UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from _____________ to _____________
Commission File Number 0-13888
CHEMUNG FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 16-123703-8
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One Chemung Canal Plaza, P.O. Box 1522
Elmira, New York 14902
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (607) 737-3711
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5 a share
(Title of class)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
The aggregate market value of Common Stock held by nonaffiliates on February 29,
1996 was $34,933,528.
As of February 29, 1996 there were 2,084,611 shares of Common Stock, $5 par
value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1995 are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Shareholders meeting to be held
on April 2, 1996 are incorporated by reference into Parts III and IV.
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General development of business
Chemung Financial Corporation (Corporation) was incorporated on January 2, 1985,
under the laws of the State of New York. The Corporation was organized for the
purpose of acquiring a majority holding of Chemung Canal Trust Company (Bank).
The Bank was established in 1833 under the name Chemung Canal Bank, and was
subsequently granted a New York State bank charter in 1895. In 1902, the Bank
was reorganized as a New York State trust company under the name Elmira Trust
Company, which name was changed to Chemung Canal Trust Company in 1903.
On June 1, 1985, after the approval by the New York State Superintendent of
Banks and the Board of Governors of the Federal Reserve System of the Plan of
Acquisition and holding company application, the Bank became a wholly-owned
subsidiary of the Corporation. There have been no material changes in the mode
of conducting business of either the Corporation or the Bank since the
acquisition of the Bank by the Corporation.
The Corporation is subject to applicable federal laws relating to bank holding
companies as well as federal securities laws, State Corporation Law and State
Banking Law.
(b) Financial information about industry segments
The Corporation and the Bank are engaged only in banking and bank-related
businesses. The Selected Financial Data Exhibit included in "Management's
Discussion and Analysis of Financial Condition and Results of Operation"
("MD&A") for the Corporation's Annual Report to Shareholders for the year ended
December 31, 1995, sets forth financial information with respect to bank-related
industry segments. The MD&A including the Selected Financial Data Exhibit is
incorporated herein by reference.
(c) Narrative description of business
Business
The Bank is a New York State chartered, independent commercial bank which
engages in full-service commercial and consumer banking and trust business. The
Bank's services include accepting time, demand and savings deposits including
NOW accounts, Super NOW accounts, regular savings accounts, insured money market
accounts, investment certificates, fixed-rate certificates of deposit and club
accounts. Its services also include making secured and unsecured commercial and
consumer loans, financing commercial transactions either directly or
participating with regional industrial development and community lending
corporations, making commercial, residential and home equity mortgage loans,
revolving credit loans with overdraft checking protection, small business loans
and student loans. Additional services include renting of safe deposit
facilities, selling uninsured annuity and mutual fund investment products, and
the use of networked automated teller facilities.
Trust services provided by the Bank include services as executor, trustee under
wills and agreements, guardian and custodian and trustee and agent for pension,
profit-sharing and other employee benefit trusts as well as various investment,
pension, estate planning and employee benefit administrative services.
For additional information which focuses on the results of operation of the
Corporation and the Bank, see Management's Discussion and Analysis of Financial
Condition and Results of Operations, incorporated herein by reference.
There have been no material changes in the manner of doing business by the
Corporation or the Bank during the fiscal year ended December 31, 1995.
Competition
Six (6) of the Bank's thirteen (13) full-service branches, in addition to the
main office, are located in Chemung County. The other seven (7) full-service
branches are located in the adjacent counties of Schuyler, Steuben, and Tioga.
All facilities are located in New York State.
Within these market areas, the Bank encounters intense competition in its
banking business from several other financial institutions offering comparable
products. These competitors include other commercial banks (both locally-based
independent banks and local offices of regional and major metropolitan-based
banks), as well as stock savings banks and credit unions. In addition, the
Bank experiences competition in marketing some of its services from local
operations of insurance companies, brokerage firms and retail financial service
businesses.
Dependence Upon a Single Customer
Neither the Corporation nor the Bank is dependent upon a single or limited
number of customers.
Research and Development
Expenditures for research and development were immaterial for the years 1995,
1994, and 1993.
Employees
As of December 31, 1995, the Bank employed 281 persons on a full-time equivalent
basis.
(d) Financial information about foreign and domestic operations and export
sales
Neither the Corporation nor the Bank relies on foreign sources of funds or
income.
(e) Statistical disclosure by bank holding companies
The following disclosures present summarized statistical data covering the
Corporation and the Bank.
<TABLE>
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and Interest Differential
<CAPTION>
December 31,
1995 1994 1993
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans $ 249,149 23,868 9.58% $ 221,419 20,006 9.04% $ 224,127 20,741 9.25%
Taxable securities 155,238 9,960 6.42 134,524 7,762 5.77 106,736 6,088 5.70
Tax-exempt securities 28,051 1,406 5.01 25,054 1,262 5.04 22,596 1,184 5.24
Federal funds sold 8,434 486 5.76 10,236 407 3.98 12,587 371 2.95
Interest-bearing
deposits 6,267 357 5.70 3,478 143 4.11 2,401 73 3.04
Total interest-
earning assets 447,139 36,077 8.07% 394,711 29,580 7.49% 368,447 28,457 7.72%
Non-interest earning assets:
Cash and due from
banks 23,442 21,657 20,372
Premises and equipment,
net 9,657 7,451 7,513
Other assets 6,922 5,506 4,853
Less allowance for
loan losses (3,876) (3,419) (3,453)
Excess of cost over
fair value of net
assets acquired,
net of accumulated
amortization 11,969 5,339 -
Total $ 495,253 $ 431,245 $ 397,732
Liabilities and
Shareholders' Equity
Interest-bearing
liabilities:
Demand deposits $ 43,312 731 1.69% $ 43,372 673 1.55% $ 42,275 811 1.92%
Savings deposits 149,257 4,408 2.95 142,819 3,778 2.65 133,671 3,806 2.85
Time deposits 153,433 8,307 5.41 121,783 5,445 4.47 110,631 4,887 4.42
Federal funds purchased
and securities
sold under agreement
to repurchase 13,846 781 5.73 9,975 380 3.81 9,717 281 2.89
Total interest-
bearing liabilities 359,848 14,227 3.95% 317,949 10,276 3.23% 296,294 9,785 3.30%
Non-interest bearing
liabilities:
Demand deposits 78,406 66,635 60,461
Other 6,995 5,106 3,978
445,249 389,690 360,733
Shareholders' equity 50,004 41,555 36,999
Total $ 495,253 $ 431,245 $ 397,732
Net interest earnings $ 21,850 $ 19,304 $ 18,672
Net yield on interest-
earning assets 4.89% 4.89% 5.07%
For the purpose of these computations, nonaccruing loans are included in the daily average loan amounts outstanding.
Daily balances were used for average balance computations.
No tax equivalent adjustments have been made in calculating yields on obligations of states and political subdivisions.
</TABLE>
<PAGE>
The following table sets forth for the periods indicated, a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rates:
<TABLE>
<CAPTION>
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due to (1) Increase (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
(In Thousands of Dollars) (In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $ 2,607 1,255 3,862 (249) (486) (735)
Taxable securities 1,273 925 2,198 1,603 71 1,674
Tax-exempt securities 150 (6) 144 125 (47) 78
Federal funds sold (81) 160 79 (78) 114 36
Interest-bearing deposits 145 70 215 39 31 70
Total interest-
earning assets $ 4,094 2,404 6,498 1,440 (317) 1,123
Interest paid on:
Demand deposits (1) 59 58 21 (159) (138)
Savings deposits 176 442 618 251 (279) (28)
Time deposits 1,580 1,282 2,862 498 60 558
Federal funds purchased
and securities sold under
agreement to repurchase 179 234 413 8 91 99
Total interest-bearing
liabilities $ 1,934 2,017 3,951 778 (287) 491
<FN>
<F1>
(1) The change in interest due to both rate and volume has been allocated to volume and rate changes in proportion
to the relationship of the absolute dollar amounts of the change in each.
</FN>
</TABLE>
Investment Portfolio
The following table sets forth the carrying amount of investment securities
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
(In Thousands of Dollars)
<S> <C> <C> <C>
U.S. Treasury and other
U.S. Government Agencies $ 108,775 163,238 104,216
State and political subdivisions 30,275 28,085 21,997
Other bonds and notes 33,596 7,181 8,871
Corporate stocks 6,818 5,493 2,002
Total $ 179,464 203,997 137,086
Included in the above table are $171,882, $188,828 and $44,814 of securities available for sale at December
31, respectively.
</TABLE>
Investment Portfolio (continued)
The following tables set forth the maturities of investment securities at
December 31, 1995 and the weighted average yields of such securities (calculated
on the basis of the cost and effective yields weighted for the scheduled
maturity of each security). Federal tax equivalent adjustments have been made
in calculating yields on municipal obligations.
<TABLE>
<CAPTION>
Maturing
Within After One, But
One Year Within Five Years
Amount Yield Amount Yield
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government Agencies $ 38,744 6.26% $ 68,000 6.49%
State and political subdivisions 10,411 4.68 16,371 4.89
Other bonds and notes 1,522 7.98 1,501 8.40
Total $ 50,677 5.99% $ 85,872 6.22%
<CAPTION>
Maturing
After Five, But After
Within Ten Years Ten Years
Amount Yield Amount Yield
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government Agencies $ 2,032 7.07% $ - - %
State and political subdivisions 3,275 5.33 217 4.71
Other bonds and notes 5,031 6.69 25,542 7.85
Total $ 10,338 6.33% $25,759 7.82%
</TABLE>
Loan Portfolio
The following table shows the Corporation's loan distribution at the end
of each of the last five years:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 89,785 75,006 69,484 63,630 65,830
Real estate mortgages 71,870 67,912 71,345 81,431 89,401
Installment loans 101,687 94,181 82,028 74,258 72,462
Total $ 263,342 237,099 222,857 219,049 227,693
</TABLE>
The following table shows the maturity of loans (excluding residential real
estate mortgages and installment loans) outstanding as of December 31, 1995.
Also provided are the amounts due after one year classified according to the
sensitivity to changes in interest rates:
<TABLE>
<CAPTION>
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 40,564 15,259 33,962 89,785
Loans maturing after one year with:
Fixed interest rates 8,426 6,618
Variable interest rates 6,833 27,344
Total $ 15,259 33,962
</TABLE>
Nonaccrual and Past Due Loans
The following table summarizes the Corporation's nonaccrual and past due
loans:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993 1992 1991
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (1) $ 1,120 1,201 1,605 1,321 721
Accruing loans past due
90 days or more $ 681 354 274 588 2,307
</TABLE>
Information with respect to nonaccrual loans at December 31, 1995, 1994 and
1993 is as follows:
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
(In Thousands of Dollars)
<S> <C> <C> <C>
Nonaccrual loans $ 1,119 1,201 1,605
Interest income that would have been
recorded under original terms 200 342 429
Interest income recorded during the period 52 58 164
<FN>
<F1>
(1) It is the Corporation's policy that when a past due loan is referred to legal counsel, or in the case of a
commercial loan which becomes 90 days delinquent, or in the case of consumer, mortgage or home equity loans not
guaranteed by a government agency which become 120 days delinquent, the loan is placed in nonaccrual and
previously accrued interest is reversed unless, because of collateral or other circumstances, it is deemed to
be collectible. Loans may also be placed in nonaccrual if management believes such classification is warranted
for other reasons.
</FN>
</TABLE>
Potential Problem Loans
At December 31, 1995, the Corporation has no commercial loans for which
payments are presently current but the borrowers are currently experiencing
severe financial difficulties. Those loans are subject to constant management
attention and their classification is reviewed by the Board of Directors at
least semi-annually.
Loan Concentrations
At December 31, 1995, the Corporation has no loan concentrations to
borrowers engaged in the same or similar industries that exceed 10% of total
loans.
Other Interest-Bearing Assets
At December 31, 1995, the Corporation has no interest-bearing assets other
than loans that meet the nonaccrual, past due, restructured or potential problem
loan criteria.
Summary of Loan Experience
This table summarizes the Corporation's loan loss experience for each year
in the five-year period ended December 31, 1995:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993 1992 1991
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 3,600 3,500 3,400 2,800 2,500
Charge-offs:
Commercial, financial and
agricultural 82 282 550 61 226
Real estate mortgages 5 14 --- --- ---
Installment loans 286 422 346 382 380
Home equity --- --- --- --- ---
373 718 896 443 606
Recoveries:
Commercial, financial and
agricultural 16 18 10 100 223
Installment loans 93 76 79 41 58
109 94 89 141 281
Net charge-offs 264 624 807 302 325
Allowance of acquired
bank at time of acquisition -- 100 -- -- --
Additions charged to
operations (1) 564 624 907 902 625
Balance at end of period $ 3,900 3,600 3,500 3,400 2,800
Ratio of net charge-offs during
period to average loans
outstanding (2) .11% .28% .36% .14% .15%
<FN>
<F1>
(1) The amount charged to operations and the related balance in the allowance for loan losses is based upon
periodic evaluations of the loan portfolio by management. These evaluations consider several factors
including, but not limited to, general economic conditions, loan portfolio composition, prior loan loss
experience, growth in the loan portfolio and management's estimation of future potential losses.
The risk elements in the various portfolio categories are not considered to be any greater in 1995 than in prior
years. The net charge-offs to average loans have averaged 0.21% over the last five years and the highest
percentage in any of those years was 0.36%.
<F2>
(2) Daily balances were used to compute average outstanding loan balances.
</FN>
</TABLE>
This table summarizes the Corporation's allocation of the loan loss reserve for
each year in the five-year period ended December 31, 1995.
<TABLE>
<CAPTION>
Amount (in thousands) and Percent of
Loans by Category to Total Loans
December 31,
Balance at end of
Period Applicable to: 1995 % 1994 % 1993 % 1992 % 1991 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic: $ 1,516 100.0 2,575 100.0 3,150 100.0 2,117 100.0 2,085 100.0
Commercial, financial
and agricultural 1,042 33.0 2,108 31.0 2,620 30.2 1,625 28.6 1,409 28.7
Commercial mortgages 305 4.1 282 5.0 248 6.5 112 6.7 187 7.4
Residential mortgages 16 23.8 16 23.6 13 25.5 34 30.4 44 31.9
Consumer loand 153 39.3 169 40.4 270 37.8 346 34.3 446 32.1
Unallocated: 2,384 N/A 1,025 N/A 350 N/A 1,283 N/A 715 N/A
Total $ 3,900 100.0 3,600 100.0 3,500 100.0 3,400 100.0 2,800 100.0
</TABLE>
Deposits
The average daily amounts of deposits and rates paid on such deposits are
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
Amount Rate Amount Rate Amount Rate
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 78,406 ---% 66,635 ---% 60,461 ---%
Interest-bearing demand
deposits 43,312 1.69 43,372 1.55 42,275 1.92
Savings deposits 149,257 2.95 142,819 2.65 133,671 2.85
Time deposits 153,433 5.41 121,783 4.47 110,631 4.42
$ 424,408 374,609 347,038
</TABLE>
Maturities of certificates of deposit $100,000 or more outstanding at
December 31 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S> <C>
3 months or less $13,503
Over 3 through 12 months 5,918
Over 12 months 2,041
</TABLE>
There were no other time deposits of $100,000 or more.
Return on Equity and Assets
The following table shows consolidated operating and capital ratios of the
Corporation for each of the last three years:
<TABLE>
<CAPTION>
Year Ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Return on average assets 1.13% 1.08% 1.13%
Return on average equity 11.20 11.18 12.15
Return on beginning equity 12.25 12.13 12.66
Dividend payout ratio 36.52 38.23 36.86
Average equity to average assets ratio 10.10 9.64 9.30
Year-end equity to year-end assets ratio 10.54 9.25 9.63
</TABLE>
Short-Term Borrowings
For each of the three years in the period ended December 31, 1995, the
average outstanding balance of short-term borrowings did not exceed 30% of
shareholders' equity.
ITEM 2. PROPERTIES
The Corporation and the Bank currently conduct all their business activities
from the Bank's main office, thirteen (13) branch locations situated in a
four-county area, owned office space adjacent to the Bank's main office, and
five (5) off-site automated teller facilities (ATMs), three (3) of which are
located on leased property. The main office is a six-story structure located
at One Chemung Canal Plaza, Elmira, New York, in the downtown business district.
The main office consists of approximately 62,000 square feet of space entirely
occupied by the Bank. The combined square footage of the thirteen (13) branch
banking facilities totals approximately 46,350 square feet. The office building
adjacent to the main office was acquired during 1995 and consists of
approximately 18,213 square feet of which 8,202 square feet are occupied by
operating departments of the Bank and 10,011 square feet are leased. The leased
automated teller facility spaces total approximately 150 square feet.
The Bank holds two (2) of its branch facilities (Arnot Mall Office and Bath
Office) and three (3) automated teller facilities (Elmira/Corning Regional
Airport, Elmira College and WalMart Store) under lease arrangements; and owns
the rest of its offices including the main office and the adjacent office
building.
The Corporation holds no real estate in its own name.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor its subsidiary are a party to any material pending
legal proceeding required to be disclosed under this item.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS
There were no matters submitted to a vote of shareholders during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANTS SECURITIES AND RELATED SHAREHOLDER
MATTERS
The Corporation's stock is traded in the over-the-counter market. Incorporated
herein by reference to portions of the Corporation's Annual Report to
Shareholders for the year ended December 31, 1995, are the quarterly market
price ranges for the Corporation's stock for the past three (3) years, based
upon actual transactions as reported by securities brokerage firms which
maintain a market or conduct trades in the Corporation's stock and other
transactions known by the Corporation's management. Also incorporated herein
by reference to a part of the Corporation's 1995 Annual Report are the
dividends paid by the Corporation for each quarter of the last three (3) years.
The number of shareholders of record on February 29, 1996 was 834.
