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, 1998
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 $0.01 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 state-
ments incorporated by reference in Part III of this Form 10-K or any amend-
ment 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 non-affiliates on February
28, 1999 was $55,996,704
As of February 28, 1999 there were 4,100,054 shares of Common Stock, $0.01
par value outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Annual Report to Shareholders for the year ended December 31,
1998 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 12, 1999 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 the Corporation's Annual Report
to Shareholders for the year ended December 31, 1998, 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, 1998.
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 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 1998,
1997, and 1996.
Employees
As of December 31, 1998, the Bank employed 291 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,
1998 1997 1996
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
Interest earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans $ 311,679 27,865 8.94% $291,259 26,680 9.16% $273,904 25,314 9.24%
Taxable securities 173,306 11,188 6.46 157,615 10,629 6.74 156,378 10,292 6.58
Tax-exempt securities 31,118 1,434 4.61 31,154 1,442 4.63 28,883 1,360 4.71
Federal funds sold 10,882 590 5.42 5,481 300 5.48 6,522 350 5.37
Other Investments 1,365 3 .22 161 0 - 0 0 -
Interest-bearing
deposits 4,186 328 7.83 5,380 321 5.97 3,808 195 5.13
Total interest
earning assets 532,536 41,408 7.78% 491,050 39,372 8.02% 469,495 37,511 7.99%
</TABLE>
<TABLE>
<CAPTION>
Non-interest earning assets:
<S> <C> <C> <C>
Cash and due from
banks 25,184 24,396 23,501
Premises and equipment,
net 10,154 9,751 10,146
Other assets 9,203 8,091 7,003
Less allowance for
loan losses (4,323 (4,077) (3,932)
Excess of cost over
fair value of net
assets 14,625 13,211 12,247
Total $ 587,379 $ 542,422 $ 518,460
</TABLE>
<TABLE>
<CAPTION>
Liabilities and
Shareholders' Equity
Interest bearing
liabilities:
<S> <C> <C <C> <C> <C> <C> <C> <C> <C>
Demand deposits $ 43,456 611 1.41% $ 44,991 675 1.50% $ 44,261 719 1.63%
Savings deposits 143,065 4,284 3.00 135,146 3,894 2.88 139,219 3,942 2.83
Time deposits 190,684 10,351 5.43 185,686 10,187 5.49 177,537 9,625 5.42
Federal Home Loan Bank
advances and securities
sold under agreements
to repurchase 45,25 2,420 5.35 24,233 1,342 5.54 15,213 757 4.97
Total interest
bearing liabilities 422,463 17,666 4.18% 390,056 16,098 4.13% 376,230 15,043 4.00%
</TABLE>
<TABLE>
<CAPTION>
Non-interest bearing
liabilities:
<S> <C> <C> <C>
Demand deposits 89,957 84,332 79,901
Other 10,981 9,281 8,181
523,401 483,669 464,312
Shareholders'
equity 63,978 58,753 54,148
Total $ 587,379 $ 542,422 $ 518,460
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net interest earnings $ 23,742 $ 23,274 $ 22,468
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Net yield on interest
earning assets 4.46% 4.74% 4.79%
</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>
1998 Compared to 1997 1997 Compared to 1996
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 $ 1,836 (651) 1,185 1,591 (225) 1,366
Taxable securities 1,017 (458) 559 82 255 337
Tax-exempt securitie (2) (6) (8) 105 (23) 82
Federal funds sold 293 (3) 290 (57) 7 (50)
Other Investments 3 0 3 0 0 0
Interest-bearing deposits (80) 87 7 90 36 126
Total interest
earning assets $ 3,067 (1,031) 2,036 1,811 50 1,861
Interest paid on:
Demand deposits (23) (41) (64) 12 (56) (44)
Savings deposits 229 161 390 (117) 69 (48)
Time deposits 272 (108) 164 446 116 562
Federal Home Loan Bank
advances and securities
sold under agreements to
repurchase 1,126 (48) 1,078 491 94 585
Total interest bearing
liabilities $ 1,604 (36) 1,568 832 223 1,055
<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 (in thousands of dollars):
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
<S> <C> <C> <C>
U.S. Treasury and other
U.S. Government Agencies $ 101,528 93,971 104,567
Mortgage backed securities 89,593 55,603 50,109
State and political subdivisions 28,036 34,955 30,775
Other bonds and notes 9,762 149 1,270
Corporate stocks 13,036 9,849 8,996
Total $ 241,955 194,527 195,717
</TABLE>
Included in the above table are $235,294, $185,303 and $185,365 (in thousands
of dollars) of securities available for sale at December 31, 1998, 1997 and
1996, respectively.
The following tables set forth the maturities of investment securities at
December 31, 1998 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 $ 17,548 5.21% $ 59,563 5.89%
Mortgage Backed Securities - - 1,982 6.69
State and political subdivisions 8,301 4.39 7,842 4.58
Other bonds and notes - - 2,516 6.25
Total $ 25,849 4.94% $ 71,903 5.78%
</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 $ 24,417 6.56% $ - - %
Mortgage Backed Securities - - 87,611 6.95
State and political subdivisions 8,177 4.56 3,716 5.05
Other bonds and notes 2,715 6.35 4,531 6.88
Total $ 35,309 6.08% $ 95,858 6.87%
</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,
1998 1997 1996 1995 1994
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 113,865 102,816 92,557 89,785 75,006
Real estate mortgages 89,544 79,753 78,400 71,870 67,912
Consumer loans 126,097 114,593 113,004 101,687 94,181
Total $ 329,506 297,162 283,961 263,342 237,099
</TABLE>
The following table shows the maturity of loans (excluding real estate mortgages
and consumer loans) outstanding as of December 31, 1998. Also provided are the
amounts due after one year classified according to the sensitivity to changes
in interest rates:
<TABLE>
<CAPTION>
After One
Within But Within After
One Year Five Years Five Years Total
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural $ 32,815 19,469 61,581 113,865
Loans maturing after one
year with:
Fixed interest rates 12,184 24,019
Variable interest rates 7,285 37,562
Total $ 19,469 61,581
</TABLE>
Non-accrual and Past Due Loans
The following table summarizes the Corporation's non-accrual and past due loans:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996 1995 1994
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1) $ 4,458 930 1,494 1,119 1,201
Accruing loans past due
90 days or more $ 395 688 226 681 354
</TABLE>
Information with respect to non-accrual loans at December 31, 1998, 1997 and
1996 is as follows:
<TABLE>
<CAPTION>
December 31,
1998 1997 1996
(In Thousands of Dollars)
<S> <C> <C> <C>
Non-accrual loans $ 4,458 930 1,494
Interest income that would have
been recorded under original terms 545 286 278
Interest income recorded during
the period 271 48 58
<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
guaranteed 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, 1998, 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, 1998, 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, 1998, the Corporation has no interest-bearing assets other
than loans that meet the non-accrual, 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, 1998:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996 1995 1994
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $4,145 3,975 3,900 3,600 3,500
Charge-offs:
Commercial, financial and
agricultural 13 77 195 82 282
Real estate mortgages 16 53 1 5 14
Consumer loans 552 640 538 286 422
Home equity 13 - 20 - -
594 770 754 373 718
Recoveries:
Commercial, financial and
agricultural 35 14 16 16 18
Consumer loans 123 76 71 93 76
158 90 87 109 94
Net charge-offs 436 680 667 264 624
Allowance of acquired
bank at time of acquisition - - - - 100
Additions charged to
operations (1) 800 850 742 564 624
Balance at end of period $4,509 4,145 3,975 3,900 3,600
Ratio of net charge-offs during
period to average loans
outstanding (2) .14% .23% .24% .11% .28%
<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 1998 than in prior
years. The net charge-offs to total loans have averaged 0.20% over the last
five years and the highest percentage in any of those years was 0.28%.
<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, non-accrual 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 econmic 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, 1998:
<TABLE>
<CAPTION>
Amount (in thousands) and Percent of
Loans by Category to Total Loans
Balance at end of
Period Applicable to:
1998 % 1997 % 1996 % 1995 % 1994 %
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic: $3,197 100.0 2,588 100.0 2,445 100.0 2,030 100.0 2,857 100.0
Commercial, financial
and agricultural 2,081 34.6 1,402 34.5 1,472 32.3 1,042 33.0 2,108 31.0
Commercial mortgages 21 1.5 132 2.0 249 3.2 305 4.1 282 5.0
Residential mortgages 88 25.7 31 24.8 21 24.5 16 23.6 16 23.6
Consumer loans 1,007 38.3 1,023 38.7 703 40.0 667 39.3 451 40.4
Unallocated: 1,312 N/A 1,557 N/A 1,530 N/A 1,870 N/A 743 N/A
Total $4,509 100.0 4,145 100.0 3,975 100.0 3,900 100.0 3,6 00 100.0
</TABLE>
Deposits
The average daily amounts of deposits and rates paid on such deposits is
summarized for the periods indicated in the following table:
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
Amount Rate Amount Rate Amount Rate
(In Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 89,957 - % 84,332 - % 79,901 - %
Interest-bearing demand
deposits 43,456 1.41 44,991 1.50 44,261 1.63
Savings deposits 143,065 3.00 135,146 2.88 139,219 2.83
Time deposits 190,684 5.43 185,686 5.49 177,537 5.42
$ 467,162 450,155 440,918
</TABLE>
Scheduled maturities of certificates of deposit at December 31, 1998 are
summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars)
<S> <C>
1999 $118,730
2000 41,142
2001 11,274
2002 3,505
2003 2,529
2004 and thereafter 261
$177,441
</TABLE>
Maturities of certificates of deposit $100,000 or more outstanding at December
31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Time Certificates
of Deposits
(In Thousands of Dollars
<S> <C>
3 months or less $20,304
Over 3 through 12 months 7,466
Over 12 months 4,867
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,
1998 1997 1996
<S> <C> <C> <C>
Return on average assets 1.24% 1.26% 1.19%
Return on average equity 11.41 11.67 11.37
Return on beginning equity 11.84 12.22 11.64
Dividend payout ratio 37.56 36.55 35.78
Average equity to average assets ratio 10.89 10.83 10.44
Year-end equity to year-end assets ratio 10.60 11.23 10.54
</TABLE>
Short-Term Borrowings
For each of the three years in the period ended December 31, 1998, 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
six (6) 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, 1998, 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 1998 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, 1999 was 756.
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, 1998 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, 1998 is incorporated herein by reference to Exhibit
C of Exhibit Listing 13.
ITEM 7A. QUANTITATIVE AND QUAITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by item 305 of Regulation S-K is included in the
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, 1998 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, 1998 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 6, 1999, relating to the
Annual Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the Annual
Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the Annual
Meeting of Shareholders to be held on May 12, 1999, 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 6, 1999, relating to the
Annual Meeting of Shareholders to be held on May 12, 1999, 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, 1998
and 1997, and for each of the years in the three-year period ended December
31, 1998 are incorporated by reference in Item 8:
- Independent Auditors' Report
- Consolidated Balance Sheets - December 31, 1998 and 1997
- Consolidated Statements of Income - Years ended December 31, 1998,
1997 and 1996
- Consolidated Statements of Shareholders' Equity and Comprehensive
Income - Years ended December 31, 1998, 1997 and 1996
- Consolidated Statements of Cash Flows - Years ended
December 31, 1998, 1997 and 1996
- Notes to Consolidated Financial Statements - December 31, 1998 and
1997
(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, 1998,
are incorporated herein by reference to Exhibit A
of the Registrant's Form 10-Q for the period ended
June 30, 1998, File No. 0-13888.
Exhibit (13) -- Annual Report to Shareholders for the year ended
December 31, 1998.
-- 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. Quantitative
and Qualitative disclosures about
Market Risk.
-- 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 6, 1999,
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, 1998.
(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, 1998
CHEMUNG FINANCIAL CORPORATION
ELMIRA, NEW YORK
____________________________________
EXHIBIT
LISTING EXHIBIT
EXHIBIT 13 Annual Report To Shareholders For The Year Ended
December 31, 1998
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
Quantitative and Qualitative disclosures about
Market Risk.
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 6, 1999, 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 10, 1999
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
Director
Robert E. Agan
/s/ John W. Bennett Director & Chairman March 10, 1999
John W. Bennett of the Board
Director
Donald L. Brooks, Jr.
/s/ David J. Dalrymple Director March 10, 1999
David J. Dalrymple
/s/ Robert H. Dalrymple Director March 10, 1999
Robert H. Dalrymple
Director
Frederick Q.Falck
/s/ Edward B. Hoffman Director March 10, 1999
Edward B. Hoffman
/s/ Stephen M. Lounsberry III Director March 10, 1999
Stephen M. Lounsberry III
/s/ Thomas K. Meier Director March 10, 1999
Thomas K. Meier
/s/ Ralph H. Meyer Director March 10, 1999
Ralph H. Meyer
Director
John F. Potter
/s/ Charles M. Streeter, Jr. Director March 10, 1999
Charles M. Streeter, Jr.
