3
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, 1997
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,
1998 was $47,657,848
As of February 28, 1998 there were 2,061,738 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,
1997 are incorporated by reference into Parts I, II and IV.
Portions of the Proxy Statement for the Annual Shareholders meeting to be held
on May 13, 1998 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 V 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,
1997, sets forth financial information with respect to bank-related industry
segments. The MD&A including Exhibits I through V 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, 1997.
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 1997,
1996, and 1995.
Employees
As of December 31, 1997, the Bank employed 281 persons on a full-time equivalent
basis.
(d) Financial information about foreign and domestic operations and export
sales
Neither the Corporation nor the Bank relies on foreign sources of funds or
income.
(e) Statistical disclosure by bank holding companies
The following disclosures present summarized statistical data covering the
Corporation and the Bank.
<TABLE>
<CAPTION>
Distribution of Assets, Liabilities and Shareholders' Equity, Interest Rates and
Interest Differential
December 31,
1997 1996
1995
Average Yield/Average Yield/Average Yield/
BalanceInterest Rate BalanceInterest Rate BalanceInterest Rate
Assets
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C>
Loans $ 291,259 26,6809.16%$273,904 25,3149.24%$249,149 23,868 9.58%
Taxable securities 157,615 10,6296.74 156,378 10,2926.58 155,238 9,960
6.42
Tax-exempt securities 31,154 1,442 4.63 28,883 1,360 4.71 28,051
1,406 5.01
Federal funds sold 5,481 300 5.48 6,522 350 5.37 8,434 486
5.76
Other Investments 161 0 - 0 0 - 0 0
- -
Interest-bearing
deposits 5,380 321 5.97 3,808 195 5.13 6,267 357 5.70
Total interest
earning assets 491,050 39,3728.02%469,495 37,511 7.99%447,139 36,077
8.07%
</TABLE>
<TABLE>
<CAPTION>
Non-interest earning assets:
<S> <C> <C>
<C>
Cash and due from
banks 24,396 23,501 23,442
Premises and equipment,
net 9,751 10,146 9,657
Other assets 8,091 7,003 6,922
Less allowance for
loan losses (4,077) (3,932) (3,867)
Excess of cost over
fair value of net
assets 13,211 12,247 11,969
Total $ 542,422 $ 518,460 $ 495,253
</TABLE>
<TABLE>
<CAPTION>
Liabilities and
Shareholders' Equity
Interest bearing
liabilities:
<S> <C> <C> <C> <C< <C>
<C> <C> <C> <C>
Demand deposits $ 44,991 675 1.50%$ 44,261 719 1.63%$ 43,312 731 1.69%
Savings deposits 135,146 3,894 2.88 139,219 3,942 2.83 149,257 4,408
2.95
Time deposits 185,68610,187 5.49 177,537 9,6255.42 153,433 8,307 5.41
Federal Home Loan Bank
advances and securities
sold under agreements to
repurchase 24,233 1,3425.54 15,213 7574.97 13,846 781 5.64
Total interest
bearing liabilities 390,05616,098 4.13%376,23015,043 4.00%359,848 14,227
3.95%
</TABLE>
<TABLE>
<CAPTION>
Non-interest bearing
liabilities:
<S> <C> <C>
<C>
Demand deposits 84,332 79,901 78,406
Other 9,281 8,181 6,995
483,669 464,312 445,249
Shareholders' equity 58,753 54,148 50,004
Total $ 542,422 $ 518,460 $ 495,253
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
<C>
Net interest earnings $ 23,274 $ 22,468 $
21,850
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
<C> <C>
Net yield on interest
earning assets 4.74% 4.79%
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.
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>
1997 Compared to 1996
1996 Compared to 1995
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 $ 1,591 (225) 1,366 2,310 (864) 1,446
Taxable securities 82 255 337 74 258 332
Tax-exempt securities105 (23) 82 41 (87) (46)
Federal funds sold (57) 7 (50) (104) (32) (136)
Interest-bearing deposits 90 36 126 (129) (33) (162)
Total interest
earning assets$ 1,811 50 1,861 2,191 (757) 1,434
Interest paid on:
Demand deposits 12 (56) (44) 16 (28) (12)
Savings deposits (117) 69 (48) (289) (177) (466)
Time deposits 446 116 562 1,307 11 1,318
Federal Home Loan Bank
advances and securities
sold under agreements to
repurchase 491 94 585 73 (97) (24)
Total interest bearing
liabilities$ 832 223 1,055 1,107 (291) 816
<FN>
<FN1>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
</FN>
</TABLE>
Investment Portfolio
The following table sets forth the carrying amount of investment securities
at the dates indicated:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
(In Thousands of Dollars)
<S> <C>
<C> <C>
U.S. Treasury and other
U.S. Government Agencies $ 93,971 104,567 108,775
Mortgage backed securities 55,603 50,109 30,573
State and political subdivisions 34,955 30,775 30,275
Other bonds and notes 149 1,270 3,023
Corporate stocks 9,849 8,996 6,818
Total $ 194,527 195,717 179,464
</TABLE>
Included in the above table are $185,303, $185,365 and $171,882 of
securities available for sale at December 31, 1997, 1996 and 1995,
respectively.
The following tables set forth the maturities of investment securities at
December 31, 1997 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 $ 13,095 6.67% $ 50,220
6.10%
Mortgage Backed Securities - - 3,660
6.69
State and political subdivisions 11,899 4.22 12,489
4.73
Other bonds and notes 5 5.50 80 7.32
Total $ 24,999 5.50% $ 66,450 5.88%
</TABLE>
<TABLE>
<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 $ 30,656 6.73%$ -
- - %
Mortgage Backed Securities - - 51,943
7.46
State and political subdivisions 9,836 4.60 730
4.85
Other bonds and notes 64 8.25 - -
Total $ 40,556 6.22% $ 52,673 7.42%
</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,
1997 1996 1995 1994 1993
(In Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Commercial, financial and
agricultural $ 102,816 92,557 89,785 75,006 69,484
Real estate mortgages 79,753 78,400 71,870 67,912 71,345
Consumer loans 114,593 113,004 101,687 94,181 82,028
Total $ 297,162 283,961 263,342 237,099 222,857
</TABLE>
The following table shows the maturity of loans (excluding real estate mortgages
and consumer loans) outstanding as of December 31, 1997. 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 WithinAfter
One YearFive YearsFive Years Total
<S> <C> <C>
<C> <C>
Commercial, financial and
agricultural $ 32,629 24,137 46,050 102,816
Loans maturing after one year with:
Fixed interest rates 17,155 12,237
Variable interest rates 6,982 33,813
Total $ 24,137 46,050
</TABLE>
Nonaccrual and Past Due Loans
The following table summarizes the Corporation's nonaccrual and past due loans:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995 1994 1993
(In Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Nonaccrual loans (1) $ 930 1,494 1,119 1,201 1,605
Accruing loans past due
90 days or more $ 688 226 681 354 274
</TABLE>
Information with respect to nonaccrual loans at December 31, 1997, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
(In Thousands of Dollars)
<S> <C>
<C> <C>
Nonaccrual loans $ 930 1,494 1,119
Interest income that would have been
recorded under original terms 286 278 200
Interest income recorded during the period 48 58 52
<FN>
<FN1>
(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 g
uaranteed by a government agency which becomes 120 days delinquent, the loan is
placed in nonaccrual and previously accrued interest is reversed unless, because
of collateral or other circumstances, it is deemed to be collectible. Loans may
also be placed in nonaccrual if management believes such classification is
warranted for other reasons.
</FN>
</TABLE>
Potential Problem Loans
At December 31, 1997, 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 quarterly.
Loan Concentrations
At December 31, 1997, 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, 1997, 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, 1997:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996 1995 1994 1993
(In Thousands of Dollars)
<S> <C> <C>
<C> <C> <C>
Balance at beginning of period $3,975 3,900 3,600 3,500
3,400
Charge-offs:
Commercial, financial and
agricultural 77 195 82 282 550
Real estate mortgages 53 1 5 14 -
Consumer loans 640 538 286 422 346
Home equity - 20 - - -
770 754 373 718 896
Recoveries:
Commercial, financial and
agricultural 14 16 16 18 10
Consumer loans 76 71 93 76 79
90 87 109 94 89
Net charge-offs 680 667 264 624 807
Allowance of acquired
bank at time of acquisition - - - 100
- -
Additions charged to
operations (1) 850 742 564 624 907
Balance at end of period $4,145 3,975 3,900 3,600 3,500
Ratio of net charge-offs during
period to average loans
outstanding (2) .23% .24% .11% .28% .36%
<FN>
<FN1>
(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 1997 than in prior years. The net charge-offs to total loans
have averaged 0.24% over the last five years and the highest percentage in any
of those years was 0.36%.
<FN2>
(2) Daily balances were used to compute average outstanding loan balances.
</FN>
</TABLE>
The allocated portions of the reserve reflect management's estimates of specific
known risk elements in the respective portfolios. Among the factors considered
in allocating portions of the reserve by loan type are the current levels of
past due, nonaccrual and impaired loans. The unallocated portion of the reserve
represents risk elements in the loan portfolio that have not been specifically
identified. Factors considered in determining the appropriate level of
unallocated reserves include historical loan loss history, current economic
conditions, and expectations for loan growth. The following table summarizes
the Corporation's allocation of the loan loss reserve for each year in the five-
year period ended December 31, 1997:
<TABLE>
<CAPTION>
Amount (in thousands) and Percent of
Loans by Category to Total Loans
Balance at end of
Period Applicable to:1997 % 1996 % 1995 % 1994 % 1993 %
<S> <C> <C> <C> <C> <C> <C>
<C> <C> <C> <C>
Domestic: $2,588100.0 2,445100.0 2,030100.0 2,857100.0 3,274100.0
Commercial, financial
and agricultural1,40234.5 1,472 32.3 1,042 33.0 2,108 31.0 2,620 30.2
Commercial mortgages1322.0 249 3.2 305 4.1 282 5.0 247 6.5
Residential mortgages 31 24.8 21 24.5 16 23.6 16 23.6 13
25.5
Consumer loans 1,023 38.7 703 40.0 667 39.3 451 40.4 394 37.8
Unallocated: 1,557 N/A 1,530 N/A 1,870 N/A 743 N/A 226 N/A
Total $4,145100.0 3,975100.0 3,900100.0 3,600100.0 3,500100.0
</TABLE>
Deposits
The average daily amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended
December 31,
1997 1996
1995
Amount Rate Amount Rate Amount Rate
(In Thousands of Dollars)
<S> <C> <C> <C>
<C> <C> <C>
Noninterest-bearing
demand deposits$ 84,332 - % 79,901 - % 78,406 - %
Interest-bearing demand
deposits 44,991 1.50 44,261 1.63 43,312 1.69
Savings deposits 135,146 2.88 139,219 2.83 149,257 2.95
Time deposits 185,686 5.49 177,537 5.42 153,433 5.41
$ 450,155 440,918 424,408
</TABLE>
Scheduled maturities of certificates of deposit with a remaining term greater
than one year at December 31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S>
<C>
1998 $119,945
1999 29,606
2000 17,190
2001 3,528
2002 3,522
2003 and thereafter 10
$173,801
</TABLE>
Maturities of certificates of deposit $100,000 or more outstanding at December
31, 1997 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S>
<C>
3 months or less $19,263
Over 3 through 12 months 8,972
Over 12 months 2,780
There were no other time deposits of $100,000 or more.
</TABLE>
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,
1997 1996 1995
<S> <C>
<C> <C>
Return on average assets 1.26% 1.19% 1.13%
Return on average equity 11.67 11.37 11.20
Return on beginning equity 12.22 11.64 12.25
Dividend payout ratio 36.55 35.78 36.52
Average equity to average assets ratio 10.83 10.44
10.10
Year-end equity to year-end assets ratio 11.23 10.54 10.54
</TABLE>
Short-Term Borrowings
For each of the three years in the period ended December 31, 1997, 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, 1997, 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 1997 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 28, 1998 was 808.
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, 1997
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, 1997 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, 1997 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 April 2, 1998, relating to the Annual
Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by
reference to Exhibit F of Exhibit Listing 22.
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
April 2, 1998, relating to the Annual Meeting of Shareholders to be held on May
13, 1998, is incorporated herein by reference to Exhibit F of Exhibit Listing
22.
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 April 2, 1998, relating to the Annual
Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by
reference to Exhibit F of Exhibit Listing 22.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption "Certain Transactions", presented in
the registrant's Proxy Statement, dated April 2, 1998, relating to the Annual
Meeting of Shareholders to be held on May 13, 1998, is incorporated herein by
reference to Exhibit F of Exhibit Listing 22.
