26 per share)	—		—		(1,229)		—		—		(1,229)

Repurchase of 64,185 shares of common stock																	Repurchase of 64,185 shares of common stock	—		—		—		(1,816)		—		(1,816)
Sale of 18,202 shares of treasury stock (a)																	Sale of 18,202 shares of treasury stock (a)	—		4		—		116		—		120

Balances at September 30, 2020																	Balances at September 30, 2020	$	53	$	46,892	$	163,987	$	(15,569)	$	1,642	$	197,005

(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.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

(UNAUDITED)


(in thousands, except share and per share data)																		(in thousands, except share and per share data)	Common Stock		Additional Paid-in Capital		Retained Earnings		Treasury Stock		Accumulated Other Comprehensive Income (Loss)		Total
Balances at January 1, 2019, as reported																		Balances at January 1, 2019, as reported	$	53	$	45,820	$	143,129	$	(12,562)	$	(11,411)	$	165,029

(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, 2018, as reported	$	53	$	45,967		$	128,453		$	(14,320	)	$	(10,340	)	$	149,813
Cumulative effect of accounting change (b)	—		—			40			—			(202		)	(162		)
Balances at January 1, 2018, as adjusted	53		45,967			128,493			(14,320		)	(10,542		)	149,651
Net income	—		—			13,896			—			—			13,896
Other comprehensive loss	—		—			—			—			(4,745		)	(4,745		)
Restricted stock awards	—		301			—			—			—			301
Restricted stock units for directors' deferred compensation plan	—		57			—			—			—			57
Cash dividends declared ($0.78 per share)	—		—			(3,735		)	—			—			(3,735		)
Distribution of 6,015 shares of treasury stock for directors' compensation	—		147			—			154			—			301
Distribution of 1,784 shares of treasury stock for employee compensation	—		44			—			45			—			89
Distribution of 36,681 shares of treasury stock for deferred directors’ compensation	—		(722		)	—			940			—			218
Sale of 9,938 shares of treasury stock (a)	—		212			—			254			—			466
Balances at September 30, 2018	$	53	$	46,006		$	138,654		$	(12,927	)	$	(15,287	)	$	156,499



Balances at January 1, 2019	$	53	$	45,820		$	143,129		$	(12,562	)	$	(11,411	)	$	165,029
Net income	—		—			11,405			—			—			11,405			Net income	—		—		11,405		—		—		11,405
Other comprehensive income	—		—			—			—			8,135			8,135			Other comprehensive income	—		—		—		—		8,135		8,135
Restricted stock awards	—		296			—			—			—			296			Restricted stock awards	—		296		—		—		—		296
Restricted stock units for directors' deferred compensation plan	—		31			—			—			—			31			Restricted stock units for directors' deferred compensation plan	—		31		—		—		—		31
Distribution of 439 shares of treasury stock grants for employee restricted stock awards	—		—			—			11			—			11			Distribution of 439 shares of treasury stock grants for employee restricted stock awards	—		—		—		11		—		11
Cash dividends declared ($0.78 per share)	—		—			(3,775		)	—			—			(3,775		)	Cash dividends declared ($0.78 per share)	—		—		(3,775)		—		—		(3,775)
Distribution of 8,465 shares of treasury stock for directors' compensation	—		139			—			218			—			357			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 2,373 shares of treasury stock for employee compensation	—		39		—		61		—		100
Distribution of 2,551 shares of treasury stock for deferred directors’ compensation	—		(52		)	—			65			—			13
Distribution of 2,551 shares of treasury stock for for deferred directors' compensation																		Distribution of 2,551 shares of treasury stock for for deferred directors' compensation	—		(52)		—		65		—		13
Repurchase of 272 shares of common stock	—		—			—			(13		)	—			(13		)	Repurchase of 272 shares of common stock	—		—		—		(13)		—		(13)
Sale of 10,250 shares of treasury stock (a)	—		191			—			264			—			455			Sale of 10,250 shares of treasury stock (a)	—		191		—		264		—		455
Balances at September 30, 2019	$	53	$	46,464		$	150,759		$	(11,956	)	$	(3,276	)	$	182,044		Balances at September 30, 2019	$	53	$	46,464	$	150,759	$	(11,956)	$	(3,276)	$	182,044

Balances at January 1, 2020																		Balances at January 1, 2020	$	53	$	46,382	$	153,701	$	(11,710)	$	(5,799)	$	182,627
Net income																		Net income	—		—		14,029		—		—		14,029
Other comprehensive income																		Other comprehensive income	—		—		—		—		7,441		7,441
Restricted stock awards																		Restricted stock awards	—		431		—		—		—		431
Restricted stock units for directors' deferred compensation plan																		Restricted stock units for directors' deferred compensation plan	—		25		—		—		—		25
Distribution of 255 shares of treasury stock grants for employee restricted stock awards																		Distribution of 255 shares of treasury stock grants for employee restricted stock awards	—		(7)		—		7		—		0
Cash dividends declared ($0.78 per share)																		Cash dividends declared ($0.78 per share)	—		—		(3,743)		—		—		(3,743)
Distribution of 7,923 shares of treasury stock for directors' compensation																		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																		Distribution of 2,274 shares of treasury stock for employee compensation	—		41		—		59		—		100
Distribution of 6,426 shares of treasury stock for deferred directors’ compensation																		Distribution of 6,426 shares of treasury stock for deferred directors’ compensation	—		(180)		—		168		—		(12)
Repurchase of 186,206 shares of common stock																		Repurchase of 186,206 shares of common stock	—		—		—		(5,137)		—		(5,137)
Sale of 32,387 shares of treasury stock (a)																		Sale of 32,387 shares of treasury stock (a)	—		51		—		843		—		894
Forfeiture of 112 shares of restricted stock awards																		Forfeiture of 112 shares of restricted stock awards	—		5		—		(5)		—		0
Balances at September 30, 2020																		Balances at September 30, 2020	$	53	$	46,892	$	163,987	$	(15,569)	$	1,642	$	197,005

~~(b) Due~~

See accompanying notes to ~~implementation of ASC 2016-01. See "Adoption of New Accounting Standards" discussion in Note 1.~~unaudited consolidated financial statements.


CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)	Nine Months Ended September 30,
CASH FLOWS FROM OPERATING ACTIVITIES:	2020		2019
Net income	$	14,029	$	11,405
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization of right-of-use assets	527		541
Amortization of intangible assets	371		465

Provision for loan losses	3,989		5,684
Loss on disposal of fixed assets	7		35
Depreciation and amortization of fixed assets	2,215		2,375
Amortization of premiums on securities, net	1,003		784
Gain on sales of loans held for sale, net	(916)		(146)
Proceeds from sales of loans held for sale	17,216		7,293
Loans originated and held for sale	(17,174)		(7,958)
Net losses on sale of other real estate owned	71		87
Write-downs on other real estate owned	38		53
Net change in fair value of equity investments	33		(106)


Proceeds from sales of trading assets	24		22
Purchase of equity investments	(174)		(72)
Increase in other assets and accrued interest receivable	(10,264)		(2,233)
(Decrease) increase in accrued interest payable	(38)		94
Expense related to restricted stock units for directors' deferred compensation plan	25		31
Expense related to employee stock compensation	102		100
Expense related to employee restricted stock awards	431		296
Payments on operating leases	(500)		(467)
Increase in other liabilities	9,119		3,592
Income from bank owned life insurance	(147)		(48)
Net cash provided by operating activities	19,987		21,808
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of securities available for sale	0		15,200
Proceeds from maturities, calls, and principal paydowns on securities available for sale	39,508		37,152
Proceeds from maturities and principal collected on securities held to maturity	1,349		2,498
Purchases of securities available for sale	(142,797)		(67,522)
Purchases of securities held to maturity	(1,286)		(1,043)
Purchase of FHLBNY and FRBNY stock	(51)		(6)
Redemption of FHLBNY and FRBNY stock	0		53

Purchases of premises and equipment	(696)		(392)
Proceeds from sale of other real estate owned	253		376
Proceeds from bank owned life insurance	213		0
Net (increase) decrease in loans	(232,582)		4,411
Net cash used in investing activities	(336,089)		(9,273)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand deposits, interest-bearing demand accounts, savings accounts, and insured money market accounts	307,723		(12,330)
Increase in time deposits	44,327		19,599


Proceeds from FHLB overnight advances	245		0


Payments made on capital lease	(175)		(164)
Purchase of treasury stock	(5,137)		0
Sale of treasury stock	894		455
Cash dividends paid	(3,777)		(3,769)
Net cash provided by financing activities	344,100		3,791
Net increase in cash and cash equivalents	27,998		16,326
Cash and cash equivalents, beginning of period	121,904		129,972
Cash and cash equivalents, end of period	$	149,902	$	146,298

See accompanying notes to unaudited consolidated financial statements.

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands) Nine Months Ended
September 30,
CASH FLOWS FROM OPERATING ACTIVITIES: 2019 2018
Net income $ 11,405
$ 13,896
Adjustments to reconcile net income to net cash provided by operating activities:

Amortization of intangible assets 465
558
Provision for loan losses 5,684
3,371
Net losses on disposal of fixed assets 35
10
Depreciation and amortization of fixed assets 2,375
2,625
Amortization of right-of-use asset 541
—
Amortization of premiums on securities, net 784
910
Gains on sales of loans held for sale, net (146 ) (184 )
Proceeds from sales of loans held for sale 7,293
9,476
Loans originated and held for sale (7,958 ) (10,465 )
Changes in fair value on equity investments (106 ) (2,165 )
Proceeds from sales of equity investments 22
2,288
Net gains on securities transactions (19 ) —
Net losses on sales of other real estate owned 87
(119 )
Write-downs on OREO 53
—
Purchase of equity investments (72 ) (84 )
Expense related to restricted stock units for directors' deferred compensation plan 31
57
Expense related to employee stock compensation 100
89
Expense related to employee restricted stock awards 296
301
Income from bank-owned life insurance (48 ) (50 )
Increase in other assets and accrued interest receivable (2,233 ) (3,510 )
Payments made on operating leases (467 ) —
Increase in accrued interest payable 94
28
Increase in other liabilities 3,592
3,073
Net cash provided by operating activities 21,808
20,105

CASH FLOWS FROM INVESTING ACTIVITIES:

Proceeds from sales of securities available for sale 15,200
—
Proceeds from maturities, calls, and principal paydowns on securities available for sale 37,152
39,286
Proceeds from maturities and principal collected on securities held to maturity 2,498
988
Purchases of securities available for sale (67,522 ) —
Purchases of securities held to maturity (1,043 ) (1,410 )
Purchase of FHLBNY and FRBNY stock (6 ) (22,003 )
Redemption of FHLBNY and FRBNY stock 53
24,649
Purchases of premises and equipment (392 ) (1,492 )
Proceeds from sales of other real estate owned 376
1,576
Net (increase) decrease in loans 4,411
(13,955 )
Net cash (used in) provided by investing activities (9,273 ) 27,639

CASH FLOWS FROM FINANCING ACTIVITIES:

Net decrease in demand deposits, interest-bearing demand accounts,
savings accounts, and insured money market accounts
(12,330 ) 82,012
Net increase in time deposits 19,599
26,539
Net decrease in securities sold under agreements to repurchase —
(10,000 )
Net decrease in FHLBNY overnight advances —
(57,700 )
Repayments of FHLBNY long term advances —
(2,000 )
Payments made on finance leases (164 ) (159 )
Sale of treasury stock 455
466
Cash dividends paid (3,769 ) (3,719 )
Net cash used in financing activities 3,791
35,439
Net increase in cash and cash equivalents 16,326
83,183
Cash and cash equivalents, beginning of period 129,972
30,729
Cash and cash equivalents, end of period $ 146,298
$ 113,912

CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED

(UNAUDITED)


(in thousands)	Nine Months Ended September 30,
Supplemental disclosure of cash flow information:	2020		2019
Cash paid for:
Interest	$	3,086	$	4,651
Income taxes	3,785		3,225
Supplemental disclosure of non-cash activity:
Transfer of loans to other real estate owned	431		152
Dividends declared, not yet paid	1,229		1,260

Repurchase of common stock in lieu of employee payroll taxes	54		(13)



Distribution of treasury stock for directors' compensation	350		357
Distribution of treasury stock for deferred directors' compensation	(12)		13
Forfeiture of shares of restricted stock awards	(5)		0

See accompanying notes to unaudited consolidated financial statements.

(in thousands) Nine Months Ended
September 30,
Supplemental disclosure of cash flow information: 2019 2018
Cash paid for:
Interest $ 4,651
$ 2,650
Income taxes $ 3,225
$ 1,355
Supplemental disclosure of non-cash activity:

Transfer of loans to other real estate owned
$ 152
$ 244
Dividends declared, not yet paid $ 1,260
$ 1,249
Repurchase of common stock in lieu of employee payroll taxes $ (13 ) $ —
Distribution of treasury stock for directors' compensation $ 357
$ 301
Distribution of treasury stock for deferred directors' compensation $ 13
$ 218

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,~~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 ~~2018~~2019 Annual Report on Form 10-K for the year ended December 31, ~~2018.~~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

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

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 ~~October~~November 2019, the FASB ~~voted~~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 ~~plans~~has elected to ~~implement the standard effective~~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 COVID-19 pandemic have been in accordance with Section 4013 of the CARES Act.

InAdoption of New Accounting Standards

On January ~~2017,~~1, 2020, the ~~FASB issued~~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 ~~amendments in this ASU are effective for annual, or any interim, goodwill impairment tests in fiscal years beginning after December 15, 2019. The~~ adoption of the ASU isdid not ~~expected to~~ have a significant impact on the Corporation's consolidated financial statements.

~~Adoption of New Accounting Standards~~

~~On January 1, 2018, the Corporation adopted ASU 2014-09~~ ~~Revenue from Contracts with Customers (Topic 606)~~ and all subsequent amendments to the ASU (collectively, "ASU 606"), which creates a single framework for recognizing revenue from contracts with customers that fall within its scope and revises when it is appropriate to recognize a gain (loss) from the transfer of nonfinancial assets, such as OREO. The majority of the Corporation's revenues come from interest income and other sources, including loans, securities, and derivatives that are outside the scope of ASC 606. The Corporation's services that fall within the scope of ASC 606 are presented within non-interest income and are recognized as revenue as the Corporation satisfies its obligation to the customer. Services within the scope of ASC 606 include service charges on deposits, interchange income, wealth management fees, and the sale of OREO. The amendments allow for one of two transition methods: full retrospective or modified retrospective. The full retrospective approach requires application to all periods presented. The modified retrospective transition requires application to uncompleted contracts at the date of adoption. Periods prior to the date of adoption are not retrospectively revised, but a cumulative effect is recognized at the date of initial application on uncompleted contracts. The Corporation adopted the new revenue guidance using the modified retrospective approach. There was no significant change upon adoption of the standard, as the new standard did not materially change the way the Corporation currently records revenue for its WMG and deposit related fees at the Bank; as such, no cumulative effect adjustment was recorded. Refer to Note 10 - Revenue from Contracts with Customers for further discussion on the Corporation's accounting policies for revenue sources within the scope of ASC 606.

~~On January 1, 2018, the Corporation adopted ASU 2016-01, an amendment to~~ ~~Recognition and Measurement of Financial Assets and Financial Liabilities~~ ("ASC 825"). The objectives of the ASC 825 were (1) require equity investments to be measured at fair value, with changes in fair value recognized in net income, (2) simplify the impairment assessment of equity investments without readily determinable fair values, (3) eliminate the requirement to disclose methods and significant assumptions used to estimate fair value for financial instruments measured at amortized cost on the balance sheet, (4) require the use of the exit price notion when measuring the fair value of financial instruments, and (5) clarify the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. The Corporation adopted all provisions of this ASU using the modified retrospective method. The adjustments to opening retained earnings and accumulated other comprehensive loss related to the adoption of ASC 825 are immaterial to the financial statements.

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

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

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 - COVID-19

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, millions of people have filed claims for unemployment, and stock markets have remained volatile 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 allowance for loan 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. While most industries have and will continue to experience adverse impacts as a result of the COVID-19 pandemic, Management has designated certain industries as most impacted by COVID-19. As of September 30, 2020, these "highly impacted" industries total $248.4 million, or 27.4% of the Bank's commercial loan portfolio. For a discussion of the effect of COVID-19 on our business, see pages 46-47 of this Form 10-Q.

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~~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 ~~4,871~~4,773 and ~~4,834~~4,871weighted average shares outstanding for the ~~three-month~~three month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Earnings per share were computed by dividing net income by ~~4,866~~4,836 and ~~4,828~~4,866 weighted average shares outstanding for the ~~nine-month~~nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. There were no0 common stock equivalents during the three and ~~nine-month~~nine month periods ended September 30, ~~2019~~2020 or ~~2018.~~2019.

NOTE 3SECURITIES

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


	September 30, 2020
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value

Mortgage-backed securities, residential	$	317,087	$	9,385	$	204	$	326,268
Obligations of states and political subdivisions	40,694		2,566		0		43,260
Corporate bonds and notes	7,000		64		0		7,064
SBA loan pools	19,766		47		105		19,708

Total	$	384,547	$	12,062	$	309	$	396,300

September 30, 2019
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Mortgage-backed securities, residential $ 201,152
$ 2,757
$ 385
$ 203,524
Obligations of states and political subdivisions 45,122
2,148
—
47,270
Corporate bonds and notes 250
—
—
250
SBA loan pools 16,377
144
36
16,485
Total $ 262,901
$ 5,049
$ 421
$ 267,529


	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		0		42,845
Corporate bonds and notes	250		0		0		250
SBA loan pools	15,712		95		46		15,761


Total	$	282,256	$	3,146	$	1,312	$	284,090

December 31, 2018
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 5,489
$ 10
$ 27
$ 5,472
Mortgage-backed securities, residential 189,111
146
6,065
183,192
Obligations of states and political subdivisions 44,390
70
308
44,152
Corporate bonds and notes 249
—
2
247
SBA loan pools 9,257
—
62
9,195
Total $ 248,496
$ 226
$ 6,464
$ 242,258

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


	September 30, 2020
	Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	409	$	0	$	0	$	409
Time deposits with other financial institutions	2,638		46		0		2,684
Total	$	3,047	$	46	$	0	$	3,093


	September 30, 2019									December 31, 2019
	Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value			Amortized Cost		Unrecognized Gains		Unrecognized Losses		Estimated Fair Value
Obligations of states and political subdivisions	$	1,125	$	—	$	—	$	1,125	Obligations of states and political subdivisions	$	1,045	$	0	$	0	$	1,045
Time deposits with other financial institutions	2,295		23		—		2,318		Time deposits with other financial institutions	2,070		24		0		2,094
Total	$	3,420	$	23	$	—	$	3,443	Total	$	3,115	$	24	$	0	$	3,139

December 31, 2018
Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value
Obligations of states and political subdivisions $ 3,020
$ —
$ —
$ 3,020
Time deposits with other financial institutions 1,855
—
17
1,838
Total $ 4,875
$ —
$ 17
$ 4,858

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


	September 30, 2020
	Available for Sale				Held to Maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Within one year	$	0	$	0	$	609	$	613
After one, but within five years	27,232		28,769		2,438		2,480
After five, but within ten years	19,703		20,755		0		0
After ten years	759		800		0		0
	47,694		50,324		3,047		3,093
Mortgage-backed securities, residential	317,087		326,268		0		0

SBA loan pools	19,766		19,708		0		0
Total	$	384,547	$	396,300	$	3,047	$	3,093

September 30, 2019
Available for Sale Held to Maturity
Amortized
Cost Fair
Value Amortized
Cost Fair
Value
Within one year $ 3,413
$ 3,421
$ 1,340
$ 1,340
After one, but within five years 7,464
7,722
2,080
2,103
After five, but within ten years 33,446
35,285
—
—
After ten years 1,049
1,092
—
—
45,372
47,520
3,420
3,443
Mortgage-backed securities, residential 201,152
203,524
—
—
SBA loan pools 16,377
16,485
—
—
Total $ 262,901
$ 267,529
$ 3,420
$ 3,443

There were no0 proceeds from sales and calls of securities resulting in gains or losses for the three months ended September 30, ~~2019~~2020 and ~~2018.~~2019.

