1
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, 1996
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 28, 1997 was $46,989,729
As of February 28, 1997 there were 2,072,214 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, 1996 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 8, 1997 are incorporated by reference into Parts III and IV.
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. Exhibits I through IV 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,
1996, sets forth financial information with respect to bank-related
industry segments. The MD&A including Exhibits I through IV are
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, 1996.
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
1996, 1995, and 1994.
Employees
As of December 31, 1996, the Bank employed 289 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
In June 1996, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities. SFAS No. 125 provides accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996 and is based on consistent
application of a "financial components approach" that focuses on control.
The Statement provides consistent standards for distinguishing transfers of
financial assets that are sales from transfers that are secured borrowings.
In December 1996, FASB deferred for one year the effective date of SFAS No.
125 as it relates to transfers of financial assets and secured borrowings
and collateral. Management does not believe that the adoption of SFAS No.
125 will have a material impact on its financial condition or results of
operations.
The following disclosures present summarized statistical data covering the
Corporation and the Bank.
<TABLE>
<CAPTION>
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and
Interest Differential
December 31,
1996 1995
1994
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 $ 273,904 25,314 9.24% $249,149 23,868 9.58%
$221,419 20,006 9.04%
Taxable securities 156,378 10,292 6.58 155,238 9,960 6.42
134,524 7,762 5.77
Tax-exempt securitie 28,883 1,360 4.71 28,051 1,406 5.01
25,054 1,262 5.04
Federal funds sold 6,522 350 5.37 8,434 486 5.76
10,236 407 3.98
Interest-bearing
deposits 3,808 195 5.13 6,267 357 5.70 3,478
143 4.11
Total interest
earning assets 469,495 37,511 7.99% 447,139 36,077 8.07%
394,711 29,580 7.49%
Non-interest earning assets:
Cash and due from
banks 23,501 23,442 21,657
Premises and equipment,
net 10,146 9,657 7,451
Other assets 7,003 6,922 5,506
Less allowance for
loan losses (3,932) (3,876) (3,419)
Excess of cost over
fair value of net
assets acquired,
net of accumulated
amortization 12,247 11,969 5,339
Total $ 518,460 $ 495,253 $ 431,245
Liabilities and
Shareholders' Equity
Interest bearing
liabilities:
Demand deposits $ 44,261 719 1.63% $ 43,312 731
1.69% $ 43,372 673 1.55%
Savings deposits 139,219 3,942 2.83 149,257 4,408 2.95
142,819 3,778 2.65
Time deposits 177,537 9,625 5.42 153,433 8,307 5.41
121,783 5,445 4.47
Federal funds purchased
and securities sold
under agreement to
repurchase 15,213 757 4.97 13,846 781 5.64
9,975 380 3.81
Total interest
bearing liabilities 376,230 15,043 4.00% 359,848 14,227 3.95%
317,949 10,276 3.23%
Non-interest bearing
liabilities:
Demand deposits 79,901 78,406 66,635
Other 8,181 6,995 5,106
464,312 445,249 389,690
Shareholders' equity 54,148 50,004 41,555
Total $ 518,460 $ 495,253 $ 431,245
Net interest earnings $ 22,468 $ 21,850 $ 19,304
Net yield on interest
earning assets 4.79% 4.89% 4.89%
</TABLE>
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.
The yields for securities were calculated using average amortized cost of
securities.
No tax equivalent adjustments have been made in calculating yields on
obligations of states and political subdivisions.
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>
1996 Compared to 1995
1995 Compared to 1994
Increase (Decrease) Due to (1)
Increase (Decrease) Due to (1)
Volume Rate Net Volume Rate Net
(In Thousands of Dollars)
(In Thousands of Dollars)
Interest earned on:
<S> <C> <C> <C>
<C> <C> <C>
Loans $ 2,310 (864) 1,446 2,607 1,255 3,862
Taxable securities 74 258 332 1,273 925 2,198
Tax-exempt securities 41 (87) (46) 150 (6) 144
Federal funds sold (104) (32) (136) (81) 160 79
Interest-bearing deposit (129) (33) (162) 145 70
215
Total interest
earning assets $ 2,191 (757) 1,434 4,094
2,404 6,498
Interest paid on:
Demand deposits 16 (28) (12) (1) 59 58
Savings deposits (289) (177) (466) 180 450
630
Time deposits 1,307 11 1,318 1,580 1,282 2862
Federal funds purchased
and securities sold under
agreement to repurchase 73 (97) (24) 179 222
401
Total interest bearing
liabilities $ 1,107 (291) 816 1,938 2,013 3,951
<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>
Securities Portfolio
The following table sets forth the carrying amount of securities at
the dates indicated:
<TABLE>
<CAPTION>
December 31,
1996 1995
1994
(In Thousands of
Dollars)
<S> <C> <C>
<C>
U.S. Treasury and other
U.S. Government Agencies $ 104,567 108,775 163,238
Mortgage Backed Securities 50,109 30,573 0
State and political subdivisions 30,775 30,275 28,085
Other bonds and notes 1,270 3,023 7,181
Corporate stocks 8,996 6,818 5,493
Total $ 195,717 179,464 203,997
</TABLE>
Included in the above table are $185,365, $171,882 and $188,828 of
securities available for sale at December 31, 1996, 1995 and 1994,
respectively.
The following tables set forth the maturities of securities at December 31,
1996 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 $ 11,020 6.16% $ 71,164 6.33%
Mortgage Backed Securities - - - -
State and political subdivisions 11,029 4.31 15,598 4.78
Other bonds and notes 1,012 8.86 186 7.27
Total $ 23,061 5.39% $ 86,948 6.06%
<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 $ 22,383 7.12% - - %
Mortgage Backed Securities 4,318 6.69 45,791 7.86
State and political subdivisions 3,520 5.02 628 4.85
Other bonds and notes 72 8.25 - -
Total $ 30,293 6.82% $46,419 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,
1996 1995 1994 1993 1992
(In Thousands of Dollars)
<S> <C> <C> <C>
<C> <C>
Commercial, financial and
agricultural $ 92,557 89,785 75,006 69,484 63,360
Real estate mortgages 78,400 71,870 67,912 71,345 81,431
Consumer loans 113,004 101,687 94,181 82,028 74,258
Total $ 283,961 263,342 237,099 222,857 219,049
</TABLE>
The following table shows the maturity of loans (excluding residential real
estate mortgages and consumer loans) outstanding as of December 31,
1996. 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 $ 33,098 20,014 39,445 92,557
Loans maturing after one year with:
Fixed interest rates 12,277 7,940
Variable interest rates 7,737 31,505
Total $ 20,014 39,445
</TABLE>
Nonaccrual and Past Due Loans
The following table summarizes the Corporation's nonaccrual and past due
loans:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994 1993 1992
(In Thousands of Dollars)
<S> <C> <C> <C>
<C> <C>
Nonaccrual loans (1) $ 1,494 1,119 1,201 1,605 1,321
Accruing loans past due
90 days or more $ 226 681 354 274 588
</TABLE>
Information with respect to nonaccrual loans at December 31, 1996, 1995 and
1994 is as follows:
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
(In Thousands of Dollars)
<S> <C>
<C> <C>
Nonaccrual loans $ 1,494 1,119 1,201
Interest income that would have been
recorded under original terms 278 200 342
Interest income recorded during the period 58 52 58
<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 becomes 120 days delinquent, the loan is
placed in nonaccrual nd 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, 1996, 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, 1996, 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, 1996, 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, 1996:
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
(In Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Balance at beginning of period $ 3,900 3,600 3,500 3,400 2,800
Charge-offs:
Commercial, financial and
agricultural 195 82 282 550 61
Real estate mortgages 1 5 14 - -
Consumer loans 538 286 422 346 382
Home equity 20 - - - -
754 373 718 896 443
Recoveries:
Commercial, financial and
agricultural 16 16 18 10 100
Consumer loans 71 93 76 79 41
87 109 94 89 141
Net charge-offs 667 264 624 807 302
Allowance of acquired
bank at time of acquisition - - 100 - -
Additions charged to
operations (1) 742 564 624 907 902
Balance at end of period $ 3,975 3,900 3,600 3,500 3,400
Ratio of net charge-offs during
period to average loans
outstanding (2) .24% .11% .28% .36% .14%
<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 1996 than in prior years. The net
charge-offs to total loans have averaged 0.23% 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 sumarized the Corporation's allocation of the allowance for loan
losses for each year in the five-year period ended December 31, 1996:
<TABLE>
<CAPTION>
Amount (in thousands) and Percent of
Loans by Category to Total Loans
Balance at end of
Period Applicable to: 1996 % 1995 % 1994 % 1993 % 1992 %
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Domestic: $2,245 100.0 1,830 100.0 2,857 100.0 3,274
100.0 2,158 100.0%
Commercial, financial
and agricultural 1,472 32.3 1,042 33.0 2,108 31.0 2,620
30.2 1,625 28.6
Commercial mortgages 249 3.2 305 4.1 282 5.0 247 6.5 112 6.7
Residential mortgages 21 24.5 16 23.6 16 23.6 13 25.5 34 30.4
Consumer loans 503 40.0 467 39.3 451 40.4 394 37.8 387 34.3
Unallocated: 1,730 N/A 2,070 N/A 743 N/A 226 N/A 1,242 N/A
Total $3,975 100.0 3,900 100.0 3,600 100.0 3,500
100.0 3,400 100.0
</TABLE>
Deposits
The average daily amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended
December 31,
1996 1995
1994
Amount Rate Amount Rate Amount Rate
(In Thousands of Dollars)
<S> <C> <C> <C> <C>
<C> <C>
Noninterest-bearing
demand deposits $ 79,901 - % 78,406 - % 66,635 - %
Interest-bearing demand
deposits 44,261 1.63 43,312 1.69 43,372 1.55
Savings deposits 139,219 2.83 149,257 2.95 142,819 2.65
Time deposits 177,537 5.42 153,433 5.41 121,783 4.47
$ 440,918 424,408 374,609
</TABLE>
Scheduled maturities of certificates of deposit with a remaining term
greater than one year at December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S> <C>
1998 $34,289
1999 13,092
2000 6,502
2001 3,693
2002 and thereafter 38
$57,614
</TABLE>
Maturities of certificates of deposit $100,000 or more outstanding at
December 31, 1996 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S> <C>
3 months or less $26,369
Over 3 through 12 months 6,647
Over 12 months 3,754
</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,
1996 1995 1994
<S> <C>
<C> <C>
Return on average assets 1.19% 1.13% 1.08%
Return on average equity 11.37 11.20 11.18
Return on beginning equity 11.64 12.25 12.13
Dividend payout ratio 35.78 36.52 38.23
Average equity to average assets ratio 10.44 10.10 9.64
Year-end equity to year-end assets ratio 10.54 10.54 9.25
</TABLE>
Short-Term Borrowings
For each of the three years in the period ended December 31, 1996, 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 13,711 square feet are occupied by operating
departments of the Bank and 4,502 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, 1996, 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 1996 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, 1997 was 823.