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, 1997 and 1996, and for
each of the years in the three-year period ended December 31, 1997 are
incorporated by reference in Item 8:
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1997 and 1996
- Consolidated Statements of Income - Years ended December 31, 1997,
1996 and 1995
- Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1997, 1996 and 1995
- Consolidated Statements of Cash Flows - Years ended
December 31, 1997, 1996 and 1995
- Notes to Consolidated Financial Statements - December 31, 1997 and
1996
(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 April 9, 1997,
are incorporated herein by reference to Exhibit A of
the Registrant's Form 10-Q for the period ended
June 30, 1997, File No. 0-13888.
Exhibit (13) -- Annual Report to Shareholders for the year ended
December 31, 1997.
-- 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 April 2, 1998,
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, 1997.
(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, 1997
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
EXHIBIT
LISTING EXHIBIT
EXHIBIT 13 Annual Report To Shareholders For The Year Ended
December 31, 1997
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 April 2, 1998, 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 11, 1998
By /s/ Jan P. Updegraff
Jan P. Updegraff
President 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 11, 1998
Robert E. Agan
/s/ John W. Bennett Director & Chairman March 11, 1998
John W. Bennett of the Board
/s/ Donald L. Brooks, Jr Director March 11, 1998
Donald L. Brooks, Jr.
/s/ David J. Dalrymple Director March 11, 1998
David J. Dalrymple
Director
Robert H. Dalrymple
/s/ Richard H. Evans Director March 11, 1998
Richard H. Evans
/s/ Frederick Q. Falck Director March 11, 1998
Frederick Q.Falck
/s/ Edward B. Hoffman Director March 11, 1998
Edward B. Hoffman
/s/ Stephen M. Lounsberry III Director March 11, 1998
Stephen M. Lounsberry III
Signature Title Date
/s/ Thomas K. Meier Director March 11, 1998
Thomas K. Meier
Director
Ralph H. Meyer
Director
John F. Potter
/s/ Samuel J. Semel Director March 11, 1998
Samuel J. Semel
/s/ Charles M. Streeter, Jr. Director March 11, 1998
Charles M. Streeter, Jr.
/s/ Richard W. Swan Director March 11, 1998
Richard W. Swan
/s/ William A. Tryon Director March 11, 1998
William A. Tryon
Director
William C. Ughetta
/s/ Jan P. Updegraff Director, President & March 11, 1998
Jan P. Updegraff Chief Executive Officer
/s/ Nelson Mooers van den Blink Director March 11, 1998
Nelson Mooers van den Blink
Treasurer and Principal
John R. Battersby, Jr Accounting Officer
Attest
/s/ Robert J. Hodgson Secretary March 11, 1998
Rober J. Hodgson
82
EXHIBIT A
TABLE OF QUARTERLY MARKET PRICE RANGES
<TABLE>
<CAPTION>
Market Prices of Chemung Financial Corporation Stock
During Past Three Years (dollars)
- -----------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
Hi -- Lo Hi -- Lo Hi -- Lo
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 36 - 33 5/8 28 3/4 - 27 26 1/4 - 25
2nd Quarter 35 1/4 - 33 1/2 31 1/2 - 28 26 1/4 - 25
3rd Quarter 37 1/2 - 33 5/8 33 1/4 - 30 3/8 25 3/4 - 25 1/4
4th Quarter 47 1/2 - 38 1/4 35 3/4 - 33 27 3/4 - 25
</TABLE>
EXHIBIT B
TABLE OF DIVIDENDS PAID
<TABLE>
<CAPTION>
Dividends Paid by Chemung Financial Corporation
During Past Three Years
- -----------------------------------------------------------------------------
1997 1996 1995
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
January 2 $.2800 $.2500 $.2400
April 1 .2800 .2500 .2400
July 1 .3100 .2500 .2400
October 1 .3100 .2800 .2500
- -----------------------------------------------------------------------------
$1.1800 $1.0300 $.9700
</TABLE>
As of December 31, 1997 there were 824 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.
During 1997, the Corporation joined six other bank holding companies in
forming a Small Business Investment Comapny ("SBIC") as a limited partner.
The SBIC is authorized under The Small Business Equity Investment Act of
1992 and is registered under the CEPHAS Capital Partners, L.P.. The
Corporation's capital commitment to the partnership is $2.475 million of
which $804,375 had been paid as of December 31, 1997. The objective of the
partnership is to achieve a superior rate of return over a five to ten year
life through the realization and distribution of portfolio capital gains,
operating income and other transaction/advisory fee income.
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 Loan 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.
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 over $1.217 billion at
market December 31, 1997, compared to $1.074 billion 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 1997, as well as 1996 and 1995, 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 and continued in
1997 included sales and referral incentives designed to maximize results
from the Bank's branch system. Additionally, during 1997, an office was
opened in Binghamton, New York specifically for the purpose of providing
Trust and Investment Services. This office is located in the Marine
Midland Plaza.
SIGNIFICANT ISSUE - YEAR 2000
During 1997, management advised its Board of Directors of the many issues
surrounding the approach of January 1, 2000. Nearly all computer hardware
and software developed during the current century, have been programmed
with two digit reference to each year. Such hardware and software, if not
upgraded by January 1, 2000 may become useless. Management is undergoing a
five phase project to respond to this issue, with major emphasis upon
identifiying all applications and data bases supporting the Bank's mission
critical applications. The five phases are awareness, assessment,
renovation, validation and implementation, and will seek to neutralize not
only the Bank's vulnerability but to determine the financial capacity of
its vendors, determine alternate vendors, and evaluate the capacity of its
customers to respond to this challenge. As of December 31, 1997 the
awareness phase was complete and the assessment phase underway. The
implications of this issue are considered to be very significant to the
financial services industry in particular. The financial implications to
the Corporation will be determined upon completion of the assessment phase
of the project.
Employees
The Corporation and its Banking subsidiary had 281 full-time equivalent
employees (FTEOs) on December 31, 1997 versus 289 at the beginning of the
year. The employment trend is relatively stable.
Balance Sheet Comments
Average earning assets for 1997 grew by $21.6 million or 4.6% to $491.1
million, compared to $469.5 million in 1996 and $447.1 million in 1995.
Commercial and consumer loan balances grew $11.9 million (5.76%), while the
mortgage portfolio increased $1.4 million (1.73%). Average total loan
balances were $291.3 million versus $273.9 million during 1996 (up 6.4%)
and $249.1 million during 1995. The 1994 acquisition of the Columbia
branches from the Resolution Trust Corporation 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 the purchase of 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 $1.617 million versus $1.720
million at the end of 1996, and represented 0.54% of total outstandings
compared to 0.61% on December 31, 1996 and 0.68% on December 31, 1995. Net
loan losses were $680 thousand or 0.23% of average outstandings, compared
to $667 thousand in 1996 and $264 thousand in 1995. The allowance for loan
losses at December 31, 1997 was 1.40% of outstandings and, at 257% of non-
performing loans versus 231% a year ago and 217% in 1995, is felt by
management to be adequate.
<TABLE>
<CAPTION>
Exhibit I
Balance Sheet Comparisons
Average Balance Sheet Change
(in millions) 1997 1996 1995 1994 1993 19921 yr. 5 yrs
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Total assets 542.4 518.5 495.2 431.2 397.7 387.0 4.6% 7.0%
Earning assets 491.1 469.5 447.1 394.7 368.4 358.3 4.6% 6.5%
Loans 291.3 273.9 249.1 221.4 224.1 221.0 6.4% 5.7%
*Investments 199.8 195.6 198.0 173.3 144.3 137.3 2.1% 7.8%
Deposits 450.2 440.9 424.4 374.6 347.0 338.5 2.1% 5.9%
Tangible Equity 51.6 46.4 41.7 38.2 37.0 34.211.2% 8.6%
*Average balances for investments are based on amortized cost.
Ending Balance Sheet
(in millions) 1997 1996 1995 1994 1993 1992 Change
Total assets 548.9 532.2 501.9 494.3 398.1 385.8 3.1% 7.3%
Earning assets 486.1 474.6 446.3 448.9 369.2 356.4 2.4% 6.4%
Loans - net 292.8 279.7 259.1 232.9 218.8 214.9 4.7% 6.4%
Investments 196.8 196.3 189.6 212.1 147.1 138.0 .3% 7.4%
Deposits 451.0 439.6 426.9 432.3 342.9 339.2 2.6% 5.9%
Tangible Equity 54.8 48.7 44.9 37.2 38.3 35.512.5% 9.1%
Allowance for
Loans 4.15 3.98 3.90 3.60 3.50 3.40 4.3% 4.1%
</TABLE>
Securities
The board-approved Funds Management Policy includes an investment portfolio
policy which requires that, except for local municipal obligations which
are sometimes not rated 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". 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, 1997, was $185.3
million compared to $185.4 million a year earlier and $171.9 million at the
end of 1995.
The components of the net appreciation are set forth in the following
table:
<TABLE>
<CAPTION>
Amortized Fair
Cost Value Appreciation
(in thousands)
<S> <C> <C>
<C>
U.S. Treasury Securities $ 37,188 $ 37,294 $ 106
Obligations of other U.S.
Government Agencies 56,565 56,677 112
U.S. Government Agency
Mortgage-backed pools 55,021 55,603 582
Obligations of states and
political subdivisions 25,361 25,800 439
Other bonds and notes 80 80 0
Corporate stocks 3,459 9,849 6,390
Totals $ 177,674 $ 185,303 $ 7,629
</TABLE>
Included in the above table are 15,350 shares of SLM Holding Corporation at
a cost basis of $4,915 and fair value of $2,135,569. These shares were
acquired as preferred shares of Student Loan Marketing Agency ("Sallie
Mae") a permitted exception to the Government regulation banning bank
ownership of equity securities in the original capitalization of the U.S.
Government Agency. Later, the shares were converted to common stock as
SALLIE MAE recapitalized. Additionally, at December 31, 1997, the banking
subsidiary's portfolio held marketable equities totalling $89,540 at cost
with a total fair value of $4,323,514 The shares, other than SLM Holding
Corp., 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, 1997, was $54.8 million or 9.98% of
total assets compared to $48.7 million or 9.15% of total assets at the end
of 1996 and $44.9 million or 8.95% of assets at the end of 1995. As of
December 31, 1997, the Corporation's total Risk Weighted Adjusted Capital
Ratio was 17.44% compared with 16.87% at December 31, 1996 and 16.46% at
the end of 1995. The leverage ratio (Average Tier I Capital/Average
Assets) was 9.49% at year end versus 8.97% in 1996 and 8.52% in 1995.
Management's strategy for leveraging the Corporation's capital is to
maintain the leverage ratio between 7.50% and 8.50%. As opportunities for
matching suitable investments with appropriate funding sources are
presented in the market place, this strategy will be implemented. During
1997, the relatively flat yield curve was not attractive for this approach.
Under Federal Reserve regulations (see Note 15 to the consolidated
financial statements), the Bank is limited to the amount it may loan to the
Corporation, unless such loans are collateralized by specific obligations.
At December 31, 1997, 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, 1997, $8,143,853 was available for the declaration of
dividends.
Cash dividends declared amounted to $2.506 million in 1997 versus $2.203
million in 1996 and $2.046 million in 1995. Dividends declared amounted to
36.6% of net earnings compared to 35.8% and 36.5% of 1996 and 1995 net
earnings, respectively. It is management's objective to continue
generating sufficient capital internally, while retaining an adequate
dividend payout ratio.
Performance Summary
Net income for 1997 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.
Consolidated net income for 1997 was $6.857 million versus $6.158 million,
up $699 thousand (11.4%) or $3.31 versus $2.96 per share (11.8%) on 7.8
thousand fewer average shares outstanding. During 1995 the Corporation
earned $2.68, up 9.4% from 1994. Quarterly dividends declared totaled
$1.21 per share versus 1996's $1.06 and $0.98 in 1995.
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 1997 were $71 thousand versus $253
thousand in 1996 and $538 thousand in 1995.
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 Bank Insurance
Fund. The two funds are now merged. There were $29 million of the Bank's
deposits subjected to a $191 thousand assessment in the fourth quarter of
1996. In December 1997, the Bank received notification from the FDIC that
it remains well capitalized. The 1998 FDIC insurance premium will be
accrued at an annual rate of $73 thousand for total insured deposits.