The proceeds from sales and calls of securities resulting in gains or losses for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 are listed below (in thousands):


	2019			2018			2020		2019
Proceeds	$	15,200		$	—	Proceeds	$	0	$	15,200
Gross gains	79			—		Gross gains	0		79
Gross losses	(60		)	—		Gross losses	0		(60)
Tax expense	5			—		Tax expense	0		5

The following tables summarize the investment securities available for sale with unrealized losses at September 30, ~~2019~~2020 and December 31, ~~2018~~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
September 30, 2020	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses

Mortgage-backed securities, residential	$	77,898	$	202	$	1,056	$	2	$	78,954	$	204


SBA loan pools	8,657		56		3,665		49		12,322		105

Total temporarily impaired securities	$	86,555	$	258	$	4,721	$	51	$	91,276	$	309


														Less than 12 months				12 months or longer				Total
December 31, 2019													December 31, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
	Less than 12 months				12 months or longer				Total
September 30, 2019	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Mortgage-backed securities, residential	$	—	$	—	$	67,646	$	385	$	67,646	$	385	Mortgage-backed securities, residential	$	71,506	$	791	$	54,343	$	475	$	125,849	$	1,266

SBA loan pools	3,353		1		1,525		35		4,878		36		SBA loan pools	3,014		9		1,405		37		4,419		46
Total temporarily impaired securities	$	3,353	$	1	$	69,171	$	420	$	72,524	$	421	Total temporarily impaired securities	$	74,520	$	800	$	55,748	$	512	$	130,268	$	1,312

September 30, 2019 December 31, 2018
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 $ 184
$ 184
$ —
$ 345
$ 346
$ —
Commercial mortgages:

Construction 262
263
—
307
308
—
Commercial mortgages, other 3,305
3,306
—
4,007
3,935
—
Residential mortgages 436
407
—
424
402
—
Consumer loans:

Home equity lines and loans 176
153
—
54
55
—
With an allowance recorded:

Commercial and agricultural:

Commercial and industrial 6,164
6,165
6,141
1,780
1,782
1,743
Commercial mortgages:

Commercial mortgages, other 10,221
10,139
2,519
1,902
1,903
446
Total $ 20,748
$ 20,617
$ 8,660
$ 8,819
$ 8,731
$ 2,189

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 and ~~nine-month~~nine month periods ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended September 30, 2020				Three Months Ended September 30, 2019				Nine Months Ended September 30, 2020				Nine Months Ended September 30, 2019
With no related allowance recorded:	Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)		Average Recorded Investment		Interest Income Recognized (1)
Commercial and agricultural:
Commercial and industrial	$	1,239	$	2	$	228	$	0	$	679	$	2	$	277	$	1
Commercial mortgages:
Construction	213		2		270		2		226		6		285		7
Commercial mortgages, other	4,515		0		3,372		3		3,938		0		3,630		9
Residential mortgages	1,224		7		396		36		873		17		396		40
Consumer loans:
Home equity lines & loans	650		2		156		3		399		5		134		4
With an allowance recorded:
Commercial and agricultural:
Commercial and industrial	5,804		2		3,983		0		5,867		4		2,508		0
Commercial mortgages:
Commercial mortgages, other	2,229		8		10,240		0		3,645		16		6,881		0
Consumer loans:
Home equity lines and loans	175		0		0		0		88		0		0		0
Total	$	16,049	$	23	$	18,645	$	44	$	15,715	$	50	$	14,111	$	61

Three Months Ended
September 30, 2019 Three Months Ended
September 30, 2018 Nine Months Ended
September 30, 2019 Nine Months Ended
September 30, 2018
With no related allowance recorded: Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1) Average Recorded Investment Interest Income Recognized
(1)
Commercial and agricultural:
Commercial and industrial $ 228
$ —
$ 526
$ 1
$ 277
$ 1
$ 673
$ 11
Commercial mortgages:

Construction 270
2
330
3
285
7
344
8
Commercial mortgages, other 3,372
3
4,339
5
3,630
9
4,257
16
Residential mortgages 396
36
413
2
396
40
420
6
Consumer loans:

Home equity lines & loans 156
3
59
1
134
4
61
2
With an allowance recorded:

Commercial and agricultural:

Commercial and industrial 3,983
—
1,573
1
2,508
—
3,359
2
Commercial mortgages:

Commercial mortgages, other 10,240
—
2,040
1
6,881
—
2,419
4
Total $ 18,645
$ 44
$ 9,280
$ 14
$ 14,111
$ 61
$ 11,533
$ 49

(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 September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Non-accrual				Loans Past Due 90 Days or More and Still Accruing
	September 30, 2020		December 31, 2019		September 30, 2020		December 31, 2019
Commercial and agricultural:
Commercial and industrial	$	6,272	$	6,147	$	0	$	7

Commercial mortgages:
Construction	63		80		0		0
Commercial mortgages, other	6,027		8,407		0		0
Residential mortgages	1,742		2,155		0		0
Consumer loans:

Home equity lines and loans	1,017		641		0		0
Indirect consumer loans	604		571		0		0
Direct consumer loans	1		7		0		0
Total	$	15,726	$	18,008	$	0	$	7

Non-accrual Loans Past Due 90 Days or More and Still Accruing
September 30, 2019 December 31, 2018 September 30, 2019 December 31, 2018
Commercial and agricultural:
Commercial and industrial $ 6,335
$ 2,048
$ 53
$ 10
Commercial mortgages:
Construction 87
109
—
—
Commercial mortgages, other 13,250
5,529
—
—
Residential mortgages 2,455
2,655
—
—
Consumer loans:
Credit cards —
—
—
9
Home equity lines and loans 722
1,183
—
—
Indirect consumer loans 613
693
—
—
Direct consumer loans 6
37
—
—
Total $ 23,468
$ 12,254
$ 53
$ 19

The following tables present the aging of the recorded investment in loans as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 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	$	2,433	$	1	$	3,982	$	6,416	$	398,913	$	405,329
Agricultural	0		0		0		0		684		684
Commercial mortgages:
Construction	0		0		0		0		54,523		54,523
Commercial mortgages, other	11,077		262		1,878		13,217		625,195		638,412
Residential mortgages	631		9		434		1,074		226,910		227,984
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	169		30		147		346		81,424		81,770
Indirect consumer loans	753		190		213		1,156		120,564		121,720
Direct consumer loans	18		187		1		206		12,900		13,106
Total	$	15,081	$	679	$	6,655	$	22,415	$	1,521,113	$	1,543,528

September 30, 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 $ 1,782
$ 249
$ 302
$ 2,333
$ 225,177
$ 227,510
Agricultural —
—
—
—
215
215
Commercial mortgages:

Construction 279
—
—
279
48,490
48,769
Commercial mortgages, other 2,176
402
1,993
4,571
600,065
604,636
Residential mortgages 1,906
674
1,258
3,838
180,731
184,569
Consumer loans:

Home equity lines and loans 36
15
496
547
92,205
92,752
Indirect consumer loans 1,356
305
349
2,010
134,830
136,840
Direct consumer loans 63
14
4
81
14,948
15,029
Total $ 7,598
$ 1,659
$ 4,402
$ 13,659
$ 1,296,661
$ 1,310,320


	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	0		0		0		0		274		274
Commercial mortgages:
Construction	0		0		0		0		44,082		44,082
Commercial mortgages, other	440		277		2,165		2,883		603,605		606,488
Residential mortgages	1,016		803		956		2,775		186,099		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	353		151		149		653		91,412		92,065
Indirect consumer loans	1,546		377		355		2,278		133,088		135,366
Direct consumer loans	32		11		6		49		15,057		15,106
Total	$	4,672	$	1,668	$	8,029	$	14,370	$	1,298,533	$	1,312,903

December 31, 2018
30 - 59 Days Past Due 60 - 89 Days Past Due 90 Days or More Past Due Total Past Due Loans Not Past Due Total
Commercial and agricultural:
Commercial and industrial $ 284
$ 61
$ 71
$ 416
$ 202,667
$ 203,083
Agricultural 16
—
—
16
313
329
Commercial mortgages:

Construction —
—
—
—
54,626
54,626
Commercial mortgages, other 6,273
158
169
6,600
601,762
608,362
Residential mortgages 2,204
516
1,026
3,746
179,479
183,225
Consumer loans:

Credit cards 1
3
9
13
1,437
1,450
Home equity lines and loans 279
97
730
1,106
97,360
98,466
Indirect consumer loans 1,511
319
436
2,266
147,540
149,806
Direct consumer loans 120
53
31
204
16,058
16,262
Total $ 10,688
$ 1,207
$ 2,472
$ 14,367
$ 1,301,242
$ 1,315,609

Troubled Debt Restructurings:

A modification of a loan may result in classification as a TDR when a borrower is experiencing financial difficulty and the modification constitutes a concession. The Corporation offers various types of modifications which may involve a change in the schedule of payments, a reduction in the interest rate, an extension of the maturity date, extending the maturity date at an interest rate lower than the current market rate for new debt with similar risk, requesting additional collateral, releasing collateral for consideration, substituting or adding a new borrower or guarantor, a permanent reduction of the recorded investment in the loan or a permanent reduction of the interest on the loan. 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 September 30, 2020, in conformance with Section 4013 of the CARES Act, the Corporation modified a total of 1,125 commercial and consumer loans represented by a total loan balance of $233.6 million. As of

September 30, 2020, 74 loans totaling $45.9 million remained in modified status, of which 44 loans totaling $32.8 million had been modified more than once.

As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation has a recorded investment in TDRs of ~~$9.3~~$10.8 million and ~~$6.8~~$9.0 million, respectively. There were specific reserves of ~~$2.4~~$0.6 million and ~~$0.9~~$2.3 million allocated for TDRs at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. As of September 30, 2020, TDRs totaling $2.8 million were accruing interest under the modified terms and $8.0 million were on non-accrual status. As of December 31, 2019, TDRs totaling $0.9 million were accruing interest under the modified terms and ~~$8.4 million were on non-accrual status. As of December 31, 2018, TDRs totaling $0.8 million were accruing interest under the modified terms and $6.0~~$8.1 million were on non-accrual status. The Corporation ~~had~~has committed ~~no additional amounts as of both September 30, 2019~~$37 thousand and ~~December 31, 2018,~~$17 thousand to customers with outstanding loans that are classified as ~~TDRs.~~TDRs as of September 30, 2020 and December 31, 2019, respectively.

During the three months ended September 30, 2019, the terms of a loan was modified as a TDR, while there were no loans modified as TDRs during the three months ended September 30, 2018. The modification of the terms of one commercial real estate term loan during the three months ended September 30, 2019 included a reduction of the scheduled amortized payments for greater than a three month period.

~~During the nine months ended September 30, 2019~~2020 and ~~2018,~~2019, the terms of certain loans were modified as TDRs. In addition to the modifications noted above, during the nine months ended September 30, 2020 modifications included 2 commercial and industrial loans where deferral of payments were granted and both loans were risk rated Substandard while 1 loan was in non-accrual status prior to the modification. The modifications of 4 commercial mortgage loans included the deferral of payments with 3 of the loans risk rated Substandard and in non-accrual status, 3 of the borrowers were over one year past due in real estate taxes and 2 of loans were over 30 days past due in payments. The modifications of 3 residential mortgages included the deferral of payments while all 3 were in non-accrual status prior to the modifications, 2 were risk rated Substandard and 1 was over thirty days past due in payments. The modifications of 3 home equity lines and loans included the deferral of payments while all 3 loans were risk rated Substandard and in non-accrual status prior to the modifications. In addition to the modification noted above, the modification of the terms of ~~one~~1 home equity loan during the nine months ended September 30, 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 modification of the terms of one commercial and industrial term loan during the nine months ended September 30, 2018 included an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.

The following tables present loans by class modified as TDRs that occurred during the three ~~months~~month period ended September 30, ~~2019~~2020 and ~~2018~~September 30, 2019 (dollars in thousands):


September 30, 2020	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	2	$	1,138	$	1,138
Agricultural
Commercial mortgages:
Commercial mortgages, other	0	0		0
Residential mortgages	1	320		320
Consumer loans:
Home equity lines and loans	0	0		0
Total	3	$	1,458	$	1,458

The TDRs described above did not increase the allowance for loan losses and resulted in 0 charge-offs during the three month period ended September 30, 2020.


September 30, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:



Commercial mortgages:
Commercial mortgages, other	1	$	4,223	$	4,223



Total	1	$	4,223	$	4,223

September 30, 2019 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:
Commercial mortgages, other 1
$ 4,223
$ 4,223
Total 1
$ 4,223
$ 4,223

The TDR described above did not increase the allowance for loan losses and resulted in no0 charge-offs during the three month period ended September 30, 2019.

The following tables present loans by class modified as TDRs that occurred during the nine month period ended September 30, 2020 and September 30, 2019 (dollars in thousands):


September 30, 2020	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial and agricultural:
Commercial and industrial	4	$	2,068	$	2,068

Commercial mortgages:
Commercial mortgages, other	4	1,297		1,297
Residential mortgages	4	997		997
Consumer loans:
Home equity lines and loans	3	738		738
Total	15	$	5,100	$	5,100

The TDRs described above increased the allowance for loan losses by $142 thousand and resulted in 0 charge-offs during the nine months ended September 30, ~~2019 and 2018 (dollars in thousands):~~2020.


September 30, 2019	Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:



Commercial mortgages:
Commercial mortgages, other	1	$	4,223	$	4,223

Consumer loans:
Home equity lines and loans	1	137		137
Total	2	$	4,360	$	4,360

September 30, 2019 Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment
Troubled debt restructurings:
Commercial mortgages:

Commercial mortgages 1
$ 4,223
$ 4,223
Home equity lines and loans 1
137
137
Total 2
$ 4,360
$ 4,360

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

The TDRs described above increased the allowance for loan losses by $1.7 million and resulted in no0 charge-offs during the nine month period ended September 30, 2019. ~~The TDRs described above did not increase the allowance for loan losses and resulted in no charge-offs during the nine months ended September 30, 2018.~~

A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms. There were no0 payment defaults on any loans previously modified as TDRs within twelve months following the modification during the three and nine month periods ended September 30, ~~2019~~2020 and ~~2018.~~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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the risk category of the recorded investment of loans by class of loans is as follows (in thousands):


	September 30, 2020
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	0	$	392,378	$	2,779	$	4,966	$	5,206	$	405,329
Agricultural	0		684		0		0		0		684
Commercial mortgages:
Construction	0		51,126		610		2,787		0		54,523
Commercial mortgages	0		610,687		6,732		18,755		2,238		638,412
Residential mortgages	226,242		0		0		1,742		0		227,984
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	80,753		0		0		1,017		0		81,770
Indirect consumer loans	121,116		0		0		604		0		121,720
Direct consumer loans	13,105		0		0		1		0		13,106
Total	$	441,216	$	1,054,875	$	10,121	$	29,872	$	7,444	$	1,543,528


	December 31, 2019
	Not Rated		Pass		Special Mention		Substandard		Doubtful		Total
Commercial and agricultural:
Commercial and industrial	$	0	$	208,552	$	5,915	$	10,361	$	5,820	$	230,648
Agricultural	0		274		0		0		0		274
Commercial mortgages:
Construction	0		40,304		168		3,610		0		44,082
Commercial mortgages	0		577,266		12,451		12,356		4,415		606,488
Residential mortgages	186,719		0		0		2,155		0		188,874
Consumer loans:
Credit cards	—		—		—		—		—		—
Home equity lines and loans	91,424		0		0		641		0		92,065
Indirect consumer loans	134,795		0		0		571		0		135,366
Direct consumer loans	15,099		0		0		7		0		15,106
Total	$	428,037	$	826,396	$	18,534	$	29,701	$	10,235	$	1,312,903

September 30, 2019
Not Rated Pass Special Mention Substandard Doubtful Total
Commercial and agricultural:
Commercial and industrial $ —
$ 210,620
$ 4,250
$ 10,997
$ 1,643
$ 227,510
Agricultural —
215
—
—
—
215
Commercial mortgages:

Construction —
48,682
—
87
—
48,769
Commercial mortgages —
572,663
10,976
16,522
4,475
604,636
Residential mortgages 182,114
—
—
2,455
—
184,569
Consumer loans:

Home equity lines and loans 92,030
—
—
722
—
92,752
Indirect consumer loans 136,227
—
—
613
—
136,840
Direct consumer loans 15,023
—
—
6
—
15,029
Total $ 425,394
$ 832,180
$ 15,226
$ 31,402
$ 6,118
$ 1,310,320

December 31, 2018
Not Rated Pass Special Mention Substandard Doubtful Total
Commercial and agricultural:
Commercial and industrial $ —
$ 190,666
$ 4,452
$ 6,222
$ 1,743
$ 203,083
Agricultural —
329
—
—
—
329
Commercial mortgages:

Construction —
54,517
—
109
—
54,626
Commercial mortgages —
574,221
16,830
15,948
1,363
608,362
Residential mortgages 180,570
—
—
2,655
—
183,225
Consumer loans:

Credit cards 1,450
—
—
—
—
1,450
Home equity lines and loans 97,283
—
—
1,183
—
98,466
Indirect consumer loans 149,113
—
—
693
—
149,806
Direct consumer loans 16,225
—
—
37
—
16,262
Total $ 444,641
$ 819,733
$ 21,282
$ 26,847
$ 3,106
$ 1,315,609

The Corporation considers the performance of the loan portfolio and its impact on the allowance for loan losses. For residential and consumer loan classes, the Corporation also evaluates credit quality based on the aging status of the loan, which was previously presented, and by payment activity. The following tables present the recorded investment in residential and consumer loans based on payment activity as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2020
			Consumer Loans
	Residential Mortgages		Home Equity Lines and Loans		Indirect Consumer Loans		Other Direct Consumer Loans
Performing	$	226,242	$	80,753	$	121,117	$	13,104
Non-Performing	1,742		1,017		604		1
	$	227,984	$	81,770	$	121,721	$	13,105


	December 31, 2019
			Consumer Loans
	Residential Mortgages		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

September 30, 2019
Consumer Loans
Residential Mortgages Credit Card Home Equity Lines and Loans Indirect Consumer Loans Other Direct Consumer Loans
Performing $ 182,114
$ —
$ 92,030
$ 136,227
$ 15,023
Non-Performing 2,455
—
722
613
6
$ 184,569
$ —
$ 92,752
$ 136,840
$ 15,029

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

NOTE 5FAIR VALUE

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

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

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

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

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

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

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

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

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

Appraisals for both ~~collateral-dependent~~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 September 30, 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	$	326,268	$	0	$	326,268	$	0

Obligations of states and political subdivisions	43,260		0		43,260		0
Corporate bonds and notes	7,064		0		7,064		0
SBA loan pools	19,708		0		19,708		0
Total available for sale securities	$	396,300	$	0	$	396,300	$	0

Equity investments, at fair value	$	2,291	$	1,629	$	0	$	662
Derivative assets	16,886		0		16,886		0

Financial Liabilities:
Derivative liabilities	$	17,097	$	0	$	16,886	$	211

Fair Value Measurement at September 30, 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 $ 203,524
$ —
$ 203,524
$ —
Obligations of states and political subdivisions 47,270
—
47,270
—
Corporate bonds and notes 250
—
250
—
SBA loan pools 16,485
—
16,485
—
Total available for sale securities $ 267,529
$ —
$ 267,529
$ —

Equity investments, at fair value $ 1,231
$ 1,231
$ —
$ —
Derivative assets 7,885
—
7,885
—

Financial Liabilities:
Derivative liabilities $ 8,311
$ —
$ 7,885
$ 426

There were no0 transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 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	$	0	$	225,234	$	0

Obligations of states and political subdivisions	42,845		0		42,845		0
Corporate bonds and notes	250		0		250		0
SBA loan pools	15,761		0		15,761		0


Total available for sale securities	$	284,090	$	0	$	284,090	$	0

Equity investments, at fair value	$	1,442	$	1,442	$	0	$	0
Derivative assets	6,466		0		6,466		0

Financial Liabilities:
Derivative liabilities	$	6,831	$	0	$	6,466	$	365

There were 0 transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2019.

Fair Value Measurement at December 31, 2018 Using
Financial Assets: Fair Value
Quoted Prices in Active Markets for Identical Assets
(Level 1)

Significant Other Observable Inputs
(Level 2)
Significant Unobservable Inputs
(Level 3)
Obligations of U.S. Government and U.S. Government sponsored enterprises $ 5,472
$ —
$ 5,472
$ —
Mortgage-backed securities, residential 183,192
—
183,192
—
Obligations of states and political subdivisions 44,152
—
44,152
—
Corporate bonds and notes 247
—
247
—
SBA loan pools 9,195
—
9,195
—
Total available for sale securities $ 242,258
$ —
$ 242,258
$ —

Equity investments, at fair value $ 1,075
$ 1,075
$ —
$ —
Derivative assets 3,142
—
3,142
—

Financial Liabilities:
Derivative liabilities $ 3,282
$ —
$ 3,142
$ 140

~~There were no transfers between Level 1 and Level 2 during the three and nine month periods ended September 30, 2018.~~

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the ~~three-month~~three month periods ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


		Assets (Liabilities)
	Derivative Liabilities
		September 30, 2020		September 30, 2019
Balance of recurring Level 3 assets at July 1		$	(211)	$	(365)
Derivative instruments entered into		0		(7)
Total gains or losses for the period:
Included in earnings - other non-interest income		0		(54)
Included in other comprehensive income		0		0
Transfers out of Level 3		0		0
Balance of recurring Level 3 assets at September 30		$	(211)	$	(426)

Assets (Liabilities)
Corporate Bonds and Notes Derivative Liabilities
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Balance of recurring Level 3 assets at July 1 $ —
$ —
$ (365 ) $ (18 )
Derivative instruments entered into —
—
(7 ) —
Total gains or losses for the period:
Included in earnings - other non-interest income —
—
(54 ) 5
Included in other comprehensive income —
—
—
—
Transfers out of Level 3 —
—
—
—
Balance of recurring Level 3 assets at September 30 $ —
$ —
$ (426 ) $ (13 )

The table below presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the nine month periods ended September 30, ~~2019~~2020 and September 30, ~~2018~~2019 (in thousands):


		Assets (Liabilities)
	Derivative Liabilities
		September 30, 2020		September 30, 2019
Balance of recurring Level 3 assets at January 1		$	(365)	$	(140)
Derivative instruments entered into		(15)		(42)
Total gains or losses for the period:
Included in earnings - other non-interest income		169		(244)
Included in other comprehensive income		0		0
Transfers out of Level 3		0		0
Balance of recurring Level 3 assets at September 30		$	(211)	$	(426)

Assets (Liabilities)
Corporate Bonds and Notes Derivative Liabilities
September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018
Balance of recurring Level 3 assets at January 1 $ —
$ —
$ (140 ) $ (75 )
Derivative instruments entered into —
—
(42 ) —
Total gains or losses for the period:
Included in earnings - other non-interest income —
—
(244 ) 62
Included in other comprehensive income —
—
—
—
Transfers out of Level 3 —
—
—
—
Balance of recurring Level 3 assets at September 30 $ —
$ —
$ (426 ) $ (13 )

The following table presents information related to Level 3 recurring fair value measurements at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

Description

Fair Value at September 30,
2020

Valuation Technique

Unobservable Inputs

Range [Weighted Average] at September 30, 2020

Derivative liabilities

211

Historical trend

Credit default rate

0.59% - 6.59%

[1.18%]

Description

Fair Value at December 31,
2019

Valuation Technique

Unobservable Inputs

Range [Weighted Average] at December 31, 2019

Derivative liabilities

365

Historical trend

Credit default rate

7.30% - 7.30%

[7.30%]

Description Fair Value at
September 30,
2019 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at September 30, 2019
Derivative liabilities $ 426
Historical trend Credit default rate 5.65% - 5.65%
[5.65%]

Description Fair Value at
December 31,
2018 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at December 31, 2018
Derivative liabilities $ 140
Historical trend Credit default rate 7.46% - 7.46%
[7.46%]

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


			Fair Value Measurement at September 30, 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)
Impaired Loans:


Commercial mortgages:
Commercial mortgages	$	512	$	0	$	0	$	512


Total impaired loans	$	512	$	0	$	0	$	512
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	416	$	0	$	0	$	416
Residential mortgages	126		0		0		126
Consumer loans:
Home equity lines and loans	44		0		0		44
Total other real estate owned, net	$	586	$	0	$	0	$	586

Fair Value Measurement at September 30, 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 $ 7,627
$ —
$ —
$ 7,627
$ (1,673 )
Total impaired loans $ 7,627
$ —
$ —
$ 7,627
$ (1,673 )
Other real estate owned:

Commercial mortgages:

Commercial mortgages $ 62
$ —
$ —
$ 62
$ —
Residential mortgages 62
—
—
62
—
Consumer loans:

Home equity lines and loans 86
—
—
86
—
Total other real estate owned, net $ 210
$ —
$ —
$ 210
$ —


			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)
Impaired Loans:


Commercial mortgages:
Commercial mortgages	$	1,554	$	0	$	0	$	1,554


Total impaired loans	$	1,554	$	0	$	0	$	1,554
Other real estate owned:
Commercial mortgages:
Commercial mortgages	$	111	$	0	$	0	$	111
Residential mortgages	284		0		0		284
Consumer loans:
Home equity lines and loans	122		0		0		122
Total other real estate owned, net	$	517	$	0	$	0	$	517