/s/ Richard W. Swan Director March 10, 1999
Richard W. Swan
/s/ William A. Tryon Director March 10, 1999
William A. Tryon
/S/ William C. Ughetta Director March 10, 1999
William C. Ughetta
/s/ Nelson Mooers van den Blink Director March 10, 1999
Nelson Mooers van den Blink
/s/ Jan P. Updegraff Director, President & March 10, 1999
Jan P. Updegraff Chief Executive Officer
Attest
/s/ Donna C. Denton Secretary March 10, 1999
Donna C. Denton
EXHIBIT A
TABLE OF QUARTERLY MARKET PRICE RANGES
<TABLE>
<CAPTION>
Market Prices of Chemung Financial Corporation Stock
During Past Three Years (dollars)
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
Hi -- Lo Hi -- Lo Hi -- Lo
<S> <C> <C> <C> <C> <C> <C>
1st Quarter 25 1/2 - 21 1/2 18 - 16 13/16 14 3/8 - 13 1/2
2nd Quarter 30 - 25 3/4 17 5/8 - 16 3/4 15 3/4 - 14
3rd Quarter 30 - 26 1/4 18 3/4 - 16 13/16 16 5/8 - 15 3/16
4th Quarter 28 - 22 3/4 23 3/4 - 19 1/8 17 7/8 - 16 1/2
</TABLE>
EXHIBIT B
TABLE OF DIVIDENDS PAID
<TABLE>
<CAPTION>
Dividends Paid by Chemung Financial Corporation
During Past Three Years
- -----------------------------------------------------------------------------
1998 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
January 2 $.1550 $.1400 $.1250
April 1 .1550 .1400 .1250
July 1 .1700 .1550 .1250
October 1 .1700 .1550 .1400
- -----------------------------------------------------------------------------
$0.6500 $0.5900 $0.5150
</TABLE>
As of December 31, 1998 there were 756 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 discussions and analysis.
Description of Business
Chemung Financial Corporation (the "Corporation") is a one-bank holding
company with its only subsidiary being Chemung Canal Trust Company (the
"Bank"), a full-service community bank with full Trust powers. Therefore,
the financial condition should be examined in terms of the acquisition and
employment of funds within its "market areas". Management defines the market
areas of Chemung Canal Trust Company as those areas within a 25-mile radius of
its branches in Chemung, Steuben, Schuyler, and Tioga counties, including the
northern tier of Pennsylvania. The Bank's lending policy restricts
substantially all lending efforts to these geographical regions.
In 1997, the Corporation joined six other bank holding companies in forming a
Small Business Investment Company ("SBIC") as a limited partner. The SBIC is
authorized under The Small Business Equity Investment Act of 1992 and is
registered under the name CEPHAS Capital Partners, LP. The Corporation's
capital commitment to the partnership is $2.475 million, of which $1.758
million had been paid as of December 31, 1998. 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 authorized individual
and Senior Officers Loan Committee lending limits. The Senior Officers Loan
Committee, consisting of the president, two executive vice presidents, senior
lending officer, mortgage officer, and consumer loan officer, implements the
Board-approved loan policy.
Supervision and Regulation
The Corporation, as a bank holding company, is regulated under the Bank
Holding Company Act of 1956, as amended (the "Act"), and is subject to the
supervision of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"). Generally, the Act limits the business of bank
holding companies to banking, or managing or controlling banks, performing
certain servicing activities for subsidiaries, and engaging in such other
activities as the Federal Reserve Board may determine to be closely related to
banking and a proper incident thereto.
The Bank is chartered under the laws of New York State and is supervised by
the New York State Banking Department.
The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA")
was passed in order to protect depositors and taxpayers from the excesses of
the S&L problems of the 1980's. There are a number of provisions in this act
that significantly increase the 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.
Competition
The Bank is subject to intense competition in the lending and deposit gathering
aspects of its business from commercial and thrift banking institutions, credit
unions, and other providers of financial services, such as brokerage firms,
investment companies, insurance companies and Internet vendors. The Bank also
competes with non-financial 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. Unlike the Bank,
many of these competitors are not subject to regulation as extensive as that
described under the "Supervision and Regulation" section and, as a result,
they may have a competitive advantage over the Corporation in certain respects.
This is particularly true of credit unions, as their pricing is not encumbered
by income taxes.
Competition for the Bank's fiduciary services comes primarily from brokerage
firms, independent investment advisors, and a non-bank trust company operating
in Steuben County with newly expanded powers. This is considered to be
significant competition, as these firms devote much of their considerable
resources toward gaining larger positions in these markets. Trust assets
under administration, however, totaled $1.4 billion at December 31, 1998,
compared to $1.2 billion a year earlier and nearly $1.1 billion at December 31,
1996. Relative to the Bank's consolidated net assets, the Trust and Investment
Division is unusually large and is responsible for the largest component of non-
interest revenue.
During 1998, as well as 1997 and 1996, the Trust & Investment Division noted a
continued increase in the competition for personal and corporate investment
management services in our market areas. Early in 1998, management formed a
strategic alliance with a third party administrator for the purpose of out-
sourcing retirment fund recordkeeping. The trade off in revenue and expense is
material but the alliance contributed importantly to our efforts to bring first
rate technology to our retirement services clients. We see this strategy as
extremely important in our efforts to remain in the retirement services business
while reducing the requirements for investing in related technology.
Significant Issue - Year 2000
In 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 identifying all
applications and databases 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. A committee continues to direct the Bank's Year 2000 activities
under the framework of the FFIEC's Five Step Program. The first phase of
testing of critical applications was substantially completed by year-end 1998,
with testing of other non-critical applications expected to be completed by
March 31, 1999. The Company has begun evaluating Year 2000 readiness of its
commercial loan applicants as part of the loan underwriting process and is
calling upon major existing borrowers to assess their readiness and identify
potential problems.
In addition, the Bank is currenty formulating a contingency plan for business
continuation in the event of Year 2000 systems failures. This contingency plan
will be based upon the Bank's existing disaster recovery plan with modifications
for the Year 2000 risks. The Bank expects to complete its systems contingency
plan by March 1999.
Significant Year 2000 failures in the Bank's systems or in the system's third
parties (or third parties upon whom they depend) could have a material adverse
effect on the Bank's financial condition and results of operation. The Bank
believes that its reasonably likley worse case Year 2000 scenario is (i) a
material increase in the Bank's credit losses due to Year 2000 problems for the
Bank's borrowers and obligors, and (ii) disruption in financial markets causing
liquidity stress to the Bank. The magnitude of these potential credit losses
and disruption cannot be determined at this time.
It is expected that costs associated with Year 2000 readiness including hardware
and software upgrades, as well as costs of testing, will be approximately
$200,000.
Employees
The Corporation and its Banking subsidiary had 291 full-time equivalent
employees (FTE') on December 31, 1998 versus 281 at the beginning of the year
and 289 on December 31, 1996. The employment trend is relatively stable.
Balance Sheet Comments
Average earning assets for 1998 grew by $41.4 million or 8.4% to $532.5 million,
compared to $491.1 million in 1997 and $469.5 million in 1996. Business loans
and 1-4 family mortgages were very strong throughout the year, with year-end
balances growing $10.04 million (9.2%) and $10.8 million (14.6%) respectively.
Average total loan balances were $311.7 million versus $291.3 million during
1997 and $273.9 million during 1996.
Non-performing loans at year-end increased to $4.853 million at December 31,1998
versus $1.617 million at the end of 1997 and $1.720 million at the end of 1996,
and represented 1.5% of total outstandings compared to 0.54% at the end of 1997
and 0.61% on December 31. 1996. The increase in 1998 relates primarily, to one
real estate secured commercial loan. Net loan losses were $436 thousand or
0.14% of average outstandings, compared to $680 thousand in 1997 and $667
thousand in 1996. The allowance for loan losses at December 31, 1998 was
1.37% of total outstandings versus. 1.40% a year ago and 1.40% at December
31, 1996.
<TABLE>
<CAPTION>
Exhibit I
Balance Sheet Comparisons
Average Balance Sheet Change
(in millions) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets $587.4 $542.4 $518.5 $495.2 $431.2 $397.7 8.3% 8.1%
Earning Assets 532.5 491.1 469.5 447.1 394.7 368.4 8.4% 7.6%
Loans 311.7 291.3 273.9 249.1 221.4 224.1 7.0% 6.8%
*Investments 220.9 199.8 195.6 198.0 173.3 144.3 10.6% 8.9%
Deposits 467.2 450.2 440.9 424.4 374.6 347.0 3.8% 6.1%
Wholesale Funding 37.0 13.1 2.9 N/A N/A N/A 182.4% N/A
Tier I Equity 57.4 51.6 46.4 41.7 38.2 37.0 11.2% 9.2%
*Average balances for investments are based on amortized cost.
</TABLE>
<TABLE>
<CAPTION>
Ending Balance Sheet
(in millions)
1998 1997 1996 1995 1994 1993 1yr 5 yrs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total Assets $623.7 $548.9 $532.2 $501.9 $494.3 $398.1 13.6% 9.4%
Earning Assets 565.3 486.1 474.6 446.3 448.9 369.2 16.3% 8.9%
Loans - Net 324.8 292.8 279.7 259.1 232.9 218.8 10.9% 8.2%
Investments 245.1 196.8 196.3 189.6 212.1 147.1 24.5% 10.8%
Deposits 466.1 451.0 439.6 426.9 432.3 342.9 3.3% 6.3%
Wholesale Funding 71.4 20.5 10.0 N/A N/A N/A 248.3% N/A
Tangible Equity 59.9 54.8 48.7 44.9 37.2 38.3 9.3% 9.4%
Allowance For Loan
Losses 4.51 4.15 3.98 3.90 3.60 3.50 8.7% 5.2%
</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 if the securities portfolio
at December 31, 1998 was $235.3 million compared to $185.3 million a year
earlier and $185.4 million at the end of 1996. At year-end 1998, total
appreciation in the banking subsidiary's securities portfolio was $8.983
million, compared to $7.629 million a year ago. The components of the
appreciation are set forth in the following tables:
<TABLE>
<CAPTION>
1998 1997
(in thousands) Amortized Fair Amortized Fair
Cost Value Appreciation Cost Value Appreciation
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities $ 23,013 $ 23,295 $ 282 $ 37,188 $ 37,294 $ 106
Obligations of
other U.S.
Government
Agencies 77,787 78,233 446 56,565 56,677 112
U.S Government
Agency Mortgage-
backed pools 89,245 89,593 348 55,021 55,603 582
Obligations of
states and
political
subdivisions 20,967 21,432 465 25,361 25,800 439
Other bonds
and notes 9,682 9,705 23 80 80 0
Corporate Stocks 5,617 13,036 7,419 3,459 9,849 6,390
Totals $ 226,311 $235,294 $ 8,983 $ 177,674 $185,303 $ 7,629
</TABLE>
Included in the above table are 49,604 shares of SLM Holding Corporation at a
cost basis $4,538 and fair market value of $2,380,992. 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, 1998, the Banking subsidiary's portfolio held
marketable equities totaling $89,538 with a total fair value of $5,102,582.
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 39,556 shares of the Federal Home Loan
Bank of New York. They are valued at $498,200 and $3,955,600, respectively.
The number of shares of these last two investments is regulated by regulatory
policies of the respective institutions.
Capital Resources and Dividends
The Corporation continues to maintain a strong capital position. Tangible
shareholders' equity at December 31, 1998 was $59.9 million or 9.60% of total
assets compared to $54.8 million or 9.98% of total assets a year earlier and
$48.7 million or 9.15% at December 31, 1996. As of December 31, 1998, the
Corporation's total Risk Weighted Adjusted Capital Ratio was 16.67% compared
with 17.44% a year earlier and 16.87% at December 31, 1996. The leverage ratio
(Average Tier I Capital/Average Assets) was 9.51% during 1998 and 9.49% in 1997.
Management's strategy for employing the Corporation's capital is to maintain the
leverage ratio as low as possible but at a level in excess of the requirements
for being considered well capitalized by the FDIC, the Federal Reserve, and the
New York State Banking Department. Term borrowings and repurchase agreements
with the Federal Home Loan Bank were the funding source for this strategy.
Under Federal Reserve regulations (see Note 14 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,
1998, 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, 1998, $8,794,583 was available for
the declaration of dividends.