During 1997, the Bank's provision for loan losses totaled $850 thousand, up
$108 thousand from $742 thousand in 1996 and $564 thousand in 1995. 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 8.02% during 1997 versus
7.99% in 1996 and 8.07% in 1995. The interest expense on the Bank's
liabilities also increased to 4.13% in 1997 versus 4.00% in 1996 and 3.95%
in 1995. This resulted in a net interest spread of 3.89% versus 3.99% a
year earlier and 4.12% in 1995. The net interest margin declined 5 basis
points to 4.74%. Noninterest income totaled $7.468 million versus $7.106
million in 1996 and $6.736 million in 1995. Trust department income, at
$4.079 million in 1997 versus $3.719 million in 1996 and $3.678 million in
1995 is the largest segment of non-interest income. There were $324
thousand in net securities gains realized during 1997 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 primarily 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>
Change
Earnings 1997 1996 1995 1994 1993 1992 1 yr. 5 yrs
(in thousands)
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Net Int. Inc $23,274 22,468 21,849 19,30418,672 18,339 3.6% 4.9%
Loan Loss Prov. 850 742 564 624 907 902 14.6% -1.2%
Net Int. Inc After Loan
Loss Provision 22,424 21,726 21,285 18,68017,765 17,437 3.2% 5.2%
Trust Income 4,079 3,719 3,678 3,3233,294 3,176 9.7% 5.1%
Securities Gains
(losses),net 324 610 531 140 821 105 -46.9% 25.3%
Other Income 3,065 2,777 2,527 2,2222,004 1,691 10.4% 12.6%
Total Non
Interest Income 7,468 7,106 6,736 5,6856,119 4,972 5.1% 8.5%
Non Int. Expense 19,368 19,408 19,560 17,37515,627 15,287 -0.2% 4.8%
Pretax Income 10,524 9,424 8,461 6,9908,257 7,122 11.7% 8.1%
Income Taxes 3,667 3,266 2,859 2,3422,830 2,296 12.3% 9.8%
Net Oper Income 6,857 6,158 5,602 4,6485,427 4,826 11.4% 7.3%
Effect of Acct
Change 0 0 0 0 (933) 0 N/A N/A
Net Income 6,857 6,158 5,602 4,6484,494 4,826 11.4% 7.3%
</TABLE>
Exhibit III
<TABLE>
<CAPTION>
Selected Financial Data Change
Per Share Data 1997 1996 1995 1994 1993 1992 1 yr. 5 yrs
<S> <C> <C> <C> <C> <C>
<C> <C> <C>
Net Oper Income $3.31 $2.96 $2.68 $2.45 $2.87 $2.55 11.8% 5.4%
Net Income 3.31 2.96 2.68 2.45 2.37 2.55 11.8% 5.4%
Dividends Declared 1.21 1.06 0.98 0.935 0.875 0.82 14.2% 8.1%
Tangible Book Value 26.49 23.51 21.57 17.75 20.25 18.75 12.7% 7.2%
Market Pr 12/31 42.00 34.00 27.75 25.50 23.00 18.50 23.5% 17.8%
Average Shs O/S 2,072 2,079 2,088 1,899 1,894 1,894 -0.3% 1.8%
(thousands)
</TABLE>
Exhibit IV
<TABLE>
<CAPTION>
Selected Ratios 1997 1996 1995 1994 1993
<S> <C> <C> <C>
<C> <C>
Return on average assets 1.26% 1.19% 1.13% 1.08% 1.13%
Ret on avg. Tier 1 Equity 14.29% 14.08% 14.26% 12.49% 12.15%
Dividend yield 12/31 2.95% 3.29% 3.60% 3.76% 3.96%
Dividend payout 36.55% 35.78% 36.52% 38.22% 36.86%
Leverage Ratio 9.39% 8.97% 8.52% 7.69% 9.63%
Tier I capital
to risk adjusted assets 16.19% 15.61% 15.21% 13.71% 15.66%
Total capital
to risk adjusted assets 17.44% 16.87% 16.46% 15.03% 17.09%
Loans to deposits 65.84% 64.53% 61.61% 54.71% 64.83%
Loan reserve to
outstanding loans 1.40% 1.40% 1.48% 1.52% 1.57%
Loan reserve to
non-performing loans 257% 231% 217% 232% 186%
Non-performing loans to
outstanding loans 0.54% 0.61% 0.68% 0.66% 0.85%
Net interest rate spread 3.89% 3.99% 4.12% 4.26% 4.42%
Net interest margin 4.74% 4.79% 4.89% 4.89% 5.07%
</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>
1997 vs. 1996 1996 vs. 1995
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 $1,366 $1,591 $(225) $ 1,446 $2,310 $(864)
Taxable investment
securities 337 82 255 332 74 258
Tax-exempt investment
Securities 82 105 (23) (46) 41 (87)
Federal funds sold (50) (57) 7 (136) (104) (32)
Interest-bearing dep. 126 90 36 (162) (129) (33)
Total Interest Income $1,861 $1,811 $ 50 $ 1,434 $2,192 $(758)
Interest Expense (thousands)
Demand deposits $ (44)$ 12 $ (56) $ (12)$ 16 $ (28)
Savings deposits (48) (117) 69 (466) (289) (177)
Time deposits 562 446 116 1,318 1,307 11
Federal Funds Purchased
and securities sold
under agreement to
repurchase 585 491 94 (24) 73 (97)
Total Interest Expense$1,055 $ 832 $ 223 $ 816 $1,107 $(291)
Net Interest Income $ 806 $ 979 $(173) $ 618 $1,085 $(467)
</TABLE>
The core deposit intangible and goodwill in the amount of $4.54 million and
$2.28 million, respectively, at December 31, 1997, which accounts for the
premium paid in connection with the acquisition of three branches from the
Resolution Trust Corporation ("RTC") and the acquisition of 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 1997, 2,685 shares were
purchased at a total cost of $107,768 or an average price of $40.14 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 1996,
16,915 shares were purchased at a total cost of $514,599 or an average
price of $30.42 per share. In 1995, 11,632 of the treasury shares were
purchased at a total cost of $299,749 or an average price of $25.77 per
share.
Cash Flow
Proceeds from maturities and sales of securities and student loans
available for sale trailed purchases of securities and loan originations,
net of repayments and net purchases of premises and equipment, by $12.551
million in 1997. Net purchases of equipment were $1.990 million. During
1996, 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 $38.304 million.
Net purchases of premises and equipment during 1996 were $862.7 thousand,
In 1995, net cash provided by investing activities was $2.290 million
Net cash provided by financing activities amounted to $10.219 million in
1997, compared to $21.304 million during 1996 and net cash used by
financing activities of $4.495 million in 1995. Core deposits (Demand,
NOW, Savings and Insured Money Market Accounts) increased $11.6 million in
1997, compared to a decrease of $7.4 million in 1996, while certificates of
deposit and individual retirement accounts decreased $208.6 thousand
compared to an increase of $20.1 million in 1996.
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 alternative for investing excess reserves. The Bank's $1.797
million investment in FHLB stock, allowed it to maintain a line of credit
of $46,976,500 at December 31, 1997.
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, 1997, the cumulative one-year contractual gap
for the Bank was a negative $176.0 million versus a negative $160.9 million
a year earlier and a negative $121.5 at the end of 1995. This indicates
that $176.0 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 1997, 1996 and 1995 has been very
stable, even with movements in excess of 200 basis points. Short term rates
(6 month U.S. Treasury Bills) ranged between 5.03% - 5.45% during 1997.
<TABLE>
<CAPTION>
December 31, 1997 Rate Sensitive
Contractual Amounts 1 to 90 1 to 365 1 to 5
Over 5
(Thousands) days days years years
Earning assets:
<S> <C> <C> <C>
<C>
Loans $ 98,089 $ 21,650$ 100,467 $ 76,458
Securities 11,629 18,086 66,300 88,122
Federal funds 0
Other (Equities) 8,755
Total earning assets $ 118,473 $ 39,736 $ 166,767 $ 164,580
Net sources:
NOW accounts $ 46,417
Insured Money Market 49,048
Time certificates
under $100 thousand 35,325 61,503 47,008 10
Time certificates
over $100 thousand 19,264 8,972 2,779
Savings 87,945
Federal Home Loan Bank Advances6,300 10,000
Repurchase agreements 5,248 4,200
Total sources $ 249,547 $ 84,675 $ 49,787 $ 10
Incremental gap -131,074 -44,939 116,980 164,570
Percent of earning assets -110.6 -113.1 70.1 100
Cumulative gap -131,074 -176,013 -59,033 105,537
Percent of total assets -24.0 -32.2 -10.8 19.3
</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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the FASB issued SFAS No.130 Reporting Comprehensive Income.
SFAS No. 130 establishes standards for the reporting and display of
comprehensive income and its components in a full set of general purpose
financial statements. Comprehensive income is defined as the change in
equity of a business enterprise during a period from transactions and other
events and circumstances from nonowner sources. The impact of adopting
SFAS No. 130, which is effective for the Company in 1998, has not been
determined.
In June 1997, the FASB issued SFAS No. 131, Disclosures about Segments of
an Enterprise and Related Information. SFAS No. 131 requires publicly-held
companies to report financial and other information about key revenue-
producing segments of the entity for which such information is available
and is utilized by the chief operation decision maker. Specific
information to be reported for individual segments includes profits or
loss, certain revenue and expense items and total assets. A reconciliation
of segment financial information to amounts reported in the financial
statements would be provided. SFAS No. 131 is effective for the Company in
1998 and the impact of adoption has not been determined.
/S/ Jan P. Updegraff
Jan P. Updegraff
President and
Chief Operating Officer
EXHIBIT D
CONSOLIDATED FINANCIAL STATEMENTS AND
REPORT OF INDEPENDENT AUDITORS
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, 1997 and 1996, 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, 1997. 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, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
Syracuse, New York
January 22, 1998
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Assets December 31 1997 1996
<S>
<C> <C>
Cash and due from banks $ 32,997,157 31,103,374
Interest-bearing deposits with other
financial institutions 1,421,298 151,920
Federal funds sold 0 500,000
Securities available for sale, at fair value185,302,745
185,365,478
Securities held to maturity, fair value of
$9,224,028 in 1997 and $10,351,440 in 19969,224,028
10,351,840
Loans, net of unearned income and deferred fees296,9
76,769 283,720,981
Allowance for loan losses (4,145,422)(3,975,000)
Loans, net 292,831,347 279,745,981
Premises and equipment, net 10,219,043 9,712,633
Other assets 10,123,203 7,878,811
Intangible assets, net of accumulated amortization6,
815,631 7,402,934
Total assets $ 548,934,452 532,212,971
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 94,656,560 86,049,289
Interest-bearing 356,387,782 353,600,054
Total deposits 451,044,342 439,649,343
Securities sold under agreements to repurchase 9,447,856
14,371,140
Federal Home Loan Bank advances16,300,000 10,000,000
Accrued interest payable 1,191,409 1,152,791
Dividends payable 641,611 580,220
Other liabilities 8,672,057 10,339,278
Total liabilities 487,297,275 476,092,772
Commitments and contingencies (note 14)
Shareholders' equity:
Common stock, $5.00 par value per share;
authorized 3,000,000 shares, issued: 2,150,06710,
750,335 10,750,335
Surplus 10,101,804 10,101,804
Retained earnings 38,236,025 33,885,269
Treasury stock, at cost (1997 - 80,538 shares;(2,032,886)
(1,925,118)
1996 - 77,853 shares)
Net unrealized gain on securities
available for sale, net of taxes4,581,899 3,307,909
Total shareholders' equity 61,637,177 56,120,199
Total liabilities and shareholders' equity $ 548,934,452
532,212,971
See accompanying notes to consolidated financial
statements.
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION
Years ended December 31 1997 1996 1995
<S> <C>
<C> <C>
Interest income:
Loans $ 26,679,426 25,313,778 23,867,713
Securities 12,070,919 11,651,818 11,365,927
Federal funds sold 300,359 350,005 485,979
Interest-bearing deposits 321,265 195,181 357,090
Total interest income 39,371,969 37,510,782 36,076,709
Interest expense:
Deposits 14,756,046 14,286,189 13,446,125
Borrowed funds 659,753 176,126 7,538
Securities sold under agreements to repurchase 682,065 580,354
773,264
Total interest expense 16,097,864 15,042,669 14,226,927
Net interest income 23,274,105 22,468,113 21,849,782
Provision for loan losses 850,100 741,662 564,380
Net interest income after provision for loan losses22,424,005 21,726,451
21,285,402
Other operating income:
Trust department income 4,078,880 3,718,851 3,677,622
Service charges on deposit accounts 1,906,931 1,611,409 1,502,971
Net gain on sales of securities 323,989 609,596 530,953
Credit card merchant earnings 536,735 519,039 494,821
Other 621,273 646,603 529,413
7,467,808 7,105,498 6,735,780
Other operating expenses:
Salaries and wages 8,041,859 7,926,874 7,658,865
Pension and other employee benefits 2,033,962 1,976,814 2,214,273
Net occupancy expenses 1,562,568 1,629,539 1,586,077
Furniture and equipment expenses 1,651,675 1,592,873 1,475,543
Other 6,077,630 6,281,664 6,625,056
19,367,694 19,407,764 19,559,814
Income before income taxes 10,524,119 9,424,185 8,461,368
Income taxes 3,666,899 3,266,662 2,859,476
Net income $ 6,857,220 6,157,523 5,601,892
Weighted average shares outstanding 2,071,544 2,079,312 2,087,751
Net income per common share: $ 3.31 2.96 2.68
See accompanying notes to consolidated financial statements.
