Wednesday, May 25 2022

Overview

The following is the MD&A of the Corporation in this Form 10-K at December 31,
2021 and 2020, and for the years ended December 31, 2021, and 2020. The purpose
of this discussion is to focus on information about the financial condition and
results of operations of the Corporation. Reference should be made to the
accompanying audited consolidated financial statements and footnotes for an
understanding of the following discussion and analysis. See the list of commonly
used abbreviations and terms on pages 2-5.

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

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

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


Forward-looking Statements

This discussion contains forward-looking statements within the meaning of
Section 27A of the Securities Act, Section 21E of the Exchange Act, and the
Private Securities Litigation Reform Act of 1995. The Corporation intends its
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements in these sections. All statements regarding the
Corporation's expected financial position and operating results, the
Corporation's business strategy, the Corporation's financial plans, forecasted
demographic and economic trends relating to the Corporation's industry and
similar matters are forward-looking statements. These statements can sometimes
be identified by the Corporation's use of forward-looking words such as "may,"
"will," "anticipate," "estimate," "expect," or "intend." The Corporation cannot
guarantee that its expectations in such forward-looking statements will turn out
to be correct. The Corporation's actual results could be materially different
from expectations because of various factors, including changes in economic
conditions or interest rates, credit risk, difficulties in managing the
Corporation's growth, competition, the impact of the COVID-19 pandemic, changes
in law or the regulatory environment, including the Dodd-Frank Act, and changes
in general business and economic trends. Information concerning these and other
factors can be found in the Corporation's periodic filings with the SEC,
including the discussion under the heading "Item 1A. Risk Factors" of this
annual report on Form 10-K. The Corporation's quarterly filings are available
publicly on the SEC's web site at http://www.sec.gov, on the Corporation's web
site at http://www.chemungcanal.com or by written request to: Kathleen S.
McKillip, Corporate Secretary, Chemung Financial Corporation, One Chemung Canal
Plaza, Elmira, NY 14901. Except as otherwise required by law, the Corporation
undertakes no obligation to publicly update or revise its forward-looking
statements, whether as a result of new information, future events or otherwise.


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Critical accounting estimates

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

Allowance for loan losses

Management considers the allowance for loan losses to be a critical accounting
estimate 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. The allowance is established through a provision for loan losses in
the Consolidated Statements of Income and is established based on management's
evaluation of the probable inherent losses in our portfolio in accordance with
GAAP, and is comprised of both specific valuation allowances and general
valuation allowances. Management's evaluation of the adequacy of the allowance
for loan losses is performed on a quarterly basis and takes into consideration
such factors as the credit risk grade assigned to the loan, historical loan loss
experience and review of specific impaired loans. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses.

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, including the impact of COVID-19.

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. The determination of the
allowance also includes an evaluation of non-impaired loans and is based on
historical loss experience adjusted for current factors. Please refer to Note 1
in the Corporation's consolidated financial statements which begins on page
F-10, for further discussion.









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Consolidated Financial Highlights

As of or for completed fiscal years

                                                                       December 31,            December 31,
(in thousands, except per share data)                                      2021                    2020
RESULTS OF OPERATIONS
Interest and dividend income                                         $      69,008           $      66,907
Interest expense                                                             3,419                   3,988
Net interest income                                                         65,589                  62,919
Provision for loan losses                                                       17                   4,239
Net interest income after provision for loan losses                         65,572                  58,680
Non-interest income                                                         23,870                  21,124
Non-interest expenses                                                       55,682                  55,935
Income before income tax expense                                            33,760                  23,869
Income tax expense                                                           7,335                   4,607
Net income                                                           $      26,425           $      19,262

Basic and diluted earnings per share                                 $        5.64           $        4.01
Average basic and diluted shares outstanding                                 4,683                   4,802

PERFORMANCE RATIOS
Return on average assets                                                      1.09   %                0.94  %
Return on average equity                                                     12.94   %                9.94  %
Return on average tangible equity (a)                                        14.49   %               11.24  %
Efficiency ratio (unadjusted) (f)                                            62.24   %               66.56  %
Efficiency ratio (adjusted) (a) (b)                                          61.71   %               65.71  %
Non-interest expense to average assets                                        2.30   %                2.73  %
Loans to deposits                                                            70.44   %               75.40  %

AVERAGE YIELDS / RATES - Fully Taxable Equivalent
Yield on loans                                                                3.82   %                4.06  %
Yield on investments                                                          1.34   %                1.65  %
Yield on interest-earning assets                                              2.99   %                3.46  %
Cost of interest-bearing deposits                                             0.22   %                0.31  %
Cost of borrowings                                                            3.05   %                1.65  %
Cost of interest-bearing liabilities                                          0.23   %                0.32  %
Interest rate spread                                                          2.76   %                3.14  %
Net interest margin, fully taxable equivalent                                 2.84   %                3.25  %

CAPITAL CITY

Total equity to total assets at end of year                                   8.74   %                8.76  %
Tangible equity to tangible assets at end of year (a)                         7.91   %                7.87  %

Book value per share                                                 $       45.09           $       42.53
Tangible book value per share (a)                                            40.44                   37.83
Year-end market value per share                                              46.45                   33.95
Dividends declared per share                                                  1.19                    1.04


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                                                                  As of or 

for the years ended

                                                               December 31,          December 31,
(in thousands, except per share data)                              2021                  2020
AVERAGE BALANCES
Loans (c)                                                     $  1,545,579          $  1,456,096
Interest-earning assets                                          2,324,498             1,945,062
Total assets                                                     2,421,801             2,046,786
Deposits                                                         2,179,128             1,807,478
Total equity                                                       204,239               193,741
Tangible equity (a)                                                182,314               171,413

ASSET QUALITY
Net charge-offs (recoveries)                                  $        (84)         $      6,792
Non-performing loans (d)                                             8,114                 9,952
Non-performing assets (e)                                            8,227                10,189
Allowance for loan losses                                           21,025                20,924

Annualized net charge-offs (recoveries) to average loans             (0.01) %               0.47  %
Non-performing loans to total loans                                   0.54  %               0.65  %
Non-performing assets to total assets                                 0.34  %               0.45  %
Allowance for loan losses to total loans                              1.38  %               1.36  %
Allowance for loan losses to non-performing loans                   259.17  %             210.25  %

(a) See the GAAP to Non-GAAP reconciliations on pages 64-67.
(b) Efficiency ratio (adjusted) is non-interest expense less amortization of intangible assets less
legal accruals and settlements divided by the total of fully taxable equivalent net interest income
plus non-interest income less net gains on securities transactions.

(c) Loans include loans held for sale. Loans 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 bearing expense divided by the total of net
interest income plus non-interest income.




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Abstract

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

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

                                                      Years Ended December 31,
                                                    2021                      2020               Change             Percentage Change
Net interest income                           $     65,589                $   62,919          $    2,670                         4.2  %
Non-interest income                                 23,870                    21,124               2,746                        13.0  %
Non-interest expenses                               55,682                    55,935                (253)                       (0.5) %
Pre-provision income                                33,777                    28,108               5,669                        20.2  %
Provision for loan losses                               17                     4,239              (4,222)                      (99.6) %
Income tax expense                                   7,335                     4,607               2,728                        59.2  %
Net income                                    $     26,425                $   19,262          $    7,163                        37.2  %

Basic and diluted earnings per share          $       5.64                $     4.01          $     1.63                        40.6  %

Selected financial ratios
Return on average assets                              1.09   %                  0.94  %
Return on average equity                             12.94   %                  9.94  %
Net interest margin, fully taxable equivalent         2.84   %                  3.25  %
Efficiency ratio (adjusted) (a)                      61.71   %                 65.71  %
Non-interest expense to average assets                2.30   %              

2.73%

(a) See GAAP and non-GAAP reconciliations on pages 64-67

Net income for the year ended December 31, 2021 was $26.4 million, or $5.64 per
share, compared with net income of $19.3 million, or $4.01 per share, for the
prior year. Return on average equity for the year ended December 31, 2021 was
12.94%, compared with 9.94% for the prior year. The increase in net income for
the year ended December 31, 2021, compared to the prior year, was driven by
increases in net interest income and non-interest income and decreases in the
provision for loan losses and non-interest expenses, partially offset by an
increase in income tax expense.

Net interest income
Net interest income increased $2.7 million, or 4.2% in 2021, compared with the
prior year. The increase was due primarily to the impact of an increase of
$379.4 million in average interest-earning assets, offset by the impact of a
forty-one basis points decline in net interest margin.

Non-interest income
Non-interest income increased $2.7 million, or 13.0% in 2021, compared to the
prior year. The increase was due primarily to increases of $1.6 million in
wealth management group fee income, $0.8 million in interchange revenue from
debit card transactions, $0.2 million in change in fair value of equity
investments, and a $0.7 million one-time refund of real estate taxes, sales tax
rebates and Mastercard incentives as compared to the prior year, offset by a
$0.7 million decrease in net gains on sales of residential mortgage loans sold
into the secondary market.

Non-interest expenses
Non-interest expenses decreased $0.3 million, or 0.5% in 2021, compared to the
prior year. The decrease was due primarily to a decrease of $1.3 million in
other non-interest expense, a $0.6 million increase in the credit related to the
net periodic pension and post-retirement benefits, and a decrease of $0.4
million in furniture and equipment expenditures, offset by increases of $0.9
million in data processing expense, $0.5 million in pension and other employee
benefits, $0.4 million in FDIC insurance, and $0.2 million in professional
services. For the years ended December 31, 2021 and 2020, the ratio of
non-interest expense to average assets was 2.30% and 2.73%, respectively.