At the May annual meeting of the Corporation's shareholders, the authorized
number of common shares was increased from 3,000,000 to 10,000,000 and the
par value reduced from $5.00 to $0.01 per share. The Corporation's board
declared a two for one stock split, payable in the form of a 100% stock
dividend to shareholders effective in June 1998. Per share and dividend
information has been restated to reflect the stock split.
Cash dividends declared amounted to $2.741 million in 1998 versus $2.506
million in 1997 and $2.203 million in 1996. Dividends declared during 1998
amounted to 37.56% of net earnings compared to 36.6% and 35.8% of 1997 and
1996 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 1998 was impacted by 1) higher loan volumes 2) higher volumes
in investment securities 3) lower average interest rates on both sides of the
balance sheet 4) higher volumes of non-interest income and 5) higher non-
interest expenses. Consolidated net income for 1998 was $7.297 million
versus $6.857 million, up $440 thousand (6.4%) or $1.77 per share versus $1.66
per share (up 6.6%) on 26,684 fewer average shares outstanding. In 1996, the
Corporation earned $6.158 million versus $5.602 million in 1995. Quarterly
dividends declared totaled $0.665 per share versus $0.605 in 1997 and $0.53
in 1996, adjusted for the two for one stock split effective in June 1998.
Non-interest income increased $749 thousand to $8.217 million, up 10.0% over
1997. Trust and Investment fees, at $4.505 were again the largest component
and registered the largest (10.4%) increase. The primary reason for this
result was major increases in the pricing of both common stocks and debt
securities managed by the department. Gains realized in the Bank's investment
securities portfolio were $216 thousand compared to $324 thousand in 1997 and
$610 thousand in 1996.
Non-interest expenses increased $1.105 million (5.7%) to $20.5 million. Non-
interest expenses for 1997 were $19.4 million compared to the same amount in
1996. These expenses were negatively impacted by a $159 thousand increase in
the Bank's self insured healthcare costs, a $319 thousand increase in other
real estate expenses, a $225 thousand increase in credit card processing, and
a $123 thousand increase in rent expense.
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 I 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 1998 were $69 thousand versus $71 thousand in 1997
and $253 thousand in 1996.
During 1998, the Bank's provision for loan losses totaled $800 thousand, down
$50 thousand from $850 thousand in 1997 and $742 thousand in 1996. The change
is a reflection of management's ongoing evaluation of the risk inherent in the
portfolio. Also, during 1998, several properties were taken into Other Real
Estate ("ORE") as a result of foreclosures. The ORE expenses resulting from
these situations totaled $394,471 compared to $75,243 in 1997 and $17,927 in
1996.
Exhibit II
<TABLE>
<CAPTION>
Change
Earnings (in thousands) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Interest Income $ 23,739 $ 23,274 $ 22,468 $ 21,849 $ 19,304 $ 18,672 2.0% 4.9%
Loan Loss Provision 800 850 742 564 624 907 -5.9% -2.5%
Net Interest Income After
Loan Loss Provision 22,939 22,424 21,726 21,285 18,680 17,765 2.3% 5.2%
Non-interest Income
Trust Department Income 4,505 4,079 3,719 3,678 3,323 3,294 10.4% 6.5%
Securities Gains, net 216 324 610 531 140 821-33.3%-23.4%
Other Income 3,496 3,065 2,777 2,527 2,222 2,004 14.1% 11.8%
Total Non-Interest Income 8,217 7,468 7,106 6,736 5,685 6,119 10.0% 6.1%
Operating Expense 20,473 19,368 19,408 19,560 17,375 15,627 5.7% 5.6%
Pretax income 10,683 10,524 9,424 8,461 6,990 8,257 1.5% 5.3%
Effect of Accounting Change 0 0 0 0 0 (933) N/A N/A
Income Taxes 3,386 3,667 3,266 2,859 2,342 2,830 -7.7% 3.7%
Net Income $ 7,297 6,857 6,158 5,602 4,648 4,494 6.4% 10.2%
</TABLE>
The average interest rate on earning assets was 7.78% during 1998 versus 8.02%
in 1997 and 7.99% in 1996. The interest expense on the Bank's liabilities
increased to 4.18% in 1998 compared to 4.13% in 1997 and 4.00% in 1996. This
resulted in a net interest spread of 3.60% versus 3.89% in 1997 and 3.99% in
1996. The net interest margin declined 28 basis points to 4.46%, compared to
4.74% in 1997 and 4.79% in 1996.
Exhibit III
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>
1998 vs 1997 1997 vs 1996
Increase Increase
(Decrease) (Decrease)
Interest Income
(thousands) Total Due to Due to Total Due to Due to
Change Volume Rate Change Volume Rate
<S> <C> <C> <C> <C> <C> <C>
Loans $ 1,185 $ 1,836 $ (651) $ 1,366 $ 1,591 $ (225)
Taxable investment
securities 559 1,017 (458) 337 82 255
Tax-exempt investment
securities (8) (2) (6) 82 105 (23)
Federal funds sold 290 293 (3) (50) (57) 7
Other Investments 3 3 0 0 0 0
Interest bearing deposits 7 (80) 87 126 90 36
Total Interest Income $ 2,036 $ 3,067 $(1,031) $ 1,861 $ 1,811 $ 50
Interest Expense
(thousands)
Demand deposits $ (64) $ (23) $ (41) $ (44) $ 12 $ (56)
Savings deposits 390 229 161 (48) (117) 69
Time deposits 164 272 (108) 562 446 116
Federal funds purchased
and securities sold under
agreement to repurchase 1,078 1,126 (48) 585 491 94
Total Interest Expense $ 1,568 $ 1,604 $ (36) $ 1,055 $ 832 $ 223
Net Interest Income $ 468 $ 1,463 $ (995) $ 806 $ 979 $ (173)
</TABLE>
Intangible assets
The core deposit intangible and goodwill in the amount of $4.1 million and $2.1
million, respectively, at December 31, 1998, 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 1998, 39,383 shares were
purchased at a total cost of $984,284 or an average price of $24.99 per share.
In 1997, 5,370 shares were purchased at a total cost of $107,768 or an average
adjusted price of $20.07 per share, and in 1996 there were 33,830 shares
purchased at a total cost of $514,599 ($15.21 per share).
Exhibit IV
<TABLE>
<CAPTION>
Change
Selected data on Common Shares
(Adjusted for two for one
stock split) 1998 1997 1996 1995 1994 1993 1 yr. 5 yrs
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Income $ 1.77 $ 1.66 $ 1.48 $ 1.34 $ 1.23 $ 1.44 6.6% 4.2%
Dividends Declared 0.665 0.605 0.53 0.49 0.467 0.437 9.9% 8.7%
Tangible Book Value 14.59 13.24 11.76 10.79 8.88 10.13 10.2% 7.6%
Market Price 12/31 27.50 21.00 17.00 13.88 12.75 11.50 31.0% 19.0%
Average Shares 4,116 4,143 4,159 4,176 3,798 3,788 -0.7% 1.7%
</TABLE>
Exhibit V
<TABLE>
<CAPTION>
Selected Ratios 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Return on average Assets 1.24% 1.26% 1.19% 1.13% 1.08%
Return on average tier I equity 13.88% 14.29% 14.08% 14.26% 12.49%
Dividend Yield 12/31 2.47% 2.95% 3.29% 3.60% 3.76%
Dividend payout 37.56% 36.55% 35.78% 36.52% 38.22%
Tier I capital to risk
adjusted assets 15.42% 16.19% 15.61% 15.21% 13.71%
Tier I leverage ratio 9.51% 9.49% 8.97% 8.52% 7.69%
Total capital to risk
adjusted assets 16.67% 17.44% 16.87% 16.46% 15.03%
Loans to deposits 70.63% 65.84% 64.53% 61.61% 54.71%
Loan reserve to outstanding
loans 1.37% 1.40% 1.40% 1.48% 1.52%
Loan reserve to non-performing
loans 92.9% 257% 231% 217% 232%
Non-performing loans to
outstanding loans 1.47% 0.54% 0.61% 0.68% 0.66%
Net interest rate spread 3.60% 3.89% 3.99% 4.12% 4.26%
Net interest margin 4.46% 4.74% 4.79% 4.89% 4.89%
Efficiency ratio
(adj. for intangibles) 61.97% 60.84% 63.41% 66.12% 68.34%
</TABLE>
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 $80.220 million in 1998. The
same areas trailed by $12.551 million in 1997. Net purchases of equipment
during 1998 and 1997 were $1.325 million, and $1.990 million, respectively.
During 1996, proceeds from maturities and sales of securities and student loans
were less than purchases of securities and loan originations net of repayment
and net purchases of premises and equipment by $38.304 million. Net purchases
of premises and equipment during 1996 were $862.7 thousand.
Net cash provided by financing activities amounted to $63.233 million in 1998,
compared to $10.219 million in 1997 and $21.304 million in 1996. Core deposits
(demand, NOW, Savings and Insured Money Market Accounts) increased $11.5 million
in 1998 compared to an increase of $11.6 million in 1997.
Liquidity and Sensitivity
The term "liquidity" refers primarily to the expected cash flows from assets
held for investment and secondarily to borrowings secured by assets held for
investments. These two sources of liquidity have in the past been sufficient
to fund the operations of the Bank, and the Board of Directors anticipates
that they will suffice in the future. For this reason, the term "liquidity"
in the Bank's policies does not refer to proceeds from the sale of assets,
although the sale of assets held as available for sale is a source of liquidity
available to management.
Liquidity management involves the ability to meet the cash flow requirements of
deposit customers, borrowers, and the operating, investing, and financing
activities of the Corporation. Management of interest rate sensitivity seeks
to avoid fluctuating net interest margins and to enhance consistent growth of
net interest income through periods of changing interest rates.
As intermediaries between borrowers and savers, commercial banks incur interest
rate risk. The Bank's Asset/Liability Committee (ALCO) has the strategic
responsibility for setting the policy guidelines on acceptable exposure. The
ALCO is made up of the president, asset liability management officer, senior
lending officer, senior marketing officer, chief accounting officer and others
representing key functions.
The Bank is a member of the Federal Home Loan Bank of New York ("FHLB") in order
to enhance management's ability to satisfy future liquidity needs and to have an
additional alternative for investing excess reserves. The Bank's $3.956 million
investment in FHLB stock allowed it to maintain a $56.696 million line of credit
at December 31, 1998. This compares to $46.977 million at the end of 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 "contractual" gap. Contractual
gap measures the stated repricing and maturity of assets and liabilities. At
December 31, 1998, the cumulative one-year contractual gap for the Bank was a
negative $173.9 million versus a negative $176.0 million a year earlier and a
negative $160.9 million at the end of 1996. This means that $173.9 million of
earning assets could reprice after the source of funds reprice. It is highly
unlikely that this would happen, however, and there is no historical precedent
for it.
<TABLE>
<CAPTION>
December 31, 1998 Rate Sensitive
Contractual Amounts
(Thousands) 1 to 90 Days 91 to 365 Days 1 to 5 Years Over 5 Years
Earning Assets:
<S> <C> <C> <C> <C>
Loans $ 85,270 $ 20,311 $ 113,392 $ 105,902
Securities 8,501 22,898 71,860 125,660
Other (Equities) 13,036
Total earning assets $ 106,807 $ 43,209 $ 185,252 $ 231,562
Net sources:
NOW accounts $ 38,128
Insured Money Market 58,133
Time certificates
under $100 thousand 39,231 58,264 48,331 59
Time certificates
over $100 thousand 20,304 7,466 4,666 201
Savings 89,448
FHLB advances 6,900 20,000
Repurchase Agreements 6,087 15,000 29,500
Total sources $ 258,231 65,730 67,997 49,760
Incremental gap -151,424 -22,521 117,255 181,802
Percent of earning
assets -141.7% -52.1% 63.3% 78.5%
Cumulative gap -151,424 -173,945 -56,690 125,112
Percent of total assets -24.3% -27.9% -9.1% 20.1%
</TABLE>
In recent years 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 1998, 1997 and 1996 has been quite stable, even with movements
in excess of 200 basis points. Short term rates (6 month U.S. Treasury Bills)
ranged between 4.15% - 5.16% during 1998 and 5.03% - 5.45% during 1997.
Management does recognize the need for certain hedging strategies during periods
of anticipated higher fluctuations in interest rates and the Board-approved
Funds Management Policy provides for limited use of certain derivatives in asset
liability management. These strategies were not employed during 1998.
The ALCO is responsible for supervising the preparation and annual revisions of
the financial segments of the Bank Plan, which is built upon the committee's
economic and interest-rate assumptions and the Annual Budget. It is the
responsibility of the ALCO to modify prudently any and all asset/liability
policies.