</TABLE>
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, 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)
Purchase of 11,632 shares - - - (299,749) - (299,749)
of 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, 199510,750,335 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)
Purchases of 16,915 shares of - - - (514,599) -
(514,599)
treasury stock
Sale of 7,280 shares of treasury stock - 33,241 - 168,799
- - 202,020
Change in net unrealized gain - - - - (420,420)
(420,420)
(loss) on securities
available for sale, net of
taxes of $312,318
Balances at December 31, 1996$ 10,750,335 10,101,804 33,885,269 (1,925,118)
3,307,909 56,120,199
Net income - - 6,857,220 - - 6,857,220
Cash dividends declared- - (2,506,464) - - (2,506,464)
($1.21 per share)
Purchase of 2,685 shares of- - - (107,768) - (107,768)
treasury stock
Change in net unrealized gain (loss)- - - - 1,273,990
1,273,990
on securities available for sale, net of
taxes of $833,553
Balances a December 31, 1997$ 10,750,335 10,101,804 38,236,025 (2,032,886)
4,581,899 61,637,177
See accompanying notes to consolidated financial statements
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
<S> <C>
<C> <C>
Cash flows from operating activities:
Net income $ 6,857,220 6,157,523 5,601,892
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of intangible assets587,303 587,303 585,303
Deferred income taxes (260,933) (387,248) (168,577)
Provision for loan losses 850,100 741,662 564,380
Depreciation and amortization1,483,178 1,440,752 1,250,236
Amortization and discount on securities, net248,288 303,365
(458,579)
Gain on sales of securities, net(323,989) (609,596) (530,953)
(Increase) decrease in other assets(2,244,392)(216,172) 289,799
Increase (decrease) in accrued interest payable38,618 93,689
164,706
Increase (decrease) in other liabilities(2,239,841) 3,260,358
(92,107)
Net cash provided by operating activities4,995,552 11,371,636 7,20
8,100
Cash flows from investing activities:
Proceeds from sales of securities available24,071,461 57,617,458
15,958,448
for sale
Proceeds from maturities of and principal 12,226,947 6,035,978 7,2
61,930
collected on securities held to maturity
Proceeds from maturities of and principal30,683,353 52,023,153 94,
781,598 collected on securities available for sale
Purchases of securities available for sale(52,508,840)(122,926,000)(
75,727,391)
Purchases of securities held to maturity(11,099,132)(8,805,672)(10,2
02,780)
Purchases of premises and equipment, net(1,989,588)(862,683)(3,013,6
36)
Loan net of repayments and other reductions(17,235,072) (24,578,050)
(29,563,052)
Proceeds from sales of student loans3,299,607 3,191,711 2,794,848
Net cash provided (used) by investing activities$ (12,551,264)(38,
304,105) 2,289,965
</TABLE>
(Continued)
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
<S> <C>
<C> <C>
Cash flows from financing activities:
Net increase (decrease) in demand deposits,$ 11,603,559 (7,366,182)
(14,320,289)
NOW accounts, savings accounts, and insured
money market accounts
Net increase (decrease) in certificates of(208,560) 20,136,632 8,92
8,461
deposit and individual retirement account
Net increase (decrease) in securities sold (4,923,284 989,559
3,177,796
under agreements to repurchase
Net increase Federal Home Loan Bank advances6,300,000 10,000,000
- -
Purchases of treasury stock (107,768) (514,599) (299,749)
Sale of treasury stock - 202,020 -
Cash dividends paid (2,445,074) (2,143,465) (1,981,078)
Net cash provided (used) by financing10,218,873 21,303,965 (4,494,
859)
activities
Net increase (decrease) in cash and cash2,663,161 (5,628,504) 5,003
,206
equivalents
Cash and cash equivalents, beginning of year31,755,294 37,383,798 32
,380,592
Cash and cash equivalents, end of year $ 34,418,455 31,755,294 37,3
83,798
Supplemental disclosure of cash flow information:
Transfer of securities held to maturity $ - -
10,505,646
to securities available for sale
Cash paid during the year for:
Income Taxes 3,748,867 3,832,329 2,937,581
Interest $ 16,059,256 14,948,980 14,062,221
See accompanying notes to consolidated financial statements.
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(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.
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 are 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 in 1995, 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. On December 31, 1997, the Corporation adopted the provisions of
Statement of Financial Accounting Standards No. 128, Earnings Per Share.
Adoption of this statement had no effect on the Corporation as it has no
potentially dilutive securities.
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. The securities
underlying the agreements were under the bank's control.
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) 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 18, 1997 was $8,506,000, of which
$2,439,000 was required to be on deposit with the Federal Reserve Bank; the
remainder, $6,067,000, was represented by cash on hand.
(3) Securities
Amortized cost and fair value of securities available for sale at
December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C>
<C> <C>
U.S. Treasury securities$ 37,188,03537,293,793 52,721,091 52,763,618
Obligations of other U.S.
Government agencies56,565,434 56,676,787 51,831,740 51,803,452
Mortgage backed securities55,020,82955,602,615 50,193,422 50,109,133
Obligations of states and
political subdivisions25,361,08025,800,408 20,257,203 20,499,918
Other bonds and notes 79,671 79,963 1,178,422 1,192,889
Corporate stocks 3,458,827 9,849,179 3,662,274 8,996,468
$ 177,673,876 185,302,745 179,844,152 185,365,478
</TABLE>
Amortized cost and fair value of securities held to maturity at December
31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION
1997 1996
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C>
<C> <C>
Obligations of states and
political subdivisions$ 9,154,5389,154,538 10,275,184 10,275,184
Other bonds and notes 69,490 69,490 76,656 76,256
$ 9,224,028 9,224,028 10,351,840 10,351,440
</TABLE>
Included in corporate stocks at December 31, 1997 and 1996 is the Bank's
required investment in the stock of the Federal Home Loan Bank with a
cost of $1,797,200. This investment allows the Bank to maintain a
$46,976,500 line of credit with the Federal Home Loan Bank.
Gross unrealized gains and gross unrealized losses on securities
available for sale at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S> <C> <C>
<C> <C>
U.S. Treasury securities$ 126,876 21,118 276,003 233,476
Obligations of other U.S.
Government agencies 242,668 131,315 338,193 366,481
Mortgage backed securities626,925 45,139 135,219 219,508
Obligations of states and
political subdivisions439,540 212 260,656 17,941
Other bonds and notes 292 - 14,467 -
Corporate stocks 6,390,352 - 5,334,194 -
$ 7,826,653 197,784 6,358,732 837,406
</TABLE>
Gross unrealized gains and gross unrealized losses on securities held to
maturity at December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S> <C> <C>
<C> <C>
Other bonds and notes - - - 400
</TABLE>
Gross realized gains on sales of securities were $323,989, $613,190, and
$530,953 for the years ended December 31, 1997, 1996 and 1995,
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, 1997 and 1995.
Interest and dividends on securities for the years ended December 31,
1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
Taxable
<S> <C>
<C> <C>
U.S. Treasury securities $ 2,821,733 4,002,636 6,087,187
Obligations of other U.S.
Government agencies 3,670,414 3,252,513 2,918,058
Mortgage backed securities 3,727,722 2,590,587 240,143
Other bonds and notes 48,984 174,419 433,230
Corporate stocks 360,184 271,614 281,145
Exempt from federal taxation -
Obligations of states and
political subdivisions 1,441,882 1,360,049 1,406,164
$ 12,070,919 11,651,818 11,365,927
</TABLE>
The amortized cost and fair value by years to maturity as of December
31, 1997 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$ 6,098,2536,115,743 31,089,782 31,178,050
Obligations of other U.S.
Government agencies6,941,474 6,979,380 19,010,324 19,041,783
Mortgage backed securities - - 3,654,393 3,660,165
Obligations of states and
political subdivisions 5,602,194 5,633,418 10,591,851 10,767,699
Other bonds and notes - - 79,671 79,963
Total $ 18,641,921 18,728,541 64,426,021 64,727,660
</TABLE>
<TABLE>
<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$ 30,613,636 30,655,624 - -
Mortgage backed securities - - 51,366,436 51,942,450
Obligations of states and
political subdivisions8,454,996 8,669,239 712,039 730,052
Total $ 39,068,632 39,324,863 52,078,475 52,672,502
</TABLE>
The amortized cost and fair value by years to maturity as of December
31, 1997 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 $ 6,265,5676,265,567 1,721,792 1,721,792
Other bonds and notes 5,000 5,000 - -
Total $ 6,270,567 6,270,567 1,721,792 1,721,792
</TABLE>
<TABLE>
<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$ 1,167,1791,167,179 - -
Other bonds and notes 64,490 64,490 - -
Total $ 1,231,669 1,231,669 - -
</TABLE>
The fair value of securities pledged to secure public funds on deposit or
for other purposes as required by law was $103,131,459 at December 31, 1997
and $107,381,997 at December 31, 1996. U.S. Treasury securities totaling
$13,000,000 (fair value of $13,044,720 and $12,951,250,GNMA's totaling
$12,185,770 and $10,844,688 (fair value of $12,625,864 and $11,283,339),
SLMA totaling $2,000,000 (fair value of $1,992,500 and $1,970,000) were
pledged to secure repurchase agreements and other borrowings at December
31, 1997 and 1996, respectively, see note 7.
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, 1997 or 1996. 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.
During 1997, the Bank declared a special dividend payable to the
Corporation for the purpose of funding equity investments in Southern Tier
Business Development, LLC and Cephas Capital Partners, LP. These small
investment companies ("SBIC's") were established for the purpose of
providing financing to small businesses in areas served, including minority-
owned small businesses and those that will create jobs for the low to
moderate income levels in the targeted areas. These investments, totaling
$844,875, are included in other assets under the equity method of
accounting.
(4) Loans and Allowance for Loan Losses
<TABLE>
<CAPTION>
The composition of the loan portfolio is summarized as follows:
December 31, 1997 1996
<S> <C>
<C>
Residential mortgages $ 73,756,609 69,440,000
Commercial mortgages 5,996,380 8,959,555
Commercial, financial and agricultural102,402,506 92,467,486
Leases 413,487 89,758
Consumer loans 114,592,615 113,003,980
Net deferred fees and unearned income(184,828) (239,798)
$ 296,976,769 283,720,981
</TABLE>
During 1997, 1996 and 1995, the Corporation sold $3,299,607, $3,191,711 and
$2,794,848, 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 $929,697 and
$1,493,607 at December 31, 1997 and 1996, respectively. There were no
loans with modified payment terms because of the borrowersO financial
difficulties at December 31, 1997 and 1996. The effect of nonaccrual loans
on interest income for the years ended December 31, 1997, 1996 and 1995 was
not material. The Bank is not committed to advance additional funds to
these borrowers. Other real estate owned at December 31, 1997 amounted to
$595,127 and at December 31, 1996, amounted to $271,331.
Transactions in the allowance for loan losses for the years ended December
31, 1997, 1996 and 1995 were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
<C> <C>
Balances at January 1 $ 3,975,000 3,900,000 3,599,968
Provision charged to operations 850,100 741,662 564,380
Loans charged off (770,389) (754,360) (373,261)
Recoveries 90,711 87,698 108,913
$ 4,145,422 3,975,000 3,900,000
</TABLE>
At December 31, 1997 and 1996, the recorded investment in loans that are
considered to be impaired totaled $951,007 and $1,700,600 respectively.
Included in the 1997 amount are impaired loans of $707,404 for which the
related allowance for loan losses is $238,934 and $243,603 of impaired
loans with no related allowance for loan losses. The 1996 amount
includes $798,702 in impaired loans with a related allowance for loan
losses of $340,949 and $901,898 with no related allowance. The average
recorded investment in impaired loans during 1997, 1996 and 1995 was
$1,201,217, $1,620,774 and $722,055 respectively. The effect on
interest income for impaired loans was not material to the consolidated
financial statements in 1997, 1996 or 1995.
(5) Premises and Equipment
Premises and equipment at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Land $ 2,106,408 2,106,408
Buildings 11,250,664 10,166,115
Equipment and furniture 12,843,138 12,003,849
Leasehold improvements 399,534 399,534
26,599,744 24,675,906
Less accumulated depreciation 16,380,701 14,963,273
$ 10,219,043 9,712,633
</TABLE>
(6) Deposits
Interest-bearing deposits include certificates of deposit in
denominations of $100,000 or more aggregating $31,014,878 and
$36,770,362 at December 31, 1997 and 1996, respectively. Interest
expense on such certificates was $2,279,576, $2,215,271, and $1,057,353
for 1997, 1996 and 1995, respectively.