Fair Value Measurement at December 31, 2018 Using
Financial Assets: Fair Value Quoted Prices in Active Markets for Identical Assets
(Level 1) Significant Other Observable Inputs
(Level 2) Significant Unobservable Inputs
(Level 3) Total Gains (Losses)
Impaired Loans:
Commercial mortgages:
Commercial mortgages $ 1,456
$ —
$ —
$ 1,456
$ 240
Total impaired loans $ 1,456
$ —
$ —
$ 1,456
$ 240
Other real estate owned:

Commercial mortgages:

Commercial mortgages $ 213
$ —
$ —
$ 213
$ —
Residential mortgages 204
—
—
204
—
Consumer loans:

Home equity lines and loans 157
—
—
157
(14 )
Total other real estate owned, net $ 574
$ —
$ —
$ 574
$ (14 )

The following tables present information related to Level 3 non-recurring fair value measurement at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):

Description

Fair Value at September 30, 2020

Valuation Technique

Unobservable Inputs

Range [Weighted Average] at September 30, 2020

Impaired loans:

Commercial mortgages:

Commercial mortgages

512

Sales comparison

Discount to appraised value

13.30% - 13.30%

[13.30%]

512

OREO:

Commercial mortgages:

Commercial mortgages

416

Sales comparison

Discount to appraised value

42.28% - 42.28%

[42.28%]

Residential mortgages

126

Sales comparison

Discount to appraised value

20.80% - 20.80%

[20.80%]

Consumer loans:

Home equity lines and loans

Sales comparison

Discount to appraised value

20.80% - 20.80%

[20.80%]

586

Description Fair Value at September 30, 2019 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at
September 30, 2019
Impaired loans:
Commercial mortgages:
Commercial mortgages $ 7,627
Sales comparison Discount to appraised value 10.00% - 15.43%
[10.13%]
$ 7,627

OREO:
Commercial mortgages:
Commercial mortgages $ 62
Sales comparison Discount to appraised value 22.00% - 22.00%
[22.00%]
Residential mortgages 62
Sales comparison Discount to appraised value 20.80% -20.80%
[20.80%]
Consumer loans:
Home equity lines and loans 86
Sales comparison Discount to appraised value 20.80% - 20.80%
[20.80%]
$ 210

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%]

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

Description Fair Value at December 31, 2018 Valuation Technique Unobservable Inputs Range
[Weighted Average]
at
December 31, 2018
Impaired loans:
Commercial and agricultural:
Commercial and industrial $ 1,456
Sales comparison Discount to appraised value 11.76% - 11.76%
[11.76%]
$ 1,456

OREO:
Commercial mortgages:
Commercial mortgages $ 213
Sales comparison Discount to appraised value 10.00% - 24.80%
[17.72%]
Residential mortgages 204
Sales comparison Discount to appraised value 20.80% - 39.78%
[22.94%]
Consumer loans:
Home equity lines and loans 157
Sales comparison Discount to appraised value 20.80% - 20.80%
[20.80%]
$ 574

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts and estimated fair values of other financial instruments, at September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, are as follows (in thousands):


	September 30, 2019											September 30, 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)		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	$	36,497	$	36,497	$	—	$	—	$	36,497	Cash and due from financial institutions	$	35,327	$	35,327	$	0	$	0	$	35,327
Interest-earning deposits in other financial institutions	109,801		109,801		—		—		109,801		Interest-earning deposits in other financial institutions	114,575		114,575		0		0		114,575
Equity investments	834		834		—		—		834		Equity investments	2,291		1,629		0		662		2,291
Securities held to maturity	3,420		—		2,318		1,125		3,443		Securities held to maturity	3,047		0		2,684		409		3,093
FHLBNY and FRBNY stock	3,091		—		—		—		N/A		FHLBNY and FRBNY stock	3,150		0		0		0		N/A
Loans, net and loans held for sale	1,284,028		—		—		1,262,536		1,262,536		Loans, net and loans held for sale	1,515,962		0		0		1,522,274		1,522,274
Accrued interest receivable	4,714		89		943		3,682		4,714		Accrued interest receivable	6,230		1		1,194		5,035		6,230
Derivative Assets											Derivative Assets	16,886		0		16,886		0		16,886

Financial liabilities:											Financial liabilities:
Deposits:											Deposits:
Demand, savings, and insured money market accounts	$	1,406,681	$	1,406,681	$	—	$	—	$	1,406,681	Demand, savings, and insured money market accounts	$	1,718,686	$	1,718,686	$	0	$	0	$	1,718,686
Time deposits	169,825		—		172,617		—		172,617		Time deposits	205,503		0		208,491		0		208,491

Accrued interest payable	326		30		296		—		326		Accrued interest payable	260		10		250		0		260
Derivative Liabilities											Derivative Liabilities	17,097		0		16,886		211		17,097

(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, 2018											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)		Financial assets:	Carrying Amount		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Estimated Fair Value (1)
Cash and due from financial institutions	$	33,040	$	33,040	$	—	$	—	$	33,040	Cash and due from financial institutions	$	25,203	$	25,203	$	0	$	0	$	25,203
Interest-earning deposits in other financial institutions	96,932		96,932		—		—		96,932		Interest-earning deposits in other financial institutions	96,701		96,701		0		0		96,701
Equity investments	834		834		—		—		834		Equity investments	2,174		2,174		0		0		2,174
Securities available for sale											Securities available for sale	284,090		0		284,090		0		284,090
Securities held to maturity	4,875		—		1,838		3,020		4,858		Securities held to maturity	3,115		0		2,094		1,045		3,139
FHLBNY and FRBNY stock	3,138		—		—		—		N/A		FHLBNY and FRBNY stock	3,099		0		0		0		N/A
Loans, net and loans held for sale	1,293,464		—		—		1,287,495		1,287,495		Loans, net and loans held for sale	1,286,926		0		0		1,285,215		1,285,215

Accrued interest receivable	4,480		80		697		3,703		4,480		Accrued interest receivable	4,633		63		885		3,685		4,633
Derivative Asset											Derivative Asset	6,466		0		6,466		0		6,466

Financial liabilities:											Financial liabilities:
Deposits:											Deposits:
Demand, savings, and insured money market accounts	$	1,419,011	$	1,419,011	$	—	$	—	$	1,419,011	Demand, savings, and insured money market accounts	$	1,410,962	$	1,410,962	$	0	$	0	$	1,410,962
Time deposits	150,226		—		150,938		—		150,938		Time deposits	161,176		0		163,761		0		163,761

Accrued interest payable	232		26		206		—		232		Accrued interest payable	299		27		272		0		299
Derivative Liabilities											Derivative Liabilities	6,831		0		6,466		365		6,831

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 September 30, ~~2019,~~2020, the weighted average remaining lease term was ~~11.4~~10.5 years with a weighted average discount rate of 3.39%. Rent expense was $0.2 million for the three months ended September 30, ~~2019.~~2020. Rent expense was ~~$0.5~~$0.7 million for the nine months ended September 30, ~~2019.~~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 September 30, ~~2019~~2020 and December 31, ~~2018~~2019 consist of the following (in thousands):


	September 30, 2020		December 31, 2019
Operating lease right-of-use asset	$	8,713	$	8,713
Less: accumulated amortization	(1,239)		(712)
Operating lease right-of-use-assets, net	$	7,474	$	8,001

September 30, 2019 December 31, 2018
Operating lease right-of-use asset $ 8,592
$ —
Less: accumulated amortization (541 ) —
Operating lease right-of-use-assets, net $ 8,051
$ —

The following is a schedule by year of the undiscounted cash flows of the operating lease liabilities, excluding CAM charges, as of September 30, ~~2019~~2020 (in thousands):


Year	Amount
2020	$	233
2021	930
2022	869
2023	889
2024	880
2025 and thereafter	5,347
Total minimum lease payments	9,148
Less: amount representing interest	(1,564)
Present value of net minimum lease payments	$	7,584

Year Amount
2019 $ 231
2020 932
2021 899
2022 831
2023 851
2024 and thereafter 6,091
Total minimum lease payments 9,835
Less: amount representing interest (1,710 )
Present value of net minimum lease payments $ 8,125

As of September 30, ~~2019,~~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 September 30, ~~2019,~~2020, the weighted average remaining lease term was ~~13.2~~12.3 years with a weighted average discount rate of ~~3.34%~~3.35%. The Corporation has included these leases in premises and equipment as of September 30, ~~2019~~2020 and December 31, ~~2018~~2019 as follows (in thousands):


	September 30, 2020		December 31, 2019
Buildings	$	5,572	$	5,572
Less: accumulated depreciation	(1,791)		(1,541)
Net book value	$	3,781	$	4,031

September 30, 2019 December 31, 2018
Buildings $ 5,572
$ 5,572
Less: accumulated depreciation (1,458 ) (1,208 )
Net book value $ 4,114
$ 4,364

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 September 30, ~~2019~~2020 (in thousands):


Year	Amount
2020	$	94
2021	388
2022	391
2023	391
2024	391
2025 and thereafter	3,250
Total minimum lease payments	4,905
Less: amount representing interest	(995)
Present value of net minimum lease payments	$	3,910

Year Amount
2019 $ 92
2020 376
2021 388
2022 391
2023 391
2024 and thereafter 3,639
Total minimum lease payments 5,277
Less: amount representing interest (1,137 )
Present value of net minimum lease payments $ 4,140

As of September 30, ~~2019,~~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, ~~2020~~2022 from a member of the Corporation's Board of Directors with monthly rent expense totaling $4$3 thousand per month. Rent paid to this Board of Directors member totaled ~~$12~~$13 thousand and $12 thousand for the three month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Rent paid to this Board of Directors member totaled $40 thousand ~~and $36 thousand~~ for the nine month periods ended September 30, ~~2019~~2020 and ~~2018, respectively.~~2019.

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$7 thousand per month. Rent paid to this Board of Directors member totaled ~~$24~~$26 thousand and $24 thousand for the three month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively. Rent paid to this Board of Directors member totaled ~~$69~~$76 thousand and ~~$60~~$69 thousand for the nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

NOTE 7 GOODWILL AND INTANGIBLE ASSETS

The changes in goodwill included in the core banking segment during the nine month periods ended September 30, ~~2019~~2020 and ~~2018~~2019 were as follows (in thousands):


	2020		2019
Beginning of year	$	21,824	$	21,824
Acquired goodwill	0		0
Ending balance September 30,	$	21,824	$	21,824

2019 2018
Beginning of year $ 21,824
$ 21,824
Acquired goodwill —
—
Ending balance September 30, $ 21,824
$ 21,824

Acquired intangible assets were as follows at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	At September 30, 2020				At December 31, 2019
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,938	$	5,975	$	5,832
Other customer relationship intangibles	5,633		5,299		5,633		5,034
Total	$	11,608	$	11,237	$	11,608	$	10,866

At September 30, 2019 At December 31, 2018
Balance Acquired Accumulated Amortization Balance Acquired Accumulated Amortization
Core deposit intangibles $ 5,975
$ 5,776
$ 5,975
$ 5,576
Other customer relationship intangibles 5,633
4,946
5,633
4,681
Total $ 11,608
$ 10,722
$ 11,608
$ 10,257

Aggregate amortization expense was $0.1 million and $0.2 million for ~~both of~~ the three month periods ended September 30, 2020 and 2019, ~~and 2018.~~respectively. Aggregate amortization expense was ~~$0.5~~$0.4 million and ~~$0.6~~$0.5 million for the nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

The remaining estimated aggregate amortization expense at September 30, ~~2019~~2020 is listed below (in thousands):


Year	Estimated Expense
2020	$	113
2021	258
2022	0
2023	0
2024	0

Total	$	371

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. However, Management did conclude that the current decline in macroeconomic conditions is a triggering event, but other mitigating factors did not warrant an interim quantitative impairment test. We continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including: (1) forecasted revenues, expenses, and cash flows; (2) current discount rates; (3) our market capitalization; (4) observable market transactions and multiples; (5) changes to the regulatory environment; and (6) the nature and amount of government support that has been and is expected to be provided in the future.

Year Estimated Expense
2019 $ 144
2020 484
2021 258
2022 —
2023 —
Total $ 886

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.

The following table lists the contractual amounts of financial instruments with off-balance sheet risk at September 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	September 30, 2020				December 31, 2019
	Fixed Rate		Variable Rate		Fixed Rate		Variable Rate
Commitments to make loans	$	31,698	$	31,428	$	15,560	$	25,233
Unused lines of credit	1,191		268,784		1,062		229,137
Standby letters of credit	0		15,652		0		16,272

September 30, 2019 December 31, 2018
Fixed Rate Variable Rate Fixed Rate Variable Rate
Commitments to make loans $ 17,021
$ 28,797
$ 9,137
$ 18,033
Unused lines of credit 1,431
218,517
848
212,601
Standby letters of credit —
15,583
—
16,161

On ~~June 15, 2018,~~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 ~~through mediation, reached~~owns a ~~resolution by way of a settlement agreement in the matter of~~ ~~Fane v. Chemung Canal Trust Company~~ (the “Action”). The parties agreed to release each other from any and all liabilities, claims, counterclaims, demands, charges, complaints and causes of action, to dismiss the Action with prejudice, and the Bank agreed to pay Fane $3.3participating interest totaling $4.2 million in ~~connection with~~an approximately $36.0 million commercial credit facility on which the ~~settlement~~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 ~~Action. As of January 1, 2018,~~participation interest. On April 23, 2020 the Corporation ~~had a legal reserve~~received payment of ~~$2.3 million for~~$461,309 from Pioneer Bank related to its obligation under the ~~Action and therefore recognized an additional $1.0 million of legal expense during 2018.~~participation agreements.

In the normal course of business, there are various outstanding claims and legal proceedings involving the Corporation or its subsidiaries. As of September 30, ~~2019,~~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~~INCOME (LOSS)

Accumulated other comprehensive ~~loss~~income (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~~income (loss) by component, net of tax, for the periods indicated (in thousands):


	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans		Total


Balance at July 1, 2020, as adjusted	$	9,273	$	(7,131)	$	2,142
Other comprehensive income before reclassification	(516)		0		(516)
Amounts reclassified from accumulated other comprehensive income	0		16		16
Net current period other comprehensive income (loss)	(516)		16		(500)
Balance at September 30, 2020	$	8,757	$	(7,115)	$	1,642


										Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans		Total
	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans			Total
Balance at July 1, 2019	$	787	$	(6,738	)	$	(5,951	)

Balance at July 1, 2019, as adjusted									Balance at July 1, 2019, as adjusted	$	787	$	(6,738)	$	(5,951)
Other comprehensive income before reclassification	2,662		—			2,662			Other comprehensive income before reclassification	2,662		0		2,662
Amounts reclassified from accumulated other comprehensive income	—		13			13			Amounts reclassified from accumulated other comprehensive income	0		13		13
Net current period other comprehensive income	2,662		13			2,675			Net current period other comprehensive income	2,662		13		2,675
Balance at September 30, 2019	$	3,449	$	(6,725	)	$	(3,276	)	Balance at September 30, 2019	$	3,449	$	(6,725)	$	(3,276)


	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans		Total


Balance at January 1, 2020, as adjusted	$	1,368	$	(7,167)	$	(5,799)
Other comprehensive income before reclassification	7,389		0		7,389
Amounts reclassified from accumulated other comprehensive income	0		52		52
Net current period other comprehensive income	7,389		52		7,441
Balance at September 30, 2020	$	8,757	$	(7,115)	$	1,642


	Unrealized Gains and Losses on Securities Available for Sale		Defined Benefit and Other Benefit Plans		Total


Balance at January 1, 2019, as adjusted	$	(4,646)	$	(6,765)	$	(11,411)
Other comprehensive income before reclassification	8,109		0		8,109
Amounts reclassified from accumulated other comprehensive income	(14)		40		26
Net current period other comprehensive income	8,095		40		8,135
Balance at September 30, 2019	$	3,449	$	(6,725)	$	(3,276)

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at July 1, 2018 $ (7,223 ) $ (6,898 ) $ (14,121 )
Other comprehensive loss before reclassification (1,179 ) —
(1,179 )
Amounts reclassified from accumulated other comprehensive income —
13
13
Net current period other comprehensive income (loss) (1,179 ) 13
(1,166 )
Balance at September 30, 2018 $ (8,402 ) $ (6,885 ) $ (15,287 )

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at January 1, 2019 $ (4,646 ) $ (6,765 ) $ (11,411 )
Other comprehensive income before reclassification 8,109
—
8,109
Amounts reclassified from accumulated other comprehensive income (14 ) 40
26
Net current period other comprehensive income (loss) 8,095
40
8,135
Balance at September 30, 2019 $ 3,449
$ (6,725 ) $ (3,276 )

Unrealized Gains and Losses on Securities Available for Sale Defined Benefit and Other Benefit Plans Total
Balance at January 1, 2018 $ (3,415 ) $ (6,925 ) $ (10,340 )
Cumulative effect of account change (202 ) —
(202 )
Balance at January 1, 2018, as adjusted (3,617 ) (6,925 ) (10,542 )
Other comprehensive income before reclassification (4,785 ) —
(4,785 )
Amounts reclassified from accumulated other comprehensive income —
40
40
Net current period other comprehensive income (4,785 ) 40
(4,745 )
Balance at September 30, 2018 $ (8,402 ) $ (6,885 ) $ (15,287 )

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 September 30,				Affected Line Item in the Statement Where Net Income is Presented
	2020		2019
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	0	$	0	Net gains on securities transactions
Tax effect	0		0		Income tax expense
Net of tax	0		0
Amortization of defined pension plan and other benefit plan items:

Prior service costs (a)	(55)		(55)		Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	77		72		Other components of net periodic pension and postretirement benefits
Tax effect	(6)		(4)		Income tax expense
Net of tax	16		13
Total reclassification for the period, net of tax	$	16	$	13

Details about Accumulated Other Comprehensive Income Components Three Months Ended
September 30, Affected Line Item
in the Statement Where
Net Income is Presented
2019 2018
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale $ —
$ —
Net gains on securities transactions
Tax effect —
—
Income tax expense
Net of tax —
—

Amortization of defined pension plan and other benefit plan items:

Prior service costs (a) $ (55 ) $ (55 ) Other components of net periodic pension and postretirement benefits
Actuarial losses (a) 72
72
Other components of net periodic pension and postretirement benefits
Tax effect (4 ) (4 ) Income tax expense
Net of tax 13
13

Total reclassification for the period, net of tax $ 13
$ 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).


Details about Accumulated Other Comprehensive Income Components	Nine Months Ended September 30,				Affected Line Item in the Statement Where Net Income is Presented
	2020		2019
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale	$	0	$	(19)	Net gains on securities transactions
Tax effect	0		5		Income tax expense
Net of tax	0		(14)
Amortization of defined pension plan and other benefit plan items:

Prior service costs (a)	(165)		(165)		Other components of net periodic pension and postretirement benefits
Actuarial losses (a)	231		218		Other components of net periodic pension and postretirement benefits
Tax effect	(14)		(13)		Income tax expense
Net of tax	52		40
Total reclassification for the period, net of tax	$	52	$	26

Details about Accumulated Other Comprehensive Income Components Nine Months Ended
September 30, Affected Line Item
in the Statement Where
Net Income is Presented
2019 2018
Unrealized gains and losses on securities available for sale:
Realized gains on securities available for sale $ (19 ) $ —
Net gains on securities transactions
Tax effect 5
—
Income tax expense
Net of tax (14 ) —

Amortization of defined pension plan and other benefit plan items:

Prior service costs (a) (165 ) (165 ) Other components of net periodic pension and postretirement benefits
Actuarial losses (a) 218
218
Other components of net periodic pension and postretirement benefits
Tax effect (13 ) (13 ) Income tax expense
Net of tax 40
40

Total reclassification for the period, net of tax $ 26
$ 40

(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 and nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands). Items outside the scope of ASC 606 are noted as such.

Three Months Ended September 30, 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 $ 959
$ —
$ —
$ 959
Other 182
—
—
182
Interchange revenue from debit card transactions 1,058
—
—
1,058
WMG fee income —
2,315
—
2,315
CFS fee and commission income —
—
145
145
Net gains (losses) on sales of OREO (1 ) —
—
(1 )
Net gains on sales of loans^(a)
69
—
—
69
Loan servicing fees^(a)
25
—
—
25
Net gains on sales of securities^(a)
—
—
—
—
Changes in fair value of equity investments^(a)
3
—
(13 ) (10 )
Other^(a)
269
—
(55 ) 214
Total non-interest income (loss) $ 2,564
$ 2,315
$ 77
$ 4,956


	Three Months Ended September 30, 2018										Three Months Ended September 30, 2020
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM^(b)			Total		Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)		Total
Non-interest income										Non-interest income
Service charges on deposit accounts										Service charges on deposit accounts
Overdraft fees	$	1,035	$	—	$	—		$	1,035	Overdraft fees	$	668	$	0	$	0	$	668
Other	196		—		—			196		Other	72		0		0		72
Interchange revenue from debit card transactions	982		—		—			982		Interchange revenue from debit card transactions	1,082		0		0		1,082
WMG fee income	—		2,406		—			2,406		WMG fee income	0		2,416		0		2,416
CFS fee and commission income	—		—		120			120		CFS fee and commission income	0		0		172		172
Net gains (losses) on sales of OREO	123		—		—			123		Net gains (losses) on sales of OREO	6		0		0		6
Net gains on sales of loans^(a)	79		—		—			79		Net gains on sales of loans(a)	553		0		0		553
Loan servicing fees^(a)	22		—		—			22		Loan servicing fees(a)	32		0		0		32
Net gains on sales of securities^(a)	—		—		—			—

Changes in fair value of equity investments^(a)	2,140		—		1			2,141		Changes in fair value of equity investments(a)	71		0		(14)		57
Income from bank-owned life insurance(a)										Income from bank-owned life insurance(a)	14		0		0		14
Other^(a)	410		—		(133		)	277		Other(a)	320		0		(53)		267
Total non-interest income	$	4,987	$	2,406	$	(12	)	$	7,381
Total non-interest income (loss)										Total non-interest income (loss)	$	2,818	$	2,416	$	105	$	5,339

(a) Not within scope of ASC 606.