ITEM 6. SELECTED FINANCIAL DATA
The Selected Financial Data Exhibit included in Management's Discussion and
Analysis of Financial Condition and Results of Operations and presented in the
Corporation's Annual Report to Shareholders for the year ended December 31, 1995
is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and Results of
Operations presented in the Corporation's Annual Report to Shareholders for the
year ended December 31, 1995 is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Independent Auditors' Report and consolidated financial statements as
presented in the Corporation's Annual Report to Shareholders for the year ended
December 31, 1995 are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS OF THE
REGISTRANT
The information set forth under the captions "Election of Directors" and
"Executive Officers" and the Section 16(a) disclosure set forth under the
caption "Security Ownership of Management", as presented in the registrant's
Proxy Statement, dated March 5, 1996, relating to the Annual Meeting of
Shareholders to be held on April 2, 1996, is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information set forth under the captions "Directors Compensation";
"Directors' Personnel Committee Report on Executive Compensation"; " Comparative
Return Performance Graph"; "Executive Compensation"; "Retirement Plan"; "Profit-
Sharing, Savings and Investment Plan"; "Management Incentive Plan"; "Employment
Contracts"; and "Other Compensation Agreements", presented in the registrant's
Proxy Statement, dated March 5, 1996, relating to the Annual Meeting of
Shareholders to be held on April 2, 1996, is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the captions "Security Ownership of Certain
Beneficial Owners" and "Security Ownership of Management", presented in the
registrant's Proxy Statement, dated March 5, 1996, relating to the Annual
Meeting of Shareholders to be held on April 2, 1996, is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions", presented
in the registrant's Proxy Statement, dated March 5, 1996, relating to the Annual
Meeting of Shareholders to be held on April 2, 1996, is incorporated herein by
reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) List of Financial Statements and Independent Auditors' Report
The following consolidated financial statements and Independent Auditors' Report
of Chemung Financial Corporation and subsidiary, included in the Annual Report
of the registrant to its shareholders as of December 31, 1995 and 1994, and for
each of the years in the three-year period ended December 31, 1995 are
incorporated by reference in Item 8:
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1995 and 1994
- Consolidated Statements of Income - Years ended December 31, 1995,
1994 and 1993
- Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1995, 1994 and 1993
- Consolidated Statements of Cash Flows - Years ended
December 31, 1995, 1994 and 1993
- Notes to Consolidated Financial Statements - December 31, 1995 and
1994
(2) List of Financial Schedules
Schedules to the consolidated financial statements required by Article 9 of
Regulation S-X are not required under the related instructions or are
inapplicable, and therefore have been omitted.
(3) Listing of Exhibits
Exhibit (3.1) -- Certificate of Incorporation is filed as Exhibit 3.1
to Registrant's Registration Statement on Form S-14,
Registration No. 2-95743, and is incorporated herein
by reference.
-- Certificate of Amendment to the Certificate of
Incorporation, filed with the Secretary of State of
New York on April 1, 1988, is incorporated herein by
reference to Exhibit A of the Registrant's Form 10-K
for the year ended December 31, 1988, File No.
0-13888.
(3.2) -- Bylaws of the Registrant, as amended September 13, 1995,
are incorporated herein by reference to Exhibit A of
the Registrant's Form 10-Q for the period ended
September 30, 1995, File No. 0-13888.
Exhibit (13) -- Annual Report to Shareholders for the year ended
December 31, 1995.
-- Table of Quarterly Market Price Ranges. EXHIBIT A
-- Table of Dividends Paid. EXHIBIT B
-- Management's Discussion and Analysis of EXHIBIT C
Financial Condition and Results of Operations
including the Selected Financial Data Exhibit.
-- Consolidated Financial Statements and EXHIBIT D
Independent Auditors' Report.
Exhibit (21) -- Subsidiaries of the registrant. EXHIBIT E
Exhibit (22) -- Registrant's Notice of Annual Meeting, EXHIBIT F
Proxy Statement dated March 5, 1996,
and Proxy Form
Exhibit (27) -- Financial Disclosure Schedule (EDGAR version only)
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the three months ended
December 31, 1995.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate section
of this report.
(d) Financial Statement Schedules
None<PAGE>
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1995
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
EXHIBIT
LISTING EXHIBIT
EXHIBIT 13 Annual Report To Shareholders For The Year Ended
December 31, 1995
A - Table of Quarterly Market Price Ranges
B - Table of Dividends Paid
C - Management's Discussion and Analysis of
Financial Condition and Results of Operations
Including the Selected Financial Data Exhibit
D - Consolidated Financial Statements and
Independent Auditors' Report
EXHIBIT 21 E - Subsidiaries of the Registrant
EXHIBIT 22 F - Notice of Annual Meeting, Proxy Statement
dated March 5, 1996, and Proxy Form
<PAGE>
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CHEMUNG FINANCIAL CORPORATION
DATED: MARCH 13, 1996
By "signature"
John W. Bennett
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been executed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
"signature" Director 3/13/96
Robert E. Agan
"signature" Director, Chairman & 3/13/96
John W. Bennett Chief Executive Officer
Director
Donald L. Brooks, Jr.
"signature" Director 3/13/96
David J. Dalrymple
"signature" Director 3/13/96
Robert H. Dalrymple
"signature" Director 3/13/96
Richard H. Evans
"signature" Director 3/13/96
Natalie B. Kuenkler
"signature" Director 3/13/96
Edward B. Hoffman
"signature" Director 3/13/96
Stephen M. Lounsberry III
<PAGE>
Signature Title Date
Director
Boyd McDowell II
"signature" Director 3/13/96
Thomas K. Meier
"signature" Director 3/13/96
Ralph H. Meyer
Director
John F. Potter
"signature" Director 3/13/96
Samuel J. Semel
"signature" Director 3/13/96
Charles M. Streeter, Jr.
"signature" Director 3/13/96
Richard W. Swan
"signature" Director 3/13/96
William A. Tryon
Director
William C. Ughetta
"signature" Director, President & 3/13/96
Jan P. Updegraff Chief Operating Officer
"signature" Director 3/13/96
Nelson Mooers van den Blink
"signature" Treasurer and Principal 3/13/96
Accounting Officer
Attest
"signature" Secretary 3/13/96
Jerome F. Denton
EXHIBIT A
TABLE OF QUARTERLY MARKET PRICE RANGES
<PAGE>
<TABLE>
<CAPTION>
Market Prices of Chemung Financial Corporation Stock
During Past Three Years (dollars)
- -----------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
Hi -- Lo Hi -- Lo Hi -- Lo
<S> <C> <C> <C>
1st Quarter 26 1/4 - 25 24 - 23 21 1/4 - 17 1/2
2nd Quarter 26 1/4 - 25 26 - 23 24 1/2 - 22
3rd Quarter 25 - 24 1/4 26 - 24 1/2 24 1/4 - 22
4th Quarter 27 - 25 26 - 24 25 - 23
</TABLE>
<PAGE>
EXHIBIT B
TABLE OF DIVIDENDS PAID
<PAGE>
<TABLE>
<CAPTION>
Dividends Paid Per Share by Chemung Financial Corporation
During Past Three Years
- -----------------------------------------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
January 3 $.2400 $.2275 $.2100
April 3 .2400 .2275 .2100
July 3 .2400 .2275 .2100
October 2 .2500 .2400 .2275
- -----------------------------------------------------------------------------
$.9700 $.9225 $.8575
</TABLE>
As of December 31, 1995 there were 834 registered holders of record of the
Corporation's stock. Chemung Financial Corporation's common stock is inactively
traded in the over-the-counter market. The quarterly market price ranges for
the Corporation's stock for the past three (3) years are based upon actual
transactions as reported by brokerage firms which maintain a market or conduct
trades in the Corporation's stock and other transactions known by the
Corporation's management. <PAGE>
EXHIBIT C
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCLUDING THE SELECTED FINANCIAL DATA EXHIBIT
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The purpose of this discussion is to focus on information about the financial
condition and results of operations of Chemung Financial Corporation which is
not otherwise apparent from the consolidated financial statements included in
this annual report. Reference should be made to those statements and the
selected financial data presented elsewhere in this report for an understanding
of the following discussion and analysis.
Description of Business
Chemung Financial Corporation (the "Corporation") is a one-bank holding company
with its only subsidiary being Chemung Canal Trust Company (the "Bank"), a
full-service community bank with full Trust powers. Therefore, the financial
condition should be examined in terms of the acquisition and employment of funds
within its "market areas". Management defines the market areas of Chemung Canal
Trust Company as those areas within a 25-mile radius of branches in these
communities. These areas encompass Chemung, Steuben, Schuyler, and Tioga
counties, together with the northern tier of Pennsylvania. The Bank's lending
policy restricts substantially all lending efforts to these geographical
regions.
Management of Credit Risk - Loan Portfolio
The Bank manages credit risk, while conforming to all state and Federal laws
governing the making of loans, through written policies and procedures
implemented to ensure loan repayment; loan review to identify loan problems at
the earliest possible time; collection procedures (continued even after a loan
is charged off); an adequate allowance for loan losses; and continuing education
and training to ensure lending expertise. Diversification by loan product is
maintained through offering commercial loans, 1-4 family mortgages, and a full
range of consumer loans.
The Executive Committee of the Board is designated to receive required loan
reports, oversee loan policy, and approve loans above the authorized individual
and Senior Loan Committee lending limits. The Senior Loan Committee, consisting
of the president, senior lending officer, commercial loan officer, mortgage
officer, consumer loan officer, and chief financial officer, implements the
Board-approved loan policy.
Supervision and Regulation
The Corporation, as a bank holding company, is regulated under the Bank Holding
Company Act of 1956, as amended (the "Act"), and is subject to the supervision
of the Board of Governors of the Federal Reserve System (the "Federal Reserve
Board"). Generally, the Act limits the business of bank holding companies to
banking, or managing or controlling banks, performing certain servicing
activities for subsidiaries, and engaging in such other activities as the
Federal Reserve Board may determine to be closely related to banking and a
proper incident thereto.
The Bank is chartered under the laws of New York State and is supervised by
the New York State Banking Department.
On October 1, 1992 the FDIC issued its final Risk-Related Premium System
Rule, which provides for "well capitalized" banks to be assessed at $0.23 per
$100. Lesser capitalized banks were assessed on a scale currently reaching to
$0.31. During the third quarter, the FDIC's Bank Insurance Fund ("BIF") became
fully capitalized at the required 1.25% of insured deposits. This resulted in
an 82% decline in the annualized premium to $0.04 per $100 insured deposit. In
subsequent developments, the BIF fund was recognized as over capitalized with
respect to statute law and the 1996 premium for well capitalized banks reduced
to the statutory limit of $2,000 in total. In order to be considered well
capitalized, the FDIC requires a bank's Total Risk Based Capital Ratio to be
greater than or equal to 10% AND its Tier 1 Risk Based Capital Ratio to be
greater than or equal to 6.00% AND its leverage ratio to be greater than or
equal to 5.00%. This designation has been maintained and the Bank's FDIC
insurance premiums for 1995 were $538 thousand vs $796 thousand in 1994 and $769
thousand in 1993. In 1995, FDIC premiums constituted the Corporation's fourth
largest non-interest expense behind salaries, credit card data processing, and
general data processing. In December 1995, the Bank received notification from
the FDIC that it remains well capitalized and, due to that the 1996 FDIC
insurance premium will be reduced to $2 thousand for BIF insured deposits.
There will, however, be a one-time charge to banks having deposits insured
by the Savings Association Insurance Fund ("SAIF") in order to recapitalize that
fund to the same level as the BIF fund. The two funds will then be merged. $36
million of the Bank's deposits will be subjected to the assessment which will
be expensed during the year that the enabling legislation is signed into law by
the President. The timing of this event is rendered uncertain by the debate
over federal budget reconciliation legislation to which it was originally
attached.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA
91") was passed in order to protect depositors and taxpayers from the excesses
of the S&L problems of the 1980's. There are a number of provisions in this act
that significantly increase the non-interest operating costs of the Bank. These
rules specifically impact the cost of external audit, the mortgage loan product
(through appraisal requirements), as well as all other loan products and contain
the potential for the regulatory authorities to begin micro-managing banks of
all sizes. Thus, regulatory burden continues to be a major impediment to
banking profitability.
Competition
The Bank is subject to intense competition in the lending and deposit gathering
aspects of its business from commercial banks, savings banks, savings and loan
associations, credit unions; and other providers of financial services, such as
money market funds, brokerage firms, investment companies, credit companies and
insurance companies. The Bank also competes with nonfinancial institutions,
including retail stores and certain utilities that maintain their own credit
programs, as well as governmental agencies that make available loans to certain
borrowers. The Bank faces significant competition in acquiring quality assets,
due to such factors as increased activities by providers of credit cards, and
the increased lending powers granted to and employed by thrift institutions and
credit unions. The Bank also faces competition in attracting deposits at
reasonable prices due to the activities of money market funds; increased
activities of non-bank deposit takers, including brokerage firms; and the
increased availability of demand deposit type accounts at thrift institutions
and credit unions. Unlike the Corporation, many of these competitors, with the
particular exception of thrift institutions, are not subject to regulation as
extensive as that described under the "Supervision and Regulation" section and,
as a result, they may have a competitive advantage over the Corporation in
certain respects.
Competition for the Bank's fiduciary services comes primarily from brokerage
firms and independent investment advisors. It is not considered particularly
significant and Trust Assets Under Administration totaled $771 million at book
($993 million at fair value) December 31, 1995, compared to $732 million a year
earlier. Relative to the Bank's total assets, when compared with peer banks,
the Trust Department is disproportionally large and favorable in terms of
generating non-interest income.
<TABLE>
<CAPTION>
Exhibit I
Selected Financial Data
- ------------------------------------------------------------------------------
Growth Rates
1995 1994 1993 1992 1991 1990 1 yr 5 yrs
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Per Share Data
- ---------------------------------------------------------------------------------------------------------------------
Net Operating Income $ 2.68 $2.45 $2.87 $2.55 $1.90 $1.93 9.4% 7.8%
Net Income 2.68 2.45 2.37 2.55 1.90 1.93 9.4% 7.8%
Dividends Declared 0.98 0.935 0.875 0.82 0.76 0.76 4.8% 5.8%
Tangible Book Value 21.57 17.75 20.25 18.75 17.02 15.91 21.5% 7.1%
Market Price 12/31 27.75 25.50 23.00 18.50 18.25 24.00 8.8% 3.1%
Average Shares O/S (thousands) 2,088 1,899 1,894 1,894 1,899 1,921 10.0% 1.7%
=====================================================================================================================
Earnings (in thousands)
- ---------------------------------------------------------------------------------------------------------------------
Net Interest Income 21,849 19,304 18,672 18,339 16,557 15,690 13.2% 7.9%
Loan Loss Provision 564 624 907 902 625 446 -9.6% 5.3%
Net Income after Loan Loss
Provision 21,285 18,680 17,765 17,437 15,932 15,244 14.0% 7.9%
Fiduciary Department Income 3,678 3,323 3,294 3,176 2,708 2,802 10.7% 6.3%
Securities Gains (Losses), net 531 140 821 105 (506) 7 279.3% N/A
Other Income 2,527 2,223 2,003 1,691 1,620 1,342 13.7% 17.7%
Total Non-Interest Income 6,736 5,686 6,118 4,972 3,822 4,151 18.5% 12.5%
Non Interest Expense 19,560 17,375 15,626 15,287 14,901 14,282 12.6% 7.4%
Pretax Income 8,461 6,991 8,257 7,122 4,853 5,113 21.0% 13.1%
Income Taxes 2,859 2,343 2,830 2,296 1,241 1,398 22.0% 20.9%
Net Operating Income 5,602 4,648 5,427 4,826 3,612 3,715 20.5% 10.2%
Effect of Accounting Change 0 0 (933) 0 0 0 N/A N/A
Net Income 5,602 4,648 4,494 4,826 3,612 3,715 20.5% 10.2%
=====================================================================================================================
Average Balance Sheet (in millions)
- ---------------------------------------------------------------------------------------------------------------------
Total Assets 495.2 431.2 397.7 387.0 356.8 332.1 14.8% 9.8%
Earning Assets 450.8 396.7 368.4 358.3 328.1 303.5 13.6% 9.7%
Loans - Net 249.1 221.4 224.1 221.0 218.6 205.2 12.5% 4.3%
Securities 187.0 161.6 144.3 137.3 108.9 98.4 15.7% 18.0%
Deposits 424.4 374.6 347.0 338.5 319.4 299.0 13.3% 8.4%
Tangible Equity 41.7 38.7 37.0 34.2 31.5 30.0 7.8% 7.8%
=====================================================================================================================
Ending Balance Sheet (in millions)
- ---------------------------------------------------------------------------------------------------------------------
Total Assets 501.9 494.3 398.1 385.8 381.7 335.8 1.5% 9.9%
Earning Assets 452.5 448.6 369.4 356.4 350.1 304.7 0.9% 9.7%
Loans - Net 259.1 232.9 218.8 214.9 224.2 206.6 11.2% 5.1%
Securities 179.5 204.0 137.1 127.5 110.1 94.1 -12.0% 18.2%
Deposits 426.9 432.3 342.9 339.2 325.8 302.8 -1.2% 8.2%
Tangible Equity 44.9 37.2 38.3 35.5 32.3 30.5 20.7% 9.4%
Allowance For Loan Losses 3.90 3.60 3.50 3.40 2.80 2.50 8.3% 11.2%
=====================================================================================================================
</TABLE>
During 1995, as well as 1994, the Fiduciary Division noted a continued
increase in the competition for personal and corporate investment management
services in our market areas. The reasons were 1) aggressive pricing and
marketing by competitors; and 2) while our long-term investment performance
remained strong, short-term results during the 1992 and 1993 calendar years
prompted many present and potential clients to question the validity of a
consistent and inflexible approach to investing in equities. The temporal
proximity of these two developments challenged us to reflect upon the
traditional manner in which investment services have been brought to our
markets. We concluded that our proprietary products alone would fall short of
providing the level of flexibility that many of our customers will demand.
Thus, in an effort to position the Fiduciary Division for future growth, we
now compliment our more traditional investment alternatives with additional
products made available through strategic alliances with various mutual fund and
insurance companies.
Employees
The Corporation and its Banking subsidiary had 281 full-time equivalent
employees (FTE's) on December 31, 1995. The employment trend is relatively
stable.
Performance Summary
Net income for 1995 was impacted by 1) higher loan volumes, 2) widely
fluctuating interest rates, 3) higher levels of non-interest income, and 4)
important changes in non-interest expenses. This compares with 1994 when net
income was negatively impacted by an environment of a sustained rise in interest
rates.
During the third quarter, the Federal Deposit Insurance Corporation's Bank
Insurance Fund ("BIF") became fully capitalized at the required 1.25% of insured
deposits. This resulted in an 82% decline in the annualized premium to $0.04
per $100 insured deposit and resulted in an estimated $437 thousand reduction
from the budgeted full year's accrual of $975 thousand. A rebate during the
third quarter amounted to $253 thousand, of which $108 thousand served to reduce
the third quarter FDIC expense.
During the second and third quarter, the data processing function was
brought in-house from a remote-job-entry system through Mellon Datacenter.