Scheduled maturities of certificates of deposit at December 31,1997 are
summarized as
follows:
<TABLE>
<CAPTION>
Time Certificates of Deposit
<S>
<C>
1998 $119,945,280
1999 29,605,998
2000 17,189,754
2001 3,528,508
2002 3,521,852
2003 and thereafter 10,000
$173,801,392
</TABLE>
(7) Securities Sold Under Agreements to Repurchase
The agreements have maturities of 2 to 350 days at December 31, 1997 and 2
days at December 31, 1996, and a weighted average interest rate of 5.17% at
December 31, 1997 and 6.04% at December 31, 1996. The maximum amounts
outstanding at any one month-end and average amount under these agreements
during 1997 were $16,482,934 and $13,502,272, respectively. 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.
(8) Federal Home Loan Bank Advances
Federal Home Loan Bank advances at December 31, 1997, consisted of a
$10,000,000, 6.18%, two year advance with a maturity date of October 16,
1998 and a $6,300,000, 6.125%, two day advance with a maturity date of
January 2, 1998.
(9) Income Taxes
Total income taxes for the years ended December 31, 1997, 1996 and 1995
were allocated as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
<C> <C>
Income before income taxes $ 3,666,899 3,266,662 2,859,476
Shareholders' equity for change in
unrealized gain (loss) on securities833,553 (312,318) 2,645,891
$ 4,500,452 2,954,344 5,505,367
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, income tax expense
attributable to income from operations consists of:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
<C> <C>
Current:
State $ 871,137 792,674 646,080
Federal 3,056,695 2,861,236 2,381,973
3,927,832 3,653,910 3,028,053
Deferred (260,933) (387,248) (168,577)
$ 3,666,899 3,266,662 2,859,476
</TABLE>
Income tax expense differed from the amounts computed by applying the
U.S. Federal statutory income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C>
<C> <C>
Tax computed at statutory rate $ 3,578,200 3,204,223 2,876,865
Tax exempt interest (499,677) (465,955) (486,208)
Dividend exclusion (50,369) (34,151) (33,594)
State taxes, net of federal benefit 549,418 476,584 408,610
Nondeductible interest expense 66,403 52,262 55,582
Other items, net 22,924 33,699 38,221
Actual tax expense $ 3,666,899 3,266,662 2,859,476
</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, 1997 and 1996 are presented below:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Deferred tax assets:
Allowance for loan losses-book$ 1,655,682 1,593,518
Accrual for postretirement benefits
other than pensions 780,350 767,119
Deferred loan fees 68,714 84,760
Deferred compensation and directors fees584,019 500,728
Pensions 176,320 126,499
Other 114,608 135,360
Total gross deferred tax assets $ 3,379,693 3,207,984
Deferred tax liabilities:
Bond discount 72,508 22,409
Depreciation 349,554 421,097
Allowance for loan losses-tax 233,040 300,738
Net unrealized gains on securities3,046,970 2,213,417
Other 22,383 22,465
Total gross deferred tax liabilities 3,724,455 2,980,126
Net deferred tax asset (liability)$ (344,762) 277,858
</TABLE>
Realization of deferred tax assets is dependent upon the generation of
future taxable income or the existence of sufficient taxable income
within the carryback period. A valuation allowance is provided when it
is more likely than not that some portion of the deferred tax assets
will not be realized. In assessing the need for a valuation allowance,
management considers the scheduled reversal of the deferred tax
liabilities, the level of historical taxable income and projected future
taxable income over the periods in which the temporary differences
comprising the deferred tax assets will be deductible. Based on its
assessment, management determined that no valuation allowance is
necessary.
(10) Pension Plan
The Bank has a noncontributory defined benefit pension plan covering
substantially all employees. The plan's defined benefit formula
generally bases payments to retired employees upon their length of
service multiplied by a percentage of the average monthly pay over the
last five years of employment.
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's consolidated balance sheets at December
31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Actuarial present value of accumulated benefit
obligation, including vested benefits of
$10,458,070 and $9,493,865 in 1997
and 1996 respectively $ (10,676,065) (9,666,905)
Projected benefit obligation for service
rendered to date (13,370,944) (11,881,414)
Plan assets at fair value 16,777,650 15,036,423
Excess of plan assets over the projected
benefit obligation 3,406,706 3,155,009
Unrecognized net obligation 699,678 769,566
Unrecognized net gain (4,867,446) (4,623,648)
Unrecognized prior service cost 513,381 556,163
Prepaid (accrued) pension cost$ (247,681)(142,910)
</TABLE>
Net periodic pension cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
<S> <C>
<C> <C>
Service cost - benefits earned
during the year $ 324,126 346,403 293,048
Interest cost on projected
benefit obligation 872,423 825,891 798,518
Actual return on plan assets (2,346,488) (1,459,973) (2,436,581)
Net amortization and deferral 1,254,710 458,091 1,542,093
Net periodic pension cost$ 104,771 170,412 197,078
</TABLE>
Assumptions used in determining pension amounts are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Discount rate for benefit obligations 7.0% 7.5%
Rate of increase in compensation levels 5.0 5.0
Expected long-term rate of return on assets8.5 8.5
</TABLE>
The planOs assets at December 31, 1997 and 1996 are invested in common and
preferred stocks, U.S. Government securities, and corporate bonds and
notes, and mutual funds. 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 $591,669, $550,854, and $499,343 for the years
ended December 31, 1997, 1996 and 1995, respectively.
(11) Other Postretirement Benefit Plans
The Bank sponsors a defined benefit health care plan that provides
postretirement medical, dental and prescription drug benefits to full-time
employees who meet minimum age and service requirements. Postretirement
life insurance benefits are also provided to certain employees who retired
prior to July 1981. The plan is contributory, with retiree contributions
adjusted annually, and contains other cost sharing features such as
deductibles and coinsurance. The accounting for the plan anticipates
future cost-sharing changes to the written plan that are consistent with
the 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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Accumulated postretirement benefit
obligation:
Retirees $(1,062,000) (965,000)
Fully eligible active plan participants (156,000) (86,000)
Other active plan participants(630,000) (577,000)
(1,848,000) (1,628,000)
Unrecognized net (gain) (173,673) (264,822)
Accrued postretirement benefit cost
included in other liabilities $(2,021,673) (1,892,822)
</TABLE>
Net periodic postretirement benefit cost included the following components:
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
<S> <C>
<C> <C>
Service cost $ 40,000 42,000 75,728
Interest cost 117,000 112,000 127,308
Net amortization and deferral (7,000) - -
Net periodic postretirement benefit cost$ 150,000 154,000 203,036
</TABLE>
For measurement purposes, a 10.5% and 8.5% 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 1997; 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 7.0% at December 31, 1997 and 7.5% at December 31, 1996.
(12) Related Party Transactions
Members of the Board of Directors, certain Bank officers, and their
immediate families directly, or indirectly through entities in which they
are principal owners (more than a 10% interest), were customers of, and had
loans and other transactions with, the Bank in the ordinary course of
business.
All loans and commitments included in such transactions were made on
substantially the same terms, including interest rates and collateral, as
those prevailing at the time for comparable transactions with other
persons. These loans and commitments, which did not involve more than
normal risk of collectibility or present other unfavorable features, are
summarized as follows for the years ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
<C>
Balance at beginning of year $ 8,426,537 8,427,604
Additions 27,755,844 20,889,397
Amounts collected (27,103,467) (20,890,464)
Balance at end of year $ 9,078,914 8,426,537
</TABLE>
(13) Expenses
The following expenses, which exceeded 1% of total revenues (total
interest income plus other operating income) in at least one of the
years presented, are included in other operating expenses:
<TABLE>
<CAPTION>
Years ended December 31,
1997 1996 1995
<S> <C>
<C> <C>
Stationery and supplies $ 389,139 469,008 437,253
Data processing service 1,358,882 1,155,576 1,245,656
FDIC insurance premiums 70,538 253,220 538,279
Advertising 364,914 448,640 444,637
Amortization of intangible assets 587,303 587,303 587,303
</TABLE>
(14) Commitments and Contingencies
In the normal course of business, there are outstanding various commitments
and contingent liabilities, such as commitments to extend credit, which are
not reflected in the accompanying consolidated financial statements.
Commitments to outside parties under standby letters of credit, unused
portions of lines of credit, and commitments to fund new loans totaled
$3,180,233, $88,607,434 and $2,429,427, respectively, at December 31, 1997.
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.
Because many commitments and almost all letters of credit expire without
being funded in whole or in part, the contract amounts are not estimates of
future cash flows. Loan commitments have off balance sheet credit risk
because only origination fees are recognized in the balance sheet until
commitments are fulfilled or expire. The credit risk amounts are equal to
the contractual amounts, assuming the amounts are fully advanced and
collateral or other security is of no value. The Corporation does not
anticipate losses as a result of these transactions.
At December 31, 1997, the Corporation had outstanding commitments totaling
$1,832,625 to fund equity investments in Small Business Investment
Companies.
The Bank has employment contracts with certain of its senior officers,
which expire at various dates through the year 2001 and may be extended on
a year-to-year basis.
(15) 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, 1997, 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 31,1997, $8,143,853 was available for
the declaration of dividends.
(16) Parent Company Financial Information
Condensed parent company only financial statement information of Chemung
Financial Corporation is as follows:
<TABLE>
<CAPTION>
Balance Sheets
December 31 1997 1996
<S> <C>
<C>
Assets:
Cash on deposit with subsidiary bank$ 1,883,455 31,318
Investment in subsidiary bank57,824,425 54,801,058
Dividend receivable 641,611 580,220
Securities available for sale1,094,697 1,298,403
Investments in SBIC's 844,875 0
Total assets $ 62,289,063 56,710,999
Liabilities and shareholders' equity:
Dividend payable 641,611 580,220
Deferred tax liability 10,275 10,580
Total liabilities 651,886 590,800
Shareholders' equity:
Common stock 10,750,335 10,750,335
Surplus 10,101,804 10,101,804
Retained earnings 38,236,025 33,885,269
Treasury stock, at cost (2,032,886) (1,925,118)
Net unrealized gain on securities
available for sale 4,581,899 3,307,909
Total shareholders' equity61,637,177 56,120,199
Total liabilities and shareholders' equity$ 62,289,063 56,710,999
</TABLE>
<TABLE>
<CAPTION>
Statements of Income
Years Ended December 31, 1997 1996 1995
<S> <C>
<C> <C>
Income:
Interest and dividends $ 111,341 14,378 23,031
Gain on sale of securities 28,981 35,538 112,500
Dividends from subsidiary bank 5,006,464 3,203,223 2,045,513
Income before equity in undistributed
earnings of subsidiary bank 5,146,786 3,253,139 2,181,044
Equity in undistributed earnings of
subsidiary bank 1,749,017 2,922,189 3,472,647
Income before income taxes 6,895,803 6,175,328 5,653,691
Income taxes 38,583 17,805 51,799
Net Income $ 6,857,220 6,157,523 5,601,892
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
December 31, 1997 1996 1995
Cash flows from operating activities:
<S> <C>
<C> <C>
Net income $ 6,857,220 6,157,523 5,601,892
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiary (1,749,017) (2,922,189) (3,472,647)
(Increase) decrease in dividend
receivable (61,391) (59,738) 1,135,565
Gain on sale of securities, net(28,981) (35,538) (112,500)
Decrease in payable to
Owego shareholders - - (1,164,883)
Net cash provided by
operating activities5,017,831 3,140,038 1,987,427
Cash flows from investing activities:
Proceeds from sales of securities
available for sale 232,023 151,738 215,628
Investments in SBIC's (844,875) - -
Purchases of securities available for
sale - (1,000,000) -
Net cash provided (used)
by investing activities (612,852) (848,262) 215,628
Cash flows from financing activities:
Cash dividends paid (2,445,074) (2,143,465) (1,981,078)
Purchases of treasury stock (107,768) (514,599) (299,749)
Sale of treasury stock - 202,020 -
Net cash used by financing
activities (2,552,842) (2,456,044) (2,280,827)
Increase (decrease) in cash
and cash equivalents 1,852,137 (164,268) (77,772)
Cash and cash equivalents at
beginning of year 31,318 195,586 273,358
Cash and cash equivalents at
end of year $ 1,883,455 31,318 195,586
</TABLE>
(17) Fair Values of Financial Instruments
The following methods and assumptions were used to estimate the fair
value of each class of financial instruments:
Cash and Cash Equivalents
For those short-term instruments that generally mature in ninety days or
less, the carrying value approximates fair value.