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, 1996 is incorporated herein by reference to Exhibit C of Exhibit
Listing 13.
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, 1996 is incorporated herein by reference to
Exhibit C of Exhibit Listing 13.
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, 1996 are incorporated herein by reference to Exhibit D
of Exhibit Listing 13.
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 "Nominees For 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 10, 1997, relating to the
Annual Meeting of Shareholders to be held on April 8, 1997, 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"; "Pension
Plan"; "Profit- Sharing, Savings and Investment Plan"; "Employment
Contracts"; and "Other Compensation Agreements", presented in the
registrant's Proxy Statement, dated March 10, 1997, relating to the Annual
Meeting of Shareholders to be held on April 8, 1997, 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 10, 1997, relating to the Annual
Meeting of Shareholders to be held on April 8, 1997, 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 10, 1997,
relating to the Annual Meeting of Shareholders to be held on April 8, 1997,
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, 1996
and 1995, and for each of the years in the three-year period ended December
31, 1996 are incorporated by reference in Item 8:
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1996 and 1995
- Consolidated Statements of Income - Years ended December 31, 1996,
1995 and 1994
- Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1996, 1995 and 1994
- Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994
- Notes to Consolidated Financial Statements - December 31, 1996 and
1995
(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 February 14,
1996,
are incorporated herein by reference to Exhibit A
of
the Registrant's Form 10-Q for the period ended
September 31, 1996, File No. 0-13888.
Exhibit (13) -- Annual Report to Shareholders for the year ended
December 31, 1996.
-- 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 10, 1997,
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, 1996.
(c) Exhibits
The response to this portion of Item 14 is submitted as a separate
section of this report.
(d) Financial Statement Schedules
None
ANNUAL REPORT ON FORM 10-K
ITEM 14(c)
CERTAIN EXHIBITS
YEAR ENDED DECEMBER 31, 1996
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
EXHIBIT
LISTING EXHIBIT
EXHIBIT 13 Annual Report To Shareholders For The Year Ended
December 31, 1996
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 10, 1997, and Proxy Form
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
CHEMUNG FINANCIAL CORPORATION
DATED: MARCH 12, 1997
By /s/ John W. Bennett
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
/s/ Robert E. Agan Director March 12, 1997
Robert E. Agan
/s/ John W. Bennett Director, Chairman & March 12, 1997
John W. Bennett Chief Executive Officer
Director
Donald L. Brooks, Jr.
Director
David J. Dalrymple
Director
Robert H. Dalrymple
/s/ Richard H. Evans Director March 12, 1997
Richard H. Evans
Director
Natalie B. Kuenkler
/s/ Edward B. Hoffman Director March 12, 1997
Edward B. Hoffman
/s/ Stephen M. Lounsberry III Director March 12, 1997
Stephen M. Lounsberry III
Signature Title Date
Director
Boyd McDowell II
/s/ Thomas K. Meier Director March 12, 1997
Thomas K. Meier
/s/ Ralph H. Meyer Director March 12, 1997
Ralph H. Meyer
/s/ John F. Potter Director March 12, 1997
John F. Potter
/s/ Samuel J. Semel Director March 12, 1997
Samuel J. Semel
/s/ Charles M. Streeter, Jr. Director March 12, 1997
Charles M. Streeter, Jr.
/s/ Richard W. Swan Director March 12, 1997
Richard W. Swan
/s/ William A. Tryon Director March 12, 1997
William A. Tryon
Director
William C. Ughetta
/s/ Jan P. Updegraff Director, President & March 12, 1997
Jan P. Updegraff Chief Operating Officer
/s/ Nelson Mooers van den Blink Director March 12, 1997
Nelson Mooers van den Blink
/s/ John R. Battersby, Jr. Treasurer and Principal March 12, 1997
Accounting Officer
Attest
/s/ Jerome F. Denton Secretary March 12, 1997
Jerome F. Denton
EXHIBIT A
TABLE OF QUARTERLY MARKET PRICE RANGES
Market Prices of Chemung Financial Corporation Stock
During Past Three Years (dollars)
------------------------------------------------------------
- -----
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------
Hi -- Lo Hi -- Lo Hi -- Lo
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 28 3/4 - 27 26 1/4 - 25 24 5/8 - 23
2nd Quarter 31 1/2 - 30 26 1/4 - 25 26 - 23 3/4
3rd Quarter 33 1/4 - 30 3/8 25 3/4 - 25 1/4 26 3/4 - 24 1/2
4th Quarter 35 3/4 - 33 27 3/4 - 25 26 - 24 3/4
</TABLE>
EXHIBIT B
TABLE OF DIVIDENDS PAID
Dividends Paid by Chemung Financial Corporation
During Past Three Years
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
January $ .2500 $.2400 $.2275
April 1 .2500 .2400 .2275
July 1 .2500 .2400 .2275
October 1 .2800 .2500 .2400
- ---------------------------------------------------------------------------
- -
$1.0300 $.9700 $.9225
</TABLE>
As of December 31, 1996 there were 833 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.
EXHIBIT C
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INCLUDING FINANCIAL DATA EXHIBITS
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 OCorporationO) is a one-bank holding
company with its only subsidiary being Chemung Canal Trust Company (the
OBankO), 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 Omarket areasO. 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 BankOs 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 chairman of the board, president, senior
lending officer, commercial loan officer, mortgage officer, consumer loan
officer, and 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 OActO), and is subject to the
supervision of the Board of Governors of the Federal Reserve System (the
OFederal Reserve BoardO). 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.
The Federal Deposit Insurance Corporation Improvement Act of 1991
(OFDICIAO) was passed in order to protect depositors and taxpayers from the
excesses of the S&L problems of the 1980Os. 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 Bank, many
of these competitors are not subject to regulation as extensive as that
described under the OSupervision and RegulationO section and, as a result,
they may have a competitive advantage over the Corporation in certain
respects. This is particularly true of credit unions, as their pricing is
not encumbered by income taxes.
Competition for the BankOs fiduciary services comes primarily from
brokerage firms and independent investment advisors. This is considered
very significant competition, as these firms devote much of their
considerable resources toward gaining larger positions in this market.
Trust Assets Under Administration, however, totaled $1,054 million at
market December 31, 1996, compared to $993 million a year earlier.
Relative to the BankOs total assets, when compared with peer commercial
banks, the Trust Department is unusually large and favorable in terms of
generating non-interest income.
During 1996, as well as 1995 and 1994, the Investment Services Division
noted a continued increase in the competition for personal and corporate
investment management services in our market areas. 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. Marketing efforts introduced in 1996 included sales
and referral incentives designed to maximize results from the Bank's branch
system.
Employees
The Corporation and its Banking subsidiary had 289 full-time equivalent
employees (FTEOs) on December 31, 1996 versus 281 at the beginning of the
year. The employment trend is relatively stable.
Balance Sheet Comments
Average earning assets for 1996 grew by $22.4 million or 5.0% to $469.5
million, compared to $447.1 million in 1995 and $394.7 million in 1994.
Commercial and consumer loan balances grew $14.1 million and 7.36%,
respectively, while the mortgage portfolio increased $6.5 million (9.1%).
Average total loan balances were $273.9 million versus $249.1 million
during 1995 (up 9.9%) and $221.4 million during 1994. The 1994 acquisition
of the Columbia branches from the RTC and the purchase of Owego at year-end
1994, had only minor impact upon the average loan balances in 1995, but
began to show improved results in 1996, particularly in home equity loan
services.
During the fourth quarter of 1996, management elected to borrow $10 million
maturing in two years from the Federal Home Loan Bank for the purpose of
funding an equal amount of U.S. Government Agency notes. This leveraging
strategy provided an annualized net interest spread of 135 basis points.
Non-performing loans at year end decreased to $1.720 million vs $1.800
million at the end of 1995, and represented 0.61% of total outstandings
compared to 0.68% on 12/31/95 and 0.66% on 12/31/94. Net loan losses were
$667 thousand or 0.24% of average outstandings, compared to $264 thousand
in 1995 and $624 thousand in 1994. The loan loss reserve at 12/31/96 was
1.40% of outstandings and, at 231% of non-performing loans versus 217% a
year ago and 232% in 1994, is felt by management to be adequate.
Exhibit I
Balance Sheet Comparisons
<TABLE>
<CAPTION>
Average Balance Sheet Growth Rates
(in millions) 1996 1995 1994 1993 1992 1991 1 yr 5 yrs
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
Total Asset $ 518.5 $ 495.2 $ 431.2 $ 397.7 $ 387.0 $ 357.4 4.7% 7.8%
Earning Assets 469.5 447.1 394.7 368.4 358.3 328.0 5.0%
7.4%
Loans 273.9 249.1 221.4 224.1 221.0 219.1 10.0%
4.6%
Investments 195.6 198.0 173.3 144.3 137.3 108.9 -1.2%
12.4%
Deposits 440.9 424.4 374.6 347.0 338.5 319.4 3.9% 6.7%
Tangible Equity 46.4 41.7 38.2 37.0 34.2 31.5 11.3% 8.1%
Ending Balance Sheet
(in millions)
Total Assets $ 532.2 $ 501.9 $ 494.3 $ 398.1 $ 385.8 $ 381.7 6.0%
6.9%
Earning Assets 474.6 446.3 448.9 369.2 356.4 350.7 6.3%
6.2%
Loans - Net 279.7 259.1 232.9 218.8 214.9 224.8 8.0%
4.5%
Investments 196.3 189.6 212.1 147.1 138.0 123.1 3.5%
9.8%
Deposits 439.6 426.9 432.3 342.9 339.2 325.8 3.0% 6.2%
Tangible Equity 48.7 44.9 37.2 38.3 35.5 32.3 8.5% 8.6%
Allowance For Loan Losses 3.98 3.90 3.60 3.50 3.40 2.80 2.1% 7.3%
</TABLE>
Securities
The board-approved Funds Management Policy includes an investment portfolio
policy which 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 ability to hold to maturity.
Marketable securities are classified as Available for Sale while local
direct investment in municipal obligations are classified as Held to
Maturity. The Available for Sale segment of the securities portfolio at
December 31, 1996, was $185.4 million compared to $171.9 million a year
earlier and $188.8 million at the end of 1994. The components of the net
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 $ 52,721 $ 52,764 $ 43
Obligations of other U.S.