Estimated non-recurring expenses associated with the project amounted to $370
thousand. This investment is viewed by management as a technological
requirement for delivering appropriate service to our market at the most
efficient cost. The annualized reduction in data processing expense is
estimated at $200 thousand.
Due to the sustained increase in loan demand, management decided to
increase the provision for loan losses to $200 thousand per quarter during the
first three quarters. This level was in anticipation of significant loan growth
due to the expansion of the Bank's service area, introduction of new products,
and positive economic conditions favoring increased lending activity. Average
loan balances were up 12.5% which was slightly below the business plan. Due in
part to very favorable prevailing economic conditions, however, the Bank's loan
loss experience was significantly below management's original expectations of
the inherent risk levels of the portfolio. There were no provisions added to
the allowance during November and December and $102 thousand of the allowance
for loan losses was returned to pretax income.
Non-performing loans at year end increased to $1.800 million versus $1.178
million at the end of 1994, and represented 0.68% of total outstandings compared
to 0.49% on December 31, 1994 and 0.85% on December 31, 1993. Net loan losses,
however, were only $264 thousand or 0.11% of average outstandings, compared to
$623.8 thousand in 1994 and $806.7 thousand in 1993. The allowance for loan
losses at December 31, 1995 was 1.48% of outstandings and, at 217% of
non-performing loans versus 306% a year ago and 186% in 1993, is felt by
management to be adequate.
<TABLE>
<CAPTION>
Exhibit II
Selected Ratios
1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 1.13% 1.08% 1.13% 1.25% 1.01%
Return on average tangible equity 13.43% 12.01% 12.15% 14.12% 11.45%
Dividend yield 12/31 3.60% 3.76% 3.96% 4.54% 4.16%
Dividend payout 36.52% 38.22% 36.86% 32.17% 39.97%
Leverage ratio 8.34% 7.69% 9.63% 9.20% 8.46%
=======================================================================================================================
Tier I capital to risk adjusted assets 13.84% 13.71% 15.66% 14.80% 13.02%
Total capital to risk adjusted assets 15.15% 15.03% 17.09% 16.22% 14.15%
Loans to deposits 61.61% 54.71% 64.83% 64.38% 69.70%
Loan reserve to outstanding loans 1.48% 1.52% 1.57% 1.55% 1.23%
Loan reserve to non-performing loans 217% 306% 186% 178% 92%
Non-performing loans to outstanding loans 0.68% 0.49% 0.85% 0.87% 1.33%
=====================================================================================================================
Net interest rate spread 4.12% 4.26% 4.42% 4.35% 3.99%
Net interest margin 4.89% 4.89% 5.07% 5.12% 5.05%
=====================================================================================================================
</TABLE>
Chemung Financial's net profits before dividends for 1995 were $5.602
million versus $4.648 million for 1994, up $954 thousand (20.5%) or $2.68 versus
$2.45 per share (9.4%) on 189 thousand average additional shares outstanding.
During 1993 the Corporation earned $2.37 when net profits before dividends were
reduced $933 thousand ($0.50 per share) by the change in accounting for
postretirement medical benefits to $4.494 million. Quarterly dividends declared
totaled $0.98 per share versus 1994's $0.935 and $0.875 in 1993.
While the average interest rate on earning assets was 8.07% during 1995
versus 7.49% in 1994, the interest expense on the Bank's liabilities also
increased to 3.95% in 1995 versus 3.23% in 1994 and delivered a net interest
spread of 4.12% versus 4.26% a year earlier. Due to higher levels of
non-interest bearing demand deposits, the net interest margin was maintained at
4.89%. Non-interest income totaled $6.736 million versus $5.685 million in 1994
and $6.119 million in 1993. Trust department income, at $3.678 million in 1995
versus $3.323 million in 1994 and $3.294 million in 1993 is the largest segment
on non-interest income. During 1995, $531 thousand in net securities gains were
realized as management moved from a strategy with emphasis upon liquidity to an
investment approach with higher yield potential. Securities sold or matured
were mostly U.S. Treasury securities with the proceeds reinvested primarily in
U.S. Government agency notes and U.S. Government agency guaranteed
mortgage-backed securities.
The decline in non-interest income during 1994 when compared to 1993
occurred because during 1993, $821 thousand in capital gains were realized.
$545 thousand of 1993's gains resulted from the sale of a defaulted bond at $790
thousand which had been written down to $245 thousand from $1 million during
1991.
During 1995, non-recurring expenses associated with the acquisition of
Owego were approximately $124 thousand. Management believes that future cost
efficiencies, together with future steady and sustainable growth in the Owego
market will recapture the goodwill associated with the acquisition.
Average earning assets for 1995 grew by $54.1 million or 13.6% to $450.8
million, compared to $396.7 million in 1994 and $368.4 million in 1993.
Commercial and consumer loan balances grew 19.7% and 8.0%, respectively, while
the mortgage portfolio increased $3.9 million (5.8%). Average total loan
balances were $249.1 million versus $221.4 million during 1994 (up 12.5%) and
$224.1 million during 1993. The 1994 acquisition of the Columbia branches from
RTC and the purchase of Owego at year-end 1994 had only minor impact upon the
average loan balances in 1995. Management expects significant progress in these
areas during 1996.
The following table demonstrates the impact on net interest income of the
changes in the volume of earning assets and interest-bearing liabilities and
changes in rates earned and paid by the Bank. For purposes of constructing this
table, earning asset averages include non-performing loans.
<TABLE>
<CAPTION>
Exhibit III
Changes Due to Volume and Rate
1995 vs 1994 1994 vs 1993
---------------------------------------------------------
Increase Increase
(Decrease) (Decrease)
- --------------------------------------------------------------------------------------------------------------------
Total Due to Due to Total Due to Due to
Change Volume Rate Change Volume Rate
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> C> <C> <C> <C>
Interest Income (thousands)
- --------------------------------------------------------------------------------------------------------------------
Loans $ 3,862 $ 2,607 $ 1,255 $ (735) $ (249) $ (486)
Taxable investment
securities 2,198 1,273 925 1,674 1,603 71
Tax-exempt investment
securities 144 150 (6) 78 125 (47)
Federal funds sold 79 (81) 160 36 (78) 114
Interest-bearing deposits 215 145 70 70 39 31
- --------------------------------------------------------------------------------------------------------------------
Total Interest Income $ 6,498 $ 4,094 $ 2,404 $ 1,123 $ 1,440 $ (317)
====================================================================================================================
Interest Expense (thousands)
- --------------------------------------------------------------------------------------------------------------------
Demand deposits $ 58 $ (1) $ 59 $ (138) $ 21 $ (159)
Savings deposits 618 176 442 (28) 251 (279)
Time deposits 2,862 1,580 1,282 558 498 60
Federal funds purchased
and securities sold
under agreement to
repurchase 413 179 234 99 8 91
- --------------------------------------------------------------------------------------------------------------------
Total Interest Expense $ 3,951 $ 1,934 $ 2,017 $ 491 $ 778 $ (287)
====================================================================================================================
Net Interest Income $ 2,547 $ 2,160 $ 387 $ 632 $ 662 $ 30
====================================================================================================================
</TABLE>
The board-approved investment portfolio policy requires that except for local
municipal obligations which are sometimes unrated or carry ratings above "Baa"
but below "A" by Moody's or Standard & Poors, debt securities purchased for the
bond portfolio must carry a minimum rating of "A". The policy also states that,
except for short term U.S. Treasury Bills and/or U.S. Government Agency discount
notes, purchases are to be made with the intent of holding to maturity. During
1995, the regulatory authorities finalized their rules for examining
institutions relative to their exposure to interest rate risk with respect to
the fair value of an organization's net worth. They concluded that the fair
value of all securities would be considered irrespective of whether holdings
were categorized as held to maturity. In November 1995, the Financial
Accounting Standards Board published A Guide to Implementation of Statement 115
on Accounting for Certain Investments in Debt and Equity Securities. Concurrent
with the initial adoption of the Guide, but no later than December 31, 1995, the
Corporation was permitted to reassess the appropriateness of the classifications
of all securities held at that time and implement reclassification without
calling into question the intent of the Corporation to hold other debt
securities to maturity in the future. Effective December 1, 1995, the
Corporation transferred securities with amortized costs of $10,505,646 from the
held to maturity portfolio to the available for sale portfolio. The net
unrealized gain was $154,557. The transferred securities are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of shareholders' equity net of related taxes.
The Available for Sale segment of the securities portfolio at December 31,
1995 was $171.9 million compared to $188.8 million at the beginning of the
year. Interest rates continued to trend lower during the year. This, together
with an exceptional appreciation in the common stock portfolio of the
Corporation's banking subsidiary caused the Allowance valuation to increase to
$6.3 million at December 31, 1995, compared to a negative $295 thousand at
December 31, 1994. The components of the appreciation are set forth in the
following table:
<TABLE>
<CAPTION>
Amortized Fair Appreciation
Cost Value (Depreciation)
- --------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
U.S. Treasury Securities $ 77,579 $ 78,516 $ 937
Obligations of other U.S.
Government Agencies 29,692 30,258 566
U.S. Government Agency
Mortgage-backed pools 30,647 30,573 (74)
Obligations of states and
political subdivisions 22,301 22,703 402
Other bonds and notes 2,941 3,014 73
Corporate stocks 2,468 6,818 4,350
- --------------------------------------------------------------------------------------------------------------------
Totals $ 165,628 $ 171,882 $ 6,254
====================================================================================================================
</TABLE>
Included in Corporate stocks is 17,995 shares of Student Loan Marketing
Association ("SALLIE MAE") at a cost basis of $5,762 and fair value of
$1,187,670. These shares were acquired as preferred shares (a permitted
exception to the Government regulation banning bank ownership of equity
securities) in the original capitalization of the U.S. Government Agency.
Later, the shares were converted to common stock as SALLIE MAE recapitalized.
Additionally, at December 31, 1995, the banking subsidiary's portfolio held
marketable investments in equities totalling $94,995 at cost with a total market
value of $3,194,389. These shares were acquired prior to the enactment of the
Banking Act of 1933. Other equities included in the bank portfolio are 9,964
shares of Federal Reserve Bank and 14,813 shares of the Federal Home Loan Bank
of New York. They are valued at $498,200 and $1,481,300, respectively.
Management has no current plans for selling these securities.
Capital Resources and Dividends
The Corporation continues to maintain a strong capital position. Tangible
shareholders' equity at December 31, 1995, was $44.9 million or 8.95% of total
assets compared to $37.2 million or 7.52% of total assets at the end of 1994 and
$38.3 million or 9.63% of assets at the end of 1993.
The Federal Reserve requires banks and bank holding companies to maintain
a minimum Tier I risk adjusted capital ratio of 4.00% and a minimum total risk
adjusted capital ratio of capital to assets of 8.00%. Tier I (core) capital is
essentially shareholders' equity, adjusted for goodwill purchased after 1988,
net of Treasury stock. Tier 2 (supplementary) capital may include preferred
stock, subordinated debt with an original maturity of 5 years or more, and the
allowance for loan losses.
The Corporation continues to maintain a strong capital position. As of
December 31, 1995, the Corporation's total Weighted Risk Adjusted Capital Ratio
was 15.15% compared with 15.03% at December 31, 1994 and 17.09% at the end of
1993. The leverage ratio (Average Tier I Capital/Average Assets) was 8.34% at
year end versus 7.69% in 1994 and 9.63% in 1993. Management's strategy for
leveraging the Corporation's capital is to maintain the leverage ratio between
7.50% and 8.50%.
Under Federal Reserve regulations (see Note 15 to the consolidated financial
statements), the Bank is limited to the amount it may loan to the Corporation,
unless such loans are collateralized by specific obligations. At December 31,
1995, the maximum amount available for transfer from the Bank to the Corporation
in the form of loans was $1,660,655. The Bank is subject to legal limitations
on the amount of dividends that can be paid to the Corporation. Dividends are
limited to retained net profits, as defined by regulations, for the current year
and the two preceding years. At December 31, 1995, $7,857,299 was available for
the declaration of dividends.
Cash dividends declared amounted to $2.046 million in 1995 versus $1.777
million in 1994 and $1.657 million in 1993. Dividends declared amounted to
36.5% of net earnings compared to 38.2% and 36.8% of 1994 and 1993 net earnings,
respectively. It is management's objective to continue generating sufficient
capital internally, while retaining an adequate dividend payout ratio.
The core deposit intangible and goodwill in the amounts of $5.34 million and
$2.65 million, respectively, at December 31, 1995, which account for the premium
paid in connection with the acquisition of three branches from the Resolution
Trust Corporation ("RTC") and the Owego National Financial Corporation during
1994, is being amortized over 15 years for both book and tax purposes.
Amortization periods are monitored to determine if events and circumstances
require such periods to be reduced. With respect to each of the branches
acquired from the RTC, management has determined that our purchase of these
deposits constituted entrance into major new market areas and provides a basis
for concluding that the core deposit intangible benefits will exist beyond a
short-term period.
Treasury Shares
When shares of the Corporation come on the market, we will bid only after
careful review of our capital position. During 1995, 11,632 shares were
purchased at a total cost of $299,749 or an average price of $25.77 per share.
In 1994, 7,500 of the treasury shares were sold at a price of $23.00 per share
to fund profit sharing requirements. During 1993, 2,869 common shares were
purchased at a total cost of $65,638 ($22.878 average cost per share).
Cash Flow
Proceeds from maturities and sales of securities and student loans available for
sale trailed purchases of securities and loan originations, net of repayments
and net purchases of premises and equipment, by $356 thousand during 1995. Net
purchases of premises and equipment were $3.013 million, including $540 thousand
for real estate. In 1994, net cash used by investing activities was $85.1
million. Additionally, in June 1994, the bank acquired $45.6 million in
deposits from the RTC. This event resulted in unusually high levels of
securities purchases.
Net cash provided by financing activities amounted to a negative $4.495
million during 1995 compared to $49.0 million a year earlier, when the purchase
of deposits of acquired branches accounted for $45.6 million of the increase.
Core deposits (Demand, NOW, Savings and Insured Money Market Accounts) decreased
$14.3 million while certificates of deposit and individual retirement accounts
increased $8.9 million.
Liquidity and Sensitivity
The term "liquidity" refers primarily to the expected cash flows from assets
held for investment and secondarily to borrowings secured by assets held for
investments. These two sources of liquidity have in the past been sufficient
to fund the operations of the Bank, and the Board of Directors anticipates that
they will suffice in the future. For this reason, the term "liquidity" in the
Bank's policies does not refer to proceeds from the sale of assets, although the
sale of assets held as available for sale is a source of liquidity available to
management.
Liquidity management involves the ability to meet the cash flow requirements
of deposit customers, borrowers, and the operating, investing, and financing
activities of the Corporation. Management of interest rate sensitivity seeks
to avoid fluctuating net interest margins and to enhance consistent growth of
net interest income through periods of changing interest rates.
As intermediaries between borrowers and savers, commercial banks incur
interest rate risk. The Bank's Asset/Liability Committee (ALCO) has the
strategic responsibility for setting the policy guidelines on acceptable
exposure. The ALCO is made up of the President, Senior Lending Officer, Senior
Marketing Officer, Chief Financial Officer, and others representing key
functions.
During 1993, the Bank became a member of the Federal Home Loan Bank of New
York ("FHLB"). The primary reasons for joining the FHLB were to enhance
management's ability to satisfy future liquidity needs and to have an additional
alternate for investing excess reserves. Having invested $1.481 million in FHLB
common stock, the Bank maintained a credit line of $52,389,800 at December 31,
1995.
Interest-rate risk is the risk that net interest income will fluctuate as
a result of a change in interest rates. It is the assumption of interest rate
risk, along with credit risk, that drives the net interest margin of a financial
institution.
A related component of interest rate risk is the expectation that the market
value of our capital account will fluctuate with changes in interest rates.
This component is a direct corollary to the earnings-impact component: an
institution exposed to earnings erosion is also exposed to shrinkage in market
value.
Interest rate risk is portrayed below using the "contractual" gap.
Contractual gap measures the stated repricing and maturity of assets and
liabilities. At December 31, 1995, the cumulative one-year contractual gap for
the Bank was a negative $121.5 million versus a negative $111.4 million a year
earlier and a negative $75.2 at the end of 1993. This indicates that $121.5
million of earning assets could reprice after the source of funds reprice.
In recent years, however, core deposits (NOW accounts, Insured Money Market
Accounts and Savings accounts) have not been repriced with movements of interest
rates in the negotiable securities markets. Rather, the interest paid upon such
funding sources during 1995, 1994 and 1993 has been very stable, even with
movements in excess of 200 basis points. Short-term and intermediate-term
interest rates on U.S. Treasury Securities reached their lowest levels at the
beginning of 1994; peaked over 250 basis points higher at the beginning of 1995
and had declined more than 200 basis points by the end of the year.
<TABLE>
<CAPTION>
December 31, 1995 Rate Sensitive
- --------------------------------------------------------------------------------------------------------------------
Contractual Amounts 1 to 90 91 to 365 1 to 5 Over 5
(Thousands) days days years years
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Earning assets:
Loans $ 99,667 $ 24,573 $ 72,425 $ 66,291
Securities 6,684 43,993 85,648 35,538
Federal funds 10,000
Other (Equities) 6,818
- --------------------------------------------------------------------------------------------------------------------
Total earning assets 123,169 68,566 158,073 101,829
====================================================================================================================
Net sources:
NOW accounts 43,958
Insured Money Market 47,520
Time certificates
under $100 thousand 23,835 67,980 41,507 38
Time certificates
over $100 thousand 13,618 5,803 2,041
Savings 97,184
Repurchase agreements 13,382
- --------------------------------------------------------------------------------------------------------------------
Total sources 239,497 73,783 43,548 38
====================================================================================================================
Incremental gap -116,328 -5,217 114,525 101,791
Percent of earning assets -94.4 -7.6 72.4 100
Cumulative gap -116,328 -121,545 -7,020 94,771
Percent of total assets -25.8 -26.9 -1.6 21.0
================================================================================
</TABLE>
The asset/liability management function of the Bank falls under the authority
of the Board of Directors, which has charged the ALCO with responsibility for
implementing its funds management policies. The ALCO is responsible for
supervising the preparation and annual revisions of the financial segments of
the Bank Plan, which is built upon the committee's economic and interest-rate
assumptions and the Annual Budget. It is the responsibility of the ALCO to
modify prudently any and all asset/liability strategies in order to achieve
profit goals.
On January 1, 1995, the Corporation adopted the provisions of Standards No.