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

Nine Months Ended September 30, 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 $ 2,703
$ —
$ —
$ 2,703
Other 627
—
—
627
Interchange revenue from debit card transactions 3,113
—
—
3,113
WMG fee income —
7,115
—
7,115
CFS fee and commission income —
—
502
502
Net gains (losses) on sales of OREO (87 ) —
—
(87 )
Net gains on sales of loans^(a)
146
—
—
146
Loan servicing fees^(a)
76
—
—
76
Net gains on sales of securities^(a)
19
—
—
19
Changes in fair value of equity investments^(a)
103
—
3
106
Other^(a)
844
—
(197 ) 647
Total non-interest income $ 7,544
$ 7,115
$ 308
$ 14,967


	Nine Months Ended September 30, 2018										Three Months Ended September 30, 2019
Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM^(b)			Total		Revenue by Operating Segment:	Core Banking		WMG		Holding Company, CFS, and CRM(b)		Total
Non-interest income										Non-interest income
Service charges on deposit accounts										Service charges on deposit accounts
Overdraft fees	$	2,939	$	—	$	—		$	2,939	Overdraft fees	$	959	$	0	$	0	$	959
Other	600		—		—			600		Other	182		0		0		182
Interchange revenue from debit card transactions	3,013		—		—			3,013		Interchange revenue from debit card transactions	1,058		0		0		1,058
WMG fee income	—		7,095		—			7,095		WMG fee income	0		2,315		0		2,315
CFS fee and commission income	—		—		365			365		CFS fee and commission income	0		0		145		145
Net gains on sales of OREO	119		—		—			119
Net gains (losses) on sales of OREO										Net gains (losses) on sales of OREO	(1)		0		0		(1)
Net gains on sales of loans^(a)	184		—		—			184		Net gains on sales of loans(a)	69		0		0		69
Loan servicing fees^(a)	67		—		—			67		Loan servicing fees(a)	25		0		0		25
Net gains on sales of securities^(a)	—		—		—			—
Change in fair value of equity securities^(a)	2,148		—		17			2,165

Changes in fair value of equity investments(a)										Changes in fair value of equity investments(a)	3		0		(13)		(10)
Income from bank-owned life insurance(a)										Income from bank-owned life insurance(a)	17		0		0		17
Other^(a)	1,922		—		(288		)	1,634		Other(a)	252		0		(55)		197
Total non-interest income	$	10,992	$	7,095	$	94		$	18,181	Total non-interest income	$	2,564	$	2,315	$	77	$	4,956

(a) Not within scope of ASC 606.

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


	Nine Months Ended September 30, 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	$	1,894	$	0	$	0	$	1,894
Other	400		0		0		400
Interchange revenue from debit card transactions	2,989		0		0		2,989
WMG fee income	0		6,968		0		6,968
CFS fee and commission income	0		0		502		502
Net gains (losses) on sales of OREO	(71)		0		0		(71)
Net gains on sales of loans(a)	916		0		0		916
Loan servicing fees(a)	88		0		0		88

Changes in fair value of equity investments(a)	49		0		(82)		(33)
Income from bank-owned life insurance(a)	147		0		0		147
Other(a)	1,383		0		(33)		1,350
Total non-interest income	$	7,795	$	6,968	$	387	$	15,150

(a) Not within scope of ASC 606.

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


	Nine Months Ended September 30, 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	$	2,703	$	0	$	0	$	2,703
Other	627		0		0		627
Interchange revenue from debit card transactions	3,113		0		0		3,113
WMG fee income	0		7,115		0		7,115
CFS fee and commission income	0		0		502		502
Net gains (losses) on sales of OREO	(87)		0		0		(87)
Net gains on sales of loans(a)	146		0		0		146
Loan servicing fees(a)	76		0		0		76
Net gains on sales of securities(a)	19		0		0		19
Changes in fair value of equity investments(a)	103		0		3		106
Income from bank-owned life insurance(a)	48		0		0		48
Other(a)	796		0		(197)		599
Total non-interest income	$	7,544	$	7,115	$	308	$	14,967

(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.

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 September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Qualified Pension Plan
Service cost, benefits earned during the period	$	0	$	0	$	0	$	0
Interest cost on projected benefit obligation	322		379		966		1,136
Expected return on plan assets	(610)		(554)		(1,830)		(1,661)
Amortization of unrecognized transition obligation	0		0		0		0
Amortization of unrecognized prior service cost	0		0		0		0
Amortization of unrecognized net loss	49		49		147		147
Net periodic pension benefit	$	(239)	$	(126)	$	(717)	$	(378)

Supplemental Pension Plan
Service cost, benefits earned during the period	$	0	$	0	$	0	$	0
Interest cost on projected benefit obligation	10		13		30		39
Expected return on plan assets	0		0		0		0
Amortization of unrecognized prior service cost	0		0		0		0
Amortization of unrecognized net loss	3		1		9		3
Net periodic supplemental pension cost	$	13	$	14	$	39	$	42

Postretirement Plan, Medical and Life
Service cost, benefits earned during the period	$	0	$	0	$	0	$	0
Interest cost on projected benefit obligation	2		4		6		10
Expected return on plan assets	0		0		0		0
Amortization of unrecognized prior service cost	(55)		(55)		(165)		(165)
Amortization of unrecognized net loss	25		22		75		68
Net periodic postretirement, medical and life benefit	$	(28)	$	(29)	$	(84)	$	(87)

Shares Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2019 29,436
$ 41.03
Granted —
—
Vested —
—
Forfeited or cancelled —
—
Nonvested at September 30, 2019 29,436
$ 41.03

A summary of restricted stock activity for the nine month period ended September 30, ~~2019~~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	(4,710)	42.24
Forfeited or cancelled	(112)	44.72
Nonvested at September 30, 2020	29,008	$	43.36

Shares Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2019 29,694
$ 40.81
Granted 439
45.66
Vested (697 ) 34.58
Forfeited or cancelled —
—
Nonvested at September 30, 2019 29,436
$ 41.03

As of September 30, ~~2019,~~2020, there was $0.9 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 ~~3.05~~3.18 years. The total fair value of shares vested was ~~$32~~$159 thousand and ~~$112~~$32 thousand for the nine month periods ended September 30, ~~2019~~2020 and ~~2018,~~2019, respectively.

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

Introduction

The following is the MD&A of the Corporation in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. Reference should be made to the accompanying unaudited consolidated financial statements and footnotes, and the Corporation’s ~~2018~~2019 Annual Report on Form 10-K, which was filed with the SEC on March ~~13, 2019,~~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,~~uncertainties, see Forward-looking Statements below, ~~and~~ in Part I, Item 1A, Risk Factors, on pages 19–2829 of the Corporation’s ~~2018~~2019 Form ~~10-K.~~10-K, pages 67-68 of the Corporation's March 31, 2020 Form 10-Q, and page 83 of the Corporation's June 30, 2020 Form 10-Q. For a discussion of use of non-GAAP financial measures, see pages ~~67–70~~69–72 of the Corporation's ~~2018~~2019 Form 10-K, and pages ~~71-75~~77-80 in this Form 10-Q.

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

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.

As the result of the COVID-19 pandemic and the related adverse local and national economic consequences, the Corporation could be subject to any of the following additional risks, any of which could have a material, adverse effect on its 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;

•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 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

•FDIC premiums may increase if the agency experiences additional resolution costs.

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 ~~2018~~2019 Annual Report on Form ~~10-K.~~10-K, March 31, 2020 Quarterly Report on Form 10-Q, June 30, 2020 Quarterly Report on Form 10-Q, 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

The Corporation continued to exercise COVID-19 precautions throughout its footprint, striving to ensure a healthy and safe work environment for our colleagues, clients and the communities we assist, and continued to provide the high level of customer service that our communities depend on in a manner that is accessible, reliable and efficient. At all times, social distancing, sanitizing and facial coverings were required. As of the date of this filing, 30 of our 32 offices have fully re-opened to normal business hours. The remaining two branches, currently being consolidated, are available by appointment. On or about November 20, 2020, these branches will consolidate into nearby branches. The Corporation is looking forward to assisting clients in the case that a next-phase stimulus package is passed by Congress, and with the SBA loan-forgiveness application process for PPP loans.

Management did not experience any negative effects 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.

On June 17, 2020 the New York legislature passed, and Governor Cuomo signed, new legislation which allows certain borrowers to extend the period of forbearance on a primary residence if financial hardship is demonstrated as a result of COVID-19. At its highest point as of May 31, 2020, total loan forbearances represented 15.77% of the Corporation's total loan portfolio. As of September 30, 2020, total loan forbearances decreased to 2.98% of the total loan portfolio. As of September 30, 2020, 46.2% of total loan forbearances related to accommodation and food services, 31.4% related to real estate, rental and leasing, 10.9% to entertainment and recreation, and 11.5% to other industries.

COVID-19 Loan Modifications Outstanding As Of

June 30, 2020

September 30, 2020

# Clients

Total Loan Balance

# Clients

Total Loan Balance

Commercial

172

$167.7 million

$43.3 million

Retail and Residential

457

$18.0 million

$2.5 million

The above reflects the uncertain economic situation whereby the initial response by customers prompted a quick reaction to the unknown potential impact of COVID-19 on their business. Subsequently, customers may have reassessed their financial position prior to finalization of a modification, either modifying deferral requests or withdrawing the request altogether. In some cases, customers continued to make payments on modified loans. Of these modifications, 100% were considered current prior to the forbearance and primarily reflect deferrals for 90 days.

Paycheck Protection Program 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, and additional legislation approved by Congress on April 23, 2020 and June 5, 2020, was a total of $659 billion to assist small businesses by providing SBA guaranteed loans to help pay for up to 24 weeks of their payroll, in addition to other expenses such as interest expense on mortgages, rent or utility payments. PPP loans have an interest rate of 1.0%, two-year or five-year loan terms to maturity, and principal and interest payments deferred until the lender receives the applicable forgiven amount or 10 months after the end of the borrower's loan forgiveness covered period. 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.

The Corporation successfully navigated the processes set forth by the SBA and assisted customers and non-customers through the PPP. As of the date of this filing, the Corporation is preparing to assist the businesses who received PPP loans with the forgiveness application phase of the program. As of this filing, the Corporation has submitted 54 loans, a total of $39.2 million, to the SBA for forgiveness. As of the date of this filing, the Corporation has received $16.4 million related to 29 loans forgiven by the SBA.

Participation in Paycheck Protection Program Liquidity Facility ("PPPLF")

The PPPLF was created by the Board of Governors of the Federal Reserve System on April 9, 2020 to facilitate lending by participating financial institutions 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 participated in the PPPLF and received funding for 141 loans totaling $66.4 million. The Corporation fully repaid the funds on May 28, 2020.

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 September 30, 2020, the Corporation's cash and cash equivalents balance was $149.9 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 September 30, 2020, the Corporation's investment in securities available for sale was $396.3 million, $216.3 million of which was not pledged as collateral.

Additionally, the Bank's unused borrowing capacity at the Federal Home Loan Bank of New York was $97.1 million as of September 30, 2020. The Corporation did not experience excessive draws on available working capital lines of credit and home equity lines of credit during the first nine months of 2020 due to the COVID-19 pandemic. Nor has the Corporation experienced any significant or unusual activity related to customer reaction to the COVID-19 pandemic that would create stress on the Corporation's liquidity position.

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 commercial loan portfolio, excluding PPP loans, by NAICS code, as of September 30, 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 excluding PPP Loans		% of RBC*
Industry Sectors	Loan Balance excluding PPP Loans
Real Estate, Rental & Leasing
Multifamily	$	194,788	21.52	%	102.33	%
Hospitality	39,410		4.35	%	20.70	%
Nursing Home/Assisted Living	13,140		1.45	%	6.90	%
Medical Office	18,662		2.06	%	9.80	%
Non-Essential Retail	40,152		4.44	%	21.09	%
CRE Other	284,920		31.47	%	149.67	%
Non-Real Estate Secured	33,240		3.67	%	17.46	%
Agricultural, Forestry, Farming and Hunting	1,766		0.20	%	0.93	%
Accommodation and Food Services	43,714		4.83	%	22.96	%
Manufacturing	36,021		3.98	%	18.92	%
Arts, Entertainment and Recreation	34,745		3.84	%	18.25	%
Health Care and Social Assistance	29,059		3.21	%	15.27	%
Construction	23,653		2.61	%	12.43	%
Wholesale Trade	22,919		2.53	%	12.04	%
Retail Trade	25,049		2.77	%	13.16	%
Professional, Scientific, and Technical Services	12,371		1.37	%	6.50	%
Transportation and Warehousing	10,784		1.19	%	5.67	%
Finance and Insurance	10,247		1.13	%	5.38	%
Administration and Support, Waste Management, Remediation	6,048		0.67	%	3.18	%
Educational Services	4,791		0.53	%	2.52	%
Mining	2,687		0.30	%	1.41	%
Other	17,133		1.88	%	9.01	%
Total Loans, excluding Paycheck Protection Program (PPP)	$	905,299	100.00	%

COVID-19 Highly Impacted Industries	$	248,384	27.44	%

* Risk Based Capital

COVID-19 highly impacted industries totaled $248.4 million, or 27.4% of the Bank's commercial loan portfolio excluding PPP loans, as of September 30, 2020. PPP loans totaling $189.8 million are 100% guaranteed by the SBA and represent virtually no risk. The rental and leasing sector encompasses real estate, rental properties plus rental of non-real estate items. In this same sector, $111.4 million of the loan balances related to commercial real estate rentals for hospitality, nursing home/assisted living, non-essential retail and medical offices and are considered "highly impacted." The arts, entertainment and recreation sector included $26.6 million of loan balances related to casinos. PPP loans to the highly impacted industries totaled $59.9 million.

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 remainder 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 loan losses, capital reserves, and liquidity are uncertain at this time.

Consolidated Financial Highlights



																As of or for the
	As of or for the Three Months Ended															Nine Months Ended
	Sept. 30,			June 30,			Mar. 31,			Dec. 31,			Sept. 30,			Sept. 30,			Sept. 30,
(in thousands, except per share data)	2020			2020			2020			2019			2019			2020			2019
RESULTS OF OPERATIONS
Interest income	$	16,714		$	16,472		$	16,384		$	16,777		$	16,808		$	49,570		$	50,155
Interest expense	845			881			1,322			1,576			1,666			3,048			4,745
Net interest income	15,869			15,591			15,062			15,201			15,142			46,522			45,410
Provision for loan losses	679			260			3,050			261			4,441			3,989			5,684
Net interest income after provision for loan losses	15,190			15,331			12,012			14,940			10,701			42,533			39,726
Non-interest income	5,339			5,080			4,730			5,106			4,956			15,150			14,967
Non-interest expense	13,362			13,227			13,749			14,851			13,525			40,339			40,845
Income before income tax expense	7,167			7,184			2,993			5,195			2,132			17,344			13,848
Income tax expense	1,456			1,357			502			991			176			3,315			2,443
Net income	$	5,711		$	5,827		$	2,491		$	4,204		$	1,956		$	14,029		$	11,405

Basic and diluted earnings per share	$	1.19		$	1.20		$	0.51		$	0.87		$	0.40		$	2.90		$	2.34
Average basic and diluted shares outstanding	4,773			4,850			4,895			4,879			4,871			4,836			4,866

PERFORMANCE RATIOS - Annualized
Return on average assets	1.08		%	1.15		%	0.55		%	0.93		%	0.44		%	0.95		%	0.87		%
Return on average equity	11.56		%	12.22		%	5.32		%	9.14		%	4.29		%	9.74		%	8.76		%
Return on average tangible equity (a)	13.03		%	13.83		%	6.04		%	10.43		%	4.91		%	11.03		%	10.09		%
Efficiency ratio (unadjusted) (f)	63.00		%	63.99		%	69.47		%	73.13		%	67.30		%	65.41		%	67.65		%
Efficiency ratio (adjusted) (a) (b)	62.19		%	63.16		%	68.50		%	72.08		%	66.21		%	64.54		%	66.56		%
Non-interest expense to average assets	2.54		%	2.62		%	3.06		%	3.28		%	3.05		%	2.72		%	3.12		%
Loans to deposits	79.96		%	82.70		%	82.11		%	83.28		%	82.88		%	79.96		%	82.88		%





YIELDS / RATES - Fully Taxable Equivalent
Yield on loans	3.91		%	4.06		%	4.37		%	4.43		%	4.50		%	4.10		%	4.53		%
Yield on investments	1.61		%	1.58		%	2.20		%	2.29		%	2.36		%	1.78		%	2.39		%
Yield on interest-earning assets	3.37		%	3.45		%	3.86		%	3.92		%	4.03		%	3.54		%	4.05		%
Cost of interest-bearing deposits	0.26		%	0.28		%	0.46		%	0.55		%	0.60		%	0.33		%	0.57		%
Cost of borrowings	3.54		%	0.82		%	3.58		%	3.58		%	3.53		%	1.44		%	3.52		%
Cost of interest-bearing liabilities	0.27		%	0.29		%	0.47		%	0.56		%	0.61		%	0.34		%	0.58		%
Interest rate spread	3.10		%	3.16		%	3.39		%	3.36		%	3.42		%	3.20		%	3.47		%
Net interest margin, fully taxable equivalent (a)	3.20		%	3.26		%	3.55		%	3.56		%	3.63		%	3.33		%	3.67		%

CAPITAL
Total equity to total assets at end of period	9.10		%	9.49		%	10.34		%	10.22		%	10.15		%	9.10		%	10.15		%
Tangible equity to tangible assets at end of period (a)	8.16		%	8.49		%	9.24		%	9.07		%	9.00		%	8.16		%	9.00		%


Book value per share	$	41.51		$	40.51		$	38.83		$	37.35		$	37.35		$	41.51		$	37.35
Tangible book value per share (a)	36.83			35.86			34.25			32.74			32.69			36.83			32.69
Period-end market value per share	28.87			27.30			32.98			42.50			42.00			28.87			42.00
Dividends declared per share	0.26			0.26			0.26			0.26			0.26			0.78			0.78

AVERAGE BALANCES
Loans and loans held for sale (c)	$1,515,762			$	1,456,080		$	1,310,342		$	1,303,349		$	1,295,167		$	1,427,716		$	1,294,093
Earning assets	1,986,043			1,931,107			1,715,562			1,705,766			1,665,793			1,877,966			1,664,188
Total assets	2,094,114			2,032,729			1,807,753			1,798,385			1,760,385			1,978,570			1,752,948
Deposits	1,853,557			1,776,275			1,588,147			1,581,645			1,545,858			1,739,744			1,550,251
Total equity	196,569			191,853			188,427			182,522			180,896			192,299			173,998
Tangible equity (a)	174,302			169,464			165,911			159,889			158,111			169,909			151,052

As of or for the
As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share data) 2019 2019 2019 2018 2018 2019 2018
RESULTS OF OPERATIONS
Interest income $ 16,808
$ 16,682
$ 16,665
$ 16,879
$ 16,136
$ 50,155
$ 47,674
Interest expense 1,666
1,581
1,498
1,395
1,057
4,745
2,678
Net interest income 15,142
15,101
15,167
15,484
15,079
45,410
44,996
Provision (credit) for loan losses 4,441
150
1,093
(218 ) 300
5,684
3,371
Net interest income after provision (credit) for loan losses 10,701
14,951
14,074
15,702
14,779
39,726
41,625
Non-interest income 4,956
5,086
4,925
4,893
7,381
14,967
18,181
Non-interest expense 13,525
13,823
13,497
14,205
13,428
40,845
42,561
Income before income tax expense 2,132
6,214
5,502
6,390
8,732
13,848
17,245
Income tax expense 176
1,233
1,034
660
1,802
2,443
3,349
Net income $ 1,956
$ 4,981
$ 4,468
$ 5,730
$ 6,930
$ 11,405
$ 13,896

Basic and diluted earnings per share $ 0.40
$ 1.02
$ 0.92
$ 1.18
$ 1.43
$ 2.34
$ 2.88
Average basic and diluted shares outstanding 4,871
4,866
4,860
4,843
4,834
4,866
4,828

PERFORMANCE RATIOS - Annualized
Return on average assets 0.44 % 1.15 % 1.03 % 1.29 % 1.61 % 0.87 % 1.09 %
Return on average equity 4.29 % 11.51 % 10.83 % 14.29 % 17.81 % 8.76 % 12.22 %
Return on average tangible equity (a) 4.91 % 13.27 % 12.56 % 16.74 % 21.01 % 10.09 % 14.47 %
Efficiency ratio (unadjusted) (f) 67.30 % 68.47 % 67.18 % 69.71 % 59.79 % 67.65 % 67.37 %
Efficiency ratio (adjusted) (a) (b) 66.21 % 67.44 % 66.04 % 68.49 % 64.72 % 66.56 % 66.80 %
Non-interest expense to average assets 3.05 % 3.18 % 3.12 % 3.21 % 3.13 % 3.12 % 3.34 %
Loans to deposits 82.88 % 83.60 % 82.93 % 83.60 % 83.80 % 82.88 % 83.80 %


ASSET QUALITY
Net charge-offs	$	219		$	2,363		$	294		$	706		$	174		$	2,877		$	705
Non-performing loans (d)	15,726			17,280			17,948			18,008			23,468			15,726			23,468
Non-performing assets (e)	16,311			17,573			18,328			18,525			23,679			16,311			23,679
Allowance for loan losses	24,590			24,130			26,233			23,478			23,923			24,590			23,923

Annualized net charge-offs to average loans	0.06		%	0.65		%	0.09		%	0.21		%	0.05		%	0.27		%	0.07		%
Non-performing loans to total loans	1.02		%	1.15		%	1.36		%	1.38		%	1.80		%	1.02		%	1.80		%
Non-performing assets to total assets	0.75		%	0.86		%	1.00		%	1.04		%	1.32		%	0.75		%	1.32		%
Allowance for loan losses to total loans	1.60		%	1.61		%	1.99		%	1.79		%	1.83		%	1.60		%	1.83		%
Allowance for loan losses to non-performing loans	156.36		%	139.64		%	146.16		%	130.38		%	101.94		%	156.36		%	101.94		%

(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.