Government Agencies 51,832 51,803 (29)
U.S. Government Agency
Mortgage-backed pools 50,193 50,109 (84)
Obligations of states and
political subdivisions 20,257 20,500 243
Other bonds and notes 1,179 1,193 14
Corporate stocks 3,662 8,996 5,334
Totals $ 179,844 $ 185,365 $ 5,521
</TABLE>
Included in the above table are 16,621 shares of Student Loan marketing
Association ("SALLIE MAE") at a cost basis of $5,321 and fair value of
$1,547,830. 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 12/31/96, the banking subsidiary's
portfolio held marketable equities totalling $89,540 at cost with a total
fair value of $3,854,835 The shares, other than SALLIE MAE, 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 17,972
shares of the Federal Home Loan Bank of New York. They are valued at
$498,200 and $1,797,200, respectively. Management has no current plans for
selling these investments.
Capital Resources and Dividends
The Corporation continues to maintain a strong capital position. Tangible
shareholdersO equity at December 31, 1996, was $48.7 million or 9.15% of
total assets compared to $44.9 million or 8.95% of total assets at the end
of 1995 and $37.2 million or 7.52% of assets at the end of 1994. As of
December 31, 1996, the Corporation's total Weighted Risk Adjusted Capital
Ratio was 16.87% compared with 16.46% at 12/31/95 and 15.03% at the end of
1994. The leverage ratio (Average Tier I Capital/Average Assets) was 8.97%
at year end versus 8.52% in 1995 and 7.69% in 1994. Management's strategy
for leveraging the Corporation's capital is to maintain the leverage ratio
between 7.50% and 8.50%.
Performance Summary
Net income for 1996 was impacted by 1) higher loan volumes 2) lower average
interest rates 3) higher levels of non-interest income, and 4) lower non-
interest expenses.
Chemung Financial's net profits before dividends for 1996 were $6.158
million versus $5.602 million, up $556 thousand (9.9%) or $2.96 versus
$2.68 per share (10.5%) on 8.4 thousand fewer average shares outstanding.
During 1994 the Corporation earned $2.45, up 3.4% from 1993. Quarterly
dividends declared totaled $1.06 per share vs 1995's $0.98 and $0.935 in
1994.
Under FDIC Risk-Related Premium System Rules, 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 1996 were $253 thousand vs $538 thousand
in 1995 and $796 thousand in 1994.
Included in 1996 FDIC charges was 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 are now merged. $29 million of the Bank's deposits were subjected to
the $191 thousand assessment in the fourth quarter of 1996. In December,
the Bank received notification from the FDIC that it remains well
capitalized. The 1997 FDIC insurance premium will be accrued at an annual
rate of $80 thousand for total insured deposits.
During 1996, the Bank's loan loss provision totaled $742 thousand, up $178
thousand from $564 thousand in 1995 and $624 thousand in 1994. The
increase is a reflection of management's ongoing evaluation of the risk
inherent in the portfolio. During 1995, management determined that based
upon its review of the inherent risk, no provisions should be added to the
reserve during November and December of that year, and $102 thousand of the
loan loss reserve was returned to pretax income. This was a reflection of
the very strong business environment and consistently favorable loan
experience of that year.
The average interest rate on earning assets was 7.99% during 1996 versus
8.07% in 1995 and 7.49% in 1994. The interest expense on the Bank's
liabilities also increased to 4.00% in 1996 versus 3.95% in 1995 and 3.23%
in 1994. This delivered a net interest spread of 3.99% versus 4.12% a year
earlier and 4.26% in 1994. The net interest margin declined 10 basis
points to 4.79%. Noninterest income totaled $7.105 million versus $6.736
million in 1995 and $5.685 million in 1994. Trust department income, at
$3.718 million in 1996 versus $3.678 million in 1995 and $3.323 million in
1994 is the largest segment of non-interest income. $610 thousand in net
securities gains were realized during 1996 as management continued to move
more proactively from a strategy with emphasis upon liquidity to an
investment approach with higher yield potential. Investments 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.
Exhibit II
<TABLE>
<CAPTION>
Growth Rates
Earnings (in thousands) 1996 1995 1994 1993 1992 1991 1 yr 5 yrs
<S> <C> <C> <C> <C>
<C> <C> <C> <C>
Net Interest Income $ 22,468 $ 21,849 $ 19,304 $ 18,672 $ 18,339 $ 16,557 2.8% 6.3%
Loan Loss Provision 742 564 624 907 902 625 31.6% 3.5%
Net Interest Income after Loan
Loss Provision 21,726 21,285 18,680 17,765 17,437 15,932 2.1% 6.4%
Trust Department Income 3,719 3,678 3,323 3,294 3,176 2,708 1.1%
6.5%
Securities Gains (Losses), net 610 531 140 821 105 (506) 14.9% -2.0%
Other Income 2,777 2,527 2,222 2,004 1,691 1,621 9.9% 11.4%
Total Non-Interest Income 7,106 6,736 5,685 6,119 4,972 3,823
5.5% 13.2%
Non Interest Expense 19,408 19,560 17,375 15,627 15,287 14,902 -0.8%
5.4%
Pretax Income 9,424 8,461 6,990 8,257 7,122 4,853 11.4% 14.2%
Income Taxes 3,266 2,859 2,342 2,830 2,296 1,241 14.3% 21.4%
Net Operating Income 6,158 5,602 4,648 5,427 4,826 3,612 9.9%
11.3%
Effect of Accounting Change 0 0 0 (933) 0 0 N/A N/A
Net Income 6,158 5,602 4,648 4,494 4,826 3,612 9.9% 11.3%
</TABLE>
Exhibit III
<TABLE>
<CAPTION>
Selected Financial Data Growth Rates
Per Share Data 1996 1995 1994 1993 1992 1991 1 yr 5 yrs
<S> <C> <C> <C> <C> <C> <C>
<C> <C>
Net Operating Income $ 2.96 $ 2.68 $ 2.45 $ 2.87 $ 2.55 $ 1.90 10.4%
9.3%
Net Income 2.96 2.68 2.45 2.37 2.55 1.90 10.4% 9.3%
Dividends Declared 1.06 0.98 0.935 0.875 0.82 0.76 8.2% 6.9%
Tangible Book Value 23.51 21.57 17.75 20.25 18.75 17.02 9.0% 6.7%
Market Price 12/31 34.00 27.75 25.50 23.00 18.50 18.25 22.5%
13.3%
Average Shares O/S (thousands) 2,079 2,088 1,899 1,894 1,894 1,899
- -0.4% 1.8%
</TABLE>
Exhibit IV
<TABLE>
<CAPTION>
Selected Ratios 1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Return on average assets 1.19% 1.13% 1.08% 1.13% 1.25%
Return on average tangible equity 13.27% 13.43% 12.17% 12.15%
14.11%
Dividend yield 12/31 3.29% 3.60% 3.76% 3.96% 4.54%
Dividend payout 35.78% 36.52% 38.22% 36.86% 32.17%
Leverage ratio 8.97% 8.52% 7.69% 9.63% 9.20%
Tier I capital to risk adjusted assets 15.61% 15.21% 13.71% 15.66%
14.80%
Total capital to risk adjusted assets 16.87% 16.46% 15.03% 17.09%
16.22%
Loans to deposits 64.53% 61.61% 54.71% 64.83% 64.38%
Loan reserve to outstanding loans 1.40% 1.48% 1.52% 1.57%
1.56%
Loan reserve to
non-performing loans 231% 217% 232% 186% 178%
Non-performing loans to
outstanding loans 0.61% 0.68% 0.66% 0.85% 0.87%
Net interest rate spread 3.99% 4.12% 4.26% 4.42% 4.35%
Net interest margin 4.79% 4.89% 4.89% 5.07% 5.12%
</TABLE>
Exhibit V
Changes Due To Volume and Rate
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. Therefore, the
impact of lower levels of non-performing loans is reflected in the change due to
rate, but does not affect changes due to volume.
<TABLE>
<CAPTION>
1996 vs 1995 1995 vs 1994
Increase Increase
(Decrease) (Decrease)
Total Due to Due to Total Due to Due to
Change Volume Rate Change Volume Rate
Interest Income (thousands)
<S> <C> <C> <C>
<C> <C> <C>
Loans $ 1,446 $ 2,310 $ (864) $ 3,862 $ 2,607 $ 1,255
Taxable investment
securities 332 74 258 2,198 1,273 925
Tax-exempt investment
securities (46) 41 (87) 144 150 (6)
Federal funds sold (136) (104) (32) 79 (81) 160
Interest-bearing deposits (162) (129) (33) 215 145 70
Total Interest Income $ 1,434 $ 2,192 $ (758) $ 6,498 $ 4,094 $
2,404
Interest Expense (thousands)
Demand deposits $ (12) $ 16 $ (28) $ 58 $ (1) $ 59
Savings deposits (466) (289) (177) 630 180 450
Time deposits 1,318 1,307 11 2,862 1,580 1,282
Federal funds purchased
and securities sold
under agreement to
repurchase (24) 73 (97) 401 179 222
Total Interest Expense $ 816 $ 1,107 $ (291) $ 3,951 $ 1,938 $
2,013
Net Interest Income $ 618 $ 1,085 $ (467) $ 2,547 $ 2,156 $ 391
</TABLE>
Under Federal Reserve regulations (see Note 16 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,
1996, 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, 1996, $7,964,762 was available for
the declaration of dividends.
Cash dividends declared amounted to $2.203 million in 1996 versus $2.045 million
in 1995 and $1.777 million in 1994. Dividends declared amounted to 35.8% of net
earnings compared to 36.5% and 38.2% of 1995 and 1994 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 amount of $4.94 million and
$2.46 million, respectively, at December 31, 1996, which accounts 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 purchased goodwill 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 1996, 16,915 shares were
purchased at a total cost of $514,599 or an average price of $30.42 per share.
Early in 1996, 7,280 shares of treasury stock were sold at a price of $27.75 per
share to fund profit sharing requirements. 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.
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 $38.616 million in 1996. Net
purchases of equipment were $862.7 thousand. During 1995, proceeds from
maturities and sales of securities and student loans were less than purchases of
securities and loan originations net of repayments and net purchases of premises
and equipment by $356 thousand. Net purchases of premises and equipment during
1995 were $3.013 million, including $540 thousand for real estate. In 1994, net
cash used by investing activities was $85.1 million. The 1994 figure, however,
was distorted by the 1/1/94 adoption of FASB #115 (Mark to market) and the
management's decision to assign most marketable securities to the AFS category.