Securities
Fair values for securities are based on either 1) quoted market prices,
2) dealer quotes, 3) correspondent bank pricing system, or 4) discounted
cash flow to maturity.
Loans Receivable
For variable-rate loans that reprice frequently, fair values are based
on carrying values. The fair values for other loans are estimated
through discounted cash flow analyses using interest rates 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 both variable and stated rates of interest.
Therefore, the carrying value approximates fair value for the variable rate
instruments and stated rate instruments are based on a discounted cash flow
to maturity.
Federal Home Loan Bank Advances
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, 1997 and 1996.
Interest Receivable and Payable
For these short term instruments the carrying value approximates fair
value.
The estimated fair value of the CorporationOs financial instruments as of
December 31, 1997 and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1997 1996
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
Financial assets:
<S> <C> <C>
<C> <C>
Cash and cash equivalents $ 32,997 32,997 31,103
31,103
Interest bearing deposits 1,421 1,421 152
152
Federal funds sold - - 500 500
Securities 194,527 194,527 195,717 195,717
Interest receivable 3,911 3,911 3,905 3,905
Net loans 292,831 294,877 279,746 281,965
Financial liabilities:
Deposits:
Demand, savings,
NOW and money
market accounts$ 277,243 277,243 264,641 264,641
Time certificates173,801 174,394 175,008 175,293
Interest payable 1,191 1,191 1,153 1,153
Repurchase agreements9,448 9,475 14,371 14,371
Federal Home Loan Bank advances 16,300 16,345 10,000
10,034
<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>
(18) 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, 1997, that the Corporation and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal
Reserve Bank of New York categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. To be categorized well
capitalized the Bank must maintain minimum total risk-based, Tier 1 risk
based, Tier 1 leverage ratios set forth in the table. There are not
conditions or events since that notification that management believes have
changed the bank's category.
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, 1997
Total Capital (to risk weighted assets):
<S> <C> <C> <C><C>
<C><C> <C><C> <C><C>
Consolidated $ 54,121,84217.44% $ 24,824,997 8.00% N/A N/A
Subsidiary $ 50,300,61716.31% $ 24,669,976 8.00% $ 30,837,470
10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 50,239,64616.19% $ 12,412,499 4.00% N/A N/A
Subsidiary $ 46,442,34415.06% $ 12,334,988 4.00% $ 18,502,482
6.00%
Tier 1 Capital (to average assets):
Consolidated $ 50,239,646 9.49% $ 15,875,493 3.00% N/A N/A
Subsidiary $ 46,442,344 8.80% $ 15,837,213 3.00% $ 26,395,355
5.00%
As of December 31, 1996
Total Capital (to risk weighted assets):
Consolidated $ 49,048,78116.87% $ 23,265,476 8.00% N/A N/A
Subsidiary $ 47,729,55116.49% $ 23,162,443 8.00% $ 28,953,054
10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 45,409,35615.61% $ 11,632,738 4.00% N/A N/A
Subsidiary $ 44,106,02615.23% $ 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%
</TABLE>
EXHIBIT E
CHEMUNG FINANCIAL
CORPORATION
Subsidiary List
Name State of
Incorporation
Chemung Canal Trust Company New York
10
EXHIBIT F
NOTICE OF ANNUAL MEETING, PROXY STATEMENT
DATED APRIL 2, 1998, AND PROXY FORM
Notice of 1998 Annual Meeting and Proxy Statement
April 2, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
to be held on Wednesday, May 13, 1998, at 7:00 p.m., local time, 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 three items on the agenda requiring Shareholders' vote will be (1)
to elect seven directors - the candidates nominated for three-year terms,
all currently serving, are: John W. Bennett, Robert H. Dalrymple,
Frederick Q. Falck, Ralph H. Meyer, Samuel J. Semel, Richard W. Swan and
William A. Tryon, (2) to vote on a proposal to amend the corporation's
certificate of incorporation to increase the number of authorized shares of
common stock and to reduce the par value of such stock, and (3) to vote on
a proposal to adopt the Chemung Canal Trust Company Deferred Directors Fee
Plan. The attached Proxy Statement sets forth in detail information
relating to the proposals, the nominated candidates and 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 1998.
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 May 13.
/s/ Jan P. Updegraff
Jan P. Updegraff
President 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, on Wednesday, May 13, 1998,
at 7:00 p.m. for the following purposes:
to elect seven (7) directors, each to hold office for a term of
three years and until their respective successors have been
elected and qualified;
to consider a proposal to amend the corporation's certificate of
incorporation to increase the number of authorized shares of
common stock and to reduce the par value of such stock;
to consider a proposal to adopt the Chemung Canal Trust Company
Deferred Directors Fee Plan; and
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 April 1,
1998 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
Robert J. Hodgson
Secretary
April 2, 1998
CHEMUNG FINANCIAL CORPORATION
ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, MAY 13, 1998
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, unless otherwise stated,
financial and other information is presented on a consolidated basis for
Chemung Financial Corporation ("Corporation") and Chemung Canal Trust
Company ("Bank").
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 Wednesday, May 13, 1998, at 7:00 p.m., local time, 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 April
2, 1998. 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 April 1, 1998
are entitled to receive notice of and to vote at the Annual Meeting. As of
March 16, 1998, there were 2,061,738 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 their reasonable expenses.
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,
for the proposal to amend the Corporation's Certificate of Incorporation to
increase the number of authorized shares of common stock and to reduce the
par value of such stock and for the proposal to adopt the Chemung Canal
Trust Company Deferred Directors Fee Plan 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. Should any 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 1998 Annual Meeting of Shareholders is seven
(7) 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 nominees for
election as directors 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 2001
<S> <C> <C>
John W. Bennett Since 1988 Chairman of the Board of the Corporation
Age 64 and Bank; formerly President and Chief
Executive Officer of the Corporation and
Bank; also a director of Hardinge Inc.
Robert H. Dalrymple Since 1995 Secretary of Dalrymple Holding
Age 47 Corporation, a parent company for several
construction companies.
Length of Principal Occupation During
Name and Age Service Past 5 Years
As Director
NOMINEES WITH TERMS
EXPIRING IN 2001
(continued)
Frederick Q. Falck Since 1997 President of L.M. Trading Company, an
Age 49 agricultural investment corporation; Vice
President of Arnot Realty Corporation;
Chairman of The Rathbone Corporation;
President of the US Foundation of the
Universidad del Valle de Guatemala and
board member since 1986; Treasurer of the
Escuela Agricula Panamerica, an
agricultural college in Honduras and
Board member since 1990.
Ralph H. Meyer Since 1985 President and Chief Executive Officer of
Age 58 Guthrie Healthcare System, a vertically
integrated health care delivery system.
Samuel J. Semel Since 1993 President of Chemung Electronics, Inc.,
Age 71 an electronic and computer consulting
firm.
Richard W. Swan Since 1985 President of Swan & Sons-Morss Co., Inc.,
Age 49 an insurance brokerage agency.
William A. Tryon Since 1987 Chairman of the Board and Chief Executive
Age 67 Officer of Trayer Products, Inc., an
automotive, truck and other industrial
parts manufacturer; President of Perry &
Carroll, Inc., an insurance brokerage
agency; formerly a director of the Bank
from 1964 to 1976.
DIRECTORS
CONTINUING
IN OFFICE WITH
TERMS
EXPIRING IN 1999
Robert E. Agan Since 1986 Chairman of the Board, Chief Executive
Age 59 Officer and President of Hardinge Inc., a
world-wide machine tool manufacturer.
Donald L. Brooks, Since 1985 Retired physician.
Jr.
Age 69
Stephen M. Since 1995 President of Applied Technology
Lounsberry III Manufacturing Corporation since July 17,
Age 44 1996, a manufacturer of railroad
lubrication systems; formerly President
of Moore & Steele Corporation.
Length of Principal Occupation During
Name and Age Service Past 5 Years
As Director
DIRECTORS
CONTINUING
IN OFFICE WITH
TERMS
EXPIRING IN 1999
(continued)
Thomas K. Meier Since 1988 President of Elmira College.
Age 57
Charles M. Since 1985 President of Streeter Associates, Inc., a
Streeter, Jr. general building contractor.
Age 58
Nelson Mooers van Since 1985 Chairman of the Board, Chief Executive
den Blink Officer and Treasurer of The Hilliard
Age 63 Corporation, a motion control equipment,
oil reclaimer and filter manufacturer.
DIRECTORS
CONTINUING IN
OFFICE WITH TERMS
EXPIRING IN 2000
David J. Dalrymple Since 1993 President of Dalrymple Holding
Age 44 Corporation, parent company for several
construction companies.
Richard H. Evans Since 1985 Retired since January 1, 1995; formerly
Age 67 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, Brayton,
Age 66 Palmer & Tifft law firm.
John F. Potter Since 1991 President of Seneca Beverage Corporation,
Age 52 a wholesale distributor of beer, water
and soda products.
William C. Ughetta Since 1985 Senior Vice President and former General
Age 65 Counsel of Corning Incorporated, a
diversified manufacturing company.
Jan P. Updegraff Since 1996 President and Chief Executive Officer of
Age 55 the Corporation and Bank; formerly Vice
President and Treasurer of the
Corporation and Chief Operating Officer
and Executive Vice President of the Bank.
</TABLE>
PROPOSAL TO AMEND THE CORPORATION'S CERTIFICATE OF
INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK AND TO
REDUCE THE PAR VALUE OF SUCH STOCK
The Corporation's Certificate of Incorporation currently authorizes
the issuance of three million (3,000,000) shares of Common Stock, with a
par value of five dollars ($5.00) per share. The Board of Directors on
March 11, 1998 unanimously adopted a resolution proposing that the
Certificate of Incorporation be amended to increase the authorized number
of shares of Common Stock to ten million (10,000,000), subject to
shareholder approval of the amendment.
The Board of Directors has also unanimously approved a change in the
par value of the Common Stock from $5.00 per share to $0.01 per share. The
purpose of reducing the par value is to reduce the amount of New York State
franchise taxes to be paid by the Corporation upon the increase in the
number of authorized shares. Under applicable New York State franchise tax
law, the Corporation must pay a one-time tax of one-twentieth of one
percent on the amount of the par value of the shares that are proposed to
be newly authorized. Reducing the par value of the Common Stock as
proposed will reduce this tax by approximately $17,000.
The reduction in the par value per share of the Common Stock from
$5.00 per share to $0.01 per share will not affect the Corporation's total
authorized Common Stock. The reduction in par value will reduce the par
value of the Corporation's Common Stock account and increase the
accumulated paid-in capital account by the same amount. The overall stock
equity balance will not change.
Par value is an arbitrary number that has no correlation with the
actual value of a corporation's common equity. The recommended change
would not change either the aggregate market or book value of shareholder
common equity. The change in par value represents an accounting change
that brings the par value of the Common Stock to a level similar to that of
many other publicly traded companies.
Proposed Amendment to Certificate of Incorporation
The Board of Directors has adopted resolutions setting forth (i) the
proposed amendment to paragraph 4 of the Corporation's Certificate of
Incorporation (the "Amendment"); (ii) the advisability of the Amendment;
and (iii) a call for submission of the Amendment for approval by the
Corporation's shareholders at the meeting.
The following is the text of paragraph 4 of the Certificate of
Incorporation of the Corporation, as proposed to be amended:
The aggregate number of shares which the Corporation shall have the
authority to issue is: Ten Million (10,000,000), all of which shall
be common shares of the par value of one cent ($0.01) each.
Purpose and Effect of the Proposed Amendment
As of April 1, 1998, the Corporation had 2,061,738 shares of Common
Stock outstanding. Based upon the number of outstanding shares of Common
Stock, the Corporation currently has 938,262 shares remaining available for
other purposes. The Board of Directors believes that it is in the
Corporation's best interest to increase the number of shares of Common
Stock that the Corporation is authorized to issue in order to give the
Corporation additional flexibility to maintain a reasonable stock price
with future stock splits and/or stock dividends. The Board of Directors
also believes that the availability of additional authorized but unissued
shares will provide the Corporation with the flexibility to issue Common
Stock for other proper corporate purposes which may be identified in the
future, such as to raise equity capital, to adopt additional employee
benefit plans or reserve additional shares for issuance under such plans,
and to make acquisitions through the use of stock.
The Board of Directors believes that the proposed increase in the
authorized Common Stock will make available sufficient shares for use
should the Corporation decide to use its shares for one or more of such
previously mentioned purposes or otherwise. No additional action or
authorization by the Corporation's shareholders would be necessary prior to
the issuance of such additional shares, unless required by applicable law
or the rules of any stock exchange or national securities association
trading system on which the Common Stock is then listed or quoted. The
Corporation reserves the right to seek a further increase in authorized
shares from time to time in the future as considered appropriate by the
Board of Directors.