As of or for the
As of or for the Three Months Ended Nine Months Ended
Sept. 30, June 30, March 31, Dec. 31, Sept. 30, Sept. 30, Sept. 30,
(in thousands, except per share data) 2019 2019 2019 2018 2018 2019 2018
YIELDS / RATES - Fully Taxable Equivalent
Yield on loans 4.50 % 4.54 % 4.54 % 4.54 % 4.36 % 4.53 % 4.34 %
Yield on investments 2.36 % 2.41 % 2.42 % 2.16 % 2.18 % 2.39 % 2.20 %
Yield on interest-earning assets 4.03 % 4.07 % 4.07 % 4.01 % 3.96 % 4.05 % 3.95 %
Cost of interest-bearing deposits 0.60 % 0.57 % 0.54 % 0.48 % 0.33 % 0.57 % 0.25 %
Cost of borrowings 3.53 % 3.52 % 3.52 % 3.58 % 2.38 % 3.52 % 2.33 %
Cost of interest-bearing liabilities 0.61 % 0.58 % 0.55 % 0.50 % 0.39 % 0.58 % 0.33 %
Interest rate spread 3.42 % 3.49 % 3.52 % 3.51 % 3.57 % 3.47 % 3.62 %
Net interest margin, fully taxable equivalent (a) 3.63 % 3.69 % 3.71 % 3.68 % 3.71 % 3.67 % 3.73 %

CAPITAL
Total equity to total assets at end of period 10.15 % 10.18 % 9.69 % 9.40 % 8.92 % 10.15 % 8.92 %
Tangible equity to tangible assets at end of period (a) 9.00 % 8.99 % 8.50 % 8.19 % 7.69 % 9.00 % 7.69 %

Book value per share $ 37.35
$ 36.64
$ 35.27
$ 33.99
$ 32.35
$ 37.35
$ 32.35
Tangible book value per share (a) 32.69
31.95
30.54
29.22
27.53
32.69
27.53
Period-end market value per share 42.00
48.34
46.93
41.31
42.43
42.00
42.43
Dividends declared per share 0.26
0.26
0.26
0.26
0.26
0.78
0.78

AVERAGE BALANCES
Loans and loans held for sale (c) $ 1,295,167
$ 1,290,923
$ 1,296,200
$ 1,306,556
$ 1,330,071
$ 1,294,093
$ 1,324,610
Earning assets 1,665,793
1,654,156
1,671,063
1,680,269
1,625,132
1,664,188
1,624,830
Total assets 1,760,385
1,744,599
1,753,788
1,756,765
1,704,721
1,752,948
1,703,834
Deposits 1,545,858
1,539,739
1,565,371
1,576,629
1,501,082
1,550,251
1,495,111
Total equity 180,896
173,534
167,385
159,032
154,331
173,988
152,026
Tangible equity (a) 158,111
150,598
144,293
135,766
130,891
151,052
128,396

ASSET QUALITY
Net charge-offs $ 174
$ 239
$ 292
$ 472
$ 310
$ 705
$ 4,897
Non-performing loans (d) 23,468
19,505
15,099
12,254
12,629
23,468
12,629
Non-performing assets (e) 23,679
19,719
15,304
12,828
13,356
23,679
13,356
Allowance for loan losses 23,923
19,656
19,745
18,944
19,635
23,923
19,635

Annualized net charge-offs to average loans 0.05 % 0.07 % 0.09 % 0.14 % 0.09 % 0.07 % 0.49 %
Non-performing loans to total loans 1.80 % 1.51 % 1.16 % 0.93 % 0.96 % 1.80 % 0.96 %
Non-performing assets to total assets 1.32 % 1.12 % 0.86 % 0.73 % 0.76 % 1.32 % 0.76 %
Allowance for loan losses to total loans 1.83 % 1.53 % 1.52 % 1.44 % 1.49 % 1.83 % 1.49 %
Allowance for loan losses to non-performing loans 101.94 % 100.77 % 130.77 % 154.59 % 155.48 % 101.94 % 155.48 %

(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 ~~71-75~~77-80 for further explanation and reconciliation of the Corporation’s use of non-GAAP measures.

Executive Summary

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

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


	Three Months Ended September 30,
	2020			2019			Change		Percentage Change
Net interest income	$	15,869		$	15,142		$	727	4.8	%
Non-interest income	5,339			4,956			383		7.7	%
Non-interest expense	13,362			13,525			(163)		(1.2)	%
Pre-provision income	7,846			6,573			1,273		19.4	%
Provision for loan losses	679			4,441			(3,762)		(84.7)	%
Income tax expense	1,456			176			1,280		727.3	%
Net income	$	5,711		$	1,956		$	3,755	192.0	%

Basic and diluted earnings per share	$	1.19		$	0.40		$	0.79	197.5	%

Selected financial ratios:
Return on average assets	1.08		%	0.44		%
Return on average equity	11.56		%	4.29		%
Net interest margin, fully taxable equivalent (a)	3.20		%	3.63		%
Efficiency ratio (adjusted) (b)	62.19		%	66.21		%
Non-interest expenses to average assets	2.54		%	3.05		%
(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.

Three Months Ended
September 30,
2019 2018 Change Percentage Change
Net interest income $ 15,142
$ 15,079
$ 63
0.4 %
Non-interest income 4,956
7,381
(2,425 ) (32.9 )%
Non-interest expense 13,525
13,428
97
0.7 %
Pre-provision income 6,573
9,032
(2,459 ) (27.2 )%
Provision for loan losses 4,441
300
4,141
1,380.3 %
Income tax expense 176
1,802
(1,626 ) (90.2 )%
Net income $ 1,956
$ 6,930
$ (4,974 ) (71.8 )%

Basic and diluted earnings per share $ 0.40
$ 1.43
$ (1.03 ) (72.0 )%

Selected financial ratios:

Return on average assets 0.44 % 1.61 %

Return on average equity 4.29 % 17.81 %

Net interest margin, fully taxable equivalent (a) 3.63 % 3.71 %

Efficiency ratio (adjusted) (b) 66.21 % 64.72 %

Non-interest expenses to average assets 3.05 % 3.13 %

(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 third quarter of ~~2019~~2020 was $5.7 million, or $1.19 per share, compared to $2.0 million, or $0.40 ~~per share, compared with $6.9 million, or $1.43~~ per share, for the same period in the prior year. Return on average equity for the current quarter was ~~4.29%~~11.56%, compared ~~with 17.81%~~to 4.29% for ~~the prior year quarter. The decrease in net income was due to an increase in provision for loan losses and a decrease in non-interest income, offset by a decrease in income tax expense.~~

~~Net interest income~~

~~Net interest income increased by less than $0.1 million, or 0.4%, compared with~~ the same period in the prior year. The increase in net income was due primarily to ~~an increase~~increases in net interest income and ~~dividend~~non-interest income, decreases in non-interest expense and the provision for loan losses, offset by an increase in ~~total~~income tax expense.

Net interest ~~expense.~~

~~Non-interest~~ income

~~Non-interest~~Net interest income ~~decreased $2.4~~increased $0.7 million, or ~~32.9%~~4.8%, compared ~~with the same period in the prior year. The decrease can be mostly attributed~~ to a decrease in the change in fair value of equity investments. The decrease was due primarily to an increase in the fair value of Visa Class B shares in the third quarter of 2018, which were subsequently sold during the third quarter of 2018.

~~Non-interest expense~~

~~Non-interest expense increased $0.1 million, or 0.7%, compared with~~ the same period in the prior year. The increase was due primarily to increases in ~~salaries~~interest income on loans, including fees, interest and ~~wages, pension and other employee benefits, furniture and equipment expenses,~~dividend income on taxable securities, and a ~~reduced credit~~decrease in ~~other components of net periodic pension cost and post-retirement benefits,~~total interest expense, offset by ~~decreases~~a decrease in ~~net occupancy expense and FDIC insurance expense. For the three months ended September 30, 2019,~~interest income on interest-earning deposits.

Non-interest income

Total non-interest ~~expense to average assets was 3.05%, compared with 3.13% for the same period in the prior year.~~

~~Provision for loan losses~~

~~The provision for loan losses~~income increased ~~$4.1~~$0.4 million, or 7.7%, compared to the same period in the prior year. The increase can be mostly attributed to increases in net gains on sales of residential mortgage loans sold into the secondary market, WMG fee income, change in fair value of equity investments and other non-interest income, offset by a ~~specific impairment of $4.2 million related~~decrease in service charges on deposit accounts primarily attributable to a ~~participating interest~~decrease in ~~a commercial credit. Net charge-offs for~~NSF and overdraft fees, as compared to the ~~third quarter of 2019 were~~same period in the prior year.

Non-interest expense

Non-interest expense decreased $0.2 million, ~~compared with $0.3 million for the third quarter of 2018.~~

~~Income tax expense~~

~~Income tax expense was $0.2 million in the third quarter of 2019, a decrease of $1.6 million when~~or 1.2%, compared to the same period in the prior year. The decrease was due primarily to decreases in pension and other employee benefits, other non-interest expense, and furniture and equipment expenses, offset by increases in FDIC insurance and salaries and wages. For the three months ended September 30, 2020, non-interest expense to average assets was 2.54%, compared to 3.05% for the same period in the prior year.

Provision for loan losses

The provision for loan losses decreased $3.8 million, compared to the same period in the prior year. The decrease in the provision for loan losses was primarily due to a ~~decrease~~specific impairment of ~~$6.6~~$4.2 million related to a participating interest in a commercial credit in the third quarter of the prior year. Net charge-offs for the third quarter of 2020 and 2019 were $0.2 million, respectively.

Income tax expense

Income tax expense was $1.5 million in the third quarter of 2020, an increase of $1.3 million when compared to the same period in the prior year. The increase was due primarily to an increase of $5.0 million in income before income tax expense for the third quarter of ~~2019~~2020 as compared to the same period in the prior year. The effective tax rate ~~decreased~~increased from ~~20.6% for the third quarter of 2018 to~~ 8.3% for the third quarter of ~~2019.~~2019 to 20.3% for the third quarter of 2020.

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


	Nine Months Ended September 30,
	2020			2019			Change		Percentage Change
Net interest income	$	46,522		$	45,410		$	1,112	2.4	%
Non-interest income	15,150			14,967			183		1.2	%
Non-interest expense	40,339			40,845			(506)		(1.2)	%
Pre-provision income	21,333			19,532			1,801		9.2	%
Provision for loan losses	3,989			5,684			(1,695)		(29.8)	%
Income tax expense	3,315			2,443			872		35.7	%
Net income	$	14,029		$	11,405		$	2,624	23.0	%

Basic and diluted earnings per share	$	2.90		$	2.34		$	0.56	23.9	%

Selected financial ratios:
Return on average assets	0.95		%	0.87		%
Return on average equity	9.74		%	8.76		%
Net interest margin, fully taxable equivalent (a)	3.33		%	3.67		%
Efficiency ratio (adjusted) (b)	64.54		%	66.56		%
Non-interest expense to average assets	2.72		%	3.12		%
(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio 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.

Nine Months Ended
September 30,
2019 2018 Change Percentage Change
Net interest income $ 45,410
$ 44,996
$ 414
0.9 %
Non-interest income 14,967
18,181
(3,214 ) (17.7 )%
Non-interest expense 40,845
42,561
(1,716 ) (4.0 )%
Pre-provision income 19,532
20,616
(1,084 ) (5.3 )%
Provision for loan losses 5,684
3,371
2,313
68.6 %
Income tax expense 2,443
3,349
(906 ) (27.1 )%
Net income $ 11,405
$ 13,896
$ (2,491 ) (17.9 )%

Basic and diluted earnings per share $ 2.34
$ 2.88
$ (0.54 ) (18.8 )%

Selected financial ratios:

Return on average assets 0.87 % 1.09 %

Return on average equity 8.76 % 12.22 %

Net interest margin, fully taxable equivalent (a) 3.67 % 3.73 %

Efficiency ratio (adjusted) (b) 66.56 % 66.80 %

Non-interest expense to average assets 3.12 % 3.34 %

(a) See the GAAP to Non-GAAP reconciliations.
(b) Efficiency ratio 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 nine months ended September 30, ~~2019~~2020 was $14.0 million, or $2.90 per share, compared to $11.4 million, or $2.34 ~~per share, compared with $13.9 million, or $2.88~~ per share, for the same period in the prior year. Return on average equity for the nine months ended September 30, ~~2019~~2020 was ~~8.76%~~9.74%, compared ~~with 12.22%~~to 8.76% for the same period in the prior year. The ~~decrease~~increase in net income from the prior year period was ~~driven by a decrease~~attributable to increases in total net interest income and total non-interest income, ~~and an increase~~decreases in provision for loan losses ~~offset by decreases in~~and non-interest expense, ~~and income tax expense, and~~partially offset by an increase in ~~net interest income.~~income tax expense.

Net interest income

Net interest income increased ~~$0.4~~$1.1 million, or ~~0.9%~~2.4%, compared ~~with~~to the same period in the prior year. The increase can be mostly attributed to a decrease in total interest expense on deposits and an increase in interest income on taxable securities. This increase was offset by a decrease in interest income on interest-earning deposits.

Non-interest income

Non-interest income increased $0.2 million, or 1.2%, compared to the same period in the prior year. The increase was due primarily to increases in net gains on sales of residential mortgage loans ~~including fees,~~sold into the secondary market, other non-interest income, and income from bank owned life insurance, offset by decreases in service charges on deposit accounts, WMG fee income, changes in fair value of equity investments, and interchange revenue from debit card transactions. The increase in other non-interest income was due primarily to receipt of an insurance claim payment in the current period and an increase in interest rate swap fee income ~~from interest-earning deposits, and a decrease~~when compared to the same period in ~~interest expense on borrowed funds, offset by an increase in interest expense on interest-bearing deposits.~~the prior year.

Non-interest ~~income~~expense

Non-interest ~~income~~expense decreased ~~$3.2~~$0.5 million, or ~~17.7%~~1.2%, compared to the same period in the prior year. The decrease was due primarily to ~~decreases~~decreased spending across all categories except salaries and wages, data processing, loan expenses, FDIC insurance, and an increased credit in other components of net periodic pension and postretirement benefits. For the nine months ended September 30, 2020, non-interest ~~income, net gains (losses) on sales of other real estate owned, and change in fair value of equity investments. The decrease in other non-interest income~~expense to average assets was ~~due~~2.72%, compared to ~~a New York sales tax refund received in March 2018, and additional rental income from OREO property received~~3.12% for the same period in the prior ~~year, and a decrease in swap fees, partially offset by an increase in CFS fee and commission income.~~year.

Provision for loan losses

~~Non-interest expense~~

~~Non-interest expense~~The provision for loan losses decreased $1.7 million, or ~~4.0%~~29.8%, compared to the same period in the prior year. The $1.7 million decrease ~~was due primarily~~in the provision as compared to ~~decreases~~the prior year can be mostly attributed to a specific impairment of $4.2 million related to a participation interest in ~~legal accruals~~a commercial credit in the prior year. The provision for loan losses included a $4.5 million increase in potential projected loss estimates in response to the COVID-19 pandemic, and settlements, net occupancy expenses, furniture and equipment expenses, other non-interest expenses, marketing and advertising expenses, professional services, other real estate owned expenses, and FDIC insurance. These items were partially offset by an increase in ~~other components of~~loan volume, offset by recoveries, decreases in specific allocations, and a net ~~periodic pension cost (benefits), and salaries and wages. For~~decrease in historical loss factors due to a large 2018 loan charge-off which no longer impacts the provision calculation. Net charge-offs increased $2.2 million for the nine months ended September 30, ~~2019, non-interest expense~~2020, compared to ~~average assets was 3.12%, compared with 3.34% for~~ the same period in the prior ~~year.~~year, mostly due to the partial charge-off of a commercial loan.

~~Provision for loan losses~~Income tax expense

~~The provision for loan losses~~Income tax expense increased ~~$2.3~~$0.9 million, or ~~68.6%~~35.7%, compared to the same period in the prior year. The increase in the provision for loan losses can be mostly attributed to a third quarter impairment of a participating interest in a commercial credit for $4.2 million, offset by a decrease in the loan portfolio of $14.0 million between September 30, 2018 and September 30, 2019. Net charge-offs decreased $4.2 million for the nine months ended September 30, 2019, compared with the same period in the prior year, mostly due to the charge-off of multiple large commercial loans to one borrower during the first nine months of 2018.

~~Income tax expense~~

~~Income tax expense decreased $0.9 million, or 27.1%, compared to the same period in the prior year. The decrease~~ was due primarily to ~~a decrease~~an increase in income before income tax expense. The effective income tax rate ~~decreased~~increased from ~~19.4% for the nine months ended September 30, 2018 to~~ 17.6% for the nine months ended September 30, ~~2019.~~2019 to 19.1% for the nine months ended September 30, 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 and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. For a discussion of the Critical Accounting Policies, Estimates and Risks and Uncertainties that affect the Consolidated Results of Operations, see ~~page 71~~pages 76-77 of this Form 10-Q and page 6769 of the Corporation’s ~~2018~~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 September 30,

	2020		2019		Change		Percentage Change
Interest and dividend income	$	16,714	$	16,808	$	(94)	(0.6)	%
Interest expense	845		1,666		(821)		(49.3)	%
Net interest income	$	15,869	$	15,142	$	727	4.8	%

Three Months Ended
September 30,
2019 2018 Change Percentage Change
Interest and dividend income $ 16,808
$ 16,136
$ 672
4.2 %
Interest expense 1,666
1,057
609
57.6 %
Net interest income $ 15,142
$ 15,079
$ 63
0.4 %

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 September 30, ~~2019~~2020 increased ~~less than $0.1~~$0.7 million, or ~~0.4%~~4.8%, to ~~$15.1~~$15.9 million compared to the same period in the prior year, due primarily to a ~~$0.7~~$0.8 million ~~increase~~decrease in total interest expense, offset by a $0.1 million decrease in total interest and dividend ~~income, offset by a $0.6 million increase in total interest expense.~~income. Interest ~~and fees from loans increased $0.1 million, interest from taxable securities increased $0.1 million, and interest from interest-earning~~expense on deposits ~~increased $0.4~~decreased $0.8 million in the third quarter of ~~2019~~2020 as compared to the same period in the prior year. ~~Interest~~The decrease in interest expense on deposits ~~increased $0.8~~was due primarily to a $0.7 million ~~while interest expense~~decrease in interest-bearing checking, savings, and money market expenses which was due to the decreases in average rates paid on ~~borrowed funds~~these products in response to the Federal Reserve's 50 and 100 basis points drop on overnight rates in March, 2020. As a result, the average rate of interest-bearing liabilities decreased ~~$0.2 million in~~34 basis points to 0.27% for the third quarter of ~~2019 when~~2020 compared to the same period in the previous year. The decrease in total interest and dividend income for the current quarter was due primarily to a decrease of $0.4 million in interest income on interest-earning deposits, offset by increases of $0.2 million in interest income on loans, including fees, and $0.1 million in interest income on taxable securities as compared to the same period in the prior year. The decrease in interest income on interest-earning deposits was due primarily to the sharp drop in interest rates on overnight deposits with the average yield on interest-earning deposits declining from 2.22% in the third quarter of 2019 to 0.31% in the third quarter of 2020. The increase in interest and dividend income on taxable securities was due primarily to an increase in average invested balances of $67.2 million in the third quarter 2020 as compared to the third quarter 2019 due to increased purchases. The increase in loan income was due primarily to an increase of $0.4 million in interest income on commercial loans primarily attributable to a $210.1 million increase in average balances of commercial loans and the recognition of $1.2 million of PPP loan fees, offset by a decrease in portfolio average yield due to a decrease in interest rates. Interest income on mortgage loans increased $0.3 million primarily due to an increase of $36.3 million in average balances of mortgage loans. These increases were offset by a decrease of $0.5 million in interest income on consumer loans which can be attributed to both decreases in average balances and average portfolio yield on consumer loans.

Fully taxable equivalent net interest margin was ~~3.63%~~3.20% in the third quarter of ~~2019,~~2020, compared ~~with 3.71%~~to 3.63% for the same period in the prior year.

The average yield on interest-earning assets ~~increased 7~~decreased 66 basis points, ~~while~~and the average cost of interest-bearing liabilities ~~increased 22~~decreased 34 basis points in the third quarter of ~~2019,~~2020, compared to the same period in the prior year. Average interest-earning assets increased ~~$40.7~~$320.3 million ~~compared to the same period~~ in the ~~prior year. The increase in interest and dividend income for the~~ current quarter can be mostly attributed to average annualized yield increases of 12 basis points on commercial loans, 25 basis points on consumer loans, and 23 basis points in taxable securities, along with a $74.1 million increase in the average balance of interest-earning deposits, offset by a $30.9 million decrease in the average balance of consumer loans, compared to the same period in the prior year.

The increase in interest expense for the current quarter can be mostly attributed to an increase in interest rates on average interest-bearing deposit accounts, including promotional rates on time deposits, offset by a $29.1 million decrease in the average balance of FHLB advances, other debt and repurchase agreements.

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


	Nine Months Ended September 30,
	2020		2019		Change		Percentage Change
Interest and dividend income	$	49,570	$	50,155	$	(585)	(1.2)	%
Interest expense	3,048		4,745		(1,697)		(35.8)	%
Net interest income	$	46,522	$	45,410	$	1,112	2.4	%

Nine Months Ended
September 30,
2019 2018 Change Percentage Change
Interest and dividend income $ 50,155
$ 47,674
$ 2,481
5.2 %
Interest expense 4,745
2,678
2,067
77.2 %
Net interest income $ 45,410
$ 44,996
$ 414
0.9 %

Net interest income for the nine months ended September 30, ~~2019~~2020 totaled ~~$45.4~~$46.5 million compared ~~with $45.0~~to $45.4 million for the same period in the prior year, an increase of ~~$0.4~~$1.1 million, or ~~0.9%. Interest~~2.4% due primarily to a $1.7 million decrease in total interest expense offset by a $0.6 million decrease in total interest and ~~fees from loans increased $0.8~~dividend income.

The decrease in interest expense for the first nine months of 2020 can be mostly attributed to a decrease of $1.7 million in interest-bearing checking, savings and money market expenses, which was due to decreases in average rates paid on these products as a result of the Federal Reserve's 50 and 100 basis points drop on overnight rates in March, 2020. As a result, the average rate of interest-bearing liabilities decreased 24 basis points to 0.34% for the nine months ended September 30, 2020 compared to the same period in the previous year. Total interest ~~from~~and dividend income decreased primarily due to decreases of $1.1 million in interest income on interest-earning deposits, ~~increased $1.6~~offset by an increase of $0.5 million in interest income on taxable securities. The decrease in interest-earning deposits can mostly be attributed to a decline in interest rates. The decrease in interest income on loans, including fees, can mostly be attributed to a decrease in average interest rates despite an increase in the average balances of loans and early payoff penalties and deferred fee income year to date. The increase in interest income on taxable securities can mostly be attributed to an increase in average balances of $44.3 million for the nine months ended September 30, ~~2019,~~2020 as compared to the same period in the prior ~~year. Interest expense on borrowed funds and~~year, due to increased purchases. Fully taxable equivalent net interest ~~expense on securities sold under agreements to repurchase decreased $0.5 million and $0.1 million respectively,~~margin was 3.33% for the nine months ended September 30, ~~2019,~~2020 compared to 3.67% for the same period in the prior year. ~~These items were partially offset by an increase in interest expense~~

The average yield on ~~deposits~~interest-earning assets decreased 51 basis points, and the average cost of ~~$2.7 million on deposits for the nine month period ended September 30, 2019, compared to the same period in the prior year. Fully taxable equivalent net interest margin was 3.67%~~interest-bearing liabilitiesdecreased 24 basis points for the nine months ended September 30, ~~2019~~2020, as compared ~~with 3.73% for~~to the same period in the prior year. Average interest-earning assets increased ~~$39.4~~$213.8 million ~~for the nine months ended September 30, 2019, compared to the same period in the prior year.~~

~~The average yield on interest-earning assets increased 10 basis points, while the average cost of interest-bearing liabilitiesincreased 25 basis points for the nine months ended September 30, 2019, as~~ compared to the same period in the prior year. The ~~increase~~decrease in interest and dividend income for the ~~average yield on interest-earning assets~~first nine months of 2020 can be mostly attributed to anaverage annualized yield decreases of 181 basis points on interest-earning deposits, 27 basis points on consumer loans, 12 basis points on taxable securities, and 55 basis points on commercial loans, offset by a $44.3 million increase in the average balance of ~~interest-earning deposits of $87.7~~taxable securities, $137.1 million ~~and a 16 basis points~~ increase in the average yield on commercial loans, due to an increase in PRIME and LIBOR. The increase in the average cost of interest-bearing liabilities can be attributed to a 20 basis points increase in the average cost of savings and money market accounts due to rising rates, and an 85 basis points increase in the average cost of time deposits due to promotions, offset by a $36.6 million decrease in the average balance of ~~FHLB advances, securities sold under agreement to repurchase,~~commercial loans, and ~~other debt due~~a $21.0 million increase in the average balance of mortgage loans, compared to the ~~maturity of one $2.0 million FHLB term advance (3.05% rate)~~same period in ~~January 2018, and one $10.0 million repurchase agreement (3.72% rate) in May 2018.~~the prior year.