114 (SFAS 114), Accounting by Creditors for Impairment of a Loan as amended by
SFAS No. 118 Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosure. These statements require that impaired loans be
measured based on the present value of expected future cash flows discounted at
the loan's effective interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. For purposes of these statements, a loan is impaired
when, based on current information and events, it is probable that a creditor
will be unable to collect all contractual interest and principal payments
according to the terms of the agreement.
SFAS 114 does not apply to large groups of small balance, homogeneous loans
that are collectively evaluated for impairment. This issuance requires the
Corporation to account for a troubled debt restructuring involving a
modification of terms at fair value as of the date of the restructuring.
The Corporation defines smaller balance, homogeneous loans as consumer loans,
residential mortgages, home equity and credit card outstandings. Significant
factors impacting management's judgment in determining when a loan is impaired
include an evaluation of compliance with repayment program, condition of
collateral, deterioration in financial strength of borrower or any case when the
expected future cash payments may be less than the recorded amount. Commercial
loans are placed upon non-accrual status when delinquency reaches 90 days unless
collateral is deemed adequate, while consumer, mortgage and home equity loans
are considered for non-accrual at 120 days. This is due to management's
evaluation of commercial loans as carrying a greater level of inherent risk.
New Accounting Standards
In June of 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 122 ("SFAS No. 122") Accounting for Certain
Mortgage Banking Activities, an Amendment of FASB Statement No. 65. This
statement amends certain provisions of Statement 65 to eliminate the accounting
distinction between rights to service mortgage loans for others that are
acquired through loan origination activities and those acquired through purchase
transactions. The Corporation presently recognizes servicing rights acquired
only through loan underwriting transactions and these are not material.
Adoption of SFAS No. 122 in 1996 will have no material impact upon its financial
statements based upon historical levels of sales where servicing is retained.
In October of 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 ("SFAS No. 123") Accounting for
Stock-Based Compensation which encourages, but does not require, companies to
use a fair value based method of determining compensation cost for grants of
stock options under stock-based employee compensation plans. Companies electing
to continue accounting for these plans under the provisions of Opinion 25 will
be required to present pro forma disclosures of net income and net income per
share, as if a fair value based method had been applied. The Corporation is
required to implement SFAS No. 123 on January 1, 1996. Management does not
believe the adoption of SFAS No. 123 will have a material impact on the
Corporation's consolidated financial statements as it does not currently have
a stock-based compensation plan.
/s/ "signature"
Jan P. Updegraff
Vice President & Treasurer
<PAGE>
EXHIBIT D
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Chemung Financial Corporation and Subsidiary:
We have audited the accompanying consolidated balance sheets of Chemung
Financial Corporation and subsidiary as of December 31, 1995 and 1994, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the years in the three-year period ended December 31, 1995. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Chemung
Financial Corporation and subsidiary at December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in note 1 to the consolidated financial statements, effective
January 1, 1995, the Company changed its method of accounting for impairment of
loans to adopt the provisions of Statement of Financial Accounting Standards
(SFAS) No. 114, Accounting by Creditors for Impairment of a Loan, as amended by
SFAS No. 118, Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures. Also as discussed in note 1, at January 1, 1994,
the Company changed its method of accounting for securities to adopt the
provisions of SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities, and at January 1, 1993 the Company changed its method of
accounting for postretirement benefits to adopt the provisions of SFAS No. 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
January 26, 1996<PAGE>
<TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<CAPTION>
Assets December 31 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <S> <C> <C>
Cash and due from banks $ 27,293,592 24,266,349
Interest-bearing deposits with other 90,206 114,243
financial institutions
Federal funds sold 10,000,000 8,000,000
Securities available for sale, at fair value 171,882,062 188,828,284
Securities held to maturity, fair value of 7,582,044 15,168,682
$7,581,519 in 1995 and $15,012,570 in 1994
Loans 263,001,304 236,497,448
Allowance for loan losses (3,900,000) (3,599,968)
----------------------------------------------------------------------------------
Loans, net 259,101,304 232,897,480
Premises and equipment, net 10,290,702 8,527,302
Other assets 7,662,639 7,952,438
Goodwill and deposit base intangible, 7,990,237 8,577,540
net of accumulated amortization
----------------------------------------------------------------------------------
Total assets $ 501,892,786 $ 494,332,318
==================================================================================
Liabilities and Shareholders' Equity
- ----------------------------------------------------------------------------------------------------------------
Deposits:
Noninterest-bearing 83,591,381 81,135,334
Interest-bearing 343,287,511 351,135,386
----------------------------------------------------------------------------------
Total deposits 426,878,892 432,270,720
Securities sold under agreements to repurchase 13,381,581 10,203,785
Accrued interest payable 1,059,102 894,396
Dividends payable 520,462 456,027
Other liabilities 7,153,851 4,768,644
----------------------------------------------------------------------------------
Total liabilities 448,993,888 448,593,572
----------------------------------------------------------------------------------
Commitments and contingencies (note 14)
Shareholders' equity:
Common stock, $5.00 par value per share; 10,750,335 10,750,335
authorized 3,000,000 shares, issued: 2,150,067
Surplus 10,068,563 10,068,563
Retained earnings 29,930,969 26,374,590
Treasury stock, at cost (1995 - 68,218 shares; (1,579,298) (1,279,549)
1994 - 56,586 shares)
Net unrealized gain (loss) on securities 3,728,329 (175,193)
available for sale, net of taxes
----------------------------------------------------------------------------------
Total shareholders' equity 52,898,898 45,738,746
----------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 501,892,786 $ 494,332,318
==================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Years ended December 31 1995 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest income:
Loans $ 23,867,713 20,006,304 20,740,622
Securities 11,365,927 9,023,516 7,272,439
Federal funds sold 485,979 407,259 370,926
Interest-bearing deposits 357,090 142,882 72,931
------------------------------------------------------------------------------------------------------------
Total interest income 36,076,709 29,579,961 28,456,918
------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 13,446,125 9,895,852 9,503,976
Borrowed funds 7,538 8,366 108
Securities sold under agreements to repurchase 773,264 372,133 281,096
------------------------------------------------------------------------------------------------------------
Total interest expense 14,226,927 10,276,351 9,785,180
------------------------------------------------------------------------------------------------------------
Net interest income 21,849,782 19,303,610 18,671,738
Provision for loan losses 564,380 623,772 906,739
------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 21,285,402 18,679,838 17,764,999
Other operating income:
Trust department income 3,677,622 3,322,643 3,294,388
Service charges on deposit accounts 1,502,971 1,318,448 1,273,640
Net gain on sales of securities 530,953 140,001 821,467
Credit card merchant earnings 494,821 436,246 377,628
Other 529,413 467,856 351,743
-----------------------------------------------------------------------------------------------------------
6,735,780 5,685,194 6,118,866
------------------------------------------------------------------------------------------------------------
Other operating expenses:
Salaries and wages 7,658,865 6,848,952 6,177,966
Pension and other employee benefits 2,214,273 1,824,114 1,983,641
Net occupancy expenses 1,586,077 1,440,755 1,281,754
Furniture and equipment expenses 1,475,543 1,270,385 1,203,610
Other 6,625,056 5,990,536 4,979,616
------------------------------------------------------------------------------------------------------------
19,559,814 17,374,742 15,626,587
------------------------------------------------------------------------------------------------------------
Income before income taxes and cumulative effect 8,461,368 6,990,290 8,257,278
of change in accounting principle
Income taxes 2,859,476 2,342,765 2,830,032
------------------------------------------------------------------------------------------------------------
Income before cumulative effect of change in 5,601,892 4,647,525 5,427,246
accounting principle
Cumulative effect, at January 1, 1993, of change in - - (933,183)
accounting for postretirement benefits other than
pensions, net of income tax expense of $643,939
------------------------------------------------------------------------------------------------------------
Net income $ 5,601,892 4,647,525 4,494,063
============================================================================================================
Weighted average number of common shares outstanding 2,087,751 1,899,488 1,893,618
============================================================================================================
Per common share:
Income before cumulative effect of change in $ 2.68 2.45 2.87
accounting principle
Cumulative effect of change in accounting $ - - (.50)
principle
------------------------------------------------------------------------------------------------------------
Net income $ 2.68 2.45 2.37
============================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<CAPTION>
Unrealized Gain
(Loss) On
Securities
Common Retained Treasury Available
Stock Surplus Earnings Stock For Sale Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1992 $ 9,783,495 6,485,522 20,666,136 (1,428,686) - 35,506,467
Net income - - 4,494,063 - - 4,494,063
Cash dividends declared - - (1,656,528) - - (1,656,528)
($.875 per share)
Purchase of 2,869 shares of - - - (65,638) - (65,638)
treasury stock
Sale of 2,000 shares - 2,808 - 45,200 - 48,008
of treasury stock
- ----------------------------------------------------------------------------------------------------------------
Balances at December 31, 1993 9,783,495 6,488,330 23,503,671 (1,449,124) - 38,326,372
Net unrealized gain on - - - - 2,786,610 2,786,610
securities available for sale,
net of taxesof $1,910,980
Issuance of 193,368 shares 966,840 3,577,308 - - - 4,544,148
in acquisition
Net income - - 4,647,525 - - 4,647,525
Cash dividends declared - - (1,776,606) - - (1,776,606)
($.935 per share)
Sale of 7,500 shares - 2,925 - 169,575 - 172,500
of treasury stock
Change in net unrealized gain - - - - (2,961,803) (2,961,803)
(loss) on securities
available for sale, net of
taxes of $2,031,136
- ----------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994 10,750,335 10,068,563 26,374,590 (1,279,549) (175,193) 45,738,746
Net income - - 5,601,892 - - 5,601,892
Cash dividends declared - - (2,045,513) - - (2,045,513)
($.98 per share)
Purchases of 11,632 shares of - - - (299,749) - (299,749)
treasury stock
Change in net unrealized gain - - - - 3,903,522 3,903,522
(loss) on securities
available for sale, net of
taxes of $2,645,891
- ----------------------------------------------------------------------------------------------------------------
Balances at December 31, 1995 $ 10,750,335 10,068,563 29,930,969 (1,579,298) 3,728,329 52,898,898
================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Years ended December 31 1995 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 5,601,892 4,647,525 4,494,063
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of goodwill and deposit 587,303 232,003 -
base intangible
Deferred income taxes (168,577) 98,614 (110,044)
Provision for loan losses 564,380 623,772 906,739
Depreciation and amortization 1,250,236 986,183 971,073
Amortization and discount on securities, net (458,579) (1,077,616) (709,539)
Gain on sales of securities, net (530,953) (140,001) (821,467)
(Increase) decrease in other assets 289,799 (1,968,603) (715,341)
Increase (decrease) in accrued interest payable 164,706 215,747 (110,944)
Increase (decrease) in other liabilities 2,553,784 (201,391) 677,656
Accrued postretirement benefits - - 1,577,122
---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 9,853,991 3,416,233 6,159,318
---------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities held to maturity - - 6,013,130
Proceeds from sales of securities available 15,958,448 19,955,253 14,934,718
for sale
Proceeds from maturities of and principal 7,261,930 5,651,201 114,291,595
collected on securities held to maturity
Proceeds from maturities of and principal 94,781,598 69,972,928 -
collected on securities available for sale
Purchases of securities available for sale (78,373,282) (156,905,963) -
Purchases of securities held to maturity (10,202,780) (11,841,859) -
Purchases of securities - - (108,319,159)
Cash of acquired bank, net of cash paid - 2,894,434 -
Purchases of premises and equipment, net (3,013,636) (1,999,522) (533,821)
Loan originations, net of repayments and (29,563,052) (9,324,698) (7,289,548)
other reductions
Proceeds from sales of student loans 2,794,848 2,507,848 2,572,308
Deposit acquisition premium - (5,965,793) -
---------------------------------------------------------------------------------------------------------
Net cash provided (used) by $ (355,926) (85,056,171) 21,669,223
investing activities
(Continued)
</TABLE>
<TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<CAPTION>
Years ended December 31 1995 1994 1993
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits, $ (14,320,289) 328,981 4,889,843
NOW accounts, savings accounts, and insured
money market accounts
Net increase (decrease) in certificates of 8,928,461 6,928,120 (1,195,261)
deposit and individual retirement account
Net increase (decrease) in securities sold 3,177,796 (2,341,784) 3,693,745
under agreements to repurchase
Purchases of treasury stock (299,749) - (65,638)
Sale of treasury stock - 172,500 48,008
Cash dividends paid (1,981,078) (1,751,148) (1,623,590)
Deposits of acquired branches - 45,628,085 -
---------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing (4,494,859) 48,964,754 5,747,107
activities
---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash 5,003,206 (32,675,184) 33,575,648
equivalents
Cash and cash equivalents, beginning of year 32,380,592 65,055,776 31,480,128
---------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 37,383,798 32,380,592 65,055,776
=========================================================================================================
Supplemental disclosure of cash flow information:
Transfer of securities held to maturity $ 10,505,646 94,727,116 -
to securities available for sale
Cash paid during the year for:
Income Taxes 2,937,581 2,464,816 3,427,195
Interest $ 14,062,221 10,052,237 9,896,016
=========================================================================================================
</TABLE>
On December 29, 1994, the Corporation acquired the stock of a commercial bank.
In conjunction with this acquisition, liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of net assets acquired $ 42,381,450
Cash paid and fair value of common 5,780,938
stock issued ------------
Liabilities assumed $ 36,600,512
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND 1994
(1) Statement of Accounting Policies
Organization
Chemung Financial Corporation (the Corporation), through its wholly owned
subsidiary, Chemung Canal Trust Company (the Bank), provides commercial banking
services to its local market area. The Corporation is subject to the
regulations of certain federal and state agencies and undergoes periodic
examinations by those regulatory agencies. As discussed in note 2, at the end
of 1994 the Corporation acquired Owego National Financial Corporation (Owego),
a commercial bank.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and include the
accounts of the Corporation and the Bank. All significant intercompany balances
and transactions eliminated in consolidation.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Securities
The Corporation adopted the provisions of Statement of Financial Accounting
Standards No. 115 (SFAS 115), Accounting for Certain Investments in Debt and
Equity Securities, at January 1, 1994. SFAS 115 requires classification of
securities into three categories: held to maturity, available for sale and
trading. In conjunction with the adoption of SFAS 115, the Corporation
transferred securities with a cost basis of $94,727,116 to the available for
sale portfolio. There were $4,697,590 of net unrealized gains associated with
these securities.
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and the Corporation has the
ability at the time of purchase to hold securities until maturity, they are
classified as held to maturity and carried at historical cost, adjusted for the
amortization or accretion of premiums or discounts. Securities to be held for
indefinite periods of time and not intended to be held to maturity are
classified as available for sale and carried at fair value. Securities held for
indefinite periods of time include securities that management intends to use as
part of its asset/liability management strategy and that may be sold in response
to changes in interest rates, resultant prepayment risk and other factors
related to interest rate and resultant prepayment risk changes. Unrealized
holding gains and losses, net of the related tax effects, on securities
classified as available for sale are excluded from earnings
and are reported as a separate component of shareholders' equity until realized.
Realized gains and losses are determined using the specific identification
method.
Transfers of securities between categories are recorded at fair value at the
date of transfer. The unrealized holding gains or losses included in the
separate component of shareholders' equity for securities transferred from
available for sale to held to maturity are maintained and amortized into
earnings over the remaining life of the security as an adjustment to yield in
a manner consistent with the amortization or accretion of premium or discount
on the associated security.
A decline in the fair value of any available for sale or held to maturity
security below amortized cost that is deemed other than temporary is charged to
earnings resulting in the establishment of a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the related
security as an adjustment of yield using the interest method. Dividend and
interest income are recognized when earned.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for loan losses. The allowance is increased by provisions charged to
earnings and recoveries of loans previously charged off, and reduced by loan
charge-offs. Charge-offs include the excess of a loan's carrying value over
estimated fair value of real estate received and transferred to other real
estate. The level of the allowance is based on management's evaluation of
potential losses in the loan portfolio, prevailing and anticipated economic
conditions, past loss experience, and other factors pertinent to estimating
potential losses. Management believes that the allowance for loan losses is
adequate. While management uses available information to recognize losses on
loans, future additions to the allowances may be necessary based on changes in
economic conditions, particularly in New York State. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies may
require the Bank to recognize additions to the allowance based on their
judgments about information as available to them at the time of their
examination.
The Corporation adopted the provisions of SFAS No. 114, Accounting by
Creditors for Impairment of a Loan, as amended SFAS 118, Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures on January 1,
1995. Management, considering current information and events regarding the
borrower's ability to repay their obligations, considers a loan to be impaired
when it is probable that the Corporation will be unable to collect all amounts
due according to the contractual terms of the loan agreement. When a loan is
considered to be impaired, the amount of the impairment is measured based on the
present value of expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of collateral if the loan is collateral dependent.
Impairment losses are included in the allowance for loan losses through a charge
to the provision for loan losses. In general, interest income on impaired loans
is recorded on a cash basis when collection in full is reasonably expected. If
full collection is uncertain, cash receipts are applied first to principal then
to interest income. Adoption of these statements did not have a material impact
on the Corporation's 1995 consolidated financial statements.
Loans
Loans are stated at the amount of unpaid principal balance less unearned
discounts and net deferred fees. The corporation has the ability and intent to
hold its loans until maturity except for educational loans which are sold to a
third party from time to time upon reaching repayment status.
Interest on loans is accrued and credited to operations on the level yield
method. The accrual of interest is discounted and previously accrued interest
is reversed when commercial loans become 90 days
delinquent and, when consumer, mortgage and home equity loans, which are not
guaranteed by government agencies, become 120 days delinquent. Loan origination
fees and certain loan origination costs are deferred and amortized over the life
of the loan using the interest method.
Premises and Equipment
Land is carried at cost, while buildings and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is charged to current
operations under accelerated and straight-line methods over the estimated useful
lives of the assets, which range from 15 to 50 years for buildings and from 3
to 10 years for equipment and furniture. Amortization of leasehold improvements
and leased equipment is recognized on the straight-line method over the shorter
of the lease term or the estimated life of the assets.
Other Real Estate
Real estate acquired through foreclosure or deed in lieu of foreclosure is
recorded at the lower of the carrying value of the loan or estimated fair value
of the property at the time of acquisition. Write downs from cost to estimated
fair value which are required at the time of foreclosure are charged to the
allowance for loan losses. Subsequent to acquisition, other real estate is
carried at the lower of the carrying amount or fair value less estimated costs
to dispose. Subsequent adjustments to the carrying values of such properties
resulting from declines in fair value are charged to operations in the period
in which the declines occur.