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 $21.3 million in 1996,
compared to a negative $4.495 million during 1995 and a positive $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 $7.4 million in 1996, compared to $14.3 million
in 1995, while certificates of deposit and individual retirement accounts
increased $20.1 million compared to $8.9 million in 1995. Additionally, long-
term borrowings increased $10 million when the bank borrowed $10 million from
the Federal Home Loan Bank. The Loan has a two year maturity and was part of a
matched funding leveraging strategy.
Liquidity and Sensitivity
The term OliquidityO 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 OliquidityO in the
BankOs 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 BankOs Asset/Liability Committee (ALCO) has the strategic
responsibility for setting the policy guidelines on acceptable exposure. The
ALCO is made up of the chairman of the board, president, senior lending officer,
senior marketing officer, financial officer, and others representing key
functions.
During 1993, the Bank became a member of the Federal Home Loan Bank of New York
(OFHLBO). The primary reasons for joining the FHLB were to enhance managementOs
ability to satisfy future liquidity needs and to have an additional alternate
for investing excess reserves. Having invested $1.797 million in FHLB common
stock, the Bank maintained a credit line of $52,496,600 at December 31, 1996.
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 OcontractualO gap. Contractual
gap measures the stated repricing and maturity of assets and liabilities. At
December 31, 1996, the cumulative one-year contractual gap for the Bank was a
negative $160.9 million versus a negative $121.5 million a year earlier and a
negative $111.4 at the end of 1994. This indicates that $160.9 million of
earning assets could reprice after the source of funds reprice. It is highly
unlikely that this would happen, however, and there is no historical precedent
for it.
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 1996, 1995 and 1994 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. Short term
rates (6 month U.S. Treasury Bills) ranged between 4.90% - 5.35% during 1996.
<TABLE>
<CAPTION>
December 31, 1996 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 $ 100,736 $ 22,055 $ 90,818 $ 69,426
Securities 6,726 16,334 86,728 76,271
Federal funds 500
Other (Equities) 7,698
Total earning assets $ 115,660 $ 38,389 $ 177,546 $ 145,697
Net sources:
NOW accounts $ 45,812
Insured Money Market 43,516
Time certificates
under $100 thousand 36,092 52,886 49,221 38
Time certificates
over $100 thousand 26,369 6,647 3,754
Savings 89,296
Long term borrowing 10,000
Repurchase agreements 14,371
Total sources $ 255,456 $ 59,533 $ 62,975 $ 38
Incremental gap -139,796 -21,144 114,571 145,659
Percent of earning assets -120.9 -55.1 64.5 100
Cumulative gap -139,796 -160,940 -46,369 99,290
Percent of total assets -29.3 -33.7 -9.7 20.8
</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 committeeOs economic and interest-rate assumptions and the Annual
Budget. It is the responsibility of the ALCO to modify prudently any and
all asset/liability.
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 managementOs 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 managementOs evaluation of
commercial loans as carrying a greater level of inherent risk.
/S/ Jan P. Updegraff
Jan P. Updegraff
President and
Chief Operating Officer
EXHIBIT D
CONSOLIDATED FINANCIAL STATEMENTS AND
INDEPENDENT AUDITORS' REPORT
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, 1996 and 1995, and
the related consolidated statements of income, shareholdersO equity and
cash flows for each of the years in the three-year period ended December
31, 1996. These consolidated financial statements are the responsibility
of the CompanyOs 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, 1996 and 1995, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
January 24, 1997
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Assets December 31
1996 1995
<S> <C>
<C>
Cash and due from banks $ 31,103,374 27,293,592
Interest-bearing deposits with other
financial institutions 151,920 90,206
Federal funds sold 500,000 10,000,000
Securities available for sale, at fair value 185,365,478 171,882,062
Securities held to maturity, fair value of
$10,351,440 in 1996 and $7,581,519 in 1995 10,351,840 7,582,062
Loans, net of unearned income and deferred fees 283,720,981 263,001,304
Allowance for loan losses (3,975,000) (3,900,000)
Loans, net 279,745,981 259,101,304
Premises and equipment, net 9,712,633 10,290,702
Other assets 7,878,811 7,662,639
Intangible assets, net of accumulated amortization 7,402,934
7,990,237
Total assets $ 532,212,971 $ 501,892,786
<CAPTION>
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing 86,049,289 83,591,381
Interest-bearing 353,600,054 343,287,511
Total deposits 439,649,343 426,878,892
Securities sold under agreements to repurchase 14,371,140
13,381,581
Long term borrowing 10,000,000 -
Accrued interest payable 1,152,791 1,059,102
Dividends payable 580,220 520,462
Other liabilities 10,339,278 7,153,851
Total liabilities 476,092,772 448,993,888
Commitments and contingencies (note 15)
Shareholders' equity:
Common stock, $5.00 par value per share;
authorized 3,000,000 shares, issued: 2,150,067 10,750,335
10,750,335
Surplus 10,101,804 10,068,563
Retained earnings 33,885,269 29,930,969
Treasury stock, at cost (1996 - 77,853 shares; (1,925,118)
(1,579,298)
1995 - 68,218 shares)
Net unrealized gain on securities
available for sale, net of taxes 3,307,909 3,728,329
Total shareholders' equity 56,120,199 52,898,898
Total liabilities and shareholders' equity $ 532,212,971 $
501,892,786
</TABLE>
See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
<S> <C>
<C> <C>
Interest income:
Loans $ 25,313,778 23,867,713 20,006,304
Securities 11,651,818 11,365,927 9,023,516
Federal funds sold 350,005 485,979 407,259
Interest-bearing deposits 195,181 357,090 142,882
Total interest income 37,510,782 36,076,709 29,579,961
Interest expense:
Deposits 14,286,189 13,446,125 9,895,852
Borrowed funds 176,126 7,538 8,366
Securities sold under agreements to repurchase 580,354 773,264
372,133
Total interest expense 15,042,669 14,226,927 10,276,351
Net interest income 22,468,113 21,849,782 19,303,610
Provision for loan losses 741,662 564,380 623,772
Net interest income after provision for loan losses 21,726,451
21,285,402 18,679,838
Other operating income:
Trust department income 3,718,851 3,677,622 3,322,643
Service charges on deposit accounts 1,611,409 1,502,971
1,318,448
Net gain on sales of securities 609,596 530,953 140,001
Credit card merchant earnings 519,039 494,821 436,246
Other 646,603 529,413 467,856
7,105,498 6,735,780 5,685,194
Other operating expenses:
Salaries and wages 7,926,874 7,658,865 6,848,952
Pension and other employee benefits 1,976,814 2,214,273
1,824,114
Net occupancy expenses 1,629,539 1,586,077 1,440,755
Furniture and equipment expenses 1,592,873 1,475,543
1,270,385
Other 6,281,664 6,625,056 5,990,536
19,407,764 19,559,814 17,374,742
Income before income taxes 9,424,185 8,461,368 6,990,290
Income taxes 3,266,662 2,859,476 2,342,765
Net income` $ 6,157,523 5,601,892 4,647,525
Weighted average shares outstanding 2,079,312 2,087,751
1,899,488
Net income per common share: $ 2.96 2.68 2.45
</TABLE>
See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<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, 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 taxes of $1,910,980
Issuance of 193,368 shares 966,840 3,577,308 - - - 4,544,148
in acquisition
Net income - 4,647,525 - 4,647,525
Cash dividends declared - - (1,776,606) - - (1,776,606)
($.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
Net income - - 6,157,523 - - 6,157,523
Cash dividends declared - - (2,203,223) - - (2,203,223)
($1.06 per share)
Purchase of 16,915 shares of - - - (514,599) - (514,599)
treasury stock
Sale of 7,280 shares of treasury stock - 33,241 - 168,779 - 202,020
Change in net unrealized gain (loss) - - - - (420,420) (420,420)
on securities available for sale, net of
taxes of $312,318
Balances a December 31, 1996 $10,750,335 10,101,804 33,885,269
(1,925,118) 3,307,909 56,120,199
</TABLE>
See accompanying notes to consolidated financial statements
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
<S> <C> <C>
<C>
Cash flows from operating activities
Net income $ 6,157,523 5,601,892 4,647,525
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets 587,303 587,303 232,003
Deferred income taxes (387,248) (168,577) 98,614
Provision for loan losses 741,662 564,380 623,772
Depreciation and amortization 1,440,752 1,250,236 986,183
Amortization and discount on securities, net 303,365 (458,579) (1,077,616)
Gain on sales of securities, net (609,596) (530,953) (140,001)
(Increase) decrease in other assets (216,172) 289,799 (1,968,603)
Increase (decrease) in accrued interest payable 93,689 164,706 215,747
Increase (decrease) in other liabilities 3,572,676 2,553,784
(201,391)
Net cash provided by operating activities 11,683,954 9,853,991
3,416,233
Cash flows from investing activities:
Proceeds from sales of securities available 57,617,458 15,958,448
19,955,253
for sale
Proceeds from maturities of and principal 6,035,978 7,261,930
5,651,201
collected on securities held to maturity
Proceeds from maturities of and principal 52,023,153 94,781,598
69,972,928
collected on securities available for sale
Purchases of securities available for sale (123,238,318) (78,373,282)
(156,905,963)
Purchases of securities held to maturity (8,805,672) (10,202,780)
(11,841,859)
Cash of acquired bank, net of cash paid - - 2,894,434
Purchases of premises and equipment, net (862,683) (3,013,636)
(1,999,522)
Loan originations, net of repayments and (24,578,050) (29,563,052)
(9,324,698)
other reductions
Proceeds from sales of student loans 3,191,711 2,794,848 2,507,848
Deposit acquisition premium - - (5,965,793)
Net cash used by investing activities $ (38,616,423) (355,926)
(85,056,171)
(Continued)
<CAPTION>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years ended December 31 1996 1995 1994
<S> <C> <C>
<C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits, $ (7,366,182) (14,320,289)
328,981
NOW accounts, savings accounts, and insured
money market accounts
Net increase (decrease) in certificates of 20,136,632 8,928,461
6,928,120
deposit and individual retirement account
Net increase (decrease) in securities sold 989,559 3,177,796
(2,341,784)
under agreements to repurchase
Net increase (decrease) in long term borrowings 10,000,000 - -
Purchases of treasury stock (514,599) (299,749) -
Sale of treasury stock 202,020 - 172,500
Cash dividends paid (2,143,465) (1,981,078) (1,751,148)
Deposits of acquired branches - - 45,628,085
Net cash provided (used) by financing 21,303,965 (4,494,859) 48,964,754
activities
Net increase (decrease) in cash and cash (5,628,504) 5,003,206
(32,675,184)
equivalents
Cash and cash equivalents, beginning of year 37,383,798 32,380,592
65,055,776
Cash and cash equivalents, end of year $ 31,755,294 37,383,798
32,380,592
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 3,832,329 2,937,581 2,464,816
Interest $ 14,948,980 14,062,221 10,052,237
<CAPTION>
On December 29, 1994, the Corporation acquired the stock of a commercial
bank. In conjunction with this acquisition, liabilities were assumed as
follows:
<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
</TABLE>
See accompanying notes to consolidated financial statements.