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Provision for loan losses
The provision for loan losses decreased $4.2 million, or 99.6% in 2021, compared
to the prior year. The general component of the allowance based on historical
loss experience was reduced in total by $1.6 million, primarily a result of the
decrease in the pandemic related reserve which included $1.4 million released
and $0.2 million utilized for downgraded loans, with a remaining balance of $2.4
million at December 31, 2021. The December 31, 2021 provision included a $1.5
million increase in reserves for impaired loans, primarily due to the impairment
of one commercial real estate loan. Net recoveries were $0.1 million in 2021,
compared with net charge-offs of $6.8 million in 2020. The decrease in net
charge-offs when compared to the prior year was due primarily to a charge-off of
a large commercial participation loan for $3.8 million and a $2.1 million
partial charge-off of a commercial loan in 2020. In 2020, net charge-offs of
$6.8 million were offset by a decline in reserves for impaired loans of $6.6
million. Additionally, the general component of the allowance based on
historical loss experience increased by $2.8 million with the establishment of a
$4.0 million reserve at year-end 2020 related to the pandemic, partially offset
by a decrease of $1.2 million due to a net decrease in the historical loss
factors due to a large 2018 loan charge-off which no longer impacted the
calculation. Reserves also increased by $0.9 million in 2020 on other classified
loans.

Income tax expense
Income tax expense increased $2.7 million, or 59.2% in 2021, compared to the
prior year. The effective tax rate for 2021 increased to 21.7% compared to 19.3%
for the prior year. The increase in income tax expense was primarily due to an
increase in pretax income.


Consolidated operating results

The following section of the MD&A provides a comparative discussion of the
Corporation's Consolidated Results of Operations on a reported basis for the
years ended December 31, 2021 and 2020. For a discussion of the Critical
Accounting Estimates that affect the Consolidated Results of Operations, see
page 37.

Net Interest Income

The following table presents the net interest income for the years indicated, as well as the variation in dollars and in percentage (in thousands):

                                               Years Ended December 31,
                                               2021                 2020               Change             Percentage Change
Interest and dividend income             $      69,008          $   66,907          $    2,101                         3.1  %
Interest expense                                 3,419               3,988                (569)                      (14.3) %
Net interest income                      $      65,589          $   62,919          $    2,670                         4.2  %


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

Net interest income for the year ended December 31, 2021 totaled $65.6 million,
an increase of $2.7 million, or 4.2%, compared with $62.9 million for the prior
year. Fully taxable equivalent net interest margin was 2.84% for the year ended
December 31, 2021 compared with 3.25% for the prior year. The increase in net
interest income was primarily due to an increase of $2.9 million in interest and
dividend income on taxable securities and a decrease of $0.6 million in total
interest expense, offset by decreases of $0.6 million in interest income on
interest-earning deposits, and $0.2 million in interest income on loans,
including fees.

The increase in interest and dividend income on taxable securities was due
primarily to an increase in average invested balances of $343.0 million and the
one-time recognition of $0.6 million related to prepayment penalties on a Fannie
Mae Delegated Underwriting and Servicing (DUS) obligation. The increase in
average invested balances was primarily due to the purchase of various
mortgage-backed securities, SBA loan pools, U.S. Treasury securities and
corporate subordinated debt issues during the year, with excess liquidity due to
the increase in customer deposits related to the Corporation's participation in
the PPP and various stimulus program deposits received by customers. The
decrease in interest expense on deposits was due primarily to the decreases in
average rates paid on interest-bearing checking, and savings and money market
products, due to the low interest rate environment. The decrease in interest
income on interest-earning deposits was due primarily to the drop in interest
rates on overnight deposits with the average yield on interest-earning deposits
declining from 0.54% in 2020 to 0.17% in 2021, and a decrease of $53.1 million
in the average balance of interest-earning deposits in 2021 when compared to the
prior year, due to
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lower average interest-earning deposit levels. The decrease in interest income
on loans, including fees was due primarily to decreases in the commercial,
consumer and mortgage loan portfolio average yields due to a decrease in
interest rates, partially offset by increases in average invested balances in
the commercial and mortgage loan portfolios. These increases were primarily due
to increased originations of loans secured by non-owner occupied and
multi-family commercial properties and residential mortgage loans.

Average interest-earning assets increased $379.4 million in 2021 when compared
to the prior year. Average interest-bearing liabilities increased $236.2 million
when compared to the prior year. The average yield on average interest-earning
assets decreased 47 basis points, while the average cost of interest-bearing
liabilities decreased nine basis points, as compared to the prior year.


Average Consolidated Balance Sheet and Interest Analysis

The following table presents certain information related to the Corporation's
average consolidated balance sheets and its consolidated statements of income
for the years ended December 31, 2021, and 2020. It also reflects the average
yield on interest-earning assets and average cost of interest-bearing
liabilities for the years ended December 31, 2021, and 2020. For the purpose of
the table below, non-accruing loans are included in the daily average loan
amounts outstanding. Daily balances were used for average balance computations.
Investment securities are stated at amortized cost. Tax equivalent adjustments
have been made in calculating yields on obligations of states and political
subdivisions, tax-free commercial loans and dividends on equity investments.
Loan fee income was $4.0 million and $3.7 million for the years ended
December 31, 2021 and 2020, respectively, and was comprised primarily of fees
related to the Paycheck Protection Program.



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                                            AVERAGE CONSOLIDATED BALANCE 

SHEETS AND ANALYSIS OF NET INTEREST INCOME

                                                                                      Year Ended December 31,
                                                                2021                                                          2020
                                                                                     Yield/                                                        Yield/
(in thousands)                           Average Balance          Interest            Rate             Average Balance          Interest            Rate
Interest-earning assets:
Commercial loans                       $      1,091,569          $ 42,661              3.91  %       $      1,020,292          $ 41,936              4.11  %
Mortgage loans                                  248,387             8,474              3.41  %                211,929             7,885              3.72  %
Consumer loans                                  205,623             7,850              3.82  %                223,875             9,358              4.18  %
Taxable securities                              650,974             8,946              1.37  %                307,933             6,012              1.95  %
Tax-exempt securities                            41,632             1,308              3.14  %                 41,582             1,306              3.14  %
Interest-earning deposits                        86,313               151              0.17  %                139,451               755              0.54  %
Total interest-earning assets                 2,324,498            69,390              2.99  %              1,945,062            67,252              3.46  %

Non-interest earning assets:
Cash and due from banks                          26,150                                                        25,040
Premises and equipment, net                      19,107                                                        21,462
Other assets                                     69,445                                                        69,774
Allowance for loan losses                       (21,093)                                                      (24,695)
AFS valuation allowance                           3,694                                                        10,143
Total assets                           $      2,421,801                                              $      2,046,786

Interest-bearing liabilities:
Interest-bearing demand deposits       $        287,340          $    235              0.08  %       $        246,133          $    334              0.14  %
Savings and insured money market
deposits                                        932,940               930              0.10  %                797,287             1,282              0.16  %
Time deposits                                   254,718             2,119              0.83  %                190,072             2,211              1.16  %
Capital leases and other debt                     4,420               135              3.05  %                  9,729               161              1.65  %
Total interest-bearing liabilities            1,479,418             3,419              0.23  %              1,243,221             3,988              

0.32%

Non-interest bearing liabilities:
Demand deposits                                 704,130                                                       573,986
Other liabilities                                34,014                                                        35,838
Total liabilities                             2,217,562                                                     1,853,045
Shareholders' equity                            204,239                                                       193,741
Total liabilities and shareholders'
equity                                 $      2,421,801                                              $      2,046,786
Fully taxable equivalent net interest
income                                                             65,971                                                        63,264
Net interest rate spread (1)                                                           2.76  %                                                       3.14  %
Net interest margin, fully taxable
equivalent (2)                                                                         2.84  %                                                       3.25  %
Taxable equivalent adjustment                                        (382)                                                         (345)
Net interest income                                              $ 65,589                                                      $ 62,919


(1) Net interest rate spread is the difference in the average yield on
interest-earning assets less the average cost of interest-bearing liabilities.
(2) Net interest margin is the ratio of fully taxable equivalent net interest
income divided by average interest-earning assets.


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Changes due to rate and volume

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

                          RATE/VOLUME ANALYSIS OF NET INTEREST INCOME

                                                       2021 vs. 2020
                                                    Increase/(Decrease)
                                              Total       Due to        Due to
                (in thousands)               Change       Volume         Rate
                Interest income
                Commercial loans            $   725      $ 2,833      $ (2,108)
                Mortgage loans                  589        1,282          (693)
                Consumer loans               (1,508)        (733)         (775)
                Taxable securities            2,934        5,135        (2,201)
                Tax-exempt securities             2            2             -
                Interest-earning deposits      (604)        (216)         (388)
                Total interest income         2,138        8,303        (6,165)


        Interest expense
        Interest-bearing demand deposits                  (99)         55         (154)
        Savings and insured money market deposits        (352)        189         (541)
        Time deposits                                     (92)        633         (725)
        Long-term advances and other debt                 (26)       (117)          91
        Total interest expense                           (569)        760       (1,329)
        Fully taxable equivalent net interest income    2,707       7,543       (4,836)



Provision for loan losses

Management performs an ongoing assessment of the adequacy of the allowance for
loan losses based upon a number of factors including an analysis of historical
loss factors, collateral evaluations, recent charge-off experience, credit
quality of the loan portfolio, current economic conditions and loan growth.
Management continues to evaluate the potential impact of the COVID-19 pandemic
as it relates to the loan portfolio. As part of this analysis, management
identified what it believes to be higher risk loans through a detailed analysis
of industry codes. During 2020, management increased certain allowance
qualitative factors based on its assessment of the impact of the pandemic on
local, national, and global economic conditions as well as the perceived risks
inherent in specific industries and credit characteristics. During 2021, as
conditions improved somewhat, management adjusted certain qualitative factors
resulting in a total decrease in the pandemic related reserve of $1.6 million.