Effective January 1, 1998 the Company adopted the remaining provisions of
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", which
relate to the accounting for securities lending, repurchase agreements, and
other secured financing activities. These provisions, which were delayed for
implementation by SFAS No. 127, are not expected to have a material impact on
the Company.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities". This statement establishes comprehensive
accounting and reporting requirements for derivative instruments and hedging
activities. The statement requires (companies or banks) to recognize all
derivatives as either assets or liabilities, with the instruments measured at
fair value. The accounting for gains and losses resulting from changes in fair
value of the derivative instrument, depends on the intended use of the
derivative and the type of risk being hedged. This statement is effective for
all fiscal quarters beginning January 1, 2000 for calendar year (companies or
banks). Earlier adoption, however is permitted.
Jan P. Updegraff
President and Chief Executive 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, 1998 and 1997, and the
related consolidated statements of income, shareholders' equity and
comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 1998. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Chemung Financial
Corporation and subsidiary at December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
Syracuse, New York
January 20, 1999
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
Assets December 31 1998 1997
<S> <C> <C>
Cash and due from banks $ 27,515,582 32,997,157
Interest-bearing deposits with other
financial institutions 1,304,207 1,421,298
Securities available for sale, at fair value 235,293,736 185,302,745
Securities held to maturity, fair value of
$6,660,923 in 1998 and $9,224,028 in 1997 6,660,923 9,224,028
Loans, net of unearned income and deferred fees 329,255,342 296,976,769
Allowance for loan losses (4,509,185) (4,145,422)
Loans, net 324,746,157 292,831,347
Premises and equipment, net 10,084,608 10,219,043
Other assets 11,826,068 10,123,203
Intangible assets, net of accumulated
amortization 6,228,328 6,815,631
Total assets $ 623,659,609 548,934,452
Liabilities and Shareholders' Equity
Deposits:
Noninterest-bearing $ 101,908,083 94,656,560
Interest-bearing 364,231,279 356,387,782
Total deposits 466,139,362 451,044,342
Securities sold under agreements to repurchase 50,587,369 9,447,856
Federal Home Loan Bank advances 26,900,000 16,300,000
Accrued interest payable 1,428,560 1,191,409
Dividends payable 697,570 641,611
Other liabilities 11,817,121 8,672,057
Total liabilities 557,569,982 487,297,275
Commitments and contingencies (note 13)
Shareholders' equity:
Common stock, $.01 par value per share;
authorized 10,000,000 in 1998, 6,000,000
in 1997;Issued and o/s 4,300,134
in 1998 and 1997 43,001 10,750,335
Capital Surplus 20,851,800 10,101,804
Retained earnings 42,770,991 38,236,025
Treasury stock, at cost (197,380 shares in 1998;
161,076 shares in 1997) (2,970,954) (2,032,886)
Accumulated Other Comprehensive Income 5,394,789 4,581,899
Total shareholders' equity 66,089,627 61,637,177
Total liabilities and shareholders' equity $ 623,659,609 548,934,452
See accompanying notes to consolidated financial statements.
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
<S> <C> <C> <C>
Interest income:
Loans $ 27,865,497 26,679,426 25,313,778
Securities 12,621,909 12,070,919 11,651,818
Federal funds sold 589,976 300,359 350,005
Interest-bearing deposits 327,927 321,265 195,181
Total interest income 41,405,309 39,371,969 37,510,782
Interest expense:
Deposits 15,246,674 14,756,046 14,286,189
Borrowed funds 736,493 659,753 176,126
Securities sold under agreements
to repurchase 1,683,244 682,065 580,354
Total interest expense 17,666,411 16,097,864 15,042,669
Net interest income 23,738,898 23,274,105 22,468,113
Provision for loan losses 800,000 850,100 741,662
Net interest income after
provision for loan losses 22,938,898 22,424,005 21,726,451
Other operating income:
Trust department income 4,504,569 4,078,880 3,718,851
Service charges on deposit accounts 2,010,639 1,906,931 1,611,409
Net gain on sales of securities 215,993 323,989 609,596
Credit card merchant earnings 630,968 536,735 519,039
Other 854,850 621,273 646,603
8,217,019 7,467,808 7,105,498
Other operating expenses:
Salaries and wages 8,290,133 8,041,859 7,926,874
Pension and other employee benefits 1,939,033 2,033,962 1,976,814
Net occupancy expenses 1,739,063 1,562,568 1,629,539
Furniture and equipment expenses 1,655,776 1,651,675 1,592,873
Other 6,848,747 6,077,630 6,281,664
20,472,752 19,367,694 19,407,764
Income before income taxes 10,683,165 10,524,119 9,424,185
Income taxes 3,386,027 3,666,899 3,266,662
Net income $ 7,297,138 6,857,220 6,157,523
Weighted average shares outstanding 4,116,405 4,143,089 4,158,624
Net income per common share: $ 1.77 1.66 1.48
See accompanying notes to consolidated financial statements.
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
Accumulated Other
Common Capital Retained Treasury Comprehensive
Stock Surplus Earnings Stock Income Total
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $ 10,750,335 10,068,563 29,930,969 (1,579,298) 3,728,329 52,898,898
Comprehensive Income:
Net income - - 6,157,523 - - 6,157,523
Change in net unrealized gain
(loss) on securities available
for sale, net of taxes - - - - (420,420) (420,420)
Total comprehensive income 5,737,103
Cash dividends declared
($.53 per share) - - (2,203,223) - - (2,203,223)
Purchases of 33,830 shares of
treasury stock - - - (514,599) - (514,599)
Sale of 14,560 shares of
treasury stock - 33,241 - 168,799 - 202,020
Balances at December 31, 1996 $ 10,750,335 10,101,804 33,885,269 (1,925,118) 3,307,909 56,120,199
Comprehensive Income
Net income - - 6,857,220 - - 6,857,220
Change in net unrealized gain
(loss) on securities available
for sale, net of taxes - - - - 1,273,990 1,273,990
Total comprehensive income 8,131,210
Cash dividends declared
($.605 per share) - - (2,506,464) - - (2,506,464)
Purchase of 5,370 shares of
treasury stock - - - (107,768) - (107,768)
Balances a December 31, 1997 $ 10,750,335 10,101,804 38,236,025 (2,032,886) 4,581,899 61,637,177
Comprehensive Income:
Net income - - 7,297,138 - - 7,297,138
Change in net unrealized gain
(loss) on securities available
for sales, net of taxes - - - - 812,890 812,890
Total comprehensive income 8,110,028
Reduction of Par Value from
$5.00 to $0.01 per share (10,728,834) 10,728,834 - - - -
Two for one stock split 21,500 - (21,500) - - -
Cash dividends declared
($.665 per share) - - (2,740,672) - - (2,740,672)
Purchase of 39,383 shares of
treasury stock - - - (984,284) - (984,284)
Sale of 3,079 shares of
treasury stock - 21,162 - 46,216 - 67,378
Balances at December 31, 1998 $ 43,001 20,851,800 42,770,991 (2,970,954) 5,394,789 66,089,627
See accompanying notes to consolidated financial statements
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 7,297,138 6,857,220 6,157,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Amortization of intangible assets 587,303 587,303 585,303
Deferred income taxes (554,345) (260,933) (387,248)
Provision for loan losses 800,000 850,100 741,662
Depreciation and amortization 1,459,446 1,483,178 1,440,752
Amortization and discount
on securities, net 321,469 248,288 303,365
Gain on sales of securities, net (215,993) (323,989) (609,596)
(Increase) in other assets (1,702,865 (2,244,392) (216,172)
Increase in accrued interest payable 237,151 38,618 93,689
Increase (decrease) in other liabilities 3,158,834 (2,239,841) 3,260,358
Net cash provided by operating
activities $ 11,388,138 4,995,552 11,371,636
Cash flows from investing activities:
Proceeds from sales of securities
available for sale $ 19,174,487 24,071,461 57,617,458
Proceeds from maturities of and
principal collected on securities
held to maturity 7,054,835 12,226,947 6,035,978
Proceeds from maturities of and
principal collected on securities
available for sale 78,602,492 30,683,353 52,023,153
Purchases of securities available
for sale (146,519,981) (52,508,840) (122,926,000)
Purchases of securities held
to maturity (4,491,731) (11,099,132) (8,805,672)
Purchases of premises and equipment, net (1,325,011) (1,989,588) (862,683)
Loan net of repayments and other
reductions (35,894,863) (17,235,072) (24,578,050)
Proceeds from sales of student loans 3,180,053 3,299,607 3,191,711
Net cash (used) by investing
activities $ (80,219,719) (12,551,264) (38,304,105)
Cash flows from financing activities:
Net increase (decrease) in demand
deposits, NOW accounts, savings
accounts, and insured money market
accounts $ 11,498,217 11,603,559 (7,366,182)
Net increase (decrease) in
certificates of deposit and
individual retirement accounts 3,596,803 (208,560) 20,136,632
Net increase (decrease) in
securities sold under agreements
to repurchase 41,139,513 (4,923,284) 989,559
Increase in Federal Home Loan
Bank advances 26,900,000 6,300,000 10,000,000
Repayments of Federal Home Loan
Bank advances (16,300,000) - -
Purchases of treasury stock (984,284) (107,768) (514,599)
Sale of treasury stock 67,378 - 202,020
Cash dividends paid (2,684,712) (2,445,074) (2,143,465)
Net cash provided by financing
activities $ 63,232,915 10,218,873 21,303,965
Net increase (decrease) in cash
and cash equivalents $ (5,598,666) 2,663,161 (5,628,504)
Cash and cash equivalents,
beginning of year 34,418,455 31,755,294 37,383,798
Cash and cash equivalents,
end of year $ 28,819,789 34,418,455 31,755,294
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Income Taxes $ 1,201,696 3,748,867 3,832,329
Interest $ 17,429,260 16,059,256 14,948,980
See accompanying notes to consolidated financial statements.
</TABLE>
CHEMUNG FINANCIAL CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(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 accumulated other comprehensive income
in shareholders' equity until realized. Realized gains and losses are
determined using the specific identification method.
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 origination fees and costs. 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 in the interest method.
The accural 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 on non-accrual if
management believes such classification is warrented for other purposes. Loan
origination fees and certain direct loan orgination costs are deferred and
amortized over the life of the loan as an adjustment of yield, using the
interest method.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered adequate to
provide for probable future 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
management's evaluation of potential losses in the loan portfolio, prevailing
and anticipated economic conditions, past loss experience, and other factors
pertinent to estimating losses inherent in the portfolio. 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 Corporation's allowance for loan
losses. Such agencies may require the Corporation to recognize additions to the
allowance based on their judgments about information available to them at the
timee 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 con-
sidered 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. Res-
idential mortgage loans and consumer loans are evaluated collectively since they
are homogeneous and generally carry smaller balances. Impairment losses are in-
cluded 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 building 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 the buildings and from
3 to 10 years for the equipment and furniture. Amortization of leasehold im-
provements and leased equipment is recognized on the straight-line method over
the shorter of the lease term or the estimated life of the asset.
Other Real Estate
Real estate acquired through foreclosure or deed in lieu of foreclosure is re-
corded at the lower of the carrying amount of 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 future tax consequences
attributable to temporary differences between the financial statements 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 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
On January 1, 1998, the Company adopted SFAS No. 132, "Employers' Disclosure
about Pensions and Other Post Retirement Benefits". SFAS No. 132 revises
employers' disclosures about pensions and other post retirement benefit plans.
SFAS No. 132 does not change the method of accounting for such plans.
The Bank's funding policy is to contribute amounts to the plan sufficient to
meet minimum regulatory funding requirements, plus such additional amounts as
the Bank may determine to be appropriate from time to time.
Postretirement Benefits
In addition to pension benefits, the Bank provides health care and life
insurance benefits for retired employees. 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
Basic earnings per share were computed on the basis of the weighted average
number of common shares outstanding, retroactively adjusted for stock splits
and dividends.
Cash and Cash Equivalents
Cash and cash equivalents include cash and amounts due from banks, interest-
bearing deposits with other financial institutions, federal funds sold, and
U.S. Treasury securities with original terms to maturity of 90 days or less.
Securities Sold Under Agreements to Repurchase
The Corporation enters into sales of U.S. Treasury securities under agreements
to repurchase. The 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 Corporation's only financial instruments with off-balance sheet risk are
commitments under standby letters of credit, unused portions of line of credit
and commitments to fund new loans.
Other Comprehensive Income
On January 1, 1998, the Corporation adopted the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income".
This statement establishes standards for reporting and display of comprehensive
income and its components. At the Corporation, comprehensive income represents
net income plus other comprehensive income, which consists of the net change in
unrealized holding gains or losses on securities available for sale, net of the
related tax effect. Accumulated other comprehensive income represents the net
unrealized holding gains or losses on securities available for sale as of the
balance sheet dates, net of the related tax effect.