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 AND 1995
(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
Management determines the appropriate classification of securities at the
time of purchase. If management has the intent and the Corporation has the
ability at the time of purchase to hold securities until maturity, they are
classified as held to maturity and carried at amortized cost. Securities
to be held for indefinite periods of time 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.
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.
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. Loans may also be placed
in non-accrual if management believes such classification is warranted for
other purposes. Loan origination fees and certain loan origination costs
are deferred and amortized over the life of the loan using the interest
method.
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. The level of the allowance is based on
managementOs 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
BankOs allowance for loan losses. Such agencies may require the Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
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. Residential mortgage loans
and consumer loans are evaluated collectively since they are homogeneous
and generally carry smaller balances. 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.
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
The BankOs 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. The estimated costs of providing
benefits are accrued over the years the employees render services necessary
to earn those benefits.
Intangible Assets
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 impaired.
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, interest-
bearing deposits with other financial institutions, 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 balance sheets. 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 CorporationOs 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 yearOs consolidated financial statements are
reclassified whenever necessary to conform with the current yearOs
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 CorporationOs 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 CorporationOs unaudited proforma condensed consolidated results of
operations for the year ended December 31, 1994 is presented below. This
proforma information has been prepared assuming that the acquisition of
Owego had been effective January 1, 1994. 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.
<TABLE>
<CAPTION>
Year ended
December 31, 1994
Proforma
(in thousands except per share amounts)
<S> <C>
Net interest income $ 20,773
Net income $ 4,291
Weighted average common shares outstanding $ 2,092
Net income per share $ 2.05
</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, 1996 was $7,901,000, of which
$2,404,000 was required to be on deposit with the Federal Reserve Bank; the
remainder, $5,497,000, was represented by cash on hand.
(4) Securities
<TABLE>
<CAPTION>
Amortized cost and fair value of securities available for sale at December
31, 1996 and 1995 are as follows:
1996 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C>
<C> <C>
U.S. Treasury securities $ 52,721,091 52,763,618 77,579,182
78,516,356
Obligations of other U.S.
Government agencies 51,831,740 51,803,452 29,692,008
30,258,315
Mortgage backed securities 50,193,422 50,109,133 30,647,029
30,573,376
Obligations of states and
political subdivisions 20,257,203 20,499,918 22,300,655
22,702,964
Other bonds and notes 1,178,422 1,192,889 2,940,655 3,013,545
Corporate stocks 3,662,274 8,996,468 2,468,469 6,817,506
$ 179,844,152 185,365,478 165,627,998 171,882,062
<CAPTION>
Amortized cost and fair value of securities held to maturity at December 31,
1996 and 1995 are as follows:
1996 1995
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C>
<C> <C> <C>
Obligations of states and
political subdivisions $ 10,275,184 10,275,184 7,572,044
7,572,044
Other bonds and notes 76,656 76,256 10,000 9,475
$ 10,351,840 10,351,440 7,582,044 7,581,519
<CAPTION>
Included in corporate stocks at December 31, 1996 and 1995 is the Bank's
required investment in the stock of the Federal Home Loan Bank with a cost of
$1,797,200 and $1,481,300, respectively. This investment allows the Bank to
maintain a $52,496,600 line of credit with the Federal Home Loan Bank.
Gross unrealized gains and gross unrealized losses on securities available
for sale at December 31, 1996 and 1995 were as follows:
1996 1995
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S> <C> <C>
<C> <C>
U.S. Treasury securities $ 276,003 233,476 945,697 8,523
Obligations of other U.S.
Government agencies 338,193 366,481 571,096 4,789
Mortgage backed securities 135,219 219,508 22,393 96,046
Obligations of states and
political subdivisions 260,656 17,941 421,180 18,871
Other bonds and notes 14,467 - 72,903 14
Corporate stocks 5,334,194 - 4,349,037 -
$ 6,358,732 837,406 6,382,307 128,243
<CAPTION>
Gross unrealized gains and gross unrealized losses on securities held to
maturity at December 31, 1996 and 1995 were as follows:
1996 1995
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S> <C>
<C> <C> <C>
Other bonds and notes - 400 - 525
</TABLE>
Gross realized gains on sales of securities were $613,190, $530,953, and
$140,001 for the years ended December 31, 1996, 1995 and 1994,
respectively. Gross realized losses on sales of securities were $3,594
for the year ended December 31, 1996. There were no realized losses on
sales of securities for the years ended December 31, 1995 and 1994.
Interest and dividends on securities for the years ended December 31,
1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
<C>
Taxbable
U.S. Treasury securities $ 4,002,636 6,087,187 5,152,024
Obligations of other U.S.
Government agencies 3,252,513 2,918,058 1,739,701
Mortgage backed securities 2,590,587 240,143 -
Other bonds and notes 174,419 433,230 614,390
Corporate stocks 271,614 281,145 255,723
Exempt from federal taxation -
obligations of states and
political subdivisions 1,360,049 1,406,164 1,261,678
$ 11,651,818 11,365,927 9,023,516
</TABLE>
The amortized cost and fair value by years to maturity as of December
31, 1996 for debt 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 $ 8,514,687 8,522,205 44,206,404 44,241,413
Obligations of other U.S.
Government agencies 2,497,447 2,497,345 26,854,651 26,922,807
Obligations of states and
political subdivisions 3,397,868 3,432,663 13,463,194 13,681,452
Other bonds and notes 999,760 1,011,875 178,662 181,014
Total $ 15,409,762 15,464,088 84,702,911 85,026,686
<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 $ 22,479,642 22,383,300 - -
Mortgage backed securities 4,340,958 4,317,857 45,852,464 45,791,276
Obligations of states and
political subdivisions 2,763,781 2,758,218 632,360 627,585
Total $ 29,584,381 29,459,375 46,484,824 46,418,861
</TABLE>
The amortized cost and fair value by years to maturity as of December 31, 1996
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 $ 7,595,888 7,595,888 1,917,000 1,917,000
Other bonds and notes - - 5,000 4,600
Total $ 7,595,888 7,595,888 1,922,000 1,921,600
<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 $ 762,296 762,296 - -
Other bonds and notes 71,656 71,656 - -
Total $ 833,952 833,952 - -
</TABLE>
The fair value of securities pledged to secure public funds on deposit or
for other purposes as required by law was $107,381,997 at December 31, 1996
and $95,913,200 at December 31, 1995. U.S. Treasury securities totaling
$13,000,000 and $18,380,000 (fair value of $12,951,250 and
$18,616,689),GNMA's totaling $10,844,688 (fair value of $11,283,339), SLMA
totaling $2,000,000 (fair value of $1,970,000) were pledged to secure
Master repurchase agreements at December 31, 1996 and 1995, 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 shareholdersO equity
at December 31, 1996 or 1995. 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, 1996 1995
<S> <C>
<C>
Residential mortgages $ 69,440,000 61,070,320
Commercial mortgages 8,959,555 10,799,467
Commercial, financial and agricultural 92,467,486 89,785,341
Leases 89,758 -
Consumer loans 113,003,980 101,687,175
Net deferred fees and unearned income (239,798) (340,999)
$ 283,720,981 263,001,304
</TABLE>
During 1996, 1995 and 1994, the Corporation sold $3,191,711, $2,794,848
and $2,507,848, respectively, of education loans at par to the Student
Loan Marketing Association.
The CorporationOs market area encompasses the New York State counties of
Chemung, Steuben, Schuyler and Tioga. Substantially all of the
CorporationOs outstanding loans are with borrowers living or doing business
within 25 miles of the branches in these counties. The CorporationOs
concentrations of credit risk are reflected in the preceding table. The
concentrations of credit risk with standby letters of credit, committed
lines of credit and commitments to originate new loans, generally follow
the loan classifications in the 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 $1,493,607
and $1,119,671 at December 31, 1996 and 1995, respectively. There were no
loans with modified payment terms because of the borrowersO financial
difficulties at December 31, 1996 and 1995. The effect of nonaccrual loans
on interest income for the years ended December 31, 1996, 1995 and 1994 was
not material. The Bank is not committed to advance additional funds to
these borrowers. Other real estate owned at December 31, 1996 amounted to
$271,331 and at December 31, 1995, amounted to $175,922.
Transactions in the allowance for loan losses for the years ended December
31, 1996, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
<C>
Balances at January 1 $ 3,900,000 3,599,968 3,500,000
Provision charged to operations 741,662 564,380 623,772
Loans charged off (754,360) (373,261) (717,511)
Recoveries 87,698 108,913 93,739
Allowance of Owego
at time of acquisition - - 99,968
$ 3,975,000 3,900,000 3,599,968
</TABLE>
[CAPTION]
At December 31, 1996 and 1995, the recorded investment in loans that are
considered to be impaired totaled $1,700,600 and $879,539 respectively.
Included in the 1996 amount are impaired loans of $798,702 for which the
related allowance for loan losses is $340,949 and $901,898 of impaired
loans with no related allowance for loan losses. The 1995 amount
includes $530,811 in impaired loans with a related allowance for loan
losses of $198,618 and $348,728 with no related allowance. The average
recorded investment in impaired loans during 1996 and 1995 were
$1,620,774 and $722,055 respectively. The effect on interest income for
impaired loans was not material to the consolidated financial statements
in 1996 or 1995.
(6) Premises and Equipment
Premises and equipment at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Land $ 2,106,408 2,106,408
Buildings 10,166,115 9,883,468
Equipment and furniture 12,003,849 11,463,538
Leasehold improvements 399,534 396,478
24,675,906 23,849,892
Less accumulated depreciation 14,963,273 13,559,190
$ 9,712,633 10,290,702
</TABLE>
(7) Deposits
Interest-bearing deposits include certificates of deposit in
denominations of $100,000 or more aggregating $36,770,362 and
$21,462,087 at December 31, 1996 and 1995, respectively. Interest
expense on such certificates was $2,215,271, $1,057,353, and $559,034
for 1996, 1995 and 1994, respectively.
(8) Securities Sold Under Agreements to Repurchase
The agreements have maturities of 2 days at December 31, 1996 and 4 to 34
days at December 31, 1995, and a weighted average interest rate of 6.04% at
December 31, 1996 and 5.33% at December 31, 1995. The maximum amounts
outstanding at any one month-end and average amount under these agreements
during 1996 were $15,953,161 and $12,270,169, respectively. 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
securities underlying the agreements were under the Trust Department's
control as custodian.