Based on this analysis, the provision for loan losses for the years ended
December 31, 2021, and 2020 were $17.0 thousand and $4.2 million, respectively.
The general component of the allowance based on historical loss experience was
reduced in total by $1.6 million, primarily a result of the decrease in the
pandemic related reserve which included $1.4 million released and $0.2 million
utilized for downgraded loans, with a remaining balance of $2.4 million at
December 31, 2021. The December 31, 2021 provision included a $1.5 million
increase in reserves for impaired loans, primarily due to the impairment of one
commercial real estate loan. In 2020, net charge-offs of $6.8 million were
offset by a decline in reserves for impaired loans of $6.6 million.
Additionally, the general component of the allowance based on historical loss
experience increased by $2.8 million with the establishment of a $4.0 million
reserve at year-end 2020 related to the pandemic, partially offset by a decrease
of $1.2 million due to a net decrease in the historical loss factors due to a
large 2018 loan charge-off which no longer impacted the calculation. Reserves
also increased by $0.9 million in 2020 on other classified loans. Net recoveries
for the year ended December 31, 2021, were $0.1 million. Net charge-offs for the
year ended December 31, 2020 were $6.8 million.
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Non-interest income

The following table presents the non-interest income for the years indicated, as well as the variation in dollars and in percentage (in thousands):

                                                   Years Ended December 31,
                                                   2021                 2020               Change             Percentage Change
WMG fee income                               $      11,072          $    9,492          $    1,580                        16.6  %
Service charges on deposit accounts                  3,214               3,134                  80                         2.6  %
Interchange revenue from debit card
transactions                                         4,844               4,068                 776                        19.1  %

Change in fair value of equity investments             246                  89                 157                       176.4  %
Net gains on sales of loans held for sale            1,073               1,730                (657)                      (38.0) %
Net gains (losses) on sales of other real
estate owned                                           (16)                (79)                 63                        79.7  %
Income from bank owned life insurance                   52                 161                (109)                      (67.7) %
CFS fee and commission income                        1,044                 657                 387                        58.9  %
Other                                                2,341               1,872                 469                        25.1  %
Total non-interest income                    $      23,870          $   21,124          $    2,746                        13.0  %



Non-interest income for the year ended December 31, 2021 was $23.9 million
compared with $21.1 million for the prior year, an increase of $2.7 million, or
13.0%. The increase was due primarily to increases of $1.6 million in wealth
management group fee income, $0.8 million in interchange revenue from debit card
transactions, $0.4 million in CFS fee and commission income, $0.2 million in
change in fair value of equity investments, and $0.5 million in other
non-interest income, when compared to the prior year, offset by a $0.7 million
decrease in net gains on sales of loans held for sale.

Wealth Management Group Fee Income
The increase in wealth management group fee income was primarily attributed to
new business relationships and an increase in the market value of total assets
under management or administration, and represents record fee income for the
segment.

Interchange Revenue from Debit Card Transactions
The increase in interchange revenue from debit card transactions was primarily
attributable to an increase in consumer debit card usage when compared to the
prior year.

CFS fee and commission income CFS fee and commission income increased in 2021 compared to the previous year, mainly due to new business relationships.

Change in Fair Value of Equity Investments
Change in fair value of equity investments increased in 2021 compared to the
prior year primarily due to an increase in the assets held and the market value
thereon.

Other non-interest income
Other non-interest income increased compared to the prior year primarily due to
a $0.7 million one-time refund of real estate taxes, sales tax rebates and
Mastercard incentives received in 2021.

Net Gains on Sales of Loans Held for Sale
Net gains on sales of loans held for sale decreased primarily due to a decrease
in net gains on sales of residential mortgage loans sold into the secondary
market when compared to the prior year.


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Non-interest charges

The following table shows the non-interest expenses for the years indicated, as well as the variation in dollars and in percentage (in thousands):

                                                       Years Ended December 31,
                                                       2021                 2020                Change             Percentage Change
Compensation expenses:
Salaries and wages                               $      24,413          $   24,250          $       163                         0.7  %
Pension and other employee benefits                      6,086               5,553                  533                         9.6  %
Other components of net periodic pension cost
(benefits)                                              (1,583)             (1,017)                (566)                      (55.7) %
Total compensation expenses                             28,916              28,786                  130                         0.5  %

Non-compensation expenses:
Net occupancy                                            5,873               5,885                  (12)                       (0.2) %
Furniture and equipment                                  1,669               2,078                 (409)                      (19.7) %
Data processing                                          8,519               7,576                  943                        12.4  %
Professional services                                    1,932               1,725                  207                        12.0  %

Amortization of intangible assets                          243                 484                 (241)                      (49.8) %
Marketing and advertising                                  792                 631                  161                        25.5  %
Other real estate owned expense                             40                 102                  (62)                      (60.8) %
FDIC insurance                                           1,408                 987                  421                        42.7  %
Loan expense                                             1,037               1,173                 (136)                      (11.6) %

Other                                                    5,253               6,508               (1,255)                      (19.3) %
Total non-compensation expenses                         26,766              27,149                 (383)                       (1.4) %
Total non-interest expenses                      $      55,682          $   55,935          $      (253)                       (0.5) %



Non-interest expense decreased $0.3 million, or 0.5% in 2021. The decrease was
due primarily to a decrease of $0.4 million in total non-compensation expenses,
offset by an increase of $0.1 million in total compensation expenses.

Compensation expenses
Compensation expenses increased $0.1 million, or 0.5% when compared to the prior
year, primarily due to increases of $0.5 million in pension and other employee
benefit expense and $0.2 million in salaries and wages, partially offset by a
$0.6 million increase in the credit related to the net periodic pension and
post-retirement benefits. Pension and other employee benefits increased
primarily due to an increase in healthcare costs when compared to the prior
year. The increase in salaries and wages was primarily due to annual merit
increases offset by a decrease in salaries and wage expense during the year when
compared to the prior year. The increase in the credit related to the net
periodic pension and post-retirement benefits was primarily due to a change in
factors used to prepare annual actuarial estimates.

Non-compensation expenses
Non-compensation expenses decreased $0.4 million, or 1.4%, primarily due to
decreases of $1.3 million in other non-interest expense, and a decrease of $0.4
million in furniture and equipment expenditures, offset by increases of $0.9
million in data processing expense, $0.4 million in FDIC insurance, and $0.2
million in professional services.

The decrease in other non-interest expense was primarily due to a $0.7 million
reserve established in 2020 related to a compliance matter with NYS Department
of Financial Services, and the subsequent $0.3 million release of the remaining
reserve upon resolution of the matter in 2021, as described in the Corporation's
Form 8-K filed June 29, 2021. Also contributing to the decrease was $0.4 million
in costs related to the closing of a branch location, including equipment and
leasehold improvements and a $0.2 million lease buy-out in the prior year, and a
$0.4 million decrease due to a change in restricted stock vesting requirements
based upon the adoption of the Corporation's 2021 Equity Incentive Plan as
approved by shareholders on June 8, 2021. Furniture and equipment expenditures
decreased primarily due to a decrease in depreciable assets and an overall
decrease in building furniture and equipment expenditures when compared to the
prior year. Data processing expenses increased primarily due to investment in
new initiatives in the current year and a $0.2 million credit received in the
prior year. FDIC insurance increased primarily due to an increase in the
assessment base due to increased average asset balances. Professional services
increased primarily due to additional consulting services in the current year.

                                       46
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Income tax expense
The following table presents income tax expense and the effective tax rate for
the years indicated, and the dollar and percent change (in thousands):

                                                  Years Ended December 31,
                                                2021                      2020               Change             Percentage Change
Income before income tax expense          $     33,760                $   23,869          $    9,891                        41.4  %
Income tax expense                        $      7,335                $    4,607          $    2,728                        59.2  %
Effective tax rate                                21.7   %                  19.3  %



The effective tax rate increased to 21.7% for the year ended December 31, 2021
compared with 19.3% for the prior year. The increase in the effective tax rate
can be attributed to an increase in state tax liability. The increase in income
tax expense can be attributed to an increase in pre-tax income.

COVID-19[female[feminine

The effect of COVID-19 on our business

The Corporation remained flexible with its COVID-19 response, adapting weekly to
new micro-cluster zone restrictions and spiking positivity rates throughout our
footprint. This flexibility allowed us to ensure a healthy and safe work
environment for our colleagues, clients and the communities we assist. At all
times, social distancing, sanitizing and facial coverings were required and at
certain times, access to branches was limited or restricted. When the need arose
to temporarily close a branch, impacted customers were directed to adjacent
branches when possible, and offices were immediately deep-cleaned to ensure a
safe work environment when employees and customers returned. At the date of this
filing all of our 31 branches are open with normal business hours. The
Corporation further assisted its customer base as the Paycheck Protection
Program (PPP) moved forward with its Forgiveness phase, with the Small Business
Administration (SBA).

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 allowed 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 December 31,
2021, no loan forbearances due to COVID-19 remained.