Comprehensive income for the years ended December 31, 1998, 1997, and 1996 were
$8,110,028, $8,131,210 and $5,737,103, respectively. The following summarizes
the components of other comprehensive income:
<TABLE>
<CAPTION>
Unrealized Gains or Losses on Securities
<S> <C>
Unrealized holding gains during the twelve
months ended December 31, 1998,
net of tax (pre-tax amount of $1,569,456) $ $942,615
Reclassification adjustment for gains realized
in net income during the twelve months ended
December 31, 1998, net of tax (pre-tax amount of $215,993) (129,725)
Other comprehensive income-twelve months ended December 31, 1998 $ 812,890
Unrealized holding gains during the twelve months ended
December 31, 1997, net of tax (pre-tax amount of $2,445,185) $ 1,468,578
Reclassification adjustment for gains realized
in net income during the twelve months ended
December 31, 1997, net of tax (pre-tax amount of $323,989) (194,588)
Other comprehensive income-twelve months ended December 31, 1997 $ 1,273,990
Unrealized holding gains during the twelve months ended
December 31, 1996, net of tax (pre-tax amount of ($92,139) $ (55,202)
Reclassification adjustment for gains realized
in net income during the twelve months ended
December 31, 1996, net of tax (pre-tax amount of $609,596) (365,218)
Other comprehensive income-twelve months ended December 31, 1996 $ (420,420)
</TABLE>
Segment Reporting
During 1998, the Company adopted SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information". This statement requires the Company to
report financial and other information about key revenue-producing segments
of the Company for which such information is available and is utilized by the
chief operating decision maker. Specific information to be reported for
individual segments include profit and loss, certain revenue and expense items,
and total assets. A reconciliation of segment financial information to amounts
reported in the financial statements is also provided. This standard did not
result in significant changes in the Company's reporting.
The Company's operations are solely in the financial services industry and
include the provision of traditional commercial banking services. The Company
operates primarily in the geographical regions of Chemung, Steuben, Schuyler,
and Tioga counties, including the northern tier of Pennsylvania. The Company
has identified separate operating segments, however, these segments did not meet
the quantitative threshold for separate disclosure.
Reclassifications
Amounts in the prior year's consolidated financial statements are reclassified
whenever necessary to conform with the current year's 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 31, 1998 was $9,029,000, of which
$1,922,000 was required to be on deposit with the Federal Reserve Bank; the
remainder, $7,107,000, was represented by cash on hand.
(3) Securities
<TABLE>
<CAPTION>
Amortized cost and fair value of securities available for sale at December
31, 1998 and 1997 are as follows:
1998 1997
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 23,012,62 23,294,865 37,188,035 37,293,793
Obligations of other U.S.
Government agencies 77,787,530 78,233,115 56,565,434 56,676,787
Mortgage backed securities 89,245,351 89,592,665 55,020,829 55,602,615
Obligations of states and
political subdivisions 20,967,461 21,431,874 25,361,080 25,800,408
Other bonds and notes 9,681,590 9,704,695 79,671 79,963
Corporate stocks 5,616,847 13,036,522 3,458,827 9,849,179
$ 226,311,403 235,293,736 177,673,876 185,302,745
</TABLE>
Amortized cost and fair value of securities held to maturity at December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
Amortized Fair Amortized Fair
Cost Value Cost Value
<S> <C> <C> <C> <C>
Obligations of states and
political subdivisions $ 6,603,598 6,603,598 9,154,538 9,154,538
Other bonds and notes 57,325 57,325 69,490 69,490
$ 6,660,923 6,660,923 9,224,028 9,224,028
</TABLE>
Included in corporate stocks at December 31, 1998 and 1997 is the Bank's
required investment in the stock of the Federal Home Loan Bank carried at its
cost basis of $3,955,600 and $1,797,200, respectively. This investment allows
the Bank to maintain a $56,695,500 line of credit with the Federal Home Loan
Bank at December 31, 1998 and $46,976,500 at December 31, 1997.
Gross unrealized gains and gross unrealized losses on securities available for
sale at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses
<S <C> <C> <C> <C>
U.S. Treasury securities $ 282,241 - 126,876 21,118
Obligations of other U.S.
Government agencies 479,935 34,350 242,668 131,315
Mortgage backed securities 506,296 158,982 626,925 45,139
Obligations of states and
political subdivisions 470,174 5,761 439,540 212
Other bonds and notes 105,225 82,120 292 -
Corporate stocks 7,419,675 - 6,390,352 -
$ 9,263,546 281,213 7,826,653 197,784
</TABLE>
There were no gross unrealized gains and gross unrealized losses on securities
held to maturity at December 31, 1998 and 1997.
Gross realized gains on sales of securities were $215,993, $323,989, and
$613,190 for the years ended December 31, 1998, 1997 and 1996, 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, 1998 and 1997.
Interest and dividends on securities for the years ended December 31, 1998,
1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
Taxable:
<S> <C> <C> <C>
U.S. Treasury securities $ 1,920,930 2,821,733 4,002,636
Obligations of other U.S.
Government agencies 4,659,247 3,670,414 3,252,513
Mortgage backed securities 3,801,800 3,727,722 2,590,587
Other bonds and notes 391,720 48,984 174,419
Corporate stocks 414,602 360,184 271,614
Exempt from federal taxation:
Obligations of states and
political subdivisions 1,433,610 1,441,882 1,360,049
$ 12,621,909 12,070,919 11,651,818
</TABLE>
The amortized cost and fair value by years to contractual maturity as of
December 31, 1998 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 $ 12,507,267 12,549,250 10,505,357 10,745,615
Obligations of other U.S.
Government agencies 5,000,000 4,998,450 48,650,064 48,816,465
Mortgage backed securities - - 1,956,688 1,981,767
Obligations of states and
political subdivisions 4,784,869 4,833,151 5,844,919 5,992,926
Other bonds and notes - - 2,495,496 2,515,625
Total $ 22,292,136 22,380,851 69,452,524 70,052,398
</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 $ 24,137,466 24,418,200 - -
Mortgage backed securities - - 87,288,663 87,610,898
Obligations of states and
political subdivisions 6,725,761 6,890,410 3,611,912 3,715,387
Other bonds and notes 2,620,807 2,657,825 4,565,287 4,531,245
Total $ 33,484,34 33,966,435 95,465,862 95,857,530
</TALBLE>
The amortized cost and fair value by years to maturity as of December 31, 1998
for securities held to maturity are as follows:
</TABLE>
<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 $ 3,467,384 3,467,384 1,849,284 1,849,284
Other bonds and notes - - - -
Total $ 3,467,384 3,467,384 1,849,284 1,849,284
</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 $ 1,286,930 1,286,930 - -
Other bonds and notes 57,325 57,325 - -
Total $ 1,344,255 1,344,255 - -
</TABLE>
Expected maturities will differ from contractual maturities because issuers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
The fair value of securities pledged to secure public funds on deposit or for
other purposes as required by law was $160,490,195 at December 31, 1998 and
$103,131,459 at December 31, 1997. Also, U.S. Treasury securities totaling
$2,000,000 and $13,000,000 (fair value of $2,073,760 and $13,044,720), GNMA's
totaling $13,328,093 and $12,185,770 (fair value of $13,622,012 and
$12,625,864), Federal Agency Securities totaling $62,023,789 and $2,000,000
(fair value of $62,965,881 and $1,992,500) were pledged to secure repurchase
agreements and Federal Homa Loan Bank Advances at December 31, 1998 and 1997,
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 shareholders' equity at
December 31, 1998 or 1997.
In 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 as of December 31, 1998 and 1997 totaled $1,800,282
and $844,875, respectively, and 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, 1998 1997
<S> <C> <C>
Residential mortgages $ 84,554,079 73,756,609
Commercial mortgages 4,989,429 5,996,380
Commercial, financial and agricultural 113,478,081 102,402,506
Leases, net 387,697 413,487
Consumer loans 126,096,779 114,592,615
Net deferred origination fees and
unearned income (250,723) (184,828)
$ 329,255,342 296,976,769
</TABLE>
During 1998, 1997 and 1996, the Corporation sold $3,180,053, $3,299,607 and
$3,191,711, respectively, of education loans at par to the Student Loan
Marketing Association. The Corporation's market area encompasses the New York
State counties of Chemung, Steuben, Schuyler and Tioga including the northern
tier of Pennsylvania. Substantially all of the Corporation's outstanding loans
are with borrowers living or doing business within 25 miles of the branches in
these counties. The Corporation's concentrations of credit risk are reflected
in the preceding table. The concentrations of credit risk with standby letters
of credit, committed lines of credit and committments to originate new loans,
generally follow the loan classifications in the schedule. Other than general
econmic 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, including the impaired
loans described below, totaled $4,458,393 and $929,697 at December 31, 1998 and
1997, respectively. The increase in 1998 relates primarily to one real estate
secured commercial loan. There were no loans with modified payment terms
because of the borrowers' financial difficulties at December 31, 1998 and 1997.
The effect of nonaccrual loans on interest income for the years ended December
31, 1998, 1997 and 1996 was not material. The Bank is not committed to advance
additional funds to these borrowers. Other real estate owned at December 31,
1998 amounted to $651,268 and at December 31, 1997, amounted to $527,127.
Transactions in the allowance for loan losses for the years ended December
31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Balances at January 1 $ 4,145,422 3,975,000 3,900,000
Provision charged to operations 800,000 850,100 741,662
Loans charged off (593,704) (770,389) (754,360)
Recoveries 157,467 90,711 87,698
$ 4,509,185 4,145,422 3,975,000
</TABLE>
At December 31, 1998 and 1997, the recorded investment in loans that are
considered to be impaired totaled $4,569,242 and $951,000 respectively.
Included in the 1998 amount are impaired loans of $4,321,019 for which the
related allowance for loan losses is $993,207. The 1997 amount includes
$707,404 of impaired loans with a related allowance for loan losses of
$238,934. The average recorded investment in impaired loans during 1998,
1997 and 1996 was $2,837,325, $1,201,217 and $1,620,774, respectively. The
effect on interest income for impaired loans was not material to the
consolidated financial statements in 1998, 1997 or 1996.
(5) Premises and Equipment
Premises and equipment at December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Land $ 2,106,408 2,106,408
Buildings 11,644,535 11,250,664
Equipment and furniture 13,658,373 12,843,138
Leasehold improvements 429,020 399,534
27,838,336 26,599,744
Less accumulated depreciation 17,753,728 16,380,701
$ 10,084,608 10,219,043
</TABLE>
(6) Deposits
Interest-bearing deposits include certificates of deposit in denominations of
$100,000 or more aggregating $32,636,701 and $31,014,878 at December 31, 1998
and 1997, respectively. Interest expense on such certificates was $2,420,835,
$2,279,576, and $2,215,271 for 1998, 1997 and 1996, respectively.
Scheduled maturities of certificates of deposit at December 31,1998 are
summarized as follows:
<TABLE>
<CAPTION>
Time Certificates of Deposit
<S> <C>
1999 $118,729,955
2000 41,141,654
2001 11,274,194
2002 3,505,044
2003 2,529,255
2004 and thereafter 260,918
$177,441,020
</TABLE>
(7) Securities Sold Under Agreements to Repurchase
The agreements have maturities of 4 days to 10 years at December 31, 1998 and
2 days to 350 days at December 31, 1997, and a weighted average interest rate
of 4.80% at December 31, 1998 and 5.17% at December 31, 1997. The maximum
amounts outstanding at any one month-end and average amount under these
agreements during 1998 were $50,587,368 and $32,166,417, respectively.
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.
(8) Federal Home Loan Bank Advances
Federal Home Loan Bank advances at December 31, 1998, consisted of a
$10,000,000, 4.90%, five year advance with a maturity date of October
2, 2003, a $10,000,000, 4.41%, ten year advance with a maturity date of
October 20, 2008, callable on or after October 20, 2001, and a $6,900,000,
4.25%, four day advance with a maturity date of January 4, 1999.