Under the Corporation's Certificate of Incorporation, the
Corporation's shareholders do not have preemptive rights with respect to
Common Stock. Thus, should the Board of Directors elect to issue
additional shares of Common Stock, existing shareholders would not have any
preferential rights to purchase such shares. In addition, if the Board of
Directors elects to issue additional shares of Common Stock, such issuance
could have a dilutive effect on the earnings per share, voting power and
shareholdings of current shareholders.
The proposed amendment to increase the authorized number of shares of
Common Stock could, under certain circumstances, have an anti-takeover
effect, although this is not the intention of this proposal. For example,
in the event of a hostile attempt to take over control of the Corporation,
it may be possible for the Corporation to endeavor to impede the attempt by
issuing shares of the Common Stock, thereby diluting the voting power of
the other outstanding shares and increasing the potential cost to acquire
control of the Corporation. The Amendment therefore may have the effect of
discouraging unsolicited takeover attempts. By potentially discouraging
initiation of any such unsolicited takeover attempt, the proposed Amendment
may limit the opportunity for the Corporation's shareholders to dispose of
their shares at the higher price generally available in takeover attempts
or that may be available under a merger proposal. The proposed amendment
may have the effect of permitting the Corporation's current management,
including the current Board of Directors, to retain its position, and place
it in a better position to resist changes that shareholders may wish to
make if they are dissatisfied with the conduct of the Corporation's
business. However, the Board of Directors is not aware of any attempt to
take control of the Corporation and the Board of Directors has not
presented this proposal with the intent that it be utilized as a type of
anti-takeover device.
Vote Required
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote at the annual meeting is required for approval of
this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL TO ADOPT THE
CHEMUNG CANAL TRUST COMPANY
DEFERRED DIRECTORS FEE PLAN
The Bank's Deferred Directors Fee Plan (the "Plan"), attached herein
as Appendix A, enables the Bank's directors to defer all or any portion of
the fees ("Fees") payable on account of their service as directors. The
Fees include both the annual retainer fee and fees payable on account of
attendance at various committee meetings held throughout the year.
Participating directors may elect to allocate their deferred Fees to
the Memorandum Money Market Account, the Memorandum Unit Value Account or
any combination of the two. Deferrals to the Memorandum Money Market
Account obtain interest equal to the Applicable Federal Rate for short-term
debt as published by the Internal Revenue Service. Interest is added to
each Director's balance on a quarterly basis.
Fees deferred to the Memorandum Unit Value Account are expressed in
units, the number of which units is determined by dividing the Fees so
allocated by the closing price of the Corporation's common stock ("Market
Value") on the last trading day of each quarter. Subsequent dividends paid
by the Corporation increase the number of units in each account by the
equivalent of the Market Value of the Corporation's common stock as of the
dividend date. The number of units is also adjusted in the event of stock
dividends, stock splits or other similar recapitalizations effected by the
Corporation.
Fees deferred under the Plan are payable at the election of a
participating director, at a specified age or time, upon the termination of
the director's services as a director. Notwithstanding the above, payments
to directors must commence not later than the year in which the director
obtains the age of 72. Deferred Fees may be paid in either one installment
or in a number of installments, as elected by the director. The value of a
director's Memorandum Money Market Account must be paid in cash. All
amounts represented by the Memorandum Unit Value Account shall be paid only
in shares of the Corporation's common stock (except fractional shares which
shall be paid in cash).
Deferred Fees are accounted for as a general unfunded liability of the
Bank and Corporation. Participating directors have neither a claim nor
security interest against any asset of the Bank on account of such deferred
Fees. The Plan, first approved on April 13, 1977, was amended, effective
October 1, 1997 to require that Fees deferred into units of the
Corporation's common stock be paid only in shares of the Corporation.
Formerly, stock units were settled in cash. As of October 1, 1997, the
value of deferrals represented by the Memorandum Unit Value Account may not
be reallocated to the Memorandum Money Market Account.
Vote Required
The affirmative vote of a majority of the outstanding shares of common
stock entitled to vote at the Annual Meeting is required for approval of
this proposal.
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
The following table sets forth information, as of January 31, 1998,
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 376,2581 18.2%
Company
One Chemung Canal
Plaza
Elmira, NY 14902
Chemung Canal Trust
Company 227,1152 11%
Profit-Sharing, Savings
and Investment Plan
One Chemung Canal
Plaza
Elmira, NY 14902
David J. Dalrymple
274 Upper Coleman 308,7783, 5 15.0%6
Avenue
Elmira, NY 14905
Robert H. Dalrymple
875 Upland Drive 297,6624, 5 14.4%6
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, 350,645 shares held with shared power to vote and 184,717 shares
held with shared dispositive power. 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 43,461 shares held directly, 1,904 shares held as custodian for
Mr. Dalrymple's children under the New York State Uniform Gifts to
Minors Act, 224,255 shares held by Dalrymple Family Limited Partnership
of which David J. Dalrymple and Robert H. Dalrymple are sole general
partners (see footnotes 5 and 6), 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 4).
Excludes 1,988 shares held by Mr. Dalrymple's spouse as to which shares
Mr. Dalrymple disclaims beneficial ownership.
4 Includes 32,345 shares held directly, 1,904 shares held as custodian for
Mr. Dalrymple's children under the New York State Uniform Gifts to
Minors Act, 224,255 shares held by Dalrymple Family Limited Partnership
of which David J. Dalrymple and Robert H. Dalrymple are sole general
partners (see footnotes 5 and 6), and 39,158 shares held by Dalrymple
Holding Corporation (see footnote 3). Excludes 1,345 shares held by Mr.
Dalrymple's spouse as to which shares Mr. Dalrymple disclaims beneficial
ownership.
5 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.
6 Because of the definition of "beneficial ownership" under Section 13 of
The Exchange Act, and the rules and regulations promulgated thereunder,
David and Robert Dalrymple are each listed as beneficial owners of
263,413 of the same shares. Without such multiple counting, David and
Robert Dalrymples' total aggregate beneficial ownership is 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 said percentage 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, 1998, 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 Percent of
Executive Officers Nature Shares Outstanding*
of Beneficial
Ownership
<S> <C> <C>
Robert E. Agan 5,789A *
John W. Bennett 9,344B *
Donald L. Brooks, Jr. 6,895A *
David J. Dalrymple 308,778C 15.00%C
Robert H. Dalrymple 297,662C 14.04%C
Richard H. Evans 9,352 *
Frederick Q. Falck 3.06%
63,391A, D
Edward B. Hoffman 4,023A *
Stephen M. Lounsberry 5,873A *
III
Thomas K. Meier 2,000 *
Ralph H. Meyer 6,466A *
John F. Potter *
13,004A, E
Samuel J. Semel 6,143A *
Charles M. Streeter, 11,659A, *
Jr. F
Directors, Amount and Percent of
Nominees and Nature Shares Outstanding*
Executive Officers of Beneficial
Ownership
Richard W. Swan 19,193G *
William A. Tryon 9,332 *
William C. Ughetta 12,924A *
Jan P. Updegraff 4,055B *
Nelson Mooers van den 1,637 *
Blink
All Directors, Nominees 539,683H 26.18%
and Executive Officers
as a group (25 persons)
</TABLE>
* Unless otherwise noted, less than 1% per individual.
A Includes shares that Messrs. Agan (5,339), Brooks (645), Falck (220),
Hoffman, (2,272), Lounsberry (1,379), Meyer (3,871), Potter (3,941),
Semel (1,511), Streeter (1,446), and Ughetta (2,924) 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 Bank's Deferred Directors Fee Plan. Such deferred fees
will be paid solely in shares of the Corporation's Common Stock pursuant
to the terms of the Plan and the election of the Plan participants.
Said share equivalencies have no voting rights until shares are actually
issued to said directors under the terms of the Plan.
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 8,199 and 3,905 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
227,115 shares of the Corporation's Common Stock.
C See Footnotes 3 - 6 of the SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS table for further explanation of shares beneficially owned.
C Includes shares held in various trusts of which Mr. Falck is a co-
trustee or income beneficiary. Excludes 74,280 shares owned by The
Rathbone Corporation of which Mr. Falck is an officer, director and co-
trustee of various trusts which are shareholders of said corporation.
E Includes 6,042 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 210 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 14,916 shares owned by spouses of certain officers and
directors as to which shares such officers and directors disclaim
beneficial ownership and does not include 263,413 shares included under
each of David J. Dalrymple and Robert H. Dalrymple (see footnote 6 under
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS).
COMPENSATION OF 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 Officer. 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 Chairman of the Board and the Chief Executive Officer, 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 1997, Messrs. Bennett and Updegraff
received incentive bonuses of $40,000 and $20,000, respectively. No long-term
awards were issued. Senior Officer participants as a group, including Messrs.
Bennett and Updegraff, received incentive bonus awards totaling $287,140 for
1997.
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 1997 in achieving certain profit, growth, and operational
objectives which were established by the Board of Directors in the Bank Plan at
the beginning of 1997 and compared the Corporation's financial results against
the results reported by similar banks in New York and Pennsylvania. The
financial and operational measurements considered by the Board were: net
profit, return on assets, return on equity, new market penetration, new product
development, cost 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 Chairman of the Board and
Chief Executive Officer, 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 bank 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 their evaluation, 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>
Thomas K. Meier, Chairman Richard H. Evans William A.
Tryon
Donald L. Brooks, Jr. Ralph H. Meyer William C.
Ughetta
David J. Dalrymple Richard W. Swan
</TABLE>
Executive Officers
During 1997, 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 64 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 55 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 64 Vice President of the Corporation (1988) and
Senior Vice President of the Bank (1984).
Robert J. Hodgson 52 Secretary and Corporate Counsel of the
Corporation and the Bank (1997); formerly
Vice President of the Corporation (1990); and
Senior Vice President of the Bank (1988).
James E. Corey III 51 Vice President of the Corporation (1993) and
Senior Vice President of the Bank (1993).
Joseph J. Tascone 50 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 46 Vice President of the Corporation (1997);
formerly Secretary (1986); and Senior Vice
President of the Bank (1996).
1 Mr. Daniel F. Agan is a brother of Board member, Robert E. Agan.
</TABLE>
Executive Compensation
The following information indicates compensation paid or accrued by
the Bank during 1997 for services rendered by each of the Chief Executive
Officer and the highest-paid executive officers of the Corporation and the
Bank whose total compensation exceeded $100,000.
At present, the officers of the Corporation are not separately
compensated for services rendered by them to the Corporation. It presently
is contemplated that such will continue to be the policy of the
Corporation.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal All Other
Position Held Year Salary($ Bonus($)1 Compensation($)2
)
<S> <C> <C> <C> <C>
John W. Bennett 1997 209,308 40,000 9,218
Chairman of the
Board and Chief 1996 200,308 25,000 8,541
Executive Officer
of the Corporation 1995 194,000 18,000 8,418
and the Bank
Jan P. Updegraff 1997 128,846 20,000 8,463
President and Chief
Operating Officer 1996 114,039 15,000 7,342
of the Corporation
and Bank 1995 95,385 15,000 6,660
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.
</TABLE>
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 $29,304 for a
participant attaining age 65 in 1997).
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 1997.
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 Annual Benefits upon Retirement with Years of Service
Earnings Indicated
20 30 351
<S> <C> <C> <C>
$100,000 33,190 48,786 56,083
$120,000 40,590 59,686 68,633
$150,000 51,690 76,036 87,458
$190,000 66,490 97,836 112,558
$200,000 70,190 103,286 118,833
1 Maximum number of years allowed under the terms of the Pension Plan
</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,
1997: John W. Bennett (42) and Jan P. Updegraff (27).
Employment Contracts
The Bank has employment contracts with twenty 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, 1999, except for Messrs. Corey, Denton, Tascone and Updegraff whose
guaranteed terms end December 31, 2000, Mr. Bennett whose guaranteed term ends
July 1, 1998 and Mr. Agan whose guaranteed term ends March 1, 1999. 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 and full-time employees. The Bank
does not maintain any stock option, stock appreciation rights or stock purchase
or award plans for officers or directors.
Comparative Return Performance Graph
Comparison of Five-Year Cumulative Total Returns For Fiscal Years
Ending December 31, 1993 - 1997 Among Chemung Financial Corporation,
CRSP Total Returns Index for NASDAQ Stock Market (US Companies) and NASDAQ -
Bank Stocks Index
(OMITTED GRAPHIC MATERIAL - SEE APPENDIX)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C>
Chemung Financial 100.0 129. 150. 168.1 213.2 272.38
Corporation 0 23 23 5 1
CRSP NASDAQ 100.0 114. 112. 158.7 195.2 239.50
Composite 0 80 20 0 0
NASDAQ - Bank 100.0 114. 113. 169.2 223.4 377.40
Stocks 0 00 60 0 0
</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, 1992.