                                                            COVID-19 Loan 

Changes in progress at

                                       June 30, 2020                                  December 31, 2020                                 December 31, 2021
                                                   Total Loan
                           # Clients                 Balance             # Clients              Total Loan Balance            # Clients           Total Loan Balance

               Commercial     172                  $167.7 million            13                         $19.8 million             0              $      

   Retail and Residential     457                   $18.0 million            18                          $1.0 million             0              $      

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 (SBA). Included in the
legislation, and additional legislation approved by Congress on April 23, 2020,
June 5, 2020 and December 27, 2020, was a total of $659 billion to assist small
businesses by providing SBA guaranteed loans to help pay for payroll, in
addition to other
                                       47
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expenses such as interest expense on mortgages, rent or utility payments. PPP
loans have an interest rate of 1.0% and two-year or five-year loan terms to
maturity. 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 PPP ended new loans in May, 2021.

The Corporation successfully navigated the processes set forth by the SBA and
assisted customers and non-customers through Phase 1 of the PPP, originating a
total of 1,260 loans. As of December 31, 2021, 100 loans totaling $4.0 million
were outstanding related to Phase 1 of the PPP, a portion of which may not be
forgiven. The Corporation then assisted the businesses who received PPP loans
with the forgiveness application phase of the program. As of December 31, 2021,
1,170 loans totaling $186.3 million were forgiven by the SBA related to Phase 1
of the PPP.

A second phase of COVID-19 Relief totaling $248 billion to provide PPP loans to
certain eligible small businesses was included in the Consolidated Appropriation
Act of 2021, signed into law by the President on December 27, 2020. As of
December 31, 2021, 510 loans totaling $39.1 million were outstanding related to
Phase 2 of the PPP, a portion of which may not be forgiven. As of December 31,
2021, 365 loans totaling $38.4 million, were forgiven by the SBA.

As of March 11, 2022, 319 PPP loans totaling $22.6 million were outstanding
related to Phases 1 and 2 of the PPP, a portion of which may not be forgiven. As
of March 11, 2022, 1,810 loans totaling $244.3 million, representing Phases 1
and 2 of the PPP, were forgiven by the SBA.

Participation in the 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 December 31, 2021, the Corporation's cash
and cash equivalents balance was $27.0 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 December 31,
2021, the Corporation's investment in securities available for sale was
$792.0 million, $547.7 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 $161.0 million as of December 31, 2021. The Corporation did not
experience excessive draws on available working capital lines of credit and home
equity lines of credit during 2021 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 changing environment caused by the COVID-19 crisis based upon the
industry types within our current loan portfolio. Lending risks, as mentioned,
are being monitored by industry, based upon NAICS code, with specific attention
being paid to those industries that may experience greater stress during this
time.

The COVID-19 pandemic is expected to continue to impact the Corporation's
financial results, as well as demand for its services and products. 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.


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Financial condition

The following table presents selected financial information at December 31, 2021
and 2020, and the change in dollars and percentage (in thousands):

                                               December 31,          December 31,
                                                   2021                  2020                Change             Percentage Change
Assets
Total cash and cash equivalents               $     26,981          $    108,538          $  (81,557)                      (75.1) %
Total investment securities, FHLB, and FRB
stock                                              802,998               562,772             240,226                        42.7  %

Loans, net of deferred loan fees                 1,518,249             1,536,463             (18,214)                       (1.2) %
Allowance for loan losses                          (21,025)              (20,924)                101                         0.5  %
Loans, net                                       1,497,224             1,515,539             (18,113)                       (1.2) %

Goodwill and other intangible assets, net           21,839                22,082                (243)                       (1.1) %
Other assets                                        69,433                70,520              (1,087)                       (1.5) %
Total assets                                  $  2,418,475          $  2,279,451          $  139,226                         6.1  %

Liabilities and Shareholders' Equity
Total deposits                                $  2,155,433          $  2,037,774          $  117,659                         5.8  %
Capital lease obligations and FHLBNY advances       18,164                 3,849              14,315                       371.9  %
Other liabilities                                   33,423                38,129              (4,706)                      (12.3) %
Total liabilities                                2,207,020             2,079,752             127,268                         6.1  %

Total shareholders' equity                         211,455               199,699              11,756                         5.9  %

Total liabilities and equity $2,418,475 $2,279,451 $139,024

                         6.1  %



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

Investment securities
The increase in securities available for sale and held to maturity can be mostly
attributed to purchases of investment securities exceeding sales, maturities and
calls.
Loans, net
The decrease in total loans, net, can be mostly attributed to decreases of
$25.7 million in commercial loans and $12.4 million in consumer loans, offset by
an increase of $19.9 million in residential mortgage loans. During 2021, PPP
loans contributed a net decrease of $107.8 million to the total loan portfolio
as of December 31, 2021 due to a total of $185.5 million of paydowns received
from the SBA for loan forgiveness, offset by $77.7 million in new Phase 2 loans.

Goodwill and other intangible assets, net
The decrease in goodwill and other intangible assets, net, can be attributed to
amortization of other intangible assets. There were no impairments of goodwill
or other intangible assets during the years ended December 31, 2021 and 2020.

Deposits

The increase in deposits can be attributed to increases of $119.2 million in
non-interest bearing demand deposits, $2.5 million in interest-bearing demand
deposits, $51.0 million in money market accounts and $34.3 million in savings
accounts, offset by a decrease of $89.4 million in time deposits. The increase
in non-interest-bearing demand deposits was mostly attributable to an increase
in personal customer deposits. The increase in interest-bearing demand deposits
was due primarily to an increase in commercial deposits. The increase in money
market accounts can mostly be attributed to an increase in ICS deposits, and an
increase in personal customer deposits. The decrease in time deposits was
primarily due to a decrease in municipal certificates of deposit. Overall,
customer deposits were impacted by the receipt of stimulus checks and PPP loan
disbursements during the year.

                                       49
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Obligations under capital leases and advances FHLBNY The increase in obligations under capital leases and advances FHLBNY is mainly explained by $14.6 million in FHLBNY advances overnight.

Other Liabilities
The decrease in other liabilities can be mostly attributed to a decrease of $5.6
million in interest rate swap liabilities, primarily due to changes in interest
rates.

Shareholders' equity
The increase in shareholders' equity was due primarily to an increase in
retained earnings of $20.9 million, which was a result of earnings of
$26.4 million, offset by $5.6 million in dividends declared during the current
year. The decrease in accumulated other comprehensive income (loss) of
$8.9 million can mostly be attributed to a decrease in the fair value of the
securities portfolio. Also, treasury stock increased $0.3 million primarily due
to the Corporation's common stock repurchase program, offset by the impact of
the issuance of shares related to the Corporation's employee benefit plans. As
of December 31, 2021, a total of 34,921 shares of common stock at a total cost
of $1.3 million were repurchased by the Corporation under its share repurchase
program. The weighted average cost was $38.55 per share repurchased. Remaining
buyback authority under the share repurchase program was 215,079 shares at
December 31, 2021. As of March 11, 2022, 49,184 shares have been repurchased, at
an average cost of $40.42 per share.
Assets under management or administration
The market value of total assets under management or administration in WMG was
$2.325 billion, including $344.2 million of assets held under management or
administration for the Corporation, at December 31, 2021 compared with
$2.091 billion, including $305.5 million of assets held under management or
administration for the Corporation, at December 31, 2020, an increase of
$234.0 million, or 11.2%. The increase in total assets under management or
administration for the Corporation can be mostly attributed to new business
relationships and an increase in the market value of the assets under
management.


Balance Sheet Comparisons

The table below contains selected information on the year-end balance sheet and the average balance sheet for the years December 31, 2021 and 2020 (in millions):

                                           SELECTED BALANCE SHEET INFORMATION

                                                YEAR-END BALANCE SHEET                      AVERAGE BALANCE SHEET
                                                                                                             % Change                                                     % Change
                                                                                                              2020 to                                                      2020 to
                                             2021                  2020                                        2021                  2021               2020                2021
Total assets                          $    2,418.5             $ 2,279.5                                           6.1  %        $ 2,421.8          $ 2,046.8                  18.3  %
Interest-earning assets (1)                2,331.3               2,178.5                                           7.0  %          2,324.5            1,945.1                  19.5  %
Loans (2)                                  1,518.6               1,536.6                                          (1.2) %          1,545.6            1,456.1                   6.1  %
Investments (3)                              812.6                 641.8                                          26.6  %            778.9              489.0                  59.3  %
Deposits                                   2,155.4               2,037.8                                           5.8  %          2,179.1            1,807.5                  20.6  %
Borrowings (4)                                18.2                   3.8                                         378.9  %              4.4                9.7                 (54.6) %
Allowance for loan losses                     21.0                  20.9                                           0.5  %             21.1               24.7                 (14.6) %
Shareholders' equity                         211.5                 199.7                                           5.9  %            204.2              193.7                   5.4  %



(1)  Average interest-earning assets include securities available for sale at
estimated fair value and securities held to maturity based on amortized cost,
loans and loans held for sale net of deferred loan fees, interest-earning
deposits, FHLBNY stock, FRBNY stock, equity investments, and federal funds sold.
(2) Average loans and loans held for sale, net of deferred loan fees.
(3) Average balances for investments include securities available for sale at
estimated fair value and securities held to maturity, based on amortized cost,
equity investments, FHLBNY stock, FRBNY stock, federal funds sold and
interest-earning deposits.
(4)  Average borrowings include overnight and PPPLF advances, securities sold
under agreements to repurchase and capitalized lease obligations.

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Cash and cash equivalents

Total cash and cash equivalents decreased $81.6 million because December 31, 2020due to the decrease in s of $69.5 million interest-bearing deposits with other financial institutions, and $12.1 million in cash and receivable from financial institutions.