Income Taxes
The Corporation files a consolidated return on the accrual method. Deferred
tax assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases and operating
loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
Trust Department Income
Assets held in a fiduciary or agency capacity for customers are not included in
the accompanying consolidated balance sheets, since such assets are not assets
of the Corporation. Trust department income is recognized on the accrual method
based on contractual rates applied to the balances of individual trust accounts.
Pension Plan
Pension cost is computed using the projected unit credit actuarial cost method.
The Bank's funding policy is to contribute amounts to the plan sufficient to
meet minimum regulatory funding requirements, plus such additional amounts as
the Bank may determine to be appropriate from time to time.
Postretirement Benefits
In addition to pension benefits, the Bank provides health care and life
insurance benefits for retired employees. Effective January 1, 1993, the
Corporation adopted the provisions of SFAS 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, which established a new accounting
principle for the cost of retiree health care and other postretirement
benefits. Immediate recognition of the transition obligation was elected. The
cumulative effect of the change in method of accounting for postretirement
benefits other than pensions is reported in the 1993 consolidated statement of
income.
Goodwill and Deposit Base Intangible
Goodwill, which represents the excess of purchase price over the fair value of
identifiable assets acquired, is being amortized over 15 years on the
straight-line method. Deposit base intangible, resulting from the Bank's
purchase of deposits from the Resolution Trust Company in 1994, is being
amortized over the expected useful life of 15 years on a straight-line basis.
Amortization periods are monitored to determine if events and circumstances
require such periods to be reduced. Periodically, the Corporation reviews its
goodwill and deposit base intangible assets for events or changes in
circumstances that may indicate that the carrying amount of the assets are not
recoverable.
Per Share Information
Per share data was computed on the basis of the weighted average number of
common shares outstanding, retroactively adjusted for stock splits and
dividends.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from banks, federal funds
sold, and U.S. Treasury securities with original terms to maturity of 90 days
or less.
Securities Sold Under Agreements to Repurchase
The Corporation enters into sales of U.S. Treasury securities under agreements
to repurchase. These agreements are treated as financings, and the obligations
to repurchase securities sold are reflected as
liabilities in the consolidated statement of financial condition. The amount
of the securities underlying the agreements remains in the asset account. The
Corporation has agreed to repurchase securities identical to those sold.
Financial Instruments With Off-Balance Sheet Risk
The Corporation does not engage in the use of derivative financial instruments
and the Corporation's only financial instruments with off-balance sheet risk are
commitments under standby letters of credit, unused portions of lines of credit
and commitments to fund new loans.
Reclassifications
Amounts in the prior year's consolidated financial statements are reclassified
whenever necessary to conform with the current year's presentation.
(2) Acquisitions
On December 29, 1994, management of the Corporation and of Owego signed the
documents required to consummate the previously announced acquisition of Owego.
Owego commenced business as a branch of the Bank on January 3, 1995. The total
purchase price was $5,780,938, consisting of $1,236,790 in cash and 193,368
shares of the Corporation's common stock with a fair value of $4,544,148 at the
date of acquisition. The acquisition was accounted for under the purchase
method, accordingly, all assets and liabilities acquired were recorded at their
fair values at the date of acquisition and the results of operations of Owego
are included in the consolidated financial statements beginning January 1,
1995. For taxation purposes the acquisition was accounted for as a tax free
reorganization. The excess of the cost over the fair value of the net assets
acquired (goodwill) of $2,843,750 is being amortized on the straight-line method
over a period of 15 years.
During 1994, the Bank acquired deposits totaling $45,628,085 from the
Resolution Trust Company at a premium of $5,965,793. This deposit base
intangible asset is being amortized on the straight-line method over 15 years.
The Corporation's unaudited proforma condensed consolidated results of
operations for the years ended December 31, 1994 and 1993 are presented below.
This proforma information has been prepared assuming that the acquisition of
Owego had been effective January 1, 1994 and 1993, respectively. Such proforma
condensed financial information includes various estimates and is not
necessarily indicative of the consolidated results of operations as they might
have been had the acquisition been effective as of January 1, 1994 or 1993.
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1994 December 31, 1993
- ----------------------------------------------------------------------------------------------------------------
Proforma Proforma
- ----------------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C>
Net interest income $ 20,773 $ 20,265
Net Income $ 4,291 $ 4,651
Weighted average common $ 2,092 $ 2,087
shares outstanding
Net income per share $ 2.05 $ 2.23
</TABLE>
3) Restrictions on Cash and Due from Bank Accounts
The Bank is required to maintain average reserve balances with the Federal
Reserve Bank of New York. The required average total reserve for the 14-day
maintenance period beginning December 21, 1995 was $6,954,000, of which $923,000
was required to be on deposit with the Federal Reserve Bank; the remainder,
$6,031,000, was represented by cash on hand.
(4) Securities
Amortized cost and fair value of securities available for sale at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 77,579,182 78,516,356 135,086,502 132,211,021
Obligations of other U.S.
Government agencies 29,692,008 30,258,315 31,806,859 31,027,012
Obligations of states and
political subdivisions 22,300,655 22,702,964 14,888,600 14,903,869
Other bonds and notes 33,587,684 33,586,921 5,192,796 5,193,756
Corporate stocks 2,468,469 6,817,506 2,148,876 5,492,626
- ----------------------------------------------------------------------------------------------------------------
$ 165,627,998 171,882,062 189,123,633 188,828,284
================================================================================================================
</TABLE>
Amortized cost and fair value of securities held to maturity at December 31,
1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 7,572,044 7,572,044 13,181,247 13,025,161
Other bonds and notes 10,000 9,475 1,987,435 1,987,409
- ----------------------------------------------------------------------------------------------------------------
$ 7,582,044 7,581,519 15,168,682 15,012,570
================================================================================================================
</TABLE>
Included in corporate stocks at December 31, 1995 and 1994 is the Bank's
required investment in the stock of the Federal Home Loan Bank with a cost of
$1,481,300 and $1,193,200, respectively. This investment allows the Bank to
maintain a $52,389,800 line of credit with the Federal Home Loan Bank.
Gross unrealized gains and gross unrealized losses on securities available
for sale at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 945,697 8,523 3,753 2,879,234
Obligations of other U.S.
Government agencies 571,096 4,789 89,733 869,580
Obligations of states and
political subdivisions 421,180 18,871 191,870 176,600
Other bonds and notes 95,297 96,060 38,976 38,017
Corporate stocks 4,349,037 - 3,356,773 13,023
- ----------------------------------------------------------------------------------------------------------------
$ 6,382,307 128,243 3,681,105 3,976,454
================================================================================================================
</TABLE>
Gross unrealized gains and gross unrealized losses on securities held to
maturity at December 31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ - - 976 157,062
Other bonds and notes - 525 4,677 4,703
- ----------------------------------------------------------------------------------------------------------------
$ - 525 5,653 161,765
================================================================================================================
</TABLE>
Gross realized gains on sales of securities were $530,953, $140,001, and
$821,467 for the years ended December 31, 1995, 1994 and 1993, respectively.
Included in gross realized gains on sales of securities for the year ended
December 31, 1993 is $545,000 relating to the sale of a $1,000,000 security
which was deemed permanently impaired and written down by $755,000 in 1991. The
security was sold in 1993 for $790,000.
Interest and dividends on securities for the years ended December 31, 1995,
1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Taxable
U.S. Treasury securities $ 6,087,187 5,152,024 3,443,000
Obligations of other U.S.
Government agencies 2,918,058 1,739,701 1,548,043
Other bonds and notes 673,373 614,390 849,532
Corporate stocks 281,145 255,723 247,543
Exempt from federal taxation -
obligations of states and
political subdivisions 1,406,164 1,261,678 1,184,321
- ----------------------------------------------------------------------------------------------------------------
$ 11,365,927 9,023,516 7,272,439
================================================================================================================
</TABLE>
The amortized cost and fair value by years to maturity as of December 31,
1995 for securities available for sale are as follows (excluding corporate
stocks):
<TABLE>
<CAPTION>
Maturing
- ----------------------------------------------------------------------------------------------------------------
After One, But
Within One Year Within Five Years
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 32,047,390 32,214,981 45,531,792 46,301,375
Obligations of other U.S.
Government agencies 6,494,823 6,528,615 21,197,185 21,698,140
Obligations of states and
political subdivisions 5,551,101 5,593,265 14,272,410 14,593,722
Other bonds and notes 1,496,762 1,517,605 1,443,893 1,495,940
- ----------------------------------------------------------------------------------------------------------------
Total $ 45,590,076 45,854,466 82,445,280 84,089,177
================================================================================================================
<CAPTION>
Maturing
- ----------------------------------------------------------------------------------------------------------------
After Five, But
Within Ten Years After Ten Years
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations U.S.
Government agencies $ 2,000,000 2,031,560 - -
Obligations of states and
political subdivisions 2,252,144 2,298,696 225,000 217,281
Other bonds and notes 5,021,051 5,031,379 25,625,978 25,541,997
- ----------------------------------------------------------------------------------------------------------------
Total $ 9,273,195 9,361,635 25,850,978 25,759,278
======================================================================================
</TABLE>
The amortized cost and fair value by years to maturity as of December 31,
1995 for securities held to maturity are as follows:
<TABLE>
<CAPTION>
Maturing
- ----------------------------------------------------------------------------------------------------------------
After One, But
Within One Year Within Five Years
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 4,817,894 4,817,894 1,777,670 1,777,670
Other bonds and notes 5,000 4,875 5,000 4,600
- ----------------------------------------------------------------------------------------------------------------
Total $ 4,822,894 4,822,769 1,782,670 1,782,270
================================================================================================================
<CAPTION>
Maturing
- ----------------------------------------------------------------------------------------------------------------
After Five, But
Within Ten Years After Ten Years
- ----------------------------------------------------------------------------------------------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 976,480 976,480 - -
================================================================================================================
</TABLE>
The fair value of securities pledged to secure public funds on deposit or
for other purposes as required by law was $95,913,200 at December 31, 1995 and
$96,791,741 at December 31, 1994. U.S. Treasury securities totaling $18,380,000
and $19,277,150 (fair value of $18,616,689 and $ $18,776,577) were pledged to
secure repurchase agreements at December 31, 1995 and 1994, respectively, see
note 8.
There are no securities of a single issuer (other than securities of the
U.S. Government and its agencies) that exceed 10% of shareholders' equity at
December 31, 1995 or 1994. In November, 1995 the Financial Accounting Standards
Board published A Guide to Implementation of Statement 115 on Accounting for
Certain Investments in Debt and Equity Securities (Guide). Concurrent with the
initial adoption of the Guide, but no later than December 31, 1995, the
Corporation was permitted to reassess the appropriateness of the classifications
of all securities held at that time and implement reclassifications without
calling into question the intent of the Corporation to hold other debt
securities to maturity in the future. Effective December 1, 1995 the
Corporation transferred securities with amortized costs of $10,505,646 from the
held to maturity portfolio to the available for sale portfolio. The net
unrealized gain was $154,557. The transferred securities are reported at fair
value, with unrealized gains and losses excluded from earnings and reported as
a separate component of shareholders' equity, net of related taxes.
(5) Loans and Allowance for Loan Losses
The composition of the loan portfolio is summarized as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Residential mortgages $ 61,070,320 54,717,992
Commercial mortgages 10,799,467 13,194,116
Commercial, financial and agricultura l89,785,341 75,006,015
Consumer loans 101,687,175 94,180,896
Net deferred fees and unearned income (340,999) (601,571)
- ----------------------------------------------------------------------------------------------------------------
$ 263,001,304 236,497,448
================================================================================================================
</TABLE>
During 1995, 1994 and 1993, the Corporation sold $2,794,848, $2,507,848 and
$2,572,308, respectively, of education loans at par to the Student Loan
Marketing Association.
The Corporation's market area encompasses the New York State counties of
Chemung, Steuben, Schuyler and Tioga. Substantially all of the Corporation's
outstanding loans are with borrowers living or doing business within 25 miles
of the branches in these counties. The Corporation's concentrations of credit
risk are reflected in the preceding schedule. The concentrations of credit risk
with standby letters of credit, committed lines of credit and commitments to
originate new loans, generally follow the loan classifications in the schedule.
Other than general economic risks, management is not aware of any material
concentrations of credit risk to any industry or individual borrower.
The principal balances of loans not accruing interest totaled $1,119,671 and
$1,200,547 at December 31, 1995 and 1994, respectively. There were no loans
with modified payment terms because of the borrowers' financial difficulties at
December 31, 1995 and 1994. The effect of nonaccrual loans on interest income
for the years ended December 31, 1995, 1994 and 1993 was not material. The Bank
is not committed to advance additional funds to these borrowers. Other real
estate owned at December 31, 1995 amounted to $175,922 involving one property
and at December 31, 1994, amounted to $171,000 involving four properties. There
was no other real estate owned at December 31, 1993.
Transactions in the allowance for loan losses for the years ended December
31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balances at January 1 $ 3,599,968 3,500,000 3,400,000
Provision charged to operations 564,380 623,772 906,739
Loans charged off (373,261) (717,511) (896,100)
Recoveries 108,913 93,739 89,361
Allowance of Owego - 99,968 -
at time of acquisition
- ----------------------------------------------------------------------------------------------------------------
$ 3,900,000 3,599,968 3,500,000
================================================================================================================
</TABLE>
As discussed note 1, the Corporation changed its method of accounting for
impairment of loans on January 1, 1995 to adopt the provisions SFAS No. 114,
Accounting for Creditors for Impairment of a Loan, as amended by SFAS No. 118,
Accounting by Creditors for Impairment of Loan - Income Recognition and
Disclosures. At December 31, 1995, the recorded investment in loans that are
considered to be impaired totaled $879,539. Included in this amount was
$530,811 of impaired loans for which the related allowance for loan losses is
$198,618, and $348,728 of impaired loans with no related allowance for loan
losses. The average recorded investment in impaired loans during 1995 was
$722,055. The effect on interest income for impaired loans was not material to
the consolidated financial statements in 1995.
(6) Premises and Equipment
Premises and equipment at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 2,106,408 2,066,408
Buildings 9,883,468 9,009,746
Equipment and furniture 11,463,538 9,502,219
Leasehold improvements 396,478 317,624
- ----------------------------------------------------------------------------------------------------------------
23,849,892 20,895,997
Less accumulated depreciation 13,559,190 12,368,695
- ----------------------------------------------------------------------------------------------------------------
$ 10,290,702 8,527,302
================================================================================================================
</TABLE>
(7) Deposits
Interest-bearing deposits include certificates of deposit in denominations of
$100,000 or more aggregating $21,462,087 and $17,169,048 at December 31, 1995
and 1994, respectively. Interest expense on such certificates was $1,057,353,
$559,034, and $654,522 for 1995, 1994 and 1993, respectively.
(8) Securities Sold Under Agreements to Repurchase
The agreements have maturities from 4 to 34 days at December 31, 1995 and 4 to
97 days at December 31, 1994, and a weighted average interest rate of 5.33% at
December 31, 1995 and 5.30% at December 31, 1994. The maximum amounts
outstanding at any one month-end and average amount under these agreements
during 1995 were $19,677,060 and $13,726,251, respectively. The maximum amounts
outstanding at any one month-end and average amount under these agreements
during 1994 were $15,158,469 and $9,809,991, respectively. The securities
underlying the agreements were under the Trust Department's control as
custodian.
(9) Income Taxes
Total income taxes for the years ended December 31, 1995, 1994 and 1993 were
allocated as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes
and cumulative effect of
accounting change $ 2,859,476 2,342,765 2,830,032
Cumulative effect, at January 1,
1993, of adoption of SFAS 106 - - 643,939
Shareholders' equity for change in
unrealized loss on securities 2,645,891 (120,156) -
- ----------------------------------------------------------------------------------------------------------------
$ 5,505,367 2,222,609 3,473,971
================================================================================================================
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, income tax expense
attributable to income from operations before cumulative effect of change in
accounting principle consists of:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
State $ 646,080 499,305 709,967
Federal 2,381,973 1,744,846 2,230,109
- ----------------------------------------------------------------------------------------------------------------
3,028,053 2,244,151 2,940,076
Deferred (168,577) 98,614 (110,044)
- ----------------------------------------------------------------------------------------------------------------
$ 2,859,476 2,342,765 2,830,032
================================================================================================================
</TABLE>
Income tax expense differed from the amounts computed by applying the U.S.
Federal statutory income tax rate to income before cumulative effect of change
in accounting principle as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax computed at statutory rate $ 2,876,865 2,376,699 2,804,386
Tax exempt interest (486,208) (435,678) (402,658)
Dividend exclusion (33,594) (32,362) (31,829)
State taxes, net of federal benefit 408,610 345,813 479,566
Nondeductible interest expense 55,582 41,829 33,751
Other items, net 38,221 46,464 (53,184)
- ----------------------------------------------------------------------------------------------------------------
Actual tax expense $ 2,859,476 2,342,765 2,830,032
================================================================================================================
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1995 and 1994 are presented below:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 1,180,197 1,066,814
Accrual for postretirement benefits
other than pensions 732,372 699,494
Deferred loan fees 113,647 185,896
Deferred compensation and directors fees 369,611 322,897
Net unrealized losses on securities - 120,156
Other 180,729 138,535
- ----------------------------------------------------------------------------------------------------------------
Total gross deferred tax assets $ 2,576,556 2,533,792
- ----------------------------------------------------------------------------------------------------------------
Deferred tax liabilities:
Bond discount 53,750 101,715
Depreciation 410,007 389,469
Net unrealized gains on securities 2,525,735 -
Other 58,772 37,002
- ----------------------------------------------------------------------------------------------------------------
Total gross deferred tax liabilities 3,048,264 528,186
- ----------------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) $ (471,708) 2,005,606
================================================================================================================
</TABLE>
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the
carryback period. A valuation allowance is provided when it is more likely than
not that some portion of the deferred tax assets will not be realized. In
assessing the need for a valuation allowance, management considers the scheduled
reversal of the deferred tax liabilities, the level of historical taxable income
and projected future taxable income over the periods in which the temporary
differences comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is necessary.
(10) Pension Plan
The Bank has a noncontributory defined benefit pension plan covering
substantially all employees. The plan's defined benefit formula generally bases
payments to retired employees upon their length of service multiplied by a
percentage of the average monthly pay over the last five years of employment.