The CRSP Total Returns Index for NASDAQ Stock Market (US Companies) and
Bank Stocks indices were obtained from the Center for Research in Security
Prices (CRSP), University of Chicago, Chicago, Illinois.
Compensation of Directors and Committee Meetings
The Board of Directors of the Corporation held eight (8) regularly
scheduled meetings during the year ended December 31, 1997. 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, 1997. Among
its standing committees, the Board of Directors of the Bank has an Examining
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 1997 this Committee held three (3) meetings. On December 31, 1997, its
members were Mrs. van den Blink (Chairperson) and Messrs. Agan, Brooks, R.
Dalrymple, Falck, Lounsberry, Potter, Semel and Streeter.
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 six (6)
meetings in 1997 and on December 31, 1997, its members were Messrs. Meier
(Chairperson), Brooks, D. Dalrymple, Evans, Meyer, Swan, Tryon and Ughetta.
During the year ended December 31, 1997, each director of the Corporation
and the Bank attended at least 75% of the aggregate of the number of Board
Meetings held and the number of meetings held by all committees of which such
director was a member, with the exception of Dr. Donald L. Brooks, Jr. who
attended 67% of such meetings.
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 Chairperson of each
committee who receives $350. The aggregate amount of directors' retainers and
fees paid or deferred under the Deferred Directors Fee Plan during 1997 was
$246,800.
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 1997. Otherwise, directors of the
Corporation are not compensated for services rendered by them to the Corporation
and no change is presently contemplated in this policy.
Certain Transactions
Some of the Bank's directors and officers, and entities of which they are
associated, 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 directors, officers and entities will continue to
be customers of and indebted to the Bank on similar terms in the future. All
loans to these individuals and entities are made in the ordinary course of
business, involve no more than a normal risk of collectibility and were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the same time for comparable 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 their costs and expenses for claims
based on "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.
The Bank retained Sayles, Evans, Brayton, Palmer & Tifft, a law firm 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.
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 1998.
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 1999 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 December
3, 1998. Such proposals must comply in all respects with the rules and
regulations of the Securities and Exchange Commission.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the
Corporation's directors, certain executive officers, and more than ten percent
owners of a registered class of the Corporation's equity securities, to file
with the Securities and Exchange Commission initial reports of ownership and
changes in beneficial ownership. 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, 1997, all Section 16(a)
filing requirements applicable to its executive officers, directors and any ten
percent shareholder were met.
OTHER MATTERS:
Financial statements for the Corporation and its consolidated subsidiaries
are included in Chemung Financial Corporation's Annual Report to stockholders
for the year 1997 which was mailed to the stockholders beginning April 2, 1998.
A COPY OF CHEMUNG FINANCIAL CORPORATION'S 1997 ANNUAL REPORT ON FORM 10-K
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS AVAILABLE WITHOUT CHARGE TO
THOSE STOCKHOLDERS WHO WOULD LIKE MORE DETAILED INFORMATION CONCERNING THE
CORPORATION. TO OBTAIN A COPY, PLEASE WRITE TO: ROBERT J. HODGSON, SENIOR VICE
PRESIDENT, CORPORATE COUNSEL AND SECRETARY, CHEMUNG CANAL TRUST COMPANY, ONE
CHEMUNG CANAL PLAZA, ELMIRA, NY 14902.
BY ORDER OF THE BOARD OF DIRECTORS
Robert J. Hodgson
Secretary
Date: April 2, 1998
One Chemung Canal Plaza
Elmira, New York 14902
Appendix A
PROPOSAL TO ADOPT THE
CHEMUNG CANAL TRUST COMPANY
DEFERRED DIRECTORS FEE PLAN
CHEMUNG CANAL TRUST COMPANY
Deferred Directors Fee Plan
Any Director may elect from time to time that payment of all or any part of
the annual retainer thereafter payable to him or her and that payment of all or
any part of the fees thereafter earned by him or her for attendance at
subsequent meetings of the full Board of Directors and at subsequent meetings of
committees of the Board of Directors (such annual retainer and fees for
attendance being hereinafter collectively referred to as "fees") be deferred on
the following terms and conditions:
1) ELECTION -- All elections must be in writing and signed by the Director
and must designate the time and manner of payment of all fees deferred pursuant
thereto.
Provided such amendment is made before the year in which payment of
deferred fees would have commenced under the Director's existing election, an
election as to the time and manner of payment of deferred fees may be amended to
further defer the commencement of payment or to extend the period of payment but
no amendment may accelerate the commencement of payment or shorten the period of
payment.
2) PERIOD OF ELECTIONS -- Each election shall continue in effect as to all
fees thereafter earned as above provided by the electing Director until revoked
by written instrument signed by such Director.
3) SUCCESSIVE ELECTIONS -- A Director who revokes an election may make a
new election at any time thereafter as to fees to be so earned after such new
election but the prior revoked election shall govern the time and manner of
payment of all fees deferred pursuant thereto, except as otherwise specifically
allowed hereunder.
4) ACCOUNTING FOR DEFERRED FEES -- Deferred fees shall be a general
unfunded liability of Chemung Canal Trust Company ("the Bank"). No separate
fund shall be set aside or earmarked for their payment. Neither shall any
Director have a right or security interest in any asset of the Bank and no trust
or security interest shall be implied as a result thereof. A 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, provided,
however, that effective October 1, 1997, amounts allocated to the Memorandum
Unit Value Account as of October 1, 1997 or thereafter and earnings thereon may
not thereafter be transferred to the Memorandum Money Market Account. Any
change in such designation may be made no later than the last day of each March,
June, September and December during the deferral period to be effective on the
date next following such notification that compensation would have been paid in
accordance with the Bank's normal practice but for the election to defer.
a) Memorandum Money Market Account -- A memorandum account shall
be kept of the deferred fees by each Director with the balance in said
memorandum account to be credited with interest compounded quarterly
on the average balance during each such calendar quarter at a rate
during each calendar quarter 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 calendar
quarter for which the interest computation is being made.
b) Memorandum Unit Value Account -- The amount, if any, in or
allocated to the Director's deferred compensation Unit Value Account
on the dates compensation would have been paid in accordance with the
Bank's normal practice but for the election to defer, shall be
expressed in units on a quarterly basis, the number of which shall be
calculated as of the last trading day of each quarter and shall be
equal to the sum of the quarterly retainer plus the Director's
allocated fees other than the Director's quarterly retainer received
by the Director in such quarter divided by the closing bid price for
shares of the Bank's Common Stock (hereinafter referred to as "Market
Value") on such date. On each date that the Bank pays a regular cash
dividend on shares of its Common Stock outstanding, the Director's
account shall be credited with a number of units equal to the amount
of such dividend per share multiplied by the number of units in the
Director's account on such date divided by the Market Value on such
dividend date. The value of the units in the Director's Unit Value
Account on any given date shall be determined by reference to the
Market Value on such date. For the purposes of this Plan, the term
"Bank Common Stock" shall mean the common stock of Chemung Financial
Corporation, the parent company of Chemung Canal Trust Company. If a
valuation date shall not be a trading day, the Market Value on such
valuation date shall be deemed to be the Market Value on the trading
day next preceding such date.
c) Recapitalization -- The number of units in the Director's
Unit Value Account shall be proportionally adjusted for any increase
or decrease in the number of issued shares of Common Stock of the Bank
resulting from a subdivision or consolidation of shares or other
capital adjustment, or the payment of a stock dividend or other
increase or decrease in such shares, effected without receipt of
consideration by the Bank, or any distribution or spin-off of assets
(other than cash to the stockholders of the Bank).
5) TIME OF PAYMENT -- At the election of an electing Director, deferred fees
shall be paid to him or her, or payment thereof to him or her, shall commence
either:
a) at a specified age, or
b) at a specified time, or
c) at the termination of his or her services as a Director;
provided, however, that payment must be made or commenced not later than the
year in which the Director attains the age of 72 years, and provided further
that except in the case of death, retirement or disability, no payment from a
Unit Value Account shall be made until at least six (6) months after the last
credit of units to the Account.
6) MANNER OF PAYMENT -- A Director may elect to receive the compensation
deferred under the Plan in either (a) a lump sum, or (b) a number of annual
installments as specified by the Director on the election form. All amounts
distributed to a Director, his or her personal representatives or beneficiaries
in the Director's Money Market Account shall be paid in cash and, effective
October 1, 1997, all amounts in the Director's Unit Value Account shall be paid
in the form of shares of the Bank's Common Stock.
7) DEATH -- At the death of an electing Director, the entire balance of his
or her account shall be paid in a lump sum to his or her personal
representatives or, if the Director has named a beneficiary and such beneficiary
survives the Director, in a lump sum or in installments of not more than 10
years as the Board of Directors may determine after consultation with the
beneficiary.
8) TOTAL AND PERMANENT DISABILITY -- Upon the request of an electing
Director, together with satisfactory proof of his or her total and permanent
disability, the Board of Directors may direct the payment of the entire balance
of his or her account to the Director or the commencement of installment
payments to him or her.
9) TRANSFER, PLEDGE OR SEIZURE -- Title to deferred fees shall not vest in a
Director until actual payment thereof is made by the Bank in accordance with the
provisions of this Plan. A Director may not transfer, assign, pledge,
hypothecate or encumber in any way any interest in such deferred fees prior to
the actual receipt thereof. If a Director attempts to transfer, assign or
encumber any interest in his or her deferred fees, or any part thereof, prior to
the payment or distribution thereof to him or her, or if any transfer or seizure
of such deferred fees is attempted to be made or brought about through the
operation of any bankruptcy or insolvency law or other legal procedure, the
rights of the Director taking such action or concerned therein or affected
thereby or who would, but for this provision, be entitled to receive such
deferred fees, shall forthwith and ipso facto terminate and the Bank may
thereafter, in its absolute discretion at such time or times and in such manner
as it deems proper, cause the whole or any part of the balance of the Director's
account to be paid to any person or persons, including any spouse or child
of the Director, as the Bank in its uncontrolled discretion shall deem
advisable.
10) AMENDMENT OR REPEAL -- This Plan may be amended or repealed in whole or
in part at any time by the Bank, but no such amendment or repeal shall alter the
time or manner of the payment of fees, the payment of which has theretofore
been deferred pursuant hereto, except as expressly allowed herein.
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 MAY 13, 1998
ANNUAL MEETING OF SHAREHOLDERS - MAY 13, 1998
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 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 May 13, 1998 (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 and any
adjournment thereof, subject to any directions indicated.
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 IDENTIFIED IN ITEM (1) AND FOR ITEMS (2) AND (3).
NOMINEES FOR WITHHELD
1. Election of Directors. 3-year term: John W. Bennett
Robert H. Dalrymple
Frederick Q. Falck
Ralph H. Meyer
Samuel J. Semel
Richard W. Swan
William A. Tryon
FOR/AGAINST/ABSTAIN
2. Approval to increase the number of authorized shares of common stock
and reduce the par value of such stock.
(To be signed on Reverse Side)
FOR/AGAINST/ABSTAIN
3. Approval of the Chemung Canal Trust Company Deferred Directors
Fee Plan.
I/We will attend the Meeting
Number in group
SIGNATURE(S)
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 FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD ENDED
DECEMBER 31, 1997 AS PRESENTED IN ITS ANNUAL 1997 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 32,997
<INT-BEARING-DEPOSITS> 1,421
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 185,303
<INVESTMENTS-CARRYING> 9,224
<INVESTMENTS-MARKET> 9,224
<LOANS> 296,977
<ALLOWANCE> 4,145
<TOTAL-ASSETS> 548,934
<DEPOSITS> 451,044
<SHORT-TERM> 15,747
<LIABILITIES-OTHER> 10,504
<LONG-TERM> 10,000
0
0
<COMMON> 10,750
<OTHER-SE> 50,887
<TOTAL-LIABILITIES-AND-EQUITY> 548,934
<INTEREST-LOAN> 26,679
<INTEREST-INVEST> 12,071
<INTEREST-OTHER> 622
<INTEREST-TOTAL> 39,372
<INTEREST-DEPOSIT> 14,756
<INTEREST-EXPENSE> 16,098
<INTEREST-INCOME-NET> 23,274
<LOAN-LOSSES> 850
<SECURITIES-GAINS> 324
<EXPENSE-OTHER> 19,368
<INCOME-PRETAX> 10,524
<INCOME-PRE-EXTRAORDINARY> 6,857
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,857
<EPS-PRIMARY> 3.31
<EPS-DILUTED> 3.31
<YIELD-ACTUAL> 4.74
<LOANS-NON> 930
<LOANS-PAST> 688
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 3,975
<CHARGE-OFFS> 770
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</TABLE>