Securities

The Corporation's Funds Management Policy includes an investment policy that in
general, requires debt securities purchased for the bond portfolio to carry a
minimum agency rating of "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
available for sale segment of the securities portfolio totaled $792.0 million at
December 31, 2021, an increase of $237.4 million, or 42.8%, from $554.6 million
at December 31, 2020. The increase resulted primarily from new purchases which
exceeded maturities and calls. New purchases during the year were primarily in
mortgage-backed securities, SBA loan pools, U.S. Treasury securities and
corporate subordinated debt issues. The increase in purchased securities was
primarily due to a significant increase in customer deposits related to the
Corporation's participation in PPP and various stimulus program deposits
received by customers, which resulted in excess cash levels. The held to
maturity segment of the securities portfolio consists of obligations of
political subdivisions in the Corporation's market areas. These securities
totaled $3.8 million at December 31, 2021, an increase of $1.3 million or 53.5%,
from $2.5 million at December 31, 2020, due primarily to new purchases.

Non-marketable equity securities at December 31, 2021 include shares of FRBNY
stock and FHLBNY stock, carried at their cost of $1.8 million and $2.4 million,
respectively. The fair value of these securities is assumed to approximate their
cost. The investment in these stocks is regulated by regulatory policies of the
respective institutions.

The table below sets forth the carrying amounts and maturities of held to
maturity debt securities at December 31, 2021 and the weighted average yields of
such securities (all yields are calculated on the basis of the amortized cost
and weighted for the scheduled maturity of each security, except mortgage-backed
securities which are based on the average life at the projected prepayment speed
of each security) (in thousands):

                                                                  

MATURITIES AND YIELDS OF SECURITIES HELD TO MATURITY

                                    Within One Year                After 

One, but within five years After five, but within ten years

         After Ten Years
                              Amount              Yield               Amount               Yield               Amount               Yield                 Amount                Yield

Obligations of states and
political subdivisions         1,038                2.93  %               319                4.06  %               800                3.92  %                     -                  N/A
Time deposits with other
institutions                   1,133                1.32  %               500                0.48  %                 -                    N/A                     -                  N/A
Corporate bonds and notes          -                    N/A                 -                    N/A                 -                    N/A                     -                  N/A

Total                       $  2,171                2.09  %       $       819                1.87  %       $       800                3.92  %       $             -                  N/A



The weighted-average yield on the Corporation's held to maturity debt securities
at December 31, 2021 were 2.55% related to obligations of states and political
subdivisions, and 1.91% related to time deposits with other institutions.
Management evaluates securities for OTTI on a quarterly basis, and more
frequently when economic or market conditions warrant such an evaluation. For
the years ended December 31, 2021 and 2020, the Corporation had no OTTI charges.


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Loans

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

The table below presents the Corporation's loan composition by type and
percentage of total loans at the end of December 31, 2021 and December 31, 2020
(in thousands):
                                           LOAN COMPOSITION
                                                                                             % Change
                                                     December 31,                            2020 to
                                    2021             %            2020             %           2021

Commercial and agricultural:

Commercial and industrial $256,893 16.9% $368,663

24.0% (30.3)%

  Agricultural                          394           -  %            283           -  %       39.2  %
Commercial mortgages:
  Construction                       82,204         5.4  %         61,945   

4.0% 32.7%

  Commercial mortgages              720,358        47.5  %        654,663        42.7  %       10.0  %
Residential mortgages               259,334        17.1  %        239,401        15.6  %        8.3  %
Consumer loans:
  Home equity lines and loans        70,670         4.7  %         78,547         5.1  %      (10.0) %
  Indirect consumer loans           118,569         7.8  %        120,538         7.8  %       (1.6) %
  Direct consumer loans               9,827         0.6  %         12,423         0.8  %      (20.9) %
Total                           $ 1,518,249       100.0  %    $ 1,536,463       100.0  %



Portfolio loans totaled $1.518 billion at December 31, 2021 and $1.536 billion
at December 31, 2020, a decrease of $18.2 million, or 1.2%. Changes included
decreases of $111.7 million, or 30.3%, in commercial and agricultural loans, and
$12.4 million, or 5.9%, in total consumer loans, partially offset by increases
of $86.0 million, or 12.0%, in commercial real estate loans, and $19.9 million,
or 8.3% in residential mortgage loans. The decrease in commercial and
agricultural loans was primarily a result of the net decrease in PPP loans of
$107.8 million during the year. During 2021, $147.1 million was received from
the SBA for loan forgiveness of Phase 1 loans, while $77.7 million of Phase 2
loans were originated and $38.4 million was received from the SBA for loan
forgiveness of Phase 2 loans. PPP loan balances of $43.2 million remained at
December 31, 2021, with $4.0 million and $39.2 million of Phase 1 and Phase 2
loans respectively. The decrease in total consumer loans was primarily related
to a $7.9 million decrease in total home equity lines and loans, along with
smaller decreases in both direct and indirect consumer loans. The increase in
total commercial real estate loans was a result of a $20.3 million increase in
construction loans and a $65.7 million increase in commercial real estate loans,
primarily driven by increases in loans secured by non-owner occupied and
multi-family properties. The increase in residential mortgage loans was due to
new originations retained in the portfolio driven by the continuing low interest
rate environment, as increased volume continued throughout the pandemic.

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

                                                           LOANS BY DIVISION
                                                                                 December 31,
                                           2021                 2020                 2019                 2018                 2017

Chemung Canal Trust Company*^ $639,144 $658,468

    $   576,399          $   603,133          $   630,732
Capital Bank Division                     879,105              877,995              732,820              708,773              681,092
  Total loans                         $ 1,518,249          $ 1,536,463     

$1,309,219 $1,311,906 $1,311,824
*All loans excluding those issued by the Capital Bank Division. ^ Includes $47.0 million in the Company’s new West New York market beginning in December 31, 2021.



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Loan concentrations are considered to exist when there are amounts loaned to a
multiple number of borrowers engaged in similar activities which would cause
them to be similarly impacted by changes in economic or other conditions. The
Corporation's concentration policy limits consider the volume of commercial
loans to any one specific industry, sponsor, and by collateral type and
location. In addition, the Corporation's policy limits the volume of non-owner
occupied commercial mortgages to four times total risk based capital. At
December 31, 2021 and 2020, total non-owner occupied commercial real estate
loans divided by total Bank risk based capital was 346.5% and 339.9%,
respectively.

The Corporation also monitors specific NAICS industry classifications of
commercial loans to identify concentrations greater than 10.0% of total loans.
At December 31, 2021 and 2020, commercial loans to borrowers involved in the
real estate, and real estate rental and leasing businesses were 45.1% and 40.9%
of total loans, respectively. No other concentration of loans existed in the
commercial loan portfolio in excess of 10.0% of total loans as of December 31,
2021 and 2020.

The table below shows the maturity of loans outstanding as of December 31, 2021.
Also provided are the amounts due after one year, classified according to fixed
interest rates and variable interest rates (in thousands):
                                                                         

LOAN AMOUNTS CONTRACTUALLY DUE AFTER DECEMBER 31, 2021

                                                                      After One But
                                                  Within One           Within Five         After Five But
                                                     Year                 Years            Within 15 Years         After 15 Years             Total

Commercial and agricultural:

  Commercial and industrial                     $    52,384          $    

140 296 $59,212 $5,001 $256,893

  Agricultural                                           79                   308                     7                        -                  394

Commercial mortgages:

  Construction                                        7,543                23,196                44,797                    6,668               82,204
  Commercial mortgages                               19,176               175,533               496,486                   29,163              720,358
Residential mortgages                                 4,741                 7,127               138,512                  108,954              259,334

Consumer loans:

  Home equity lines and loans                           391                 4,398                43,299                   22,582               70,670
  Indirect consumer loans                             2,228                66,206                48,145                    1,990              118,569
  Direct consumer loans                                 154                 5,505                 4,003                      165                9,827
Total                                           $    86,696          $    422,569          $    834,461          $       174,523          $ 1,518,249



                                                  After One But
                                                   Within Five           After Five But
Loans maturing with:                                  Years             Within 15 Years          After 15 Years             Total
Fixed interest rates                             $     265,381          $     398,614          $        82,949          $   746,944
Variable interest rates                                157,188                435,847                   91,574          $   684,609
Total                                            $     422,569          $     834,461          $       174,523          $ 1,431,553




Non-Performing Assets

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

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

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

                             NON-PERFORMING ASSETS

December 31,                                      2021             2020              2019              2018              2017
Non-accrual loans                              $ 3,469          $  6,011   

$9,938 $6,305 $11,389
Unrecognized distressed debt restructurings 4,645

             3,941             8,070             5,949             5,935
Total non-performing loans                       8,114             9,952            18,008            12,254            17,324
Other real estate owned                            113               237               517               574             1,940
Total non-performing assets                    $ 8,227          $ 10,189    

$18,525 $12,828 $19,264

Ratio of non-performing loans to total
loans                                             0.54  %           0.65  %           1.38  %           0.93  %           1.32  %
Ratio of non-performing assets to total
assets                                            0.34  %           0.45  %           1.04  %           0.73  %           1.13  %
Ratio of allowance for loan losses
to non-performing loans                         259.17  %         210.25  % 

130.38% 154.59% 122.14%

Accruing loans past due 90 days or more
(1)                                            $     4          $      2    

$7 $19 $29
Distressed debt restructurings (1)

                                            $ 5,643          $  2,790    

$952 $816 $1,728

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

Interest income recorded on non-current loans and restructured distressed debt loans has been
$146.0 thousandand $76.0 thousandfrom December 31, 20212020, respectively.