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$9,488,826 and $9,009,876 in 1995
and 1994 respectively $ (9,956,932) (9,314,611)
Projected benefit obligation for service
rendered to date (12,211,661) (11,573,174)
Plan assets at fair value 14,042,435 11,833,298
Excess of plan assets over the projected
benefit obligation 1,830,774 260,124
Unrecognized net obligation 839,454 909,342
Unrecognized net gain (3,241,671) (1,207,086)
Unrecognized prior service cost 598,945 -
- ----------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost $ 27,502 (37,620)
================================================================================================================
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 293,048 271,218 265,992
Interest cost on projected
benefit obligation 798,518 757,327 762,002
Actual return on plan assets (2,436,581) (131,585) (245,983)
Net amortization and deferral 1,542,093 (780,715) (599,153)
- ----------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 197,078 116,245 182,858
================================================================================================================
</TABLE>
Assumptions used in determining pension amounts are as follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Discount rate for benefit obligations 7.0% 7.0%
Rate of increase in compensation levels 5.0 5.0
Expected long-term rate of return on assets 8.5 8.5
</TABLE>
The plan's assets at December 31, 1995 and 1994 are invested in common and
preferred stocks, U.S. Government securities, and corporate bonds and notes.
Effective January 1, 1995, retirees' benefits were increased. This amendment
generated prior service cost of $622,106.
The Bank also sponsors a defined contribution profit sharing, savings and
investment plan which covers all employees with a minimum of 1,000 hours of
annual service. The Bank matches at the rate of 50% of the first 6% of an
eligible employee's current earnings. Expense under the plan totaled $499,343,
$423,161 and $406,798 for the years ended December 31, 1995, 1994 and 1993,
respectively.
(11) Other Postretirement Benefit Plans
The Bank sponsors a defined benefit health care plan that provides
postretirement medical, dental and prescription drug benefits to full-time
employees who meet minimum age and service requirements. Postretirement life
insurance benefits are also provided to certain employees who retired prior to
July 1981. The plan is contributory, with retiree contributions adjusted
annually, and contains other cost sharing features such as deductibles and
coinsurance. The accounting for the plan anticipates future cost-sharing
changes to the written plan that are consistent with the Bank's expressed intent
to increase the retiree contribution rate annually for the expected general
inflation rate for that year. The Bank's policy is to fund the cost of medical
benefits in amounts determined at the discretion of management. As
discussed in note 1, the Corporation adopted the provisions of SFAS 106,
Employers' Accounting for Postretirement Benefits Other Than Pensions, as of
January 1, 1993. The effect of adopting SFAS 106 on net income and the net
periodic postretirement cost for the year ended December 31, 1993, was a
decrease of $933,183 and an increase of $108,173, respectively.
The following table presents the plan's funded status reconciled with amounts
recognized in the Corporation's consolidated balance sheet at December 31, 1995
and 1994:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ (807,185) (909,058)
Fully eligible active plan participants (114,090) (140,404)
Other active plan participants (1,061,074) (624,166)
- ----------------------------------------------------------------------------------------------------------------
(1,982,349) (1,673,628)
Unrecognized net (gain) loss 168,896 (44,910)
- ----------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost
included in other liabilities $(1,813,453) (1,718,538)
================================================================================================================
</TABLE>
Net periodic postretirement benefit cost for 1995 and 1994 included the
following components:
<TABLE>
<CAPTION>
Years ended December 31 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 75,728 44,407 9,889
Interest cost 127,308 114,642 118,284
- ----------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost $ 203,036 159,049 218,173
================================================================================================================
</TABLE>
For measurement purposes, a 12.5% and 10.5% annual rate of increase in the
per capita cost of covered benefits (i.e., health care cost trend rate) for non
medicare and medicare, respectively, was assumed for 1995; the rate was assumed
to decrease gradually to 5.5% by the year 2005 and remains at that level
thereafter. A 1% increase in the trend rate for all future years does not have
a material effect on the obligation. The weighted-average discount rate used
in determining the accumulated postretirement benefit obligations was 7% at
December 31, 1995 and 1994.
(12) Related Party Transactions
Members of the Board of Directors, certain Bank officers, and their immediate
families directly, or indirectly through entities in which they are principal
owners (more than a 10% interest), were customers of, and had loans and other
transactions with, the Bank in the ordinary course of business.
All loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons. These
loans and commitments, which did not involve more than normal risk of
collectibility or present other unfavorable features, are summarized as follows
for the years ended December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance at beginning of year $ 7,174,106 9,892,451
Additions 26,333,212 26,807,438
Amounts collected (25,079,714) (29,525,783)
- ----------------------------------------------------------------------------------------------------------------
Balance at end of year $ 8,427,604 7,174,106
================================================================================================================
</TABLE>
(13) Expenses
The following expenses, which exceeded 1% of total revenues (total interest
income plus other operating income) in at least one of the years presented, are
included in other operating expenses:
<TABLE>
<CAPTION>
Years ended December 31,
- ----------------------------------------------------------------------------------------------------------------
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Stationery and supplies $ 437,253 445,691 384,124
Credit card computer costs 554,676 475,238 431,421
Data processing service 690,980 624,556 631,531
FDIC insurance premiums 538,279 795,913 768,891
Advertising 444,637 395,425 305,940
Amortization of goodwill and deposit
base intangible 587,303 232,003 -
</TABLE>
(14) Commitments and Contingencies
In the normal course of business, there are outstanding various commitments and
contingent liabilities, such as commitments to extend credit, which are not
reflected in the accompanying consolidated financial statements. Commitments
to outside parties under standby letters of credit, unused portions of lines of
credit, and commitments to fund new loans totaled $2,237,793, $85,928,406 and
$1,151,988, respectively, at December 31, 1995. The Corporation does not
anticipate losses as a result of these transactions.
The Bank has employment contracts with certain of its senior officers, which
expire at various dates through 1999 and may be extended on a year-to-year
basis.
Under pending federal legislation is the proposed one-time special assesment
to recapitalize the SAIF insurance fund. If enacted in its current form, the
assessment is estimated to be between 75 to 80 basis points of SAIF insured
deposits held as of March 31, 1995. Based upon these rates, the Corporation's
pre-tax expense would be approximately $275,000 to $320,000. There is no
assurance that this pending legislation will be enacted into law, therefore, the
FASB has stated that the charge to earnings must be recorded in the period it
is enacted. Accordingly, the Corporation has made no accrual for this potential
obligation.
(15) Shareholders' Equity
Under Federal Reserve regulations, the Bank is limited to the amount it may loan
to the Corporation, unless such loans are collateralized by specific
obligations. At December 31, 1995, the maximum amount available for transfer
from the Bank to the Corporation in the form of loans was $1,660,655. The Bank
is subject to legal limitations on the amount of dividends that can be paid to
the Corporation. Dividends are limited to retained net profits, as defined by
regulations, for the current year and the two preceding years. At December
31,1995, $7,857,299 was available for the declaration of dividends.
(16) Parent Company Financial Information
Condensed parent company only financial statement information of Chemung
Financial Corporation is as follows:
<TABLE>
<CAPTION>
Balance Sheets
- ----------------------------------------------------------------------------------------------------------------
December 31 1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets:
Cash on deposit with subsidiary bank $ 195,586 273,358
Investment in subsidiary bank 52,274,720 44,880,039
Dividend receivable 520,462 1,656,027
Securities available for sale 455,947 590,619
Other assets - 3
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 53,446,715 47,400,046
================================================================================================================
Liabilities and shareholders' equity:
Dividend payable 520,462 456,027
Deferred tax liability 27,355 40,390
Payable to Owego shareholders - 1,164,883
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 547,817 1,661,300
- ----------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock 10,750,335 10,750,335
Surplus 10,068,563 10,068,563
Retained earnings 29,930,969 26,374,590
Treasury stock, at cost (1,579,298) (1,279,549)
Net unrealized gain (loss) on securities
available for sale 3,728,329 (175,193)
- ----------------------------------------------------------------------------------------------------------------
Total shareholders' equity 52,898,898 45,738,746
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 53,446,715 47,400,046
================================================================================================================
<CAPTION>
Statements of Income
- ----------------------------------------------------------------------------------------------------------------
Years Ended December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Interest and dividends $ 23,031 23,768 22,806
Gain on sale of securities 112,500 140,001 3
Dividends from subsidiary bank 2,045,513 2,976,606 1,656,528
Income before equity in undistributed
earnings of subsidiary bank 2,181,044 3,140,375 1,679,337
Equity in undistributed earnings of
subsidiary bank 3,472,647 1,569,926 2,814,726
- ----------------------------------------------------------------------------------------------------------------
Income before income taxes 5,653,691 4,710,301 4,494,063
Income taxes 51,799 62,776 -
- ----------------------------------------------------------------------------------------------------------------
Net Income $ 5,601,892 4,647,525 4,494,063
================================================================================================================
Statements of Cash Flows
- ----------------------------------------------------------------------------------------------------------------
December 31, 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 5,601,892 4,647,525 4,494,063
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiary (3,472,647) (1,569,926) (2,814,726)
(Increase) decrease in dividend
receivable 1,135,565 (1,225,458) (32,938)
Gain on sale of securities, net (112,500) (140,001) (3)
Decrease in payable to
Owego shareholders (1,164,883) - -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided by
operating activities 1,987,427 1,712,140 1,646,396
- ----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 215,628 271,234 31
Purchases of securities available for
sale - (221,193) 116,200
Payment to subsidiary for prior
year's taxes - (146,035) -
- ----------------------------------------------------------------------------------------------------------------
Net cash provided (used)
by investing activities 215,628 (95,994) (116,169)
- ----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Cash dividends paid (1,981,078) (1,751,148) (1,623,590)
Purchases of treasury stock (299,749) - (65,638)
Sale of treasury stock - 172,500 48,008
- ----------------------------------------------------------------------------------------------------------------
Net cash used by financing
activities (2,280,827) (1,578,648) (1,641,220)
- ----------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash
and cash equivalents (77,772) 37,498 (110,993)
Cash and cash equivalents at
beginning of year 273,358 235,860 346,853
- ----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year $ 195,586 273,358 235,860
================================================================================================================
</TABLE>
(17) Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the
fair value of each class of financial instruments:
Cash and Cash Equivalents
For those short-term instruments that generally mature in ninety days
or less, the carrying value approximates fair value.
Securities
Fair values for securities are based on either 1) quoted market prices,
2) dealer quotes, 3) correspondent bank pricing system, or 4) discounted cash
flow to maturity.
Loans Receivable
For variable-rate loans that reprice frequently, fair values are based on
carrying values. The fair values for other loans are estimated through
discounted cash flow analyses using interest rates currentlybeing offered for
loans with similar terms and credit quality.
Deposits
The fair values disclosed for demand deposits, savings accounts and money market
accounts are, by definition, equal to the amounts payable on demand at the
reporting date (i.e., their carrying values).
The fair value of fixed maturity certificates of deposits is estimated using
a discounted cash flow approach that applies interest rates currently being
offered on certificates to a schedule of weighted average expected monthly
maturities on time deposits.
Borrowings
These instruments bear variable rates and therefore the carrying value
approximates fair value.
Commitments to Extend Credit
The fair value to commitments to extend credit are equal to the contract value
of the commitments as the contractual rates and fees approximate those currently
charged to originate similar commitments.
The estimated fair value of the Corporation's financial instruments as of
December 31, 1995 and 1994 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1995 1994
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 27,294 27,294 24,267 24,267
Securities 179,464 179,464 203,997 203,841
Net loans 259,101 259,310 232,897 231,855
Federal Home Loan Bank 90 90 114 114
Federal funds sold 10,000 10,000 8,000 8,000
- ----------------------------------------------------------------------------------------------------------------
Total Earning Assets 448,655 448,864 445,008 443,810
- ----------------------------------------------------------------------------------------------------------------
Fixed assets 10,291 10,291 8,527 8,527
Other assets 15,653 15,653 16,530 16,530
- ----------------------------------------------------------------------------------------------------------------
Total assets $ 501,893 502,102 494,332 493,134
================================================================================================================
Financial liabilities:
Deposits:
Demand, savings,
NOW and money
market accounts $ 272,057 272,057 286,232 286,232
Time certificates 154,822 156,268 146,039 145,392
- ----------------------------------------------------------------------------------------------------------------
Total deposits 426,879 428,325 432,271 431,624
Borrowings:
Repurchase agreements 13,382 13,382 10,204 10,204
Other liabilities 8,733 8,733 6,118 6,118
- ----------------------------------------------------------------------------------------------------------------
Total liabilities 448,994 450,440 448,593 447,946
Equity 52,899 51,662 45,739 45,188
- ----------------------------------------------------------------------------------------------------------------
Total liabilities and
equity $ 501,893 502,102 494,332 493,134
================================================================================================================
Standby letters of credit $ 2,238 2,238 1,904 1,904
Unused portions of lines
of credit $ 85,928 85,928 75,940 75,940
Commitments to fund new
loans $ 1,152 1,152 572 572
<FN>
<F1>
(1) Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
</FN>
</TABLE>
(18) Regulatory Capital Requirement
The Bank is subject to the capital adequacy requirements of the Federal Deposit
Insurance Corporation. The Federal Deposit Insurance Corporation Improvement Act
of 1991, (the FDIC Act), established capital levels for which insured
institutions will be categorized as (in declining order) well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, or
critically undercapitalized.
Under the FDIC Act, a "well capitalized" institution must have a risk based
capital ratio of 10 percent, a core capital ratio of 5 percent and a Tier 1
risk-based capital ratio of 6 percent. (The "Tier 1 risk-based capital" ratio
is the ratio of core capital to risk-weighted assets.) The Bank is a well
capitalized institution under the definitions.
EXHIBIT E
CHEMUNG FINANCIAL CORPORATION
Subsidiary List
Name State of Incorporation
Chemung Canal Trust Company New York
EXHIBIT F
NOTICE OF ANNUAL MEETING, PROXY STATEMENT
DATED MARCH 5, 1996, AND PROXY FORM
<PAGE>
March 5, 1996
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to
be held on Tuesday, April 2, 1996, at 7:00 p.m. at the Elmira Holiday Inn, in
the City of Elmira, New York. Following the Meeting, desserts, coffee, tea and
other refreshments will be served.
The one item on the agenda requiring Shareholders' vote will be the
election of eight directors. The candidates nominated for three-year terms,
all currently serving, are: Robert E. Agan, Donald L. Brooks, Jr., Stephen M.
Lounsberry III, Boyd McDowell II,Thomas K. Meier, Charles M. Streeter, Jr. and
Nelson Mooers van den Blink. The nominated candidate for a one-year term is:
Jan P. Updegraff. The attached Proxy Statement sets forth in detail information
relating to the nominated candidates as well as those directors continuing in
office and additional information relating to the management of the corporation.
In addition to the above-noted election, we will review our financial
performance for the past year and discuss our plans for 1996.
It is important that you be represented at the Meeting whether or not you
plan to attend in person. Accordingly, we urge you to mark, sign and date the
proxy card enclosed in the mailing envelope sleeve and return it in the envelope
provided. Also, if you plan to attend the Meeting, please mark the proxy card
where indicated and include the number in your group. Your directors and
management look forward to seeing you on April 2.
Sincerely yours,
/s/ John W. Bennett
John W. Bennett
Chief Executive Officer
<PAGE>
One Chemung Canal Plaza
P.O. Box 1522
Elmira, New York 14902
Parent Company of
Chemung Canal Trust Company
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
As directed by the Board of Directors of Chemung Financial Corporation,
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of the
Corporation will be held at the Elmira Holiday Inn, One Holiday Plaza, 760 East
Water Street, Elmira, New York, Tuesday, April 2, 1996, at 7:00 p.m. for the
following purposes:
1. To elect seven (7) directors, each to hold office for a term of three
years and one (1) director to hold office for a term of one year and
until their respective successors have been elected and qualified.
2. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on February 28,
1996, as the record date for determination of Shareholders entitled to notice of
and to vote at this Meeting.
Shareholders are requested to date, sign and mail the enclosed proxy in the
envelope provided at their earliest conenience. A prompt response will be
appreciated and will save the Corporation additional time and expense.
BY ORDER OF THE BOARD OF DIRECTORS
Jerome F. Denton
Secretary
March 5, 1996<PAGE>
CHEMUNG FINANCIAL CORPORATION
ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, APRIL 2, 1996
Chemung Financial Corporation and its wholly-owned subsidiary, Chemung
Canal Trust Company, are incorporated under the laws of the State of New York.
For purposes of this proxy statement, financial and other information is
presented on a consolidated basis for Chemung Financial Corporation
("Corporation") and Chemung Canal Trust Company ("Bank"). The disclosed
information of the Corporation and the Bank should be viewed as though it
pertained to one entity, unless otherwise stated.
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors for use at the Annual Meeting of Shareholders
(the "Annual Meeting") of Chemung Financial Corporation to be held on Tuesday,
April 2, 1996, at 7:00 P.M., at the Elmira Holiday Inn, One Holiday Plaza, 760
East Water Street, Elmira, New York. This Proxy Statement and the accompanying
Proxy and Notice of Annual Meeting of Shareholders are being mailed to
Shareholders on or about March 5, 1996. A Shareholder granting a proxy has the
right to revoke it by a duly executed Proxy bearing a later date, by attending
the Annual Meeting and voting in person, or by otherwise notifying the Secretary
of the Corporation in writing prior to the Annual Meeting.
Only Shareholders of record at the close of business on February 28, 1996,
are entitled to receive notice of and to vote at the Annual Meeting. As of
February 15, 1996, there were 2,084,611 shares of Common Stock outstanding and
entitled to vote. Each share of Common Stock is entitled to one vote. There
are no cumulative voting rights. Nominees for director will be elected by a
plurality of votes cast at the Annual Meeting by holders of Common Stock present
in person or by proxy and entitled to vote on such election. Any other matter
requires the affirmative vote of a majority of votes cast at the meeting, except
as otherwise provided in the Corporation's Certificate of Incorporation or
By-laws. Only shares affirmatively voted in favor of a nominee will be counted
toward the achievement of a plurality. Votes withheld (including non-broker
votes) and abstentions are counted as present for the purposes of determining
a quorum but are not counted as votes cast.
The cost of soliciting proxies will be borne by the Corporation and the
Bank. In addition to solicitations by mail, some of the directors, officers,
and regular employees of the Corporation and the Bank may conduct additional
solicitations by telephone and personal contacts without remuneration. American
Stock Transfer & Trust Company , the Corporation's transfer agent, will aid the
Corporation in the solicitation of proxies and proxy vote tabulations.
Nominees, brokerage houses, custodians and fiduciaries will be requested to
forward soliciting material to beneficial owners of stock held of record and the
Corporation will reimburse such persons for any reasonable expense.