Average Consolidated Balance Sheets and Interest Analysis

The following tables present certain information related to the Corporation’s average consolidated balance sheets and its consolidated statements of income for the three and nine months ended September 30, ~~2019~~2020 and ~~2018.~~2019. For the purpose of the tables below, non-accruing loans are included in the daily average loan amounts outstanding. Daily balances were used for average balance computations. Investment securities are stated at amortized cost. Tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions, tax-free commercial loans and dividends on equity investments.


AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS	AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS																AVERAGE CONSOLIDATED BALANCE SHEETS AND NET INTEREST INCOME ANALYSIS
(in thousands)	Three Months Ended September 30, 2019								Three Months Ended September 30, 2018								(in thousands)	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
	Average Balance			Interest			Yield/Rate (3)		Average Balance			Interest			Yield/Rate (3)			Average Balance		Interest		Yield/Rate (3)		Average Balance		Interest		Yield/Rate (3)
Interest-earning assets:																	Interest-earning assets:
Commercial loans	$	864,923		$	10,160		4.66	%	$	861,513		$	9,868		4.54	%	Commercial loans	$	1,075,029	$	10,575	3.91	%	$	864,923	$	10,160	4.66	%
Mortgage loans	184,090			1,788			3.85	%	191,493			1,824			3.78	%	Mortgage loans	220,345		2,067		3.73	%	184,090		1,788		3.85	%
Consumer loans	246,154			2,752			4.44	%	277,065			2,925			4.19	%	Consumer loans	220,388		2,256		4.07	%	246,154		2,752		4.44	%
Taxable securities	234,075			1,350			2.29	%	231,340			1,201			2.06	%	Taxable securities	301,315		1,476		1.95	%	234,075		1,350		2.29	%
Tax-exempt securities	46,945			357			3.02	%	48,226			333			2.74	%	Tax-exempt securities	41,372		325		3.13	%	46,945		357		3.02	%
Interest-earning deposits	89,606			502			2.22	%	15,495			84			2.15	%	Interest-earning deposits	127,594		100		0.31	%	89,606		502		2.22	%
Total interest-earning assets	1,665,793			16,909			4.03	%	1,625,132			16,235			3.96	%	Total interest-earning assets	1,986,043		16,799		3.37	%	1,665,793		16,909		4.03	%

Non-earning assets:																	Non-earning assets:
Cash and due from banks	25,784								27,686								Cash and due from banks	25,534						25,784
Premises and equipment, net	23,426								25,896
Other assets	63,149								55,323								Other assets	106,907						88,841
Allowance for loan losses	(20,033		)						(19,879		)						Allowance for loan losses	(24,370)						(20,033)
AFS valuation allowance	2,266								(9,437		)
Total assets	$	1,760,385							$	1,704,721							Total assets	$	2,094,114					$	1,760,385

Interest-bearing liabilities:																	Interest-bearing liabilities:
Interest-bearing demand deposits	$	180,852		$	170		0.37	%	$	147,340		$	78		0.21	%	Interest-bearing demand deposits	$	253,278	$	55	0.09	%	$	180,852	$	170	0.37	%
Savings and insured money market deposits	724,451			794			0.43	%	745,235			513			0.27	%	Savings and insured money market deposits	791,004		231		0.12	%	724,451		794		0.43	%
Time deposits	178,107			665			1.48	%	144,037			267			0.74	%	Time deposits	188,889		524		1.10	%	178,107		665		1.48	%
FHLBNY advances, securities sold under agreements to repurchase, and other debt	4,161			37			3.53	%	33,227			199			2.38	%
Long-term advances, securities sold under agreements to repurchase, and other debt																	Long-term advances, securities sold under agreements to repurchase, and other debt	3,930		35		3.54	%	4,161		37		3.53	%
Total interest-bearing liabilities	1,087,571			1,666			0.61	%	1,069,839			1,057			0.39	%	Total interest-bearing liabilities	1,237,101		845		0.27	%	1,087,571		1,666		0.61	%

Non-interest-bearing liabilities:																	Non-interest-bearing liabilities:
Demand deposits	462,448								464,470								Demand deposits	620,386						462,448
Other liabilities	29,470								16,081								Other liabilities	40,058						29,470
Total liabilities	1,579,489								1,550,390								Total liabilities	1,897,545						1,579,489
Shareholders' equity	180,896								154,331								Shareholders' equity	196,569						180,896
Total liabilities and shareholders’ equity	$	1,760,385							$	1,704,721							Total liabilities and shareholders’ equity	$	2,094,114					$	1,760,385
Fully taxable equivalent net interest income				15,243								15,178					Fully taxable equivalent net interest income			15,954						15,243
Net interest rate spread (1)							3.42	%							3.57	%	Net interest rate spread (1)					3.10	%					3.42	%
Net interest margin, fully taxable equivalent (2)							3.63	%							3.71	%	Net interest margin, fully taxable equivalent (2)					3.20	%					3.63	%
Taxable equivalent adjustment				(101		)						(99		)			Taxable equivalent adjustment			(85)						(101)
Net interest income				$	15,142							$	15,079				Net interest income			$	15,869					$	15,142

~~CFS fee and commission income~~

~~The increase in CFS fee and commission income, compared to the same period in the prior year, can be mostly attributed to an increase in annuity commissions.~~

Non-interest expense

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


	Three Months Ended September 30,
	2020		2019		Change		Percentage Change
Compensation expense:
Salaries and wages	$	6,088	$	5,874	$	214	3.6	%
Pension and other employee benefits	1,245		1,470		(225)		(15.3)	%
Other components of net periodic pension and postretirement benefits	(254)		(141)		(113)		N/M
Total compensation expense	7,079		7,203		(124)		(1.7)	%

Non-compensation expense:
Net occupancy	1,454		1,424		30		2.1	%
Furniture and equipment	538		717		(179)		(25.0)	%
Data processing	1,777		1,818		(41)		(2.3)	%
Professional services	453		395		58		14.7	%

Amortization of intangible assets	120		151		(31)		(20.5)	%
Marketing and advertising	140		231		(91)		(39.4)	%
Other real estate owned expenses	53		9		44		488.9	%
FDIC insurance	247		(10)		257		N/M
Loan expenses	301		171		130		76.0	%
Other	1,200		1,416		(216)		(15.3)	%
Total non-compensation expense	6,283		6,322		(39)		(0.6)	%
Total non-interest expense	$	13,362	$	13,525	$	(163)	(1.2)	%

Three Months Ended
September 30,
2019 2018 Change Percentage Change
Compensation expense:
Salaries and wages $ 5,874
$ 5,691
$ 183
3.2 %
Pension and other employee benefits 1,470
1,262
208
16.5 %
Other components of net periodic pension and postretirement benefits (141 ) (408 ) 267
N/M
Total compensation expense 7,203
6,545
658
10.1 %

Non-compensation expense:

Net occupancy 1,424
1,671
(247 ) (14.8 )%
Furniture and equipment 717
581
136
23.4 %
Data processing 1,818
1,782
36
2.0 %
Professional services 395
479
(84 ) (17.5 )%
Amortization of intangible assets 151
182
(31 ) (17.0 )%
Marketing and advertising 231
212
19
9.0 %
Other real estate owned expenses 9
83
(74 ) (89.2 )%
FDIC insurance (10 ) 263
(273 ) (103.8 )%
Loan expenses 171
262
(91 ) (34.7 )%
Other 1,416
1,368
48
3.5 %
Total non-compensation expense 6,322
6,883
(561 ) (8.2 )%
Total non-interest expense $ 13,525
$ 13,428
$ 97
0.7 %

Total non-interest expense for the third quarter of ~~2019 increased $0.1~~2020 decreased $0.2 million compared ~~with~~to the same period in the prior year. The ~~increase~~decrease was due to ~~an increase~~decreases in total compensation expense ~~offset by a decrease in~~and total non-compensation expense.

Compensation expense

The ~~increase~~decrease in compensation expense, compared to the same period in the prior year, can be mostly ~~be attributed~~attributable to ~~annual merit increases~~a decrease in pension and other employee benefits, offset by an increase in salaries and wages, and a reduced credit in other components of net periodic pension and postretirement benefits. The ~~increase~~decrease in pension and other employee benefits was mostly attributable to a decrease in healthcare expenses as compared to the same period in the prior year. The reduced credit in other components of net periodic pension and postretirement benefits was primarily due ~~primarily~~ to ~~increased health care costs.~~a change in assumptions used to prepare annual actuarial expense estimates. The increase in salaries and wages was mostly attributable to an increase in reward and incentive payments.

Non-compensation expense

The decrease in non-compensation expense, compared to the same period in the prior year, can be mostly attributed to decreases in ~~net occupancy~~other non-interest expense, furniture and equipment, and marketing and advertising, offset by increases in FDIC insurance ~~expense.~~ and loan expenses.

The decrease in ~~net occupancy~~other non-interest expense ~~was~~can mostly ~~attributable~~be attributed to overall decreases in expenditures due to the ~~closing~~COVID-19 pandemic including, corporate travel and client and bank relations, supplies, and statement and notice processing. The decrease in furniture and equipment can mostly be attributed to a decrease in the overall depreciation expense after the closure of ~~the Oakdale Mall and Painted Post branches~~two branch locations in 2019. The decrease in marketing and advertising can mostly be attributed to decreased promotional efforts due to the COVID-pandemic. The increase in FDIC insurance ~~expense~~ was primarily ~~due~~attributable to the receipt of a ~~$0.2 million~~ credit in the third quarter of the prior year related to the Deposit Insurance Fund's (DIF) minimum reserve ratio assessment. The increase in loan expenses was mostly attributable to increased loan volume compared to the same period in the prior year.

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


	Nine Months Ended September 30,
	2020		2019		Change		Percentage Change
Compensation expense:
Salaries and wages	$	17,678	$	17,375	$	303	1.7	%
Pension and other employee benefits	4,095		4,488		(393)		(8.8)	%
Other components of net periodic pension and postretirement benefits	(762)		(423)		(339)		N/M
Total compensation expense	21,011		21,440		(429)		(2.0)	%

Non-compensation expense:
Net occupancy	4,406		4,469		(63)		(1.4)	%
Furniture and equipment	1,573		1,840		(267)		(14.5)	%
Data processing	5,630		5,418		212		3.9	%
Professional services	1,313		1,218		95		7.8	%

Amortization of intangible assets	371		465		(94)		(20.2)	%
Marketing and advertising	546		644		(98)		(15.2)	%
Other real estate owned expenses	87		80		7		8.8	%
FDIC insurance	726		476		250		52.5	%
Loan expenses	798		557		241		43.3	%
Other	3,878		4,238		(360)		(8.5)	%
Total non-compensation expense	19,328		19,405		(77)		(0.4)	%
Total non-interest expense	$	40,339	$	40,845	$	(506)	(1.2)	%

Nine Months Ended
September 30,
2019 2018 Change Percentage Change
Compensation expense:
Salaries and wages $ 17,375
$ 16,969
$ 406
2.4 %
Pension and other employee benefits 4,488
4,438
50
1.1 %
Other components of net periodic pension and postretirement benefits (423 ) (1,224 ) 801
N/M
Total compensation expense 21,440
20,183
1,257
6.2 %

Non-compensation expense:

Net occupancy 4,469
4,922
(453 ) (9.2 )%
Furniture and equipment 1,840
1,941
(101 ) (5.2 )%
Data processing 5,418
5,288
130
2.5 %
Professional services 1,218
1,527
(309 ) (20.2 )%
Legal accruals and settlements —
989
(989 ) (100.0 )%
Amortization of intangible assets 465
558
(93 ) (16.7 )%
Marketing and advertising 644
816
(172 ) (21.1 )%
Other real estate owned expenses 80
321
(241 ) (75.1 )%
FDIC insurance 476
881
(405 ) (46.0 )%
Loan expenses 557
615
(58 ) (9.4 )%
Other 4,238
4,520
(282 ) (6.2 )%
Total non-compensation expense 19,405
22,378
(2,973 ) (13.3 )%
Total non-interest expense $ 40,845
$ 42,561
$ (1,716 ) (4.0 )%

Total non-interest expense for the nine months ended September 30, ~~2019~~2020 decreased ~~$1.7~~$0.5 million compared ~~with~~to the same period in the prior year. The decrease was due to ~~a decrease in total non-compensation expense, offset by an increase~~decreases in total compensation expense and total non-compensation expense.

Compensation expense

The ~~increase~~decrease in compensation expense, compared to the same period in the prior year, can be mostly attributable to ~~an increase~~a decrease in ~~salaries~~pension and ~~wages~~other employee benefits and a reduced credit in other components of net periodic pension ~~benefits. The~~and postretirement benefits, offset by an increase in salaries and ~~wages can be attributed to annual merit increases.~~wages. The decrease in pension and other employee benefits was mostly attributable to a decrease in healthcare expenses as compared to the ~~benefit~~same period in the prior year. The reduced credit in other components of net periodic pension and ~~post-retirement~~postretirement benefits was due to a change in assumptions used to prepare annual actuarial expense estimates. The increase in salaries and wages was due to an increase in reward and incentive payments.

Non-compensation expense

The decrease in non-compensation expense, compared to the same period in the prior year, can be mostly attributed to decreases in ~~legal accruals and settlements, net occupancy expenses, furniture and equipment expenses,~~ other non-interest expenses, marketing and advertising expenses, professional services, other real estate owned, and FDIC insurance. The decrease in legal accruals and settlements can be attributed to the settlement agreement in the matter of ~~Fane vs. Chemung Canal Trust Company~~ ~~during the second quarter of 2018. The decrease in net occupancy~~non-compensation expense and furniture and equipment expenses, ~~was~~offset by increases in FDIC insurance and loan expenses.

The decrease in other non-compensation expense can mostly ~~attributable~~be attributed to ~~runoff~~a decrease in ~~depreciation expense related to mechanical equipment, the closing of the Oakdale Mall~~bank and ~~Painted Post branches, as well as a reduction in non-capitalizable fixed asset purchases~~client relations and travel expenditures as compared to the ~~prior year~~same period due to the opening of two new branches in 2018. The decrease in marketing and advertising expenses was due to promotional expenses associated with the opening of two new branches during 2018. The decrease in professional services was due to consulting fees incurred in the prior year ~~associated with~~due to the ~~NYS sales tax refund received in March 2018.~~COVID-19 pandemic. The decrease in ~~OREO~~furniture and equipment expenses can mostly be attributed to ~~fewer OREO properties retained~~a decrease in the ~~first nine months~~overall depreciation expense after the closure of ~~2019 as compared to the first nine months of 2018.~~two branch locations in 2019. The ~~decrease~~increase in FDIC insurance ~~expense~~ was primarily ~~due~~attributed to the receipt of a ~~$0.2 million~~ credit in the third quarter of the prior year related to the Deposit Insurance Fund's (DIF) minimum reserve ratio assessment. The increase in loan expenses was primarily attributable 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, and an increase in loan volume.

Income tax expense

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


	Three Months Ended September 30,
	2020			2019			Change		Percentage Change
Income before income tax expense	$	7,167		$	2,132		$	5,035	236.2	%
Income tax expense	1,456			176			1,280		727.3	%
Effective tax rate	20.3		%	8.3		%

Three Months Ended
September 30,
2019 2018 Change Percentage Change
Income before income tax expense $ 2,132
$ 8,732
$ (6,600 ) (75.6 )%
Income tax expense 176
1,802
(1,626 ) (90.2 )%
Effective tax rate 8.3 % 20.6 %

Income tax expense for the current quarter was ~~$0.2~~$1.5 million compared to ~~$1.8~~$0.2 million for the same period in the prior year. The ~~decrease~~increase in income tax expense was due primarily to ~~a decrease~~an increase of ~~$6.6~~$5.0 million in income before income tax expense. The effective income tax rate ~~decreased~~increased from ~~20.6% for the third quarter of 2018 to~~ 8.3% for the third quarter of ~~2019.~~2019 to 20.3% for the third quarter of 2020.

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


	Nine Months Ended September 30,
	2020			2019			Change		Percentage Change
Income before income tax expense	$	17,344		$	13,848		$	3,496	25.2	%
Income tax expense	3,315			2,443			872		35.7	%
Effective tax rate	19.1		%	17.6		%

Nine Months Ended
September 30,
2019 2018 Change Percentage Change
Income before income tax expense $ 13,848
$ 17,245
$ (3,397 ) (19.7 )%
Income tax expense 2,443
3,349
(906 ) (27.1 )%
Effective tax rate 17.6 % 19.4 %

Income tax expense for the nine months ended September 30, 2020 and 2019 ~~and 2018~~ were ~~$2.4~~$3.3 million and ~~$3.3~~$2.4 million, respectively. The ~~decrease~~increase in income tax expense was due primarily to ~~a decrease~~an increase of ~~$3.4~~$3.5 million in income before income tax expense. The effective income tax rate ~~decreased~~increased from ~~19.4% for the nine months ended September 30, 2018 to~~ 17.6% for the nine months ended September 30, ~~2019.~~2019 to 19.1% for the nine months ended September 30, 2020.

Financial Condition

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


	September 30, 2020		December 31, 2019		Change		Percentage Change
ASSETS
Total cash and cash equivalents	$	149,902	$	121,904	$	27,998	23.0	%
Total investment securities, FHLB, and FRB stock	404,788		292,478		112,310		38.4	%

Loans, net of deferred loan fees	1,538,493		1,309,219		229,274		17.5	%
Allowance for loan losses	(24,590)		(23,478)		(1,112)		4.7	%
Loans, net	1,513,903		1,285,741		228,162		17.7	%

Goodwill and other intangible assets, net	22,195		22,566		(371)		(1.6)	%
Other assets	74,226		65,138		9,088		14.0	%
Total assets	$	2,165,014	$	1,787,827	$	377,187	21.1	%

LIABILITIES AND SHAREHOLDERS' EQUITY
Total deposits	$	1,924,189	$	1,572,138	$	352,051	22.4	%
Long-term advances and other debt	4,155		4,085		70		1.7	%
Other liabilities	39,665		28,977		10,688		36.9	%
Total liabilities	1,968,009		1,605,200		362,809		22.6	%

Total shareholders’ equity	197,005		182,627		14,378		7.9	%
Total liabilities and shareholders’ equity	$	2,165,014	$	1,787,827	$	377,187	21.1	%

September 30, 2019 December 31, 2018 Change Percentage Change
ASSETS
Total cash and cash equivalents $ 146,298
$ 129,972
$ 16,326
12.6 %
Total investment securities, FHLB, and FRB stock 276,105
252,180
23,925
9.5 %

Loans, net of deferred loan fees 1,306,638
1,311,906
(5,268 ) (0.4 )%
Allowance for loan losses (23,923 ) (18,944 ) (4,979 ) 26.3 %
Loans, net 1,282,715
1,292,962
(10,247 ) (0.8 )%

Goodwill and other intangible assets, net 22,710
23,175
(465 ) (2.0 )%
Other assets 65,815
57,054
8,761
15.4 %
Total assets $ 1,793,643
$ 1,755,343

$ 38,300
2.2 %

LIABILITIES AND SHAREHOLDERS' EQUITY

Total deposits $ 1,576,506
$ 1,569,237
$ 7,269
0.5 %
FHLBNY advances and other debt 4,140
4,304
(164 ) (3.8 )%
Other liabilities 30,953
16,773
14,180
84.5 %
Total liabilities 1,611,599
1,590,314
21,285
1.3 %

Total shareholders’ equity 182,044
165,029
17,015
10.3 %
Total liabilities and shareholders’ equity $ 1,793,643
$ 1,755,343
$ 38,300
2.2 %

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 ~~$67.6~~$138.4 million and an increase in the fair value of the portfolio of $11.8 million, offset by ~~$15.2~~$38.9 million in ~~sales of mortgage-backed and municipal securities, along with~~ maturities, and principal paydowns.

Loans, net

The ~~decrease~~increase in ~~total~~ loans ~~net,~~ can be ~~mostly~~ attributed to ~~decreases~~increases of ~~$9.6~~$41.7 million in commercial mortgages, ~~$12.9~~$174.3 million in commercial and agricultural loans, and $39.0 million in residential mortgages, partially offset by decreases of $13.6 million in indirect consumer loans, and ~~$8.4~~$12.2 million in other consumer loans. $189.8 million of the increase in loan balances relates to loans ~~partially offset by an increase~~extended as part of ~~$24.2 million in commercial and agriculture loans and $1.3 million in residential mortgages.~~the Paycheck Protection Program (PPP).

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 ~~$8.6~~$10.4 million in ~~operating lease right-of-use assets related to the adoption of ASU No. 2016-02~~ ~~Leases~~ ~~as of January 1, 2019.~~interest rate swap assets.

Deposits

The increase in deposits can be attributed to increases of ~~$28.6 million in interest-bearing demand deposits and $19.6 million in time deposits, offset by decreases of $27.8~~$49.3 million in money market accounts, $70.9 million in interest-bearing demand deposit accounts, $36.4 million in savings deposits, $44.3 million in time deposits, and ~~$11.8~~$151.2 million in non-interest-bearing demand deposits. The decrease in non-interest-bearing demand deposit can be mostly attributed to an outflow of personal deposits and the decrease in money market accounts can be mostly attributed to an outflow of municipal deposits.

Other liabilities

The increase in other liabilities can be mostly attributed to an increase ~~in operating lease liabilities related to the January 1, 2019 adoption~~ of ~~ASU No. 2016-02~~ ~~Leases,~~ ~~and an increase~~$10.3 million in interest rate swap liabilities.