(9) Long Term Borrowing
Long term borrowing at December 31, 1996, consisted of a $10,000,000,
6.18%, Federal Home Loan Bank advance with a maturity date of October 16,
1998.
(10) Income Taxes
Total income taxes for the years ended December 31, 1996, 1995 and 1994
were allocated as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C>
<C> <C>
Income before income taxes
and cumulative effect of
accounting change $ 3,266,662 2,859,476 2,342,765
Shareholders' equity for change in
unrealized gain (loss) on securities (312,318) 2,645,891 (120,156)
$ 2,954,344 5,505,367 2,222,609
</TABLE>
For the years ended December 31, 1996, 1995 and 1994, income tax expense
attributable to income from operations consists of:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
<C>
Current:
State $ 792,674 646,080 499,305
Federal 2,861,236 2,381,973 1,744,846
3,653,910 3,028,053 2,244,151
Deferred (387,248) (168,577) 98,614
$ 3,266,662 2,859,476 2,342,765
</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>
1996 1995 1994
<S> <C> <C>
<C>
Tax computed at statutory rate $ 3,204,223 2,876,865 2,376,699
Tax exempt interest (465,955) (486,208) (435,678)
Dividend exclusion (34,151) (33,594) (32,362)
State taxes, net of federal benefit 476,584 408,610 345,813
Nondeductible interest expense 52,262 55,582 41,829
Other items, net 33,699 38,221 46,464
Actual tax expense $ 3,266,662 2,859,476 2,342,765
</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, 1996 and 1995 are presented below:
<TABLE>
<CAPTION>
Deferred tax assets: 1996 1995
<S> <C> <C>
Allowance for loan losses-book 1,593,518 1,558,903
Accrual for postretirement benefits
other than pensions 767,119 732,372
Deferred loan fees 84,760 113,647
Deferred compensation and directors fees 500,728 369,611
Pensions 126,499 56,494
Other 135,360 124,235
Total gross deferred tax assets $ 3,207,984 2,955,262
Deferred tax liabilities:
Bond discount 22,409 53,750
Depreciation 421,097 410,007
Allowance for loan losses-tax 300,738 378,706
Net unrealized gains on securities 2,213,417 2,525,735
Other 22,465 58,772
Total gross deferred tax liabilities 2,980,126 3,426,970
Net deferred tax asset (liability) $ 227,858 (471,708)
</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.
(11) 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, 1996 and 1995:
<TABLE>
<CAPTION
1996 1995
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$9,493,865 and $9,488,826 in 1996
and 1995 respectively $ (9,666,905) (9,956,932)
Projected benefit obligation for service
rendered to date (11,881,414) (12,211,661)
Plan assets at fair value 15,036,423 14,042,435
Excess of plan assets over the projected
benefit obligation 3,155,009 1,830,774
Unrecognized net obligation 769,566 839,454
Unrecognized net gain (4,623,648) (3,241,671)
Unrecognized prior service cost 556,163 598,945
Prepaid (accrued) pension cost $ (142,910) 27,502
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
1996 1995 1994
<S> <C> <C>
<C>
Service cost - benefits earned
during the year $ 346,403 293,048 271,218
Interest cost on projected
benefit obligation 825,891 798,518 757,327
Actual return on plan assets (1,459,973) (2,436,581) (131,585)
Net amortization and deferral 458,091 1,542,093 (780,715)
Net periodic pension cost $ 170,412 197,078 116,245
</TABLE>
Assumptions used in determining pension amounts are as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C>
<C>
Discount rate for benefit obligations 7.5% 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 planOs assets at December 31, 1996 and 1995 are invested in common and
preferred stocks, U.S. Government securities, and corporate bonds and
notes. 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 employeeOs current earnings. Expense under the
plan totaled $550,854, $499,343, and $423,161 for the years ended December
31, 1996, 1995 and 1994, respectively.
(12) 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 BankOs expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year. The BankOs
policy is to fund the cost of medical benefits in amounts determined at the
discretion of management.
The following table presents the planOs funded status reconciled with
amounts recognized in the CorporationOs consolidated balance sheet at
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit
obligation:
Retirees $ (965,000) (807,185)
Fully eligible active plan participants (86,000) (114,090)
Other active plan participants (577,000) (1,061,074)
(1,628,000) (1,982,349)
Unrecognized net (gain) loss (264,822) 168,896
Accrued postretirement benefit cost
included in other liabilities $(1,892,822) (1,813,453)
</TABLE>
Net periodic postretirement benefit cost included the following
components:
<TABLE>
<CAPTION>
Years ended December 31 1996 1995 1994
<S> <C>
<C> <C>
Service cost $ 42,000 75,728 44,407
Interest cost 112,000 127,308 114,642
Net periodic postretirement benefit cost $ 154,000 203,036 159,049
</TABLE>
For measurement purposes, a 11.5% and 9.5% 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 1996; 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 7.5% at December 31, 1996 and 7% at December 31, 1995.
(13) 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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Balance at beginning of year $ 8,427,604 7,174,106
Additions 20,889,397 26,333,212
Amounts collected (20,890,464) (25,079,714)
Balance at end of year $ 8,426,537 8,427,604
</TABLE>
(14) 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,
1996 1995 1994
<S> <C>
<C> <C>
Stationery and supplies $ 469,008 437,253 445,691
Credit card computer costs 601,571 554,676 475,238
Data processing service 554,005 690,980 624,556
FDIC insurance premiums 253,220 538,279 795,913
Advertising 448,640 444,637 395,425
Amortization of intangible assets 587,303 587,303 232,003
</TABLE>
(15) 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
$2,751,992, $87,280,030 and $4,684,956, respectively, at December 31, 1996.
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 the year 2000 and may be extended on
a year-to-year basis.
(16) ShareholdersO 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, 1996, 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 31,1996, $7,964,762 was available for
the declaration of dividends.
(17) Parent Company Financial Information
Condensed parent company only financial statement information of Chemung
Financial Corporation is as follows:
<TABLE>
<CAPTION>
Balance Sheets
December 31 1996 1995
Assets:
<S> <C> <C>
Cash on deposit with subsidiary bank $ 31,318 195,586
Investment in subsidiary bank 54,801,058 52,274,720
Dividend receivable 580,220 520,462
Securities available for sale 1,298,403 455,947
Total assets $ 56,710,999 53,446,715
Liabilities and shareholders' equity:
Dividend payable 580,220 520,462
Deferred tax liability 10,580 27,355
Total liabilities 590,800 547,817
Shareholders' equity:
Common stock 10,750,335 10,750,335
Surplus 10,101,804 10,068,563
Retained earnings 33,885,269 29,930,969
Treasury stock, at cost (1,925,118) (1,579,298)
Net unrealized gain (loss) on securities
available for sale 3,307,909 3,728,329
Total shareholders' equity 56,120,199 52,898,898
Total liabilities and shareholders' equity $ 56,710,999 53,446,715
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31, 1996 1995 1994
<S> <C> <C>
<C>
Income:
Interest and dividends $ 14,378 23,031 23,768
Gain on sale of securities 35,538 112,500 140,001
Dividends from subsidiary bank 3,203,223 2,045,513 2,976,606
Income before equity in undistributed
earnings of subsidiary bank 3,253,139 2,181,044 3,140,375
Equity in undistributed earnings of
subsidiary bank 2,922,189 3,472,647 1,569,926
Income before income taxes 6,175,328 5,653,691 4,710,301
Income taxes 17,805 51,799 62,776
Net Income $ 6,157,523 5,601,892 4,647,525
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
<S> <C> <C>
<C>
Cash flows from operating activities:
Net income $ 6,157,523 5,601,892 4,647,525
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiary (2,922,189) (3,472,647) (1,569,926)
(Increase) decrease in dividend
receivable (59,738) (1,135,565) (1,225,458)
Gain on sale of securities, net (35,538) (112,500) (140,001)
Decrease in payable to
Owego shareholders - (1,164,883) -
Net cash provided by
operating activities 3,140,038 1,987,427 1,712,140
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 151,738 215,628 271,234
Purchases of securities available for
sale (1,000,000) - (221,193)
Payment to subsidiary for prior
year's taxes - - (146,035)
Net cash provided (used)
by investing activities (848,262) 215,628 (95,994)
Cash flows from financing activities:
Cash dividends paid (2,143,465) (1,981,078) (1,751,148)
Purchases of treasury stock (514,599) (299,749) -
Sale of treasury stock 202,020 - 172,500
Net cash used by financing
activities (2,456,044) (2,280,827) (1,578,648)
Increase (decrease) in cash
and cash equivalents (164,268) (77,772) 37,498
Cash and cash equivalents at
beginning of year 195,586 273,358 235,860
Cash and cash equivalents at
end of year $ 31,318 195,586 273,358
</TABLE>
(18) 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 currently
being 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.
Repurchase Agreements
These instruments bear variable rates and therefore the carrying value
approximates fair value.
Long Term Borrowing
These instruments bear a stated rate of interest to maturity and therefore
the fair value is based on a discounted cash flow to maturity.
Commitments to Extend Credit
The fair value of commitments to extend credit are based on fees currently
charged to enter into similar agreements, the counter party's credit
standing and discounted cash flow analysis. The fair value of these
commitments to extend credit approximates the recorded amounts of the
related fees and is not material at December 31, 1996 and 1995.
The estimated fair value of the CorporationOs financial instruments as of
December 31, 1996 and 1995 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
<S> <C> <C>
<C> <C>
Financial assets:
Cash and cash equivalents $ 31,103 31,103 27,294 27,294
Federal Home Loan Bank 152 152 90 90
Federal funds sold 500 500 10,000 10,000
Securities 195,717 195,717 179,464 179,464
Net loans 279,746 281,965 259,101 259,310
Total Earning Assets 507,218 509,437 475,949 476,158
Fixed assets 9,713 9,713 10,291 10,291
Other assets 15,282 15,282 15,653 15,653
Total assets $ 532,213 534,432 501,893 502,102
<CAPTION>
1996 1995
Carrying Fair Carrying Fair
Amount Value(1) Amount Value(1)
<S> <C>
<C> <C> <C>
Financial liabilities:
Deposits:
Demand, savings,
NOW and money
market accounts $ 264,641 264,641 272,057 272,057
Time certificates 175,008 175,293 154,822 156,268
Total deposits 439,649 439,934 426,879 428,325
Repurchase agreements 14,371 14,371 13,382 13,382
Long term borrowing 10,000 10,034 - -
Other liabilities 12,073 12,073 8,733 8,733
Total liabilities 476,093 476,412 448,994 450,440
Equity 56,120 58,020 52,899 51,662
Total liabilities and
equity $ 532,213 534,432 501,893 502,102
<FN>
<FN1>
(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>
(19) Regulatory Capital Requirement
The Corporation and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory -- and possibly
additional discretionary -- actions by regulators that, if undertaken,
could have a direct material effect on the consolidated financial
statements. Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Bank must meet specific capital
guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off balance sheet items as calculated under
regulatory accounting practices. The capital amounts and classification
are also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Corporation and the Bank to maintain minimum amounts
and ratios (set forth in the table below) of total and Tier 1 capital to
risk-weighted assets, and of Tier 1 capital to average assets. Management
believes, as of December 31, 1996, that the Corporation and the Bank meet
all capital adequacy requirements to which they are subject.