Non-performing loans

Non-performing loans totaled $8.1 million at December 31, 2021, or 0.54% of
total loans, compared with $10.0 million at December 31, 2020, or 0.65% of total
loans. The decrease in non-performing loans at December 31, 2021 as compared to
December 31, 2020 was primarily due to payments received on non-performing loans
across all loan portfolios. Non-performing assets, which are comprised of
non-performing loans and other real estate owned, was $8.2 million, or 0.34% of
total assets, at December 31, 2021, compared with $10.2 million, or 0.45% of
total assets, at December 31, 2020.

The recorded investment of accruing loans past due 90 days or more was less than
$0.1 million at December 31, 2021 and December 31, 2020. There were no PCI loans
as of December 31, 2021 and December 31, 2020. PCI loans are accounted for under
separate accounting guidance, ASC Subtopic 310-30, "Receivables - Loans and Debt
Securities Acquired with Deteriorated Credit Quality."

Distressed Debt Restructurings

The Corporation works closely with borrowers that have financial difficulties to
identify viable solutions that minimize the potential for loss. In that regard,
the Corporation modified the terms of select loans to maximize their
collectability. The modified loans are considered TDRs under current accounting
guidance. Modifications generally involve short-term deferrals of principal
and/or interest payments, reductions of scheduled payment amounts, interest
rates or principal of the loan, and forgiveness of accrued interest. Under
Section 4013 of the CARES Act, loans less than 30 days past due as of December
31, 2019 will be considered current for COVID-19 related modifications and
therefore will not be treated as TDRs, until January 1, 2022. As of December 31,
2021 and 2020, the Corporation had $4.6 million and $3.9 million of non-accrual
TDRs, respectively. As of December 31, 2021, the Corporation had $5.6 million of
accruing TDRs compared with $2.8 million as of December 31, 2020.

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Bad loans

A loan is classified as impaired when, based on current information and events,
it is probable that the Corporation will be unable to collect both the principal
and interest due under the contractual terms of the loan agreement.The unpaid
principal balance of impaired loans at December 31, 2021 totaled $18.2 million,
including TDRs of $10.3 million, compared to $16.5 million at December 31, 2020,
including TDRs of $6.7 million. The recorded investment of impaired loans at
December 31, 2021 totaled $11.6 million compared to $10.6 million at
December 31, 2020. Included in the recorded investment of impaired loans at
December 31, 2021, were loans totaling $5.2 million for which impairment
allowances of $3.0 million have been specifically allocated to the allowance for
loan losses. The increase in recorded investment in impaired loans was primarily
due to a $2.9 million increase in commercial real estate impaired loans,
partially offset by a $1.0 million decrease in commercial and industrial
impaired loans, a $0.3 million decrease in residential mortgage impaired loans
and a $0.5 million decrease in home equity impaired lines and loans. As of
December 31, 2020, the impaired loan total included $1.8 million of loans for
which specific impairment allowances of $1.5 million were allocated to the
allowance for loan losses. As of December 31, 2020, the impaired loan total
included $1.8 million of loans for which specific impairment allowances of $1.5
million were allocated to the allowance for loan losses.

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

Allowance for loan losses

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

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

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:
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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, 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 quarterly basis and takes into consideration
such factors as the credit risk grade assigned to the loan, historical loan loss
experience and review of specific impaired loans. While management uses
available information to recognize losses on loans, future additions to the
allowance may be necessary based on changes in economic conditions. In addition,
various regulatory agencies, as an integral part of their examination process,
periodically review the Corporation's allowance for loan losses. Such agencies
may require the Corporation to recognize additions to the allowance based on
their judgments about information available to them at the time of their
examination.

The allowance for loan losses was $21.0 million at December 31, 2021, compared
to $20.9 million at December 31, 2020. The allowance for loan losses was 259.17%
of non-performing loans at December 31, 2021 compared to 210.25% at December 31,
2020. The ratio of allowance for loan losses to total loans was 1.38% at
December 31, 2021 and 1.36% at December 31, 2020, respectively. The ratio of the
allowance for loan losses to total loans excluding PPP loans was 1.43% at
December 31, 2021, compared to 1.51% at December 31, 2020. The Corporation
continues to closely monitor the loan portfolio for effects related to the
COVID-19 pandemic. Changes in governmental policies and economic pressures
during the pandemic placed stress on certain industries while other industries
initially anticipated to be highly impacted by the pandemic demonstrated
resilience. Based upon management review of these factors and the uncertainty
that the pandemic continues to present, there was no change to the pandemic
related portion of the allowance during the fourth quarter of 2021, with a
balance of $2.4 million as of December 31, 2021. To date the Corporation has
released $1.9 million and utilized $0.5 million of the pandemic related
provision.

Net recoveries for the year ended December 31, 2021 were $0.1 million compared
with net charge-offs of $6.8 million for the year ended December 31, 2020. The
ratio of net charge-offs (recoveries) to average loans outstanding was (0.01)%
for 2021 compared to 0.47% for 2020.
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The table below summarizes the Corporation’s allowance for loan losses, unaccrued loans and the ratio of net write-offs and recoveries to average loans outstanding by loan category for the years ended December 31, 2021 and
December 31, 2020by category (in thousands):

                                                              ALLOWANCE FOR 

LOAN LOSSES AND LOAN CREDIT RATIOS BY LOAN CATEGORY

                                                                                                                                                                                Net
                                                                                                                                                                            charge-offs
                                Allowance for          Allowance to                                        Non-performing loans to            Allowance to                (recoveries) to
Balance at December 31, 2021     loan losses              loans1              Non-performing loans                 loans1                 non-performing loans             average loans
Commercial and agricultural     $     3,591                    1.40  %       $            1,932                            0.75  %                     185.87  %                     (0.09) %
Commercial mortgages                 13,556                    1.69  %                    3,878                            0.48  %                     349.56  %                      0.01  %
Residential mortgages                 1,803                    0.70  %                    1,039                            0.40  %                     173.53  %                      0.03  %
Consumer loans                        2,075                    1.04  %                    1,265                            0.64  %                     164.03  %                      0.05  %
Total                           $    21,025                    1.38  %       $            8,114                            0.54  %                     259.17  %                     (0.01) %

                                                                                                                                                                                Net
                                                                                                                                                                            charge-offs
                                Allowance for          Allowance to                                        Non-performing loans to            Allowance to                (recoveries) to
Balance at December 31, 2020     loan losses              loans1              Non-performing loans                 loans1                 non-performing loans             average loans
Commercial and agricultural     $     4,493                    1.22  %       $            2,167                            0.59  %                     207.34  %                      1.33  %
Commercial mortgages                 11,496                    1.60  %                    4,470                            0.62  %                     257.18  %                      0.31  %
Residential mortgages                 2,079                    0.87  %                    1,632                            0.68  %                     127.39  %                     (0.01) %
Consumer loans                        2,856                    1.35  %                    1,683                            0.80  %                     169.70  %                      0.32  %
Total                           $    20,924                    1.36  %       $            9,952                            0.65  %                     210.25  %                      0.47  %

Consolidated Ratios at December 31,                                                   2021                          2020
 Non-performing loans to total loans                                                       0.54  %                         0.65  %
 Allowance for loan losses to total loans                                                  1.38  %                         1.36  %
 Allowance for loan losses to total loans, net of PPP                                      1.43  %                         1.51  %
 Allowance for loan losses to non-performing loans                                       259.17  %                       210.25  %

1 The ratio is a percentage of the loan category.




The increase in the allowance to non-accrual loans is primarily due to a $1.8
million decrease in non-accrual loans from 2020 to 2021. The decrease in net
charge-offs and recoveries to outstanding loans ratios was primarily due to the
charge-off of a large commercial participation loan for $3.8 million and a $2.1
million partial charge-off of a commercial loan in 2020. Refer to Note 4 of the
audited Consolidated Financial Statements appearing elsewhere in this report for
components used in credit ratios presented above.
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The table below summarizes the Company’s loan losses for the years ended December 31, 2021 and 2020 (in thousands, excluding ratio data):

                             SUMMARY OF LOAN LOSS EXPERIENCE

                                                          Years Ended December 31,
                                                             2021                 2020

Provision for loan losses at the beginning of the year $20,924

   $ 23,478

Charge-offs:
Commercial and agricultural                                    28                 4,068
Commercial mortgages                                           43                 2,143
Residential mortgages                                          75                    56
Consumer loans                                                593                 1,113
Total                                                         739                 7,380
Recoveries:
Commercial and agricultural                                   312                    89
Commercial mortgages                                            3                    14
Residential mortgages                                          10                    86
Consumer loans                                                498                   398
Total                                                         823                   587
Net charge-offs (recoveries)                                  (84)                6,793
Provision charged to operations                                17           

4,239

Allowance for loan losses at end of year            $      21,025              $ 20,924




Other Real Estate Owned

AT December 31, 2021OREO totaled $0.1 million compared to $0.2 million at
December 31, 2020. The decrease in other real estate held is mainly due to the sale of three residential properties and one commercial property in 2021.