Shareholders’ equity

Shareholders’ equity was ~~$182.0~~$197.0 million at September 30, ~~2019~~2020 compared ~~with $165.0~~to $182.6 million at December 31, ~~2018.~~2019. The increase ~~in retained earnings of $7.6 million~~ can be mostly attributed to earnings of ~~$11.4~~$14.0 million, and an increase in accumulated other comprehensive income of $7.4 million, offset by ~~$3.8~~$3.7 million in dividendsdeclared during the nine months ended September 30, ~~2019.~~2020. The ~~decrease~~increase in accumulated other comprehensive ~~loss of $8.1 million~~income can be mostly attributed to the increase in the fair market value of the securities portfolio. ~~Also, treasury~~Treasury stock ~~decreased $0.6~~increased $3.9 million, primarily due to the ~~issuance~~repurchase of ~~shares to~~ the Corporation's ~~employee benefit stock plans and directors' stock plans.~~common stock. As of September 30, 2020, 184,360 shares have been repurchased at an average cost of $27.57 per share.

Assets under management or administration

The market value of total assets under management or administration in WMG was ~~$1.863~~$1.935 billion at September 30, ~~2019,~~2020, including ~~$301.3~~$299.0 million of assets held under management or administration for the Corporation, compared ~~with $1.768~~to $1.915 billion at December 31, ~~2018,~~2019, including ~~$283.0~~$289.7 million of assets held under management or administration for the Corporation, an increase of ~~$94.4~~$20.0 million, or ~~5.3%~~1.1%. The ~~growth~~increase in total assets under management or administration can be mostly attributed to an increase 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"~~"Baa". After an independent credit analysis is performed, the policy also allows the Corporation to purchase local municipal obligations that are not rated. The Corporation intends to maintain a reasonable level of securities to provide adequate liquidity and in order to have securities available to pledge to secure public deposits, repurchase agreements and other types of transactions. Fluctuations in the fair value of the Corporation’s securities relate primarily to changes in interest rates.

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


SECURITIES AVAILABLE FOR SALE
	September 30, 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	$	317,087	$	326,268	82.3	%	$	225,029	$	225,234	79.3	%
Obligations of states and political subdivisions	40,694		43,260		10.9	%	41,265		42,845		15.1	%
Other securities	26,766		26,772		6.8	%	15,962		16,011		5.6	%
Total	$	384,547	$	396,300	100.0	%	$	282,256	$	284,090	100.0	%

SECURITIES AVAILABLE FOR SALE
September 30, 2019 December 31, 2018
Amortized Cost Estimated Fair Value Percent of Total Estimated Fair Value Amortized Cost Estimated Fair Value Percent of Total Estimated Fair Value
Obligations of U.S. Government sponsored enterprises $ —
$ —
— % $ 5,489
$ 5,472
2.3 %
Mortgage-backed securities, residential and collateralized mortgage obligations 201,152
203,524
76.1 % 189,111
183,192
75.6 %
Obligations of states and political subdivisions 45,122
47,270
17.7 % 44,390
44,152
18.2 %
Other securities 16,627
16,735
6.2 % 9,506
9,442
3.9 %
Total $ 262,901
$ 267,529
100.0 % $ 248,496
$ 242,258
100.0 %

The available for sale segment of the securities portfolio totaled ~~$267.5~~$396.3 million at September 30, ~~2019,~~2020, an increase of ~~$25.3~~$112.2 million, or ~~10.4%~~39.5%, from ~~$242.3~~$284.1 million at December 31, ~~2018.~~2019. The increase can be mostly attributed to purchases in the amount of ~~$67.5~~$138.4 million and an increase in the fair value of the portfolio of $11.8 million, offset by ~~$15.2~~$38.9 million in ~~sales of mortgage-backed and municipal securities, and $37.2 million in proceeds from~~ maturities, calls and principal ~~paydowns on securities available for sale.~~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 ~~$3.4~~$3.0 million at September 30, ~~2019,~~2020, a decrease of ~~$1.4~~$0.1 million, or ~~29.1%~~1.5%, from ~~$4.9~~$3.1 million at December 31, ~~2018,~~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, ~~2018~~2019 to September 30, ~~2019~~2020 (in thousands):


LOANS
	September 30, 2020		December 31, 2019		Dollar Change		Percentage Change
Commercial and agricultural	$	404,593	$	230,292	$	174,301	75.7	%
Commercial mortgages	690,511		648,794		41,717		6.4	%
Residential mortgages	227,372		188,338		39,034		20.7	%
Indirect consumer loans	121,406		134,973		(13,567)		(10.1)	%
Other consumer loans	94,611		106,822		(12,211)		(11.4)	%
Total loans, net of deferred loan fees	$	1,538,493	$	1,309,219	$	229,274	17.5	%

LOANS
September 30, 2019 December 31, 2018 Dollar Change Percentage Change
Commercial and agricultural $ 227,098
$ 202,854
$ 24,244
12.0 %
Commercial mortgages 651,605
661,170
(9,565 ) (1.4 )%
Residential mortgages 184,013
182,724
1,289
0.7 %
Indirect consumer loans 136,502
149,380
(12,878 ) (8.6 )%
Other consumer loans 107,420
115,778
(8,358 ) (7.2 )%
Total loans, net of deferred loan fees $ 1,306,638
$ 1,311,906
$ (5,268 ) (0.4 )%

Portfolio loans totaled ~~$1.307~~$1.538 billion at September 30, ~~2019, a decrease~~2020, an increase of ~~$5.3~~$229.3 million, or ~~0.4%~~17.5%, from ~~$1.312~~$1.309 billion at December 31, ~~2018.~~2019. The ~~decrease~~increase in loans can be attributed to ~~decreases~~increases of ~~$9.6~~$174.3 million in commercial and agricultural loans, $41.7 million in commercial mortgages ~~$12.9~~and $39.0 million in residential mortgages, offset by decreases of $13.6 million in indirect consumer loans, and ~~$8.4~~$12.2 million in other consumer loans. $189.8 million of the increase in loan balances relates to loans ~~partially offset by increases~~extended as part of $24.2 million in commercial and agricultural loans, and $1.3 million in residential mortgages. The decline in commercial mortgages, indirect consumer loans, and other consumer loans can be mostly attributed to the ~~portfolio runoff rate exceeding production during the nine months ended September 30, 2019.~~Paycheck Protection Program (PPP).

Residential mortgage loans totaled ~~$184.0~~$227.4 million at September 30, ~~2019,~~2020, an increase of ~~$1.3~~$39.0 million, or ~~0.7%~~20.7%, from December 31, ~~2018.~~2019. During the nine months ended September 30, ~~2019, $29.7~~2020, $110.1 million of residential mortgages were originated, of which ~~$6.6~~$30.7 million were sold in the secondary market to Freddie Mac and ~~$0.5~~$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, especially within~~loans. Recent growth in residential mortgages was driven by both home purchases and refinancings due to the ~~Capital Bank division of the Bank.~~low interest rate environment. The table below presents the Corporation’s outstanding loan balance by bank division (in thousands):


LOANS BY DIVISION	LOANS BY DIVISION										LOANS BY DIVISION
	September 30, 2019		December 31, 2018		December 31, 2017		December 31, 2016		December 31, 2015			September 30, 2020		December 31, 2019		December 31, 2018		December 31, 2017		December 31, 2016
Chemung Canal Trust Company*	$	585,783	$	603,133	$	630,732	$	636,836	$	683,137	Chemung Canal Trust Company*	$	678,477	$	576,399	$	603,133	$	630,732	$	636,836
Capital Bank Division	720,855		708,773		681,092		563,454		485,496		Capital Bank Division	860,016		732,820		708,773		681,092		563,454
Total loans	$	1,306,638	$	1,311,906	$	1,311,824	$	1,200,290	$	1,168,633	Total loans	$	1,538,493	$	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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, commercial loans to borrowers involved in the real estate, and real estate rental and lending businesses were ~~44.5%~~41.4% and ~~47.2%~~45.0% of total loans, respectively. No other concentration of loans existed in the commercial loan portfolio in excess of 10.0% of total loans as of September 30, ~~2019~~2020 and December 31, ~~2018.~~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
	September 30, 2020			December 31, 2019
Non-accrual loans	$	7,701		$	9,938
Non-accrual troubled debt restructurings	8,025			8,070
Total non-performing loans	15,726			18,008
Other real estate owned	585			517
Total non-performing assets	$	16,311		$	18,525

Ratio of non-performing loans to total loans	1.02		%	1.38		%
Ratio of non-performing assets to total assets	0.75		%	1.04		%
Ratio of allowance for loan losses to non-performing loans	156.36		%	130.38		%


Accruing loans past due 90 days or more (1)	$	—		$	7
Accruing troubled debt restructurings (1)	$	2,825		$	900

(1) These loans are not included in non-performing assets above.

NON-PERFORMING ASSETS
September 30, 2019 December 31, 2018
Non-accrual loans $ 15,061
$ 6,305
Non-accrual troubled debt restructurings 8,407
5,949
Total non-performing loans 23,468
12,254
Other real estate owned 211
574
Total non-performing assets $ 23,679
$ 12,828

Ratio of non-performing loans to total loans 1.80 % 0.93 %
Ratio of non-performing assets to total assets 1.32 % 0.73 %
Ratio of allowance for loan losses to non-performing loans 101.94 % 154.59 %

Accruing loans past due 90 days or more (1) $ 53
$ 19
Accruing troubled debt restructurings (1) 887
816
(1) These loans are not included in non-performing assets above.

Non-Performing Loans

Non-performing loans totaled ~~$23.5~~$15.7 million at September 30, ~~2019,~~2020, or ~~1.80%~~1.02% of total loans, compared ~~with $12.3~~to $18.0 million at December 31, ~~2018,~~2019, or ~~0.93%~~1.38% of total loans. Non-performing assets, which are comprised of non-performing loans and other real estate owned, was ~~$23.7~~$16.3 million, or ~~1.32%~~0.75% of total assets, at September 30, ~~2019,~~2020, compared ~~with $12.8~~to $18.5 million, or ~~0.73%~~1.04% of total assets, at December 31, ~~2018.~~2019. The ~~increase~~decrease in non-performing loans can mostly be ~~mostly~~ attributed to ~~two~~payments received on commercial ~~mortgage relationships~~loans and ~~one~~a partial charge-off of a large commercial loan, partially offset by additional non-performing commercial and ~~agricultural participation loan, offset by paydowns within~~consumer loans. The decrease in non-performing assets can be attributed to the ~~commercial portfolio.~~aforementioned change in non-performing 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 ~~$53~~less than $1 thousand at September 30, ~~2019, an increase~~2020, a decrease of ~~$34~~$7 thousand from December 31, ~~2018.~~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 has 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 September 30, ~~2019,~~2020, the Corporation had ~~$8.4~~$8.0 million of non-accrual TDRs compared ~~with $6.0~~to $8.1 million as of December 31, ~~2018.~~2019. As of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Corporation had ~~$0.9~~$2.8 million and ~~$0.8~~$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 September 30, ~~2019~~2020 totaled ~~$20.6~~$16.4 million, including TDRs of $10.2 million, compared to $15.7 million, including TDRs of ~~$9.3 million, compared to $8.7 million, including TDRs of $6.8~~$9.0 million, at December 31, 2018. The increase in impaired loans was due primarily to the impairment of a commercial mortgage to one borrower for $3.4 million during the first quarter of 2019, a commercial mortgage to one borrower for $5.0 million during the second quarter of 2019, and a commercial and industrial participation credit for $4.2 million during the third quarter of 2019. Included in the recorded investment of impaired loans at September 30, ~~2019,~~2020, were loans totaling ~~$16.3~~ $8.6 million for which impairment allowances of ~~$8.7~~$5.8 million have been specifically allocated to the allowance for loan losses. As of December 31, ~~2018,~~2019, the impaired loan total included ~~$3.7~~$11.1 million of loans for which specific impairment allowances of ~~$2.2~~$8.1 million were allocated to the allowance for loan losses. The increase in impaired loans with specific impairment allowances can be mostly attributed to the impairment of a commercial mortgage to one borrower for $3.4 million during the first quarter of 2019, a commercial mortgage to one borrower for $5.0 million during the second quarter of 2019, and a commercial and industrial participation credit for $4.2 million during the third quarter of 2019.

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

Allowance for Loan Losses

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

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

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, and more recently the expected impact of COVID-19 on the various portfolios, (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.~~economy, including the impact of COVID-19.

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 ~~$23.9~~$24.6 million at September 30, ~~2019,~~2020, compared ~~with $18.9~~to $23.5 million at December 31, ~~2018.~~2019. The ratio of allowance for loan losses to total loans was ~~1.83%~~1.60% at September 30, ~~2019,~~2020, compared ~~with 1.44%~~to 1.79% at December 31, ~~2018.~~2019. Net charge-offs for the nine months ended September 30, ~~2019 and 2018~~2020 were ~~$0.7~~$2.9 million, ~~and $4.9 million, respectively. Net charge-offs decreased $4.2 million, compared with the same period~~including a partial charge-off of a commercial loan in the ~~prior year, mostly due~~second quarter of 2020, as compared to net charge-offs for the ~~charge-off~~nine months ended September 30, 2019 of ~~multiple large commercial loans to one borrower for $3.6 million in 2018.~~$0.7 million.

The table below summarizes the Corporation’s loan loss experience for the nine months ended September 30, ~~2019~~2020 and ~~2018~~2019 (in thousands, except ratio data):


SUMMARY OF LOAN LOSS EXPERIENCE
	Nine Months Ended September 30,
	2020			2019
Balance of allowance for loan losses at beginning of period	$	23,478		$	18,944

Charge-offs:
Commercial and agricultural	134			55
Commercial mortgages	2,143			—
Residential mortgages	56			60
Consumer loans	915			1,040
Total charge-offs	3,248			1,155

Recoveries:
Commercial and agricultural	27			44
Commercial mortgages	2			2
Residential mortgages	49			45
Consumer loans	293			359
Total recoveries	371			450

Net charge-offs	2,877			705
Provision for loan losses	3,989			5,684
Balance of allowance for loan losses at end of period	$	24,590		$	23,923

Ratio of net charge-offs to average loans outstanding	0.27		%	0.07		%
Ratio of allowance for loan losses to total loans outstanding	1.60		%	1.83		%

SUMMARY OF LOAN LOSS EXPERIENCE
Nine Months Ended
September 30,
2019 2018
Balance of allowance for loan losses at beginning of period $ 18,944
$ 21,161

Charge-offs:

Commercial and agricultural 55
3,644
Commercial mortgages —
145
Residential mortgages 60
225
Consumer loans 1,040
1,301
Total charge-offs 1,155
5,315

Recoveries:

Commercial and agricultural 44
34
Commercial mortgages 2
2
Residential mortgages 45
5
Consumer loans 359
377
Total recoveries 450
418

Net charge-offs 705
4,897
Provision for loan losses 5,684
3,371
Balance of allowance for loan losses at end of period $ 23,923
$ 19,635

Ratio of net charge-offs to average loans outstanding 0.05 % 0.09 %
Ratio of allowance for loan losses to total loans outstanding 1.83 % 1.49 %

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, ~~2018~~2019 to September 30, ~~2019~~2020 (in thousands):


DEPOSITS
	September 30, 2020		December 31, 2019		Dollar Change		Percentage Change
Non-interest-bearing demand deposits	$	619,412	$	468,238	$	151,174	32.3	%
Interest-bearing demand deposits	270,949		200,089		70,860		35.4	%
Insured money market accounts	579,574		530,242		49,332		9.3	%
Savings deposits	248,751		212,393		36,358		17.1	%
Time deposits	205,503		161,176		44,327		27.5	%
Total	$	1,924,189	$	1,572,138	$	352,051	22.4	%

DEPOSITS
September 30, 2019 December 31, 2018 Dollar Change Percentage Change
Non-interest-bearing demand deposits $ 472,600
$ 484,433
$ (11,833 ) (2.4 )%
Interest-bearing demand deposits 208,222
179,603
28,619
15.9 %
Insured money market accounts 510,194
537,948
(27,754 ) (5.2 )%
Savings deposits 215,665
217,027
(1,362 ) (0.6 )%
Time deposits 169,825
150,226
19,599
13.0 %
Total $ 1,576,506
$ 1,569,237
$ 7,269
0.5 %

Deposits totaled ~~$1.577~~$1.924 billion at September 30, ~~2019~~2020 compared ~~with $1.569~~to $1.572 billion at December 31, ~~2018, a~~2019, an increase of ~~$7.3~~$352.1 million, or ~~0.5%~~22.4%. The increase was attributable to increases of ~~$19.6~~$44.3 million in time deposits, ~~due to a rate promotion, and $28.6~~$70.9 million in interest-bearing demand deposit accounts, ~~offset by decreases of $27.8~~$49.3 million in money market accounts, $36.4 million in savings deposits, and ~~$11.8~~$151.2 million in non-interest-bearing demand deposits. The ~~decrease~~growth in ~~money market accounts can be mostly attributed~~deposits was due primarily to ~~an outflow~~increases of ~~municipal deposits.~~$220.7 million in commercial deposits, $69.7 million in public deposits, and $61.6 million in consumer funds. The ~~decrease~~increase in ~~non-interest-bearing demand~~ deposits ~~can be mostly attributed~~was partially due to ~~an outflow~~the collection of ~~personal deposits.~~stimulus checks and PPP loan disbursements. At September 30, ~~2019,~~2020, demand deposit and money market accounts comprised ~~75.5%~~76.4% of total deposits compared ~~with 76.6%~~to 76.2% at December 31, ~~2018.~~2019.

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


DEPOSITS BY DIVISION	DEPOSITS BY DIVISION										DEPOSITS BY DIVISION
	September 30, 2019		December 31, 2018		December 31, 2017		December 31, 2016		December 31, 2015			September 30, 2020		December 31, 2019		December 31, 2018		December 31, 2017		December 31, 2016
Chemung Canal Trust Company*	$	1,344,087	$	1,328,658	$	1,264,883	$	1,249,870	$	1,219,282	Chemung Canal Trust Company*	$	1,587,452	$	1,317,225	$	1,328,658	$	1,264,883	$	1,249,870
Capital Bank Division	232,419		240,579		202,563		206,473		181,013		Capital Bank Division	336,737		254,913		240,579		202,563		206,473
Total	$	1,576,506	$	1,569,237	$	1,467,446	$	1,456,343	$	1,400,295	Total	$	1,924,189	$	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 September 30, ~~2019~~2020 and December 31, ~~2018.~~2019. Deposits obtained through the CDARS and ICS programs were ~~$186.2~~$233.6 million and ~~$193.6~~$180.4 million as of September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The ~~decrease~~increase in CDARS and ICS deposits was due to the seasonal ~~outflow~~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 $0.2~~increased $0.1 million from ~~$4.3~~$4.1 million at December 31, ~~2018~~2019 to ~~$4.1~~$4.2 million at September 30, ~~2019,~~2020, attributable to normal recurring finance lease payments.

Shareholders’ Equity

Total shareholders' equity increased ~~$17.0~~$14.4 million from ~~$165.0~~$182.6 million at December 31, ~~2018~~2019 to ~~$182.0~~$197.0 million at September 30, ~~2019,~~2020, due primarily to an increase in retained earnings and ~~a decrease~~an increase in accumulated other comprehensive ~~loss.~~income. The increase in retained earnings of ~~$7.6~~$10.3 million was due primarily to earnings of ~~$11.4~~$14.0 million, offset by ~~$3.8~~$3.7 million in dividends declared during the nine months ended September 30, ~~2019.~~2020. The ~~decrease~~increase in accumulated other comprehensive ~~loss~~income of ~~$8.1~~$7.4 million can be mostly attributed to the increase in the fair market value of the securities portfolio. ~~Also, treasury~~Treasury stock ~~decreased $0.6~~increased $3.9 million, primarily due to the ~~issuance~~Corporation's common stock repurchase program. As of September 30, 2020, 184,360 shares ~~pursuant to the Corporation's employee benefit plans and the directors' stock compensation plans.~~have been repurchased at an average cost of $27.57 per share.

The total shareholders’ equity to total assets ratio was ~~10.15%~~9.10% at September 30, ~~2019~~2020 compared ~~with 9.40%~~to 10.22% at December 31, ~~2018.~~2019. The tangible equity to tangible assets ratio was ~~9.00%~~8.16% at September 30, ~~2019~~2020 compared ~~with 8.19%~~to 9.07% at December 31, ~~2018.~~2019. Book value per share increased to ~~$37.35~~$41.51 at September 30, ~~2019~~2020 from ~~$33.99~~$37.35 at December 31, ~~2018.~~2019.

On March 18, 2020, the Corporation's Board of Directors approved a stock repurchase program 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 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. For the three month period ended September 30, 2020, the Corporation repurchased 63,870 shares of common stock at a total cost of $3.2 million under the share repurchase program. The weighted average cost was $28.29 per share repurchased. For the nine month period ended September 30, 2020, the Corporation repurchased a total of 184,360 shares of common stock at a total cost of $5.1 million under the repurchase program at the weighted average cost of $27.57 per share. Remaining buyback authority under the share repurchase program was 65,640 shares at September 30, 2020.

On April 27, 2020, the Corporation filed with the SEC 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 September 30, ~~2019,~~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.

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 $97.1 million and $141.8 million at September 30, 2020 and December 31, 2019, respectively. The Corporation also had a total of $68.0 million of unsecured lines of credit with six different financial institutions, all of which was available at September 30, 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)	Nine Months Ended September 30,
	2020		2019
Net cash provided by operating activities	$	19,987	$	21,808
Net cash used (provided) in investing activities	(336,089)		(9,273)
Net cash provided (used) in financing activities	344,100		3,791
Net increase (decrease) in cash and cash equivalents	$	27,998	$	16,326

Operating activities

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

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

Investing activities

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

Financing activities

Cash provided by financing activities during the first nine months of 2020 predominantly resulted from a net increase in deposits. Cash used in financing activities during the first nine 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~~not subject to regulatory capital ~~requirements, effective on August 30, 2018.~~

~~Off-balance Sheet Arrangements~~

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

~~Liquidity~~

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 $154.2 million and $112.6 million at September 30, 2019 and December 31, 2018, respectively. The Corporation also had a total of $58.0 million of unsecured lines of credit with five different financial institutions, all of which was available at September 30, 2019. The Corporation had a total of $28.0 million of unsecured lines of credit with four different financial institutions at December 31, 2018, 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) Nine Months Ended
September 30,
2019 2018
Net cash provided by operating activities $ 21,808
$ 20,105
Net cash (used in) provided by investing activities (9,273 ) 27,639
Net provided by financing activities 3,791
35,439
Net increase in cash and cash equivalents $ 16,326
$ 83,183

~~Operating activities~~

~~Cash provided by operating activities in the first nine months of 2019 and 2018 predominantly resulted from net income after non-cash operating adjustments.~~

~~Investing activities~~

Cash used in investing activities during the first nine months of 2019 was predominantly a result of purchases of securities available for sale, offset by proceeds from sales, maturities, and principal paydowns on securities available for sale. Cash provided by investing activities during the first nine months of 2018 predominantly resulted from sales, calls, maturities, and principal collected in securities available for sale, offset by a net increase in loans.