(9) Income Taxes
Total income taxes for the years ended December 31, 1998, 1997 and 1996 were
allocated as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Income before income taxes $ 3,386,027 3,666,899 3,266,662
Shareholders' equity for deferred
compensation paid in stock (10,477) - -
Shareholders' equity for change in
unrealized gain (loss) on securities 540,573 833,553 (312,318)
$ 3,916,123 4,500,452 2,954,344
</TABLE>
For the years ended December 31, 1998, 1997 and 1996, income tax expense
attributable to income from operations consists of:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current:
State $ 449,653 871,137 792,674
Federal 3,490,719 3,056,695 2,861,236
3,940,372 3,927,832 3,653,910
Deferred (554,345) (260,933) (387,248)
$ 3,386,027 3,666,899 3,266,662
</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>
1998 1997 1996
<S> <C> <C> <C>
Tax computed at statutory rate $ 3,632,276 3,578,200 3,204,223
Tax exempt interest 527,353) (499,677) (465,955)
Dividend exclusion (53,988) (50,369) (34,151)
State taxes, net of federal benefit 241,864 549,418 476,584
Nondeductible interest expense 68,089 66,403 52,262
Other items, net 25,139 22,924 33,699
Actual tax expense $ 3,386,027 3,666,899 3,266,662
</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, 1998 and
1997 are presented below:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses-book $ 1,800,968 1,655,682
Accrual for postretirement benefits
other than pensions 812,079 780,350
Deferred loan fees 96,851 68,714
Deferred compensation and directors fees 623,570 584,019
Pensions 96,307 176,320
Interest on non-accrual loans 119,330 53,835
Other 44,066 60,733
Total gross deferred tax assets 3,593,171 3,379,693
Deferred tax liabilities:
Bond discount (103,624) 72,508
Depreciation 282,044 349,554
Allowance for loan losses-tax 133,166 233,040
Net unrealized gains on securities 3,587,543 3,046,970
Other 25,032 22,383
Total gross deferred tax liabilities 3,924,161 3,724,455
Net deferred tax asset (liability) $ (330,990) (344,762)
</TABLE>
Realization of deferred tax assets is dependent upon the generation of future
taxable income or the existence of sufficient taxable income within the loss
carryback period. A valuation allowance is recognized 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 and Other Benefit Plans
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 Bank sponsors a defined benefit health care plan that provides
postretirement medical, dental and prescription drug benefits to full-time
employees who meet minimum age and service requirements. Postretirement life
insurance benefits are also provided to certain employees who retired prior
to July 1981. The plan is contributory, with retiree contributions adjusted
annually, and contains other cost sharing features such as deductibles and
coinsurance. The accounting for the plan anticipates future cost-sharing
changes to the written plan that are consistent with the Bank's expressed
intent to increase the retiree contribution rate annually for the expected
general inflation rate for that year. The Bank's policy is to fund the cost
of medical benefits in amounts determined at the discretion of management.
The following table presents (1) changes in the plan's accumulated benefit
obligation and plan assets and (2) the plan's funded status reconciled with
amounts recognized in the Company's consolidated balance sheet at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
Change in projected benefit obligation:
<S> <C> <C>
Projected benefit obligation at beginning of year $13,370,944 11,881,414
Service cost 359,955 324,126
Interest cost 921,621 872,423
Actuarial loss 633,329 898,243
Benefits paid (736,645) (605,262)
Projected benefit obligation at end of year 14,549,204 13,370,944
Change in fair value of plan assets:
Fair value of plan assets at beginning of year 16,777,650 15,036,423
Actual return on plan assets 3,201,812 2,362,605
Expenses paid (32,972) (16,116)
Benefits paid (736,645) (605,262)
Fair value of plan assets at end of year 19,209,845 16,777,650
Funded Status:
Plan assets in excess of projected benefit
obligation at end of year $ 4,660,641 3,406,706
Unrecognized net asset being recognized
over 10 years 629,790 699,678
Prior service cost not yet recognized
in net periodic pension costs 470,599 513,381
Unrecognized net actuarial (gain) (5,804,670) (4,867,446)
Accrued pension costs, included in
other liabilities $ (43,640) (247,681)
</TABLE>
Net pension cost in 1998, 1997, and 1996 is comprised of the following:
<TABLE>
<CAPTION>
1998 1997 1996
Components of net periodic benefit cost:
<S> <C> <C> <C>
Service cost, benefit earned during the year $ 359,955 324,126 346,403
Interest cost on projected benefit obligation 921,621 872,423 825,891
Expected return on plan assets (1,395,769) (1,104,424) (1,060,451)
Net amortization and deferral (89,848) 12,646 58,569
Net periodic pension cost $ (204,041) 104,771 170,412
</TABLE>
The principal actuarial assumptions used in 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Discount rate 6.75% 7.00% 7.50%
Expected long-term rate of return on assets 8.50% 8.50% 8.50%
Assumed rate of future compensation increase 5.00% 5.00% 5.00%
</TABLE>
The plan's assets at December 31, 1998 and 1997 are invested in common and
preferred stocks, U.S. Government securities, 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 employee's current earnings. Expense under the plan
totaled $633,019, $591,669, and $550,854 for the years ended December 31, 1998,
1997 and 1996, respectively.
The following table presents (1) changes in the plan's accumulated
postretirement benefit obligation and plan assets and (2) the plan's funded
status reconciled with amounts recognized in the Company's consolidated balance
sheet at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
Change in accumulated postretirement benefit obligation:
<S> <C> <C>
Accumulated postretirement benefit obligation at
beginning of year $ 1,848,000 1,628,000
Service cost 42,000 40,000
Interest cost 144,000 117,000
Participants contributions 56,940 53,940
Actuarial loss 535,405 84,149
Benefits paid (412,345) (75,089)
Accumulated postretirement benefit obligation at end
of year 2,214,000 1,848,000
Accrued postretirement benefit cost:
Accrued postretirement benefit cost at end
of year 2,214,000 1,848,000
Unrecognized net actuarial gain (loss) (361,732) 173,673
Accrued postretirement benefit cost at end of year,
included in other liabilit
Investment in subsidiary bank 62,758,019 57,824,425
Dividend receivable 797,570 641,611
Securities available for sale 1,099,148 1,094,697
Other assets 1,801,074 844,875
Total assets 66,789,564 62,289,063
Liabilities and shareholders' equity:
Dividend payable 697,570 641,611
Reserve for income taxes (12,335) 0
Service cost $ 42,000 40,000 42,000
Interest cost 144,000 117,000 112,000
Net amortization and deferral - (7,000) -
Net periodic postretirement cost $ 186,000 150,000 154,000
</TABLE>
The postretirement benefit obligation was determined using a discount rate of
6.75% for 1998 and 7.0% for 1997. The assumed health care cost trend rate used
in measuring the accumulated postretirement benefit obligation initially ranged
from 7.9% to 9.5% in 1999, depending on the specific plan, and was decreased to
5.5% in 2005 and thereafter, over the projected payout of benefits. The health
care cost trend rate assumption can have a significant effect on the amounts
reported. If the health care cost trend rate were decreased one percent, the
accumulated postretirement benefit obligation as of December 31, 1998 would
have increased by 7.0%, and the aggregate of service and interest cost would
increase by 4.8%. If the health care cost trend rate were decreased one
percent, the accumulated postretirement benefit obligation as of December 31,
1998 would have decreased by 6.8% and the aggregate of service and interest
cost would have decreased by 3.2%. However, the plan limits the increase in the
Bank's annual contributions to the plan for most participants to the increase in
base compensation for active employees.
(11) 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 tha 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 sub
stantially the same terms, including interest rates and collateral, as those
prevailing at the time for commparable transactions with other persons. These
loans and commitments, which did not involve more than the normal risk of
collectibility or present other unfavorable features, are summarized as follows
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Balance at beginning of year $ 9,078,914 8,426,537
Additions 24,545,805 27,755,844
Amounts collected (26,067,032) (27,103,467)
Balance at end of year $ 7,557,687 9,078,914
</TABLE>
(12) 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
1998 1997 1996
<S> <C> <C> <C>
Stationery and supplies $ 437,882 389,139 469,008
Data processing service 1,618,091 1,358,882 1,155,576
Advertising 398,208 364,914 448,640
Amortization of intangible assets 587,303 587,303 587,303
</TABLE>
(13) Commitments and Contingencies
In the normal course of business, there are outstanding various commitments and
contingent liabilities, suchas commitments to extend credit, which are not re-
flected 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 $1,439,623, $100,372,761 and
$9,513,063, respectively, at December 31, 1998. Commitments to outside parties
under standby letters of credit, unused portions of lines of credit, and com-
mitments to fund new loans totaled $3,180,233, $88,607,434 and $2,429,427,
respectively, at December 31, 1997. 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 amount 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, 1998, the Corporation had outstanding commitments totaling
$877,218 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.
(14) Shareholders' Equity
Under Federal Reserve regulations, the Bank is limited to the amount it may loan
to the Corporation, unless such loans are collaterlized by specific obligations.
At December 31, 1998, 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 reg-
ulations, for the current year and the two preceding years. At December 31,
1998, $8,794,583 was available for the declaration of dividends.
(15) Parent Company Financial Information
Condensed parent company only financial statement information of Chemung
Financial Corporation is as follows:
<TABLE>
<CAPTION>
Balance Sheets
December 31 1998 1997
Assets:
<S> <C> <C>
Cash on deposit with subsidiary bank $ 333,753 1,883,455
Investments in subsidiary bank 62,758,019 57,824,425
Dividend receivable 797,570 641,611
Securities available for sale 1,099,148 1,094,697
Other assets 1,801,074 844,875
Total assets 66,789,564 62,289,063
Liabilities and shareholders' equity:
Dividend payable 697,570 641,611
Reserve for income taxes (12,335) 0
Deferred tax liability 14,702 10,275
Total liabilities 699,937 651,886
Shareholders' equity:
Total shareholders' equity 66,089,627 61,637,177
Total liabilities and shareholders'
equity $ 66,789,564 62,289,063
</TABLE>
Statements of Income
<TABLE>
<CAPTION>
Years Ended December 31, 1998 1997 1996
Income:
<S> <C> <C> <C>
Interest and dividends $ 112,375 111,341 14,378
Gain on sale of securities - 28,981 35,378
Other income 2,533 - -
Dividends from subsidiary bank 3,137,387 5,006,464 3,203,223
Income before equity in
undistributed earnings of
subsidiary bank 3,252,295 5,146,786 3,253,139
Equity in undistributed earnings
of subsidiary bank 4,126,662 1,749,017 2,922,189
Operating expenses 78,546 - -
Income before income taxes 7,300,411 6,895,803 6,175,328
Income taxes 3,273 38,583 17,805
Net Income $7,297,138 6,857,220 6,157,523
</TABLE>
Statements of Cash Flows
<TABLE>
<CAPTION>
December 31 1998 1997 1996
Cash flows from operating activities:
<S> <C> <C> <C>
Net Income $ 7,297,138 6,857,220 6,157,523
Adjustments to reconcile net income
to net cash provided by operating
activities:
Equity in undistributed net
income of subsidiary (4,126,663) (1,749,017) (2,922,189)
(Increase) in dividend receivable (155,959) (61,391) (59,738)
Gain on sale of securities, net - (28,980) (35,538)
Increase in other assets (956,199) (844,875) -
Decrease in other liabilities (9,685) - -
Net cash provided by
operating activities 2,048,632 4,172,957 3,140,038
Cash flow from investing activities:
Proceeds from sales of securities
available for sale - 232,022 151,738
Purchases of securities available for sale - - (1,000,000)
Net cash provided (used)
by investing activities - 232,022 (848,262)
Cash flows from financing activities:
Cash dividends paid (2,681,428) (2,445,074) (2,143,465)
Purchases of treasury stock (984,284) (107,768) (514,599)
Sale of treasury stock 67,378 - 202,020
Net cash used by financing
activities (3,598,334) (2,552,842) (2,456,044)
Increase (decrease) in cash
and cash equivalents (1,549,702) 1,852,137 (164,268)
Cash and cash equivalents at
beginning of year 1,883,455 31,318 195,586
Cash and cash equivalents at
end of year $ 333,753 1,883,455 31,318
</TABLE>
(16) 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, 1998 and 1997.
The estimated fair value of the Corporation's financial instruments as of
December 31, 1998 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1998 1997
Carrying Fair Carrying Fair
Amount Value (1) Amount Value (1)
Financial assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 27,516 27,516 32,997 32,997
Interest-bearing deposits 1,304 1,304 1,421 1,421
Securities 241,955 241,955 194,527 194,527
Net loans 324,746 328,370 292,831 294,877
Financial liabilities:
Deposits:
Demand, savings,
NOW and money
market accounts $ 287,617 287,617 277,243 277,243
Time certificates 178,522 180,080 173,801 174,394
Repurchase agreements 50,587 50,867 9,448 9,475
Federal Home Loan
Bank advances 26,900 26,961 16,300 16,345
<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>
(17) 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 (all as defined in the
applicable regulations). Management believes, as of December 31, 1998, and
1997, that the Corporation and the Bank meet all capital adequacy requirements
to which they are subject.