Deposits

The table below summarizes the Corporation's deposit composition by segment at
December 31, 2021, and 2020, and the dollar and percent change from December 31,
2020 to December 31, 2021 (in thousands):

                                              DEPOSITS

                                                                                                                     Percentage
                                                                                                                    Change from
                                                                       December 31,                                  Prior Year
                                                                 2021                 2020                                                  2021
Non-interest-bearing demand deposits                        $   739,607          $   620,423                                               19.2%
Interest-bearing demand deposits                                284,721              282,172                                                0.9%
Insured money market accounts                                   654,553              603,583                                                8.4%
Savings deposits                                                280,195              245,865                                               14.0%
Time deposits                                                   196,357              285,731                                              (31.3)%
Total                                                       $ 2,155,433          $ 2,037,774                                                5.8%



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Deposits totaled $2.155 billion at December 31, 2021, compared with $2.038
billion at December 31, 2020, an increase of $117.7 million, or 5.8%. At
December 31, 2021, demand deposit and money market accounts comprised 77.9% of
total deposits compared with 73.9% at December 31, 2020. The growth in deposits
was attributable to increases of $119.2 million in non-interest-bearing demand
deposits, $2.5 million in interest-bearing demand deposits, $51.0 million in
insured money market accounts, and $34.3 million in savings deposits, offset by
a decrease of $89.4 million in time deposits. The growth in deposits was due
primarily to increases of $76.1 million in consumer funds, and $42.8 million in
commercial deposits, offset by a decrease of $1.5 million in public deposits.
The increase in deposits was partially due to the collection of stimulus funds
and PPP loan disbursements.

At December 31, 2021, public funds deposits totaled $378.9 million compared to
$308.9 million at December 31, 2020. The Corporation has developed a program for
the retention and management of public funds deposits. These deposits are from
public entities, such as school districts and municipalities. There is a
seasonal component to public deposit levels associated with annual tax
collections. Public funds deposits will increase at the end of the first and
third quarters. Public funds deposit accounts above the FDIC insured limit are
collateralized by municipal bonds and eligible government and government agency
securities such as those issued by the FHLB, Fannie Mae, and Freddie Mac.

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

                                                             December 31,
Public Funds:                                           2021              2020
Non-interest-bearing demand deposits               $    31,739       $     

7,738

Interest-bearing demand deposits                        54,520            

50,535

Insured money market accounts                          278,790           237,975
Savings deposits                                        11,104             9,428
Time deposits                                            2,769             3,223
Total public funds                                 $   378,922       $   308,899
Total deposits                                     $ 2,155,433       $ 2,037,774
Percentage of public funds to total deposits              17.6  %           

15.2%



The aggregate amount of the Corporation's outstanding uninsured deposits was
$366.5 million and $407.6 million as of December 31, 2021 and 2020,
respectively. As of December 31, 2021, the aggregate amount of the Corporation's
outstanding certificates of deposit in amounts greater than or equal to $250,000
was $29.3 million. The table below presents the Corporation's scheduled maturity
of those certificates as of December 31, 2021 (in thousands):

                               December 31, 2021
3 months or less              $              531
Over 3 through 6 months                    6,301
Over 6 through 12 months                   9,648
Over 12 months                            12,817
                              $           29,297



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

                                                       DEPOSITS BY DIVISION
                                                                            December 31,
                                      2021                 2020                 2019                 2018                 2017

Chemung Canal Trust Company* 1,739,826 $1,686,370 $1,317,225 $1,328,658 $1,264,883
Capital Banking Division

                415,607              351,404              254,913              240,579              202,563
  Total deposits                 $ 2,155,433          $ 2,037,774          

$1,572,138 $1,569,237 $1,467,446
*All deposits, excluding those from Capital Bank Division.

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In addition to consumer, commercial and public deposits, other sources of funds
include brokered deposits. The Regulatory Relief Act changed the definition of
brokered deposits, such that subject to certain conditions, reciprocal deposits
of another depository institution obtained through a deposit placement network
for purposes of obtaining maximum deposit insurance would not be considered
brokered deposits subject to the FDIC's brokered-deposit regulations. This will
apply to the Corporation's participation in the CDARS and ICS programs. The
CDARS and ICS programs involve a network of financial institutions that exchange
funds among members in order to ensure FDIC insurance coverage on customer
deposits above the single institution limit. Using a sophisticated matching
system, funds are exchanged on a dollar-for-dollar basis, so that the equivalent
of an original deposit comes back to the originating institution. The
Corporation had no deposits obtained through brokers as of December 31, 2021 and
2020. Deposits placed in the CDARS and ICS programs were $288.1 million and
$318.3 million as of December 31, 2021 and 2020, respectively.

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

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

Loans

FHLBNY overnight advances increased $14.6 million at December 31, 2021 when
compared to 2020, for which there were no outstanding FHLBNY advances. For each
year ended December 31, 2021, and 2020 respectively, the average outstanding
balance of borrowings that mature in one year or less did not exceed 30% of
shareholders' equity. There were no FHLBNY term advances as of and for the years
ended December 31, 2021, and 2020.

Information regarding FHLBNY advances is included in Note 9 of the audited
Consolidated Financial Statements appearing elsewhere in this report. There were
no securities sold under agreements to repurchase as of and for the years ended
December 31, 2021, or 2020.

Derivatives

The Corporation offers interest rate swap agreements to qualified commercial
loan customers. These agreements allow the Corporation's customers to
effectively fix the interest rate on a variable rate loan by entering into a
separate agreement. Simultaneous with the execution of such an agreement with a
customer, the Corporation enters into a matching interest rate swap agreement
with an unrelated third party provider, which allows the Corporation to continue
to receive the variable rate under the loan agreement with the customer. The
agreement with the third party is not designated as a hedge contract, therefore
changes in fair value are recorded through other non-interest income. Assets and
liabilities associated with the agreements are recorded in other assets and
other liabilities on the balance sheet. Gains and losses are recorded as other
non-interest income. The Corporation is exposed to credit loss equal to the fair
value of the interest rate swaps, not the notional amount of the derivatives, in
the event of nonperformance by the counterparty to the interest rate swap
agreements. Additionally, the swap agreements are free-standing derivatives and
are recorded at fair value in the Corporation's consolidated balance sheets,
which typically involves a day one gain. Since the terms of the two interest
rate swap agreements are identical, the income statement impact to the
Corporation is limited to the day one gain and an allowance for credit loss
exposure, in the event of nonperformance. The Corporation recognized
$0.4 million and $0.5 million for the years ended December 31, 2021 and 2020,
respectively.

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

Information regarding derivatives is included in Note 11 to the consolidated financial statements elsewhere in this report.

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Equity

Total shareholders' equity was $211.5 million at December 31, 2021, compared
with $199.7 million at December 31, 2020, an increase of $11.8 million, or 5.9%,
primarily due to an increase in retained earnings. The increase in retained
earnings of $20.9 million was due primarily to earnings of $26.4 million offset
by $5.6 million in dividends declared during the year. The decrease in
accumulated other comprehensive income (loss) of $8.9 million can primarily be
attributed to a decrease in the fair market value of the securities portfolio.
Treasury stock increased $0.3 million primarily due to the Corporation's common
stock repurchase program, offset by the impact of the issuance of shares related
to the Corporation's employee benefit plans. Total shareholders' equity to total
assets ratio was 8.74% at December 31, 2021 compared with 8.76% at December 31,
2020. Tangible equity to tangible assets ratio increased to 7.91% at
December 31, 2021, from 7.87% at December 31, 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, undercapitalized,
significantly undercapitalized and critically undercapitalized. As of
December 31, 2021, the Bank's capital ratios were in excess of those required to
be considered well-capitalized under regulatory capital guidelines. A comparison
of the Bank's actual capital ratios to the ratios required to be adequately or
well-capitalized at December 31, 2021 and 2020, is included in Footnote 20 of
the audited Consolidated Financial Statements. For more information regarding
current capital regulations see Part I-"Business-Supervision and
Regulation-Regulatory Capital Requirements."

Beginning second quarter of 2021, the Corporation increased quarterly dividends
to shareholders 19.2% to $0.31 per share. Cash dividends declared during 2021
totaled $5.6 million, or $1.19 per share, compared to $5.0 million, or $1.04 per
share in 2020. Dividends declared during 2021 amounted to 21.02% of net income
compared to 25.73% of net income for 2020. Management seeks to continue
generating sufficient capital internally, while continuing to pay dividends to
the Corporation's shareholders.

When shares of the Corporation become available in the market, the Corporation
may purchase them after careful consideration of the Corporation's liquidity and
capital positions. Purchases may be made from time to time on the open market or
in privately negotiated transactions at the discretion of management. On January
8, 2021, the Corporation announced that the Board of Directors approved a stock
repurchase program. Under the repurchase program, the Corporation may repurchase
up to 250,000 shares of its common stock, or approximately 5% of its then
outstanding shares. 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. As of March 11, 2022, the Corporation
repurchased a total of 49,184 shares of common stock at a total cost of
$2.0 million under the repurchase program at the weighted average cost of $40.42
per share. The remaining buyback authority under the share repurchase program
was 200,816 shares as of the March 11, 2022.

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.


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 $161.0 million and $89.6 million at
December 31, 2021 and 2020, respectively. The Corporation also had a total of
$68.0 million of unsecured lines of credit with six different financial
institutions, all of which were available at December 31, 2021. The Corporation
had a total of $68.0 million of unsecured lines of credit with six different
financial institutions, all of which was available at December 31, 2020.

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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.

The Corporation has a detailed Funds Management Policy that includes sections on
liquidity measurement and management, and a Liquidity Contingency Plan that
provide for the prompt and comprehensive response to unexpected demands for
liquidity. This policy and plan are established and revised as needed by the
management and Board ALCO committees. The ALCO is responsible for measuring
liquidity, establishing liquidity targets and implementing strategies to achieve
selected targets. The ALCO is responsible for coordinating activities across the
Corporation to ensure that prudent levels of contingent or standby liquidity are
available at all times. Based on the ongoing assessment of the liquidity
considerations, management believes the Corporation's sources of funding meet
anticipated funding needs.