The actual capital amounts and ratios of the Corporation and the Bank are
also presented in the following table:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
<S> <C> <C> <C> <C>
<C> <C>
Total Capital (to risk weighted assets):
Consolidated $ 49,048,781 16.87% $ 23,265,476 8.00% N/A N/A
Subsidiary $ 47,729,551 16.49% $ 23,162,443 8.00% $ 28,953,054
10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 45,409,356 15.61% $ 11,632,738 4.00% N/A N/A
Subsidiary $ 44,106,026 15.23% $ 11,581,222 4.00% $ 17,371,832
6.00%
Tier 1 Capital (to average assets):
Consolidated $ 45,409,356 8.97% $ 15,186,375 3.00% N/A N/A
Subsidiary $ 44,106,026 8.72% $ 15,173,735 3.00% $ 25,289,558
5.00%
As of December 31, 1995
Total Capital (to risk weighted assets):
Consolidated $ 44,571,233 16.46% $ 21,661,035 8.00% N/A N/A
Subsidiary $ 43,982,583 16.27% $ 21,629,590 8.00% $ 27,036,988
10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 41,180,332 15.21% $ 10,830,518 4.00% N/A N/A
Subsidiary $ 40,596,535 15.02% $ 10,814,795 4.00% $ 16,222,193
6.00%
Tier 1 Capital (to average assets):
Consolidated $ 41,180,332 8.52% $ 14,498,509 3.00% N/A N/A
Subsidiary $ 40,596,535 8.41% $ 14,486,089 3.00% $ 24,143,482
5.00%
</TABLE>
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 10, 1997, AND PROXY FORM
March 10, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
to be held on Tuesday, April 8, 1997, 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 six directors. The candidates nominated for three-year
terms, all currently serving, are: David J. Dalrymple, Richard H. Evans,
Edward B. Hoffman, John F. Potter, William C. Ughetta and 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 1997.
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 8.
Sincerely yours,
/s/ John W. Bennett
John W. Bennett
Chairman of the Board and
Chief Executive Officer
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 8, 1997, at 7:00 p.m.
for the following purposes:
To elect six (6) directors, each to hold office for a term of three
years and until their respective successors have been elected and
qualified.
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,
1997, 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 convenience. 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 10, 1997
CHEMUNG FINANCIAL CORPORATION
ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, APRIL 8, 1997
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 its 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 8, 1997, 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 10, 1997.
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, 1997,
are entitled to receive notice of and to vote at the Annual Meeting. As
of February 12, 1997, there were 2,072,214 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 purpose 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. A Shareholder
granting a proxy has the right to revoke it by filing with the Secretary of
the Corporation prior to the time such proxy is voted 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 of
such Shareholder's intention to revoke such proxy prior to the time such
proxy is voted. 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 1997 Annual Meeting of Shareholders is six
(6) for three-year terms, 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 Principal Occupation During
Name and Age Service Past 5 Years
As Director
NOMINEES WITH TERMS
EXPIRING IN 2000
<S> <C> <C>
David J. Dalrymple Since 1993 President of Dalrymple Holding
Age 43 Corporation since December 17,
1993, parent company for several
construction companies; formerly
Vice President.
Richard H. Evans Since 1985 Retired since January 1, 1995;
Age 66 formerly Chairman of the Board &
Chief Executive Officer of Chas.
F. Evans Co., Inc., specialists in
commercial roofing.
Edward B. Hoffman Since 1993 Partner with Sayles, Evans,
Age 65 Brayton, Palmer & Tifft law firm.
Length of Principal Occupation During
Name and Age Service Past 5 Years
As Director
NOMINEES WITH TERMS
EXPIRING IN 2000
(continued)
John F. Potter Since 1991 President of Seneca Beverage
Age 51 Corporation, a wholesale
distributor of beer, water and
soda products.
William C. Ughetta Since 1985 Senior Vice President and General
Age 64 Counsel of Corning Incorporated, a
diversified manufacturing company.
Jan P. Updegraff Since 1996 President and Chief Operating
Age 54 Officer of the Corporation and
Bank since February 14, 1996;
formerly Vice President and
Treasurer of the Corporation and
Executive Vice President of the
Bank.
DIRECTORS CONTINUING
IN OFFICE WITH TERMS
EXPIRING IN 1999
John W. Bennett Since 1988 Chairman of the Board and Chief
Age 63 Executive Officer of the
Corporation and Bank since
February 14, 1996; formerly
President and Chief Executive
Officer of the Corporation and the
Bank; also a director of Hardinge
Inc.
Robert H. Dalrymple Since 1995 Secretary of Dalrymple Holding
Age 46 Corporation, a parent company for
several construction companies.
Natalie B. Kuenkler Since 1985 Director of various community
Age 71 organizations.
Ralph H. Meyer Since 1985 President and Chief Executive
Age 57 Officer of Guthrie Healthcare
System, a vertically integrated
health care delivery system.
Samuel J. Semel Since 1993 President of Chemung Electronics,
Age 70 Inc., an electronic and computer
consulting firm.
Richard W. Swan Since 1985 President of Swan & Sons-Morss
Age 48 Co., Inc., an insurance brokerage
agency.
Length of Principal Occupation During
Name and Age Service Past 5 Years
As Director
DIRECTORS CONTINUING
IN OFFICE WITH TERMS
EXPIRING IN 1998
Robert E. Agan Since 1986 Chairman of the Board and Chief
Age 58 Executive Officer since October
21, 1996 of Hardinge Inc., a world-
wide machine tool manufacturer;
formerly also President of said
Company.
Donald L. Brooks, Jr. Since 1985 Physician.
Age 68
Stephen M. Lounsberry Since 1995 President of Applied Technology
III Manufacturing Corporation since
Age 43 July 17, 1996, a manufacturer of
railroad lubrication systems;
formerly President of Moore &
Steele Corporation.
Boyd McDowell II Since 1985 Retired; formerly Chairman of the
Age 71 Board and Chief Executive Officer
of the Corporation and the Bank.
Thomas K. Meier Since 1988 President of Elmira College.
Age 56
Charles M. Streeter, Jr. Since 1985 President of Streeter Associates,
Age 57 Inc., a general building
contractor.
Nelson Mooers van den Since 1985 Chairman of the Board, Chief
Blink Executive Officer and Treasurer of
Age 62 The Hilliard Corporation, a motion
control equipment, oil reclaimer
and filter manufacturer.
</TABLE>
Directors and Committee Meetings
The Board of Directors of the Corporation held nine (9) regularly scheduled
meetings during the year ended December 31, 1996. 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, 1996.
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 Bank's internal audit and loan review procedures and
recommends to the Board of Directors the engagement and dismissal of
independent auditors. During 1996 this Committee held three (3) meetings.
On December 31, 1996, its members were Messrs. Semel (Chairman), Agan, R.
Dalrymple, Evans, 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 Chairman of the Board of the Corporation at the Corporation's
Main Office, One Chemung Canal Plaza, Elmira, New York 14902. There were
no Committee meetings held in 1996. On December 31, 1996, its members
were Mrs. Kuenkler (Chairman) and Messrs. Agan, Bennett, D. Dalrymple,
McDowell, Potter, Streeter, Swan and Updegraff.
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
eight (8) meetings in 1996 and on December 31, 1996, its members were
Messrs. Meyer (Chairman), Brooks, D. Dalrymple, Evans, Meier, Potter, Swan,
Tryon, and Ughetta.
During the year ended December 31, 1996, 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 exceptions of Mr.
D. Dalrymple who attended 72%, and Mrs. Kuenkler who attended 67%, 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 1996. 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 Bank's
"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 1996 was $256,500. 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 Bank's Pension and Profit-Sharing Plans, under the
Employee Retirement Income Security Act of 1974. The insurance coverage,
which expires in February 1998, costs $18,900 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, 1997,
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 Percent of Shares
Beneficial Owner Common Outstanding
Stock Beneficially
Owned
<S> <C> <C>
Chemung Canal Trust Company 371,8131 17.9%
One Chemung Canal Plaza
Elmira, NY 14902
Chemung Canal Trust Company
Profit-Sharing, Savings and 232,3422 11.2%
Investment Plan
One Chemung Canal Plaza
Elmira, NY 14902
Mary E. Dalrymple
168 Christian Hollow Road 218,2553 10.5%7
Pine City, NY 14871
David J. Dalrymple
274 Upper Coleman Avenue 190,5234, 6 9.2%7
Elmira, NY 14905
Robert H. Dalrymple
875 Upland Drive 179,4075, 6 8.7%7
Elmira, NY 14905
</TABLE>
1 Held by the Bank in various fiduciary capacities, either alone or with
others. Includes 25,613 shares held with sole voting and dispositive
powers, 346,200 shares held with shared power to vote and 184,399 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.
2 Voted by the Bank as trustee as directed by the Plan participants.
3 Includes 115,255 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).
4 Includes 46,461 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 1,988 shares held by Mr. Dalrymple's spouse.
5 Includes 35,345 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 1,345 shares held by Mr.
Dalrymple's spouse.
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.
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
16.6% 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 16.6% 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.
SECURITY OWNERSHIP OF MANAGEMENT:
As of January 31, 1997, 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 Shares
Ownership Outstanding*
<S> <C> <C>
Robert E. Agan 450A *
John W. Bennett 8,821B *
Donald L. Brooks, Jr. 6,250A *
David J. Dalrymple 48,365C 2.33%
Robert H. Dalrymple 37,249C 1.80%
Richard H. Evans 9,352 *
Edward B. Hoffman 1,710A *
Natalie B. Kuenkler 6,706D *
Stephen M. Lounsberry III 3,845A *
Boyd McDowell II 6,418 *
Thomas K. Meier 2,000 *
Ralph H. Meyer 2,595A *
John F. Potter 8,848A, E *
Samuel J. Semel 4,522A *
Charles M. Streeter, Jr. 10,213A, F *
Richard W. Swan 19,188G *
William A. Tryon 12,679 *
William C. Ughetta 9,000A *
Nelson Mooers van den Blink 1,598 *
Jan P. Updegraff 3,676B *
All Directors, Nominees and 220,673H 10.65%
Executive Officers as a group
(25 persons)
</TABLE>
* Unless otherwise noted, less than 1% per individual.