ACTION TO BE TAKEN UNDER PROXY:
It is proposed that at the Annual Meeting action will be taken on the
matters set forth in the accompanying Notice of Annual Meeting and described in
this Proxy Statement. Proxies returned by Shareholders and not revoked will be
voted for the election of the nominees for directors unless Shareholders
instruct otherwise on the Proxy. The Board of Directors does not know of any
other business to be brought before the Annual Meeting but it is intended that,
as to any such other business, a vote may be cast pursuant to the Proxy in
accordance with the judgment of the person or persons acting thereunder; and
should any herein-named nominee for the office of director become unable to
accept nomination or election, which is not anticipated, it is intended that the
persons acting under the Proxy will vote for the election in the stead of such
nominee of such other person as the Board of Directors may recommend.
BOARD OF DIRECTORS:
Nominees For Election as Directors
Those persons serving as directors of the Corporation and the Bank, being
the same individuals, normally serve three-year terms of office, with
approximately one-third of the total number of each such Board of Directors to
be elected at each Annual Meeting of each such entity. The number of directors
to be elected at the 1996 Annual Meeting of Shareholders is eight (8); seven (7)
for three-year terms and one (1) for a one-year term, each to serve for such
term and until their respective successors are elected and qualified.
The following table sets forth information concerning the Board of
Directors' nominees for election as directors at the Annual Meeting and each
director continuing in office:
<TABLE>
<CAPTION>
Length of Service Principal Occupation During
Name and Age As Director (1) Past 5 Years
<S> <S> <S>
NOMINEE WITH TERM
EXPIRING IN 1997
Jan P. Updegraff Since 1996 (1996) President & COO of the
Age 53 Corporation (elected on
February 14, 1996, to be
effective upon approval by
the Federal Reserve Bank, as
required by law) and
President & COO of the Bank
since February 14, 1996;
formerly Vice President &
Treasurer of the Corporation
and Executive Vice President
of the Bank
NOMINEES WITH TERMS
EXPIRING IN 1999
Robert E. Agan Since 1986 (1986) President, CEO and Director
Age 57 of Hardinge Inc., worldwide
machine tool manufacturer
Donald L. Brooks, Jr. Since 1985 (1972) Physician
Age 67
Stephen M. Lounsberry III Since 1995 (1995) President of Moore & Steele
Age 42 Corporation, manufacturer
of railroad lubrication
systems
Boyd McDowell II Since 1985 (1969) Retired; formerly Chairman
Age 70 of the Board & CEO of the
Corporation and the Bank
Thomas K. Meier Since 1988 (1988) President of Elmira College
Age 55
NOMINEES WITH TERMS
EXPIRING IN 1999
Charles M. Streeter, Jr. Since 1985 (1979) President of Streeter
Age 56 Associates, Inc., general
building contractor
Nelson Mooers van den Blink Since 1985 (1983) Chairman of the Board, Chief
Age 61 Executive Officer and
Treasurer of The Hilliard
Corporation, motion contol
equipment, oil reclaimer
and filter manufacturer
DIRECTORS CONTINUING IN OFFICE
WITH TERMS EXPIRING IN 1997
David J. Dalrymple Since 1993 (1993) President of Dalrymple
Age 42 Holding Corporation since
December 17, 1993, parent
company for several
construction companies;
formerly Vice President
Richard H. Evans Since 1985 (1981) Retired since January 1,
Age 65 1995; formerly Chairman of
the Board & CEO of Chas. F.
Evans Co., Inc., specialists
in commercial roofing
Edward B. Hoffman Since 1993 (1993) Partner with Sayles, Evans,
Age 64 Brayton, Palmer & Tifft,
law firm
John F. Potter Since 1991 (1991) President of Seneca Beverage
Age 50 Corp., wholesale distributor
of beer, water and soda products
William C. Ughetta Since 1985 (1985) Senior Vice President and
Age 63 General Counsel of Corning
Incorporated, a diversified
manufacturing company
DIRECTORS CONTINUING IN OFFICE
WITH TERMS EXPIRING IN 1998
John W. Bennett Since 1988 (1988) Chairman of the Board & CEO
Age 62 of the Corporation (elected
on February 14, 1996, to be
effective upon approval by
the Federal Reserve Bank, as
required by law) and Chairman
of the Board & CEO of the Bank
since February 14, 1996;
formerly President & CEO of
the Corporation and the
Bank; also a director of
Hardinge Inc.
Robert H. Dalrymple Since 1995 (1995) Secretary of Dalrymple
Age 45 Holding Corporation, parent
company for several
construction companies
Natalie B. Kuenkler Since 1985 (1976) Director of various community
Age 70 organizations
Ralph H. Meyer Since 1985 (1981) President & CEO of Guthrie
Age 56 Healthcare System, a vertically
integrated healthcare delivery
system
DIRECTORS CONTINUING IN OFFICE
WITH TERMS EXPIRING IN 1998
Samuel J. Semel Since 1993 (1993) President of Chemung
Age 69 Electronics, Inc., retail
electronics store
Richard W. Swan Since 1985 (1984) President of Swan & Sons-
Age 47 Morss Co., Inc., insurance
brokerage agency
William A. Tryon Since 1987 (1987) Chairman of the Board and CEO
Age 65 of Trayer Products,Inc.,
automotive, truck and other
industrial parts manufacturer;
and Chirman of the Board of Perry
and Swartwood, Inc., insurance
brokerage agency; formerly
a director of the Bank from
1964 to 1976
<FN>
<F1>
(1) The date in parentheses reflects the year in which the director was first
elected to the Bank Board.
</FN>
</TABLE>
Directors and Committee Meetings
The Board of Directors of the Corporation held eight (8) regularly
scheduled meetings and no special meeting during the year ended December 31,
1995. The Corporation has no standing committees.
The Board of Directors of the Bank held twelve (12) regularly scheduled
meetings and one special meeting during the year ended December 31, 1995. Among
its standing committees, the Board of Directors of the Bank has an Examining
Committee, Nominating Committee and a Personnel Committee.
The Examining Committee makes an annual examination of the Bank as a whole,
reviews the Banks internal audit and loan review procedures and recommends to
the Board of Directors the engagement and dismissal of independent auditors.
During 1995 this Committee held three (3) meetings. On December 31, 1995, its
members were Messrs. Semel (Chairman), Agan, Brooks, R. Dalrymple, Hoffman,
Lounsberry, McDowell, Meier and Meyer.
The Nominating Committee selects and recommends to the Board of Directors
nominees for election to the Board. The Committee will consider written
recommendations by Shareholders for nominees for election to the Board if such
recommendations are mailed to the Chairman of the Nominating Committee or to the
President of the Corporation at the Corporations Main Office, One Chemung Canal
Plaza, Elmira, New York 14902. There was one (1) Committee meeting held in
1995. On December 31, 1995, its members were Messrs. Streeter (Chairman),
Bennett, Brooks, D. Dalrymple, McDowell, Potter, Swan and Mrs. Kuenkler.
The Personnel Committee is responsible for the nomination of officers,
recommendation of Executive Officer compensation plans, and establishment of
guidelines for setting all other officers' salaries. Additional
responsibilities include the review and approval of employee benefit programs
and employee relation policies and procedures. The Committee held seven (7)
meetings in 1995 and on December 31, 1995, its members were Messrs. Meyer
(Chairman), Brooks, D. Dalrymple, Evans, Meier, Potter, Swan, Ughetta, and Mrs.
van den Blink.
During the year ended December 31, 1995, each director of the Corporation
and the Bank attended at least 75% of the aggregate of (1) the total number of
Board Meetings held and (2) the total number of meetings held by all committees
of which such director was a member, with the exception of Mr. Agan who attended
65% of such meetings.
Directors Compensation
Each director of the Bank who is not an officer or employee of the Bank
receives an annual retainer of $5,000 and a fee of $300 for each meeting of the
Board of Directors attended. Those directors who are members of one or more
committees of the Board of Directors also receive a fee of $300 for each meeting
of each committee attended, with the exception of the Chairman of each committee
who receives $350.
Directors who are not officers or employees of the Corporation receive a
fee of $300 for attendance at meetings of the Board of the Corporation which
are held on days when there is no meeting of the Board of Directors of the
Bank. There were no such meetings held during 1995. Otherwise, directors of
the Corporation are not compensated for services rendered by them to the
Corporation. It presently is contemplated that such will continue to be the
policy of the Corporation.
Any director who is entitled to receive a retainer and fees for meetings of
the Board of Directors and of committees thereof attended, may elect to have all
or a portion of said retainer and fees deferred under the Banks Deferred
Directors Fee Plan . Each participating director may designate, in increments
of 10%, the compensation to be deferred, or compensation already deferred, to be
allocated to a memorandum Money Market or a memorandum Unit Value Account, or a
combination of such accounts. The memorandum Money Market Account of each
participating director is credited with the dollar amount of deferral, and
interest is compounded quarterly and added to said account at a rate equal to
the "Applicable Federal Rate" for short-term debt instruments as computed and
published by the Internal Revenue Service for the month immediately preceding
the applicable calendar quarter. The memorandum Unit Value Account of each
participating director is credited with the dollar amount of deferral, with the
aggregate of said deferred amounts being converted to units on a quarterly basis
by dividing the aggregate of said deferred amounts by the closing bid price for
shares of the Common Stock of the Corporation on such trading dates as described
in the Plan. Dividends are credited to said account on the dates and at the
rate per unit at which dividends are paid per share on the Corporation's
outstanding Common Stock and are then converted to units using the same basis
of conversion as for deferred amounts. Within certain time limitations, a
participating director may elect to receive deferred fees either in a lump sum
or in installments.
The aggregate amount of directors retainers and fees paid and deferred
during 1995 was $269,000. No additional compensation was received by any
director for special assignments or services.
Certain Transactions
Some of the directors and officers of the Bank, and some of the
corporations and firms with which these individuals are associated, also are
customers of the Bank in the ordinary course of business, or are indebted to the
Bank in respect to loans of $60,000 or more, and it is anticipated that some of
these individuals, corporations and firms will continue to be customers of and
indebted to the Bank on a similar basis in the future. All loans extended to
such individuals, corporations and firms were made in the ordinary course of
business, did not involve more than normal risk of collectibility or present
other unfavorable features and were made on substantially the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable bank transactions with unaffiliated persons.
The Bank has purchased insurance from a CNA Company, American Casualty
Company of Reading, Pennsylvania, providing for reimbursement of directors and
officers of the Corporation and the Bank for costs and expenses incurred by them
in actions brought against them for wrongful acts in connection with their
duties as directors or officers, including actions as fiduciaries of the Banks
Pension and Profit-Sharing Plans, under the Employee Retirement Income Security
Act of 1974. The insurance coverage, which expires in February 1997, costs
$18,424 on an annual basis, and has been paid by the Bank. No claims have been
made or paid under this insurance.
The Bank has retained Sayles, Evans, Brayton, Palmer & Tifft, of which Mr.
Hoffman is a partner, for legal services during the last two years and expects
to retain Sayles, Evans, Brayton, Palmer & Tifft for legal services during the
current year.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
The following table sets forth information, as of January 31, 1996, with
respect to any person who is known by the Corporation to be the beneficial owner
of more than five percent of the Corporation's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Number of Shares of Common Percent of Shares
Beneficial Owner Stock Beneficially Owned Outstanding
<S> <C> <C>
Chemung Canal Trust Company 389,168(1) 18.7%
One Chemung Canal Plaza
Elmira, NY 14902
Chemung Canal Trust Company 215,137(2) 10.3%
as trustee of the Chemung
Canal Profit-Sharing,
Savings and Investment Plan
One Chemung Canal Plaza
Elmira, NY 14902
Mary E. Dalrymple 220,221(3) 10.6%
661 Foster Avenue See Footnote 7
Elmira, NY 14905
David J. Dalrymple 188,385(4,6) 9.0%
274 Upper Coleman Avenue See Footnote 7
Elmira, NY 14905
Robert H. Dalrymple 179,062(5,6) 8.6%
875 Upland Drive See Footnote 7
Elmira, NY 14905
<FN>
<F1>
1 Held by the Bank in various fiduciary capacities, either alone or with
others. Includes 31,452 shares held with sole voting and dispositive
powers, 357,716 shares held with shared power to vote and 181,260 shares
held with shared power to dispose. Shares held in a co-fiduciary
capacity by the Bank are voted by the co-fiduciary or fiduciaries in the
same manner as if the co-fiduciary or fiduciaries were the sole
fiduciary. Shares held by the Bank as sole trustee are voted by the Bank
only if the trust instrument provides for voting of the shares at the
direction of the donor or a beneficiary and such direction is in fact
received.
<F2>
2 Voted by the Bank as directed by the Plan participants.
<F3>
3 Includes 117,221 shares held directly and 103,000 shares held by
Dalrymple Family Limited Partnership, of which Mary E. Dalrymple, David
J. Dalrymple and Robert H. Dalrymple are sole general partners (see
footnotes 4 and 5).
<F4>
4 Includes 44,323 shares held directly, 1,904 shares held as custodian for
Mr. Dalrymple's children under the New York State Uniform Gifts to Minors
Act, 103,000 shares held by Dalrymple Family Limited Partnership (see
footnote 3), and 39,158 shares held by Dalrymple Holding Corporation, of
which David J. Dalrymple and Robert H. Dalrymple are officers, directors
and principal shareholders (see footnote 5). Excludes 1,350 shares held
by Mr. Dalrymple's spouse.
<F5>
5 Includes 35,000 shares held directly, 1,904 shares held as custodian for
Mr. Dalrymple's children under the New York State Uniform Gifts to Minors
Act, 103,000 shares held by Dalrymple Family Limited Partnership (see
footnote 3), and 39,158 shares held by Dalrymple Holding Corporation (see
footnote 4). Excludes 1,000 shares held by Mr. Dalrymple's spouse.
<F6>
6 Excludes 15,115 shares held by Susquehanna Supply Company of which David
J. Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding
common stock.
<F7>
7 Because of the definition of "beneficial ownership" under Section 13 of
The Exchange Act, and the rules and regulations promulgated thereunder,
Mary, David and Robert Dalrymple are listed as beneficial owners of many
of the same shares. Without such multiple counting, Mary, David and
Robert Dalrymples' total aggregate beneficial ownership is approximately
16.4% of the outstanding shares of Common Stock of the Corporation and if
deemed to be a member of a "group" within the meaning of Section 13(d)(3)
of The Exchange Act, such group would be deemed to hold approximately
16.4% of the outstanding shares of Common Stock of the Corporation.
Nothing described herein shall infer or be deemed an admission by such
person that such a group exists.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT:
As of January 31, 1996, each director or nominee and each Executive Officer
named in the Summary Compensation Table herein, individually, and all directors,
nominees and Executive Officers as a group beneficially owned Common Stock as
reported to the Corporation as of said date as follows (unless otherwise
indicated, each of the persons named has sole voting and investment power with
respect to the shares listed):
<TABLE>
<CAPTION>
Directors, Nominees and Amount and Nature Percent of
Executive Officers of Beneficial Ownership Shares Outstanding(A)
<S> <C> <C>
Robert E. Agan 450 --
John W. Bennett 8,147(B) --
Donald L. Brooks, Jr. 1,250 --
David J. Dalrymple 46,227(C) 2.22
Robert H. Dalrymple 36,904(C) 1.77
Richard H. Evans 9,352 --
Edward B. Hoffman 1,655 --
Natalie B. Kuenkler 6,706(D) --
Stephen M. Lounsberry III 1,671 --
Boyd McDowell II 7,013 --
Thomas K. Meier 2,000 --
Ralph H. Meyer 2,595 --
John F. Potter 8,564(E) --
Samuel J. Semel 4,376 --
Charles M. Streeter, Jr. 10,213(F) --
Richard W. Swan 19,387(G) --
William A. Tryon 9,619 --
William C. Ughetta 8,500 --
Nelson Mooers van den Blink 1,546 --
Jan P. UpdegraffB 3,257 --
All Directors, Nominees 202,251(H) 9.70
and Executive Officers
as a group (24 persons)
<FN>
<F1>
A. Unless otherwise noted, less than 1% per individual.
<F2>
B. Includes all vested shares of Common Stock of the Corporation held for
the benefit of each Executive Officer by the Bank as trustee of the
Bank's Profit-Sharing, Savings and Investment Plan, who may instruct the
trustee as to the voting of such shares. If no instructions are
received, the trustee votes the shares in the same proportion as it votes
all of the shares for which instructions were received from all Plan
participants. The power to dispose of shares is held by Plan
participants subject to certain restrictions. Messrs. Bennett and
Updegraff have a vested interest in 6,998 and 3,104 such shares held by
the Plan,resectively. Under the provisions of the Plan, the trustee
holds for the benefit of all employees who participate in the Plan
215,137 shares of the Corporation's Common Stock.
<F3>
C. Includes only shares held directly by Messrs. Dalrymple. See Footnote 7
of the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS table on page 8
for further explanation of shares beneficially held.
<F4>
D. Includes 4,131 shares held by Mrs. Kuenkler and another as trustees
under the Will of a decedent under which Mrs. Kuenkler is an income
beneficiary and as trustee shares voting and dispositive powers. Does
not include 75,600 shares owned by The Rathbone Corporation, of which
Mrs. Kuenkler is a director.
<F5>
E. Includes 5,709 shares owned by Seneca Beverage Corp., of which
corporation Mr. Potter is an officer, director and the principal
shareholder.
<F6>
F. Includes 5,418 shares owned by Streeter Associates, Inc., of which
corporation Mr. Streeter is an officer, director and the principal
shareholder.
<F7>
G. Includes 6,000 shares owned by Swan & Sons-Morss Co., Inc., of which
corporation Mr. Swan is an officer, director and one of the principal
shareholders and 254 shares held by Mr. Swan as custodian for his minor
children. Does not includes 2,158 shares held by others as trustees for
a trust of which Mr. Swan is an income beneficiary, as to which shares
Mr. Swan disclaims beneficial ownership.
<F8>
H. Does not include 14,445 shares owned by spouses of certain officers and
directors as to which shares such officers and directors disclaim
beneficial ownership.
</FN>
</TABLE>
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors and executive officers, and persons who own more than
ten percent of a registered class of the Corporation's equity securities, to
file with the Securities and Exchange Commission initial reports of ownership,
reports of changes in beneficial ownership, and annual reports involving
security transactions pursuant to one or more rules as set forth under Sections
16(a) and 16(b) of the Securities Exchange Act. Directors, executive officers,
and greater than ten percent shareholders are required by SEC regulation to
furnish the Corporation with copies of all Section 16(a) forms they file.