As of December 31, 1998, 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 as set forth in the table. There have been no 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>
For Capital To Be Well
Actual Adequacy Purposes Capitalized
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1998
Total Capital (to risk weighted assets):
<S> <C> <C> <C><C> <C><C> <C><C> <C><C>
Consolidated $ 58,883,505 16.67% > $ 28,261,391 > 8.00% > $ 35,326,739 > 10.00%
Subsidiary $ 55,534,144 15.85% > $ 28,028,918 > 8.00% > $ 35,036,147 > 10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 54,466,510 15.42% > $ 14,130,696 > 4.00%> $ 21,196,044 > 6.00%
Subsidiary $ 51,153,025 14.60% > $ 14,014,459 > 4.00%> $ 21,021,688 > 6.00%
Tier 1 Capital (to average assets):
Consolidated $ 54,466,510 9.51% > $ 17,182,616 > 3.00%> $ 28,637,693 > 5.00%
Subsidiary $ 51,153,025 8.97% > $ 17,109,609 > 3.00%> $ 28,516,015 > 5.00%
As of December 31, 1997
Total Capital (to risk weighted assets):
Consolidated $ 54,121,842 17.44% > $ 24,824,997 > 8.00%> $ 31,031,246 > 10.00%
Subsidiary $ 50,300,617 16.31% > $ 24,669,976 > 8.00%> $ 30,837,470 > 10.00%
Tier 1 Capital (to risk weighted assets):
Consolidated $ 50,239,646 16.19% > $ 12,412,499 > 4.00%> $ 18,618,749 > 6.00%
Subsidiary $ 46,442,344 15.06% > $ 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%> $ 26,459,155 > 5.00%
Subsidiary $ 46,442,344 8.80% > $ 15,837,213 > 3.00%> $ 26,395,355 > 5.00%
</TABLE>
EXHIBIT E
CHEMUNG FINANCIAL CORPORATION
Subsidiary List
Name State of Incorporation
----- ----------------------
Chemung Canal Trust Company New York
EXHIBIT F
NOTICE OF ANNUAL MEETING, PROXY STATEMENT
-----------------------------------------
DATED APRIL 6, 1999, AND PROXY FORM
----------------------------------------
______________
Notice of 1999 Annual Meeting and Proxy Statement
______________
April 6, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held on Wednesday, May 12, 1999, at 7:00 p.m., local time, at the National
Warplane Museum, Town of Big Flats, Elmira-Corning Regional Airport, 17
Aviation Drive, Horseheads, NY 14845 (map provided below). Following the
meeting, desserts, coffee, tea and other refreshments will be served.
The single item on the agenda requiring Shareholders' vote will be to elect
six directors - the candidates nominated for three-year terms, all currently
serving, are: Robert E. Agan, Donald L. Brooks, Jr., Stephen M. Lounsberry III,
Thomas K. Meier, Charles M. Streeter, Jr. and Nelson Mooers van den Blink. The
attached Proxy Statement sets forth in detail 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 1999.
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 12.
Sincerely yours,
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 wil
l be held at the National Warplane Museum, Elmira-Corning Regional Airport, 17
Aviation Drive, Horseheads, NY 14845, on Wednesday, May 12, 1999, at 7:00 p.m.
for the following purposes:
1. to elect six (6) directors, each to hold office for a term of three years
and until their respective successors have been elected and qualified; and
2. to transact such other business as may properly come before the meeting or
any adjournments thereof.
The Board of Directors has fixed the close of business on March 26, 1999 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
Donna C. Denton
Secretary
April 6, 1999
CHEMUNG FINANCIAL CORPORATION
ONE CHEMUNG CANAL PLAZA, P.O. BOX 1522, ELMIRA, NEW YORK
PROXY STATEMENT
ANNUAL MEETING OF SHAREHOLDERS, MAY 12, 1999
- ------------------------------------------------------------------------------
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 12, 1999, at 7:00 p.m., local time, at the National Warplane Museum, Elmira-
Corning Regional Airport, 17 Aviation Drive, Horseheads, 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 6, 1999. 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 March 26, 1999 are
entitled to receive notice of and to vote at the Annual Meeting. As of, March
11, 1999 there were 4,098,154 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 the resonable
expense.
ACTION TO BE TAKEN UNDER PROXY:
It is proposed that at the Annual Meeting action will be taken on the matters
set forth in the accompanying Notice of Annual Meeting and described in this
Proxy Statement. Proxies returned by Shareholders and not revoked will be voted
for the election of the nominees for directors unless Shareholders instruct
otherwise on the Proxy. A Shareholder granting a proxy has the right to revoke
it by filing with the Secretary of the Corporation prior to the time such proxy
is voted a duly executed proxy bearing a later date, by attending the Annual
Meeting and voting in person, or by otherwise notifying the Secretary of the
Corporation in writing of such Shareholder's intention to revoke such proxy
prior to the time such proxy is voted. The Board of Directors does not know
of any other business to be brought before the Annual Meeting, but it is
intended that, as to any such other business, a vote may be cast pursuant to
the Proxy in accordance with the judgment of the person or persons acting
thereunder. 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 1999 Annual Meeting of Shareholders is six (6) for three-year terms, each
to serve for such term and until their respective successors are elected and
qualified.
The following table sets forth information concerning the nominees for election
as directors and each director continuing in office:
<TABLE>
<CAPTION>
Name and Age Length of Service Principal Occupation During
As Director Past 5 Years
NOMINEES WITH TERMS
EXPIRING IN 2002
<S> <C> <C>
Robert E. Agan
Age 60 Since 1986 Chairman of the Board, Chief
Executive Officer and President
of Hardinge Inc., a world-wide
machine tool manufacturer.
Donald L. Brooks, Jr.
Age 70 Since 1985 Retired physician; Director of
Arnot Ogden Medical Center.
Stephen M. Lounsberry
Age 45 Since 1995 President of Applied Technology
Manufacturing since July 17, 1996,
a manufacturer of machined industrial
and railroad component parts; formerly
President of Moore & Steele Corp.
Thomas K. Meier
Age 58 Since 1988 President of Elmira College.
Charles M. Streeter, Jr.
Age 59 Since 1985 President of Streeter Associates,
Inc., a general building contractor.
Nelson Mooers van den Blink
Age 64 Since 1985 Chairman of the Board, Chief
Executive Officer and Treasurer
of The Hilliard Corporation, a
motion control equipment, oil
reclaimer and filter manufacturer.
DIRECTORS CONTINUING IN
OFFICE WITH TERMS
EXPIRING IN 2000
David J. Dalrymple
Age 45 Since 1993 President of Dalrymple Holding
Corporation, parent company for
several construction materials and
highway construction companies.
Edward B. Hoffman
Age 67 Since 1993 Partner with the law firm of Sayles,
Evans, Brayton, Palmer & Tifft.
John F. Potter
Age 53 Since 1991 President of Seneca Beverage
Corporation, a wholesale distributor
of beer and water products.
William C. Ughetta
Age 66 Since 1985 Lawyer, of Counsel to the law firm of
Sayles, Evans, Brayton, Palmer &
Tifft. Retired since June 1, 1998
from Corning Incorporated; formerly
Senior Vice President and General Counsel
of Corning Incorporated, a diversified
manufacturing company. Director of Covance,
Inc. and GlobalLift Technologies, Inc.
Jan P. Updegraff
Age 56 Since 1996 President and Chief Executive Officer
of the Corporation and Bank; formerly
Vice President and Treasurer of the
Corporation and Chief Operating Officer
and Executive Vice President of the Bank.
DIRECTORS CONTINUING IN
OFFICE WITH TERMS
EXPIRING IN 2001
John W. Bennett
Age 65 Since 1988 Retired since June 30, 1998; formerly
Chairman of the Board, President and
Chief Executive Officer of the Corporation
and Bank. Director of Hardinge Inc.
Robert H. Dalrymple
Age 48 Since 1995 Secretary of Dalrymple Holding Corporation,
a parent company for several construction
materials and highway construction companies.
Frederick Q. Falck
Age 50 Since 1997 President of L.M. Trading Company, an
agricultural investment corporation;
Vice President of Arnot Realty Corporation;
Chairman of The Rathbone Corporation.
Ralph H. Meyer
Age 59 Since 1985 Retired since August 1, 1998. Formerly
President and Chief Executive Officer of
Guthrie Healthcare System, a vertically
integrated health care delivery system.
Richard W. Swan
Age 50 Since 1985 President of Swan & Sons-Morss Co., Inc.,
an insurance brokerage agency.
William A. Tryon
Age 68 Since 1987 Chairman of the Board and Chief Executive
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.
</TABLE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS:
The following table sets forth information, as of January 31, 1999, with respect
to any person who is known by the Corporation to be the beneficial owner of more
than five percent of the Corporation's Common Stock:
<TABLE>
<CAPTION>
Name and Address of Number of Shares of Common Percent of Shares
Beneficial Owner Stock Beneficially Owned Outstanding
<S> <C> <C>
Chemung Canal Trust Company
One Chemung Canal Plaza
Elmira, NY 14902 748,595(1) 18.2%
Chemung Canal Trust Company
Profit-Sharing, Savings and
Investment Plan
One Chemung Canal Plaza
Elmira, NY 14902 453,698(2) 11.1%
David J. Dalrymple
274 Upper Coleman Avenue
Elmira, NY 14905 617,556(3,5) 15.1%(6)
Robert H. Dalrymple
875 Upland Drive
Elmira, NY 14905 595,324(4,5) 14.5%(6)
<FN>
<FN1>
1
Held by the Bank in various fiduciary capacities, either alone or with others.
Includes 26,144 shares held with sole voting and dispositive powers, 722,451
shares held with shared power to vote and 375,822 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.
</FN>
<FN>
<FN2>
2
Voted by the Bank as trustee as directed by the Plan participants.
</FN>
<FN>
<FN3>
3
Includes 86,922 shares held directly, 3,808 shares held as custodian for Mr.
Dalrymple's children under the New York State Uniform Gifts to Minors Act,
448,510 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 78,316 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 6,776 shares held by Mr. Dalrymple's
spouse as to which shares Mr. Dalrymple disclaims beneficial ownership.
</FN3>
<FN>
<FN4>
4
Includes 64,690 shares held directly, 3,808 shares held as custodian for Mr.
Dalrymple's children under the New York State Uniform Gifts to Minors Act,
448,510 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 78,316 shares held by Dalrymple Holding Corporation (see footnote
3). Excludes 2,690 shares held by Mr. Dalrymple's spouse as to which shares
Mr. Dalrymple disclaims beneficial ownership.
</FN>
<FN>
<FN5>
5
Excludes 30,230 shares held by Susquehanna Supply Company of which David J.
Dalrymple and Robert H. Dalrymple each own 23.1% of the outstanding common
stock.
</FN>
<FN>
<FN6>
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 526,826 of the same
shares. Without such multiple counting, David and Robert Dalrymples' total
aggregate beneficial ownership is 16.7% 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.
</FN>
</TABLE>
SECURITY OWNERSHIP OF MANAGEMENT:
As of January 31, 1999, each director or nominee and each Executive Officer
named in the Summary Compensation Table herein, individually, and all directors,
nominees and Executive Officers as a group beneficially owned Common Stock as
reported to the Corporation as of said date as follows (unless otherwise
indicated, each of the persons named has sole voting and investment power with
respect to the shares listed):
<TABLE>
<CAPTION>
Directors, Nominees and Amount and Nature Percent of
Executive Officers of Beneficial Ownership Shares Outstanding*
<S> <C> <C>
Robert E. Agan 12,336A *
John W. Bennett 14,377B *
Donald L. Brooks, Jr. 14,288A *
James E. Corey III 6,696B *
David J. Dalrymple 617,556C 15.1%C
Robert H. Dalrymple 595,324C 14.5%C
Frederick Q. Falck 127,505A, D 3.1%
Edward B. Hoffman 8,919A *
Stephen M. Lounsberry III 18,434A *
Thomas K. Meier 4,287 *
Ralph H. Meyer 13,622A *
John F. Potter 27,301A, E *
Charles M. Streeter, Jr. 23,958A, F *
Richard W. Swan 71,876G 1.8%
Joseph J. Tascone 3,681B *
William A. Tryon 22,179 *
William C. Ughetta 25,995A *
Jan P. Updegraff 8,597B *
Nelson Mooers van den Blink 3,375 *
All Directors, Nominees and
Executive Officers as a
group (25 persons) 1,090,219H 26.6%
* Unless otherwise noted, less than 1% per individual.
</TABLE>
A
Includes shares that Messrs. Agan (11,436), Brooks (1,788), Falck (963), Hoffman
(4,658), Lounsberry (3,356), Meier (287), Meyer (8,432), Potter (8,605),
Streeter (3,532), and Ughetta (5,995) 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, Updegraff, Corey and Tascone have a vested interst in 12,272, 8,395,
4,204 and 3,680 such shares hold by the Plan, respectively. Under the
provisions of the plan, the trustee holds for the benefit of all employees who
participate inthe Plan 453,698 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.