A
In addition, Messrs. Agan (4,782), Brooks (290), Hoffman, (1,822),
Lounsberry (964), Meyer (3,298), Potter (3,388), Semel (1,450),
Streeter (989), and Ughetta (2,807) have credited to their accounts
the equivalent of that number of shares shown in parenthesis following
their names, of Common Stock in valuation entry form under the
Corporation's Deferred Directors Compensation Plan. Deferred fees will
be paid solely in cash pursuant to the terms of the Plan and the
election of the participant.
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 7,635 and 3,518 such shares held by
the Plan, respectively. Under the provisions of the Plan, the trustee
holds for the benefit of all employees who participate in the Plan
232,342 shares of the Corporation's Common Stock.
C Includes only shares held directly by Messrs. Dalrymple. See Footnote
7 of the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS table on page
9 for further explanation of shares beneficially held.
D Includes 4,131 shares held by Mrs. Kuenkler and another as trustees
under the Will of a descendent under which Mrs. Kuenkler is an income
beneficiary and as trustee shares voting and dispositive powers. Does
not include 75,007 shares owned by The Rathbone Corporation, of which
Mrs. Kuenkler is a director.
E Includes 5,899 shares owned by Seneca Beverage Corporation, of which
corporation Mr. Potter is an officer, director and the principal
shareholder.
F Includes 5,418 shares owned by Streeter Associates, Inc., of which
corporation Mr. Streeter is an officer, director and the principal
shareholder.
G Includes 5,850 shares owned by Swan & Sons-Morss Co., Inc., of which
corporation Mr. Swan is an officer, director and one of the principal
shareholders and 205 shares held by Mr. Swan as custodian for his minor
children. Does not include 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.
H Does not include 10,747 shares owned by spouses of certain officers and
directors as to which shares such officers and directors disclaim
beneficial ownership.
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 Corporation's 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, 1996, all
Section 16(a) filing requirements applicable to its executive officers,
directors and any ten percent shareholder were complied with, except one
filing by Mr. Lounsberry was inadvertently filed late.
MANAGEMENT:
Directors' Personnel Committee Report on Executive Compensation
Under the supervision of the Personnel Committee of the Board of
Directors 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 and Chief Operating Officers.
The Committee also reviews and recommends to the Board of Directors
compensation of other senior management as first recommended by the Chief
Executive Officer based upon performance and other relevant factors. Aside
from the fringe benefit programs in which all Bank employees participate,
compensation of all Bank officers and exempt non-officers consists of an
annual salary and a management incentive bonus. The management incentive
bonus is subject to the terms and conditions of the Management Incentive
Plan adopted by the Board of Directors, which provides for the payment of
bonuses to participants in accordance with an allocation formula based in
part on the Corporation's attainment of specific operating objectives and
in part on a subjective review of the participant's 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 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. For 1996, the Committee and Board determined at the
beginning of the year that 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 and an efficiency ratio of 67% or
less, each of which targets were met. For 1996, Messrs. Bennett and
Updegraff received incentive bonuses of $25,000 and $15,000, respectively.
No long-term awards were issued. Senior Officer participants as a group,
including Messrs. Bennett and Updegraff, received incentive bonus awards
totaling $191,205 for 1996.
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 1996 in achieving certain profit, growth, and
operational objectives which were established by the Board of Directors in
the Bank Plan at the beginning of 1996 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 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 and Chief
Operating Officers, the committee periodically reviews reports prepared by
various organizations which provide comparative information on Executive
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 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 Bank. The committee has
recognized that profitability in any one year is considerably impacted by
the general economic conditions nationally and in its market 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
earnings 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.
<TABLE>
<CAPTION>
SUBMITTED BY THE DIRECTORS' PERSONNEL COMMITTEE
<S> <S> <S>
Ralph H. Meyer, Chairman Richard H. Evans Richard W. Swan
Donald L. Brooks, Jr. Thomas K. Meier William A. Tryon
David J. Dalrymple John F. Potter William C. Ughetta
Comparative Return Performance Graph
Comparison of Five-Year Cumulative Total Return For Fiscal Years
Ending December 31, 1992 - 1996 Among Chemung Financial Corporation,
NASDAQ - Composite Index and NASDAQ - Bank Stocks Index
(OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
1991 1992 1993 1994 1995 1996
Chemung Financial Corporation 100.00 105.83 136.77 157.68 178.45 226.49
NASDAQ - Composite 100.00 116.38 133.60 130.59 184.67 227.16
NASDAQ - Bank Stocks 100.00 145.55 165.99 165.39 246.32 325.60
</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, 1991.
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 1996, 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 63 Chairman of the Board and Chief
Executive Officer of the Corporation
and the Bank (1996); formerly President
and Chief Executive Officer of the
Corporation and the Bank (1991); and
prior thereto President and Chief
Operating Officer of the Corporation
and the Bank (1988).
Jan P. Updegraff 54 President and Chief Operating Officer
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. Agan1 63 Vice President of the Corporation
(1988) and Senior Vice President of the
Bank (1984).
Robert J. Hodgson 51 Vice President of the Corporation
(1990) and Senior Vice President of the
Bank (1988).
James E. Corey III 50 Vice President of the Corporation
(1993) and Senior Vice President of the
Bank (1993).
Joseph J. Tascone 49 Vice President of the Corporation and
Senior Vice President of the Bank
(1995); and prior thereto Vice
President of the Bank (1987).
Jerome F. Denton 45 Secretary of the Corporation (1986) and
Senior Vice President and Secretary of
the Bank (1996).
</TABLE>
1 Mr. Daniel F. Agan is a brother of Board member, Robert E. Agan.
Executive Compensation
The following information indicates compensation paid or accrued by
the Bank during 1996 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 $100,000.
At present, the officers of the Corporation are not separately
compensated for services rendered by them to the Corporation. It presently
is contemplated that such will continue to be the policy of the
Corporation.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
All Other
Name and Principal Year Salary($) Bonus($)1 Compensation($)2
Position Held
<S> <C> <C> <C> <C>
John W. Bennett 1996 200,308 25,000 8,541
Chairman of the Board and
Chief Executive Officer of 1995 194,000 18,000 8,418
the Corporation and the
Bank
1994 185,692 30,000 8,174
Jan P. Updegraff 1996 114,039 15,000 7,342
President and Chief
Operating Officer of the 1995 95,385 15,000 6,660
Corporation and the Bank
1994 90,385 25,000 6,266
</TABLE>
1 Includes amounts allocated for the year indicated, whether paid or
deferred, to such person under the Bank-Wide and Management Incentive
Bonus Plans.
2 Includes amounts allocated for the year indicated to such person under
the Bank's Profit-Sharing, Savings and Investment Plan.
Pension Plan
The Bank maintains a non-contributory, defined benefit Pension 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 Plan, the annual
benefit payable to qualifying employees upon their retirement is based on
the average of their five highest paid consecutive 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 employee's salary, wages, or other regular payments from the Bank,
excluding bonuses, commissions, overtime pay, or other unusual payments.
The Pension 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 $27,576 for a
participant attaining age 65 in 1996).
The Bank made contributions to the Pension Plan totaling $262,200 for 1995.
Due to a full funding limitation, the Bank made no contribution to the
Pension Plan for the years 1996 and 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 Pension
Plan, computed as if the basic Pension 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 Pension 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 Earnings Annual Benefits upon Retirement with
Years of Service Indicated
20 30 351
<S> <C> <C> <C>
$100,000 33,415 49,123 56,476
$120,000 40,815 60,023 69,027
$150,000 51,915 76,373 87,852
$190,000 66,715 98,173 112,951
$200,000 70,415 103,623 119,226
<FN>
<FN1>
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, 1996: John W. Bennett (41) and Jan P. Updegraff (26).
Profit-Sharing, Savings and Investment Plan
The Bank maintains a Profit-Sharing, 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 Bank's
profit-sharing contribution in any year is determined by the Board of
Directors in its discretion. 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 1996). Participants who have
earned at least five years of vesting service may make limited withdrawals
from the Plan's 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 $550,854 for 1996, $499,342 for 1995 and $423,161 for 1994.
Employment Contracts
The Bank has employment contracts with twenty-one 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, 1998, except for Messrs. Agan,
Corey, Tascone and Updegraff whose guaranteed terms end December 31, 1999,
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 1997.
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 1998 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 7, 1997. 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
Date: March 10, 1997
One Chemung Canal Plaza
Elmira, NY 14902
Jerome F. Denton
Secretary
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 8, 1997
CHEMUNG FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - APRIL 8, 1997
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 8, 1997
(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:
3-year term:
FOR WITHHELD David J. Dalrymple
1. Election of Richard H. Evans
Directors Edward B. Hoffman
John F. Potter
William C. Ughetta
Jan P. Updegraff
For, except vote withheld from the following nominee(s):
__________________________________________________________
I/We will attend the Meeting
Number in group ____
DATE Date
Signature Signature If Held Jointly
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 AUDITED ANNUAL FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD
ENDED DECEMBER 31, 1996 AS PRESENTED IN ITS 4TH QUARTER 1996 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> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 31103
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 500
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 185365
<INVESTMENTS-CARRYING> 10352
<INVESTMENTS-MARKET> 10351
<LOANS> 283721
<ALLOWANCE> 3975
<TOTAL-ASSETS> 532213
<DEPOSITS> 439649
<SHORT-TERM> 14371
<LIABILITIES-OTHER> 12073
<LONG-TERM> 10000
0
0
<COMMON> 10750
<OTHER-SE> 45370
<TOTAL-LIABILITIES-AND-EQUITY> 532213
<INTEREST-LOAN> 25314
<INTEREST-INVEST> 11652
<INTEREST-OTHER> 545
<INTEREST-TOTAL> 37511
<INTEREST-DEPOSIT> 14286
<INTEREST-EXPENSE> 15043
<INTEREST-INCOME-NET> 22468
<LOAN-LOSSES> 742
<SECURITIES-GAINS> 610
<EXPENSE-OTHER> 19408
<INCOME-PRETAX> 9424
<INCOME-PRE-EXTRAORDINARY> 6158
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6158
<EPS-PRIMARY> 2.96
<EPS-DILUTED> 2.96
<YIELD-ACTUAL> 4.79
<LOANS-NON> 1494
<LOANS-PAST> 226
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3900
<CHARGE-OFFS> 754
<RECOVERIES> 87
<ALLOWANCE-CLOSE> 3975
<ALLOWANCE-DOMESTIC> 1898
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 2077
</TABLE>