To the Corporations knowledge, based on review of the copies of such
reports furnished to the Corporation and written representations that no other
reports were required for the year ended December 31, 1995, all Section 16(a)
filing requirements applicable to its executive officers, directors and any ten
percent shareholder were complied with, except that Mr. David J. Dalrymple's
purchase of 1,161 shares of the Corporation's Common Stock on May 13, 1995, was
inadvertently overlooked for timely reporting purposes and was reported on a
Form 4 dated June 20, 1995.
MANAGEMENT:
Directors' Personnel Committee Report on Executive Compensation
Under the supervision of the Personnel Committee of the Board of Directors
which is composed entirely of outside directors, the Bank has developed and
implemented compensation policies which seek to enhance the profitability of the
Bank and the Corporation and thus, Shareholder value while at the same time
providing fair and competitive compensation which will attract and retain well-
qualified executives. Based upon recommendations of the Personnel Committee,
the Board of Directors sets the annual compensation of the Chief Executive
Officer and approves compensation of other senior management which is
recommended by the Chief Executive Officer based upon performance and and other
relevant factors and then approved by the Board of Directors. Aside from the
fringe benefit programs in which all Bank employees participate, compensation
of all Bank officers consists of an annual salary and a management incentive
bonus. The management incentive bonus is subject to the terms and conditions
of a Management Incentive Plan adopted by the Board of Directors on January 11,
1995 which provides for the payment of bonuses based in part by the
Corporation's attainment of specific operating objectives and in part by a
subjective review of individual performance. Additionally, those officers who
play a major role in setting and implementing long-term strategies, currently
being the Chief Executive Officer and the Executive Vice President, may receive
a long-term incentive award. Payment of the long-term incentive award will be
deferred for three years following the accrual year and may be further deferred
at the election of the participant. The incentive bonus may or may not be
deferred at the officer's election. Under the terms and conditions of the Plan,
payment of an incentive bonus or issuance of a long-term award is subject to the
Corporation's attaining or exceeding certain predetermined operating goals and
further considerations which are based on a subjective review of the
individual. For 1995, management incentive bonuses and long-term awards could
not be issued unless the Corporation attained net income (after taxes) equal to
at least a 1.0% return on average assets (ROA) and an efficiency ratio of 67% or
less.
In evaluating the performance and recommending the compensation of the
Chief Executive Officer and the compensation guidelines for the Bank's other
senior management, the committee has taken particular note of management's
ability during 1995 in achieving certain profit, growth, and operational
objectives which were established by the Board of Directors in the Bank Plan at
the beginning of 1995 and compared the Corporation's financial results against
the results reported by similar banking businesses in New York and
Pennsylvania. The financial and operational measurements considered by the
Board were: profits, return on assets, return on equity, new market
penetration, new product development, expense control, asset growth, non-
interest income, asset quality and asset liability management. There is no
specific weight given to any of these factors and there is no formula whereby a
certain performance will result in a certain salary. The committee subjectively
considers total performance and the total financial and operating conditions of
the Bank in making its compensation recommendations.
Also, in considering the compensation of the Chief Executive Officer, the
committee reviewed a report prepared by Ben S. Cole Financial, Inc., an
organization which provides comparative information on CEO compensation for a
nationwide peer group of independent banks and holding companies having similar
asset size. From this review it was determined that the performance of the
Bank was well within the range reported by its peers and that the compensation
paid by the Bank was appropriate in comparison to the peer group.
In its review of management performance and compensation, the committee has
also taken into account management's consistent commitment to the long-term
success of the Corporation and its subsidiary. The committee has recognized
that the Corporation's profitability in any one year is considerably impacted
by the general economic conditions nationally and in its trading areas, over
which management has little or no control, and the committee's policy,
therefore, is to not over-emphasize, either positively or negatively, a single
year's results at the expense of significant, sustained, long-term earning
growth.
Based on its evaluation of these factors, the committee believes that the
executive management of the Corporation is dedicated to achieving significant
improvements in long-term financial performance and that the compensation
policies, plans and programs the committee has implemented and administered have
contributed to achieving this management focus.
SUBMITTED BY THE DIRECTORS' PERSONNEL COMMITTEE
Ralph H. Meyer, Chairman Richard H. Evans Richard W. Swan
Donald L. Brooks, Jr. Thomas K. Meier William C. Ughetta
David J. Dalrymple John F. Potter Nelson Mooers van den Blink
Comparative Return Performance Graph
Comparison of Five-Year Cumulative Total Return For Fiscal Years
Ending December 31, 1991 - 1995 Among Chemung Financial Corporation,
NASDAQ - Composite Index and NASDAQ - Bank Stock Index
(OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C>
Chemung Financial Corporation 79.25 84.00 108.72 125.52 142.26
NASDAQ - Composite 160.56 186.87 214.51 209.69 296.30
NASDAQ - Bank Stocks 164.09 238.85 272.40 271.41 404.35
</TABLE>
The cumulative total return includes (i) dividends paid and (ii) changes in
the share price of the Corporation's Common Stock and assumes that all
dividends were reinvested. The above graph assumes that the value of the
investment in Chemung Financial Corporation and each index was $100 on December
31, 1990.
The NASDAQ - Composite and Bank Stock indices were obtained from the
Center for Research in Security Prices, University of Chicago, Chicago,
Illinois.
Executive Officers
During 1995, the names and positions of the executive officers of the
Corporation and the Bank, all serving one-year terms, were as follows:
<TABLE>
<CAPTION>
Name Age Position (served since)
<S> <C> <C>
John W. Bennett (1) 62 Chairman of the Board & CEO of the
Corporation and the Bank (1996); formerly
President & CEO of the Corporation and
the Bank (1991); and prior thereto
President & COO of the Corporation and
the Bank (1988)
Jan P. Updegraff (1) 53 President and COO of the Corporation and
the Bank (1996); formerly Vice President
and Treasurer of the Corporation and
Executive Vice President of the Bank
(1990)
Daniel F. Agan (2) 62 Vice President of the Corporation (1988)
and Senior Vice President of the Bank
(1984)
Robert J. Hodgson 50 Vice President of the Corporation (1990)
and Senior Vice President of the Bank
(1988)
James E. Corey III 49 Vice President of the Corporation (1993)
and Senior Vice President of the Bank
(1993)
Joseph J. Tascone 48 Vice President of the Corporation and
Senior Vice President of the Bank (1995);
and prior thereto Vice President of the
Bank (1987)
<FN>
<F1>
1 Messrs. Bennett and Updegraff were elected on February 14, 1996 by the Board
of Directors to the positions of Chairman of the Board & CEO and President
& COO, respectively, to be effective upon approval by the Federal Reserve
Bank, as required by law.
<F2>
2 Mr. Daniel F. Agan is a brother of board member, Robert E. Agan.
</FN>
</TABLE>
Executive Compensation
The following information indicates compensation paid or accrued by the Bank
during 1995 for services rendered by each of the Chief Executive Officer and the
four highest-paid executive officers of the Corporation and the Bank whose
total compensation exceeded $100,000.
At present, the officers of the Corporation are not separately compensated for
services rendered by them to the Corporation. It presently is contemplated that
such will continue to be the policy of the Corporation.
<TABLE>
Summary Compensation Table
<CAPTION>
Name Annual Compensation
and
Principal All Other
Position Year Salary($) Bonus($) (1) Compensation ($) (2)
<S> <C> <C> <C> <C>
John W. Bennett (3) 1995 194,000 18,000 8,418
Chairman of the
Board & CEO 1994 185,692 30,000 8,174
of the Corporation
and the Bank 1993 162,885 32,000 6,597
Jan P. Updegraff (3) 1995 95,385 15,000 6,660
President & COO
of the Corporation 1994 90,385 25,000 6,266
and the Bank
1993 84,692 20,000 2,100
<FN>
<F1>
1 Includes amounts allocated for the year indicated, whether paid or deferred,
to such person under the Bank-Wide and Management Incentive Bonus Plans.
<F2>
2 Includes amounts allocated for the year indicated to such person under the
Bank's Profit-Sharing, Savings and Investment Plan.
<F3>
3 See footnote 1 of the Executive Officer table on page 13.
</FN>
</TABLE>
Retirement Plan
The Bank maintains a non-contributory, defined benefit Retirement Plan
trusteed and administered by the Bank. The Plan covers all employees who have
attained age 20 with one or more years of service and who have one thousand
hours of service during the plan year. Under the lan, the annual benefit
payable to qualifying employees upon their retirement is based on the average of
their five highest paid years out of the last ten calendar years of employment.
Normal retirement age under the Plan is 65. The Plan also provides for reduced
benefit payments for early retirement following age 55. Compensation under the
Plan is limited to all of an employees salary, wages, or other regular payments
from the Bank, excluding bonuses, commissions, overtime pay, or other unusual
payments.
The Retirement Plan provides an annual benefit of 1.2% for each year of
credited service to a maximum of 25 years and for each additional year to a
maximum of 10 years, 1% times the above average compensation, plus for each year
of credited service to a maximum of 35 years , .65% of the above average
compensation to the extent it exceeds the average of the taxable wage base in
effect under Section 230 of the Social Security Act for each year in the 35 -
year period ending with the year in which the participant attains social
security retirement age (which base was $25,920 for a participant attaining age
65 in 1995).
The Bank made contributions to the Retirement Plan totaling $262,200 for 1995
and $306,288 for 1993. Due to a full funding limitation, the Bank made no
contribution to the Retirement Plan for 1994.
Additionally, effective January 1, 1994, the Bank established a non-qualified
Executive Supplemental Pension Plan designed to provide a benefit which, when
added to other retirement income, will ensure the payment of a competitive level
of retirement income in order to attract, retain and motivate selected
executives of the Bank. From time to time the Board of Directors may select
executives as participants in the plan. Currently, Mr. Bennett is the only plan
participant.
This Plan provides an annual benefit equal to the amount, if any, that the
benefit which would have been paid under the terms of the Bank's Retirement
Plan, computed as if the basic Retirement Plan benefit formula administered and
payable without regard to the special benefit limitations required to comply
with Sections 415, 401(a)(17) and other governing sections of the Internal
Revenue Code, exceeds the benefit which is payable to the participant under the
terms of the Retirement Plan on the date of the participant's termination.
The following table sets forth the estimated annual benefits under both plans,
based upon a straight-life annuity form of pension, payable on retirement at age
65 by a participating employee, assuming final average earnings as shown.
Employees become fully vested following 5 years of service.
<TABLE>
<CAPTION>
Average Annual Annual Benefits upon Retirement
Earnings with Years of Service Indicated
20 30 35 (1)
<S> <C> <C> <C>
$100,000 33,630 49,446 56,853
$120,000 41,030 60,346 69,403
$150,000 52,130 76,696 88,228
$190,000 66,930 98,496 113,328
$200,000 70,630 103,946 119,603
<FN>
<F1>
1 Maximum number of years allowed under the terms of the Retirement Plan.
</FN>
</TABLE>
The previously- noted executive officers of the Corporation and the Bank had
the following credited full years of service under the Plan, as of December 31,
1995: John W. Bennett (40) and Jan P. Updegraff (25).
Profit-Sharing, Savings and Investment Plan
The Bank maintains a Profit-Shring, Savings and Investment Plan for the
benefit of all employees with one or more years of service who have attained
one thousand hours of service during the Plan year. The Banks contribution in
any year is paid out of the Banks net profit and, therefore, is subject to
change from year to year. The contribution shall not exceed the maximum amount
deductible for income tax purposes for such year. Annual contributions under
the Plan are allocated pro rata on the basis of participants aggregate covered
compensation, limited, however, to a maximum of 50% of the defined benefit
limit under Code Section 415 (b) (1) (A) in effect as of January 1 of the Plan
Year for which the contribution is made (50% of $120,000 or $60,000 for 1995).
Participants who have earned at least five years of vesting service may make
limited withdrawals from the Plans Trust Fund from account balances accumulated
prior to January 1, 1985. The Plan further provides the opportunity for all
participants to contribute up to 10% of pay on a tax-deferred basis with the
Bank matching 50% of the first 6% of that contribution. Both the Bank's
profit-sharing and matching contributions are invested in the Corporation's
Common Stock to the extent available. Participants' accounts are at all times
100% vested, and benefits are payable upon retirement, death, disability, or
other termination of employment.
The Bank made contributions to the Profit Sharing, Savings and Investment Plan
totaling $499,342 for 1995, $423,161 for 1994, and $406,798 for 1993.
Management Incentive Plan
Effective for 1995, the Board of Directors adopted on January 11, 1995,
Bank-Wide and Management Incentive Plans which provide for the awarding of
incentive bonuses to all Bank employees subject to the Corporation's attaining
or exceeding minimum predetermined operating objectives. Under the terms and
conditions of the Plans, exceeding the minimum operating objectives will result
in an increase in funds available for distribution to the Plans' participants.
Pursuant to the Management Incentive Plan, which covers only Bank Officers
and Exempt Non-Officers, the award of any bonus under either the Bank-Wide or
Management Incentive Plans is subject to the Corporation's attaining all minimum
operation objectives. The minimum objectives established for the fiscal year
1995 were net income (after taxes) equal to at least a 1.0% return on average
assets (ROA) and an efficiency ratio of 67% or less. The amount of the bonus
payment or award to each participant is determined by an allocation formula
based in part on the results of the Corporation's performance and the Division
or Department performance (if applicable), and in part by a subjective review
of the participant's individual performance. Any Senior Officer may defer all
or any portion of the annual incentive award until his or her retirement or
separation from service. Additionally, key officers having responsibilities for
setting and implementing long-term strategies may receive a long-term incentive
award which payment of said long-term award will be deferred for three years
following the accrual year and may be further deferred at the election of the
participant.
The Bank made awards to the Senior Officer participants in the Management
Incentive Plan totaling $160,250 for the accrual year of 1995.
Prior to implementing the Management Incentive Plan, the Bank had instituted
an Incentive Bonus Plan effective for its Senior Officers which provided that
the Bank could award bonuses to key management officers and others in such
amount as the Board of Directors, in its sole discretion, could determine. The
Bank made contributions to the Incentive Bonus Plan totaling $182,500 for 1994
and $171,500 for 1993.
Employment Contracts
The Bank has employment contracts with nineteen of its senior officers, all
vice president level and above. The contracts provide that in the event of
termination of any of these officers' employment without cause, the officer
shall continue to receive his or her salary at the level then existing and the
customary fringe benefits which he or she is then receiving for a period ending
December 31, 1997, except for Messrs. Agan, Cory, Hodgson, Tascone and Updegraff
whose guaranteed terms end December 31, 1998, and Mr. Bennett whose guaranteed
term ends July 1, 1998. The contracts further provide that they may be extended
by the Board of Directors on a year-to-year basis and also may be terminated for
cause upon thirty days' notice.
Other Compensation Agreements
The Bank maintains several contributory and non-contributory medical, life and
disability plans covering all officers, as well as all full-time employees. The
Bank does not maintain any stock option, stock appreciation rights or stock
purchase or award plans for officers or directors.
INDEPENDENT PUBLIC ACCOUNTANTS:
The accounting firm of KPMG Peat Marwick LLP, 113 South Salina Street,
Syracuse, New York 13202 has acted as the Bank's and the Corporation's
independent auditors and accountants since 1990 and will so act in 1996.
Representatives of KPMG Peat Marwick LLP will be present at the Annual Meeting
of Shareholders with the opportunity to make a statement. The representatives
will respond to appropriate questions.
OTHER BUSINESS:
Management knows of no business which will be presented for consideration,
other than the matters described in the Notice of Annual Meeting. If other
matters are properly presented, the persons designated as proxies intend to vote
thereon in accordance with their best judgment.
SHAREHOLDER PROPOSALS:
Qualified Shareholders desiring to present a proposal at the 1997 Annual
Meeting of Shareholders, including a notice of intent to make a nomination at
said Meeting, must submit such proposal to the Corporation on or before November
6, 1996. Such proposals must comply in all respects with the rules and
regulations of the Securities and Exchange Commission.
BY ORDER OF THE BOARD OF DIRECTORS
Jerome F. Denton
Secretary
Date: March 5, 1996
One Chemung Canal Plaza
Elmira, New York 14902
<PAGE>
CHEMUNG
FINANCIAL
CORPORATION
Subsidiary, Chemung Canal Trust Company
Notice of
Annual Meeting
and
Proxy Statement
One Chemung Canal Plaza Annual Meeting of
P.O. Box 1522 Shareholders to be held
Elmira, New York 14902 April 2, 1996
<PAGE>
APPENDIX
OMITTED GRAPHIC MATERIAL:
The Comparative Return Performance Graph set forth under the heading
"Comparison of Five-Year Cumulative Total Return For Fiscal Years Ending
December 31, 1991 - 1995 Among Chemung Financial Corporation, NASDAQ - Composite
Index and NASDAQ - Bank Stock Index", as required by Item 402(1) of Regulation
S-K has been omitted pursuant to Rule 304(d) of Regulation S-T but will be filed
with the Securities and Exchange Commission in paper form pursuant to Rule
311(b) of Regulation S-T.<PAGE>
PROXY FORM
CHEMUNG FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - APRIL 2, 1996
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHEMUNG FINANCIAL CORPORATION
John R. Battersby, Darwin C. Farber, and John B. Hintz, each with power of
substitution and with all the powers and discretion the undersigned would have
if personally present, are hereby appointed the Proxy Agents to represent the
undersigned at the Annual Meeting of Shareholders of Chemung Financial
Corporation, to be held on April 2, 1996 (including any adjournments or
postponements thereof) and to vote all shares of Common Stock of Chemung
Financial Corporation which the undersigned is entitled to vote on all matters
that properly come before the meeting, subject to any directions indicated.
(To be signed on Reverse Side)
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO DIRECTIONS
TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS INTEND TO VOTE FOR THE NOMINEES.
NOMINEES
FOR WITHHELD
3-year term: Robert E. Agan
1. Election of Donald L. Brooks, Jr.
Directors. Stephen M. Lounsberry III
Boyd McDowell II
For, except vote withheld Thomas K. Meier
from the following nominee(s): Charles M. Streeter, Jr.
Nelson Mooers van den Blink
1-year term: Jan P. Updegraff
I/We will attend the Meeting
Number in group
SIGNATURE(S) DATE
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, custodian or
guardian, please give full title as such.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S 1995 ANNUAL REPORT TO SHAREHOLDERS AND STATISTICAL DISCLOSURES BY
BANK HOLDING COMPANIES AS PRESENTED IN THE FORM 10-K, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND DISCLOSURES.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
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0
0
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</TABLE>