Analysis of consolidated cash flows

The table below summarizes the Corporation's cash flows for the years indicated
(in thousands):
                                     CONSOLIDATED SUMMARY OF CASH FLOWS

                                                                            Years Ended December 31,
(in thousands)                                                              2021                    2020
Net cash provided by operating activities                           $      35,461               $   28,659
Net cash provided (used) by investing activities                         (242,484)                (495,848)
Net cash provided (used) by financing activities                          125,466                  453,823
Net increase (decrease) in cash and cash equivalents                $     (81,557)              $  (13,366)



Operating activities
The Corporation believes cash flows from operations, available cash balances and
its ability to generate cash through borrowings are sufficient to fund the
Corporation's operating liquidity needs. Cash provided by operating activities
in the years ended December 31, 2021 and 2020 predominantly resulted from net
income after non-cash operating adjustments.

Investing activities
Cash used in investing activities during the year ended December 31, 2021
predominantly resulted from purchases of securities available for sale, offset
by maturities, and principal collected on securities available for sale. Cash
used in investing activities during the year ended December 31, 2020
predominantly resulted from purchases of securities available for sale and a net
increase in loans, offset by maturities, and principal collected on securities
available for sale.

Financing activities
Cash provided by financing activities during the year ended December 31, 2021
resulted from an increase in deposits and FHLBNY overnight advances, offset by
the payment of dividends to shareholders and the repurchase of treasury shares
through the Corporation's common stock repurchase program. Cash provided by
financing activities during the year ended December 31, 2020 predominantly
resulted from an increase in deposits, offset by the payment of dividends to
shareholders and the repurchase of treasury shares through the Corporation's
common stock repurchase program.

Off-balance sheet arrangements

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

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The table below presents the Company’s off-balance sheet arrangements at
December 31, 2021 (in thousands):

                                                  COMMITMENT MATURITY BY PERIOD

                                                                                                                     2027 and
                                       Total               2022             2023-2024           2025-2026           thereafter
Standby letters of credit           $   7,974          $   6,943          $

362 $414 $255
Unused portions of credit lines (1)

                                   224,214            224,214                   -                   -                     -
Commitments to fund new loans          67,330             67,330                   -                   -                     -
Total                               $ 299,518          $ 298,487          $      362          $      414          $        255


(1) Not included in this total are unused portions of home equity lines of
credit, credit card lines and consumer overdraft protection lines of credit,
since no contractual maturity dates exist for these types of loans. Commitments
to outside parties under these lines of credit were $53.9 million, $6.1 million
and $8.9 million, respectively, at December 31, 2021.

Capital resources

The Bank is subject to regulatory capital requirements administered by federal
banking agencies. As a result of the 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 not
subject to regulatory capital 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. Under Basel III
rules, the Bank must hold a capital conservation buffer above the adequately
capitalized risk-based capital ratios. The capital conservation buffer is 2.50%.
Organizations that fail to maintain the minimum capital conservation buffer
could face restrictions on capital distributions or discretionary bonus payments
to executive officers. The net unrealized gain or loss on available for sale
securities and changes in the funded status of the defined benefit pension plan
and other benefit plans are not included in computing regulatory capital.

Pursuant to the Regulatory Relief Act, the FRB finalized a rule that established
a community bank leverage ratio (tier 1 capital to average consolidated assets)
at 9% for institutions under $10 billion in assets that such institutions may
elect to utilize in lieu of the general applicable risk-based capital
requirements under Basel III. Such institutions that meet the community bank
leverage ratio and certain other qualifying criteria will automatically be
deemed to be well-capitalized. The new rule took effect on January 1, 2020.
Pursuant to the CARES Act, the federal banking regulators issued final rules to
set the community bank leverage ratio at 8.5% for 2021. The community bank
leverage ratio requirement returned to 9.0% on January 1, 2022. 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 December 31, 2021 and December 31, 2020 the Corporation and Bank met all
capital adequacy requirements to which they were subject. As of December 31,
2018, the Corporation is no longer subject to FRB consolidated capital
requirements applicable to bank holding companies, which are similar to those
applicable to the Bank, until it reaches $3.0 billion in assets.

As of December 31, 2021, 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. There have been no
conditions or events since that notification that management believes have
changed the Bank's capital category.

The regulatory capital ratios as of December 31, 2021 and 2020 were calculated
under Basel III rules. There is no threshold for well-capitalized status for
bank holding companies. Refer to Note 19 of the audited Consolidated Financial
Statements appearing elsewhere in this report for a table summarizing the
Corporation's and the Bank's actual and required regulatory capital ratios. For
more information regarding current capital regulations see Part
I-"Business-Supervision and Regulation-Regulatory Capital Requirements."

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Dividend Restrictions

The Corporation's principal source of funds for dividend payments is dividends
received from the Bank. Banking regulations limit the amount of dividends that
may be paid without prior approval of regulatory agencies. Under these
regulations, the amount of dividends that may be paid in any calendar year is
limited to the current year's net income, combined with the retained net income
of the preceding two years, subject to the capital requirements in the table
above. At December 31, 2021, the Bank could, without prior approval, declare
dividends of approximately $38.9 million.


Adoption of new accounting standards

For a discussion of the impact of recently issued accounting standards, please
see Note 1 to the Corporation's audited Consolidated Financial Statements which
begins on page F-10.


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

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

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

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

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.
                                       64
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As of or for completed fiscal years

                                                                        December 31,           December 31,
(in thousands, except ratio data)                                           2021                   2020

NET INTEREST MARGIN – FULLY TAXED EQUIVALENT

Net interest income (GAAP)                                           $       65,589           $     62,919
Fully taxable equivalent adjustment                                             382                    345
Fully taxable equivalent net interest income (non-GAAP)              $       65,971           $     63,264

Average interest-earning assets (GAAP)                               $    2,324,498           $  1,945,062

Net interest margin - fully taxable equivalent (non-GAAP)                      2.84   %               3.25  %



Efficiency Ratio

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

from or for completed exercises

                                                                   December 31,            December 31,
(in thousands, except ratio data)                                      2021                    2020

EFFICIENCY RATE

Net interest income (GAAP)                                       $      65,589           $      62,919
Fully taxable equivalent adjustment                                        382                     345

Fully taxable equivalent net interest income (non-GAAP) $65,971

           $      63,264

Non-interest income (GAAP)                                       $      23,870           $      21,124

Less: net (gains) losses on security transactions                            -                       -

Adjusted non-interest income (non-GAAP)                          $      23,870           $      21,124

Non-interest expense (GAAP)                                      $      55,682           $      55,935

Less: amortization of intangible assets                                   (243)                   (484)
Less: legal accruals and settlements                                         -                       -
Adjusted non-interest expense (non-GAAP)                         $      55,439           $      55,451

Efficiency ratio (unadjusted)                                            62.24   %               66.56  %
Efficiency ratio (adjusted)                                              61.71   %               65.71  %



                                       65
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Equity and tangible assets (end of year)

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


                                                                        As of or for the Years Ended
                                                                     December 31,           December 31,
(in thousands, except per share and ratio data)                          2021                   2020
TANGIBLE EQUITY AND TANGIBLE ASSETS (YEAR END)
Total shareholders' equity (GAAP)                                 $      211,455           $    199,699
Less: intangible assets                                                  (21,839)               (22,082)
Tangible equity (non-GAAP)                                        $      189,616           $    177,617

Total assets (GAAP)                                               $    2,418,475           $  2,279,451
Less: intangible assets                                                  (21,839)               (22,082)
Tangible assets (non-GAAP)                                        $    2,396,636           $  2,257,369

Total equity to total assets at end of year (GAAP)                          8.74   %               8.76  %
Book value per share (GAAP)                                       $        45.09           $      42.53

Tangible equity to tangible assets at end of year (non-GAAP)                7.91   %               7.87  %
Tangible book value per share (non-GAAP)                          $        40.44           $      37.83



Tangible Equity (Average)

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

                                                                        As of or for the Years Ended
                                                                     December 31,            December 31,
(in thousands, except ratio data)                                        2021                    2020
TANGIBLE EQUITY (AVERAGE)
Total average shareholders' equity (GAAP)                         $      204,239           $     193,741
Less: average intangible assets                                          (21,925)                (22,328)
Average tangible equity (non-GAAP)                                $      182,314           $     171,413

Return on average equity (GAAP)                                            12.94   %                9.94  %
Return on average tangible equity (non-GAAP)                               14.49   %               11.24  %



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Adjustments for certain income or expense items

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

                                                                        As 

from or for completed exercises

                                                                    December 31,            December 31,
(in thousands, except per share and ratio data)                         2021                    2020
NON-GAAP NET INCOME
Reported net income (loss) (GAAP)                                 $      26,425           $      19,262
Net changes in fair value of investments (net of tax)                         -                       -
Net (gains) losses on security transactions (net of tax)                      -                       -

Legal accruals and settlements (net of tax)                                   -                       -

Remeasurement of net deferred tax asset                                       -                       -
Net income (non-GAAP)                                             $      26,425           $      19,262

Average basic and diluted shares outstanding                              4,683                   4,802

Reported basic and diluted earnings per share (GAAP)              $        5.64           $        4.01
Reported return on average assets (GAAP)                                   1.09   %                0.94  %
Reported return on average equity (GAAP)                                  12.94   %                9.94  %

Basic and diluted earnings per share (non-GAAP)                   $        5.64           $        4.01
Return on average assets (non-GAAP)                                        1.09   %                0.94  %
Return on average equity (non-GAAP)                                       12.94   %                9.94  %


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