~~Financing activities~~

Cash provided by financing activities during the first nine months of 2019 predominantly resulted from a net increase in deposits. Cash provided by financing activities during the first nine months of 2018 predominantly resulted from a net increase in deposits, offset by the maturity of one $10.0 million repurchase agreement and the repayment of FHLBNY overnight and long term advances.

~~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.requirements. 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 ~~for 2019~~ 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.

~~As a result of~~Pursuant to the Regulatory Relief Act, the ~~federal banking agencies adopted~~FRB finalized a ~~“Community Bank Leverage Ratio” (the~~rule that established a community bank leverage ratio ~~of a bank’s Tier~~(tier 1 capital to average ~~total~~ consolidated assets) at 9% for ~~financial~~ institutions ~~with~~under $10 billion in assets that such institutions may elect to utilize in lieu of ~~less than $10 billion. The federal banking agencies have approved a Community Bank Leverage Ratio of 9.0%. A “qualifying~~the general applicable risk-based capital requirements under Basel III. Such institutions that meet the community ~~bank” that exceeds this~~bank leverage ratio and certain other qualifying criteria will automatically be deemed to be in compliance with all other capital and leverage requirements, including the capital requirements to be considered “well capitalized” under prompt corrective action statutes. A qualifying financial institution can elect to be subject to thiswell-capitalized. The new ~~definition. The~~ rule ~~will take~~took effect on January 1, 2020. Pursuant to the CARES Act, the federal banking regulators issued 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 September 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the Bank met all capital adequacy requirements to which it was subject.

As of September 30, ~~2019,~~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 September 30, ~~2019~~2020 and December 31, ~~2018~~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 September 30, ~~2019~~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 September 30, 2020	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to Risk Weighted Assets):
Consolidated	$	190,303	13.96	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	183,963	13.51	%	$	108,959	8.00	%	$	143,009	10.50	%	$	136,199	10.00	%
Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	173,167	12.70	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	166,845	12.25	%	$	81,719	6.00	%	$	115,769	8.50	%	$	108,959	8.00	%
Common Equity Tier 1 Capital (to Risk Weighted Assets):
Consolidated	$	173,167	12.70	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	166,845	12.25	%	$	61,289	4.50	%	$	95,339	7.00	%	$	88,529	6.50	%
Tier 1 Capital (to Average Assets):
Consolidated	$	173,167	8.41	%	N/A		N/A		N/A		N/A		N/A		N/A
Bank	$	166,845	8.12	%	$	82,141	4.00	%	N/A		N/A		$	102,676	5.00	%

Actual Minimum Capital Adequacy Minimum Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions
As of September 30, 2019 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 179,011
13.72 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 170,576
13.09 % $ 104,251
8.00 % $ 128,685
9.875 % $ 130,314
10.00 %
Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 162,609
12.46 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 154,192
11.83 % $ 78,188
6.00 % $ 102,622
7.875 % $ 104,251
8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 162,609
12.46 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 154,192
11.83 % $ 58,641
4.50 % $ 83,075
6.375 % $ 84,704
6.50 %
Tier 1 Capital (to Average Assets):

Consolidated $ 162,609
9.37 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 154,192
8.92 % $ 69,178
4.00 % N/A
N/A
$ 86,472
5.00 %

The Corporation and the Bank’s capital ratios as of December 31, ~~2018~~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	%

Actual Minimum Capital Adequacy Minimum Capital Adequacy with Capital Buffer To Be Well Capitalized Under Prompt Corrective Action Provisions
As of December 31, 2018 Amount Ratio Amount Ratio Amount Ratio Amount Ratio
Total Capital (to Risk Weighted Assets):
Consolidated $ 169,416
13.14 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 162,536
12.62 % $ 103,039
8.00 % $ 127,189
9.875 % $ 128,799
10.00 %
Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 153,263
11.89 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 146,401
11.37 % $ 77,280
6.00 % $ 101,429
7.875 % $ 103,039
8.00 %
Common Equity Tier 1 Capital (to Risk Weighted Assets):

Consolidated $ 153,263
11.89 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 146,401
11.37 % $ 57,960
4.50 % $ 82,110
6.375 % $ 83,720
6.50 %
Tier 1 Capital (to Average Assets):

Consolidated $ 153,263
8.79 % N/A
N/A
N/A
N/A
N/A
N/A
Bank $ 146,401
8.41 % $ 69,598
4.00 % N/A
N/A
$ 86,998
5.00 %

Dividend Restrictions

The Corporation’s principal source of funds for dividend payments is dividends received from the Bank. Banking regulations limit the amount of dividends that may be paid without prior approval of regulatory agencies. Under these regulations, the amount of dividends that may be paid in any calendar year is limited to 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 September 30, ~~2019,~~2020, the Bank could, without prior approval, declare dividends of approximately ~~$25.7~~$37.4 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.

Allowance for Loan Losses

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.

Goodwill

Goodwill represents the excess of the purchase price over the net fair value of the acquired businesses. Goodwill is not amortized, but is tested for impairment at the reporting unit level, defined as the segment level, at least annually in the fourth quarter or more frequently whenever events or circumstances occur that indicate that it is more-likely-than-not that an impairment loss has occurred. In assessing impairment, the Corporation has the option to perform a qualitative analysis to determine whether the existence of events or circumstances leads to a determination that it is more-likely-than-not that the fair value of the reporting unit is less than its carrying amount. If, after assessing the totality of such events or circumstances, we determine it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then we would not be required to perform an impairment test.

The quantitative impairment analysis requires a comparison of each reporting unit’s fair value to its carrying value to identify potential impairment. Goodwill impairment exists when a reporting unit’s carrying value of goodwill exceeds its implied fair value. Significant judgment is applied when goodwill is assessed for impairment. This judgment includes, but may not be limited to, the selection of appropriate discount rates, the identification of relevant market comparables and the development of cash flow projections. The selection and weighting of the various fair value techniques may result in a higher or lower fair value. Judgment is applied in determining the weightings that are most representative of fair value.

Goodwill impairment testing is performed annually as of December 31 and no impairment charges were incurred. However, Management did conclude that the current decline in macroeconomic conditions is a triggering event, but other mitigating factors did not warrant an interim quantitative impairment test. We continue to evaluate our qualitative assessment assumptions, which are subject to risks and uncertainties, including: (1) forecasted revenues, expenses, and cash flows; (2) current discount rates; (3) our market capitalization; (4) observable market transactions and multiples; (5) changes to the regulatory environment; and (6) the nature and amount of government support that has been and is expected to be provided in the future.

Intangible assets identified in acquisitions consist primarily of wealth management advisory contracts. The fair value of intangible assets was estimated using valuation techniques, based on a discounted cash flow analysis. The value attributed to

other intangible assets was based on the time period over which they are expected to generate economic benefits. Intangible assets are amortized over their estimated lives using a method that approximates the amount of economic benefits that are realized by the Corporation.

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, ~~2018.~~2019.

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

The Corporation prepares its Consolidated Financial Statements in accordance with ~~GAAP;~~GAAP; these financial statements appear on pages 7–~~13.~~12. That presentation provides the reader with an understanding of the ~~Corporation’s~~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.



		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	1110
	Consolidated Statements of Cash Flows	12

	Notes to Unaudited Consolidated Financial Statements	14

Item 2:	Management's Discussion and Analysis of Financial Condition and Results of Operations	45

Item 3:	Quantitative and Qualitative Disclosures About Market Risk	7681

Item 4:	Controls and Procedures	7782

PART II.	OTHER INFORMATION

Item 1:	Legal Proceedings	7883

Item 1A:	Risk Factors	7883

Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	7884

Item 3:	Defaults Upon Senior Securities	7884

Item 4:	Mine Safety Disclosures	7884

Item 5:	Other Information	7884

Item 6:	Exhibits	7985

SIGNATURES		8086

EXHIBIT INDEX



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
~~CDARS~~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
~~CRM~~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



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



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.
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.



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.



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


Loans held for sale			Residential real estate loans originated for sale on the secondary market with maturities from 15-30 years.


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.


(in thousands, except share and per share data)	September 30, 2020		December 31, 2019
ASSETS
Cash and due from financial institutions	$	35,327	$	25,203
Interest-earning deposits in other financial institutions	114,575		96,701
Total cash and cash equivalents	149,902		121,904

Equity investments, at estimated fair value	2,291		2,174
Securities available for sale, at estimated fair value	396,300		284,090
Securities held to maturity, estimated fair value of $3,093 at September 30, 2020 and $3,139 at December 31, 2019	3,047		3,115
FHLBNY and FRBNY Stock, at cost	3,150		3,099

Loans, net of deferred loan fees	1,538,493		1,309,219
Allowance for loan losses	(24,590)		(23,478)
Loans, net	1,513,903		1,285,741

Loans held for sale	2,059		1,185
Premises and equipment, net	20,891		22,417
Operating lease right-of-use assets	7,474		8,001
Goodwill	21,824		21,824
Other intangible assets, net	371		742
Bank-owned life insurance	3,045		3,111
Accrued interest receivable and other assets	40,757		30,424

Total assets	$	2,165,014	$	1,787,827

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	619,412	$	468,238
Interest-bearing	1,304,777		1,103,900
Total deposits	1,924,189		1,572,138

FHLBNY overnight advances	245		0


Long term finance lease obligation	3,910		4,085
Operating lease liabilities	7,584		8,084
Dividends payable	1,229		1,263
Accrued interest payable and other liabilities	30,852		19,630
Total liabilities	1,968,009		1,605,200

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at September 30, 2020 and December 31, 2019	53		53
Additional paid-in capital	46,892		46,382
Retained earnings	163,987		153,701
Treasury stock, at cost; 589,694 shares at September 30, 2020 and 452,641 shares at December 31, 2019	(15,569)		(11,710)
Accumulated other comprehensive income (loss)	1,642		(5,799)
Total shareholders' equity	197,005		182,627

Total liabilities and shareholders' equity	$	2,165,014	$	1,787,827



(in thousands, except share and per share data)	September 30, 2019			December 31, 2018
ASSETS
Cash and due from financial institutions	$	36,497		$	33,040
Interest-earning deposits in other financial institutions	109,801			96,932
Total cash and cash equivalents	146,298			129,972

Equity investments, at estimated fair value	2,065			1,909
Securities available for sale, at estimated fair value	267,529			242,258
Securities held to maturity, estimated fair value of $3,443 at September 30, 2019 and $4,858 at December 31, 2018	3,420			4,875
FHLBNY and FRBNY Stock, at cost	3,091			3,138

Loans, net of deferred loan fees	1,306,638			1,311,906
Allowance for loan losses	(23,923		)	(18,944		)
Loans, net	1,282,715			1,292,962

Loans held for sale	1,313			502
Premises and equipment, net	22,962			24,980
Operating lease right-of-use assets	8,051			—
Goodwill	21,824			21,824
Other intangible assets, net	886			1,351
Bank-owned life insurance	3,096			3,048
Accrued interest receivable and other assets	30,393			28,524

Total assets	$	1,793,643		$	1,755,343

LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest-bearing	$	472,600		$	484,433
Interest-bearing	1,103,906			1,084,804
Total deposits	1,576,506			1,569,237

Long term finance lease obligation	4,140			4,304
Operating lease liabilities	8,125			—
Dividends payable	1,260			1,254
Accrued interest payable and other liabilities	21,568			15,519
Total liabilities	1,611,599			1,590,314

Shareholders' equity:
Common stock, $0.01 par value per share, 10,000,000 shares authorized; 5,310,076 issued at September 30, 2019 and December 31, 2018	53			53
Additional paid-in capital	46,464			45,820
Retained earnings	150,759			143,129
Treasury stock, at cost; 465,038 shares at September 30, 2019 and 488,844 shares at December 31, 2018	(11,956		)	(12,562		)
Accumulated other comprehensive loss	(3,276		)	(11,411		)
Total shareholders' equity	182,044			165,029

Total liabilities and shareholders' equity	$	1,793,643		$	1,755,343


	September 30, 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	$	5,530	$	184	$	0	$	52	$	5,766
Collectively evaluated for impairment	2,927		10,728		2,081		3,088		18,824

Total ending allowance balance	$	8,457	$	10,912	$	2,081	$	3,140	$	24,590


	September 30, 2020
Loans:	Commercial and Agricultural		Commercial Mortgages		Residential Mortgages		Consumer Loans		Total
Loans individually evaluated for impairment	$	7,515	$	6,750	$	1,277	$	812	$	16,354
Loans collectively evaluated for impairment	398,498		686,185		226,707		215,784		1,527,174

Total ending loans balance	$	406,013	$	692,935	$	227,984	$	216,596	$	1,543,528



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



Description	Fair Value at September 30, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at September 30, 2019
Derivative liabilities	$	426	Historical trend	Credit default rate	5.65% - 5.65% [5.65%]



Description	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018
Derivative liabilities	$	140	Historical trend	Credit default rate	7.46% - 7.46% [7.46%]



Description	Fair Value at September 30, 2019		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at September 30, 2019
Impaired loans:
Commercial mortgages:
Commercial mortgages	$	7,627	Sales comparison	Discount to appraised value	10.00% - 15.43% [10.13%]
	$	7,627

OREO:
Commercial mortgages:
Commercial mortgages	$	62	Sales comparison	Discount to appraised value	22.00% - 22.00% [22.00%]
Residential mortgages	62		Sales comparison	Discount to appraised value	20.80% -20.80% [20.80%]
Consumer loans:
Home equity lines and loans	86		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	210



Description	Fair Value at December 31, 2018		Valuation Technique	Unobservable Inputs	Range [Weighted Average] at December 31, 2018
Impaired loans:
Commercial and agricultural:
Commercial and industrial	$	1,456	Sales comparison	Discount to appraised value	11.76% - 11.76% [11.76%]
	$	1,456

OREO:
Commercial mortgages:
Commercial mortgages	$	213	Sales comparison	Discount to appraised value	10.00% - 24.80% [17.72%]
Residential mortgages	204		Sales comparison	Discount to appraised value	20.80% - 39.78% [22.94%]
Consumer loans:
Home equity lines and loans	157		Sales comparison	Discount to appraised value	20.80% - 20.80% [20.80%]
	$	574



	At September 30, 2019				At December 31, 2018
	Balance Acquired		Accumulated Amortization		Balance Acquired		Accumulated Amortization
Core deposit intangibles	$	5,975	$	5,776	$	5,975	$	5,576
Other customer relationship intangibles	5,633		4,946		5,633		4,681
Total	$	11,608	$	10,722	$	11,608	$	10,257


	Three months ended September 30, 2019
	Core Banking		WMG		Holding Company, CFS, and CRM		Consolidated Totals
Interest and dividend income	$	16,787	$	0	$	21	$	16,808
Interest expense	1,666		0		0		1,666
Net interest income	15,121		0		21		15,142
Provision for loan losses	4,441		0		0		4,441
Net interest income after provision for loan losses	10,680		0		21		10,701
Other non-interest income	2,564		2,315		77		4,956

Other non-interest expenses	11,704		1,559		262		13,525
Income (loss) before income tax expense (benefit)	1,540		756		(164)		2,132
Income tax expense (benefit)	17		193		(34)		176
Segment net income (loss)	$	1,523	$	563	$	(130)	$	1,956


	Shares	Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2020	29,816	$	43.34
Granted	0	0
Vested	(808)	42.53
Forfeited or cancelled	0	0
Nonvested at September 30, 2020	29,008	$	43.36



	Shares	Weighted–Average Grant Date Fair Value
Nonvested at July 1, 2019	29,436	$	41.03
Granted	—	—
Vested	—	—
Forfeited or cancelled	—	—
Nonvested at September 30, 2019	29,436	$	41.03



	Shares		Weighted–Average Grant Date Fair Value
Nonvested at January 1, 2019	29,694		$	40.81
Granted	439		45.66
Vested	(697	)	34.58
Forfeited or cancelled	—		—
Nonvested at September 30, 2019	29,436		$	41.03


RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	Three Months Ended September 30, 2020 vs. 2019
	Increase/(Decrease)
	Total Change		Due to Volume		Due to Rate
(in thousands)
Interest and dividend income on:
Commercial loans	$	415	$	2,212	$	(1,797)
Mortgage loans	279		337		(58)
Consumer loans	(496)		(276)		(220)
Taxable investment securities	126		348		(222)
Tax-exempt investment securities	(32)		(44)		12
Interest-earning deposits	(402)		152		(554)
Total interest and dividend income, fully taxable equivalent	(110)		2,729		(2,839)

Interest expense on:
Interest-bearing demand deposits	(115)		49		(164)
Savings and insured money market deposits	(563)		64		(627)
Time deposits	(141)		38		(179)
Long-term advances, securities sold under agreements to repurchase and other debt	(2)		(2)		—
Total interest expense	(821)		149		(970)
Net interest income, fully taxable equivalent	$	711	$	2,580	$	(1,869)



RATE/VOLUME ANALYSIS OF NET INTEREST INCOME
	Three Months Ended September 30, 2019 vs. 2018
	Increase/(Decrease)
	Total Change			Due to Volume			Due to Rate
(in thousands)	Total Change			Due to Volume			Due to Rate
Interest and dividend income on:
Commercial loans	$	292		$	38		$	254
Mortgage loans	(36		)	(70		)	34
Consumer loans	(173		)	(340		)	167
Taxable investment securities	149			14			135
Tax-exempt investment securities	24			(9		)	33
Interest-earning deposits	418			415			3
Total interest and dividend income, fully taxable equivalent	674			48			626

Interest expense on:
Interest-bearing demand deposits	92			22			70
Savings and insured money market deposits	281			(14		)	295
Time deposits	398			76			322
FHLBNY advances, securities sold under agreements to repurchase and other debt	(162		)	(228		)	66
Total interest expense	609			(144		)	753
Net interest income, fully taxable equivalent	$	65		$	192		$	(127	)


	Nine Months Ended September 30, 2019 vs. 2018										Nine Months Ended September 30, 2020 vs. 2019
	Increase/(Decrease)										Increase/(Decrease)
	Total Change			Due to Volume			Due to Rate				Total Change		Due to Volume		Due to Rate
(in thousands)										(in thousands)
Interest and dividend income on:										Interest and dividend income on:
Commercial loans	$	1,222		$	179		$	1,043		Commercial loans	$	742	$	4,521	$	(3,779)
Mortgage loans	(212		)	(311		)	99			Mortgage loans	539		595		(56)
Consumer loans	(218		)	(799		)	581			Consumer loans	(1,275)		(786)		(489)
Taxable investment securities	72			(239		)	311			Taxable investment securities	531		739		(208)
Tax-exempt investment securities	(12		)	(69		)	57			Tax-exempt investment securities	(80)		(154)		74
Interest-earning deposits	1,619			1,587			32			Interest-earning deposits	(1,092)		563		(1,655)
Total interest and dividend income, fully taxable equivalent	2,471			348			2,123			Total interest and dividend income, fully taxable equivalent	(635)		5,478		(6,113)

Interest expense on:										Interest expense on:
Interest-bearing demand deposits	413			52			361			Interest-bearing demand deposits	(292)		113		(405)
Savings and insured money market deposits	1,072			(42		)	1,114			Savings and insured money market deposits	(1,378)		112		(1,490)
Time deposits	1,182			167			1,015			Time deposits	(42)		85		(127)
FHLBNY advances, securities sold under agreements to repurchase and other debt	(600		)	(845		)	245
Long-term advances, securities sold under agreements to repurchase and other debt										Long-term advances, securities sold under agreements to repurchase and other debt	15		110		(95)
Total interest expense	2,067			(668		)	2,735			Total interest expense	(1,697)		420		(2,117)
Net interest income, fully taxable equivalent	$	404		$	1,016		$	(612	)	Net interest income, fully taxable equivalent	$	1,062	$	5,058	$	(3,996)


																As of the																				As of the
	As of the Three Months Ended															Nine Months Ended					As of the Three Months Ended															Nine Months Ended
(in thousands, except ratio data)	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,			Sept. 30,		Sept. 30,		(in thousands, except ratio data)	Sept. 30,			June 30,			March 31,			Dec. 31,			Sept. 30,			Sept. 30,			Sept. 30,
	2019			2019			2019			2018			2018			2019		2018			2020			2020			2020			2019			2019			2020			2019
NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT																				NET INTEREST MARGIN - FULLY TAXABLE EQUIVALENT
Net interest income (GAAP)	$	15,142		$	15,101		$	15,167		$	15,484		$	15,079		$	45,410	$	44,996	Net interest income (GAAP)	$	15,869		$	15,591		$	15,062		$	15,201		$	15,142		$	46,522		$	45,410
Fully taxable equivalent adjustment	101			104			100			105			99			305		315		Fully taxable equivalent adjustment	85			84			86			98			101			255			305
Fully taxable equivalent net interest income (non-GAAP)	$	15,243		$	15,205		$	15,267		$	15,589		$	15,178		$	45,715	$	45,311	Fully taxable equivalent net interest income (non-GAAP)	$	15,954		$	15,675		$	15,148		$	15,299		$	15,243		$	46,777		$	45,715

Average interest-earning assets (GAAP)	$	1,665,793		$	1,654,156		$	1,671,063		$	1,680,269		$	1,625,132		$	1,664,188	$	1,624,830	Average interest-earning assets (GAAP)	$	1,986,043		$	1,931,107		$	1,715,562		$	1,705,766		$	1,665,793		$	1,877,966		$	1,664,188

Net interest margin - fully taxable equivalent (non-GAAP)	3.63		%	3.69		%	3.71		%	3.68		%	3.71		%	$	—	$	—	Net interest margin - fully taxable equivalent (non-GAAP)	3.20		%	3.26		%	3.55		%	3.56		%	3.63		%	3.33		%	3.67		%


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
July 1 - July 31, 2020	27,924	$	26.65	27,924	101,586
August 1 - August 31, 2020	21,408	29.31		21,408	80,178
September 1 - September 30, 2020	14,538	29.96		14,538	65,640
Quarter ended September 30, 2020	63,870	$	28.29	63,870	65,640
(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. On October 30, 2020 the stock repurchase plan was completed. A total of 250,000 shares were repurchased at an average cost of $29.40 per share.



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~~September 16, 2020 (as incorporated by reference to Exhibit ~~3.1~~3.2 to Registrant’s Form 8-K filed with the Commission on ~~May 16, 2019)~~September 18, 2020).

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.



DATED: November ~~6, 2019~~5, 2020			By: /s/ Anders M. Tomson
			Anders M. Tomson President and Chief Executive Officer (Principal Executive Officer)



DATED: November ~~6, 2019~~5, 2020			By: /s/ Karl F. Krebs
			Karl F. Krebs Chief Financial Officer and Treasurer (Principal Financial Officer)