D
Includes 200 shares held directly and 126,342 shares held in various trusts of
which Mr. Falck is a co-trustee or income beneficiary. Excludes 147,990 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 12,464 shares owned by Seneca Beverage Corporation, of which
corporation Mr. Potter is an officer, director and the principal shareholder.
F
Includes 10,836 shares owned by Streeter Associates, Inc., of which corporation
Mr. Streeter is an officer, director and the principal shareholder.
G
Includes 11,700 shares owned by Swan & Sons-Morss Co., Inc., of which
corporation Mr. Swan is an officer, director and one of the principal
shareholders, 33,480 shares held in trusts over which Mr. Swan has voting and
dispositive power, and 429 shares held by Mr. Swan as custodian for his minor
children. Does not include 4,316 shares held by others as trustees for a trust
of which Mr. Swan is an income beneficiary or 4,011 shares held by Mr. Swan's
spouse, as to which shares Mr. Swan disclaims beneficial ownership.
H
Does not include 24,179 shares owned by spouses of certain officers and
directors as to which shares such officers and directors disclaim beneficial
ownership and does not include 526,826 shares included under each of David J.
Dalrymple and Robert H. Dalrymple (see footnote 6 under SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS). In addition, does not include 112, shares of
preferred stock owned, by certain officers, direcotrs and their spouses of
CCTC Funding Corp., a subsidiary of Chemmung Canal Trust Company, which
qualifies as a Real Estate Investment Trust under the Internal Revenue Code.
accrual year and may be further deferred at the election of the participant.
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 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 1998, Mr. Updegraff received an incentive bonus of $40,000.
No long-term awards were issued. Senior Officer participants as a group,
including Mr. Updegraff, received incentive bonus awards totaling $191,332 for
1998.
In evaluating the performance and recommending the compensation of the Chief
Executive Officer and the compensation quidelines for the Bank's other senior
mangement, the Committee has taken particular note of management's ability
during 1998 in achieving certain profit, growth, and operational objectives
which were established by the Board of Directors in the Bank Plan at the
beginning of 1998 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 performace will result in a certain salary. The
Committee considers total performance and the total financial and operating
conditions of the Bank in making its compensation recommendations.
Also, in considering the compensation of the Chief Executive 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
take into account mangement's consistent commitment to the long-term success of
the Corporation and the 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> <C> <C>
Thomas K. Meier, Chairman Richard H. Evans Richard W. Swan
Donald L. Brooks, Jr. Frederick Q. Falck William A. Tryon
David J. Dalrymple Ralph H. Meyer William C. Ughetta
</TABLE>
Executive Officers
- ------------------
During 1998, 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 65 Retired as of June 30, 1998; formerly
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 56 President and Chief Executive Officer of
the Corporation and the Bank (1998);
formerly President and Chief Operating
Officer of the Corporation and the Bank
(1996); and prior thereto Vice President and
Treasurer of the Corporation and Executive
Vice President of the Bank (1990).
Daniel F. Agan1 65 Vice President of the Corporation (1988) and
Senior Vice President of the Bank (1984).
James E. Corey III 52 Vice President of the Corporation (1993) and
Executive Vice President of the Bank (1998);
formerly Senior Vice President of the Bank (1993).
Joseph J. Tascone 51 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 47 Vice President of the Corporation (1997);
formerly Secretary (1986); and Executive Vice
President of the Bank (1998); formerly Senior
Vice President of the Bank (1996).
Thomas C. Karski 53 Vice President of the Corporation (1998) and
Senior Vice President of the Bank (1998);
formerly Vice President of the Bank (1987).
Joseph P. Manning 60 Vice President of the Corporation (1998) and
Senior Vice President of the Bank (1998);
formerly Vice President of the Bank (1993).
John R. Battersby Jr. 48 Treasurer of the Corporation and Senior
Vice President, Chief Financial Officer
and Treasurer of the Bank (1998); formerly
Treasurer of the Corporation and Vice President
and Treasurer of the Bank (1995); prior thereto
Assistant Treasurer of the Corporation and
Assistant Vice President and Treasurer of the Bank.
Donna C. Denton 43 Secretary of the Corporation (1998) and Vice
President and Secretary of the Bank (1998);
formerly Vice President of the Bank (1996) and
Senior Pension Officer (1991).
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 1998 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 $100,000.
At present, the officers of the Corporation are not separately compensated for
services rendered by them to the Corporation. It presently is contemplated that
such will continue to be the policy of the Corporation.
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Compensation
Name and Principal
Position Held Year Salary($) Bonus($)1 All Other
Compensation($)2
<S> <C> <C> <C> <C>
John W. Bennett(3) 1998 135,865 - 7,670
Former Chairman of
the Board of the 1997 209,308 40,000 9,218
Corporation and the
Bank 1996 200,308 25,000 8,541
Jan P. Updegraff 1998 175,577 40,000 10,513
President and Chief
Executive Officer of 1997 128,846 20,000 8,463
the Corporation and
the Bank 1996 114,039 15,000 7,342
James E. Corey III 1998 91,210 12,000 8,096
Vice President of
the Corporation and 1997 85,462 11,500 7,162
Executive Vice
President of the Bank 1996 80,385 12,167 6,333
Joseph J. Tascone 1998 90,900 12,700 5,814
Vice President of
the Corporation and 1997 87,569 18,000 6,127
Senior Vice President
of the Bank 1996 82,685 12,790 5,575
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.
3 Mr. Bennett retired as an officer and employee effective June 30, 1998.
</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 $31,128 for a participant attaining
age 65 in 1998).
Due to a full funding limitation, the Bank has made no contributions to the
Pension Plan for the years 1996, 1997 and 1998.
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. Updegraff is the only active employee
participating.
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
15 20 25 30 35(1)
<S> <C> <C> <C> <C> <C>
$100,000 24,715 32,953 41,192 48,430 55,668
$120,000 30,265 40,353 50,442 59,330 68,218
$150,000 38,590 51,453 64,317 75,680 87,043
$190,000 49,690 66,253 82,817 97,480 112,143
$200,000 52,465 69,953 87,442 102,930 118,418
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, 1998: Jan P. Updegraff (28), James E. Corey III (11), and Joseph J. Tascone
(12). Mr. Bennett retired June 30, 1998 and is receiving benefits under both
plans.
Employment Contracts
- --------------------
The Bank has employment contracts with twenty-three 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, 2000, except for Messrs. Battersby, Corey, Denton, Karski, Manning,
Tascone and Updegraff whose guaranteed terms end December 31, 2001, 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 by terminated for caused 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 a
award plans for officers or directors.
Comparative Return Performance Graph
- ------------------------------------
Comparison of Five-Year Cumulative Total Returns For Fiscal Years
Ending December 31, 1994 - 1998 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>
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>
Chemung Financial
Corporation 100.00 114.9 129.6 164.16 209.22 289.09
4 9 9
CRSP NASDAQ Composite 100.00 97.80 138.3 170.0 208.60 293.2
0 0
NASDAQ - Bank Stocks 100.00 99.60 148.4 195.90 328.00 324.9
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, 1993.
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 ten (10) regularly scheduled
meetings during the year ended December 31, 1998. 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, 1998. 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 1998 this Committee held three (3) meetings. On December 31, 1998, its
members were Messrs. Lounsberry (Chairperson) Agan, Brooks, R. Dalrymple, Falck,
Potter, Streeter and Mrs. van den Blink.
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 two (2)
meetings in 1998 and on December 31, 1998, its members were Messrs. Meier
(Chairperson), Brooks, D. Dalrymple, Evans, Falck, Meyer, Swan, Tryon and
Ugnetta.
During the year ended December 31, 1998, 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.
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 1998 was $249,250.
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 1998. 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.
The Deferred Director Fee Plan for non-employee Directors provides that
Directors may elect to defer receipt of all or any part of their fees until
a date or dates determined under the Plan. Cash deferrals are credited with
interest compounded quarterly at the Applicable Federal Rate for short-term
debt instruments while phantom units (fees deferred into the Memorandum Unit
Value Account), appreciate or depreciate as would an actual share of the
Corporation's common stock purchased on the deferral date. Cash deferrals will
be paid in cash and phantom unites will be paid in shares of the Corporation's
common stock.
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 normal risk of collectibility and were made on
substantiallly 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 Continental Casualty Company, a memeber
of the CNA Group, 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 April 1999, cost $16,800 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 and of which Mr. Ughetta is of counsel, 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 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 1999. Representatives of KPMG LLP
will be present at the Annual Meeting of Shareholders with the opportunity to
make a statement. The representatives will respond to appropriate question.
OTHER BUSINESS:
Management knows of no business which will be presented for consideration, other
than the matter 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 judgement.
SHAREHOLDER PROPOSAL:
Qualified Shareholders desiring to present a proposal at the 2000 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,
1999. 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, 1998, all Section 16 (a) filing
requirements applicable to its executive officers, directors and any ten percent
shareholder were complied with, except that one change in beneficial ownership
was not reported on a timely basis by Mr. Swan.
OTHER MATTERS:
Financial statements for the Corporation and its consolidated subsidiaries are
included in Chemung Financial Corporation's Annual Report to shareholders for
the year 1998 which was mailed to shareholders beginning April 6, 1999.
A COPY OF CHEMUNG FINANCIAL CORPORATION'S 1998 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: DONNA C. DENTON, VICE PRESIDENT
AND SECRETARY, CHEMUNG CANAL TRUST COMPANY, ONE CHEMUNG CANAL PLAZA, ELMIRA, NEW
YORK, 14902.
BY ORDER OF THE BOARD OF DIRECTORS
Donna C. Denton
Secretary
Date: April 6, 1999
One Chemung Canal Plaza
Elmira, New York 14902
CHEMUNG FINANCIAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS - MAY 12, 1999
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF CHEMUNG FINANCIAL CORPORATION
John R. Battersby 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 12,
1999 (including any adjournments or postponements thereof) and to vote all
shares of Common Stock of Chemung Financial Corporation which the undersigned is
entitled to vote on all matters that properly come before the meeting, subject
to any directions indicated.
(To be signed on Reverse Side)
- ------------------------------------------------------------------------------
THIS PROXY WILL, WHEN PROPERLY EXECUTED, BE VOTED AS DIRECTED. IF NO DIRECTIONS
TO THE CONTRARY ARE GIVEN, THE PROXY AGENTS INTEND TO VOTE FOR THE NOMINEES.
1. Election of NOMINEES: 3-YEAR TERM:
Directors For _______ Withheld________ Robert E. Agan
Donald L. Brooks, Jr.
Stephen M. Lounsberry III
Thomas K. Meier
Charles M. Streeter, Jr.
Nelson Mooers van den Blink
For, except vote withheld from the following nominee (s):
_______________________________________________________
I/We will attend the Meeting __________
Number in group __________
___________________________Date_______ ______________________Date_________
Signature Signature if Held Jointly
NOTE: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee, custodian or
guardian, please give full titel as such.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S AUDITED ANNUAL FINANCIAL STATEMENTS AND DISCLOSURES FOR THE PERIOD
ENDED DECEMBER 31, 1998 AS PRESENTED IN ITS ANNUAL 1998 FORM10-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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 27,516
<INT-BEARING-DEPOSITS> 1,304
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 235,294
<INVESTMENTS-CARRYING> 6,661
<INVESTMENTS-MARKET> 6,661
<LOANS> 329,255
<ALLOWANCE> 4,509
<TOTAL-ASSETS> 623,660
<DEPOSITS> 466,139
<SHORT-TERM> 57,487
<LIABILITIES-OTHER> 13,943
<LONG-TERM> 20,000
0
0
<COMMON> 43
<OTHER-SE> 66,047
<TOTAL-LIABILITIES-AND-EQUITY> 623,660
<INTEREST-LOAN> 27,865
<INTEREST-INVEST> 12,622
<INTEREST-OTHER> 918
<INTEREST-TOTAL> 41,405
<INTEREST-DEPOSIT> 15,247
<INTEREST-EXPENSE> 17,666
<INTEREST-INCOME-NET> 23,739
<LOAN-LOSSES> 800
<SECURITIES-GAINS> 216
<EXPENSE-OTHER> 20,473
<INCOME-PRETAX> 10,683
<INCOME-PRE-EXTRAORDINARY> 7,297
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,297
<EPS-PRIMARY> 1.77
<EPS-DILUTED> 1.77
<YIELD-ACTUAL> 4.46
<LOANS-NON> 4,458
<LOANS-PAST> 395
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,145
<CHARGE-OFFS> 594
<RECOVERIES> 158
<ALLOWANCE-CLOSE> 4,509
<ALLOWANCE-DOMESTIC> 3,197
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,312
</TABLE>
